Melfi v. WMC Mortgage Corporation et al

Filing 30

MEMORANDUM AND ORDER ADOPTING REPORT AND RECOMMENDATIONS 26 Report and REcommendation GRANTING 11 Motion to Dismiss filed by Wells Fargo Bank, NA, Morgan Stanley ABS Capital 1 Inc., Deutsche Bank National Trust Company - So Ordered by Chief Judge Mary M Lisi on 1/9/09. (Barletta, Barbara)

UNITED S T A T E S D I S T R I C T C O U R T F O R T H E D I S T R I C T OF R H O D E I S L A N D

J O S E P H C. MELFI, Plaintiff v. WMC M O R T G A G E C O R P O R A T I O N , DEUTSCHE B A N K NATIONAL TRUST C OMP A N Y, N . A . , as Trustee o f M O R G A N S T A N L E Y ABS C A P I T A L I INC., A s s e t Backed P a s s T h r o u g h Certificates Series 2 0 0 6 - W M C 2 U n d e r The Pooling and Servicing A g r e e m e n t Without Recourse, WELLS F A R G O B A N K and D O E S 1-5, Defendants C.A. No. 08-024ML

M E M O R A N D U M AND O R D E R
This m a t t e r is before the C o u r t on the objection filed by J o s e p h C. Melfi ("Melfi"), the Plaintiff, to a R e p o r t and R e c o m m e n d a t i o n issued by Magistrate J u d g e A l m o n d on November 1 9 , 2 0 0 8 . Magistrate Judge A l m o n d recommends that the D e f e n d a n t s ' M o t i o n to Dismiss be granted and t h a t the P l a i n t i f f ' s c o m p l a i n t be dismissed in its entirety.' This C o u r t has reviewed the Report and R e c o m m e n d a t i o n and the P l a i n t i f f ' s m e m o r a n d u m in support o f his objection. Finding no m e r i t in M e l f i ' s contentions, this Court adopts the R e p o r t and Recommendation. The Defendants' m o t i o n to dismiss the complaint is G R A N T E D , and the c o m p l a i n t is DISMISSED.

, Pursuant to an O r d e r o f this Court, the Defendants' M o t i o n to D i s m i s s has been treated as one for s u m m a r y j u d g m e n t u n d e r Fed. R. Civ. P. 56, because the record includes facts beyond those alleged in the complaint. M e l f i v. W M C Mortgage Corp., C.A. 0 8 - 0 2 4 (Aug. 20, 2008).

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I. Standard of Review
Pursuant to Fed. R. Civ. P. 72(b)(3), this Court must consider de novo any part o f the magistrate j u d g e ' s recommended disposition to which a proper objection has been made. A motion to dismiss a complaint is a dispositive motion; therefore, this court reviews de novo the issues under objection. Fed. R. Civ. P. 72(b).

II. Back2round
The basis o f this claim arose w h e n Defendant WMC Mortgage Corporation ("WMC") issued Melfi a loan, secured by his home. The closing took place on April 7, 2006, when Melfi signed a note for $190,000 as well as a Truth in Lending disclosure statement. On December 19, 2007 and February 6, 2008, Melfi unsuccessfully attempted to exercise his right to rescind. At issue is the sufficiency o f the Notice o f Right to Cancel ("Notice") received upon closing, which Melfi contends was inadequate because it failed to specify the date o f the transaction or the date o f the expiration o f the rescission period on blank lines provided within the form.' Defendants assert that they provided Melfi with a legally sufficient Notice. This Notice is required by the Truth in Lending Act ("TILA"), and it m u s t "clearly and conspicuously" notify the borrower o f the right to rescind the loan as well as the method to do so. 15 U . S . c . § 1635(a). I f the Notice was insufficient, the rescission period extends to three years, rather than the requisite three days. 12 C.F.R. § 226.23(a)(3).

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The Report and Recommendation contains more detailed facts. 2

III. Objection One
Melfi first contends that Magistrate Judge Almond ignored the mandates o f Regulation Z, which provides detailed requirements for all credit transactions which involve a security interest in a consumer's principal dwelling. See 12 C.F.R. § 226.1 et seq. Melfi argues that the Defendants violated the Regulation's requirement that a creditor disclose the expiration date o f the rescission period, and that Magistrate Judge Almond failed to defer to the Federal Reserve B o a r d ' s interpretation o f the Truth in Lending Act as required. This Court disagrees. Magistrate Judge Almond in his Report and Recommendation carefully limned the requirements o f Regulation Z, as well as case law interpreting its requirements, and ultimately found that the Notice issued in the case at hand was sufficiently clear and conspicuous to meet the Regulation's standards. Magistrate Judge Almond found particular significance in the fact that the date o f the l o a n ' s closing is printed at the top o f the Notice. In his Report and Recommendation, Magistrate Judge Almond relied on the First C i r c u i t ' s decision in Palmer v. Champion Mortgage, which utilized an objective standard for the average borrower to determine the sufficiency o f notice. See Palmer v. Champion Mortgage, 465 F.3d 2 4 , 2 8 (1st Cir. 2006). Applying that standard to the Notice received by Melfi, Magistrate Judge Almond found it legally sufficient. This Court agrees and finds that the Report and Recommendation appropriately considered the Federal Reserve B o a r d ' s regulatory interpretation o f the Truth in Lending Act. This Court finds that Magistrate Judge Almond paid appropriate deference to Regulation Z as well as its judicial interpretations. Therefore, M e l f i ' s first objection fails.

