Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-09-17678/USCOURTS-ca9-09-17678-0/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

DAVID MERRITT; SALMA MERRITT,

Plaintiffs-Appellants,

v.

COUNTRYWIDE FINANCIAL

CORPORATION, a Delaware

corporation; COUNTRYWIDE HOME

LOANS, INC., a New York

corporation; ANGELO MOZILO, an

individual; MICHAEL COLYER, an

individual; DAVID SAMBOL, an

individual; BANK OF AMERICA, NA;

KEN LEWIS, an individual; JOHN

BENSON,

Defendants-Appellees.

No. 09-17678

D.C. No.

5:09-cv-01179-

JW

OPINION

Appeal from the United States District Court

for the Northern District of California

James Ware, District Judge, Presiding

Argued and Submitted

November 9, 2012—San Francisco, California

Filed July 16, 2014

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2 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

Before: Andrew J. Kleinfeld and Marsha S. Berzon, Circuit

Judges, and William E. Smith, District Judge.

*

Opinion by Judge Berzon;

Dissent by Judge Kleinfeld

SUMMARY**

Truth in Lending Act / Real Estate Settlement

Practices Act

The panel reversed in part and vacated in part the district

court’s dismissal pursuant to Federal Rule of Civil Procedure

12(b)(6) of an action under the Truth in Lending Act and the

Real Estate Settlement Practices Act against Countrywide

Financial Corporation and various other defendants involved

in the plaintiffs’ residential mortgage.

The panel reversed the district court’s dismissal of the

plaintiffs’ TILA rescission claim for failure either to tender

the rescindable value of their loan prior to filing suit or to

allege ability to tender its value in their complaint. Declining

to extend Yamamoto v. Bank of New York, 329 F.3d 1167 (9th

Cir. 2003), the panel held that an allegation of tender or

ability to tender is not required. The panel held that only at

the summary judgment stage may a court order the statutory

 

*

 The Honorable William E. Smith, District Judge for the U.S. District

Court the District of Rhode Island, sitting by designation.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 3

sequence altered and require tender before rescission, and

then only on a case-by-case basis, once the creditor has

established a potentially viable defense.

The panel vacated the district court’s dismissal of the

plaintiffs’ claims under § 8 of RESPA, which prohibits

kickbacks and unearned fees, as barred by the one-year

statute of limitations. The panel held that although the

RESPA statutory limitations period ordinarily runs from the

date of the alleged RESPA violation, the doctrine of equitable

tolling may, in appropriate circumstances, suspend the

limitations period until the borrower discovers or had

reasonable opportunity to discover the violation. The panel

declined to address two issues of first impression: 

(1) whether, while straight overcharges are not actionable

under RESPA § 8(b), markups for services provided by a

third party are actionable; and (2) whether an inflated

appraisal qualifies as a “thing of value” under RESPA § 8(a).

Dissenting, Judge Kleinfeld wrote that the dismissal with

prejudice should stand because the complaint failed to

comply with the “short and plain statement” requirement of

Fed. R. Civ. P. 8(a)(2).

COUNSEL

Jacob N. Foster (argued), Kasowitz, Benson, Torres &

Friedman LLP, San Francisco, California, for PlaintiffsAppellants.

James Goldberg (argued) and Stephanie A. Blazewicz, Bryan

Cave LLP, San Francisco, California; Douglas E. Winter and

Angela Buenaventura, Bryan Cave LLP, Washington D.C.,

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4 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

for Defendants-Appellees Countrywide Home Loans, Inc.,

Countrywide Financial Corporation, Bank of America

Corporation, Michael Coyler, David Sambol, and Kenneth

Lewis.

Charles Elder and Caleb Bartel, Irell & Manella LLP, Los

Angeles, California, for Defendant-Appellee Angelo Mozilo.

Susan H. Handelman, Ropers, Majeski, Kohn & Bently,

Redwood City, California, for Defendant-Appellee John

Benson.

OPINION

BERZON, Circuit Judge:

Once again, we address issues arising from Countrywide

Financial Corporation’s residential lending business during

the period shortly before novel practices by lenders resulted

in widespread distress in the housing markets. See, e.g.,

Balderas v. Countrywide Bank, N.A., 664 F.3d 787 (9th Cir.

2011);Cervantes v. Countrywide Home Loans, Inc., 656 F.3d

1034 (9th Cir. 2011). David Merritt and Salma Merritt (“the

Merritts”) sued Countrywide Financial Corporation and

various other defendants (collectively “Countrywide” or

“CHL”) involved in their residential mortgage, alleging

violations of numerous federal statutes. The district court

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 5

dismissed the claims pleaded, with prejudice.1 This appeal

followed.

