In re Stanley

Decision Date08 October 2004
Docket NumberAdversary No. 02-6066.,Bankruptcy No. 02-20893
Citation315 B.R. 602
CourtU.S. Bankruptcy Court — District of Kansas
PartiesIn re James Brent STANLEY, Debtor. James Brent Stanley, Plaintiff, v. Household Finance Corporation III, Defendant.

COPYRIGHT MATERIAL OMITTED

Kenneth M. Gay, Consumer Advocate LLC, Lenexa, KS, for Plaintiff.

Todd W. Ruskamp, Shook, Hardy & Bacon LLP, Kansas City, MO, for Defendant.

MEMORANDUM OPINION

ROBERT D. BERGER, Bankruptcy Judge.

This proceeding is before the Court on the plaintiffs motion for summary judgment.1 The plaintiff appears by counsel Kenneth M. Gay. The defendant Household Finance Corporation III appears by counsel Todd W. Ruskamp and Kristen F. Trainor. The pleadings do not contest the core nature of this proceeding. The Court finds that this proceeding is core under 28 U.S.C. § 157 and the Court has jurisdiction under 28 U.S.C. §§ 1334 and 157.2

In March 2001, the parties entered into an agreement wherein the defendant loaned the plaintiff $111,297.38. To secure the obligation, the plaintiff granted the defendant a mortgage on his home (the loan and mortgage events are hereinafter referred to as the "Transaction"). On July 15, 2002, the plaintiff filed a complaint seeking a determination that, pursuant to the Truth-in-Lending Act and accompanying regulations, he properly rescinded the Transaction and that, as a result, the defendant no longer had an enforceable mortgage on his homestead. In addition, the complaint seeks statutory damages against the defendant for its failure to honor his notice of rescission and the costs of this action together with reasonable attorney's fees. The Court has reviewed the plaintiffs motion for summary judgment and the memorandum submitted in support thereof, as well as the memorandum submitted in opposition, in consideration of which the Court rules and enters judgment as follows:

1. The defendant did not provide the plaintiff with notice of his right rescind their credit transaction in the manner prescribed by the Truth-in-Lending Act, 15 U.S.CA. § 1601, et seq. ("TILA"), and its accompanying regulations in 12 C.F.R. part 226, otherwise known as Regulation Z. As a result, the defendant violated the TILA and the plaintiff provided a timely notice of his intention to rescind to the defendant.
2. Pursuant to TILA § 1635(b), voiding the defendant's mortgage on the plaintiffs dwelling is a procedure that this Court may equitably condition to effect rescission. However, the record is insufficient to consider the equities in voiding the defendant's mortgage as a consequence of validly exercising a right to rescind. Therefore, an evidentiary hearing will be set forthwith to determine what factors, if any, warrant equitably modifying the rescission procedure.
3. Pursuant to TILA § 1640(a)(2)(A)(iii), the plaintiff may be entitled to an award of statutory damages for the defendant's failure to honor his notice of rescission. The Court reserves judgment on statutory damages until such time it issues judgment on the equitable conditions, if any, it will place on voiding the defendant's security interest in the plaintiffs homestead as an effect of rescission.
4. Pursuant to TILA § 1640(a)(3), the plaintiff is entitled to recover the costs of this action together with a reasonable attorney's fee. The Court reserves judgment on an award of attorney's fees and costs until such time it issues judgment on the equitable conditions, if any, it will place on voiding the defendant's security interest in the plaintiffs homestead as an effect of rescission.
Background

The parties do not dispute the nature of the Transaction or that the Transaction is governed by the TILA. Under the TILA, a debtor ordinarily has three days to rescind such transactions and must be informed of this right by the creditor. However, when a creditor fails to provide the debtor proper notice of the right to rescind or provides notice that does not comply with the TILA requirements, the debtor's right to rescind is extended for up to three years from the date of consummation of the transaction.3 Believing he had not been given the disclosures required by the TILA and that his right to rescind had been extended, the plaintiff notified the defendant by letter of his intention to rescind the Transaction on or about May 7, 2002. The defendant, who acknowledges receiving the plaintiffs request for rescission shortly thereafter, denies that it provided inadequate disclosure and, consequently, contends the plaintiff failed to timely exercise his right to rescind. The plaintiff, who filed for Chapter 13 protection on March 21, 2002,4 subsequently commenced this adversary proceeding to determine the validity of the rescission of the Transaction with the defendant.

The plaintiff contends that he had an extended period to rescind the Transaction on two grounds. First, the plaintiff alleges that the defendant provided only one copy of a notice of a right to rescind the Transaction in violation of Regulation Z § 226.23, which requires a creditor to provide a debtor with two copies of the notice. Second, the plaintiff contends that the defendant failed to provide certain disclosures required by TILA in a clear and conspicuous manner as prescribed by TILA § 1635(h) and Regulation Z § 226.23(b)(2).

