You are on page 1of 79

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 1 of 24

(1 of 25)

No. 10-16487 _________________________________ IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT __________________________________

KATHRYN MCOMIE-GRAY Plaintiff Appellant v. BANK OF AMERICA HOME LOANS Defendant-Appellee ___________________________________ On Appeal From The United States District Court Eastern District of California ___________________________________ APPELLANTS OPENING BRIEF ___________________________________ Daniel J. Mulligan JENKINS MULLIGAN & GABRIEL LLP 10085 Carroll Canyon Road, Suite 210 San Diego, CA 92131 (415) 982-8500 Pamela D. Simmons LAW OFFICES OF SIMMONS & PURDY 2425 Porter Street, Suite 10 Soquel, CA 95073 (831) 464-6884

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 2 of 24

(2 of 25)

TABLE OF CONTENTS
I. II. III. IV. V. VI. VII. JURISDICTIONAL STATEMENT ....................................................................... 2 STATEMENT OF ISSUES ON APPEAL ............................................................. 2 STATEMENT OF THE CASE AND DISPOSITION BELOW ............................ 3 STATEMENT OF FACTS ..................................................................................... 4 SUMMARY OF ARGUMENT .............................................................................. 6 STANDARD OF REVIEW ................................................................................... 7 ARGUMENT.......................................................................................................... 7 A. The Statute Cannot Be Read To Require A Lawsuit Be Brought Within Three Years............. 7 Prior Controlling Decisions Compel The Conclusion That A Lawsuit Need Not Be Filed Within Three Years ........ 13 Authorities Are Split As to Whether Suit Need Be Filed Within Three Years 15

B.

C.

VIII.

CONCLUSION..................................................................................................... 18

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 3 of 24

(3 of 25)

TABLE OF AUTHORITIES
CASES Page Allen v. Beneficial Finance Co., 393 F.Supp. 1382 (N.D.Ind.1975) .................................................................................. 8 Basnight v.Diamond Developers, Inc., (2001) 146 F.Supp.2d 754 .......................................................................................... 7, 9 Beach v Ocwen Fed. Bank, 523 U.S. 410, 419 (1998).............................................................................................. 13 Blum v. Stenson, 465 U.S. 886, 896 (1984)................................................................................................ 8 Conley v. Gibson, 355 U.S. 41, 45-6, (1957) ............................................................................................... 7 Dole v. United Steelworkers, 494 U.S. 26, 35 (1990).................................................................................................... 8 Horton v. California Credit Corp. Retirement Plan, 2009 WL 700223 at (S.D.Cal.2009) ............................................................................ 17 Madura v. Countrywide Home Loans, Inc., 2008 WL 2856813 at * 13 (M.D.Fla.2008) .................................................................. 17 Miguel v. Country Funding Corp., 309 F.3d 1161 (9th Cir.2002) ....................................................................................... 14 Palmer v. Champion Mortgage, 465 F.3d 24, 27 (1st Cir.2006)...................................................................................... 16 Rae v. Union Bank, 725 F.2d 478, 479 (9th Cir.1984) ................................................................................... 7 Riggs v. Government Employees Financial Corp., 623 F.2d 68 (9th Cir. 1980) ............................................................................................. 8 Santos v. Countrywide Home Loans, 2009 WL 2500710 (E.D. Cal. 2009)............................................................................. 15 Sellers v. Wollman, 510 F.2d 119 (5th Cir.1975) ........................................................................................... 8 ii

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 4 of 24

(4 of 25)

United States v. Ron Pair Enters., 489 U.S. 235, 241 (1989)............................................................................................ 6, 8

STATUTES 1635(f)..................................................................................................................... 13, 15 1635................................................................................................................................. 14 12 C.F.R. 226.23 .................................................................................................... 7, 9, 15 15 U.S .C. 1640(e) ................................................................................................... 14, 16 15 U.S.C. 1635(a) ...................................................................................................... 9, 15 15 U.S.C. 1635(b) .................................................................................................... 10, 15 15 U.S.C. 1635(g) ........................................................................................................ 16 15 U.S.C. 1635(a) and (f).............................................................................................. 2, 6 15 U.S.C. 1640(e) ............................................................................................................. 2 531 F.2d 797 (7th Cir.1976) ............................................................................................... 8

OTHER AUTHORITIES 12 C.F.R. 226.23 ............................................................................................................. 10 Federal Truth in Lending Act, 15 U.S.C. 1635................................................................. 8 44 San Diego L. Rev. 611, 643-44 (2007)........................................................................ 12

iii

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 5 of 24

(5 of 25)

I. JURISDICTIONAL STATEMENT This is an appeal from a final judgment entered by the United States District Court, Eastern District of California. The underlying claim was brought under the Truth In Lending Act, 15 U.S.C. 1601, et.seq (TILA). The court below had jurisdiction pursuant to 15 U.S.C. 1640(e). Judgment was entered on June 23, 2010[ER 3]1. A timely notice of appeal was filed on July 6, 2010[ER 1]. II. STATEMENT OF ISSUES ON APPEAL TILA provides that a qualified borrower seeking to rescind a loan must do so by notifying the creditor, in accordance with regulations of the [Federal Reserve] Board, of his intention to do so within three years of the date of the loan transaction. TILA, 15 U.S.C. 1635(a) and (f). The issue on appeal is whether the statutory language of 15 U.S.C. 1635(a) and (f) and the regulations pertaining thereto require that the borrower also initiate a lawsuit within the three year period, in order to perfect his or her rescission rights.

All references are to the Appellants Excerpts of Record (ER) and the Docket (Dkt.) contained therein.
2

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 6 of 24

(6 of 25)

III. STATEMENT OF THE CASE AND DISPOSITION BELOW This is an action to enforce rescission rights under the Truth In Lending Act brought by the Plaintiff/Appellant Ms. McOmie-Gray (Plaintiff), 2 in connection with a first trust deed mortgage loan she obtained, which is purportedly now owned by Defendant/Appellee, Bank of America Home Loan (Defendant). The case was filed in the United States District Court, Eastern District of California on August 28, 2009 and assigned to the Hon. Morrison C. England [ER 11, Dkt. 2]. Defendant filed an initial motion to dismiss which was granted with leave to amend. [ER 12, Dkt. 15]. A First Amended Complaint was filed on March 30, 2010 [ER 12, Dkt. 16] and defendant again moved to dismiss; the sole basis for the motion was that the applicable statute of limitations had expired [ER 12, Dkt. 17]. The Court, without hearing, granted the motion to dismiss without leave to amend [ER, 13, Dkt. 25]. The Court ruled that the plaintiff waived her right to rescind under TILA, 15 U.S.C. 1635(a) and (f) by failing to file a lawsuit seeking rescission within three years of the making of the loan. Judgment was entered on June 23, 2010[ER 3]. A timely notice of appeal was filed on July 6, 2010 [ER 1].
2

For ease of reference, appellant will keep the designation used in the trial court.
3

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 7 of 24

(7 of 25)

IV. STATEMENT OF FACTS For purposes of this appeal, the underlying facts are undisputed, The facts are set forth in the First Amended Complaint [FAC, ER 12 Dkt. 16].3 Plaintiff is a 67 year old woman who owns and lives at the real property commonly described as 4631 23rd Street, Sacramento, California (hereafter the Property). The Property is Plaintiffs principal and family residence. On or about April 14, 2006, Plaintiff was presented with loan documents to sign in connection with the loan arranged by Paramount Equity Mortgage (hereafter Paramount) [FAC, 15]. The signing took place at Paramounts office located at 3013 Douglas Blvd., Suite 200, Roseville, California [FAC, 16] . Plaintiff signed several loan documents, including an Adjustable Rate Note in favor of Paramount and a Deed of Trust listing Paramount as the lender, which was later recorded, thereby securing Plaintiffs obligations under said Adjustable Rate Note [FAC, 18]. While at the Paramount office, on April 14, 2006, Plaintiff received a pre-copied set of loan documents, all unsigned [FAC, 16]. Included

Since this case was decided on a motion to dismiss, all facts pleaded were necessarily deemed true. In any event, Defendant did not challenge any of plaintiffs facts with respect to the timeline at issue here.
3

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 8 of 24

(8 of 25)

among these loan documents were two Notice of Right to Cancel forms with printed dates of April 14, 2006, as the date of the credit transaction. Neither of the forms indicated the date by which Plaintiff could cancel the credit transaction [FAC, 17].. After recordation of the Deed of Trust securing the loan, Paramounts beneficial interest in the loan was assigned to Countrywide Home Loans, Inc. (hereafter Countrywide) [FAC, 20]. Bank of America claims to own the note. On January 18, 2008, within three years after the funding of the loan, Plaintiff, through her attorney, sent notices of her rescission of the loan to Countrywide based on the fact that the Notices of Right to Cancel were improper [FAC, 22]. Countrywide and Bank of America initially refused to accept Plaintiffs valid notice of rescission but then negotiated with Plaintiff for over a year regarding the rescission. Eventually, Bank of America refused to take the required necessary actions and this litigation followed.
4

For purposes of settlement, the parties agreed to a tolling arrangement, tolling the statute of limitations through August 30, 2009. This agreement, however, was predicated on the borrower having one year from the date of the rescission notice to file an action. Bank of America did not stipulate to this position. In any event, the Court below did not consider this in its decision.
5

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 9 of 24

(9 of 25)

In deciding the issue, the court below made it clear that the only issue presented was whether a borrower must simply provide notice of rescission or file suit within three years: The issue before the Court, therefore, is whether Section 1635(f) of TILA provisions requires that Plaintiff file suit within a [sic] the three year period provided, or whether it simply requires providing a notice of rescission in that time.5 [Memorandum and Order, ER at 8]. It is Plaintiffs contention that this issue was decided incorrectly. V. SUMMARY OF ARGUMENT The language of the Truth In Lending Act can only be read, as a matter of statutory construction, to require that a borrower give notice of rescission to the creditor within three years of the loan transaction. There is no language in the statute that requires that a lawsuit be filed within the three year time period in order to perfect the borrowers rescission right. See, 15 U.S.C. 1635(a) and (f). The statute must be interpreted to give effect to the plain language of the statute as well as the statutory purpose. United States v. Ron Pair Enters., 489 U.S. 235, 241 (1989). The District Courts overlay of
5

In its Memorandum and Order, the Court stated that plaintiff had sent her rescission notice on January 18, 2006. [ER 8]. This was obviously a typographical error, taken from a similar error in plaintiffs amended complaint. The actual notice was sent within three years, on January 18, 2008, a fact neither party contested.
6

