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Appendix D Sample Complaints CA02_D

Appendix D Sample Complaints CA02_D

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Constitutional Law, Civil RICO, Civil Rights, Civil Defender, Right To Assistance of Counsel in Civil Actions, Un-equal

representation before the law, Wealth is the measure and deciding factor in the bredth and width of justice recieved,

Justice for all, In the interest of justice, IN THE INTERESTS OF JUSTICE HUMAN RIGHTS AND THE RIGHT TO COUNSEL IN CIVIL

CASES Martha F. Davis In the Interest of Justice, Claire Pastore Life After Lassiter An Overview of State-Court Right-

to-Counsel Decisions, ABA SEC OF LITIGATION REPORT TO THE HOUSE OF DELEGATES ABA Support of a Civil Right to Counselin

Certain Cases 2010_CivilRighttoCounsel_ABA_Initiatives Basic Needs Right To Counsel, Boston College Law School Faculty

Papers Professional Ethics in Interdisciplinary Collaboratives Zeal Paternalism and Mandated Reporting by Alexis

Anderson, Civil Legal Assistance For The 21st Century Achieving Equal Justice For All by Alan W. Houseman, RICO, NCLC

Forms and Pleadings exples and samples cases,
Constitutional Law, Civil RICO, Civil Rights, Civil Defender, Right To Assistance of Counsel in Civil Actions, Un-equal

representation before the law, Wealth is the measure and deciding factor in the bredth and width of justice recieved,

Justice for all, In the interest of justice, IN THE INTERESTS OF JUSTICE HUMAN RIGHTS AND THE RIGHT TO COUNSEL IN CIVIL

CASES Martha F. Davis In the Interest of Justice, Claire Pastore Life After Lassiter An Overview of State-Court Right-

to-Counsel Decisions, ABA SEC OF LITIGATION REPORT TO THE HOUSE OF DELEGATES ABA Support of a Civil Right to Counselin

Certain Cases 2010_CivilRighttoCounsel_ABA_Initiatives Basic Needs Right To Counsel, Boston College Law School Faculty

Papers Professional Ethics in Interdisciplinary Collaboratives Zeal Paternalism and Mandated Reporting by Alexis

Anderson, Civil Legal Assistance For The 21st Century Achieving Equal Justice For All by Alan W. Houseman, RICO, NCLC

Forms and Pleadings exples and samples cases,

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Appendix D

Sample Complaints

This appendix provides ten sample class action complaints. Additional examples of class action complaints are included on the companion CD-Rom to this volume. That CD contains the complaints found in this appendix and additional examples of class action complaints relating to debt collection, overcharges for extended warranties, forced-placed insurance, odometer fraud, revolving repossession scams, failure to provide repossession notices, other auto dealer practices, auto pawns, auto leases, mortgage refinancing, mortgage servicer practices, loan brokers, mobile home park conditions, land installment sales, real estate broker fraud, campground membership fraud, nursing home quality, infertility clinics, rent-to-own, home improvement financing, telephone overcharges, student loans, trade school fraud, merchant’s illegal reaffirmation of debts discharged in bankruptcy, and tax agency filing baseless proof of claims in chapter 13 bankruptcies. Even more sample complaints in individual actions are found in NCLC’s Consumer Law Pleadings on CD-Rom With Index Guide (cumulatively updated on an annual basis).

D.1 Predatory Lending by a Non-Bank Home Equity Lender (Samuel)
UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA ) ) ) ) ) ) CIVIL ACTION NO. v. ) 00-6196 ) EquiCredit Corporation, ) CLASS ACTION U.S. Bank National Association, ) Trustee, ) Defendants ) ) Mildred E. Samuel, on behalf of herself and all others similarly situated, Plaintiffs SECOND AMENDED COMPLAINT—CLASS ACTION I. NATURE OF THE ACTION 1. This is a class action by a low-income homeowner seeking relief from the predatory mortgage lending practices of a non-bank home equity lender, EquiCredit Corporation (‘‘EquiCredit’’), a wholly-owned subsidiary of Bank of America. These practices violate numerous federal and state consumer protection laws. The specific predatory practices challenged include the following:

a. EquiCredit relies almost exclusively on brokers to obtain loan applications from homeowners. The broker fees paid by EquiCredit from its customer’s loans are in reality compensation from EquiCredit to the brokers for the referral of business, and are not based on valid enforceable broker contracts between brokers and consumers. EquiCredit’s policies permit and encourage brokers to violate state law and to collect excessive and unreasonable fees without establishing a valid broker contract. b. A ‘‘bait and switch’’ lending scheme whereby homeowners are induced to apply for home improvement financing, but EquiCredit arranges and offers only a first mortgage refinancing loan, dictating the amounts to be included in the mortgage loans without regard to the amount sought by the borrower, so that EquiCredit and its brokers can make a more expensive loan and obtain a first position lien on borrower’s homes. c. EquiCredit’s high-cost loans are frequently made to borrowers who lack the reasonable ability to repay the loans, and therefore put the borrowers at high risk of losing their homes. d. EquiCredit engages in reverse redlining, in that its loans are disproportionately made to African-American and Hispanic homeowners, and homeowners in predominantly African-American and Hispanic neighborhoods, on unfair and onerous terms, and its foreclosures are also disproportionately concentrated in minority neighborhoods. 2. Plaintiffs bring this case under the following federal and state consumer protection laws: the Truth in Lending Act, 15 U.S.C. § 1601 et seq. (‘‘TILA’’), the Home Ownership and Equity Protection Act of 1994, 15 U.S.C. § 1602 et seq. (‘‘HOEPA’’), the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq. (‘‘RESPA’’), the Equal Credit Opportunity Act, 15 U.S.C. § 1691 et seq. (‘‘ECOA’’), the Fair Housing Act, 42 U.S.C. §3601-3631 (‘‘FHA’’), the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1 et seq. (‘‘CPL’’ or ‘‘UDAP’’), the Pennsylvania Credit Services Act, 73 P.S. §2181-2192 (‘‘CSA’’), the Pennsylvania Home Improvement Finance Act, 73 P.S. § 500-101 et seq. (‘‘HIFA’’), the Pennsylvania Loan Interest and Protection Law, known as Act No. 6 of 1974, 41 P.S. § 101 et seq. (‘‘Act 6’’) and under other Pennsylvania statutory and common law. II. JURISDICTION AND VENUE 3. Jurisdiction over this matter is conferred upon this Court by 28 U.S.C. §§ 1331, 1337. Supplemental jurisdiction over Plaintiff’s state law claims is granted by 28 U.S.C. § 1367. 4. Venue lies in this judicial district in that the events which gave rise to this claim occurred here and the property which is the subject of the action is situated within this district.

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13. To originate mortgage loans, EquiCredit markets it loan products very heavily to mortgage brokers. EquiCredit uses advertising, presentations at conventions and meetings, and other promotional activities, to contact persons licensed or unlicensed as loan brokers, and to encourage the brokers to offer loans to low income persons with little or no credit standing for the purpose of assisting them in arranging for the loans from EquiCredit. By way of example, in Philadelphia, Pennsylvania EquiCredit has utilized Express Equity, James Holleran, Arrow Building Systems, Inc. and Archer Funding, Inc. as persons to assist or work with EquiCredit in originating loans. These entities or persons are referred to hereinafter as ‘‘brokers.’’ 14. These brokers act as sales agents for EquiCredit in that they perform numerous functions on behalf of EquiCredit including but not limited to taking and preparing a loan application, arranging an appraisal, gathering credit information, and structuring mortgage loans to meet EquiCredit’s underwriting requirements. 15. EquiCredit establishes various policies and procedures in order to make it more attractive for brokers to arrange loans with EquiCredit rather than other lenders, including (a) not requiring written broker contracts until loan closing, (b) having class members sign an EquiCredit form document acknowledging the validity of the broker fee at closing, (c) setting unreasonably high ceilings for the amount of broker fees, and (d) the other policies and practices challenged in this action. B. The Role of the Brokers 16. The brokers solicit and offer services in the form of providing advice and assistance to consumer homeowners in seeking extensions of credit. The brokers also undertake to obtain credit for homeowners by arranging appraisals, obtaining credit information, preparing loan applications and documents and other similar activities. These services are performed for payment to be paid from the proceeds of the EquiCredit loans eventually obtained by the brokers. 17. The broker’s services are sold as a result of, or in connection with, a contact with class members at their homes or by telephone. 18. The services are offered to consumers for personal, family and household matters. Extensions of credit obtained by the brokers are subject to the Federal Trade Commission Preservation of Claims Trade Regulation, 16 C.F.R. 433.1 (1976) (the ‘‘Holder Rule’’). The Holder Rule requires that any installment loan contract entered into as a result of a transaction with a seller of services must contain the following contractual provision: NOTICE ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICE OBTAINED WITH THE PROCEEDS HEREOF, RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. 19. The Holder Rule requires that any holder of the installment contract will be subject to any claims the buyer has against the seller of services.

III. PARTIES 5. Plaintiff Mildred E. Samuel is a natural person residing at [Address]. 6. Defendant EquiCredit Corporation (‘‘EquiCredit’’) is a corporation engaged in the business of consumer lending in Pennsylvania and elsewhere with places of business located at One Neshaminy Interplex, Suite 206, Trevose, Pennsylvania, 19053-6933 and 525 Plymouth Road, Plymouth Meeting, Pennsylvania 19462. EquiCredit’s headquarters is located at 10401 Deerwood Park Boulevard, Jacksonville, Florida 32256. At all times relevant hereto, EquiCredit, in the ordinary course of its business, acted on more than 150 consumer credit applications annually and was a creditor within the meaning of ECOA, 15 U.S.C. § 1691a(e), and TILA, 15 U.S.C. § 1602. 7. Defendant U.S. Bank National Association, f/k/a First Bank National Association Trustee under various pooling and servicing agreements (‘‘US Bank’’), is trustee for several pools of mortgage backed securities that are the assignee of Plaintiffs’ loans. It has its principal place of business at U.S. Bank Place,601 Second Avenue, South Minneapolis, Minnesota, 55402. US Bank, in its capacity as trustee for various trusts, is the current holder of the Plaintiff’s and class member’s loans. IV. FACTUAL ALLEGATIONS A. EquiCredit 8. EquiCredit markets itself as a ‘‘pioneer’’ in the so-called subprime lending industry, with more than forty years of ‘‘tradition.’’ See www.EquiCredit.com. 9. As a subprime lender, EquiCredit specializes in making loans to consumers with below average credit histories. As an industry, subprime lending has experienced tremendous growth in recent years. From 1993 to 1998, subprime refinancing lending increased 890 percent, while refinancing by prime lenders grew by only 2.5 percent.1 10. EquiCredit and its parent company, Bank of America (‘‘BOA’’) are a major participant in the subprime lending industry. At the end of 1999, BOA was the largest servicer of subprime mortgage loans in the United States, with a portfolio of over $22 billion. In 1998 EquiCredit originated or underwrote approximately $3.7 billion in mortgage loans. Through the first three months of 1999, the total was approximately $1.6 billion.2 11. EquiCredit packages its loans to consumers and issues mortgage-backed securities to raise additional capital for its operations. For example, the Prospectus Supplement shows a pooling by EquiCredit of 12,781 mortgage loans from 48 states,including 1,343 from Pennsylvania. The total principal balance of the loans was $825,683,542.96.3 12. The annual interest rates on the pooled mortgages with fixed rates ranged from 5.75% to 19.45%, with a weighted average of approximately 10.28%. Approximately 90.87% of the loans were secured by first mortgage liens on the consumer’s home.4

1 R. Scheessele, 1998 HMDA Highlights, U.S. Department of Housing and Urban Development (September 1999). 2 Prospectus Supplement to Prospectus dated June 9, 1999 relating to Registration No. 333-71489, EquiCredit Home Equity Loan Trust 1999-2 (hereafter, ‘‘Prospectus Supplement’’). 3 Prospectus Supplement at S-21, 22. 4 Prospectus Supplement at S-18, 19.

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C. The Pennsylvania Consumer Protection Law and Credit Services Act 20. Pennsylvania’s Consumer Protection Law (‘‘CPL’’) requires that all contracts for services resulting from a contact with the consumer at the consumer’s home, or by telephone, must be in writing and provided at the point or sale or contracting. 73 P.S. § 201-7(b). Such written contract must contain notices about rights of cancellation within three days from the date of contracting. 73 P.S. § 201-7. 21. The Pennsylvania Credit Services Act (‘‘CSA’’) regulates all persons who, for money or valuable consideration, obtain extensions of credit for persons seeking an extension of credit or who advise or assist such persons in obtaining credit. 73 P.S. § 2182. Persons or entities performing these services are called ‘‘credit service organizations.’’ This definition covers the activities of mortgage brokers. 22. The CSA imposes comprehensive duties of written disclosure on credit services organizations. Credit services organizations must enter into written contracts with persons seeking the credit and, before entering such contracts, must provide a written information sheet. 73 P.S. §§ 2184, 2185 and 2186. The ‘‘Information Sheet’’ must provide a ‘‘complete and detailed description of the services to be performed’’ . . . and ‘‘the total amount the buyer will become obligated to pay for the services . . .’’ 73 P.S. § 2186. 23. A credit services organization must obtain a dated, written contract with the consumer that contains the following: (a) a statement in conspicuous, 10-point bold type which provides a right of cancellation within five days; (b) the terms and conditions of payment, including the total amounts of all payments to be made by the person seeking credit whether to the credit services organization or to some other person; (c) a ‘‘full and detailed description’’ of the service to be performed by the credit services organization for the person seeking credit including the estimated time for performing such services; and (d) the business address of the credit services organization or its agents. 24. The brokers utilized by EquiCredit are governed by both the CPL and the CSA. The brokers are therefore required by Pennsylvania law to provide consumers a written contract as soon as a broker contract is formed, and to provide written disclosures and cancellation rights. 73 P.S. §§201-7, 2185, 2186. 25. These required written disclosures are material to consumers because they provide notice and understanding about (a) the amount they will pay the broker and the lender in fees; (2) the type of loan contemplated; and (b) the type of security to be provided. Such disclosures protect consumers against ‘‘bait and switch’’ schemes whereby brokers may promise one type or amount of a loan orally, but then obtain substantially different loan terms, which are not disclosed to consumers until loan closing, when it is psychologically and practically difficult for the consumer to seek other loan alternatives. They also prevent consumers from misunderstanding the role of the broker, and the fact that the broker will receive a fee separate from lender fees and charges. 26. EquiCredit has adopted a policy or practice pursuant to which brokers do not provide and/or are not required by EquiCredit to provide any written contract, or disclosures required by Pennsylvania law at the time the broker submits a loan application or first makes inquiries about a loan with EquiCredit. EquiCredit’s policy or practice is merely to require the broker to provide a

Appx. D.1
signed broker agreement with the loan documents after the loan closing. 27. EquiCredit does require the broker to send EquiCredit a written statement of the amount the broker expects to be paid from the loan by EquiCredit with the loan application, but this ‘‘written fee expectation’’ is not provided to the consumer. 28. As standard practice, brokers utilized by EquiCredit do not provide the required written contractual disclosures, or the right to cancel the broker contract, prior to closing EquiCredit mortgage loans. 29. EquiCredit also has a policy or practice of setting unreasonably high limits on the amount of the brokers’ fees, and of not requiring that the brokers’ fees bear any reasonable relationship to services provided to the consumer. D. The Real Estate Settlement Procedures Act Ban on Unearned Fees 30. The Real Estate Settlement Procedures Act (‘‘RESPA’’) prohibits payment of fees in connection with a residential mortgage loan for a referral, when the fee is not based on services actually provided to the consumer. 31. In 1998, the United States Department of Housing and Urban Development (‘‘HUD’’) issued a policy statement regarding RESPA and its application to mortgage broker fees. The HUD policy statement made it clear that lenders like EquiCredit had a duty to insure that broker fees were not paid from loan proceeds unless the fees were reasonably related to actual services contracted for by, and provided to, the consumer. E. Facts Regarding Plaintiff Mildred E. Samuel 32. In 1982, Plaintiff Mildred Samuel and her husband purchased their home at [Address] in a modest section of North Philadelphia. Mrs. Samuel’s husband passed away in June 1989 and she now lives alone in the home. She is a 67-year-old African-American retired postal worker. 33. Mrs. Samuel paid off the original mortgage on her home in March 1997. 34. In December 1999, Mrs. Samuel contracted with James M. Holleran (‘‘Holleran’’) and Arrow Building Systems, Inc. (‘‘Arrow Building’’), for various improvements and repairs to her home to be made by Arrow Building, as a result of a contact with her at her residence and/or by telephone. 35. Holleran promised to arrange financing for the home improvements on Mrs. Samuel’s behalf. 36. Unbeknownst to Mrs. Samuel, Holleran used his corporation, Archer Funding Corp. to act as a broker, and to present a mortgage loan application to Defendant EquiCredit. 37. Holleran and Archer Funding regularly referred consumers to EquiCredit for loans in 1998 and 1999. 38. EquiCredit decided not to extend Mrs. Samuel a loan in the amount or on the terms that she requested. Rather, EquiCredit decided to offer Mrs. Samuel a substantially larger consolidation mortgage loan, including refinancing her utility and tax bills. 39. EquiCredit never notified Mrs. Samuel of its denial of Mrs. Samuel’s credit application nor did it ever notify Mrs. Samuel of its counteroffer, pursuant to section 1691(d)(1) of ECOA. 40. EquiCredit created a written loan application in Mrs. Samuel’s name. This application was seen by Mrs. Samuel for the first time at the closing of the loan. 41. The application overstated Mrs. Samuel’s income and did

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performed numerous lender functions, including taking a loan application, gathering supporting information, arranging an appraisal, structuring a loan to meet EquiCredit’s underwriting requirements, and in numerous other respects. 53. EquiCredit, Holleran, Archer Funding and Arrow Builders all engaged in fraudulent or deceptive conduct in their dealings with Mrs. Samuel, including, but not limited to: a. failing to clearly explain the role of the broker and the amount and basis of compensation prior to becoming involved and performing services; failing to clearly explain the Defendants’ motives in requiring Mrs. Samuel to borrow additional sums to pay her tax and water bills and other debts, so that EquiCredit could have a first mortgage loan and therefore evade Pennsylvania usury laws; b. failing to clearly explain the advantages and disadvantages of a consolidation loan; and c. failing to explain to Mrs. Samuel her right of rescission. 54. On April 20, 2000, Mrs. Samuel’s counsel sent a notice of rescission to EquiCredit at both its Jacksonville, Florida and Trevose, Pennsylvania addresses, exercising Mrs. Samuel’s right under TILA to rescind the loan, based on TILA and HOEPA violations. 55. EquiCredit did not comply with Mrs. Samuel’s demand for rescission within the time allowed by TILA. V. CLASS ACTION ALLEGATIONS 56. Plaintiff brings this action on behalf of herself and on behalf of the following class (the ‘‘Class’’): all homeowners in the Commonwealth of Pennsylvania who, during the six year period preceding the filing of this action (the ‘‘Class Period’’), entered into loan transactions with Defendant EquiCredit which resulted in a mortgage on their homes, and which included one or both of the following features: A) some portion of the loan proceeds was used to pay a broker fee, B) some portion of the loan proceeds were used to fund home improvements, Excluded from the Class are the Defendants and all officers and directors of the Defendants. 57. The members of the Class are so numerous that joinder of all members is impracticable. There are approximately 12,000 class members in Pennsylvania. 58. Plaintiff’s claims are typical of the claims of the members of the Class. The losses to the Plaintiff were caused by the same course of conduct that gave rise to the claims of other members of the Class. 59. Plaintiff will fairly and adequately protect the interest of the Class. Plaintiff has no conflict of interest with other members of the Class. Plaintiff has retained experienced counsel qualified in class action litigation who are competent to assert the interests of the Class. 60. Defendants have acted on grounds generally applicable to the plaintiff Class, such that final declaratory and injunctive relief is appropriate with respect to the Class as a whole. In particular, Plaintiff seeks injunctive relief preventing foreclosure of class members’ homes and restitution of the illegal broker fees, as well as declaratory relief regarding the illegality of Defendant’s practices. 61. Common questions of law and fact predominate over questions which may affect only individual members of the Class because Defendants have acted or refused to act on grounds generally applicable to the Class.

not reflect her monthly or annual payments for real estate taxes, homeowner’s insurance, or other debts paid monthly by Mrs. Samuel. The loan application stated that Mrs. Samuel’s income was $1,161.09 a month. However, her actual income was $873 each month in Social Security benefits, net of the Medicare deduction. Mrs. Samuel did not indicate that she had any other source of income, and in fact had none. 42. As a result of the EquiCredit loan, Mrs. Samuel went from having no mortgage payment to undertaking to pay $357.39 out of her $870.00 net monthly income for fifteen (15) years. The $357.39 payment did not include real estate taxes and homeowner’s insurance, or any of her other fixed obligations, and therefore left her with an unreasonably small residual income. 43. The loan closing took place on or about December 10, 1999 at Plaintiff’s home, about one week after Holleran inspected Mrs. Samuel’s home for the first time, and only a short time after Mrs. Samuel was first contacted by Holleran and Arrow Building. 44. Present at the closing in Mrs. Samuel’s home were Holleran, Walter Ackah, a legal assistant for the law firm of Kotsopoulos & Bennett P.C., and Mrs. Samuel. 45. Mrs. Samuel did not have a meaningful opportunity to read the loan documents at the closing because Holleran and Ackah kept presenting her with the papers and instructing her to sign. 46. As part of the loan closing, Mrs. Samuel was required to sign a document purporting to confirm that three days had elapsed after the loan closing, and she did not intend to exercise her right under TILA to rescind the loan. This notice had the purpose and effect of undermining the borrower’s right to reconsider the loan and rescind it for three days after closing. 47. While Plaintiff had initially requested a home improvement loan, instead, she was required to sign a note in the amount of $30,100, secured by a mortgage on her home. The note amount included, in addition to the $18,000 in home improvements, the sums of $1,656.33 to the City of Philadelphia for real estate taxes, $2,932.75 for water/sewer bills, $825.32 to Philadelphia Gas Works and $835 for electric service. At no time did Mrs. Samuel request or apply for a refinancing loan to pay off her tax, water and utility bills. In fact, EquiCredit made an overpayment on her gas bill, leaving Mrs. Samuel with a credit. In addition, Mrs. Samuel was charged a ‘‘broker fee’’ of $1709.63, a $250 appraisal fee, a $270 ‘‘processing fee’’ and other various charges and fees. Mrs. Samuel also unknowingly purchased credit life insurance with a $300.00 premium. 48. As a result, instead of borrowing $18,000 for home improvements, Plaintiff ended up borrowing over $30,000 at an annual percentage rate of 13.26% for taxes, water, utility bills and life insurance she did not request. 49. Mrs. Samuel also was required to pay $898.25 in miscellaneous fees for items including recording the deed, transfer of taxes, title insurance, a credit report check, and closing fees, plus $2,689.63 in finance charges, including a $1,709.63 broker fee, as a condition of getting a loan she did not want. 50. Mrs. Samuel was never told the amount of the broker fee, given a written disclosure of the fee or a written agreement, or any notice of her right to cancel the broker contract, and never agreed to pay the broker fee, at any time prior to the loan closing. 51. The $1,709.63 broker fee did not bear any reasonable relationship to the ‘‘services’’ performed by Archer Funding. 52. At all relevant times Holleran, Arrow Builders and Archer Funding acted as agents for Defendant EquiCredit, in that they

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62. Among the questions of law and fact common to the members of the Class are: (a) Whether paying broker a fee based on a purported contract document first provided at loan closing violates the CSA or the CPL, and whether failing to insure broker compliance with doorto-door sales written contract and 3-day cancellation notice rule is a CPL violation by EquiCredit. (b) Whether excessive, percentage-based broker fees violate RESPA’s prohibition on fee splitting or kickbacks, and/or are CPL violations. (c) Whether EquiCredit was required to provide a notice of counteroffer under ECOA, where class members applied for home improvement financing, and EquiCredit implicitly denied the requested financing and offered mortgage refinancing and consolidation loans instead. (d) Whether EquiCredit violated the CPL or other laws by failing to include the FTC Preservation of Claims Notice in class members’ notes when the notes were ‘‘purchase money loans’’ as defined by the FTC Rule. (e) Whether the loans from EquiCredit were ‘‘home improvement installment contracts’’ within the meaning of HIFA, and whether Defendants violated HIFA’s restrictions on loan fees and costs, including the ban on broker fees. (f) Whether EquiCredit’s imposition of charges prohibited by HIFA, including broker fees, constitutes an unfair and deceptive trade practice under UDAP. (g) Whether EquiCredit’s imposition of charges prohibited by HIFA subjects it to liability under Pennsylvania usury law. (h) Whether the promise to finance home improvements, when in reality a first mortgage refinancing is contemplated, is a CPL violation. (i) Whether EquiCredit’s lending practices discriminate against African-American and Hispanic borrowers, or borrowers living in predominantly African-American or Hispanic neighborhoods, in violation of the Fair Housing Act and ECOA. (j) Whether Plaintiff and members of the Class have sustained damages by reason of EquiCredit’s wrongful conduct and, if so, the proper measure of damages; and (k) Whether Plaintiff and members of the Class are entitled to injunctive or declaratory relief. 63. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy because such treatment will permit a large number of similarly situated persons to prosecute their common claims in a single forum simultaneously efficiently and without the unnecessary duplication of evidence, effort and expense that numerous individual actions would engender. Class treatment also will permit the adjudication of relatively small claims by certain members of the Class who could not afford to litigate individually such claims against sizable corporate defendants. 64. Plaintiffs know of no difficulty to be encountered in the management of this action that would preclude maintenance as a class action. VI. CLAIMS Count I—RESPA 65. EquiCredit makes or invests in residential real estate loans aggregating more than $1 million per year. The transactions at

Appx. D.1
issue in this case were, therefore, ‘‘federally related mortgage loans’’ within the meaning of sections 2602 and 2607 of RESPA. 66. In the course of the transaction with Plaintiff Samuel, and the transactions with members of the Class, Defendant EquiCredit gave, and the brokers received, a fee, kickback or thing of value pursuant to an understanding between the broker and EquiCredit that the broker would refer business to EquiCredit, in violation of 12 U.S.C. §2607(a). 67. In the course of the transaction with Plaintiff Samuel, and the transactions with members of the Class, EquiCredit gave the brokers a portion, split or percentage of the settlement charges collected from the borrowers, other than for services actually performed by the brokers, in violation of 12 U.S.C. §2607(b). 68. As the result of these violations of RESPA, Defendant EquiCredit is liable to Plaintiff Samuel and the Class, pursuant to 12 U.S.C. §2607(d) for statutory damages in the amount of three times the broker fees imposed, plus reasonable attorneys fees and costs. Count II: CSA and CPL Claims Regarding Broker Fee Agreements 69. EquiCredit aids and abets the violation of Pennsylvania’s CSA and CPL laws by brokers, and/or is engaged in a civil conspiracy with brokers to violate Pennsylvania law. EquiCredit fails to require brokers to submit a signed broker agreement with any loan application, and instead only requires that the agreement be provided and signed at closing. 70. EquiCredit also uniformly fails to insure that any broker contract entered into as a result of a door-to-door sale or telephone solicitation contains the three-day cancellation notice required by Pennsylvania Law, 73 Pa. Stat. §201-7, and fail to include the FTC’s Preservation of Claims and Defenses notice in contracts when its inclusion is required. 71. EquiCredit and its closing agents represent to class members at loan closings that broker fees must be paid and are due and owing on the basis of a valid broker fee agreement when they are not. 72. Defendants’ conduct constitutes ‘‘unfair and deceptive acts and practices’’ prohibited by Pennsylvania’s CPL. Plaintiff class members suffered damages including, but not limited to, the illegal broker fees, as a result. Class members are entitled to rescission and treble damages. Count III: ECOA 73. EquiCredit’s refusal to provide small loans and/or second mortgages for home improvements or other purposes as requested by borrowers, its failure to notify applicants of the fact that it is denying their initial credit request and making a counteroffer, and its insistence on refinancing the homeowner’s prior mortgage, has a discriminatory impact on African-American homeowners and on neighborhoods with substantial percentages of African-American homeowners. 74. EquiCredit’s failure to provide proper notice of its counteroffers to class members also violates the notice requirements of ECOA and regulations thereunder. 75. EquiCredit makes loans disproportionately to homeowners in predominantly African-American and Hispanic neighborhoods, compared to other lenders and even other subprime mortgage lenders.

