Case: /12/2012 ID: DktEntry: 18-1 Page: 1 of 32. No IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

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1 Case: /12/2012 ID: DktEntry: 18-1 Page: 1 of 32 No IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT REID I. TAMAYOSE and NADINE K. TAMAYOSE, Appellants, vs. OPTION ONE MORTGAGE CORPORATION, H&R BLOCK BANK, RESIDENTIAL CREDIT SOLUTIONS, INC., and OLD REPUBLIC TITLE & ESCROW OF HAWAII, LTD., Appellees. On Appeal From The United States District Court For The District Of Hawaii OPENING BRIEF Gary Victor Dubin Frederick J. Arensmeyer Dubin Law Offices 55 Merchant Street, Suite 3100 Honolulu, Hawaii Telephone: (808) Facsimile: (808) gdubin@dubinlaw.net farensmeyer@dubinlaw.net Attorneys for Appellants

2 Case: /12/2012 ID: DktEntry: 18-1 Page: 2 of 32 TABLE OF CONTENTS 1. Jurisdictional Statement Statement of Issues on Appeal Statement of the Case Statement of Facts 3 5. Summary of Argument Argument Borrowers pursuant to the plain language of Section 1635(b) of Title 15 of the United States Code do not have the burden of proving that they can refinance a mortgage loan if granted a Truthin-Lending Act ( TILA ) rescission before a District Court determines whether they are actually entitled to a TILA rescission...8 If this Court s Yamamoto decision is interpreted to mean that borrowers have the burden of proving that they can refinance a mortgage loan if granted a TILA rescission before a District Court determines whether they are actually entitled to a TILA rescission, that Panel decision should be limited or overturned.17 If the lower court s interpretation of Yamamoto is deemed correct and Yamamoto is not to be limited or overturned, in the circumstances of this case however, especially where no findings were made as to the relative equities of the parties, the borrowers ability to tender a TILA rescission amount if subsequently receiving a rescission award was in genuine dispute and precluded granting summary judgment Conclusion. 23 Certificate of Compliance 27 Certificate of Service...28 i

3 Case: /12/2012 ID: DktEntry: 18-1 Page: 3 of 32 TABLE OF AUTHORITIES CASES Addisu v. Fred Meyer, Inc., 198 F.3d 1130 (9th Cir. 2000).22 Aquino v. Public Finance Discount Corp., 606 F.2d 504 (E.D. Pa. 1985) 9 Balderas v. Countrywide Bank, N.A., 664 F.3d 787, 791 (9th Cir. 2011)...24 Barlow v. Evans, 992 F. Supp (M.D. Ala. 1997)...14 Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998)...11 Cowen v. United of Texas, F.S.B., 70 F.3d 937 (7th Cir. 1995)..14 Cromwell v. Countrywide Home Loans, Inc., 461 B.R. 99 (Bk. D. Mass. 2011)...18 Dinsmore-Thomas v. FDIC, 1998 U.S. App. LEXIS 2777 (9th Cir. 1998).16 F.D.I.C. v. Hughes, 684 F. Supp. 616 (1988).9 Ford Motor Company v. Milhollin, 444 U.S. 555 (1980) 13 Giza v. Amcap Mortgage, Inc., 428 B.R. 266 (Bk. D. Mass. 2010) 18 Hawaii Community Federal Credit Union v. Keka, 94 Haw. 213, 11 P.3d 1 (2000)...21 In re Wepsic, 231 B.R. 768 (S.D. Calif. 1998).16 Jackson v. Grant, 890 F. 2d 118 (9th Cir. 1989)..10 Kajitani v.downey Savings and Loan Association, F.A., 647 F. Supp. 2d 1208 (2008).21 Kakogui v. American Brokers Conduit, 2010 WL *4 (U.S.D.C. N.D. Cal. 2010) 18 LaGrone v. Johnson, 534 F.2d 1360 (9th Cir. 1976).14 Ljepava v. M.L.S.C. Properties, Inc., 511 F.2d 935 (9th Cir. 1975)...11, 14 McPhillips v. Gold Key Lease, Inc., 38 F. Supp 2d 975 (M.D. Ala. 1999)..14 Mourning v. Family Publications Service, Inc., 411 U.S. 356 (1973)..13 ii

