Victor Balderas v. Countrywide Bank, N.A. ( 2011 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
VICTOR BALDERAS and BELEN 
BALDERAS,
Plaintiffs-Appellants,
v.
COUNTRYWIDE BANK, N.A., a No. 10-55064
National Banking Association;
AAA FUNDING, INC., DBA First D.C. No.
USA Funding, a California  3:09-cv-00564-
MMA-JMA
corporation; COUNTRYWIDE HOME
LOANS, INC., DBA America’s
Wholesale Lender, a New York OPINION
corporation; MOR CAZAKOV, an
individual; GALENA KOROL, an
individual; DOES 1 through 10,
inclusive,
Defendants-Appellees.

Appeal from the United States District Court
for the Southern District of California
Michael M. Anello, District Judge, Presiding
Argued and Submitted
June 9, 2011—Pasadena, California
Filed December 29, 2011
21507
21508 BALDERAS v. COUNTRYWIDE BANK
Before: Alex Kozinski, Chief Judge, Sandra S. Ikuta,
Circuit Judge and Lawrence L. Piersol,
Senior District Judge.*
Opinion by Chief Judge Kozinski;
Concurrence by Judge Ikuta
*The Honorable Lawrence L. Piersol, Senior District Judge for the U.S.
District Court for South Dakota, sitting by designation.
21510 BALDERAS v. COUNTRYWIDE BANK
COUNSEL
Kevin J. Griffin (argued), Griffith Johnson, LLP, Dana Point,
California; Nathan J. Sheridan and Dayna C. Carter, Good-
man, Sheridan & Roff, LLP, Lake Forest, California, for
appellant Victor Balderas, et al.
Stuart W. Price, Aaron M. McKown and Paula L. Zecchini
(argued), Bryan Cave LLP, Irvine, California, for appellee
Countrywide Bank, et al.
OPINION
KOZINSKI, Chief Judge:
The Balderases allege that they are immigrants who were
rooked by a bank that signed them up for loans it knew they
couldn’t afford, on terms they didn’t agree to. These are the
facts as recited in the complaint: Mor Cazakov, a mortgage
broker, cold-called the Balderases, representing that he could
refinance their home, switch them to a fixed rate mortgage
and let them cash out $50,000, all without a penalty. Subse-
quently, Soraya Qassim, a “duly authorized agent” of Coun-
trywide Bank (Countrywide), filled out a uniform residential
BALDERAS v. COUNTRYWIDE BANK 21511
loan application (URLA) for them and showed up unan-
nounced at their home, urging the Balderases to sign it. But
the form was in English, which they can’t read, and it overes-
timated their income by over $40,000 per year. Qassim told
them it was an informal document the bank needed, so the
Balderases signed.
Three days later, on the evening of Monday, September 25,
2006, Cazakov showed up at their home with a notary public
and loan documents also written in English. He told them that
Countrywide “demanded” their signatures “that night” and he
couldn’t and wouldn’t leave without getting them. The
Balderases protested and asked to arrange the loan signing
when their English-literate daughter could attend. But Caza-
kov said that Countrywide had instructed him to stay until he
got the signatures, and he “engaged in a series of actions
designed to intimidate, harass, and pressure [the Balderases]
into signing the loan documents.” After six hours of unrelent-
ing pressure by Cazakov and several unsuccessful attempts to
read the paperwork, the Balderases capitulated and signed the
documents just after midnight. On Wednesday, they called
Cazakov and asked him to rescind the loans. He refused. They
then called Countrywide a day later seeking the same relief.
Countrywide also refused, falsely representing it was too late.
In fact, the three-day statutory rescission period extended
through the next day, Friday, September 29.
The Balderases filed a complaint alleging, among other
things, a violation of the Truth In Lending Act (TILA). See
15 U.S.C. §§ 1601 et seq. Countrywide filed a 12(b)(6)
motion, which the district court granted. This timely appeal
followed.
