United States Court of Appeals
For the First Circuit
No. 10-1642
IN RE: DAVID L. FULLER; BETSY L. FULLER,
Debtors.
__________
DAVID L. FULLER; BETSY L. FULLER,
Appellants,
v.
DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee for
the Registered Holders of CDC Mortgage Capital Trust 2003-HE4,
Mortgage Pass-Through Certificates, Series 2003-HE4,
Appellee,
__________
ENCORE CREDIT CORP.;
BEAR STEARNS RESIDENTIAL MORTGAGE CORP.,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
Before
Torruella, Circuit Judge,
Souter,* Associate Justice,
and Boudin, Circuit Judge.
Kenneth D. Quat with whom Quat Law Offices was on brief for
appellants.
*
The Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
David Fialkow with whom Jeffrey S. Patterson and Nelson
Mullins Riley & Scarborough LLP were on brief for appellee.
April 21, 2011
BOUDIN, Circuit Judge. David and Betsy Fuller bought
land in Tyngsboro, Massachusetts in 1991, and built on it their
single-family residence where they have lived ever since. In 2003,
the Fullers refinanced their mortgage, obtaining a $256,500 loan
from Encore Credit Corp. ("Encore"). Although scheduled to close
a day earlier, the loan in fact closed on August 12, 2003. Later
that year the mortgage was assigned to Deutsche Bank National Trust
Co. ("Deutsche Bank"). The Fullers fell behind on their payments
to Deutsche Bank, which in 2008 initiated foreclosure proceedings
and rejected the Fullers' requests to rescind the mortgage. The
Fullers then filed a voluntary Chapter 13 bankruptcy petition.
On April 11, 2008, the Fullers filed a complaint in
bankruptcy court against Deutsche Bank, seeking rescission under
Massachusetts law. As later amended, the complaint charged that
the mortgage was rescindable because Encore had failed to provide
the proper closing and rescission dates and, separately, on the
ground that Encore had failed to provide the Fullers with "high
cost home mortgage loan" disclosures. The remaining count sought
damages from Deutsche Bank under Chapter 93A of the Massachusetts
General Laws because Deutsche Bank had not complied with the
Fuller's pre-suit rescission request.
On October 6, 2009, following discovery, the bankruptcy
court granted Deutsche Bank's motion for summary judgment and
denied the Fullers' own motion for summary judgment. After the
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bankruptcy court denied their motion for reconsideration, including
a request to certify issues to the Massachusetts Supreme Judicial
Court, the Fullers appealed to the district court, which affirmed
the bankruptcy court's decision. The Fullers have now appealed to
this court.
The Fullers' first claim is that they were not given
adequate notice of their right to rescind the loan as required by
the Massachusetts Consumer Credit Cost Disclosure Act ("the
Massachusetts credit statute"). That statute was modeled after the
federal Truth in Lending Act ("TILA"), McKenna v. First Horizon
Home Loan Corp., 475 F.3d 418, 422 (1st Cir. 2007); Lynch v. Signal
Fin. Co. of Quincy, 327 N.E.2d 732, 734 (Mass. 1975), and because
they are substantially similar, we construe the Massachusetts
credit statute "in accordance with" TILA, McKenna, 475 F.3d at 422,
absent reason to do otherwise.
Like TILA, the Massachusetts credit statute gives
consumers the right to rescind a mortgage "until midnight of the
third business day following the consummation of the transaction."
Mass. Gen. Laws ch. 140D, § 10(a) (2008); see also 15
U.S.C. § 1635(a) (2006). The purpose of the three-day period,
sometimes referred to as a "cooling off" period, is "to give the
consumer the opportunity to reconsider any transaction which would
have the serious consequence of encumbering the title to his home."
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S. Rep. No. 96–368, at 28 (1979), reprinted in 1980 U.S.C.C.A.N.
236, 264.
To comply, a lender must disclose the consumer's right of
rescission "clearly and conspicuously," Mass. Gen. Laws ch. 140D,
§ 10(a), which according to the implementing regulations, includes
disclosing "[t]he date the rescission period expires," 209 Mass.