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89. In particular and without limitation, EquiCredit systematically fails to take into account monthly payments required for borrowers to pay real estate taxes, homeowner’s insurance, and other fixed obligations apart from the mortgage payment, in calculating debt ratios and residual incomes, and has an unreasonably low residual income standard and/or disregards that standard. 90. As a result of EquiCredit’s practices its mortgages often exceed the ability of borrowers to repay and result in foreclosure of class members’ homes. 91. Through its conduct and the conduct of its closing agents, EquiCredit represents to borrowers that the mortgage loans it offers are affordable and reasonably expected to be repaid given the borrower’s income and household composition. 92. The requests for income information, the written application and approval process and the closing all convey to the borrower the message that EquiCredit is a responsible lender making a loan it reasonably expects the borrower can afford to repay, when in truth and in fact, EquiCredit does not have a reasonable basis to expect successful repayment by its borrowers, and experiences default rates in excess of 20% on some loan pools. 93. The making of loans to borrowers with insufficient income to repay them, and that are therefore likely to lead to foreclosure, is an unfair and deceptive practice in violation of the Consumer Protection Law, 73 Pa. Stat. §201-2(v),(xv), (xxi) and 201-3. 94. Members of the class whose homes have been or are threatened with foreclosure have suffered or will suffer an economic loss as a result of EquiCredit’s unfair trade practices. 95. Class members are therefore entitled to injunctive relief, treble damages and attorney’s fees and any other appropriate relief, pursuant to 73, Pa. Stat. §201-9.2. Count VII: HOEPA—Plaintiff Samuel Only 96. Ms. Samuel’s loan was a high cost loan covered by HOEPA because the points and fees charged to her exceeded 8% of the net loan amount, as those terms are defined in TILA and Regulation Z, 15 U.S.C. §1602(aa), 1639. 97. EquiCredit failed to provide Ms. Samuel with the special 3-day advance disclosures required by HOEPA, 15 U.S.C. §1639(a), (b). 98. EquiCredit has adopted underwriting standards that do not adequately measure ability to repay, allows exceptions to its guidelines, and does not have sufficient verification procedures to ensure that borrower income is adequately determined and considered. 99. In particular and without limitation, EquiCredit systematically fails to take into account monthly payments required for borrowers to pay real estate taxes, homeowner’s insurance, and other fixed obligations apart from the mortgage payment, in calculating debt ratios and residual incomes, and has an unreasonably low residual income standard and/or disregards that standard. 100. EquiCredit has engaged in a pattern or practice of making loans to borrowers with high cost mortgage loans without regard to their ability to pay, in violation of HOEPA, 15 U.S.C. §1639(f), including the loan made to Plaintiff Samuel. 101. Plaintiff Samuel is therefore entitled to rescission of her mortgage loan, together with appropriate declaratory and injunctive relief and actual and statutory damages. Count VIII—TILA-Plaintiff Samuel Only 102. As a result of the violations of TILA and Regulation Z,

76. Equicredit’s loans are made on terms and conditions that are unfair and onerous and unduly create a risk of foreclosure. 77. Among other unfair terms, EquiCredit allows brokers to charge excessive and unreasonable fees that bear no relation to the cost or value of any ‘‘services’’ provided, and itself charges fees and rates that are excessive in light of the borrower’s credit and collateral and consequent risk. 78. EquiCredit’s pricing policies have a disparate impact on minority borrowers, especially African-American borrowers. For example and without limitation, EquiCredit’s policy of allowing brokers to charge up to 12% of the loan prior to 1999, and then up to 8%, and its interest rate add-ons for row homes and small loan amounts, have a discriminatory effect on African-American and Hispanic borrowers, and borrowers in predominantly AfricanAmerican and Hispanic neighborhoods. 79. As a result of EquiCredit’s violation of ECOA, Plaintiff Samuel is entitled to actual and punitive damages and attorneys fees, pursuant to 15 U.S.C. §1691e. 80. As a result of EquiCredit’s violation of ECOA, EquiCredit is liable to the Class pursuant to 15 U.S.C. §1691e(b) for actual and punitive damages and attorney’s fees. Count IV: Fair Housing Act (FHA) 81. EquiCredit discriminates against African-American and Hispanic borrowers and borrowers in predominantly AfricanAmerican and Hispanic neighborhoods by targeting them for loans on unfair terms, and making unaffordable loans that create an undue risk of foreclosure, and by foreclosing disproportionately on homes in such neighborhoods. 82. EquiCredit also discriminates against protected groups in the manner set forth in Count III, above. 83. As a result of EquiCredit’s violation of the Fair Housing Act, plaintiff and the Class are entitled to injunctive relief against Defendant’s discriminatory lending and foreclosure practices, actual and punitive damages. Count V: Pennsylvania Usury Law (HIFA) 84. The credit transactions between Plaintiffs and certain class members and EquiCredit were home improvement installment contracts within the meaning of HIFA. 85. The transactions were structured in violation of an express prohibition in HIFA, section 500-407, against charging consumers fees, costs, commissions or other charges not authorized by the act. The transactions also included consolidation of other cash loans, in violation of section 500-408 of HIFA. 86. HIFA specifically prohibits the charging of broker fees, a prohibition that is systematically violated by Defendants. 87. Under Pennsylvania’s Loan Interest and Protection Law (Act 6 of 1974, 41 P.S. §101-503) and the CPL, Plaintiffs and members of the Class are entitled to recover damages of three times the amount of the excess charges paid, plus reasonable attorney’s fees and costs. 41 P. S. §§502, 503; 73 P. S. § 201-9.2. Count VI: CPL Violations—Foreclosures 88. EquiCredit has adopted underwriting standards that do not adequately measure ability to repay, allows exceptions to its guidelines, and does not have sufficient verification procedures to ensure that borrower income is adequately determined and considered.

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pursuant to sections 1635(a) and 1640(a) of TILA, Defendants EquiCredit and US Bank, Trustee are liable to Plaintiff Samuel for (a) Rescission of the transactions between Plaintiff and EquiCredit, including a declaration that Plaintiff is not liable for any finance charges or other charges imposed by EquiCredit. (b) Termination of any security interest in Plaintiff’s property created under the transactions. (c) Return of any money or property given by the Plaintiff to anyone, including EquiCredit, in connection with the transactions. (d) Actual and statutory damages pursuant to section 1640(a)(1), (3) and (4) of TILA. (e) Reasonable attorneys fees and costs. Count IX: Fraud, CPL and Breach of Fiduciary Duty, Plaintiff Samuel Only 103. At all relevant times, Archer Funding and James Holleran acted as agents for EquiCredit in soliciting Plaintiff Mildred Samuel to enter into a home improvement financing arrangement funded by EquiCredit, in preparing and structuring her mortgage application, and in controlling the disbursement of loan proceeds. Moreover, EquiCredit aided and abetted the fraudulent conduct of Archer Funding and James Holleran, and benefitted from the fruits of their fraud. 104. At the loan closing at Mrs. Samuel’s home, the settlement agent, Mr. Ackah, whispered to Mrs. Samuel that the $1,709.63 fee to Archer Funding listed on the settlement sheet was to be paid to Holleran. This was the first time that Archer Funding was identified to Mrs. Samuel. 105. Mrs. Samuel did not knowingly agree to engage a thirdparty broker and pay him additional compensation. 106. If Holleran or Archer Funding were in fact acting as a mortgage broker for Mrs. Samuel, the conduct in steering her to a high-priced home equity loan refinancing transaction with points and fees in excess of 8% of the loan and refinancing her tax and utility debt, was a gross violation of their fiduciary duty toward Mrs. Samuel. 107. Holleran converted an $18,000 check from the loan proceeds to his own use, and the home repairs to Ms. Samuel’s home were never completed pursuant to the home improvement contract. The repairs that were done were shoddily done and are defective, are presently falling apart and were never completed to a reasonable standard of workmanship. No work whatsoever has been done on Mrs. Samuel’s kitchen. 108. Prior to and at the loan closing, EquiCredit, its closing agent, Holleran and Archer Funding made material misrepresentations and omitted material information in order to induce Mrs. Samuel to consummate the home equity loan, including, but not limited to: (a) the failure to disclose to her that a broker was being engaged who would be paid separately from the lender and that the broker agreement was a separate agreement that she had three days to cancel if she so chose; (b) the failure to disclose to her that her request for a loan for home improvements was being rejected, and the reasons it was being rejected; (c) the representations made to her at the loan closing that the home equity loan was beneficial and necessary for her to get the loan; (d) failing to clearly explain the EquiCredit’s motives in requir-

Appx. D.1
ing Mrs. Samuel to borrow additional sums to pay taxes and utility bills, so that EquiCredit could have a first mortgage loan and thereby evade Pennsylvania usury laws; (e) representing that Holleran and his companies would perform home improvements on Mrs. Samuel’s home when he had no such intent. 109. The conduct of EquiCredit, Holleran and Archer Funding constituted unfair or deceptive acts or practices within the meaning of the CPL in that, among other reasons, (a) EquiCredit and the broker arranged a transaction for Plaintiff which imposed credit costs and charges expressly prohibited by federal and Pennsylvania law, which is a per se unfair or deceptive practice; (b) EquiCredit and the broker represented to Plaintiff that the consolidation and refinancing of pre-existing debt would be beneficial to her when in fact it was not, 73 P.S. § 201-2(v); (c) EquiCredit and the broker did not provide Mrs. Samuel with notice of her right to cancel the alleged broker contract, which was ‘‘sold’’ as a result of a contact with Mrs. Samuel at her residence, in violation of 73 P.S. §201; (d) EquiCredit and the broker violated federal and state statutes in connection with the transaction, which is per se unfair and deceptive conduct in violation of the CPL; and (e) EquiCredit and the broker engaged in deceptive conduct which created a likelihood of confusion or of misunderstanding, 73 P.S. § 201-2(4)(xxi), including, without limitation, the specific representations and omissions described above. 110. The above misrepresentations and omissions were made with knowledge of their falsity and with the intent to induce Mrs. Samuel to enter into the contracts, and Plaintiff reasonably relied on them and suffered damages as a result. 111. Defendant EquiCredit is liable to Plaintiff Samuel for treble damages, attorneys fees and other appropriate relief, pursuant to 73 P.S. § 201-9.2 and common law. VII. PRAYER FOR RELIEF WHEREFORE, Plaintiff, individually and on behalf of the Class, requests the following relief: A. An Order certifying the proposed Class under Rule 23 of the Federal Rules of Civil Procedure and appointing Plaintiff and her counsel to represent the Class; B. An Order declaring that EquiCredit’s actions as described above are in violation of the statutes and regulations set forth above; C. An Order declaring that EquiCredit has engaged in a pattern or practice of extending credit to consumers based on the consumers’ collateral without regard to the consumers’ repayment ability; D. An Order enjoining Defendants from continuing to engage in the illegal, unfair and deceptive practices described above; E. An Order enjoining Defendants EquiCredit and US Bank from initiating or continuing foreclosure proceedings with respect to the homes of members of the Class; F. An Order requiring EquiCredit and/or US Bank to notify class members of their right to cancel their broker agreements and receive restitution of broker fees, G. All relief set forth above following each individual Count asserted by the individual named Plaintiff and the Class; H. Treble damages; I. Statutory damages;

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Hawai’i Rules of Civil Procedure 23(b)(1) and 23(b)(2) on behalf of themselves and all other individuals similarly situated as follows: a. A declaration that Plaintiffs and others similarly situated have the right to sue Defendants in Circuit Court under HRS Chapter 674 for breach of Defendants’ trust obligations under the Hawaiian Homes Commission Act of 1920. b. A declaration that Plaintiffs and others similarly situated have the right to sue Defendants in Circuit Court under HRS Chapters 673 and/or 661 for Defendants’ breach of trust obligations to Plaintiffs and all others similarly situated by delaying and failing to complete the claims resolution process established under HRS Chapter 674, and c. A declaration that Plaintiffs have claims which allow them to recover individual compensation for waiting an unreasonably long period of time to be awarded land (‘‘waiting list claims’’) under the Hawaiian Homes Commission Act of 1920 and for other types of compensable claims for relief. d. A declaration which determines the nature and elements of compensation allowed under HRS Chapters 674, 673 and/or 661 for Plaintiffs’ claims. 3. In addition to the above claims for declaratory and injunctive relief Representative Plaintiffs seek monetary relief and damages pursuant to Hawai’i Rules of Civil Procedure 23(b)(3) on behalf of themselves and all other individuals similarly situated under HRS Chapter 674, HRS Chapter 673 and/or HRS Chapter 661 for Defendants’ breach of their trust obligations to Plaintiffs under the Hawaiian Homes Commission Act of 1920. BACKGROUND 4. Under HRS Chapter 674, the State of Hawai’i established the Hawaiian Home Lands Trust Individual Claims Review Panel (‘‘Panel‘‘) and a claims review process ‘‘under which individual beneficiaries of the Hawaiian home lands trust may resolve claims for actual damages arising out of or resulting from a breach of trust, which occurred between August 21, 1959, and June 30, 1988, and was caused by an act or omission of an employee of the State in the management and disposition of trust resources.’’ HRS § 674-1. The Panel was empowered to hear and render Advisory Opinions to the Legislature on claims filed with it by Native Hawaiian beneficiaries. The Legislature was then empowered to take action upon the claims presented to it by the Panel. 5. Under the Chapter 674 claims review process, individual beneficiaries were given a right to sue in circuit court upon their filing a notice with the panel by October 1, 1999 that they did not accept legislative action taken upon their claim. HRS § 674-17. Such suits are required to be filed in Circuit Court by December 31, 1999. HRS § 674-19. 6. Because the Legislature took no action on 2,721 of the claims filed with the Panel (the claims of Representative Plaintiffs and the proposed class), Defendant State of Hawai’i has taken the position that these 2,721 claimants will lose their right to file suit under HRS Chapter 674 as of January 1, 2000. 7. If Defendants are correct and Plaintiffs have no right to sue under HRS Chapter 674, the State’s failure to complete the Chapter 674 process and/or its failure to complete the process in a timely manner constitutes a breach of trust violation under HRS Chapter 673 or alternatively constitutes a breach of contract under HRS Chapter 661.

J. Attorneys’ fees and costs; and K. Such other relief at law or equity as the Court may deem just and proper. [Attorney for Plaintiff] [Date]

D.2 Class Complaint under 23(b)(2) Seeking Injunctive and Declaratory Relief (Kalima)
IN THE CIRCUIT COURT OF THE FIRST CIRCUIT STATE OF HAWAI’I ) ) ) ) ) ) ) v. ) ) STATE OF HAWAI’I, ) STATE OF HAWAI’I ) DEPARTMENT OF HAWAIIAN ) HOME LANDS; STATE OF ) HAWAI’I HAWAIIAN HOME ) LANDS TRUST INDIVIDUAL ) CLAIMS REVIEW PANEL, ) BENJAMIN CAYETANO, in ) his official capacity as Governor ) of ) the State of Hawai’i, ) JOHN DOES 1-10, JANE DOES ) 1-10, DOE CORPORATIONS ) 1-10, DOE PARTNERSHIPS ) 1-10 AND DOE GOVERN) MENTAL ENTITIES 1-10, ) Defendants. ) ) LEONA KALIMA, DIANNE BONER AND JOSEPH CHING, on behalf of themselves and all others similarly situated, Plaintiffs,

CIVIL NO. (Class Action) COMPLAINT; EXHIBITS 1 AND 2; DEMAND FOR JURY TRIAL; AND SUMMONS TO ANSWER CIVIL COMPLAINT

COMPLAINT Representative Plaintiffs Leona Kalima, Diane Boner and Joseph Ching (‘‘Representative Plaintiffs’’) above-named, through their attorneys, Davis Levin Livingston Grande and the Law Offices of Carl M. Varady, file this Complaint against Defendants and allege as follows: INTRODUCTION 1. This class action is for declaratory and injunctive relief and for monetary damages by 2,721 Native Hawaiian beneficiaries of the Hawaiian Home Lands Trust for breaches of that trust by Defendants. 2. Representative Plaintiffs Leona Kalima, Dianne Boner and Joseph Ching seek declaratory and injunctive relief pursuant to

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8. Irrespective whether their claims arise under HRS Chapter 674, 673 and/or 661, Representative Plaintiffs seek monetary damages on behalf of themselves and all others similarly situated for Defendants’ breach of trust obligations to individual beneficiaries. JURISDICTION AND VENUE 9. This Court has subject matter jurisdiction to hear the claims in this Complaint pursuant to Hawai’i Revised Statutes § 603-21.5 (general jurisdiction), Hawai’i Revised Statutes §§ 603-21.5 and 632-1 (declaratory relief), Hawai’i Revised Statutes § 674-17 (breach of trust claims arising between 1959 and 1988) , Hawai’i Revised Statutes § 673-1 (breach of trust claims arising after 1988), and Hawai’i Revised Statutes § 661-1 et seq. (breach of contract). 10. Under HRS Chapters 674, 673 and 661, the State of Hawai’i has waived its sovereign immunity to be sued subject to certain prefiling requirements. 11. This Court has personal jurisdiction over Defendants pursuant to Hawai’i Revised Statutes § 674-16, Hawai’i Revised Statutes § 673-1 and Hawai’i Revised Statutes § 661-1. 12. This Court has venue over the claims in this Complaint pursuant to Hawai’i Revised Statutes § 603-36 and Hawai’i Revised Statutes § 674-17, Hawai’i Revised Statutes § 673-1 Hawai’i Revised Statutes § 661-1. PREFILING REQUIREMENTS 13. Under Hawai’i Revised Statutes Chapter 674, a claimant must timely file a claim with the Panel by August 31, 1995. After Panel consideration of the claim, the Panel was empowered to render Advisory Opinions on the claims presented to it and make a recommendation to the Legislature for action on the claims. After legislative action on the Panel recommendation, individual or classes of claimants have the right to sue in Circuit Court upon 1) the filing of a notice of intent to sue by October 1, 1999 HRS § 674-17 and 2) filing of a lawsuit by December 31, 1999. HRS § 674-19. 14. On September 30, 1999, Plaintiffs through the Native Hawaiian Legal Corporation filed a written notice of intent to sue on behalf of the proposed classes of plaintiffs, a true and correct copy of which is attached as Exhibit 1. This letter satisfies the requirement of HRS § 674-17. 15. Under Hawai’i Revised Statutes § 673-3, Plaintiffs must exhaust ‘‘all administrative remedies available, and shall have given not less than sixty days written notice prior to filing of the suit that unless appropriate remedial action is taken suit shall be filed.’’ 16. On December 29, 1999, Plaintiffs through Davis Levin Livingston Grande and the Law Offices of Carl Varady, filed a written notice and request for remedial action to be taken. Plaintiffs have attached as Exhibit 2 a true and correct copy of the required prefiling written notice. This letter satisfies the requirement of HRS § 673-3. 17. Under Hawai’i Revised Statutes § 673-3 ‘‘All executive branch departments shall adopt in accordance with chapter 91, such rules as may be necessary to specify the procedures for exhausting any remedies available.’’ The executive branch departments of the State of Hawai’i have not adopted any rules pursuant to HRS chapter 91 so there are no administrative remedies to be exhausted by Plaintiffs. PARTIES

Appx. D.2

18. Plaintiff Joseph Ching is a resident of the State of Hawai’i and who is a Native Hawaiian beneficiary as that term is defined in HRS Chapter 674. Plaintiff Joseph Ching timely filed a breach of trust claim with the Panel. That breach of trust claim: a. Was adjudicated in Plaintiff’s favor by the Panel; b. Was the basis of an advisory opinion by the Panel; c. Was presented to the Legislature for action; and d. The Legislature took no action on the Panel’s recommended remedial action regarding Plaintiff Joseph Ching’s breach of trust claim. 19. There are 418 claimants (putative plaintiffs of Subclass 1) similarly situated to Plaintiff Joseph Ching since they all had breach of trust claims which a) were adjudicated in their favor by the Panel, b) each of which was the basis of an advisory opinion by the Panel, c) were presented to the Legislature for action, and d) the Legislature took no action on the Panel’s recommended remedial action regarding these claimants’ breach of trust claims. 20. Plaintiff Dianne Boner is a resident of the State of Hawai’i who is a Native Hawaiian beneficiary as that term is defined in HRS Chapter 674. Plaintiff Dianne Boner timely filed a breach of trust claim with the Panel. That breach of trust claim: a. Was adjudicated by the Panel; b. Was the basis of an advisory opinion by the Panel; c. Was not presented to the Legislature for action; and d. Because it was not presented to the Legislature for action, the Legislature took no action on the Panel’s recommended remedial action regarding Plaintiff Dianne Boner’s breach of trust claim. 21. There are 53 claimants (putative plaintiffs of Subclass 2) similarly situated to Plaintiff Diane Boner since they all had breach of trust claims which a) were adjudicated in their favor by the Panel, b) each of which was the basis of an advisory opinion by the Panel, c) which were not presented to the Legislature for action, and d) because the claims were not presented to the Legislature for action, the Legislature took no action on the Panel’s recommended remedial action regarding these claimants’ breach of trust claims. 22. Plaintiff Leona Kalima is a resident of the State of Hawai’i who is a Native Hawaiian beneficiary as that term is defined in HRS Chapter 674. Plaintiff Leona Kalima timely filed a breach of trust claim with the Panel. That breach of trust claim: a. Was timely filed with the Panel for adjudication; b. Was not presented by the Panel to the Legislature for action; and c. The Legislature took no action on Plaintiff Leona Kalima’s breach of trust claim. 23. There are 2,250 claimants (putative plaintiffs of Subclass 3) similarly situated to Plaintiff Leona Kalima since they all timely filed breach of trust claims which a) were presented to the Panel for adjudication, b) were presented by the Panel to the Legislature for action, and c) the Legislature took no action on these claimants’ breach of trust claims. 24. Defendant State of Hawai’i is a sovereign entity which assumed trust and fiduciary responsibilities for Native Hawaiian beneficiaries of the Hawaiian Homes Commission Act of 1920 in its state constitution upon Hawai’i’s admission as a state in 1959. Defendant State of Hawai’i has waived its sovereign immunity to be sued herein under 25. Defendant State of Hawai’i Department of Hawaiian Home Lands (‘‘DHHL’’) is a department within Defendant State of

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FACTUAL ALLEGATIONS 33. Plaintiffs are individual beneficiaries of the Hawaiian Homes Commission Act of 1920 who were eligible to receive the benefits of homesteading and related programs from the Hawaiian Home Lands Trust (‘‘Trust’’). THE HAWAIIAN HOME LANDS TRUST 34. In 1920, the Congress of the United States of America passed the Hawaiian Homes Commission Act of 1920, as amended (42 Stat. 108 (July 9, 1921), establishing a land trust to be administered by the Territory of Hawai’i, and later the State of Hawai’i, to rehabilitate the Native Hawaiian people by, inter alia, making them eligible to receive the benefits of homesteading and related programs from the Hawaiian Home Lands Trust. The State of Hawai’i accepted responsibilities as trustee of the Hawaiian Home Lands Trust on behalf of eligible Native Hawaiians as a condition of its admission to the Union under §§ 4 and 5 of the Hawai’i Admission Act, Pub. L. 86-3, 73 Stat. 4 (March 18, 1959) as well as pursuant to Article XII, §§ 2 and 3 of the Hawai’i Constitution. 35. Under the Hawaiian Homes Commission Act of 1920, as amended, the State of Hawai’i was charged as trustee to oversee the operations carried out under the authority of the Hawaiian Homes Commission Act and to fulfill and discharge all obligations consistent with its position as trustee. The duties included: administration of a land trust for the sole benefit of Native Hawaiians and rehabilitation of Native Hawaiians through resettlement of them on Trust lands. HAWAIIAN HOMES INDIVIDUAL CLAIMS REVIEW PANEL 36. In 1988, the Hawai’i State Legislature passed Act 395, The Native Hawaiian Judicial Trusts Relief Act, which was signed by the Governor and codified as HRS Chapter 673. 37. Chapter 673 gave Native Hawaiian beneficiaries the right to sue the State of Hawai’i in Circuit Court for breaches of trust occurring after June 30, 1988 by the State of Hawai’i of the Hawaiian Home Lands Trust under Article XII, Sections 1, 2 and 3 of the Hawai’i Constitution and the Hawaiian Homes Commission Act of 1920. 38. Chapter 673 also provided procedural requirements for instituting suit, including 1) prefiling notice to the State of Hawai’i, 2) sixty day period for State to take requested remedial action and 3) two-year statute of limitation for instituting a breach of trust claim. 39. Act 395, codified as Chapter 673 also directed the Governor to present a proposal to the 1991 Legislature to resolve controversies relating to trust breaches that occurred during the period between the Statehood and June 30, 1988, and were not included within Chapter 673. 40. As required by Act 395, in 1991, the Governor submitted to the Legislature ‘‘An Action Plan to Address Controversies Under the Hawaiian Home Lands Trust and the Public Land Trust’’ (‘‘Action Plan’’). Under the Action Plan, the Governor proposed creating a Board of Individual Claims Resolution to hear claims of actual economic losses suffered by individual beneficiaries of the Hawaiian Home Lands Trust for 1959 through 1988 claims. 41. In response to the Action Plan, in 1991 the Hawai’i State Legislature passed Act 323, codified as HRS Chapter 674, which

Hawai’i and which was charged by the State of Hawai’i to discharge the State of Hawai’i’s duty to act as trustee on behalf of all Native Hawaiian beneficiaries pursuant to the Hawaiian Homes Commission Act of 1920. 26. Defendant Hawaiian Home Lands Trust Individual Claims Review Panel (‘‘Panel’’) is an administrative agency set up to administer the individual claims for breach of trust by Native Hawaiian beneficiaries. 27. Defendant Benjamin Cayetano is sued in his official capacity as Governor of the State of Hawai’i and the chief administrative officer responsible for administration of the Hawaiian Home Lands Trust Individual Claims Review Panel, which is an executive agency within the Department of Commerce and Consumer Affairs under the supervision and control of the Office of Governor. 28. Pursuant to Hawai’i Revised Statutes § 674-16, Defendant State of Hawai’i and Defendant State of Hawai’i Department of Hawaiian Home Lands have waived their immunity from liability for actual damages suffered by an individual beneficiary arising out of or resulting from a breach of trust or fiduciary duty, which occurred between August 21, 1959 to June 30, 1988 and was caused by an act or omission of an employee of the State in the management and disposition of trust resources. 29. Pursuant to Hawai’i Revised Statutes § 673-1, Defendant State of Hawai’i and Defendant State of Hawai’i Department of Hawaiian Home Lands have waived their immunity from liability for actual damages suffered by an individual beneficiary arising out of or resulting from a breach of trust or fiduciary duty, which occurred after June 30, 1988 and was caused by an act or omission of an employee of the State in the management and disposition of trust resources. 30. Pursuant to Hawai’i Revised Statutes § 661-1, the State of Hawai’i and Defendant State of Hawai’i Department of Hawaiian Home Lands have waived their immunity for damages as a result of breaches of contract explicitly or impliedly entered into with individuals. The settlement of individual beneficiary claims, through legislation and administrative rules, establish a contract that was breached by the State. 31. Defendants State of Hawai’i, State of Hawai’i Department of Hawaiian Homes Lands, Defendant Hawaiian Home Lands Trust Individual Claims Review Panel and Benjamin Cayetano are collectively referred to as ‘‘Defendants’’. 32. The Defendants designated as JOHN DOES 1-10, JANE DOES 1-10, DOE CORPORATIONS 1-10, DOE PARTNERSHIPS 1-10 and DOE GOVERNMENTAL ENTITIES 1-10 (hereinafter collectively referred to as ‘‘Doe Defendants’’) are sued herein under fictitious names for the reason that their true names and identities are presently unknown to Plaintiff, despite Plaintiffs’ diligent and good faith efforts to obtain this information, except that said Doe Defendants were connected in some manner with the named Defendant and were individuals, corporations, parent corporations, divisions, subsidiaries, entities, agents, representatives, associations, affiliates, associates, co-venturers, business entities, employers, employees, servants, vendors, suppliers, manufacturers, subcontractors and contractors, or governmental entities, agencies or bodies, responsible in some manner presently unknown to Plaintiffs for the injuries and damages to Plaintiffs. Plaintiffs hereby pray for leave to certify the true names and capacities, activities and/or responsibilities of said Doe Defendants when the same are ascertained.

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established the Hawaiian Home Lands Trust Individual Claims Review Panel (‘‘Panel’’) and a claims review process ‘‘under which individual beneficiaries of the Hawaiian home lands trust may resolve claims for actual damages arising out of or resulting from a breach of trust, which occurred between August 21, 1959, and June 30, 1988, and was caused by an act or omission of an employee of the State in the management and disposition of trust resources.’’ HRS § 674-1. 42. Chapter 674 authorized the Panel to review and evaluate the merits of claims brought by individual beneficiaries, to render findings, and to recommend monetary damages and other relief in an advisory opinion to the Legislature regarding the merits of each claim. HRS § 674-1. Chapter 674 was enacted to ‘‘grant individuals affected by the Hawai’i Home Lands Trust . . .the right to settle their individually affected controversies (as opposed to controversies that affect the beneficiaries as whole) by suing directly in Circuit Court.’’ 1991 Hawai’i State Legislature Conference Committee Report No. 64 at 1. 43. Under Act 323 as originally passed, the filing deadline to submit claims to the Panel was August 31, 1993. HRS § 674-7 (1991). The deadline to file a written notice that the claimant does not accept legislative action on his or her claim was October 1, 1994, HRS § 674-17(b) (1991) and the statute of limitations for filing an action in circuit court was September 30, 1996 HRS § 674-19 (1991), two years after the written notice was required to be filed with the panel. 44. Under Chapter 674, the Panel was to submit its final report to the 1994 legislature in regular session, including a summary of each claim brought, the panel’s findings and advisory opinion regarding the merits of each claim and an estimate of the probable compensation or recommended corrective action. HRS § 674-14 (1991). 45. The Panel members were appointed in April 1992, promulgated rules to govern operations and, in February 1993, began accepting claims filed by individual beneficiaries of the Hawaiian Home Lands Trust. 46. Because of delays in forming the Panel, the 1993 Hawai’i State Legislature revised the various deadlines it established in 1991. The deadline to file claims with the panel was extended from August 31, 1993 to August 31, 1995. HRS § 674-7 (1993) (Act 351). The deadline to file a written notice that the claimant does not accept legislative action on his or her claim was extended from October 1, 1994 to October 1, 1997. HRS § 674-17(b) (1993) (Act 351). The statute of limitations for filing an action in circuit court was extended from September 30, 1996 to September 30, 1999, HRS § 674-19 (1993) (Act 351), two years after the written notice was required to be filed with the panel. The deadline to submit the final report to the legislature was extended from the 1994 legislature to the 1997 legislature. HRS § 674-14 (1993) (Act 351). 47. In 1994, the Hawai’i State Legislature considered and approved the Panel’s decisions in two cases. 1994 Hawai’i State Legislature, Act 129. By approving the Panel’s actions with regard to these two claimants, the enactment of Act 129 authorized these claimants to bring suit in Circuit Court pursuant to HRS § 674-17 in the event they did not accept the action of the Legislature on their claims, subject only to their compliance with the requirement under HRS § 674-17(b) that timely notice of their rejection of the Legislature’s action be filed with the Panel. 48. In 1995, during Special Session, the Legislature adopted Act 14, which is based expressly on the Action Plan and Act 395.

