District Court (Cal.) Says Car Dealer’s Exercise of Right to Cancel Clause in Standard Form RISC Does Not Violate TILA

The first preliminary argument proceeds as follows: “TILA and its enabling regulations require the creditor to make disclosures before consummation of the transaction.” (ECF No. 10 at 9.) At least for purposes of her first preliminary argument, Plaintiff contends that the inclusion of the Seller’s Right to Cancel provision can only have two possible legal consequences — either it “prolongs consummation of the contract to an uncertain point in the future” or it “nullifies consummation altogether.” (ECF No. 10 at 8.) In her view, “either scenario” constitutes a violation of the requirement to make TILA compliant disclosures “before [the] consummation of transaction.” (ECF No. 10 at 8–9.)  There is an obvious problem with Plaintiff’s first preliminary argument. It causes the argument to fail even if her legal premises are accepted. If the Seller’s Right to cancel provision “prolongs consummation of the contract to an uncertain point in the future” or it “nullifies consummation altogether,” then the disclosures contained in the Contract must have been before the consummation of the transaction (if it ever took place). (ECF No. 10 at 8–9 (emphasis added).) Thus, under her own theory, there would have been no TILA violation, as Plaintiff acknowledges the disclosures themselves were TILA compliant. The Court now turns to Plaintiff’s second preliminary argument, which proceeds as follows: a creditor would violate TILA by inserting a provision into a contract that authorized it to “subsequent[ly] change” the TILA disclosures at its “sole and arbitrary discretion,” even if the contract at issue otherwise made the disclosures required by TILA. (ECF No. 10 at 8–10.) The Court will assume for purposes of this motion that such a clause would violate TILA. The problem with Plaintiff’s argument is the text of Seller’s Right to Cancel provision in the Contract. If Defendant is “unable to assign the [C]ontract to any one of the financial institutions, with whom [Defendant] regularly does business under an assignment acceptable to [Defendant], [Defendant] may cancel” the Contract. (ECF No. 10 at 8 (emphasis added).) The Right to Cancel provision simply cannot be reasonably read to authorize Defendant to change the contents of its TILA disclosures at all, let alone in its discretion.  The Court will make one more point before proceeding. Taking Plaintiff’s allegations as true, the Court agrees with Plaintiff’s position that, under California law, the Contract was a “valid and completed contract” once she signed it. (ECF No. 10 at 5.) That is, Plaintiff was “contractually obligated” within the meaning of TILA at that point. The Seller’s Right to Cancel provision does not undo this. Buie v. Palm Springs Motors, Inc., No. EDCV 00-00168 VAP, 2001 WL 34570064, at *4 (C.D. Cal. May 14, 2001). Buie involved a similar provision. Id. The district court there concluded that the contract was “consummated upon signing” for purposes of TILA (looking to California law), even though it could be “rescinded by the dealer.” Id. (emphasis added). The Court agrees with that conclusion. Plaintiff is no less contractually obligated because Defendant has the right to cancel the Contract in a specified circumstance. Accordingly, the Court finds the transaction arising from the Contract consummated upon the signing of the Contract by Plaintiff.

ii. Whether TILA is violated by the Seller’s Right to Cancel provision? 

Defendant argues it cannot be held liable for a TILA violation for entering into a Contract that “on its face clearly set forth all of the requirements under…TILA.” (ECF No. 9-1 at 5.) Plaintiff argues the Seller’s Right to Cancel provision renders the otherwise properly disclosed “credit terms…meaningless” or “illusory” because Defendant “reserve[s to itself] a unilateral and arbitrary ability to rescind the contract.” (ECF No. 10 at 8–10.)  As an initial matter, Plaintiff has cited no authority for the proposition that an otherwise TILA compliant contract may not simultaneously contain a provision authorizing the creditor to cancel the contract if that creditor is “unable to assign the contract to any one of the financial institutions, with whom [the creditor] regularly does business under an assignment acceptable to [creditor].” The Court’s research has revealed none.   . . . Simply put, “there is nothing in TILA or Regulation Z which prohibits financing contingencies in consumer contracts as violative of the TILA[.]” Chastain v. N.S.S. Acquisition Corp., No. 08-81260-CIV, 2009 WL 1971621, at *4 (S.D. Fla. July 8, 2009), aff’d, 378 F. App’x 983 (11th Cir. 2010). Moreover, a provision in a TILA covered loan transaction that automatically cancels or gives the creditor the option to cancel the transaction if the creditor is unable to assign the contract on terms acceptable to the creditor simply does not make the already made TILA disclosures violate TILA. See, e.g., Leguillou v. Lynch Ford, Inc., No. 99 C 3449, 2000 WL 198796, at *3 (N.D. Ill. Feb. 14, 2000) (“Plaintiff entered into a fully binding contract with Lynch Ford. A condition subsequent was used to cancel the contract. This set of facts does not undermine the validity of the original TILA disclosures.”); Tripp v. Charlie Falk Auto, No. CIV. 3:00CV512, 2001 WL 1105132, at *6 (E.D. Va. Aug. 22, 2001) (“If the financing condition had been satisfied, then Plaintiffs and Defendants would have been obligated under the terms of the contract. The fact that the financing condition never came about does not make the credit terms estimates.”), aff’d sub nom. Tripp v. Charlie Falk’s Auto Wholesale Inc., 290 F. App’x 622 (4th Cir. 2008); Baez v. Potamkin Hyundai, Inc., No. 09-21910-CIV, 2011 WL 13174894, at *5 (S.D. Fla. June 14, 2011) (rejecting the plaintiff’s argument that the defendant’s “option to cancel the contract if it cannot secure financing or assign the contract (i.e. predicating the [the contract] on a condition subsequent) renders the [contract] illusory and violates TILA”), report and recommendation adopted, No. 09-21910-CIV, 2011 WL 13174896 (S.D. Fla. July 11, 2011), aff’d, 458 F. App’x 827 (11th Cir. 2012).   Consequently, having carefully considered the matter, the Court holds “[a] seller’s unilateral right to cancel a sales contract or a contract conditioned upon seller-located financing, does not, by itself, violate TILA.” Clarke v. W. Palm Nissan, LLC, No. 9:17-CV-81032, 2018 WL 521031, at *2 (S.D. Fla. Jan. 23, 2018) (citing Bragg, 374 F.3d at 1068).