United States District Court, D. Connecticut
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. ...