We consider in this opinion two issues raised by that

dismissal: (1) whether the district court properly dismissed

the Merritts’ Truth in Lending Act (“TILA”) rescission claim

because they did not tender the rescindable value of their loan

prior to filing suit or allege ability to tender its value in their

complaint; and (2) whether the Merritts’ claims under Section

8 of the Real Estate Settlement Practices Act (“RESPA”) may

proceed, including whether the RESPA limitations period, 12

U.S.C. § 2614, may be equitably tolled.2

Factual & Procedural Background

In March 2006, the Merritts took out both an adjustablerate mortgage

3

and a home equity line of credit (“HELOC”)

1 The district court dismissed the claims not on Rule 8 grounds but on

the merits for failure to state a claim upon which relief may be granted,

pursuant to Rule 12(b)(6). The dissent suggests we affirm on the basis of

Rule 8(a)(2). The enforcement of Rule 8 rests within the district court’s

discretion, and defendants do not raise any Rule 8(a)(2) questions before

us. Under these circumstances, it would be improper for us to affirm on

Rule 8 grounds. See Gillibeau v. City of Richmond, 417 F.2d 426, 431 (9th

Cir. 1969).

2 We address the Merritts’ other claims, and the parties’ motions for

judicial notice, in a memorandum disposition issued concurrently with his

opinion.

3 As is generally true in California, the legal instrument for the Merritts’

home loan was a deed of trust and not, technically speaking, a mortgage.

See Siegel v. Am. Savings &Loan Ass’n, 258 Cal. Rptr. 746, 747 (Cal. Ct.

App. 1989) (defining a deed of trust); 27 Cal. Jur. 3d Deeds of Trust § 1

(2011) (same); Cal. Civ. Code § 2920(b) (distinguishing mortgage from

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6 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

with Countrywide on a home they purchased in Sunnyvale,

California.4Initially, the Merritts’ Countrywide agent had

told them, “I can pretty much guaranty you that we can get

you in your new home for $1800 per month and possibly

even as low as $1,500.” Three days before closing, however,

the agent told the Merritts that he had completed their loan

package and that their monthly payments would be $4,400 a

month for the first five years: $3,200 for the mortgage, plus

$1,200 for the HELOC. When the Merritts balked, the agent

replied that “the market had shifted” since his initial

estimates. He told the Merritts that the $4,400 monthly

payment was “the lowest that you’ll find anywhere,” and if

they did not close right away, they would lose their goodfaith deposit. He did not disclose that the $4,400/month figure

was based on a temporary, “teaser” interest rate rather than a

fixed rate, and that the Merritts’ monthly payments would be

much higher once the teaser rate expired. The Merritts would

not have accepted the loan if they had understood the terms.

The home’s owner falselyrepresented himself throughout

the process as the selling agent. As the sale approached, he

spoke with the Merritts’ Countrywide agent about getting the

home appraised. The seller stated that he had found an

appraiser who would provide an inflated appraisal of

deed of trust for certain purposes under California state law). We refer to

the Merritts’ home loan throughout this opinion as a mortgage, because

that is how the parties have referred to it in their pleadings and briefs, and

the precise financing instrument is not legally material to the issues

addressed in this opinion.

4 Because we are evaluating a district court’s dismissal pursuant to Rule

12(b)(6), we take the facts from the Merritts’ complaint and assume that

they are true. See Cervantes v. United States, 330 F.3d 1186, 1187 (9th

Cir. 2003).

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 7

$739,000, above the home’s actual value of about $690,000,

so as to justify a higher sale price. The Countrywide agent

responded that he preferred to select the appraiser himself,

but that since Countrywide had used the seller’s

recommended appraiser before, he would agree to using him

for this sale. The Countrywide agent, the seller, and the

appraiser spoke over the phone, and the appraiser agreed to

provide a $739,000 appraisal before having reviewed the

property. The Merritts allege that Countrywide maintained a

company practice of encouraging agents to select appraisers

who would provide inflated appraisals, so as to increase the

total amounts financed and therebymaximize Countrywide’s

profits.

On the date of closing, a Countrywide representative

arrived at the Merritts’ home with loan documents and said,

“I will not have time to wait for you to read any of the

documents, but just need you to sign these and if you have

any questions or concerns afterwards, you can contact your

loan agent.” The Merritts signed the documents, but between

the small print and “confusing language,” did not understand

the documents provided. The Countrywide representative did

not give the Merritts copies of the signed documents to keep,

only form notices of their right to rescind. The spaces where

the lender would ordinarily fill in the relevant dates and

deadlines on the form notices were left blank. The Merritts

similarly were given a form for TILA disclosures, but with

the spaces left blank for the annual percentage rate, finance

charge, amount financed, total of payments, schedule of

payments, and variable interest rate.

The day after the closing, the Merritts called their

Countrywide agent and asked him to clarify the terms of their

mortgage. The agent assured them that he would send them

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8 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

further documentation but never did. He also promised that

they could refinance their mortgage at a lower interest rate

after a year of on-time payments.

Over the next three years, the Merritts repeatedly

requested from Countrywide the completed disclosures, to no

avail. Meanwhile, Countrywide continued to send the

Merritts monthly billing statements that did not disclose that

the “minimum payment due” would only be applied to

interest, and that they should pay more if they wanted to

begin paying down the principal.

