In re Perkins

Decision Date09 November 1989
Docket NumberAdv. No. 89-0664S.,Bankruptcy No. 88-13880S
Citation106 BR 863
PartiesIn re Algeria PERKINS, Debtor. Algeria PERKINS, Plaintiff, v. MID-PENN CONSUMER DISCOUNT COMPANY, Defendant.
CourtU.S. Bankruptcy Court — Eastern District of Pennsylvania

Andre H. Madeira, Community Legal Services, Inc., Law Center North Cent., Philadelphia, Pa., for debtor/plaintiff.

Edward Sparkman, Philadelphia, Pa., Standing Chapter 13 Trustee.

Edward Seave, Philadelphia, Pa., for defendant.

OPINION

DAVID A. SCHOLL, Bankruptcy Judge.

A. INTRODUCTION.

One of the philosophies which underpins the federal Truth-in-Lending Act, 15 U.S.C. § 1601, et seq. (hereinafter "the TILA"), is that, by establishing statutory damage liability of creditors to consumers in private actions, the Act will provide economic incentives to creditors to desist from widespread TILA disclosure violations which might subject them to liability. See In re Russell, 72 B.R. 855, 862 (Bankr.E.D. Pa.1987). Therefore, one might expect that, after a particular creditor is targeted for liability as the result of a certain practice, it would discontinue that practice forthwith.

No single practice of a particular creditor has been the subject of more TILA litigation in the Eastern District of Pennsylvania than the persistent failure of MID-PENN CONSUMER DISCOUNT CO., the Defendant in this proceeding (hereinafter "Mid-Penn"), to disclose that, when it refinances prior loans secured by mortgages, it not only takes a new mortgage, but it also fails to satisfy the mortgages taken to secure prior loans, leaving it with a string of multiple mortgages. Nevertheless, Mid-Penn has refused to alter its practices since the initial decision in this line of cases, Bookhart v. Mid-Penn Consumer Discount Co., 559 F.Supp. 208, 211-12 (E.D.Pa.), on January 31, 1983.

On March 3, 1989, after over six years of numerous successful lawsuits against Mid-Penn on the basis of this issue subsequent to Bookhart, the Federal Reserve Board, in accordance with its legislative rulemaking powers, promulgated an Official Staff Commentary, at ¶ 226.23(b)3, which eliminated the failure to disclose retention of multiple mortgages in the notice of the right to rescind the transaction given to consumers as a basis to rescind that credit transaction.1 The issue raised by Mid-Penn in the instant proceeding is whether this Commentary should be applied to transactions which occurred prior to March 3, 1989, i.e., retroactively. We conclude that legislative rulemaking should not be applied retroactively unless the party supporting such an application proves that the agency that promulgated the rulemaking expressly indicated an intention to apply it retroactively and the public interest and the equities between the parties are advanced thereby. Since both of these elements are absent here, we decline to apply the Commentary retroactively. Accord, Nichols v. Mid-Penn Consumer Discount Co., C.A. No. 88-1253, slip op. at 11-12 n. 2, 1989 WL 46682 (E.D.Pa. April 28, 1989) hereinafter cited as ("Nichols II"). Therefore, this decision is one more in the consistent line of cases which declines to excuse Mid-Penn for liability for the failure to correct practices which have been consistently declared illegal since the Bookhart decision.

B. PROCEDURAL AND FACTUAL HISTORY

The Debtor, ALGERIA PERKINS, filed the Chapter 13 bankruptcy case underlying this proceeding on November 7, 1988. The case has proceeded deliberately, initially due to the Debtor's slow payment of the filing fees only after a motion to dismiss the case was filed.

On May 2, 1989, Mid-Penn filed a motion seeking relief from the automatic stay due to the Debtor's failure to timely make postpetition payments to it, even under a negotiated revised payment schedule which decreased her monthly payments from $170 to $110. On June 16, 1989, after a contested hearing which ended in basic agreement by the parties, we denied this motion on the conditions that the Debtor faithfully pay the $110 monthly payments to Mid-Penn and maintain her payments to the Trustee in the future pending confirmation. The confirmation hearing, the normal course of the scheduling of which was disrupted by the dismissal motion, was scheduled on July 20, 1989.

This period of relative harmony between the parties was brief. On July 11, 1989, the Debtor shattered the truce by commencing the instant adversary proceeding against Mid-Penn. The matter was originally listed for trial on August 24, 1989, and we continued the confirmation hearing until that date. On August 24, 1989, a mutual request for a continuance until September 21, 1989, was met with the court's directive that this proceeding must be tried on that date if not amicably resolved. The confirmation hearing was continued to that date also.

On September 21, 1989, the parties appeared and indicated a desire, memorialized by our Order of that date, to present this matter on a Stipulation of Facts to be filed by September 28, 1989, and Briefs to be filed by October 12, 1989 (Debtor), and October 26, 1989 (Mid-Penn). The confirmation hearing was continued until November 14, 1989.