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 10 of 24

(10 of 25)

an additional requirement that a lawsuit for rescission must also be instituted within the three year period when no such language exists in the statute was error. See 12 C.F.R. 226.23(a)(3), Basnight v.Diamond Developers, Inc., (2001) 146 F.Supp.2d 754. VI. STANDARD OF REVIEW A District Court's ruling on a motion to dismiss for failure to state a claim upon which relief can be granted is reviewed de novo. Rae v. Union Bank, 725 F.2d 478, 479 (9th Cir.1984). A motion to dismiss should not be granted unless it appears that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-6, (1957). VII. ARGUMENT A. The Statute Cannot Be Read To Require A Lawsuit Be Brought Within Three Years The question presented here is a matter of statutory construction. The principles of statutory construction are well established. Such analysis always starts with the language of the statute itself. This starting point is the ending point when the statute clearly and unambiguously expresses

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 11 of 24

(11 of 25)

Congress' intent. United States v. Ron Pair Enters., 489 U.S. 235, 241 (1989). Particular phrases must be construed in light of the overall purpose and structure of the whole statutory scheme. Dole v. United Steelworkers, 494 U.S. 26, 35 (1990). A court looks to the legislative history if the statute is unclear. Blum v. Stenson, 465 U.S. 886, 896 (1984). The underlying statutory purpose here is very well established. The Truth in Lending Act serves the dual purpose of providing a remedy for harm to the monetary interests of individuals while serving to deter socially undesirable lending practices by penalizing those who violate its provisions. Riggs v. Government Employees Financial Corp., 623 F.2d 68 (9th Cir. 1980). In addition, the Truth in Lending Act and Regulation Z are to be construed liberally in favor of the consumer and strictly enforced because their purpose is to protect consumers. Sellers v. Wollman, 510 F.2d 119 (5th Cir.1975); Allen v. Beneficial Finance Co., 393 F.Supp. 1382 (N.D.Ind.1975), aff'd, 531 F.2d 797 (7th Cir.1976), cert. denied, 429 U.S. 885, 97 S.Ct. 237, 50 L.Ed.2d 166 (1976). The statute generally provides that a borrower has three days in which to rescind a transaction 15 U.S.C. 1635(a). However, it is also very clear that a borrower who does not receive proper notices retains an extended right to rescind, for three years. Specifically, and as pertinent here, the

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 12 of 24

(12 of 25)

Federal Truth in Lending Act, 15 U.S.C. 1635, as implemented by Regulation Z, requires that each borrower receive two copies of a properly completed Notice of Right to Cancel. 6 The critical information to be provided by that form is the time period during which the borrower can exercise the right to cancel. A consequence of this failure is that the right to rescind the Loan remains extant. Although TILA generally grants an obligor, in a transaction that is secured by the obligor's residence, the right to rescind the transaction within three business days of consummation, or within three days of delivery of the material disclosures, section 226.23 of Title 12 of the Code of Federal Regulations extends the time for cancellation from three days to three years if the creditor fails to give appropriate notice of the right to cancel to the obligor. 12 C.F.R. 226.23(a)(3). Basnight v.Diamond Developers, Inc., (2001) 146 F.Supp.2d 754. On how to rescind, the statute is also very clear. TILA, at section 1635, plainly states that a consumer, in order exercise their right of rescission, may do so by notifying the creditor, in accordance with

There are other requirements to be met to determine whether the transaction is covered by TILA at all, such as the fact that the loan was a refinance transaction and not a purchase money loan, and that the loan was made for consumer purposes. Defendant did not contest that this transaction was governed by TILA, and the trial court did not consider any such issues in making its ruling.
9

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 13 of 24

(13 of 25)

regulations of the [Federal Reserve] Board, of his intention to do so. 15 U.S.C. 1635(a); emphasis added. The referenced Federal Reserve Board's regulations state plainly that [t]o exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. 12 C.F.R. 226.23; emphasis added. The regulation does not state when a lawsuit need be filed nor does it even refer to filing a suit. Once a consumer exercises his or her right to rescission by providing timely written notice in accordance with the requirements of 12 C.F.R. 226.23, the creditor has twenty days to respond. See 15 U.S.C. 1635(b). Thus, the plain wording of the statute and the regulations pertinent thereto require only that the creditor be notified of the borrowers demand for rescission, not that a lawsuit be filed. Further, as noted, these provisions of the statute must be construed in light of the overall statutory scheme, including the regulations.7 Requiring only that the creditor be notified within three years is the only result consistent with the language of the statute. There is simply no requirement within the statutory language or the

TILA provides that the implementing regulations are set by the Federal Reserve Board. The regulations, commonly referred to as Reg Z, become an integral part of the statutory scheme. Ford Motor Credit v. Milhollin, 444 U.S. 555 (1980).
10

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 14 of 24

(14 of 25)

regulations that the borrower also file suit within the three-year period, as the District Court held. Requiring the institution of litigation within the three year period would also run counter to the intent of the statute. A key aspect of the consumer protections afforded by TILA, the rescission remedy was designed to be automatic, and the consumer was to enjoy its benefits without the need to take any affirmative action other than giving notice of rescission. The TILA Statute,8 the Regulations9 and the Official Staff Commentary10 and

When an obligor exercises his right to rescind under subsection (a) [i.e., gives Notice of Rescission] any security interest given by the obligorbecomes void upon such a rescission. Within 20 days after receipt of a notice of rescission, the creditor [shall pay the TILA Refund] and shall take any action necessary or appropriate to reflect the termination of any security interest created in the transaction. 15 U.S.C. 1635(b) (emphasis supplied)

Regulation Z, Section 226.23(d) provides: When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void Within 20 calendar days after receipt of a notice of rescission, the creditor shall take any action necessary to reflect the termination of the security interest.

(emphasis supplied) The Official Staff Commentary on Regulation Z provides, at Paragraph 15(d)(1):
10

11

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 15 of 24

(15 of 25)

controlling Ninth Circuit11 precedent all clearly contemplate that consequences will proceed automatically following the issuance of a notice of rescission, without any need for either the lenders consent or a Court determination, unless the lender timely disputes the validity of the notice of rescission (which did not occur in this case). Indeed, it appears that the burden of commencing litigation is on the lender/creditor, not the borrower. [C]onsumers effect rescission by giving notice to the creditor that they wish to rescind. A creditor has no discretion to deny a rescission request and must act on it; however, it may seek declaratory relief from a court where it disputes the validity of the rescission claim. . . Murken, Robert, Cant Get No Satisfaction? Revising How Courts Rescind Home Equity Loans

Any security interest giving rise to the right of rescission becomes void when the consumer exercises the right of rescission. The security interest is automatically negated (emphasis supplied). Yamamoto v. Bank of New York, 329 F.3d 1167 (9th Cir. 2003). The Ninth Circuit explained: The statute adopts a sequence of rescission and tender that must be followed unless the Court orders otherwise: within twenty days of receiving a notice of rescission, the creditor is to return any money or property and reflect termination of the security interests; when the creditor has met these obligations, the borrower is to tender the property. 329 F.3d. at 1170 (emphasis supplied).
11

12

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 16 of 24

(16 of 25)

Under the Truth in Lending Act, 77 Temp. L. Rev. 457, 482 (2004) (Upon receiving a consumers notice of rescission, if a creditor wishes to dispute it, it may immediately seek a declaratory judgment by a court that conclusively determines the validity of the rescission there is no other recourse.); and, see, Griffith, Elwin Lenders and Consumers Continue the Search for the Truth in Lending under the Truth in Lending Act and Regulation Z, 44 San Diego L. Rev. 611, 643-44 (2007). Both commentators suggest that the lender must comply or commence a declaratory relief action within the statutory 20-day period. Thus, TILA was specifically designed by Congress to be a self executing remedy. To require the filing of a suit, as opposed to requiring that the demand for rescission be brought within the three year period allowed, would violate the overall statutory scheme intended by Congress. B. Prior Controlling Decisions Compel The Conclusion That A Lawsuit Need Not Be Filed Within Three Years Other courts previously examining the statutory language have clearly indicated that the statute means only what it says: The demand for rescission must be made within three years. A key case on point is the United States Supreme Court decision in Beach v Ocwen Fed. Bank, 523 U.S. 410, 419 (1998), in which the Court ruled that the three-year period was

13

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 17 of 24

(17 of 25)

an absolute bar. In Beach, the Supreme Court examined the wording of the statute and specifically stated that subsection [1635(f)] says nothing in terms of bringing an action but instead provides that the right of rescission under the Act shall expire at the end of the time period. Beach v. Ocwen Federal Bank, 523 U.S. at 417 (emphasis added and additions in original omitted). Following Beach, the Ninth Circuit panel in Miguel v. Country Funding Corp., 309 F.3d 1161 (9th Cir.2002) (Miguel), concluded that when a borrower fails to provide the lender with a written notice of rescission, the borrower must bring suit for rescission within the three year period. As presented in Miguel: 1635(f) is a statute of repose, depriving the courts of subject matter jurisdiction when a 1635 claim is brought outside the three-year limitation period. Miguel 309 F.3d at 1164. As noted, the court in Miguel was only considering whether or not the threeyear period expired when no rescission demand had been sent to the creditor within that time period. The Court explicitly accepted the construction of rescission under TILA as enunciated by the Supreme Court; i.e., no suit is required within three years and that only a demand for rescission must be made within this period. The Miguel court expressly noted this:

14

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 18 of 24

(18 of 25)

Miguel argues that she should have been allotted an additional year in which to file suit after the expiration of the three-year period afforded by the statute. While Miguel is correct that 15 U.S .C. 1640(e) provides the borrower one year from the refusal of cancellation to file suit, that is not the issue before us. Rather, the issue is whether her cancellation was effective even though it was not received by the Bank-the creditor-within the three-year statute of repose.