In 2009, Countrywide sent the Merritts the loan

documents that they had been requesting for three years. By

then, the Merritts had made about $200,000 in payments to

Countrywide. The Merritts consulted with lawyers, who told

them that they had been victims of “predatory lending.” They

had their loan materials audited by an underwriter, who told

them that he had identified numerous violations of state and

federal law, including TILA, in the documentation provided

by Countrywide.

Meanwhile, in August 2008, the Merritts suffered a loss

of income that made them unable to afford their monthly

payments. They repeatedly asked Countrywide to refinance

or modify their mortgage into a conventional loan, but

Countrywide refused.

In February 2009, the Merritts notified Countrywide that

they wished to rescind their loan. Countrywide did not

respond to the rescission request, instead offering to modify

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 9

the loan. The modified loan offered was one the Merritts still

could not afford.5

The Merritts filed this case pro se on March 18, 2009 and

shortly thereafter amended the complaint.6 Countrywide

moved to dismiss the complaint in its entirety. The district

court granted the motion, with prejudice. As relevant to the

issues in this opinion, the district court dismissed the

Merritts’ claim for rescission under TILA because the

Merritts did not tender the value of their HELOC to

Countrywide before filing suit, and dismissed their claims

under Section 8 of RESPA as time-barred.

This appeal followed. We appointed pro bono counsel to

represent the Merritts before this court.

Discussion

A. TILA rescission

TILA provides two remedies for loan disclosure

violations — rescission and civil damages, each governed by

separate statutory procedures.

7 Under TILA, an obligor has

5 Countrywide had, in the meantime, been acquired by Bank of America.

The Merritts’ loan was eventually sold to Wells Fargo.

6 We refer to the amended complaint throughout simply as “the

complaint.”

7 Plaintiffs’ TILA claims relate solely to their home-equity line of credit,

or “HELOC.” TILA does not apply to residential mortgages used to

finance the initial acquisition or construction of a dwelling. See 15 U.S.C.

§§ 1635(e)(1) & 1602(x). Countrywide presents for the first time on

appeal the argument that plaintiffs’ HELOC falls within this residential

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10 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

the “right to rescind . . . 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 . . . whichever is later.” 15 U.S.C.

§ 1635(a). Regardless of whether the required information

and forms have been delivered, “[the] obligor’s right of

rescission shall expire three years after the date of

consummation of the transaction or upon the sale of the

property.” Id. § 1635(f).

The TILA rescission provisions set out the following

sequence of events for pursuing rescission: First, the obligor

must notify the creditor of his intention to rescind, id.

§ 1635(a); then, within 20 days after receipt of notice of

rescission, the creditor must return to the obligor any security

interest, id. § 1635(b); and lastly, “[u]pon the performance of

the creditor’s obligations under this section [i.e., upon return

of the security interest], the obligor shall tender the property

to the creditor.” Id. These procedures “shall apply except

when otherwise ordered by a court.” Id.

Notably, “[t]he sequence of rescission and tender set forth

in § 1635(b) is a reordering of the common law rules

governing rescission.” Williams v. Homestake Mortg. Co.,

968 F.2d 1137, 1140 (11th Cir. 1992) (citing 17A Am. Jur. 2d

Contracts § 590, at 600–01 (1991)). Specifically, “[a]lthough

tender of consideration received is an equitable prerequisite

to rescission, the requirement was abolished by the Truth in

Lending Act.” Palmer v. Wilson, 502 F.2d 860, 861 (9th Cir.

1974) “Under § 1635(b),” consequently,

mortgage exception. Because this argument was not previously raised in

the district court, we do not address it here.

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 11

all that the consumer need do is notify the

creditor of his intent to rescind. The

agreement is then automatically rescinded and

the creditor must, ordinarily, tender first.

Thus, rescission under § 1635 places the

consumer in a much stronger bargaining

position than he enjoys under the traditional

rules of rescission.

Williams, 968 F.2d at 1140 (internal quotation marks and

alteration omitted). By reversing the traditional sequence for

common law rescission claims, TILA “shift[s] significant

leverage to consumers,” consistent with the statute’s general

consumer-protective goals. Lea Krivinskas Shepard, It’s All

About the Principal: Preserving Consumers’ Right of

Rescission under the Truth in Lending Act, 89 N. C. L. Rev.

171, 188 (2010).

At the same time, consumer protection is not the only

goal of statutory rescission under TILA; “another goal of

§ 1635(b) is to return the parties most nearly to the position

they held prior to entering into the transaction.” Williams,

968 F.2d at 1140. Balancing the two goals, the case law

construing TILA has long recognized courts’ equitable power

to modify the statutory rescission process. See id. at 1140;

Palmer, 502 F.2d at 862. Congress confirmed this equitable

role for courts overseeing TILA rescission proceedings when

it amended TILA in 1980 to clarify that the § 1635(b)

sequence of procedures “shall apply except when otherwise

ordered by a court.” See Truth in Lending Simplification and

Reform Act, Pub. L. No. 96-221, § 612(a)(4), 94 Stat. 175

(1980), codified at 15 U.S.C. § 1635(b).

