Scott SANDERS; Lisa Sanders, Plaintiff-Appellant, v. MOUNTAIN AMERICA FEDERAL CREDIT UNION, Defendant-Appellee, Bruce Ethington, Defendant.
No. 11-4008.
United States Court of Appeals, Tenth Circuit.
July 30, 2012.
689 F.3d 1138
IV. Administrative Information
The title and number of the case is as follows: Peabody v. Time Warner Cable, Inc., Case No. 10-56846.
The names and addresses of counsel for the parties are as follows:
Brian F. Van Vleck, Van Vleck Turner & Zaller LLP, 6310 San Vicente Blvd., Suite 430, Los Angeles, CA 90048, for Appellant
J. Scott Carr, Wargo & French LLP, 999 Peachtree Street, NE, 26th Floor, Atlanta, Georgia 30309, for Appellee
See
The Clerk of the Court is hereby directed to immediately transmit to the Supreme Court of California, under official seal of the Ninth Circuit, an original and ten copies of this order and request for certification, a certificate of service on the parties, and all relevant briefs and excerpts of record pursuant to
The case is withdrawn from submission, and further proceedings in this court are stayed pending final action by the Supreme Court of California. The parties shall notify the Clerk of this Court within seven days after the Court accepts or rejects certification, and again within seven days if the Court renders an opinion. The panel retains jurisdiction over further proceedings.
IT IS SO ORDERED.
Matt Wadsworth (Brian E. Arnold with him on the brief), of Arnold & Wadsworth, South Ogden, UT, for Plaintiff-Appellant.
Joseph A. Skinner of Scalley Reading Bates Hansen & Rasmussen, P.C., Salt Lake City, UT, for Defendant-Appellee.
Before KELLY, McKAY, and O‘BRIEN, Circuit Judges.
O‘BRIEN, Circuit Judge.
In this case, however, the district court went further by concluding a borrower seeking to compel rescission must plead ability to repay. The court invoked this rule to dismiss the TILA rescission claim of the appellants, Scott and Lisa Sanders. It also dismissed the Sanderses’ claims under the Equal Credit Opportunity Act and Fair Credit Reporting Act. We affirm in part, reverse in part, and remand for further proceedings.
In 2007, while the Sanderses were attempting to refinance their home, they discovered Salt Lake City Credit Union had “reported twelve new maxed-out accounts on the Sanders[es]’ credit [reports].” (Aplt. App‘x 139.) They say this “destroyed [their] credit and made it impossible to refinance.” (Id.) Afterward, the credit union “apologized for the misreporting” and “offered to make amends by providing [them] with a ‘free’ refinance.” (Id.) They accepted this conciliatory offer and closed on the refinancing loan in July 2007. Salt Lake City Credit Union later merged with appellee Mountain America. In March 2009, the Sanderses applied to Mountain America to again refinance their loan. They completed the application by phone, but Mountain America denied their application at the end of the call.
As pertinent to this appeal, the Sanderses’ complaint alleges: (1) they had not been provided with the disclosures required under the Truth-in-Lending Act (TILA) thereby entitling them to invoke statutory rescission; (2) Mountain America violated the Equal Credit Opportunity Act (ECOA) when it failed to provide a notice of adverse action after denying their application for refinancing; and (3) Mountain America‘s inaccurate credit reporting violated the Fair Credit Report Act (FCRA). The district court dismissed these claims on the pleadings. See
II. STANDARD OF REVIEW
An order dismissing a case on the pleadings is reviewed de novo. Park Univ. Enters., Inc. v. Am. Cas. Co., 442 F.3d 1239, 1244 (10th Cir.2006). In this review, “we accept all facts pleaded by the non-moving party as true and grant all reasonable inferences from the pleadings” in that party‘s favor. Id. Judgment on the pleadings is appropriate only when “the moving party has clearly established that no material issue of fact remains to be resolved and the party is entitled to judgment as a matter of law.” Id. (quotations omitted).
III. TRUTH-IN-LENDING ACT RESCISSION CLAIM
The Sanderses correctly contend the district court erred when it concluded they were not entitled to TILA rescission of their mortgage loan because they failed to plead their ability to repay the loan proceeds.1
Congress enacted TILA in 1968 “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit.”
TILA and its implementing regulation (known as Regulation Z, which is codified at
Here, according to the factual allegations in the Sanderses’ complaint, which we accept as true, see Park Univ. Enters., 442 F.3d at 1244, Mountain America provided only one copy (rather than the required two copies) of TILA‘s required disclosures. The Sanderses consummated their loan refinance on July 6, 2007. They timely notified Mountain America in writing of their rescission on March 2, 2010, before the TILA rescission right expired on July 6, 2010.
