Barnes v. Chase Home Finance, LLC et al

Filing 50

ORDER: The Court ADOPTS in part Magistrate Judge Papak's Findings and Recommendation 38 and GRANTS Defendant IBM's Motion 25 to Dismiss as to Plaintiff's claim for damages arising out of the loan-origination documents as ba rred by the applicable statute of limitations. The Court DECLINES to adopt the balance of the Findings and Recommendation. The Court DENIES Defendant IBM's Motion 25 to Dismiss to the extent that IBM contends the Court does not have subject-m atter jurisdiction over Plaintiff's claim for rescission. The Court also DENIES IBM's Motion 25 to Dismiss Plaintiff's remaining claims for failure to state a claim. This matter is returned to the Magistrate Judge for further proceedings. Signed on 10/18/2011 by Judge Anna J. Brown. See 35 page Order for full text. (bb)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION

TIMOTHY BARNES,
Plaintiff,

11-CV-142-PK
ORDER

v.
CHASE HOME FINANCE, LLC;
CHASE BANK USA, N.A.; IBM
LENDER BUSINESS PROCESS
SERVICES, INC.; and JOHN AND
JANE DOES 1-10,
Defendants.

BROWN, Judge.
Magistrate Judge Paul Papak issued Findings and
Recommendation (#38) on June 10, 2011, in which he recommended
the Court (1) grant Defendant IBM Lender Business Process
Services’s Motion (#25) to Dismiss Plaintiff’s claim for
rescission for lack of subject-matter jurisdiction and each of
Plaintiff’s remaining claims for failure to state a claim and
(2) deny the Motion (#20) to Dismiss for failure to state a claim
1 - ORDER

by Defendants Chase Home Finance and Chase Bank USA (Chase
Defendants) as moot.

Plaintiff, pro se, filed timely Objections

(#43) to the Findings and Recommendation.

The matter is now

before this Court pursuant to 28 U.S.C. § 636(b)(1) and Federal
Rule of Civil Procedure 72(b).
Also before the Court is Plaintiff’s Motion (#46) to Take
Judicial Notice, which Plaintiff filed on July 11, 2011, after he
filed his Objections to the Findings and Recommendation.
For the reasons that follow, the Court declines to adopt
Magistrate Judge Papak’s Findings and Recommendation and returns
this matter to the Magistrate Judge for further proceedings
consistent with this Order including whether to address the
remaining grounds for dismissal raised by Defendants in their
Motions to Dismiss that were rendered moot in the June 10, 2011,
Findings and Recommendation.

BACKGROUND
On February 4, 2011, Plaintiff filed his Complaint in this
Court.

Plaintiff seeks relief for Defendants’ alleged violations

of the Truth in Lending Act (TILA), 15 U.S.C. § 1601, et seq.,
related to the residential-mortgage loan Plaintiff accepted from
Defendant Chase Bank USA in November 2007.
The Court must construe Plaintiff’s Complaint liberally.
Viewing Plaintiff’s Complaint in this light, Plaintiff brings the
2 - ORDER

following claims against Defendants:

(1) for rescission of his

residential-mortgage loan under TILA § 1635(a) due to
inaccuracies on the required Notice of Right to Cancel; (2) for a
declaration that Plaintiff validly rescinded his home-mortgage
loan and, therefore, that the security interest in Plaintiff’s
home that secures his residential-mortgage loan is void; (3) for
injunctive relief to enjoin Defendants from initiating
nonjudicial foreclosure on his residence; (4) for statutory and
actual damages resulting from Defendant Chase Bank USA’s
allegedly deficient Notice of Right to Cancel disclosures under
TILA § 1640; and (5) for statutory and actual damages for
Defendants’ failure to effect Plaintiff’s demand for rescission.
On March 29, 2011, Chase Defendants filed their Motion (#20)
to Dismiss Plaintiff’s claim for rescission as untimely.
On April 13, 2011, Defendant IBM filed its Motion (#25) to
Dismiss Plaintiff’s Complaint for failure to state a claim and
for lack of subject-matter jurisdiction.
On June 10, 2011, the Magistrate Judge issued Findings and
Recommendation in which he recommends the Court dismiss
Plaintiff’s Complaint in its entirety.
On June 23, 2011, Plaintiff filed timely Objections to the
Findings and Recommendation.

Defendant IBM and Chase Defendants

filed separate Responses to Plaintiff’s Objections.
On July 11, 2011, Plaintiff filed his Motion (#46) to Take

3 - ORDER

Judicial Notice to which Chase Defendants filed a Response
opposing the Motion.

Defendant IBM joined in Chase Defendants’

Response.

DISCUSSION
I.

Plaintiff’s Motion to Take Judicial Notice.
Plaintiff requests the Court to take judicial notice of

“district court and bankruptcy proceedings interpreting TILA
rescission claims, the Federal Reserve Board's Official Staff
Commentary § 226.23(d) Effects of Rescission, and the
specific published research authorities by Elizabeth Renuart and
Kathleen Keest, Truth in Lending, § 6.3.2.1 and 6.9.3 (National
Consumer Law Center 6th Ed. 2007 & Supp. 2008), The Extended
Right to Rescind and Damages for Rescission Violations, Id.”
Although Chase Defendants object on the ground that
Plaintiff’s Motion is essentially another pleading in response to
the Findings and Recommendation, the Court, nevertheless,
considers Plaintiff’s Motion solely as a request for the Court to
take judicial notice of two legal opinions, regulatory
commentary, and academic materials explaining the right of
rescission under TILA.

Plaintiff does not request the Court to

notice any particular adjudicative facts.
A court properly may take judicial notice of pleadings filed
in other actions.
4 - ORDER

See Burbank-Glendale-Pasadena Airport

Authority v. City of Burbank, 136 F.3d 1360, 1364 (9th Cir. 1998)
(court took judicial notice of pleadings filed in a related
state-court action).

The existence and content of opinions and

pleadings are matters capable of accurate and ready determination
by resort to official court files that cannot reasonably be
questioned.

See Fed. R. Evid. 201(b)(2).

Here the Court need not take judicial notice to consider
these materials in their proper legal context when resolving
Plaintiff’s Objections to the Findings and Recommendation.
Accordingly, the Court denies Plaintiff’s Motion (#46) to Take
Judicial Notice.
II.

