The opinion of the court was delivered by: SPATT
This lawsuit is brought by the plaintiff, Alan Steinmetz, ("Steinmetz" or the "plaintiff") on behalf of a putative class of lessees against the defendant Toyota Motor Credit Corporation ("Toyota" or the "defendant") based on the defendant's allegedly unlawful leasing practices with respect to the security deposits that lessees are required to advance. Presently before the Court is Toyota's motion to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(6).
The following facts are taken from the Complaint. The plaintiff is a resident of Nassau County. The defendant is a California corporation which provides, among other services, financing in conjunction with leases offered by Toyota and Lexus dealerships nationwide including in New York. In connection with these lease transactions, Toyota operates as "both an assignee and an original lessor" in that it supplies the lease forms to the car dealers and extends and approves lessees' credit. Compl. P 10. Further all lease payments are made directly to Toyota.
On January 22, 1993, Steinmetz entered into a lease agreement with an Inwood, New York based dealer known as "Five Town Toyota, Ltd." (the "Lease"). The Lease, which was on a Toyota form, was assigned to the defendant in accordance with its standard operating procedure and is scheduled to terminate at an unspecified time this year. In the Lease is a requirement that the lessee, in this case the plaintiff, pay a security deposit of $ 325 at the outset. The Lease further requires 48 monthly payments of $ 325 each for a total of $ 15,600. Upon executing the lease, the plaintiff paid the initial $ 325 monthly lease payment, a $ 325 security deposit and a $ 110 license fee. According to the Complaint, the funds paid for the security deposit were commingled with other Toyota moneys.
With respect to the security deposit, the Lease provides:
You may use the security deposit to pay all amounts that you should pay under this Lease, but do not. If you perform all of your obligations under this Lease, the security deposit will be returned to you at the end of the Lease Term. No interest will accrue or be paid to you on the security deposit unless otherwise required by law.
Steinmetz claims that once the lessees' transfer the security deposits to the defendant, they are used:
in a manner that causes the deposits to increase in value through interest or other investment, or permits defendant otherwise to profit or enjoy other economic benefits from its possession of such deposits ("profits"). In some instances defendant converts the security deposit at lease inception, using, directly or as collateral, the Lessees' money to purchase the vehicle which is then leased to the Lessee. In other instances defendant realizes an "Earned Income Credit" from the security deposits that are deposited and held in the defendant's bank account, thereby reducing bank charges due on its accounts.
Based on these allegations, allegedly acting on behalf of a class of similarly situated lessees, Steinmetz asserts six causes of action for violation of: (1) the Consumer Leasing Act ("CLA"), 15 U.S.C. § 1667a and Regulation M, 12 C.F.R. § 213.4; (2) New York U.C.C. § 9-207(2)(c); (3) New York General Obligations Law § 7-101; (4) New York General Business Law § 349; (5) conversion; and (6) unjust enrichment.
The defendant moves to dismiss the complaint on two grounds. Initially, Toyota argues that Steinmetz has failed to allege a claim for which relief can be granted. In the alternative, the defendant maintains that even if the plaintiff's claims were otherwise valid, they are nevertheless barred as the result of a class action settlement and Final Judgment entered in the case of Mortimer v. River Oaks Toyota, Inc., No. 91 L 18043 (Cir. Ct. Cook Cty. Nov. 23, 1993) (final judgment). Steinmetz opposes Toyota's motion, and also cross moves for leave to file an amended complaint pursuant to Fed. R. Civ. P. 15 in the event that the defendant's motion is granted.
A. Rule 12(b)(6) standard
A complaint is to be dismissed under Fed. R. Civ. P. 12(b)(6) for failure to state a claim, if it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); accord Gagliardi v. Village of Pawling, 18 F.3d 188, 191 (2d Cir. 1994); Allen v. Westpoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991). In addition, such a motion is addressed solely to the face of a pleading, and "the court's function . . . is not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985).
