Stutzka v. McCarville

• Citation: 420 F.3d 757
• Decision Date: 23 August 2005
• Docket Number: No. 04-2208.,04-2208.
• Parties: Tommy Joe STUTZKA, Guardian and Conservator for Carol A. Gibilisco, Plaintiff/Appellant, v. James P. McCARVILLE, as Conservator and Guardian of Cheryl A. Nord-McCarville; James Walters, doing business as Prestige Mortgage; Popular Financial Services, L.L.C., a Delaware limited liability company, Defendants/Appellees. Popular Financial Services, L.L.C., a Delaware limited liability company, Third Party Plaintiff, v. Lunnar Title & Escrow, doing business as LTS Title Services, Co., a Nebraska corporation, Third Party Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

420 F.3d 757

Tommy Joe STUTZKA, Guardian and Conservator for Carol A. Gibilisco, Plaintiff/Appellant, v. James P. McCARVILLE, as Conservator and Guardian of Cheryl A. Nord-McCarville; James Walters, doing business as Prestige Mortgage; Popular Financial Services, L.L.C., a Delaware limited liability company, Defendants/Appellees.

Popular Financial Services, L.L.C., a Delaware limited liability company, Third Party Plaintiff, v. Lunnar Title & Escrow, doing business as LTS Title Services, Co., a Nebraska corporation, Third Party Defendant.

No. 04-2208.

United States Court of Appeals, Eighth Circuit.

Submitted: December 14, 2004.

Filed: August 23, 2005.

James Polak, argued, Omaha, NE, for appellant.

Todd W. Weidemann, argued, Omaha, NE (James E. Riha, Omaha, NE, on the brief), for appellee James Walters and Popular Financial Services.

Before WOLLMAN, ARNOLD, and GRUENDER, Circuit Judges.

WOLLMAN, Circuit Judge.

Tommy Joe Stutzka, guardian and conservator for Carol Gibilisco, appeals from the district court's judgment with respect to his claims against Popular Financial Services, L.L.C. (Popular). We affirm in part and reverse in part.

I.

Gibilisco is a widow in her sixties. She has been blind since birth and is developmentally disabled. Although she is articulate and capable of recollecting names, places, times, and events, she lacks a basic understanding of arithmetic and financial transactions. The district court described her as "very trusting and eager to please."

Gibilisco and her husband, Sam, who was also visually and developmentally impaired, lived in Sam's mother's house on Hickory Street in Omaha, Nebraska (the Hickory Street property). Carol and Sam were listed on the title of the house. Sam's mother handled all financial matters until her death in 1994 or 1995, at which point Sam took over those responsibilities.

In 1993, the Gibiliscos purchased insurance and annuities from James McCarville. Thereafter, the Gibiliscos met McCarville's wife, Cheryl Nord-McCarville, and the two couples became social acquaintances. McCarville also helped prepare the Gibiliscos' income taxes. After Sam's mother died, the McCarvilles and Gibiliscos spent more time together. The McCarvilles persuaded the Gibiliscos to join them as informal business associates in a custom embroidery business they owned in O'Neill, Nebraska, some 300 miles from the Gibiliscos' home. The Gibiliscos earned little, if any, income from the business.

In 1999, McCarville asked Sam to obtain a home equity loan on the Hickory Street property to purchase equipment for the embroidery business. McCarville referred Sam to James Walters, a mortgage broker with whom McCarville had a prior business relationship. The Gibiliscos applied for and received a loan from U.S. Bank in the amount of $55,000. The following year, Sam and Nord-McCarville opened several lines of credit at U.S. Bank with approved credit of $25,000. The Gibiliscos believed that the McCarvilles were obligated to pay back these debts and that the McCarvilles were making payments with income received from the embroidery business. Within a few months, however, U.S. Bank informed the Gibiliscos that the mortgage was in default.

In February 2001, Sam contacted Walters to ask about refinancing his lines of credit to obtain a lower interest rate and lower payments. Walters advised Sam to refinance the U.S. Bank mortgage and tie the lines of credit into the refinanced loan. Sam died on April 3, 2001. Shortly thereafter, Walters contacted Carol Gibilisco (now the sole owner of the Hickory Street property) and obtained her consent to process the loan refinancing. He then prepared a loan application with Popular that listed Nord-McCarville as the borrower and Carol Gibilisco as the co-borrower. In preparing and processing the loan, Walters: (1) included numerous misstatements in the application;¹ (2) processed the loan with a fixed rate but closed it with a variable rate capped at 15.875%; (3) failed to disclose the changed interest rate in the good faith estimate or in the truth-in-lending statement; (4) failed to provide any pre-closing disclosures to Gibilisco; and (5) facilitated a loan that required monthly payments approximately $300 higher than Gibilisco's payments on the U.S. Bank mortgage.

