GEE, Circuit Judge:
This case presents a question of first impression in this circuit: whether a bankrupt's cause of action against a lending institution for statutory damages under section 130(a)(2) of the Truth in Lending Act
The material facts of this case are not in dispute. On November 16, 1976, Betty Lou Wood ("debtor") received a signature loan from the First National Bank & Trust Company in Macon ("lender" or "plaintiff"). On May 9, 1977, she obtained a second loan from the plaintiff and transferred to plaintiff as security a 1977 Honda automobile. On closing this second loan, she signed an "Installment Note and Disclosure Statement," as well as a security agreement.
Subsequently, on October 21, 1977, Ms. Wood was adjudicated a bankrupt upon the filing of her voluntary petition in bankruptcy. As of that date, the sum of $42.44 remained outstanding on the first loan, and the sum of $2,848.59 remained outstanding on the second loan. The 1977 Honda was scheduled as an asset of her estate, subject to the perfected security interest of the plaintiff.
On November 18, 1977, plaintiff filed a complaint against William M. Flatau ("trustee" or "defendant") as trustee of the debtor's estate, seeking reclamation of the Honda. The defendant filed his answer, generally denying the pertinent allegations of the reclamation complaint, and filed a counterclaim for statutory damages and attorneys' fees, but no actual damages, from the plaintiff for an alleged violation of the TILA and applicable regulations.
The bankruptcy judge granted the plaintiff's reclamation complaint but dismissed the trustee's counterclaim on the ground that the trustee had no standing to file a TILA counterclaim against the lender. In
Section 70a(5) of the Bankruptcy Act vests the trustee with the debtor's title to "property, including rights of action, which prior to the filing of the petition he [the debtor] could by any means have transferred...." Bankruptcy Act, § 70a(5), 11 U.S.C. § 110(a)(5) (emphasis added). Neither the TILA nor the regulations promulgated thereunder discuss the transferability of a claim for statutory damages under section 130(a)(2)(A). For the purposes of the Bankruptcy Act, a cause of action is transferable if the action would "survive" the death of the debtor. Murphy v. Household Finance Corp., 560 F.2d at 208. The question of survivability is a matter of federal law. Id. See also Smith v. No. 2 Galesburg Crown Finance Corp., 615 F.2d 407, 413 (7th Cir. 1980); Heikkila v. Barber, 308 F.2d 558, 561 (9th Cir. 1962). It has long been established that causes of action predicated on penal statutes do not survive the death of the debtor, see Schreiber v. Sharpless, 110 U.S. 76, 28 L.Ed. 65 (1884), whereas remedial damage actions do survive. Thus, only if we are able to characterize the civil liability provisions of the TILA, see n. 1, supra, as being remedial will the trustee here have standing to press the debtor's TILA claim.
The TILA affords a debtor statutory damages of twice the amount of any finance charge
The Supreme Court discussed the multifarious meanings of the words "penal" and "penalty" in Huntington v. Attrill, 146 U.S. 567, 13 S.Ct. 224, 36 L.Ed. 1123 (1892):
Id. at 666-69, 13 S.Ct. at 227-228 (emphasis in original). This passage makes manifest that statutory damages under the TILA, even though they may commonly be characterized as a "penalty," are not necessarily "penal" for survival purposes. In fact, both of the courts that have considered the precise issue before us, citing Huntington, have concluded that such damages are remedial for the purpose of determining survivability.
The Sixth Circuit in Murphy v. Household Finance Corp., supra, distilled three factors from Huntington and its progeny to be used in determining whether a statute is penal or remedial: "(1) whether the purpose of the statute was to redress individual wrongs or more general wrongs to the public; (2) whether recovery under the statute runs to the harmed individual or to the public; and (3) whether the recovery authorized by the statute is wholly disproportionate to the harm suffered." 560 F.2d at 209. An examination of those factors
Id. at 211. In reaching this conclusion the court placed particular reliance on Mourning v. Family Publications Service, Inc., 411 U.S. 356, 93 S.Ct. 1652, 36 L.Ed.2d 318 (1973), in which the Supreme Court stated that section 130 liability was not the kind of penalty that courts were required to construe within the narrow limits reserved for strictly penal enactments.