***
[1] The TILA is a federal consumer protection statute
designed to promote “the informed use of credit” and assure
“meaningful disclosure of credit terms to consumers.” Ford
21512 BALDERAS v. COUNTRYWIDE BANK
Motor Credit Co. v. Milhollin, 444 U.S. 555, 559 (1980)
(quoting 15 U.S.C. § 1601(a)) (internal quotation marks omit-
ted). Under the “borrower’s remorse” provision, consumers
can rescind a loan up to three business days after the loan
transaction. See 15 U.S.C. § 1635(a). But this right is
extended up to three years “[i]f the required notice or material
disclosures are not delivered.” 12 C.F.R. § 226.23(a)(3); see
also 15 U.S.C. § 1635(f).
[2] The Balderases claim they were given defective copies
of the Notice of Right to Cancel. The disclosures they
received were missing material provisions, in particular the
date of closing and the date on which the right to rescind
expired. When, as here, the notice is given in writing, rather
than in electronic form, Regulation Z instructs creditors to
“deliver two copies of the notice of the right to rescind to each
consumer entitled to rescind,” and those copies must include
“[t]he date the rescission period expires.” 12 C.F.R.
§ 226.23(b)(1). The disclosures must be set forth “clearly and
conspicuously in writing, in a form that the consumer may
keep.” 12 C.F.R. § 226.17(a)(1).
The Balderases’ experience illustrates why lenders must
allow borrowers to keep fully completed and accurate copies
of the disclosure notices. Without this information, borrowers
are left to guess when their right to rescind the loan transac-
tion expires. Did the clock start ticking the day the Balderases
signed the URLA? When they signed the loan documents?
When Cazakov submitted the paperwork to Countrywide for
processing? When Countrywide actually processed the paper-
work? To add to the confusion, the Balderases claim that
Cazakov falsely promised not to submit their paperwork to
Countrywide “for a few days” in case they decided “not to
proceed with the loan after their daughter had reviewed the
contents.” And, when the Balderases tried to exercise their
right to rescind, Cazakov and Countrywide told them, incor-
rectly, that it was too late, instead of telling them, correctly,
BALDERAS v. COUNTRYWIDE BANK 21513
that their rescission notice was timely but had to be submitted
in writing.
[3] If the Balderases can prove that they were not allowed
to keep two completed and accurate copies of the disclosure
notice, the bank will have forfeited the benefit of the three-
day cooling off period and the Balderases would have three
years to rescind. See Semar v. Platte Valley Fed. Sav. & Loan
Ass’n, 791 F.2d 699, 701-02 (9th Cir. 1986) (“If the lending
institution omits the expiration date . . . the borrower may
rescind the loan within three years after it was consummat-
ed.”). We need not consider whether the false statements as
to the expiration of the rescission period allegedly made by
phone when the Balderases tried to rescind orally operated as
a separate waiver of the three-day rescission period.
[4] The district court erroneously held that the Balderases
were entitled only to a three-day rescission period because
they had, in fact, gotten a rescission notice that complied with
the statutory requirements. In reaching this conclusion, the
district court relied on Exhibit 14 to the complaint. Exhibit 14
is the rejection letter Countrywide sent in response to the
Balderases’ written rescission demand. The Balderases
attached the letter to their complaint, an important object les-
son as to why it’s unwise to use a complaint as an ersatz doc-
ument production. Attached to the rejection letter is a properly
completed Notice of Right to Cancel bearing the Balderases’
signatures. Immediately above the signatures is a statement to
the effect that the borrower “acknowledge[s] receipt of two
copies of NOTICE of RIGHT TO CANCEL.” Countrywide’s
rejection letter points out that the Balderases acknowledged
they had received proper notice, which meant the period to
rescind was only three days.
[5] The district court agreed, concluding that the signed
copy of the notice included in the bank’s rejection letter,
which the Balderases themselves let slip into the record by
attaching it to their complaint, was “prima facie proof of
21514 BALDERAS v. COUNTRYWIDE BANK
delivery.” Balderas v. Countrywide Bank, N.A., No. 09cv564-
MMA(JMA), 2009 WL 4783142, at *4 (quoting Garza v. Am.