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IV. Objection Two
Melfi next contends that a majority o f case law supports a finding that the failure to include a precise deadline to rescind is actionable. See Semar v. Platte Valley Fed. Sav. & Loan A s s ' n , 791 F.2d 699 (9th Cir. 1986) (holding that the N o t i c e ' s omission o f the expiration date entitled the plaintiffs to rescission); Williamson v. Lafferty, 698 F.2d 767 (5th Cir. 1983) (allowing rescission when the Notice omitted the expiration date for the rescission period). Melfi also pointed to the First C i r c u i t ' s decision in Santos-Rodriguez v. Doral Mortgage Corp. for support. See Santos-Rodriguez, 485 F.3d 12 (1st Cir. 2007). However, as Magistrate Judge Almond points out, the court in Santos-Rodriguez affirmed the dismissal o f the consumer's complaint and specifically rejected the "strict liability" view on TILA violations. Id. at 16-17 (adopting the clear and conspicuous standard rather than a requirement for hyper-technicality). Beyond Santos-Rodriguez, Magistrate Judge Almond cited a number o f decisions which support his Recommendation. In Carye v. Long Beach Mortgage Co., the court considered a Notice identical to the one received by Melfi and found that it would not be confusing to the average borrower.
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470 F. Supp. 2d 3, 9 (D. Mass. 2007) ("[D]espite the fact that the

Notices failed to include the dates o f the transaction, this Court is persuaded as matter o f l a w that the average person would be aware that the rescission period expired three days after receiving the Notices."). Similar facts were present in Megitt v. Indymac Bank. F.S.B., in which the Notice was found legally sufficient when it listed the date o f the transaction but omitted the expiration date for the rescission period. Megitt, 547 F. Supp. 2d 56 (D. Mass. 2008). The Report and Recommendation's finding that the Notice was legally sufficient is adequately supported by case law. Accordingly, M e l f i ' s second objection fails.

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V. Objection Three Melfi further argues t h a t Magistrate Judge A l m o n d and the p o s t - P a l m e r decisions which he cites have m i s c o n s t r u e d P a l m e r v. C h a m p i o n Mortgage. Melfi contends t h a t " P a l m e r simply stands for the p r o p o s i t i o n t h a t a N o t i c e [] is clear and conspicuous i f it complies w i t h the TILA and contains the i n f o r m a t i o n set forth in the model forms despite the date o f i t ' s [sic] delivery." P I . ' s Objection to Rep. and R e c o m m e n d a t i o n o f Magis. Judge A l m o n d Dismissing P I . ' s Compl, at 12 (Nov. 25, 2008). Melfi argues t h a t the c o m m o n pervasive f l a w is t h a t the courts, and Magistrate Judge A l m o n d , have failed to afford the mandatory deference required for Regulation Z. As discussed above, the R e p o r t and Recommendation thoughtfully considers the standards o f Regulation Z and finds the N o t i c e at issue legally sufficient p u r s u a n t to its requirements. M e l f i ' s third objection fails.

VI. Objection Four
M e l f i ' s final o b j e c t i o n argues that Magistrate Judge A l m o n d erred in his Report and Recommendation because substantive violations o f Regulation Z are actionable, regardless o f their technicality. Melfi contends t h a t Magistrate Judge A l m o n d inappropriately depicts the inadequacies o f the N o t i c e received as "hyper-technicalities,"and t h u s excusable. As noted above, the First Circuit has rejected the strict liability v i e w for TILA violations, citing TILA a m e n d m e n t s w h i c h were intended to ' ' ' p r o v i d e higher tolerance levels for what [Congress] v i e w e d as h o n e s t mistakes in carrying out disclosure o b l i g a t i o n s . " Santos-Rodriguez, 485 F.3d at 17 (quoting M c K e n n a v. First Horizon H o m e L o a n Corp., 475 F . 3 d 418, 424 (1st Cir. 2007)). In this case, the N o t i c e was clear and conspicuous despite the information omitted,

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because the hypothetical average consumer would not have been confused by the Notice. The Notice, therefore, did not violate TILA.

VII. Conclusion
Accordingly, the Defendants' Motion to Dismiss, considered as a Motion for Summary Judgment, is GRANTED.

SO ORDERED.

M a r y M . Li C h i e f United States District Judge ,2009 January

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