Plaintiff’s Objections to the Findings and Recommendation as
to IBM’s Motion to Dismiss.
Plaintiff objects to the Magistrate Judge’s recommendation

to grant Defendant IBM’s Motion to Dismiss Plaintiff’s claim for
rescission for lack of subject-matter jurisdiction, for failure
to state a claim for declaratory and injunctive relief, and for
damages resulting from Defendants’ alleged failure to effect
Plaintiff’s notice of rescission.
When any party objects to any portion of the Magistrate
Judge's Findings and Recommendation, the district court must make
a de novo determination of that portion of the Magistrate Judge's
report.

28 U.S.C. § 636(b)(1).

See also United States v. Reyna-

Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003)(en banc); United
States v. Bernhardt, 840 F.2d 1441, 1444 (9th Cir. 1988).
5 - ORDER

For

those portions of the Findings and Recommendation to which the
parties do not object, the Court is relieved of its obligation to
review the record de novo as to this portion of the Findings and
Recommendation.
A.

Reyna-Tapia, 328 F.3d at 1121.

Standards.
1.

Motion to Dismiss.

To survive a motion to dismiss [under Rule
12(b)(6)], a complaint must contain
sufficient factual matter, accepted as true,
to “state a claim to relief that is plausible
on its face.” [Bell Atlantic v. Twombly, 550
U.S. 554,] 570, 127 S. Ct. 1955. A claim has
facial plausibility when the plaintiff pleads
factual content that allows the court to draw
the reasonable inference that the defendant
is liable for the misconduct alleged. Id. at
556 . . . . The plausibility standard is not
akin to a “probability requirement,” but it
asks for more than a sheer possibility that a
defendant has acted unlawfully. Ibid. Where
a complaint pleads facts that are “merely
consistent with” a defendant's liability, it
“stops short of the line between possibility
and plausibility of ‘entitlement to relief.’”
Id. at 557, 127 S. Ct. 1955 (brackets
omitted).
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).

See also Bell

Atlantic v. Twombly, 550 U.S. 554, 555-56 (2007).

The court must

accept as true the allegations in the complaint and construe them
in favor of the plaintiff.

Intri-Plex Tech., Inc. v. Crest

Group, Inc., 499 F.3d 1048, 1050 n.2 (9th Cir. 2007).

"The court

need not accept as true, however, allegations that contradict
facts that may be judicially noticed by the court."

6 - ORDER

Shwarz v.

United States, 234 F.3d 428, 435 (9th Cir. 2000)(citations
omitted).

The court's reliance on judicially-noticed documents

does not convert a motion to dismiss into a summary-judgment
motion.

Intri-Plex, 499 F.3d at 1052.

"[A] complaint may survive a motion to dismiss only if,
taking all well-pleaded factual allegations as true, it contains
enough facts to 'state a claim to relief that is plausible on its
face.'”

Hebbe v. Pliler, 627 F.3d 338, 341-42 (9th Cir.

2010)(quoting Iqbal, 129 S. Ct. at 1949, and Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)).

A pro se plaintiff's

complaint “must be held to less stringent standards than formal
pleadings drafted by lawyers.”
94 (2007) (per curiam).
filings liberally.

Erickson v. Pardus, 551 U.S. 89,

Thus, the court must construe pro se

If a plaintiff fails to state a claim,

“[l]eave to amend should be granted unless the pleading ‘could
not possibly be cured by the allegation of other facts,’ and
should be granted more liberally to pro se plaintiffs.”

Ramirez

v. Galaza, 334 F.3d 850, 861 (9th Cir. 2003)(quoting Lopez v.
Smith, 203 F.3d 1122, 1130 (9th Cir. 2000)).
2.

TILA.

TILA is a consumer-protection law enacted in 1968 to
ensure that consumers are able to make informed choices as to
their use of credit.

See 15 U.S.C. § 1601(a).

As a consumer-

protection statute, TILA is liberally construed in favor of
7 - ORDER

consumers and is strictly enforced against creditors.

Rubio v.

Capital One Bank, 613 F.3d 1195, 1202 (9th Cir. 2010).

TILA

requires creditors to make certain disclosures to borrowers, and
the failure to do so gives the borrowers certain rights to
rescind the loan transaction and to make claims for damages.
U.S.C. §§ 1635, 1640.1

Actions for damages under § 1640 are

subject to a one-year statute of limitations.
§ 1640(e).

15

15 U.S.C.

A borrower who has secured a loan with his primary

residence has the right to rescind the transaction until midnight
on the third business day following consummation of the
transaction or from the date of delivery of the forms required by
TILA.

15 U.S.C. § 1635(a).

“[N]otwithstanding 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,” a borrower’s rescission remedy expires after three
years from the date of the transaction.
B.

15 U.S.C. § 1635(f).

Analysis.

Neither party raises any objection to that portion of the
Findings and Recommendation in which the Magistrate Judge
recommends the Court grant Defendant IBM’s Motion to Dismiss
Plaintiff’s claim for damages resulting from the alleged
deficiencies in the original Notice of the Right to Cancel on the
1

TILA is implemented by “Regulation Z,” 12 C.F.R. §§ 226.1,
et seq., which is promulgated by the Board of Governors of the
Federal Reserve.
8 - ORDER

ground that Plaintiff’s damages claim is barred by the applicable
one-year statute of limitations.

Plaintiff, however, objects to

the balance of the Magistrate Judge’s recommendation to grant
IBM’s Motion to Dismiss as to each of Plaintiff’s remaining
claims.

Specifically, Plaintiff objects on the following

grounds:

(1) his claim for rescission is not time-barred by the

three-year limitation in § 1635(f), (2) Plaintiff has provided
sufficient facts to support his allegation that Chase Bank
USA’s Notice of Right to Cancel was materially defective, and
(3) Plaintiff has stated a claim for damages for Defendants’
failure to effect Plaintiff’s notice of rescission.
1.

Timeliness of Plaintiff’s Claim for Rescission.

Plaintiff objects to the Magistrate Judge’s
recommendation that Plaintiff’s claim for rescission is timebarred.

