decided: April 28, 1978.
HOUSEHOLD CONSUMER DISCOUNT COMPANY, APPELLEE,
MARIAN VESPAZIANI, APPELLANT. AMERICAN FINANCE CORPORATION, APPELLEE, V. MARIAN VESPAZIANI, APPELLANT
No. 482 and 483 April Term, 1977, Consolidated Appeals From the Orders of the Court of Common Pleas of Beaver County, Civil Division, at Nos. 1832 and 1616 of 1976.
John W. Dineen, Aliquippa, for appellant.
No appearance entered nor brief submitted for appellee, at No. 482.
John H. Morgan, Pittsburgh, with him Howard D. Schwartz, Pittsburgh, for appellee, at No. 483.
Watkins, President Judge, and Jacobs, Hoffman, Cercone, Price, Van der Voort and Spaeth, JJ. Watkins, former President Judge, did not participate in the consideration or decision of this case.
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This appeal has been taken from Judge KLEIN's orders, dated January 14, 1977, sustaining appellees' preliminary objections to appellant's counterclaims for alleged violations
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of the Truth-In-Lending Act,*fn1 in assumpsit actions filed by Appellees Household Consumer Discount Company and American Finance Corporation to recover the balance due on loans made to appellant.*fn2 Although the initial actions and the counterclaims were filed after the one-year period of limitations set forth in Section 130(e) of the Act had expired,*fn3 appellant contends that her counterclaims should have been allowed under the common law doctrine of recoupment. For the reasons that appear below, we affirm.
We agree with the contention advanced by both appellant and appellees that the lower court erred in applying state rather than federal law. When a suit on a federally created cause of action is brought in a state court and there is a federal period of limitations specified, state courts should apply the federal period as well as any federal rules on tolling and other ancillary matters. 51 Am.Jur.2d Limitation of Actions § 75, at 654, citing Burnett v. New York Central Railroad Co., 380 U.S. 424, 85 S.Ct. 1050, 13 L.Ed.2d 941 (1964). The Supremacy Clause, U.S.Const. Art. VI, cl. 2, mandates that state courts not usurp the role of Congress by applying state law in matters demanding a uniform national application such as consumer credit regulation. See Engel v. Davenport, 271 U.S. 33, 39, 46 S.Ct. 410, 70 L.Ed. 813 (1926). The enactment of the Truth-In-Lending Act constitutes an exercise of Congress' power to regulate commerce, Sosa v. Fite, 465 F.2d 1227, 1229 (5th Cir. 1972), and when Congress legislates on a subject within its powers it preempts state regulation of the matter. See Perez v. United States, 402 U.S. 146, 91 S.Ct. 1357, 28 L.Ed.2d 686 (1971). The interjection of state law concerning tolling of the statute of limitations and ancillary matters would impermissibly impinge upon a constitutional power granted to Congress and would
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create needless diversity in the application of the Act*fn4 by "making identical transactions subject to the vagaries of the laws of the several states." Clearfield Trust Co. v. U. S., 318 U.S. 363, 367, 63 S.Ct. 573, 575, 87 L.Ed. 838 (1943). The intended beneficiaries of a federal protective statute must be afforded "the full benefit of federal law." McAllister v. Magnolia Petroleum Co., 357 U.S. 221, 226, 78 S.Ct. 1201, 1205, 28 L.Ed.2d 1272 (1958).
In applying a statutory period of limitations to a Truth-In-Lending cause of action, we are mindful of the fact that the cause of action for an alleged violation of the Act accrues at the time the parties contract.*fn5 Wachtel v. West, 476 F.2d 1062 (6th Cir. 1973), cert. den., 414 U.S. 874, 94 S.Ct. 161, 38 L.Ed.2d 114; Chevalier v. Baird Savings Association, 371 F.Supp. 1282 (E.D.Pa.1974). We are thus squarely faced with the question of whether the one-year period of limitations may in any way be circumvented by a consumer seeking to raise a Truth-In-Lending claim.
Generally, when a statute such as the one under scrutiny creates a right of action that did not exist at common law and restricts the time within which the right is available, the period of limitation is regarded as a matter of substance limiting the right as well as the remedy. Kalmich v. Bruno, 553 F.2d 549, 553 (7th Cir. 1977); Kruhmin v. United States War Shipping Administration, 81 F.Supp. 689, 690 (E.D.Pa.1949), aff'd, 177 F.2d 906 (3d Cir.). The filing of a complaint within the specified period is a condition precedent to recovery. The period of limitations is, therefore, unlike the normal statute of limitations which merely provides a defense to the assertion of a remedy rather than
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extinguishing the right itself. Northern Metal Co. v. United States, 350 F.2d 833, 837 (3d Cir. 1965). The United States Supreme Court has indicated, however, that, "[T]he distinction between remedial and substantive time limitations should not be given undue weight in deciding questions dealing with the extension of the time limit." Id. (citations omitted). In Burnett v. New York Central Railroad, 380 U.S. 424, 85 S.Ct. 1050, 13 L.Ed.2d 941 (1964), the Court stated that the basic question to be answered in determining whether a statute of limitations is to be tolled "is one 'of legislative intent whether the right shall be enforceable . . . after the prescribed time.'" 380 U.S. at 426, 85 S.Ct. at 1053, quoting Midstate Horticultural Co. v. Pennsylvania Railroad Co., 320 U.S. 356, 64 S.Ct. 128, 88 L.Ed. 96 (1943). If the requisite congressional intent appears, even a period of limitations set forth in a statute creating a new cause of action may be tolled in order to prevent an inequitable result. See, e. g., American Pipe & Construction Co. v. Utah, 414 U.S. 538, 94 S.Ct. 756, 38 L.Ed.2d 713 (1973);*fn6 Herb v. Pitcairn, 325 U.S. 77, 65 S.Ct. 954, 89 L.Ed. 1483 (1945).
