Larry D. JESINOSKI, et ux., Petitioners v. COUNTRYWIDE HOME LOANS, INC., et al.
135 S.Ct. 790 (2015); 574 U.S. __ (2015)
Supreme Court of the United States: Argued November 4, 2014; Decided January 13, 2015.
The Truth in Lending Act provides that a borrower “shall have the right to rescind the transaction until midnight of the third business day following . . . the delivery of the information and rescission forms required under this section . . . by notifying the creditor . . . of his intention to do so.” 15 U.S.C. § 1635(a). The statute further creates a “[t]ime limit for [the] exercise of [this] right,” providing that the borrower’s “right of rescission shall expire three years after the date of consummation of the transaction” even if the “disclosures required . . . have not been delivered.” Id. § 1635(f).
The question presented is: Does a borrower exercise his right to rescind a transaction in satisfaction of the requirements of Section 1635 by “notifying the creditor” in writing within three years of the consummation of the transaction, or must a borrower file a lawsuit within three years of the consummation of the transaction?
SUMMARY OF ARGUMENT
I.A. Section 1635(a) of Title 15 both creates the right to rescind and specifies the method of its exercise: “by notifying the creditor.” The ordinary meaning of this phrase is that the borrower must inform the creditor that the borrower rescinds the mortgage contract. Every dictionary definition of “notify” confirms that ordinary meaning and none mentions a lawsuit. In accord with that ordinary meaning, Congress consistently used “notify” and “notice” elsewhere in the statute to mean “inform.” There is thus no textual basis in the statute to impose an unstated requirement that the borrower file a lawsuit to exercise the right to rescind.
B. The structure of the statute confirms that there is no requirement to file suit to exercise the right to rescind. Section 1635(a) creates a single right to rescind that may be exercised within three days of either the consummation of the transaction or the delivery of the required disclosures. Even respondents do not take the position that the statute requires a borrower to file a lawsuit within three days of the transaction. Yet it is untenable to interpret the statute to require different methods of exercising the right when the statute specifies the method by a single instance of the phrase “by notifying the creditor.” Section 1635(b), in turn, establishes carefully scripted procedures to unwind the transaction that explicitly do not require the involvement of a court and therefore no lawsuit is required to initiate them. Finally, Section 1635(f) limits the life of the right to rescind not by imposing a statute of limitations on filing suit but by providing that the right “shall expire” three years after the consummation of the transaction. This manner of limiting the 12 duration of the right demonstrates that no lawsuit is required to exercise it.
C. The statutory and legislative history of Section 1635 provide further confirmation that notifying the creditor is sufficient to exercise the right to rescind. Congress actively engaged with the statute in the years after its original enactment, amending it multiple times without altering the method to exercise the right to rescind. Tellingly, Congress considered and rejected an amendment in 1977 to create a cause of action “to determine the consumer’s right to rescind.” Congress’s action took place against the backdrop of the Federal Reserve Board’s interpretation of Section 1635(a) to require only written notice to exercise the right to rescind. The subsequent statutory history thus demonstrates that Congress understood that Section 1635(a) did not require a lawsuit and that it acquiesced to the Board’s interpretation.
The legislative debates preceding the original enactment of the statute further illuminate Congress’s intent to create a simple, non-judicial remedy. Both statements by the sponsoring members of Congress and the conference report evince the intent that notice alone be sufficient to exercise the “vitally important” right Congress created to give the statute’s disclosure requirements “real teeth.”
D. The text, structure, and history of Section 1635 manifest its purpose to create a non-judicial right of rescission. In creating the right to rescind, Congress meant to provide a simple mechanism for borrowers to reconsider their credit decision for three days after they receive all the disclosures required by the statute. To that end, Congress codified core components of the longstanding common-law remedy 13 of rescission. At common law, a party effectuates a rescission simply by notifying the non-rescinding party. A lawsuit for restitution is required only if the non-rescinding party refuses to tender what must be returned under the rescission that had been accomplished by notice. In codifying that well-established common-law remedy, Congress achieved the statute’s remedial purpose to promote the informed and efficient use of credit.
