Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-3_07-cv-00233/USCOURTS-almd-3_07-cv-00233-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BA

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IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

IN RE: )

)

BERNICE GUNN ) Bankruptcy Case No. 06-80646

)

Debtor, )

_______________________________________)

)

BERNICE GUNN ) On Appeal from the

) Bankruptcy Court

Appellant, )

) Adv. Pro. No. 06-08049

v. )

) CASE NO. 3:07-cv-233-WKW

TITLEMAX OF ALABAMA, INC., )

d/b/a TITLEMAX OF ALEXANDER )

CITY #1 )

Appellee. )

MEMORANDUM OPINION AND ORDER

The cause is before the court on appeal from the United States Bankruptcy Court of

the Middle District of Alabama after the granting of Appellee’s Rule 12(b)(6) Motion to

Dismiss. For the reasons given below, the bankruptcy court’s order of dismissal is

AFFIRMED, and the case will be REMANDED to the bankruptcy court for further

proceedings.

I. FACTS AND PROCEDURAL HISTORY

On October 22, 2005, Plaintiff/Appellant Bernice Gunn (“Gunn”) entered into a

“consumer credit” transaction with the Defendant/Appellee TitleMax of Alexander City #1

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(“TitleMax”) where she pledged the title to her 1995 Mitsubishi Galant automobile as

security. (Compl. ¶ 7.) This transaction is evidenced by a four-page pawn ticket signed by

Gunn and a TitleMax agent. (Compl. Ex. B.) The terms of the transaction were that Gunn

received cash amounting to $500.00 in United States currency (referred to as “Principal Loan

Amount” and “Amount Financed”), and that the monthly interest rate was 15.99%, the pawn

charges were $79.95, the amount due at the end of the thirty-day period was $579.95 (“Total

of Payments”), and the date the pawn charges were due was November 21, 2005 (“Maturity

Date”). (Id. at 1.)

The pawn ticket provides that the transaction can be renewed and the maturity date

deferred:

Redemption and Request for Deferral or Renewal. The terms of this

paragraph will not apply if you do not meet our credit criteria or if the pledged

goods have been taken into custody by a court or by a law enforcement officer

or agency. On the Maturity Date or within 30 days thereafter (the “Grace

Period”), if you choose not to redeem the pledged goods but request that we

continue to hold the pledged goods for an additional thirty days (“Deferral

Period”), then we will hold the pledged goods during the Deferral Period in

exchange for your payment of the pawnshop charge owing, which may also

include a prorated pawnshop charge (“Prorated Pawnshop Charge”) for

holding the pledged goods through the date of the deferral. The Deferral

Period will run from the date that you make much payment and the Maturity

Date will be the 30th day after such payment. Likewise, if within the 30-day

Grace Period after the end of any Deferral Period or subsequent Deferral

Period, you request that we continue holding the pledged goods for an

additional thirty days, then we will hold the pledged goods during such

additional Deferral Period in exchange for such pawnshop charge.

Furthermore, any time before the expiration of any Deferral Period or

subsequent Deferral Period, you may choose to redeem or repurchase the

pledged goods by paying the amount of cash advanced and original

pawnshop charge, plus any unpaid, Prorated Pawn Charge.

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(See Compl. Ex. B. at 4.)

After the execution of the Pawn Ticket, the parties entered into a series of “subsequent

loan agreements”in which a pawn charge was assessed by TitleMax for each. (Compl. ¶ 9.)

A representative copy of one of the loan agreements was attached to the complaint. (Compl.

Ex. C.) 

On July 21, 2006, Gunn paid a $63.93 pawn charge and received a “Customer

Receipt” indicating the principal due was $399.82, the interest due was $63.93, the total

amount due was $463.75, and the interest due date was August 21, 2006. (Compl. Ex. C.)

The customer receipt was signed by Gunn. (Id.)

Gunn alleges TitleMax violated the disclosure requirements of the Truth in Lending

Act (“TILA”), 15 U.S.C. §§ 1601 et seq., by failing to provide allegedly required TILA

disclosures when Gunn entered into the subsequent loan agreements with TitleMax. (Compl.

¶ 10.) Gunn further alleges TitleMax’s security interest on her automobile is invalid because

the subsequent loan agreements do not include a security agreement. (Compl. ¶ 14.)

Gunn does not allege that TitleMax violated TILA in connection with the original

October 22, 2005 Pawn Ticket, nor does she allege the original obligation was ever satisfied

or extinguished and replaced by a new obligation. Furthermore, she does not allege the

security interest granted by her in the original Pawn Ticket was ever satisfied or cancelled.