Plaintiff asserts in his Complaint that he was entitled

under TILA to a three-year period in which he could exercise his
right to rescind the home-mortgage loan he consummated with
Defendant Chase Bank USA because the Notice of the Right to
Cancel that Chase Bank provided to Plaintiff contained material
errors.

As noted, under TILA a person who takes a loan secured

by an interest in his principal residence has the right to
rescind the transaction until midnight on the third business day
following consummation of the transaction or from the date of
delivery of the forms required by TILA.

9 - ORDER

15 U.S.C. § 1635(a).

If, however, a lender does not provide the correct notice
explaining Plaintiff’s rights, the right of rescission is
extended and expires three years after consummation of the
transaction.

15 U.S.C. § 1635(f); 12 C.F.R. § 226.23(3).

The Magistrate Judge recommended the Court grant IBM’s
Motion to Dismiss on the ground that Plaintiff’s claim for
rescission is time-barred by the three-year time limit on
Plaintiff’s right of rescission under TILA, which, in turn,
deprives the Court of subject-matter jurisdiction over
Plaintiff’s claim.

The Magistrate Judge found Plaintiff’s loan

closed on November 14, 2007,2 and Plaintiff filed this matter on
February 4, 2011, more than three years after consummation of the
loan transaction.

Thus, the Magistrate Judge recommends granting

Defendant IBM’s Motion to Dismiss Plaintiff’s rescission claim
under Federal Rule of Civil Procedure 12(b)(1) for lack of
subject-matter jurisdiction.
The Magistrate Judge found the three-year limitation on
the right of rescission set out in § 1365(f) is an ultimate
statute of repose as to Plaintiff’s right to seek a rescission
remedy in court.

2

The Magistrate Judge relies on the Supreme

The parties dispute whether the loan closed on November 14
or November 15, 2007. The Court addresses that dispute below as
the subject of Plaintiff’s second Objection. For the purposes of
this Objection, however, the Court need not resolve the dispute
because the difference of a single day is not determinative of
Plaintiff’s first Objection to the Findings and Recommendation.
10 - ORDER

Court’s decision in Beach v. Ocwen Federal Bank in which the
Court held:
The issue here is not whether limitation
statutes affect recoupment rights, but
whether § 1635(f) is a statute of limitation,
that is, “whether [it] operates, with the
lapse of time, to extinguish the right which
is the foundation for the claim” or “merely
to bar the remedy for its enforcement.”
Midstate Horticultural Co. v. Pennsylvania R.
Co., 320 U.S. 356, 358-359, and n. 4, 64 S.
Ct. 128, 129-130, and n. 4, 88 L. Ed. 96
(1943). The “ultimate question” is whether
Congress intended that “the right shall be
enforceable in any event after the prescribed
time,” id., at 360, 64 S. Ct., at 130;
accord, Burnett v. New York Central R. Co.,
380 U.S. 424, 85 S. Ct. 1050, 13 L. Ed. 2d
941 (1965), and in this instance, the answer
is apparent from the plain language of
§ 1635(f). See Good Samaritan Hospital v.
Shalala, 508 U.S. 402, 409, 113 S. Ct. 2151,
2156-2157, 124 L. Ed. 2d 368 (1993).
The terms of a typical statute of
limitation provide that a cause of action may
or must be brought within a certain period of
time. So, in Reiter v. Cooper, supra, at
263-264, 113 S. Ct., at 1217-1218, we
concluded that 49 U.S.C. § 11706(c)(2),
providing that a shipper “‘must begin a
civil action to recover damages under
[§ 11705(b)(3)] within two years after the
claim accrues,’” was a statute of limitation
raising no bar to a claim made in recoupment.
See Note, Developments in the Law: Statutes
of Limitations, 63 Harv. L. Rev. 1177, 1179
(1950)(most statutes of limitation provide
either that “all actions . . . shall be
brought within” or “no action . . . shall be
brought more than” so many years after “the
cause thereof accrued” (internal quotation
marks omitted)); H. Wood, 1 Limitation of
Actions § 1, pp. 2-3 (4th ed. 1916)
(“[S]tatutes which provide that no action
shall be brought, or right enforced, unless
11 - ORDER

brought or enforced within a certain time,
are . . . statutes of limitation”).
* * *
Section 1635(f), however, 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
limitation on the time for seeking a remedy
superfluous. There is no reason, then, even
to resort to the canons of construction that
we use to resolve doubtful cases, such as the
rule that the creation of a right in the same
statute that provides a limitation is some
evidence that the right was meant to be
limited, not just the remedy. See Midstate
Horticultural Co., supra, at 360, 64 S. Ct.,
at 130; Burnett, supra, at 427, n. 2, 85 S.
Ct., at 1054 n. 2; Davis v. Mills, 194 U.S.
451, 454, 24 S. Ct. 692, 693-694, 48 L. Ed.
1067 (1904).
523 U.S. 410, 416-17 (1998).

The defendant-borrower in Beach,

without having sent a notice of rescission within the three-year
statutory period, sought to raise rescission as an affirmative
defense to the bank’s foreclosure action approximately five years
after consummation of the loan transaction.

Id. at 412-14.

In Miguel v. Country Funding Corp., the Ninth Circuit
addressed a similar situation in which it determined the
plaintiff’s rescission claim was untimely because the plaintiff
had not provided a notice of rescission to the proper party.

12 - ORDER

309

F.3d 1161, 1162-63 (9th Cir. 2002).

