Monday, May 11, 2015

VA COURTS BEGIN TO RECOGNIZE SUBSTITUTE TRUSTEE'S FIDUCIARY DUTIES TO BORROWERS

I am happy to report that the tide is turning in favor of the borrowers in two ways when it comes to cleaning up the foreclosure mess.  First, there have been a number of successful claims related to botched (whether intentionally or unintentionally) loan modifications.  Second, claims for breach of fiduciary duties against deed-of-trust trustees (or substitute trustees) have now been allowed to proceed in Virginia.

In a recent case in Hampton Roads, where this firm is working in association with local counsel, the judge overruled a demurrer and allowed to proceed eight out of nine claims asserted on behalf of the borrower against the alleged creditor and the substitute trustee.  This happened in spite of some adverse precedent that was put on the books in Virginia during the past few years.

Since at least 2010, federal district courts in Virginia were quick to dismiss breach of fiduciary duty claims related to improper foreclosures on the basis that the trustee "does not owe any fiduciary duties" to borrowers or "only owes those duties listed in the deed of trust", etc.  This "reasoning" was employed in spite of more than a dozen Virginia Supreme Court opinions pronouncing that the trustee is a fiduciary for both debtor and creditor and must act impartially between them, as well as that a trustee must not permit the urgency of the creditor to result in a sale under circumstances injurious to the borrower.

But the federal courts instead grabbed on to one or two cases where the same Supreme Court said that the trustee's duties, if any, are limited to those listed in the deed of trust.  Of course, the federal courts did not bother to check, or chose to ignore, the fact that this seemingly contradictory position of no fiduciary duties owed to borrowers arose out of a case involving a third party guarantor, not a borrower.  It is to the guarantor, who is not a party to the deed of trust, that the trustee's duties are limited to those specifically listed in the deed of trust.

Thankfully, the Fourth Circuit, who supervises the federal district courts, at some point began to shed some light on the issue and admonished that, in disputes involving borrowers and not some third parties, it is the line of cases recognizing fiduciary duties and requiring neutrality of the trustee that is controlling.  Additionally, the Virginia Supreme Court has since decided at least one case where it permitted a claim against a deed-of-trust trustee for breach of fiduciary duty based on a botched foreclosure.  Its rationale was again the long-standing (since at least the late 1800s) precedent recognizing fiduciary duties and the duty of impartiality on the part of the trustee toward the borrower.

Therefore, the legal landscape is changing.  Courts may slow to act, but they do act with time.  Judges are beginning to realize that the whole point of inserting a trustee between the borrower and the lender is to have a NEUTRAL FIDUCIARY to insure the protection of BOTH parties in case of a dispute.

If you are facing a foreclosure and suspect that it may be improper, it is time to send a letter to the substitute trustee advising them of the possibility of legal action against them should they "steamroll" the borrower and proceed to sale without first insuring that the alleged creditor has the right to take the property and has complied with all required pre-conditions.  Not to mention that in most cases the borrower has a slew of other claims not only against the substitute trustee, but against the alleged creditor as well.

Monday, April 13, 2015

Is The Fourth Circuit's Tender Requirement Obsolete?

David MERRITT; Salma Merritt, Plaintiffs–Appellants,
v.
COUNTRYWIDE FINANCIAL CORPORATION, a Delaware corporation; Countrywide Home Loans, Inc., a New York corporation; Angelo Mozilo, an individual; Michael Colyer, an individual; David Sambol, an individual; Bank of America, NA; Ken Lewis, an individual; John Benson, Defendants–Appellees.

No. 09–17678.

United States Court of Appeals,
Ninth Circuit.

Argued and Submitted Nov. 9, 2012.
Filed July 16, 2014.

Summaries:Source: Justia

Plaintiffs filed suit against Countrywide and others involved in their residential mortgage, alleging violations of numerous federal statutes. The district court dismissed the claims with prejudice and plaintiffs appealed. The court held that plaintiffs can state a claim for rescission under the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., without pleading that they have tendered, or that they have the ability to tender, the value of their loan; only at the summary judgment stage may a court order the statutory sequence altered and require tender before rescission - and then only on a case-by-case basis; and, therefore, the court reversed the district court's dismissal of plaintiffs' rescission claim and remanded for further proceedings. The court held that, although the limitations period in the Real Estate Settlement Practices Act (RESPA), 12 U.S.C. 2614, ordinarily runs from the date of the alleged RESPA violation, the doctrine of equitable tolling may, in the appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover the violation; just as for TILA claims, district courts may evaluate RESPA claims case-by-case; and, therefore, in this case, the court vacated the dismissal of plaintiffs' Section 8 of RESPA claims on limitations grounds and remanded for reconsideration.

        [759 F.3d 1027]


Jacob N. Foster (argued), Kasowitz, Benson, Torres & Friedman LLP, San Francisco, CA, for Plaintiffs–Appellants.

James Goldberg (argued) and Stephanie A. Blazewicz, Bryan Cave LLP, San Francisco, CA; Douglas E. Winter and Angela Buenaventura, Bryan Cave LLP, Washington, D.C., for Defendants–Appellees Countrywide Home Loans, Inc., Countrywide Financial Corporation, Bank of America Corporation, Michael Coyler, David Sambol, and Kenneth Lewis.


Charles Elder and Caleb Bartel, Irell & Manella LLP, Los Angeles, CA, for Defendant–Appellee Angelo Mozilo.

Susan H. Handelman, Ropers, Majeski, Kohn & Bently, Redwood City, CA, for Defendant–Appellee John Benson.

Appeal from the United States District Court for the Northern District of California, James Ware, District Judge, Presiding. D.C. No. 5:09–cv–01179–JW.
Before: ANDREW J. KLEINFELD and MARSHA S. BERZON, Circuit Judges, and WILLIAM E. SMITH, District Judge.*

OPINION

BERZON, Circuit Judge:
         Once again, we address issues arising from Countrywide Financial Corporation's residential lending business during the period shortly before novel practices by lenders resulted in widespread distress in the housing markets. See, e.g., Balderas v. Countrywide Bank, N.A., 664 F.3d 787 (9th Cir.2011); Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034 (9th Cir.2011). David Merritt and Salma Merritt (“the Merritts”) sued Countrywide Financial Corporation and various other defendants (collectively “Countrywide” or “CHL”) involved in their residential mortgage, alleging violations of numerous federal statutes. The district court dismissed the claims pleaded, with prejudice.1 This appeal followed.

        We consider in this opinion two issues raised by that dismissal: (1) whether the district court properly dismissed the Merritts' Truth in Lending Act (“TILA”) rescission claim because they did not tender the rescindable value of their loan prior to filing suit or allege ability to tender its value in their complaint; and (2) whether the Merritts' claims under Section 8 of the Real Estate Settlement Practices Act (“RESPA”) may proceed, including whether the RESPA limitations period, 12 U.S.C. § 2614, may be equitably tolled. 2

        [759 F.3d 1028]

Factual & Procedural Background
        In March 2006, the Merritts took out both an adjustable-rate mortgage 3 and a home equity line of credit (“HELOC”) with Countrywide on a home they purchased in Sunnyvale, California.4 Initially, the Merritts' Countrywide agent had told them, “I can pretty much guaranty you that we can get you in your new home for $1800 per month and possibly even as low as $1,500.” Three days before closing, however, the agent told the Merritts that he had completed their loan package and that their monthly payments would be $4,400 a month for the first five years: $3,200 for the mortgage, plus $1,200 for the HELOC. When the Merritts balked, the agent replied that “the market had shifted” since his initial estimates. He told the Merritts that the $4,400 monthly payment was “the lowest that you'll find anywhere,” and if they did not close right away, they would lose their good-faith deposit. He did not disclose that the $4,400/month figure was based on a temporary, “teaser” interest rate rather than a fixed rate, and that the Merritts' monthly payments would be much higher once the teaser rate expired. The Merritts would not have accepted the loan if they had understood the terms.

        The home's owner falsely represented himself throughout the process as the selling agent. As the sale approached, he spoke with the Merritts' Countrywide agent about getting the home appraised. The seller stated that he had found an appraiser who would provide an inflated appraisal of $739,000, above the home's actual value of about $690,000, so as to justify a higher sale price. The Countrywide agent responded that he preferred to select the appraiser himself, but that since Countrywide had used the seller's recommended appraiser before, he would agree to using him for this sale. The Countrywide agent, the seller, and the appraiser spoke over the phone, and the appraiser agreed to provide a $739,000 appraisal before having reviewed the property. The Merritts allege that Countrywide maintained a company practice of encouraging agents to select appraisers who would provide inflated appraisals, so as to increase the total amounts financed and thereby maximize Countrywide's profits.

