Article courtesy of Michael Robson (Greenberg Traurig)
CREDITBOX.COM, LLC v. Weathers, 408 Wis.2d 725 (Wis. Ct. App. June 22, 2023)
In a dispute between CreditBox, LLC (“CreditBox”), a short term consumer lender, and the debtor Antjuan Weathers (“Weathers”), the Court of Appeals of Wisconsin held that (1) accelerating debt and commencing proceedings against the debtor without giving the statutory 15-day notice violated the obligation of good faith and (2) all counterclaims made by a debtor are “in response to” the creditor’s action to enforce its rights against the debtor under the Wisconsin Consumer Act (the “Act”).
This dispute arises after CreditBox and Weathers entered into a $500 loan agreement whereby Weathers was to repay CreditBox in 52 weekly installments at 399.0250% annual interest rate and with an option to pay down early. If Weathers did not repay early, he would pay CreditBox a total of $1,955.72. CreditBox initiated a small claims action against Weathers, alleging that Weathers had failed to make some required payments. Weathers initially filed an answer, pro se, indicating he did not contest the claims, and the trial court entered judgment against Weathers. Weathers, later represented by counsel, then moved to vacate the trial court’s judgment and reopen the case, providing an affidavit that payments had been deducted automatically from his account and brought good faith and unconscionability counterclaims against CreditBox under the Act. The trial court granted CreditBox’s motions for voluntary dismissal for both CreditBox’s claims and Weathers’s counterclaims.
The Court of Appeals considered whether (1) Weathers adequately pled a good faith counterclaim under WIS. STAT. § 421.108 (2021-22), which provides that “every agreement or duty within the Act imposes on the parties an obligation of good faith in its performance or enforcement,” and (2) Weathers could pursue an unconscionability counterclaim under WIS. STAT. § 425.102, which limits the scope of certain claims, including those alleging unconscionability. The appellate court ruled that the obligation of good faith was imposed both on (1) agreements that are subject to the Act and (2) duties that are defined in the Act. Good faith is defined as “honesty-in-fact in the conduct or transaction concerned and the observance of reasonable commercial standards of fair dealing.” Honesty-in-fact requires that the plaintiff show that the defendant had an intention that was not honest and that was aimed at gaining an unfair advantage. In Weathers’s case, the court found that CreditBox accelerating the debt and filing its action against Weathers before providing the statutory 15-day notice was a violation of the Act’s notice and right to cure requirement, and that Weathers’s counterclaim allowed for a reasonable inference that this (1) was a dishonest attempt to gain an unfair advantage over Weathers and (2) violated reasonable commercial standards of fair dealing by intentionally and unfairly depriving him of his lawful opportunity to delay acceleration and a lawsuit against him. The appellate court determined that expert testimony could be required to conclude whether accelerating the debt and commencing an action against Weathers violated the good faith obligation. Conversely, the appellate court agreed with the lower court’s decision and found that there was no support for Weathers’s counterclaim that an unscheduled electronic funds transfer (“EFT”) withdrawal violated the obligation of good faith when the EFT authorization form, acknowledged by both CreditBox and Weathers, provided that CreditBox could deduct the relevant EFT payment from Weathers’s account up to two times to process the scheduled payment. The appellate court also found that there was no violation of the obligation of good faith when CreditBox “charged off” the debt sixty days after Weathers missed a scheduled payment. While Weathers argued that federal guidance suggested one hundred and twenty days to “charge off” debt, the Court of Appeals interpreted the federal guidance on one hundred and twenty days as a “no later than” concept, rather than a “no earlier than” concept, and found no basis to suggest that sixty days were too short or that it fell outside reasonable commercial standards of fair dealing.
The appellate court also considered whether Weathers could pursue an unconscionability counterclaim against CreditBox after CreditBox had moved for voluntary dismissal under subchapter I within WIS. STAT. ch. 425. The Wisconsin statute states that subchapter I “applies to actions and other proceedings brought by a creditor to enforce rights arising from consumer credit transactions…” Under precedent law, the scope of this statute is limited to claims brought “in response to” actions or other proceedings brought by a court. The Court of Appeals found that Weathers could pursue the unconscionability counterclaim against CreditBox because it was a counterclaim by Weathers in an action brought by CreditBox, his creditor, and “in response to” CreditBox’s actions. The appellate court ruled that any counterclaim by a debtor in an action brought by the creditor is “in response to” the creditor’s actions.