A very skimpy (five-paragraph) Stipulation of Facts, incorporating but five exhibits, was filed on September 28, 1989. Presumably, the parties did not wish to reiterate the richer factual admissions in Mid-Penn's Answer to the Debtor's Amended Complaint. The Debtor filed her Brief one day late, on October 13, 1989, and Mid-Penn, asserting a last-minute calendaring error, was permitted an extension until November 2, 1989, to file its Brief, and it did so on November 3, 1989.

The pleadings and Stipulation indicate that Mid-Penn had the inevitable series of loan transactions with the Debtor, including an unbroken string of refinancings. See Abele, supra, 77 B.R. at 461 (debtors had eight transactions); and In re Tucker, 74 B.R. 923, 926-27 (Bankr.E.D.Pa.1987) (financial advantages to Mid-Penn in such refinancings is analyzed). Here, we are advised of loans by the Debtor from Mid-Penn, secured by mortgages, on the following dates: (1) December 21, 1984; (2) May 13, 1985; (3) December 3, 1985; and (4) November 10, 1986. After the fourth transaction, Mid-Penn satisfied the mortgage taken in connection with the third transaction on December 9, 1986. However, it did nothing to release or satisfy the mortgages taken in the first and second transactions until it mailed executed satisfaction pieces for these mortgages to the Debtor on November 12, 1987.

Among the documents delivered to the Debtor in the course of the fourth transaction was a Notice of Right to Cancel form which appears to be a facsimile of the Rescission Model Form (General), appearing as Appendix H-8 to Regulation Z, 12 C.F.R. § 226.1 et seq. (hereinafter "Reg. Z"). The first paragraph of the Notice, accordingly, reads as follows:

Your Right to Cancel:

You are entering into a transaction that will result in a (mortgage/lien/security interest) (on/in) 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 occurs last: . . .

The transaction of November 10, 1986, contemplated an "Amount Financed" of $4,959.20; a Finance Charge of $3,200.80, arising due to the Debtor's making payments over 48 months at an annual percentage rate of 27 percent; and payments of $170 monthly, resulting in a Total of Payments of $8,160.00. As of the date of the parties' Stipulation, it was agreed that the Debtor had repaid a total of $3,270.2

On May 17, 1989, the Debtor, by her counsel's letter, purported to rescind the November 10, 1986, transaction, on the ground that Mid-Penn had violated Reg. Z, 12 C.F.R. §§ 226.23(b)(1) and (b)(4), by failing to disclose all of the security interests which it had retained and the effects of a potential rescission, presumably due, in both instances, to the failure of Mid-Penn to disclose the existence of the multiple mortgages which it had held against the Debtor. See Nichols II, supra, slip op. at 9-11; Gill v. Mid-Penn Consumer Discount Co., 671 F.Supp. 1021, 1024-25 (E.D. Pa.1987), aff'd, 853 F.2d 917 (3d Cir.1988); In re Melvin, 75 B.R. 952, 956-57 (Bankr. E.D.Pa.1987); and Tucker, supra, 74 B.R. at 930-31. True to form, however, Mid-Penn directed a letter of May 24, 1989, to the Debtor's counsel refusing to accept the notice of the rescission.

The instant litigation followed.

C. THE HISTORY OF THE VIOLATION OF TILA AND REG. Z EFFECTED BY THE FAILURE TO DISCLOSE RETENTION OF MULTIPLE MORTGAGES: MID-PENN VS. THE COURTS.

In Bookhart, supra, the district court, per the Honorable Louis C. Bechtle, held that Mid-Penn's failure to recite on its TILA disclosure statement that it retained a mortgage taken in a prior loan as of the date of a refinancing of that previous loan on January 23, 1979, as well as a mortgage taken in connection with the current loan, violated 15 U.S.C. § 1638(d)(8) of the original version of the TILA.3

The next important decision in this line of cases was the entry of summary judgment against Mid-Penn by our predecessor, the Honorable William A. King, Jr., in Abele on May 22, 1986. In this decision, unaccompanied by an Opinion, Judge King allowed the Debtors to rescind all eight transactions in their series of refinancings of loans from Mid-Penn on, apparently, the same grounds as Bookhart, i.e., that Mid-Penn's failure to disclose the retention of multiple mortgages in its TILA disclosure statements was a material disclosure violation of the TILA, similar to the reasoning in Bookhart.

On appeal, Chief Judge Emeritus Joseph S. Lord, III, in a detailed Opinion of August 19, 1987, mostly affirmed Judge King's result in Abele, supra. Judge Lord noted that, effective October 1, 1982, Congress had amended and "simplified" the TILA. See, e.g., In re Brown, Brown v. Credithrift of America Consumer Discount Co., 106 B.R. 852, 853 (Bankr.E.D. Pa.1989); a...

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