Moreno et al v. Doral Financial Corp et al
Filing
54
OPINION AND ORDER - DENYING 30 Doral's MOTION for Summary Judgment and GRANTING 35 Plaintiffs' MOTION for Partial Summary Judgment. etc as stated herein. Signed by Judge Jose A Fuste on 6/27/11.(su)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
CARLOS A. MORENO, et al.,
Plaintiffs
v.
CIVIL NO. 09-1284 (JP)
DORAL FINANCIAL CORP., et al.,
Defendants
OPINION AND ORDER
Before the Court are Defendant Doral Financial Corporation’s
(“Doral”)
motion
for
summary
judgment
(No.
30),
Plaintiffs’
opposition thereto and cross motion for partial summary judgment
(No. 35), and Defendant’s opposition to Plaintiffs’ cross motion for
partial summary judgment (No. 45). Plaintiffs brought the instant
action pursuant to the Truth in Lending Act (“TILA”), 15 U.S.C. §
1601 et seq.
Specifically, Plaintiffs are claiming violations of 15
U.S.C. § 1635 and its implementing regulations at 12 C.F.R. § 226 et
seq. (“Regulation Z”). For the reasons stated herein, Defendant’s
motion for summary judgment is hereby DENIED and Plaintiffs’ motion
for partial summary judgment is hereby GRANTED.
I.
MATERIAL FACTS NOT IN GENUINE ISSUE OR DISPUTE
The following facts are deemed uncontested (“UMF”) by the Court
because they were included in the motions for summary judgment and
CIVIL NO. 09-1284 (JP)
-2-
opposition and were agreed upon, or they were properly supported by
evidence and not genuinely opposed.
1.
On
March
identified
23,
2003,
in
the
Plaintiffs purchased the property
Complaint
as
Plaintiffs’
principal
dwelling. Plaintiffs obtained a mortgage loan from the
Mortgage
Store
of
Puerto
Rico,
in
the
amount
of
$123,100.00 and signed a Promissory Note to this effect
(“2003 transaction”).
2.
The Promissory Note is guaranteed by First Mortgage Deed
Number 76 of March 23, 2003, sworn before Notary Ahmed
Arroyo Romeu encumbering Plaintiffs’ principal dwelling.
3.
This Promissory Note was subsequently transferred to RG
Mortgage Corp. (“RG”) which thereby became the creditor of
the note.
4.
On Plaintiffs’ initiative, on March 26, 2008, Plaintiffs
and Doral held a closing to refinance the previously
mentioned debt with RG (which at that moment had a balance
of $114,345.75) and to consolidate other personal debts
(“2008 transaction”).
5.
On March 28, 2008, Plaintiffs sent their right to cancel
and/or rescind notice for the March 26 transactions with
Doral.1
1.
It is undisputed Plaintiffs sent in two notices rescinding and/or cancelling
loans 3007048389 and 3007107729. However, it is not clear if only one or both
of the loans were related to the refinancing of the 2003 transaction.
CIVIL NO. 09-1284 (JP)
6.
-3-
The notice of rescission and/or cancellation was received
by Doral via certified mail on March 31, 2008.
7.
On the same date, as per the terms of the closing, Doral
effectively disbursed to RG the $114,354.75 Plaintiffs
owed to RG under the Promissory Note.
8.
By
July
efforts
2008,
Defendant
against
was
Plaintiffs
making
related
legal
to
collection
loans
number
3007048389 and 3007107729.
9.
Defendant wants Plaintiffs to pay $756.00 monthly when
they were paying $700.00 monthly to RG. Therefore, the
terms and conditions that Defendant tried to impose were
different.
10.
As
recent
as
May
24,
2010,
Defendant
kept
affecting
Plaintiffs’ record in the credit history companies.
II.
LEGAL STANDARD FOR A MOTION FOR SUMMARY JUDGMENT
Summary judgment serves to assess the proof to determine if
there is a genuine need for trial.