In assessing the sufficiency of a pleading on a motion to dismiss, "all factual allegations in the complaint must be taken as true," La Bounty v. Adler, 933 F.2d 121, 123 (2d Cir. 1991), and all reasonable inferences must be construed in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974); Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1099 (2d Cir. 1988), cert. denied sub nom., Soifer v. Bankers Trust Co., 490 U.S. 1007, 104 L. Ed. 2d 158, 109 S. Ct. 1642 (1989).
The Court is also mindful that under the modern rules of pleading, the plaintiff need only aver "a short and plain statement showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), and that "all pleadings shall be so construed as to do substantial justice." Fed. R. Civ. P. 8(f).
B. Toyota's motion to dismiss
The defendant initially argues that the plaintiff's claims hinge on a "single, faulty premise," namely that New York law requires leasing companies that retain security deposits in non-interest bearing accounts pay lessees their share of whatever benefits they receive. Toyota maintains that because New York General Obligations Law is the exclusive statutory provision governing the transactions at issue, and does not impose such a requirement, the various other causes of action contained in the Complaint must fail. Alternatively, even if the plaintiff's claims were otherwise valid, the defendant contends that this action is nevertheless barred by the class action settlement in Mortimer v. River Oaks Toyota, Inc., No. 91 L 18043 (Cir. Ct. Cook Cty. Nov. 23, 1993). To facilitate the analysis, the Court will address the latter argument first.
1. The Mortimer class action settlement
The defendant asserts that the plaintiff's claims are barred by the final judgment entered in Mortimer v. River Oaks Toyota, Inc., No. 91 L 18043 (Cir. Ct. Cook Cty. Nov. 23, 1993) in connection with a class action settlement. At the outset, the Court notes that it may take judicial notice of court orders without converting this motion to one for summary judgment. See, e.g., Mullis v. United States Bankruptcy Court, 828 F.2d 1385, 1388 n.9 (9th Cir. 1987), cert. denied, 486 U.S. 1040, 100 L. Ed. 2d 616, 108 S. Ct. 2031 (1988) (recognizing that a court may take judicial notice of pleadings and orders on a motion to dismiss); General Time Corp. v. Bulk Materials, Inc., 826 F. Supp. 471, 473 n.1 (M.D. Ga. 1993); 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1364 (1990).
Article IV, Section 1 of the United States Constitution provides that:
Full faith and Credit shall be given in each State to the public Acts, Records, and Judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records and Proceedings shall be proved, and the Effect thereof.
U.S. Const. Art. IV section 1. Similarly, pursuant to 2 U.S.C. § 1738:
Judicial proceedings . . . shall have the same full faith and credit in every court within the United States and its Territories and Possessions as they have by law or usage in the courts of such State . . . from which they are taken.
Section 1738 "'require[s] all federal courts to give preclusive effect to state-court judgments whenever the courts of the State from which the judgments emerged would do so.'" Kelleran v. Andrijevic, 825 F.2d 692, 694 (2d Cir. 1987), cert. denied, 484 U.S. 1007, 98 L. Ed. 2d 652, 108 S. Ct. 701 (1988), quoting, Allen v. McCurry, 449 U.S. 90, 96, 66 L. Ed. 2d 308, 101 S. Ct. 411 (1980). The Supreme Court has recently stated that this rule applies to a state court class action judgment incorporating a settlement agreement releasing the defendants from pending claims. Matsushita v. Elec. Indus. Co. v. Epstein, 134 L. Ed. 2d 6, 116 S. Ct. 873, 877-78 (1996).
According to the Notice of Proposed Class Action Settlement in Mortimer, the Final Judgment, see Affidavit of Robert Shwarts, Dec. 12, 1996, Exh. B., released the defendants from all claims including:
any and all manner of claims, disputes, actions liabilities, causes of action . . . foreseen or unforeseen, known or unknown . . . which the Plaintiffs and the Settlement Class Members or any of them ever had, or now have, or may have . . . based upon, in connection with, arising out of, or which are in any way directly or indirectly related to (i) the claims made in the lawsuit; (ii) the contents of [Toyota] lease forms, including . . . any disclosure requirements, and the manner in which disclosures were or were not made by [Toyota. . . .]
