DiVittorio v. HSBC Bank USA, NA (In re Divittorio)
| Decision Date | 06 January 2012 |
| Docket Number | No. 11–1188.,11–1188. |
| Parties | In re Angelo DiVITTORIO, Debtor.Angelo DiVittorio, Appellant, v. HSBC Bank USA, NA as Trustee on behalf of ACE Securities Corp. Home Equity Loan Trust and for registered holders of ACE Securities Corp. Home Equity Loan Trust, Series 2006–SD1, Asset–Backed–Pass Through Certificates, Appellee,Ocwen Loan Servicing, LLC; IndyMac Federal Bank, Defendants. |
| Court | U.S. Court of Appeals — First Circuit |
OPINION TEXT STARTS HERE
Harvey S. Shapiro was on brief for appellant.
David E. Fialkow, with whom Jeffrey S. Patterson and Nelson, Mullin, Riley & Scarborough LLP were on brief, for appellee.
Before LIPEZ, RIPPLE,* and HOWARD, Circuit Judges.RIPPLE, Circuit Judge.
Angelo DiVittorio filed this adversary proceeding in which he asserted a right to rescind a loan agreement on the ground that the disclosures made at closing did not comply with the Massachusetts Consumer Credit Cost Disclosure Act (“MCCCDA”), Mass. Gen. Laws ch. 140D, § 10, the Commonwealth's equivalent of the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et seq. The bankruptcy court held that Mr. DiVittorio had failed to state a claim for relief and, alternatively, had waived his right to rescind the transaction. The district court affirmed the bankruptcy court's judgment for failure to state a claim, but did not reach the issue of waiver. We conclude that Mr. DiVittorio's complaint in the adversary proceeding failed to state a claim and, alternatively, that Mr. DiVittorio knowingly and voluntarily waived any rights to rescission. We therefore affirm the judgment of the district court.
Mr. DiVittorio and his brother, Joseph DiVittorio (“Joseph”), have resided at 39–41 Bonner Avenue, in Medford, Massachusetts, since 1970. On March 13, 2003, Mr. DiVittorio entered into a loan agreement in the amount of $330,000 by executing a note and granting a first mortgage to IndyMac Bank, FSB (“IndyMac”). Joseph also signed the mortgage, but is not an obligor on the note.
At the closing on March 13, 2003, Mr. DiVittorio received multiple disclosures regarding the note and mortgage, including: (1) the “Truth in Lending Disclosure Statement” (the “TIL Disclosure”), App. 37; (2) a three-page document titled “Adjustable Rate Mortgage Loan Program Disclosure Non–Convertible 2/6 LIBOR Performance ARM” (the “ARM Disclosure”), id. at 38–40; (3) an “Addendum to Fixed/Adjustable Rate Note” (the “Addendum”), id. at 60; and (4) the “Rider to Security Instrument and Fixed/Adjustable Rate Rider” (the “Adjustable Rate Rider”), id. at 78.
The TIL Disclosure recited an annual percentage rate (“APR”) of 7.365%, noted that the loan contained a “variable rate feature” and referred the borrower to a separate disclosure regarding the variable rate. Id. at 37. The ARM Disclosure revealed that the loan was subject to a performance-based rate reduction according to which Mr. DiVittorio would qualify for a reduced margin if he made the first two years of payments in a timely manner. Specifically, the ARM Disclosure explained that the interest rate on the note would be determined as follows:
Your Interest Rate will be based on an index rate plus a margin, rounded to the nearest .125% (the “Interest Rate”), unless your Caps limit the amount of change in the Interest Rate. The “Margin” is the amount which will be added to the index to determine your Interest Rate. The Margin may be reduced by .50%, for credit levels I+, I, and II as shown in the examples below; and, by 1.00% for credit levels III and IV after the second year of the loan if all payments for the first two years of the loan are paid on time. If the Margin is reduced after the second year of the loan, the Margin will not change throughout the remaining term of the loan. Please ask us for our current Interest Rates and Margins.
Id. at 38. The ARM Disclosure did not indicate Mr. DiVittorio's “credit level” or the potential margin reduction he would receive pursuant to the reduction feature; however, both the Addendum and the Adjustable Rate Rider clarified that he was entitled to a .500% margin reduction if he timely made the first twenty-two payments. Although, for purposes of calculating the APR, IndyMac employed the reduced rate for which Mr. DiVittorio would become eligible after two years of timely payments, the TIL Disclosure itself did not state that the APR accounted for this performance-based reduction in interest rate.
Mr. DiVittorio filed his Chapter 13 petition on October 11, 2005. Ocwen Loan Servicing, LLC (“Ocwen”), the entity which serviced Mr. DiVittorio's mortgage, first moved for relief from the automatic stay in order to foreclose on the property on August 10, 2006; Mr. DiVittorio opposed the motion. After two months of negotiations, the parties filed a stipulation on October 25, 2006, according to which Mr. DiVittorio agreed to cure the post-petition arrearage.