After quoting the Supreme

Court’s holding in Beach at length, the Ninth Circuit held:
[Section] 1635(f) is a statute of repose,
depriving the courts of subject matter
jurisdiction when a § 1635 claim is brought
outside the three-year limitation period.
Because Miguel did not attempt to rescind
against the proper entity within the
three-year limitation period, her right to
rescind expired.
Miguel argues that she should have been
allotted an additional year in which to file
suit after the expiration of the three-year
period afforded by the statute. While Miguel
is correct that 15 U.S.C. § 1640(e) provides
the borrower one year from the refusal of
cancellation to file suit, that is not the
issue before us. Rather, the issue is
whether her cancellation was effective even
though it was not received by the Bank—the
creditor— within the three-year statute of
repose. We hold that it was not. While the
Bank's servicing agent, Countrywide, received
notice of cancellation within the relevant
three- year period, no authority supports the
proposition that notice to Countrywide should
suffice for notice to the Bank. Therefore,
her right to cancellation was extinguished as
against the Bank. When congressionallycreated limitations on congressionallycreated public rights and benefits completely
extinguish the right previously created,
courts are deprived of jurisdiction. Lyon v.
Agusta S.P.A., 252 F.3d 1078, 1084–85 (9th
Cir. 2001).
* * *
Nor do the facts that the Bank's
servicing agent, Countrywide, was served
within the “extended” three-year rescission
period and that the Bank was added as a
defendant well in advance of the expiration
of § 1640's one-year statute of limitations
for suing on a § 1635 failure-to-effect13 - ORDER

rescission claim alter the jurisdictional
landscape. The Bank was not required to
cancel the loan because Miguel did not notify
the Bank of cancellation within the limited
three-year period. Because cancellation was
not effected during the three-year period,
the additional year statute of limitations
provided by § 1640 is irrelevant; it relates
to the time for filing suit once cancellation
has been wrongly refused. 15 U.S.C.
§ 1635(f). In this case, Miguel did not
provide the Bank with notice of cancellation
within the three-year statutory period, so
the Bank could not have wrongly refused
Miguel's request to cancel. Therefore,
§ 1640 does not apply.
Id. at 1164-65.
Plaintiff objects to the Magistrate Judge’s conclusion
that the limitation set out in § 1635(f) is a limitation on the
right to seek redress in court for a lender’s failure to give
effect to a borrower’s notice of rescission.

Plaintiff contends

§ 1635(f) limits the time in which he may exercise his right of
rescission and that TILA provides Plaintiff with one year after a
lender’s failure to honor a borrower’s rescission notice to bring
a claim in court to enforce that right.

Thus, Plaintiff contends

because he exercised his right of rescission by providing the
appropriate notice on August 4, 2010, within three years of the
November 2007 loan transaction and filed an action in this Court
less than six months later, his claim is timely and the Court has
subject-matter jurisdiction to declare whether his notice of
rescission was effective.
Plaintiff emphasizes the distinction between this
14 - ORDER

matter and the facts in Beach and Miguel:

Here Plaintiff sent a

proper notice of rescission within the three-year statutory
period while the plaintiffs in Beach and Miguel each sought to
obtain a rescission remedy from the courts after the three-year
period had run without having sent a proper notice of rescission
to the lender.
The Court notes there is not any specific guidance from
the Ninth Circuit on this issue, and, moreover, there is a
significant split among district courts that have addressed the
question whether § 1635(f) is a limitation on the time for a
borrower to invoke his right to rescission with the lender or on
a borrower’s right to bring a lawsuit to enforce that right.

In

Fowler v. Wells Fargo Bank, N.A., the Northern District of
California noted the divergence in the district court decisions:
There is a split of authority on this
statute of limitations issue in this
district, and there is no guiding authority
from the Ninth Circuit. See Briosos v. Wells
Fargo Bank, 2010 WL 3341043, *4 (N.D.Cal.
Aug.25, 2010)(noting that “there is a split
of authority regarding whether [TILA]
requires a borrower to file a rescission
claim within three years after a transaction
is consummated, or whether the borrower must
only assert his right to rescission within
that period”). In Brisos, the court examined
the split in authority and agreed with the
minority approach for this Circuit. Id.
(“The fact that Plaintiff did not seek to
enforce the remedy for violation of the right
until he filed this lawsuit on March 8, 2010,
does not undermine the fact that he exercised
his right to rescission [by sending in a
notice] within the prescribed limitations
15 - ORDER

period.”); see also Pearce v. Bank of America
Home Loans, 2010 WL 2348637, *4 (N.D. Cal.
June 8, 2010)(finding the minority approach
persuasive as “more consistent with the
statutory language” and Supreme Court
caselaw); Jozinovich v. JP Morgan Chase Bank,
N.A., 2010 WL 234895, *5 (N.D. Cal. Jan. 14,
2010)(stating that the rescission claim was
timely since the plaintiff sent a rescission
letter within three years of signing for the
loan, but dismissing the claim on other
grounds).
In contrast, the majority view requires
a plaintiff to file a lawsuit within three
years from the date of the loan. See, e.g.,
Rivera v. BAC Home Loans Servicing, L.P.,
2010 WL 4916405, *3 (N.D. Cal. Nov. 22, 2010)
(holding that plaintiffs' TILA claims were
untimely where plaintiffs sent in a notice of
cancellation within three years of the loan,
but did not file their complaint until almost
four years after the loan was executed); Sam
v. American Home Mortg. Servicing, 2010 WL
761228, *2 (E.D. Cal. Mar. 3, 2010)
(concluding that whether plaintiff sent in a
notice of rescission within the three year
period was irrelevant to whether plaintiff
filed a timely claim for rescission and
holding that “plaintiff must file a complaint
seeking rescission before the statute of
repose expires.”); Gates v. Wachovia
Mortgage, FSB, 2010 WL 902818, at *4 (E.D.
Cal. Feb. 19, 2010)(“Because plaintiff filed
her Complaint over three years from the date
of consum-mation, the court is without
jurisdiction to consider her claim for
rescission under TILA.”).
No. 10-3933-EDL, 2011 WL 175506, at *6 (N.D. Cal. Jan 18, 2011).
The Court is persuaded the minority view (that the
limitation in § 1635(f) applies to the borrower’s exercise of his
right of rescission rather than to the timing of a lawsuit to
enforce that right) is more consistent with the Supreme Court’s
16 - ORDER

decision in Beach, the Ninth Circuit’s ruling in Miguel, and TILA
and its implementing regulations.
In Beach the Supreme Court held § 1635(f) “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 limitation on the time for seeking a remedy
superfluous.”

523 U.S. at 417.

Indeed, subsection (f) is titled

“Time limit for exercise of right.”
added).

15 U.S.C. § 1635(f)(emphasis

Moreover, the statute and the implementing regulations

make clear that a borrower “exercises” his right to rescission by
providing notice to the lender.

