Alexis v. PMM Enterprises LLC

          RULING AND ORDER ON MOTION FOR DEFAULT JUDGMENT

          MICHAEL P. SHEA, U.S.D.J.

         Plaintiffs Mario Alexis and Dougenie Alexis (“the Alexises”) bring this action against PMM Enterprises, LLC, doing business as Empire Auto Group (“Empire”).^[1] They allege that Empire violated state and federal consumer protection laws when it misrepresented the condition of a vehicle that it sold them and violated federal lending laws in providing financing for their purchase. The Alexises served PMM with the complaint on October 2, 2017. (ECF No. 9.) Empire filed an answer on October 24 through an individual who did not purport to be an attorney (ECF No. 10), and the Alexises moved for an entry of default on November 11 on the basis that a corporate defendant may not appear pro se in federal court (ECF No. 11). Empire did not file a response. On December 21, I ordered Empire to find counsel who could enter an appearance on its behalf, noting that if no attorney appeared within 21 days, I would direct the clerk to enter default. (ECF No. 14); see Jones v. Niagara Frontier Transp. Auth., 722 F.2d 20, 22 (2d Cir. 1983) (“The rule that a corporation may litigate only through a duly licensed attorney is venerable and widespread.”). No. attorney filed a notice of appearance within that time, and on January 19, 2018, I directed the clerk to enter default. (ECF Nos. 15 & 16.) The Alexises have now moved for default judgment in the amount of $30, 886.84. (ECF No. 18.) For the reasons set forth below, the motion is GRANTED in part, DENIED in part, and DENIED WITHOUT PREJUDICE in part.

         I. BACKGROUND^[2]

         On October 8, 2016, Mario Alexis approached a salesman at Empire Auto about purchasing a 2013 Lincoln MKZ. (ECF No. 1 ¶ 10.) The salesman told him that the price of the car was $16, 900.00, and reported that it was “clean and had never been in an accident.” (Id. ¶¶ 11-12.) Alexis agreed to purchase the car. He paid a down payment of $2, 000.00 to Empire, and financed the balance of $17, 688.29 through a retail installment contract. (Id. ¶¶ 13-14.) Contrary to the salesman's representation, the contract listed the vehicle's purchase price as $18, 000.00.^[3]When Alexis asked about the discrepancy, he was told that the additional $1, 100.00 was a “bank fee.” (Id. ¶¶ 15-16.) The Alexises assert that the bank fee was included in order to compensate Empire Auto for arranging the sale with the lender. (Id.) The Alexises were not given a copy of the purchase order or retail installment contract when they signed the paperwork purchasing the car. (Id. ¶ 18.)

         In July 2017, Mario Alexis brought the vehicle to another dealership to have it appraised in the hopes of trading it in but was told that the vehicle had “prior damage.” (Id. ¶ 19.) He brought the vehicle to an independent expert, who informed him that it had significant structural damage and had not been properly repaired. (Id. ¶ 20-21.) The expert concluded that the vehicle “was not in merchantable condition and was unsafe to drive.” (Id.) He told Alexis that any automotive professional could have seen evidence that the vehicle had been “wrecked and improperly repaired” by “performing a simple visual inspection.” (Id. ¶ 21.) The Alexises allege that Empire knew or should have known about the structural damage because it had a duty under state law to perform a safety inspection. (Id. ¶ 22.) The Alexises returned the vehicle to Empire on August 27, 2017 (Id. ¶ 23), and informed Empire that they revoked their acceptance of the vehicle the following day. (Id. ¶ 24.)

         II. LEGAL STANDARD

         Although “a default constitutes an admission of all the facts ‘well pleaded' in the complaint, it does not admit any conclusions of law alleged therein, nor establish the legal sufficiency of any cause of action.” In re Indus. Diamonds Antitrust Litig., 119 F.Supp.2d at 420. It therefore “remains for the court to consider whether the unchallenged facts constitute a legitimate cause of action.” Leider v. Ralfe, No. 01 Civ. 3137, 2004 WL 1773330, at *7 (S.D.N.Y. July 30, 2004) (quoting In re Indus. Diamonds Antitrust Litig., 119 F.Supp.2d 418, 420 (S.D.N.Y.2000)); see also Bricklayers & Allied Craftworkers Local 2, Albany, N.Y. Pension Fund v. Moulton Masonry & Const., LLC, 779 F.3d 182, 187 (2d Cir. 2015) (“A court's decision to enter a default against defendants does not by definition entitle plaintiffs to an entry of a default judgment. Rather, the court may, on plaintiffs' motion, enter a default judgment if liability is established as a matter of law when the factual allegations of the complaint are taken as true.”). The court must “draw all reasonable inferences in [the non-defaulting party's] favor.” Finkel v. Romanowicz, 557 F.3d 79, 84 (2d Cir. 2009).

         Once a court determines that a plaintiff is entitled to default judgment as a matter of law, it must “conduct an inquiry in order to ascertain the amount of damages with reasonable certainty.” Credit Lyonnaise Sec. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999). “Even when a default judgment is warranted based on a party's failure to defend, the allegations in the complaint with respect to the amount of the damages are not deemed true.” Id. “A district court has the discretion to determine the amount of damages to be included in a default judgment by an evidentiary hearing, detailed affidavits, or documentary evidence.” Grace v. Bank Leumi Trust Co. of N.Y., 443 F.3d 180, 191 (2d Cir. 2006). It is not necessary to hold a hearing on damages as long a court “ensure[s] that there [is] a basis for the damages specified.” Fustok v. ContiCommodity Servs., Inc., 873 F.2d 38, 40 (2d Cir. 1989).