A requirement to file suit would frustrate Congress’s purpose by manufacturing thousands of needless lawsuits from a statute it passed to protect borrowers without resorting to burdensome litigation. Moreover, such a requirement is not necessary to prevent “uncertainty” regarding title because notice informs a creditor that the right has been exercised just as readily as does a lawsuit, and any dispute about the validity of the exercise of the right may be resolved promptly.
II. The Federal Reserve Board and now the Consumer Financial Protection Bureau have long interpreted Section 1635 to require only that the borrower notify the creditor in writing to exercise the right to rescind. The Bureau has confirmed in amicus briefs before the courts of appeals that neither the statute nor the regulation imposes a further, unstated requirement to file suit. These interpretations by the agencies charged by Congress with implementing the statute warrant this Court’s deference.
III. Section 1635(f) provides only that the right to rescind “shall expire” after three years and in no way alters the manner in which that right may be exercised. The text, history, and purpose of Section 1635(f) demonstrate that it was enacted to address the specific problem of unexercised rights of rescis- 14 sion that could create uncertainty. This Court’s decision in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), confirms that Section 1635(f) was narrowly targeted to prevent the exercise of the right after three years, not to impose a requirement to file suit within three years. Because petitioners notified their creditors within three years of the consummation of the transaction of their intention to rescind, their exercise of the right was timely. Because petitioners’ subsequent lawsuit to enforce their exercise of the right was filed within any possible statute of limitations that might apply, their lawsuit was timely.
When a borrower sends notice of his intention to rescind and the lender disputes the borrower’s right to rescind, must the borrower bring any suit for rescission before the right of rescission expires under the three year statute of repose?
SUMMARY OF ARGUMENT
I. A. Section 1635(a) gives certain borrowers the “right to rescind” their mortgage loans and requires that they “notify” their lender of their “intention to do so.” That provision, however, says nothing about what a borrower must do to effectuate a rescission of his loan. Congress provided that direction in section 1635(b) and (g), where it created two rescissionary procedures for a borrower to pursue, depending on whether his right to rescind is in fact in dispute. In neither case does the borrower’s notice of “intention to” rescind effectuate a rescission.
Where a borrower’s right to rescind is uncontested, section 1635(b) prescribes a series of steps for the mutual accomplishment of rescission, including the lender terminating the security interest and the borrower tendering the loan principal. In contrast, where, as here, more than three days have elapsed since the loan closing and the lender denies it failed to provide the required disclosures, the Act prescribes a different procedure for a borrower seeking rescission: He must go to court and sue for an “award” of “rescission.” 15 U.S.C. § 1635(g); see id. § 1640(a)(3). Thus, in this contested case, where petitioners’ right to rescind is in dispute and the parties accordingly have not restored each other to the status quo ante through the statutory procedures in section 1635(b), petitioners were required to sue for any rescission.
This interpretation of TILA is reinforced by the common law, which created two alternative ways of accomplishing rescission. Under the common law, rescission can be effectuated unilaterally (at law) only upon a valid notice accompanied by tender, thereby ensuring restoration of the status quo by the rescinding party.
By contrast, the intervention of a court is necessary (in equity) to award rescission where a party’s right to rescind is contested. Petitioners and the United States insist that TILA is meant to mirror common-law rescission at law, but that is clearly wrong. First, Congress separated notice from the obligation of tender, both of which are necessary under the common law to accomplish a unilateral rescission. Second, by underscoring the need for judicial intervention to “award” “rescission” in the case of a dispute, Congress enacted a regime that more closely resembles rescission in equity, whereby rescission must be decreed by a court.
B. TILA originally placed no time limit on a borrower’s ability to seek a rescission. In response to concerns from federal regulators that unexpired rescission rights placed clouds on title and the enforceability of loans, Congress enacted a three-year statute of repose. In an amendment titled “Time limit for right of rescission,” Congress categorically stated that a borrower’s right of rescission “shall expire” three years after the consummation of the loan transaction. Pub. L. No. 93- 495, § 405, 88 Stat. 1500, 1517 (1974).