Notice of Proposed Class Action Settlement at 7. Shwarts Aff., Exh. C (emphasis supplied).
Class members were defined as "all persons who . . . presently have leases on [Toyota] lease forms which were assigned to [Toyota] . . . ." Final Judgment at 5. On November 23, 1993, the date of the Mortimer judgment, the plaintiff met these criteria. See Compl., Exh. A. According to the Proposed Notice of Settlement, any class member who wanted to "opt out" was permitted to do so no later than September 30, 1993. Notice of Proposed Settlement at 3. Otherwise, that class member would be bound by the settlement and judgment. Id. Because Steinmetz failed to opt out of the class, Toyota maintains that he is bound by the Mortimer consent judgment.
Steinmetz attacks this consent judgment on three grounds. Initially, the plaintiff argues that the Mortimer lawsuit never contemplated the claims at issue in this case. Rather, Steinmetz contends that Mortimer addressed Toyota's "early termination charges and the imposition of a Chicago city tax" and not security deposits. Pl. Mem. of Law at 15.
In addition, the plaintiff argues that the claims raised in Mortimer were premature with respect to the causes of action at issue in this lawsuit. As set forth above, Steinmetz contends that Mortimer involved early termination charges. Claims based on these charges are not ripe until the lessee terminates early and is assessed a charge. Because Steinmetz did not terminate early, he asserts that he never had standing to bring the claims asserted in Mortimer.
Finally, the plaintiff attacks the Mortimer class representative as inadequate. In support of this argument Steinmetz asserts that an adequate representative would not "accept illusory consideration for claims over which he or she lacks standing and which claims had already been dismissed, in exchange for a release absolving the defendant from any and all liability of any kind, whether or not related (legally or factually) to the claims that were brought in the action that is being settled." Pl. Mem of Law at 18-19.
The Court is unpersuaded by the plaintiff's first and second arguments. The language of the Final Judgment and Notice of Settlement are clear and were approved by the Illinois Circuit Court. As stated above, Steinmetz was a member of the class and the settlement released Toyota from "all . . . claims . . . based upon . . . the contents of [Toyota] lease forms, including any disclosure requirements." This language on its face appears to preclude the plaintiff's claims. Further, the plaintiff does not allege that he never received notice of his right to opt out of the settlement, an option he did not exercise.
However, the third argument, namely, inadequate representation of class counsel, gives the Court cause for concern. The plaintiffs in the Mortimer class action were represented by Daniel Edelman, Esq., an attorney who has been criticized by other courts. For example, in Sandlin v. Shapiro & Fishman, 168 F.R.D. 662, 668 (M.D. Fla. 1996), in denying a motion for class certification in part due to inadequate representation, the district court quoted Illinois Circuit Judge Richard L. Curry, who had previously decertified Edelman from serving as class counsel, and stated "'I can think of no plague worse than to have a Court impose the like of Daniel Edelman and Lawrence Walner on absent and unsuspecting members of a class.'" Judge Curry then criticized Mr. Edelman in great detail. Similarly, in Daniels v. First Union Nat'l Bank, Case No. 94-125-Civ-J-20 (M.D. Fla. Dec. 8, 1994) and Odon USA Meats, Inc. v. Ford Motor Credit Corp., 1994 U.S. Dist. LEXIS 11377, No. 93-Civ.-6848 (N.D. Ill. Aug. 11, 1994) cited therein, the district judge also questioned Mr. Edelman's ability to represent the putative class.
Nevertheless, the Court rejects this argument by the plaintiff. In the Mortimer Final Judgment Order, the court found that "Daniel Edelman . . . vigorously prosecuted the subject claims on behalf of all classes." Final Judgment at 9. With respect to Edelman's actions in the Mortimer ...