Code Regs. 32.23(2)(a) (2010). Although the Fullers sought to
rescind almost five years after the loan closed and the statute has
a four-year statute of limitations, Mass. Gen. Laws ch. 140D,
§10(f), the Fullers claim that a consumer may rescind the mortgage
after foreclosure proceedings are initiated against him if he was
not given proper notice of his right to rescind, see 209 Mass. Code
Regs. 32.23(8)(a)(2).1
The Fullers claim that the disclosure forms they received
from Encore (1) incorrectly stated that the loan closed on August
11, 2003, instead of the day the loan actually closed, on August
12, 2003; and (2) did not provide the date that they would be
allowed to rescind the mortgage. The Fullers submitted an unsigned
copy of the "Notice of Right to Cancel" disclosure forms they
received at the closing that read in pertinent part:
1
Whether the Fullers' limitations argument is correct might be
debated. See Mass. Gen. Laws ch. 140D, § 10(i)(1) (a consumer's
right to rescind after foreclosure proceedings are commenced
against him is "subject to the time period provided in subsection
(f)"). However, Deutsche Bank has conceded that the Fullers'
request was timely, so we do not pursue the matter.
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You are entering into a transaction that will
result in a mortgage, lien or security
interest on or in your home. 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 08/11/03; or
2. the date you receive your Truth in
Lending disclosures; or
3. the date you receive 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).
Deutsche Bank produced copies of the right to cancel
forms that are identical to the forms the Fullers produced, with
three important differences. First, the forms Deutsche Bank
submitted were signed by the Fullers, and the Fullers dated the
forms August 12, 2003. Second, the printed transaction date of
"08/11/03" was altered: the "11" was crossed out by hand and "12"
was handwritten in above it, presumably to signify that the actual
closing date was August 12, 2003. Third, the date "8-15-03" is
handwritten in the space for the date of rescission.
The Fullers concede that they signed and dated the forms.
However, they dispute that the handwritten changes were made when
they signed the notices. In their affidavit, the Fullers claim
that they do not "recognize the handwriting of these items or know
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who made them," and that if the handwritten changes were indeed
made when they were asked to sign the forms, they "would not have
signed without initialing the changes." As the bankruptcy court
noted, "were either party's version of the facts taken as the
truth, one of the parties would be making a serious
misrepresentation of the events surrounding the mortgage
transaction." The bankruptcy court found it unnecessary to choose
between the two versions, nor need we do so.
This court held in Melfi v. WMC Mortgage Corp. that under
TILA, "technical deficiencies do not matter if the borrower
receives a notice that effectively gives him notice as to the final
date for rescission and has the three full days to act." 568 F.3d
309, 312 (1st Cir. 2009), cert. denied, 130 S. Ct. 1058 (2010); see
also Palmer v. Champion Mortg., 465 F.3d 24, 28-29 (1st Cir. 2006).
In that case, we held notice was adequate because the loan date was
stamped at the top of the sheet even though the proper space on the
form was left blank, and the three-day period was specified even
though that date was also not put in the proper blank. Melfi, 568
F.3d at 310, 312.
Even assuming the Fullers' version of the facts, they are
in essentially the same situation as Melfi: they signed the right
to cancel forms and dated them August 12, 2003, and so were
necessarily of the correct closing date; and the notice forms made
clear that they had a right "to cancel this transaction, without
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cost, within three business days from . . . the date of the
transaction." Thus there is no question that under TILA, the
Fullers received adequate notice of their right to cancel.
The Fullers argue that Massachusetts courts would not
follow Melfi's construction of TILA when interpreting the
Massachusetts credit statute. However, the Massachusetts credit
statute was "closely modeled" on TILA, McKenna, 475 F.3d at 422;
its expressed aim was to bring state law in conformity with TILA,
1969 Mass. Acts 356; and the Supreme Judicial Court has held that
the Massachusetts credit statute "was designed to provide
requirements 'substantially similar' to those imposed under the
Federal act," Lynch, 327 N.E.2d at 734.
"Where the [Massachusetts] Legislature in enacting a
statute follows a Federal statute, [the Massachusetts courts]
follow the adjudged construction of the Federal statute by the
Federal courts." Packaging Indus. Grp., Inc. v. Cheney, 405 N.E.2d
106, 108 (Mass. 1980). For example, in Mayo v. Key Financial
Services, Inc., the state court said that because the Massachusetts
credit statute was "closely modeled on" TILA, "[f]ederal court
decisions are instructive in construing" it. 678 N.E.2d 1311, 1313
(Mass. 1997) (citing Packaging Indus. Grp., 405 N.E.2d at 108;
Lynch, 327 N.E.2d at 734).