On March 22, 2007, Ocwen filed an affidavit of non-compliance, asserting that Mr. DiVittorio again had defaulted. After months of negotiations, Mr. DiVittorio filed an “Assented Motion of Debtor for Authority to Modify Loan with Ocwen Loan Servicing, LLC” on November 30, 2007. Id. at 99. In his motion, Mr. DiVittorio represented to the bankruptcy court that he and Ocwen had “engaged in extensive negotiations regarding the subject original loan documentation including the original note and mortgage.” Id. Mr. DiVittorio further stated that he “believe[d] that this Modification Agreement [wa]s beneficial for the Debtor and all creditors in this case and [wa]s in the best interest of this estate.” Id. at 100.
The modification agreement attached to the motion (the “Modification”) reduced the interest rate on the loan from in excess of eleven percent to a fixed rate of seven percent and amortized the arrearage over the remaining life of the loan. The Modification also contained the following release (the “Release”) by Mr. DiVittorio:
YOUR RELEASE OF OCWEN: 1 IN THE EVENT THAT YOU HAVE ANY CLAIMS, ACTIONS OR CAUSES OF ACTION, STATUTE OF LIMITATIONS OR OTHER DEFENSES, COUNTERCLAIMS OR SETOFFS OF ANY KIND WHICH EXIST AS OF
THE DATE OF THIS MODIFICATION, WHETHER KNOWN OR UNKNOWN TO YOU, WHICH YOU NOW OR HEREAFTER MAY ASSERT AGAINST OCWEN IN CONNECTION WITH THE MAKING, CLOSING, ADMINISTRATION, COLLECTION OR THE ENFORCEMENT BY OCWEN OF THE LOAN DOCUMENTS, THIS MODIFICATION OR ANY OTHER RELATED AGREEMENTS, THEN BY EXECUTING THIS MODIFICATION YOU FOREVER IRREVOCABLY WAIVE AND RELINQUISH THEM. FOR PURPOSES OF THIS SECTION, OCWEN SHALL SPECIFICALLY, [sic] INCLUDE BUT SHALL NOT BE LIMITED TO, PRESENT AND FORMER OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SERVICING AGENTS, ATTORNEYS AND ALL PRIOR AND SUBSEQUENT PARTIES OR PREDECESSOR(S) IN INTEREST, TO BOTH OCWEN AND INVESTOR.
Id. at 106. In the Modification itself, Mr. DiVittorio warranted that he “ha[d] obtained, or ha[d] had the opportunity to obtain, independent legal counsel concerning the meaning and importance of this Modification,” id.; indeed, Mr. DiVittorio's former counsel signed the Modification. The Modification also contained a statement that Mr. DiVittorio had entered the Modification “voluntarily and with full understanding of its contents and meaning.” Id. The bankruptcy court approved the Modification on December 11, 2007.
Mr. DiVittorio again fell behind on his mortgage payments, and Ocwen moved for relief from the stay. After several extensions, Mr. DiVittorio filed an opposition on February 3, 2009. On February 5, 2009, the bankruptcy court granted Ocwen's motion for relief effective March 27, 2009.
Shortly thereafter, by a letter dated February 11, 2009, and addressed to HSBC, Ocwen and IndyMac, Mr. DiVittorio purported to rescind the loan and requested an accounting. Two days later, Mr. DiVittorio, through new counsel, filed a motion seeking to vacate the order granting relief from stay on the basis that he had rescinded the loan. Ocwen filed an opposition, and, on March 10, 2009, Mr. DiVittorio filed the present adversary proceeding asserting his claim of rescission under the MCCCDA.2
In his complaint, Mr. DiVittorio alleged that IndyMac violated the MCCCDA because the APR set forth on the TIL Disclosure was not calculated in conformity with applicable regulations. Mr. DiVittorio also alleged that the TIL Disclosure significantly underestimated the finance charge for the loan and also failed to specify the timing of the installment payments. The failure to make these material disclosures, Mr. DiVittorio averred, entitled him to rescission, damages and attorneys' fees.
On March 12, 2009, the bankruptcy court held a hearing on Mr. DiVittorio's motion. The judge declined to vacate his order but stayed the foreclosure for ninety days to determine the validity of Mr. DiVittorio's purported rescission.
HSBC later moved to dismiss the complaint on the ground that it was time- barred and that Mr. DiVittorio had not stated a claim for relief under the TILA or the MCCCDA. Mr. DiVittorio filed an opposition asserting that the APR stated on the TIL Disclosure was numerically inaccurate because it took into account the performance-based rate reduction. Alternatively, he argued that this method of calculation was not clearly and conspicuously disclosed. He further maintained that the APR must be calculated using conditions as they existed at the time the loan was consummated. In his view, because the performance-based rate reduction was not in effect at the time of consummation, IndyMac should not have used that rate reduction in calculating the APR. Finally, Mr. DiVittorio claimed that, based on the statistical data within IndyMac's possession, IndyMac was not justified in assuming that his first twenty-two payments would be timely.
In its initial memorandum of decision, the bankruptcy court granted the motion to dismiss. It first determined that Mr. DiVittorio's rescission claim...
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