Three cases recently decided in Massachusetts federal courts will have a significant impact on the types of rescission cases that can be brought under TILA and the MCCCDA. The cases are Omar v. Washington Mutual Bank, No. 08-40044, 2008 U.S. Dist. LEXIS 107284 (D. Mass. Dec. 30, 2008), Quiles v. Washington Mutual Bank, No. 08-40039, U.S. Dist. LEXIS 107279 (D. Mass. Dec. 30, 2008), and Bonney v. Washington Mutual Bank, No. 08-30087 (D. Mass. Feb. 9, 2009).
In each of these cases, the plaintiff filed an action claiming that (s)he was entitled to an extended three- year rescission period because the Notice of Right to Cancel form was materially misleading insofar as it omitted both the date of the transaction and the date of expiration of the rescission period. Each of these cases allowed the defendant bank’s motion to dismiss. In doing so, the courts (three different decisions issued by two different judges) reaffirmed that the First Circuit does not impose strict liability for purely technical defects in the required disclosures.
First, the courts held that the omission of the transaction date was not actionable because the date was easily ascertainable, if not already known, to the borrower. The court also noted that the date of the transaction is nearly always irrelevant in determining the rescission period, because the likelihood that the date of transaction would occur last is highly unlikely.
Second, the court determined that, for similar reasons, the omission of the date the rescission period expired would not be confusing to the average borrower. This is due in large part to the parenthetical following the alternative rescission deadline providing a simple formula for calculating this date, which reads “(or midnight of the third business day following the latest of the three (3) events listed above)." Relying on First Circuit precedent that held that including a date that had already passed was not objectively misleading, the court further reasoned that "[i]f including an already expired deadline is not objectively confusing, omitting the alternative deadline altogether should not alter the analysis."
In these opinions, the courts strongly rejected the plaintiff’s counterarguments. At least one court noted that the plaintiff’s attorney is the primary filer of rescission type claims in Massachusetts federal courts and held that "It is absurd to suggest that minor defects in the notice justify application of the extreme remedy of rescission. Moreover, requiring rescission on these facts would create perverse incentives. It would encourage borrowers to sit on their rights for years, in effect giving them an option out of their loan obligations at any point up to the expiration of the statute of limitations. Congress did not intend such a result, and the Court sees no reason to permit it here."
These new cases are important to the ever-developing Massachusetts law on a plaintiff’s right to rescind. Previously, there had been several cases in MA that had held that the omission of one of those dates was not an actionable TILA violation. However, there had been at least one decision, issued by a magistrate judge, that had held that the omission of both dates could in fact be actionable. These three cases (one of which overturned that previous magistrate judge’s decision) now limit the types of claims that may be brought, and provide defendant banks with strong ammunition to dismiss a rescission claim based on missing dates, thereby saving thousands of dollars in discovery expenses. Since the primary filer of each of these three claims was the plaintiff’s attorney, these cases may serve as a deterrent to further claims of this type, particularly given the court’s apparent need to highlight the attorney’s involvement in these cases.
For more information about these cases, or for questions or concerns about any real estate matter, please contact the author of this alert, Richard Briansky at [email protected] or 617 456 8052.