Appx. D.2
Act 14 overrode prior precedent and stated its intent to settle all Hawaii Home Lands breach of trust claims allowed by Act 395 for claims arising during the period August 21, 1959, through July 1, 1988, except those permitted by Chapter 674, HRS. Act 14 provided further for the payment of $600 million dollars in settlement for Hawaiian land trust claims, exclusive of those under Chapter 674, HRS. Act 14 states that its effect is res judicata as to all other Hawaiian land trust claims for the period of August 21, 1959, and July 1, 1988. 49. Although Act 14 was intended to resolve controversies arising out of ‘‘management, administration, supervision of the trust, or disposition . . .of any lands or interests in land which are or were or are alleged to have been Hawai’ian home lands,’’ Act 14 specifically exempted the individual claims resolution process established by Chapter 674: Nothing in this section shall replace or affect the claims of beneficiaries with regard to . . .(c) Hawaiian home lands trust individual claims brought pursuant to chapter 674, Hawai’i Revised Statutes, except as otherwise provided in sections 14, 15 and 16 of this Act. 1995 Hawai’i State Legislature, Act 14, § 4. 50. Section 14, 15 and 16 of Act 14 (1995) revised portions of Chapter 674 by amending the definition of actual damages in HRS § 674-2; shortening the statute of limitations time period in HRS § 674-19 from September 30, 1999, HRS § 674-19 (Act 351), to September 30, 1998, and adding a provision to Chapter 674 precluding title-related claims from the claims process. 51. In 1997, the Panel prepared and submitted its Report to the Governor and the 1997 Hawai’i Legislature. In its Report, the Panel determined that several categories of claims were compensable under Chapter 674, including claims based on an unreasonably long wait for a homestead (‘‘waiting list claims’’), construction claims, lost application claims and others. Report to the Governor and the 1997 Hawai’i Legislature, submitted by The Hawaiian Home Lands Trust Individual Claims Review Panel (‘‘1997 Report’’), Table II. 52. In its 1997 Report, the Panel reported that it received 4,327 claims from 2,752 claimants by August 31, 1995, the deadline established by the 1993 Legislature. 1997 Report at i. By the end of 1996, the Panel had rendered advisory opinions on 172 claims affecting 147 claimants. Through the 1997 Report, the Panel recommended legislative action on 162 claims for damages approximating $6.7 million. 1997 Report at i and Table III—6. 53. However, because the Panel was unable to complete its review of all claims in 1997, it requested a two-year extension to review all claims and file its final report with the Legislature. 54. The 1997 Legislature agreed to extend the Panel’s existence and passed Act 382. Act 382 retained the deadline to file claims with the Panel as August 31, 1995. HRS § 674-7 (1993) (Act 351). The deadline to file a written notice that the claimant does not accept legislative action on his or her claim was extended from October 1, 1997 to October 1, 1999. HRS § 674-17(b) (1997) (Act 382). The statute of limitations for filing an action in circuit court was extended from September 30, 1998 to December 31, 1999, HRS § 674-19 (1997) (Act 382), three months after the written notice was required to be filed with the panel. The deadline to submit the final report to the legislature was extended from the

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the Panel rendered an advisory opinion and even though 2,277 claims have had no advisory opinion rendered by the Panel at all. 61. As of September 30, 1999, the disposition of the 2,752 claimants who timely filed claims with the Panel is as follows: Number of claimants who settled their claims Number of claimants who timely filed claims with the Panel for whom the Panel did not issue Advisory Opinions recommending relief and whose claims were not submitted to the Legislature by the Panel (including (Plaintiff Kalima) Number of claimants who had Advisory Opinions issued by the Panel recommending relief which were not reported to the Legislature for which the Legislature provided no relief (including Plaintiff Boner) Number of claimants who had Advisory Opinions issued by the Panel which were reported to the Legislature for which the Legislature provided no relief (including Plaintiff Ching) 31

1997 legislature to the 1999 legislature. HRS § 674-14 (1997) (Act 382). 55. In considering the Panel’s advisory decisions on claims, including claims for damages, the 1997 Legislature took no action on the claims that had been presented and instead created a separate process to determine the types of compensable claims and the amounts to be paid by passage of Act 382. 56. The separate process created by Act 382 was a working group consisting of the Attorney General, Director of Budget and Finance, Chair of the Hawaiian Homes Commission and the Panel Chair to prescribe ‘‘a formula and any criteria necessary to qualify and resolve’’ claims filed under HRS Chapter 674. The working group planned to eliminate large numbers of claims. The working group was declared to be unconstitutional in Apa v. Cayetano, Civil No. 97-4641-11, First Circuit Court, State of Hawai’i (Order Granting in Part and Denying in Part Plaintiffs’ Motion for Summary Judgment and for Permanent Injunction filed on April 17, 1998, entered December 30, 1998; Order Granting in Part and Denying in Part Executive Defendants’ Motion for Summary Judgment filed on April 24, 1998, entered December 30, 1998) and the Panel therefore did not apply the working group’s formula and criteria for compensation. 57. In 1999, the Panel submitted its second report to the Hawai’i State Legislature. As of December 31, 1998, the Panel had closed or issued recommendations on 2,050 claims, representing 47% of the total number of claims filed. Report to the Governor and the 1999 Hawai’i Legislature, submitted by The Hawaiian Home Lands Trust Individual Claims Review Panel at 17 (‘‘1999 Report’’). In the 1999 Report, which covered claims reviewed by the Panel in 1997 and 1998, the Panel recommended a total of $9.7 million in damages for 346 claims involving 246 claimants. 58. By 1999, the total number of claims submitted by the Panel to the Legislature was 509: 163 claims submitted to the 1997 Legislature and 346 claims submitted to the 1999 Legislature. The total amount of damages recommended by the Panel was approximately $16.4 million ($6.7 million in 1997 and $9.7 million in 1999). The 1999 Legislature took no action on either the 163 claims submitted to it in 1997 or the 346 claims submitted to it in 1999. 59. Because more than 53% (2,277 claims) of the 4,327 claims filed with the Panel were still unresolved at the time of its 1999 Report, the Panel requested the Legislature to further extend the time necessary to complete review of the remainder of the claims. The 1999 Legislature passed H.B. 1675, House Draft 1, Senate Draft 1, Conference Draft 1 (‘‘H.B. 1675’’) which among other things proposed to extend the deadline to submit a written notice that the claimant does not accept legislative action on his or her claim from October 1, 1999 to October 1, 2000 (H.B. 1675, § 4). It also proposed to extend the statute of limitations for filing an action in circuit court from to December 31, 1999 to December 31, 2000 (H.B. 1675, § 5). Finally, it proposed to extend the Panel’s existence and the deadline to submit the final report to the legislature from the 1999 legislature to the 2000 legislature. (H.B. 1675, §§ 2-3). 60. Governor Benjamin Cayetano vetoed H.B. 1675 in April 1999. Because H.B. 1675 was vetoed, the deadline for a claimant to file written notice rejecting legislative action on the claim is currently October 1, 1999. The deadline to file a claim in Circuit Court is December 31, 1999. These deadlines remain in effect even though no legislative action has been taken on 509 claims on which

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62. As of September 30, 1999, there are 2,721 claimants who had no legislative action taken on their claims. The State of Hawai’i has taken the position that these claimants are precluded from exercising their Chapter 674 right to sue for breaches of trust because the Legislature failed to act on their claims. CLASS ALLEGATIONS 63. The Representative Plaintiffs bring this action as a class action under Hawai’i Rules of Civil Procedure 23(a), 23(b)(1), 23(b)(2) and 23(b)(3) on behalf of themselves and all others similarly situated in Hawai’i as members of a proposed plaintiff class (‘‘the Class’’) which would have three subclasses defined as follows: a. Subclass 1: All Hawai’i home land trust beneficiaries who timely filed a claim with the Hawai’i Home Lands Trust Individual Claims Review Panel (‘‘Panel’’) for whom the Panel issued an Advisory Opinion which was submitted to the Legislature, excluding any beneficiaries whose claims were either approved by the Legislature or settled. Subclass 1 consists of at least 418 individuals. b. Subclass 2: All Hawai’i home land trust beneficiaries who timely filed a claim with the Hawai’i Home Lands Trust Individual Claims Review Panel (‘‘Panel’’) for whom the Panel issued an Advisory Opinion which was not submitted to the Legislature, excluding any beneficiaries whose claims were either approved by the Legislature or settled. Subclass 2 consists of at least 53 individuals. c. Subclass 3: All Hawai’i home land trust beneficiaries who timely filed a claim with the Hawai’i Home Lands Trust Individual Claims Review Panel (‘‘Panel’’) for whom the panel did not render an advisory opinion recommending damages or other relief and for whom there was no legislative action taken, excluding any

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beneficiaries whose claims were either approved by the Legislature or settled. Subclass 3 consists of at least 2,250 individuals. 64. Class requirements under HRCP 23(a) are met in that: a. The class is so numerous that joinder of all members is impractical. There are 1845 members of the Class consisting of 418 members of Subclass 1, 53 members of Subclass 2 and 2,250 members of Subclass 3. b. There are questions of law and fact common to the class as follows: 1. All Class Members timely filed claims with the Panel; 2. All Class Members claims were not dismissed or settled during Panel consideration; 3. All Class Members have common Chapter 674 procedures applied to the Panel, Legislative and Judicial consideration of their claims; 4. The State has contended that none of the class members is entitled to sue under Chapter 674 for breach of trust violations; 5. The State has contended that certain claims of the class members are not compensable, including waiting list claims; and 6. All class members have suffered damage as a result of Defendants’ breach of their trust obligations. c. The claims of the Representative Plaintiffs are typical of the claims of the Class, because Representative Plaintiffs and all Class Members were damaged by the same wrongful conduct committed by Defendants as alleged herein. d. The Representative Plaintiffs will fairly and adequately represent the interests of the Class. The interests of Representative Plaintiffs are coincident with, and not antagonistic to, those of the Class. In addition, Representative Plaintiffs are represented by counsel who are experienced and competent in the prosecution of complex class action litigation. 65. Class requirements under HRCP 23(b)(1) are met for Plaintiffs declaratory and injunctive relief (Counts I and II below) because the prosecution of separate actions by individual members of the class would create the risk of inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct on behalf of the state or adjudications with respect to individuals which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interest. 66. Class requirements under HRCP 23(b)(2) are met for Plaintiffs’ declaratory and injunctive relief (Counts I and II below) because the party opposing the class (Defendants herein) have acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole. 67. Class requirements under HRCP 23(b)(3) are met for Plaintiffs’ damages claims (Counts III and IV below) because a. The questions of law and fact common to the members of the class are important and predominate over any questions affecting only individual members because Defendants have acted on grounds generally applicable to the Class: 1. The legal obligations of Defendants; 2. The knowledge and conduct of the Defendants; 3. Damages to Plaintiffs.

Appx. D.2
Class action treatment is superior to the alternatives, if any, for the fair and efficient adjudication of the controversy alleged herein. Such treatment will permit a large number of similarly situated persons to prosecute their common claims in a single forum simultaneously, efficiently and without the duplication of effort and expense that numerous individual actions would engender. There are no difficulties likely to be encountered in the management of this class action that would preclude its maintenance as a class action, and no superior alternative exists for the fair and efficient adjudication of the controversy. Separate cases could produce varying adjudications with respect to individual members, resulting in conflicting and incompatible standards of conduct. COUNT I—DECLARATION AND INJUNCTION FOR RIGHT TO SUE UNDER HRS CHAPTER 674, OR ALTERNATIVELY UNDER HRS CHAPTER 673 AND/OR HRS CHAPTER 661 68. Representative Plaintiffs incorporate by reference the allegations of all the paragraphs above. 69. Plaintiffs request declaratory and injunctive relief as follows: a. A declaration that Plaintiffs have a right to sue for damages under HRS Chapter 674, irrespective of any pre-filing requirements therein, because of breaches of trust by Defendants. b. A declaration that Plaintiffs and others similarly situated have the right to sue Defendants in Circuit Court under HRS Chapters 673 and/or 661 for Defendants’ breach of trust obligations to Plaintiffs and all others similarly situated by delaying and failing to complete the claims resolution process established under HRS Chapter 674. COUNT II—DECLARATION THAT WAITING LIST AND OTHER CLAIMS ARE COMPENSABLE AND WHICH DETERMINES THE NATURE AND ELEMENTS OF COMPENSATION UNDER HRS CHAPTER 674, HRS CHAPTER 673 AND/OR HRS CHAPTER 661 70. Representative Plaintiffs incorporate by reference the allegations of all the paragraphs above. 71. Representative Plaintiffs request a declaration that claims for Native Hawaiian beneficiaries who had to wait an unreasonable amount of time are compensable under HRS Chapter 674, HRS Chapter 673 and/or HRS Chapter 661 as well as other claims to be determined by the Court. 72. Representative Plaintiffs request a declaration which determines the nature and elements of compensation allowed under HRS Chapters 674, 673 and/or 661 for Plaintiffs’ claims. COUNT III—BREACH OF TRUST 73. Representative Plaintiffs incorporate by reference the allegations of all the paragraphs above. 74. The actions of Defendants as alleged herein constitute a breach of trust, thereby proximately causing damage to Representative Plaintiffs’ and Class Members’ person and property. COUNT IV—BREACH OF FIDUCIARY DUTY 75. Representative Plaintiffs incorporate by reference the allegations of all the paragraphs above. 76. The actions of Defendants as alleged herein constitute a

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by the legislature, and thus who cannot fulfill the procedural prerequisites to file suit against the State of Hawai’i pursuant to HRS § 674-17. As a result, this second class of individuals has been arbitrarily deprived of the opportunity to have the Legislature act on their claims by accepting or rejecting the advisory opinion of the Panel on their claims and have been arbitrarily deprived of the opportunity to fulfill the statutory requirements for bringing suit against the State of Hawai’i pursuant to HRS § 674-17. 87. Second, Defendant has also created another distinction where two or more classes of individuals who are each similarly situated are treated differently than another class of individuals solely for arbitrary or capricious reasons. These classes are: (1) those individuals, like Plaintiff CHING, who filed timely claims with the Panel and who have completed the administrative process created by HRS Chapter 674, and have received a recommendation by the Panel for Legislative action on their claims, and (2) those individuals, like Plaintiffs BONER and KALIMA who filed timely claims with the Panel and who have not completed the administrative process created by HRS Chapter 674, and have thereby not received any recommendation by the Panel for Legislative action on their claims. In the situation where the pending action by the Panel would otherwise be favorable to the individuals in the latter category, the termination of the Panel process in mid-stream results in disparate treatment of this category of individuals arbitrarily and capriciously. Thus, unlike Plaintiff CHING, Plaintiffs BONER and KALIMA will not receive the benefit that comes with the Panel’s administrative investigation and a potentially favorable recommendation that could be submitted to the Legislature for future action. In both of the situations described above, Defendant’s actions are capricious and arbitrary which violate the rational basis test of the Equal Protection Clause. 88. The actions of Defendants constitute a violation of those Equal Protection rights contrary to the guarantees of Article I, § 5 of the Constitution of the State of Hawai’i for which Plaintiffs are entitled to relief. COUNT VII— VIOLATION OF ARTICLE XII, § 7 OF THE CONSTITUTION OF THE STATE OF HAWAI’I— TRADITIONAL AND CUSTOMARY RIGHTS 89. Representative Plaintiffs incorporate by reference the allegations of all the paragraphs above. 90. Plaintiffs are protected by the traditional and customary rights clause of Article XII, § 7 of the Constitution of the State of Hawai’i. 91. The actions of Defendants constitute a violation of the rights protected under Article XII, § 7 of the Constitution of the State of Hawai’i for which Plaintiffs are entitled to relief. WHEREFORE, Representative Plaintiffs, individually and on behalf of the proposed class, ask the Court for the following relief and seek judgment against Defendant as follows: a. Define the class as pleaded herein and give notice to all potential class members in a form and manner to be determined by the Court upon Representative Plaintiffs’ motion to certify the class; b. Take any and all other appropriate steps to protect the rights of the Class Members as alleged herein; c. Award declaratory and/or injunctive relief as pleaded herein;

breach of fiduciary duty, thereby proximately causing damage to Representative Plaintiffs’ and Class Members’ person and property. COUNT V— VIOLATION OF ARTICLE I, § 5 OF THE CONSTITUTION OF THE STATE OF HAWAI’I—DUE PROCESS RIGHTS 77. Representative Plaintiffs incorporate by reference the allegations of all the paragraphs above. 78. HRS Chapter 674 established mandatory predicates that entitle Plaintiffs to substantive benefits and procedural relief if Native Hawaiian beneficiaries timely filed claims with the Panel. 79. Plaintiffs timely filed claims for relief with the Panel that now will expire before Plaintiffs obtain review of their claims by the Panel and/or before the Legislature has taken action on their claims. 80. As a consequence of the literal operation of the statutory scheme, Plaintiffs will lose the right to obtain review of their claims by the Panel and the Legislature and/or will lose the right to have their claims adjudicated in State Circuit Court and/or will lose their right to compensation for breaches of trust, all of which were property rights given to them by HRS Chapter 674. 81. By reason of the timely filing of their claims with the Panel, Plaintiffs enjoy a right to obtain review of their claims by the Panel and/or a procedural right to have their claims adjudicated in Circuit Court. This right is protected by the Due Process clause of the Article I, §5 of the Constitution of the State of Hawai’i. 82. The actions of Defendants constitute a violation of that due process right contrary to the guarantees of Article I, § 5 of the Constitution of the State of Hawai’i for which Plaintiffs are entitled to relief. 83. Such due process violation is also a violation of the takings clause of Article I, § 20 of the Constitution of the State of Hawai’i for which Plaintiffs are entitled to relief. COUNT VI— VIOLATION OF ARTICLE I, § 5 OF THE CONSTITUTION OF THE STATE OF HAWAI’I—EQUAL PROTECTION RIGHTS 84. Representative Plaintiffs incorporate by reference the allegations of all the paragraphs above. 85. Plaintiffs are protected by the equal protection clause of Article I, § 5 of the Constitution of the State of Hawai’i. 86. Defendants’ actions have created two classes of individuals who are similarly situated but who are treated differently solely for arbitrary and capricious reasons. These two classes are: (1) those two individuals who timely filed claims with the Panel and who have completed the administrative process created by HRS Chapter 674, have received an advisory opinion by the Panel for Legislative action on their claims, and have had that advisory opinion accepted by the Legislature, and thus who fulfilled the procedural prerequisites to file suit against the State of Hawai’i pursuant to HRS § 674-17, subject only to their own action in filing notice of their rejection of the action of the Legislature with the Panel; and (2) those other individuals, including Representative Plaintiffs, who timely filed claims with the Panel and who may or may not have completed the administrative process created by HRS Chapter 674 and may or may not have received an advisory opinion by the Panel for legislative action on their claims, but who have never had that advisory opinion accepted or rejected

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d. Award general damages pursuant to common law and Hawai’i Revised Statutes Chapters 674, 673 and/or 661 for each Representative Plaintiff and Class Member as is established at the time of trial; e. Award special damages pursuant to common law and Hawai’i Revised Statutes Chapters 674, 673 and/or 661 for each Representative Plaintiff and Class Member as is established at the time of trial; f. Award punitive damages pursuant to common law and Hawai’i Revised Statutes Chapters 674, 673 and/or 661 for each Representative Plaintiff and Class Member in an amount to be shown at trial; g. Award costs of suit, pre-judgment and post-judgment interest, and attorneys’ fees pursuant to Hawai’i Revised Statutes Chapter 674, 673 and/or 661 and HRS section 607-14, or as otherwise allowed by law; and h. Award such other relief in law or in equity as this Court deems just and proper. [Attorney for Plaintiffs] [Date]

Appx. D.3
2. AT & T’s ‘‘Consumer Services Agreement’’ is unlawful, unfair, fraudulent and unconscionable—and therefore in violation of California’s Consumer Legal Remedies Act and the Unfair Competition Law—for several distinct reasons. First, while the proposed changes contained in the ‘‘Consumer Services Agreement’’ would effectively immunize AT & T from liability for most wrongs it might commit against its customers, AT & T has made no effort to ensure that plaintiffs and its other California customers actually learned of these proposed changes or knowingly consented to them. Instead, AT & T simply sent the ‘‘Consumer Services Agreement’’ to plaintiff Ting and its other customers with their bills, knowing that most customers were unlikely even to read it, and simply included a provision that any time one of its customers simply used his/her telephone, this would constitute consent to the proposed changes. Such ‘‘consent,’’ however, is neither voluntary nor meaningful under the law, and renders the ‘‘Consumer Services Agreement’’ unenforceable in its entirety. 3. Second, even if plaintiff Ting and AT & T’s other customers knowingly consented to AT & T’s unilateral attempt to change its contract, the ‘‘Consumer Services Agreement’’ is nonetheless unconscionable and unenforceable because it expressly forbids any AT & T customers from bringing, or participating in, any class actions, an important provision of California’s public policy for protecting consumers. AT & T is well aware that class actions are the only realistic means that plaintiff Ting and AT & T’s other customers have for pursuing many if not most claims they are ever likely to have against AT & T. Thus, if the ‘‘Consumer Services Agreement’’ is enforced, AT & T will be insulated from most liability to its customers and be free to cheat and damage its customers without being held accountable. 4. Finally, AT & T’s ‘‘Consumer Services Agreement’’ is unconscionable and unenforceable because it requires class members to submit their claims to an arbitration service provider—the American Arbitration Association (‘‘AAA’’)—that has strong incentives to be biased in favor of AT & T and against plaintiff Ting and AT & T’s other customers. 5. For these and other reasons, this Court should declare that AT & T’s provisions requiring customers to submit to mandatory arbitration and prohibiting customers from participating in class actions are unlawful and unfair on their face within the meaning of the Consumer Legal Remedies Act and the Unfair Competition Law, and enjoin their further enforcement. THE PARTIES Plaintiffs 6. Plaintiff Ting is over 18 years of age and is a resident of Berkeley, California. For at least seven years, Ms. Ting has been an AT & T customer. 7. Plaintiff Consumer Action (‘‘CA’’) is a non-profit membership organization committed to consumer education and consumer education and advocacy. CA was established nearly 30 years ago, and has approximately 1,500 members. CA is headquartered in San Francisco and has members throughout California and nationwide. As a service to consumers in California and elsewhere, CA publishes and distributes approximately 2,000,000 pieces of literature a year, in 8 different languages, on banking and utility issues, including an annual survey on long distance rates. In addition, CA is actively involved in policy and legislative advocacy on telephone and utility issues, among others, on behalf of consumers at

D.3 Unconscionability of Standard Form Arbitration Agreement (Ting)
SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR ALAMEDA COUNTY

) ) ) ) ) ) ) ) ) v. ) ) AT & T, a New York corporation, ) Defendant. ) ) DARCY TING, individually and on behalf of all others similarly situated, and CONSUMER ACTION, a non-profit membership organization, both as private attorneys general, Plaintiffs,

CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE CONSUMER LEGAL REMEDIES ACT, THE UNFAIR BUSINESS PRACTICES ACT, AND FOR DECLARATORY AND INJUNCTIVE RELIEF Type of Case: (Other): Unfair Business Practices JURY TRIAL DEMANDED

INTRODUCTORY STATEMENT 1. This is a lawsuit charging AT & T with unconscionably and unilaterally attempting to deprive plaintiff Ting and its other customers of their constitutional rights to due process and a jury trial without their consent. In the last several months, AT & T has sent plaintiff Ting and its other customers a ‘‘Consumer Services Agreement’’ that would eliminate their ability to obtain compensation for most wrongs AT & T might commit against them by, among other things, requiring plaintiff Ting and AT & T’s other customers to submit to mandatory, binding, secret arbitration and prohibiting them from participating in class actions.

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members of the Plaintiff Class to seek redress individually for the wrongful conduct alleged herein. There will be no undue difficulty in the management of this litigation as a class action. PRIVATE ATTORNEY GENERAL ALLEGATIONS 16. This action is brought by plaintiffs acting as private attorneys general pursuant to the Unfair Business Practices Act. A private attorney general action pursuant to Business and Professions Code §§17203 and 17204 is appropriate and necessary because AT & T has engaged in the acts described herein as a general business practice. Plaintiffs request in this claim that this court decide that the arbitration requirements unilaterally imposed on its customers by AT & T are each unlawful, unfair, deceptive and unenforceable, and enjoin AT & T from unilaterally imposing these requirements on its customers. VENUE 17. Venue is appropriate in the County of Alameda pursuant to California Code §1780(c) because defendant is doing business in Oakland. GENERAL ALLEGATIONS 18. Plaintiff Ting recently received a document with the heading ‘‘Dear AT & T Customer,’’ and entitled ‘‘AT & T Consumer Services Agreement.’’ This document was included with several other documents in a monthly statement from AT & T. A copy of the ‘‘Consumer Services Agreement’’ document sent to plaintiff Ting is attached as Exhibit A hereto. 19. The ‘‘Consumer Services Agreement’’ Document contains, in small print, an arbitration provision (‘‘AT & T’s Arbitration Provision’’). This provision provides that ‘‘You have the right to take any qualifying dispute to small claims court rather than arbitration. All other disputes arising out of or related to this Agreement (whether based in contract, tort, statute, fraud, misrepresentation or any other legal or equitable theory) must be resolved by final and binding arbitration.’’ 20. AT & T’s Arbitration Provision further provides: THIS SECTION PROVIDES FOR RESOLUTION OF DISPUTES THROUGH FINAL AND BINDING ARBITRATION BEFORE A NEUTRAL ARBITRATOR INSTEAD OF IN A COURT BY A JUDGE OR JURY OR THROUGH A CLASS ACTION. (Capitals in original). 21. AT & T’s Arbitration Provision further states that ‘‘NO DISPUTE MAY BE JOINED WITH ANOTHER LAWSUIT, OR IN AN ARBITRATION WITH A DISPUTE OF ANY OTHER PERSON, OR RESOLVED ON A CLASS-WIDE BASIS.’’ (Capitals in original). 22. AT & T’s Arbitration Provision also provides BY ENROLLING IN, USING, OR PAYING FOR THE SERVICES, YOU AGREE TO THE PRICES, CHARGES, TERMS AND CONDITIONS IN THIS AGREEMENT. IF YOU DO NOT AGREE TO THE PRICES, CHARGES,

both the state and national levels. 8. Plaintiffs are not authorized to enforce observance by defendant AT & T of federal laws and regulations. Plaintiffs do not seek to control defendant AT & T but merely to obtain a declaration of rights and responsibilities and injunctive relief relying on state law. Defendant 9. Defendant AT & T is a long distance telephone carrier and a corporation in New York, New York. It is, through its officers, agents, and employees, engaged in and sells communication services, including long distance telephone services, and is doing such business in California with offices located in Oakland, California and many other California locations. CLASS ALLEGATIONS 10. Pursuant to California Civil Code § 1781 and California Code of Civil Procedure § 382, plaintiff Ting brings this action on behalf of herself and all other persons similarly situated. The class that plaintiff Ting represents (hereinafter the ‘‘Plaintiff Class’’) is composed of all California persons who have or have had long distance telephone service with defendant AT & T at any time from July 30, 1997 forward, and whose long distance service is subject to AT & T’s Consumer Services Agreement challenged by this action. 11. Plaintiff Ting is informed and believes and on that basis alleges that the Plaintiff Class numbers in excess of hundreds of thousands of persons and is so numerous that joinder of all members would be impracticable. The exact size of the Plaintiff Class, and the identity of the members of the class are ascertainable from the business records of AT & T. 12. Questions of law and fact common to the Plaintiff Class exist that predominate over questions affecting only individual members, including, inter alia, the following: a. Whether defendant AT & T’s Consumer Services Agreement with members of the Plaintiff Class is unconscionable; b. Whether the terms of AT & T’s Consumer Services Agreement violated the Consumer Legal Remedies Act, Civil Code §§ 1770(a)(5), 1770(a)(9), and 1770(a)(14); c. Whether AT & T’s Consumer Services Agreement is unlawful, unfair and fraudulent in violation of the Unfair Competition Law, Business & Professions Code § 17200, et seq.; and d. Whether plaintiff Ting and the other members of the Plaintiff Class suffered damage by reason of the unlawful, unfair and/or fraudulent conduct of AT & T and the class-wide measure of damages. 13. The claims asserted by plaintiff Ting in this action are typical of the claims of the members of the Plaintiff Class as described above, the claims arise from the same course of conduct by AT & T, and the relief sought is common. 14. Plaintiff Ting will fairly and adequately represent and protect the interests of the members of the Plaintiff Class. Plaintiff Ting has retained counsel competent and experienced in both consumer protection and class action litigation. 15. A class action is superior to other methods for the fair and efficient adjudication of this controversy, since joinder of all members is impracticable. Furthermore, because the economic damages suffered by the individual class members may be relatively modest, albeit significant, compared to the expense and burden of individual litigation, it would be impracticable for

