Wilson Iroanyah v. Bank of America, N.A.

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13-1382
WILSON IROANYAH AND JOY IROANYAH,
Plaintiffs-Appellants,
v.
BANK OF AMERICA, ET AL.,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division
No. 1:09-cv-00094 — Gary S. Feinerman, Judge.
____________________
ARGUED DECEMBER 12, 2013 — DECIDED MAY 28, 2014
____________________
Before BAUER, CUDAHY, and POSNER, Circuit Judges.
CUDAHY, Circuit Judge. This case concerns rescission pro-
cedures and the calculation of attorneys’ fees under the
Truth in Lending Act (TILA). On November 16, 2006, appel-
lant Wilson Iroanyah closed on two separately documented
loans. Appellee Taylor Bean & Whitaker Mortgage Corpora-
tion (TBW) loaned Wilson $192,000 (first loan) and $36,000
(second loan). Wilson and his wife, appellant Joan Iroanyah,
own a home in Streamwood, IL, which they used to secure
2 No. 13-1382
both loans. As is often the case in mortgage procedures,
TBW assigned the loans to banks. The first loan went to
Bank of New York Mellon (BNY) 1 after TBW’s bankruptcy,
and the second loan was assigned to Bank of America, N.A.
(BOA) (collectively, the Banks). Appellee Mortgage Electron-
ic Registration Systems, Inc. (MERS) is a nominee mortgagee
for both loans, and Appellee Green Tree Servicing, LLC
(Green Tree) services Wilson’s Second Loan. 2
Wilson signed and received a number of documents at
closing as part of the Truth in Lending Disclosures, includ-
ing at least one Notice of Right to Cancel under TILA for
each loan. TILA requires two notices per loan. The Iroanyahs
contend that they received only one copy of the notice while
Defendants state that the Iroanyahs received two copies for
each loan. The Iroanyahs signed acknowledgments for the
notices stating that they received two copies of the notice for
each loan. 3 The Iroanyahs also received a Truth-In-Lending
1 While this decision was pending, BNY and MERS settled and were
dismissed as parties to this action.
2 Green Tree and MERS contend that because they are servicers (Green
Tree) and nominees (MERS) of the loans, they are not originators or as-
signees of either loan and therefore cannot be liable for damages under
TILA. This is correct. See 15 U.S.C. § 1641(f)(1) (“A servicer of a consumer
obligation arising from the consumer credit transaction shall not be
treated as an assignee of such obligation for purposes of this section un-
less the servicer is or was the owner of the obligation.”). Though Green
Tree and MERS are not subject to liability under TILA, they remain par-
ties in this case because of their potential obligations if rescission were to
occur.
3 The district court determined that there was not sufficient evidence to
grant summary judgment either way for this possible TILA violation.
Any claim for damages for such a TILA violation is barred by the appli-
No. 13-1382 3
Disclosure Statement for each loan that displayed the re-
payment schedule, including a list of the number of pay-
ments, the amount due for each payment and the date when
the first and last payments were due. Neither disclosure
statement included the dates on which each payment is due
(except for the first and last payments), nor do they include
the frequency with which payment should be made. Despite
this missing information, the Iroanyahs admitted that they
understood that the payments were to be made monthly for
the life of the loan.
Unable to afford payments according to the terms of the
loan any longer, the Iroanyahs stopped making the required
payments on the second loan in April of 2008 and stopped
making payments on the first loan the following month.
Roughly four months later, TBW initiated foreclosure pro-
ceedings in state court, to which the Iroanyahs responded by
sending a rescission notice to TBW for the first loan, citing
deficient disclosure statements in violation of TILA as the
basis for rescission. While TBW denied that the disclosure
statements violated TILA, it agreed to rescind the loan if the
Iroanyahs first tendered $169,015.30. The Iroanyahs refused
this offer and sent rescission notices to TBW and BOA for the
second loan, to which neither of the parties responded.
The Iroanyahs then filed a complaint alleging defects in
both of the mortgage loans, seeking rescission, statutory
damages and fees and costs. Specifically, the Iroanyahs as-
serted that the loan documents violated TILA (1) by failing
cable statute of limitations, and the indisputable flaws in the payment
schedule provide a separate and sufficient basis for rescission. Therefore,
this issue is immaterial to this appeal.