Gunn filed a Chapter 13 Bankruptcy petition on August 18, 2006, and filed an

Adversary Complaint against TitleMax on October 14, 2006. On February 15, 2007, the

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Bankruptcy Court entered an order dismissing Gunn’s Complaint with prejudice. On

February 23, 2007, Gunn filed a Notice of Appeal.

II. JURISDICTION AND VENUE

This is an appeal from an Order of Dismissal entered by the United States Bankruptcy

Court of the Middle District of Alabama which dismissed Adversary Proceeding No. 06-

08049 with prejudice. The matter before the Bankruptcy Court was a core proceeding under

28 U.S.C. § 157(b) because it concerned the administration of the bankruptcy estate and

requested the determination of the validity of TitleMax’s lien. This court has appellate

jurisdiction over this appeal pursuant to 28 U.S.C. § 158(a), which states that the district

courts of the United States have jurisdiction over appeals from final judgments, orders, and

decrees of the United States bankruptcy courts.

III. STANDARD OF REVIEW

A district court reviews the decision of a bankruptcy court independently. Bush v.

Balfour Beatty Bahamas, Ltd. (In re Bush), 62 F.3d 1319, 1322 (11th Cir. 1995). A

bankruptcy court’s conclusions of law are reviewed de novo while its findings of fact are

reviewed under the clearly erroneous standard. General Trading Inc. v. Yale Materials

Handling Corp., 119 F.3d 1485, 1494 (11th Cir. 1997). Because the lower court made no

findings of fact, this court’s standard of review is de novo.

“[I]n order to survive a motion to dismiss for failure to state a claim, the plaintiff must

allege ‘enough facts to state a claim to relief that is plausible on its face.’” Berman v. Blount

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Parrish & Co., Inc., 523 F. Supp. 2d 1298, 1299 (M.D. Ala. 2007) (quoting Bell Atl. Corp.

v. Twombly, ___ U.S. ___, 127 S. Ct. 1955, 1974 (2007)). Plaintiff’s “[f]actual allegations

must be enough to raise a right to relief above a speculative level . . . on the assumption that

the allegations in the complaint are true.” Twombly, 127 S. Ct. at 1965. The pleadings must

do more than merely “le[ave] open the possibility that a plaintiff might later establish some

set of undisclosed facts to support recovery.” Id. at 1968 (internal quotation marks and

alteration omitted). In considering a defendant's motion to dismiss, a district court “must

take the complaint’s allegations as true and read them in the light most favorable to the

plaintiffs.” Duke v. Cleland, 5 F.3d 1399, 1402 (11th Cir. 1993).

IV. DISCUSSION

A. Count I – Truth in Lending Act Claim Dismissed by Bankruptcy Court

Gunn argues that after she entered into the original pawn transaction with TitleMax,

she entered into separate subsequent loan agreements, each of which required new TILA

disclosures and which TitleMax failed to provide. TitleMax argues that the subsequent loan

agreements were actually renewals of the original pawn transaction requiring no new TILA

disclosures. The court holds that the subsequent loan agreements were in fact renewals

requiring no new TILA disclosures and, therefore, affirms the bankruptcy court’s order of

dismissal as to this count.

1. Extensions of the Pawn Transaction

Under Alabama law, pawn transactions are governed by the Alabama Pawnshop Act.

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See Ala. Code §§ 5-19A-1 – 5-19A-20. A pawn transaction is defined as “[a]ny loan on the

security of pledged goods or any purchase of pledged goods on condition that the pledged

goods are left with the pawnbroker and may be redeemed or repurchased by the seller for a

fixed price within a fixed period of time.” Ala. Code § 5-19A-2(3). The pawn ticket’s terms

provided that Gunn would receive a $500 loan due in 30 days at a specified interest rate in

exchange for granting TitleMax a security interest in her automobile. The terms further

provide for redemption of the pledged automobile for a fixed price after a fixed period of

time. Thus, the loan transaction which Gunn characterizes as a “consumer credit” transaction

was in fact a pawn transaction, making the Alabama Pawnshop Act applicable.

The Alabama Pawnshop Act anticipates extensions of the maturity date. “The

pawnshop charge . . . shall be deemed earned, due, and owing as of the date of the pawn

transaction and a like sum shall be deemed earned, due, and owing on the same day of the

succeeding month.” Ala. Code § 5-19A-7(b). This provision authorizes a subsequent pawn

charge for the succeeding month, indicating an extension of the maturity date. Even though

other sections have specific requirements for pawn tickets and their contents at the time of

the execution of a pawn transaction, this section of the statute does not make any

requirements for creating separate or additional pawn tickets. See Ala. Code §§ 5-19A-3, 5-

19A-4, and 5-19A-5. This section thus evidences that the legislature did not intend for the

creation of additional pawn tickets upon the extension of the original one.