4 Case: /12/2012 ID: DktEntry: 18-1 Page: 4 of 32 Musick v. Burke, 913 F.2d (9th Cir. 1990)...23 Nissan Fire & Marine Ins. Co. Ltd. v. Fritz Cos., Inc., 210 F.3d 1099 (9th Cir. 2000)...23 Palmer v. Wilson, 502 F.2d 860 (9th Cir. 1974)..14 Pettola v. Nissan Motor Acceptance, 44 F. Supp. 2d 442 (D. Conn. 1999).14 Porter v. Cal. Dep't of Corr., 419 F.3d 885 (9th Cir. 2005)..22 Quintero Family Trust v. OneWest Bank, F.S.B., 2010 WL *3 (U.S.D.C. S.D. Cal. 2010)...19, 21 Riopta v. Amresco Residential Mortgage Corp., 101 F. Supp. 2d 1326 (D. Haw. 1999) 16 Rossman v. Fleet Bank (R.I.) National Association, 280 F.3d 384 (3rd Cir. 2002).13 Rudisell v. Fifth Third Bank, 622 F.2d 243 (1980).8 Sawada v. Endo, 57 Haw. 608, 561 P.2d 1291 (1977)..24 Semar v. Platte Valley Federal Savings & Loan Association, 791 F.2d 699 (9th Cir. 1986).10, 14, 15 Smith v. Highland Bank, 915 F. Supp. 281 (N.D. Ala. 1996), affirmed on other grounds, 108 F.3d 1325 (11th Cir. 1997).14 Sosa v. Fite, 498 F.2d 114 (5th Cir. 1974).9 Swayze v. Ameriquest Mortgage Co., 2004 WL *5 (U.S.D.C. N.D. Ga. 2004)...19 T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626 (9th Cir. 1987) 22 Williams v. Homestake Mortgage Co., 968 F.2d 1137 (11th Cir. 1992) 10 Willams v. Saxon Mortgage Co., 2008 WL *5 and n.10 (U.S.D.C. S.D. Ala. 2008)...19 Yamamoto v. Bank of New York, 329 F.3d 1167 (9th Cir. 2003)....1, 2, 7, 8, 10, 14, 15, 17, 20, 21, 24 iii

5 Case: /12/2012 ID: DktEntry: 18-1 Page: 5 of 32 JURISDICTIONAL STATEMENT This case, filed in State Court on November 23, 2009 accompanied by a timely jury trial demand, was removed by the Defendants to the District Court for the District of Hawaii on March 30, 2010, pursuant to 28 U.S.C. 1331, 1441 and 1446 (federal question jurisdiction) and the Truth-in-Lending Act, 15 U.S.C et seq. This court has appellate jurisdiction pursuant to Rule 4(a)(1)(A) of the Federal Rules of Appellate Procedure, a separate Rule 58 Judgment having been entered on January 5, 2012 and a Notice of Appeal having been entered within thirty days thereafter on February 6, 2012 (the intervening and ending weekend not included in the computation). This Appeal is from a final judgment that disposes of all claims of all parties. STATEMENT OF ISSUES ON APPEAL 1. Do borrowers pursuant to Section 1635(b) of Title 15 of the United States Code have the burden of proving that they can refinance a mortgage loan if granted a Truth-in-Lending Act ( TILA ) rescission before a District Court is to determine whether they are actually entitled to a TILA rescission? 2. Did this Court in Yamamoto v. Bank of New York, 329 F.3d 1167 (9th Cir. 2003), answer the above question in the affirmative, that borrowers have the 1

6 Case: /12/2012 ID: DktEntry: 18-1 Page: 6 of 32 burden of proving that they can refinance a mortgage loan if granted a Truth-in- Lending Act ( TILA ) rescission before a District Court determines whether they are actually entitled to a TILA rescission, and if so, should the panel decision in Yamamoto be therefore narrowed or overturned? 3. If the lower court s interpretation of Yamamoto is correct and Yamamoto is not to be overturned, in the circumstances of this case however, especially where no findings were made as to the relative equities of the parties, was not the borrowers ability to tender a TILA rescission amount if receiving a rescission award in genuine dispute precluding summary judgment? STATEMENT OF THE CASE Appellants ( Tamayoses ) canceled their mortgage loan entered into with their original lender, Appellee Option One Mortgage Corporation ( Option One ), on November 29, 2006, based on TILA violations, and did so by letter of cancellation mailed on December 4, 2008, after being threatened with a nonjudicial foreclosure auction on that date by a purported assignee of their mortgage loan, Appellee H&R Block Bank ( H&R ), through a purported loan servicer, Appellee Residential Credit Solutions, Inc. ( RCS ). The lower court dismissed the Tamayoses TILA rescission claim without deciding whether they were actually entitled to a TILA rescission, without deciding what the TILA rescission amount would be, and without giving them time 2

7 Case: /12/2012 ID: DktEntry: 18-1 Page: 7 of 32 thereafter to refinance, concluding that they had not met their threshold burden of proof establishing beforehand that they could successfully refinance their mortgage loan if subsequently granted a TILA rescission, citing as controlling precedent a 2003 decision of a panel of this Court in Yamamoto, supra. The Tamayoses timely appealed, seeking reversal, either correcting the lower court s misinterpretation of the Yamamoto decision or its overruling. STATEMENT OF FACTS The lower court did not address whether the Tamayoses were entitled to a TILA rescission, but only concluded that they had not proven that they could tender the TILA rescission amount if granted a TILA rescission. Thus the threshold issue on appeal is a timing issue: Whether the granting of a TILA rescission is required and borrowers have to be informed what the TILA rescission amount is before they must prove that they can successfully rescind. The factual history of this case is set out in the lower court s terminating summary judgment order (Excerpts of Record ( ER ), at 3-11), and in the Declaration of Nadine K. Tamayose (Doc. No. 101) and the Supplemental Declaration of Nadine K. Tamayose (Doc. No. 113). Briefly, on or about November 29, 2006, the Tamayoses entered into a predatory loan transaction with Option One in Honolulu, providing Option One with a promissory note and a mortgage on what they contend was their principal 3