4 No. 13-1382
to adequately disclose the frequency of payments because
they did not specifically include the word “monthly” in the
payment schedule; and (2) by failing to supply the correct
number of copies of the notice of right to cancel the loans. In
addition to these defects with the mortgages themselves, the
Iroanyahs alleged that the Defendants violated TILA by fail-
ing to properly respond to the initial demand for rescission.
At the close of discovery, all parties moved for summary
judgment. The Defendants also moved in the alternative, re-
questing the court to set reasonable rescission procedures.
All motions were granted in part and denied in part. The
Iroanyahs prevailed on the question whether the disclosure
statements violated TILA. This meant that their right of re-
scission—which would have been limited to three days in
the absence of a TILA violation—extended to three years,
and the action was therefore timely. However, the Iroan-
yahs’ claim for statutory damages stemming from the disclo-
sure violations was denied because TILA imposes a one year
limitation period on that claim, which had run. The Iroan-
yahs also prevailed on the question whether the Defendants’
failure to respond to their rescission notices itself violated
TILA. This resulted in an award of statutory damages for the
failure to respond and actual damages for the attorneys’ fees
they incurred while defending against the state court fore-
closure action.
The court also determined that modifying the rescission
process by requiring the Iroanyahs to tender the amounts
advanced to them before the Banks released their security
interests was a proper exercise of discretion under TILA. The
court calculated the tender amounts by subtracting finance
charges and interest and fees the Iroanyahs paid from both
No. 13-1382 5
loans’ principal. The court also subtracted $4000 from the
tender amount for the statutory damages relating to the
Banks’ deficient response to the Iroanyahs’ rescission notice,
and $2800 in costs and expenses for the Iroanyahs’ defense
of the foreclosure suit in state court. Thus, the tender
amount for the First Loan was calculated to be $162,215.30,
and $26,037.10 for the Second Loan.
The court then rejected the Iroanyahs’ proposal that they
be allowed to repay in installments over the life of the origi-
nal loans, reasoning that this repayment plan would effec-
tively reform the loans into zero interest loans, which would
be inequitable to the Defendants. Alternatively, the Iroan-
yahs asked for six months to obtain financing in order to
make tender, conceding that they could not currently make
tender. The Defendants requested instead that the court give
the Iroanyahs thirty days to tender. The court split the dif-
ference, giving the Iroanyahs ninety days to make tender.
The court stated that if the Iroanyahs succeeded in obtaining
financing, it would order a rescission, but if they could not
find alternative financing, it would give judgment to the De-
fendants on the rescission claims.
The Iroanyahs then filed a petition seeking an award of
$38,812 in attorneys’ fees and costs against BNY and $33,849
against BOA. The Defendants challenged these amounts on
the basis that a majority of the fees were incurred while ar-
guing claims on which the Iroanyahs failed—namely, on
their proposed rescission procedures and on their time-
barred claims for damages. As a result, the district court
awarded fees and costs in the amount of $16,433 against
BNY and $13,433 against BOA.
6 No. 13-1382
Ultimately the Iroanyahs were unable to make tender in
the timeframe the court established. Therefore, the court en-
tered judgment for the Defendants on the rescission claims.
The Iroanyahs now appeal the district court’s ability to con-
dition rescission on tender, its rejection of their proposed in-
stallment plan and imposition of the ninety day repayment
term and its award of attorneys’ fees.
I.
The default procedures under TILA § 1635(b) and Regu-
lation Z require the creditor to release its security interest
and return all money paid in connection with the transaction
before the borrower is required to tender full repayment.
U.S.C. § 1635(b); 12 C.F.R. § 226.23(d)(4). However, courts
also retain discretion to change the order of the procedure as
long as the change does not interfere with the borrower’s
substantive right to rescind. Thus, the question here is
whether the district court was within its discretion to require
tender before the security interests were released and interest
payments returned, and whether in light of the failure to
tender repayment dismissal of the rescission action was ap-
propriate. The Iroanyahs contend that TILA bars any court
from conditioning rescission upon repayment. As this is a
question of statutory interpretation, we review the district
court’s decision in this regard de novo. Because rescission is
an equitable remedy involving mutual obligations, we affirm
the district court in rejecting the Iroanyahs’ interpretation of
TILA.
The Iroanyahs put forth two mutually incongruous
propositions to support their assertion that the district court
impermissibly conditioned rescission upon repayment. In
their initial briefing they emphatically state that if a consum-
No. 13-1382 7
er chooses to exercise the right to rescind, then under TILA
and Regulation Z “the security interest and obligation to pay
finance and other charges are automatically voided – peri-
od.” The brief further asserts that even in light of a failure to
repay the principal, a court is not permitted to refrain from
voiding the security interest.