        On the date of closing, a Countrywide representative arrived at the Merritts' home with loan documents and said, “I will not have time to wait for you to read any of the documents, but just need you to sign these and if you have any questions or concerns afterwards, you can contact your loan agent.” The Merritts signed the documents, but between the small print and “confusing language,” did not understand the documents provided. The Countrywide representative did not give the Merritts copies of the signed documents to keep, only form notices of their right to rescind. The spaces where the lender would ordinarily fill in the relevant dates

        [759 F.3d 1029]

and deadlines on the form notices were left blank. The Merritts similarly were given a form for TILA disclosures, but with the spaces left blank for the annual percentage rate, finance charge, amount financed, total of payments, schedule of payments, and variable interest rate.

        The day after the closing, the Merritts called their Countrywide agent and asked him to clarify the terms of their mortgage. The agent assured them that he would send them further documentation but never did. He also promised that they could refinance their mortgage at a lower interest rate after a year of on-time payments.

        Over the next three years, the Merritts repeatedly requested from Countrywide the completed disclosures, to no avail. Meanwhile, Countrywide continued to send the Merritts monthly billing statements that did not disclose that the “minimum payment due” would only be applied to interest, and that they should pay more if they wanted to begin paying down the principal.

        In 2009, Countrywide sent the Merritts the loan documents that they had been requesting for three years. By then, the Merritts had made about $200,000 in payments to Countrywide. The Merritts consulted with lawyers, who told them that they had been victims of “predatory lending.” They had their loan materials audited by an underwriter, who told them that he had identified numerous violations of state and federal law, including TILA, in the documentation provided by Countrywide.

        Meanwhile, in August 2008, the Merritts suffered a loss of income that made them unable to afford their monthly payments. They repeatedly asked Countrywide to refinance or modify their mortgage into a conventional loan, but Countrywide refused.

        In February 2009, the Merritts notified Countrywide that they wished to rescind their loan. Countrywide did not respond to the rescission request, instead offering to modify the loan. The modified loan offered was one the Merritts still could not afford.5

        The Merritts filed this case pro se on March 18, 2009 and shortly thereafter amended the complaint.6 Countrywide moved to dismiss the complaint in its entirety. The district court granted the motion, with prejudice. As relevant to the issues in this opinion, the district court dismissed the Merritts' claim for rescission under TILA because the Merritts did not tender the value of their HELOC to Countrywide before filing suit, and dismissed their claims under Section 8 of RESPA as time-barred.

        This appeal followed. We appointed pro bono counsel to represent the Merritts before this court.

Discussion
A. TILA rescission
         TILA provides two remedies for loan disclosure violations—rescission and civil damages, each governed by separate statutory procedures. 7 Under TILA, an

        [759 F.3d 1030]

obligor has the “right to rescind ... until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section ... whichever is later.” 15 U.S.C. § 1635(a). Regardless of whether the required information and forms have been delivered, “[the] obligor's right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property.” Id. § 1635(f).

         The TILA rescission provisions set out the following sequence of events for pursuing rescission: First, the obligor must notify the creditor of his intention to rescind, id. § 1635(a); then, within 20 days after receipt of notice of rescission, the creditor must return to the obligor any security interest, id. § 1635(b); and lastly, “[u]pon the performance of the creditor's obligations under this section [i.e., upon return of the security interest], the obligor shall tender the property to the creditor.” Id. These procedures “shall apply except when otherwise ordered by a court.” Id.

         Notably, “[t]he sequence of rescission and tender set forth in § 1635(b) is a reordering of the common law rules governing rescission.” Williams v. Homestake Mortg. Co., 968 F.2d 1137, 1140 (11th Cir.1992) (citing 17A Am.Jur.2d Contracts § 590, at 600–01 (1991)). Specifically, “[a]lthough tender of consideration received is an equitable prerequisite to rescission, the requirement was abolished by the Truth in Lending Act.” Palmer v. Wilson, 502 F.2d 860, 861 (9th Cir.1974). “Under § 1635(b),” consequently,

        all that the consumer need do is notify the creditor of his intent to rescind. The agreement is then automatically rescinded and the creditor must, ordinarily, tender first. Thus, rescission under § 1635 places the consumer in a much stronger bargaining position than he enjoys under the traditional rules of rescission.

Williams, 968 F.2d at 1140 (internal quotation marks and alteration omitted). By reversing the traditional sequence for common law rescission claims, TILA “shift[s] significant leverage to consumers,” consistent with the statute's general consumer-protective goals. Lea Krivinskas Shepard, It's All About the Principal: Preserving Consumers' Right of Rescission under the Truth in Lending Act, 89 N.C.L.Rev. 171, 188 (2010).


         At the same time, consumer protection is not the only goal of statutory rescission under TILA; “another goal of § 1635(b) is to return the parties most nearly to the position they held prior to entering into the transaction.” Williams, 968 F.2d at 1140. Balancing the two goals, the case law construing TILA has long recognized courts' equitable power to modify the statutory rescission process. See id. at 1140; Palmer, 502 F.2d at 862. Congress confirmed this equitable role for courts overseeing TILA rescission proceedings when it amended TILA in 1980 to clarify that the § 1635(b) sequence of procedures “shall apply except when otherwise ordered by a court.” See Truth in Lending Simplification and Reform Act, Pub.L. No. 96–221, § 612(a)(4), 94 Stat. 175 (1980), codified at15 U.S.C. § 1635(b).

         Invoking this permission, the district court dismissed the Merritts' TILA rescission claim because their complaint did not “allege that they tendered the Home Equity Line of Credit or its reasonable value to CHL or Bank of America when they sought rescission.” In so ruling at the pleading stage, the district court erred.

        In accordance with the statutory provision that courts may order an alteration of the sequence of events otherwise prescribed by the TILA rescission provision,

        [759 F.3d 1031]

see id., we have held that district courts may, if warranted by the circumstances of the particular case, require the obligor to provide evidence of ability to tender as a condition for denial of a summary judgment motion advanced by the creditor. See Yamamoto v. Bank of New York, 329 F.3d 1167, 1171–73 (9th Cir.2003). Yamamoto concluded that where “it is clear from the evidence that the borrower lacks capacity to pay back what she has received (less interest, finance charges, etc.), the court does not lack discretion to do before trial what it could do after,” i.e., refuse to enforce rescission. Id. at 1173. In so ruling, Yamamoto relied on earlier cases which had permitted judges after a resolution of the TILA claim on the merits to condition rescission on tender. Palmer, one of those earlier cases, had instructed courts considering such a condition to take into account “the equities present in a particular case, as well as consideration of the legislative policy of full disclosure that underlies [TILA] and the remedial-penal nature of the private enforcement provisions of the Act.” Id. at 1171 (quoting Palmer, 502 F.2d at 862); see also LaGrone v. Johnson, 534 F.2d 1360, 1362 (9th Cir.1976) (holding that court should condition rescission on tender where TILA violations “were not egregious and the equities heavily favor the creditors”).

        Like some other district courts in this circuit, the district court in this case extended Yamamoto to require that plaintiffs plead ability to tender in their complaint. See Botelho v. U.S. Bank, N.A., 692 F.Supp.2d 1174, 1180 (N.D.Cal.2010) (collecting cases). We reject this extension.

         As Botelho noted, Yamamoto “was decided in the procedural context of summary judgment, when the district court was in a position to consider a full range of evidence in deciding whether to condition rescission on tender.” Id. at 1180. Without such evidentiary development, a district court is in no position to evaluate equitable considerations of the sort identified in Yamamoto and its predecessors. The equities to be considered, Yamamoto noted, might include the nature of the TILA violations (such as whether they were or were not egregious); whether the obligor had gone into bankruptcy; and the borrower's ability to repay the proceeds (including, perhaps, whether that ability to repay was itself dependent upon a rescission order because without such an order, the obligor could not refinance or sell the property). 329 F.3d at 1171, 1173. “Whether the call is correct must be determined on a case-by-case basis, in light of the record adduced.” Id. at 1173. In making the call, the court may consider evidence such as affidavits and deposition testimony or may hold an evidentiary hearing. See Palmer, 502 F.2d at 862. To prescribe the pleading of ability to tender in every TILA rescission case would be inconsistent with this evidence-grounded, case-by-case approach.8

        Further, our approach better comports with the TILA statutory text, which prescribes an enforcement sequence except when “otherwise ordered by a court.” 15 U.S.C. § 1635(b). If all obligors had to allege ability to tender payment when seeking rescission and so allege in a complaint for enforcement of the rescission obligation, then (1) the requirement of doing so would no longer be an exception, and (2) the requirement would not be “otherwise ordered by a court,” as a complaint initiates suit before any court order issues.

        [759 F.3d 1032]

        Moreover, Yamamoto recognized that if a creditor acquiesces at the outset in the notice of rescission, “then the transaction [is] rescinded automatically, thereby causing the security interests to become void and triggering the sequence of events laid out in subsections (d)(2) and (d)(3) [of Regulation Z, 12 C.F.R. § 226.23, which implements 15 U.S.C. § 1635(b) ].” 329 F.3d at 1172. Yamamoto's holding allowing district courts to vary that sequence was targeted at situations in which the creditor “produce[s] evidence sufficient to create a triable issue of fact about compliance with TILA's disclosure requirements.” Id. Where no such evidence (or viable legal argument) is produced, then the situation is legally indistinguishable for judicial remedy purposes from one in which the creditor initially acquiesced in the rescission; that is what should have happened in the absence of a tenable defense. Automatically to require tender in the pleadings before any colorable defense has been presented would encourage creditors to refuse to honor indisputably valid rescission requests, because doing so would allow the security interest to remain in place absent tender. The result would be to allow creditors to vary the statutory sequence simply through intransigence.