8 Case: /12/2012 ID: DktEntry: 18-1 Page: 8 of 32 dwelling, the subject property, dated November 22, 2006 in the amount of $1,025,000, with Option One named as their mortgagee. The Tamayoses contend that they did not each receive at closing two accurate and complete requisite TILA notices of the right to cancel as to said 2006 loan, or at any time thereafter, only one blank-dated copy which they placed in evidence below; nor did the Tamayoses receive accurate and complete good faith estimates or complete TILA disclosures at the time of their loan application or loan consummation or at any other time, instead given loan terms less advantage than what they had expected and bargained for. Accordingly, exercising their TILA rights, the Tamayoses through counsel on December 4, 2008, cancelled their 2006 loan transaction and related Note and Mortgage as a matter of federal and state law, timely rescinding as automatically null and void their 2006 loan transaction and related Note and Mortgage, receipted for by RCS purporting to be the servicing agent for H&R which, purporting on that date to be the Tamayoses then mortgagee, had meanwhile noticed a nonjudicial foreclosure sale for noon on that date, which was thereafter reportedly cancelled. Option One and H&R, however, have continued to refuse to recognize the Tamayoses cancellation, demanding full payment on their original mortgage loan; and RCS, eventually claiming to be the Tamayoses new mortgagee, thereafter 4

9 Case: /12/2012 ID: DktEntry: 18-1 Page: 9 of 32 threatened a new nonjudicial foreclosure sale of the subject property which was scheduled for November 18, 2009, and apparently discontinued. RCS was granted leave of court to file a Counterclaim for foreclosure (Doc. No. 69) towards the end of the case, but never filed a Counterclaim thereafter. SUMMARY OF ARGUMENT The undersigned counsel for the Tamayoses orally argued the Yamamoto case before this Court on May 9, 2003 in San Francisco, and returns to this Court thirteen years later seeking justice for borrowers in this Circuit, for it is respectfully submitted that the Panel 1 that decided Yamamoto as well as then Hawaii District Judge Samuel King below never intended that that case should have evolved beyond its limiting facts into the unfortunate mischievous precedent that it has now become. As applied below, Yamamoto is being widely interpreted in this Circuit and elsewhere as persuasive precedent to broadly mean that District Courts may condition TILA rescission on a borrower s ability to first tender the loan proceeds (ER, at 73), reversing the burden of proof and reversing the order of events for rescission, and for the Tamayoses that has meant saddling them with the burden of proof as to their ability to tender without even knowing the rescission amount, and without having proof that they have the right to rescind to show to family members 1 The Yamamoto Panel consisted of Circuit Judges Goodwin, Rymer, and T.G. Nelson. 5

10 Case: /12/2012 ID: DktEntry: 18-1 Page: 10 of 32 or prospective lenders or real estate brokers should they have to sell the property in order to pay the rescission amount. Indeed, the lower court, embracing Yamamoto, rejected outright the Tamayoses claim that they might be able to pay the loan proceeds through refinancing, borrowing from friends, or even selling the subject property (ER, at 66), as nothing more than metaphysical (ER, at 75). In doing so, it is submitted that the lower court confused the statutory requirement of tender, which is a condition subsequent after a TILA rescission is first granted, viewing tender of the TILA rescission amount instead as a condition precedent to that Congressional remedy in terms of the burden of proof and even before the amount is determined by the court, misled by the overly broad language found in Yamamoto, concluding mistakenly that the Tamayoses had proven no genuine issue for trial (ER. at 75 emphasis in the original). Altering the sequence of TILA rescission events so as to place the evidentiary burden on borrowers before trial and before a rescission, to first prove their ability to tender, faulting the Tamayoses who like virtually all borrowers instantaneously could not make a lump-sum payment of the loan proceeds (ER, at 65) is clearly not what Yamamoto was about. In Yamamoto, unlike the treatment afforded the Tamayoses below (ER, at 63-67), then District Judge Samuel King was persuaded to deny rescission and 6

11 Case: /12/2012 ID: DktEntry: 18-1 Page: 11 of 32 dismiss the TILA complaint only because in the Yamamotos oral depositions they had earlier stated that they could not refinance under any circumstances, 329 F.3d at 1173 ( no matter what ), but even then Judge King gave them and their daughter, Tampon, 60 days to try to do so, Yamamoto, 329 F.3d at When the prospect of selling the property to pay the rescission amount was emphasized in oral argument, the Yamamoto Panel inconsistently expressly recognized that prospect, that the property might be sold to pay off the rescission amount, 329 F.3d at 1173, but that did not change the result: Whether the call is correct must be determined on a caseby-case basis, in light of the record adduced. Here, for example, at oral argument Tampon pressed upon us the possibility that borrowers could refinance or sell the property between the time a court grants rescission and when pay back is required, yet to do so they must have an order in hand. We express no opinion on this, for there is nothing at all to this effect in the record. We simply decide that in the circumstances of this case, the court did not lack discretion to modify the sequence of rescission events to assure that Tampon could repay the loan proceeds before going through the empty (and expensive) exercise of a trial on the merits. Here, however, that argument was made, but ignored (ER, at 22), the lower court continuing to place the burden of proof on just about everything with the Tamayoses. 7