At oral argument the Iroanyahs abruptly changed direc-
tion, claiming they were not challenging the district court’s
refusal to void the security interest without repayment of
principal (and, rather disingenuously, that they never had).
Instead, they argued that despite the inability to repay, the
Iroanyahs are entitled to the other key benefit of rescission—
the reduction of the original loan amount by interest and
fees paid. Consequently, they claim that the district court
was not permitted to dismiss their rescission claim because
they were automatically entitled to this benefit of rescission,
even though they expressly conceded that the primary bene-
fit of rescission—voiding the security interest—is not availa-
ble without repayment. Thus, the Iroanyahs essentially ar-
gue that they deserve one aspect of TILA’s rescission remedy
(reduction of interest and fees) even though they concede
that they are not entitled to the other aspect of TILA rescis-
sion (security interest termination) and also concede that
they cannot satisfy their tender obligations. It is ultimately
unimportant which of these incongruous arguments the
Iroanyahs wish to stand on, since both evince a flawed con-
ception of rescission.
The Iroanyahs rely on a flawed interpretation of TILA
and its implementing regulations and commentary to con-
clude that they have fully unconditional right to rescission.
8 No. 13-1382
Their basis for this argument lies in the language of the offi-
cial interpretations to Regulation Z, which state:
The sequence of procedures under section
1026.23(d)(2) and (3), or a court's modification of
those procedures under section 1026.23(d)(4), does
not affect a consumer's substantive right to rescind
and to have the loan amount adjusted accordingly.
Where the consumer's right to rescind is contested by
the creditor, a court would normally determine
whether the consumer has a right to rescind and de-
termine the amounts owed before establishing the
procedures for the parties to tender any money or
property.
12 C.F.R. Pt. 1026, Supp. I, Part 2.
Based on this language, the Iroanyahs repeat over and over
that the procedures, which can be modified by the district
court, cannot affect the borrower’s right to rescind. In other
words, they contend that once a court determines rescission
under TILA is available, it is fully unconditional whether or
not principal is repaid.
What the Iroanyahs misunderstand is that rescission is a
process involving two parties, each with their own obliga-
tions. See, e.g., Andrews v. Chevy Chase Bank, 545 F.3d 570,
573–74 (7th Cir. 2008); Yamamoto v. Bank of New York, 329
F.3d 1167, 1173 (9th Cir. 2003) (“[R]escission under § 1635(b)
is an on-going process consisting of a number of steps”). It is
an equitable remedy that, in the absence of court intervention,
No. 13-1382 9
would ordinarily require the consent of both parties to ac-
cept certain obligations. Andrews, 545 F.3d at 573–74. 4
Thus, the Iroanyahs’ arguments fail because they ignore
the role of their own tender obligations in the process of re-
scission. Tender is inherently part of rescission, not an occa-
sional effect of it. See, e.g., Marr v. Bank of America, N.A., 662
F.3d 963, 966–67 (7th Cir. 2011); Chevy Chase Bank, 545 F.3d at
573–74. For this reason, we recently commented in Marr that
rescission is often unavailable to consumers because they are
unable to return unpaid principal as a result of decreased
property value, poor housing market or any number of rea-
sons. 662 F.3d at 966–67. Accordingly, we agree with our sis-
ter circuits that have held that a borrower’s inability to satis-
fy his tender obligations may make rescission, even if based
on a TILA violation, impossible. See, e.g., American Mortg.
Network, Inc. v. Shelton, 486 F.3d 815 (4th Cir. 2007); Yamamo-
to, 329 F.3d 1167; Large v. Conseco Fin. Serv. Co., 292 F.3d 49, 52
(1st Cir. 2002); FDIC v. Hughes, 938 F.2d 889 (8th Cir. 1991).
Ultimately, rescission is fundamentally meant to unwind the
entire transaction, not merely change the amount of the loan.
4 TILA does create a right of rescission, which serves to increase a bor-
rower’s bargaining power by giving the borrower the ability to unilater-
ally initiate rescission under certain circumstances. Assuming those cir-
cumstances are met, TILA enables a borrower to succeed in accomplish-
ing on her own what she would ordinarily need a court order or consent
to accomplish—that is the “substantive right” that TILA creates. See 12
C.F.R. § 226.23(d)(4). This does not, however, mean that rescission under
TILA is not an equitable remedy, as the Iroanyahs suggest. TILA does
not give borrowers the right to rescind their own obligations without
also making the lenders whole through tender, and TILA places the spe-
cific terms under which parties will fulfill those obligations within the
trial court’s discretion.
