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UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Samuel R. Moore, Jr. and
Carolyn A. Moore,

)
)
)
Plaintiffs,
)
v.
)
)
Cycon Enterprises, Inc.,
)
)
Defendant.
)
____________________________________)
I.

Case No. 1:04-cv-800

Hon. Gordon J. Quist

Plaintiffs Brief in Support of

Motion for Summary Judgment
for Damages and Other Relief

Introduction.
By Order dated August 14, 2006 (Dkt. 94), and for reasons explained in the Courts

Opinion dated August 16, 2006 (Dkt. 95), the Court granted Plaintiffs Motion for Partial
Summary Judgment and held that the underlying transaction between plaintiffs Samuel R.
Moore, Jr. and Carolyn A. Moore and defendant Cycon Enterprises, Inc. (Cycon) was a loan
transaction rather than a sale of the Moores property, that Cycon had only an equitable mortgage
in the Moores property, and that Cycon had violated the Truth in Lending Act, the Home
Ownership and Equity Protection Act, and the Michigan Usury Statute. The Courts Order
expressly left the issues of damages, equitable relief, costs and attorney fees for trial or other
subsequent proceeding.
A status conference was held on August 17, 2006. By Order dated August 18, 2006 (Dkt.
97), the Court ordered the Moores to file their motion for summary judgment as to the remaining
issues in this case. The Moores now have filed Plaintiffs Motion for Summary Judgment for
Damages and Other Relief. This brief is filed in support of the motion.

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II.

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Standard for Summary Judgment

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment:
shall be rendered forthwith if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.

Plaintiffs agree with the standard for summary judgment as stated by Cycon in previously filed
motion for summary judgment (Dkt. 69).
III.

Argument
A.

Cycons failure to make cost-of-credit disclosures as required by the Truth in

Lending Act entitles the Moores to an award of mandatory statutory
damages.
1.

The Court has adjudged that the transaction between Cycon and the
Moores was a loan and not a sale.

The Moores needed to pay Wells Fargo Bank the sum of $190,262.15 in order redeem
their home from foreclosure. Cycon loaned the Moores $190,262.15 to pay Wells Fargo Bank.
Although Cycon later argued that it had purchased the Moores property, the Court disagreed,
holding that the Moores have established by clear evidence that the transaction was not intended
to be an absolute sale, but rather was a financing arrangement, with Cycon acquiring only an
equitable mortgage in the Moores property. Opinion dated August 16, 2006, pp. 22-23 (Dkt.
95).
2.

The Court has adjudged that Cycon violated the Truth in Lending
Act because Cycon failed to provide the Moores with the required
cost-of-credit disclosures.

The Court has held that Cycon violated the Truth in Lending Act (TILA). Opinion
dated August 16, 2006, p. 23 (Dkt. 95). As argued by the Moores in Plaintiffs Motion for Partial
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Summary Judgment (Dkt. 75), Cycon failed to provide the Moores with required cost-of-credit
disclosures.
The TILA is first and foremost a disclosure statute. The TILA and Regulation Z1 each
require the creditor in a closed-end credit transaction to deliver disclosures to the consumer of
various items, including: The identity of the creditor; the amount financed; the finance charge;
the annual percentage rate; the total of payments; and the total sale price. 15 U.S.C. 1638(a);
12 C.F.R. 226.18. High rate mortgage transactions require additional disclosures. 15 U.S.C.
1639(a).
The TILA requires the creditor to deliver the described disclosures before the credit is
extended. 15 U.S.C. 1638(b). Similarly, Regulation Z states: The creditor shall make
disclosures before consummation of the transaction. 12 C.F.R. 226.17(b). Consummation
occurs when the consumer becomes contractually obligated on a credit transaction. 12 C.F.R.
226.2(a)(13).
As stated, the Court has held that the transaction between the Moores and Cycon was a
loan and not a sale, with Cycon entitled to only an equitable mortgage in the Moores property.
Thus, the TILA applied to the transaction.2

Congress has delegated to the Federal Reserve Board (FRB) broad authority to
promulgate regulations necessary to render the TILA effective. Mourning v. Family Publications
Service, Inc., 411 U.S. 356, 366, 93 S.Ct. 1652, 1658, 36 L.Ed.2d 318 (1973); 15 U.S.C.
1604(a). Pursuant to this grant of authority, the FRB implemented Regulation Z, 12 C.F.R.
226.1 et seq. In TILA actions, the court defers to the regulations interpreting the Act. Begala v.
PNC Bank, Ohio, National Association, 163 F.3d 948, 950 (6th Cir. 1998). We have repeatedly
stated that TILA is a remedial statute and, therefore, should be given a broad, liberal construction
in favor of the consumer. Id. (citations omitted).
2