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TERMS AND CONDITIONS, DO NOT USE THE SERVICES, AND CANCEL THE SERVICES IMMEDIATELY BY CALLING AT & T AT 1(888) 288-4099 FOR FURTHER DIRECTIONS . (Capitals in original). 23. AT & T’s Arbitration Provision incorporates the AAA’s Consumer Arbitration Rules (for disputes involving $10,000 or less) or its Commercial Arbitration Rules (for disputes in excess of $10,000). It does not explain, however, what either of these sets of rules provides. To obtain a copy of the current version of either set of the AAA rules, a customer must go to either AT & T’s or the AAA’s website. 24. AT & T’s Arbitration Provision also makes clear that both sets of the AAA rules can be unilaterally changed without further notice to or agreement by plaintiff Ting or AT & T’s other customers, as the rules that apply are those ‘‘which are in effect on the date a dispute is submitted to the AAA. 25. The AAA requires a claimant to pay certain fees to proceed with the claim. Under the Commercial Arbitration Rules, as the amount of damages claimed by a plaintiff increases, so do these fees increase. 26. AT & T’s Arbitration Provision provides that ‘‘[t]he prevailing party may, however, seek to recover the AAA’s fees and the expenses of the arbitrator from the other party.’’ 27. AT & T’s Arbitration Provision states that the decision of the arbitrator will be ‘‘final and binding.’’ 28. The Consumer Services Agreement further provides that ‘‘We can assign all or part of our rights and duties under this Agreement without notifying you. If we do that, we have no further obligations to you. You may not assign this Agreement or the Services without our prior written consent.’’ 29. The AT & T Consumer Services Agreement further states that ‘‘We [AT & T] may change this Agreement, including the incorporated AT & T Service Guides, from time to time.’’ 30. The AT & T Consumer Services Agreement further provides that, if AT & T decides to exercise its self-declared right unilaterally to change the agreement, it will notify the consumer of the changes ‘‘by one or more of the following: posting on our Website, recorded announcement, bill message, bill insert, newspaper ad, postcard, letter, call to your billed telephone number, or e-mail to an address provided by you.’’ Thus, the agreement provides that it can be unilaterally amended with as little notice as a posting on AT & T’s website and with no specified time period for notice. 31. The Consumer Services Agreement also provides for limitations on the remedies that a customer may have against AT & T: IF OUR NEGLIGENCE CAUSES DAMAGE TO PERSON OR PROPERTY, WE WILL BE LIABLE FOR NO MORE THAN THE AMOUNT OF DIRECT DAMAGES TO THE PERSON OR PROPERTY. FOR ANY OTHER CLAIM, WE WILL NOT BE LIABLE FOR MORE THAN THE AMOUNT OF OUR CHARGES FOR THE SERVICES DURING THE AFFECTED PERIOD. . . . WE ALSO WILL NOT BE LIABLE FOR PUNITIVE, RELIANCE OR SPECIAL DAMAGES. THESE LIMITATIONS APPLY EVEN IF THE DAMAGES WERE FORESEEABLE OR WE

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WERE TOLD THEY WERE POSSIBLE, AND THEY APPLY WHETHER THE CLAIM IS BASED ON CONTRACT, TORT, STATUTE, FRAUD, MISREPRESENTATION, OR ANY OTHER LEGAL OR EQUITABLE THEORY. 32. The ‘‘Frequently Asked Questions’’ portion of the cover note transmitted with AT & T’s Consumer Service Agreement states that ‘‘Arbitration is a quicker and more convenient way to settle disputes without the hassle and cost of a court case.’’ 33. The ‘‘Frequently Asked Questions’’ portion of the cover note transmitted with AT & T’s Consumer Service Agreement states that the arbitrator will be ‘‘an objective third party,’’ and the arbitration provision itself refers to ‘‘neutral’’ arbitrators. AT & T’s ARBITRATION PROVISION PURPORTS TO STRIP CONSUMERS OF THEIR SUBSTANTIVE RIGHTS UNDER THE LAW 34. Under both the Federal Arbitration Act and California law, arbitration clauses are unenforceable unless they permit a claimant effectively to vindicate the substantive rights that they could enforce in court. 35. Despite this authority, AT & T’s Arbitration Provision purports to shorten the limitations period applying to its customers’ claims. The provision states that ‘‘ANY CLAIM OR DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT MUST BE BROUGHT WITHIN TWO YEARS AFTER THE DATE THE BASIS FOR THE CLAIM OR DISPUTE FIRST ARISES.’’ This is shorter than the three-year limitations provision that applies to most statutory causes of action in California, than the four-year limitations period that applies to claims under the Unfair Competition Law, than the four-year limitations period that applies to written agreements and the three-year limitations period that applies to a cause of action for fraud. 36. AT & T’s Arbitration Provision also provides that ‘‘THE ARBITRATOR MAY NOT AWARD DAMAGES THAT ARE NOT EXPRESSLY AUTHORIZED BY THIS AGREEMENT’’ and that ‘‘YOU AND AT & T BOTH WAVE ANY CLAIMS FOR AN AWARD OF DAMAGES THAT ARE EXCLUDED UNDER THIS AGREEMENT.’’ This incorporates into the arbitration provision as an express limitation on the arbitrator’s power the section of the AT & T Customer Services Agreement which states that ‘‘IF OUR NEGLIGENCE CAUSES DAMAGE TO PERSON OR PROPERTY, WE WILL BE LIABLE FOR NO MORE THAN THE AMOUNT OF DIRECT DAMAGES TO THE PERSON OR PROPERTY. FOR ANY OTHER CLAIM, WE WILL NOT BE LIABLE FOR MORE THAN THE AMOUNT OF OUR CHARGES FOR THE SERVICES DURING THE AFFECTED PERIOD. FOR ALL CLAIMS, WE WILL NOT BE LIABLE FOR INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS OR REVENUE OR INCREASED COSTS OF OPERATION. WE ALSO WILL NOT BE LIABLE FOR PUNITIVE, RELIANCE OR SPECIAL DAMAGES. THESE LIMITATIONS APPLY EVEN IF THE DAMAGES WERE FORESEEABLE OR WE WERE TOLD THEY WERE POSSIBLE, AND THEY APPLY WHETHER THE CLAIM IS BASED ON CONTRACT, TORT, STATUTE, FRAUD, MISREPRESENTATION, OR ANY OTHER LEGAL OR EQUITABLE THEORY.’’ The arbitration provision prohibits

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that could have been provided in court. AT & T’S ARBITRATION PROVISION REQUIRES ITS CUSTOMERS WITH CLAIMS GREATER THAN $10,000 TO PAY ENORMOUS ARBITRATION FEES 45. If plaintiff Ting or any of AT & T’s customers were to have a dispute with AT & T in which he/she claim damages of more than $10,000, under AT & T’s Arbitration Provision he/she would be required to arbitrate this dispute under AAA’s Commercial Rules. 46. Under the AAA’s Commercial Rules, the minimum filing fee for a claimant is $500, and filing fees then quickly escalate as the amount of the claim increases. A claimant must also pay one half of the fees of the arbitrator(s) handling the case. AAA arbitrators frequently charge fees of $300 to $400 per hour and more for each hour spent on the matter, including research and preparation. 47. The total fees billed by AAA for arbitrations conducted under its commercial rules are often very high: a. In one sexual harassment case brought in California captioned Warner v. Von Buettner Ristow, a claimant was required to pay $18,260 to AAA. When she did not prevail on the claim, the AAA Arbitrator assessed the claimant $207,271 for the defendant employer’s attorneys’ fees. b. In a legal malpractice case bought in California captioned Paul v. Alred, a claimant was required to pay $15,000 to AAA, even though she waited for more than four years for the arbitrator even to hold a hearing on the merits of her claim. c. In a dispute between a small chicken farmer and a large agribusiness brought in Mississippi captioned Gatlin v. Sanderson Farms, AAA informed the farmer that he would be required to pay a minimum of $11,000 to have his claim heard. d. In a personal injury case brought in Connecticut captioned Mahler v. Terminex, two homeowners were charged $7,000 each to arbitrate their claims. 48. As a result of such high AAA arbitration fees, many consumers are unable to pursue their claims against corporations such as AT & T. AT & T’S ARBITRATION PROVISION REQUIRES ITS CUSTOMERS TO SUBMIT TO ARBITRATION WITH A PROVIDER (THE AAA) THAT IS BIASED IN FAVOR OF CORPORATE DEFENDANTS SUCH AS AT & T 49. Plaintiff Ting and all of AT & T’s customers are entitled by law to have any legal disputes that they may have with AT & T resolved according to law by a genuinely unbiased, neutral, independent decision maker. 50. AT & T’s Arbitration Provision is unfair and unconscionable because AT & T has chosen an arbitrator—the AAA—with very strong incentives to be biased in its favor. AAA is very sympathetic to and favorable towards corporate defendants. 51. AAA’s arbitrators know that there are numerous other providers of arbitration services, and AAA’s development staff directly competes for corporate business with other providers such as JAMS and the National Arbitration Forum. All or nearly all of the business for AAA’s for-profit arbitrators comes from having corporations designate AAA as the arbitration service provider for the corporations’ customers in their standard form contracts. AAA has a development team that focuses upon convincing corporations to select it as the corporations’ arbitration service providers. 52. AAA’s arbitrators know that if they were to rule for con-

all punitive damages claims even though Section 3294 of the California Civil Code provides for such relief for a variety of types of conduct that AT & T could potentially commit against its customers. AT & T’S ARBITRATION PROVISION SEEKS TO IMMUNIZE AT & T FROM LIABILITY BY PREVENTING ITS CUSTOMERS FROM PARTICIPATING IN CLASS ACTIONS 37. As set forth above, AT & T’s Arbitration Provision prohibits its customers from proceeding against AT & T on a class action basis. By doing so, AT & T’s Arbitration Provision seeks to eliminate the only realistic remedy that its customers have for most wrongs it might commit against them. 38. The recent history of consumer litigation establishes that most individual claims against telecommunications companies are for very modest sums of a few hundred or (at the most) a few thousand dollars. 39. It is not economically feasible for consumers to pursue such relatively small claims on an individual basis against a large corporation such as AT & T. Very few, if any, attorneys are financially able or willing to pursue individual claims for modest sums against large, powerful companies such as AT & T. And when a consumer’s claims are quite small on an individual basis, it is economically infeasible for him/her to hire an attorney to represent his/her interests on a billable-hour basis. 40. Consumer attorneys are, however, often able to pursue such claims on a class action basis. When similar claims are aggregated, the amount in controversy becomes sufficiently large for consumers to be able to locate counsel who will represent them and defend their interests. Indeed, there have been several cases across the nation in recent years where consumer companies were held accountable for widespread wrongdoing through consumer class actions. As the California Supreme Court recently held, ‘‘class actions offer consumers a means of recovery for most individual damages. . . .’’ Linder v. Thrift Oil Co. (2000) 23 Cal. 4th 429, 445. 41. California’s public policy demonstrates the importance of class actions as an instrumentality of consumer protection. 42. If AT & T’s customers are barred from pursuing class litigation, then they will likely be denied any meaningful remedy for most wrongs that AT & T might commit against them. Accordingly, AT & T’s Arbitration Provision does not offer customers an equally effective alternative method of dispute resolution; rather it eliminates the only realistic method of dispute resolution available. 43. If AT & T successfully immunizes itself from any class-wide legal accountability, it will free itself to commit widespread wrongdoing. As the California Supreme Court has recognized, class actions ‘‘often produce several salutary by-products, including a therapeutic effect upon those sellers who indulge in fraudulent practices, [and] aid to legitimate business enterprises by curtailing illegitimate competition. . . .’’ Linder, supra, 23 Cal. 4th at 445 (internal quotation marks and citations omitted). The Supreme Court went on to state that ‘‘defendants should not profit from their wrongdoing simply because their conduct harmed large numbers of people in small amounts instead of small numbers of people in large amounts.’’ Id. at 446 (internal quote, citation omitted). 44. It is unconscionable for a contract to compel an individual to submit his or her claims to arbitration when the arbitrator cannot provide the same opportunity to effectively vindicate those claims

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sumers too often by the standards of the corporations selecting them or their defense lawyers, or enter awards for consumers that were too large by the standards of these corporations and their defense lawyers, these companies would cancel or not renew their contracts with the AAA, and the arbitrators would lose this lucrative business. 53. In addition to the filing fees that AAA receives when cases are lodged with it, and the arbitrators’ fees that its arbitrators receive for handling particular cases, AAA also receives regular and substantial cash stipends, retainers, or payments from a large number of corporations. 54. AAA regularly files amicus briefs with courts that support the efforts of corporate defendants to force individuals to submit their claims to arbitration. In a series of cases before the U.S. Supreme Court and other courts, AAA has filed supposedly ‘‘neutral’’ amicus briefs that were purportedly in support of neither party. In each of these cases, a corporate defendant was attempting to compel an individual claimant to arbitrate his or her claims, and the individual claimant was seeking to pursue his or her constitutional right to have his or her day in court and right to a trial by jury. In each case, despite AAA’s claims of neutrality, AAA’s amicus brief set forth legal and/or factual arguments in support of compelling arbitration in these cases, which was the ultimate position sought by the corporate defendant and opposed by the individual plaintiff. After AAA filed an ostensibly neutral brief with the Supreme Court in a recent case involving employment disputes, one AAA arbitrator wrote AAA that ‘‘Taking the strong position the Association took in this brief, where half of its clients in the employment arena—claimants—take the opposing position, is not only unseemly, but destroys AAA’s hard earned neutrality.’’ Michael Joe, Embattled Brief: AAA Faces Criticism from Two of Its Own for Weighing In On a Mandatory ADR Case, The Recorder, September 27, 2000 (quoting Oakland arbitrator R. Elaine Leitner). 55. AAA also sometimes assists corporations in their efforts to pitch their mandatory arbitration clauses to individual consumers and/or employees. In a case involving Red Lobster Restaurants, for example, a man identified as Bruce Chapin, an AAA arbitrator, appeared in a corporate-produced video tape aimed at convincing employees to accept Red Lobster’s new mandatory arbitration policy. When an employee (or an actor pretending to be an employee) asks about the right to a jury trial, Mr. Chapin states: ‘‘Certainly anyone who is ever charged with a crime should insist upon a jury trial. But in a civil setting, a dispute in the workplace, for instance, this is not a matter that would be best tried in front of a jury.’’ Thus, AAA is so eager to help corporate clients impose mandatory pre-dispute arbitration upon individuals that its representatives will urge those individuals to conclude that it is ‘‘best’’ for them to waive their constitutional rights. 56. In a number of cases with mandatory pre-dispute arbitration clauses specifying AAA as the arbitration service provider, individual claimants have initiated the arbitration process against corporations only to have AAA select an arbitrator who was in the same business as the corporate defendant or who represented other corporations in that business, or to identify a list of potential arbitrators primarily or solely composed of such individuals. 57. Plaintiffs are informed and believe that AAA’s arbitrators are overwhelmingly and disproportionately drawn from the ranks of attorneys who principally represent corporations in defending actions brought by individuals. 58. AAA places such an emphasis on developing new lucrative

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corporate business that in its San Francisco office Paul Loon, the Regional Vice President of AAA, on January 14, 2000, sent a memorandum to all AAA arbitrators in that area asking for the arbitrators’ help, as ‘‘[part of our marketing effort for 2000 will be to develop business contracts with corporations headquartered in Northern California.’’ He asked the arbitrators to ‘‘make the introduction for us’’ to any contacts they might have with any corporation listed on an attachment to the memo. This memorandum was circulated despite the fact that AAA’s Code of Ethics for Arbitrators in Commercial Disputes states, Canon I at B, that ‘‘[i]t is inconsistent with the integrity of the arbitration process for persons to solicit appointment for themselves.’’ 59. AAA represents that individuals forced to arbitrate their claims before it will have their rights protected by its Consumer Due Process Protocol, a set of rules that AAA asserts will protect the rights of consumers required to take part in mandatory arbitration. In fact, despite its representations to the contrary, AAA regularly administers arbitrations or otherwise endorses the validity of mandatory pre-dispute arbitration clauses that do not comply with its Due Process Protocol. In at least one case, AAA refused to even respond to correspondence from individuals facing a motion to compel arbitration (or to correspondence from state and elected officials writing on the individuals’ behalf) that requested that AAA state that it would not administer arbitration pursuant to an arbitration clause that did not comply with AAA’s Consumer Due Process Protocol. In February of 2000, one AAA representative publicly announced that AAA had never yet refused to administer arbitration under an arbitration clause on the grounds that it did not comply with its Due Process Protocol. AT & T’S ARBITRATION PROVISION WAS COMMUNICATED TO CONSUMERS IN SUCH A WAY THAT FEW OF ITS CONSUMERS WOULD VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY CONSENT TO THE ARBITRATION PROVISION 60. AT & T’s Arbitration Provision was communicated to plaintiff Ting and AT & T’s other customers in such a way that ensures that few would have read it, much less have voluntarily, knowingly, and intelligently consented to it. 61. AT & T did not send its Arbitration Provision to plaintiff Ting or to its other customers in a document that they must read, sign and return. 62. AT & T’s prior version of its Customer Agreement does not refer specifically to dispute resolution. 63. No AT & T employee telephoned or contacted plaintiff Ting to inform her about its Arbitration Provision or to notify her that she would be losing her federal and state constitutional rights to trial by judge or jury. 64. Upon information and belief, no AT & T employee telephoned or contacted any of AT & T’s other customers to inform them about its Arbitration Provision or to notify them that they would be losing their federal and state constitutional right to trial by judge or jury. 65. In short, AT & T did not use any method or marketing device that would insure that plaintiff Ting or its other customers would actually read and understand the AT & T Arbitration Provision. 66. Major telecommunications companies such as AT & T are extremely sophisticated with respect to marketing, and with respect to consumer behavior in response to communications from finan-

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76. Plaintiff Ting brings this action seeking injunctive relief pursuant to California Civil Code §§ 1770 and 1780. The Consumer Legal Remedies Act, Civil Code §§ 1750, et seq. is designed to protect consumers against unfair and deceptive business practices. It applies to AT & T’s conduct because it covers transactions which are intended to result or which result in the sale or lease of goods and services to consumers. The Act specifically proscribes in § 1770(n) representing that a transaction confers or involves rights, remedies, or obligations which it does not have or involve or which are prohibited by law, and prohibits in § 1770(s) inserting an unconscionable provision in a contract. 77. AT & T possesses bargaining strength and power far superior to that of plaintiff Ting and its other customers. Without discussion or negotiation, it offers to its customers standardized form contracts, drafted by AT & T, which are contracts of adhesion because they are offered on a take-it-or-leave-it basis and the customer has the opportunity only to adhere to the contract or close his or her account. Many of its customer agreements with customers were entered into years ago. 78. The AT & T Arbitration Provision is substantially one-sided in favor of AT & T, and AT & T knows that the Arbitration Provision is substantially one-sided in its favor. 79. The AT & T Arbitration Provision does not fall within the reasonable expectations of plaintiff Ting or of AT & T’s other customers, and is unduly oppressive. It is, therefore, unlawful, unfair, fraudulent and unconscionable. 80. AT & T’s Arbitration Provision would unlawfully, unfairly, fraudulently and unconscionably deprive plaintiff Ting and all of AT & T’s other customers of their state and federal constitutional rights to trial by judge and jury without their voluntary, knowing and intelligent consent. 81. AT & T’s Arbitration Provision also unlawfully, unfairly, fraudulently and unconscionably deprives plaintiff Ting and AT & T’s other customers of their constitutional right to Due Process of law by denying them any effective remedy for their legal claims without their voluntary, knowing and intelligent consent. 82. AT & T’s Arbitration Provision unlawfully, unfairly, fraudulently and unconscionably bars plaintiff Ting and its other Customers from participating in class actions. 83. AT & T’s Arbitration Provision unlawfully, unfairly, fraudulently and unconscionably requires plaintiff Ting and AT & T’s other customers to submit to arbitration before AAA, which has strong incentives to be biased in favor of AT & T and against its customers, and who has created, at the least, a strong appearance of improper bias in favor of AT & T and against its consumers. 84. AT & T’s Arbitration Provision unlawfully, unfairly, fraudulently and unconscionably deprives plaintiff Ting and AT & T’s other customers of their right to (and of the benefits of) a public forum for the resolution of their legal claims. 85. The statements in the Consumer Service Agreement about arbitration being cheaper and more convenient than litigation in court are fraudulent and misleading, in that (a) being forced to pay filing fees and individually pursue arbitration is certainly more of a ‘‘hassle’’ and involved greater costs than being a member of a class in a class action; and (b) for AT & T consumers subject to AAA’s Commercial Rules, the arbitral and administrative filing fees and arbitrators’ hourly fees will dwarf the filing fees that would be required in any court action. 86. The statements in the Consumer Service Agreement referring to ‘‘objective’’ arbitrators are deceptive in light of the facts set

cial services companies. Like other companies in the telecommunications industry, AT & T retains and employs a number of persons who study the number of consumers who read and respond to various sorts of mailings. 67. The California Constitution recognizes that the right to jury trial is a fundamental right for all citizens of California protected by Cal. Const. art. I, § 16. In addition, the Seventh Amendment to the United States Constitution recognizes the right to a jury trial in all federal cases. The California Constitution and the Fifth and Fourteenth Amendments to the United States Constitution protect the right of all citizens to Due Process of law. 68. AT & T’s Arbitration Provision deprives its customers of these constitutional rights. 69. Under California’s generally applicable law of contracts, an individual will not be found to have waived a constitutional right (such as the rights to due process and a jury trial) by contract unless they have voluntarily, knowingly, and intelligently consented to waive those rights. 70. If an individual does not both actually read and fully comprehend a contractual document purporting to waive her or his constitutional rights, that individual cannot be said to have voluntarily, knowingly and intelligently consented to waive those rights. 71. It is therefore unlawful, unfair, fraudulent and unconscionable for AT & T to seek to force its customers into mandatory pre-dispute arbitration without a knowing, voluntary and intelligent waiver of their right to a day in court. AT & T’S ARBITRATION PROVISION ENSHRINES SWEEPING SECRECY 72. AT & T’s Arbitration Provision compels plaintiff Ting and all of AT & T’s customers to submit to an entirely secretive system of dispute resolution, and deprives plaintiff and the other customers of their right to public, open, reviewable dispute resolution. It provides that ‘‘Any arbitration shall remain confidential. Neither you nor AT & T may disclose the existence, content, or results of any arbitration or award, except as may be required by law, or to confirm and enforce an award.’’ 73. As a result of the secrecy enshrined in AT & T’s Arbitration Provision, AT & T has the ability to conceal not only the truth about AAA’s performance, but even its mere existence, eliminating any realistic check against any abuses that AAA arbitrators might commit. AAA could rule for AT & T in every single case it arbitrates (and thus give AT & T a strong incentive to continue to patronize AAA), and this fact would forever remain ‘‘confidential’’ from AT & T’s customers and the public at large. The extraordinary secrecy enshrined in AAA’s rules permits AT & T and AAA to exercise unchecked discretion. 74. The secrecy provisions of AT & T’s Arbitration Provision also remove the resolution of disputes from the public domain, and deprive consumers of the benefit of discovering precedents in cases decided in their favor. FIRST CAUSE OF ACTION FOR INJUNCTIVE RELIEF AND DAMAGES (Violation of Consumer Legal Remedies Act, California Civil Code §§1750 et seq., Brought by the Individual Plaintiff) 75. Plaintiff Ting realleges and incorporates herein as though set forth in full, the allegations of paragraphs 1 through 74 above, except paragraph 15.

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forth above with respect to AAA’s conduct, and none of those facts are disclosed in the Consumer Service Agreement. 87. Pursuant to California Civil Code §§ 1770 and 1780, plaintiffs are entitled to enjoin implementation of AT & T’s Arbitration Provision and to recover their reasonable attorneys’ fees and costs. SECOND CAUSE OF ACTION FOR INJUNCTIVE RELIEF AND RESTITUTION (Violation of the Unfair Competition Law, California Business and Professions Code §§ 17200, et seq., Brought by All Plaintiffs) 88. Plaintiffs reallege and incorporate herein by this reference each and every allegation set forth in paragraphs 1 through 87 above, except paragraph 15. 89. Plaintiffs file this Second Cause of Action acting as private attorneys general to challenge AT & T’s requirement that its customers resolve disputes through arbitration. The Unfair Trade Practices Act defines unfair competition to include any ‘‘unlawful,’’ ‘‘unfair’’ or ‘‘fraudulent’’ business act or practice. Business and Professions Code § 17200. The Act authorizes injunctive relief and restitution for violations. Id. at § 17203. Defendant AT & T has imposed its Arbitration Provision as a business practice. Plaintiffs request that this Court enjoin this practice as unlawful, unfair and fraudulent. 90. The imposition of AT & T’s Arbitration Provision is an unlawful, unfair and fraudulent business practice for all of the reasons set forth in the preceding cause of action as to why it violates the Consumer Legal Remedies Act. THIRD CAUSE OF ACTION (Declaratory Relief, Brought by the All Plaintiffs) 91. Plaintiffs reallege and incorporate herein as though set forth in full the allegations of paragraphs 1 through 90 above, except paragraph 15. 92. An actual controversy has arisen and now exists relating to the rights and duties of the parties herein in that plaintiffs contend that the defendant’s Arbitration Provision is unlawful, unfair, fraudulent, unenforceable, void and of no force or effect in all respects, whereas defendant contends that its Arbitration Provision is valid, creates binding contracts, and is enforceable in all respects. Plaintiffs maintain that each such notice is unlawful, unfair, fraudulent and unenforceable in that it is unconscionable, deceptive and misleading in violation of the Consumer Legal Remedies Act, violates the Unfair Competition Law, Business and Professions Code §17200, et seq., does not create a binding contract, infringes on protections guaranteed by the California Constitution and applicable statutes, and is oppressive and unfair. Defendant disputes these contentions and asserts that each notice of change of terms is valid, contractually binding, and enforceable. 93. Plaintiffs desire a declaration as to the validity and enforceability of the Arbitration Provision and whether defendant AT & T’s unilateral attempt to impose it is unlawful, unfair or fraudulent. A judicial declaration is necessary and appropriate at this time so that plaintiffs may ascertain their rights and duties, and those of other affected persons in regard to the resolution of disputes with defendant Bank of America.

Appx. D.4
WHEREFORE, plaintiffs pray: 1. That this Court declare that AT & T’s practice of imposing its Arbitration Provision on its customers violates the Consumer Legal Remedies Act; 2. That this Court declare AT & T’s practice of imposing its Arbitration Provision on its consumers violates the Unfair Competition Law. 3. That this Court preliminarily and permanently enjoin AT & T from unilaterally imposing its Arbitration Provision on plaintiff Ting and all other customers; 4. That plaintiffs be awarded reasonable attorney’s fees and costs of suit; and 5. That plaintiffs be awarded such other and further relief as the Court may deem appropriate, just and proper. Dated: July 30, 2001 Respectfully submitted, [Attorneys for Plaintiff]

D.4 Federal Fair Debt Collection Case (Boddie)
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) Plaintiff, ) ) v. ) ) LARRY CARSON; ) NATIONWIDE CASSEL, L.P.; ) and N.A.C. MANAGEMENT ) CORPORATION, ) Defendant. ) ) BRIAN BODDIE, COMPLAINT—CLASS ACTION Brian Boddie (‘‘Boddie’’), suing on behalf of himself and all others similarly situated, complains as follows against Larry Carson (‘‘Carson’’), Nationwide Cassel, L.P. (‘‘Nationwide’’), and N.A.C. Management Corporation (‘‘NAC’’): INTRODUCTION 1. This is an action pursuant to the Fair Debt Collection Practices Act (‘‘FDCPA’’), 15 U.S.C. §1692 et seq. JURISDICTION 2. This Court has jurisdiction under 15 U.S.C. §1692k(d) and 28 U.S.C. §1331. PARTIES 3. Plaintiff, Boddie, is a resident of Illinois and a ‘‘consumer’’ as defined by the FDCPA, 15 U.S.C. §1692a(3).