See 15 U.S.C. § 1635(a)(“the

obligor shall have the right to rescind the transaction . . . by
notifying the creditor”); 12 C.F.R. § 226.23(a)(2)(“To exercise
the right to rescind, the consumer shall notify the creditor of
the rescission by mail, telegram or other means of written
communication.”).

Section 1635(b) also provides in relevant

part:
When an obligor exercises his right to
rescind under subsection (a) of this section,
he is not liable for any finance or other
charge, and any security interest given by
the obligor, including any such interest
arising by operation of law, becomes void
upon such a rescission. Within 20 days after
receipt of a notice of rescission, the
creditor shall return to the obligor any
money or property given as earnest money,
17 - ORDER

downpayment, or otherwise, and shall take any
action necessary or appropriate to reflect
the termination of any security interest
created under the transaction.
Thus, the limitation in subsection (f) seems more appropriately
interpreted to limit the time in which a borrower may exercise
his right of rescission rather than to limit the time in which a
borrower may seek court enforcement of that right.
This conclusion also appears to be consistent with the
Ninth Circuit’s decision in Miguel in which the issue was whether
the plaintiff had notified the proper party within the three-year
statute of repose.

309 F.3d at 1165.

Ultimately the Ninth

Circuit determined the plaintiff had not notified the proper
party for purposes of exercising her right to rescind the
mortgage transaction.

Although the court did not directly

address the question, the Ninth Circuit strongly implied in its
resolution of the issue that the plaintiff’s claim (which was
filed more than three years after consummation of the
transaction) would have been timely if the notice of rescission
had been directed to the proper party within the three-year
statute of repose.

Id. (“Miguel argues that she should have been

allotted an additional year in which to file suit after the
expiration of the three-year period afforded by the statute.
While Miguel is correct that 15 U.S.C. § 1640(e) provides the
borrower one year from the refusal of cancellation to file suit,
that is not the issue before us.
18 - ORDER

Rather, the issue is whether

her cancellation was effective even though it was not received by
the Bank—the creditor—within the three-year statute of repose.”).
The Magistrate Judge notes the one-year limitation
period set out in § 1640(e) and referenced in Miguel is a
limitation only on claims for civil damages and does not apply to
claims for failure to effect rescission.

Indeed, § 1640

addresses “civil liability” under TILA and does not provide a
limitation period on a claim for failure to effect rescission in
which a borrower seeks a Court’s declaration that he properly
effected a rescission under § 1635.

As the Court has already

discussed, § 1635 sets out only a statute of repose; i.e., a time
limit on the borrower’s exercise of his right to rescission.
Several courts have addressed this issue squarely and adopted a
one-year statute of limitations on such a claim based on the
general TILA statute of limitations set out in § 1640.

See,

e.g., Santos v. Countrywide Home Loans, No. 1:09-CV-00912-AWI-SM,
2009 WL 2500710, at *3-5 (E.D. Cal. Aug. 14, 2009)(distinguished
Miguel on the ground that timely notice of rescission had not
been filed and relied on the one-year period of limitations from
§ 1640); Pearce v. Bank of Am. Home Loans, No. C 09-3988 JF, 2010
WL 2348637, at *3-5 (N.D. Cal. June 8, 2010)(noted several
district courts that have adopted the one-year statute of
limitations on a claim to enforce a timely notice of rescission);
Palmer v. Champion Mortg., 465 F.3d 24, 27 (1st Cir. 2006)(“If a

19 - ORDER

creditor does not respond to a rescission request within twenty
days, the debtor may file suit in federal court to enforce the
rescission right.”); Sherzer v. Homestar Mortg. Servs., No. 075040, 2010 WL 1947042, at *10-11 (E.D. Pa. May 7, 2010)(surveyed
numerous district-court decisions and noted specific decisions in
which borrowers had filed timely notices of rescission but
brought claims to enforce those notices after the three-year
period in § 1635(f)); Johnson v. Long Beach Mortg. Loan Trust
2001-4, 451 F. Supp. 2d 16, 40 (D.D.C. Aug. 4, 2006)(“If the
borrower exercises her right of rescission during this extended
[three-year] period, the creditor's denial of rescission or its
failure to properly respond to the rescission within 20 days
after receipt of notice gives rise to a potential violation under
TILA and commences the running of TILA's one year statute of
limitations.”).

In addition, although the statute is not

explicit as to the limitation period on claims under § 1635, the
application of the statute of limitations in § 1640(e) to a claim
to enforce a rescission under § 1635 is reasonable in light of
the text of the statute because § 1635(g) expressly permits the
same civil liability for violations of § 1635 as provided by §
1640.
Even though § 1635 lacks a specific limitations period
on claims to enforce a timely notice of rescission, the Court
concludes the alternative (employing § 1635(f) as a statute of

20 - ORDER

limitations rather than a statute of repose) is contrary to the
express language of the Supreme Court in Beach.

In addition, if

the three-year period is construed as limiting a plaintiff’s
right to bring a lawsuit to enforce his right to rescission, the
three-year period would actually be reduced to less than three
years.

Because a lender has 20 days under § 1635(b) to give

effect to a borrower’s notice of rescission, a borrower must
effectively exercise his right to rescission at two years and 344
days in order to permit the lender its 20 days to determine
whether to honor the borrower’s notice of rescission.

If a

lender declines to effect the rescission, the borrower can file a
lawsuit two years and 364 days after consummation of the loan to
be sure to avoid the expiration of the statute of repose.
Moreover, if a borrower sends a notice of rescission at two years
and 345 days or thereafter, he could not enforce his right in
court before it expires entirely if the lender took the full 20
days to deny the borrower’s request.

This approach would further

provide an incentive for lenders to delay.

Thus, if the period

of repose was construed as a limit on the right to bring an
action to enforce the right to rescission, it would undermine the
express language of the statute by essentially rendering
unenforceable a borrower’s exercise of his right to rescission
after two years and 344 days.
Ultimately § 1635, § 1640, and Regulation Z do not set

21 - ORDER

out any limitations on the time for a borrower to bring an action
to enforce a timely notice of rescission against a lender.
Specifically, the Court does not find the lack of an express
statute of limitations on such an action to be a persuasive basis
for finding the period of repose set out in § 1635(f) is also a
limitation on the time for a borrower to seek court enforcement
of a timely exercise of rescission.

