McOmie-Gray v. Bank of America Home Loans

• Decision Date: 08 February 2012
• Docket Number: No. 10–16487.,10–16487.
• Parties: Kathryn McOMIE–GRAY, Plaintiff–Appellant, v. BANK OF AMERICA HOME LOANS, FKA Countrywide Home Loans, Inc., Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

12 Cal. Daily Op. Serv. 1673

2012 Daily Journal D.A.R. 1810

667 F.3d 1325

Kathryn McOMIE–GRAY, Plaintiff–Appellant,

v.BANK OF AMERICA HOME LOANS, FKA Countrywide Home Loans, Inc., Defendant–Appellee.

No. 10–16487.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 6, 2011.Filed Feb. 8, 2012.

Thomas A. Jenkins and Daniel Joseph Mulligan, San Diego, CA; Larry Wayne Gabriel, Woodland Hills, CA; Jenkins Mulligan & Gabriel LLP; Pamela Simmons, Simmons & Purdy, Soquel, CA, for the plaintiff-appellant.

James Goldberg, Thomas E. Nanney, Ori Edelstein, Bryan Cave LLP, San Francisco, CA, for the defendant-appellee.

Tara A. Twomey, Carmel, CA, for the amicus.Appeal from the United States District Court for the Eastern District of California, Morrison C. England, District Judge, Presiding. D.C. No. 2:09–cv–02422–MCE–EFB.Before: CARLOS T. BEA and STEPHEN S. TROTT, Circuit Judges, and REBECCA R. PALLMEYER, District Judge.^*

OPINION

PALLMEYER, District Judge:

Kathryn McOmie–Gray appeals the dismissal of her lawsuit for failure to state a claim upon which relief may be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). McOmie–Gray sought rescission of her loan secured by a trust deed with Bank of America Home Loans (“the Bank”) for alleged violations of disclosure requirements under the federal Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et seq. On the Bank's motion, the district court dismissed the suit as untimely because it was filed after the three-year period set by 15 U.S.C. § 1635(f). McOmie–Gray argues that because she gave the Bank timely notice of rescission, she was not required to bring suit within the three-year period, and the district court erred in dismissing this case.

For us, the question presented is a matter of first impression. McOmie–Gray cites decisions from several district courts in this circuit that apply the one-year statute of limitations set forth in 15 U.S.C. § 1640(e), measuring the time from the date on which the lender fails to respond to the borrower's notice of rescission. We disagree with those courts, and conclude, as set forth below, that the time limit established by 15 U.S.C. § 1635(f) is applicable here. Moreover, as we explained in Miguel v. Country Funding Corp., 309 F.3d 1161 (9th Cir.2002), 15 U.S.C. § 1635(f) is a three-year statute of repose, requiring dismissal of a claim for rescission brought more than three years after the consummation of the loan secured by the first trust deed, regardless of when the borrower sends notice of rescission.

I

On April 14, 2006, McOmie–Gray obtained a first trust deed loan from Paramount Equity Mortgage. At the closing, McOmie–Gray was presented with several loan documents to sign, including two Notice of Right to Cancel forms. McOmie–Gray alleges, however, that neither of these forms explained when the borrower's right to cancel would expire. Subsequently, Paramount assigned its interest in the loan to Countrywide Home Loans, Inc., a company that the Bank later acquired.

On January 18, 2008, McOmie–Gray, through her attorney, sent the bank notice of her intent to rescind the loan, citing the Bank's failure to advise McOmie–Gray of the final date to cancel the transaction. The Bank refused rescission, asserting that McOmie–Gray had received proper notice of her right to rescind. According to McOmie–Gray, although the Bank initially refused to accept her notice of rescission, it “negotiated with [her] for over a year regarding the rescission.” McOmie–Gray's Opening Brief at 5. McOmie–Gray further alleges that to facilitate this negotiation, the Bank agreed to toll the statute of limitations with respect to her TILA claims until August 30, 2009.