        In addition, in many cases, it will be impossible for the parties or the court to know at the outset whether a borrower asserting her TILA rescission rights will ultimately be able to return the loan proceeds as required by the statute. That ability may depend upon the merits of her TILA rescission claim or on other claims related to the same loan transaction. See, e.g.,Prince v. U.S. Bank Nat'l Ass'n, 2009 WL 2998141, at *5 (S.D.Ala. Sept. 14, 2009) (denying creditor's motion to dismiss as based on “mere speculation” that plaintiffs would be unable to tender, and indicating that court would address the proper sequences for implementing the rescission, if necessary, only after resolving the rescission claim on the merits). For instance, if a TILA rescission claim is meritorious and the creditor relinquishes its security interest in the property upon notice of rescission as required by the default § 1635(b) sequence, the obligor may then be able to refinance or sell the property and thereby repay the original lender. Cf. Burrows v. Orchid Island TRS, LLC, 2008 WL 744735, at *6 (C.D.Cal. Mar. 18, 2008) (declining to require pleading of tender where the court inferred that borrower would be able to tender by selling or refinancing the property if rescission was found to be appropriate); Williams v. Saxon Mortg. Co., 2008 WL 45739, at *6 n. 10 (S.D.Ala. Jan. 2, 2008) (declining to condition rescission on tender as was done in Yamamoto, because it was not clear that borrower would not be able to refinance the loan). Or her complaint may allege damages claims arising from the same loan transaction, the proceeds of which, if successful, could then be used to satisfy her TILA tender obligation. See Shepard, supra, at 205 & n. 200, 210.

        For all these reasons, any requirement that all TILA rescission plaintiffs allege ability to tender cannot be reconciled with the statute, Yamamoto's holdings, and Yamamoto's underpinnings. Any suggestion that such a pleading requirement may apply in some cases but not others fares no better, for two reasons:

         First, requiring a subset of TILA rescission plaintiffs to plead tender would effectively impose a special pleading requirement upon those plaintiffs, without any advance notice as to who those plaintiffs are. After Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), as before, “Rule 8(a)'s simplified pleading standard applies to all civil actions, with [only] limited exceptions.”

        [759 F.3d 1033]

Swierkiewicz v. Sorema N.A., 534 U.S. 506, 513, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002) (emphasis added); see Starr v. Baca, 652 F.3d 1202, 1215–16 (9th Cir.2011) (discussing how to reconcile Iqbal and Swierkiewicz ). Under this standard, a plaintiff need only plead “sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively,” and “the factual allegations that are taken as true must plausibly suggest an entitlement to relief.” Starr, 652 F.3d at 1216. There is no authority for altering the pleading requirements for a given statutory claim for some plaintiffs making that claim and not for others.

        Second, there would be no principled way to determine which plaintiffs should be required to plead tender in the complaint. Yamamoto and its predecessors indicate that major factors as to whether to require tender in advance of rescission are the strength of any defense to rescission and the egregiousness of any TILA violation. Neither of these considerations can be evaluated before the creditor advances its defense, factually and legally. Nor do we see how the other “case-by-case” considerations pertinent under Yamamoto can be set out in such a way as to notify TILA plaintiffs in advance of any special, heightened pleading requirements applicable to them in particular.

         For all these reasons, we hold that plaintiffs can state a claim for rescission under TILA without pleading that they have tendered, or that they have the ability to tender, the value of their loan. Only at the summary judgment stage may a court order the statutory sequence altered and require tender before rescission—and then only on a “case-by-case basis,” Yamamoto, 329 F.3d at 1173, once the creditor has established a potentially viable defense.

        In light of this holding, we reverse the district court's Rule 12(b)(6) dismissal of the Merritts' TILA rescission claim and remand for further proceedings on that claim.

B. The RESPA Section 8 claims
         Congress enacted RESPA in 1974 in response to abusive practices that inflate the cost of real estate transactions. 12 U.S.C. § 2601(a); see Sosa v. Chase Manhattan Mortg. Corp., 348 F.3d 979, 981 (11th Cir.2003). Section 8 of RESPA prohibits kickbacks and unearned fees and may be enforced criminally or civilly. 12 U.S.C. § 2607. Civil actions under this section must be brought within one year of the alleged violation. Id.§ 2614. The district court dismissed the Merritts' claims under Section 8 of RESPA as “barred by the one-year statute of limitations because Plaintiffs filed suit nearly three years after closing on their loan.” The district court held that “the [RESPA] limitations period begins to run as of the date of the closing,” and did not address whether the statute might have been equitably tolled to the date in 2009 when the Merritts allege that they actually received their loan documents.

        There is no direct precedent in this court on the RESPA equitable tolling issue, although we have held that the closely similar TILA limitations period provision may be equitably tolled. See King v. California, 784 F.2d 910, 914–15 (9th Cir.1986). Before proceeding to the question whether we should reach the same conclusion as to tolling under RESPA as we did under TILA, we first consider whether we should pretermit that issue by affirming on a separate ground.

1. Plaintiffs' RESPA Section 8 claims
         We may affirm a dismissal on any properly preserved ground supported in the record.

        [759 F.3d 1034]

Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121 (9th Cir.2008); Papa v. United States, 281 F.3d 1004, 1009 (9th Cir.2002). However, we are not required to do so, “and as a prudential matter can properly remand to the district court” rather than “decide ab initio issues that the district court has not had an opportunity to consider and that present questions of first impression in our circuit.” Badea v. Cox, 931 F.2d 573, 575 n. 2 (9th Cir.1991) (internal quotation marks omitted).

        After considering the two RESPA Section 8 claims briefly, we have determined, as we shall explain shortly, that each raises fairly complex legal questions of first impression in this circuit neither decided by the district court nor fully briefed before this court. We therefore conclude that prudence counsels against addressing those claims on the merits in advance of any district court decision on them.

        Plaintiffs alleged two theories of liability under Section 8 of RESPA, which we address in turn.

a. Section 8(b)
         RESPA Section 8(b) prohibits the “giv[ing] ... [of] any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service ... other than for services actually performed.” 12 U.S.C. § 2607(b). The Merritts allege that defendants violated Section 8(b) by “charg[ing] [them] ... cost[s] for copying, insurance and other costs associated with the loan, which cost Defendants significantly less,” thereby “pass[ing] on charges which falls within the definition of ‘markups' and were charges not actually earned for any service.”

        A case closely similar, but not identical, to this one as to the RESPA Section 8 “markup” issue, Martinez v. Wells Fargo Home Mortg., Inc., 598 F.3d 549, 553 (9th Cir.2010), held that RESPA Section 8(b) “prohibits only the practice of giving or accepting money where no service whatsoever is performed in exchange for that money” (emphasis added). “By negative implication, Section 8(b) cannot be read to prohibit charging fees, excessive or otherwise, when those fees are for services that were actually performed.” Id. at 553–54.

        The plaintiffs in Martinez did not press a third-party “markup” theory on appeal—that is, a theory that depended on the provision of services by a party other than by the defendant who charged the fee and collected it from the consumer. See id. at 552 n. 2. The Merritts, therefore, urge us to distinguish Martinez and follow the Second Circuit's decision in Kruse v. Wells Fargo Home Mortg., Inc., 383 F.3d 49 (2d Cir.2004). Kruse held that while straight overcharges are not actionable under Section 8(b), markups for services provided by a third party are actionable. Id. at 58–62.

        The circuits are divided on the third-party markup issue under RESPA. In holding that third-party markups were actionable under Section 8(b), Kruse held that the statute itself was ambiguous and therefore deferred to a HUD policy statement interpreting the provision to prohibit markups. See Kruse, 383 F.3d at 57. Santiago v. GMAC Mortg. Corp., Inc., 417 F.3d 384, 388–89 (3d Cir.2005), like Kruse, held that markups are actionable under Section 8(b), although it relied on the statutory language as unambiguous, rather than on an agency interpretation of an ambiguous statute. In contrast, several circuits have held or strongly implied that third-party markups are not actionable under RESPA Section 8(b). See Freeman v. Quicken Loans, Inc., 626 F.3d 799, 804 (5th Cir.2010) (“RESPA is an anti-kickback statute, not an anti-price gouging statute”); Haug v. Bank of Am., N.A., 317 F.3d 832, 836 (8th Cir.2003) (holding that charging plaintiffs more for third-party services than defendant paid for them, “standing alone, does not violate Section

        [759 F.3d 1035]

8(b) of RESPA”); Boulware v. Crossland Mortg. Corp., 291 F.3d 261, 266, 268 (4th Cir.2002) (“§ 8(b) requires fee-splitting or a kickback”; “Congress chose to leave markups ... to the free market”); Krzalic v. Republic Title Co., 314 F.3d 875, 881 (7th Cir.2002) (holding that markups are not actionable under RESPA, which “is not a price-control statute”).9

        This question, which raises complicated issues of statutory interpretation and administrative law of first impression in this circuit, was not addressed by the district court and only minimally briefed before this court. We therefore decline to decide the question in the first instance on appeal.

b. Section 8(a)
         Section 8(a) prohibits the “giv[ing] ... [of] any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C. § 2607(a). Plaintiffs' theory of Section 8(a) liability is that Countrywide referred appraisal business to the appraiser, Benson, in exchange for a “thing of value,” namely, an inflated appraisal.

