In RAFAL LOJEWSKI, SMITH GARCIA, DANIELLE GARCIA, MANUEL ACEVEDO, ISAMAR DELACRUZ, on behalf of themselves & all others similarly situated, Plaintiffs, v. GROUP SOLAR USA, LLC, SOLAR MOSAIC, INC., SALAL CREDIT UNION, DANIEL YOMTOBIAN CORP D/B/A SOLAR PROGRAM, Defendants., No. 22 CIV. 10816 (PAE), 2023 WL 8850586, at *1 (S.D.N.Y. Dec. 21, 2023), Plaintiff filed a class action in part based on a Facebook-based incentive plan pursuant to which purchaser of solar installation would receive from Group Solar a “Residential Clean Energy Program” financial worksheet detailing a one-time “Welcome Check Incentive” of $3,862.92. Judge Englemeyer found that the claims could be asserted against the Credit Union (SALAL) based on the FTC Holder Rule in the RISC. The Court first addressed the “Welcome Check” claims.
The Holder Rule allows plaintiffs to bring the class claims based on derivative liability
SALAL argues that all putative class claims in the FAC (and many individual claims) against it must be dismissed because those claims, which seek to hold SALAL derivatively liable for conduct by Group Solar, are inconsistent with the “Holder Rule” promulgated by the Federal Trade Commission (“FTC”). SALAL is wrong. The Holder Rule, promulgated in 1975, requires all consumer installment contracts to contain the following provision: NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. 16 C.F.R. § 433.2. The Holder Rule was “promulgated in order to cure business practices that ‘separated the buyer’s duty to pay for goods or services from the seller’s reciprocal duty to perform as promised … [and where] [c]reditors dunned consumers and collected debts despite consumers’ claims and defenses against the sellers.’ ” Diaz v. Paragon Motors of Woodside, Inc., 424 F. Supp. 2d 519, 544 (E.D.N.Y. 2006) (quoting FTC, 57 Fed. Reg. 28,814, 28,815). The Holder Rule accomplishes this goal by permitting “an individual [subject to a consumer credit contract] to assert all claims and defenses against an assignee that he or she could have asserted against the assignor[.]” Pierre v. Planet Automotive, Inc., 193 F. Supp. 3d 157, 175 (E.D.N.Y. 2016). Here, the RICs that plaintiffs signed with Group Solar—the rights under which Group Solar contemporaneously assigned to SALAL—consistent with the Holder Rule, contain the above clause. See Lojewski RIC at 5; Acevedo/Delacruz RIC at 5. On that basis, certain of plaintiffs’ claims seek to hold SALAL liable, as assignee of the RIC, for Group Solar’s failure to deliver promised Welcome Checks. See Compl. ¶¶ 149–90 (detailing class claims); id. ¶¶ 191–242, 250–57 (detailing Acevedo individual claims); id. ¶¶ 243–49, 258–262 (detailing Delacruz individual claims).8 For several reasons, however, SALAL asserts that the Holder Rule does not apply here, requiring dismissal of all claims based on derivative liability. SALAL Mot. at 12–15, 16–17. The Court considers, and rejects in turn, SALAL’s arguments to this effect. . . .SALAL first argues that all claims that seek to hold SALAL derivatively liable for Group Solar’s conduct as an assignee of the RIC fail, because the Holder Rule does not apply to such claims. That is because, SALAL contends, the Holder Rule permits derivative liability claims only where the “subject matter” of such claims was “obtained pursuant to the contract” at issue. SALAL Mot. at 13. And here, SALAL states, the Welcome Checks, the subject matter of the claims were not “obtained pursuant to the contract.” SALAL is wrong. By its plain language, the Holder Rule is not limited to claims the subject matter of which were “obtained pursuant to the contract.” The notice required by the Holder Rule states that “ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF.” See Lojewski RIC at 5; Acevedo/Delacruz RIC at 5. This sentence does not erect the limitation SALAL imagines. Rather, in categorical terms, it provides that the holder of a consumer credit contract (SALAL) is subject to all the claims and defenses that the debtor (a plaintiff) could assert against the seller (Group Solar). The balance of the sentence does not change this result. Its clause “of goods or services obtained pursuant hereto or with the proceeds hereof” merely defines the seller whose claims the holder is subject to. SALAL urges an alternative reading under which that clause substantively limits the claims that can be brought against an assignee. See SALAL Mot. at 13; SALAL Reply at 12. And, it urges, because the Welcome Checks are not specifically identified in the RICs, plaintiffs’ claims against Group Solar concerning these “goods and services” are outside the scope