UNITED COURT OF APPEALS FOR THE FIRST CIRCUIT. Case No JOSEPH MELFI Plaintiff-Appellant v.

Transcription

1 UNITED COURT OF APPEALS FOR THE FIRST CIRCUIT Case No JOSEPH MELFI Plaintiff-Appellant v. WMC MORTGAGE CORPORATION MORGAN STANLEY ABS CAPITAL 1 INC. DEUTSCHE BANK NATIONAL TRUST COMPANY WELLS FARGO BANK, N.A. Defendants-Appellees ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND HONORABLE CHIEF JUDGE MARY LISI PRESIDING C.A. No APPELLANT S INITIAL BRIEF Christopher M. Lefebvre (#68809) Family and Consumer Law Center PO Box 479 Two Dexter Street Pawtucket, R.I (401) (Fax) Chris@Lefebvrelaw.com February 11, 2009

2 TABLE OF CONTENTS TABLE OF CONTENTS... -i- TABLE OF AUTHORITIES... -ii- I. JURISDICTIONAL STATEMENT II. STATEMENT OF ISSUE PRESENTED FOR REVIEW III. STATEMENT OF THE CASE IV. STATEMENT OF FACTS V. SUMMARY OF THE ARGUMENT II. ARGUMENT A. INTRODUCTION B. STANDARD OF REVIEW ON APPEAL C. THE TILA AND REGULATION Z The TILA's Fundamental Purpose is to Protect Borrowers by Requiring Meaningful Disclosures The Supreme Court Mandates Deference to Regulation Z Rote Use of H-8 Model Forms Does Not Shield Creditors from Liability if Those Forms Are Not Completed D. OMISSION OF A CLEAR RESCISSION DATE VIOLATES THE TILA AND REGULATION Z Borrowers Should Not be Forced to Guess What Date Their Rescission Right Expires This Court has Recognized the Importance of a Clear Rescission Deadline Palmer Does not Compel a Different Result Substantive Technical Violations of Reg. Z Are Actionable -27- III. CONCLUSION CERTIFICATE OF SERVICE CERTIFICATE OF TYPE-VOLUME COMPLIANCE i-

3 TABLE OF AUTHORITIES CASES Aquino v. Public Fin. Consumer Discount, 606 F. Supp. 504 (E.D. Pa. 1985) Armstrong v. Nationwide Mortgage Plan (In re Armstrong), 288 B.R. 404 (Bankr. E.D. Pa. 2003) Aubin v. Residential Funding Co., 2008 U.S. Dist. LEXIS *1 (D. Conn. July 11, 2008)... 15, 20 Barnes v. Fleet Nat'l Bank, 370 F.3d 164 (1st Cir. 2004) Bonney v. Washington Mutual Bank, CA No (D. Mass. 2008) Beach v. Ocwen Federal Bank, 523 U.S. 410, 412, 118 S.Ct (1998) st Belini v. Wash. Mutual Bank FA, 412 F.3d 17 (1 Cir. 2005) Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439 (1st Cir. 2000) Bizier v. Globe Financial Services, Inc., 654 F.2d 1 (1st 1981) Bland v. Carone Family Trust, 2007 WL (S.D. Cal. 2007) Carye v. Long Beach Mortg. Co., 470 F. Supp. 2d 3 (D.Mass.2007) Cetto v. LaSalle Bank National Association, 518 F.3d 263 (4th Cir. 2008) Conner v. Moss, Codilis, Stawiarski Morris, Schneider & Prior, 2003 WL (N.D. Ill. 2003) Deans v. Long Beach Mortgage Co., 2007 WL (W.D. Mich. 2007) Fairley v. Turan Foley Imports Inc., 65 F.3d 475, (5th Cir. 1995) First National Bank of Council Bluffs, Iowa v. Office of the Comptroller, 956 F.2d (8th Cir. 1992) Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 100 S.Ct. 790 (1980) , 24 Goldberg v. Board of Health of Grandby, 444 Mass. 627, 830 N.E.2d 207(2005) Hamm v. Ameriquest Mortgage Company, 506 F. 3d 525(7th Cir. 2007) Household Credit Services, Inc. v. Pfennig, 541 U.S. 232 (2004) , 24 Johnson v. Chase Manhattan Bank, 2007 U.S. Dist. LEXIS at *1 (E.D.Pa. 2007)...24, 27 Johnson v. Thomas, 342 Ill. App. 3d 382, 794 N.E.2d 919 (Ill. App. Ct. 2003) Mayfield v. Vanguard Sav. & Loan Ass'n, 710 F. Supp. 143 (E.D. Pa. 1989) Megitt v. Indymac Bank, 2008 WL ( D. Mass. 2008) Melfi v. WMC Mortgage Corpoation et als, F.Supp. 2d., 2009 WL (D. R.I. 2009)... 1 Mourning v. Family Publications Service, Inc., 411 U.S. 356, 93 S.Ct (1973) ii-