895 F.2d 46, 50 (1st Cir. 1990).
Garside v. Osco Drug, Inc.,
Pursuant to Rule 56(c) of the
Federal Rules of Civil Procedure, summary judgment is appropriate
when “the record, including the pleadings, depositions, answers to
interrogatories, admissions on file, and affidavits, viewed in the
light most favorable to the nonmoving party, reveals no genuine issue
as to any material fact and the moving party is entitled to judgment
CIVIL NO. 09-1284 (JP)
as
a
matter
of
-4-
law.”
Fed.
R.
Civ.
P.
56(c);
see
also
Zambrana-Marrero v. Suárez-Cruz, 172 F.3d 122, 125 (1st Cir. 1999)
(stating that summary judgment is appropriate when, after evaluating
the record in the light most favorable to the non-moving party, the
evidence “fails to yield a trial worthy issue as to some material
fact”); Goldman v. First Nat’l Bank of Boston, 985 F.2d 1113, 1116
(1st
Cir.
1993);
(1st Cir. 1992).
Canal
Ins.
Co.
v.
Benner,
980
F.2d
23,
25
The Supreme Court has stated that “only disputes
over facts that might affect the outcome of the suit under the
governing law will properly preclude the entry of summary judgment.
Factual disputes that are irrelevant or unnecessary will not be
counted.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
In this way, a fact is material if, based on the substantive law at
issue, it might affect the outcome of the case.
See Mack v. Great
Atl. and Pac. Tea Co., Inc., 871 F.2d 179, 181 (1st Cir. 1989).
On a summary judgment motion, the movant bears the burden of
“informing the district court of the basis for its motion and
identifying
those
portions
of
the
[record]
which
it
believes
demonstrate the absence of a genuine issue of material fact.”
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Once the movant
meets this burden, the burden shifts to the opposing party who may
not rest upon mere allegations or denials of the pleadings, but must
affirmatively show, through the filing of supporting affidavits or
otherwise, that there is a genuine issue of material fact for trial.
CIVIL NO. 09-1284 (JP)
-5-
See Anderson, 477 U.S. at 248; Celotex, 477 U.S. at 324; Goldman,
985 F.2d at 1116.
III.
ANALYSIS
Defendant argues that summary judgment is appropriate because:
(1) even if Plaintiffs properly rescinded their 2008 transaction with
Defendant under TILA, Plaintiffs are still liable for the amount owed
in relation to the 2003 transaction; and (2) Defendant is entitled
to the bona fide error defense found in 15 U.S.C. § 1640(c).
Plaintiffs counter that Defendant’s summary judgment motion should
be denied because it is irrelevant in this case whether Plaintiffs
are still liable for the 2003 transaction and because Defendant does
not meet the requirements for the bona fide error defense. Plaintiffs
also request summary judgment on the issue of liability arguing that
it is uncontested that Defendant did not comply with TILA when it
failed to take the necessary steps to reflect the termination of the
2008 transaction. The Court will now consider the parties’ arguments.
A.
Relevance of 2003 Transaction
Defendant argues that in the complaint Plaintiffs are claiming
that their debt related to the 2003 transaction was extinguished when
Plaintiffs rescinded their 2008 transaction (No. 1, ¶ 15). Defendant
states that summary judgment should be granted because TILA does not
provide the relief allegedly requested by Plaintiffs. Rescission
CIVIL NO. 09-1284 (JP)
-6-
under TILA would only serve to return Plaintiffs to the same position
they were in prior to the rescinded 2008 transaction. That is
Plaintiffs would still owe $114,345.75 for the 2003 transaction. UMF
4. Also, Defendant argues that the promissory note for the 2003
transaction was subsequently transferred to Defendant and therefore
Plaintiffs owe the remaining money to Defendant. As such, Defendant
argues that summary judgment should be granted because in effect
Defendant is attempting to collect on the remaining balance of the
2003 transaction. American Residential Mortgage, LP v. Thayer (In re
Thayer), 384 B.R. 546 (8th Cir. BAP 2008).
