Chrysler Credit v. Silva, Inc.

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

        No. 93-1851

                                    MICHELE MAYES,

                                Defendant, Appellant,

                                          v.

                             CHRYSLER CREDIT CORPORATION,

                                 Plaintiff, Appellee.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                   [Hon. Edward F. Harrington, U.S. District Judge]
                                               ___________________

                                 ____________________

                                        Before

                                 Breyer,* Chief Judge,
                                          ___________

                        Torruella and Boudin, Circuit Judges.
                                              ______________

                                 ____________________

            Christopher C. Trundy for appellant.
            _____________________
            Paul  Marshall Harris with whom  Lynne F. Riley and  Powers & Hall
            _____________________            ______________      _____________
        were on brief for appellee.

____________________

                                   October 11, 1994
                                 ____________________

____________________

        *Chief  Judge Stephen Breyer heard  oral argument in  this matter, but
        did not  participate in  the drafting or  the issuance of  the panel's
        opinion.   The remaining  two panelists  therefore issue  this opinion
        pursuant to 28 U.S.C.   46(d).

BOUDIN, Circuit  Judge.   In 1984, Jean  Mayes purchased
                         ______________

            Albert L.  Silva, d/b/a Rainbow Motors  ("Rainbow Motors"), a

            Nantucket car dealership.   In May 1985 he then  entered into

            financing  arrangements  with  Chrysler   Credit  Corporation

            ("Chrysler") to  finance his  car inventory.   The "borrower"

            was  to be Rainbow Motors, Jean Mayes being its president and

            sole shareholder.

                 To  support  the financing,  Chrysler required  not only

            Jean  Mayes but  also  his wife,  Michele  Mayes, to  sign  a

            "Continuing  Guaranty,"  a  document  imposing  unconditional

            joint and several  liability on the guarantors for  the debts

            of Rainbow Motors  to Chrysler.   Michele Mayes  was a  well-

            compensated  corporate attorney  and also  owned or  co-owned

            land  rented  to Rainbow  Motors.    She assertedly  did  not

            participate  in  managing the  dealership,  although  she was

            listed  as  a  director  and  officer.    Allegedly,  it  was

            Chrysler's practice to seek spousal guaranties as a matter of

            course.

                 Rainbow Motors  thereafter accumulated  a large debt  to

            Chrysler and, in December  1990, Chrysler brought the present

            action  against  Rainbow  Motors  and Michele  Mayes  in  the

            district  court seeking  payment  of an  outstanding debt  of

            $750,126.41.  Michele Mayes did  not dispute the existence of

            the guaranty  but pleaded waiver and  estoppel as affirmative

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defenses to Chrysler's claim against her.   Michele Mayes did

            not assert any counterclaim.  

                 A non-jury trial was  held in the district court  on May

            25  and 26, 1993.  In a brief memorandum and order on May 26,

            1993,  the district  court said  that Michele  Mayes had  not

            presented adequate evidence at trial to support her equitable

            defense  of waiver  or estoppel.   The  court also  said that

            Mayes had  argued  at trial  that the  guaranty violated  the

            Equal Credit Opportunity Act,  15 U.S.C.   1691 et  seq., but
                                                            ________

            the  court said that this defense had been waived because not

            asserted in the answer,  and was in any event  without merit.

            The district court entered judgment  in favor of Chrysler and

            against both  Rainbow Motors and Michele Mayes  in the amount

            of $750,126.41.  Michele Mayes alone has appealed.

                  We address  first her principal argument,  based on the

            Equal Credit Opportunity  Act.  Michele Mayes' brief does not

            respond  directly to  the  district court's  ruling that  the

            statutory defense has been waived for failure to assert it in

            the answer.  See Fed. R. Civ. P. 8(a).  The indirect response

            appears  to be two-fold:  first, that the  district court did

            resolve the issue on  the merits; and second, that,  at least

            in the indirect "public policy" version in which the  defense

            is urged, it is  embraced by the "estoppel" defense  that was

            properly pleaded.

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We have some doubt about either branch of this response.