        At oral argument, defendants disputed the facts underlying the Section 8(a) claim. Specifically, defendants argued that the Merritts have admitted that the appraisal referral was made “before [they] first contacted Countrywide.” These factual claims rely on documents that were not before the district court, and in any event, are unavailing in light of this court's duty to accept the plaintiffs' allegations as true at the pleading stage of the litigation. Contrary to defendants' representation at oral argument, the operative complaint alleges that the Merritts were in contact with their Countrywide agent as early as February 2006, and that the agent and the appraiser were in contact in early March. To the extent that there are possible inconsistencies in the timeline alleged in the complaint, the district court as well as this court must construe the complaint in the light most favorable to the plaintiffs and grant leave to amend if any defects could be cured. See Lucas v. Dep't of Corr., 66 F.3d 245, 248 (9th Cir.1995) (per curiam) ( pro se complaints should be dismissed without leave to amend only if it is clear that deficiencies could not be cured by amendment).

        Countrywide also argued in its brief that the Merritts' Section 8(a) claim cannot survive dismissal because the statute only provides for liability “to the person or persons charged for the settlement service involved in the violation,” 12 U.S.C. § 2607(d)(2), and the Merritts did not allege that they were charged for the appraisal. However, this failing could be cured if the Merritts were granted leave to amend the complaint to allege that, as they contend in their reply brief, they paid the appraiser directly.

        A more complicated question is whether an inflated appraisal would qualify as a “thing of value” as that term is defined for RESPA purposes. The answer is not self-evident, the parties briefed this question only in passing, and the district court did not decide it. Moreover, the determination of this question may depend on factual development as to the precise structure of the agreement and the sequence of events. We therefore do not decide this question in the first instance either. We conclude only that we are not prepared to affirm at this juncture on the ground that the inflated appraisal was not a “thing of value” for RESPA purposes, and so must reach the limitations issue.

        [759 F.3d 1036]

2. Equitable tolling

         The district court dismissed the Merritts' claims under Section 8 of RESPA as “barred by the one-year statute of limitations because Plaintiffs filed suit nearly three years after closing on their loan,” and, although the issue was raised, did not consider whether the statute might have been equitably tolled to the date in 2009 when the Merritts allege that they actually received their loan documents. Only at that time, the Merritts allege, did they learn about the markups charged, as well as key information about their loan that could help to tip them off to the appraisal kickback scheme, including that the individual they thought had been the home's selling agent was actually also its owner.

        The pertinent RESPA limitations provision states:

        Jurisdiction of courts; limitations. Any action pursuant to the provisions ... of this title may be brought in the United States district court or in any other court of competent jurisdiction, for the district in which the property involved is located, or where the violation is alleged to have occurred, within ... 1 year in the case of a violation of section 2607 ... of this title from the date of the occurrence of the violation

        ....

12 U.S.C. § 2614.


        We have not previously decided whether the RESPA statutory limitations period may be equitably tolled. King did, however, address a closely similar question concerning the TILA limitations period. King, 784 F.2d 910. King held that the TILA limitations period was subject to equitable tolling. Id. at 195. We reach the same conclusion here with regard to the RESPA limitations period.

        There has, however, been considerable development since King in the general principles governing the availability of equitable tolling of statutory limitations periods. Consequently, we conduct a somewhat more extensive analysis of the pertinent considerations than did King, albeit with the same result.

         Our departure point under post- King case law is the proposition that “[t]ime requirements in lawsuits between private litigants are customarily subject to ‘equitable tolling.’ ” Irwin v. Dep't of Veterans Affairs, 498 U.S. 89, 95, 111 S.Ct. 453, 112 L.Ed.2d 435 (1990) (citing Hallstrom v. Tillamook Cnty., 493 U.S. 20, 27, 110 S.Ct. 304, 107 L.Ed.2d 237 (1989)). To determine whether the RESPA limitations period falls within that customary rule, we must first determine whether it is jurisdictional; courts “[have] no authority to create equitable exceptions to jurisdictional requirements.” Bowles v. Russell, 551 U.S. 205, 214, 127 S.Ct. 2360, 168 L.Ed.2d 96 (2007). If the RESPA limitations period is non jurisdictional, we must assess whether Congress has clearly precluded equitable tolling. See United States v. Brockamp, 519 U.S. 347, 350, 117 S.Ct. 849, 136 L.Ed.2d 818 (1997).

a. The RESPA limitations period is not jurisdictional
         In a series of recent cases, the Supreme Court has “pressed a strict[ ] distinction between truly jurisdictional rules, which govern ‘a court's adjudicatory authority,’ and nonjurisdictional ‘claim-processing rules,’ which do not.” Gonzalez v. Thaler, ––– U.S. ––––, 132 S.Ct. 641, 648, 181 L.Ed.2d 619 (2012) (quoting Kontrick v. Ryan, 540 U.S. 443, 454–55, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004)). In doing so, the Court has clarified that “the term ‘jurisdictional’ properly applies only to prescriptions delineating the classes of cases (subject-matter jurisdiction) and the persons (personal jurisdiction) implicating

        [759 F.3d 1037]

[the court's adjudicatory] authority.” Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 160–61, 130 S.Ct. 1237, 176 L.Ed.2d 18 (2010) (emphasis added) (internal quotation marks omitted). Moreover, a rule is “jurisdictional” only if “Congress has ‘clearly state[d]’ that the rule is jurisdictional.” Sebelius v. Auburn Reg'l Med. Ctr., ––– U.S. ––––, 133 S.Ct. 817, 824, 184 L.Ed.2d 627 (2013) (quoting Arbaugh v. Y & H Corp., 546 U.S. 500, 515–516, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006) (alteration in original)). To determine whether Congress clearly intended a statutory restriction to be jurisdictional, courts review factors such as the statute's language, “context, and relevant historical treatment.” Reed Elsevier, 559 U.S. at 166, 130 S.Ct. 1237. Applying this test, the Court has repeatedly held that “filing deadlines ordinarily are not jurisdictional; indeed, [the Court has] described them as ‘quintessential claim-processing rules.’ ” Sebelius, 133 S.Ct. at 825 (quoting Henderson ex rel. Henderson v. Shinseki, ––– U.S. ––––, 131 S.Ct. 1197 1203, 179 L.Ed.2d 159 (2011)). With these precepts in mind, we proceed to examine the relevant factors.

i. Language
        By its terms, § 2614 provides that any RESPA Section 8 action “ may be brought ... within 1 year ... from the date of the occurrence of the violation.” 12 U.S.C. § 2614 (emphasis added). This non-mandatory language is far more permissive than several limitations provisions that have been held amenable to equitable tolling. For example, the limitations provision held to be non jurisdictional and tollable in Henderson, 131 S.Ct. at 1204, stated that a claimant “ shall file ... within 120 days” (emphasis added). If not all “mandatory prescriptions, however emphatic, are ... properly typed jurisdictional,” Henderson, 131 S.Ct. at 1205 (emphasis added) (internal quotation marks omitted), then the use of permissive, non-mandatory language such as RESPA's “may file” language weighs considerably against a finding that the limitations period is jurisdictional.

ii. Statutory placement
        In examining whether or not a rule is jurisdictional, a few of the Supreme Court's recent cases have assigned some significance to whether the rule is “located in a jurisdiction-granting provision.” Reed Elsevier, 559 U.S. at 166, 130 S.Ct. 1237; see also Henderson, 131 S.Ct. at 1205; Payne v. Peninsula Sch. Dist., 653 F.3d 863, 870–71 (9th Cir.2011) (en banc), overruled in part on other grounds by Albino v. Baca, 747 F.3d 1162 (9th Cir.2014). Countrywide primarily relied upon this factor to support its argument against equitable tolling, citing the D.C. Circuit's holding that “the [RESPA] time limitation is a jurisdictional prerequisite to suit and as such not subject to equitable tolling.” Hardin v. City Title & Escrow Co., 797 F.2d 1037, 1038 (D.C.Cir.1986). To reach its conclusion, Hardin relied upon the placement of the RESPA time limitation in “the same sentence” that, in Hardin's characterization, “creates federal and state court jurisdiction” under RESPA, and upon the subtitle of the section, “Jurisdiction of Courts.” See id. at 1039.