Plaintiffs counter that the 2003 transaction is completely
irrelevant to the instant action. They argue that the only issue
before the Court is whether Defendant did not comply with TILA by
failing to reflect the cancellation of the 2008 transaction.
After
considering
the
arguments,
the
Court
agrees
with
Plaintiffs. An examination of the complaint shows that at no point
are Plaintiffs requesting the rescission or invalidation of the 2003
transaction. Contrary to Defendant’s suggestion, Plaintiffs are not
claiming that they are not liable for the pending balance of the 2003
transaction by virtue of their cancellation and/or rescission of the
2008 transaction. From the record, it appears that the issue of the
2003 transaction has only been raised in the state court proceedings
(No. 41-1). As explained by Plaintiffs, the issue before this Court
is whether Defendant complied with its duties under TILA in regards
CIVIL NO. 09-1284 (JP)
-7-
to its alleged failure to reflect the cancellation of the 2008
transaction.2
Furthermore, even if the 2003 transaction were properly before
the Court, Defendant’s motion for summary judgment would still fail
on
this
issue
because
the
In
re
Thayer
decision
would
be
inapplicable. In said decision, the debtor executed a promissory note
and
a
mortgage
with
a
creditor,
American
Residential
Mortgage
(“American”), in 2002. In re Thayer, 384 B.R. at 549. American then
assigned
its
interest
under
the
note
and
mortgage
to
another
creditor, TCF Mortgage Corp. (“TCF”). Id. In 2003, debtors executed
a second note and mortgage with American in order to refinance and
pay-off their original note. Id. Within three days, the debtors
completed the notice of right to cancel their second transaction. Id.
However, American transferred the funds to TCF and paid-off the
original note. Id. Instead of returning the money, TCF assigned its
rights under the original note and mortgage to American. Id. The
Court determined that it was appropriate for TCF to transfer the
original note to American. Id. at 552.
In re Thayer is distinguishable because there is no admissible
evidence here that terms and conditions of 2003 transaction remained
the same after the note was transferred to Defendant. In reaching its
decision, the In re Thayer court relied on the fact that the transfer
2.
As such, In re Thayer is inapplicable because, unlike in said case, here the
debtors are not arguing that they do not have to pay the balance of the
original loan, the 2003 transaction. In re Thayer, 384 B.R. at 551.
CIVIL NO. 09-1284 (JP)
-8-
of the original note did not alter the terms of the original note and
the debtors did not suffer in any manner as a result of the transfer.
Id. at 552. On the other hand, Plaintiffs here do suffer and have had
the terms altered because Defendant wants Plaintiffs to pay $756.00
monthly when they were paying $700.00 monthly to RG. UMF 9. The only
evidence that Defendant attempted to submit that the terms of the
2003 transaction had not been altered by the transfer was a Spanish
language
affidavit
(No.
31-7).
However,
said
affidavit
is
not
admissible since Defendant failed to comply with Local Rule 5(g) when
it did not submit a certified English translation of the document.3
Accordingly, the Court determines that Defendant’s motion for summary
judgment on this issue fails.
B.
TILA
Plaintiffs argue that their cross motion for partial summary
judgment should be granted because Defendant has failed to timely
take
the
necessary
steps
reflecting
the
termination
of
2008
transaction as mandated by TILA. Defendant counters that it took
reasonable steps and that the bona fide error defense shields it from
liability.
3.
The Court notes that it granted a motion (No. 32) by Defendant to file said
document in the Spanish language and granted Defendant until August 25, 2010
to file a certified English translation (No. 38). No translation was ever
filed. Similarly, Defendant never filed a certified English translation to the
document located at docket number 31-6.
CIVIL NO. 09-1284 (JP)
1.
-9-
TILA Liability
Plaintiffs argue that summary judgment should be granted because
Defendant violated 15 U.S.C. § 1635(b) when it failed to timely
reflect the termination of the 2008 transaction. Defendant counters
that it need not complete the termination within twenty days and that
its actions in this case do not constitute a violation of TILA.
Pursuant to TILA:
[w]hen 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, downpayment, or
otherwise, and shall take any action necessary or
appropriate to reflect the termination of any security
interest created under the transaction.