            In  its  final  decision,  the district  court  prefaced  its

            footnoted  discussion of the merits by saying that it did not

            need to reach  the issue.   As for the estoppel  defense, the

            answer merely  said as  an affirmative defense  that Chrysler

            "because  of its  own  actions" should  be estopped,  without

            identifying  any  such  actions or  mentioning  the  statute.

            Nevertheless, we  think  that Mayes  has  no defense  on  the

            merits and prefer to rest our decision on that ground.

                 The district court said that a  violation of the statute

            could   not  be  asserted  as   a  defense  but   only  as  a

            counterclaim.  There appears to be more than one view on this

            issue,  but  Michele  Mayes  does not  challenge  the  ruling

            directly.    Instead   her brief  responds  that she  has not

            argued  "that there was a  violation of the  ECOA, but rather

            that the policy of the act should be applied to the guarantee

            by  the  Court  sitting  in  equity."   This  rather  awkward

            formulation, casting  the defense as one of public policy, is

            apparently designed to meet yet another concern.

                 The  Equal Credit Opportunity  Act pertinently provides,

            in  general  terms, that  a  creditor  may not  "discriminate

            against any applicant, with respect to any aspect of a credit

            transaction .  .  . on  the basis  of .  . .  sex or  marital

            status."    15 U.S.C.    1691(a)(1).    At the  time Chrysler

            secured Mayes' guaranty  in 1985, a regulation of the Federal

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Reserve  Board--the  then-operative version  of  12  C.F.R.  

            202.2(e)--expressly provided  that  a guarantor  was  not  an

            "applicant."   See  Morse v.  Mutual Federal  Savings &  Loan
                           ___  _____     _______________________________

            Ass'n, 536 F. Supp. 1271, 1278 (D. Mass. 1982) (Aldrich, J.).
            _____

This regulation apparently reflected the Federal Reserve

            Board's understanding of the statute's original purpose.  The

            statute was initially designed, at least in  part, to curtail

            the  practice of  creditors  who refused  to  grant a  wife's

            credit application without a guaranty from  her husband.  See
                                                                      ___

            Anderson v. United Finance Co., 666 F.2d 1274, 1277 (9th Cir.
            ________    __________________

            1982).  Under the  original Federal Reserve Board regulation,

            a  wife  (or a  husband) who  was  denied credit  because the

            spouse  refused to guarantee the  loan might have  a cause of

            action, depending on the  circumstances; but where the spouse

            did guarantee the loan, that spouse--not being an applicant--

            had no basis for a claim or any defense against collection.  

                 Eventually  the   Federal  Reserve  Board   revised  its

            regulation,  effective on  October  1,  1986,  extending  the

            definition of an "applicant" to include "guarantors . . . and

            similar parties."  12 C.F.R.   202.2(e), adopted 50 Fed. Reg.

            48026 (Nov. 20, 1985).  Michele Mayes does not claim that the

            regulation applies retroactively to her case.  Cf.  Boatman's
                                                           ___  _________

            First National Bank v. Koger, 784 F. Supp. 815 (D. Kan. 1992)
            ___________________    _____

            (holding that the regulation  is not retroactive).  Instead--

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to put  the best face  on her argument--she  can be  taken to

            urge that  Chrysler's conduct  was unlawful, both  before and

            after  the new  regulation, even  if a  pre-October 1,  1986,

            guarantor  had no standing to assert a direct claim under the

            statute.    Public  policy,  in   effect,  is  offered  as  a

            substitute for standing. 

                 Assuming arguendo a violation by Chrysler, we think that
                          ________

            Mayes' contention has some  weight but not quite enough.   If

            Chrysler's  conduct  in  seeking  the  spousal  guaranty  was

            unlawful  when the  financing  arrangement was  made, Michele

            Mayes' defense would not directly affront the general precept

            that  a  party's conduct  should be  judged  by the  rules in

            effect  when the  conduct occurred.   See generally  Bowen v.
                                                  _____________  _____

            Georgetown University Hospital, 488 U.S. 204, 208 (1988).  On
            ______________________________

            the   other  hand,   there  remains   a  strong   element  of

            retroactivity  in  what Mayes  seeks  in this  case,  and her

            argument  depends on a  rather loose description  of what was

            arguably unlawful in Chrysler's conduct.