To support his first contention, that the defendant failed to provide two copies of the notice of right to rescind, the plaintiff has provided an affidavit that, in summary, states all of the documents he received from the Transaction with the defendant were placed in an envelope by one of the defendant's employees, that the envelope was stored unopened and undisturbed in a file storage area above the plaintiffs desk, and that he learned the defendant failed to provide the appropriate TILA disclosures only after consulting with his attorney, who also reviewed the Transaction documents.5 However, the plaintiff did not specifically claim in his affidavit that he received only one copy of his notice of right to rescind and also concedes that he signed an acknowledgment stating that he received two copies of the notice of the right to rescind.

The defendant, in response, points to the plaintiffs concession that he signed the acknowledgment and argues that the acknowledgment, which creates a rebuttable presumption that a mortgagee received the required number of disclosures,6 produces a question of fact that precludes summary judgment on that ground. Despite requesting and receiving two deadline extensions for a total of 27 additional days in which to file its Memorandum in Opposition to Plaintiffs Motion for Summary Judgment, the defendant has otherwise not provided support for its factual contentions. Instead, the defendant proffers that despite its inability to obtain an affidavit, it "believes a representative will be available to testify at trial that the Plaintiff received the proper disclosures, including the Notice of Right to Cancel."7

To support his second contention, that the notice of right to rescind provided by the defendant did not disclose certain required information in a clear and conspicuous manner, as required by the TILA, the plaintiff directs the Court's attention to a disclosure form attached to its Memorandum in Support of Plaintiffs Motion for Summary Judgment that has two alternate paragraphs which, when marked in a corresponding box, signify two different types of transactions. Neither paragraph's corresponding box is marked in the form submitted by the plaintiff. Although the plaintiff fails to present the disclosure form by affidavit or declaration in violation of D. Kan. LBR 7056.1(c), the defendant does not raise an objection to the disclosure form and further does not dispute that "the Plaintiffs copies of the Notice did not have a box checked."8 Despite any procedural shortcomings, it is clear that the parties do not dispute the form and substance of the notice of right to rescind received by the plaintiff. Therefore, because it appears neither parties' interests will be prejudiced, the Court, for the purposes of this Memorandum Opinion only, will accept the copy of the notice of right to rescind provided by the plaintiff as a true and accurate representation of the actual notice of right to rescind received by the plaintiff.

Discussion

Rule 56 of the Federal Rules of Civil Procedure governs summary judgment and is made applicable to adversary proceedings by Rule 7056 of the Federal Rules of Bankruptcy Procedure. Rule 56(c) makes summary judgment appropriate when, after consideration of the record, the court determines that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."9 In determining whether any genuine issues of material fact exist, the court must construe the record liberally in favor of the party opposing the summary judgment.10 An issue is "genuine" if sufficient evidence exists on each side "so that a rational trier of fact could resolve the issue either way" and "an issue is `material' if under the substantive law it is essential to the proper disposition of the claim." 11 The moving party has the burden of establishing that he or she is entitled to summary judgment.12

Here, the plaintiff is entitled to summary judgment if he demonstrates that there is no genuine issue of material fact that either (1) the defendant did not provide the plaintiff with the requisite number of right-to-rescind disclosures, or (2) the single disclosure provided to the plaintiff by the defendant inadequately conveys the required TILA disclosures.

A. TILA Background

Some background knowledge about the TILA is helpful when evaluating claims made under it. Congress enacted the TILA to regulate the disclosure of the terms of consumer credit transactions in order "to aid unsophisticated consumers and to prevent creditors from misleading consumers as to the actual cost of financing."13 Disclosure...

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12 cases
  • In re Dawson
    • United States
    • United States Bankruptcy Courts. District of Columbia Circuit
    • 9 April 2008
    ...the equities present in a particular case. . . ." (internal quotations and citations omitted)); Stanley v. Household Fin. Corp. III (In re Stanley), 315 B.R. 602, 615 (Bankr.D.Kan.2004) (voiding of security interest is one of rescission procedures under TILA and can be equitably modified, b......
  • In re Wampler, 05-27659.
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Kansas
    • 29 June 2006
    ...1020 (8th Cir.1996) (following Penrod); In re Barton Indus., Inc., 104 F.3d 1241 (10th Cir.1997) (following Barton). 45. In re Stanley, 315 B.R. 602 (Bankr.D.Kan. 2004). 46. See § 541(b)(7); see also Patterson v. Shumate, 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992). This is despite......
  • Smith–Pena v. Wells Fargo Bank, N.A. (In re Smith–Pena), Bankruptcy No. 11–17355–FJB.
    • United States
    • United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts
    • 2 January 2013
    ...12. In In re Stanley, the bankruptcy court characterized rescission under the TILA as a remedy that restores the status quo ante. 315 B.R. 602, 615 (Bankr.D.Kan.2004). In this case, the Debtor received nothing from New Century. Her bankruptcy schedules do not list a debt owed. Where she has......
  • Fields v. Faircloth, Case No. 17-4037-DDC-KGS
    • United States
    • United States District Courts. 10th Circuit. United States District Courts. 10th Circuit. District of Kansas
    • 24 January 2018
    ...of the right to rescind; the right lasts up to three years if the lender fails to give the disclosures and notice." In re Stanley, 315 B.R. 602, 607 (D. Kan. 2004); 15 U.S.C. § 1635(a), (f). Section 1635(b) "explains the effect that rescission has on the consumer-borrower and lender." In re......
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