In re Hunter

• Decision Date: 10 March 2009
• Docket Number: No. 07 B 19360.,No. 08 A 00300.,07 B 19360.,08 A 00300.
• Citation: 400 B.R. 651
• Parties: In re John H. HUNTER, Debtor. David Herzog, Trustee, Plaintiff, v. Countrywide Home Loans, et al., Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

400 B.R. 651

In re John H. HUNTER, Debtor David Herzog, Trustee, Plaintiff, v. Countrywide Home Loans, et al., Defendants.

Bankruptcy No. 07 B 19360.

Adversary No. 08 A 00300.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

March 10, 2009.

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Lloyd J. Brooks of The Brooks Law Firm, Attorney for the debtor and the chapter 7 trustee.

Synde B. Keywell of Bryan Cave, LLP, Attorney for Countrywide Home Loans and Bank of New York.

David R. Herzog, Chapter 7 trustee.

MEMORANDUM OPINION

JACQUELINE P. COX, Bankruptcy Judge.

This matter comes before the Court on the motion of the defendants, Countrywide Home Loan, Inc. ("Countrywide") and Bank of New York ("BNY") (together, the "Defendants"), seeking to dismiss the chapter 7 trustee's ("Trustee") claims for rescission in the amended adversary complaint. The Defendants' motion seeks a finding that the Trustee failed to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6), made applicable by Fed. R. Bankr.P. 7012, because the Trustee's rescission claims are time-barred under 15 U.S.C. § 1683(f) of the Truth in Lending Act ("TILA"). For the reasons set forth herein, the Court denies the motion.

I. JURISDICTION AND VENUE

The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (C), (E), (H), and (O).

II. FACTS AND BACKGROUND

At all times relevant to this adversary proceeding, John Hunter ("Hunter"), the debtor, owned and resided at a single family property located in Chicago, Illinois. (Compl. ¶ 6; Answer ¶ 6). On September 24, 2004, Hunter obtained two mortgage loans from Countrywide, in the amounts of $165,600.00 and $41,400.00. (Compl. ¶ 10; Answer ¶ 10). The loans were secured by Hunter's home and were not for the purpose of its initial purchase or construction. (Compl. ¶¶ 10, 12; Answer ¶¶ 10,12). Countrywide originated these consumer residential mortgage loans. (Compl.¶¶ 7, 10; Answer ¶¶ 7, 10). BNY subsequently became an assignee of the $165,600 loan. (Compl. ¶ 18; Answer ¶ 18).

In connection with the September 24, 2004 loan transaction, Hunter signed or received the following documents: an adjustable rate note for the $165,000.00 loan (Compl.Ex.A); a note for the $41,400.00 loan (Compl.Ex.B); and a mortgage for each loan. (Compl.Ex. C, D). The Trustee alleges that Hunter received only one Notice of Right to Cancel ("Notice") for each loan instead of the two copies mandated by TILA. (Compl.¶ 11). Countrywide and BNY deny that Hunter received only one copy of the Notice for each loan. (Answer ¶ 11). The Trustee alleges that Hunter exercised his right to rescind both loans by sending a written notice of recisssion to Countrywide on September 10, 2007. (Compl.¶¶ 19, 25, Ex. E).

Hunter filed a petition for chapter 7 bankruptcy relief on October 19, 2007. (Compl. ¶ 5; Answer ¶ 5). On May 21, 2008, the Trustee filed an amended adversary complaint seeking both damages and rescission for the Defendants' TILA violations in connection with both loans. The Trustee argues that more than twenty days passed since Hunter's alleged rescission of the loans and that the Defendants failed to acknowledge Hunter's cancellation, return all funds received from Hunter, and void any security interest held in the bankruptcy estate's property. The Trustee claims the alleged failure of Countrywide to provide Hunter with two copies of the Notices entitles him to rescission, actual damages, statutory damages, and attorney's fees and costs.

On November 14, 2008, Countrywide and BNY filed the instant motion to dismiss the Trustee's claims for rescission. In their motion, Countrywide and BNY seek only to dismiss the Trustee's rescission claims. The Defendants do not seek to dismiss the Trustee's other requests for relief and concurrently filed an answer and defenses to the Amended Complaint addressing the other forms of relief sought by the Trustee.

III. APPLICABLE STANDARD

A motion to dismiss under Fed.R.Civ.P. 12(b)(6), made applicable by Fed. R. Bankr.P. 7012, tests the sufficiency of the complaint, not the merits. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). Fed.R.Civ.P. 12(b)(6) requires that a complaint contain only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2); EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir.2007). The complaint must give the defendant "fair notice of what the ... claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 1964, 167 L.Ed.2d 929 (2007) (ellipsis in original).