4 New Maine Nat'l Bank v. Gendron, 780 F. Supp. 52 (D. Me. 1991) Omar v. Washington Mutual Bank, C.A ( D.Mass Dec. 30, 2008) Ortiz v. Rental Management Inc., 65 F. 3d 335 (3d Cir. 1995) Palmer v. Champion Mortgage, 465 F.3d 24 (1st Cir. 2006) Pennino v. Morris Kirschman & Co., 526 F.2d 367 (5th Cir. 1976)) Pollock v. General Finance Corp., 535 F.2d 295 (5th Cir. 1976) Porter v. Mid-Penn Consumer Discount Co., 961 F.2d 1066 (3d Cir. 1992)) Quiles v. Washington Mutual Bank, C.A ( D. Mass. Dec. 30, 2008) Reynolds v. D&N Bank, 792 F. Supp (E.D. Mich. 1992) Rhode Island Hospital v. Michael O. Leavitt, in his capacity as Secretary of Health and Human Services, 548 F 3rd 29 (1st Cir. 2008) , 24 Rod v. Southern New England School of Law, 389 F.3d 5 (1st Cir. 2004)) In re Rodrigues, 278 B.R. 683 (Bankr. D.R.I. 2002) Santos-Rodriguez v. Doral Mortgage Corp., 485 F.3d 12 (1st Cir. 2007) ,27 Semar v. Platte Valley Fed. Sav. & Loan Ass'n., 791 F.2d 699 (9th Cir. 1986) In re Washington Mutual Overdraft Protection Litigation, 539 F.Supp 2d (C.D. CA 2008) Williamson v. W.E. Lafferty, 698 F.2d 767 (5th Cir. 1983)) , 19 Wright v. Tower Loan of Mississippi, Inc., 679 F.2d 436 (5th Cir. 1982) STATUTES 28 U.S.C et seq U.S.C U.S.C U.S.C. 1601, et seq.... passim 12 C.F.R. part 226, Federal Reserve Board Regulation Z passim OTHER newsid751/569/default.aspx (accessed on July 24, 2008) /newsid751/569/Default.aspx (accessed on July 24, 2008) Wikipedia, Business day, iii-

5 I. JURISDICTIONAL STATEMENT The United States District Court for the District of Rhode Island had jurisdiction over the claims of Plaintiff-Appellant Joseph C. Melfi ( Plaintiff ) pursuant to 28 U.S.C and 1337, as well as 15 U.S.C Plaintiff alleged that Defendant WMC Mortgage Corporation ( WMC ) violated the Truth in Lending Act ( TILA ), 15 U.S.C. 1601, et seq. and implementing Federal Reserve Board Regulation Z, 12 C.F.R. part 226. Plaintiff sued WMC and the assignees of the mortgage loan, Wells Fargo Bank N.A. ( Wells Fargo ) and Deutsche Bank National Trust Company, N.A. ( Deutsche Bank ), to effectuate rescission of his mortgage transaction. On January 9, 2009, the District Court (Lisi, J.) adopted the Report and Recommendation of Magistrate Judge Almond granting the motion to dismiss of Wells Fargo and Deutsche Bank, concluding that the Plaintiff failed to state a claim for relief under the TILA. Melfi v. WMC Mortgage Corpoation et als, F.Supp. 2d., 2009 WL (D. R.I. 2009). The District Court s Opinion, Judgment, and the order of dismissal were all entered on January 9, Plaintiff timely filed a Notice of Appeal on the same day, January 9, This Court has jurisdiction over Plaintiff s appeal pursuant to 28 U.S.C II. STATEMENT OF ISSUE PRESENTED FOR REVIEW Whether the District Court erred in granting Defendant s Motion to Dismiss and -1-

6 holding that leaving blank date lines on the model right to cancel forms was not a violation of Federal Reserve Board Regulation Z, 12 C.F.R. part 226. III. STATEMENT OF THE CASE Mr. Melfi is a resident of Rhode Island who refinanced his home mortgage in April of 2006 with WMC Mortgage Corporation. At the loan closing, he received an incomplete Notice of Right to Cancel (hereinafter the Notice ) the refinance transaction. It did not contain the precise date to cancel the transaction required by Regulation Z. On March 11, 2008, Plaintiff filed an Amended Complaint adding the assignees and present holders of the mortgage and alleging that the Notice received by him was defective because it did not contain the precise rescission deadline, in violation of the TILA and Regulation Z. Plaintiff sought to rescind his individual mortgage transaction and requested that he be awarded statutory damages and attorney s fees pursuant to 15 U.S.C for the failure of the assignees to honor the rescission demand. The District Court dismissed Plaintiff s case and this appeal followed. IV. STATEMENT OF FACTS Plaintiff s Amended complaint alleges that on, April 7, 2006 Mr. Melfi obtained a loan from WMC secured by his residence. The loan was incurred for debt consolidation purposes and all of the proceeds were used for personal, family or household purposes. The loan was subsequently assigned to the Defendants Wells -2-

7 Fargo and Deutsche Bank. At the loan closing, Mr. Melfi was provided copies of a Notice of the Right to Cancel which contained almost verbatim language found in 12 C.F.R. Part 226, Appendix H, including the space for disclosing both the date of the transaction and the rescission deadline, but neither date was filled in. The Notices received by Mr. Melfi stated in pertinent part: You have a legal right under federal law to cancel this transaction, without cost, within THREE BUSINESS DAYS from whichever of the following events occurs LAST: (1) the date of the transaction, which is ; or (2) the date you received your Truth in Lending Act disclosures; or (3) the date you received this notice of your right to cancel.... If you cancel by mail or telegram, you must send the notice no later than MIDNIGHT of,, (or MIDNIGHT of the THIRD BUSINESS DAY following the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. Nothing in the Notices or any other document given to Plaintiff explained the TILA s definition of business day or its effect on calculating the proper rescission deadline. Plaintiff alleged that the Notices were defective because they omitted the expiration date required by Regulation Z. -3-