The pawn ticket itself also provides for the extension of the pawn transaction. The

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redemption provision in the pawn ticket, (see Compl. Ex. B at 4), states that Gunn may at

her choice not redeem the automobile on the maturity date and may instead extend the

maturity date for thirty more days upon payment of an additional pawn charge. When this

is done, the original pawn transaction is renewed and the maturity date is deferred. The

customer receipt states that the pawn can only be renewed or extended in thirty-day

increments and upon payment of the interest due or the pawnshop charge. Moreover, it states

that Gunn may choose to redeem the automobile by paying back the amount of cash

advanced, plus any unpaid, prorated pawnshop charge. Thus it is clear the parties’ agreement

was to extend the maturity date of the original pawn transaction under specific conditions,

with all of the material terms still applicable. There is no inconsistency between Alabama

law and the pawn ticket regarding the availability and use of extensions to the pawn

transaction. Therefore, the court finds that the “subsequent loan agreements” are actually

extensions of the original pawn transaction which merely deferred the maturity date by thirty

days.

2. New Disclosure Requirements under TILA

The issue that remains in the first count is whether TILA and its implementing

regulations create any duty of disclosure in a pawn transaction where the maturity date is

routinely extended by the parties every thirty days. TILA provides in part that where the

information initially disclosed is subsequently rendered inaccurate due to an agreement

formed after delivery of the required disclosures, the inaccuracy that results does not

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constitute a violation of disclosure requirements. 15 U.S.C. § 1634. The TILA regulations

promulgated by the Federal Reserve Board (“FRB”), and commonly known as Regulation

Z, see 12 C.F.R. § 226 (2006), are more specific in that they state that new disclosures may

be required under three specific circumstances. Regulation Z, 12 C.F.R. § 226.17(e) (2006).

The first and second circumstances, relating to certain residential mortgages, Regulation Z,

12 C.F.R. § 226.19 (2006), and events occurring before consummation of a loan agreement,

Regulation Z, 12 C.F.R. § 226.17(f) (2006), are not relevant here.

The third circumstance that may require new disclosures deals with “refinancings” and

is the core of Gunn’s theory of relief. In Regulation Z, the term refinancings is defined as

follows:

A refinancing occurs when an existing obligation that was subject to this

subpart is satisfied and replaced by a new obligation undertaken by the same

consumer. A refinancing is a new transaction requiring new disclosures to the

consumer. The new finance charge shall include any unearned portion of the

old finance charge that is not credited to the existing obligation.

Regulation Z, 12 C.F.R. § 226.20(a) (2006). Thus, for a refinancing to occur, the original

obligation must be satisfied and replaced by a new obligation. An extension of the maturity

date does not satisfy the pawn transaction, nor does it create a new obligation. It merely

extends the original pawn ticket by postponing the date on which the pledgor must redeem

the automobile.

The FRB’s Official Staff Interpretations regarding the TILA regulations are

determinative. “The Supreme Court has instructed lower courts to be ‘attentive to the views

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 Abrogated on other grounds, Turner v. Beneficial Corp., 236 F.3d 643 (11th Cir. 2000).

1

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of the administrative entity appointed to apply and enforce the statute’ and that ‘deference

is especially appropriate in the process of interpreting the Truth in Lending Act and

Regulation Z.’” Barlow v. Evans , 992 F. Supp. 1299, 1305 (M.D. Ala. 1997) (quoting Ford 1

Motor Credit Co. v. Milhollin, 444 U.S. 555, 565 (1980)) (footnote omitted). The court must

defer to the FRB’s official opinions unless they are “demonstrably irrational.” Ford Motor,

444 U.S. at 565. With respect to refinancings, the Interpretations state:

1. Definition. A refinancing is a new transaction requiring a complete new set

of disclosures. Whether a refinancing has occurred is determined by reference

to whether the original obligation has been satisfied or extinguished and

replaced by a new obligation, based on the parties’ contract and applicable

law. The refinancing may involve the consolidation of several existing

obligations, disbursement of new money to the consumer or on the consumer’s

behalf, or the rescheduling of payments under an existing obligation. In any

form, the new obligation must completely replace the prior one.

