Federal Law Does Not Block Action by Car Buyer, State Panel FindsElizabeth Maresca and Marcella Silverman in The New York Law Journal, December 07, 2011
New York Law Journal
A Honduran immigrant who claims a Brooklyn car salesman conned him into buying three cars he could not afford can seek damages from the bank that financed one of the purchases, a state appeals panel said yesterday.
The federal Truth in Lending Act did not preempt various state law claims against the lender, National Cooperative Bank (NCB) Justice James M. Catterson (See Profile) wrote for a unanimous Appellate Division, First Department, panel in Ramirez v. National Cooperative Bank, 403136/09.
Justices David B. Saxe (See Profile), John W. Sweeny Jr. (See Profile), Helen E. Freedman (See Profile) and Sallie Manzanet-Daniels (See Profile) concurred in the decision, which reversed an Aug. 6 ruling by Manhattan Supreme Court Justice O. Peter Sherwood (See Profile).
The suit was filed in 2009 by Sixto Ramirez, then a recent immigrant from Honduras living in Brooklyn. Mr. Ramirez alleged that he received repeated mailings from Giuffre Hyundai Ltd., a car dealership in Bay Ridge, telling him he had won a prize of $25,000 or a cruise and inviting him to come and claim it. Mr. Ramirez eventually went to the dealership and was told that to claim his prize, he had to buy a car. He told the dealer that he could not afford the car, but the dealer told him that he could buy it and return later to the dealership to refinance it at a more affordable rate.
Mr. Ramirez returned later to refinance the car, but was told that it was irreparably damaged and that he would have to buy a second car. That car, a Ford Escape, is at the center of his lawsuit.
Once again, Mr. Ramirez was allegedly told that, even though he could not afford the payments on the Escape he could buy it and refinance it later. When he returned to the dealership yet again, however, the dealership allegedly refused to refinance the car.
Instead, Mr. Ramirez says he was sold a third car and told that he could turn the Escape over to the lender, NCB, for repossession without any consequences to himself. Mr. Ramirez bought the third car and turned the Escape to NCB, which then billed him for the difference between what he owed and what NCB got for the car—almost $24,000.
Mr. Ramirez is still making payments on the third car, and Giuffre paid the loan on the first car. However, Mr. Ramirez was unable to pay NCB what he owed on the Escape. His lawsuit accuses Giuffre of running a malicious scheme against him and states claims for fraud, fraud in the inducement, unconscionability, and violation of New York's General Business Law.
It also alleges that NCB is liable under the so-called Holder Rule, a federal law, and New York's Personal Property Law, which say that the holder of consumer debt is liable for any claims the consumer could assert against the goods or services for which the debt was incurred.
NCB moved to dismiss the case, arguing that the lawsuit was preempted by the federal Truth in Lending Act (TILA), under which the assignee of consumer debt can only be liable for misrepresentation "apparent on the face" of the loan documents. Since Mr. Ramirez did not allege that any of the documents he signed were false, but only that he was misled by Giuffre, he had no claim against NCB, the bank argued. Justice Sherwood granted the motion.
The First Department disagreed, holding that Mr. Ramirez's claims were different from the Truth in Lending Act claims and were therefore not preempted.
"On appeal, the plaintiff correctly argues that the motion court erred because the limitation on assignee liability is applicable only to TILA claims," Justice Catterson wrote. "Where the plaintiff brings a non-TILA claim under state law, an assignee may be derivatively liable pursuant to the Holder Rule and its New York analogue."
The panel also rejected NCB's argument on appeal that Mr. Ramirez's claim was preempted because it was "TILA-type," though not actually a TILA claim.
"The plaintiff does not allege a TILA or 'TILA-type' violation. Therefore, the New York State law pursuant to which the plaintiff brought his claims is not preempted, TILA's assignee liability limitation is inapplicable, and NCB is liable under federal and state Holder Rules."
"We're delighted that the New York Appellate Division has clarified the rights of consumers under longstanding laws that have been ignored for all too long," said Elizabeth Maresca, a professor at Fordham University School of Law and attorney with Lincoln Square Legal Services, the school's clinic, which represented Mr. Ramirez. "With the court's decision, lenders and the assignees can no longer divorce themselves from liability for the wrongdoing of merchants who defraud unwitting consumers into purchases for which without today's decision consumers would be paying the loans for."
Ms. Maresca added, "I think this is important in that it's going to affect consumers all across New York state."
Several Fordham Law students also worked on the case, as well as Marcella Silverman, another Fordham professor, according to Ms. Maresca.
Peter D. St. Phillip Jr. of Lowey Danenberg Cohen & Hart, who represented the bank along with Lowey associate Sung-Min Lee, said his client had not had time to fully review the decision and declined to comment.