As the Court unanimously confirmed in Beach v. Ocwen Federal Bank, 523 U.S. 410, 416 (1998), that provision, codified at 15 U.S.C. § 1635(f), “‘operates … to extinguish the right which is the foundation for the claim’”—i.e., rescission. It therefore necessarily “limits … the time for bringing a suit, by governing the life of the underlying right.” Id. at 417. Because petitioners filed their lawsuit seeking rescission after section 1635(f)’s three-year limit, their rescission claim is timebarred.
II. Petitioners’ interpretation would frustrate Congress’s objectives in enacting TILA’s statute of repose.
On petitioners’ view, as long as a borrower sends a notice of intention to rescind within the three-year period, the borrower has an indefinite number of additional years to bring suit to obtain an “award” of “rescission.” Any limit on the time for filing suit—an issue, petitioners oddly say, the Court need not even address—should be drawn from state statutes of limitations or from 15 U.S.C. § 1640, even though section 1635(f) already imposes a three-year statute of repose. But section 1640 applies to claims for damages, not rescission. And it is highly implausible that Congress, after creating an extraordinary remedy and then enacting an uncompromising three-year limitation on the underlying right, meant to leave the time for actually seeking an award of that remedy subject to a patchwork of 50 States’ laws as interpreted by various courts.
As petitioners see it, Congress’s solution to the problem of clouds on title was not to extinguish the borrower’s right of rescission three years after closing, but instead to require the borrower only to notify the lender within those three years, and take no further action if his notice is rejected, placing the burden on the lender to sue for a declaratory judgment. That would proliferate avoidable and unnecessary litigation. It is a no-lose proposition for a borrower to send a lender written notice of his intention to rescind—an act outside the requirements of the Federal Rules of Civil Procedure—even where, as here, he has previously acknowledged receiving his disclosures. Lenders would thus be required to initiate countless declaratory judgment actions against frivolous notices of borrowers’ intention to rescind or suffer the very clouds on title Congress sought to eliminate. But there is no indication Congress contemplated anything like that. Rather, under the scheme set forth in section 1635, it is the borrower—the one who claims a violation of TILA and seeks an “award” of “rescission” based on that claim—who brings suit.
III. TILA’s text should be the end of the matter. But in any event, no deference is due the CFPB’s litigation views. First, the CFPB’s regulation concededly provides no clarity on the relevant statutory interpretation issue here: What must a borrower do to obtain resolution of a contested assertion of rescission, and by when must the borrower do it? Second, the CFPB’s view on that issue, set forth in its amicus briefs, finds no footing in TILA’s text, disregards Congress’s intent, and has no basis in any special agency expertise.
Exactly three years after borrowing money from respondent Countrywide Home Loans, Inc., to refinance their home mortgage, petitioners Larry and Cheryle Jesinoski sent Countrywide and respondent Bank of America Home Loans, which had acquired Countrywide, a letter purporting to rescind the transaction. Bank of America replied, refusing to acknowledge the rescission’s validity. One year and one day later, the Jesinoskis filed suit in federal court, seeking a declaration of rescission and damages. The District Court entered judgment on the pleadings for respondents, concluding that a borrower can exercise the Truth in Lending Act’s right to rescind a loan, see 15 U. S. C. §1635(a), (f), only by filing a lawsuit within three years of the date the loan was consummated. The Jesinoskis’ complaint, filed four years and one day after the loan’s consummation, was ineffective. The Eighth Circuit affirmed.
