The Supreme Court yesterday overturned a five-figure damage award to an Alexandria man for a local auto dealer's alleged loan scam, ruling that a Richmond-based federal appeals court had wrongly interpreted a federal fair-credit law when it upheld the award last year.
By a vote of 8 to 1, the court said that, in cases of loans secured by personal property, such as car loans, the Truth in Lending Act limits consumers to $1,000 in so-called statutory damages -- cash awards for plaintiffs who can prove that a lender violated a law but not that they actually lost money because of the violation.
In 2001, Bradley Nigh of Alexandria convinced a federal jury that his car financing was rejected after the dealer added to the price of his car.
(Michael Robinson-chavez -- The Washington Post)
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The U.S. Court of Appeals for the 4th Circuit had said statutory damages could go as high as twice the agreed-upon finance charges.
The ruling was a major victory for auto dealers, banks and other consumer lenders, which had argued that the 4th Circuit's interpretation would impose sizable new litigation costs on them -- which they would pass along in the form of higher interest rates and tighter credit conditions.
As of September, outstanding consumer credit totaled more than $2 trillion, according to the Federal Reserve.
"It's clear the 4th Circuit opinion created a pretty substantial incentive to bring lawsuits for technical violations in cases where there was no proven harm," said Donald B. Ayer, who represented Vienna-based used car dealer Koons Buick Pontiac GMC Inc. in the case. "No doubt this will limit the incentive of lawyers to bring those cases."
But consumer advocates warned that the ruling threatens the ability of private citizens to enforce a major consumer protection law.
"It will not only encourage [violators], they won't even care much about being caught, because for $1,000, the plaintiff's lawyer won't get paid and won't bring a case," said Thomas D. Domonoske, a Virginia lawyer who represents consumers in Truth in Lending Act cases. Domonoske helped draft a friend-of-the-court brief for the National Association of Consumer Advocates, which supported the car buyer, Bradley Nigh, in the case.
In 2001, Nigh convinced a federal jury that Koons had falsely added a $965 anti-theft device to the purchase price of his car, causing a lender to reject his financing. The jury awarded him more than $24,000.
After Congress amended the Truth in Lending Act in 1995, the resulting statute was confusing, the court acknowledged yesterday, but the most logical interpretation, given the history of the law and Congress's usual drafting methods, was that lawmakers intended to retain the cap on damage awards.
"Less-than-meticulous drafting . . . created an ambiguity," Justice Ruth Bader Ginsburg wrote in the opinion for the court. But, she added, "There is scant indication that Congress simultaneously sought to remove the $1,000 cap on loans secured by personal property."
Alluding to a Sherlock Holmes story about a "dog that didn't bark," Ginsburg suggested that if such a sweeping change in the law had been contemplated, there would have been more controversy over the 1995 measure.
Joining Ginsburg were Chief Justice William H. Rehnquist and Justices John Paul Stevens, Sandra Day O'Connor, Anthony M. Kennedy, David H. Souter and Stephen G. Breyer. Justice Clarence Thomas agreed with the majority, but for different reasons he set out in a concurring opinion.
Justice Antonin Scalia was the lone dissenter.
The lopsided result was a rebuke of sorts for the author of the 4th Circuit's opinion, Judge J. Michael Luttig, a likely contender to be nominated by President Bush for the next open seat on the Supreme Court.
Luttig, a conservative who has long argued that judges should adhere strictly to the text of statutes so as not to usurp the legislative function, had refused to look at legislative history or other factors in interpreting the revised language of the Truth in Lending Act.
But Ginsburg garnered six votes for an opinion that included the sentence, "Statutory construction is a 'holistic endeavor.' "
The case is Koons Buick Pontiac GMC Inc. v. Nigh, No. 03-377.
