Consumer Law Case Analysis: Dushkin v. Desai & United Companies Lending Corp. v. Sargeant, Exams of Consumer Law

Download Consumer Law Case Analysis: Dushkin v. Desai & United Companies Lending Corp. v. Sargeant and more Exams Consumer Law in PDF only on Docsity! This case is based upon Dushkin v. Desai, 18 F.Supp.2d 117 (D.Mass. 1998), in which the court denied the defendant' s motion to dismiss claims for common-law fraud and violation of consumer protection statute. Professor DeWolf Consumer Law Fall 1998 January 5, 1999 SAMPLE ANSWER TO EXAM QUESTION 1 There are a variety of theories that might be used to obtain redress from Desai. Also, a variety of remedies should be considered. Liability Theories Fraud. The first possibility for recovery would be on a theory of fraudulent misrepresentation, or deceit. In order to establish fraud, the plaintiffs would have to show (1) a false representation of fact; (2) that was made with scienter--knowledge of its falsity; (3) with an intent to produce reliance by the plaintiffs; which (4) did in fact produce justifiable reliance; and (5) resulted in damage to the plaintiffs. Desai certainly made false representations about his personal holiness, but there is a mixture of religious belief along with the statements of fact. On the issue of it is a little difficult to determine whether they were representations of fact. Certainly he knew he was a hypocrite. The statements were certainly designed to produce reliance and did produce justifiable reliance, and they led to the plaintiffs' damage. All of these factors seem to be relatively well established. As will be discussed later, fraud allows the recovery of punitive damages in egregious cases, so it has advantages as a liability theory. Consumer Deception. The second theory that could be used would be a violation of the state consumer protection act, or UDAP statute ("Unfair or Deceptive Acts or Practices"). Most states have enacted the equivalent of the Washington CPA, and permit plaintiffs to recover either where they have been deceived or where the defendant has committed an unfair trade practice. One immediate issue is whether this is a transaction that took place in the area of commercial trade. Certainly not every religious leader is subject to consumer fraud claims, even if he turns out to be a hypocrite or even a charlatan. But the transactions in this case do seem to be commercial in nature and certainly drew from the wider population to obtain benefits. One big issue is whether the plaintiffs will have to meet the more difficult standard established in the Cliffdale Associates case of showing that the deception was one that would deceive a "reasonable consumer." The defendant might argue that the plaintiffs would be unreasonable to rely so heavily on the claims of a single individual, but in fact it doesn't appear to be all that unreasonable. Older CPA cases permit a consumer to recover if the practice has a tendency to deceive. Hopefully that will be closer to the standard that is used in this jurisdiction. Another problem that concerns me is that a lot of time passed between the first notice that Desai had a problem and the time that this case is brought. I hope there are no statute of limitations issues to worry about. Finally, in addition to the deception theory, we could claim that Desai's practice of taking vulnerable disciplines and encouraging major dependence while cynically fleecing them of their money is an unfair trade practice. I don't think this aspect would be too difficult to prove (aside from the religious liberty and/or statute of limitations issues inherent in the other claims). Remedies As part of considering the fraud and consumer protection claims, I would investigate the advisability of initiating a class action on behalf of all of Desai's victims. A class action can be certified if (1) the class is so numerous that joinder is impractical; (2) there is a preponderance of common questions of law and/or fact; (3) the class representative is capable of representing the DeWolf, Consumer Law Exam, December 11, 1998 Page 2 of 5 This case is based upon United Companies Lending Corp. v. Sargeant, 20 F.Supp.2d 192 (D.Mass. 1998), in which the court held that the regulation was valid and that the loans could constitute an unfair or deceptive practice. interests of the class; and (4) the claims and defenses of the class representative are typical of the class as a whole. I would be concerned about a class action in terms of the burden on our plaintiffs (and on our firm if we initated a class certification proceeding), and I would only do it if Desai had almost unlimited resources. Otherwise, the same pie would have to be shared with a lot of other people. It would probably be better to initiate individual suits on behalf of the plaintiffs and anyone else who decides to join the suit. We could certainly claim the actual damages suffered by the false representations, and in addition seek punitive damages for the egregious conduct of the defendant. Under the consumer protection act there are usually some kind of treble damages or penalties, and in addition attorney fees can be recovered. QUESTION 2 There are advantages and disadvantages to this proposal. First, some history is in order. The Rule of 78s was initiated in the era before computers or even calculators were commonly used, and it was a crude but effective way of providing an approximation of the rebate in interest to which a borrower was entitled. The advantage of getting rid of the Rule is that it would result in more accurate calculation of the amount of principal that has already been paid, and a reduction for the interest that has not yet been accrued. It would mean that consumers obtain a bigger deduction (or rebate) when they prepay a loan, and that in turn might mean that consumers would be more inclined to pay off loans early. As it is, most loans are paid before maturity anyway, so it could result in a substantial saving. It might even encourage more borrowing, which could stimulate the economy. Abolishing the Rule on a federal level would provide uniformity in the economy. The disadvantages include the fact that it would cost lenders something to switch over to a new system. It would also mean that the extra bonus they get when loans are prepaid would have to be compensated for in higher nominal interest rates. It would hurt people who pay their loans per the original agreement. It also is somewhat offensive to those who are true believers in market rates and a decentralized system of government. QUESTION 3 Ms. Sargent has a variety of different angles of attack. She might look at a claim based upon arguing that the loan was usurious, but I doubt there would be much utility in that route. For one thing, the nominal loan rate was less than 18%, which is below the ceiling that most states have for loans. (Although, if the broker's fees are added to adjust the APR upward, it could exceed 18%). Another problem is that many lenders are able to take advantage of better lending rates by structuring their loans as out-of-state lenders, which United may be. Another avenue would be TILA (the Truth in Lending Act). This is primarily directed at disclosure. Not all the facts are given, but there may have been some omissions in terms of disclosing all of the fees that were being charged to her. In addition, there is no mention of the mandatory 3-day rescission window that she should have had available. However, that may simply be an omission in the recitation of facts. It's likely that the lender was conscious of these requirements. The better argument is that the loan is unconscionable. This claim can be made in two forms: first, that the loan was procedurally unconscionable. That is, S was not told enough to make a fully informed decision. In particular, she wasn't told (as the court required in Besta) that the loan she was entering into was going to leave her worse off than her previous mortgage. Although she got some