In re Botelho
| Decision Date | 21 May 1996 |
| Docket Number | Bankruptcy No. 95-13744-JNF. Adv. No. 95-1468. |
| Citation | 195 BR 558 |
| Parties | In re Dorothy BOTELHO, Debtor. Dorothy BOTELHO, Plaintiff, v. CITICORP MORTGAGE, INC., Defendant. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
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Sara M. Quinn, Richard McMahon, Southeastern Mass. Legal Assistance Corp., New Bedford, MA, for Debtor.
Donald H. Carvin, Braintree, MA, for Citicorp Mortgage, Inc.
The matter before the Court in this adversary proceeding is the defendant's Motion to Dismiss Adversary Complaint pursuant to Fed.R.Civ.P. 12(b)(1) and (6) for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. The plaintiff filed an objection to the motion, and the Court held a hearing in this matter on January 22, 1996. At the conclusion of the hearing, the Court ordered that supplemental briefs be filed by March 15, 1996. The defendant filed a supplemental brief on March 15, 1996, and the plaintiff filed a response on April 5, 1996. On April 9, 1996, the defendant moved for additional time to file a reply brief to the plaintiff's response brief and also sought an order that no further briefs be filed without order of the Court. The Court allowed the motion on April 10, 1996, and ordered the defendant to file its reply brief by April 19, 1996.
The Court will treat the Motion to Dismiss as a Motion for Summary Judgment. The material facts necessary to decide this matter, which the Court has gleaned from the pleadings and exhibits as well as the Debtor's petition and schedules, are not in dispute.
Dorothy Botelho (the "Debtor") resides at 63 Adirondack Road, Westport, Massachusetts (the "property"). The Debtor, Barbie Jo Botelho ("Ms. Botelho") and Nazih B. Elkallassi ("Mr. Elkallassi") own the property as joint tenants with rights of survivorship. However, neither Ms. Botelho nor Mr. Elkallassi occupies the property. On December 11, 1989, the Debtor, Ms. Botelho and Mr. Elkallassi entered into a "Rapid Equity Mortgage Note" with Citicorp Mortgage, Inc. ("Citicorp") in which they promised to repay $59,150.00 at an annual rate of 10.25% (the "1989 transaction"). As security for the loan, they granted Citicorp a mortgage on the property, which mortgage was properly recorded on December 15, 1989.
Also on December 11, 1989, the Debtor signed a receipt in which she acknowledged that she received two copies of Citicorp's Notice of Right to Cancel. Although there is no evidence that the Debtor and her co-debtors had borrowed money from Citicorp prior to December 11, 1989, Citicorp provided a notice which stated in relevant part the following.
Neither Ms. Botelho nor Mr. Elkallassi signed the receipt.
On May 25, 1995, the Debtor's counsel sent a letter to Citicorp in which she indicated that the Debtor was rescinding the 1989 transaction pursuant to the federal Truth-in-Lending Act, 15 U.S.C. §§ 1601-1667e (West 1982 & Supp.1996) ("TILA"), and the Massachusetts Consumer Credit Cost Disclosure Act, M.G.L. c. 140D, §§ 1-34 (West 1991 & Supp.1996) ("CCCDA"), as well as the regulations promulgated in accordance with each statute. The letter demanded that Citicorp return all monies paid by the Debtor and take all steps necessary to terminate its security interest in the property. To date, Citicorp has refused the Debtor's demands.
On May 31, 1995, the Debtor filed a voluntary petition under Chapter 13 of the Bankruptcy Code. On Schedule A — Real Property, she listed the property, which she valued at $35,000.00, and noted that "the interest of each debtor, which cannot be sold or assigned without the other's consent is worth considerably less than one-third this amount." On her Statement of Financial Affairs, she indicated that she received a notice of foreclosure from Citicorp on March 31, 1995.1
On Schedule D — Creditors Holding Secured Claims, the Debtor listed no secured creditors. On Schedule F — Creditors Holding Unsecured Nonpriority Claims, the Debtor listed Citicorp with a claim in an estimated amount of $22,729.17. She described the debt owed to Citicorp as a second mortgage which she had rescinded.2 The Debtor calculated Citicorp's claim based upon the amount financed, ($57,593.13),3 less the amount she paid to Citicorp from February 1, 1990 through November 1, 1994 ($32,863.96), less statutory damages pursuant to TILA ($2,000). However, on August 17, 1995, Citicorp filed a Proof of Claim in the amount of $64,108.27.