The "plaintiffs obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of elements of a cause of action will not do." Id. at 1964-65. "Plaintiffs need not plead facts ... but they must give enough detail to illuminate the nature of the claims and allow defendants to respond." George v. Smith, 507 F.3d 605, 608 (7th Cir.2007) (citations omitted). When considering a motion to dismiss, the Court takes "as true all well-pleaded factual allegations in the complaint and make[s] all plausible inferences from those allegations in the plaintiffs' favor." Levy v. Pappas, 510 F.3d 755, 764 (7th Cir.2007).

"[A] plaintiff is not required to anticipate and refute defenses in his complaint[.]" Limestone Dev. Corp. v. Vill. of Lemont, Ill., 520 F.3d 797, 802 (7th Cir. 2008). However, a plaintiff can plead himself out of court if a complaint includes facts that undermine his own allegations. Kolupa v. Roselle Park Dist., 438 F.3d 713, 715 (7th Cir.2006). Any exhibits attached to a complaint are considered to be a part of the pleadings. Moranski v. Gen. Motors Corp., 433 F.3d 537, 539 (7th Cir. 2005). Dismissal is warranted if the factual allegations, seen in the light most favorable to the plaintiff, do not plausibly entitle the plaintiff to relief. Id. at 1968-69. If the facts alleged in the complaint establish that a suit is indisputably time-barred, plaintiffs can plead themselves out of court under a 12(b)(6) motion to dismiss. Clark v. City of Braidwood, 318 F.3d 764, 767(7th Cir.2003).

IV. DISCUSSION

A. A Borrower's right to rescind under the TILA

TILA was created "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." 15 U.S.C. § 1601(a). When lenders violate TILA, Congress provides consumers with the right to rescind a consumer credit transaction in which a security interest is retained in the borrower's home. 15 U.S.C. § 1635(a). As the Seventh Circuit recognized in Handy v. Anchor Mortg. Corp., rescission terminates the entire transaction and thus "encompasses a right to return to the status quo that existed before the loan." 464 F.3d 760, 765 (7th Cir.2006) (quoting Barrett v. JP Morgan Chase Bank, N.A., 445 F.3d 874, 878 (6th Cir.2006)). Accordingly, upon timely invocation of the right of rescission, a borrower must be put back in the position that it occupied prior to the loan agreement. Handy, 464 F.3d at 765 (citing Barrett, 445 F.3d at 877). Handy followed an opinion from the Sixth Circuit in which the court construed TILA and its implementing regulations to encompass a right to rescind the transaction itself and not just the security interest. Handy, 464 F.3d at 765. "The point of giving the consumer an absolute right to rescind is to place the consumer in a much stronger bargaining position than he enjoys under the traditional rules of rescission and to insure creditor compliance with TILA's disclosure requirements."¹ Velazquez v. HomeAmerican Credit, Inc., 254 F.Supp.2d 1043, 1045 (N.D.Ill.2003) (citations omitted).

Section 1635 of TILA provides borrowers with a three-day "cooling off period after a loan transaction is completed, during which time such borrowers have a right to rescind certain loan transactions. 15 U.S.C. § 1635(a); Andrews v. Chevy Chase Bank, 545 F.3d 570, 573 (7th Cir. 2008). Section 1635(a) states that a borrower whose loan is secured with his "principal dwelling" has "... 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 ..." 15 U.S.C. § 1635(a). In the event that a borrower does timely elect to rescind a loan, the creditor has an obligation, within twenty days, to "return to the obligor any money or property given as earnest money, downpayment, or otherwise, and ... take any action necessary or appropriate to reflect the termination of any security interest created under the transaction." 15 U.S.C. § 1635(b).

A creditor's failure to honor a valid rescission request made pursuant to § 1635 can subject that creditor to actual and statutory damages. 15 U.S.C. § 1640(a) (stating that "any creditor who fails to comply with any requirement imposed under ... section 1635, ... is liable to such person ... for statutory damages, including the costs of the action, together with a reasonable attorney's fee as determined by the court."). A TILA action alleging damages for failure to comply with any requirement imposed under § 1635 must be brought within one year from the date of the alleged violation. 15 U.S.C. § 1640(e). For claims of civil liability under TILA, the date that the violation occurred is the date that the credit transaction was consummated, i.e., the date that the loan closed. Personius v. Homeamerican Credit, Inc., 234 F.Supp.2d 817, 820 (N.D.Ill.2002). For claims of failure to effectuate rescission the date of the occurrence of the violation is the...