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of Boddie or other consumers to whom letters in the form represented by Exhibit A were sent. 17. Because the address on Exhibit A is that of Nationwide, Nationwide receives any payments sent by a consumer in response to a letter in the form represented by Exhibit A. CLASS ALLEGATIONS 18. This action is brought as a class action. Plaintiff tentatively defines the class as all persons who, during the one year prior to the filing of this complaint, were sent letters similar to Exhibit A [not attached herein]. Plaintiff may subsequently refine the class definition in light of discovery. 19. The class is so numerous that joinder of all members is impractical. On information and belief, letters similar to Exhibit A have been sent to hundreds of consumers. 20. There are questions of law and fact common to the class, which predominate over any questions affecting only individual class members. The principal question is whether defendants’ conduct in connection with the mailing of Exhibit A and similar letters to consumers violates the FDCPA. 21. There are no individual questions, other than whether a class member received one of the offending letters, which can be determined by ministerial inspection of defendants’ records. 22. Plaintiff will fairly and adequately protect the interests of the class. He is committed to vigorously litigating this matter. He is greatly annoyed at being the victim of defendants’ illegal practices and wishes to see that the wrong is remedied. To that end, he has retained counsel experienced in handling class claims and claims involving unlawful business practices. Neither plaintiff nor his counsel have any interests which might cause them not to vigorously pursue this claim. 23. Plaintiff’s claim is typical of the claims of the class, which all arise from the same operative facts and are based on the same legal theories. 24. A class action is a superior method for the fair and efficient adjudication of this controversy. Most of the consumers who receive Exhibit A undoubtedly believe that they are receiving a letter from an attorney and have no knowledge that their rights are being violated by illegal collection practices. The interest of class members in individually controlling the prosecution of separate claims against defendant is small because the maximum damages in an individual action are $1,000. Management of this class claim is likely to present significantly fewer difficulties than those presented in many class claims, e.g., for securities fraud. COUNT I 25. Plaintiff incorporates ¶¶1–24. 26. Carson violated 15 U.S.C. §§1692e, 1692f, 1692g and 1692j by authorizing Nationwide to send the form of letter represented by Exhibit A [not attached herein]. 27. The use of Exhibit A violates 15 U.S.C. §1692e(3) and the general prohibition of false, misleading or deceptive representations in 15 U.S.C. §1692e, in that it makes the false representation or implication that it was sent by an attorney. 28. The use of Exhibit A violates the prohibition against unfair or unconscionable debt collection practices in 15 U.S.C. §1692f, in that it is calculated to intimidate consumers into paying Nationwide by making them believe that an attorney is about to sue them. 29. The use of Exhibit A violates 15 U.S.C. §1692g, which

4. Defendant Carson is an attorney. Carson is engaged in the business of collecting consumer debts and regularly collects consumer debts. He is accordingly a ‘‘debt collector’’ as defined in the FDCPA, 15 U.S.C. §1692a(6). His usual office is located at [address], Chicago, Illinois. 5. Defendant Nationwide is a limited partnership which has its principal place of business at [address] Chicago, Illinois. Nationwide is engaged in the business of a sales finance agency. Nationwide purchases motor vehicle retail installment contracts from car dealers and enforces the contracts against consumers. 6. Nationwide is subject to the FDCPA because, as described below, it is a ‘‘creditor, who, in the process of collecting [its] own debts, uses any name other than [its] own which would indicate that a third person is collecting or attempting to collect such debts.’’ 15 U.S.C. §1692a(6). 7. NAC is an Illinois corporation with its principal place of business located at [same address as Nationwide], Chicago, Illinois. NAC is a general partner of Nationwide and, on information and belief, based on filings with the Department of Financial Institutions, owns 1% of Nationwide. As the general partner, it is vicariously liable for all conduct of Nationwide Cassel. FACTS 8. During 1993, defendants have engaged in acts and practices in violation of the FDCPA in collection activity with respect to Boddie’s alleged personal debt to Nationwide, and with respect to the personal debts of other consumers similarly situated. 9. On or about May 5, 1993, Nationwide sent to Boddie, via the United States Mails, the letter attached hereto as Exhibit A [not attached herein]. The letter was apparently on the letterhead of defendant Carson, but did not include Carson’s actual office address or telephone number. Said letter included a rubber-stamp signature of Larry Carson’s ‘‘administrative assistant,’’ purportedly named ‘‘Mr. Stone.’’ 10. Exhibit A is a printed form letter which is regularly sent to large numbers of consumers on accounts of Nationwide. 11. Neither Carson nor his ‘‘administrative assistant’’ personally signed said letter; a mechanical impression was prepared which created the signature. 12. Neither defendant Carson nor anyone employed as his office staff personally prepared, signed or mailed the preprinted form letters in the form exemplified by Exhibit A. A call placed to Mr. Stone at Carson’s office at [address], Chicago, Illinois, was answered with the response that Carson did not employ any such ‘‘administrative assistant.’’ 13. The address and telephone number on Exhibit A is that of Nationwide and NAC. Calls placed to Carson at the number given on Exhibit A are met with the response that Carson is out of the office, or in court. 14. Exhibit A contains the number of Nationwide’s file relating to Boddie, above his name. 15. Employees of Nationwide prepare and mail letters in the form represented by Exhibit A bearing a rubber-stamp signature of Larry Carson’s ‘‘administrative assistant,’’ purportedly named ‘‘Mr. Stone.’’ 16. Carson approved the preprinted form letter and authorized Nationwide and NAC to imprint the rubber-stamp signature of his ‘‘administrative assistant,’’ purportedly named ‘‘Mr. Stone,’’ on Exhibit A. On information and belief, Carson did not review the file

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requires that a debt collector give a consumer 30 days in which to dispute or request validation of a debt, in that it purports to demand a response within five days in order to avoid legal action. 30. Carson violated 15 U.S.C. §1692j by authorizing the use of Exhibit A. Section 1692j makes it unlawful to ‘‘design, compile, and furnish any form knowing that such form would be used to create the false belief in a consumer that a person other than the creditor of such consumer is participating in the collection of or in an attempt to collect a debt such consumer allegedly owes such creditor, when in fact such person is not so participating.’’ The purpose and effect of Exhibit A is to create the false belief in consumers who receive it that Carson is attempting to collect their alleged debts, when Carson is not in fact so participating. WHEREFORE, plaintiff requests that the Court grant the following relief in his favor and in favor of the class and against defendant Carson: a. The maximum amount of statutory damages provided under 15 U.S.C. §1692k. b. Attorney’s fees, litigation expenses and costs. c. Such other and further relief as is appropriate. COUNT II 31. Plaintiff incorporates ¶¶1–24. 32. Nationwide, by sending consumers letters in the form represented by Exhibit A [not attached herein], is a ‘‘creditor, who, in the process of collecting [its] own debts, uses any name other than [its] own which would indicate that a third person [Carson] is collecting or attempting to collect such debts.’’ 15 U.S.C. §1692a(6). 33. Nationwide violated 15 U.S.C. §§1692e, 1692f and 1692g by sending consumers the form of letter represented by Exhibit A. 34. The use of Exhibit A violates 15 U.S.C. §1692e(3) and the general prohibition of false, misleading or deceptive representations in 15 U.S.C. §1692e, in that it makes the false representation or implication that it was sent by an attorney. 35. The use of Exhibit A violates the prohibition against unfair or unconscionable debt collection practices in 15 U.S.C. §1692f, in that it is calculated to intimidate consumers into paying Nationwide by making them believe that an attorney is about to sue them. 36. The use of Exhibit A violates 15 U.S.C. §1692g, which requires that a debt collector give a consumer 30 days in which to dispute or request validation of a debt, in that it purports to demand a response within five days in order to avoid legal action. 37. NAC is liable for all conduct of Nationwide. WHEREFORE, plaintiff requests that the Court grant the following relief in his favor and in favor of the class and against defendants Nationwide and NAC: a. The maximum amount of statutory damages provided under 15 U.S.C. §1692k. b. Attorney’s fees, litigation expenses and costs. c. Such other and further relief as is appropriate. [Attorney] JURY DEMAND Plaintiff demands trial by jury. [Attorney]

Appx. D.5

D.5 TIL Disclosure Case—Hidden Finance Charge in Car Sale (Willis)
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) ) ) ) ) v. ) ) HARVEY CYCLE & CAMPER, ) INC., doing business as ) WATSON MOTORSPORT, LTD.; ) and WONDERLIC & ) ASSOCIATES, INC., doing ) business as WONDERLIC ) FINANCE, ) Defendants. ) ) CHRISTINE WILLIS, on behalf of herself and all others similarly situated, Plaintiff, COMPLAINT MATTERS COMMON TO ALL COUNTS INTRODUCTION 1. This action seeks redress for unlawful practices relating to an automobile transaction. Count I, brought on behalf of a class, alleges that defendants systematically understate the amount financed and annual percentage rate on automobile financing transactions. Count II alleges that the same conduct complained of in Count I violates the Illinois Sales Finance Agency Act. Counts III and IV allege that plaintiff was sold a defective and unmerchantable car, in violation of the Magnuson Moss Consumer Warranty Act and Illinois law. JURISDICTION AND VENUE 2. This Court has subject matter jurisdiction under 28 U.S.C. §§1331 and 1367 and 15 U.S.C. §1640. Venue in this District is proper because all of the events complained of took place in this District. PARTIES 3. Christine Willis (‘‘Ms. Willis’’) is an individual who resides at [address], Chicago, Illinois. 4. Defendant Harvey Cycle & Camper, Inc., doing business as Watson Motorsport, Ltd. (‘‘Watson’’), is an Illinois corporation which operates a used car dealership located at [address], Midlothian, Illinois. Its registered agent and office are R & S Agents, Inc., [address], Chicago, Illinois. 5. Defendant Wonderlic & Associates, Inc., doing business as Wonderlic Finance (‘‘Wonderlic’’) is a Delaware Corporation with its principal place of business located at [address], Libertyville, Illinois.

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PLAINTIFF’S TRANSACTION and were an incident to the extension of credit. The premiums for this insurance accordingly are covered by the general definition of ‘‘finance charge’’ in 12 C.F.R. §226.4. 22. Under TILA and Regulation Z, premiums for insurance covering property against loss or damage must be included in the finance charge unless the consumer has the option to obtain the insurance from his own company and this fact is disclosed to the consumer. 12 C.F.R. §226.4(d)(2), provides: Premiums for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, may be excluded from the finance charge if the following conditions are met: (i)The insurance coverage may be obtained from a person of the consumer’s choice, and this fact is disclosed. . . . 23. Wonderlic and the dealers that originated contracts for Wonderlic, including Watson, did not allow a consumer to obtain ‘‘V.S.I. Insurance’’ from an insurer of the consumer’s choice, and did not so advise the consumer. 24. Accordingly, the premiums were required to be included in the ‘‘finance charge’’ and the ‘‘annual percentage rate.’’ 25. Watson and Wonderlic did not so include them, resulting in an understatement of the finance charge and annual percentage rate in the transactions of plaintiff and each class member. 26. The violation is apparent on the face of each class member’s retail installment contract. 27. The retail installment contract assigned to Wonderlic provides by its terms that any holder is subject to claims and defenses which the buyer, Ms. Willis, has against the seller, Watson. 28. Watson and Wonderlic are accordingly is liable as provided under 15 U.S.C. §§1640 and 1641 to each consumer they charged for the ‘‘V.S.I. Insurance.’’ CLASS ALLEGATIONS 29. Ms. Willis brings Count I of this action on behalf of a class of all other persons similarly situated. The class consists of all persons who satisfy the following criteria: a. They signed a retail installment contract on Wonderlic’s printed form within one year prior to the filing of this action. b. The retail installment contract included a charge for V.S.I. insurance. c. The charge was included in the ‘‘amount financed’’ and excluded from the ‘‘finance charge’’ and the ‘‘annual percentage rate.’’ d. The transaction was documented as one for personal, family or household purposes (i.e., Truth in Lending disclosures were given). 30. On information and belief, based on the fact that a computer was used to insert the V.S.I. insurance charge on a standard printed form, the class is sufficiently numerous that joinder of all members is impractical. 31. There are questions of law and fact common to the class, which questions predominate over any questions peculiar to individual class members. The principal common question is whether the V.S.I. insurance was required to be included in the finance

6. In early February 1994, Ms. Willis purchased a used 1985 Buick Century from Watson. Exhibit A, attached, [not attached herein] is a copy of the purchase contract. 7. Ms. Willis financed the purchase by means of a motor vehicle retail installment sales contract which Watson immediately assigned to Wonderlic. Exhibit B, attached, [not attached herein] is a copy of the retail installment contract. The contract was prepared on a printed form which Wonderlic devised and distributed to auto dealers such as Watson. 8. The Buick was worth not more than $2,400. However, Watson charged Ms. Willis $4,135.28 for the vehicle. 9. As part of the transaction, Watson also sold Ms. Willis an extended warranty or service contract for $595. As a result, Watson was prohibited from disclaiming implied warranties under the Magnuson Moss Consumer Warranty Act, 15 U.S.C. §2308 (‘‘MMCWA’’). 10. The retail installment contract financed a purported ‘‘amount financed’’ of $4,245.28 at a purported annual percentage rate of not less than 43.0%. In addition, it provided for a down payment of $600. 11. Watson, with the knowledge and at the instance of Wonderlic, included in the ‘‘amount financed’’ on the retail installment contract a charge for $50 to ‘‘V.S.I.’’ for ‘‘insurance.’’ 12. The charge was a standard $50 charge that Wonderlic had car dealers such as Watson insert in all retail installment contracts which were intended for sale to Wonderlic. 13. The $50 charge was for insurance protecting Wonderlic and/or Watson in the event that the customer, Ms. Willis, failed to obtain and maintain insurance covering the car against loss or damage. 14. It was the standard policy and practice of Wonderlic and car dealers with which Wonderlic did business, such as Watson, to include the $50 charge in the ‘‘amount financed’’ and to exclude it from the ‘‘finance charge’’ and the ‘‘annual percentage rate.’’ 15. The charge was inserted in the manner stated above by means of a computer. 16. The engine of the Buick sold to Ms. Willis was seriously defective at the time of the sale. Within a few days after the sale, the engine completely broke down and needed to be replaced. As a result, the vehicle was unfit for ordinary driving purposes. 17. Because of this serious defect, Ms. Willis lost confidence in the vehicle and revoked her acceptance. Exhibit C, attached [not attached herein]. COUNT I—TRUTH IN LENDING 18. Plaintiff incorporates paragraphs 1–17. 19. Plaintiff’s transaction and the transactions of each member of the class described below were consumer credit transactions within the meaning of the Truth in Lending Act, 15 U.S.C. §§1601 et seq. (‘‘TILA’’), and Federal Reserve Board Regulation Z, 12 C.F.R. part 226. 20. The auto dealers through which the transactions of the plaintiff and class members were originated, including Watson, are creditors within the meaning of the Truth in Lending Act, in that each has originated more than 25 consumer credit contracts per annum. 21. The premiums for the ‘‘V.S.I. Insurance’’ were imposed by Watson and Wonderlic only in connection with credit transactions

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charge and annual percentage rate. 32. Ms. Willis has the same claims as the members of the class. All of the claims are based on the same factual and legal theories. 33. Ms. Willis will fairly and adequately represent the interest of the class members. Ms. Willis have retained counsel experienced in prosecuting class actions and in consumer protection matters. There is no reason why Ms. Willis and their counsel will not vigorously pursue this matter. 34. A class action is the only appropriate means of resolving this controversy. Most of the customers of Wonderlic and Watson are unsophisticated individuals of modest means, who are not aware of their rights. In the absence of a class action, a failure of justice will result. WHEREFORE, plaintiff requests that the Court grant the following relief on her behalf and that of the class and against Watson and Wonderlic: a. Statutory damages, as provided for in 15 U.S.C. §1640. b. Actual damages equal to all charges for the ‘‘V.S.I. Insurance’’ and finance charges thereon. c. Attorney’s fees, litigation expenses and costs. d. Such other or further relief as the Court deems appropriate. COUNT II—SALES FINANCE AGENCY ACT 35. Plaintiff incorporates paragraphs 1–28. This claim is brought against Wonderlic, only. 36. Wonderlic is a sales finance agency within the meaning of the Sales Finance Agency Act, Ill.Rev.Stats., ch. 17, ¶5201 et seq. (‘‘SFAA’’), in that it is engaged in Illinois in the business of purchasing retail installment contracts. 37. SFAA §8.5, Ill.Rev.Stats., ch. 17, ¶5213, defines as a violation of the SFAA the ‘‘Purchase of any retail contract . . . after actual knowledge that the contract . . . violates . . . the Motor Vehicle Retail Installment Sales Act.’’ The Motor Vehicle Retail Installment Sales Act (‘‘MVRISA’’) requires disclosures similar to those required under TILA, and then provides that disclosures which satisfy TILA also satisfy MVRISA. 38. Wonderlic purchased contracts from car dealers with actual knowledge that they violated MVRISA, in that the annual percentage rate and finance charge were understated. 39. SFAA §8.9, Ill.Rev.Stats., ch. 17, ¶5217, defines as a violation of the SFAA the ‘‘Fraudulent misrepresentation, circumvention or concealment by the licensee through whatever subterfuge of device of any of the material particulars or the nature thereof required to be furnished to a retail buyer under . . . the Motor Vehicle Retail Installment Sales Act.’’ 40. Wonderlic violated §8.9 in that it caused auto dealers to furnish buyers with retail installment contracts which understated the annual percentage rate and finance charge. 41. SFAA §8.2, Ill.Rev.Stats., ch. 17, ¶5210, defines as a violation of the SFAA the ‘‘Willful violation or aiding any person in the willful violation of this Act or of any rule or regulation promulgated by the Director [of the Department of Financial Institutions].’’ 42. The Regulations of the Department of Financial Institutions require sales finance agencies to comply with TILA. 43. SFAA §16, Ill.Rev.Stats., ch. 17, ¶5234, provides: An individual who sustains loss as a result of a sales finance agency’s violation of this Act may, in

Appx. D.5
a civil action against the sales finance agency, recover damages, or may, in an action brought by the sales agency to collect an indebtedness arising out of a retail sales transaction, raise such damages by way of a counterclaim or offset. In either such action, the court may allow as an additional part of the recovery, offset or counterclaim, penal damages in an amount not more than 25% of the principal amount of the retail contract . . . which is the subject of the action. In addition, the court may allow that aggrieved individual his reasonable attorney’s fees. 44. Plaintiff and each member of the class defined below sustained loss as a result of Wonderlic’s violation of the Sales Finance Agency Act, in that they signed retail installment contracts on which the finance charge and annual percentage rate were understated. CLASS ALLEGATIONS 45. Ms. Willis brings Count II of this action on behalf of a class of all other persons similarly situated. The class consists of all persons who satisfy the following criteria: a. They signed, in Illinois, a retail installment contract on Wonderlic’s printed form within five years prior to the filing of this action. b. The retail installment contract included a charge for V.S.I. insurance. c. The charge was included in the ‘‘amount financed’’ and excluded from the ‘‘finance charge’’ and the ‘‘annual percentage rate.’’ d. The transaction was documented as one for personal, family or household purposes (i.e., Truth in Lending disclosures were given). 46. On information and belief, based on the fact that a computer was used to insert the V.S.I. insurance charge on a standard printed form, the class is sufficiently numerous that joinder of all members is impractical. 47. There are questions of law and fact common to the class, which questions predominate over any questions peculiar to individual class members. The principal common question is whether the V.S.I. insurance was required to be included in the finance charge and annual percentage rate. 48. Ms. Willis has the same claims as the members of the class. All of the claims are based on the same factual and legal theories. 49. Ms. Willis will fairly and adequately represent the interest of the class members. Ms. Willis has retained counsel experienced in prosecuting class actions and in consumer protection matters. There is no reason why Ms. Willis and her counsel will not vigorously pursue this matter. 50. A class action is the only appropriate means of resolving this controversy. Most of the customers of Wonderlic and Watson are unsophisticated individuals of modest means, who are not aware of their rights. In the absence of a class action, a failure of justice will result. WHEREFORE, plaintiff requests that the Court enter judgment in favor of herself and the class and against Wonderlic for the following relief: a. Appropriate compensatory and statutory damages.

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b. Attorney’s fees, litigation expenses, and costs. c. Such other or further relief as the Court deems appropriate. COUNT III—MAGNUSON MOSS ACT 51. Plaintiff incorporates paragraphs 1–17. 52. Watson is a ‘‘supplier’’ within the meaning of the MMCWA. 53. The car sold to plaintiff was a ‘‘consumer product’’ within the meaning of the MMCWA. 54. The car sold to plaintiff by Watson was defective and unmerchantable, in violation of §2-314 of the Uniform Commercial Code, for the reasons stated above. 55. Because plaintiff was sold a service contract, Watson’s attempted disclaimer of implied warranties is ineffective. 56. Plaintiff is entitled to bring suit for breach of the implied warranty under 15 U.S.C. §2310. 57. The retail installment contract assigned to Wonderlic provides by its terms that any holder is subject to claims and defenses which the buyer, Ms. Willis, has against the seller, Watson. WHEREFORE, plaintiff requests that the Court enter judgment in her favor and against Watson and Wonderlic: a. For compensatory damages. b. For attorney’s fees, litigation expenses and costs of suit. c. For such other or further relief as the Court deems appropriate. COUNT IV—UNIFORM COMMERCIAL CODE 58. Plaintiff incorporates paragraphs 1–17. 59. The car sold to plaintiff by Watson was defective and unmerchantable, in violation of §2-314 of the Uniform Commercial Code, for the reasons stated above. 60. Because plaintiff was sold a service contract, Watson’s attempted disclaimer of implied warranties is ineffective. 61. The retail installment contract assigned to Wonderlic provides by its terms that any holder is subject to claims and defenses which the buyer, Ms. Willis, has against the seller, Watson. WHEREFORE, plaintiff requests that the Court enter judgment in her favor and against Watson and Wonderlic: a. For compensatory damages. b. For costs of suit. c. For such other or further relief as the Court deems appropriate. [Attorney] JURY DEMAND Plaintiff demands trial by jury. [Attorney]

D.6 TIL Untimely Disclosure Case (Diaz)
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) ) ) ) ) v. ) ) WESTGATE LINCOLN ) MERCURY, INC., ) Defendant. ) ) SALVATOR DIAZ, on behalf of himself and all others similarly situated, Plaintiff, COMPLAINT Plaintiff, Salvator Diaz, complains as follows against defendant Westgate Lincoln Mercury, Inc. (‘‘Westgate’’): JURISDICTION AND VENUE 1. This is an action under the Truth in Lending Act, 15 U.S.C. 1601 et seq. The Court has jurisdiction under 15 U.S.C. 1640 and 28 U.S.C. 1331 and 1337. Venue in this District is proper because all events in question took place here. PARTIES 2. Plaintiff is an individual who resides at [address]. 3. Westgate operates a car dealership at [address]. 4. During each of the last three years, Westgate signed contracts with more than 25 consumers who agreed to pay finance charges or interest to Westgate or its assignees. FACTS RELATING TO DIAZ 5. On July 19, 1993, plaintiff, who speaks Spanish, was induced to sign the printed form document attached as Exhibit A [not attached herein] in connection with the proposed purchase of a car for personal purposes. 6. Exhibit A provides for the extension of credit to plaintiff, and also provides for the payment of interest at the rate of 20%. 7. Westgate did not furnish plaintiff with any of the disclosures required by the Truth in Lending Act, 15 U.S.C. 1601 et seq., in connection with this transaction. POLICIES AND PRACTICES ALLEGED 8. Exhibit A is a standard printed form document which Westgate has consumers sign where a financed transaction is intended, but before presentation of the disclosures of the financing terms required by the Truth in Lending Act. 9. Exhibit A also provides for a confession of judgment against the consumer. For years, the use of confession of judgment clauses in consumer contracts has been outlawed by Federal Trade Commission regulations. However, most consumers are not familiar with Federal Trade Commission regulations.

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10. At the same time as it has the consumer sign Exhibit A, Westgate gives possession of the vehicle being purchased to the consumer and takes possession of any tradein vehicle that the customer has. 11. The purpose and effect of Exhibit A and the actions described in paragraphs 9–10 is to attempt to lock in the consumer to a binding contract without giving the disclosure of the financing terms required by the Truth in Lending Act. CLASS ALLEGATIONS 12. This action is brought on behalf of a class. The class consists of all persons who, on or after a date one year prior to the filing of the complaint, signed the same printed form as Exhibit A with Westgate, without previously or simultaneously receiving Truth in Lending disclosures relating to Exhibit A. 13. The class is so numerous that joinder of all members is impracticable. 14. There are common questions of law or fact, which predominate over any individual questions. The predominant common questions are whether the use of Exhibit A without making Truth in Lending disclosures complies with the Truth in Lending Act, and the appropriate amount of statutory damages to be assessed against defendant. The only individual question is whether each class member signed Exhibit A, a matter which should be ascertainable by a ministerial inspection of defendants’ records. 15. Plaintiff’s claims are typical of those of the class members. All are based on the same legal and factual theories. 16. Plaintiff will fairly and adequately represent the class. He has retained counsel experienced in this type of litigation and has the same interests as the class members. 17. A class action is superior to other available methods to resolve this controversy. Most of the class members are probably unaware of their rights. The interest of individual class members in controlling the prosecution or defense of separate actions is minimal because the maximum statutory damages are $1,000 per transaction. WHEREFORE, plaintiff requests the following relief for himself and the class: a. Statutory damages. b. Attorney’s fees, litigation expenses and costs. c. Such other or further relief as the Court deems appropriate. [Attorney] JURY DEMAND Plaintiff demands trial by jury. [Attorney]

Appx. D.7

D.7 Consumer Leasing Act and Deceptive Practices Case—Car Lease (Shepherd)
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION ) ) Plaintiff, ) ) v. ) ) VOLVO FINANCE NORTH ) AMERICA, INC. and VOLVO ) CAR FINANCE, INC., ) Defendants. ) ) IAN SHEPHERD, COMPLAINT Comes now IAN SHEPHERD and respectfully shows the Court the following: MATTERS COMMON TO MULTIPLE COUNTS INTRODUCTION 1. This is a class action brought by Ian Shepherd under the Consumer Leasing Act, 15 U.S.C. §1667 et seq., Federal Reserve Board Regulation M, 12 C.F.R. part 213, and state law. JURISDICTION AND VENUE 2. This Court has jurisdiction over Count I under 15 U.S.C. §§1640 and 1667d(c) and 28 U.S.C. §§1331 and 1337. The Court has jurisdiction over Counts II and III under 28 U.S.C. §1367. Venue in this District is proper under 28 U.S.C. §1391(b). PARTIES 3. Plaintiff, Ian Shepherd (‘‘Shepherd’’), is an individual who resides at [address]. 4. Defendant, Volvo Finance of North America, Inc. (‘‘VFNA’’), is a Delaware corporation which does business in Georgia. Its principal place of business is located at [address]. Its registered agent is United States Corporation Company, [address], Atlanta, GA. 5. Defendant, Volvo Car Finance, Inc. (‘‘VCFI’’), is a Delaware corporation which does business in Georgia. Its principal place of business at [address] Montvale, NJ. Its registered agent is CT Corporation System, [address], Atlanta, GA. 6. VFNA’s regular business activities include leasing and offering to lease motor vehicles and purchasing leases of motor vehicles. Many of the leases are made with natural persons who lease vehicles for personal, family or household purposes. On information and belief, the intended term of most or all VFNA vehicle leases exceeds four months. In many cases, the total contractual obligation under the lease is less than $25,000. 7. VCFI’s regular business activities include servicing motor

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[and] in meaningful sequence’’ and either on a separate written statement or in the contract, ‘‘above the place for the lessee’s signature.’’ 12 C.F.R. §213.4(a). The Staff Commentary requires that all lease disclosures be ‘‘reasonably understandable.’’ 16. The disclosures must be ‘‘made together on a single page (which may include both sides) and above the place for the lessee’s signature.’’ (Commentary, §4(a)(2)) No required disclosures may be in fine print on the back. 17. The specific information that must be disclosed includes: a. ‘‘The amount or method of determining the amount of any penalty or other charge for delinquency, default, or late payments.’’ 12 C.F.R. §213.4(g)(10). b. ‘‘A statement of the conditions under which the lessee or lessor may terminate the lease prior to the end of the lease term and the amount or method of determining the amount of any penalty or other charge for early termination.’’ 12 C.F.R. §213.4(g)(12). c. ‘‘A statement identifying any express warranties or guarantees available to the lessee made by the lessor or manufacturer with respect to the leased property.’’ 12 C.F.R. §213.4(g)(7). d. ‘‘The total amount paid or payable by the lessee during the lease term for official fees, registration, certificate of title, license fees, or taxes.’’ 12 C.F.R. §213.4(g)(4). 18. The Consumer Leasing Act provides that any lessor who violates any requirement imposed by 15 U.S.C. §§1667a, 1667b, and the implementing regulations is liable as provided in the Truth in Lending Act, 15 U.S.C. §1640. APPLICABILITY OF CONSUMER LEASING ACT TO PLAINTIFF’S TRANSACTION 19. The Consumer Leasing Act and Regulation M were applicable to Shepherd’s lease because: a. VFNA was a ‘‘lessor,’’ in that it was regularly engaged in the business of leasing and offering to lease vehicles to natural persons for a period of time exceeding four months, and for a total contractual obligation not exceeding $25,000, primarily for personal, family or household purposes. b. Shepherd is a natural person. c. Shepherd leased the vehicle from VFNA for personal, family and household purposes, as was acknowledged by checking the box on Exhibit A [not attached herein] indicating that his was a personal as opposed to a business lease. d. Exhibit A is a ‘‘contract in the form of a lease . . . for the use of personal property by a natural person.’’ e. The term of the lease exceeded four months. f. Shepherd’s total contractual obligation under the lease did not exceed $25,000. COUNT I—CLASSWIDE DISCLOSURE VIOLATIONS 20. Plaintiff incorporates paragraphs 1–19. 21. The printed form of lease attached as Exhibit A [not attached herein] violates the disclosure requirements of the Consumer Leasing Act and Regulation M in the following respects: a. The disclosures in Exhibit A of the default and early termination charges are inaccurate. VFNA and VCFI in fact require the lessee to pay in accordance with Exhibit C [not attached herein].

vehicle leases held by VFNA. VCFI was involved in the servicing of Shepherd’s lease, as more fully described below. VCFI and VFNA are under common ownership and control. PLAINTIFF’S TRANSACTION WITH VFNA 8. On May 11, 1992, Shepherd entered into a consumer automobile lease with VFNA covering the lease of a 1992 Volvo 740 series automobile. The vehicle was leased for purposes of personal transportation, and the transaction was so documented by VFNA (the purpose of the lease is indicated by checking a box on the lease form). The scheduled term of the lease was 36 months. The total payments under the lease were $23,400. In connection with this transaction, VFNA issued a combination lease contract/ Consumer Leasing Act disclosure statement. Exhibit A, attached, [not attached herein] is a true and accurate copy of this document. 9. In February 1993, Shepherd requested information from VFNA regarding the cost of terminating his lease early. A copy of his correspondence is attached as Exhibit B [not attached herein]. 10. In March 1993, Shepherd received a response from VCFI. A copy of the response is attached as Exhibit C [not attached herein]. 11. Contemporaneous with the filing of this complaint, Shepherd returned the leased car to VFNA’s agent and notified VFNA that he was terminating the lease. CONSUMER LEASING ACT 12. The federal Consumer Leasing Act, 15 U.S.C. §1667 et seq. (‘‘Consumer Leasing Act’’), and implementing Federal Reserve Board regulations, 12 C.F.R. part 213 (‘‘Regulation M’’), and Staff Commentary, 12 C.F.R. part 213 Supp. I (‘‘Commentary’’), require extensive disclosures in consumer lease transactions and regulate certain substantive terms of such transactions. 13. The Consumer Leasing Act and Regulation M apply to any ‘‘consumer lease.’’ A ‘‘consumer lease’’ is defined as a ‘‘contract in the form of a lease or bailment for the use of personal property by a natural person for a period of time exceeding four months, and for a total contractual obligation not exceeding $25,000, primarily for personal, family, or household purposes, whether or not the lessee has the option to purchase or otherwise become the owner of the property at the expiration of the lease. . . .’’ Leases for ‘‘agricultural, business, or commercial purposes’’ are excluded. 15 U.S.C. §1667(1). 14. The Consumer Leasing Act provides for substantive regulation of charges for early termination, delinquency and default: Penalties or other charges for delinquency, default, or early termination may be specified in the lease but only at an amount which is reasonable in light of the anticipated or actual harm caused by the delinquency, default, or early termination, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. 15 U.S.C. §1667b(b). 15. The Consumer Leasing Act and Regulation M also require a ‘‘lessor’’ to provide a ‘‘lessee’’ with extensive disclosures prior to the consummation of a ‘‘lease,’’ analogous to those required in the case of credit transactions by the Truth in Lending Act. 15 U.S.C. §1667a. The disclosures must be made ‘‘clearly, conspicuously,

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b. Part of the information necessary to determine early termination liability is set forth on a separate ‘‘addendum,’’ violating the requirement that all required disclosures be on two sides of a single paper. c. Exhibit A does not provide for the disclosure of ‘‘The total amount paid or payable by the lessee during the lease term for official fees, registration, certificate of title, license fees, or taxes.’’ 12 C.F.R. §213.4(g)(4). Item 7 provides for estimated additional payments on account of these matters during the life of the lease. No item on Exhibit A provides for disclosure of the information required by 12 C.F.R. §213.4(g)(4). d. Exhibit A does not provide a statement of the lessee’s warranty rights that is understandable by the average consumer. Item 36 states that ‘‘VFNA agrees to assign you its assignable rights under the manufacturer’s limited warranties. . . .’’ This requires the reader to know what rights under a warranty are assignable, a matter not within the understanding of the average consumer. e. The disclosure of late payment charges in Exhibit A is ambiguous as to the amount of the charge if part of the payment is timely and part is late. f. Although Item 35 of Exhibit A provides that the lessee’s liability upon default is based on the value of the leased car, Exhibit A fails to disclose that the consumer has the right to use an appraisal of the car’s value where liability upon default or early termination is based on the value of the leased property, as required by 12 C.F.R. §213.4(g)(14). g. Item 35 of Exhibit A threatens the lessee with an unconscionable and unenforceable penalty for default. Specifically, Item 35 states that the lessee will be ‘‘responsible for all payments and monies due for the balance of this lease and the Early Termination Value (paragraph 8) plus interest at 12% per annum.’’ The lessee’s ostensible liability is not reduced to present value or otherwise adjusted to take into account the fact that VFNA is accelerating payments due over a period of years. A lease provision that requires immediate payment of sums due over a period of years without appropriate adjustment is patently unenforceable under state law and 15 U.S.C. §1667b(b), and a ‘‘disclosure’’ of such a nonexistent liability violates the disclosure requirements of the Consumer Leasing Act and Regulation M. CLASS ALLEGATIONS 22. This claim is brought on behalf of a class consisting of all persons (i) who signed contracts with VFNA using the printed VFNAform attached as Exhibit A (VFNA-82-0888, any revision), (ii) which had a scheduled duration in excess of four months, (iii) which called for total payments of $25,000 or less, (iv) which had the box marked ‘‘for personal use’’ checked, and (v) which were in effect at any time within one year prior to the filing of this action, or which are presently in effect. 23. Plaintiff seeks certification under Fed.R.Civ.P. 23(b)(2), or alternative or in addition, under Fed.R.Civ.P. 23(b)(3). 24. Shepherd alleges on information and belief that the class is so numerous that joinder of all members is impractical. Shepherd signed in 1992 a lease on a printed form bearing a legend stating that it was a June 1990 revision. Investigation discloses that prior revisions contained the same violations as the June 1990 revision.

