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Argument analysis: It may take “Houdini” himself for lenders to escape with victory in TILA rescission dispute

However strange the facts may sound, Jesinoski v. Countrywide Home Loans presents a scenario that has come up all too often in the aftermath of the financial crisis. A borrower receives a mortgage loan. Among the dozens of papers that the borrower signs at the closing is a document in which the borrower acknowledges that the lender has provided the disclosures required by the Truth in Lending Act (commonly known as TILA). Fast forward to three years later, long after the borrower has received and spent the funds for the loan, when the borrower is facing foreclosure and no longer able to make monthly mortgage payments. At that point, the borrower sends a letter to the lender stating that the lender in fact did not provide the required disclosures and purporting to rescind the entire loan transaction. When the lender ignores the letter, another year passes, and then the borrower files suit to rescind the loan. The question is whether the borrower’s suit is timely.

The case reaches the Supreme Court because of the interplay between two sentences in TILA, adopted decades apart and plainly not crafted with a view to interaction. The first states that a borrower “shall have the right to rescind the transaction [in specified circumstances] by notifying the creditor . . . of his intention to do so.” The second states that the “right of rescission shall expire three years after the date of consummation of the transaction,” even if the lender did not provide the required disclosures. The lender claims the suit is too late because it came more than three years after the loan; the borrower claims the date of the suit is irrelevant – that it rescinded the loan when it sent notice.

Shortly after David Frederick began his presentation on behalf of the Jesinoskis (the homeowners), Justices Antonin Scalia and Samuel Alito scoffed at the possibility that Congress could have intended to permit rescission so long after a loan if the borrower couldn’t return the borrowed funds. As Justice Scalia put it:

[At] common law you had to give back what you had received, but you are urging that the statute creates a system in which a creditors who has a secured interest – simply because somebody comes up almost 3 years later and says “you didn’t give me two copies of this particular document” and even if that’s not true, immediately the secured interest is converted into an unsecured interest. That is a huge difference. And I find it difficult to believe that that’s what Congress intended.

Justice Alito was similarly skeptical. His particular concern was what would happen if the lender complied with the notice and returned the property, but “the obligor says at that point, I don’t have it, I’ve spent it. Then what happens? So the rescission is rescinded?” When Frederick explained that the statute included a procedure for protecting the lender, Justice Alito seemed to be satisfied. Indeed, at that point, the Justices largely sat back and generally allowed Frederick (and Elaine Goldenberg, an assistant to the Solicitor General) to give long speeches for much of their argument time, interrupted only by the occasional clarifying question.

The most important thing about Goldenberg’s argument was her clarification of what seems to be a difference between the government’s position and that of the Jesinoskis. The government agrees with the Jesinoskis that the rescission occurs at the time of the notice. But the government’s view is that the notice effects rescission only if the borrower’s complaint is legitimate – if the borrower in fact did not receive the requisite disclosures. The Jesinoskis’ view seemed to be that rescission occurred immediately at the time of the notice, and that if the lender thought the rescission was improper it should file suit to have the rescission overturned.

If the Court’s quiescence during Goldenberg’s presentation seemed to bode poorly for Seth Waxman (arguing on behalf of the lender Countrywide), the difficulty of his position became plain soon after he stood up. The basic problem that he faced was a deep-seated skepticism about his reading of the statute. Chief Justice John Roberts, for example, commented that Waxman was “putting an awful lot of weight on a tiny, one-sentence provision in (g).” And Justice Elena Kagan chimed in similarly: “It’s just not the way you would write a dispute resolution provision.”

Several of the Justices pressed the government’s reading of the statute on them, suggesting that it was self-evidently correct. The culmination of the argument came in an exchange between Waxman and Justice Stephen Breyer. After interrupting Waxman’s effort to summarize his reading of the statute to ask “[w]here does it say all that,” Justice Breyer engaged in a lengthy colloquy with the statute to underscore his view of the simplicity of its language:

And how do you [rescind]? It says you do it by sending him a notice. That’s what it says. So send him a notice and you’ve done it. When do you have to do it? You have to do it three days after he sends you certain information, but in no case beyond three years. Now, that’s what it seems to say. Now how do you get out of that? That what I don’t quite understand. It’s like you’re Houdini.”

That about sums it up. If we want to assume that Mr. Waxman in fact is not Houdini, then we have to find it pretty hard to think he will get past the blizzard of Justices who found his statutory reading so unacceptable. I would mark this down as one of the easiest opinions of the November argument session.


Recommended Citation: Ronald Mann, Argument analysis: It may take “Houdini” himself for lenders to escape with victory in TILA rescission dispute, SCOTUSblog (Nov. 5, 2014, 3:38 PM),