Here, however, appellant advances no reason*fn7 for which the time limitation imposed upon the bringing of an affirmative action should be tolled.*fn8 Indeed appellant
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admits that if her Truth-In-Lending claim were determined to be affirmative in nature, the counterclaim would be barred. We need not, therefore, reach the issue of whether Congress intended to permit the tolling of the period of limitations.
Appellant contends rather that her claim should properly be characterized as a recoupment.*fn9 "Recoupment is in the nature of a defense arising out of . . . the transaction upon which the plaintiff's cause of action is grounded." Bull v. United States, 295 U.S. 247, 262, 55 S.Ct. 695, 700, 79 L.Ed. 1421 (1935). It is, therefore, "never barred by the limitation so long as the main action itself is timely." Id. As the United States Supreme Court stated in Rothensies v. Electric Battery Co., 329 U.S. 296, 67 S.Ct. 271, 91 L.Ed. 296 (1946), however,
[The doctrine of recoupment] has never been thought to allow one transaction to be offset against another, but only to permit a transaction which is made the subject of suit by a plaintiff to be examined in all its aspects, and judgment to be rendered that does justice in view of the one transaction as a whole. 329 U.S. at 299, 67 S.Ct. at 272.
The Court, in United States v. Western Pacific Railroad Co., 352 U.S. 59, 77 S.Ct. 161, 1 L.Ed.2d 126 (1956), discussed the effect of a statutory period of limitation upon the recoupment defense. Justice Harlan concluded that the policy behind statutes of limitations -- the prevention of stale litigation -- has no relevance when recoupment is used to present to the court all of the issues necessary to a just determination of the rights of the parties. He declared that
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a contrary result would be "incongruous" and refused to allow incongruity without the mandate of "the clearest congressional language." 352 U.S. at 71-72, 77 S.Ct. at 168-169.
Thus the question which presents itself is whether appellees' actions in assumpsit and appellant's claims for Truth-In-Lending violations arise from the same transaction in the sense that the justice of appellees' causes of action can only be determined by examining their alleged failure to comply with the credit disclosure law. It is irrefutable that both claims arise from the same source -- the extension of credit by the lender to the borrower. Ball v. Connecticut Bank and Trust Co., 404 F.Supp. 1, 4 (D.Conn.1975). In that sense then, they are offshoots of the same transaction. We do not believe, however, that mere identity of origin is sufficient to permit the Truth-In-Lending claim to be considered a defense in the nature of recoupment.*fn10
As enunciated in Western Pacific, the policy behind permitting the recoupment defense is the desirability of permitting the court to examine all aspects of a controversy in order to arrive at a just result. The incongruity referred to in Western Pacific does not exist in this case, however. Section 111(d) of the Truth-In-Lending Act, 15 U.S.C. § 1610(d), expressly provides that any violation of the Act is not to affect the validity or enforceability of the underlying loan transaction. The Truth-In-Lending claim can never, therefore, constitute a defense to the lender's action on the debt. It is clear, moreover, that the civil penalties recoverable
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under the Act are not designed to give the borrower the benefit of his or her bargain. Sellers v. Wollman, 510 F.2d 119, 122 (5th Cir. 1975). The provisions for maximum and minimum recoveries are inconsistent with any theory of contractual recovery.*fn11 Id.
The borrower's claim for a penalty created by federal law is "an extrinsic by-product" of the loan transaction. Hodges v. Community Loan & Investment Corp. of North Georgia, 133 Ga.App. 336, 210 S.E.2d 826, 832 (1974), aff'd in part and rev'd in part on other grounds, 234 Ga. 427, 216 S.E.2d 274 (Ga.1975). There is no factual or legal similarity between the issues presented by the two claims as there was in United States v. Western Pacific Railroad Co., 352 U.S. 59, 77 S.Ct. 161, 1 L.Ed.2d 126 (1956).*fn12 The Truth-In-Lending claim "is not a defense which goes to the justice of the lender's claim but an affirmative action which demands a penalty for an independent wrong." Hewlett v. John Blue Employees Credit Union, 344 So.2d 505, at 508 (Ala.App., filed Oct. 27, 1976), quoting Hodges v. Community Loan & Investment Corp. of North Georgia, 210 S.E.2d at 832.
Accordingly, we hold that appellant's claim constitutes an affirmative counterclaim rather than a recoupment defense. As such it is barred by the one-year period of limitations.