8 V. SUMMARY OF THE ARGUMENT The Truth In Lending Act s fundamental purpose is to protect borrowers by requiring lenders to completely and accurately disclose the material terms of the credit, along with the borrower s rights. In light of the ongoing sub-prime mortgage crisis, this central goal has never been more relevant. One of the most important rights creditors must disclose is the borrower s right to rescind the transaction. To properly give notice of the right to rescission, Regulation Z mandates that a creditor deliver to each homeowner a Notice of Right to Cancel that clearly and conspicuously discloses the date the rescission period expires. The Federal Reserve Board s decision to require clear and conspicuous disclosure of the date when a borrower s rescission deadline expires is directly related to the TILA s goals of complete and accurate disclosure of borrowers rights, and is therefore entitled to deference by this Court. The Notices at issue here are based upon model forms provided by Regulation Z, yet omitted the most important piece of information - the date upon which the borrower s rescission period expired. Therefore, the Notice did not clearly and conspicuously disclose the right to rescission. Because the Notice omitted the date of borrower s rescission deadline, calculation of the accurate rescission deadline was dependant upon the borrower s proper application of the Notice s alternative three business day deadline. The TILA -4-

9 somewhat uniquely considers Saturday to be a business day, regardless of whether the lender is actually open for business. Because the closing in the present matter took place on a Friday, the borrower would not have understood when his right to rescission expired unless he knew that, contrary to the common understanding, Saturday is a business day under the TILA. This stands in stark contrast to the fundamental purpose of the TILA. Borrowers are not chargeable with knowledge of Regulation Z and should not be forced to guess between several reasonable interpretations of TILA disclosures, particularly when it affects a right as important as the right to rescind the transaction. Numerous courts have recognized the importance of a clear rescission deadline, and Regulation Z itself highlights the disclosure s importance by requiring it to be disclosed separately from the financial terms of the loan to each borrower. Congress intended TILA to preclude borrowers being forced into guesswork, and requiring creditors to provide a rescission deadline advances this goal and protects borrowers. VI. ARGUMENT A. INTRODUCTION The national economy is on the brink of financial disaster. Bankruptcy filings have skyrocketed while foreclosures have reached epidemic proportions. Rhode Islanders are not immune from these economic conditions. The TILA is often the only -5-

10 available tool utilized by homeowners to combat predatory lending and to thwart foreclosure proceedings. These safeguards have now been temporary eliminated in Rhode Island and Massachusetts based on recent decisions that have erroneously assumed that implementing Regulation Z to the TILA can now be ignored, overlooked and/or rewritten by District Court Judges. This approach is contrary to Supreme Court mandates and the overwhelming authority in other circuits. The District Court s decision has the practical effect of eviscerating all the protections afforded to consumers under the TILA and accompanying Regulation Z and creating great uncertainty for those lenders that have consistently looked to the regulation for authoritative guidance on required disclosures in mortgage transactions. The issue presented in this appeal is one of first impression and extreme importance to the thousands of homeowners that have refinanced their principle mortgages during the last several years. This Court must decide not merely whether this specific consumer received a Notice that clearly and conspicuously disclosed his rescission rights but also the broader question of whether rescission notices must comply with the express mandates of Regulation Z. The District Court held it need not comply with those express mandates. This distinction is not merely form over substance, but central to a basic understanding of the rights afforded both consumers and lenders under the TILA. The -6-

11 TILA does not define clear and conspicuous notice, but itself refers to the regulations. Caselaw repeatedly holds that Regulation Z is to be given the highest deference in regard to the details of such notices. Yet the Rhode Island District Court completely disregarded the disclosure requirements of Regulation Z and interposed its own interpretation of what was adequate notice. What may be clear and conspicuous disclosure to a District Judge in Bangor Maine may not be viewed in a similar vein by a District Judge in San Juan. If the District Court s conclusion is sustained then the uniform disclosure principles underlying the TILA and Regulation Z will be eliminated. The decision of the District Court s must be reversed. B. STANDARD OF REVIEW ON APPEAL The Court of Appeals applies a de novo standard of review to the granting of a motion to dismiss. Rod v. Southern New England School of Law, 389 F.3d 5, 12 (1st Cir. 2004); Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439, 443 (1st Cir. 2000). C. THE TILA AND REGULATION Z 1. The TILA s Fundamental Purpose is to Protect Borrowers by Requiring Meaningful Disclosures. The Truth in Lending Act ( TILA ) was enacted to assure meaningful disclosure of credit terms and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices. 15 U.S.C. -7-

12 1601(a). When interpreting the TILA s requirements, this Court has made clear that the TILA is intended to balance scales thought to be weighed in favor of lenders and is thus to be liberally construed in favor of borrowers. Bizier v. Globe Financial Services, Inc., 654 F.2d 1, 2 (1st 1981). The need to balance the scales and protect borrowers has never been more striking, as the fallout from the sub-prime lending crisis continues to affect the regional and national economy. In Massachusetts alone, foreclosure rates continue to set records, with foreclosure deeds up over 1000% since See Mass. Foreclosure Deeds Up Over 1000% Since The TILA is intended to combat many of the factors that have contributed to the current mortgage crisis by requir[ing] creditors to provide borrowers with clear and accurate disclosures of terms dealing with things like finance charges, annual percentage rates of interest, and the borrower's rights[.] Beach v. Ocwen Federal Bank, 523 U.S. 410, 412, 118 S.Ct. 1408, 1410 (1998). One of the most important rights that creditors must clearly and conspicuously convey to borrowers through TILA disclosures is a borrower s right to rescind the transaction when their personal residence is involved. The importance of the right is magnified by the fact that the disclosure is unique in two regards: First, Regulation Z mandates that the right to rescind must be disclosed on a separate sheet or paper from all other documents given to the borrower. The loan s 1 newsid751/569/default.aspx (accessed on July 24, 2008). -8-