12 Case: /12/2012 ID: DktEntry: 18-1 Page: 12 of 32 ARGUMENT Point One Borrowers pursuant to the plain language of Section 1635(b) of Title 15 of the United States Code do not have the burden of proving that they can refinance a mortgage loan if granted a Truth-in-Lending Act ( TILA ) rescission before a District Court determines whether they are actually entitled to a TILA rescission. As explained in the Declaration of Nadine K. Tamayose (Doc. No. 101, paragraphs 14-16), the Tamayoses have a close-knit extended family on Kauai as well as many close friends who we believe would help us refinance.... And were we unable to secure refinancing assistance, we could sell our residence, which obviously we would prefer not to do, but those are choices that as a practical matter we cannot make until we receive a TILA rescission principal reduction and know what that amount will be and have something official to show lenders, family and friends. The lower court ignored that explanation altogether, misapplying Yamamoto, assuming that Yamamoto was correctly decided. Prior to the decision of the Yamamoto Panel, no federal court in any Circuit had ever required borrowers to tender first before adjudicating the validity of their rescission claims. In Rudisell v. Fifth Third Bank, for instance, the Sixth Circuit Court of Appeals concluded [s]ince Congress clearly intended to give a right to rescind to 8

13 Case: /12/2012 ID: DktEntry: 18-1 Page: 13 of 32 persons in appellants situation, this Court feels it must grant them that right, 622 F.2d 243, 254 (1980). Only then did the Sixth Circuit condition rescission upon plaintiff s tender of the reasonable valuable of the aluminum siding. Similarly, in F.D.I.C. v. Hughes, the Eight Circuit affirming, the lower court first determined that the rescission claim was valid, and then and only then directed the tender of net principal within one year, followed by a technical release of the security interest, 684 F. Supp. 616, (1988). Federal law, moreover, clearly mandates that both lenders and borrowers should be treated equally and both given their day in court both tendering at the same time. Earlier decisions, for instance, requiring creditors to rescind first, foregoing a decision on the merits, or forfeiting the principal if the court determined the consumer s claim later to be valid, have been universally discredited; see, e.g., Sosa v. Fite, 498 F.2d 114 (5th Cir. 1974). Lenders that dispute rescissions are today not at the mercy of borrowers unilateral actions. They can avoid violating their obligation to perform first by filing declaratory judgment actions within 20 days following notice of the rescission; see Aquino v. Public Finance Discount Corp., 606 F.2d 504, 508 (E.D. Pa. 1985). 9

14 Case: /12/2012 ID: DktEntry: 18-1 Page: 14 of 32 When borrowers, who are the intended beneficiaries of TILA, similarly seek court intervention, it is inequitable and uneven treatment to require them to sacrifice [their] day in Court because of an inability to make an immediate pretrial tender; Rohner & Miller, Truth in Lending, at 652. TILA clearly contemplates that it is the lender, if anyone is required to go first, who must perform first; id.; Williams v. Homestake Mortgage Co., 968 F.2d 1137, 1140 (11th Cir. 1992). Yamamoto, on the other hand, it can be argued, as was initially seen by those of us participating in that decision, did not depart from that established federal precedent by announcing any contrary general proposition of law, but was decided solely based on the peculiar circumstances of that case where the borrowers admitted in their prior deposition testimony, unlike here, that they could not refinance under any circumstances, 329 F.3d at 1173, supra, which was equivalent to waiving their TILA rescission rights without more. To interpret Yamamoto in any other way as a supposed general proposition of law would turn TILA s mutual obligations into a one-sided, pretrial bond imposed only on the very party who is inherently at a disadvantage in loan and credit transactions, bestowing a windfall on the more powerful creditor; Semar v. Platte Valley Federal Savings & Loan Association, 791 F.2d 699, 705 (9th Cir. 1986); Jackson v. Grant, 890 F. 2d 118, 122 (9th Cir. 1989), both of which 10

15 Case: /12/2012 ID: DktEntry: 18-1 Page: 15 of 32 decisions are still the good law throughout this jurisdiction and heavily relied upon elsewhere. And, while federal courts have increasingly exercised their equitable powers to reorder TILA s rescission remedy procedurally to protect both parties, it has always been equally clear in doing so that federal courts must be careful not to frustrat[e] the main purpose of the Act, which is to allow rescission, Ljepava v. M.L.S.C. Properties, Inc., 511 F.2d 935, 944 (9th Cir. 1975). At its core, it is -- if nothing else -- a matter of being faithful to the express Congressional language of Section 1635(b) of Title 15, there being no justification for disregarding a statute s plain meaning, Beach v. Ocwen Federal Bank, 523 U.S. 410, 417 (1998); see Section 1636(b): 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, downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction. If the creditor has delivered any property to the obligor, the obligor may retain possession of it. Upon the performance of the creditor's obligations under this section, the obligor shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the obligor shall tender its reasonable value. Tender shall be made at the location of the property or at the residence of the obligor, 11

