Kathryn McOmie v. Bank of America Home Loans

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
KATHRYN MCOMIE-GRAY, 
Plaintiff-Appellant, No. 10-16487
v. D.C. No.
BANK OF AMERICA HOME LOANS,  2:09-cv-02422-
FKA Countrywide Home Loans, MCE-EFB
Inc., OPINION
Defendant-Appellee.

Appeal from the United States District Court
for the Eastern District of California
Morrison C. England, District Judge, Presiding
Argued and Submitted
December 6, 2011—San Francisco, California
Filed February 8, 2012
Before: Carlos T. Bea and Stephen S. Trott, Circuit Judges,
and Rebecca R. Pallmeyer, District Judge.*
Opinion by Judge Pallmeyer
* The Honorable Rebecca R. Pallmeyer, United States District Judge for
the Northern District of Illinois, sitting by designation.
1355
MCOMIE-GRAY v. BANK OF AMERICA 1357
COUNSEL
Thomas A. Jenkins and Daniel Joseph Mulligan, San Diego,
California; Larry Wayne Gabriel, Woodland Hills, California;
Jenkins Mulligan & Gabriel LLP; Pamela Simmons, Sim-
mons & Purdy, Soquel, California, for the plaintiff-appellant.
James Goldbert, Bryan Cave LLP, San Francisco, California,
for the defendant-appellee.
Tara A. Twomey, Carmel, California, for the amicus.
1358 MCOMIE-GRAY v. BANK OF AMERICA
OPINION
PALLMEYER, District Judge:
Kathryn McOmie-Gray appeals the dismissal of her lawsuit
for failure to state a claim upon which relief may be granted
pursuant to Federal Rule of Civil Procedure 12(b)(6).
McOmie-Gray sought rescission of her loan secured by a trust
deed with Bank of America Home Loans (“the Bank”) for
alleged violations of disclosure requirements under the federal
Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et seq. On
the Bank’s motion, the district court dismissed the suit as
untimely because it was filed after the three-year period set by
15 U.S.C. § 1635(f). McOmie-Gray argues that because she
gave the Bank timely notice of rescission, she was not
required to bring suit within the three-year period, and the dis-
trict court erred in dismissing this case.
For us, the question presented is a matter of first impres-
sion. McOmie-Gray cites decisions from several district
courts in this circuit that apply the one-year statute of limita-
tions set forth in 15 U.S.C. § 1640(e), measuring the time
from the date on which the lender fails to respond to the bor-
rower’s notice of rescission. We disagree with those courts,
and conclude, as set forth below, that the time limit estab-
lished by 15 U.S.C. § 1635(f) is applicable here. Moreover, as
we explained in Miguel v. Country Funding Corp., 309 F.3d
1161 (9th Cir. 2002), 15 U.S.C. § 1635(f) is a three-year stat-
ute of repose, requiring dismissal of a claim for rescission
brought more than three years after the consummation of the
loan secured by the first trust deed, regardless of when the
borrower sends notice of rescission.
I
On April 14, 2006, McOmie-Gray obtained a first trust
deed loan from Paramount Equity Mortgage. At the closing,
McOmie-Gray was presented with several loan documents to
MCOMIE-GRAY v. BANK OF AMERICA 1359
sign, including two Notice of Right to Cancel forms.
McOmie-Gray alleges, however, that neither of these forms
explained when the borrower’s right to cancel would expire.
Subsequently, Paramount assigned its interest in the loan to
Countrywide Home Loans, Inc., a company that the Bank
later acquired.
On January 18, 2008, McOmie-Gray, through her attorney,
sent the bank notice of her intent to rescind the loan, citing the
Bank’s failure to advise McOmie-Gray of the final date to
cancel the transaction. The Bank refused rescission, asserting
that McOmie-Gray had received proper notice of her right to
rescind. According to McOmie-Gray, although the Bank ini-
tially refused to accept her notice of rescission, it “negotiated
with [her] for over a year regarding the rescission.” McOmie-
Gray’s Opening Brief at 5. McOmie-Gray further alleges that
to facilitate this negotiation, the Bank agreed to toll the statute
of limitations with respect to her TILA claims until August
30, 2009.
On August 28, 2009, McOmie-Gray filed a complaint with
the district court seeking rescission of the loan secured by a
first trust deed. On the Bank’s motion, the district court dis-
missed the initial complaint with leave to amend because
McOmie-Gray failed to allege tender. McOmie-Gray then
filed her First Amended Complaint on March 30, 2010. The
district court dismissed the First Amended Complaint as well.