13 finance charges, annual percentage rate, total payments and other material terms may be grouped together, but the right to rescind must be clearly and conspicuously disclosed on its own. Second, unlike other TILA disclosures, two copies of the right to rescind must be given to each borrower, making it the only TILA disclosure that must be given to all borrowers in the transaction. In cases involving non-purchase-money mortgages on residential dwellings, the TILA grants the debtor the right to rescind within three days of the transaction or three days from the delivery of the material disclosures, whichever occurs later. 15 U.S.C. 1635(a). Ironically, the TILA does not provide any information regarding what must be contained or disclosed in the Notice. That information is only provided in the accompanying Regulation Z. Regulation Z mandates that a creditor deliver to each homeowner duplicate copies of a Notice of Right to Cancel that "clearly and conspicuously discloses, among other things, the date the rescission period expires. 12 C.F.R (b)(1)(v) (emphasis added). It is this specific requirement of Regulation Z that the District Court overlooked in dismissing Plaintiff s complaint. 2. The Supreme Court Mandates Deference to Regulation Z. Regulation Z s requirement that lenders include a firm deadline for rescission in the Notice of Right to Cancel plainly advances the explicit goals of the TILA and is thus entitled to deference by this Court. Congress has specifically designated the Federal -9-

14 Reserve Board and staff as the primary source for interpretation and application of truth-in-lending law.... judges ought to refrain from substituting their own interstitial lawmaking for that of the Federal Reserve, so long as the latter's lawmaking is not irrational. Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, , 100 S.Ct. 790, (1980). The recent analysis of this issue by the Supreme Court is found in Household Credit Services, Inc. v. Pfennig, 541 U.S. 232 (2004). The heart of the unanimous decision reads as follows: Respondent does not challenge the Board's authority to issue binding regulations. Thus, in determining whether Regulation Z's interpretation of TILA's text is binding on the courts, we are faced with only two questions. We first ask whether Congress has directly spoken to the precise question at issue. Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). If so, courts, as well as the agency, must give effect to the unambiguously expressed intent of Congress. Id., at , 104 S.Ct However, whenever Congress has explicitly left a gap for the agency to fill, the agency's regulation is given controlling weight unless [it is] arbitrary, capricious, or manifestly contrary to the statute. Id., at , 104 S.Ct Id. at 239. Every Court of Appeals that has examined the Supreme Court s directives on this issue has accorded deference to the Federal Reserve Board s interpretations of Regulation Z and it s Commentary. Ortiz v. Rental Management Inc., 65 F. 3d 335 (3d Cir. 1995) ( [i]n the presence of such an explicit delegation of congressional authority, -10-

15 we must defer quite broadly to the Board's interstitial regulations. ); Cetto v. LaSalle Bank National Association, 518 F.3d 263 (4th Cir. 2008) (recognizing the Federal Reserve Board and staff as the primary source of interpretation of the TILA); Fairley v. Turan Foley Imports Inc., 65 F.3d 475, (5th Cir. 1995) ( [t]o that end, Congress, through the Act, gave the Federal Reserve Board the authority normally given to administrative agencies to promulgate regulations designed to carry out the purposes of the Act. The language of the Act's enabling provision also emphasized the Board's authority to prevent evasion of the rules. ); Hamm v. Ameriquest Mortgage Company, 506 F. 3d 525(7th Cir. 2007) ( [c]ourts pay particular heed to the FRB Staff 2 Commentary to TILA's regulations when evaluating an alleged TILA violation. ) ; First National Bank of Council Bluffs, Iowa v. Office of the Comptroller, 956 F.2d (8th Cir. 1992) ( [t]hese Supreme Court cases make it abundantly clear that... attack on the validity of the Official Staff Commentary must fail unless... demonstrably irrational. ). Although this Court has yet to definitively address the precise deference issue to be afforded the requirements of Regulation Z, it has nevertheless recognized it s st authority. Belini v. Wash. Mutual Bank FA, 412 F.3d 17, 20 (1 Cir. 2005)( [s]everal agencies have administrative authority under TILA, but the relevant implementing 2 In Hamm, the Seventh Circuit Court of Appeals acknowledged that it was following Federal Reserve Board commentary that was amended specifically in response to an earlier Seventh Circuit decision. -11-

16 agency for our purposes is the Federal Reserve, which has promulgated a set of regulations (Regulation Z) in this area. ). Consistent therein, this Court recently reversed a District Court that ignored an administrative regulation stating:...courts defer to the views of the agency Congress has entrusted with relevant rule-making authority, affording considerable deference to the agency's interpretation of regulations promulgated under that authority. Royal Siam Corp. v. Chertoff, 484 F.3d 139, 145 (1st Cir.2007). Rhode Island Hospital v. Michael O. Leavitt, in his capacity as Secretary of Health and rd st Human Services; Department of Health and Human Services, 548 F 3 29, 33 ( 1 Circuit November 17, 2008). The requirement of a firm rescission deadline is not just rational, but essential to accomplishing the TILA s goal of meaningful disclosure of this extremely important borrower right. Accordingly, the District Court s decision to ignore the requirement of Regulation Z, 12 C.F.R (b)(1)(v) mandating the inclusion of the precise date upon which the rescission right expired conflicts with the Court s ruling in Rhode Island Hospital. As such, it was, therefore, clearly erroneous and must be reversed. 3. Rote Use of H-8 Model Forms Does Not Shield Creditors from Liability if Those Forms Are Not Completed. Defendants will likely argue because the Notices were based upon H-8 Rescission Model Form, they are therefore shielded from liability under either