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During a period of two years, VFNA undoubtedly entered into more than the 20–30 contracts on this form necessary to satisfy the numerosity requirement. According to published reports, VFNA enters into 8,000–12,000 leases per year. 25. There are questions of law and fact common to the class, which questions predominate over any questions affecting only individual class members. The principal issue is whether the lease form contains the disclosure violations alleged herein. 26. The claims of Shepherd are typical of those of the class members, in that they are based on the same legal and factual theories and predominant common questions. 27. Shepherd will fairly and adequately protect the interests of the class. Although his personal claim is not large enough to warrant individual litigation, he has enough at stake to ensure that he will vigorously litigate this matter. He wishes to obtain redress of the wrong. To that end, he has retained counsel experienced in handling class actions and actions involving unlawful business practices, including claims under the Consumer Leasing Act. Neither Shepherd nor his counsel have any interests which might cause them not to vigorously pursue this action. 28. Certification is appropriate under Fed.R.Civ.P. 23(b)(2), in that defendant has imposed uniform policies with respect to the entire class and injunctive and declaratory relief against the imposition of the policies is necessary under the state law claims. The monetary relief sought, including statutory damages, does not detract from the cohesiveness of the class. 29. Alternatively or in addition, plaintiff requests certification under Fed.R.Civ.P. 23(b)(3). The common questions predominate over any individual issues. A class action is superior for the fair and efficient adjudication of this dispute. Because VFNA is misstating its actual termination charges, most lessees will not realize that they have a claim. A class action is therefore essential to prevent a failure of justice. Furthermore, even if a lessee did realize that VFNA is misstating its actual charges, the size of the claims involved does not warrant individual litigation of the magnitude and complexity necessary to challenge the legality of the charges. WHEREFORE, plaintiff requests that the Court enter judgment in his favor and in favor of the class and against defendant VFNA: a. For statutory damages. b. For compensatory damages equal to all termination and default charges collected by VFNA that were computed in a manner inconsistent with the lease disclosures. c. For attorney’s fees, litigation expenses and costs. d. For such other or further relief as is appropriate. COUNT II—CLASS CLAIM FOR DECLARATORY AND OTHER RELIEF UNDER STATE LAW 30. Shepherd incorporates paragraphs 1–18. 31. On information and belief, based on a study conducted by the Attorney General of New York, a majority of automobile lessees terminate their leases prior to the scheduled expiration. The largest single reason for early termination is that lessees find it necessary or desirable to get newer vehicles. Some leases are terminated because of a casualty to the leased vehicle. Some lessees default because of financial difficulties; however, this category is typically a minority of early terminations. 32. Early termination charges under vehicle leases typically range between $2,000 and $30,000. 33. The lessee’s liability for default or early termination is

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over any individual issues. A class action is superior for the fair and efficient adjudication of this dispute. Because VFNA is misstating its actual termination charges, most lessees will not realize that they have a claim. A class action is therefore essential to prevent a failure of justice. Furthermore, even if a lessee did realize that VFNA is misstating its actual charges, the size of the claims involved does not warrant individual litigation of the magnitude and complexity necessary to challenge the legality of the charges. WHEREFORE, plaintiff requests that the Court enter judgment in his favor and in favor of the class and against defendants VFNA and VCFI: a. Enjoining defendants from imposing or collecting early termination and default charges. b. For compensatory damages equal to all termination and default charges collected by VFNA and/or VCFI that were computed in a manner inconsistent with the lease disclosures. c. For punitive damages. d. For such other or further relief as is appropriate. COUNT III—CLASS CLAIM FOR UNFAIR AND DECEPTIVE ACTS AND PRACTICES 46. Plaintiff incorporates paragraphs 1–18. 47. At all times during which VFNA used the forms of which Exhibit A is an example, each state had in force a statute, modelled after the Federal Trade Commission Act, prohibiting unfair and deceptive acts and practices in connection with consumer transactions. The New Jersey Consumer Fraud Act is N.J.S.A. 56:8-1 et seq. 48. VFNA’s leases were sales of merchandise as defined in N.J.S.A. 56:8-1 et seq. N.J.S.A. §56:801(e) defines ‘‘sale’’ to include ‘‘any sale, rental or distribution, offer for sale, rental or distribution or attempt directly or indirectly to sell, rent or distribute.’’ N.J.S.A. §56:8-1(a) defines ‘‘advertisement’’ to include ‘‘the attempt directly or indirectly by publication, dissemination, solicitation, indorsement or circulation or in any other way to induce directly or indirectly any person to enter or not enter into any obligation or acquire any title or interest in any merchandise. . . .’’ 49. At all relevant times, N.J.S.A. §56:8-2 provided: The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale of advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice. . . . ‘‘Unconscionable’’ has been judicially determined to include any conduct which is incompatible with good faith, honesty in fact, and observance of fair dealing. 50. Plaintiff contends that the New Jersey statute applies to the entire class, in that VFNA and VCFI are headquartered in New Jersey and in that the practices complained of were conceived in and directed from that state. The statute has been judicially deter-

therefore material information which should be accurately described by the lessor. 34. By misstating the charges actually imposed, VFNA misrepresented material information to lessees. 35. The default and early termination charges actually imposed by VFNA and VCFI are excessive and unreasonable, and are not necessary to compensate defendants for any loss actually anticipated. As such, they are unenforceable penalties. 36. Because of the unreasonable nature of the charges, and VFNA’s misstatement of the charges actually imposed in its lease, VFNA and its affiliate VCFI should therefore be barred from enforcing their default and early termination charges. 37. A dispute exists between Shepherd and the class described below, on the one hand, and VFNA and VCFI, on the other, concerning the validity of these termination charges. CLASS ALLEGATIONS 38. This claim is brought on behalf of a class consisting of all persons (i) who signed contracts with VFNA using the printed VFNA form attached as Exhibit A [not attached herein] (VFNA82-0888, any revision), (ii) who had early termination or default charges assessed against them at any time within six years prior to the filing of this action, or whose leases are presently in effect. 39. Plaintiff seeks certification under Fed.R.Civ.P. 23(b)(2), or alternative or in addition, under Fed.R.Civ.P. 23(b)(3). 40. Shepherd alleges on information and belief that the class is so numerous that joinder of all members is impractical. Shepherd signed in 1992 a lease on a printed form bearing a legend stating that it was a June 1990 revision. Investigation discloses that prior revisions contained the same violations as the June 1990 revision. During a period of two years, VFNA undoubtedly entered into more than the 20–30 contracts on this form necessary to satisfy the numerosity requirement. According to published reports, VFNA enters into 8,000–12,000 leases per year. 41. There are questions of law and fact common to the class, which questions predominate over any questions affecting only individual class members. The principal issue is whether VFNA and VCFI may enforce termination and default charges that are not computed in accordance with the lease form. 42. The claims of Shepherd are typical of those of the class members, in that they are based on the same legal and factual theories and predominant common questions. 43. Shepherd will fairly and adequately protect the interests of the class. Although his personal claim is not large enough to warrant individual litigation, he has enough at stake to ensure that he will vigorously litigate this matter. He wishes to obtain redress of the wrong. To that end, he has retained counsel experienced in handling class actions and actions involving unlawful business practices, including claims under the Consumer Leasing Act. Neither Shepherd nor his counsel have any interests which might cause them not to vigorously pursue this action. 44. Certification is appropriate under Fed.R.Civ.P. 23(b)(2), in that defendant has imposed uniform policies with respect to the entire class and injunctive and declaratory relief against the imposition of the policies is necessary. The monetary relief sought, including statutory damages, does not detract from the cohesiveness of the class. 45. Alternatively or in addition, plaintiff requests certification under Fed.R.Civ.P. 23(b)(3). The common questions predominate

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mined by New Jersey courts to apply to practices of a business headquartered in New Jersey directed against persons located elsewhere. 51. Defendants engaged in deceptive and unconscionable acts and practices by: a. Imposing unreasonable termination and default charges on lessees. b. Failing to accurately disclose the termination and default charges actually imposed. c. Misrepresenting the method of calculation of termination and default charges. 52. VFNA has imposed and/or collected the default and early termination charges specified in the form of which Exhibit A is an example from numerous lessees. Other lessees are subject to such charges by reason of having signed contracts using the same form as Exhibit A. VCFI has assisted VFNA in servicing the leases and imposing and collecting the charges. 53. N.J.S.A. §56:8-19 provides: Any person who suffers any ascertainable loss of moneys or property, real or personal, as a result of the use or employment by another person of any method, act, or practice declared unlawful under this act or the act hereby amended and supplemented may bring an action or assert a counterclaim therefor in any court of competent jurisdiction. In any action under this section the court shall, in addition to any other appropriate legal or equitable relief, award threefold the damages sustained by any person in interest. In all actions under this section the court shall also award reasonable attorneys’ fees, filing fees and reasonable costs of suit. 54. Shepherd and the members of the class defined below suffered ascertainable loss of moneys or property as a result of being induced to sign through deceptive and unconscionable practices leases which require them to (i) pay money if they keep the leases in force or (ii) pay money to terminate the leases. Shepherd and each member of the class paid money, under one alternative or the other. 55. A dispute exists between Shepherd and the class defined below, on the one hand, and VFNA and VCFI, on the other, concerning the validity of these termination charges. CLASS ALLEGATIONS 56. This claim is brought on behalf of a class consisting of all persons (i) who signed contracts with VFNA using the printed VFNA form attached as Exhibit A (VFNA-82-0888, any revision), and (ii) who had early termination or default charges assessed against them at any time within six years prior to the filing of this action, or whose leases are presently in effect. 57. Plaintiff seeks certification under Fed.R.Civ.P. 23(b)(2), or alternative or in addition, under Fed.R.Civ.P. 23(b)(3). 58. Shepherd alleges on information and belief that the class is so numerous that joinder of all members is impractical. Shepherd signed in 1992 a lease on a printed form bearing a legend stating that it was a June 1990 revision. Investigation discloses that prior revisions contained the same violations as the June 1990 revision. During a period of two years, VFNA undoubtedly entered into

Appx. D.7
more than the 20–30 contracts on this form necessary to satisfy the numerosity requirement. According to published reports, VFNA enters into 8,000–12,000 leases per year. 59. There are questions of law and fact common to the class, which questions predominate over any questions affecting only individual class members. The principal issue is whether VFNA and VCFI may enforce termination and default charges that are not computed in accordance with the lease form. 60. The claims of Shepherd are typical of those of the class members, in that they are based on the same legal and factual theories and predominant common questions. 61. Shepherd will fairly and adequately protect the interests of the class. Although his personal claim is not large enough to warrant individual litigation, he has enough at stake to ensure that he will vigorously litigate this matter. He wishes to obtain redress of the wrong. To that end, he has retained counsel experienced in handling class actions and actions involving unlawful business practices, including claims under the Consumer Leasing Act. Neither Shepherd nor his counsel have any interests which might cause them not to vigorously pursue this action. 62. Certification is appropriate under Fed.R.Civ.P. 23(b)(2), in that defendant has imposed uniform policies with respect to the entire class and injunctive and declaratory relief against the imposition of the policies is necessary. The monetary relief sought, including statutory damages, does not detract from the cohesiveness of the class. 63. Alternatively or in addition, plaintiff requests certification under Fed.R.Civ.P. 23(b)(3). The common questions predominate over any individual issues. A class action is superior for the fair and efficient adjudication of this dispute. Because VFNA is misstating its actual termination charges, most lessees will not realize that they have a claim. A class action is therefore essential to prevent a failure of justice. Furthermore, even if a lessee did realize that VFNA is misstating its actual charges, the size of the claims involved does not warrant individual litigation of the magnitude and complexity necessary to challenge the legality of the charges. WHEREFORE, plaintiffs requests that the Court enter judgment in his favor and in favor of the class and against defendants VFNA and VCFI: a. Enjoining defendants from imposing or collecting early termination and default charges. b. Damages equal to three times all such charges that have been collected, or for which lessees are ostensibly liable. c. Attorney’s fees, litigation expenses and costs. d. Such other or further relief as the Court deems appropriate. [Attorney] JURY DEMAND Plaintiff demands trial by jury. [Attorney]

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The representative party will fairly and adequately protect the interest of the class and subclass. The class action is an appropriate method for the fair and efficient adjudication of the controversy. 5. Defendant GMAC is a New York corporation and maintains an office or transacts business within Cook County, Illinois and is licensed as a sales finance agency. 6. Defendant MIC is a New York corporation and maintains an office or transacts business within Cook County, Illinois. 7. MIC is a wholly owned subsidiary of GMAC. STATEMENT OF FACTS 8. On or about September 18, 1981, the plaintiff entered into a motor vehicle retail installment sales contract with an automobile dealer Fenci-Tufo, for the purchase of a 1981 Chevrolet. The contract, signed by both the plaintiff and Fenci-Tufo, is made a part of the complaint and is attached as Exhibit A [not attached herein]. 9. GMAC prepared the printed form ‘‘Retail Installment Contract’’ used in the above transactions. 10. GMAC is the purchaser, assignee or transferee of the consumer credit sales transaction and also extended credit to plaintiff herein by financing the contract. 11. The retail installment contract for the transaction contained the following provisions on the front of the contract: Required Physical Damage Insurance Insurance Company Term: Months: $ Deductible collision—and also select one of the following: Full Comprehensive including—Fire-Theft and Combined Additional Coverage. $ Deductible Comprehensive including FireTheft and Combined Additional Coverage. Fire-Theft and Combined Additional Coverage. 12. Paragraph 3(a) on the reverse side of the retail installment contract under the heading ‘‘Additional Terms’’ which makes reference to the required physical damage insurance, states: . . . Buyer shall furnish satisfactory evidence that the property continues to be effectively and adequately covered by such insurance at all times during the term of this contract. Upon failure of the buyer to do so for any reason, seller may . . . (b) Proceeds of the aforesaid required physical damage insurance, by whomsoever procured, shall be applied toward replacement of the property or payment of this obligation at the option of the seller . . . (d) In the event that . . . such insurance is procured by the . . . buyer but subsequent to the issuance thereof and during the term of this contract such insurance is cancelled, the buyer agrees that the seller may procure insurance covering solely the interest of the seller hereunder. 13. At the time the plaintiff purchased the car, she had it insured against theft, collision and other loss by Allstate Insurance Company. 14. Allstate Insurance Company subsequently notified the plain-

D.8 Deceptive Practices Case— Vendor’s Single Interest Insurance (Ortiz)
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, LAW DIVISION ) ) ) ) ) ) v. ) ) GENERAL MOTORS ) ACCEPTANCE ) CORPORATION, INC. and ) MOTORS INSURANCE ) CORPORATION, INC. ) Defendants. ) ) CARMEN ORTIZ, individually and on behalf of all others similarly situated, Plaintiffs, CLASS ACTION COMPLAINT COUNT 1 PRELIMINARY STATEMENT 1. Count I is brought as a class action pursuant to the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill. Rev. Stat., ch. 121 1/2, §§ 261 et seq. to recover damages from defendants in the sale and purchase for plaintiffs of single interest physical damage insurance policies and their failure to pay benefits due under the policies. PARTIES 2. The named plaintiff, Carmen Ortiz, is a resident of Cook County, Illinois. 3. The plaintiff brings this action on her own behalf and on behalf of all other persons similarly situated pursuant to § 2-801 of the Illinois Code of Civil Procedure, Ill. Rev. Stat., ch. 110, § 2-801. The class is composed of all persons who: a. financed purchases of motor vehicles for their own personal and/or household use through General Motors Acceptance Corporation (hereafter GMAC); b. purchased the vehicle from an automobile dealer located within the state of Illinois; c. had single interest physical damage insurance purchased for them by GMAC through Motors Insurance Corporation (hereafter MIC) after December 2, 1980. There is a subclass of plaintiffs who also: d. had the motor vehicle damaged while the MIC policy was in force and either received no payment or credit from the MIC insurance policy or were required to surrender the automobile to GMAC in order to receive the payment or credit. 4. The class and subclass are so numerous that joinder of all members is impracticable. There are questions of fact or law common to the class and subclass which common questions predominate over any questions that affect only individual members.

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tiff and GMAC that it was cancelling its coverage of plaintiff’s car. 15. On or above November 11, 1981, GMAC purchased an insurance policy from MIC insuring the plaintiff’s automobile. GMAC sent the plaintiff two letters, both dated November 11, 1981, notifying her they had done so. The letters are made a part of this complaint and attached as Exhibits B and C [not attached herein]. 16. GMAC was required to send plaintiffs a copy of the policy pursuant to the Motor Vehicle Retail Installment Sales Act, Ill. Rev. Stat., ch. 121 1/2 § 569 (hereinafter MVRISA) which provides in part: The holder of a contract which includes an amount for insurance purchased by the seller or holder must, within 30 days after the date of the contract cause to be sent to the buyer the policies or certificates of insurance clearly setting forth the amount of the premium, the types of insurance, the coverages and all the terms exceptions, limitations, restrictions and conditions of the insurance. 17. GMAC was required to send plaintiffs a copy of the policy and explain clearly the type, cost, benefits, and limitations of the policy pursuant to Rules and Regulations of the Department of Financial Institutions governing sales finance agencies § 17(c)(4) and (5) which provides: It shall be the licensee’s responsibility to explain clearly to the obligor the type, cost, benefits and limitations of any insurance requested by licensee after acquisition of the account. The licensee shall also deliver or cause to be delivered to the obligor a copy of the policy or policies, certificate, or other evidence thereof acquired by the license in connection with the indebtedness. 18. Plaintiff did not receive a copy of the insurance policy for which she was charged. The only written explanations regarding the policy and its coverage and the period of time it would be in effect were disclosed in the contract (Exhibit A) and the letters of November 11, 1983 (Exhibits B and C). 19. Plaintiffs subsequently learned that said policy was not the ‘‘required physical damage insurance’’ described on the front of the contract, but was ‘‘single interest’’ coverage with a maximum benefit equal to the amount still owed on the contract minus a pro rata share of the finance charge. 20. Single interest coverage insurance may not be required under a retail installment contract pursuant to MVRISA § 568, which provides, in part: A seller under a retail installment contract may require insurance against substantial risk of loss of or damage to the motor vehicle protecting the seller or holder as well as the buyer. 21. In purchasing said insurance and charging the cost thereof to the plaintiff’s account, GMAC acted as the agent of the plaintiff. 22. GMAC purchased the insurance from MIC, a wholly owned subsidiary of GMAC. 23. The cost of the single interest coverage was $914.00.

Appx. D.8
24. Upon information and belief the premium charges for the insurance was excessive for the actual coverage. 25. Upon information and belief, GMAC received a substantial rebate on the purchase of the insurance from MIC. 26. Upon information and belief, GMAC profited on the purchase of the insurance as the insurance was obtained from its subsidiary. 27. On January 28, 1982, plaintiff’s car was involved in an accident and $1,900 damage was done to her car. 28. Shortly after January 28, 1982, the plaintiff spoke with Mr. Sylvester, an employee of GMAC. She told him the car had been in an accident and she wanted to have the MIC policy pay to repair it. Mr. Sylvester told her that if she desired, GMAC could consider that her car had been totally destroyed and she could then (a) return her contract, and (b) she would then have to pay the balance of the amount owed on the contract. He also told her that unless she gave up the car, she would receive nothing from the insurance policy to have her car repaired or to apply to her debt. 29. On June 23, 1982, the plaintiff informed GMAC she would obtain her own insurance, and wanted the insurance they had purchased from MIC cancelled. She then obtained other insurance. 30. Both GMAC and MIC were requested to provide the plaintiff with a copy of the insurance policy with MIC for which she had paid. Both defendants refused to honor her request. The letter from MIC refusing to provide the policy is made a part of the complaint and is attached as Exhibit D. 31. Contrary to the representations of GMAC’s employee the MIC policy does cover physical damage to the vehicle while it is in the possession of the purchaser. A copy of the MIC single interest policy is made a part of this complaint and attached as Exhibit E. 32. MIC knew or should have known that GMAC was failing to provide plaintiffs with a copy of the policy and the other information required by law and also concealed and suppressed that material fact from the plaintiff. 33. MIC knew or should have known that excessive premiums were being charged for the insurance. 34. MIC knew or should have known that GMAC was requiring surrender of the automobile before processing claims although such surrender was not required by the policy. 35. On information and belief, defendants concealed information regarding the MIC policy from class members and/or misrepresented to class members that the policy did not cover damage to their vehicles unless plaintiffs surrendered possession of their cars, in which case the amount necessary to repair damages would be credited to their accounts. 36. On information and belief defendants concealed GMAC’s ownership and financial relationship with MIC and that GMAC received a rebate on the policies bought from MIC. CAUSE OF ACTION 37. The defendants have engaged in a pattern and practice of violating the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill. Rev. Stat., ch. 121 1/2, § 262 as to the plaintiff and all class members as follows: a. by deceptively concealing and misrepresenting the actual coverage of the physical damage insurance that would be purchased if the purchaser failed to keep their own insurance in force;

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b. Award plaintiff and the class $2,000,000.00 in punitive damages to be shared equally. c. Award plaintiffs costs and attorneys fees. d. Grant such additional relief as the Court finds proper. COUNT II PRELIMINARY STATEMENT 1. Count II is brought as a class action to recover damages from defendants arising out of the breach of the physical damage insurance agreements covering the vehicles of plaintiff and the class members. 2. Plaintiff Carmen Ortiz is a resident of Cook County, Illinois. 3. The plaintiff brings this action on her own behalf and on behalf of all other persons similarly situated pursuant to § 2-801 of the Illinois Code of Civil Procedure, Ill. Rev. Stat. ch. 110, § 2-801. The class is composed of all persons who: a. financed purchases of motor vehicles for their own personal and/or household use through General Motors Acceptance Corporation (hereafter GMAC); b. purchased the vehicle from an automobile dealer located within the state of Illinois; c. has single interest physical damage insurance purchased for them by GMAC through Motors Insurance Corporation (hereafter MIC) after October 11, 1980; and d. had that motor vehicle damaged while the MIC policy was in force and received no payment on the MIC insurance policy. 4. The class is so numerous that joinder of all members is impracticable. There are questions of fact or law common to the class which common questions predominate over any questions that affect only individual members. The representative party will fairly and adequately protect the interest of the class. The class action is an appropriate method for the fair and efficient adjudication of the controversy. 5–36. Plaintiff realleges paragraphs 5–36 of Count I as paragraphs 5–36 of Count II. CAUSE OF ACTION 37. The insurance policy provided at page 2; ‘‘the company will pay for loss to automobile occurring while it is in the possession of retail purchasers and under coverage.’’ 38. Plaintiff and the class members are ‘‘retail purchasers’’ as described in the policy. 39. Plaintiff and the class members are entitled to recover for loss to their automobiles while in their possession under the terms of the policy. 40. Defendants acted in concert in refusing to pay valid claims of plaintiff and the class members. 41. Defendants refusal to pay such claims was vexatious and unreasonable within the meaning of the Illinois Insurance Code provision allowing attorney’s fees and other damages. Ill. Rev. Stat., ch. 73, § 767. WHEREFORE plaintiffs pray that court: a. Enter judgment against the defendants and for plaintiff in the sum of $1,900.00 for repair of her automobile. b. Enter judgment against defendants and for all class members in the sums which should have been paid under the MIC policy. c. Award plaintiff $5,000.00 based on defendants vexatious and unreasonable refusal to pay policy benefits. d. Award each class member the greater of 25% of the amount

b. by deceptively concealing the name of the insurance company as well as the actual coverage of the physical damage insurance, and by failing to send a copy of the insurance policy thereby concealing the terms exceptions, limitations, restrictions and conditions of the policy; c. by concealing the fact that a rebate on the policy was received by GMAC; d. by charging an excessive rate for the insurance purchased; and e. by concealing the fact that the insurance was purchased through a wholly owned subsidiary of GMAC and thereby profited GMAC. 38. The defendants have engaged in a pattern and practice of violating the Illinois Consumers Fraud and Deceptive Business Practices Act, Ill. Rev. Stat., ch. 121 1/2, § 262 as to plaintiff and the subclass as follows: a. by falsely representing to plaintiffs that physical damage to their vehicles was not covered by the insurance policy unless the car was totally destroyed or turned over to GMAC to be considered repossessed; b. by failing to pay for repairs to the vehicles of class members although such damage was within the coverage of the insurance policy. 39. Defendant’s unfair and deceptive acts and practices as set forth in paragraphs 37 and 38 above were done willfully, wantonly and maliciously. 40. As the result of the unfair and deceptive acts and practices of the defendants, in concealing and misrepresenting the coverage of the insurance purchased, plaintiff and the class have been damaged in the sum of the cost of the policy and the interest charged. 41. As the result of the unfair and deceptive acts and practices of the defendants, in concealing the rebate paid to GMAC, the plaintiff and class are entitled to damages in the amount of the rebate and interest attributable to the portion of the premium that was rebated. 42. As the result of the unfair and deceptive acts and practices of the defendants, in purchasing insurance at an excessive rate, plaintiff and the class have been damaged in the amount of the excessive rate charged for the insurance and the interest charged that is attributable to the excess charge. 43. As the result of the unfair and deceptive acts and practices of the defendants in concealing the fact that the insurance was purchased through a wholly owned subsidiary, plaintiff and the class are entitled to recover the sum that GMAC and MIC profited on the sale of the insurance. 44. As the result of the unfair and deceptive acts and practices of the defendants in falsely representing to plaintiff and the subclass that physical damage to their vehicles was not covered by the insurance unless the vehicles were totally destroyed or turned over to GMAC, plaintiff and the subclass were damaged: (a) in the amount of the repairs to their vehicles if they kept the cars or (b) the value of their vehicles at the time they turned them over to GMAC if they gave the cars to GMAC to get the insurance. 45. As the result of defendants’ willful and wanton conduct plaintiff and the class are entitled to a punitive damage award against defendants. WHEREFORE, plaintiffs pray that the court: a. Enter judgment against the defendant and for plaintiff and the class and subclass in an amount equal to the damages set forth in paragraphs 40 through 45.

