Aubin v. Residential Funding Co., LLC

• Decision Date: 11 July 2008
• Docket Number: No. 3:07cv302 (MRK).,3:07cv302 (MRK).
• Court: U.S. District Court — District of Connecticut
• Parties: Norman AUBIN and Holly Aubin, Plaintiffs, v. RESIDENTIAL FUNDING COMPANY, LLC and Fremont Investment & Loan, Defendants.

565 F.Supp.2d 392

Norman AUBIN and Holly Aubin, Plaintiffs, v. RESIDENTIAL FUNDING COMPANY, LLC and Fremont Investment & Loan, Defendants.

No. 3:07cv302 (MRK).

United States District Court, D. Connecticut.

July 11, 2008.

Andrew G. Pizor, Daniel S. Blinn, Consumer Law Group, Rocky Hill, CT, for Plaintiffs.

Geoffrey K. Milne, Nicole L. Barber, Hunt Leibert Chester & Jacobson, Hartford, CT, for Defendants.

RULING AND ORDER

MARK R. KRAVITZ, District Judge.

Pending before the Court is a Motion to Dismiss [doc. #32] filed by Defendants, Residential Funding Company, LLC's ("Residential") and Fremont Investment & Loan's ("Fremont") (together "Defendants"). Defendants ask the Court to dismiss a portion of Count One of Norman and Holly Aubin's ("the Aubins") Complaint [doc. # 1]. The focus of the motion is the Aubins' claim that Defendants failed to comply with the federal Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., by neglecting to deliver a notice of right to rescind that clearly and conspicuously disclosed the date the applicable rescission period expired. For the reasons detailed below, the Court denies Defendants' motion.

I.

The factual background to this case is relatively straightforward and agreed upon by the parties. In 2006, the Aubins refinanced their home with two mortgages from Fremont. The closing was originally scheduled to take place on February 28, 2006, but did not occur until March 1, 2006. Nonetheless, all of the documents, including the Notice of Right to Rescind ("Rescission Notice") were dated February 28, 2006. The Rescission Notice stated in relevant part:

You are entering into a transaction that will result in a mortgage lien, or security interest on your home. You have a legal right under federal law to cancel this transaction, without cost, within three business days from whichever of the following events occur last:

(1) the date of the new transaction, which is 2/28/06; or

(2) the date you received your new Truth in Lending disclosures; or (3) the date you received this notice of your right to cancel.

It then went on to say:

If you cancel by mail or telegram, you must send the notice no later than midnight of 3/3/06 (or midnight of the third business day following the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time.

Defs.' Mem. of Law in Supp. of Mot. to Dismiss [doc. #33], Ex. A.¹ The Aubins signed the Rescission Notice on March 1, 2006 (though it was dated February 28, 2006). See id.

On March 11, 2006, the funds were disbursed to the Aubins. Thereafter, the mortgages were assigned to Residential, which currently owns them. In February 2007, approximately a year after signing the Rescission Notice, the Aubins sought to rescind the mortgages by sending written notices of rescission to Defendants and invoking the extended three-year right of rescission available to mortgagors when no proper right to rescind is provided. See 12 C.F.R. .§ 226.23(a)(3); 15 U.S.C. § 1635(a)(f). After receiving no response from Defendants, on February 27, 2007, the Aubins filed a Complaint [doc. # 1] in this Court alleging that the Rescission Notice violated TILA's notice requirements.²

II.

This Court has previously discussed at length the standard governing motions under Rule 12(b)(6). See, e.g., Beary v. ING Life Ins. & Annuity Co., 520 F.Supp.2d 356, 361 (D.Conn.2007). Suffice it to say that in considering a motion to dismiss under Rule 12(b)(6), the Court "must accept as true all allegations in the complaint and draw all reasonable inferences in favor of the non-moving party." Gorman v. Consol. Edison Corp., 488 F.3d 586, 591-92 (2d Cir.2007) (citing Taylor v. Vt. Dep't of Educ., 313 F.3d 768, 776 (2d Cir.2002)). "Specific facts are not necessary; the statement need only `"give the defendant fair notice of what the claim is and the grounds upon which it rests."'" Erickson v. Pardus, ___ U.S. ___, 127 S.Ct. 2197, 2200, 167 L.Ed.2d 1081 (2007) (alteration omitted) (quoting Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1964, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957))). Moreover, for the purposes of this case, in TILA cases, "[w]here ... the sole issue is whether required disclosures have been made clearly and conspicuously, or whether additional disclosures confuse or mislead, the court may appropriately decide the plaintiffs claims as raising issues of law." Gambardella v. G. Fox & Co., 716 F.2d 104, 113 (2d Cir.1983).

III.