The TILA applies to transactions that are determined by the courts to involve equitable
mortgages. See, James v. Ragin, 432 F. Supp. 887 (W.D.N.C., 1977), Long v. Storms, 622 P.2d.
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Cycon failed to provide the Moores with the cost-of-credit disclosures required by the
Truth in Lending Act, 15 U.S.C. 1639. (Affidavit of Samuel R. Moore, Dkt. 80, 22; Affidavit
of Carolyn A. Moore, Dkt. 79, 22). In fact, Cycon failed to provide the Moores with any of the
cost-of-credit disclosures required by the TILA and Regulation Z. Thus, the Court correctly held
that Cycon violated the TILAs disclosure requirements.
3.

The Moores are entitled to an award of statutory damages of

$2,000.00 because Cycon failed to provide the Moores with the
cost-of-credit disclosures required by the TILA.

A creditor who violates certain TILA requirements is liable to the consumer, in an

individual action, for statutory damages. The method of calculating the statutory damage award
varies depending on the type of transaction.
At the heart of the TILA is the congressional commitment that the TILA be enforced by
private attorneys general. Two TILA provisions assure that goal: mandatory statutory damages
and the recovery of reasonable attorneys fees and costs by the successful consumer:
The purpose of the statutory recovery is to encourage lawsuits by individual consumers
as a means of enforcing creditor compliance with the [TILA]. . . . The TILA also permits
recovery of reasonable attorneys fees and costs. . . . A plaintiff in a TILA case need not
prove that he or she suffered actual monetary damages in order to recover the statutory
damages and attorneys fees. . . . Nor is it necessary to show that the consumer was
actually mislead or deceived by an ambiguous credit term in order to prevail.
Purtle v. Eldridge Auto Sales, Inc., 91 F.3d 797, 800 (6th Cir. 1996) (citations omitted).
Statutory damage awards are intended both to deter creditor noncompliance (see, e.g.,
Riggs v. Government Employees Financial Corp., 623 F.2d 68, 72 (9th Cir. 1980); Edwards v.
Your Credit, Inc., 148 F.3d 427, 441 (5th Cir. 1998)) as well as to provide an economic incentive

731 (Or. Ct. App. 1981).

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to consumers to undertake private enforcement. Dryden v. Lou Budkes Arrow Finance Co., 630
F.2d 641, 647 (8th Cir. 1980).
The civil liability section of the TILA states that any creditor who fails to comply with
any requirement imposed under this part with respect to any person is liable to such person for
twice the amount of any finance charge in connection with the transaction but not to exceed
$2,000.00. 15 U.S.C. 1640(a)(2)(A)(iii); See also, Koons Buick Pontiac GMC, Inc. v. Nigh,
543 U.S. 50, 62 (2004).
As stated in the Moores previously filed Plaintiffs Motion for Partial Summary
Judgment (Dkt. 75, p. 21), Cycon loaned the Moores $190,262.15, paying that sum to Wells
Fargo Bank. To secure repayment of the loan from Cycon to the Moores, Cycon received an
equitable mortgage in the Moores property. The transaction required that in order for the
Moores to pay off their loan after the first thirty days, the Moores would have had to pay Cycon a
monthly payment of $2,515.00 plus a lump sum payment of $224,120.00, for a total payment of
$226,635.00. Thus, Cycon charged the Moores $36,372.85 in interest in the first thirty days on a
loan in the principal amount of only $190,262.15. In order for the Moores to pay off their loan
after the first twelve months, the Moores would have to pay Cycon $30,180.00 in twelve monthly
payments ($2,515.00 x 12 = $30,180.00) plus a lump sum payment of $224,120.00, for a total
payment of $254,300.00. Thus, Cycon charged the Moores $64,037.85 in interest for a twelve
month loan.
Had Cycon properly disclosed the finance charge to the Moores, the amount would have
been at least $64,037.85. Doubling the finance charge would yield statutory damages of at least
$128,075.70. However, the TILA caps the Moores statutory damages at $2,000.00. 15 U.S.C.
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1640(a)(2)(A)(iii). Thus, Cycon is liable to the Moores for $2,000.00 in statutory damages
because of Cycons failure to make the cost-of-credit disclosures required by the TILA.
B.

The Moores timely rescinded their loan transaction with Cycon, but
Cycon refused to abide by the TILA requirements regarding rescission.
1.