Miguel 309 F.3d at 1165; emphasis added. C. Authorities Are Split As to Whether Suit Need Be Filed Within Three Years The case law on this issue on appeal is split, across the Circuits and even within this Circuit. However, many of the decisions, especially recently, appear somewhat pro forma, with little analysis of the statute or prior decisions. One of the exception and perhaps the best reasoned decision is presented by a decision issued by Chief Judge Ishi, of the Eastern District of California, in Santos v. Countrywide Home Loans, 2009 WL 2500710 (E.D. Cal. 2009)(Santos). Santos presented the very issue in this case, also on a motion to dismiss. In examining the question, Judge Ishi carefully examined the statutory language and reviewed the case law on point. After canvassing the decisions that hold that the three year period bars suits brought thereafter (Id. at *3) and the case law holding to the contrary (Id. at *4), Judge Ishi wrote:

15

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 19 of 24

(19 of 25)

The Supreme Court in Ocwen Federal Bank, the case the Miguel court relied on in concluded 1635(f) is a statute of repose, specifically states that subsection [1635(f) ] says nothing in terms of bringing an action but instead provides that the right of rescission under the Act shall expire at the end of the time period. Ocwen Federal Bank, 523 U.S. at 417 (emphasis added and additions in original omitted). Section 1635 clearly states that a consumer, in order exercise their right of rescission under TILA, need only notify the creditor, in accordance with regulations of the [Federal Reserve] Board, of his intention to do so. 15 U.S.C. 1635(a). The Federal Reserve Board's regulations state plainly that [t]o exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. 12 C.F.R. 226.23. The regulation does not state or even refer to filing a suit in federal court. Once a consumer exercises their right to rescission by providing timely written notice in accordance with the requirements of 12 C.F.R. 226.23, the creditor has twenty days to respond. See 15 U.S.C. 1635(b). The First Circuit and some district courts have held that failure to respond to the notice of rescission in compliance with 15 U.S.C. 1635(b) triggers the general one year statute of limitations for violations under TILA.FN1 See 15 U.S.C. 1635(g), 1640(e); Palmer v. Champion Mortgage, 465 F.3d 24, 27 (1st Cir.2006) (If a creditor does not respond to a rescission request within twenty days, the debtor may file suit in federal court to enforce the rescission right); Hunter, 400 B.R. at 662; Johnson, 451 F.Supp.2d. at 39-41. The court then went on to examine the applicable case law: Moreover, despite the Miguel court's broad language to the contrary, the court in Miguel explicitly accepts this construction of rescission under TILA. Immediately following the Miguel court's strong language barring TILA suits filed after the three year statute of repose, the court states: Miguel argues that she should have been allotted an additional year in which to file suit after the expiration of the three-year period afforded by the statute. While Miguel is correct that 15
16

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 20 of 24

(20 of 25)

U.S .C. 1640(e) provides the borrower one year from the refusal of cancellation to file suit, that is not the issue before us. Rather, the issue is whether her cancellation was effective even though it was not received by the Bank-the creditor-within the three-year statute of repose. Miguel 309 F.3d at 1165. This language has led some courts to cite Miguel for the proposition that hold plaintiffs have an additional year in which to file suit if creditors fail to properly respond to a consumers notice of rescission. Horton v. California Credit Corp. Retirement Plan, 2009 WL 700223 at (S.D.Cal.2009); Madura v. Countrywide Home Loans, Inc., 2008 WL 2856813 at * 13 (M.D.Fla.2008) (recognizing courts are split on whether a suit must be filed within three years and citing Miguel for allowing suits brought after the three year limitations period). The question before the Ninth Circuit in Miguel was not whether a plaintiff who had timely given notice could file suit outside the three year limitations period, but rather whether a plaintiff who had not timely given notice to the correct Defendant could substitute said Defendant outside the three year limitations period. Miguel is therefore not controlling on the issue before the court. Judge Ishi then ruled: The court finds that if Plaintiff-the borrower-had provided notice prior to the end of the limitations period on December 21, 2008, and Defendant-the creditor-did not properly respond to that notice, Plaintiff could file suit after the end of the three year period of repose but within the one year limitations period borrowed from Section 1640.

Santos at *4 -*5; emphasis added. As succinctly explained in Santos, the only reading of the statute that follows the plain language of TILA and supports its overall purpose is that a

17

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 21 of 24

(21 of 25)

rescission demand to the lender must be made within three years, not that suit must be filed within this period. VIII. CONCLUSION The question presented here has been debated in courts across the country in recent years with the explosion of litigation resulting from the mortgage crisis. The Districts courts decision in this case is directly contrary to the ruling in Santos. A definitive answer from this Court is thus needed to settle the issue presented. Based upon the plain reading of the statute, and the regulations, the answer should be that TILA only requires that a borrower demand rescission within three years. The District Courts decision should be reversed. WHEREFORE, Plaintiff respectfully requests that this matter be reversed and remanded.

Dated: October 28, 2010

Respectfully Submitted JENKINS MULLIGAN & GABRIEL LLP LAW OFFICES OF SIMMONS & PURDY By: /s/ Daniel J. Mulligan

18

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 22 of 24

(22 of 25)

STATEMENT OF RELATED CASES Pursuant to Circuit Rule 28-2.6, Plaintiff/Appellant states that she is not aware of any related cases pending in this Court.

/s/ Daniel J. Mulligan

19

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 23 of 24

(23 of 25)

CERTIFICATE OF COMPLIANCE

1. This brief complies with the type-volume limitation of Fed. R. App. 32(a)(7)(B) because this brief contains 3,954 words excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii). 2. This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirements of Fed. R. App. 32(a)(6) because this brief has been prepared in a proportionally spaced typeface using Microsoft Word Times New Roman 14 point type.

/s/ Daniel J. Mulligan

Attorney For Appellant

October 28, 2010

20

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-1

Page: 24 of 24

(24 of 25)

9TH Circuit Case Number 10-16487 CERTIFICATE OF SERVICE I hereby certify that I electronically filed the foregoing with the Clerk of the Court for the United States Court of Appeals for the Ninth Circuit by using the appellate CM/ECF system on October 28, 2010. I certify that all participants in the case are registered CM/ECF users and that service will be accomplished by the appellate CM/ECF system.

/s/ Daniel J. Mulligan

21

Case: 10-16487

10/28/2010

ID: 7527065

DktEntry: 7-2

Page: 1 of 1

(25 of 25)

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 1 of 51

(1 of 54)

DOCKET NO. 10-16487

IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT


KATHRYN MCOMIE-GRAY, Plaintiff-Appellant, vs. BANK OF AMERICA HOME LOANS, Defendant-Appellee.

____________________________
On Appeal From The United States District Court Eastern District of California

____________________________
RESPONSE BRIEF OF APPELLEE COUNTRYWIDE HOME LOANS, INC. Sued as Bank of America Home Loans

____________________________
James Goldberg Thomas E. Nanney Ori Edelstein BRYAN CAVE LLP Two Embarcadero Center San Francisco CA 94111 (415) 675-3400 tel. Counsel for Defendant-Appellee COUNTRYWIDE HOME LOANS, INC. Erroneously Sued as Bank of America Home Loans

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 2 of 51

(2 of 54)

CORPORATE DISCLOSURE STATEMENT Appellee Countrywide Home Loans, Inc., erroneously sued as Bank of America Home Loans, is wholly owned by Countrywide Financial Corporation. Countrywide Financial Corporation is wholly owned by Bank of America Corporation, which is a publicly traded company on the New York Stock Exchange under the symbol BAC.

Dated: August 15, 2011

Respectfully submitted, BRYAN CAVE LLP James Goldberg Thomas E. Nanney Ori Edelstein

By:

/s/ James Goldberg James Goldberg Counsel for Appellee COUNTRYWIDE HOME LOANS, INC. Erroneously sued as BANK OF AMERICA HOME LOANS

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 3 of 51

(3 of 54)

TABLE OF CONTENTS Page JURISDICTIONAL STATEMENT ..........................................................................1 ISSUES PRESENTED FOR REVIEW .....................................................................1 STATEMENT OF THE CASE..................................................................................1 STATEMENT OF FACTS AND PROCEDURAL HISTORY.................................3 STANDARD OF REVIEW .......................................................................................7 SUMMARY OF ARGUMENT .................................................................................8 ARGUMENT .............................................................................................................8 I. SECTION 1635(f) BARS TILA CLAIMS FILED MORE THAN THREE YEARS AFTER THE CONSUMMATION OF THE TRANSACTION .............................................................................................8 A. B. C. D. E. F. G. II. The District Courts Order Comports With Precedent From The Supreme Court And This Circuit ........................................................10 The District Courts Order Comports With the Plain Language of The Statute ......................................................................................14 The Majority Of District Courts Within This Circuit Agree With The District Court.......................................................................17 Other Federal Appellate Courts Agree With The District Court ........22 Legislative History Supports The District Courts Order ...................23 TILAs Statutory Scheme Supports The District Courts Order ........24 Public Policy Supports The District Courts Order ............................26

APPELLANTS ARGUMENTS FAIL .........................................................28 A. B. Sending Notice of Rescission Does Not Automatically Rescind the Loan ...............................................................................................29 Regulation Z Does Not Provide That A Claim Of Rescission May Be Filed More Than Three Years After Consummation Of The Loan..............................................................................................31 There is No Basis For Borrowing a One-Year Statute of
i

C.

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 4 of 51

(4 of 54)

Limitation for Damages.......................................................................32 D. Miguel Does Not Support the Argument that TILA Permits a Consumer to File a Claim for Rescission One Year after a Creditor Denies a Request for Rescission ...........................................35

III.

APPELLANTS TILA CLAIM IS BARRED EVEN UNDER APPELLANTS LEGAL THEORY..............................................................37

CONCLUSION ........................................................................................................38

ii

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 5 of 51

(5 of 54)

TABLE OF AUTHORITIES Page(s) Cases Alcaraz v. Block, 746 F.2d 593 (9th Cir. 1984) .................................................................................7 Alonzo v. ACF Prop. Mgmt., Inc., 643 F.2d 578 (9th Cir. 1981) .................................................................................7 American Mortgage Network, Inc. v. Shelton, 486 F.3d 815 (4th Cir. 2007) ...............................................................................22 Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998)............................................................................ 9, 10, 11, 22 Briosos v. Wells Fargo Bank, 737 F. Supp. 2d 1018 (N.D. Cal. 2010) ...............................................................17 Bruce v. United States, 759 F.2d 755 (9th Cir. 1985) .................................................................................7 Caligiuri v. Columbia River Bank Mortg. Group, 2007 WL 1560623 (D.Or. May 22, 2007) ...........................................................17 Cazares v. Household Fin. Corp., 2005 WL 6418178 (C.D.Cal. July 26, 2005).......................................................17 Dye v. Ameriquest Mortg. Co., 289 F. Appx. 941 (7th Cir. 2008) .......................................................................22 Falcocchia v. Saxon Mortgage, 709 F. Supp. 2d 860 (N.D. Cal 2010) ............................................... 17, 18, 20, 22 Fosson v. Palace (Waterland) Ltd., 78 F.3d 1448 (9th Cir. 1996) .................................................................................7 Gates v. Wachovia Mortg., FSB, 2010 WL 902818 (E.D. Cal. Feb. 19, 2010)................................................. 17, 30 Gonzalez v. HomeQ Servicing, 2010 WL 289303 (E.D. Cal. Jan. 15, 2010) ........................................................17 Horton v. California Credit Corp. Retirement Plan, 2008 WL 70023 (S. D. Cal. 2009) .......................................................................33

