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Danger v. Nextep Funding, LLC

United States District Court, D. Minnesota

January 23, 2019

LuAnn Danger, Plaintiff,
Nextep Funding, LLC and Monterey Financial Services, LLC, Defendants.

          Jesse S. Johnson, Greenwald Davidson Radbil PLLC, Mark L. Vavreck, Gonko & Vavreck, PLLC, for Plaintiff.

          Steven L. Baron, George V. Desh, & Bruce N. Menkes, Mandell Menkes LLC, Scott S. Payzant, Paul Shapiro, & Eldon J. Spencer, Jr., Leonard, O'Brien, Spencer, Gale & Sayre, Ltd., for Nextep Funding, LLC.

          Patrick D. Newman, Bassford Remele, Richard M. Scherer, Jr., Lippes Mathias Wexler Friedman LLP, for Monterey Financial Services, LLC.



         This matter comes before the Court on the Motions to Dismiss filed by Defendants Nextep Funding, LLC (“Nextep”) [Doc. No. 46] and Monterey Financial Services, LLC (“Monterey”) [Doc. Nos. 22 & 39]. For the reasons stated below, Defendants' motions are denied.

         I. BACKGROUND

         A. Factual Background

         In June 2017, Plaintiff LuAnn Danger purchased a Yorkshire Terrier and Maltese mix puppy from Premier Pups. (Am. Compl. [Doc. No. 35] ¶¶ 46-47.) Premier Pups offered the dog for sale at a price of $1, 381.89. (Id. ¶ 47.)

         Danger financed the purchase through Defendants. (Id. ¶ 48.) Defendant Nextep is a for-profit company that “offers a retailer to customer closed end consumer lease platform designed to increase retailer sales by offering customers the ability to finance goods and services on the spot, in the store and without delay.” (Id. ¶ 13.) Defendant Monterey is a for-profit company that “offers a host of services related to loan servicing, debt recovery, and consumer finance” in order to “meet the needs of niche businesses and consumers . . . .” (Id. ¶ 23.)

         On June 16, 2017, Danger entered into an agreement (the “Agreement”) with Nextep, which allowed her to take possession of the dog in exchange for 24 monthly payments of $138.28, plus fees. (Id. ¶ 49.) The parties dispute whether the Agreement is a consumer lease or credit sales agreement.

         The second page of the nine-page Agreement bears Nextep's logo, and is styled as a “Consumer Pet Lease Agreement.” (Agmt. at 2, [1] Ex. A to Am. Compl.) It contains a provision labeled “Important Information Concerning Your Lease, ” and appears as follows:

Important Information Concerning Your Lease
By signing the following documents, you are entering into a Closed End Consumer Product Lease.
You understand that this Agreement is a lease, not a loan and that you are leasing the product(s).
You understand that you do not own the product(s) you are leasing unless:
1) You buy the product through the early buyout option (for more information see Section 8 of this Agreement or visit your account at; or
2) You pay $207.28 after your final lease payment.
Your lease can be paid off at any time. Call us anytime to get your payoff amount.
The total value of the product(s), capitalized cost, you are leasing is $1381.89.
To satisfy your lease obligation you must make one in-store payment of $173.28 and 23 lease payments of $138.28.
If you decide to purchase the product(s) at the end of your lease, you must pay a purchase price of $207.28 plus any applicable fees or taxes.
The total amount you will have paid by the end of this lease, at full term, is $3318.73.
You must make each monthly payment by the due date or you may be subject to additional fees.

(Id.) (emphasis in original).

         The next page of the Agreement contains the provision that is most pertinent here, outlined in a box enumerated as Section 2, bearing the heading “Federal Consumer Leasing Act Disclosures.” (Id., § 2.) It appears as follows:

         (Table Omitted)


         The first column of Section 2, labeled "Amount Due at Lease Signing or Delivery, " lists a $35 "Warranty Fee," due at signing. (Id.) (emphasis in original). In the third column, under "Other Charges (not part of your monthly payment)," the Agreement identifies a "Disposition Fee" of $103.64 if Danger ultimately decides not to purchase the dog. (Id.) (emphasis in original). At the bottom of the Section 2 box is a provision labeled "Purchase Option at End of Lease Term," which applies if Danger decides to keep the dog. (Id.) (emphasis in original). If she decides to do so, the purchase option is $207.28, "plus official fees and taxes related to the purchase." (Id.)