On August 28, 2009, McOmie–Gray filed a complaint with the district court seeking rescission of the loan secured by a first trust deed. On the Bank's motion, the district court dismissed the initial complaint with leave to amend because McOmie–Gray failed to allege tender. McOmie–Gray then filed her First Amended Complaint on March 30, 2010. The district court dismissed the First Amended Complaint as well. In its June 23, 2010 order, the court concluded that McOmie–Gray's right to rescission was subject to a three-year statute of repose under 15 U.S.C. § 1635(f). Because this period expired on its face on April 14, 2009—three years after the consummation of the mortgage transaction—the court concluded that McOmie–Gray's claim was time-barred. The court made no mention of the alleged tolling agreement.

II

TILA protects consumers from fraud, deception, and abuse within the residential secured lending marketplace by mandating that lenders disclose certain information to borrowers. To ensure that lenders comply with these disclosure requirements, TILA grants borrowers the right to rescind a home-secured loan in the event the lender has failed to make the required disclosures. Specifically, § 1635(a) provides that a borrower shall have a right to rescind a loan secured by the borrower's residence by providing prompt notice to the creditor:

[T]he obligor shall have 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 under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the [Federal Reserve Board], of his intention to do so.

15 U.S.C. § 1635(a). Regulation Z, promulgated by the Federal Reserve Board, confirms that notification is the means by which borrowers exercise their right to rescind:

To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. Notice is considered given when mailed, when filed for telegraphic transmission or, if sent by other means, when delivered to the creditor's designated place of business.

12 C.F.R. § 226.23(a)(2). Rescission is not automatic upon a borrower's mere notice of rescission, as McOmie–Gray contends, however. Instead, where a lender fails to comply with § 1635(b), the statute and regulations contemplate that a borrower, who by sending notice of rescission has “advanced a claim seeking rescission,” will seek a determination that rescission is proper. Large v. Conseco Fin. Servicing Corp., 292 F.3d 49, 55 (1st Cir.2002).

Section 1635 does not explicitly establish a time limit in which borrowers must bring suit for rescission if a lender does not comply with the rescission request. Indeed, it “says nothing in terms of bringing an action” or “a suit's commencement.” Beach v. Ocwen Fed. Bank, 523 U.S. 410, 417 [118 S.Ct. 1408, 140 L.Ed.2d 566] (1998). Where the borrower alleges, as McOmie–Gray has here, that “proper notice of rescission rights is not delivered to the consumer at the time of closing, and the lender fails to cure the omission by subsequently providing the proper information, the consumer's usual right to rescind within three days of closing is extended to three years.” Miguel v. Country Funding Corp., 309 F.3d 1161, 1163 (9th Cir.2002). Specifically, § 1635(f) provides:

An obligor's right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first, notwithstanding the fact that the information and forms required under this section or any other disclosures required under this part have not been delivered to the obligor.

15 U.S.C. § 1635(f). In another section of the Act, 15 U.S.C. § 1640, Congress created a claim for damages for a lender's violation of TILA, adopting a one-year statute of limitations for such actions. This provision makes no mention of rescission which, as noted, is governed by § 1635 and its three-year statute of repose.

III

Were we writing on a blank slate, we might consider whether notification within three years of the transaction could extend the time limit imposed by § 1635(f). But under the case law of this court and the Supreme Court, rescission suits must be brought within three years from the consummation of the loan, regardless whether notice of rescission is delivered within that three-year period.

In Beach, the Supreme Court addressed whether mortgagors, who never sent a notice of rescission to the lender, could nonetheless raise the right of rescission as “an affirmative defense in a collection action brought more than three years after the consummation of the transaction.” 523 U.S. at 411–12, 118 S.Ct. 1408. The mortgagors conceded

that any right they may have had to institute an independent proceeding for rescission under § 1635 lapsed ... three years after they closed the loan with the bank, but they argue[d] that the restriction to three years in § 1635(f) is a statute of limitation governing only the institution of suit and accordingly has no effect when a borrower claims a § 1635 right of rescission as a “defense in recoupment” to a collection action.

Id. at 415, 118 S.Ct. 1408. The Court rejected this proposed reading of § 1635(f). Specifically, the Court observed that

[s]ection 1635(f) ... takes us beyond any question whether it limits more than the time for bringing a suit, by governing the life of the underlying right as well. The subsection says nothing in terms of bringing an action but instead provides that the “right of rescission [under the Act] shall expire” at the end of the time period. It talks not of a suit's commencement but of a right's duration, which it addresses in terms so straightforward as to render any...