SF01DOCS\40727.3

iii

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 6 of 51

(6 of 54)

In re Chabot, 369 B.R. 1 (D. Montana 2007).............................................................................17 In re Groat, 369 B.R. 413 (B.A.P. 8th Cir. 2007)....................................................................23 In re Ramirez, 329 B.R. 727 (D. Kan. 2005) .................................................................. 14, 31, 32 Jackson v. S. California Gas Co., 881 F.2d 638 (9th Cir. 1989) .................................................................................7 Jozinovich v. JP Morgan Chase Bank, N.A., 2010 WL 234895 (N.D. Cal. Jan. 14, 2010) ........................................................18 King v. California, 784 F.2d 910 (9th Cir. 1986) ...............................................................................34 Kratz v. Countrywide Bank, 2009 WL 3063077 (C.D. Cal. Sept. 21, 2009) ....................................................31 Large v. Conseco Fin. Servicing Corp., 292 F.3d 49 (1st Cir. 2002) ........................................................................... 23, 30 Lee v. U.S. Bank, 2010 WL 2635777 (N.D. Cal. June 30, 2010) .....................................................18 Madura v. Countrywide Home Loans, Inc., 2008 WL 2856813 (M.D. Fla. 2008) ...................................................................33 Meyer v. Ameriquest Mortg. Co., 342 F.3d 899 (9th Cir. 2003) .................................................................................7 Miguel v. Countrywide Funding Corp., 309 F.3d 1161 (9th Cir. 2002) ..................................................................... passim Mitchell v. Bank of Am., 2011 WL 711579 (S.D. Cal. Jan. 31, 2011).........................................................18 Pearce v. Bank of Am. Home Loans, 2010 WL 2348637 (N.D. Cal. June 8, 2010) .......................................................18 Punzalan v. EMC Mortg. Corp., 2011 WL 1838778 (N.D. Cal. May 13, 2011) .....................................................17 Ramos v. Citimortgage, 2009 WL 86744 (E.D. Cal. Jan. 8, 2009) ............................................................17

iv

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 7 of 51

(7 of 54)

Rivera v. BAC Home Loans Servicing, L.P., 756 F. Supp. 2d 1193 (N.D. Cal. 2010) ........................................................ 17, 30 Sam v. Am. Home Mortg. Servicing, 2010 WL 761228 (E.D. Cal. Mar. 3, 2010) .................................................. 17, 30 Santos v. Countrywide Home Loans, 2009 WL 2500710 (E.D. Cal. Aug. 14, 2009)........................................ 18, 20, 33 Williams v. Wells Fargo Home Mortg., Inc., 410 F. App'x. 495, 2011 WL 395978 (3d Cir. 2011)................................... 22, 30 Wilson v. JPMorgan Chase Bank, NA., 2010 WL 2574032 (E.D. Cal. June 25, 2010) .....................................................17 Yamamoto v. Bank of New York, 329 F. 3d 1167 (9th Cir. 2003) ............................................................... 12, 14, 29 Yuba Consol. Gold Fields v. Kilkeary, 206 F.2d 884 (9th Cir. 1953) .................................................................................7 Statutes 15 U.S.C. 1635.............................................................................................. passim 15 U.S.C. 1635(a) ...................................................................................................8 15 U.S.C. 1635(b) .................................................................................................25 15 U.S.C. 1635(c) .......................................................................................... 25, 27 15 U.S.C. 1635(f).......................................................................................... passim 15 U.S.C. 1640................................................................................... 24, 33, 35, 36 15 U.S.C. 1640(a) .......................................................................................... 24, 33 15 U.S.C. 1640(a)(3).............................................................................................35 15 U.S.C. 1640(e) ......................................................................................... passim 28 USC 1291...........................................................................................................1 28 USC 1331...........................................................................................................1 Other Authorities S. REP. NO. 96-368, (1980) as reprinted in 1980 U.S.C.C.A.N. 236 ......................23 S. REP. NO. 96-73, (1980) as reprinted in 1980 U.S.C.C.A.N. 280 ........................23

SF01DOCS\40727.3

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 8 of 51

(8 of 54)

Rules Fed. R. App. P. 4(a)(1)(A) .........................................................................................1 Fed. R. Civ. P. 12(b)(6)..................................................................................... 4, 5, 7 Fed. R. Evid. 301 .....................................................................................................26 Regulations 12 C.F.R. 226 ........................................................................................................12 12 C.F.R. 226.23 ...................................................................................................31 12 C.F.R. 226.23(a)(2) ..........................................................................................31

vi

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 9 of 51

(9 of 54)

JURISDICTIONAL STATEMENT The District Court had jurisdiction under 28 USC 1331. This Court has jurisdiction under 28 USC 1291. The District Court entered final judgment for Defendants-Appellees on June 23, 2010. Appellant filed a Notice of Appeal on July 6, 2010. Fed. R. App. P. 4(a)(1)(A). ISSUES PRESENTED FOR REVIEW A. Did the District Court err when it dismissed Appellants claim

for rescission under the Truth in Lending Act, 15 U.S.C. 1635 et seq. (TILA), finding that Section 1635(f) required Appellant to file the claim within 3 years after entering into her mortgage loan? B. Even if Section 1635(f) does not bar Appellants claims, should

this Court affirm the District Courts order of dismissal because Appellant admittedly did not file her claim for rescission within one year and twenty days after giving notice of her intent to rescind the loan, as Appellant herself urges is required by Section 1640(e)? STATEMENT OF THE CASE In April 2006, Appellant entered into a mortgage loan with Appellees assignor. On August 27, 2009, Appellant filed a Complaint in the Eastern District of 1

SF01DOCS\40727.3

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 10 of 51

(10 of 54)

California seeking rescission of the mortgage loan based upon a purported violation of TILA. Appellees initial motion to dismiss was granted with leave to amend. Appellant filed a First Amended Complaint on March 30, 2010, again seeking rescission of the mortgage loan due to a purported violation of TILA. Specifically, Appellant alleged that in April of 2006, when entering into the mortgage loan, Appellees assignor failed to provide Appellant with two completed copies of a Notice of Right to Cancel and therefore violated TILA. On April 15, 2010, Appellee filed a Motion to Dismiss, arguing that Appellants claim for rescission under TILA was time-barred because 15 U.S.C. 1635(f) provides that [a]n obligors right of rescission [under TILA] shall expire three years after the date of consummation of the transaction . . . . On June 23, 2010, the District Court granted Appellees motion to dismiss without leave to amend. The District Court agreed with Appellee that Section 1635(f) barred Plaintiffs claim for rescission under TILA, relying upon precedent from the Supreme Court and the Ninth Circuit. The District Courts order comports with the best-reasoned decisions addressing the issue within the Ninth Circuit, as well as with decisions of other Circuit Courts. Legislative history and public policy also support the District Courts order. Moreover, even if Appellants TILA claim were not time-barred by

SF01DOCS\40727.3

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 11 of 51

(11 of 54)

Section 1635(f), this Court should still affirm the District Courts order because Appellant failed to file suit within one year and twenty days of giving notice of her intent to rescind, which bars her claim even under her own theory of borrowing the one-year limitation period for damages action under TILA. STATEMENT OF FACTS AND PROCEDURAL HISTORY On April 14, 2006, Appellant obtained a $340,000 mortgage loan from Paramount Equity Mortgage, Inc., (Paramount) to purchase property located at 4631 23rd Street, Sacramento, California. (Supplemental Excerpts of Record (SER) 3, First Amended Complaint (FAC) 15). Subsequently, Countrywide Home Loans, Inc. (CHL), acquired the loan. (SER 4, FAC 20). Appellant sent a notice of rescission of her loan to CHL on January 18, 2008. (SER 4, FAC 22). Appellant alleged that CHL denied that request. (Id.) Appellant further alleged that at some unspecified time Countrywide agreed to toll the statute of limitations with respect to her Truth in Lending Act claims. (SER 4, FAC 23). The agreement to toll the statute of limitations expired on August 30, 2009. (SER 4, FAC 23.) Appellant alleged no further details regarding the tolling agreement and did not attach a copy of the agreement to her First Amended Complaint. The referenced tolling agreement is a letter from CHLs attorney to

SF01DOCS\40727.3

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 12 of 51

(12 of 54)

Plaintiffs attorney, dated July 1, 2009. (SER 19-20, RJN, Ex. A.) It agreed to toll the statute of limitations for 60 days, from July 1, 2009 to August 31, 2009, and provided that it neither created nor waived any rights or remedies: Please accept this as BAC Home Loans agreement to toll the statute of limitations with respect to your clients alleged Truthin-Lending Act disclosure violation claims for a period of sixty (60) days from the date of this letter. . . . This agreement neither creates nor waives rights or remedies for or against any party. (Id.) On August 27, 2009, Appellant filed a Complaint in the Eastern District of California, Sacramento Division -- over 3 years, 4 months, and 1 week after signing her Note and Deed of Trust. (Excerpts of Record (ER) 11, Dkt. #2). Appellants sole claim sought rescission for a purported violation of TILA. (Id.) On September 18, 2009, Appellee filed a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), together with a Request for Judicial Notice of the signed loan documents. (ER 11, Dkt. # 11) Appellee argues that: (1) Plaintiff failed to allege tender; and (2) CHL had in its file a copy of a Notice of Right to Cancel which Plaintiff signed and acknowledged receiving at the consummation of the loan in April 2006, that has the proper dates filled in. (Id.) On March 11, 2010, the Court granted the Motion to Dismiss with leave to amend

SF01DOCS\40727.3

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 13 of 51

(13 of 54)

without oral argument. (ER 12, Dkt. # 15). Appellant filed her First Amended Complaint on March 30, 2010. (Supplemental Excerpts of Record (SER) 1-7, FAC). The First Amended Complaint again stated only a single claim for rescission under TILA. (Id.) Appellants claim was based on the allegation that neither of the two Notices of Right to Cancel she received indicated when her right to cancel expired. (Id.) On April 15, 2010, Appellee filed a Motion to Dismiss the First Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), accompanied by a Request for Judicial Notice of the Tolling Agreement referenced by the Second Amended Complaint. (SER 8-14, MTD FAC; SER 15-20, RJN). Appellee argued that Appellants claim for rescission under TILA was time-barred because 15 U.S.C. 1635(f) provides that [a]n obligors right of rescission [under TILA] shall expire three years after the date of consummation of the transaction . . . . (SER 11-14, MTD FAC). Appellee also argued that any tolling agreement was ineffective because Section 1635(f) is a statute of repose, depriving the Court of jurisdiction. (Id.) Finally, in its Reply Memorandum to Plaintiffs Opposition, Appellee argued that even if Section 1635(f) did not bar Appellants claim, it was barred by Section 1640(e) because Appellant admittedly did not file her lawsuit within one year after giving notice of her desire to rescind the loan, which she alleged occurred January 18, 2008. (SER 32-33, Reply Memorandum).