The Debtor filed her initial Chapter 13 plan on June 15, 1995.4 Through her plan, she proposed to treat the debt owed to Citicorp as an unsecured claim by virtue of her attorney's May 25, 1995 letter to Citicorp rescinding the transaction. On July 7, 1995, the Debtor filed a First Amended Chapter 13 Plan, which provided for a dividend to unsecured creditors in an indeterminate amount. Citicorp objected to the First Amended Plan on grounds that the Debtor's federal and state truth in lending claims were barred by the respective three and four-year statutes of limitations. The Debtor filed a response to Citicorp's objection, in which she argued that her truth in lending claims were not time-barred because she had raised them in defense to Citicorp's foreclosure action.
The Debtor commenced this adversary proceeding on August 8, 1995. In her Second Amended Complaint, which was filed on January 16, 1996,5 she alleged that Citicorp "furnished incorrect rescission forms" to her in connection with the 1989 transaction. Specifically, the Debtor claimed that the Notice of Right to Cancel given to her by Citicorp was based upon Rescission Model Form H-9, issued by the Board of Governors of the Federal Reserve System (the "Board") and applicable only to refinancing transactions, rather than Rescission Model Form H-8, applicable generally. Additionally, the Debtor alleged that Citicorp failed to accurately disclose the amount financed, in violation of both TILA and CCCDA, by failing to disclose that a portion of the loan proceeds were being held in escrow for future advances. Through her Second Amended Complaint, the Debtor seeks the following relief: (1) a declaration that she validly rescinded the 1989 transaction; (2) a determination that Citicorp's claim is unsecured and an adjustment of its proof of claim; (3) dismissal of Citicorp's objection to the plan; (4) statutory damages under TILA and CCCDA in the amount of $2,000.00; and (5) attorneys' fees and costs under TILA and CCCDA.
On November 15, 1995, Citicorp moved to dismiss the Debtor's amended complaint on grounds that both her federal and state truth in lending claims are barred by the respective three and four-year statutes of limitations. On January 16, 1996, the Debtor objected to Citicorp's Motion to Dismiss.
Citicorp first contends that the respective three and four-year statutes of limitations governing rescission under TILA and CCCDA constitute an "absolute" bar to the Debtor's action. Alternatively, citing McGuinness v. Cotter, 412 Mass. 617, 591 N.E.2d 659 (1992), and Nissan Motor Corporation in U.S.A. v. Commissioner of Revenue, 407 Mass. 153, 552 N.E.2d 84 (1990), Citicorp argues that the limitations provisions contained in both TILA and CCCDA are statutes of repose and not statutes of limitations. Therefore, in Citicorp's view, the statutes create an "insurmountable bar" to the Debtor's action and, as a result, this Court lacks subject matter jurisdiction over the adversary proceeding.
Initially, Citicorp failed to distinguish between affirmative and defensive use of TILA and relied upon cases in which affirmative claims were determined to be time-barred. Alternatively, Citicorp concedes that TILA expressly allows claims for damages to be asserted via recoupment after the expiration of the statute of limitations. However, it argues that the lack of such statutory language in the section governing rescission indicates that recoupment is not available.
Finally, Citicorp contends that the Debtor's Amended Complaint fails to allege sufficient facts to establish violations of TILA and CCCDA. It claims that the Notice of Right to Cancel contains all disclosures required by federal and state law. Citicorp urges the Court to "balance the equities" in its favor because, in a bankruptcy case, "the secured creditor stands to lose both its security and any hope of collecting on the underlying debt."
The Debtor argues that Citicorp's motion to dismiss should be denied because the TILA and CCCDA limitations periods are not applicable to claims that are...
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