15 U.S.C. § 1635(b) (emphasis added). The process of reflecting the
termination must be commenced, but does not have to be completed
within the 20 day window provided for in Section 1635. See Personius
v. Homeamerican Credit, 234 F. Supp. 2d 817, 819-20 (N.D.Ill. 2002).
A court may award relief under 15 U.S.C. § 1640 to a debtor when a
creditor violates Section 1635(b). 15 U.S.C. § 1635(g). Under Section
1640, a debtor may be awarded damages, costs, and attorneys’ fees.
15 U.S.C. § 1640(a).
After
considering
the
arguments
and
evidence,
the
Court
determines that Plaintiffs are entitled to summary judgment on the
CIVIL NO. 09-1284 (JP)
-10-
issue of liability under Section 1635(b). It is uncontested that
Defendant
did
not
take
the
necessary
action
to
reflect
the
termination of 2008 transaction within 20 days of receiving the
notice. Defendant received the notice of rescission on March 31,
2008. UMF 6. On the same date, Defendant disbursed the amount owed
to RG for the 2003 transaction. UMF 7.
Defendant claims that thereafter it took all the necessary steps
to
terminate
the
2008
transaction
in
compliance
with
TILA.
Specifically, Defendant argues that it quickly attempted to reverse
the disbursement of funds to RG and, when Defendant was unable to
reverse said disbursement, it took over RG’s right to collect on the
2003 transaction. Unfortunately for Defendant, its arguments are not
supported by the evidence before the Court. In support of Defendant’s
claim that it took all necessary action to reverse the disbursement
of funds to RG, Defendant cited to a Spanish language document found
at docket number 31-6. No certified English translation was ever
provided.4 As such, the Court does not have before it any evidence
that Defendant took any action to reverse the disbursement to RG
within 20 days.
On the other hand, it is uncontested that, as of July 2008,
Defendant
4.
had
not
even
reflected
the
termination
of
the
2008
The Court notes that the Spanish language document itself does not support any
finding that Defendant took any action to reverse the disbursement to RG.
Instead, it is only a letter, dated April 14, 2008, to Plaintiffs from RG
informing them that the balance of the 2003 transaction had been paid-off.
CIVIL NO. 09-1284 (JP)
-11-
transaction in its own records since Defendant was attempting to
collect on the 2008 transaction that had been rescinded months
before. UMF 8. Said uncontested fact, without any other evidence to
the contrary, shows that Defendant had not taken the necessary action
to reflect the termination of the 2008 transaction within 20 days of
the rescission. Accordingly, the Court GRANTS Plaintiffs’ motion for
partial summary judgment and determines that Defendant violated 15
U.S.C. § 1635(b).
2.
Bona Fide Error Defense
Defendant argues that it is entitled to summary judgment based
on the bona fide error defense found in 15 U.S.C. § 1640(c). Under
the bona fide error defense, a creditor will not be held liable in
an action brought under 15 U.S.C. § 1635 when:
the creditor . . . shows by a preponderance of
evidence that the violation was not intentional
resulted from a bona fide error notwithstanding
maintenance of procedures reasonably adapted to avoid
such error.
the
and
the
any
15 U.S.C. § 1640(c).
Defendant’s argument fails. No evidence has been presented that
Defendant’s
violation
of
TILA
was
not
intentional,
that
said
violation resulted from a bona fide error, or that Defendant had any
procedures reasonably adopted to avoid such error. Accordingly,
Defendant’s motion for summary judgment is hereby DENIED.
CIVIL NO. 09-1284 (JP)
-12IV.
CONCLUSION
In conclusion, the Court DENIES Defendant Doral’s motion for
summary judgment and GRANTS Plaintiffs’ partial motion for summary
judgment.
IT IS SO ORDERED.
In San Juan, Puerto Rico, this 27th day of June, 2011.
S/JOSE ANTONIO FUSTE
JOSE ANTONIO FUSTE
UNITED STATES DISTRICT JUDGE
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