17 U.S.C. 1635(h) or 15 U.S.C. 1635(b). Neither provision can provide safe harbor, as their language demonstrates. First, 15 U.S.C. 1635(h) provides [a]n obligor shall have no rescission rights arising solely from the form of written notice used by the creditor to inform the obligor of the rights of the obligor under this section, if the creditor provided the obligor the appropriate form of written notice published and adopted by the Board, or a comparable written notice of the rights of the obligor, that was properly completed by the creditor, and otherwise complied with all other requirements of this section regarding notice. 15 U.S.C. 1635(h) (emphasis added). Defendants cannot argue that the Notices were properly completed given the omission of both the date of the transaction and the date for the rescission deadline. They also cannot argue that 15 U.S.C. 1635(h) shields them from liability. Next, 15 U.S.C. 1635(b) provides in relevant part: [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... (emphasis added) 15 U.S.C. 1635(b) (emphasis added). While no court has yet determined whether the rescission deadline is a numerical disclosure for purposes of 15 U.S.C. 1635(b), any presumption of WMC s compliance cannot be sustained in light of the omission of a date for the borrowers rescission deadline on the Notice. Common sense dictates that if a creditor is going to seek refuge in the safe harbor provided by using the model -13-

18 forms, it must complete them. There is no factual dispute that the Notices received here were nothing more than uncompleted model forms. D. OMISSION OF A CLEAR RESCISSION DATE VIOLATES THE TILA AND REGULATION Z 1. Borrowers Should Not be Forced to Guess What Date Their Rescission Right Expires. Borrowers should not be forced to guess at what TILA disclosures mean or assume what effect a disclosure s terms have on their rights. See Mourning v. Family Publications Service, Inc., 411 U.S. 356, 377, 93 S.Ct. 1652, (1973). Accord, Wright v. Tower Loan of Mississippi, Inc., 679 F.2d 436, 445 (5th Cir. 1982) ( TILA neither requires nor encourages borrowers to guess or to assume" what disclosures mean); Pollock v. General Finance Corp., 535 F.2d 295, 299 (5th Cir. 1976) (consumer was not required to perform even a simple arithmetic procedure ); Pennino v. Morris Kirschman & Co., 526 F.2d 367, 372 (5th Cir. 1976)(Congress in enacting TILA intended to eliminate the necessity of assumptions on the part of the consumer ). If the Notice is subject to two or more sensible readings, and different rights and results ensue depending upon which of the two readings is adopted, the creditor has not provided the consumer with clear notice of what [the] right to rescind entail [s]. Porter v. Mid- Penn Consumer Discount Co., 961 F.2d 1066, 1077 (3d Cir. 1992). Without providing a clear deadline for rescission, creditors place the burden of -14-

19 calculating the appropriate deadline on the borrower, thereby contravening the purpose of Regulation Z. See Williamson v. W.E. Lafferty, 698 F.2d 767, 769 n.3 (5th Cir. 1983) ( [T]he precise purpose of requiring the creditor to fill in the date is to prevent the customer from having to calculate three business days[.] ). An ordinary borrower looking at the Notice provided to Plaintiff may be able to deduce that his rescission deadline falls three business days from events listed on the Notice, but the question of how to calculate those business days remains. An ordinary consumer, however, is not readily versed in the definition of a business day as defined under Regulation Z, 12 C.F.R (6), and it would be unlikely that anyone unfamiliar with TILA s unique formula would guess the correct method and accurately calculate their rescission deadline. In Aubin v. Residential Funding Co., 2008 U.S. Dist. LEXIS *1 (D. Conn. July 11, 2008), the court recognized that it would likely surprise the average person (it certainly surprised this judge) to learn that Saturday is included within TILA s definition of a business day U.S. Dist. LEXIS at *13. Plaintiff, who, like many borrowers, was not represented by an attorney at his closing, was put in a position to guess which of several possible methods he should employ to calculate his proper rescission deadline. The closing in the present matter took place on a Friday. The ordinary meaning of business day is Monday through Friday, excluding holidays. See Wikipedia, -15-

20 Business day, (as of July 21, 2008) ( In the Western world, Saturdays and Sundays are not counted as business/working days. ). Employing that method, however, would result in excluding the following Saturday and Sunday and beginning the business day count with the following Monday. Such a method would result in the borrower incorrectly believing his rescission deadline to be midnight of the Wednesday following the Friday closing. If a borrower were to employ the Federal Rules of Civil Procedure method of counting, he would also incorrectly calculate his rescission deadline. Federal Rule of Civil Procedure 6 provides: (a) Computing Time. The following rules apply in computing any time period specified in these rules or in any local rule, court order, or statute: (1) Day of the Event Excluded. Exclude the day of the act, event, or default that begins the period. (2) Exclusions from Brief Periods. Exclude intermediate Saturdays, Sundays, and legal holidays when the period is less than 11 days. (3) Last Day. Include the last day of the period unless it is a Saturday, Sunday, legal holiday... When the last day is excluded, the period runs until the end of the next day that is not a Saturday, Sunday, legal holiday, or day when the clerk's office is inaccessible. Again, if the closing took place on a Friday, a borrower using the Federal Rules -16-

21 would exclude Saturday and Sunday because the period is less than eleven days and begin the business day count on the following Monday. A borrower using this method would also incorrectly calculate his rescission deadline to be midnight of the Wednesday following the Friday closing. Only by employing TILA s particular method of determining business days would a borrower correctly calculate his rescission deadline. Pursuant to 12 C.F.R (6): Business day means a day on which the creditor s offices are open to the public for carrying on substantially all of its business functions. However, for purposes of rescission under and , and for purposes of , the term means all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year s Day, the Birthday of Martin Luther King, Jr., Washington s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day. Thus, because Plaintiff s closing both took place on a non-holiday Friday, Plaintiff s three-day rescission deadline should have been calculated by including the following Saturday (regardless of whether or not the creditor was actually open for business), excluding Sunday, and including Monday and Tuesday. Plaintiff s rescission deadline, therefore, was midnight of the Tuesday following his Friday closing. Clearly, more than one reasonable interpretation of Plaintiff s Notice is possible -17-