A. Consumer‘s Obligation to Plead Ability to Repay
Nonetheless, Mountain America responds that, even if the Sanderses timely sought rescission, the district court properly used its equitable authority to reject their rescission because the Sanderses did not allege they can repay the loan proceeds. We disagree.
“Rescission essentially restores the status quo ante; the creditor terminates its security interest and returns any [money] paid by the debtor in exchange for the latter‘s return of all disbursed funds or property interests.” McKenna v. First Horizon Home Loan Corp., 475 F.3d 418, 421 (1st Cir.2007). When a consumer rescinds under TILA, the creditor must—within 20 calendar days after receipt of a valid notice of rescission—return “any money or property that has been given to anyone,” including any finance charges collected from the consumer.
When consumers rescind during the three-day period following the consummation of the loan transaction, this process is clear and functions well. See Board of Governors of the Federal Reserve System, Proposed Rule; Request for Public Comment, 75 Fed. Reg. 58539, 58629 (proposed Sep. 24, 2010). On the other hand, as the Federal Reserve Board of Governors acknowledged in a proposal to change Regulation Z:
The process ... does not work well ... after the initial three-day period when the creditor has disbursed funds and perfected its lien, and the consumer‘s right to rescind may have expired. Most creditors are reluctant to release a lien under these conditions, particularly if the consumer is in default or in bankruptcy and would have difficulty tendering. Thus, when a creditor receives a consumer‘s notice after the initial three-day period, the rescission process is unclear and courts are frequently called upon to resolve rescission claims.
Id. When initiated after the initial three-day period, TILA rescission often imposes an unfair risk on creditors: it requires the creditor to release its security interest without assurance that the consumer
But here, the district court created a pleading rule that would require all consumers who seek to compel TILA rescission to plead their ability to repay the loan:
[Allowing the Sanders[es] to rescind the loan simply by stating their intent to rescind would place [Mountain America] in the position of an unsecured creditor. Thus equity requires that the Sanders[es] allege their ability to repay the loan amount. [They] have not alleged their ability to repay the loan.... Because the [Sanderses] have not alleged their ability to repay the loan, their rescission claim fails and must be dismissed.
(Aplt. App‘x 143-44 (emphasis added).) The court‘s view impermissibly alters the rescission procedure for two reasons.
First, it adds a condition to the remedy not found in the statute or the regulation: it requires consumers to allege that they can repay the loan proceeds. This requires them to determine and plead information that may not be easily ascertainable, such as the value of the property obtained with the loan proceeds—a difficult task in a fluctuating market—and the exact dollar amount of any refund of finance charges due to them. Compare
Second, the district court‘s pleading rule is impermissible because categorical relief is beyond the reach of the courts’
Further, out of respect for the rule of law, we must adhere to the procedure duly enacted by Congress and the responsible administrative agency except when the equities of a particular case require otherwise. “It is a longstanding maxim that equity follows the law.” Douglas v. Indep. Living Ctr. of S. Cal., Inc., — U.S. —, 132 S.Ct. 1204, 1213, 182 L.Ed.2d 101 (2012) (Roberts, J. dissenting) (quotation omitted). This maxim is a reminder that courts may not invoke equity to craft a remedy inconsistent with the law. See id. Our equitable powers to “make an independent assessment of the equities and public interest [are] circumscribed to the extent Congress has already made such assessments with respect to the type of case before the court.” United States v. Mass. Water Res. Auth., 256 F.3d 36, 47 (1st Cir.2001). Our respect for TILA and Regulation Z require us to refrain from invoking equitable powers except when there is a demonstrated need to depart from the procedure designated by law.