16 Case: /12/2012 ID: DktEntry: 18-1 Page: 16 of 32 at the option of the obligor. If the creditor does not take possession of the property within 20 days after tender by the obligor, ownership of the property vests in the obligor without obligation on his part to pay for it. The procedures prescribed by this subsection shall apply except when otherwise ordered by a court. Similarly, Regulation Z carries forward that legislative intent in its Commentary to (d)(4): Modifications. The procedures outlined in (d)(2) and (3) may be modified by a court. For example, when a consumer is in bankruptcy proceedings and prohibited from returning anything to the creditor, or when the equities dictate, a modification might be made. The sequence of procedures under (d)(2) and (3), or a court's modification of those procedures under (d)(4), does not affect a consumer's substantive right to rescind and to have the loan amount adjusted accordingly. Where the consumer's right to rescind is contested by the creditor, a court would normally determine whether the consumer has a right to rescind and determine the amounts owed before establishing the procedures for the parties to tender any money or property. Recognizing since the inception of TILA that the oversight of such consumer protections is a full-time job, Congress delegated broad rule-making authority to the Federal Reserve Board to implement TILA in Title 15, and the United States Supreme Court has consistently upheld the Board s broad discretionary power to promulgate all necessary interpretative regulations to ensure that the Board has adequate powers to prevent predatory lending practices as 12

17 Case: /12/2012 ID: DktEntry: 18-1 Page: 17 of 32 Congress intended, Mourning v. Family Publications Service, Inc., 411 U.S. 356 (1973). The power of the Federal Reserve Board was further strengthened by the United States Supreme Court s decision in Ford Motor Company v. Milhollin, 444 U.S. 555, (1980): [C]aution requires attentiveness to the views of the administrative entity appointed to apply and enforce a statute. And deference is especially appropriate in the process of interpreting the Truth in Lending Act and Regulation Z. Federal Reserve Board staff opinions construing the Act or Regulation should be dispositive for several reasons.... Furthermore, Congress has specifically designated the Federal Reserve Board and staff as the primary source for interpretation and application of truth-in-lending law.... That statutory provision signals an unmistakable congressional decision to treat administrative rulemaking and interpretation under TILA as authoritative. Moreover, language in the legislative history evinces a decided preference for resolving interpretive issues by uniform administrative decision, rather than piecemeal through litigation.... Finally, wholly apart from jurisprudential considerations or congressional intent, deference to the Federal Reserve is compelled by necessity; a court that tries to chart a true course to the Act s purpose embarks upon a voyage without a compass when it disregards the agency s views. Federal Reserve Board amendments to Regulation Z are controlling in all federal courts and have even been held to be fully retroactive in scope; see, e.g., Rossman v. Fleet Bank (R.I.) National Association, 280 F.3d 384, (3rd 13

18 Case: /12/2012 ID: DktEntry: 18-1 Page: 18 of 32 Cir. 2002) (Federal Reserve Board staff opinions construing TILA or interpreting Regulation Z, unless demonstrably irrational, are dispositive, and must be construed in favor of the consumer); Cowen v. United of Texas, F.S.B., 70 F.3d 937, 943 (7th Cir. 1995); (Federal Reserve Board s staff commentary given great weight and retroactive effect); Pettola v. Nissan Motor Acceptance, 44 F. Supp. 2d 442 (D. Conn. 1999) (agency commentary interpreting existing law is even applied retroactively); McPhillips v. Gold Key Lease, Inc., 38 F. Supp 2d 975 (M.D. Ala. 1999) (agency commentary clarifying unsettled and conflicting law is applied retroactively); Barlow v. Evans, 992 F. Supp (M.D. Ala. 1997) (agency s clarifying commentary is applied retroactively); Smith v. Highland Bank, 915 F. Supp. 281 (N.D. Ala. 1996), affirmed on other grounds, 108 F.3d 1325 (11th Cir. 1997) (Federal Reserve Board s clarifying commentary given retroactive effect). Any contrary, broader interpretation of Yamamoto would also be contrary to judicial decisions adhered to for decades in this Circuit; see, e.g., Semar v. Platt Valley Federal Savings & Loan Association, 791 F.2d 699 (9th Cir. 1986); LaGrone v. Johnson, 534 F.2d 1360 (9th Cir. 1976); Ljepava v. M.L.S.C. Properties, Inc., 511 F.2d 935 (9th Cir. 1975); and Palmer v. Wilson, 502 F.2d 860 (9th Cir. 1974). In Semar, for instance, this Court held that a TILA rescission effects a cancellation of finance and other charges and is a substantive right that courts are 14

19 Case: /12/2012 ID: DktEntry: 18-1 Page: 19 of 32 not free to ignore, and that courts are obligated to exercise equitable discretion to structure rescission in a manner that is fair to both parties only after an adjudication on the merits occurs at trial. Semar, moreover, expressly held that courts do not have equitable discretion to revise the substantive provisions of the statute; Semar, 791 F.2d at n.15. In Semar, the creditor specifically as here argued that the court had equitable discretion to deny a borrower s right to rescission as defined by TILA; id. at This Court in Semar, to the contrary, held that a borrower s rescission automatically cancels any obligation to pay finance or other charges and that this is a substantive requirement of TILA that courts are not free to amend ( we defer to Congress method of enforcing TILA and follow the plain language of the statutes, id. at 706), only thereafter to condition rescission on tender of the rescission amount. This is one of the key distinctions that the lower court missed, instead concluding that rescission should be conditioned on Plaintiffs tender of the loan proceeds (ER, at 18) before there is an adjudication as to the merits of their rescission claim, when substantively the reverse is true. No one is contending that as in Yamamoto where borrowers admit that they will not be able to tender the rescission amount no matter what, that the courts must go through the waste of a trial, but here the Tamayoses made no such 15