SF01DOCS\40727.3

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 14 of 51

(14 of 54)

Appellants Opposition to the Motion to Dismiss, filed on May 26, 2010, argued that she preserved her right to file a claim for rescission by sending a notice of rescission within three years of the consummation of her loan. (SER 24-27, Opp. to MTD FAC). Appellant did not oppose Appellees Request for Judicial Notice of the Tolling Agreement dated July 1, 2009, referenced in the Complaint. Appellant argued that after sending a notice of rescission within the three year period, she then had an additional year in which to file suit. (Id.) On June 23, 2010, the District Court granted Appellees motion to dismiss without leave to amend. (ER 4-9). The District Court agreed with Appellee that Section 1635(f) barred Appellants claim for rescission under TILA. (Id.) The District Court noted: The Supreme Court has held that Section 1635(f) completely extinguishes the right of rescission at the end of the three-year period. Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998). The Ninth Circuit subsequently made clear that [S]ection 1635(f) represents an absolute limitation on rescission actions; which bars any claims filed more than three years after the consummation of the transaction. Miguel v. Countrywide Funding Corp., 309 F.3d 1161, 1164 (9th Cir. 2002) (citing King v. California, 784 F.2d 910, 913 (9th Cir. 1986)). Therefore,

SF01DOCS\40727.3

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 15 of 51

(15 of 54)

Section 1635(f) is a statute of repose, depriving the courts of subject matter jurisdiction when a 1635 claim is brought outside the three-year limitation period. Id. The Court did not address the other points raised in the Motion to Dismiss. (Id.) STANDARD OF REVIEW The District Courts decision that Appellants claim under TILA is timebarred is subject to de novo review. A ruling on a motion to dismiss for failure to state a claim upon which relief can be granted is a ruling on a question of law. Alonzo v. ACF Prop. Mgmt., Inc., 643 F.2d 578, 579 (9th Cir. 1981) (citing Yuba Consol. Gold Fields v. Kilkeary, 206 F.2d 884, 889 (9th Cir. 1953)). In addition, this Court may affirm the District Courts decision on any ground fairly presented by the record. Meyer v. Ameriquest Mortg. Co., 342 F.3d 899, 902 (9th Cir. 2003)(citing Fosson v. Palace (Waterland) Ltd., 78 F.3d 1448, 1452 (9th Cir. 1996)). If the decision below on a motion to dismiss pursuant to Rule 12(b)(6) is correct, it must be affirmed, even if the district court relied on the wrong grounds or wrong reasoning. Jackson v. S. Cal. Gas Co., 881 F.2d 638, 643 (9th Cir. 1989) (citing Bruce v. United States, 759 F.2d 755, 758 (9th Cir. 1985); Alcaraz v. Block, 746 F.2d 593, 602 (9th Cir. 1984)).

SF01DOCS\40727.3

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 16 of 51

(16 of 54)

SUMMARY OF ARGUMENT The District Court correctly found that Appellants claim for violation of TILA is time-barred. Section 1635(f) mandates that Appellant must have filed a suit for rescission within three-years after entering into the mortgage transaction. The three-year statute of repose began to run on April 14, 2006. Because Appellant did not file her Complaint until August 27, 2009, over three years later, the claim is time-barred. Even if Appellants TILA claim were not time-barred by Section 1635(f), this Court should still affirm the District Courts order because Appellant failed to file suit within one year of giving notice of her intent to rescind, as Appellant herself urges is required by Section 1640(e). ARGUMENT I. SECTION 1635(F) BARS TILA CLAIMS FILED MORE THAN THREE YEARS AFTER THE CONSUMMATION OF THE TRANSACTION The Truth in Lending Act is codified at 15 U.S.C. 1635 et seq. Section 1635(a) provides: [I]n the case of any consumer credit transaction . . . in which a security interest . . . is or will be retained or acquired in any property which is used as the principal dwelling of the person

SF01DOCS\40727.3

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 17 of 51

(17 of 54)

to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the Board, of his intention to do so. Section 1635(f) provides: An obligor's right of rescission shall expire three years after the date of consummation of the transaction . . . notwithstanding the fact that the information and forms required under this section or any other disclosures required under this part have not been delivered to the obligor . . . . The District Court properly found that Section 1635(f) barred Appellants claim for rescission under TILA. Citing Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998) and Miguel v. Countrywide Funding Corp., 309 F.3d 1161, 1164 (9th Cir. 2002), the District Court noted: The Supreme Court has held that Section 1635(f) completely extinguishes the right of rescission at the end of the three-year

SF01DOCS\40727.3

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 18 of 51

(18 of 54)

period. Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998). The Ninth Circuit subsequently made clear that [S]ection 1635(f) represents an absolute limitation on rescission actions, which bars any claims filed more than three years after the consummation of the transaction. Miguel v. Countrywide Funding Corp., 309 F.3d 1161, 1164 (9th Cir. 2002) (citing King v. California, 784 F.2d 910, 913 (9th Cir. 1986)). Therefore, Section 1635(f) is a statute of repose, depriving the courts of subject matter jurisdiction when a 1635 claim is brought outside the three-year limitation period. Id. (ER 4-9). A. The District Courts Order Comports With Precedent From The Supreme Court And This Circuit In Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998), the Supreme Court held that 1635(f) completely extinguishes the right of rescission at the end of the 3-year period. The Court explained that Congress decided this issue when it enacted Section 1635 with language that explicitly stated that the underlying right to rescind under this section would expire after three years. Id. at 416-17. As explained, the Court respect[ed] Congresss manifest intent by concluding that the

SF01DOCS\40727.3

10

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 19 of 51

(19 of 54)

Act permits no federal right to rescind, defensively or otherwise, after the 3-year period of 1635(f) has run. Id. at 419. The Court expressly noted that Section 1635(f) talks not of a suits commencement but of a rights duration, which it addresses in terms so straightforward as to render any limitation on the time for seeking a remedy superfluous. Id. at 417. The only way a provision could make the time for seeking a remedy superfluous is if the expiration of the right extinguishes the right to a remedy as well. It is clear that the Court is referring not just to the sending of a notice of rescission under Section 1635(f), but also to the time for seeking any remedy. Therefore, a rights duration includes both the time to give notice and the time to file a lawsuit. The Court reiterates this point, emphasizing the uncompromising provision of Section 1635(f) that the borrowers right shall expire with the running of the time. Id. at 418. If there is no right to rescind, then there is no right to any remedy of rescission. This Circuit followed the Supreme Courts reasoning when it ruled in Miguel v. Country Funding Corp., 309 F.3d 1161 (9th Cir. 2002): [W]e previously have held that section 1635(f) represents an absolute limitation on rescission actions which bars any claims filed more than three years after the consummation of the transaction. King v. California, 784 F.2d 910, 913 (9th Cir.

SF01DOCS\40727.3

11

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 20 of 51

(20 of 54)

1986). Therefore, 1635(f) is a statute of repose, depriving the courts of subject matter jurisdiction when a 1635 claim is brought outside the three-year limitation period. ... [Plaintiffs] right to cancellation was extinguished as against the Bank. When congressionally-created limitations on congressionally-created public rights and benefits completely extinguish the right previously created, courts are deprived of jurisdiction. Lyon v. Agusta S.P.A., 252 F.3d 1078, 1084-85 (9th Cir. 2001). 309 F.3d at 1164-65. The Ninth Circuit recognized that the expiration of the threeyear time period meant that federal courts no longer had subject matter jurisdiction to hear the rescission claim. Moreover, in Yamamoto v. Bank of N.Y., 329 F. 3d 1167, 1171-73 (9th Cir. 2003) this Circuit, as did the District Court, rejected Appellants argument that mailing of a notice of rescission automatically rescinds the mortgage transaction. In Yamamoto, plaintiff argued that pursuant to TILA and Regulation Z implementing TILA, 12 C.F.R. 226, the security interest of defendant bank was automatically voided once she mailed a notice of rescission. The court rejected plaintiffs argument, reasoning:

SF01DOCS\40727.3

12

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 21 of 51

(21 of 54)

If BNY had acquiesced in Tampon's notice of rescission, then the transaction would have been rescinded automatically, thereby causing the security interest to become void . . . . But here, BNY contested the notice and produced evidence sufficient to create a triable issue of fact about compliance with TILA's disclosure requirements. In these circumstances, it cannot be that the security interest vanishes immediately upon the giving of notice. Otherwise, a borrower could get out from under a secured loan simply by claiming TILA violations, whether or not the lender had actually committed any. Rather, under the statute and the regulation, the security interest becomes void only when the consumer rescinds the transaction. In a contested case, this happens when the right to rescind is determined in the borrower's favor. The First Circuit held as much in Large v. Conseco Finance Servicing Corporation, 292 F.3d 49, 54-55 (1st Cir. 2002). The Larges made an argument similar to Tampons, that their letter of rescission had the automatic and immediate effect of voiding a loan transaction. Id. at 54. The court observed that [n]either the statute nor the regulation establishes that a

SF01DOCS\40727.3

13

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 22 of 51

(22 of 54)

borrower's mere assertion of the right of rescission has the automatic effect of voiding the contract. Id. Instead, the natural reading of the language of 1635(b) is that the security interest becomes void when the obligor exercises a right to rescind that is available in the particular case, either because the creditor acknowledges that the right of rescission is available, or because the appropriate decision maker has so determined . . . . Until such decision is made, the [borrowers] have only advanced a claim seeking rescission. Id. at 54-55. . . . We are persuaded by this reasoning. Yamamoto, 329 F. 3d at 1171-73. B. The District Courts Order Comports With the Plain Language of The Statute The court in In re Ramirez, 329 B.R. 727, 743 (D. Kan. 2005), examined the plain language of the provisions of Section 1635 and explained how the precise language of Section 1635 supported this Courts conclusions in Yamamoto. The court explained: The Ramirezes suggest that the plain language of 1635(b) effects a voiding of the security interest upon the giving of notice of rescission. The statute does not state,