22 despite the inclusion of the boilerplate alternative deadline language. As this Court has held, "a misleading disclosure is as much a violation of TILA as a failure to disclose at all..." Barnes v. Fleet Nat'l Bank, 370 F.3d 164, 174 (1st Cir. 2004). Nothing in the Notice indicates to Plaintiff what method is to be used to calculate the rescission deadline, and the Notice cannot be considered consistent with either the letter or the purpose of Regulation Z. The precise deadline for rescission is arguably one of the most important pieces of information contained in a Notice of Right To Cancel, and as these examples demonstrate, its omission is more than a mere technicality. Mr. Melfi was not required to play roulette to figure out the rescission deadline. Consistent with Barnes, the decision of the District Court must be reversed. 2. This Court has Recognized the Importance of a Clear Rescission Deadline. This Court recognized the importance of disclosing the deadline for rescission on a Notice of Right to Cancel in Santos-Rodriguez v. Doral Mortgage Corp., 485 F.3d 12 (1st Cir. 2007). In analyzing whether a Notice of Right to Cancel complied with the TILA, this Court turned to the precise section of Regulation Z which the District Court below declined to follow. Quoting Regulation Z, 12 C.F.R (b), this Court stated that the TILA requires that lenders clearly and conspicuously disclose borrowers rescission rights. Id. (citing 15 U.S.C. 1635(a)). In determining whether -18-

23 the notice at issue in Santos-Rodriguez complied with the disclosure requirements under the TILA, this Court enumerated the five elements that must be clearly and conspicuously disclosed, including the date the rescission period expires. Id. (emphasis added). Given Santos-Rodriguez s emphasis on the need for clear and conspicuous disclosure of the information required under Regulation Z, 12 C.F.R (b) including a rescission deadline, it would be an anomaly at best for this Court to now disavow the precise section of Regulation Z that it has relied upon to determine TILA rescission rights in other cases. Two Courts of Appeal have addressed the issue presented in this appeal and both support Plaintiff s position. In Semar v. Platte Valley Fed. Sav. & Loan Ass n., 791 F.2d 699, 702 (9th Cir. 1986), the Ninth Circuit examined a Notice that omitted the expiration date, although it stated that the rescission right expired three business days after [the transaction date]. The Court concluded that this omission of the expiration date was sufficient to entitle plaintiffs to an extended three-year right of rescission. Id. at 703. Similarly, in Williamson v. Lafferty, 698 F. 2d 767 (5th Cir. 1983), the Fifth Circuit examined a similar Notice that contained a blank for insertion of the date until which the borrower can rescind that was not filled in. In reversing the dismissal of the case by the District Court, the Court found a violation that extended the right of -19-

24 rescission to three years, concluding that the applicable regulation makes clear that failure to fill in the expiration date of the rescission form is a violation of the TILA. Id. at 768. The case law from other courts also supports Plaintiff s position. Most recently in Aubin, the district court of Connecticut considered a notice of the right to cancel that did not include an accurate rescission deadline, but contained the boilerplate language found in the model form U.S. Dist. LEXIS at 1-4. In Aubin, the borrowers closing took place on a Wednesday and, just as in the present case, their correct rescission deadline depended on whether TILA considers Saturday a business day. Id. at 7-8. The court found that because an ordinary borrower would likely not understand that TILA considers Saturday a business day, a notice that forces borrowers to make that determination does not provide clear and conspicuous notice of the right to cancel. Id. at 15. As Aubin noted, inclusion of a Saturday in the calculation of business days makes the Rescission Notice confusing and unclear[.] Id. at 16. Similarly, in Reynolds v. D&N Bank, 792 F. Supp. 1035, 1038 (E.D. Mich. 1992), the court observed that merely providing the transaction date followed by the statement You may cancel this transaction within three (3) business days from the above date did not comply with TILA, particularly when the notice provides for the date to be entered on a separate line which is left blank. In Johnson v. Thomas,

25 Ill. App. 3d 382, 794 N.E.2d 919, 931(Ill. App. Ct. 2003) the court observed that the failure to fill in the expiration date on the rescission form violated the TILA and Regulation Z and entitled the plaintiff to the extended rescission period. 794 N.E.2d at 931. The number of similar holdings are simply overwhelming. See, e.g. New Maine Nat l Bank v. Gendron, 780 F. Supp. 52 (D. Me. 1991)(rescission right is extended when expiration date has been omitted); Mayfield v. Vanguard Sav. & Loan Ass n, 710 F. Supp. 143, 146 (E.D. Pa. 1989); Aquino v. Public Fin. Consumer Discount, 606 F. Supp. 504 (E.D. Pa. 1985)(rescission right extended when no expiration date in notice); Armstrong v. Nationwide Mortgage Plan (In re Armstrong), 288 B.R. 404 (Bankr. E.D. Pa. 2003) (rescission allowed when Notice lacked date of transaction and deadline for rescission); In re Rodrigues, 278 B.R. 683 (Bankr. D.R.I. 2002); Bland v. Carone Family Trust, 2007 WL (S.D. Cal. Mar. 19, 2007)(granting TRO against foreclosure where consumers alleged that deadline for rescission was left blank); Deans v. Long Beach Mortgage Co., 2007 WL (W.D. Mich. Mar. 12, 2007) (granting TRO against foreclosure where deadline for rescission was left blank); Conner v. Moss, Codilis, Stawiarski Morris, Schneider & Prior, 2003 WL (N.D. Ill. June 2, 2003) (denying motion for judgement on pleading where consumer alleges that deadline to rescind was left blank). The District Court overlooked the overwhelming majority of caselaw favoring -21-