20 Case: /12/2012 ID: DktEntry: 18-1 Page: 20 of 32 admissions, but to the contrary described the resources available to them to tender, once granted a TILA rescission. Semar, Palmer, and their progeny -- permitting district courts to condition the termination of a lender s security interest on tender by borrowers of the net principal owing after deduction of finance and other charges -- nowhere overturned in the Yamamoto decision of this Court, unanimously have held and been the controlling case law in this jurisdiction during a collective span of almost forty years, that the cancellation of finance and other charges cannot be substantively altered by courts; see, e.g., Riopta v. Amresco Residential Mortgage Corp., 101 F. Supp. 2d 1326, 1336 (D. Haw. 1999). Thus, as another Ninth Circuit panel held in Dinsmore-Thomas v. FDIC, 1998 U.S. App. LEXIS 2777 (9th Cir. 1998), for instance, where rescission is conditioned on tender, and the consumer is unable to make a tender, the consumer is still entitled to cancellation of finance and other charges on the loan ( in addition, after Dinsmore-Thomas failed to satisfy the repayment condition, the district court properly reinstated the promissory note for the reduced sum of $96, rather than the full amount of $180, ), id. at 3. Accord, In re Wepsic, 231 B.R. 768, 777 S.D. Calif. 1998). Thus, even were the Tamayoses unable to refinance for any reason, the balance owing on their loans should still have been reduced to the TILA rescission 16

21 Case: /12/2012 ID: DktEntry: 18-1 Page: 21 of 32 amount were they to establish at trial that they were nevertheless entitled to a TILA rescission remedy, affecting any later deficiency judgment or subsequent attempt to refinance once a state court foreclosure were filed (which would take as much as one or more additional years) that further illustrates how a take-it-or-leave-it demand in advance of trial, seeking summary judgment otherwise, is a practical and legal thwarting of Congressional intent. In contrast, by misinterpreting Yamamoto below, the lower court further effectively prejudiced the procedural and the substantive rights of the Tamayoses, requiring them to prove that they could make an unrealistic, immediate tender without first having the validity of their rescission claim adjudicated in their favor so as to prove that to family and friends or a new lender or a loan broker or a real estate broker so as to secure refinancing or a sale, all based upon their extended family resources or the market value of their residential property and not their cash assets. POINT TWO If this Court s Yamamoto decision is interpreted to mean that borrowers have the burden of proving that they can refinance a mortgage loan if granted a TILA rescission before a District Court determines whether they are actually entitled to a TILA rescission, that Panel decision should be limited or overturned. The indiscriminate, broad brush interpretation given the Yamamoto decision below investing courts with wide and virtually unreviewable discretion, moreover, 17

22 Case: /12/2012 ID: DktEntry: 18-1 Page: 22 of 32 invoking summary judgment by reversing the burden of proof and reversing the order of events for rescission, has produced conflicting results in federal courts in other Circuits wrestling with how to interpret Yamamoto, and is not even being consistently applied in Ninth Circuit District Courts; e.g.: 2 Giza v. Amcap Mortgage, Inc., 428 B.R. 266, (Bk. D. Mass. 2010) (Judge Henry Boroff: some courts... have interpreted [TILA along with an identical Massachusetts statute] to give courts the equitable power to condition rescission on tender by the borrower... Yamamoto.... [To the contrary] these procedures address the process by which rescission occurs after the security interest has been voided emphasis in the original). Cromwell v. Countrywide Home Loans, Inc., 461 B.R. 99, (Bk. D. Mass. 2011) (Judge William Hillman: I must respectfully disagree [with Yamamoto which]... goes further to place non-statutory and non-regulatory conditions on the legal availability of the right to rescind based upon the court s equitable discretion to modify rescission procedures [reviewing legislative and regulatory materials] ). 2 Yamamoto has lead to several additional disagreements within the Ninth Circuit. There is also a difference within Ninth Circuit District Courts, not however applicable here but similarly needing attention from this Court, regarding how Yamamoto applies to the tender pleading issue, one line of cases reading Yamamoto to require borrowers to plead present ability to tender the TILA rescission amount in order to survive a motion to dismiss, while others holding that Yamamoto does not. See Kakogui v. American Brokers Conduit, 2010 WL *4 (U.S.D.C. N.D. Cal. 2010). 18