The Moores timely rescinded their loan transaction with Cycon.

The TILA provides a right to rescind a non-purchase money consumer credit transaction
which is secured by a dwelling. 15 U.S.C. 1635. The right to rescind extends until midnight of
the third business day following consummation of the transaction or delivery of all material
disclosures, whichever occurs last.
(3) The consumer may exercise the right to rescind until midnight of the third
business day following consummation, delivery of the notice required by paragraph (b) of
this section, or delivery of all material disclosures, whichever occurs last. If the required
notice or material disclosures are not delivered, the right to rescind shall expire 3 years
after consummation, upon transfer of all of the consumer's interest in the property, or
upon sale of the property, whichever occurs first. In the case of certain administrative
proceedings, the rescission period shall be extended in accordance with section 125(f) of
the Act. 12 C.F.R. 226.23(a).
Cycon never provided the Moores with the required disclosures and forms regarding their
rescission rights. (Aff. S. Moore, Dkt. 80, 23; Aff. C. Moore, Dkt. 79, 23). Accordingly, the
Moores right to rescind continued, subject only to the three year limitation in 15 U.S.C.
1635(f). Rudisell v. Fifth Third Bank, 622 F.2d 243, 247-48 (1980).
The first step in the rescission process is for the consumer to send the notice informing
the creditor that he or she is electing to cancel. The consumer must exercise the right in writing,
notifying the creditor of the cancellation by mail or other means. Reg. Z, 12 C.F.R.
226.15(a)(2). A rescission notice sent by the consumers attorney is effective. Official Staff
Commentary on Regulation Z, 226.2(a)(22)-2.
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By letter dated September 24, 2004, the Moores exercised their rescission right under 15
U.S.C. 1635(a) and rescinded the credit transaction between themselves and Cycon. Affidavit
of Phillip C. Rogers, 2 (attached hereto as Exhibit A). Immediately upon Cycons receipt of the
Moores rescission notice, the transaction was rescinded. By letter dated October 22, 2004, the
Moores attorney wrote Cycon attorney a courtesy letter and restated that the Moores had
rescinded the transaction. Id. at 3.
The TILA dictates the sequence of events that are to occur following rescission:
(b) Return of money or property following rescission
When an obligor exercises his right to rescind under subsection (a) of this section, he is
not liable for any finance or other charge, and any security interest given by the obligor,
including any such interest arising by operation of law, becomes void upon such a
rescission. Within 20 days after receipt of a notice of rescission, the creditor shall return
to the obligor any money or property given as earnest money, downpayment, or
otherwise, and shall take any action necessary or appropriate to reflect the termination of
any security interest created under the transaction. If the creditor has delivered any
property to the obligor, the obligor may retain possession of it. Upon the performance of
the creditor's obligations under this section, the obligor shall tender the property to the
creditor, except that if return of the property in kind would be impracticable or
inequitable, the obligor shall tender its reasonable value. Tender shall be made at the
location of the property or at the residence of the obligor, at the option of the obligor. If
the creditor does not take possession of the property within 20 days after tender by the
obligor, ownership of the property vests in the obligor without obligation on his part to
pay for it. The procedures prescribed by this subsection shall apply except when
otherwise ordered by a court.
15 U.S.C. 1635(b).
Applying the required TILA sequence of events to the facts of this case yields the
following results:
1)

Upon Cycons receipt of the Moores notice of rescission, Cycons security

interest in the Moores property became void as a matter of law and the Moores
were no longer liable for any finance or other charge in connection with the loan.
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2)

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Cycon was required within 20 days after receipt of a notice of rescission to take
any action necessary or appropriate to reflect the termination of any security
interest created under the transaction.

3)

The Moores were expressly authorized to retain any property of Cycon until
Cycon performed its obligations under the section, i.e., take action necessary to
reflect the termination of its security interest in the Moores property. Only after
Cycon would agree to take action necessary to reflect the termination of its
security interest would the Moores be required to tender back to Cycon the loan
principal.3
2.

The Moores are not liable for any finance or other charge
in connection with their rescinded transaction with Cycon.

As previously stated, Cycon loaned the Moores $190,262.15, paying that sum to Wells
Fargo Bank. In addition, there were various charges associated with the transaction.
Specifically, the HUD-1 at Line 502 disclosed that the Moores had been assessed settlement
charges totaling $25,430.10. The settlement charges were itemized, with B&P Group being paid
a Loan Origination Fee of $12,930.00 and an Underwriting Fee of $350.00, and with an
entity named Romar Financial being paid an Additional Settlement Charge of $9,420.00.
(Aff. S. Moore, 20; Aff. C. Moore, 20).