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12 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

Invoking this permission, the district court dismissed the

Merritts’ TILA rescission claim because their complaint did

not “allege that they tendered the Home Equity Line of Credit

or its reasonable value to CHL or Bank of America when they

sought rescission.” In so ruling at the pleading stage, the

district court erred.

In accordance with the statutory provision that courts may

order an alteration of the sequence of events otherwise

prescribed by the TILA rescission provision, see id., we have

held that district courts may, if warranted by the

circumstances of the particular case, require the obligor to

provide evidence of ability to tender as a condition for denial

of a summary judgment motion advanced by the creditor. See

Yamamoto v. Bank of New York, 329 F.3d 1167, 1171–73 (9th

Cir. 2003). Yamamoto concluded that where “it is clear from

the evidence that the borrower lacks capacity to pay back

what she has received (less interest, finance charges, etc.), the

court does not lack discretion to do before trial what it could

do after,” i.e., refuse to enforce rescission. Id. at 1173. In so

ruling, Yamamoto relied on earlier cases which had permitted

judges after a resolution of the TILA claim on the merits to

condition rescission on tender. Palmer, one of those earlier

cases, had instructed courts considering such a condition to

take into account “the equities present in a particular case, as

well as consideration of the legislative policy of full

disclosure that underlies [TILA] and the remedial-penal

nature of the private enforcement provisions of the Act.” Id.

at 1171 (quoting Palmer, 502 F.2d at 862); see also LaGrone

v. Johnson, 534 F.2d 1360, 1362 (9th Cir. 1976) (holding that

court should condition rescission on tender where TILA

violations “were not egregious and the equities heavily favor

the creditors”).

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 13

Like some other district courts in this circuit, the district

court in this case extended Yamamoto to require that plaintiffs

plead ability to tender in their complaint. See Botelho v. U.S.

Bank, N.A., 692 F. Supp. 2d 1174, 1180 (N.D. Cal. 2010)

(collecting cases). We reject this extension.

As Botelho noted, Yamamoto “was decided in the

procedural context of summary judgment, when the district

court was in a position to consider a full range of evidence in

deciding whether to condition rescission on tender.” Id. at

1180. Without such evidentiary development, a district court

is in no position to evaluate equitable considerations of the

sort identified in Yamamoto and its predecessors. The equities

to be considered, Yamamoto noted, might include the nature

of the TILA violations (such as whether they were or were

not egregious); whether the obligor had gone into bankruptcy;

and the borrower’s ability to repay the proceeds (including,

perhaps, whether that ability to repay was itself dependent

upon a rescission order because without such an order, the

obligor could not refinance or sell the property). 329 F.3d at

1171, 1173. “Whether the call is correct must be determined

on a case-by-case basis, in light of the record adduced.” Id. at

1173. In making the call, the court may consider evidence

such as affidavits and deposition testimony or may hold an

evidentiary hearing. See Palmer, 502 F.2d at 862. To

prescribe the pleading of ability to tender in every TILA

rescission case would be inconsistent with this evidencegrounded, case-by-case approach.8

8

Indeed, even in a common-law equitable rescission action where the

plaintiff is required to tender first, the plaintiff need not necessarily plead

ability to tender in the complaint. See 1 Dan B. Dobbs, Law of Remedies:

Damages—Equity—Restitution § 4.8, at 463 (2d ed. 1993).

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14 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

Further, our approach better comports with the TILA

statutory text, which prescribes an enforcement sequence

except when “otherwise ordered by a court.” 15 U.S.C.

§ 1635(b). If all obligors had to allege ability to tender

payment when seeking rescission and so allege in a complaint

for enforcement of the rescission obligation, then (1) the

requirement of doing so would no longer be an exception, and

(2) the requirement would not be “otherwise ordered by a

court,” as a complaint initiates suit before any court order

issues.

Moreover, Yamamoto recognized that if a creditor

acquiesces at the outset in the notice of rescission, “then the

transaction [is] rescinded automatically, thereby causing the

security interests to become void and triggering the sequence

of events laid out in subsections (d)(2) and (d)(3) [of

Regulation Z, 12 C.F.R. § 226.23, which implements

15 U.S.C. § 1635(b)].” 329 F.3d at 1172. Yamamoto’s

holding allowing district courts to vary that sequence was

targeted at situations in which the creditor “produce[s]

evidence sufficient to create a triable issue of fact about

compliance with TILA’s disclosure requirements.” Id. Where

no such evidence (or viable legal argument) is produced, then

the situation is legally indistinguishable for judicial remedy

purposes from one in which the creditor initially acquiesced

in the rescission; that is what should have happened in the

absence of a tenable defense. Automatically to require tender

in the pleadings before any colorable defense has been

presented would encourage creditors to refuse to honor

indisputably valid rescission requests, because doing so

would allow the security interest to remain in place absent

tender. The result would be to allow creditors to vary the

statutory sequence simply through intransigence.

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 15

In addition, in many cases, it will be impossible for the

parties or the court to know at the outset whether a borrower

asserting her TILA rescission rights will ultimately be able to

return the loan proceeds as required by the statute. That

ability may depend upon the merits of her TILA rescission

claim or on other claims related to the same loan transaction.