23 Case: /12/2012 ID: DktEntry: 18-1 Page: 23 of 32 Swayze v. Ameriquest Mortgage Co., 2004 WL *5 (U.S.D.C. N.D. Ga. 2004) (Judge Gerrilyn Brill: no other conclusion can be reached than that a bona fide rescission is automatic upon notification from the debtor. This does not mean, as a case relied upon by a defendant argues, that a borrower could get out from under a secured loan simply by claiming TILA violations, whether or not the lender had actually committed any. Yamamoto.... Yamamoto overlooks the possibility of a court retroactively declaring the validity of a security interest emphasis in the original). Willams v. Saxon Mortgage Co., 2008 WL *5 and n.10 (U.S.D.C. S.D. Ala. 2008) (Judge William Steele: [T]he request that the Court order plaintiffs to produce definitive evidence of their ability to tender the necessary rescission amounts is both problematic and irregular [ speculation ]. It is blackletter law that, on summary judgment, [t]he moving party bears the initial burden of showing the court, by reference to materials on file, that there are no genuine issues of material fact that should be decided at trial. * * * * In Yamamoto, itself, the panel found that it was clear from the evidence that the borrower lacks capacity to pay back what she has received ). Quintero Family Trust v. OneWest Bank, F.S.B., 2010 WL *3 (U.S.D.C. S.D. Cal. 2010) (Judge Irma Gonzalez: In the present case, because of the egregious facts alleged and because the balance of equities weighs in 19

24 Case: /12/2012 ID: DktEntry: 18-1 Page: 24 of 32 Plaintiff s favor, the Court refuses [to apply Yamamoto] to alter the statutorilyprovided sequence.... Accordingly, the Court will not require Plaintiffs to demonstrate a present ability to tender emphasis in the original). POINT THREE If the lower court s interpretation of Yamamoto is deemed correct and Yamamoto is not to be limited or overturned, in the circumstances of this case however, especially where no findings were made as to the relative equities of the parties, the borrowers ability to tender a TILA rescission amount if subsequently receiving a rescission award was in genuine dispute and precluded granting summary judgment. The lower court had no contrary evidence before it presented by any of the defendants establishing that the Tamayoses could not eventually tender the yet to be established rescission amount, and instead exclusively relied upon the Tamayoses deposition and declaration testimony, which if anything were clearly the opposite of being confessive, as had otherwise occurred in Yamamoto and triggered the result there, although District Judge Samuel King nevertheless gave the Yamamotos a full sixty days to attempt to refinance or sell their property. Again, for instance, as explained in the Declaration of Nadine K. Tamayose (Doc. No. 101, paragraphs 14-16), the Tamayoses have a close-knit extended family on Kauai as well as many close friends who we believe would help us refinance.... And were we unable to secure refinancing assistance, we could sell our residence, which obviously we would prefer not to do, but those are choices that as a practical matter we cannot make until we receive a TILA rescission 20

25 Case: /12/2012 ID: DktEntry: 18-1 Page: 25 of 32 principal reduction and know what that amount will be and have something official to show lenders, family and friends. Under these circumstances, and making no attempt as in Quintero, supra, to balance the equities even though in attempting to refinance to get a better interest rate the Tamayoses wound up with a less attractive overall interest rate (ER, at 46-47), the lower court should not have granted summary judgment. The Tamayoses constitutional right to a jury trial on the merits of that equitable claim is clearly established in Hawaii state law both by the Hawaii Supreme Court in Hawaii Community Federal Credit Union v. Keka, 94 Haw. 213, 16-17, 11 P.3d 1 (2000) and more recently by the District Court below in Kajitani v.downey Savings and Loan Association, F.A., 647 F. Supp. 2d 1208, 1219 (2008), rendering summary judgment in such situations inappropriate, and more so where the equities are to be balanced if that is part of the Yamamoto test as it was decided in Quintero, supra. For instance, as a unanimous Hawaii Supreme Court reiterated in reversing the summary judgment in Keka while addressing the inappropriateness of granting mortgage foreclosure summary judgments in such inequitable bait-and-switch circumstances, even though the record in the present matter contains very scanty evidence of the circumstances surrounding the Kekas loan transaction : 21

26 Case: /12/2012 ID: DktEntry: 18-1 Page: 26 of 32 HRS Section 480-2, as its federal counterpart in the FTC Act, was constructed in broad language in order to constitute a flexible tool to stop and prevent fraudulent, unfair or deceptive business practices for the protection of both consumers and honest business [persons]. Ai v. Frank Huff Agency, Ltd., 61 Haw. 607, 616, 607 P.2d 1304, 1311 (1980) (footnote omitted). [A] practice is unfair when it offends established public policy and when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers. Rosa [v. Johnston] 3 Haw. App. at 427, 651 P.2d at Our consumer protection statute is remedial in nature and must be liberally construed in order to accomplish the purpose for which it was enacted.... Applying this principle, and viewing the record and the inferences drawn therefrom in the light most favorable to the Kekas, there is a genuine issue of material fact as whether the Credit Union engaged in unfair and deceptive trade practices, in violation of HRS ch Pursuant to Rule 56 of the Federal Rules of Civil Procedure, summary judgments shall be granted only when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987) (citing Celotex Corp., 477 U.S. at 323). See also Porter v. Cal. Dep't of Corr., 419 F.3d 885, 891 (9th Cir. 2005); Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000). Parties seeking summary judgment, contrary to what occurred below, have both the initial burden of production and the ultimate burden of persuasion on a 22