In its June 23, 2010 order, the court concluded that McOmie-
Gray’s right to rescission was subject to a three-year statute
of repose under 15 U.S.C. § 1635(f). Because this period
expired on its face on April 14, 2009—three years after the
consummation of the mortgage transaction—the court con-
cluded that McOmie-Gray’s claim was time-barred. The court
made no mention of the alleged tolling agreement.
II
[1] TILA protects consumers from fraud, deception, and
abuse within the residential secured lending marketplace by
1360 MCOMIE-GRAY v. BANK OF AMERICA
mandating that lenders disclose certain information to bor-
rowers. To ensure that lenders comply with these disclosure
requirements, TILA grants borrowers the right to rescind a
home-secured loan in the event the lender has failed to make
the required disclosures. Specifically, § 1635(a) provides that
a borrower shall have a right to rescind a loan secured by the
borrower’s residence by providing prompt notice to the credi-
tor:
[T]he obligor shall have the right to rescind the
transaction until midnight of the third business day
following the consummation of the transaction or the
delivery of the information and rescission forms
required under this section together with a statement
containing the material disclosures required under
this subchapter, whichever is later, by notifying the
creditor, in accordance with regulations of the [Fed-
eral Reserve Board], of his intention to do so.
15 U.S.C. § 1635(a). Regulation Z, promulgated by the Fed-
eral Reserve Board, confirms that notification is the means by
which borrowers exercise their right to rescind:
To exercise the right to rescind, the consumer shall
notify the creditor of the rescission by mail, telegram
or other means of written communication. Notice is
considered given when mailed, when filed for tele-
graphic transmission or, if sent by other means,
when delivered to the creditor’s designated place of
business.
12 C.F.R. § 226.23(a)(2). Rescission is not automatic upon a
borrower’s mere notice of rescission, as McOmie-Gray con-
tends, however. Instead, where a lender fails to comply with
§ 1635(b), the statute and regulations contemplate that a bor-
rower, who by sending notice of rescission has “advanced a
claim seeking rescission,” will seek a determination that
MCOMIE-GRAY v. BANK OF AMERICA 1361
rescission is proper. Large v. Conseco Fin. Servicing Corp.,
292 F.3d 49, 55 (1st Cir. 2002).
[2] Section 1635 does not explicitly establish a time limit
in which borrowers must bring suit for rescission if a lender
does not comply with the rescission request. Indeed, it “says
nothing in terms of bringing an action” or “a suit’s com-
mencement.” Beach v. Ocwen Fed. Bank, 523 U.S. 410, 417
(1998). Where the borrower alleges, as McOmie-Gray has
here, that “proper notice of rescission rights is not delivered
to the consumer at the time of closing, and the lender fails to
cure the omission by subsequently providing the proper infor-
mation, the consumer’s usual right to rescind within three
days of closing is extended to three years.” Miguel v. Country
Funding Corp., 309 F.3d 1161, 1163 (9th Cir. 2002). Specifi-
cally, § 1635(f) provides:
An obligor’s right of rescission shall expire three
years after the date of consummation of the transac-
tion or upon the sale of the property, whichever
occurs first, notwithstanding the fact that the infor-
mation and forms required under this section or any
other disclosures required under this part have not
been delivered to the obligor.
15 U.S.C. § 1635(f). In another section of the Act, 15 U.S.C.
§ 1640, Congress created a claim for damages for a lender’s
violation of TILA, adopting a one-year statute of limitations
for such actions. This provision makes no mention of rescis-
sion which, as noted, is governed by § 1635 and its three-year
statute of repose.
III
[3] Were we writing on a blank slate, we might consider
whether notification within three years of the transaction
could extend the time limit imposed by § 1635(f). But under
the case law of this court and the Supreme Court, rescission
1362 MCOMIE-GRAY v. BANK OF AMERICA
suits must be brought within three years from the consumma-
tion of the loan, regardless whether notice of rescission is
delivered within that three-year period.
In Beach, the Supreme Court addressed whether mortga-
gors, who never sent a notice of rescission to the lender, could
nonetheless raise the right of rescission as “an affirmative
defense in a collection action brought more than three years
after the consummation of the transaction.” 523 U.S. at 411-
12. The mortgagors conceded
that any right they may have had to institute an inde-
pendent proceeding for rescission under § 1635
lapsed . . . three years after they closed the loan with
the bank, but they argue[d] that the restriction to
three years in § 1635(f) is a statute of limitation gov-
erning only the institution of suit and accordingly
has no effect when a borrower claims a § 1635 right
of rescission as a “defense in recoupment” to a col-
lection action.