SF01DOCS\40727.3

14

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 23 of 51

(23 of 54)

however, that the security interest becomes void upon the giving or receipt of notice. Rather, the statute states that the security interest becomes void upon rescission. Nothing in the statute suggests that giving notice of rescission is synonymous with upon rescission. Section 1635(b) expressly becomes operative [w]hen an obligor exercises his right to rescind under subsection (a) . . . . Section 1635(a) goes on to provide that the obligor shall have the right to rescind . . . by notifying the creditor . . . of his intention to do so . . . . The creditor shall also provide . . . appropriate forms for the obligor to exercise his right to rescind . . . . Read together, these two subsections of 1635 provide that the borrower exercises his right to rescind by giving notice; but the security interest becomes void only upon rescission. The plain language of the statute indicates that exercising the right to rescind is a discrete event; and rescission is a separate discrete event. If the drafters intended for exercise of the right to rescind to be rescission, they would not have used different terms for the same event. See Qwest Commc'ns Int'l, Inc. v. F.C.C., 398 F.3d 1222, 123233 (10th Cir. 2005) (Explaining that generally, when Congress includes a specific

SF01DOCS\40727.3

15

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 24 of 51

(24 of 54)

term in one provision of a statute, but excludes it in another, it is presumed that the term does not govern the sections in which it is omitted) (citations omitted). The Court sees no reason to disturb this cannon of statutory construction here. .... In Yamamoto v. Bank of N.Y., 329 F.3d 1167 (9th Cir. 2003), the Ninth Circuit rejected the very argument that the Ramirezes make here, that the notice of rescission had the automatic and immediate effect of voiding the loan transaction. The Ninth Circuit observed that the borrower was essentially arguing that rescission could be accomplished automatically upon a borrowers decision to rescind, communicated by a notice of rescission, and without regard to whether the law permits him to rescind upon the grounds asserted. Id. at 1172. The court noted that, this makes no sense when, as here, the lender contests the ground upon which the borrower rescinds. Id. Otherwise, a borrower could get out from under a secured loan simply by claiming TILA violations, whether or not the lender had actually committed any. Id.

SF01DOCS\40727.3

16

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 25 of 51

(25 of 54)

C.

The Majority Of District Courts Within This Circuit Agree With The District Court

For similar reasons, the majority of District Courts within the Ninth Circuit have concluded that Section 1635(f) requires that a borrower seeking rescission of a mortgage loan based upon a TILA violation must file suit for rescission within three years after entering into the loan. See, e.g., Punzalan v. EMC Mortg. Corp., No. 11-00936 HRL, 2011 WL 1838778 (N.D. Cal. May 13, 2011); Falcocchia v. Saxon Mortg., Inc., 709 F. Supp. 2d 860 (E.D. Cal 2010); Rivera v. BAC Home Loans Servicing, L.P., 756 F. Supp. 2d 1193, 1198 (N.D. Cal. 2010); Wilson v. JPMorgan Chase Bank, NA., No. 2:09-CV-863 WBSGGH, 2010 WL 2574032, at *7 (E.D. Cal. June 25, 2010); Gates v. Wachovia Mortg., FSB, No. 2:09-CV02464-FCD/EF, 2010 WL 902818, at *4 (E.D. Cal. Feb. 19, 2010); Gonzalez v. HomeQ Servicing, No. 1:09-CV-00951 OWWSMS, 2010 WL 289303 (E.D. Cal. Jan. 15, 2010); Ramos v. Citimortgage, No. CIV. 08-02250 WBS KJM, 2009 WL 86744 (E.D. Cal. Jan. 8, 2009); Sam v. Am. Home Mortg. Servicing, No. S-092177, 2010 WL 761228, at *2 (E.D. Cal. Mar. 3, 2010); Cazares v. Household Fin. Corp., No. CV 04-6887, 2005 WL 6418178, at *8-9 (C.D. Cal. July 26, 2005); Caligiuri v. Columbia River Bank Mortg. Grp., No. Civ. 07-3003-PA, 2007 WL 1560623, at *5 (D. Or. May 22, 2007); In re Chabot, 369 B.R. 1 (Bankr. D. Mont. 2007). Compare with Briosos v. Wells Fargo Bank, 737 F. Supp. 2d 1018 (N.D.

SF01DOCS\40727.3

17

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 26 of 51

(26 of 54)

Cal. 2010) (acknowledging that majority of courts within Ninth Circuit have held that Section 1635(f) requires that a borrower seeking rescission under TILA must file suit for rescission within three years after entering into the loan); Lee v. U.S. Bank, 2010 WL 2635777, at * 5 (N.D. Cal. June 30, 2010); Pearce v. Bank of Am. Home Loans, 2010 WL 2348637 (N.D. Cal. June 8, 2010) (in dicta); Jozinovich v. JP Morgan Chase Bank, N.A., 2010 WL 234895, at * 5 (N.D. Cal. Jan. 14, 2010); Mitchell v. Bank of Am., 2011 WL 711579 (S.D. Cal. Jan. 31, 2011); Santos v. Countrywide Home Loans, 2009 WL 2500710 (E.D. Cal. Aug. 14, 2009). Falcocchia is illustrative. In that case, plaintiffs sought rescission of their mortgage loan, claiming TILA violations. As in this case, Plaintiffs alleged they sent a letter demanding rescission within three years after entering into the mortgage loan. 709 F. Supp. 2d at 867. Also, as in this case, Plaintiffs did not sue for rescission until three years after they entered into the mortgage loan. Id. The court found Plaintiffs rescission claim was time-barred. After noting that courts have divided as to whether timely initiation of the rescission entitles plaintiffs to bring a rescission action where the complaint is filed outside the three year period, the court reasoned: The Ninth Circuit case most closely on point is Miguel, 309 F.3d 1161. In Miguel, the borrower sent notice of intent to rescind to the wrong entity, and then filed a complaint seeking rescission

SF01DOCS\40727.3

18

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 27 of 51

(27 of 54)

from that entity, both within the three year period. After the three year period expired, the borrower moved to amend the complaint to name the proper entity, arguing that the amended complaint should relate back under Fed.R.Civ.P. 15(c) and therefore be timely. Miguel held that because plaintiff did not attempt to rescind against the proper entity within the three-year limitation period, her right to rescind expired at the end of that time. 309 F.3d at 1164-65. Because the three year period is jurisdictional, Rule 15(c) could not be used to treat the corrected complaint as relating back and therefore timely. Id. at 1165. [Section] 1635(f) is a statute of repose, depriving the courts of subject matter jurisdiction when a 1635 claim is brought outside the three-year limitation period. Id. at 1164. Several courts have interpreted Miguel as barring claims for rescission on facts identical in pertinent regard to those in this case. Ramos v. CitiMortgage, Inc., 2009 U.S. Dist. LEXIS 956, 2009 WL 86744 (E.D.Cal. Jan. 7, 2009) (Shubb, J.), Caligiuri v. Columbia River Bank Mortg. Group, No. Civ. 07-3003-PA, 2007 U.S. Dist. LEXIS 39264, 2007 WL 1560623 at *5 (D.Or. 2007), Cazares v. Household Fin. Corp., No. CV 04-6887,

SF01DOCS\40727.3

19

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 28 of 51

(28 of 54)

2005 U.S. Dist. LEXIS 39222, at *24-25, 2005 WL 6418178, at *8-9 (C.D.Cal. July 26, 2005). In particular, these cases relied on Miguel's statement that section 1635(f) represents an absolute limitation on rescission actions' which bars any claims filed more than three years after the consummation of the transaction. Miguel, 309 F.3d at 1164 (quoting King, 784 F.2d at 913); see also Beach, 523 U.S. at 412, 118 S.Ct. 1408. These cases held that although the borrower was barred from bringing a rescission claim based on the initial misconduct giving rise to a right to rescind, the borrower could bring a civil damages action predicated on the creditor's subsequent failure to respond to the notice of rescission. Plaintiff has not argued that such a claim is present here. 709 F. Supp. 2d at 867-68. The court in Falcocchia then criticized and disapproved the decision relied upon by Appellant, Santos v. Countrywide Home Loans: Another court of this district has reached the opposite conclusion after extensive discussion. Santos v. Countrywide Home Loans, No. 09-CV-00912, 2009 U.S. Dist. LEXIS 71736, *6-14, 2009 WL 2500710, *2-5 (E.D.Cal. Aug. 14, 2009) (Ishii,

SF01DOCS\40727.3

20

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 29 of 51

(29 of 54)

J.). Santos interpreted Miguel as confined to its facts, where there was no timely and proper notice of rescission, and thus inapplicable to a case such as this one. Although Santos accurately characterized the facts in Miguel, it appears to this court that the statements quoted above explicitly sweeps broader than the facts of that case. Insofar as Miguel discussed the one year limitations period for actions arising from failure to respond to a notice of rescission, this limitations period applies to civil damages actions brought under 15 U.S.C. section 1640, and not to actions for rescission under the separate framework of section 1635. To the extent that Santos relied on authority from other circuits, or argued that Miguel itself was not compelled by the Supreme Court's decision in Beach, the court does not find Santos persuasive. Accordingly, plaintiffs did not file a claim seeking rescission within the three year period, this period cannot be tolled, and plaintiffs allegation that they sent a notice of rescission within the three year period is irrelevant. The motion to dismiss is therefore granted as to plaintiffs TILA claim for rescission. Falcocchia, 709 F. Supp. 2d at 868.