Although reasonable judicial

minds may differ, in light of the foregoing and the Court’s
obligation to liberally construe TILA in favor of borrowers (see
Rubio, 613 F.3d at 1202), the Court declines to adopt the
Magistrate Judge’s recommendation to grant Defendant IBM’s Motion
to Dismiss Plaintiff’s claim in which he seeks the Court’s
enforcement of his timely notice of rescission on the basis that
the Court lacks subject-matter jurisdiction.

Plaintiff provided

with his Complaint copies of his rescission notices of August 4,
2010, to Chase Home Finance and October 25, 2010, to IBM and
copies of the certified-mail receipts showing both Defendants
received notice within three years of consummation of Plaintiff’s
loan.3

Plaintiff filed this action less than six months later.

On this record the Court concludes it has subject-matter
jurisdiction over Plaintiff’s claim in which he seeks a
declaration that he made a valid exercise of his statutory right

3

Plaintiff also provides copies of contemporaneous letters
from IBM and Chase Home Finance responding to Plaintiff’s notices
of rescission in Exhibits 5 and 6 attached to his Complaint.
22 - ORDER

to rescind the loan transaction within three years.
The Magistrate Judge also found “Barnes’ claim for
declaratory relief and his prayer for injunctive relief are each
necessarily premised on the proposition that Barnes is entitled
to rescission of his mortgage loan.”

Thus, the Magistrate Judge

recommends granting IBM’s Motion to Dismiss for failure to state
a claim as to Plaintiff’s claims for declaratory and injunctive
relief because the Magistrate Judge found the Court lacks
subject-matter jurisdiction over that claim.

In light of the

Court’s conclusion that it has subject-matter jurisdiction over
Plaintiff’s recission claim, however, this Court declines to
adopt the Magistrate Judge’s recommendation to grant IBM’s Motion
as to Plaintiff’s claims for declaratory and injunctive relief.
2.

Alleged Errors in the Notice of Right to Cancel.

Plaintiff also objects to the Magistrate Judge’s
finding as to the date the loan transaction closed.

The heart of

Plaintiff’s factual allegations in his Complaint and the
underpinning for the extended three-year period for Plaintiff’s
right to rescind the loan transaction is that the Notice of Right
to Cancel provided by Chase Bank USA at closing was materially
defective.

Specifically, Plaintiff alleges the loan closed on

November 15, 2007, but the Notice of Right to Cancel inaccurately
stated a closing date of November 14, 2007.

As a result,

Plaintiff alleges the Notice of Right to Cancel was defective

23 - ORDER

because it did not state the proper date of expiration of
Plaintiff’s right to cancel: i.e., the Notice indicates the right
to cancel expired at midnight November 17, 2007, when, according
to Plaintiff, it should have indicated his right to cancel
expired at midnight November 18, 2007.

Plaintiff attached as

part of Exhibit 1 to his Complaint an unexecuted copy of the
Notice of Right to Cancel that reflects a closing date of
November 14, 2007.
In assessing Plaintiff’s factual allegation that the
loan closed on November 15, 2007, rather than November 14, 2007,
the Magistrate Judge stated in footnote two on page seven:
The "Borrower's Settlement Statement" Barnes
alleges he received at closing bears a "print
date" of November 15, 2007, id., Exh. 1 at 3,
the "Estimated Statement" Barnes alleges he
received at closing bears a "print date" of
November 15, 2007, id., Exh. 1 at 5.
However, the "Deed of Trust" Barnes alleges
he received at closing bears a "print date"
of November 14, 2007, id., Exh. 1 at 8, and
references a note in the amount of $378,250
dated November 14, 2007, id., Exh. 1 at 9,
and the copy of the "Balloon Note" that
constitutes the mortgage loan and that Barnes
alleges he received at closing is dated
November 14, 2007, id., Exh. 1 at 23.
Similarly, the "Closing Instructions" Barnes
alleges he received at closing recites
November 14, 2007, as the "Date of Closing"
of the mortgage transaction and states that
the "Loan must close by: 11/14/2007." Id.,
Exh. 1 at 26. The "Truth-In-Lending
Disclosure Statement" that Barnes alleges he
received at closing bears the date November
14, 2007, id., Exh. 1 at 35, 36, the "Initial
Escrow Account Disclosure Statement" that
Barnes alleges he received at closing is
24 - ORDER

dated "[a]s of 11/14/2007," id., Exh. 1 at
37, the "Transfer of Servicing Disclosure
Statement" that Barnes alleges he received at
closing is dated November 14, 2007, id., Exh.
1 at 46, the "Notice of Assignment, Sale or
Transfer of Servicing Rights" that Barnes
alleges he received at closing is dated
November 14, 2007, id., Exh. 1 at 47, the
"Borrower's Certification & Authorization"
that Barnes alleges he received at closing is
dated November 14, 2007, id., Exh. 1 at
51,52, and the "Undertaking and Errors and
Omissions Form" that Barnes alleges he
received at closing is dated November 14,
2007, id., Exh. 1 at 53.
Plaintiff objects to this summary of the factual record and
contends he has provided sufficient evidence to support his
allegations.

Plaintiff alleged in his Complaint that the loan

closed on November 15, 2007, and in Exhibit 1 to his Complaint
has provided copies of, inter alia, unexecuted escrow forms for
the loan transaction issued by First American Title insurance
Company of Oregon that are dated November 15, 2007.
Although the Magistrate Judge questions the
plausibility of Plaintiff’s allegation that the loan closed on
November 15, 2007, he bases his analysis on that date for
purposes of this issue.

At this stage of the proceedings the

Court “must accept as true the allegations in the complaint and
construe them in favor of the plaintiff.”
Inc., 499 F.3d at 1050 n.2.

Intri-Plex Tech.,

On this record Plaintiff has made a

plausible allegation that the loan, in fact, closed on November
15, 2007.

25 - ORDER

Thus, the Court, construing the facts in Plaintiff’s

favor, accepts that allegation as true.
3.

Sufficiency of Plaintiff’s Allegations.