On May 11, 2001, Gibilisco and Nord-McCarville closed on the refinanced loan in the amount of $85,000. The Popular mortgage stipulated a repayment over thirty years, with monthly payments of $877 (including hazard insurance and real estate tax payments) that could rise as high as $1,135 if the variable rate increased to its maximum percentage. The closing documents were not printed in Braille, and McCarville guided Gibilisco's hand to ensure that her signature would fall on the appropriate lines. Gibilisco also signed a deed conveying the Hickory Street property to herself and Nord-McCarville jointly.

At closing, $79,380 of the Popular mortgage was used to pay off the U.S. Bank mortgage and the lines of credit. Walters received a $4,059 broker fee from the title company and an $850 yield spread premium payment from Popular. Walters, in turn, paid McCarville $1,250 for his assistance with the closing.

Stutzka, a family friend of the Gibiliscos who became Carol's conservator in February 2002, subsequently learned of the transaction and brought suit against McCarville, Nord-McCarville, Walters (doing business as Prestige Mortgage), and Popular, alleging unspecified violations of the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq.; unspecified violations of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2601 et seq.; and civil conspiracy. Stutzka also sought: (1) rescission of the deed, promissory note, and deed of trust connected to the Popular mortgage for lack of capacity, undue influence, and fraud; (2) to quiet title to the Hickory Street property in Gibilisco; and (3) a temporary restraining order. Popular cross-claimed for judgment against Walters and filed a third-party claim against the title company that oversaw the closing of the mortgage. The district court subsequently entered a default judgment against McCarville and Nord-McCarville, dismissed Stutzka's TILA claims and one aspect of his RESPA claims, and dismissed Popular's third-party claim.

In analyzing the circumstances of the Popular mortgage transaction, the district court found that:

Carol did not understand the effect of her signature on the loan documents. She thought the purpose of the transaction was to help the McCarvilles continue the embroidery business and to change banks . . . she never viewed herself as bearing responsibility for repaying the sum borrowed on the Popular loan. Carol thought that Nord-McCarville was obligated to repay the loan and that she would do so. At trial, Carol did not know how much the McCarvilles had paid on the loan. Neither did she understand that Walters earned money from the transaction. The Court specifically finds that whatever general understanding Carol may have had about the nature of the loan transaction and mortgage, she did not have the intellectual capacity to resist the direction of the McCarvilles, nor to appreciate the consequences of her actions.

D. Ct. Order of May 21, 2004, at 12.

Thereafter, the district court issued an amended judgment that rescinded the Popular mortgage; declared null and void the deed that transferred ownership of the Hickory Street property to Gibilisco and Nord-McCarville; quieted title to the Hickory Street property in Gibilisco; reformed the promissory note and deed of trust to remove Gibilisco as a borrower; ordered Walters to remit $4,059 to Gibilisco and $850 to Popular; denied Popular's cross-claim against Walters; and ordered Gibilisco to remit $85,000 (the amount of the loan without interest) to Popular. Stutzka appeals from this final aspect of the judgment, from the district court's denial of his RESPA claims (the remainder of which were dismissed in the district court's May 21, 2004, order), and from the district court's dismissal of his TILA claims.

On October 7, 2004, the United States Bankruptcy Court for the District of Nebraska issued an order for default judgment in a related case brought by Popular against the McCarvilles. See Popular Financial Services, LLC v. James P. McCarville, Order for Default Judgment, Case No. BK 02-41760, Chapter 7, Adversary No. 04-04076 (Bankr.D.Neb.2004).² This judgment requires the McCarvilles to pay Popular $116,813.28, plus interest of $22.96 per day, beginning on September 29, 2004, until the judgment is collected, together with Popular's costs.

II.

Stutzka contends that the district court erred by failing to relieve Gibilisco of the burden to make restitution for the $85,000 Popular mortgage. We review the district court's application of Nebraska law de novo, its denial of equitable relief for abuse of discretion, and its findings of fact for clear error. Lincoln Benefit Life Co. v. Edwards, 243 F.3d 457, 461 (8th Cir.2001) (per curiam) (citations omitted).

Under Nebraska law, an action to rescind a written instrument is an equity action. Kracl v. Loseke, 236 Neb. 290, 461 N.W.2d 67, 69 (1990). Rescission is intended "to place the parties in a status quo, that is, return the parties to their position which existed before the rescinded contract." Id. at 75. Accordingly, "[i]n ordering Rescission, a court must require all parties to return whatever they gained under the rescinded document." See Edwards, 243 F.3d at 461 (citing Gnuse v. Garrett, 129 Neb. 265, 261 N.W. 143, 144 (1935)).

Here, Stutzka (as Gibilisco's conservator) requested that the district court rescind the Popular mortgage, and the district court granted Stutzka the exact relief he prayed for. A necessary consequence of the rescission remedy, however, was that the district court was obligated to...