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they were entitled to recover under the policy of $5,000.00 whichever is greater. e. Award plaintiffs their costs and attorney’s fees. f. Grant such additional relief as the Court finds proper. COUNT III PRELIMINARY STATEMENT 1. Count III is brought as a class action against GMAC based on GMAC’s breach of its fiduciary duty as agent in the purchase of physical damage insurance. PARTIES 2–36. Plaintiffs reallege paragraphs 2–36 of Count I as paragraphs 2–36 of Count III. CAUSE OF ACTION 37. In making the purchase of the physical damage insurance for plaintiffs, GMAC was acting as an agent of plaintiffs and owed plaintiffs a duty to act as a fiduciary in the purchase of the insurance and all matters relating to its coverage. 38. GMAC breached its fiduciary duty to plaintiffs by: a. receiving a rebate from MIC in the purchase of the insurance; b. purchasing insurance at an excessively high premium; c. making a profit on the sale of the insurance through its subsidiary, MIC; d. concealing the actual coverage of the policy; e. failing to obtain the insurance from an independent insurance company rather than a subsidiary; and f. effectively not obtaining a policy but instead serving as a self-insurer. 39. As the result of GMAC’s breach of fiduciary duty plaintiff and the class are entitled to recover the entire premium, and interest thereon paid to GMAC. 40. As the result of GMAC’s breach of its fiduciary duty, plaintiff and the subclass have been damaged in the sum of the cost of repairs to their vehicles or the loss of those vehicles (if turned over to GMAC to get insurance coverage). WHEREFORE, plaintiffs pray that the court: a. Enter judgment against GMAC and in favor of plaintiff and subclass members in the amount of the premium, and interest thereon, paid to GMAC. b. Enter judgment against GMAC on behalf of plaintiff and the subclass in the sum of the cost of repairs to their vehicles or the value of the vehicles. c. Grant plaintiff and the class such additional relief as the Court finds proper. COUNT IV PRELIMINARY STATEMENT 1. Count IV is brought as a class action against GMAC pursuant to the Illinois Sales Finance Agency Act, Ill. Rev. Stat., ch. 17, § 5201 et seq., (hereinafter SFA) to recover damages and other relief from GMAC for its violations of the SFA. 2. The named plaintiff, Carmen Ortiz, is a resident of Cook County, Illinois. 3. The plaintiff brings this action on her own behalf and on behalf of all other persons similarly situated pursuant to § 2-801 of CAUSE OF ACTION

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the Illinois Code of Civil Procedure, Ill. Rev. Stat., ch. 110, § 2-801. The class is composed of all persons who: a. financed purchases of motor vehicles for their own personal and/or household use through General Motors Acceptance Corporation (hereafter GMAC); b. purchased the vehicle from an automobile dealer located within the state of Illinois; c. has single interest physical damage insurance purchased for them by GMAC through Motors Insurance Corporation (hereafter MIC) after October 11, 1980. 4–36. Plaintiff realleges paragraphs 4–36 of Count I as paragraphs 4–36 of Count IV.

37. GMAC has violated SFA § 4210 by willfully violating the SFA and the rules and regulations promulgated by the Director of Financial Institutions by fraudulently misrepresenting, circumventing and concealing by subterfuge and device the terms, conditions, benefits and limitations of the single interest policy and failing to provide plaintiff and class members with copies of said policy. 38. GMAC has violated SFA § 5215 by the use of printed forms which are misleading or deceptive with regard to the type of insurance that will be purchased upon cancellation of the buyers prior insurance. 39. GMAC has violated SFA § 5217 by fraudulently misrepresenting, circumventing, concealing by subterfuge and device the type, cost, benefits and limitations of the single interest insurance purchased by GMAC for the buyer. 40. GMAC has violated MVRISA §§ 568-569 by purchasing single interest insurance and failing to send to the buyer the policies or certificates of insurance setting forth the amount of the premium, the types of insurance, the coverages and all the terms, exceptions, limitations, restrictions and conditions of the insurance. 41. Pursuant to MVRISA § 584, as a result of GMAC violations of MVRISA, it is not entitled to recover any finance charge, any delinquency or collection charge or any refinance charge in connection with the retail installment contract. 42. GMAC has charged and collected from plaintiff and class members finance charges, delinquency and collection charges and refinance charges. 43. As a result of GMAC’s collection of the finance charges and the other violations set forth above, plaintiff and class members have sustained loss as a result of GMAC’s actions and violations of SFA. 44. Pursuant to SFA § 5234, plaintiff and each class member may recover any finance charge, collection charge or refinance charge paid to GMAC and an additional amount equal to 25% of the principal amount of the retail contract. WHEREFORE, plaintiff prays that this court: a. Enter judgment against the defendant GMAC and in favor of the plaintiffs and each member of the class in an amount equal to the amount of all finance charges, collection or late charges and refinance charges paid by the plaintiff and each individual class member, plus 25% of the principal amount of the retail contract of the plaintiff and each class member. b. Award plaintiffs cost and attorneys’ fees. c. Grant plaintiffs such additional relief as the Court deems proper. [Attorney]

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further provide that upon prepayment or acceleration (involuntary prepayment) of the indebtedness, the borrower will receive a rebate of the interest under the ‘‘Rule of 78’s.’’ 9. For example, the contract signed by Mrs. Adams (Exhibit A) [not attached herein] provides: REBATE FOR PREPAYMENT: Undersigned may prepay the loan in full at any time before maturity and shall receive a rebate of unearned interest calculated in accordance with the Rule of 78’s, except if the amount of the rebate is less than $1 no rebate will be made. 10. Mrs. Adams alleges, on information and belief, that the consumer credit contracts entered into by both Predatory Finance and Reckless are generally secured by mortgages on residential property in Illinois. 11. Use of the ‘‘Rule of 78’s’’ in computing the amount due upon prepayment or acceleration of a mortgage will result in the borrower owing substantially more than use of the ‘‘actuarial method’’ of computing interest, under which the amount of interest due is proportionate to the amount of time the loan was outstanding. 12. On information and belief, Reckless utilized the ‘‘Rule of 78’s’’ in computing the amount claimed from Mrs. Adams upon acceleration of her indebtedness. 13. The use of the Rule of 78’s with respect to residential mortgages in Illinois is illegal. At all times since January 1, 1986, Ill. Rev. Stat., ch. 17, ¶ 6404(b)(3) provided, in pertinent part: In any contract or loan which is secured by a mortgage, deed of trust, or conveyance in the nature of a mortgage, on residential real estate, the interest which is computed, calculated, charged, or collected pursuant to such contract or loan, or pursuant to any regulation or rule promulgated pursuant to this Act, may not be computed, calculated, charged, or collected for any period of time occurring after the date on which the total indebtedness, with the exception of late payment penalties, is paid in full. . . . 14. Liability for violation of ¶ 6404(b)(3) is prescribed by Ill. Rev. Stat., ch. 17, ¶ 6413. 15. The provision in the standard form Predatory Finance and Reckless consumer credit contracts, including that signed by Mrs. Adams, requiring the borrower to promise to repay all principal and interest, and providing for a rebate of interest under the ‘‘Rule of 78’s,’’ is unlawful under ¶ 6404(b)(3), subjecting both Predatory Finance and Reckless to the liability prescribed by ¶ 6413. KNOWLEDGE 16. The actions of Reckless and Predatory Finance in imposing and collecting interest on residential mortgages using the ‘‘Rule of 78’s’’ were ‘‘knowing’’ within the meaning of ¶ 6413. CLASS ALLEGATIONS 17. Pursuant to § 2-801 et seq. of the Illinois Code of Civil Procedure, Mrs. Adams brings this claim on behalf of a class consisting of all other persons injured by the conduct complained

D.9 State Usury Case (Adams)
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION PATRICIA ADAMS, on behalf of herself and all others similarly situated, Plaintiff, v. RECKLESS SAVINGS & LOAN ASSOCIATION and PREDATORY FINANCE COMPANY, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) )

COMPLAINT Plaintiff, Patricia Adams (‘‘Mrs. Adams’’), suing on behalf of herself and all others similarly situated, complains as follows against defendants Reckless Savings & Loan Association (‘‘Reckless’’) and Predatory Finance Company (‘‘Predatory Finance’’): PARTIES 1. At all relevant times, Mrs. Adams resided in a single-family home which she owns at [address] Chicago, Illinois. 2. Reckless is a corporation engaged in the business of extending consumer credit. Its principal place of business is located at [address] Chicago, Illinois. 3. Predatory Finance is a corporation engaged in the business of extending consumer credit. Its principal place of business is located at [address] Illinois. FACTS RELATING TO MRS. ADAMS 4. In 1988, Mrs. Adams contracted with Fix-It Remodeling for home improvement goods and services. Fix-It arranged for financing with Predatory Finance. 5. On or about May 16, 1988, Mrs. Adams signed a contract with Predatory Finance for a loan of $2,418.75 at an annual percentage rate of not less than 26.29%. Exhibit A [not attached herein] is a true and accurate copy of the contract. 6. At the same time, Mrs. Adams signed a mortgage on her home in favor of Predatory Finance to secure payment of the contract. Exhibit B [not attached herein] is a true and accurate copy of the mortgage. 7. Shortly after Mrs. Adams signed the contract and mortgage, Predatory Finance assigned them to Reckless. Exhibit C [not attached herein] is a true and accurate copy of the assignment. PRACTICES ALLEGED 8. Both Predatory Finance and Reckless extend credit to consumers using standard form contracts. Many or all of these standard form contracts contain a promise by the consumer to pay an amount consisting of all principal and interest. The contracts

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of. The class consists of all persons (a) who entered into credit contracts (b) which were secured by mortgages on residential real estate in Illinois and (c) which provided for the calculation of interest or finance charges upon prepayment using the ‘‘Rule of 78’s,’’ and (d) which were held at any time by Reckless or Predatory Finance. 18. Mrs. Adams alleges on information and belief that the class is so numerous that joinder of all members is impractical. This belief is based on (a) the fact that Predatory Finance and Reckless used/purchased standard form contracts providing for calculation of interest using the ‘‘Rule of 78’s,’’ (b) an examination of court files showing that Reckless brought suit to enforce numerous such contracts, and (c) an examination of Reckless’s filings with the Savings & Loan Commissioner of Illinois. For example, during 1986 alone, Predatory Finance made more than 300 home improvement loans in Illinois. 19. There are questions of law and fact common to the class, which predominate over any questions affecting only individual members. The principal issue raised by this action is whether the provisions in the standard form contracts used by Reckless and Predatory Finance are unlawful under ¶ 6404(a)(3). 20. The only individual questions concern (a) whether the transaction is secured by residential property and (b) the amount of liability under ¶ 6413. This can be determined by a ministerial examination of loan files. 21. Mrs. Adams will fairly and adequately protect the interests of the class. She has retained counsel experienced in handling class actions and actions involving unlawful business practices. Neither Mrs. Adams nor her counsel have any interests which might cause them not to vigorously pursue this action. 22. A class action is an appropriate method for the fair and efficient adjudication of this controversy. WHEREFORE, Mrs. Adams requests that the Court enter judgment in her favor and in favor of the class members: a. For the amounts provided by ¶ 6413; b. To the extent that the amounts provided by ¶ 6413 exceed the remaining amounts due, canceling the class members’ mortgages; c. For attorney’s fees, litigation expenses and costs; and d. For such other or further relief as the Court deems appropriate [Attorney]

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D.10 RICO, Deceptive Practices and Fraud Case—Revolving Repossessions (Carr)
IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA ) ) ) ) ) ) v. ) CASE NO. ) TRANSOUTH FINANCIAL ) CORPORATION ) Defendant. ) ) NELL CARR and TERRY WOOD and LOIS LEWIS and SALLY SHORE Plaintiffs, FIFTH AMENDED CLASS ACTION COMPLAINT AND JURY DEMAND Plaintiffs Nell Carr, Terry Wood, Lois Lewis and Sally Shore through their attorneys, make the following complaint against defendant TranSouth Financial Corporation. TABLE OF CONTENTS INTRODUCTORY STATEMENT THE PARTIES CO-CONSPIRATORS JURISDICTION VENUE FACTS APPLICABLE TO ALL COUNTS FACTS APPLICABLE TO NAMED PLAINTIFFS NELL CARR TERRY WOOD LOIS LEWIS SALLY SHORE CLASS ACTION ALLEGATIONS CIVIL RICO SUMMARY FIRST CLAIM FOR RELIEF— VIOLATION OF FEDERAL LAW—18 U.S.C. § 1962(a) SECOND CLAIM FOR RELIEF— VIOLATION OF FEDERAL LAW—18 U.S.C. § 1962(c) THIRD CLAIM FOR RELIEF— VIOLATION OF FEDERAL LAW—18 U.S.C. § 1962(d) FOURTH CLAIM FOR RELIEF— VIOLATION OF FEDERAL LAW—18 U.S.C. § 1962(d) FIFTH CLAIM FOR RELIEF— VIOLATION OF THE VIRGINIA UNIFORM COMMERCIAL CODE SIXTH CLAIM FOR RELIEF— VIOLATION OF THE VIRGINIA CONSUMER PROTECTION ACT SEVENTH CLAIM FOR RELIEF— COMMON LAW FRAUD AND CONSPIRACY JURY DEMAND

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INTRODUCTORY STATEMENT 7. Plaintiff Lois Lewis is an individual who resides at [Address]. 8. Plaintiff Sally Shore is an individual who resides at [Address]. 9. Defendant TranSouth is a South Carolina corporation with a principal place of business at 250 Carpenter Freeway, Irving, Texas with offices, at times pertinent hereto, at 3420 Holland Road, Virginia Beach, Virginia. At all times pertinent herein, TranSouth engaged in the acquisition of loans assigned to it by CFAW and, upon default by a customer transferred those loans and collateral back to CFAW, pursuant to the terms of a repurchase agreement with CFAW. CO-CONSPIRATORS 10. Conspirator CFAW is a Virginia corporation with a principal place of business at 536 West 21st Street, Norfolk, Virginia. At all times pertinent herein, CFAW was engaged, inter alia, in the sale of high mileage used cars to individuals with poor credit ratings and the arranging of financing for such sales through TranSouth. 11. Conspirator JB is a Virginia corporation with its principal place of business at 536 West 21st Street, Norfolk, Virginia. At all times pertinent herein, JB was a subsidiary of CFAW and was engaged in the business of collecting on defaulted loans for CFAW. 12. The defendant and the conspirators participated as coconspirators with each other and various other persons, firms and entities in the offenses charged, and have performed acts and made statements in furtherance thereof. JURISDICTION 13. This Court has subject matter jurisdiction over this action pursuant to 18 U.S.C. § 1964(c) (RICO), 28 U.S.C. § 1331 (Federal Question), and 28 U.S.C. § 1367 (Supplemental Jurisdiction). VENUE 14. Venue is proper in this District because, under 28 U.S.C. § 1391(b), a substantial part of the events giving rise to claims herein occurred within this District. FACTS APPLICABLE TO ALL COUNTS 15. CFAW sold high mileage used automobiles at extravagant prices in the Tidewater area of Virginia from eight locations to people with poor credit. 16. CFAW arranged financing for its customers with TranSouth and frequently set the interest rates on the loans as high as 36%, dramatically reducing the likelihood that the purchaser could pay off the loan. 17. These security agreements were set forth on forms provided to CFAW by TranSouth. 18. Under a Repurchase Agreement, CFAW agreed with TranSouth to repurchase the loans, and pay off remaining principal to TranSouth in the event of a default by a customer. 19. TranSouth, when notified that a class member failed to place or keep collision insurance, force placed collision insurance through National Underwriters, Inc., for more than the value of the car, at unconscionably high rates, and received kickbacks from the insurer or broker. These excessive premiums were separately billed to the class member and made it even more likely that the class member would default. 20. In the event of default by a customer, TranSouth began the process of repossessing the automobiles from the purchasers. In

1. This case is brought against a finance company arising out of a ‘‘revolving repossession’’ or ‘‘churning’’ scheme whereby used cars were sold to the public by Charlie Falk’s Auto Wholesale, Inc. (‘‘CFAW’’) and financed by defendant, TranSouth Financial Corp. (‘‘TranSouth’’). Charlie Falk’s Auto Wholesale, Inc. sold the cars at extravagantly high prices, and frequently set the interest rates as high as 36%. For the period in question, over ninety-five percent (95%) of CFAW’s sales were financed and one hundred percent (100%) of those were financed by TranSouth. Moreover, TranSouth often force placed collision insurance on more than the value of the car, and at unconscionably high rates, which placement was accompanied by kickbacks of the insurance premiums. Under the terms of a repurchase agreement, CFAW was obligated to buy back the loan and the car from TranSouth upon default by a customer. CFAW then assigned the loans to its own subsidiary collection agency, JB Collection Corporation (‘‘JB’’), for collection. 2. After default by a customer, TranSouth initiated repossession of the car and sent a false and misleading ‘‘notice of private sale’’ to the customer. In fact, the announced sale was a complete sham, and was not a commercially reasonable private sale under the law of Virginia. Instead, the car and note were merely transferred to CFAW under the terms of the repurchase agreement. In a bogus ‘‘transaction’’, an artificially low ‘‘price’’ was then set for the car by inventing the private sale. Charles Falk, Jr., John Doe, or another Falk executive would meet or telephone Linwood Harrison, L. Smith, or another TranSouth executive and ‘‘bid’’ a low price for the car (typically $750 to $1,500), which ‘‘bid’’ would be ‘‘accepted’’ by the TranSouth executive. No check or reimbursement was ever sent from TranSouth to CFAW as a consequence of the dollar figures supposedly agreed upon during these sales, because CFAW had already paid TranSouth for the cars pursuant to the repurchase agreement. Accordingly, the dollar figures agreed upon had no economic purpose, and were entirely bogus. TranSouth and CFAW ceased holding these meetings and bogus sales immediately after this lawsuit was filed, demonstrating their understanding that the meetings were illegal and improper. No other ‘‘purchaser’’ ever attended these ‘‘sales.’’ 3. JB Collection then used that fraudulently established price as the basis for an additional fraudulent ‘‘notice’’ to the defaulting customer that a legal sale had taken place and also as the basis for a demand that the customer pay the difference between what the customer owed at the time of the default and the fraudulent ‘‘price’’ set at the non-transaction between CFAW and TranSouth. Further, when, as always happened, the customer was unable to pay the fraudulently established debt, JB used the fraudulent debt as the basis for a deficiency action against the customer. 4. Most of the cars were then resold by CFAW to new customers at prices which far exceeded the amount used as the bases for the deficiencies. Since the resale price of these cars exceeded the customer’s loan amount, TranSouth was obligated by law to pay a surplus to the customer; however, TranSouth paid no surpluses to the class members. TranSouth then financed these new customers who also were highly likely to default. THE PARTIES 5. Plaintiff Nell Carr is an individual who resides at [Address]. 6. Plaintiff Terry Wood is an individual who resides at [Address].

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most cases TranSouth hired a wholly owned subsidiary of CFAW to repossess the cars. 21. Upon repossession of a car, TranSouth sent a ‘‘notice of private sale’’ to the car’s owner, with a ‘‘cc’’ to CFAW. The notice ostensibly provided an opportunity to the car’s owner to redeem the car by payment of any deficiency. In the event the owner failed to do so, the notice announced that the repossessed car would be sold at a private sale. The letter was designed to give the defaulting customer assurances that the customer’s collateral was being liquidated legally and legitimately and to thus lull the customer into a false sense of legitimacy preventing the customer from taking action such as retaining an attorney. The letter succeeded in this respect. 22. The reason that TranSouth sent these notices of private sale was that CFAW insisted that TranSouth do so, and it was a ‘‘precondition’’ of doing business with CFAW. See Memo from Lance to Neil, January 22, 1992, HW 439, attached as Exhibit 1 hereto [not reprinted herein]. Doing business with CFAW was highly profitable for TranSouth, and TranSouth was willing to engage in the bogus transactions as a means of continuing that profit. 23. The ‘‘notice’’ also represented to the defaulting customer that he or she had until a date certain to redeem the repossessed car, a fact which Transamerica knew was false under Virginia law. § 8.9-506, Code of Virginia. 24. TranSouth also utilized the scheme to give itself the opportunity to issue force placed insurance to a number of class members valued at more than the value of the car and at unconscionably high rates which in part were kicked back to TranSouth. TranSouth was intimately aware of nearly every aspect of CFAW’s business. CFAW’s employees provided a good deal of information to TranSouth, at TranSouth’s request. See Letter from Stewart to Falk, February 2, 1993, HW 282, attached as Exhibit 2 hereto [not reprinted herein]. TranSouth employees met with CFAW accountants and attorneys, toured CFAW’s headquarters, and the like. See letter from Cole to Falk, March 18, 1992, attached as Exhibit 3 hereto [not reprinted herein]. TranSouth had access to audits of CFAW’s business. See Memo from Stewart to Neil, November 24, 1992, HW 468, attached as Exhibit 4 hereto [not reprinted herein]. TranSouth advised CFAW on its various obligations under the U.C.C. See, e.g., Memo from Lance to Neil, January 22, 1992, HW 439, attached as Exhibit 1 hereto. Transouth made a great deal of money from the scheme. See internal TranSouth memo from B. D. Davis to J. J. Abbott on December 11, 1989, attached as Exhibit 5 hereto [not reprinted herein], stating that CFAW repurchases TranSouth’s repossessions ‘‘and has paid us over $140,000 in repos in November alone.’’ 25. In particular, TranSouth was intimately aware that an extraordinarily high volume of repossessions was a centerpiece of CFAW’s business. See, e.g., Memo from Newman to Abbott, November 22, 1989, attached as Exhibit 6 hereto [not reprinted herein] (TranSouth aware of role of repossessions a large part of CFAW’s business); Memo from Cole to Credit Committee, April 11, 1990, and attachments, attached as Exhibit 7 hereto [not reprinted herein] (CFAW sent TranSouth a Wall Street Journal article about a used car dealer with very high repossessions; TranSouth understood it to be an indication of CFAW’s hopes for its own business). TranSouth employees praised CFAW for properly handling and ‘‘understanding’’ repossessions. See Memo from Davis to Abbott, December 11, 1989, attached as Exhibit 8 hereto [not reprinted herein]. Finally, and most seriously, TranSouth

Appx. D.10
actually wanted CFAW to have more repossessions, and communicated that hope to CFAW, in a November 19, 1992 letter from Dennis Cole (TranSouth) to Charles Falk, Sr. (Exhibit 9 hereto) stating that TranSouth’s repossessions ‘‘are not yet large’’ and ‘‘[o]f course, to have more repossessions we must book more loans and we will need your help to achieve this.’’ (Emphasis added). 26. TranSouth never sold these repossessed cars at commercially reasonable private sales. Instead, TranSouth transferred the cars back to CFAW pursuant to its repurchase agreement with CFAW. CFAW then eventually again sold the cars off its lot, often at or above the price charged to the original defaulting customer. 27. The transfer of a repossessed automobile back to CFAW under the terms of a repurchase agreement is not a legal sale of the collateral. The ‘‘sale’’ of the collateral announced by TranSouth’s fraudulent letter in fact did not take place as suggested by the letter. Instead, CFAW and TranSouth merely set bogus ‘‘prices’’, in transactions described above, which were grossly undervalued in relation to the original price of the car paid by the customer, and in relation to the subsequent sales price which CFAW obtained from the next consumer in this scheme. 28. JB then used the fictional and fraudulent sales price cooked up between TranSouth and CFAW as the basis for a fraudulent demand letter, ‘‘calculating’’ the ‘‘deficiency’’ allegedly owed by the defaulting customer and threatening suit if the fraudulently calculated deficiency was not paid. 29. CFAW and JB thereafter used the false and artificially low ‘‘private sale’’ price which was set between CFAW and TranSouth as a basis for a subsequent collection action filed against the customer in a district court in Virginia. 30. After the transfer of repossessed cars from TranSouth to CFAW pursuant to their contractual arrangement, CFAW assigned the loans to JB for collection. 31. JB shared common officers and directors with CFAW and pursued collection actions only for CFAW. 32. In every action brought by JB against every class member, the amount of the alleged deficiency was based upon the false and fraudulent price for the car agreed upon between CFAW and TranSouth. 33. CFAW then sold the car to the next customer in this churning scheme at a price which was much greater than the fraudulent and fictitious price. In some cases, the subsequent sales price of the car paid to CFAW by the next consumer was greater than the original price paid by the consumer who defaulted. By law, if the actual sales price exceeded the amount of the customer’s loan, TranSouth was obligated to pay this surplus back to the customer. In fact, no surplus sums were paid to plaintiffs or the Class and the defaulting customer was never advised of the amount of the subsequent actual sale. FACTS APPLICABLE TO NAMED PLAINTIFFS A. NELL CARR 34. Plaintiff Nell Carr bought a used 1988 Pontiac LeMans from CFAW on May 16, 1992. The cash price was $6,525. 35. TranSouth financed the loan. 36. After the sale, Ms. Carr defaulted on the loan. The car was repossessed by TranSouth and CFAW. 37. On June 16, 1992, TranSouth issued, through the use of the U.S. mails, a knowingly fraudulent ‘‘notice of private sale’’ to Ms. Carr. That notice is attached hereto as Exhibit 10 [not reprinted

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use of the U.S. mails, to Ms. Wood. The letter used the fictitious sales figure as the basis for setting an alleged deficiency. 50. On January 14, 1992, the same car which had been repossessed from Ms. Wood was sold by CFAW for $6,300 to Roger Thorpe. This was $300 more than Ms. Wood had originally paid for it. No surplus was paid by CFAW, TranSouth, or JB to Ms. Wood, nor was she ever advised of the sale or the amount of the sale of her collateral. 51. On May 20, 1992, four months after selling the car for $6,300, JB sued Ms. Wood, through the U.S. mails, in the General District Court of the City of Virginia Beach, Virginia seeking a fraudulent deficiency judgment in the amount of $3,586.22, plus attorneys’ fees (although JB did not file suit using an attorney). That lawsuit is attached as Exhibit 14 [not reprinted herein]. 52. Plaintiff further reasonably relied to her detriment upon the statement that her car had been sold for a particular figure in concluding that the sale of her collateral had proceeded legally and legitimately. 53. If Ms. Wood had then suspected that TranSouth’s operation was illegal and illegitimate, she would have sought the assistance of counsel to protect her interests and secure her rights under the law. Ms. Wood did not seek the assistance of counsel to protect her interest and secure her rights under the law. C. LOIS LEWIS 54. Plaintiff Lois Lewis bought a used 1988 Chevrolet Corsica from CFAW on May 7, 1991. The cash price was $7,475. 55. TranSouth financed the loan. 56. On April 14, 21, 22 and 23, 1992, TranSouth wrote to Ms. Lewis about the ‘‘serious past due nature of [her] account,’’ threatening her ‘‘credit standing’’ and her ‘‘collateral.’’ 57. Ms. Lewis defaulted on the loan. The car was repossessed by TranSouth and CFAW. 58. On June 4, 1992, TranSouth issued, through the use of the U.S. mails, a knowingly fraudulent ‘‘notice of private sale’’ to Ms. Lewis. That notice is attached hereto as Exhibit 15 [not reprinted herein]. Ms. Lewis received the notice, and read the notice. Ms. Lewis did not learn from the notice the fact that TranSouth’s operation was not proceeding according to law. Ms. Lewis did not redeem the car. 59. Instead of holding a legally sufficient sale of the collateral, as set forth in the TranSouth notice, TranSouth merely transferred the car back to CFAW on May 21, 1992. Separately, TranSouth and CFAW agreed to set a fictitious and fraudulent ‘‘sales’’ price of $1,100. 60. On September 9, 1992, the car which had been repossessed from Ms. Lewis was sold off the lot by CFAW to new customers, A. Douglas and Tina North, for $7,350. This was only $125 less than Ms. Lewis had originally paid for it. No surplus was paid by CFAW, TranSouth, or JB to Ms. Carr, nor was she ever advised of the sale or the amount of the sale of her collateral. 61. After transfer of the car and the loan from TranSouth to CFAW, the establishment of the fraudulent ‘‘sales’’ price, and assignment of the loan by CFAW to JB for collection, JB issued a fraudulent demand letter to Ms. Lewis on November 2, 1992, through the use of the U.S. mails. The letter, using the fictitious $1,100 figure as the basis for setting an alleged deficiency at $3,647.33, is attached hereto as Exhibit 16 [not reprinted herein]. 62. On November 27, 1992, two months after selling the car for

herein]. Ms. Carr received the notice, and read the notice. Ms. Carr did not learn from the notice the fact that TranSouth’s operation was not proceeding according to law. Ms. Carr did not redeem the car. 38. Instead of holding a legally sufficient sale of the collateral as set forth in the TranSouth notice, TranSouth merely transferred the car back to CFAW. Separately, TranSouth and CFAW agreed to set a fictitious and fraudulent ‘‘sales’’ price at only $1,000. 39. After transfer of the car and the loan from TranSouth to CFAW, the establishment of the fraudulent ‘‘sales’’ price, and assignment of the loan by CFAW to JB for collection, JB, through the use of the U.S. mails, issued a fraudulent demand letter to Ms. Carr on August 17, 1992. The letter, using the fraudulent $1,000 figure as the basis for setting an alleged deficiency at $3,661.96 is attached as Exhibit 11 [not reprinted herein]. 40. On July 6, 1992, JB brought suit against Ms. Carr, through the use of the U.S. mails, in the General District Court of the City of Virginia Beach, Virginia, seeking a judgment for this fraudulently calculated deficiency, plus a 25% attorneys’ fee (although JB did not file suit using an attorney). The suit is attached as Exhibit 12 [not reprinted herein]. 41. On July 29, 1992, the car which had been repossessed from Ms. Carr was sold off the lot by CFAW to a new customer Susan Lord, for $6,900; this was $375 more than Ms. Carr had originally paid for it. No surplus was paid by CFAW, TranSouth, or JB to Ms. Carr, and Ms. Carr was never told the sum for which collateral was sold. 42. Plaintiff further reasonably relied to her detriment upon the statement in Exhibit 11 [not reprinted herein] that her car had been sold for a particular figure in concluding that the sale of her collateral had proceeded legally and legitimately. Ms. Carr did not seek the assistance of counsel to protect her interest and secure her rights under the law. 43. If Ms. Carr had then suspected that TranSouth’s operation was illegal and illegitimate, she would have sought the assistance of counsel to protect her interests and secure her rights under the law. B. TERRY WOOD 44. Plaintiff Terry Wood bought a used 1987 Pontiac Sunbird from CFAW on September 9, 1991. The cash price was $6,000. 45. TranSouth financed the loan. 46. Ms. Wood defaulted on the loan. The car was repossessed by TranSouth and CFAW. 47. Shortly thereafter, in or about November 1991, TranSouth issued, through the use of the U.S. mails, a knowingly fraudulent ‘‘notice of private sale’’ to Ms. Wood. That notice is attached hereto as Exhibit 13 [not reprinted herein]. Ms. Wood received the notice, and read the notice. Ms. Wood did not learn from the notice the fact that TranSouth’s operation was not proceeding according to law. Ms. Wood did not redeem the car. 48. Instead of holding a legally sufficient sale of the collateral, as set forth in the TranSouth notice, TranSouth merely transferred the car back to CFAW. Separately, TranSouth and CFAW agreed to set a fictitious and fraudulent sales price. 49. After transfer of the car and the loan from TranSouth to CFAW, the establishment of the fraudulent ‘‘sales’’ price, and assignment of the loan by CFAW to JB for collection, JB issued a fraudulent demand letter in or about December 1991, through the