SF01DOCS\40727.3

21

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 30 of 51

(30 of 54)

For the same reasons described in Falcocchia and the other decisions within the Ninth Circuit that are in accord with it, this Court should affirm the District Courts order. D. Other Federal Appellate Courts Agree With The District Court

Other federal appellate courts considering the first issue on appeal have reached decisions identical to the District Court. The Third Circuit, for example, followed the Supreme Courts analysis in Beach v. Ocwen Fed. Bank, to find that a claim for rescission under TILA must be brought within three years of consummation of the loan transaction, even if notice of rescission were provided within the three-year time period. Williams v. Wells Fargo Home Mortg., Inc., 410 F. App'x. 495, 499, 2011 WL 395978 (3d Cir. 2011). In rejecting the appellants argument that filing of a notice of rescission within three years was sufficient, the Williams court explained the Supreme Court made clear in Beach that Section 1635(f) was a statute of repose and implicitly recognized that any claim for rescission must be filed within the three-year period. Williams, 2011 WL 395978. See also Dye v. Ameriquest Mortg. Co., 289 F. Appx. 941, 944 (7th Cir. 2008) (recognizing that 1635(f) completely extinguishes the right of rescission at the end of the 3-year period) (citation omitted); Am. Mortg. Network, Inc. v. Shelton, 486 F.3d 815, 821 (4th Cir. 2007) (adopting the majority view of reviewing courts that unilateral notification of cancellation does not automatically void the loan

SF01DOCS\40727.3

22

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 31 of 51

(31 of 54)

contract); Large v. Conseco Fin. Servicing Corp., 292 F.3d 49, 54 (1st Cir. 2002) (holding that neither Section 1635 nor Regulation Z establishes that a borrowers mere assertion of the right of rescission has the automatic effect of voiding the contract); In re Groat, 369 B.R. 413 (B.A.P. 8th Cir. 2007) (rescission is not automatic under TILA upon borrowers notice). E. Legislative History Supports The District Courts Order

TILAs legislative history supports the District Courts conclusion that Section 1635(f) is a three year statute of repose. The legislative history also contradicts Appellants argument that rescission under TILA is automatic upon giving notice of rescission and that TILA places the burden on creditors to file suit. Senate Reports No. 96-368 and 96-73, regarding the 1980 amendments to TILA, at sections 512 and 12 respectively, discuss the right to rescission. S. REP.
NOS. 96-368 and 96-73 (1980), reprinted in 1980 U.S.C.C.A.N. 236 and 280. The

Reports note that the amendment increases from 10 to 20 days the time in which the creditor must refund the consumers money after the consumer exercises his right to rescind, which will give creditors a better opportunity to determine whether the right of rescission is available to the consumer and whether it was properly exercised. 1980 U.S.C.C.A.N. at 264. This confirms that in response to a notice of rescission, a creditor may properly maintain that the borrowers right to rescission is no longer available (if, for example, all the material disclosures were

SF01DOCS\40727.3

23

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 32 of 51

(32 of 54)

made and two copies of a complete Notice of Right to Cancel were given at consummation) and that the right to rescission is not automatically effectuated. Notably, the legislative history does not reflect that the creditors time to respond is increased in order to give the creditor a better opportunity to file suit. F. TILAs Statutory Scheme Supports The District Courts Order

TILAs statutory scheme, in both Sections 1635 and 1640, reflects that rescission is not accomplished automatically upon the borrowers notice of rescission, especially if more than three business days have passed since the consummation of the transaction, for the following four reasons. First, Section 1640(a) provides: [A]ny creditor who fails to comply with any requirement imposed under this part, including any requirement under section 1635 of this title, with respect to any person is liable to such person in an amount equal to the sum of: . (3) in the case of any successful action to enforce the foregoing liability or in any action in which a person is determined to have a right of rescission under section 1635the costs of the action, together with a reasonable attorneys fee as determined by the court.

SF01DOCS\40727.3

24

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 33 of 51

(33 of 54)

This demonstrates that Congress contemplated when it enacted TILA that borrowers have to sue to exercise their right of rescission under Section 1635, especially after the three day cooling-off period following consummation. By imposing liability on the creditor and using the term costs of the action, Congress further demonstrated recognition that borrowers would bring an action for rescission. Second, the 1995 amendment to TILA added the provision at the end of Section 1635(b) that the procedures prescribed by the section apply except when otherwise ordered by a court. This amendment further demonstrates that Congress still contemplated that there will be actions seeking or contesting rescission. Third, if a borrowers request for rescission were to automatically rescind a loan transaction and void the security interest, as Appellant urges, even the filing of a declaratory relief action by the lender within twenty days of the borrowers request would provide no remedy or relief for the secured lender. There is no provision in TILA that provides for the creation of a new security interest on the basis of equitable principles; indeed the creation of a new security interest by the court would arguably violate the statute of frauds. Fourth, Section 1635(c) creates a rebuttable presumption of delivery: Rebuttable presumption of delivery of required disclosures. Notwithstanding any rule of evidence, written acknowledgment

SF01DOCS\40727.3

25

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 34 of 51

(34 of 54)

of receipt of any disclosures required under this subchapter by a person to whom information, forms, and a statement is required to be given pursuant to this section does no more than create a rebuttable presumption of delivery thereof. A presumption acts in litigation to impose on the party against whom it is directed the burden of going forward with evidence to rebut or meet the presumption. Fed. R. Evid. 301. Thus, Congress contemplated that a claim for rescission would be litigated, and provided that a creditor could rely upon an acknowledgement of delivery of the Notice of Right to Cancel to contest rescission. G. Public Policy Supports The District Courts Order

Appellant argues that the rescission remedy was designed to be automatic, and the consumer was to enjoy its benefits without the need to take any affirmative action other than giving notice of rescission (Appt Br. 11) and further: Indeed, it appears that the burden of commencing litigations is on the lender/creditor, not the borrower, citing commentators that say the lender must comply with the demand for rescission or commence a declaratory relief action within the 20-day statutory time period. (Id.) This argument is not supported by any case law or by the statute. If accepted, it would have the effect of needlessly increasing litigation. Lenders

SF01DOCS\40727.3

26

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 35 of 51

(35 of 54)

would be forced to file suit in circumstances where a lawsuit would not be warranted. For example, a borrower might drop her demand for rescission upon receiving the lenders response demonstrating its compliance with TILAs requirements regarding Notices of Right to Cancel, or where the borrower is unwilling to tender money or the property as required to consummate restitution and rescission. Creditors often respond within the 20-day statutory time period to the borrowers request by denying the request on the grounds that the creditor has in its file completed Notices of Right to Cancel, which the borrower signed and acknowledged receiving, thus creating a rebuttable presumption that the loan originator complied with TILA in this regard. See 15 U.S.C. 1635(c). Many borrowers, when presented with such evidence, decide not to pursue rescission. Appellants proposed construction would require that in response to every request for rescission made within three years of loan consummation, the lender file a declaratory relief action to preserve its security interest, when in many instances the borrower would accept the documentation and not pursue the matter. Appellants proposed rule would thus generate needless litigation. In addition, the Appellants proposed construction would in effect create the shortest statute of limitation in existence under federal law, by requiring the lender to file suit within 20 days of receipt of the borrower's notice of rescission. Appellee is not aware of any federal statute that gives a person only 20 days to file

SF01DOCS\40727.3

27

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 36 of 51

(36 of 54)

suit. That would impose a heavy burden on the lender to rush to prepare and file a complaint. It would also impose a burden on a borrower to retain a lawyer and respond to the complaint. If Appellants argument is to be believed, a borrower would have a severely shortened right to rescission in some circumstances. For example, if a borrower did not receive all material disclosures and gave notice of rescission 5 days after consummation, the borrower would then have to bring suit within one year and twenty-five days of consummation. This would decrease the borrowers time to file a rescission action by almost two years. On the other hand, the District Court's holding that the action must be filed by the borrower within three years does not significantly impair the borrower's right, because it allows the borrower more than adequate time -- three years -- to exercise her right to rescission by filing suit. II. APPELLANTS ARGUMENTS FAIL In addition to the arguments rebutted above, Appellant also argues that sending notice of rescission automatically rescinds the mortgage loan. Appellant contends that Regulation Z, implementing TILA, provides that a claim for rescission may be filed later than three years after consummation of the loan. According to Appellant, the Court should borrow the statute of limitations for damages under TILA contained in Section 1640(e) and apply it to claims for

SF01DOCS\40727.3

28

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 37 of 51

(37 of 54)

rescission under TILA. This would allow a borrower to file suit anytime within a year after denial of her notice of rescission, as long as she sent the notice of rescission to her lender within three years from the consummation of the loan. All of these arguments fail. A. Sending Notice of Rescission Does Not Automatically Rescind the Loan Appellant argues that sending a notice of rescission automatically rescinds a mortgage loan. As previously noted, the Ninth Circuit in Yamamoto, 329 F. 3d at 1171-73, rejected this argument. It held that until the creditor acknowledges that the right of rescission is available or the appropriate decision maker has so determined, the borrowers have only advanced a claim seeking rescission. Id. (citation omitted.) The Staff Commentary to Regulation Z, the regulations implementing TILA, at paragraph 23(d)(4), also contradicts Appellants argument: Where the consumer's right to rescind is contested by the creditor, a court would normally determine whether the consumer has a right to rescind . . . . Thus, the agency regulating TILA compliance recognizes that the consumers request for rescission does not automatically void the loan and the security interest. Sending a notice of rescission of the loan within the three-year period is immaterial as a matter of law, because notice alone is not sufficient to rescind the

SF01DOCS\40727.3

29

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 38 of 51

(38 of 54)

loan. Mere invocation [of the right to rescind] without more . . . will not preserve the right beyond the three-year period. Rather, consistent with Section 1635(f), a legal action to enforce the right must be filed within the three-year period or the right will be completely extinguishe[d]. Williams, 410 F. App'x. at 499 (quoting Beach, 523 U.S. at 412); see also Large v. Conseco Fin. Servicing Corp., 292 F.3d at 54 (holding that neither the statute nor the regulation establishes that a borrower's mere assertion of the right of rescission has the automatic effect of voiding the contract.) In Sam v. Amer. Home Mortg. Servicing, the Eastern District explained that: [S]ending a notice of rescission within the three year period is irrelevant to whether plaintiffs timely filed a claim seeking rescission. . . . Rather, plaintiff must file a complaint seeking rescission before the statute of repose expires. Furthermore, the three year period for filing TILA rescission claims is an absolute statute of repose that cannot be tolled. 2010 WL 761228, at *2 (E.D. Cal. March 3, 2010) (internal citations omitted) (dismissing plaintiffs claim for rescission under TILA as untimely); see also Gates v. Wachovia Mortgage, FSB, 2010 WL 902818, at *4 (E.D. Cal. Feb. 19, 2010) (if the borrower files his or her suit over three years from the date of a loans consummation, a court is powerless to grant rescission.) (citing Miguel,

SF01DOCS\40727.3

30

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 39 of 51

(39 of 54)

309 F.3d at 1164); Rivera v. BAC Home Loans Servicing, L.P., 756 F. Supp. 2d 1193, 1198 (N.D. Cal. 2010) (finding TILA rescission claim untimely where suit was brought outside three year period, even though plaintiffs had sent a notice of rescission within three years of executing loan). B. Regulation Z Does Not Provide That A Claim Of Rescission May Be Filed More Than Three Years After Consummation Of The Loan Appellant argues in passing that Regulation Z, 12 C.F.R. 226.23, supports her construction of 15 U.S.C. 1635 that a borrower need only mail a notice of rescission within three years of loan consummation to effect rescission. (See App. Open. Brief at pg. 6-7, 9, and 15). Appellant is mistaken. Section 226.23 does not permit a borrower to file a claim for rescission more than three years after consummation of the borrowers loan. It merely mirrors Section 1635 and details the rescission process. Section 226.23(a)(2) of 12 C.F.R., relied upon by Appellant, merely provides: To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. However, exercising the right to rescind is a discrete and distinct event from obtaining rescission. See Kratz v. Countrywide Bank, No. CV08-01233 DSF (OPx), 2009 WL 3063077 (C.D. Cal. Sept. 21, 2009); In re Ramirez, 329 B.R. 727, 735 (D. Kan. 2005).