27 Case: /12/2012 ID: DktEntry: 18-1 Page: 27 of 32 motion for summary judgment. Nissan Fire & Marine Ins. Co. Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000). Moreover, courts in summary adjudication proceedings are not allowed to make credibility assessments or weigh conflicting evidence, Musick v. Burke, 913 F.2d. 1390, 1394 (9th Cir. 1990), yet that is what the lower court purposely did. The defendants below, on the other hand, did not meet their burden of proof, and the lower court improperly wrongfully shifted that burden at the outset onto the Tamayoses pertaining to their ability to tender. The Tamayoses continually objected to the granting of summary judgment with respect to all three points set forth above. 3 CONCLUSION For all of the above reasons, it is respectfully submitted that the decision of the lower court should be reversed and the case remanded and permitted to continue to a decision on the merits of the Tamayoses TILA rescission and equitable claims, including a determination as to the rescission amount, trial by jury properly demanded, and the Tamayoses if successful regarding the substance of their TILA rescission claim should be given adequate time in which to refinance or sell their property. 3 See Transcript of Proceedings for December 5, 2011, ER, at 46-48; Concise Statements in Opposition, Doc. Nos. 97, 98, 99 and 100; Declaration of Nadine K. Tamayose, Doc. No. 101; Memorandum in Opposition to Summary Judgment, Doc. No. 103; Supplemental Declaration of Nadine K. Tamayose. 23

28 Case: /12/2012 ID: DktEntry: 18-1 Page: 28 of 32 This Court s Yamamoto decision in the process should be revisited and either narrowed in scope or completely overturned, with appropriate guidance provided to our District Courts concerning how to decide such cases in a consistent manner in future cases. And there was never more need to do so, given the present nationwide predatory lending foreclosure crisis and the devastating slaughter of borrowers taking place daily, especially in some parts of the Ninth Circuit. This is certainly no time to scuttle such indispensable Congressional consumer protections. Courts have long recognized the special importance to the welfare of this Nation of protecting a family s single most important asset, its residence, not only from an economic point of view, but also for its inherent social values -- as its location often determines where children go to school, where families worship, where family and friends reside, and where the elderly spend their remaining years, in the absence of which borrowers may become dependent on public housing and welfare, if available, and parental control may be lost and marriages may break up as a result; see Sawada v. Endo, 57 Haw. 608, 616, 561 P.2d 1291 (1977). It was Chief Judge Kozinski of this Court in Balderas v. Countrywide Bank, N.A., 664 F.3d 787, 791 (9th Cir. 2011), who recently succinctly summarized the importance of allowing borrowers to exercise their TILA rescission rights without 24

29 Case: /12/2012 ID: DktEntry: 18-1 Page: 29 of 32 restricting their full evidentiary rights, by analogy equally applicable here, in this way: As we've said before, so long as the plaintiff alleges facts to support a theory that is not facially implausible, the court's skepticism is best reserved for later stages of the proceedings when the plaintiff's case can be rejected on evidentiary grounds. In re Gilead Sciences Securities Litigation, 536 F.3d 1049, 1057 (9th Cir. 2008). Here, the Balderases clearly alleged in their complaint that they were never given a Notice of Right to Cancel that complied with TILA. If they can prove up this allegation at trial, they'll win. DATED: Honolulu, Hawaii; October 12, /s/ Gary Victor Dubin GARY VICTOR DUBIN FREDERICK ARENSMEYER Attorneys for Appellants Reid I. Tamayose and Nadine K. Tamayose 25

30 Case: /12/2012 ID: DktEntry: 18-1 Page: 30 of 32 STATEMENT OF RELATED CASES None 26

31 Case: /12/2012 ID: DktEntry: 18-1 Page: 31 of 32 CERTIFICATE OF COMPLIANCE I hereby certify that this Opening Brief, pursuant to Rule 32(a)(7)(C) of the Federal Rules of Appellate Procedure is proportionately spaced, double-spaced, using a Times New Roman Typeface, 14-point size, with a total word count of 5,930 words as determined by the Windows XP word processing operating system used to prepare said document. DATED: Honolulu, Hawaii; October 12, /s/ Gary Victor Dubin GARY VICTOR DUBIN FREDERICK ARENSMEYER Attorneys for Appellants Reid I. Tamayose and Nadine K. Tamayose 27

32 Case: /12/2012 ID: DktEntry: 18-1 Page: 32 of 32 CERTIFICATE OF SERVICE I hereby certify that on the date first written below a true and correct copy of the aforementioned Opening Brief was duly filed by electronic transmission, thereby served upon the following attorneys representing the Appellees in this Appeal: Jade Lynne Ching, Esq. Lester K.M. Leu, Esq. Miriah Holden, Esq. Gary Y. Okuda, Esq Bishop Street, Suite 1800 Karyn Doi, Esq. Honolulu, Hawaii Merchant Street Honolulu, Hawaii Attorneys for Appellees Option One Mortgage Corporation Attorneys for Appellee and H&R Block Bank Residential Credit Solutions Kevin W. Herring, Esq. Connie Chow, Esq Alakea Street, Suite 1400 Honolulu, Hawaii Attorneys for Appellee Old Republic Title & Escrow of Hawaii, Ltd. DATED: Honolulu, Hawaii; October 12, /s/ Gary Victor Dubin GARY VICTOR DUBIN FREDERICK ARENSMEYER Attorneys for Appellants Reid I. Tamayose and Nadine K. Tamayose 28