Held: A borrower exercising his right to rescind under the Act need only provide written notice to his lender within the 3-year period, not file suit within that period. Section 1635(a)’s unequivocal terms—a borrower “shall have the right to rescind . . . by notifying the creditor. . . of his intention to do so” (emphasis added)—leave no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. This conclusion is not altered by §1635(f), which states when the right to rescind must be exercised, but says nothing about how that right is exercised. Nor does §1635(g)—which states that “in addition to rescission the court may award relief . . . not relating to the right to rescind”—support respondents’ view that rescission is necessarily a consequence of judicial action. And the fact that the Act modified the common-law condition precedent to rescission at law, see §1635(b), hardly implies that the Act thereby codified rescission in equity. Pp. 2–5.
729 F. 3d 1092, reversed and remanded.
David C. Frederick, Washington, DC, for Petitioners.
Seth P. Waxman, Washington, DC, for Respondents.
Elaine J. Goldenberg for the United States as amicus curiae, by special leave of the Court, supporting the Petitioners.
Lynn E. Blais, Michael F. Sturley, Austin, TX, Michael J. Keogh, Keogh Law Office, St. Paul, MN, Erin Glenn Busby, Houston, TX, David C. Frederick, Counsel of Record, Matthew A. Seligman, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, DC, for Petitioners.
Noah A. Levine, Alan E. Schoenfeld, Jason D. Hirsch, Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY,Andrew B. Messite, Reed Smith LLP, New York, NY, Seth P. Waxman, Counsel of Record, Louis R. Cohen,Albinas J. Prizgintas, Christopher D. Dodge, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, Aaron D. Van Oort, Faegre Baker Daniels LLP, Minneapolis, MN, for Respondents.
Justice SCALIA delivered the opinion of the Court.
The Truth in Lending Act gives borrowers the right to rescind certain loans for up to three years after the transaction is consummated. The question presented is whether a borrower exercises this right by providing written notice to his lender, or whether he must also file a lawsuit before the 3-year period elapses.
On February 23, 2007, petitioners Larry and Cheryle Jesinoski refinanced the mortgage on their home by borrowing $611,000 from respondent Countrywide Home Loans, Inc. Exactly three years later, on February 23, 2010, the Jesinoskis mailed respondents a letter purporting to rescind the loan. Respondent Bank of America Home Loans replied on March 12, 2010, refusing to acknowledge the validity of the rescission. On February 24, 2011, the Jesinoskis filed suit in Federal District Court seeking a declaration of rescission and damages.
Respondents moved for judgment on the pleadings, which the District Court granted. The court concluded that the Act requires a borrower seeking rescission to file a lawsuit within three years of the transaction’s consummation. Although the Jesinoskis notified respondents of their intention to rescind within that time, they did not file their first complaint until four years and one day after the loan’s consummation. 2012 WL 1365751, *3 (D.Minn., Apr. 19, 2012). The Eighth Circuit affirmed. 729 F.3d 1092, 1093 (2013) (per curiam).
Congress passed the Truth in Lending Act, 82 Stat. 146, as amended, to help consumers “avoid the uninformed use of [135 S.Ct. 792] credit, and to protect the consumer against inaccurate and unfair credit billing.” 15 U.S.C. § 1601(a). To this end, the Act grants borrowers the right to rescind a loan “until midnight of the third business day following the consummation of the transaction or the delivery of the [disclosures required by the Act], whichever is later, by notifying the creditor, in accordance with regulations of the [Federal Reserve] Board, of his intention to do so.” § 1635(a) (2006 ed.).[^*] This regime grants borrowers an unconditional right to rescind for three days, after which they may rescind only if the lender failed to satisfy the Act’s disclosure requirements. But this conditional right to rescind does not last forever. Even if a lender never makes the required disclosures, the “right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever comes first.” § 1635(f). The Eighth Circuit’s affirmance in the present case rested upon its holding inKeiran v. Home Capital, Inc., 720 F.3d 721, 727-728 (2013) that, unless a borrower has filed a suit for rescission within three years of the transaction’s consummation, § 1635(f) extinguishes the right to rescind and bars relief.That was error. Section 1635(a) explains in unequivocal terms how the right to rescind is to be exercised: It provides that a borrower “shall have the right to rescind … by notifying the creditor, in accordance with regulations of the Board, of his intention to do so” (emphasis added). The language leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely. The statute does not also require him to sue within three years.