Id. at 415. The Court rejected this proposed reading of
§ 1635(f). Specifically, the Court observed that
[s]ection 1635(f) . . . takes us beyond any question
whether it limits more than the time for bringing a
suit, by governing the life of the underlying right as
well. The subsection says nothing in terms of bring-
ing an action but instead provides that the “right of
rescission [under the Act] shall expire” at the end of
the time period. It talks not of a suit’s commence-
ment but of a right’s duration, which it addresses in
terms so straightforward as to render any limitation
on the time for seeking a remedy superfluous.
Id. at 417 (alteration in original). The plain meaning of the
Act, the Court concluded, “permits no federal right to rescind,
defensively or otherwise, after the 3-year period of § 1635(f)
MCOMIE-GRAY v. BANK OF AMERICA 1363
has run.” Id. at 419 (emphasis added). Thus, the Court held
that the mortgagor could not raise the right to rescind as a
defense to the mortgagee’s foreclosure action after the three-
year period had run. Id. The language the Court used, how-
ever, broadly assumes that a three-year limitation governs
cases where a borrower, as plaintiff, seeks rescission of the
mortgage transaction.
Following the Supreme Court’s holding in Beach, we
addressed the question whether a borrower may file a lawsuit
seeking rescission beyond the three-year period if the bor-
rower never sent a timely notice of rescission. Miguel, 309
F.3d 1161. In Miguel, the borrowers refinanced their home on
December 1, 1994. On November 7, 1997, the borrowers sent
notice of rescission to the mortgage servicer, an agent of the
actual lienholder. The borrowers filed suit against the agent
on December 1, 1997, exactly three years from the closing
date. When the borrowers realized that they had sued the
wrong entity, they filed an amended complaint that included
the lienholder as a defendant on June 17, 1998, well after the
three-year period had expired. The district court concluded
that the borrower was entitled to rescission. Id. at 1162-63.
[4] On appeal, we reversed and held that the borrowers’
right to rescission had expired because the bank did not
receive a notice of rescission within three years from the con-
summation of the transaction. Id. at 1165. We relied on Beach
and a Ninth Circuit opinion holding “that section 1635(f) rep-
resents an ‘absolute limitation on rescission actions’ which
bars any claims filed more than three years after the consum-
mation of the transaction.” Id. at 1164 (citing King v. Califor-
nia, 784 F.2d 910, 913 (9th Cir. 1986)). The Miguel court
concluded in broad language that Ҥ 1635(f) is a statute of
repose, depriving the courts of subject matter jurisdiction
when a § 1635 claim is brought outside the three-year limita-
tion period.” Id. at 1164. Section 1635(f) is therefore not
merely a statute of limitations—it completely extinguishes the
underlying right itself. The plaintiff in Miguel argued that her
1364 MCOMIE-GRAY v. BANK OF AMERICA
notice of rescission triggered an additional one-year period for
filing suit under § 1640. We concluded, however, that § 1640
was irrelevant, and now hold that adopting § 1640’s one-year
statute of limitations to rescission actions contradicts the plain
language of the statute.
[5] We are bound by Miguel, not only as to its “logically
necessary” holdings but also as to its reasoned dicta. See U.S.
v. Johnson, 256 F.3d 895, 914 (9th Cir. 2001) (en banc).
“[W]here a panel confronts an issue germane to the eventual
resolution of the case, and resolves it after reasoned consider-
ation in a published opinion, that ruling becomes the law of
the circuit, regardless of whether doing so is necessary in
some strict logical sense.” Id. at 914. We thus adhere to
Miguel’s conclusion that § 1635(f) is a statute of repose that
represents an absolute three-year bar on rescission actions.
We recognize, however, that the Supreme Court has estab-
lished a clear-statement rule for treating a statutory limitation
on coverage as jurisdictional. See Gonzalez v. Thaler, ___ S.
Ct. ___, 2012 WL 43513, at *4 (Jan. 10, 2012); Arbaugh v.
Y & H Corp., 546 U.S. 500, 515 (2006). Consistent with this
intervening Supreme Court precedent, though the three-year
statute is mandatory and enforceable, we withdraw our char-
acterization of that bar as jurisdictional.
[6] Because § 1635(f) is a statute of repose, it extinguished
McOmie-Gray’s right to rescission on April 14, 2009, three
years after the consummation of the loan. McOmie-Gray did
not file her rescission suit until August 28, 2009. Therefore,
the district court properly dismissed this case as untimely and,
as McOmie-Gray herself conceded at oral argument, whether
she and Bank of America Home Loans had an agreement toll-
ing the statute of limitations is irrelevant.
AFFIRMED.