Id. at 342 (footnote omitted). Accord, Binnick v. Avco Financial Services of Nebraska, Inc., 435 F.Supp. 359, 365 (D.Neb.1977). Furthermore, the court likened suits for statutory damages under TILA to antitrust treble damage actions, which had "been held to create a civil remedy and not to impose a penalty." 385 F.Supp. at 341 (footnote omitted). See also cases cited, id.
We are persuaded by the reasoning of Murphy and Porter that the purpose of section 130 liability is remedial, that a section 130 claim therefore survives the death of the debtor, and that, consequently, such a claim can be transferred by the debtor to a trustee in bankruptcy. No argument propounded by the plaintiff here convinces us otherwise.
The plaintiff's attack on Murphy and Porter is founded in large measure on Johnson v. Household Finance Corp., 453 F.Supp. 1327 (N.D.Ill.1978). The district court there questioned the vitality of Huntington, the efficacy of analogizing TILA civil liability to antitrust treble damages, and the legitimacy of interpreting Mourning to support the proposition that section 130 is remedial. 453 F.Supp. at 1330-31. Not surprisingly, it concluded that the TILA is penal. Id. at 1331.
There are several significant reasons why we are loath to follow Johnson. First, Johnson dealt with the issue of the survival of a TILA claim but not in the context of the Bankruptcy Act. In fact, the court twice cautioned
Plaintiff fires several other salvos, but each is wide of the mark. It initially contends that section 130 is penal because it imposes liability beyond the amount of actual damages suffered by the debtor. This argument was summarily rejected in Murphy
Plaintiff also questions the analogy, proposed in Porter, 385 F.Supp. at 341, and followed in Murphy, 560 F.2d at 210 n. 5, of section 130 statutory damages to "remedial" antitrust treble damages. See Johnson v. Household Finance Corp., 453 F.Supp. at 1331. It submits that a plaintiff in an antitrust action who suffers no actual damages will not recover any treble damages, whereas the proponent of a TILA claim who has suffered no actual damages will nevertheless recover at least the minimum amount provided in section 130(a)(2). This distinction, it contends, vitiates the force of the analogy and requires that we hold TILA claims for statutory damage to be penal. We cannot agree. First, this argument fails to recognize that in the overwhelming majority of antitrust cases in which plaintiffs prevail treble damages will be imposed and the defendant required to compensate the plaintiff far beyond the amount of plaintiff's actual loss; yet the courts have repeatedly characterized treble damages as remedial. See cases cited in Porter, 385 F.Supp. at 341. See also Smith v. No. 2 Galesburg Crown Finance Corp., 615 F.2d at 415 & n. 22. Second, the lender's argument assumes that one who brings suit solely for statutory damages, as the trustee in the instant case has done, has suffered no actual damages. However, as the court in Porter acknowledged, statutory damages compensate the debtor for actual damages that may in fact be "difficult to ascertain." 385 F.Supp. at 342. Thus, we see no reason to distinguish the recovery of statutory damages in a TILA action from an award of antitrust treble damages; if the latter are remedial, the former must be, too.