. Changes in the terms of an existing obligation, such as the deferral of

individual installments, will not constitute a refinancing unless accomplished

by the cancellation of that obligation and the substitution of a new obligation.

. . . .

2. Exceptions. A transaction is subject to § 226.20(a) only if it meets the

general definition of a refinancing.

FRB Official Staff Interpretations, § 226.20. The Interpretations make it clear that to be a

refinancing, a new obligation must completely replace the prior one, and changesin the terms

of an existing obligation such as the deferral of individual installments do not constitute a

refinancing unless there is a cancellation of the existing obligation. Here, there was no

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cancellation of the original pawn obligation. The original pawn ticket was renewed and

extended. The maturity date was deferred. The original pawn ticket survived the deferral

and was never cancelled. Therefore, the “subsequent loan agreements” alleged by Gunn

were nothing more than receipts evidencing payment under the same pawn agreement she

originally entered into, and that Regulation Z and the Official Staff Interpretations make it

clear that no new TILA disclosures were required.

3. Gunn’s Arguments

First, Gunn puts great reliance on a 1978 case, Dennis v. Handley, 453 F. Supp. 833

(N.D. Ala. 1978), decided before Regulation Z defined refinancings. The Dennis court found

that pawn renewals, similar to Gunn’s in the instant case, were in fact refinancings and thus

subject to the disclosure requirements of TILA. Dennis, 453 F. Supp. at 835. However,

effective in 1982, Regulation Z was amended to remove the provision relied upon by the

Dennis court and to provide a definition for refinancings where none had previously existed.

FRB Official Staff Interpretations, § 226.20. The amendments defined refinancing to mean

an obligation which is satisfied and replaced by a new obligation, as discussed in detail

above. Id. Thus, the amendments to Regulation Z abrogate the holding of Dennis and make

it inapplicable and obsolete. The court is not persuaded by Gunn’s arguments to the contrary.

Gunn next argues that the subsequent loan transactions fall within an exception to the

Regulation Z definition of refinancings. See Regulation Z, 12 C.F.R. § 226.20(a) (“The

following shall not be treated as a refinancing: (1) A renewal of a single payment obligation

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with no change in the original terms.”) Gunn contends the customer receipt must be

construed as a refinancing because the pawn ticket “contains no material terms whatsoever

which are common to” the customer receipt. (Gunn Br. 13.) The court notes that the

customer receipt reflects the principal amount that remained after Gunn’s partial payments

and agrees with TitleMax that “[t]he partial payment of interest does not make a

refinancing.” (TitleMax Br. 22.) Therefore, the court finds that the exception does not

apply.

Lastly, Gunn argues that the labels used on the pawn ticket and the customer receipt

regarding account numbers and original account numbers proves the existence of a separate

loan and not a renewal. This argument is unsupported and wholly unpersuasive.

For the foregoing reasons, the court holds that the bankruptcy court’s order to dismiss

Count I was proper.

B. Count II – Validity of TitleMax’s Lien Claim Dismissed by Bankruptcy Court

Gunn argues that when she refinanced her pawn obligation, TitleMax failed to create

a new security interest in her automobile and thus no longer has a valid lien on it. TitleMax

argues the security interest granted in the original pawn transaction was never extinguished.

The Alabama Pawnshop Act states that “[a] pawnbroker shall have a lien on the

pledged goods pawned for the money advanced and the pawnshop charge owed, but not for

other debts due to the pawnbroker.” Ala. Code § 5-19A-10(a). Gunn asserts that because

she refinanced the original pawn obligation by customer receipts, the security interest in the

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automobile that was granted in the pawn ticket is extinguished. She further asserts that the

customer receipts evidence “other debts due to the pawnbroker” and thus are not secured by

the automobile. However, as stated above, there has not been any “additional debt” because

the pawn was extended and renewed, not satisfied. Gunn never redeemed or obtained

possession of the automobile’s title, nor does she allege she did. Therefore, the court holds

that the security interest granted in the original pawn ticket was never extinguished and

remains a valid and enforceable lien on the automobile, and the bankruptcy court’s order to

dismiss Claim II was proper.

V. CONCLUSION

For the foregoing reasons, it is ORDERED and ADJUDGED that the decision of

the bankruptcy court to dismiss Gunn’s claim with prejudice is AFFIRMED. This matter

is REMANDED to the bankruptcy court for further proceedings not inconsistent with this

opinion.

DONE this 31st day of March, 2008.

 /s/ W. Keith Watkins 

UNITED STATES DISTRICT JUDGE

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