         In light of Supreme Court cases decided since Hardin, we cannot agree with the D.C. Circuit that the RESPA time limitation is placed in a sentence that “ creates federal and state court jurisdiction.” It is true that the provision appears under the heading “Jurisdiction of courts; limitations.” But, as the Supreme Court has noted in recent years, “jurisdiction” has “many, too many meanings.” Arbaugh, 546 U.S. at 510, 126 S.Ct. 1235. In particular, use of the word “jurisdiction” does not make a provision “jurisdiction- granting.” Reed Elsevier so indicated, rejecting the argument that the

        [759 F.3d 1038]

“presence of the word ‘jurisdiction’ ” in a provision renders the entire provision jurisdictional. 559 U.S. at 163, 130 S.Ct. 1237. Moreover, “[a] requirement we would otherwise classify as nonjurisdictional ... does not become jurisdictional simply because it is placed in a section of a statute that also contains jurisdictional provisions.” Sebelius, 133 S.Ct. at 825 (citing Gonzalez, 132 S.Ct. at 651–52). “Mere proximity will not turn a rule that speaks in nonjurisdictional terms into a jurisdictional hurdle.” Gonzalez, 132 S.Ct. at 651.

        Here, although the RESPA limitations period appears in a provision that references the court's “jurisdiction,” the section, read as a whole, is not a “jurisdiction- granting provision.” Reed Elsevier, 559 U.S. at 166, 130 S.Ct. 1237 (emphasis added). The provision's reference to “United States district court[s] ... [and] other court[s] of competent jurisdiction” implies, instead, that the source of the referenced courts' “competent jurisdiction” lies elsewhere. And that is in fact the case with regard to federal district courts, which have jurisdiction to hear claims “arising under” RESPA because it is a “law[ ] ... of the United States.” See28 U.S.C. § 1331. Other than providing for a limitations period, then, the RESPA provision at 12 U.S.C. § 2614 simply clarifies that, when determining in which court of competent jurisdiction they will file their claim, RESPA litigants have a choice of venue: either “the district in which the property involved is located,” or, if it differs, “where the violation is alleged to have occurred.” 12 U.S.C. § 2614.

iii. Historical treatment
        In some statutory contexts, there is a venerable, consistent line of Supreme Court cases construing whether a particular limitations provision is jurisdictional. See, e.g., Bowles, 551 U.S. at 210–13, 127 S.Ct. 2360; John R. Sand & Gravel Co. v. United States, 552 U.S. 130, 137–39, 128 S.Ct. 750, 169 L.Ed.2d 591 (2008). Here we have no such historical guidance, as the Supreme Court has not addressed whether RESPA's limitations period is jurisdictional, nor has our court. In the absence of Supreme Court precedents the case for deference to historical guidance is much weaker here than in cases such as Bowles, 551 U.S. 205, 127 S.Ct. 2360.

        We do, however, have pertinent established law in this circuit, namely King, 784 F.2d 910; see also Ramadan v. Chase Manhattan Corp., 156 F.3d 499, 501–05 (3d Cir.1998) (following King's holding as to TILA). King is precedent in this circuit, and is persuasive authority in this case.

        King construed TILA's similarly worded limitations period, and held it amenable to equitable tolling. The TILA limitations provision is as follows:

        (e) Jurisdiction of courts; limitations on actions; State attorney general enforcement

        Except as provided in the subsequent sentence, any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation....

15 U.S.C. § 1640(e). Like the RESPA limitations period, then, the parallel TILA provision appears in the same sentence as a reference to “jurisdiction” and under the heading “Jurisdiction of courts; limitations on actions.” 10


        [759 F.3d 1039]

        King was decided without the benefit of the Supreme Court's recent admonitions against “profligate use” of the term “jurisdiction[al].” Payne, 653 F.3d at 868 (internal quotation marks omitted); see Arbaugh, 546 U.S. at 510, 126 S.Ct. 1235. But King necessarily relied upon an understanding that the TILA limitations period was non jurisdictional; otherwise, King could not have held the limitations period contained in the subsection subject to equitable tolling. Reflecting that understanding of King, the Seventh Circuit, in Lawyers Title Insurance Corp. v. Dearborn Title Corp., 118 F.3d 1157 (7th Cir.1997), relied in part upon King's reasoning when it expressly declined to follow the D.C. Circuit's contrary holding in Hardin. Lawyers Title held, instead, that the RESPA limitations period is not jurisdictional and may be equitably tolled. See Lawyers Title, 118 F.3d at 1166–67. 11

        Countrywide argues that Judge Posner's opinion for the court in Lawyers Title is not persuasive, because it relies upon the premise that federal limitations periods “are universally ... nonjurisdictional” unless they involve “actions against the United States.” Id. at 1166 (quoting Cent. States, Se. & Sw. Areas Pension Fund v. Navco, 3 F.3d 167, 173 (7th Cir.1993)). The Supreme Court's more recent equitable tolling jurisprudence indicates that the line is not quite so bright. For example, in Bowles, the Court held that “time limits for filing a notice of appeal are jurisdictional in nature.” 551 U.S. at 206, 127 S.Ct. 2360.

        But Irwin, decided before Lawyers Title, began from a similar premise—that “time requirements in lawsuits between private litigants are customarily subject to ‘equitable tolling.’ ” Irwin, 498 U.S. at 95, 111 S.Ct. 453. The difference between the “universally” adverb in Lawyers Title, 118 F.3d at 1166, and the “customarily” adverb in Irwin, 498 U.S. at 95, 111 S.Ct. 453, appears to reflect hyperbole in the former, but not a difference in fundamental concept. In contrast, Hardin applied the sort of rigidly formalistic jurisdictional analysis that the Supreme Court's recent cases have eschewed.

        All of these factors point towards a conclusion that the RESPA limitations period does not “implicat[e] [the district court's adjudicatory] authority,” Reed Elsevier, 559 U.S. at 161, 130 S.Ct. 1237, but, instead, is an ordinary “filing deadline,” a “quintessential claim-processing rule[ ].” See Sebelius, 133 S.Ct. at 825. We so conclude.

b. The presumption of equitable tolling applies
        As the RESPA limitations period is not jurisdictional, RESPA claims are presumptively amenable to equitable tolling, see Irwin, 498 U.S. at 95, 111 S.Ct. 453, unless Congress has clearly indicated otherwise. There is no such indication in the statute.

        Many of the considerations on which we relied as to the jurisdictional issue, particularly the permissive language used in the limitations provision, also help to negate any clear barrier to equitable tolling. In

        [759 F.3d 1040]

addition, we are guided by the analysis in King, 784 F.2d 910, which applied an approach with respect to equitable tolling generally consistent with the recent cases. King's logic with regard to the TILA limitation period applies equally to the parallel RESPA provision.

        King began by asking “whether tolling the statute in certain situations [would] effectuate the congressional purpose” of the statute, always “our basic inquiry” when determining whether a limitations period may be equitably tolled. Id. at 914–15. Because TILA is a broadly remedial consumer-protection statute, King reasoned, “an inflexible rule that bars suit one year after consummation [of the loan]” would be “inconsistent with legislative intent.” Id. at 914. King also recognized, however, that Congress did not intend to expose lenders “to a prolonged and unforeseeable liability.” Id. King therefore struck the balance between consumer protection and predictable liability by holding that the TILA limitations period could, “in the appropriate circumstances,” be equitably tolled, but only “until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosures that form the basis of the TILA action.” Id. at 915.

         As we have recently recognized, RESPA is, like TILA, “intended ... to serve consumer-protection purposes.” Medrano v. Flagstar Bank, FSB, 704 F.3d 661, 665 (9th Cir.2012). Consistent with those purposes, we have concluded that “RESPA's provisions relating to loan servicing procedures should be construed liberally to serve the statute's remedial purpose.” Id. at 665–66 (internal quotation marks omitted). By the same token, “tolling the statute [of limitations] in certain situations [would] effectuate the congressional purpose” of protecting consumers. King, 784 F.2d at 915. There may be situations in which a consumer is unable to file suit within the statutory limitations period precisely because of a real estate service provider's obfuscation or failure to disclose.

        We hold, therefore, that although the limitations period in 12 U.S.C. § 2614 ordinarily runs from the date of the alleged RESPA violation, “the doctrine of equitable tolling may, in the appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover” the violation. King, 784 F.2d at 915. Just as for TILA claims, district courts may evaluate RESPA claims case-by-case “to determine if the general rule would be unjust or frustrate the purpose of the Act and adjust the limitations period accordingly.” Id.