See, e.g., Prince v. U.S. Bank Nat’l Ass’n, 2009 WL2998141,

at *5 (S.D. Ala. Sept. 14, 2009) (denying creditor’s motion to

dismiss as based on “mere speculation” that plaintiffs would

be unable to tender, and indicating that court would address

the proper sequences for implementing the rescission, if

necessary, only after resolving the rescission claim on the

merits). For instance, if a TILA rescission claim is

meritorious and the creditor relinquishes its security interest

in the property upon notice of rescission as required by the

default § 1635(b) sequence, the obligor may then be able to

refinance or sell the property and thereby repay the original

lender. Cf. Burrows v. Orchid Island TRS, LLC, 2008 WL

744735, at *6 (C.D. Cal. Mar. 18, 2008) (declining to require

pleading of tender where the court inferred that borrower

would be able to tender by selling or refinancing the property

if rescission was found to be appropriate); Williams v. Saxon

Mortg. Co., 2008 WL 45739, at *6 n.10 (S.D. Ala. Jan. 2,

2008) (declining to condition rescission on tender as was

done in Yamamoto, because it was not clear that borrower

would not be able to refinance the loan). Or her complaint

may allege damages claims arising from the same loan

transaction, the proceeds of which, if successful, could then

be used to satisfy her TILA tender obligation. See Shepard,

supra, at 205 & n.200, 210.

For all these reasons, any requirement that all TILA

rescission plaintiffs allege ability to tender cannot be

reconciled with the statute, Yamamoto’s holdings, and

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16 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

Yamamoto’s underpinnings. Any suggestion that such a

pleading requirement may apply in some cases but not others

fares no better, for two reasons:

First, requiring a subset of TILA rescission plaintiffs to

plead tender would effectively impose a special pleading

requirement upon those plaintiffs, without anyadvance notice

as to who those plaintiffs are. After Ashcroft v. Iqbal,

556 U.S. 662 (2009), as before, “Rule 8(a)’s simplified

pleading standard applies to all civil actions, with [only]

limited exceptions.” Swierkiewicz v. Sorema N.A., 534 U.S.

506, 513 (2002) (emphasis added); see Starr v. Baca, 652

F.3d 1202, 1215–16 (9th Cir. 2011) (discussing how to

reconcile Iqbal and Swierkiewicz). Under this standard, a

plaintiff need only plead “sufficient allegations of underlying

facts to give fair notice and to enable the opposing party to

defend itself effectively,” and “the factual allegations that are

taken as true must plausibly suggest an entitlement to relief.”

Starr, 652 F.3d at 1216. There is no authority for altering the

pleading requirements for a given statutory claim for some

plaintiffs making that claim and not for others.

Second, there would be no principled way to determine

which plaintiffs should be required to plead tender in the

complaint. Yamamoto and its predecessors indicate that major

factors as to whether to require tender in advance of

rescission are the strength of any defense to rescission and the

egregiousness of any TILA violation. Neither of these

considerations can be evaluated before the creditor advances

its defense, factually and legally. Nor do we see how the

other “case-by-case” considerations pertinent under

Yamamoto can be set out in such a way as to notify TILA

plaintiffs in advance of any special, heightened pleading

requirements applicable to them in particular.

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 17

For all these reasons, we hold that plaintiffs can state a

claim for rescission under TILA without pleading that they

have tendered, or that they have the ability to tender, the

value of their loan. Only at the summary judgment stage may

a court order the statutory sequence altered and require tender

before rescission — and then only on a “case-by-case basis,”

Yamamoto, 329 F.3d at 1173, once the creditor has

established a potentially viable defense.

In light of this holding, we reverse the district court’s

Rule 12(b)(6) dismissal of the Merritts’ TILA rescission

claim and remand for further proceedings on that claim.

B. The RESPA Section 8 claims

Congress enacted RESPA in 1974 in response to abusive

practices that inflate the cost of real estate transactions.

12 U.S.C. § 2601(a); see Sosa v. Chase Manhattan Mortg.

Corp., 348 F.3d 979, 981 (11th Cir. 2003). Section 8 of

RESPA prohibits kickbacks and unearned fees and may be

enforced criminally or civilly. 12 U.S.C. § 2607. Civil actions

under this section must be brought within one year of the

alleged violation. Id. § 2614. The district court dismissed the

Merritts’ claims under Section 8 of RESPA as “barred by the

one-year statute of limitations because Plaintiffs filed suit

nearly three years after closing on their loan.” The district

court held that “the [RESPA] limitations period begins to run

as of the date of the closing,” and did not address whether the

statute might have been equitably tolled to the date in 2009

when the Merritts allege that they actually received their loan

documents.

There is no direct precedent in this court on the RESPA

equitable tolling issue, although we have held that the closely

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18 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

similar TILA limitations period provision may be equitably

tolled. See King v. California, 784 F.2d 910, 914–15 (9th Cir.

1986). Before proceeding to the question whether we should

reach the same conclusion as to tolling under RESPA as we

did under TILA, we first consider whether we should

pretermit that issue by affirming on a separate ground.