Home Mortg., 2009 U.S. Dist. LEXIS 40518, 2009 WL
1139594, at *3 (E.D. Cal. April 28, 2009). But Exhibit 14
only proved that the Balderases signed the document in Coun-
trywide’s possession. The acknowledgment created a rebutta-
ble presumption that the required disclosures were delivered
to the borrowers. See 15 U.S.C. § 1635(c). This presumption
will no doubt be very valuable to Countrywide when the trier
of fact is called on to decide whether the Balderases did or did
not get proper TILA notice. But evidentiary presumptions
“are inappropriate for evaluation at the pleadings stage.” 5B
Charles Alan Wright & Arthur R. Miller, Federal Practice &
Procedure § 1357 (Supp. 2011). The Balderases allege in
their complaint that they did not, in fact, get a properly pre-
pared notice. If they testify to that effect at trial, the trier of
fact could believe them, despite their signed statement to the
contrary.
[6] Countrywide also seems to argue that the Balderases’
signature on the disclosure statement proves conclusively that
it was delivered to them. After all, they must have had it in
their possession when they signed it. But providing someone
a document long enough to sign it does not comply with 12
C.F.R. § 226.23(b)(1), which requires the lender to “deliver”
copies of the Notice of the Right to Rescind to the consumer.
Such momentary delivery defies both the purposes of the
TILA and common sense. The revered second edition of Web-
ster’s New International Dictionary defines “deliver” as “to
give or transfer” and “to yield possession or control of.” Web-
ster’s New International Dictionary 693 (2d ed. 1939). We
interpret “deliver” to mean that the consumer must be allowed
to keep the notice. When you have pizza delivered, you don’t
sign for it and let the deliveryman take it back to the restau-
rant. And when a newspaper boy delivers a paper, he doesn’t
show you the headlines and then return it to the printer.
[7] Delivery under the TILA requires a permanent physical
transfer from one party to another. The Balderases claim that
BALDERAS v. COUNTRYWIDE BANK 21515
didn’t happen here. Instead, they were given documents to
sign and those documents were then taken away. All they
were left with were incomplete documents that didn’t tell
them how long they had before they could renege on the
loans. That missing information turned out to be critical when
the Balderases told Countrywide they wanted out and were
falsely told it was too late.
[8] Reading the complaint fully and fairly, as we must in
a motion to dismiss, the Balderases claim that they received
documents at the loan signing that didn’t comply with TILA.
If Countrywide ended up with the only copies of the properly
filled out documents then Countrywide didn’t comply with
TILA because it never “deliver[ed] two copies of the notice
of the right to rescind.” 12 C.F.R. § 226.23(b)(1).
Countrywide claims that the Balderases didn’t allege
enough facts to rebut the signed notice’s presumption of
delivery. But presumptions are not rebutted by allegations;
they are rebutted by evidence. And the time for presenting
evidence has not yet arrived. Complaints need only allege
facts with sufficient specificity to notify defendants of plain-
tiffs’ claims. Here, the Balderases pleaded that the notice they
were given was defective, and “on or about March 23, 2009,”
Countrywide sent a letter rejecting their rescission demand.
That March 23, 2009 letter included the TILA-compliant
notice. At trial, plaintiffs can prove up the allegations. See
Cooper v. First Gov’t Mortg. & Investors Corp., 238 F. Supp.
2d 50, 64-65 (D.D.C. 2002). The trier of fact must then decide
whether the evidence is specific and believable enough to
rebut the statutory presumption. See, e.g. Williams v. First
Gov’t Mortg. & Investors Corp., 225 F.3d 738, 751 (D.C. Cir.