         III. DISCUSSION

         The Alexises seek compensatory damages, punitive damages, and attorneys' fees based on five causes of action. They assert that (A) Empire violated the Truth in Lending Act by failing to provide copies of the sale and loan documents and by misrepresenting the price of the vehicle; (B) Empire violated the Electronic Funds Transfer Act by conditioning the loan on the Alexises' paying via preauthorized transfers; (C) Empire breached the implied warrant of merchantability because the vehicle was structurally unsound and unsafe to drive; (D) Empire breached an express warranty because a salesman incorrectly told Mario Alexis that the vehicle had never been in an accident; and (E) Empire's conduct was unfair and deceptive in violation of the Connecticut Unfair Trade Practices Act. I consider each of the Alexises' causes of action in turn.

         A. Truth in Lending Act

         The Truth in Lending Act (TILA) aims to promote “the informed use of credit” and to “protect the consumer against inaccurate and unfair credit billing and credit card practices.” 15 U.S.C. § 1601(a). The Act requires creditors to make certain disclosures before extending a loan, and delegates authority to the Consumer Financial Protection Bureau (CFPB) to define the scope and form of the required disclosures. 15 U.S.C. § 1604(a). By CFPB regulation, creditors must make disclosures “clearly and conspicuously in writing, in a form that the consumer may keep.” 12 C.F.R. § 226.17. Disclosures must include “the amount financed, ” which is calculated by subtracting “any prepaid finance charge” from the “principal loan amount or the cash price” plus “any other amounts that are financed by the creditor and are not part of the finance charge.” 12 C.F.R. § 226.18(b). The “finance charge” is “the cost of consumer credit as a dollar amount.” 12 C.F.R. § 226.4. “Cash price” is defined as “the price at which a creditor, in the ordinary course of business, offers to sell for cash property or service that is the subject of the transaction.” 12 C.F.R. § 226.2(a)(9).

         The facts in the complaint, taken as true, establish that Empire violated the TILA regulations in two ways. First, the Alexises were not given a copy of the contract containing the required disclosures before the consummation of the agreement (ECF No. 1 ¶ 18), in violation of 12 C.F.R. § 226.17. Second, the cash price listed on the contract included a “bank fee” of $1, 100.00. (ECF No. 1 ¶¶ 15-17.) The “bank fee” is an additional charge beyond the price at which Empire would have sold the car to a customer for cash. Including the bank fee in the cash price of the vehicle thus allowed Empire to understate the finance charge. See 12 C.F.R. § 226.4.

         The TILA allows a consumer to recover (1) any actual damage sustained as a result of the violation, 15 U.S.C. § 1640(a)(1); (2) twice the amount of any finance charge up to a maximum of $2, 000.00, 15 U.S.C. § 1640(a)(2)(A)(i)-(ii); see also Koons Buick Pontiac GMC, Inc. v. Nigh, 543 U.S. 50, 62 (2004) (holding that the statutory cap in § 1640(2)(A)(ii) applies to car loans under § 1640(2)(A)(i))^[4]; and (3) reasonable attorneys' fees, 15 U.S.C. § 1640(3). Here, the Alexises established that Empire violated the TILA regulations and understated the finance charge by at least $1, 100.00, entitling the Alexises to the maximum statutory damages of $2, 000.00 and reasonable attorneys' fees. There are no facts in the complaint or the record, however, to suggest that the Alexises suffered actual damages as a result of the TILA violation. In particular, the complaint states that Mario Alexis asked about the additional $1, 100.00 charge before agreeing to the purchase. (ECF No. 1 ¶ 16.) He chose to go forward with the purchase even after Empire raised the price of the vehicle and explained that the extra charge was a “bank fee.” The Alexises are entitled to $2, 000.00 in statutory damages plus attorneys' fees as a result of Empire's TILA violation, but they have failed to allege a basis for awarding actual damages.

         B. Electronic Funds Transfer Act

         The Electronic Fund Transfer Act (EFTA) prohibits creditors from conditioning “the extension of credit to a consumer on such consumer's repayment by means of preauthorized electronic fund transfers.” 15 U.S.C. § 1693k. A creditor that does not comply with this requirement is liable to the consumer for their actual damages, statutory damages between $100.00 and $1, 000.00, and reasonable attorneys' fees. 15 U.S.C. § 1693m(a). In assessing the appropriate statutory damages, courts must consider “the frequency and persistence of [the creditor's] noncompliance, the nature of such noncompliance, and the extent to which the noncompliance was intentional.” 15 U.S.C. § 1693m(b)(1). In this case, the Alexises have established a violation of the EFTA by alleging that “Empire Auto required that Plaintiffs set up automatic withdrawals of the loan payments as a condition of financing the Vehicle.” (ECF No. 1 ¶ 32.) The Alexises do not claim any actual damages as a result of Empire's EFTA violation, but they request the maximum statutory damages of $1, 000.00. ...