November 24, 2008
3rd Circuit Rules for Lender in TILA Case
In re Sterten, ---- F.3d ----, 2008 WL 4780109 (3rd Cir. November, 2008)
Issue: Was the defendant lender in this TILA case required to assert its statutory “tolerances for accuracy” defense specifically as an affirmative defense?
This chapter 13 debtor filed an adversary proceeding against her lender “seeking recission of the loan along with various statutory penalties.” At trial, the bankruptcy court ruled in favor of the lender on numerous facts although the parties agreed that certain required disclosures had not been made. “The Court then sua sponte applied [TILA’s] tolerances for accuracy provision, 15 U.S.C. § 1605(f), concluding that, because the $57 in nondisclosed finance charges were within the tolerance range, the disclosure was ‘accurate as a matter of law.’” The debtor argued that the provision was required to be pled as an affirmative defense which it was not and therefore could not be used by the lender at trial. The bankruptcy court agreed with the debtor and entered judgment for the debtor. The district court reversed.
The 3rd Circuit affirmed the district court. “The question we face is whether [TILA’s] tolerance for error is invoked by a Rule 8(b) general denial, or whether it falls within Rule 8(c)'s catch-all ‘any other matter’ provision and therefore requires affirmative pleading.” “It is helpful to look instead at what Rule 8(c) is intended to avoid. As we have explained in a different context, ‘[t]he purpose of requiring the defendant to plead available affirmative defenses in his answer is to avoid surprise and undue prejudice by providing the plaintiff with notice and the opportunity to demonstrate why the affirmative defense should not succeed.’” “We see no reason to think that [the debtor] suffered any ‘unfair surprise’ as a consequence of Option One's failure to plead specifically the tolerances for accuracy defense.” The debtor “cannot establish that she suffered any prejudice as a result of Option One's failure to raise the issue. Cf. Cetel, 460 F.3d at 506 (holding that, even in the case of an affirmative defense, there is no waiver if there is ‘no prejudice’).” Footnote 6 of the opinion states: “Option One contends that it did raise the tolerances provision as an affirmative defense in its answer. Its argument to that effect is, however, unconvincing. Its answer included a section labeled ‘Affirmative Defenses,’ which asserted, among other defenses, that ‘Option One Mortgage Corporation acted at all times relevant hereto in full compliance with all applicable laws and acts.’ But simply contending that, as a general matter, the applicable laws were complied with is not enough to plead a true affirmative defense adequately.”
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looking for cases where they were actually won with using the TILA law.
Posted by: rande scott | Dec 22, 2008 10:55:29 AM
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Posted by: bao bao | Aug 5, 2009 1:19:00 AM