                 At the time Chrysler  made the financing arrangements in

            question and  secured the  guaranty, Chrysler might  have had

            reason  to believe that it  should not seek  the guaranty and

            might be liable  to the de facto borrower (Jean  Mayes) if it
                                    ________

            refused to extend credit to  him without a spousal guarantee.

            But at  that time the core  of the conduct  made unlawful was

            withholding or conditioning  the loan to the borrower.  Under

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the  regulation as it then  stood, Chrysler had  no reason to

            think  that  it would  be unable  to  collect on  any spousal

            guaranty  since the  regulation  said that  the  guaranteeing

            spouse was not a protected party.

                 The Federal Reserve Board  has changed its position now,

            the guarantor  is protected by  the terms of  the regulation,

            and Chrysler is now  on notice that  such a defense might  be

            attempted.  But we  think it stretches public policy  too far

            to bar Chrysler  from collecting  now on a  guaranty made  in

            1985  when in 1985 its right to collect on the guaranty would

            not  reasonably have been thought in doubt.  Put differently,

            the regulation's change in "standing" is actually a surrogate

            for  an enlarged  view of what  is unlawful  about Chrysler's

            conduct.

                 One  might  imagine cases  where  a  public policy  that

            arises after the  event is of such a force and character that
                   _____

            it should be applied  even to conduct that occurred  prior to

            the  new   regime;  after   all,   the  presumption   against

            retroactive statutes can be  overcome when Congress  provides

            for retroactivity.   E.g., Pension Benefit  Guaranty Corp. v.
                                 ____  ______________________________

            R. A. Gray & Co., 467 U.S. 717 (1984).  But in this appeal we
            _______________

            are given  no reason to think  that our case presents  such a

            rare and exigent  situation.  Accordingly, we  have no reason

            to consider Chrysler's defense of its conduct on the merits.

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Two remaining  claims of error can  be answered quickly.

            First,   Michele  Mayes   argues  that   Chrysler  introduced

            irrelevant and prejudicial information into the proceeding by

            referring to the bankruptcy of her husband, by claiming  that

            her statutory  defense was belatedly pled,  and by attempting

            to show that Chrysler  had good reason for requiring  her own

            guaranty  in  this  instance.    All  of  these  matters  are

            irrelevant to our own legal  determination which is based  on

            the  fact that  the  guaranty  predated  the  change  in  the

            regulation.  

                 Second, Michele Mayes renews  on appeal an argument that

            she  has an  equitable  defense because  Chrysler itself,  by

            cutting  off credit  temporarily to  Rainbow Motors  in 1988,

            caused the financial hardships that led to its default on the

            debt.   This argument rests  entirely on the  brief's central

            proposition  that "the  uncontroverted testimony  of [Michele

            Mayes']   witnesses  was  that   Chrysler  Credit  wrongfully

            withheld agreed upon financing  for the 1989 selling season."

            Although  there are no findings on this point, a brief review

            of  the  record   shows  that  the  situation  is   far  more

            complicated  than  the  "uncontroverted testimony"  reference

            would suggest.

                 It  appears   that   Chrysler  also   financed   another

            dealership of  Jean Mayes located  in Hingham, Massachusetts,

            that   the  credit  arrangements  were  in  certain  respects

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interrelated, and  that the "hold" placed  on Rainbow Motors'

            financing was connected to  alleged problems with the Hingham

            dealership.  Whether or  not the cutoff of credit  to Rainbow

            Motors   was  wrongful,  wrongfulness  was  certainly  not  a

            conceded issue  at trial.   It is  the obligation of  one who

            appeals  on  such  grounds  to  address  the  evidence.   The

            treatment of this  point offered in Michele Mayes' brief does

            not attempt the task.  

                 Affirmed. 
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