26 Plaintiff s position and mis-applied Palmer v. Champion Mortgage, 465 F.3d 24 (1st Cir. 2006) by erroneously concluding that the Plaintiff s disclosure claims were simply hyper- technical and therefore not actionable. 3. Palmer Does not Compel a Different Result. In Palmer, this Court reviewed a Notice of Right to Cancel for compliance purposes under the TILA which exactly followed Model Form H and contained a precise deadline to rescind as required by Regulation Z, 12 C.F.R (b). The plaintiff in Palmer, alleged that she left the closing with no material disclosures and received her Notice of Right to Cancel sometime thereafter via the mails. Though the plaintiff ultimately received her disclosures, she nevertheless alleged that the Notice of Right to Cancel was confusing and misleading because it contained a precise deadline to rescind which had already passed by the time she received it in the mail. In affirming the dismissal by the District Court, this Court simply concluded that the information contained on the notice in parentheses after the precise deadline to rescind or midnight of the third business day following the latest of the three events listed above was sufficient to notify the consumer of the alternate deadline to rescind. The facts in this case are readily distinguishable to those in Palmer. The notice in Palmer contained all the information required under Regulation Z, (b). It contained an accurate fixed deadline to rescind the transaction calculated 3 business -22-

27 days from the date of the loan transaction. In addition, there was no allegation that the Defendant had omitted certain information in violation of Regulation Z. Therefore this Court was not required to discuss or examine the required deference to be afforded to the Federal Reserve Board via Regulation Z discussed, supra. Rather, this Court simply addressed whether the content of the Notice was delivered to the consumer in a clear and conspicuous fashion when it was received by the borrower via mail after the loan closing. There is nothing in Palmer to suggest that providing a blank Model Form H, with no date filled in as mandated by Regulation Z, is legally sufficient despite the alternate three day rescission deadline. It is undisputed that the Model Form H, which WMC chose to utilize in this transaction, contemplates that both deadlines will be provided to a consumer. If there is a delay in providing the borrowers with either the notice of the right to cancel or the other necessary disclosures, the language of the notice provides an alternative deadline for rescission and the precise date for the right to cancel shows how to count those business days, if the notice is properly given. Palmer simply stands for the proposition that a Notice of Right to Cancel complies with the TILA if it contains the information set forth in the model forms despite the date of it s delivery. The Defendants convinced the District Court that this Court s decision in Palmer authorizes a court to overlook the precise requirement of Regulation Z as long as the -23-

28 underlying disclosure (the notice of right to cancel) is nevertheless clear and conspicuous. Palmer makes no such statement. This suggested approach to TILA compliance is not only fundamentally flawed but ignores the precise language of the statute. In order to determine whether a disclosure is conveyed clearly and conspicuously a court must first determine what information must be conveyed to a consumer. 15 U.S.C. 1635(a) of the TILA is crystalline in that a creditor must disclose the rights of rescission in accordance with the Regulations of the Board. Other than informing a homeowner that they have a right to rescind within three business days of the transaction, the TILA does not provide any guidance regarding the required content of the Notice. This information is only provided in Regulation Z. However, according to the Defendants, it is permissible for a court to ignore Regulation Z and substitute it s own judgment for what type of information meets the clear and conspicuous standard of disclosure. This is precisely the type of interstitial law that the United Supreme Court addressed in both Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, , 100 S.Ct. 790, (1980) and Household Credit Services, Inc. v. Pfennig, 541 U.S. 232 (2004) and that this Court addressed in Rhode Island Hospital v. Michael O. Leavitt, in his capacity as Secretary of Health and Human Services; rd st Department of Health and Human Services, 548 F 3 29 (1 Circuit November 17, 2008). -24-

29 Despite the fact specific holding of Palmer, the District Court applied Palmer broadly and went beyond the scope of this Court s holding. The District Court relied heavily upon the post Palmer cases of Megitt v. Indymac Bank, 2008 WL ( D. 3 Mass 2008) (appeal pending) and Carye v. Long Beach Mortg. Co., 470 F. Supp. 2d 4 3 (D.Mass.2007). In Cayre, the Notice of Right to Cancel had the same infirmity as alleged in this case. Both lines of the model form which clearly contemplated the inclusion of calculated dates to rescind were left blank. The Cayre Court incorrectly described Palmer as holding that a notice of the right to cancel which failed to include a date certain for rescission was nevertheless clear and conspicuous because it contained an alternate provision for a three day rescission period after receipt of the Notice. In dismissing Plaintiff s complaint, the Cayre opinion overlooked the fact that the notice in Palmer did, in fact, contain the very dates at issue as well as an avalanche of contrary authority. Similarly, in Megitt, the notice contained no precise date for the rescission to be exercised in violation of Regulation Z but the court nevertheless followed Cayre 3 In light of the FDIC takeover of Indymac, it is highly unlikely that the Megitt appeal will ever be heard. The matter has been stayed by this Court. 4 There are three other Massachusetts opinions that follow the analysis of Cayre dismissing claims virtually identical to those raised by Mr. Melfi. Bonney v. Washington Mutual Bank, C.A (D. Mass. Feb. 9, 2009); Omar v. Washington Mutual Bank, C.A ( D.Mass Dec. 30, 2008) ( appeal pending); Quiles v. Washington Mutual Bank, C.A ( D. Mass. Dec. 30, 2008). -25-