Congress enacted TILA "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, and to protect the consumer against inaccurate and unfair credit billing and credit card practices." 15 U.S.C. § 1601(a). To this end, TILA and the regulations implemented by the Federal Reserve Board in Regulation Z, 12 C.F.R. pt. 226, provide consumers in credit transactions, where a security interest is given in their principal dwelling, the right to rescind within three business days "following consummation, delivery of the notice [of right to rescind disclosures], or delivery of all material disclosures, whichever occurs last." 12 C.F.R. § 226.23(a) (footnote omitted); accord 15 U.S.C. § 1635(a). However, if the notice of right to rescind or other material disclosures are not made, then the consumer has three years from the consummation date to rescind the transaction, unless the property in question has been sold. See 12 C.F.R. § 226.23(a)(3); 15 U.S.C. § 1635(f). Among the required notice of right to rescind disclosures is "[t]he date the rescission period expires," 12 C.F.R. §§ 226.23(b)(1)(v), 226.15(b)(5), and such notice must be given "clearly and conspicuously" in writing, 12 C.F.R. §§ 226.5(a)(1), 226.17(a)(1), 15 U.S.C. § 1635(a). Although there is some disagreement as to what constitutes "clear and conspicuous" notice, courts generally agree that it is measured by an objective, rather than a subjective test; thus, the question courts ask is whether the average consumer would find the notice clear or confusing. See, e.g., Handy v. Anchor Mortgage Corp., 464 F.3d 760, 764 (7th Cir.2006); Palmer v. Champion Mortgage, 465 F.3d 24, 28 (1st Cir.2006); Wiggins v. AVCO Fin. Servs., 62 F.Supp.2d 90, 94 (D.D.C. 1999) ("All courts are agreed that alleged violations of TILA are subject to an objective standard of review.").

IV.

The Aubins assert that the Rescission Notice did not comply with TILA for two reasons. First, the Rescission Notice provided an inaccurate deadline, in that it was dated February 28, 2006, the date before the closing, not March 1, 2006, the date of the closing and the date the Aubins received the Rescission Notice. Furthermore, the Rescission Notice also stated that the Aubins could rescind no later than midnight of March 3, 2006, which is not correct given that the closing occurred on March 1, not February 28. Second, according to the Aubins, the Rescission Notice "contained no information regarding the manner in which business days are determined or counted." Pis.' Mem. of Law in Opp'n to Mot. to Dismiss [doc. # 36] at 2. In support, the Aubins state:

For example, if the first day was deemed to be March 1, then the notice would have to be sent by the end of the third day, March 3. But, if the date of the disclosure is not counted, then the notice would have to be sent by the end of the third day, March 4, 2006, which was a Saturday. The disclosure did not advise whether Saturdays or Sundays are considered business days. If neither weekend day is a business day, then the deadline to cancel would be the end of the following Monday, March 6. In reality, March 1 is not counted as the first day and Saturday, March 4, is a business day. Therefore, the proper deadline date was March 4. But, none of this guidance was provided in the notice. The only information was the stated deadline of March 3—just two business days following the disclosure.

Id.

Defendants contend that the Rescission Notice complied with TILA as a matter of law and that the Aubins' receipt of the TILA disclosures nullifies any extended rescission rights. See Defs.' Mem. of Law in Supp. of Mot. to Dismiss [doc. # 33] at 5-6, 9. Defendants make three points in support of their position. First, TILA requires only "clear and conspicuous," and not perfect notice, and the Rescission Notice satisfies that standard. Second, under § 1635(h), use of a Rescission Notice that is identical to the Federal Reserve Board's published and adopted model form, the 8—Rescission Model Form, see 12 C.F.R. Pt. 226, App. H-8, provides an "impenetrable shield" against TILA attacks. Third, even if no "impenetrable shield" is available, use of the Federal Reserve model form entitles Defendants to a presumption of TILA compliance, a presumption that the Aubins have failed to rebut.

The Court will turn first to Defendants' second argument—that under 15 U.S.C. § 1635(h), use of a Rescission Notice that is identical to the H-8—Rescission Model Form provides an "impenetrable shield" against TILA attacks. The Court need not (and does not) decide whether use of the Federal Reserve model form provides a shield against TILA liability—as appears to have been suggested by some courts, see, e.g., Gibson v. Bob Watson Chevroletr-Geo, Inc., 112 F.3d 283, 286 (7th Cir.1997); Porter v. Mid-Penn Consumer Disc. Co. (In re Porter), 961 F.2d 1066, 1076 (3d Cir.1992); Murphy v. Empire of Am., 583 F.Supp. 1563, 1566 (W.D.N.Y.1984)—because § 1635(h) is applicable only where the model form is "properly completed." Section 1635(h) thus states:

An obligor shall have no rescission rights arising solely from the form of written notice used by the creditor to inform the obligor of the rights of the obligor...