Jesinoski v. Countrywide Home Loans: The U.S. Supreme Court Seems Ready to Hold that a Borrower’s Right of Rescission Under TILA Need Only be Exercised by Timely Notice, not a Lawsuit
November 7, 2014
On November 4, 2014, the U.S. Supreme Court heard argument in Jesinoski v. Countrywide Home Loans, the case that will decide whether a borrower can timely exercise the right of rescission under the Truth in Lending Act simply by sending written notice of intent to rescind to the creditor within the three-year period set forth in the statute, or whether the borrower must instead file a lawsuit within that time period. The Third, Fourth and Eleventh Circuits have held that written notice to the lender alone is sufficient to preserve the rescission claim. The First, Sixth, Eighth, Ninth and Tenth Circuits have held that filing a lawsuit within the three-year period is required. (You can find more on this issue here and here.)
At the argument, the creditor’s counsel focused heavily on TILA’s statement that the borrower’s right to rescind “shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first,” even if the forms and disclosures required by TILA were never delivered. In an earlier decision, Beach v. Ocwen Federal Bank, the Court had held that this provision “limits more than the time for bringing a suit, by governing the life of the underlying right [to rescind] as well.” The creditor’s counsel argued that, under Beach, a borrower who failed to file a lawsuit to obtain a rescission within three years would no longer have any right to rescind at all, regardless of whether the borrower had sent the creditor a notice within the three-year period. Thus, the failure to file a lawsuit should mean that the claim for rescission is extinguished.
Justices Ginsburg, Breyer, Sotomayor and Kagan were openly skeptical. They repeatedly returned to the fact that TILA itself refers only to written notice as the trigger for exercising the right to rescind. TILA states that “the obligor shall have the right to rescind the transaction until midnight of the third business day following consummation of the transaction,” or after the required disclosures and rescission forms are delivered by the creditor, whichever is later, simply “by notifying the creditor . . . of his intention to do so.” These four Justices seemed convinced that, given this language, a borrower’s right of rescission is exercised simply by sending such a notice. While litigation might ultimately be necessary to resolve whether the borrower in fact has a valid basis to rescind, filing such litigation is not necessary to preserve the right. Justice Ginsburg pointed out that in Beach the borrowers had never sent the creditor a notice of intent to rescind within the three-year period. Therefore, Beach could not have held that a notice of intent to rescind is insufficient to preserve the borrower’s rescission right.
In contrast to these four Justices, Justices Scalia and Alito emphasized that a rescission, by definition, requires that the parties be returned to where they were before the transaction was consummated. If the borrower lacks the ability to return the funds, then the rescission cannot be effectuated, regardless of whether the borrower sent the creditor a notice of intent to rescind. Thus, it seems, mere notice by the borrower could not be sufficient to accomplish a rescission. The implication, presumably, is that only a lawsuit could achieve that result, and thus filing a lawsuit within the three-year period is necessary.
The positions of Chief Justice Roberts and Justice Kennedy (the only other Justices who spoke during the argument) are much more difficult to read. Justice Kennedy’s questions largely dealt with situations in which the creditor disputes the borrower’s right to rescind. Some of his questions seemed sympathetic to the position apparently endorsed by Justices Ginsburg, Breyer, Sotomayor and Kagan — that litigation might be necessary to resolve the dispute, but is not needed to preserve the right to rescind itself. However, he also focused on an issue that these four Justices seemed not to be concerned with, namely, how long after giving notice the borrower can wait before bringing a lawsuit to rescind. The creditor’s counsel argued that one advantage of requiring the filing of a lawsuit to preserve the rescission right is that it clearly limits the time in which such a suit can be brought to three years from the date the loan is consummated, whereas the borrower’s position that notice is sufficient seems to leave that question unanswered. Justice Kennedy appeared to think that this consideration had some force.
Chief Justice Roberts made a single comment during the argument. At one point, the creditor’s counsel was attempting to find support for his position in a provision of TILA which provides that in “any action in which it is determined that a creditor has violated this section, in addition to rescission the court may award” other relief available under TILA, such as actual and statutory damages. The Chief Justice remarked that “you’re putting an awful lot of weight on a tiny, one-sentence provision,” and that “it would be very odd if that’s where Congress decided to place” a requirement that the borrower must bring a lawsuit within the three-year period.
Thus, at least five members of the Court (Justices Ginsburg, Breyer, Sotomayor and Kagan, and Chief Justice Roberts) seemed skeptical, to one degree or another, of the creditor’s position that timely notice alone is insufficient to preserve a borrower’s right to rescind under TILA. We will report on the outcome as soon as the case is decided.