Cycon has repeatedly complained that the Moores have had the use of the loan proceeds
for a period of years without paying interest. Cycon has no one to blame for its misfortune but
itself. If Cycon had complied with the TILA when it received the Moores notice of rescission in
September of 2004 and agreed to terminate its security interest in the Moores property, the
Moores would then have been required to tender the loan principal back to Cycon. Instead,
Cycon chose to flout the TILA and continue its repeated efforts to evict the Moores from their
home and wrongfully obtain title to their property.
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Because the Moores timely rescinded their transaction with Cycon, the TILA expressly
makes the Moores not liable for any finance or other charge in connection with the loan
transaction. 15 U.S.C. 1635(b). As explained in more detail by the Federal Reserve Board:
The consumer cannot be required to pay any amount in the form of money or property either to
the creditor or to a third party as part of the occurrence subject to the right of rescission. Any
amounts of this nature already paid by the consumer must be refunded. Any amount includes
finance charges already accrued, as well as other charges such as broker fees, application and
commitment fees, or fees for a title search or appraisal, whether paid to the creditor, paid by the
consumer directly to a third party, or passed on from the creditor to the third party. Official
Staff Commentary on Regulation Z, 226.15(d)(2)-1.
Because the Moores timely rescinded their transaction with Cycon, the Moores have no
obligation to repay Cycon more than the principal amount of the loan ($190,262.15), subject to
various adjustments that are described in subsequent sections of this brief.
3.

The Moores are entitled to an additional award of statutory damages

of $2,000.00 because Cycon failed to properly respond to the Moores
rescission notice as required by the TILA.

The Moores are entitled to a second award of statutory damages because of Cycons
failure to respond properly to the Moores rescission notice. Gerasta v. Hibernia National Bank,
575 F.2d 580, 583 (5th Cir.1978); In re Jackson, supra; In re Murray, 239 B.R. 728, 734
(Bankr. E.D. Pa. 1999); Shepeard v. Quality Siding & Window Factory, 730 F. Supp. 1295, 1308
(D. Del.1990). As explained in a prior section of this brief, the statutory damages for this
violation of the TILA also are capped at $2,000.00.

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C.

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The Court has held that Cycon violated the Michigan Usury Statute.

Under Michigan law, when the court imposes an equitable mortgage, the law of usury
applies. Grant v. Van Reken, 71 Mich App 121, 128-29 (1979).
The Michigan Usury Statute, M.C.L. 438.32 states: Any seller or lender or his assigns
who enters into any contract or agreement which does not comply with the provisions of this act
or charges interest in excess of that allowed by this act is barred from the recovery of any
interest, any official fees, delinquency or collection charge, attorney fees or court costs and the
borrower or buyer shall be entitled to recover attorney fees and court costs from the seller, lender
or assigns.
The Court has held that Cycon violated the Michigan Usury Statute, M.C.L. 438.31c
because Cycon charged the Moores interest at a rate which exceed the rate allowed by law. The
Court has expressly ruled that Cycon may not recover from the Moores any interest, delinquency
charges, attorney fees, or other charges. Opinion dated August 16, 2006, pp. 23 and 25 (Dkt. 95),
Order dated August 14, 2006 (Dkt. 94).
Inasmuch as Cycon is prohibited from charging the Moores any interest or other fees in
connection with the usurious loan transaction, all payments made by the Moores to Cycon must
be applied to the principal loan amount.
D.

The Moores obligation to Cycon must be reduced by the

amount of prior payments made by the Moores to Cycon.

Between July 11, 2003 and September 8, 2003, the Moores made a series of payments to
Cycon, Mr. Windham and their related entities. The payments totaled $10,858.66, as established
in the Second Affidavit of Samuel R. Moore, Jr., which is attached hereto as Exhibit B.
Inasmuch as Cycon is prohibited by the TILA and the Michigan Usury Statute from
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charging the Moores any finance charges or other fees in connection with the loan transaction, all
payments made by the Moores must be applied to the principal loan amount.
E.

With credits for prior payments and for statutory damages,

the principal balance on the Moores loan from Cycon
should be reduced from $190,262.15 to $175,403.49.

To summarize, Cycon made a loan to the Moores in the principal amount of $190,262.15.
The Moores are entitled to a credit for statutory damages in the amount of $2,000.00 in
connection with Cycons violation of the TILA for failing to make cost-of-credit disclosures.
The Moores also are entitled to a credit for statutory damages in the amount of $2,000.00 in
connection with Cycons violation of the TILA for failing to respond properly to the Moores
rescission notice. Credit for total statutory damages reduces the principal loan balance to
$186,262.15.
The Moores also are entitled to a credit for prior payments made to Cycon in the amount
of $10,858.66. Credit for prior payments reduces the principal loan balance to $175,403.49.
F.