Plaintiff objects to the Magistrate Judge’s
recommendation that the Court grant Defendant IBM’s Motion to
Dismiss Plaintiff’s claim for damages arising from Defendants’
alleged failure to give effect to Plaintiff’s Notice of
Rescission on the ground that Plaintiff did not make a showing
that the Notice of Right to Cancel was sufficiently inaccurate,
and, therefore, did not state a claim for relief under TILA.

The

Magistrate Judge ultimately concluded Plaintiff was not entitled
to the extended three-year period of rescission.

Plaintiff

objects on the ground that his right to rescission was extended
because the Notice of Right to Cancel contained an incorrect date
for the termination of Plaintiff’s three-day right to cancel.
As noted, under § 1635 a creditor “shall clearly and
conspicuously disclose, in accordance with regulations of the
Board, to any obligor in a transaction subject to this section
the rights of the obligor under this section.”
§ 1635(a); 12 C.F.R. § 226.23(3).

15 U.S.C.

If a lender does not provide

the correct notice of Plaintiff’s rights, the borrower’s right of
rescission is extended from three days to three years after
consummation of the transaction.
§ 226.23(3).
rescind

26 - ORDER

15 U.S.C. § 1635(f); 12 C.F.R.

Regulation Z requires that the notice of right to

shall be on a separate document that
identifies the transaction and shall clearly
and conspicuously disclose the following:
(i) The retention or acquisition of a
security interest in the consumer's
principal dwelling.
(ii) The consumer's right to rescind the
transaction.
(iii) How to exercise the right to
rescind, with a form for that purpose,
designating the address of the
creditor's place of business.
(iv) The effects of rescission, as
described in paragraph (d) of this
section.
(v) The date the rescission period
expires.
12 C.F.R. § 226.23(b)(1).

The Ninth Circuit has long held:

In applying TILA and its implementing
regulations, we ‘require absolute compliance
by creditors,’ Hauk v. JP Morgan Chase Bank
USA, 552 F.3d 1114, 1118 (9th Cir. 2009), and
‘[e]ven technical or minor violations of the
TILA impose liability on the creditor,’
Jackson v. Grant, 890 F.2d 118, 120 (9th Cir.
1989).” 613 F.3d 1195, 1199 (9th Cir. 2010).
613 F.3d at 1199.

For example, in Semar v. Platte Valley

Federal Savings & Loan Association, the Ninth Circuit concluded:
Technical or minor violations of TILA or Reg
Z, as well as major violations, impose
liability on the creditor and entitle the
borrower to rescind. “To insure that the
consumer is protected . . . [TILA and Reg Z
must] be absolutely complied with and
strictly enforced.” Mars v. Spartanburg
Chrysler Plymouth, Inc., 713 F.2d 65, 67 (4th
Cir. 1983)(holding that technical violation,
even if merely a “minor variation in language
27 - ORDER

and type size” from TILA requirements,
imposes liability); see also Huff v.
Stewart-Gwinn Furniture Co., 713 F.2d 67, 69
(4th Cir.1983)(minor violations of TILA and
Reg Z impose liability even if, as creditor
alleged, consumer “was not misled and was
given a meaningful and correct disclosure of
crucial credit terms”).
791 F.2d 699, 704 (9th Cir. 1986).
In support of his conclusion that an error in the date
of the expiration of a borrower’s right to cancel the transaction
is insufficient to extend the period of rescission, the
Magistrate Judge notes the form of the Notice of Right to Cancel
in this case “tracks the model form” provided in the regulations,
which, in turn, “creates a presumption that the notice Barnes
alleges he received at closing was compliant with applicable TILA
requirements.”

Indeed, 12 C.F.R. § 226.23(b)(2) requires:

“To

satisfy the disclosure requirements of paragraph (b)(1) of this
section, the creditor shall provide the appropriate model form in
Appendix H of this part or a substantially similar notice.”
Section 1604 requires the Board to publish model notices and
provides:
A creditor or lessor shall be deemed to be in
compliance with the disclosure provisions of
this subchapter with respect to other than
numerical disclosures if the creditor or
lessor (1) uses any appropriate model form or
clause as published by the Board, or (2) uses
any such model form or clause and changes it
by (A) deleting any information which is not
required by this subchapter, or (B)
rearranging the format, if in making such
deletion or rearranging the format, the
28 - ORDER

creditor or lessor does not affect the
substance, clarity, or meaningful sequence of
the disclosure.
Although Section 1604 deems a lender in compliance with nonnumeric disclosures as a matter of form if a lender uses a model
form or a substantially similar version, an interpretation of the
statute as shielding lenders from liability for errors of
substance in completing the model form contradicts the statute’s
requirement of accurate disclosures.

Section 1604 may prevent a

borrower from contending that a part of the model form was
confusing or unclear.

It does not, however, prevent a borrower

from asserting a claim on the ground that the lender did not
accurately fill out the form as required by the statute.

In

fact, § 1635(h) provides the protection afforded to a lender for
use of the proper form of notice of the right to rescind applies
only if the form is “properly completed by the creditor, and [the
creditor] otherwise complied with all other requirements of this
section regarding notice.”
The Magistrate Judge relies heavily on the First
Circuit’s decision in Palmer v. Champion Mortgage in which the
court held the lender’s use of the incorrect date for the
expiration of the borrower’s right of rescission (a date that had
already passed at the time of closing) was not a violation of
TILA because any error was vitiated by the narrative description
of Plaintiff’s right to rescind that

29 - ORDER

clearly and conspicuously indicates that the
debtor can rescind “within three (3) business
days from whichever of [three enumerated]
events occurs last.” Although the Notice
does state in part that rescission has to
occur “no later than midnight of APRIL 01,
2003,” the plaintiff wrests this statement
from its contextual moorings. The statement
is followed immediately by a parenthetical
reading “(or midnight of the third business
day following the latest of the three (3)
events listed above).” We fail to see how
any reasonably alert person-that is, the
average consumer-reading the Notice would be
drawn to the April 1 deadline without also
grasping the twice-repeated alternative
deadlines.
465 F.3d at 28-29 (referring to the notice at issue as “crystal
clear”).