         In the second column of Section 2, under the sub-heading "Monthly Payments," the Agreement provides for 24 payments of $138.28, due on the 20th of each month, and states that “[t]he Total of your Monthly Payments is $138.28.” (Id.) (emphasis in original). Two columns to the right, the Agreement also states: “Total of Payments (The amount you will have paid by the end of the Lease)[:] $3318.73.” (Id.) (emphasis in original).

         Monterey is identified in the Agreement as the payee for all of the debt arising from the Agreement. (Am. Compl. ¶ 27.) Specifically, the Agreement states that payments are to be mailed to “Monterey Financial, 4095 Avenida De La Plata, Oceanside, CA 92056.” (Agmt. § 9, Ex. A to Am. Compl.) Likewise, all written communications concerning disputed amounts must be sent to Monterey Financial, at the same address. (Id.)

         Danger has made her required monthly payments since entering into the Agreement, but will not complete her payments until June 16, 2019. (Am. Compl. ¶¶ 50, 51.)

         B. Procedural History

         In February 2018, Danger filed this suit, asserting claims under: (1) the Consumer Leasing Act (“CLA”), 15 U.S.C. § 1667 et seq., and its implementing regulation, 12 C.F.R. § 1013 (“Regulation M”); (2) the Truth in Lending Act, (“TILA”), 15 U.S.C. § 1601 et seq., and its implementing regulation, 12 C.F.R. § 1026 (“Regulation Z”); and (3) Minnesota law prohibiting usurious contracts, Minn. Stat. § 334.01. She asserts her CLA claim against Nextep, (Am. Compl., Count I), alleging that prior to the consummation of the Agreement, Nextep falsely disclosed the total amount of periodic payments owed under the Agreement. (Id. ¶ 114.) Her TILA claim, asserted against both Defendants, alleges that they failed to adequately disclose: (1) the finance charge; (2) the finance charge expressed as an annual percentage rate (“APR”); and (3) the sum of the amount financed and the finance charge, i.e., the “total of payments.” (Id., Count II.) Danger asserts that Defendants concealed “the exorbitant annual percentage rate” of 120% that applied to her purchase. (Id. ¶¶ 125-26.) Finally, Plaintiff asserts claims of usury arising under Minnesota state law against both Defendants. (Id., Count III.) She contends that the 120% APR to purchase the dog far exceeds the usury statute's 8% limit for personal debt. (Id. ¶¶ 141-42.)

         As to her injuries, Plaintiff alleges that Nextep “took from her the ability to shop intelligently for alternative financing.” (Id. ¶ 73.) She asserts that had she known the true effective interest rate in the Agreement, she would have “pursued other financing options such as using a credit card or obtaining a personal loan through her credit union.” (Id. ¶ 74.) She contends that these alternative financing options would have carried a lower interest rate. (Id. ¶ 75.)

         Both Defendants move to dismiss Plaintiff's claims. Citing Federal Rule of Civil Procedure 12(b)(1), they argue that Danger lacks standing to assert her federal claims, requiring the dismissal of Counts I and II for lack of subject matter jurisdiction, (Nextep's Mem. at 5-14 [Doc. No. 48]; Monterey's Mem. at 2-7 [Doc. No. 41]), including claims for which she seeks injunctive relief for future harms. (Nextep's Mem. at 15-17.) Defendants further argue that because the Court lacks subject matter jurisdiction over Counts I and II, it should dismiss the pendent state law usury claim for lack of supplemental jurisdiction. (Id. at 14; Monterey's Mem. at 14 n.3.)

         Even if the Court finds that Plaintiff has sufficiently alleged Article III standing, Defendants move to dismiss her claims pursuant to Federal Rule of Civil Procedure 12(b)(6). Nextep argues pursuant to Rule 12(b)(6), that Count I should be dismissed because Danger has not plausibly alleged that Nextep failed to comply with the CLA. (Id. at 18-22.) Monterey argues that Count II fails under Rule 12(b)(6), because ...

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