       

* * *
        The district court dismissed plaintiffs' RESPA Section 8 claims as time-barred, holding that “the [RESPA] limitations period begins to run as of the date of closing,” and thereby assuming that the period could not be equitably tolled. Rather than “decide ab initio issues that the district court has not had an opportunity to consider and that present questions of first impression in our circuit,” Badea, 931 F.2d at 575 n. 2, we decline, for the reasons explained, to affirm the dismissal of the Merritts' Section 8 claims on alternate grounds. Instead, we reach the issue that was the basis for dismissal, failure to comply with the statutory limitations period. In light of our holding today regarding equitable tolling, we vacate the dismissal of the Section 8 claims on limitations grounds and remand for reconsideration. On remand, the district court may consider such evidence as it deems appropriate to determine on what date the Merritts discovered or had reasonable opportunity to discover the alleged Section 8 violations and whether they filed their complaint within a year of that date. If the district

        [759 F.3d 1041]

court determines that the plaintiffs' RESPA Section 8 claims are not time-barred, it should permit substantive amendment of the claims upon an appropriate request and continue with further proceedings consistent with this opinion. See Lucas, 66 F.3d at 248 (“Unless it is absolutely clear that no amendment can cure the defect ... a pro se litigant is entitled to notice of the complaint's deficiencies and an opportunity to amend.”).

Conclusion
        We reverse the district court's dismissal of plaintiffs' TILA rescission claim and remand for further proceedings on that claim. As to plaintiffs' RESPA Section 8 claims, we vacate the dismissal and remand to the district court for further consideration in accordance with this opinion.

        REVERSED IN PART, VACATED IN PART, AND REMANDED FOR FURTHER PROCEEDINGS.

KLEINFELD, Senior Circuit Judge, dissenting:
        I respectfully dissent.

        We review a 12(b)(6) dismissal de novo,1 and can affirm on any ground, regardless of whether the district court relied on it.2

        This complaint violated Federal Rule of Civil Procedure 8(a)(2). The Rule requires a “short and plain statement of the claim showing that the pleader is entitled to relief.” 3 We are indulgent with pro se complaints, but even for them, there are limits.

        The Merritt complaint is neither “short” nor “plain.” It is 68 pages long, 398 paragraphs. Nor were they deprived of opportunities to clarify what their claims were. Though they call the complaint their “Second Amended Complaint,” the truth is that it is their fifth version. They got leave to file this version of their complaint by filing a motion explaining that the amendments would be “clarifications,” along with a “stipulation” to which Countrywide did not stipulate. The leave to amend they thus obtained mooted out Countrywide's pending motion to dismiss, so it was not adjudicated. The plaintiffs then filed their amended complaint which was materially different from the one submitted to the district court with their motion for leave to amend. Far from “clarifying” their previous complaints, this new complaint added an additional 69 paragraphs, 16 pages, and yet another cause of action.

        We have articulated five factors for evaluating whether a plaintiff should be given leave to amend: “(1) bad faith, (2) undue delay, (3) prejudice to the opposing party, (4) futility of amendment; and (5) whether

        [759 F.3d 1042]

plaintiff has previously amended his complaint.” 4 We have held that the “district court's discretion to deny leave to amend is particularly broad where plaintiff has previously amended the complaint.” 5 Here, the Merritts have submitted five different complaints to the district court. Further amendment would unduly prejudice the defendants. The defendants have responded to two of the Merritts' five prolix, incomprehensible complaints, doubtless at great expense for their own lawyers. Defendants have filed numerous motions addressing those complaints, for violation of Rule 8, misrepresentations, failure to state claims upon which relief may be granted, and lack of appropriate service. That is a lot of wasted money. Plaintiffs imposed this unfair prejudice on defendants by their vague prolixity and multiple filings.

        The Merritts' most recent amendments made their complaint even more prolix, and less “short and plain.” Countrywide's combined motion to strike and dismiss placed the Merritts on notice that their complaint failed to comply with Rule 8, but they made no attempt to bring their complaint into compliance with the rules. Because of this history, dismissal with prejudice was justified. Although dismissal with prejudice for failure to comply with the rules requires consideration of less drastic alternatives,6 here there were none, as it did not appear that plaintiffs were prepared, even after five tries, to make a short and plain statement of claims for which they were entitled to relief. Their misleading stipulation had already burdened Countrywide with the need to brief a second motion to dismiss. Allowing the Merritts a sixth attempt to plainly state their claims would be too prejudicial to the defendants to be a fair alternative under these circumstances.

        The majority opinion does a heroic job of stating claims clearly on behalf of the Merritts. But plaintiffs did not state them. It is not fair to defendants to perform these legal services for plaintiffs, even pro se plaintiffs, where the plaintiffs do not evidently have good claims. “Prolix, confusing complaints such as the ones plaintiffs filed in this case impose unfair burdens on litigants and judges. As a practical matter, the judge and opposing counsel, in order to perform their responsibilities, cannot use a complaint such as the one plaintiffs filed, and must prepare outlines to determine who is being sued for what. Defendants are then put at risk that their outline differs from the judge's, that plaintiffs will surprise them with something new at trial which they reasonably did not understand to be in the case at all, and that res judicata effects of settlement or judgment will be different from what they reasonably expected. [T]he rights of the defendants to be free from costly and harassing litigation must be considered.” 7

        If plaintiffs had what looked like a strong claim that ought to be adjudicated on the merits, judicial creation of a complaint for them might not be so unfairly prejudicial.8 But they do not. What they

        [759 F.3d 1043]

appear to be saying in their 398–paragraph complaint is that they bought a $729,000 house, and borrowed $739,000 for it, because the seller lowballed them into thinking they were going to get the house for $719,000. They seem to be saying that Countrywide's agent persuaded them to lie, which they did, in their loan application, such as by saying that Mrs. Merritt was employed when she was actually receiving disability payments (later terminated). And they seem to be saying that because they were minorities they were offered a more ample adjustable rate mortgage instead of a less ample fixed rate mortgage loan than they would otherwise be entitled to.

        Were we limited to 12(b)(6) dismissal, we would have to assume for purposes of decision that the plausible factual statements (but not the legal conclusions and editorializing rhetoric) in the complaint were true.9 We are not so limited under Rule 8 analysis, which I suggest ought to be applied. Under Rule 12 analysis, some of the claims are plausible at least in part. Obviously, if Countrywide did not properly provide the loan papers to the Merritts, a claim if timely could be made. Tender of the full amount received is not in all circumstances a sine qua non for a pleading claiming rescission, though some sort of equitable judgment requiring tender must be made if rescission is granted, to assure that the plaintiff does not get to keep what it bought and also get all the money back.10

        It is hard to say whether plaintiffs even seek a rescission remedy that could be allowed. The prayer in their complaint seeks a return of all the money they have “invested in their property,” plus compensatory damages, plus $2,000,000 in punitive damages, plus a “prime loan at current market rates” (far lower than the housing bubble interest rates that prevailed when they bought their $729,000 house), or for them to be able to walk away with the reimbursements and damages. Their appellate brief is more modest, but was not before the district court.

        Their pleading seems to say that they have been living in a $729,000 house for what is now almost six years without paying anything toward the price. If they got past their Rule 8 problems, and their Rule 12 problems, their equities appear to be weak. The Merritts have had five chances to state this claim. Prejudice and futility counsel against giving them a sixth try. We ought to let the dismissal with prejudice stand.


--------

Notes:

        * The Honorable William E. Smith, District Judge for the U.S. District Court the District of Rhode Island, sitting by designation.

        1. The district court dismissed the claims not on Rule 8 grounds but on the merits for failure to state a claim upon which relief may be granted, pursuant to Rule 12(b)(6). The dissent suggests we affirm on the basis of Rule 8(a)(2). The enforcement of Rule 8 rests within the district court's discretion, and defendants do not raise any Rule 8(a)(2) questions before us. Under these circumstances, it would be improper for us to affirm on Rule 8 grounds. See Gillibeau v. City of Richmond, 417 F.2d 426, 431 (9th Cir.1969).


        2. We address the Merritts' other claims, and the parties' motions for judicial notice, in a memorandum disposition issued concurrently with his opinion.


        3. As is generally true in California, the legal instrument for the Merritts' home loan was a deed of trust and not, technically speaking, a mortgage. See Siegel v. Am. Savings & Loan Ass'n, 210 Cal.App.3d 953, 258 Cal.Rptr. 746, 747 (1989) (defining a deed of trust); 27 Cal. Jur.3d Deeds of Trust § 1 (2011) (same); Cal. Civ.Code § 2920(b) (distinguishing mortgage from deed of trust for certain purposes under California state law). We refer to the Merritts' home loan throughout this opinion as a mortgage, because that is how the parties have referred to it in their pleadings and briefs, and the precise financing instrument is not legally material to the issues addressed in this opinion.


        4. Because we are evaluating a district court's dismissal pursuant to Rule 12(b)(6), we take the facts from the Merritts' complaint and assume that they are true. See Cervantes v. United States, 330 F.3d 1186, 1187 (9th Cir.2003).


        5. Countrywide had, in the meantime, been acquired by Bank of America. The Merritts' loan was eventually sold to Wells Fargo.