Nothing in § 1635(f) changes this conclusion. Although § 1635(f) tells us when the right to rescind must be exercised, it says nothing about how that right is exercised. Our observation in Beach v. Ocwen Fed. Bank, 523 U.S. 410, 417, 118 S.Ct. 1408, 140 L.Ed.2d 566 (1998), that § 1635(f) “govern[s] the life of the underlying right” is beside the point. That case concerned a borrower’s attempt to rescind in the course of a foreclosure proceeding initiated six years after the loan’s consummation. We concluded only that there was “no federal right to rescind, defensively or otherwise, after the 3-year period of § 1635(f) has run,” id., at 419, 118 S.Ct. 1408, not that there was no rescission until a suit is filed.
Respondents do not dispute that § 1635(a) requires only written notice of rescission. Indeed, they concede that written notice suffices to rescind a loan within the first three days after the transaction is consummated. They further concede that written notice suffices after that period if the parties agree that the lender failed to make the required disclosures. Respondents argue, however, that if the parties dispute the adequacy of the disclosures — and thus the continued availability of the right to rescind — then written notice does not suffice.
Section 1635(a) nowhere suggests a distinction between disputed and undisputed rescissions, much less that a lawsuit would be required for the latter. In an effort to sidestep this problem, respondents point to a neighboring provision, § 1635(g), which they believe provides support for their interpretation [135 S.Ct. 793] of the Act. Section 1635(g) states merely that, “[i]n any action in which it is determined that a creditor has violated this section, in addition to rescission the court may award relief under section 1640 of this title for violations of this subchapter not relating to the right to rescind.” Respondents argue that the phrase “award relief” “in addition to rescission” confirms that rescission is a consequence of judicial action. But the fact that it can be a consequence of judicial action when § 1635(g) is triggered in no way suggests that it can only follow from such action. The Act contemplates various situations in which the question of a lender’s compliance with the Act’s disclosure requirements may arise in a lawsuit — for example, a lender’s foreclosure action in which the borrower raises inadequate disclosure as an affirmative defense. Section 1635(g) makes clear that a court may not only award rescission and thereby relieve the borrower of his financial obligation to the lender, but may also grant any of the remedies available under § 1640 (including statutory damages). It has no bearing upon whether and how borrower-rescission under § 1635(a) may occur.Finally, respondents invoke the common law. It is true that rescission traditionally required either that the rescinding party return what he received before a rescission could be effected (rescission at law), or else that a court affirmatively decree rescission (rescission in equity). 2 D. Dobbs, Law of Remedies § 9.3(3), pp. 585-586 (2d ed. 1993). It is also true that the Act disclaims the common-law condition precedent to rescission at law that the borrower tender the proceeds received under the transaction. 15 U.S.C. § 1635(b). But the negation of rescission-at-law’s tender requirement hardly implies that the Act codifies rescission in equity. Nothing in our jurisprudence, and no tool of statutory interpretation, requires that a congressional Act must be construed as implementing its closest common-law analogue. Cf. Astoria Fed. Sav. & Loan Assn. v. Solimino, 501 U.S. 104, 108-109, 111 S.Ct. 2166, 115 L.Ed.2d 96 (1991). The clear import of § 1635(a) is that a borrower need only provide written notice to a lender in order to exercise his right to rescind. To the extent § 1635(b) alters the traditional process for unwinding such a unilaterally rescinded transaction, this is simply a case in which statutory law modifies common-law practice.
* * *
The Jesinoskis mailed respondents written notice of their intention to rescind within three years of their loan’s consummation. Because this is all that a borrower must do in order to exercise his right to rescind under the Act, the court below erred in dismissing the complaint. Accordingly, we reverse the judgment of the Eighth Circuit and remand the case for further proceedings consistent with this opinion.
It is so ordered.
[^*]: The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 50 L.Ed. 499.