The Court has opined that Cycon should be entitled to recover

any amounts that Cycon may have paid for property taxes and
property insurance in connection with the Moores property.

The Court has opined that the Moores should be required to reimburse Cycon for any
property taxes and property insurance paid by Cycon in connection with the Moores property.
Opinion dated August 16, 2006, p. 25 (Dkt. 95). As to property taxes the Moores believe that at
most, on March 23, 2006, Cycon may have paid taxes for tax year 2003 in the amount of
$4,009.79.
The Moores leave Cycon to its proofs regarding any claimed payment of property taxes
and property insurance in connection with the Moores property.

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Order dated August 14, 2006 (Dkt. 94).

G.

The Moores are entitled to equitable relief.

Once the Court has ruled on the remaining issues in this case and determined the balance
due from the Moores to Cycon on the loan, the Moores will need a reasonable period of time in
which to attempt refinancing, or in the alternative, to sell their home.
The Moores suggest that a period of 120 days from the Courts final order in this case
would be a reasonable period of time to allow them to obtain refinancing. The Moores further
suggest that in the event the Moores are unable to obtain refinancing within 120 days from the
Courts final order in this case, then the Moores would have a period of two years from the
Courts final order in which to sell their property, with interest to accrue in favor of Cycon
beginning on the 121st day at a rate of seven percent per annum. If the Moores are unable to sell
their property within the two-year period, Cycon would then have the option to foreclose on its
equitable mortgage.
In the event Cycon were to take an appeal in this case, then all of the time periods related
to the Moores obligation to obtain refinancing or to sell their home, should not begin to run until
after the appeal is concluded.
H.

The Moores are entitled to an award of costs and a reasonable attorneys fee.

The TILA states that in the case of any successful action to enforce the foregoing
liability [for actual or statutory damages] or in any action in which a person is determined to have
a right of rescission under section 1635 of this title, [the creditor shall be liable for] the costs of
the action, together with a reasonable attorneys fee as determined by the court.
Similarly, the Michigan Usury Statute, M.C.L. 438.32 states: Any seller or lender or his

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assigns who enters into any contract or agreement which does not comply with the provisions of
this act or charges interest in excess of that allowed by this act is barred from the recovery of any
interest, any official fees, delinquency or collection charge, attorney fees or court costs and the
borrower or buyer shall be entitled to recover attorney fees and court costs from the seller, lender
or assigns.
Because Cycon has violated the TILA and the Michigan Usury Statute, the Moores will
be entitled to an award of costs and a reasonable attorneys fee at the conclusion of this lawsuit.
The Moores request that the Court award them costs and a reasonable attorneys fee and
allow them a reasonable period of time in which to file their application for costs and attorney
fees.
I.

The Moores hereby abandon their claim under the

Michigan Credit Services Protection Act, Count 7.

The Moores hereby abandon their claim made under the Michigan Credit Services
Protection Act as alleged in Count 7 of their Complaint.
IV.

Conclusion
The Moores request that the Court grant their Motion for Summary Judgment for

Damages and Other Relief, and (a) award them statutory damages of $2,000.00 in connection
with Cycons failure to make the cost-of-credit disclosures required by the TILA; (b) award them
additional statutory damages in the amount of $2,000.00 in connection with Cycons violation of
the TILA for failing to respond properly to the Moores rescission notice; (c) adjudge that the
remaining balance on the loan from Cycon to the Moores is $175,403.49; (d) allow the Moores
a period of 120 days from the Courts final order in this case to obtain refinancing and pay the
loan balance to Cycon, or in the alternative, allow the Moores a period of two years from the
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Courts final order in this case to sell their property, with interest to accrue in favor of Cycon
beginning on the 121st day at a rate of seven percent per annum, and with Cycon having the
option to foreclose on its equitable mortgage at the expiration of the period of two years; and (e)
award the Moores their costs and a reasonable attorneys fee, to be determined upon application
at the conclusion of this lawsuit.
Dated: September 25, 2006

Respectfully submitted,
/s/ Phillip C. Rogers
Phillip C. Rogers (P34356)
Attorney for Plaintiffs
Trust Building, Suite 336
40 Pearl Street, N.W.
Grand Rapids, Michigan 49503
(616) 776-1176

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