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$7,350, JB brought suit against Ms. Lewis, through the use of the U.S. mails, in the general District Court of the City of Virginia Beach, Virginia, seeking a judgment for this fraudulent alleged deficiency, plus a 25% attorneys’ fee (although JB did not file suit using an attorney). That lawsuit is attached as Exhibit 17 [not reprinted herein]. 63. Plaintiff further reasonably relied to her detriment upon the statement in Exhibit 16 [not reprinted herein] that her car had been sold for a particular figure in concluding that the sale of her collateral had proceeded legally and legitimately and in failing to seek the assistance of counsel to protect her interest and secure her rights under the law. 64. If Ms. Lewis had then suspected that TranSouth’s operation was illegal and illegitimate, she would have sought the assistance of counsel to protect her interests and secure her rights under the law. D. SALLY SHORE 65. Plaintiff Sally Shore bought a used 1984 Dodge Aries from CFAW on August 21, 1987. The cash price was $6,492.00. 66. TranSouth financed the loan. 67. Ms. Shore defaulted on the loan. The car was repossessed by TranSouth and CFAW. 68. On October 28, 1988 TranSouth issued, through the use of the U.S. mails, a knowingly fraudulent ‘‘notice of private sale’’ to Ms. Shore. Ms. Shore received the notice, and read the notice. Ms. Shore did not learn from the notice the fact that TranSouth’s operation was not proceeding according to law. That notice is attached hereto as Exhibit 18 [not reprinted herein]. Ms. Shore did not redeem the car. 69. Instead of holding a legally sufficient sale of the collateral, as set forth in the TranSouth notice, TranSouth merely transferred the car back to CFAW. Separately, TranSouth and CFAW agreed to set a fictitious and fraudulent ‘‘sales’’ price of only $1,500. 70. After transfer of the car and the loan from TranSouth to CFAW, the establishment of the fraudulent ‘‘sales’’ price, and assignment of the loan by CFAW to JB for collection, JB, through the use of the U.S. mails, issued a fraudulent demand letter to Ms. Shore on December 27, 1988. The letter, using the fictitious $1,500 figure as the basis for setting an alleged deficiency at $2,743.85, is attached hereto as Exhibit 19 [not reprinted herein]. 71. On February 16, 1989, JB brought suit against Ms. Shore, through the use of the U.S. mails, in the General District Court of the City of Virginia Beach, Virginia, seeking a fraudulent deficiency judgment in the amount of $2,743.85, plus interest and costs. That lawsuit is attached as Exhibit 20 [not reprinted herein]. 72. On May 20, 1989, the car which had been repossessed from Ms. Shore was sold off the lot by CFAW to a new customer for $6,300; this was only $192 less than Ms. Shore had originally paid for it. No surplus was paid by CFAW, TranSouth, or JB to Ms. Shore, nor was she ever advised of the sale or the amount of the sale of her collateral. 73. Plaintiff further reasonably relied to her detriment upon the statement in Exhibit 19 [not reprinted herein] that her car had been sold for a particular figure in concluding that the sale of her collateral had proceeded legally and legitimately and in failing to seek the assistance of counsel to protect her interest and secure her rights under the law. 74. If Ms. Shore had then suspected that TranSouth’s operation

Appx. D.10
was illegal and illegitimate, she would have sought the assistance of counsel to protect her interests and secure her rights under the law. CLASS ACTION ALLEGATIONS 75. Plaintiffs bring this action on behalf of themselves and on behalf of a class of similarly situated persons pursuant to Fed. R. Civ. P. 23. The Class is defined as follows: All persons who purchased cars from Charlie Falk’s Auto Wholesale, Inc., entered into Security Agreements with Charlie Falk’s Auto Wholesale, Inc. to finance such purchases, whose loans were assigned by Charlie Falk’s Auto Wholesale, Inc. to TranSouth Financial Corporation, and who defaulted on their loans and did not redeem their cars after repossession by TranSouth and/or Charlie Falk’s Auto Wholesale, Inc. 76. Members of the class number above two thousand, five hundred. The exact identity of each class member in this case is on file in this Court. 77. Members of the Class are so numerous that joinder of all of them is impracticable. 78. There are numerous questions of law and fact common to the Class. Such common questions include, but are not limited to: (a) the acts and practices of conspirators in the scheme described in paragraphs 15 through 74 above; (b) the fraudulent and illegal nature of the conspirators’ practices; (c) the contractual, conspiratorial and illegal relationships among conspirators; (d) the applicability of Public Law 91-452 to the activities of the conspirators; (e) the existence of an ‘‘enterprise’’ and a pattern of unlawful activity with respect to conspirators under that law; (f) the commission by conspirators of numerous acts of mail fraud in furtherance of their scheme; (g) the violation of state common law and state statutory provisions by all conspirators in a uniform and fraudulent scheme; (h) whether the repossessed vehicles were sold in a commercially reasonable manner; (i) whether TranSouth sent or directed the sending of knowingly false letters through the mail. 79. Plaintiffs are members of the Class, and their claims are typical of other class members’ claims in that, like all class members, each named plaintiff purchased a car from CFAW, financed the purchase of that car through TranSouth, defaulted on the loan, received improper, fraudulent and deceptive notices of private sale from TranSouth, were sued or threatened with suits for deficiencies by JB, using fraudulent and fictitious figures to calculate an alleged deficiency, and were denied a credit or surplus of the sums actually resulting from subsequent sales. In many cases, their repossessed cars were subsequently sold by CFAW at prices which far exceeded the prices used to set the alleged deficiencies, and far exceeded the amount owed by the defaulting purchaser at the time of the default, but no surplus sums were paid to them.

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son’’ within the meaning of 18 U.S.C. §§ 1961 (3) and 1962 (a). 90. Through the repurchase agreement and other agreements between TranSouth and CFAW, and through the contractual arrangement and joint management activity between CFAW and JB, defendant formed an association-in-fact with the other conspirators which constitutes an ‘‘enterprise’’ engaged in illegal activities affecting interstate commerce pursuant to 18 U.S.C. §§ 1961(4) and 1962(a). 91. Each of the conspirators was associated with this ‘‘enterprise’’ and did use or invest income derived from a pattern of unlawful activity under 18 U.S.C. §§ 1961(1) and (5) to operate, maintain control of, and maintain an interest in the enterprise. 92. These unlawful activities included multiple instances of mail fraud in the issuance of false and deceptive notices of private sale, multiple instances of mail fraud in the issuance of false and deceptive demand letters, multiple instances of mail fraud in the issuance and collection of unconscionably and fraudulently high premiums on force placed insurance, multiple instances of mail fraud in the receipt of sums representing kickbacks of premiums from the insurer or broker, and multiple instances of mail fraud in the issuance of service of process and pleadings on named plaintiffs and Class members herein in improper deficiency suits filed against them in General District Courts in Virginia, all in violation of 18 U.S.C. §§ 2, 1341. 93. The purpose of the defendant’s and conspirators’ associationin-fact was to sell cars, to sell fraudulently high force placed insurance, and to give effect to the ‘‘revolving repossession’’ and ‘‘churning’’ scheme described above. This association-in-fact by defendant and the other conspirators enabled them to sell cars and force placed insurance and to defraud the public by selling and reselling used cars at very high prices and exorbitant interest rates; defendant and the other conspirators were then able to create improperly calculated deficiencies after default, and to collect deficiencies which were not properly due while CFAW actually resold the used cars to new customers, thereby starting the churning cycle once again. 94. The association-in-fact had a common or shared purpose, that is to sell cars, to sell force placed insurance, to defraud members of the public, to give effect to the ‘‘revolving repossession’’ and ‘‘churning’’ scheme described above, and had a distinct division of labor. It continued as a unit, with a core membership, over a substantial period of time and was an ongoing organization established for an economic motive. The association-in-fact remained viable and active at the time this action was filed. 95. In this association-in-fact, CFAW made the initial contact with the consumer through advertising in commercial media. CFAW set the initial price for the car, and, with TranSouth, the initial interest rate on loans and terms of repayment. 96. CFAW actively participated in and negotiated the terms of its repurchase agreement(s) with TranSouth. The improper use of repurchase agreements permitted CFAW and TranSouth to create artificially low bid or transfer prices for repossessed cars, and these bid prices were then used to calculate improperly inflated deficiency amounts upon default by customers. 97. CFAW also participated in repossession of the vehicles by contracting with TranSouth to repossess cars and to hold them on CFAW lots pending formal transfer of title from TranSouth back to CFAW. 98. CFAW and TranSouth played a substantial role in initiating collection actions and in the issuance of false and fraudulent

80. Plaintiffs are adequate representatives of the Class’ interests in that they will and have vigorously pursued this action on behalf of the entire Class, have no conflicts with the Class, have interests completely coincident with the Class’ interests, and have retained experienced Class counsel to represent them. 81. Questions of law and fact common to the Class, including the legal and factual issues relating to operation of the scheme described herein by defendant, and the liability and the nature of the relationships among the conspirators, predominate over any questions affecting only individual members. 82. A class action is superior to other available methods for the fair and efficient adjudication of this controversy: the Class is readily definable, and can be easily identified by examination of defendant’s records; prosecution of this case as a class action will eliminate the possibility of repetitious litigation and will provide redress for claims which otherwise may be too small to support the expense of individual, complex litigation against the defendants; there are no problems which would make this case difficult to manage as a class action. CIVIL RICO SUMMARY 83. In connection with the activities giving rise to this action, the defendant acted with malice, intent, and knowledge, and with a wanton disregard of the rights of named plaintiffs and the Class herein. 84. During relevant times herein, the ‘‘enterprise’’ described below was engaged in interstate commerce in that inter alia, the used cars which are the subject of the scheme to defraud were used and transported in interstate commerce. 85. During relevant times herein, in connection with the activities giving rise to this action, the defendant conspired with each of the other conspirators to engage in the various activities set forth herein, agreed to participate in the operation of the conspiracy to defraud the named plaintiffs and Class members herein, and aided and abetted one another in these activities, all as proscribed as set forth further herein below. 86. As set forth herein, during the relevant times, and in furtherance of and for the purpose of executing the scheme and artifice to defraud, the defendant and conspirators on numerous occasions used and caused to be used mail depositories of the United States Postal Service by both placing and causing to be placed mailable matters in said depositories and by removing and causing to be removed mailable matter from said depositories. Each such use of the U.S. mails in connection with the scheme and artifice to defraud constituted the offense of mail fraud as proscribed and prohibited by 18 U.S.C. §§ 2, 1341. These instances of mail fraud were a substantial factor in the sequence of responsible causation; and the injuries to plaintiffs and the class were reasonably foreseeable or anticipated as a natural consequence of the mail fraud; and plaintiffs and the class suffered damages by reason of the mail fraud. FIRST CLAIM FOR RELIEF— VIOLATION OF FEDERAL LAW—18 U.S.C. § 1962(a) 87. The allegations of paragraphs 1 through 86 are incorporated herein by reference as if fully set forth. 88. Each Plaintiff and each class member is a ‘‘person’’ within the meaning of 18 U.S.C. §§ 1961(3) and 1964(c). 89. The Defendant and each of the other conspirators is a ‘‘per-

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demand letters by JB to customers who had defaulted in that CFAW and TranSouth set the fraudulent price which was used as the basis of the amount sought as a deficiency. 99. Surplus monies received over and above actual deficiencies in subsequent sales of repossessed cars to the general public off CFAW used car lots should have been refunded to the previous consumer in this scheme, but were not. These improperly retained funds were then reinvested in the enterprise alleged herein and used in its operation. 100. TranSouth utilized this scheme to generate a large volume of very high interest loans with little or no appreciable risk. To further the scheme, TranSouth issued false and deceptive notices of private sale which were intended to and which did mislead the public about its repossession and redemption rights. 101. Each member of the class was sent TranSouth’s notices. 102. TranSouth’s notices (which contained fraudulent and false statements made to plaintiffs and members of the class) and private ‘‘sales’’ were intended to and did assure the plaintiffs herein and the class that the repossession and liquidation of their collateral was proceeding legitimately and legally, and influenced the plaintiffs and the class to accept the process without question, thus depriving plaintiffs and the class of the opportunity to assert a meritorious defense to JB’s deficiency suit or seek other available legal remedies. The plaintiffs and members of the class received the impression from the TranSouth ‘‘notice of sale’’ letter that the liquidation of their collateral was proceeding legally and legitimately. Plaintiffs and the class members did not learn from the notices the fact that TranSouth’s operation was not proceeding according to law. If plaintiffs and the class members had then suspected that TranSouth’s operation was illegal and illegitimate, they would have sought the assistance of counsel to protect their interests and secure their rights under the law. None of plaintiffs or class members did seek the assistance of counsel, however, because of their reasonable reliance upon the deceptive notices of sale. No member of the class redeemed his or her automobile. Plaintiffs’ and the Class’ reasonable reliance on the notices of private sales (by not asserting a meritorious defense or seeking other remedies) enabled the scheme to continue, and thus was one proximate cause of the damages suffered by plaintiffs and the class. 103. TranSouth’s false and fraudulent notices of private sale furthered the purposes of the enterprise described herein, that is, to generate subsequent sales of the same cars for CFAW at inflated prices, to generate a high rate of force placed insurance, to create improper deficiency amounts which CFAW attempted to collect through JB, and to permit CFAW to retain and reinvest surplus funds otherwise owed to class members as a result of postrepossession sales. TranSouth participated in a massive fraud, an illegal and profitable scam, which took advantage of the plaintiffs’, and the class’ reasonable reliance on the apparent legitimacy of the operation. 104. JB’s role in this scheme was to issue deceptive, threatening demand letters, and to pursue collection actions against consumers who have defaulted. The dunning letters, threats, and collection actions had as their bases the improperly calculated deficiency amounts based on the repurchase transaction and the contractual, conspiratorial, and fraudulent transfer of collateral between TranSouth and CFAW. The class relied upon the JB dunning letter as establishing that the liquidation of their collateral announced by the earlier fraudulent TranSouth ‘‘notice of sale’’ letter had proceeded legally and legitimately.

Appx. D.10
105. JB then proceeded to collect or attempt to collect sums from consumers which were not properly due under the law. These sums were then invested in the enterprise described herein and used in its operation. CFAW actually sold the repossessed cars on the open market at prices which either resulted in surpluses which were never paid the defaulting purchaser, or in much smaller actual deficiencies which were never revealed or credited to the defaulting purchaser. TranSouth again financed the high interest rate subsequent loans, at no risk, for a huge profit. 106. All of these activities of the association-in-fact form a pattern, continuous in nature, which consists of numerous unlawful individual acts directed to each named plaintiff and to each class member. The illegal activities of defendants persisted over an extended period of time. Each fraudulent letter and notice by TranSouth, each fraudulently high force placed insurance premium invoice, each receipt of a kickback from the broker or insurer, and each fraudulent letter and pleading by JB were acts in furtherance of the conspiracy for which the defendant is liable. The reliance of the plaintiff and the members of the class on the falsehoods contained in such documents, and on the omissions of information such as the subsequent sales price of the repossessed vehicles, was reasonable and justified because such documents would and did cause persons of ordinary experience to be convinced of the legality and regularity of the process and to refrain from defending what appeared to be a justifiable lawsuit. 107. These activities of the defendant and other conspirators entailed multiple instances of mail fraud consisting of intentional mail fraud intended to induce, and inducing, plaintiffs and the class to part with property and/or to surrender legal rights in violation of 18 U.S.C. §§ 2, 1341. 108. Through the use of this illegal and fraudulent scheme, and through its efforts to operate and maintain the enterprise described herein and to maintain the conspiracy to churn vehicles, and to create illegal profits, the defendant and other conspirators have been able to retain money which is rightfully payable to plaintiffs and Class members, and to collect money not properly due from plaintiffs or Class members. 109. Defendant and the other conspirators retained these illegally gained funds and reinvested and used those funds in their operations in violation of 18 U.S.C. §§ 2, 1962(a). 110. Plaintiffs and all class members have been injured in their property by reason of the operation of the enterprise in this unlawful manner. WHEREFORE, plaintiffs seek judgment against the defendant, on behalf of themselves and the Class herein, consisting of their actual damages suffered as a result of the illegal acts set forth herein, including amounts improperly collected from them pursuant to deficiency judgments obtained by JB Collection, amounts improperly collected through payment of force placed insurance premiums, and surplus amounts received by CFAW on the resale of cars transferred to CFAW by TranSouth, plus treble damages, plus reasonable costs and attorneys’ fees, plus pre and post judgment interest, plus such further relief as this Court deems appropriate. SECOND CLAIM FOR RELIEF— VIOLATION OF FEDERAL LAW—18 U.S.C. § 1962(c) 111. The allegations of paragraphs 1–110 are incorporated herein by reference as if fully set forth. 112. Each Plaintiff and each class member is a ‘‘person’’ within

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123. Each named plaintiff and each Class member has suffered injury to his property within the meaning of 18 U.S.C. § 1964(c) by reason of the commission of overt acts constituting illegal activity in violation of 18 U.S.C. §§ 1961(1), 1962(d). WHEREFORE, plaintiffs seek judgment against defendant TranSouth, on behalf of themselves and the Class herein, consisting of their actual damages suffered as a result of the illegal acts set forth herein, including amounts improperly collected from them pursuant to deficiency judgments obtained by JB, amounts improperly collected through payment of force placed insurance premiums, and surplus amounts received by CFAW on the resale of cars transferred to CFAW by TranSouth, plus treble damages, plus reasonable costs and attorneys’ fees, plus pre and post judgment interest, plus such further relief as this Court deems appropriate. FOURTH CLAIM FOR RELIEF— VIOLATION OF FEDERAL LAW—18 U.S.C. § 1962(d) 124. The allegations in paragraphs 1-123 are incorporated herein by reference as if fully set forth. 125. Plaintiffs and each class member are ‘‘persons’’ within the meaning of 18 U.S.C. §§ 1961(3) and 1964(c). 126. Defendant and each other conspirator are ‘‘persons’’ within the meaning of 18 U.S.C. §§ 1961(3) and 1962(d). 127. The association-in-fact described in the ‘‘First Claim for Relief’’ above was an ‘‘enterprise’’ within the meaning of 18 U.S.C. §§ 1961(4) and 1962(c), which enterprise was engaged in, and the activities of which affect, interstate commerce. 128. Defendant was associated with and participated in the operation of the enterprise and conspired within the meaning of 18 U.S.C. § 1962(d) to violate 18 U.S.C. § 1962(c). Defendant conspired with the other conspirators to conduct or participate, directly or indirectly, in the conduct of the affairs of the enterprise in relationship to the Class and to named plaintiffs, through a pattern of unlawful activity, including under 18 U.S.C. § 1961(1), inter alia, multiple instances of mail fraud in violation of 18 U.S.C. §§ 2, 1341. 129. Each named plaintiff and each Class member has suffered injury to his property within the meaning of 18 U.S.C. § 1964(c) by reason of the commission of overt acts constituting illegal activity in violation of 18 U.S.C. §§ 1961(1), 1962(d). WHEREFORE, plaintiffs seek judgment against TranSouth on behalf of themselves and the Class herein, consisting of their actual damages suffered as a result of the illegal acts set forth herein, including amounts improperly collected from them pursuant to deficiency judgments obtained by JB Collection, amounts improperly collected through payment of force placed insurance premiums, and surplus amounts received by CFAW on the resale of cars transferred to CFAW by TranSouth, plus treble damages, plus reasonable costs and attorneys’ fees, plus pre and post judgment interest, plus such further relief as this Court deems appropriate. FIFTH CLAIM FOR RELIEF— VIOLATION OF THE VIRGINIA UNIFORM COMMERCIAL CODE 130. The allegations of paragraphs 1 through 129 are incorporated herein by reference as if fully set forth. 131. All of the cars purchased by the named plaintiffs and by Class members herein from CFAW were ‘‘consumer goods’’ as set forth in § 8.9-109 of the Code of Virginia.

the meaning of 18 U.S.C. §§ 1961(3) and 1964(c). 113. Defendant and each of the other co-conspirators are ‘‘persons’’ within the meaning of 18 U.S.C. §§ 1961(3) and 1962 (c). 114. The association-in-fact described in the ‘‘First Claim for Relief’’ above was an ‘‘enterprise’’ within the meaning of 18 U.S.C. §§ 1961(4) and 1962(c), which enterprise was engaged in, and the activities of which affect, interstate commerce. 115. Defendant was associated with the enterprise through its repurchase agreement, and its fraudulent force placed insurance and kickback scheme, and participated in its management and operation by directing its affairs and by executing the repurchase agreement and assisting in the car churning scheme. The defendant participated, directly and indirectly, in the conduct of the enterprise’s affairs through a pattern of unlawful activity under 18 U.S.C. § 1961 (1), consisting of multiple acts of mail fraud, in violation of 18 U.S.C. §§ 3, 1341. 116. The unlawful activity described in the foregoing paragraphs consists of multiple instances of mail fraud in violation of 18 U.S.C. §§ 2, 1341, including, inter alia, issuance of illegal, deceptive and fraudulent notices of private sale by TranSouth to customers of CFAW, the issuance of multiple illegal, deceptive and fraudulent invoices for force placed insurance, the receipt of multiple illegal and fraudulent kickbacks, and the issuance of illegal, deceptive and fraudulent demand letters, pleadings and process by JB with respect to collection actions against defaulted CFAW customers. WHEREFORE, plaintiffs seek judgment against TranSouth on behalf of themselves and the Class herein, consisting of their actual damages suffered as a result of the illegal acts set forth herein, including amounts improperly collected from them pursuant to deficiency judgments obtained by JB, amounts improperly collected through payment of force placed insurance premiums, and surplus amounts received by CFAW on the resale of cars transferred to CFAW by TranSouth, plus treble damages, plus reasonable costs and attorneys’ fees, plus pre and post judgment interest, plus such further relief as this Court deems appropriate. THIRD CLAIM FOR RELIEF— VIOLATION OF FEDERAL LAW—18 U.S.C. § 1962(d) 117. The allegations of paragraphs 1–116 are incorporated herein by reference as if fully set forth. 118. Plaintiffs and each member of the Class are ‘‘persons’’ within the meaning of 18 U.S.C. §§ 1961(3) and 1964(c). 119. The defendant and the other conspirators are ‘‘persons’’ within the meaning of 18 U.S.C. §§ 1961(3) and 1962(d). 120. The association-in-fact described in the ‘‘First Claim for Relief’’ above was an ‘‘enterprise’’ within the meaning of 18 U.S.C. §§ 1961(4) and 1962(a), which enterprise was engaged in, and the activities of which affect interstate commerce. 121. The defendant and each of the other conspirators were associated with the enterprise described herein, and conspired within the meaning of 18 U.S.C. § 1962(d) to violate § 1962(a). 122. Defendant and the other conspirators conspired to use or invest income derived from a pattern of unlawful activity under 18 U.S.C. § 1961 (1) to operate, maintain control of, and maintain an interest in the enterprise and have done so through a pattern of unlawful activity including under 18 U.S.C. § 1961(1), inter alia, multiple instances of mail fraud in violation of 18 U.S.C. §§ 2, 1341.

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Sample Complaints
132. All of the used car purchases by named plaintiffs and Class members herein were financed under security agreements prepared by CFAW on forms provided by or approved by TranSouth and assigned by CFAW to TranSouth. 133. Under the alleged authority of the terms of the financing and security agreements executed between the named plaintiffs and CFAW, and between each Class member and CFAW, the ‘‘consumer goods’’ of each named plaintiff and of each class member were repossessed by TranSouth, with the assistance and/or participation of CFAW, upon the plaintiffs’ and Class members’ default on their loans. 134. Pursuant to the terms of repurchase agreements between CFAW and TranSouth, CFAW paid the outstanding balance on each named plaintiff’s and each class member’s loan and received from TranSouth a transfer of the repossessed collateral. 135. In each of the named plaintiff’s cases, and in the case of each Class member, the transfer of collateral was wrongfully treated by defendant and the conspirators as a commercially reasonable sale pursuant to the Virginia Uniform Commercial Code. In fact, the sales were not commercially reasonable and could not properly be treated as such by CFAW, TranSouth or JB, which pursued collection actions against named plaintiffs and against each Class member herein. 136. In the course of each transaction described above, defendant TranSouth sent a misleading, deceptive and fraudulent notice of private sale to each named plaintiff and to each Class member stating that a bona fide private ‘‘sale’’ was to be held (which violates §8.9-504(5) of the Code of Virginia) and stating falsely that plaintiffs had until a particular date to redeem their collateral (which violates §8.9-506 of the Code of Virginia). 137. In the course of each transaction described above, defendant JB sent a misleading, deceptive and fraudulent demand letter to each named plaintiff and each Class member. 138. Defendant and the conspirators have violated and conspired to violate the provisions of Sections 8.9-101 et seq. of the code of Virginia by, inter alia: a. failing to give proper notice to each named plaintiff and each Class member of private/public sales of repossessed collateral; b. misleading each named plaintiff and each Class member regarding their rights of redemption; c. failing to account properly for any surplus which was obtained by defendants in actual private sales of collateral by CFAW to third parties; d. failing to deal with named plaintiffs and each Class member in good faith; e. failing to hold a commercially reasonable sale of repossessed collateral with respect to each named plaintiff and each Class member. 139. These violations caused plaintiffs to suffer actual damages. WHEREFORE plaintiffs seek judgment against defendant TranSouth, on behalf of themselves and the Class herein, for all sums due them after the sales of their repossessed cars by CFAW pursuant to the terms of the Virginia Uniform Commercial Code, including any surplus sums received by CFAW on resale of repossessed cars, plus a sum equal to the credit service charge imposed on each of them, plus 10% of the principal pursuant to § 8.9-507 of the Code of Virginia, plus pre and post judgment interest, plus such further relief as this Court deems appropriate.

Appx. D.10
SIXTH CLAIM FOR RELIEF— VIOLATION OF THE VIRGINIA CONSUMER PROTECTION ACT 140. The allegations of paragraphs 1 through 139 are incorporated herein by reference as if fully set forth. 141. The sales and subsequent repossessions of the vehicles described herein were consumer transactions as defined in § 59.1198(A) of the Code of Virginia, otherwise known as the Virginia Consumer Protection Act of 1977. 142. The defendant engaged and conspired to engage in deceptive and fraudulent practices under that Act by, inter alia: a. misrepresenting to the named plaintiffs and to Class members, or failing to inform named plaintiffs or class members of the time, place and nature of proper repossession sales with respect to their consumer goods; b. misleading the named plaintiffs and Class members herein regarding their rights of redemption; c. failing to account for surplus achieved by defendants in actual private sales after repossession of the cars purchased by named plaintiffs and Class members herein; d. failing to deal with the named plaintiffs and Class members in good faith; e. failing to hold a commercially reasonable sale of repossessed collateral with respect to each named plaintiff and each Class member herein; f. insuring the automobiles for more than they were worth, which is a consumer fraud and violates Virginia Insurance Law (38.2-124). 143. This wrongful behavior was conducted intentionally, for the sole benefit of defendant and the conspirators, with malice and with reckless disregard for plaintiffs’ and the class’ statutory and common law rights. WHEREFORE plaintiffs seek judgment against TranSouth, on behalf of themselves and the Class herein, for all sums due them after the sales of their repossessed cars by CFAW pursuant to the terms of the Virginia Uniform Commercial Code, as well as attorneys’ fees pursuant to § 59.1-204 of the Code of Virginia, plus pre and post judgment interest, plus such further relief as this Court deems appropriate. SEVENTH CLAIM FOR RELIEF— COMMON LAW FRAUD AND CONSPIRACY 144. The allegations of paragraphs 1 through 143 are incorporated herein by reference as if fully set forth. 145. The defendant and other conspirators knowingly, maliciously and intentionally conspired to induce or coerce the named plaintiffs and the Class members herein to fail to assert meritorious defenses to the deficiency claims and actions, or to seek other available legal remedies, and/or to pay deficiency amounts to them, when the deficiencies had been intentionally miscalculated by defendant, and when no commercially reasonable sale of repossessed vehicles occurred as required under the law of Virginia. 146. Plaintiffs and Class members herein reasonably relied to their detriment upon fraudulent misrepresentations of and omissions by the defendant and the other conspirators as set forth, inter alia, in notices of private sale, demand letters, JB demand letters and pleadings and summonses sent to each of them. 147. Defendant and the other conspirators deliberately concealed from plaintiffs, and from all Class members, the fact that the

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Appx. D.10

Consumer Class Actions: A Practical Litigation Guide
(15%) of the net worth of Defendant TranSouth in punitive damages, plus pre and post judgment interest, plus such further relief as this Court deems appropriate. JURY DEMAND Plaintiffs request that their claims be tried before a jury. By: TRIAL LAWYERS FOR PUBLIC JUSTICE Exhibit List [not reprinted herein]

amount of the deficiency as to each repossessed vehicle was calculated upon artificially low transfer prices set between TranSouth and CFAW under the terms of a repurchase agreement between TranSouth and CFAW. 148. The acts of defendant described herein were done with malice and reckless disregard for the rights of the named plaintiffs and Class members herein. WHEREFORE plaintiffs seek judgment against TranSouth for themselves and for all class members, consisting of all sums received by CFAW in the sales of cars which had been repossessed from plaintiffs and Class members herein, as well as fifteen percent

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