Danger v. Nextep Funding, LLC

Background

In June 2017, LuAnn Danger purchased a Yorkshire Terrier and Maltese mix puppy from Premier Pups for a stated price of $1,381.89. She entered into an agreement with Nextep Funding, LLC that allowed her to take possession of the dog in exchange for one payment of $173.28 and 23 monthly payments of $138.28, plus fees. The agreement was labeled a closed-end consumer product lease, but the parties disputed whether it was actually a lease or a credit sale.

Monterey Financial Services, LLC was identified in the agreement as the payee for payments and written communications about disputed amounts. Danger made the required monthly payments and was scheduled to complete them on June 16, 2019.

Claims and Motions

Danger asserted three counts:

Both defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing that Danger lacked standing to bring her federal claims. They also argued that the court should dismiss the state-law claim if the federal claims were dismissed. In addition, Nextep argued that Danger had not adequately pleaded a Consumer Leasing Act violation; Monterey argued that it was only a loan servicer and therefore was not liable under the Truth in Lending Act; and both defendants argued that the usury claim was not legally sufficient.

Standing for Monetary and Injunctive Relief

The court held that Danger plausibly alleged a concrete injury sufficient for standing. She alleged that, had the defendants disclosed the true interest rate, she would have pursued less expensive financing through a credit card or a personal loan from her credit union. The court found that these allegations showed more than a bare technical violation because the alleged disclosure failures affected her protected interest in making informed use of credit. Whether she read or was confused by the disclosures were factual issues suitable for discovery, not grounds for dismissal at the pleading stage.

The court also held that Danger adequately alleged standing to seek an injunction. She alleged that her injury was ongoing because she continued to make payments under the agreement. The defendants’ standing-based motions were denied. Because the court found standing for the federal claims, it denied the portions of the motions seeking dismissal of the Minnesota usury claim for lack of supplemental jurisdiction without separately considering that argument.

Consumer Leasing Act Claim Against Nextep

The court denied Nextep’s Rule 12(b)(6) motion on the Consumer Leasing Act claim. That rule tests whether a complaint alleges enough facts to state a legally plausible claim. The agreement stated under “Monthly Payments” that the total of the monthly payments was $138.28, while elsewhere it stated that the total amount paid by the end of the lease would be $3,318.73. Danger also alleged that the stated total omitted the $35 warranty fee and either a $103.64 disposition fee or a $207.28 purchase-option fee.

The court concluded that the agreement could appear conflicting and confusing to a consumer. It therefore could not decide as a matter of law that the disclosures were clear and conspicuous. Nextep’s motion to dismiss Count I was denied.

Truth in Lending Act Claim Against Monterey

The court denied Monterey’s Rule 12(b)(6) motion on the Truth in Lending Act claim. Danger alleged that the transaction was a consumer credit sale despite being labeled a lease, that Monterey was a creditor, and that Monterey was the payee for her payments. The court was required at this stage to accept those factual allegations as true and could not resolve the parties’ factual dispute in Monterey’s favor.

The court declined to consider a letter submitted by Monterey stating that Nextep had appointed Monterey to service the lease because the letter was outside the pleadings and was not a document embraced by the complaint. The court stated that discovery would inform whether Monterey was a creditor or merely a servicer. Monterey’s motion to dismiss Count II was denied.

Minnesota Usury Claim

The court also denied both defendants’ motions to dismiss Count III. Minnesota’s usury law limits interest on personal debt to 8%. The court explained that whether the agreement was subject to that law depended on the transaction’s substance rather than its label as a lease, loan, or sale.

The defendants argued that the transaction was not a loan and was protected by the time-price doctrine, which can apply when a seller charges one price for cash and a higher price for credit. The court found that the facts were less clear here because Premier Pups was the seller, while the defendants provided the financing. Danger adequately alleged that the defendants charged an annual percentage rate above 120% and intended to avoid the usury law by calling the agreement a lease. The court held that the claim’s viability would be better informed by discovery.

Order

The court ordered that Nextep’s motion to dismiss was denied, Monterey’s motions to dismiss were denied, and the stay in the case was lifted. Judge Susan Richard Nelson did not enter a final judgment on the merits of Danger’s claims; the ruling allowed the claims to proceed beyond the dismissal stage.