1. Plaintiffs’ RESPA Section 8 claims

We may affirm a dismissal on any properly preserved

ground supported in the record. Johnson v. Riverside

Healthcare Sys., LP, 534 F.3d 1116, 1121 (9th Cir. 2008);

Papa v. United States, 281 F.3d 1004, 1009 (9th Cir. 2002).

However, we are not required to do so, “and as a prudential

matter can properly remand to the district court” rather than

“decide ab initio issues that the district court has not had an

opportunity to consider and that present questions of first

impression in our circuit.” Badea v. Cox, 931 F.2d 573, 575

n.2 (9th Cir. 1991) (internal quotation marks omitted).

After considering the two RESPA Section 8 claims

briefly, we have determined, as we shall explain shortly, that

each raises fairly complex legal questions of first impression

in this circuit neither decided by the district court nor fully

briefed before this court. We therefore conclude that

prudence counsels against addressing those claims on the

merits in advance of any district court decision on them.

Plaintiffs alleged two theories of liability under Section 8

of RESPA, which we address in turn.

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 19

a. Section 8(b)

RESPA Section 8(b) prohibits the “giv[ing] . . . [of] any

portion, split, or percentage of any charge made or received

for the rendering of a real estate settlement service . . . other

than for services actually performed.” 12 U.S.C. § 2607(b).

The Merritts allege that defendants violated Section 8(b) by

“charg[ing] [them] . . . cost[s] for copying, insurance and

other costs associated with the loan, which cost Defendants

significantly less,” thereby “pass[ing] on charges which falls

within the definition of ‘markups’ and were charges not

actually earned for any service.”

A case closely similar, but not identical, to this one as to

the RESPA Section 8 “markup” issue, Martinez v. Wells

Fargo Home Mortg., Inc., 598 F.3d 549, 553 (9th Cir. 2010),

held that RESPA Section 8(b) “prohibits only the practice of

giving or accepting money where no service whatsoever is

performed in exchange for that money” (emphasis added).

“By negative implication, Section 8(b) cannot be read to

prohibit charging fees, excessive or otherwise, when those

fees are for services that were actually performed.” Id. at

553–54.

The plaintiffs in Martinez did not press a third-party

“markup” theory on appeal — that is, a theory that depended

on the provision of services by a party other than by the

defendant who charged the fee and collected it from the

consumer. See id. at 552 n.2. The Merritts, therefore, urge us

to distinguish Martinez and follow the Second Circuit’s

decision in Kruse v. Wells Fargo Home Mortg., Inc., 383 F.3d

49 (2d Cir. 2004). Kruse held that while straight overcharges

are not actionable under Section 8(b), markups for services

provided by a third party are actionable. Id. at 58–62.

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20 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

The circuits are divided on the third-party markup issue

under RESPA. In holding that third-party markups were

actionable under Section 8(b), Kruse held that the statute

itself was ambiguous and therefore deferred to a HUD policy

statement interpreting the provision to prohibit markups. See

Kruse, 383 F.3d at 57. Santiago v. GMAC Mortg. Corp., Inc.,

417 F.3d 384, 388–89 (3d Cir. 2005), like Kruse, held that

markups are actionable under Section 8(b), although it relied

on the statutory language as unambiguous, rather than on an

agency interpretation of an ambiguous statute. In contrast,

several circuits have held or strongly implied that third-party

markups are not actionable under RESPA Section 8(b). See

Freeman v. Quicken Loans, Inc., 626 F.3d 799, 804 (5th Cir.

2010) (“RESPA is an anti-kickback statute, not an anti-price

gouging statute”); Haug v. Bank of Am., N.A., 317 F.3d 832,

836 (8th Cir. 2003) (holding that charging plaintiffs more for

third-party services than defendant paid for them, “standing

alone, does not violate Section 8(b) of RESPA”); Boulware

v. Crossland Mortg. Corp., 291 F.3d 261, 266, 268 (4th Cir.

2002) (“§ 8(b) requires fee-splitting or a kickback”;

“Congress chose to leave markups . . . to the free market”);

Krzalic v. Republic Title Co., 314 F.3d 875, 881 (7th Cir.

2002) (holding that markups are not actionable under

RESPA, which “is not a price-control statute”).9

This question, which raises complicated issues of

statutory interpretation and administrative law of first

impression in this circuit, was not addressed by the district

court and only minimally briefed before this court. We

therefore decline to decide the question in the first instance

on appeal.

9 The Eleventh Circuit has reserved whether a third-party markup theory

might be viable under RESPA Section 8(b). See Sosa, 348 F.3d at 982–84.

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 21

b. Section 8(a)

Section 8(a) prohibits the “giv[ing] . . . [of] any fee,

kickback, or thing of value pursuant to any agreement or

understanding, oral or otherwise, that business incident to or

a part of a real estate settlement service involving a federally

related mortgage loan shall be referred to any person.”

12 U.S.C. § 2607(a). Plaintiffs’ theory of Section 8(a)

liability is that Countrywide referred appraisal business to the

appraiser, Benson, in exchange for a “thing of value,”

namely, an inflated appraisal.