30 and dismissed the complaint. 5 This sweeping misinterpretation of the scope of Palmer has not been universally applied. In Johnson v. Chase Manhattan Bank, 2007 U.S. Dist. LEXIS at *1 (E.D.Pa. July 11, 2007), with facts virtually identical to those presented in this appeal, the Eastern District of Pennsylvania throughly addressed the facts and holding in Palmer and concluded that Palmer decision did not control. In so holding, that Court stated: Chase urges this court to apply Palmer's reasoning to the present situation. As noted above, it argues that the notice to Darlene Johnson provided all the necessary material information for a reasonably alert person to determine when her right of rescission would expire, even with the blank in her notice. We disagree. * * * A notice of the right of rescission must contain "[t]he date the rescission period expires." 12 C.F.R (b)(v). The amended complaint alleges, and Chase does not deny, that Chase's notice to Darlene Johnson's did not contain this vital piece of information. Darlene Johnson has properly set forth a TILA violation, and the question presently before this court 5 For Massachusetts transactions, the TILA does not apply and Regulation Z is replaced by the Code of Massachusetts Regulations, 12 C.M.R It would appear that the same deference (or substantially similar, see In re Washington Mutual Overdraft Protection Litigation, 539 F.Supp 2d (C.D. California 2008)) given to Regulation Z and it s commentary applies to the MCCCDA and it s regulations as they are virtually identical in all regards. Consistent therein, the Massachusetts Supreme Judicial Court has stated Our analysis requires substantial deference to the expertise and statutory interpretation of [the] agency charged with primary responsibility for administering a statute. Goldberg v. Board of Health of Grandby, 444 Mass. 627, 633; 830 N.E.2d 207(2005). -26-

31 is whether that alleged violation can be excused, as Chase argues it should be. By contrast, the notice in Palmer did contain the date of the rescission deadline and otherwise complied with each of the governing regulations. Palmer did not address whether an alleged TILA violation could be excused. Instead, the issue there was whether the notice was defective because it was confusing even though there was compliance with the TILA. The Palmer court itself expressly distinguished the situation it confronted from one in which the notice at issue stated no rescission date at all. 465 F.3d at 29. (emphasis provided) The Johnson decision correctly interpret s Palmer and properly upholds Supreme Court directives regarding the deference that Court s must give to the interpretation of The Federal Reserve Board through Regulation Z. This Court should similarly so find and reverse the contrary decision of the District Court. 4. Substantive Technical Violations of Reg. Z Are Actionable. The District Court misconstrued this Court s comments in Santos-Rodriguez v. st Doral Mortgage Corp., 485 F.3d 12 (1 Cir. 2007) relative to hyper technicality. In so doing, it created a hyper technicality escape valve that acts as an impenetrable shield effectively insulating creditors from all liability while eviscerating the entire body of consumer protection law outlined in the TILA and Regulation Z. Even the Defendants must concede that the TILA, Regulation Z and it s accompanying Commentary are extremely detailed, technical, difficult to digest, complicated and often times confusing. If, as the lower court here held, Regulation Z -27-

32 can be overlooked in its entirety just because it s application can be construed as hyper technical, then 99% of it s substantive provisions will be ignored. This result cannot be sustained. The failure to include a crucial piece of information like the date by which a consumer can rescind a mortgage can not be dismissed as mere hyper-technical oversight. Santos-Rodriguez does not state nor can it be interpreted to mean that liability for substantive violations of the TILA and/or Regulation Z, regardless of their technical and or hyper-technical nature, are now excused in this Circuit. Santos- Rodriguez simply addressed the manner in which substantive requirements of the TILA must be disclosed. In this Circuit, the disclosure of substantive TILA provisions are analyzed for compliance purposes using the clear and conspicuous standard, rather than from a hyper-technical vantage point. This approach is consistent with the requirements of Regulation Z and it s commentary. Therefore, a hyper-technical substantive disclosure requirement can nevertheless violate the TILA if it is not disclosed in a clear and conspicuous manner. The District Court s conclusion to the contrary is simply wrong. -28-

33 VII. CONCLUSION The District Court opinion ignored Supreme Court directives, misapplied this Court s holding in Palmer, and misinterpreted the application of Regulation Z to the TILA. Accordingly its decision should be reversed and the Plaintiff s claims reinstated. Respectfully submitted, Christopher M. Lefebvre #68809 CLAUDE F. LEFEBVRE AND CHRISTOPHER M. LEFEBVRE, P.C. P.O. Box 479 (Mailing address) Pawtucket, RI (401) (401) (fax) Chris@lefebvrelaw.com -29-

34 CERTIFICATE OF SERVICE th I certify that on February 11, 2009, I served two paper copies of the foregoing Brief of Appellant Joseph Melfi and accompanying Joint Appendix, by U.S. Mail upon the following counsel for Appellees: Jeffrey S. Patterson, Esq. Nelson Mullins Riley & Scarborough LLP 66 Long Wharf Boston, MA David Fialkow, Esq. Nelson Mullins Riley & Scarborough LLP 66 Long Wharf Boston, MA Christopher M. Lefebvre CERTIFICATE OF TYPE-VOLUME COMPLIANCE I hereby certify that the typeface used in this brief is Times New Roman, 13-point, and that this brief was prepared using Corel WordPerfect 8, and that it complies with the type-volume limitation set forth in Fed. R. App. P. 32(a)(7)(B). This brief contains 7948 words, exclusive of cover page, tables, signature blocks, and certificates. Christopher M. Lefebvre -30-