The Notice of Right to Cancel that Plaintiff provided

with his Complaint contains language similar to the Notice in
Palmer and reflects Plaintiff had the right to cancel the
transaction “within three (3) business days from whichever of the
following events occur last: (1) The date of the transaction,
which is November 14, 2007; or (2) The date you received your
Truth in Lending disclosures; or (3) The date you received this
notice of your right to cancel.”
This matter is distinct from Palmer, however, in that
the date used in Palmer had already passed at the time of
closing, which logically would render unreasonable a borrower’s
reliance on that date if he was trying to determine when his
right of rescission expired because it obviously could not expire
before the transaction was consummated.

30 - ORDER

Here the incorrect date

is alleged to be just 24 hours before the actual time that
Plaintiff’s right of rescission expired.

That fact makes the

Notice in this matter much less “clear and conspicuous” because
the alleged inaccuracy creates an inconsistency between the
narrative description of the right as expiring “within three
business days” and the date stated on the form of November 17,
2007, rather than constituting an impossibility as in Palmer.
Furthermore, even if, for example, Chase Bank USA gave the Notice
to Plaintiff before consummation of the loan on November 14,
2007, and the loan closed a day later on November 15, 2007, the
regulations require the lender to change the early disclosures to
state the correct information. See 12 C.F.R. § 226.17 (“[I]f
disclosures required by this subpart are given before the
date of consummation of a transaction and a subsequent event
makes them inaccurate, the creditor shall disclose before
consummation . . . .”).
In Semar the Ninth Circuit dealt with a similar failure
to include the date that the plaintiff’s right of rescission
expired by omitting the date entirely.

791 F.2d at 702.

Ninth Circuit held:
Reg Z “makes clear that failure to fill in
the expiration date of the rescission form is
a violation of the TILA.” Williamson v.
Lafferty, 698 F.2d 767, 768-69 (5th Cir.
1983). Williamson held that the omission of
the expiration date, though a purely
technical violation of TILA, entitled the
plaintiff to rescind the loan agreement for
31 - ORDER

The

up to three years, without regard to whether
the omission was material. Id. at 768; see
also Aquino v. Public Finance Consumer
Discount Co., 606 F.Supp. 504, 507 (E.D. Pa.
1985) (omission of expiration date of
rescission right gives borrower right to
rescind loan).
Id. At 704 (footnote omitted).

Citing Semar, the District Court

for the District of Hawai’i reached the same conclusion when it
held the right of rescission was extended for three years when
the Notice of Right to Cancel “technically” violated the statute
by stating the wrong date for the expiration of the borrower’s
right to cancel.

Riopta v. Amresco Res. Mortg. Corp., 101 F.

Supp. 2d 1326, 1330 (D. Haw., Aug. 4, 1999).

See also Jackson v.

Grant, 890 F.2d 118, 120-22 (9th Cir. 1989).
The Ninth Circuit holding in Semar is bolstered by the
fact that TILA is a strict-liability statute and Regulation Z
expressly requires inclusion of the “date the rescission period
expires.”

12 C.F.R. § 226.23(b)(1)(v).

Although the First

Circuit may have developed a certain tolerance for technical
violations of TILA, the Ninth Circuit requires strict adherence
to the statutes and regulations.

See Rubio, 613 F.3d at 1199.

See also Hauk v. JP Morgan Chase Bank USA, 552 F.3d 1114, 1118
(9th Cir. 2009).

Nevertheless, TILA affords lenders an

affirmative defense to liability under §§ 1635 and 1640 for
unintentional violations and “bona fide errors.”
§ 1640(c).

32 - ORDER

15 U.S.C.

Thus, even though TILA is to be liberally construed

in favor of the consumer, Rubio, 613 F.3d at 1202, the result is
not unduly harsh to the lender.

On this record the Court

concludes Plaintiff has met his burden to state a claim at this
stage of the proceedings.

The Court, therefore, does not adopt

the Magistrate Judge’s recommendation to grant IBM’s Motion to
Dismiss Plaintiff’s claims for failure to effect his notice of
rescission on the ground that Plaintiff failed to state a claim
when he has alleged the Notice of Right to Cancel did not comply
with TILA because it contained the wrong date for the expiration
of his right to rescind the transaction.
III. The Findings and Recommendation as to the Chase Defendants’
Motion to Dismiss.
As noted, the Magistrate Judge recommends that the Court
deny the Motion (#20) to Dismiss by Chase Defendants as moot
based on the Findings and Recommendation with respect to IBM’s
Motion to Dismiss.

Plaintiff does not specifically object to the

Magistrate Judge’s recommendation as to Chase Defendants’ Motion
to Dismiss.

The Court’s decision to decline to adopt portions of

the Magistrate Judge’s recommendations may, however, alter the
Magistrate Judge’s determination that the Motion by Chase
Defendants is moot.
In summary, after a de novo review of the record in relation
to each of Plaintiff’s Objections, the Court concludes they
provide a basis to modify the Findings and Recommendation as set
out herein.
33 - ORDER

The Court also has reviewed the legal principles

relating to those portions of the Findings and Recommendation to
which the parties did not object and does not find any legal
error.

CONCLUSION
For these reasons, the Court ADOPTS in part Magistrate Judge
Papak’s Findings and Recommendation (#38) and GRANTS Defendant
IBM’s Motion (#25) to Dismiss as to Plaintiff’s claim for damages
arising out of the loan-origination documents as barred by the
applicable statute of limitations.
The Court DECLINES to adopt the balance of the Findings and
Recommendation.

Accordingly, the Court DENIES Defendant IBM’s

Motion (#25) to Dismiss to the extent that IBM contends the Court
does not have subject-matter jurisdiction over Plaintiff’s claim
for rescission.

The Court also DENIES IBM’s Motion (#25) to

Dismiss Plaintiff’s remaining claims for failure to state a
claim.
This matter is returned to the Magistrate Judge for further
proceedings consistent with this Order including whether to
address any remaining grounds for dismissal raised by IBM in its
Motion (#25) to Dismiss that the Magistrate Judge did not address
in the June 10, 2010, Findings and Recommendation and to
determine whether to address the grounds for dismissal raised by
Chase Defendants in their Motion (#20) to Dismiss that the
34 - ORDER

Magistrate Judge previously determined were moot.
IT IS SO ORDERED.
DATED this 18th day of October, 2011.

/s/ Anna J. Brown
ANNA J. BROWN
United States District Judge

35 - ORDER