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Wisc. Supreme Court Limits ‘Unconscionability’ Claims Regarding Consumer Credit Transactions

The Supreme Court of Wisconsin recently held that (1) in the Wisconsin statute regarding nonjudicial enforcement for consumer transactions (§ 425.206(2)(b)), the term “dwelling used by a customer as a residence” includes a garage attached to the residential building in which the customer lives; and (2) claims of unconscionability under the Wisconsin statute regarding remedies in consumer credit transactions (§ 425.107) are available only in “actions or other proceedings” brought by a creditor to enforce rights arising from consumer credit transactions and that a non-judicial repossession is not such an action or proceeding.

A link to the opinion in Duncan v. Asset Recovery Specialists, Inc. is available at:  Link to Opinion.

The matter arose out of a consumer’s (“Consumer”) default on her vehicle installment purchase contract, after which the assignee opted to conduct a non-judicial repossession under Wis. Stat. §§ 425.205(1g)(a) and 425.206(1)(d).

The assignee hired a recovery agency to repossess the vehicle. The recovery agency entered the garage of Consumer’s apartment building and took possession of the car.

Consumer filed suit against the assignee and recovery agent alleging that they violated the Wisconsin Consumer Act by “[e]ntering a dwelling used by a customer as a residence except at the voluntary request of a customer” during the repossession. See Wis. Stat. § 425.206(2)(b) (2017-18). Consumer also brought claims for violation of Wis. Stat. § 425.107 alleging that the defendants’ conduct during and after the repossession was unconscionable.

The trial court granted summary judgment for the defendants concluding that entering the garage to repossess the car did not violate Wis. Stat. § 425.206(2)(b) and the unconscionability claim failed as a result.

The Court of Appeals reversed and remanded to give the parties and the trial court the opportunity to address the unconscionability claim.  This appeal to the Wisconsin Supreme Court followed.

The question addressed by the Wisconsin Supreme Court was whether the assignee and recovery agent entered “a dwelling used by [Consumer] as a residence” when they repossessed her car from the first-floor parking garage of her apartment building.

The Wisconsin Supreme Court first determined the meaning of “dwelling” as it is used in § 425.206(2)(b).

The Court noted the common definition of dwelling is a building in which at least one person lives. The Wisconsin Supreme Court observed this definition consistent with the use of dwelling elsewhere in statutes that were in force at the time the Wisconsin Consumer Act was adopted.  The Court also held that the term referred to the entire building and not just the parts where residents might eat, sleep or shower.

The Wisconsin Supreme Court also observed that this definition of dwelling was consistent with its use elsewhere in the Wisconsin Consumer Act. Specifically, Wis. Admin. Code § DFI-WCA 1.392, specifies that, for purposes of Wis. Stat § 426.419(1)(a), “dwelling” includes “any garage, shed, barn or other building on the premises whether attached or unattached.” The Court noted that it did not adopt the administrative definition as the statutory definition under Wis. Stat. § 425.206(2)(b) but merely relied on it as further support for the conclusion that “dwelling” in § 425.206(2)(b) meant, at a minimum, a building in which at least one person lived.

The Wisconsin Supreme Court therefore held that the term “dwelling” in the Wisconsin Consumer Act included the garage from which Consumer’s vehicle was repossessed as it was located in the building in which she lived.

The Court next turned to whether the phrase “used by the customer as a residence” nevertheless excluded the garage.”

The Wisconsin Supreme Court concluded that this phrase distinguished the customer’s dwelling from all other dwellings. The Court reasoned the modifier was best understood as limiting which dwelling was protected and not which parts of the dwelling were protected. The Court further noted that its interpretation of Wis. Stat. § 425.206(2)(b) furthered one of the legislatively expressed purposes of the Wisconsin Consumer Act, to “simplify, clarify, and modernize the law governing consumer transactions.” See Wis. Stat. § 421.102(2)(a), see also § 421.102(1).

The Wisconsin Supreme Court therefore concluded that “dwelling used by the customer as a residence” in Wis. Stat. § 425.206(2)(b) included a garage attached to the residential building in which the customer lives and thus ruled that the defendants violated § 425.206(2)(b) when they repossessed Consumer’s vehicle.

The Court next turned to the question of unconscionability, answering the following two questions: (1) whether customers can bring claims of unconscionability under § 425.107 only in “actions or proceedings brought by a creditor to enforce rights arising from consumer credit transactions”, and (2) whether a non-judicial repossession pursuant to Wis. Stat. § 425.206(1)(d) is such an action or proceeding.

Although the Wisconsin Supreme Court had not yet addressed the first question, it noted several federal trial court cases which held that a consumer may raise an unconscionability claim under Wis. Stat. § 425.107 only in response to an action or other proceeding brought by a creditor and not as an original action. See Riel v. Navient Sols., Inc., No. 16-CV-1191-JPS, 2017 WL 168900 (E.D. wis. Jan. 17, 2017); see also Gable v. Universal Acceptance Corp., 338 F. Supp. 3d 943, 956-57 (E.D. Wis. 2018); VanHuss v. Rausch, Sturm, Israel, Enerson &Hornik, No. 16-cv-372-slc, 2017 WL 1379402, at *10 (W.D. Wis. Apr. 14, 2017).

The Wisconsin Supreme Court agreed that the scope language of Wis. Stat. § 425.102 bars a customer from bringing a claim of unconscionability under Wis. Stat. 425.106 except in response to “actions or other proceedings by a creditor.”

As to the second question, the Court concluded that Wis. Stat. § 425.206(1)(d) was not one of the “actions or other proceedings brought by a creditor” contemplated by the statute.

The Wisconsin Supreme Court noted that neither “actions” nor “other proceedings” are defined in the Wisconsin Consumer Act, but that the context revealed that the terms referred to creditor-initiated litigation or other legal proceedings akin to litigation pursued by a creditor.

The Court differentiated non-judicial repossession under Wis. Stat. § 425.206(1)(d) as it is an explicit alternative to litigation that does not require a creditor to assert its rights in court. The Court further stated that because non-judicial repossession pursuant to the statute is only available to the creditor if the customer fails to demand that the creditor file a replevin action, the non-judicial repossession is not an “action” described in § 425.102.

The Court found further contextual support to determine that “other proceedings” are formal processes similar to litigation that allow a creditor to enforce its rights.

Thus, the Wisconsin Supreme Court held that Consumer’s unconscionability claim failed.

The Wisconsin Supreme Court therefore affirmed the Court of Appeals’ ruling as modified by its conclusion on unconscionability and remanded to the trial court for further proceedings.

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Jenna Tersteegen is an Associate in Maurice Wutscher's New York City office, practicing in the firm’s Consumer Credit Litigation and Commercial Litigation groups. Prior to joining the firm, Jenna was an associate attorney at a litigation law firm in New York City. Her practice covered New York state labor and employment laws, premises liability and property damage cases. She conducted all pre-trial aspects of litigation, including preparing case strategy and evaluation reports, taking and defending depositions, and drafting dispositive pre- and post-trial motions. She is admitted to practice law in Illinois and New York, and the U.S. District Court for the Eastern District of New York.

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