        6. We refer to the amended complaint throughout simply as “the complaint.”


        7. Plaintiffs' TILA claims relate solely to their home-equity line of credit, or “HELOC.” TILA does not apply to residential mortgages used to finance the initial acquisition or construction of a dwelling. See15 U.S.C. §§ 1635(e)(1) & 1602(x). Countrywide presents for the first time on appeal the argument that plaintiffs' HELOC falls within this residential mortgage exception. Because this argument was not previously raised in the district court, we do not address it here.


        8. Indeed, even in a common-law equitable rescission action where the plaintiff is required to tender first, the plaintiff need not necessarily plead ability to tender in the complaint. See 1 Dan B. Dobbs, Law of Remedies: Damages—Equity—Restitution § 4.8, at 463 (2d ed.1993).


        9. The Eleventh Circuit has reserved whether a third-party markup theory might be viable under RESPA Section 8(b). See Sosa, 348 F.3d at 982–84.


        10. There is one distinction. The TILA limitations provision, as passed by Congress, appeared as one subsection in a section headed “Civil liability.” See Consumer Credit Protection Act, Pub.L. 90–321, § 130(e), 82 Stat. 146, 157 (1968). The subheading “Jurisdiction of courts” was added in the codification process. In contrast, the RESPA limitations provision, as passed by Congress, appeared under the heading “Jurisdiction of Courts.” See Real Estate Settlement Procedures Act of 1974, Pub.L. 93–534, § 16, 88 Stat. 1724, 1731 (1974). We do not ascribe significance to this distinction for present purposes. Whatever its origin, the heading just identifies a subject matter; it does not identify the subsection as jurisdiction- creating.


        11. Two other circuits have reserved the question of whether RESPA's limitations period may be equitably tolled. See Egerer v. Woodland Realty, Inc., 556 F.3d 415, 424 n. 18 (6th Cir.2009); Snow v. First Am. Title Ins. Co., 332 F.3d 356, 361 n. 7 (5th Cir.2003).


        1.Edwards v. Marin Park, Inc., 356 F.3d 1058, 1061 (9th Cir.2004).

        2.Janicki Logging Co. v. Mateer, 42 F.3d 561, 564 (9th Cir.1994). The majority cites dicta in Gillibeau v. City of Richmond, 417 F.2d 426, 431 (9th Cir.1969), a 1969 case, for the proposition that we should not, in the first instance, affirm a dismissal on Rule 8 grounds where the district court did not act upon the Rule 8 motions. On the other hand, we said, possibly in dicta, but possibly in holding, in a 1988 case, Sparling v. Hoffman Construction Co., 864 F.2d 635, 640 (9th Cir.1988), that even if the pleading did state a claim upon which relief could be granted, “the complaint would be deficient under Rule 8(a) of the Federal Rules of Civil Procedure which requires ‘a short and plain statement of the claim showing that the pleader is entitled to relief.’ ” In the case before us, the court noted that the Merritts' second amended complaint was “mostly unintelligible.” The district court further noted that the Merritts' allegations and claims purported to be “made, at least in part, ‘hypothetically.’ ” It took note of the defendant's motion to dismiss under Rule 8, but treated it as moot, because of the dismissal for failure to state a claim under Rule 12. I think we should affirm on Rule 8 grounds, and may, under Sparling.

        3.Fed.R.Civ.P. 8(a)(2).

        4.Allen v. City of Beverly Hills, 911 F.2d 367, 373 (9th Cir.1990) (emphasis added).

        5.Id. (quoting Ascon Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir.1989)).

        6.See, e.g., Nevijel v. N. Coast Life Ins. Co., 651 F.2d 671, 674 (9th Cir.1981).

        7.McHenry v. Renne, 84 F.3d 1172, 1179–80 (9th Cir.1996) (internal quotation marks omitted) (alteration in original).

        8.See, e.g., Von Poppenheim v. Portland Boxing & Wrestling Comm'n, 442 F.2d 1047, 1052 n. 4 (9th Cir.1971) (“Since harshness is a key consideration in the district judge's exercise of discretion, it is appropriate that he consider the strength of a plaintiff's case if such information is available to him before determining whether dismissal with prejudice is appropriate.”).

        9.Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir.2012).

        10.See Yamamoto v. Bank of New York, 329 F.3d 1167, 1171, 1173 (9th Cir.2003).

Wednesday, February 11, 2015

Virginia Homeowner gets $60,000 in cash for keys as a result of the BOA's improper attempted foreclosure

While robo-signing has not had much traction in Virginia (most of the time, the judges view such practice as causing no damage to the debtor who remains liable for the debt and who is not facing more than one bank trying to collect the same debt), a Virginia homeowner was recently able to settle a foreclosure-related litigation for some $60,000 in cash.

The homeowner came to us for help after he suspected foul play on behalf of Bank of America attempting to foreclose on a CountryWide loan.  The homeowner had done lots of "homework" on his own was able to pick up on quite a few subtleties in his paperwork.

After reviewing the case, we were able to file certain pleadings exposing BOA's foul play.  We had built a record showing that the Bank was artificially strengthening its position with, at a minimum, improper documents and, at a maximum, outright fraud.  We will never know how the court would have resolved the issue, but the bank certainly did not want to take any chances, even though most robo-signing cases go nowhere in Virginia.  What can I say...  even robo-signing cases are different and it's all about each individual case.

As part of the settlement, the bank also had to correct errors on the homeowner's credit report and remove reporting of the property loan to the credit agencies as a default.  This is because, upon the resolution of the case, not only did the homeowner NOT owe any amount of money to the bank. -- The bank ended up paying money to the homeowner to atone for its earlier conduct.

At the end, all parties were able to move on, and our client was able to get out from under a bad loan with a hefty sum of cash in his pocket.  Not a bad way to have a fresh start, and way better than a straight bankruptcy in this particular case.

Wells Forgeo (aka Wells Fargo) Loses a String of Foreclosure Cases

Wells Forgeo (aka Wells Fargo) has been in the news lately after two judges recently ruled that its forgery of documents in foreclosure cases has reached such  epic proportions that turning a blind eye to it by the judges is kinda becoming difficult...
Incidentally, one of the opinions covered below addresses the burden of proof with respect to matters that enjoy a certain "presumption" of validity.  I blogged about that burden of proof a long time ago (expressing a view contrary to that of some major foreclosure defense commentators -- see here), now only to have that viewpoint validated.
---
Big banks hold great sway in Washington these days, far more than troubled
homeowners do. But outside the Beltway, many people remain caught in the
maw of the financial giants, which is why it is heartening when some judges
step into the fray.
Consider two opinions involving Wells Fargo, a bank that enjoys a
somewhat better reputation than many of its peers. On Monday, a judge in a
state court in Missouri ordered Wells to pay over $3 million in punitive
damages and other costs for abusing a borrower. Then, on Thursday, a judge
in Federal Bankruptcy Court in suburban New York ruled on behalf of another
borrower, concluding that there was substantial evidence Wells Fargo forged
documents when it foreclosed on a property.
It was not a good week on the litigation front for Wells Fargo.
The award in Missouri went to David and Crystal Holm of Holt, Mo., a
town northeast of Kansas City with a population of 450. For the last six and ahalf years, the Holms have battled Wells Fargo over a foreclosure sale of their
$142,000 property. As they fought against what they considered a wrongful
taking of their property, they remained in the home, which they built
themselves in 1997 and where they were married.
According to court filings, the Holms fell behind on their mortgage in
spring 2008 after a storm damaged the property. They quickly put together
the roughly $10,000 needed to bring the loan current, and Wells agreed to
reinstate the mortgage one day before a scheduled foreclosure sale.
The couple, who have a 12­year­old daughter, scrambled to do what Wells
required: fax a copy of a certified check to one office and send it by overnight
mail to another. The next day, the bank foreclosed anyway. Freddie Mac
bought the Holms’ 5.5­acre property.
Lawyers in the Missouri case and the New York matter contended that
Wells had moved to foreclose on both properties even though the bank had no
proof that it possessed the notes underlying the mortgages. This is a common
and often persuasive argument, given the documentation failures that were
rife in the mortgage industry.
Another common element in such cases — conflicts of interest in
mortgage loan servicing — also seemed to disturb the judge overseeing the
Holm matter. An employee of Freddie Mac testified that it would have
welcomed a reinstatement of the Holms’ mortgage. But Wells stood to make
more money foreclosing on the couple’s home, an expert witness in the case
testified.
“Defendant Wells Fargo’s deceptive and intentional conduct displayed a
complete and total disregard for the rights of David and Crystal Holm,” wrote
R. Brent Elliott, a circuit judge in Missouri’s 43rd Judicial District, in a Jan. 26
opinion. “Wells Fargo took its money and moved on, with complete disregard
to the human damage left in its wake.”
In addition to $2.9 million in punitive damages awarded to the Holms, . . .

