Defense Motion to Dismiss Truth in Lending Act (TILA) Class Action Granted because Failure to Specify Date by which Right to Cancel must be Exercised was merely a Technical TILA Violation and, Viewed Objectively, a Reasonably Alert Borrower would have Understood her Rights Massachusetts Federal Holds
Plaintiffs filed a putative class action against IndyMac for violations of the federal Truth in Lending Act (TILA); the class action complaint alleged that IndyMac failed to provide the requisite notice of a borrower’s three-day right to cancel because the disclosure “[left] blank the specific date by which the notice of cancellation had to be sent.” Megitt v. IndyMac Bank, F.S.B., 547 F.Supp.2d 56, 56 (D.Mass. 2008). More specifically, the class action complaint revealed that IndyMac provided plaintiffs with a Notice of Right to Cancel, which stated in part that the borrower had “a legal right under federal law to cancel this transaction, without cost, within three (3) business days from whichever of the following events occurs last: (1) the date of the transaction, which is: June 16, 2006; or (2) the date you received your Truth in Lending disclosures; or (3) the date you received this notice of your right to cancel.” Id., at 57-58. However, the class action further alleged that IndyMac’s notices provided, “If you cancel by mail or telegram, you must send notice no later than midnight of, __________, (or midnight of the third business day following the latest of the three events listed above).” Id., at 58. Thus, the notices from IndyMac left the date blank, id. Defense attorneys moved to dismiss the class action: The chief magistrate issued and report and recommendation that the motion to dismiss should be granted, relying in part on Palmer v. Champion Mortgage, 465 F.3d 24 (1st Cir. 2006), and the district court adopted the recommendation. Id., at 57. The federal court explained at page 57, “The import of the First Circuit’s Palmer decision with regard to the purely technical omission in the document embodying the notice makes the ruling here compelling and inevitable.” Accordingly, the court dismissed the class action.
Defense attorneys argued that, under the First Circuit’s decision in Palmer, the “technical” deficiency underlying the class action is not actionable under TILA, Regulation Z or Massachusetts state law. Megitt, at 58. Palmer, from which the district court quoted at length, essentially holds that if a lender’s 3-day notice of a borrower’s right to cancel tracks the model form for such disclosures is “at the very least, prima facie evidence of the adequacy of the disclosure.” Id., at 59 (quoting Palmer, at 29). As the district court noted, “The court went so far as to recognize that there was both statutory and case law support for the proposition that adherence to a model form bars a TILA non-disclosure claim entirely” but “it left ‘for another day the question of whether such adherence invariably brings a creditor within a safe harbor.’” Id. n.2 (citations omitted). Palmer also explained that courts should rely on “the text of the disclosures themselves rather than on plaintiffs’ descriptions of their subjective understandings,” and base their decisions on objectively reasonable factors rather than the plaintiff’s subjective understanding, id., at 59 (citations omitted).
Applying these rules, the district court found that IndyMac’s notices “were objectively reasonable as a matter of law.” Megitt, at 60. Most important in the court’s analysis was the fact that the notices “clearly and conspicuously indicate[d] that the debtor can rescind ‘within three (3) business days from whichever of [three enumerated] events occurs last.’” Id. And while the date to exercise the right to cancel had been left blank, the immediately preceding parenthetical explained that the notice must be given by “midnight of the third business day following the latest of the three … events listed above).” Id. (quoting Palmer, at 28-29). Thus, here, as in Palmer, the notices were sufficient to give notice to a “reasonably alert person” – the “average consumer” – of the deadline by which the notice must be exercised. Id. The district court recognized that Palmer is at odds with the Ninth Circuit’s opinion in Semar v. Platte Valley Fed. Sav. & Loan Ass’n, 791 F.2d 699 (9th Cir. 1986), as well as district court opinion’s out of Michigan, Illinois and Pennsylvania. See Megitt, at 61. But the court adhered to First Circuit authority, and accordingly rejected the TILA violation claims. Id., at 62.
NOTE: Defense attorneys also argued that the class action complaint’s state law claims were preempted by the Home Owners’ Loan Act (HOLA), 12 U.S.C. § 1461, et seq.; however, because the district court agreed that the notices did not violate TILA, it did not address this argument. See Megitt, at 58.