Plaintiff further contends that we should refuse to transfer the debtor's TILA claim to the trustee in bankruptcy so that the debtor herself can bring the claim once she has been adjudicated a bankrupt. In plaintiff's view, permitting the trustee to press the debtor's TILA claim for the benefit of the creditors contravenes the purpose of the TILA by depriving the individual who was actually injured by the TILA violation of
Although not in the context of the issue before us, this court has repeatedly characterized the purpose of the TILA as remedial, very recently in Travis v. Trust Co. Bank, 621 F.2d 148, 151 (5th Cir. 1980) ("the Act has been found uniformly to be remedial in nature and thereby liberally and broadly construed in favor of the consumer"), and most recently in James v. Home Construction Co., 621 F.2d 721 (5th Cir. 1980). See also Smith v. Chapman, 614 F.2d 968, 971 (5th Cir. 1980); Cody v. Community Loan Corp., 606 F.2d 499, 505 (5th Cir. 1979), appeal docketed (446 U.S. 988, 100 S.Ct. 2973, 64 L.Ed.2d 846 (1980); Lawson v. Conyers Chrysler, Plymouth & Dodge Trucks, Inc., 600 F.2d 465, 466 (5th Cir. 1979); Plant v. Blazer Financial Services, Inc., 598 F.2d 1357, 1362 n. 7 (5th Cir. 1979); Williams v. Public Finance Corp., 598 F.2d 349, 356 (5th Cir. 1979), on petition for rehearing, 609 F.2d 1179 (5th Cir. 1980); McGowan v. King, 569 F.2d 845, 848 (5th Cir. 1978); Martin v. Commercial Securities Co., 539 F.2d 521, 523 (5th Cir. 1976); Thomas v. Myers-Dickson Furniture Co., 479 F.2d 740, 748 (5th Cir. 1973). What is more, we have specifically found section 130 to be consistent with the remedial character of the TILA, citing Murphy and Porter in support of that proposition:
Gerasta v. Hibernia National Bank, 575 F.2d 580, 584 (5th Cir. 1978) (emphasis added). Despite some language to the contrary in Newton v. Beneficial Finance Co., 558 F.2d 731 (5th Cir. 1977),
For the reasons stated above, we conclude that the debtor's TILA claim is transferable to the trustee in bankruptcy under section 70a(5) of the Bankruptcy Act.
REVERSED and REMANDED.
(emphasis in original).
560 F.2d at 210.
411 U.S. at 376, 93 S.Ct. at 1664.
Id. at 1330.
Id. at 1332 n. 11.
Such is the case with the Truth in Lending Act. The § 130 cause of action is not made penal by the fact that the statute allows cumulative recoveries as a vehicle for encouraging enforcement.
560 F.2d at 210 & n. 5.
Id. at 732.
Contrary to plaintiff's assertion, this language does not control the case before us. The issue in Newton was whether a debt that had been extinguished in bankruptcy could be asserted by the lender as a counterclaim in a subsequent TILA suit brought by the debtor. In holding that it could not, we declined to distinguish the "statutory penalty" imposed by the TILA from the penalty at issue in McCollum v. Hamilton National Bank, 303 U.S. 245, 58 S.Ct. 568, 82 L.Ed. 819 (1938) (holding that a debt discharged in bankruptcy could not be used to offset a statutorily imposed penalty against a national bank for changing usurious interest). It is crucial to observe, however, that our stressing the punitive aspect of TILA statutory damages in Newton protected the interests of the borrower, consistent with the policies underlying the TILA, see 15 U.S.C. § 1601, by insulating his TILA claim from the creditor's setoff. It is thus fully consistent for us here to emphasize the remedial nature of the TILA in the context of survival under the Bankruptcy Act in order likewise to facilitate the vindication of the debtor's rights against the lender.
Moreover, Sellers v. Wollman, 510 F.2d 119 (5th Cir. 1975), did not explicitly reject the view that the TILA is remedial. Cf. Cody v. Community Loan Corp., 606 F.2d 499, 505 (5th Cir.), cert denied, 446 U.S. 988, 100 S.Ct. 2973, 64 L.Ed.2d 846 (1980), which cited Sellers for the proposition that the TILA is remedial. In Sellers we merely observed that section 130 of the TILA provides a "civil penalty," id., at 122 (citing Mourning v. Family Publications Serv., 411 U.S. at 376, 93 S.Ct. at 1664). As we noted above, see pp. 190-191, supra, the fact that a statute provides for a "penalty" does not conclusively determine that the statute is "penal" for all purposes. We did not make such a determination in Sellers; we simply recognized there that a debtor could recover statutory damages under § 130 in addition to securing rescission of the loan agreement with respect to which the TILA violation was committed.
Thus, neither Sellers nor Newton establishes that the TILA is "penal" for survival purposes.