United States: The Voluntary Payment Rule: A Powerful Defense Tool In An Appropriate Case

Last Updated: October 28 2004
Article by Diane A. Bettino

In December 2003, a New Jersey trial court granted summary judgment based on the Voluntary Payment Rule to the defendant, BMW Financial Services, NA, LLC, in a putative class action: William Paness v. BMW Financial Services, NA, LLC, N.J. Sup. Ct. Docket L-1182-002 (Dec. 5, 2003). In that case, the plaintiff alleged that the fee he paid to terminate his BMW lease early—10 months into the 36-month lease—was an unreasonable penalty in violation of Article 2A of the Uniform Commercial Code. BMW Financial Services argued that the claim was barred by the plaintiff’s voluntary payment of the early termination charge. The trial court agreed, finding that the plaintiff had knowledge of the necessary facts for application of the Voluntary Payment Rule. Plaintiff did not appeal the dismissal of the case.

The Voluntary Payment Rule is an equitable defense based on the general common law rule that a person cannot recover money which he has voluntarily paid with full knowledge of the facts. The Rule charges the claimant with knowledge of the law, even arcane law such as tax law. In fact, the Rule has its origins in tax law, under the rationale that the government must be able to rely upon retention of previously collected funds for budgeting purposes.

A claimant may raise several defenses to the Rule. Although mistake of law will not prevent application of the Rules, mistake of fact will. In addition to mistake of fact, payments made under fraud, deception, duress or compulsion to prevent injury to one’s person, property or business will prevent application of the Rule. Such defenses—if proved—undermine the voluntariness of the payment.

The defense of duress has been used in various contexts to try to bar the Rule. In some jurisdictions, the Rule will not bar an action seeking to recover amounts paid for a necessity, under the rationale that such payments were made under duress. Compare Getto v. City of Chicago, 426 N.E.2d 844 (Ill. 1981) (telephone service in the home considered to be a necessity) with Dreyfus v. Ameritech Mobile Communications, Inc., 700 N.E.2d 162 (Ill. App. Ct. 1998) (cell phone service not considered to be a necessity). Threats of a lawsuit or damage to credit unless the disputed amount is paid have been held not to constitute duress. Cotton v. Med-Cor Health Information Solutions, 472 S.E.2d 92 (Ga. App. Ct. 1996). In the franchisor/franchisee context, the Rule did not bar claims for overcharges paid by a franchisee with knowledge of the unfounded nature of the overcharges under the rationale that the payments were made under business compulsion by a franchisee with inferior bargaining power. See Ross Systems v. Linden Dari-Delite, Inc., 173 A.2d 258 (N.J. 1961).

There is a distinction between mistake of law and mistake of fact. However, in some cases involving the Rule, the line between the two issues is blurred, and what is a mistake of law is sometimes argued and/or construed to be a mistake of fact. For example, in Putnam v. Time Warner Cable of Southeastern Wisconsin, LP, 649 N.W.2d 626 (Wisc. 2002), the plaintiff argued that he paid the cable late-fee under a mistake of fact because when he paid the fee, he did not know that it was not based on the actual cost incurred by the cable company for late payments. The Supreme Court of Wis- consin rejected that argument, calling it a "conflation" of mistake of fact and mistake of law. See also Horne v. Time Warner Operations, Inc., 119 F.Supp.2d 264 (S.D. Miss. 1999) (rejecting the claim that the plaintiff was under a mistake of fact and noting that ignorance of the facts is not a mistake of fact).

However, other courts have accepted the argument that the lack of knowledge that the disputed fee or charge was not related to actual harm is a mistake of fact sufficient to avoid application of the Rule. See TCI Cablevision of Dallas, Inc. v. Owens, 8 S.W.2d 837 (Tex. App. Ct. 2000); Durant v. Servicemaster Co., 159 F.Supp.2d 977 (E.D. Mich. 2001).

The Rule has been applied in recent years to matters between private parties, including financial services matters on issues such as cable television services, automobile leases, loans and mortgages. However, the Rule is generally not applicable or has more limited application in cases involving usury claims. See Luebke v. Moser, 598 N.E.2d 760 (Ohio App. Ct. 1991).

The Rule has been applied to claims for breach of contract, breach of the covenant of good faith and fair dealing, state deceptive practices acts, the Uniform Commercial Code, and unjust enrichment. The Rule has limited or no application to certain statutory claims. See, e.g., Scott v. Fairbanks Capital Corp., 284 F.Supp.2d 880 (S.D. Ohio 2003) (Rule does not apply to bar claims under the Fair Debt Collection Practices Act); Harper v. AT&T, 54 F.Supp.2d 1371 (S.D. Ga. 1999) (Rule does not bar claims under federal RICO); Lawson v. First Union Mortgage Company, 786 N.E.2d 279 (Ind. App. Ct. 2003) (Rule does not bar claims under state statutory law).

Depending on the facts pled, the development of the case, and an evaluation of various factors, including the court before which you find yourself and the characteristics and situation of the claimant, the Rule can be used at the motion-to-dismiss stage or the summary judgment stage. See, e.g., Horne v. Time Warner Communications, 119 F.Supp.2d 624 (S.D. Miss. 1999) (Rule applied to bar case on motion to dismiss); Hill v. Galaxy Telecom, L.P., 2000 U.S. Dist. LEXIS 2404 (N.D. Miss. 2000) (Rule applied to bar case on summary judgment motion). In some cases, full development of the facts on the merits of the individual plaintiff’s claim may be advisable before seeking to invoke application of the Rule. See Bova v. Cox Communications, Inc., 2002 U.S. Dist. LEXIS 4084 (W.D. Va. March 12, 2002) (Application of the Rule premature on a motion to dismiss as voluntariness of payment not apparent on the face of the complaint); Crain v. Lucent Technologies, 739 N.E.2d 639 (Ill. App. Ct. 2000) (Application of Rule denied at motion-to-dismiss stage because plaintiffs alleged the payment was not voluntary).

In addition to obtaining an outright dismissal of a case, the Rule has also been used as a tool to defeat class certification, thereby creating a tension for the plaintiff between defending against the application of the Rule and effectively representing the class. That is, a plaintiff must try to defend against application of the Rule by raising issues of fraud, duress, compulsion or mistake of fact, each of which may preclude class certification because of the highly individualized nature of the defenses. See Voyager Insurance Companies v. Whitson, 2003 Ala. LEXIS 143 (Alabama 2003) (class certification order vacated because individual issues predominate over common claims); Munsey v. Cox Communications, 814 So. 2d 633 (La. App. Ct. 2002) (Rule did not bar class certification and issue can be determined at trial).

The Rule is not appropriate in all cases and is not welcomed by all courts. However, in the appropriate case, with the appropriate facts, the Rule may serve to be a powerful defense tool, as demonstrated in the BMW case mentioned at the outset of this article. The trial court in the BMW case succinctly summarized the purpose and application of the rule:

The idea is, it’s a stop, look and listen. The plaintiff listened but he didn’t stop and he didn’t take any other action. And I don’t want to say shame on the plaintiff, but the voluntary payment rule does disqualify plaintiff’s claim.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Diane A. Bettino
 
In association with
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Law Practice Management
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.