10 No. 13-1382
See, e.g., Handy v. Anchor Mortg. Corp., 464 F.3d 760, 765–66
(7th Cir. 2006). If the Defendants’ security interest remains
intact and the loan continues to exist or if repayment is im-
possible, then rescission, by any definition, has not taken
place and there is no benefit to claim.
II.
The Iroanyahs also challenge the district court’s rejection
of their 26-year, interest-free installment plan. We review the
district court’s rejection of the Iroanyahs’ proposed install-
ment plan and its imposition of a ninety day repayment pe-
riod for abuse of discretion. See Yamamoto, 329 F.3d at 1173.
In mounting their challenge to the ninety day period im-
posed by the district court, the Iroanyahs misinterpret the
district court order. They argue that the court erroneously
believed that TILA generally does not permit tender install-
ment plans, and that the district court’s decision was infect-
ed by that misunderstanding. Thus, the Iroanyahs cited cas-
es only support the unchallenged position that installment
plans may be considered under TILA. See, e.g., Coleman v.
Crossroads Lending Grp., No. 09-CV-0221, 2010 WL 4676984
(D. Minn. 2010); In re Sterten, 352 B.R. 380 (Bankr. E.D. Pa.
2006). Nothing in the district court’s opinion suggests it be-
lieved TILA barred all installment plans. Instead, the district
court made a discretionary determination that this install-
ment plan would be inequitable. We agree.
There are several factors supporting the district court’s
rejection of this installment plan. First, the Defendants here
are not the wrongdoers. They are subject to liability as as-
signees, but they were not the ones responsible for the defi-
ciencies in the disclosures giving rise to the Iroanyahs’
No. 13-1382 11
claims. Second, these TILA violations were hyper-technical
disclosure deficiencies, which Iroanyahs’ admitted caused
no actual harm. Third, since they remained in their home de-
spite not making mortgage payments since 2008, the Iroan-
yahs have actually benefitted from the lengthy resolution of
these TILA violations. Finally and decisively, the proposed
installment plan would have been extremely inequitable for
the Defendants, since it would effectively reform the original
transaction to become an interest free loan. The district court
had ample reason to reject the Iroanyahs’ wholly unreasona-
ble installment plan, which would create a windfall for the
Iroanyahs. Nothing in the district court’s opinion suggests
an abuse of discretion in weighing these equitable factors
and rejecting the Iroanyahs’ installment plan.
At oral argument, the Iroanyahs claimed, without sup-
port, that if the district court was unsatisfied with the Iroan-
yahs’ installment plan, then it should have imposed another
more equitable installment plan. Again, the Iroanyahs direct
our attention to many cases where courts have imposed in-
stallment plans. While these cases suggest that an install-
ment plan may be within the court’s discretion to impose,
they in no way hold that not implementing an installment
plan is an abuse of discretion. See, e.g., Coleman, 2010 WL
4676984 at *8–9; Sterten, 352 B.R. at 389–90. The district court
was not required to create an installment plan—a judge’s
discretion to amend rescission procedures is not so limited.
Cf. Yamamoto, 329 F.3d at 1173.
Finally, the Iroanyahs complain that the ninety day re-
payment plan was “unworkable,” and thus an abuse of dis-
cretion. However, the Iroanyahs are entitled to an equitable
plan, but not necessarily one that circumstances will ac-
12 No. 13-1382
commodate. Here, as with their primary contentions dis-
cussed above, the Iroanyahs misunderstand the nature of
rescission. Even the powerful right to rescind under TILA
does not guarantee that the Iroanyahs can actually comply
with the terms of rescission. See Marr 662 F.3d at 968. Here, it
is clear that the Iroanyahs are simply not financially able to
take advantage of rescission. As the district court noted,
courts have imposed repayment periods ranging from less
than one month to more than a year. See e.g., Shelton, 486
F.3d at 821 (requiring immediate tender); Hughes, 938 F.2d at
890 (requiring tender within a year). The Iroanyahs request-
ed six months to repay, while the Defendants requested that
they be given only one month to repay—neither party pro-
vided a compelling reason for their proposal. Ultimately the
district court set the repayment period at ninety days, de-
termining that “thirty days would be too short for most bor-
rowers [to obtain financing], while six months would be too
long, for if the Iroanyahs cannot obtain refinancing in three
months, it is unlikely they could do so in six.” The Iroanyahs
never actually attempted to secure financing, nor did they
submit evidence showing that the court’s chosen procedure
would render any attempt to secure financing impossible.