Friday, January 16, 2015

Supreme Court Upholds Forgotten Rule That Law Means What It Says

JESINOSKI ET UX. v. COUNTRYWIDE HOME LOANS,
INC., ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE EIGHTH CIRCUIT
No. 13–684. Argued November 4, 2014—Decided January 13, 2015
Exactly three years after borrowing money from respondent Country-
wide 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, re-
fusing 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 exer-
cise 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 bor-
rower “shall have the right to rescind . . . by notifying the creditor . . .
of his intention to do so” (emphasis added)—leave no doubt that re-
scission is effected when the borrower notifies the creditor of his in-
tention 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 re-
lating to the right to rescind”—support respondents’ view that rescis-
sion is necessarily a consequence of judicial action. And the fact that
the Act modified the common-law condition precedent to rescission atlaw, see §1635(b), hardly implies that the Act thereby codified rescission in equity. Pp. 2–5.
729 F. 3d 1092, reversed and remanded.
SCALIA, J., delivered the opinion for a unanimous Court.

Thursday, March 20, 2014

Response to Prof. Eric Posner's blog entry "VLADIMIR PUTIN, INTERNATIONAL LAWYER"

The orignal blog entry by Prof. Eric Posner is here.

The English version of Putin's speech contains slight edits here in an effort to create the same images in the mind of the reader as those when the speech is read in its original Russian.  The official English version of the speech is here.

Now on to the blog entry.  Prof. Posner's comments are in bold, mine are in red.












VLADIMIR PUTIN, INTERNATIONAL LAWYER


From his speech to the Duma (with my [i.e., Eric Posner's] annotations in [black] brackets):
However, what do we hear from our colleagues in Western Europe and North America? They say we are violating tenets of international law.  First, it’s a good thing that they at least remember that there exists such a thing as international law – better late than never. [So there!] [Unlike Prof. Posner, I am not surprised at this sarcastic reference to Grenada, Panama, Kosovo, Afghanistan, Iraq, Syria, Lybia, CAR, Palestine, and most other U.S. invasions or similar actions in other countries, often done in violation of UN Charter and/or other international law.]
Secondly, and most importantly – what exactly are we supposedly violating? True, the President of the Russian Federation received permission from the Upper House of Parliament to use the Armed Forces in Ukraine.  However, strictly speaking, he has not taken advantage of this permission yet.  Russia’s Armed Forces did not enter into Crimea; they were already there in accordance with an international agreement.  True, we strengthened our position there[without entering?][immaterial; the agreement allowed entry]; however – this is something I would like everyone to hear and know – we did not exceed the personnel limit of our Armed Forces in Crimea, which is set at 25,000, because there was no need to do so. [But Russian forces appear to have roamed about Crimea in violation of this agreement as well as the UN Charter.] [But to the extent that any proof could ever be found that this was so, it was in response to the "protesters" in Kiev having been trained and then persistently fed, stirred up, and supported by the West in the same covert manner.  Putin is not a fool.  When the West double-crosses him and plays dumb, he is not going to sit and allow it to happen. I have not seen anyone in the West holding Kiev to the same standards.]
Next. As it declared independence and decided to hold a referendum, the Supreme Council of Crimea referred to the United Nations Charter, which speaks of the right of nations to self-determination [true]. Incidentally, I would like to remind you that when Ukraine seceded from the USSR it did exactly the same thing, almost word for word. Ukraine took advantage of this right, yet the residents of Crimea are being denied it. Why is that? [Why indeed?]
Moreover, the Crimean authorities referred to the well-known Kosovo precedent – a precedent our western colleagues created with their own hands in a very similar situation, when they agreed that the unilateral separation of Kosovo from Serbia, exactly what Crimea is doing now, was legitimate and did not require any permission from the country’s central authorities. Pursuant to Article 2, Chapter 1 of the United Nations Charter, the UN International Court agreed with this approach and made the following comment in its ruling of July 22, 2010, and I quote: “No general prohibition may be inferred from the practice of the Security Council with regard to declarations of independence,” and “General international law contains no prohibition on declarations of independence.” Crystal clear, as they say. [I'm afraid so.]
I do not like to resort to quotes, but in this case, I cannot help it. Here is a quote from another official document: the Written Statement of the United States America of April 17, 2009, submitted to the same UN International Court in connection with the hearings on Kosovo. Again, I quote: “Declarations of independence may, and often do, violate domestic legislation. However, this does not make them violations of international law.” [Right.] End of quote.  They wrote this, disseminated it all over the world, beat everyone into submission, and now they are outraged. Over what? The actions of Crimean people completely fit in with these instructions, as it were. For some reason, things that Kosovo Albanians (and we have full respect for them) were permitted to do, Russians, Ukrainians and Crimean Tatars in Crimea are not allowed. Again, one wonders why. [Exactly.  Putin is arguing against double standards.  Clinton and Bush essentially taught Putin how to pursue one's interests in spite of any international law that may be in the way.]
We keep hearing from the United States and Western Europe that Kosovo is some special case. What makes it so special in the eyes of our colleagues? It turns out that it is the fact that the conflict in Kosovo resulted in so many human casualties.  Is this some kind of legal argument? The ruling of the International Court says nothing about this. [True; it is legally irrelevant.] This is not even double standards; this is some astonishing, primitive, blunt cynicism. One should not try so crudely to make everything suit their interests, calling the same thing white today and black tomorrow. According to this logic, we have to make sure every conflict leads to human losses. [The U.S. position is that forcing Kosovo's population to remain a part of a country whose government tried to massacre it would be wrong, and numerous efforts were made to broker a compromise before secession took place. Putin argues that it would be ridiculous to make Crimea wait for its population to be massacred before seceding.][A similar argument can be made regarding Crimea, after 80+ corpses in Kiev under murky circumstances, with no investigation conducted and the bodies hastily buried.]
I will be straightforward – if the Crimean local self-defence units had not taken the situation under control, there could have been casualties as well. [This is doubtful, as there were no massacres anywhere else in Russian-speaking Ukraine that did not benefit from "local self-defense units".][Not that doubtful in light of the 80+ corpses in Kiev under murky circumstances, with no investigation conducted and the bodies hastily buried.] Thank God this did not happen. There was not a single armed confrontation in Crimea and no casualties. Why do you think this was so? The answer is simple: because it is very difficult, practically impossible, to fight against the will of the people. Here I would like to thank the Ukrainian military – and this is 22,000 fully armed servicemen. I would like to thank those Ukrainian service members who refrained from bloodshed and did not smear their uniforms with blood.
Other thoughts come to mind in this regard. They keep talking about some Russian invasion of Crimea, some sort of aggression. This is strange to hear. I cannot recall a single case in history of an invasion without a single shot being fired and with no human casualties. [But because the military force was overwhelming.] [Not true.  Baseless inference.  I spoke by telephone with at least three different Crimeans residing there in different regions.  The "military force" was only around military installations and strategic installations.  The locals overwhelmingly welcomed the "forces" after Maidan, as described in the NY Times article referenced by Prof. Posner in a recent blog entry.]
Colleagues,
Like a mirror, the situation in Ukraine reflects what is going on and what has been happening in the world over the past several decades.  With the disappearance of the bipolar parity of forces on the planet, we no longer have stability. Key international institutions are not getting any stronger; on the contrary, in many cases, they are sadly degrading. [True] Our western partners, led by the United States of America, prefer not to be guided by international law in their practical policies, but by the rule of the strong arm, the principle "might makes right. [Hmm][In the original, Putin did not use the words "rule of the gun".  He merely referenced the principle "he who has the force (power), makes the rule." This is another reference to all the instances where the U.S. disregarded UN and international law when starting a war.] They have come to believe in their exclusivity and exceptionalism [ahem] [unlike Prof. Posner, I can't be surprised or disagree with Putin here.  While exceptionalism in the U.S. is not expressed the same way as in Russia, there is no difference at the core between Russians and Americans both viewing themselves as exceptional and exceptionally "useful" to the rest of the world], that they can decide the destinies of the world, that only they can ever be right. They act as they please: here and there, they use force against sovereign states, building coalitions based on the principle “If you are not with us, you are against us.” To make this aggression look legitimate, they force the necessary resolutions from international organizations, and if for some reason this does not work, they simply ignore the UN Security Council and the UN overall. [Hmm][True. - This was the case with at least Kosovo, Afghanistan, Iraq, and Libya.]
[Prof. Posner] In other words, we did not act illegally but if we did, you did first. [This is indeed the only way to deal with nation-superpowers not subject to any enforcement mechanism.] The subtext, I think, is that the United States claims for itself as a great power a license to disregard international law that binds everyone else, and Russia will do the same in its sphere of influence where the United States cannot compete with it. [In other words, Putin has learned from the West, and from Clinton and Bush in particular.] [Russia's stated reason "to protect our compatriots" is arguably no worse than the pretext of "weapons of mass destruction" with respect to the U.S.' invasion of Iraq; but admittedly, Russia's PR/Marketing employed to sell its actions to the world still falls far short of that of the U.S.   One reason for this may be that Lenin killed too many lawyers back in the day, the effect (including lack of exceptional lawyering) lasting for well over 70 years now; added to this is a lack of PR/marketing/sales experience, such being unnecessary in the planned economy.]