2000) (trial testimony didn’t rebut a presumption of delivery
because it was inconsistent with deposition testimony); Row-
land v. Novus Financial Corp., 949 F. Supp. 1447, 1459-60
(D. Haw. 1996) (denying a motion for summary judgment
because conflicting copies of the Notice of Right to Cancel
created a triable issue of fact).
21516 BALDERAS v. COUNTRYWIDE BANK
Countrywide relies on Anderson v. Countrywide Financial,
No. 2:08-cv-01220-GEB-GGH, 2009 WL 3368444 (E.D. Cal.
Oct. 16, 2009), for support. In Anderson, the plaintiff alleged
that the “incorrect” notices she received from her lender and
included in her complaint rebutted the signed notices attached
to the lender’s written correspondence that was included in
her complaint. Id. at *2-3. The court stated that an “allegation
[wa]s insufficient to rebut [TILA’s] presumption.” Id. at *3.
Anderson erred and the district court here was wrong to fol-
low suit.
But even if it turns out that the Balderases were left two
copies of the completed form, as per Exhibit 14 of the com-
plaint, Countrywide may well have an additional problem:
The form purports to have been signed on Monday, Septem-
ber 25, and notifies the borrower that they have until Septem-
ber 28 to rescind. The Balderases, however, claim that the
actual signing of the loan documents occurred after midnight,
which would mean the loan transaction wasn’t consummated
until Tuesday the 26th. According to this narrative, the rescis-
sion period extended until Friday the 29th. See 15 U.S.C.
§ 1635(a). It’s not clear whether there is a factual dispute on
this point, as the letter sent by Countrywide seems to
acknowledge that some documents were signed on the 26th.
If it is established, by agreement or finding after trial, that the
signing took place on Tuesday, then the notice given to the
Balderases would have violated the TILA. See Semar, 791
F.2d at 704 (“Technical or minor violations of TILA or Reg
Z, as well as major violations, impose liability on the creditor
and entitle the borrower to rescind.”).
[9] As we’ve said before, “so long as the plaintiff alleges
facts to support a theory that is not facially implausible, the
court’s skepticism is best reserved for later stages of the pro-
ceedings when the plaintiff’s case can be rejected on evidenti-
ary grounds.” In re Gilead Sciences Securities Litigation, 536
F.3d 1049, 1057 (9th Cir. 2008). Here, the Balderases clearly
alleged in their complaint that they were never given a Notice
BALDERAS v. COUNTRYWIDE BANK 21517
of Right to Cancel that complied with TILA. If they can prove
up this allegation at trial, they’ll win. A complaint containing
allegations that, if proven, present a winning case is not sub-
ject to dismissal under 12(b)(6), no matter how unlikely such
winning outcome may appear to the district court.
REVERSED and REMANDED.
IKUTA, Circuit Judge, concurring:
I concur in the opinion except for the penultimate para-
graph, in which the majority takes the opportunity to give the
Balderases some helpful legal advice. After clarifying that a
lender must leave the TILA Notice of Right to Cancel with
the borrower in order to “deliver” it (an interpretation with
which I agree), the majority worries that the broker may in
fact have left the Balderases with two copies of the completed
form, as per Exhibit 14 of the complaint. Maj. op. at 21516.
To address its concerns, the majority seizes on a footnote in
the complaint, where the Balderases asserted that “[b]ecause
the signing occurred after midnight, the actual signing date
was the 26th of September, 2006.” Although the Balderases’
counsel didn’t make anything of this fact, the majority opines
that if the Notice of Right to Cancel was indeed signed on
September 26th, but incorrectly dated September 25, the
notice itself would violate TILA. See maj. op. at 21516.
Regardless whether the majority is better at spotting issues
than the Balderases’ attorneys, it is not the job of judges to
make up arguments and then purport to rule on them. See
Greenwood v. FAA, 28 F.3d 971, 977 (9th Cir. 1994). Our
appearance of neutrality is damaged when we step outside our
role and give a helping hand to one of the parties. Accord-
ingly, I decline to participate in that portion of the opinion.