Therefore, considering the broad discretion the district
court had to set these rescission procedures, and the wide
range of time periods other courts have found reasonable,
we find nothing about the district court’s ninety day period
to suggest an abuse of discretion.
No. 13-1382 13
III.
In the final issue on appeal the Iroanyahs challenge the
amount of attorneys’ fees awarded by the district court. In
general, we are deferential to a court’s determination of at-
torneys’ fees. E.g., Pickett v. Sheridan Health Care Ctr., 664 F.3d
632, 639 (7th Cir. 2011). Nothing in the record suggests that
the district court abused that discretion in either reducing
the lodestar for the Iroanyahs’ fee request based on their lim-
ited success or in reducing the hourly rate for the Iroanyahs’
lead counsel.
The Iroanyahs argue first that the district court erred by
reducing the award on the basis of their limited success in
the matter. Initially, the district court accepted Iroanyahs’
figure of 87.1 hours, which was to be split between BOA and
BNY. This figure serves as the “lodestar” or the starting
point for the calculation of attorneys’ fees. However, the dis-
trict court then reduced the lodestar because the Iroanyahs
were only successful on one of their claims. In the context of
a fee-shifting statute like TILA, when a party has success on
some grounds, but not others, a court has discretion to re-
duce the lodestar accordingly. See, e.g., Hensley v. Eckerhart,
461 U.S. 424 (1983); Sottoriva v. Claps, 617 F.3d 971, 975 (7th
Cir. 2010)(“[T]he critical inquiry in this case is whether the
district court’s fee award is reasonable in relation to the re-
sults … actually obtained.”).
The Iroanyahs do not challenge the amount by which the
district court reduced the lodestar (50%). Instead, they chal-
lenge whether any reduction was reasonable. Their argu-
ment is premised upon the alleged error the district court
made in conditioning rescission upon repayment. As we
have discussed, the district court made no such error. The
14 No. 13-1382
Iroanyahs sought damages and rescission under TILA—they
succeeded only in being awarded damages. Therefore, the
Iroanyahs’ theory of the case was not, as they argue, fully
vindicated, and the district court was well within its discre-
tion in reducing the lodestar.
The Iroanyahs also asserted three grounds to support a
fee of $500 per hour for their lead counsel, Mr. Brooks: the
Laffey Matrix, a list of 56 cases Mr. Brooks litigated in the
Northern District of Illinois and other TILA cases in the
Northern District of Illinois where hourly rates awarded
were between $450 and $475. The district court addressed
each of these grounds. The Laffey Matrix is a chart of hourly
rates in the Washington, D.C. area. However, the district
court correctly noted that it is not determinative, or even
persuasive, evidence of a reasonable hourly rate in the
Northern District of Illinois. See Pickett, 664 F.3d at 649–50
(noting the varying degree of skepticism with which courts
view the Laffey Matrix, especially outside of the D.C. Cir-
cuit). The district court did not find the list of Mr. Brooks’
cases in the Northern District of Illinois persuasive because
that list did not identify which cases were similar to this one,
giving no basis for the comparison. Finally, the district court
rejected evidence of other attorneys’ fee awards for TILA
cases in the Northern District, because that evidence shows
only that some attorneys in the Northern District of Illinois
merited an hourly award higher than $350 in TILA actions,
but not why Mr. Brooks would be entitled to a similar rate.
Instead, the district court relied upon Mr. Brooks’ $350
hourly rate in a 2009 TILA case he litigated in this district,
which the court raised to $375 to match the unchallenged
hourly rate of his junior counsel. The court noted that “the
No. 13-1382 15
$350 hourly rate recently approved in one of Brooks’ other
TILA cases is better evidence of his market rate than the
rates approved for other attorneys.” Thus, the district court,
contrary to Iroanyahs’ assertions, adequately addressed each
of the grounds upon which they based their fee award, and
finding them unpersuasive, reduced the fee. There is nothing
in the district court’s opinion which would suggest it abused
its discretion in reducing the hourly rate.
We affirm.