of the derivative liability for assignee SALAL permitted by the Holder Rule. That reading does not follow. The Holder Rule does not anywhere refer to the “subject matter” of the claims. Nor does it anywhere qualify its global statement making “all” claims against the seller under the contract capable of being asserted against the assignee. Insofar as plaintiffs can (and do) bring claims against Group Seller under the contract arising from the denial to them of Welcome Checks, the Holder Rule permits them to purse the same against SALAL. The case law has not read the Holder Rule to limit liability to claims in this or any other pertinent way. See, e.g., Pierre, 193 F. Supp. 3d at 176 (rejecting argument that defendant could not be held liable under Holder Rule for fraud and false advertising claims against car dealership because it was “not involved whatsoever in the complained-of advertising by the dealership or the complained-of deceptive practices allegedly directed at plaintiff” (internal quotation marks and citation omitted)); Ramirez v. National Co-op. Bank, 91 N.Y.S.2d 280, 283 (1st Dep’t 2011) (under Holder Rule, car financer could be liable as assignee for car dealership’s allegedly fraudulent conduct, including “a scheme to entice consumers to the dealership with false promises of a cash prize of a free cruise,” id. at 281); Pyskaty v. Wide World of Cars, LLC, No. 15 Civ. 16 (JCM), 2019 WL 917153, at *11–12, *14 (S.D.N.Y. Feb. 25, 2019) (derivative liability viable for assignee based on seller’s common law fraud entailing provision of inaccurate used car report).9 The Court thus rejects this argument.
The Court next addressed whether the NY Installment Sales Act claims could be bround under the FTC Holder Rule.
SALAL next argues that the Holder Rule does not apply to the FAC’s claim, on behalf of a putative class, under New York Retail Installment Sales Act, NYPPL § 401 et seq. See Compl. ¶¶ 175–87. That claim is brought against all defendants. It alleges that Group Solar failed to disclose, in the retail installment contract, its promise to pay the Welcome Checks, in violation of NYPPL §§ 402(2), 402(3), and 413(4). See id. ¶¶ 182–85. SALAL, noting that the latter two NYPPL provisions parallel the federal Truth in Lending Act (“TILA”), alleges that, because TILA limits assignee liability, this limitation should extend to plaintiff’s claims of such liability under the NYPPL.
That argument, too, fails. TILA indeed limits assignee liability, and courts have held that that statutory limitation trumps the regulatory Holder Rule in the context of claims brought under TILA, precluding TILA claims against assignees based on derivative liability for sellers’ conduct. See Taylor v. Quality Hyundai Inc., 150 F.3d 689, 692–94 (7th Cir. 1998); Ramadan v. Chase Manhattan Corp., 229 F.3d 194 (3d Cir. 2000); Green v. Levis Motors, Inc., 179 F.3d 286, 296 (5th Cir. 1999); Ellis v. Gen. Motors Acceptance Corp., 160 F.3d 703, 708–09 (11th Cir. 1998). But by its express terms, that limitation within TILA “makes clear that the assignee liability limitation regarding disclosure statements applies only to a ‘civil action for a violation of [TILA].’ ” Buelow v. Plaza Motors of Brooklyn, Inc., No. 17 Civ. 4288 (LDH) (ST), 2018 WL 11447561, at *5 (E.D.N.Y. Sept. 29, 2018) (quoting 15 U.S.C. § 1641(a)). That language does not apply to a claim under a state law lacking TILA’s textual limitation. See, e.g., id. (state-law claims for rescission, fraud, misrepresentation, breach of warranty, false advertising, and deceptive sales practices not subject to TILA’s limitation on assignee liability); Ramirez, 938 N.Y.S.2d at 208 (“Where the plaintiff brings a non-TILA claim under state law, an assignee may be derivatively liable pursuant to the Holder Rule and its New York analogue.”). Such is the case here: the NYPPL lacks such a textual limitation. SALAL does not argue that TILA preempts the relevant provisions of the NYPPL. The Court is unaware of any case so holding or any basis to so argue. See People ex rel. Spitzer v. Applied Card Sys., Inc., 863 N.Y.S.2d 615, 620 (2008) (rejecting broad view of TILA-preemption as applied to other New York consumer protection law). Courts have entertained claims under TILA and the parallel provisions of NYPPL in the same action, without holding that the similarities between the two must render the NYPPL provisions preempted. See, e.g., Orlosky v. Empire Sec. Systems, Inc., 657 N.Y.S.2d 840, 842 (3d Dep’t 1997); Manzina v. Publishers Guild, Inc., 386 F. Supp. 241, 242 (S.D.N.Y. 1974). Plaintiffs may therefore pursue this claim against SALAL.