Hendrickson v. Fifth Third Bank

Background

This order resolves three dispositive motions in two related cases. In the Hendrickson case, Fifth Third Bank moved for judgment on the pleadings, and 11th Hour Recovery, Inc. moved for judgment on the pleadings or, alternatively, summary judgment. In the Sampson case, Fifth Third moved to dismiss for failure to state a claim.

Kelley L. Hendrickson financed a vehicle through a loan from Fifth Third in August 2016. The loan required monthly payments and allowed Fifth Third to repossess the vehicle after default. After Hendrickson’s financial circumstances changed, she discussed payment plans with Fifth Third. Fifth Third agreed not to repossess the vehicle as long as she continued making payments. Hendrickson made five late payments between June and October 2017. Fifth Third accepted each late payment but later refunded the October payment. In October 2017, Fifth Third hired 11th Hour to repossess the vehicle. Neither defendant sent Hendrickson a notice stating that Fifth Third intended to strictly enforce the loan terms after accepting the late payments.

Elizabeth A. Sampson financed a vehicle through a Fifth Third loan in August 2014, and Tracey A. Lane co-signed the loan. The loan required monthly payments and gave Fifth Third several remedies after default, including the right to take immediate possession. Sampson made at least nine late payments between February 2015 and June 2017, and Fifth Third repeatedly accepted them. Fifth Third repossessed the vehicle on July 6, 2017, without first sending a notice about strict enforcement of the loan terms. Sampson filed for Chapter 7 bankruptcy protection on March 2, 2017, received a discharge on May 31, 2017, and did not reaffirm the debt with Fifth Third.

The Cobb-notice issue

The plaintiffs’ claims were based on Minnesota Supreme Court precedent requiring a creditor that repeatedly accepts late payments to notify the debtor that it will strictly enforce the loan terms before repossessing collateral. The court referred to this as a “Cobb notice.” Minnesota’s Uniform Commercial Code governs repossession of collateral. Although a secured party may repossess after default without going to court if it does not breach the peace, the court explained that notice of the intent to repossess may be required through the security agreement or a Cobb notice.

Fifth Third argued that Minnesota Statutes section 513.33 barred both cases because the plaintiffs’ claims were actions on unwritten credit agreements. That statute requires certain credit agreements to be written, to state consideration and relevant terms, and to be signed by the creditor and debtor. Fifth Third relied on a Minnesota Supreme Court decision holding that a debtor could not use a promissory-estoppel claim—a claim based on reliance on a promise—to avoid that writing requirement.

The court rejected the argument. It concluded that a claim based on the failure to send a Cobb notice is not an action to enforce a credit agreement. Instead, the claim alleges that Fifth Third failed to comply with an affirmative duty imposed by Minnesota law, which prevented lawful repossession. Because the parties did not dispute that Fifth Third repeatedly accepted late payments and did not send the required notices, the court denied the motions to the extent they relied on section 513.33.

11th Hour’s motion in Hendrickson

Hendrickson asserted a Minnesota Uniform Commercial Code claim for wrongful repossession and a claim under the Fair Debt Collection Practices Act, a federal law that prohibits certain debt-collection conduct. The federal claim was based on the allegation that 11th Hour repossessed the vehicle when there was no present right to possess it under state law.

11th Hour argued that it was not a secured party under the Minnesota Uniform Commercial Code and therefore was not subject to the repossession requirements. The court relied on more recent decisions from the District of Minnesota holding that companies performing repossessions for secured parties must comply with the applicable repossession standards. The court also noted that courts in the district had held that the federal debt-collection provision at issue applies to repossession companies.

11th Hour also argued that Hendrickson released all claims when she signed a “Personal Effects Inventory” to retrieve personal items from the repossessed vehicle. The court rejected that argument because, under the cited Minnesota precedent, a release after a wrongful repossession lacks consideration and is void. The court also rejected 11th Hour’s argument that it reasonably relied on Fifth Third’s representations about the legality of the repossession. The court therefore denied 11th Hour’s motion for judgment on the pleadings.

Fifth Third’s motion in Sampson

Fifth Third argued that Sampson’s bankruptcy discharge eliminated any obligation to send a Cobb notice before repossessing the vehicle. The court rejected Fifth Third’s argument that federal bankruptcy law independently gave it a substantive right to repossess the collateral. It held that the creditor’s substantive right to repossess remained a matter of state law, including state-law requirements such as a Cobb notice.

The court then applied Minnesota appellate precedent holding that a bankruptcy discharge extinguishes a debtor’s justifiable reliance or expectation that late payments will continue to be accepted. Because Sampson discharged the debt before repossession and did not reaffirm it, the court held that Fifth Third was not required to send her a Cobb notice. It granted Fifth Third’s motion to dismiss Sampson’s claims.

Lane argued that she was independently entitled to a Cobb notice as Sampson’s co-signer. The court rejected that argument because the complaint did not allege that Lane had direct dealings with Fifth Third, which the court said was necessary for the reliance theory underlying the notice requirement.

Disposition

The court ordered the following:

- Fifth Third’s motion for judgment on the pleadings in the Hendrickson case was DENIED. - 11th Hour’s motion for judgment on the pleadings or, alternatively, summary judgment in the Hendrickson case was DENIED. - Fifth Third’s motion to dismiss in the Sampson case was GRANTED. - Sampson and Lane’s complaint in the Sampson case was DISMISSED WITHOUT PREJUDICE.

The order was signed by United States District Judge Wilhelmina M. Wright.