Although the rescinding consumer need not plead an ability to repay the proceeds of the loan, the district court may nevertheless, in an appropriate case, use its equitable powers to protect a creditor‘s interests during the TILA rescission process.4 See Brown v. Nat‘l Permanent Fed. Sav. & Loan Ass‘n, 683 F.2d 444, 448 (D.C.Cir.1982). The pleadings here do not establish, however, whether this is an appropriate case. Mountain America never requested an order from the court altering the TILA rescission procedure. It merely asserted, in its motion for judgment on the pleadings, that “[c]ourts must look at equitable factors in determining what the parties must do to rescind a loan, including ‘the borrower‘s ability to repay the proceeds.‘” (Aplt. App‘x 69.) Further, its motion to dismiss did not itself plead any facts justifying relief; it merely asserted, contrary to TILA and Regulation Z, the Sanderses were not entitled to rescission
Thus, the district court erred in dismissing the Sanderses’ rescission claim. We reverse its judgment on this issue and remand the case for further proceedings. We express no opinion on the merits of the TILA issue or as to Mountain America‘s entitlement to equitable relief on remand.5
B. Money or Property
Because the issue may arise on remand, we also consider whether the Sanderses can satisfy their rescission obligations by tendering their home. We conclude the tender of the home does not necessarily meet their tender obligations under TILA.
The Sanderses read Regulation Z as allowing a consumer to tender either the loan proceeds or the property obtained with the loan proceeds. Although we disagree with this view, we understand the confusion. The rescission provisions of Regulation Z provide: “[T]he consumer shall tender the money or property to the creditor or, where the latter would be impracticable or inequitable, tender its reasonable value.”
However, the Federal Reserve System Board of Governors, which issues the regulations implementing TILA, including Regulation Z, adopts a different view:
After the transaction is rescinded, the creditor must tender any money or property given to anyone in connection with the transaction within a specified time frame. The creditor‘s tender triggers the consumer‘s duty to return any money or property that the creditor delivered to the consumer.
See Truth in Lending, 69 Fed. Reg. 16769, 16772 (Mar. 31, 2004) (emphasis added); accord Ralph J. Rohner & Fred H. Miller, Truth in Lending 654 (2000) (concluding the consumer should tender “what was obtained from the creditor [rather than] what was done with what the creditor provided“). This view is the more logical reading of the regulation‘s reference to “money or property” because it is consistent with the hallmark of rescission—the restoration of the status quo ante.6 See McKenna, 475 F.3d at 421; accord Shelton, 486 F.3d at 820. Accordingly, the district court interpreted this provision of TILA correctly; the borrower cannot satisfy its rescission obligations by simply surrendering the property purchased with the loan proceeds regardless of whether doing it will restore the creditor to the status quo ante.
Nevertheless, until the district court determines what amount the Sanderses would owe to Mountain America to restore it to the status quo ante, we do not know whether their home‘s value can meet their repayment obligation.
IV. EQUAL CREDIT OPPORTUNITY ACT CLAIM
Next, the Sanderses contend the district court erred in dismissing their ECOA claim for failure to provide notice of adverse action following the denial of their refinancing application. We again agree.
The ECOA requires creditors to notify credit applicants of an adverse action within thirty days after they receive a “completed application” for credit.
[A]n application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested (including, but not limited to, credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral). The creditor shall exercise reasonable diligence in obtaining such information.
The district court reasoned the Sanderses had not “provided a credit report or appraisal which certainly would be required in evaluating a real estate loan or modification. Because they do not claim to have submitted these critical documents, their application could not have been ‘complete.‘” (Appellant‘s App‘x 145.)
This conclusion cannot be reconciled with the complaint‘s allegations that the application was complete and Mountain America denied the application at the end of the call; we (and the district court) must accept these allegations as true.7 See Park Univ. Enters., 442 F.3d at 1244. We do not know whether an appraisal was needed or whether Mountain America ordered its own credit reports, as creditors often do. The district court‘s factual assumptions about the gap between what Mountain America regularly obtains during a telephone application and what it actually obtained from the Sanderses are inconsistent with its obligation to draw all reasonable inferences for the Sanderses as the non-moving party. See id.
V. FAIR CREDIT REPORT ACT CLAIM
Finally, the Sanderses contend the district court should not have dismissed their
The district court‘s interpretation is correct. The FCRA imposes a duty on persons who provide information to credit reporting agencies (“furnishers“) to accurately report information.
This is not to say the Sanderses were without recourse to address Mountain America‘s inaccurate reporting. While “Congress did not want furnishers of credit information [to be] exposed to suit by any and every consumer dissatisfied with the credit information furnished,” Congress allows consumers to enforce the duty of accurate reporting through the FCRA‘s dispute process. Nelson, 282 F.3d at 1060. When the furnisher receives notice of a dispute from the credit reporting agency, it must perform the verification and correction duties described in
The judgment of the district court is AFFIRMED with respect to the Sanderses’ FCRA claim. We REVERSE the district court‘s judgment with respect to the Sanderses’ TILA rescission and ECOA claims and REMAND the case for further proceedings consistent with this opinion.