As the Fullers note, Massachusetts courts "liberally
construe[]" consumer protection statutes, Shepard v. Fin. Assocs.
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of Auburn, Inc., 316 N.E.2d 597, 603 (Mass. 1974); but TILA is
similarly read by federal courts, Barnes v. Fleet Nat'l Bank, N.A.,
370 F.3d 164, 171 (1st Cir. 2004). And to us a liberal
construction is one that carries out the purpose of the statute to
protect the consumer against harm, resolving uncertainties where
possible in favor of this objective; it does not license the
undoing of bargains where no harm whatever occurred or could have
occurred.
There are federal TILA cases--some cited by the Fullers--
that allowed rescission for technical defects that could not have
caused harm, but (as we explained in Melfi, 568 F.3d at 312-13),
these "elderly" cases were "in tension with" 1995 amendments to
TILA, which were matched by Massachusetts amendments.2 It is hard
to imagine any court thinking that every small slip--say, a date
printed upside down or a name with a letter missing--could
automatically allow rescission after five years. This being so,
cases like this one are inherently fact-specific.
After they initially lost in the bankruptcy court, the
Fullers asked that the matter be certified to the Supreme Judicial
Court--which the bankruptcy court refused to do--and they renew the
request here. The Fullers chose the federal forum and waited until
2
Compare Truth in Lending Act Amendments of 1995, Pub L. No.
104-29, § 5, 109 Stat. 271, 274 (1995) (codified at 15 U.S.C.
§ 1635(h)), with 1996 Mass. Acts 1090-91 (codified at Mass. Gen.
Laws ch. 140D, § 10(h)).
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they lost before asking for certification. This is almost always
fatal unless the court sees strong policy reasons to insist on
certification itself, which is not the case here.3 Nor do we
normally certify cases that depend not on a general legal rule but
on a unique fact configuration, although there could be rare
exceptions.
The Fullers' second independent claim is that they did
not receive "High Cost Home Mortgage Loan" disclosures. The
regulations under the Massachusetts credit statute require lenders
to print the following statement on the loan application above the
borrower's signature:
The loan which will be offered to you is not
necessarily the least expensive loan available
to you and you are advised to shop around to
determine competitive interest rates, points,
and other fees and charges.
209 Mass. Code Regs. 32.32(3)(f)(1). This statement was not
provided on the loan application, but instead was only provided to
the Fullers on a separate form at the closing.
Deutsche Bank invokes an exception that permits the
warning to be deferred where the lender--at the time of the
application--does not yet know whether the borrower's application
is "a high cost home loan application." 209 Mass. Code Regs.
3
Cantwell v. Univ. of Mass., 551 F.2d 879, 880 (1st Cir.
1977); see also Bos. Car Co. v. Acura Auto. Div., Am. Honda Motor
Co., 971 F.2d 811, 817 n.3 (1st Cir. 1992); Fischer v. Bar Harbor
Banking & Trust Co., 857 F.2d 4, 8 (1st Cir. 1988), cert. denied,
489 U.S. 1018 (1989).
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32.32(3)(f)(1). But while Deutsche Bank suggests that this was the
case with Encore, it bears the burden of bringing the matter within
the exception and yet points to no evidence that Encore did not
know the loan was a high cost home mortgage at the time of the
application.
However, under the Massachusetts regulations that impose
the warning requirement, consumers can rescind the loan only within
three days of receiving the high cost home loan disclosures. 209
Mass. Code Regs. 32.23(1)(c) & n.48. The Fullers do not dispute
that the warning was provided to them at the time of the loan. Far
from acting within three days, they waited almost five years. The
indefinite delay arguably permitted where there is no notice given
of a right to rescind, see id. at 32.23(8)(a)(2), does the Fullers
no good; the only flaw here is a briefly delayed warning that the
loan is high cost.
The Fullers' final claim was for damages under chapter
93A of the Massachusetts General Laws because Deutsche Bank did not
rescind the mortgage within 20 days of the request to do so, Mass.
Gen. Laws ch. 140D, § 10(b); but, as the Fullers acknowledged in
their filings and at oral argument, there is no liability under
this provision if there was no right to rescind. Accordingly, our
rejection of the substantive claims for rescission also disposes of
the 93A claim.
Affirmed.
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