SF01DOCS\40727.3

31

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 40 of 51

(40 of 54)

The court in In re Ramirez, explained: Nor does the language of Regulation Z, the statutory mandate for courts to act with respect to the TILA, support the Ramirezes argument that the security interest is void upon notice or the exercise of the right to rescind. Regulation Z mirrors 1635(b) and details the rescission process. Whereas the statute states that the security interest becomes void upon rescission, Regulation Z states that the security interest becomes void [w]hen a consumer rescinds a transaction. Although this language in the regulation is less than clear, it does not indicate that a consumer rescinds merely by exercising the right to rescind through notice. . . . [R]escission does not mean an annulment that is definitively accomplished by unilateral pronouncement. . . . 329 B.R. at 735-36. C. There is No Basis For Borrowing a One-Year Statute of Limitation for Damages There is no basis in the statutory language of TILA or the Federal Reserve Boards implementation of TILA in Regulation Z for borrowing the one-year statute of limitations for damages in Section 1640(e), as Appellant urges, to permit

SF01DOCS\40727.3

32

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 41 of 51

(41 of 54)

the filing of actions for rescission after the three year statute of repose in 1635(f) has run. Section 1640(e) only applies to actions under Section 1640. It states, [a]ny action under this section may be brought . . . within one year from the date of the occurrence of the violation. 15 U.S.C. 1640(e) (emphasis added). Actions under Section 1640 are for damages only, not rescission. See 15 U.S.C. 1640(a) (Individual or class action for damages; amount of award; factors determining amount of award). Santos, relied on heavily by Appellant for this proposition, provides no rationale for borrowing the damages statute of limitations. It simply notes that the courts in Horton v. Cal. Credit Corp. Ret. Plan, and Madura v. Countrywide Home Loans, Inc., have done so. Santos v. Countrywide Home Loans, 1:09-CV-00912AWI-SM, 2009 WL 2500710 at *4 n. 1 (E.D. Cal. Aug. 14, 2009). However, the Santos Court was mistaken as neither Horton nor Madura allowed a rescission claim after the three year period expired. Instead, Horton v. Cal. Credit Corp. Ret. Plan, 2009 WL 700223 at *5 (S. D. Cal. 2009) stated: the borrower has one year from the refusal to file suit for damages pursuant to 15 U.S.C. 1640(e). Similarly, in Madura v. Countrywide Home Loans, Inc., 2008 WL 2856813 (M.D. Fla. 2008), the court held there was a one-year statute of limitations for damages claims under Section 1640(e) and a three-year statute of repose for rescission

SF01DOCS\40727.3

33

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 42 of 51

(42 of 54)

claims under Section 1635(f), and that it lacked jurisdiction over the Plaintiffs rescission claim even though the Plaintiff had sent a notice of rescission within three years of consummation, because she had not filed her action within those three years. Id. at *8-13. Appellants amicus cites King v. California, 784 F.2d 910 (9th Cir. 1986) for the proposition that a claim for rescission may be filed more than three years after the consummation of the loan, as long as it is filed within one year of the lenders refusal to rescind. King, however, is to the contrary. In King, the lender did not argue, and the court did not address, whether plaintiffs rescission claim was untimely. The court noted, however: [T]he one-year limitation applies only to damages actions; rescission is available for three years. See 15 US Sec. 1635(f). . . . Congress placed a three year absolute limit on rescission actions, demonstrating its willingness to put a limit of some types of TILA actions. Id. at 914. Section 1635(f) contains only one exception to the requirement that a borrower file an action within three years of consummation, and it proves the rule. The only exception to the three-year statute of repose is where an agency institutes a proceeding to enforce the provisions of Section 1635 within three years after the date of consummation of the transaction, finds a violation, and the borrower rests his right on the same matter, in which case the borrower's right to rescission shall

SF01DOCS\40727.3

34

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 43 of 51

(43 of 54)

extend until one year following the conclusion of the agency proceeding. 15 U.S.C. 1635(f). This exception confirms -- because it is consistent with -- the general rule that a proceeding, i.e. a lawsuit, must be instituted within three years of consummation or the borrowers right to rescission expires. Borrowing the statute of limitations from Section 1640 violates the purpose behind the statute of repose found in Section 1635. The statute of repose provides that a court has no jurisdiction to entertain a claim for rescission three years after the consummation of the loan. Thus, adding an additional year, borrowed from Section 1640, would violate Section 1635 and should be prohibited. D. Miguel Does Not Support the Argument that TILA Permits a Consumer to File a Claim for Rescission One Year after a Creditor Denies a Request for Rescission In her attempt to borrow another year for her rescission claim, Appellant relies on the following prefatory phrase from Miguel: While Miguel is correct that 15 U.S.C. 1640(e) provides the borrower one year from the refusal of cancellation to file suit, that is not the issue before us. (App. Brief at 14, citing Miguel, 309 F.3d at 1165). However, this prefatory phrase was referring not to a claim for rescission, but to a separate claim for the recovery of damages, costs, and attorneys fees under 15 U.S.C. 1640(a)(3).

SF01DOCS\40727.3

35

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 44 of 51

(44 of 54)

In her opening appellate brief, Miguel argued that she had asserted a damages claim under Section 1640 arising from the defendants denial of her request for rescission. Miguel argued that the district court had committed reversible error in denying her attendant claim for attorney fees and costs. Brief of Appellants at **9, 14, 17, 23 27 and 28, Miguel v. Countrywide Funding Corp., 309 F.3d 1161, 2001 WL 34093298, at **9, 14, 17, 23 27 and 28. In her Reply/Answering Brief, Miguel again argued she had an independent claim for damages for denial of her request for rescission that was subject to the one year limitations period in Section 1640. Reply/Answering Brief of Appellants at *1011, Miguel, 309 F.3d 1161, 2001 WL 34090056, at *10-11. In response, Bank of New York challenged Miguels newly raised claim for damages pursuant to Section 1640. Second Brief of Defendant-Appellee And Cross-Appellant Bank of New York As Trustee Under The Pooling And Servicing Agreement Series 1995 B; Miguel, 309 F.3d 1161, 2001 WL 34090057. It appears from this context that when this Court made the prefatory statement in Miguel that 15 U.S.C. 1640(e) provides the borrower one year from the refusal of cancellation to file suit, it was referring to Miguels argument that she had a year from denial of rescission to file a damages action under Section 1640. Id. at 1165. Thus, Miguel does not support the argument that TILA permits a consumer to file a claim for rescission (as opposed to damages) one year after a

SF01DOCS\40727.3

36

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 45 of 51

(45 of 54)

creditor denies a request for rescission even if the filing is beyond the three year statute of repose in Section 1635. III. APPELLANTS TILA CLAIM IS BARRED EVEN UNDER APPELLANTS LEGAL THEORY Even if Appellant had requested damages (which she did not), or even if she had an additional year to file a request for rescission (which she also did not), she still failed to file her complaint within the one-year period allotted under 15 U.S.C. 1640(e). Appellant sent her Notice of Rescission on January 18, 2008. (SER 21, Opp. to MTD FAC; SER 8, RJN.) Under the construction of TILA advanced by Appellant and her Amicus, Appellee violated the statute by failing to return Appellants money and terminate its security interest in the property within twenty days of Appellants notice of rescission. As such, pursuant to Appellants construction of TILA, Appellant should have filed her complaint for rescission (or obtained a tolling agreement for a damages claim) by February 7, 2009. Appellant did not file this action until August 27, 2009, over six months later. Tolling agreements do not preserve claims subject to a statute of repose, because statutes of repose are jurisdictional. But even assuming to the contrary, the tolling agreement was executed too late to save Appellants claim, because it was not signed until July 1, 2009, nearly five months after Appellant would be

SF01DOCS\40727.3

37

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 46 of 51

(46 of 54)

required to file an action under Section 1640(e), if her construction were adopted. (SER 19-20, RJN) The tolling agreement expressly provided that it neither creates nor waives rights or remedies for or against any party. Id. Thus, the parties did not agree in the tolling agreement to revive Appellants expired claim for rescission, and Appellants claim would have been barred even under her theory. CONCLUSION The District Courts Order Granting Appellees Motion to Dismiss should be affirmed, because Congress placed an absolute limitation on rescission actions which
bars any claims filed more than three years after the consummation of the loan transaction.

Dated: August 15, 2011

Respectfully submitted, BRYAN CAVE LLP James Goldberg Thomas E. Nanney Ori Edelstein

By:

/s/ James Goldberg James Goldberg Counsel for Appellee COUNTRYWIDE HOME LOANS, INC. Erroneously sued as BANK OF AMERICA HOME LOANS

SF01DOCS\40727.3

38

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 47 of 51

(47 of 54)

CERTIFICATE OF COMPLIANCE Pursuant to Rule 32(a)(7)(C) of the Federal Rules of Appellate Procedure and Rule 32-1 of the Ninth Circuit Rules, I certify that the Response Brief of Appellee Countywide Home Loans, Inc., is double-spaced, has a typeface of 14 points, and uses proportionately-spaced Times New Roman font. The brief contains 8,177 words in compliance with Rule 32(a)(7)(B)(i) of the Federal Rules of Appellate Procedure and Rule 32 of the Ninth Circuit Rules. Dated: August 15, 2011 Respectfully submitted, BRYAN CAVE LLP James Goldberg Thomas E. Nanney Ori Edelstein

By:

/s/ James Goldberg James Goldberg Counsel for Appellee COUNTRYWIDE HOME LOANS, INC. Erroneously sued as BANK OF AMERICA HOME LOANS

SF01DOCS\40727.3

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 48 of 51

(48 of 54)

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 49 of 51

(49 of 54)

STATEMENT OF RELATED CASES [9th Cir. Rule 28-2.6] Pursuant to Rule 28-2.6 of the Ninth Circuit Rules, Appellee is not aware of any related cases.

Dated: August 15, 2011

Respectfully submitted, BRYAN CAVE LLP James Goldberg Thomas E. Nanney Ori Edelstein

By:

/s/ James Goldberg James Goldberg Counsel for Appellee COUNTRYWIDE HOME LOANS, INC. Erroneously sued as BANK OF AMERICA HOME LOANS

SF01DOCS\40727.3

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 50 of 51

(50 of 54)

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-1

Page: 51 of 51

(51 of 54)

SF01DOCS\40727.3

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-2

Page: 1 of 3

(52 of 54)

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-2

Page: 2 of 3

(53 of 54)

Case: 10-16487

08/15/2011

ID: 7858588

DktEntry: 26-2

Page: 3 of 3

(54 of 54)