At oral argument, defendants disputed the facts

underlying the Section 8(a) claim. Specifically, defendants

argued that the Merritts have admitted that the appraisal

referral was made “before [they] first contacted

Countrywide.” These factual claims rely on documents that

were not before the district court, and in any event, are

unavailing in light of this court’s duty to accept the plaintiffs’

allegations as true at the pleading stage of the litigation.

Contrary to defendants’ representation at oral argument, the

operative complaint alleges that the Merritts were in contact

with their Countrywide agent as early as February 2006, and

that the agent and the appraiser were in contact in early

March. To the extent that there are possible inconsistencies in

the timeline alleged in the complaint, the district court as well

as this court must construe the complaint in the light most

favorable to the plaintiffs and grant leave to amend if any

defects could be cured. See Lucas v. Dep’t of Corr., 66 F.3d

245, 248 (9th Cir. 1995) (per curiam) (pro se complaints

should be dismissed without leave to amend only if it is clear

that deficiencies could not be cured by amendment).

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22 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

Countrywide also argued in its brief that the Merritts’

Section 8(a) claim cannot survive dismissal because the

statute only provides for liability “to the person or persons

charged for the settlement service involved in the violation,”

12 U.S.C. § 2607(d)(2), and the Merritts did not allege that

they were charged for the appraisal. However, this failing

could be cured if the Merritts were granted leave to amend

the complaint to allege that, as they contend in their reply

brief, they paid the appraiser directly.

A more complicated question is whether an inflated

appraisal would qualify as a “thing of value” as that term is

defined for RESPA purposes. The answer is not self-evident,

the parties briefed this question only in passing, and the

district court did not decide it. Moreover, the determination

of this question may depend on factual development as to the

precise structure of the agreement and the sequence of events.

We therefore do not decide this question in the first instance

either. We conclude only that we are not prepared to affirm

at this juncture on the ground that the inflated appraisal was

not a “thing of value” for RESPA purposes, and so must

reach the limitations issue.

2. Equitable tolling

The district court dismissed the Merritts’ claims under

Section 8 of RESPA as “barred by the one-year statute of

limitations because Plaintiffs filed suit nearlythree years after

closing on their loan,” and, although the issue was raised, did

not consider whether the statute might have been equitably

tolled to the date in 2009 when the Merritts allege that they

actually received their loan documents. Only at that time, the

Merritts allege, did they learn about the markups charged, as

well as key information about their loan that could help to tip

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 23

them off to the appraisal kickback scheme, including that the

individual they thought had been the home’s selling agent

was actually also its owner.

The pertinent RESPA limitations provision states:

Jurisdiction of courts; limitations. Any

action pursuant to the provisions . . . of this

title may be brought in the United States

district court or in any other court of

competent jurisdiction, for the district in

which the property involved is located, or

where the violation is alleged to have

occurred, within . . . 1 year in the case of a

violation of section 2607 . . . of this title from

the date of the occurrence of the violation

. . . .

12 U.S.C. § 2614.

We have not previously decided whether the RESPA

statutory limitations period may be equitably tolled. King did,

however, address a closely similar question concerning the

TILA limitations period. King, 784 F.2d 910. King held that

the TILA limitations period was subject to equitable tolling.

Id. at 195. We reach the same conclusion here with regard to

the RESPA limitations period.

There has, however, been considerable development since

King in the general principles governing the availability of

equitable tolling of statutory limitations periods.

Consequently, we conduct a somewhat more extensive

analysis of the pertinent considerations than did King, albeit

with the same result.

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24 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

Our departure point under post-King case law is the

proposition that “[t]ime requirements in lawsuits between

private litigants are customarily subject to ‘equitable

tolling.’” Irwin v. Dep’t of Veterans Affairs, 498 U.S. 89, 95

(1990) (citing Hallstrom v. Tillamook Cnty., 493 U.S. 20, 27

(1989)). To determine whether the RESPA limitations period

falls within that customary rule, we must first determine

whether it is jurisdictional; courts “[have] no authority to

create equitable exceptions to jurisdictional requirements.”

Bowles v. Russell, 551 U.S. 205, 214 (2007). If the RESPA

limitations period is non-jurisdictional, we must assess

whether Congress has clearly precluded equitable tolling. See

United States v. Brockamp, 519 U.S. 347, 350 (1997).

a. The RESPA limitations period is not jurisdictional

In a series of recent cases, the Supreme Court has

“pressed a strict[] distinction between truly jurisdictional

rules, which govern ‘a court’s adjudicatory authority,’ and

nonjurisdictional ‘claim-processing rules,’ which do not.”

Gonzalez v. Thaler, 132 S. Ct. 641, 648 (2012) (quoting

Kontrick v. Ryan, 540 U.S. 443, 454–55 (2004)). In doing so,

the Court has clarified that “the term ‘jurisdictional’ properly

applies only to prescriptions delineating the classes of cases

(subject-matter jurisdiction) and the persons (personal

jurisdiction) implicating [the court’s adjudicatory] authority.”

Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 160–61 (2010)

(emphasis added) (internal quotation marks omitted).

Moreover, a rule is “jurisdictional” only if “Congress has

‘clearly state[d]’ that the rule is jurisdictional.” Sebelius v.

Auburn Reg’l Med. Ctr., 133 S. Ct. 817, 824 (2013) (quoting

Arbaugh v. Y & H Corp., 546 U.S. 500, 515–516 (2006)

(alteration in original)). To determine whether Congress

clearly intended a statutory restriction to be jurisdictional,

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 25

courts review factors such as the statute’s language, “context,

and relevant historical treatment.” Reed Elsevier, 559 U.S. at

166. Applying this test, the Court has repeatedly held that

“filing deadlines ordinarily are not jurisdictional; indeed, [the

Court has] described them as ‘quintessential claim-processing

rules.’” Sebelius, 133 S. Ct. at 825 (quoting Henderson ex rel.

Henderson v. Shinseki, 131 S. Ct. 1197, 1203 (2011)). With

these precepts in mind, we proceed to examine the relevant

factors.

i. Language

By its terms, § 2614 provides that any RESPA Section 8

action “may be brought . . . within 1 year . . . from the date of

the occurrence of the violation.” 12 U.S.C. § 2614 (emphasis

added). This non-mandatory language is far more permissive

than several limitations provisions that have been held

amenable to equitable tolling. For example, the limitations

provision held to be non-jurisdictional and tollable in

Henderson, 131 S. Ct. at 1204, stated that a claimant “shall

file . . . within 120 days” (emphasis added). If not all

“mandatoryprescriptions, however emphatic, are . . . properly

typed jurisdictional,” Henderson, 131 S. Ct. at 1205

(emphasis added) (internal quotation marks omitted), then the

use of permissive, non-mandatorylanguage such as RESPA’s

“may file” language weighs considerably against a finding

that the limitations period is jurisdictional.

ii. Statutory placement

In examining whether or not a rule is jurisdictional, a few

of the Supreme Court’s recent cases have assigned some

significance to whether the rule is “located in a jurisdictiongranting provision.” Reed Elsevier, 559 U.S. at 166; see also

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26 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

Henderson, 131 S. Ct. 1205; Payne v. Peninsula Sch. Dist.,

653 F.3d 863, 870–71 (9th Cir. 2011) (en banc), overruled in

part on other grounds by Albino v. Baca, 747 F.3d 1162 (9th

Cir. 2014). Countrywide primarily relied upon this factor to

support its argument against equitable tolling, citing the D.C.

Circuit’s holding that “the [RESPA] time limitation is a

jurisdictional prerequisite to suit and as such not subject to

equitable tolling.” Hardin v. City Title & Escrow Co.,

797 F.2d 1037, 1038 (D.C. Cir. 1986). To reach its

conclusion, Hardin relied upon the placement of the RESPA

time limitation in “the same sentence” that, in Hardin’s

characterization, “creates federal and state court jurisdiction”

under RESPA, and upon the subtitle of the section,

“Jurisdiction of Courts.” See id. at 1039.

In light of Supreme Court cases decided since Hardin, we

cannot agree with the D.C. Circuit that the RESPA time

limitation is placed in a sentence that “creates federal and

state court jurisdiction.” It is true that the provision appears

under the heading “Jurisdiction of courts; limitations.” But,

as the Supreme Court has noted in recent years, “jurisdiction”

has “many, too many meanings.” Arbaugh, 546 U.S. at 510.

In particular, use of the word “jurisdiction” does not make a

provision “jurisdiction-granting.”Reed Elsevierso indicated,

rejecting the argument that the “presence of the word

‘jurisdiction’” in a provision renders the entire provision

jurisdictional. 559 U.S. at 163. Moreover, “[a] requirement

we would otherwise classify as nonjurisdictional . . . does not

become jurisdictional simply because it is placed in a section

of a statute that also contains jurisdictional provisions.”

Sebelius, 133 S. Ct. at 825 (citing Gonzalez, 132 S. Ct. at

651–52). “Mere proximity will not turn a rule that speaks in

nonjurisdictional terms into a jurisdictional hurdle.”

Gonzalez, 132 S. Ct. 651.

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Here, although the RESPA limitations period appears in

a provision that references the court’s “jurisdiction,” the

section, read as a whole, is not a “jurisdiction-granting

provision.” Reed Elsevier, 559 U.S. at 166 (emphasis added).

The provision’s reference to “United States district court[s]

. . . [and] other court[s] of competent jurisdiction” implies,

instead, that the source of the referenced courts’ “competent

jurisdiction” lies elsewhere. And that is in fact the case with

regard to federal district courts, which have jurisdiction to

hear claims “arising under” RESPA because it is a “law[]

. . .of the United States.” See 28 U.S.C. § 1331. Other than

providing for a limitations period, then, the RESPA provision

at 12 U.S.C. § 2614 simply clarifies that, when determining

in which court of competent jurisdiction they will file their

claim, RESPA litigants have a choice of venue: either “the

district in which the property involved is located,” or, if it

differs, “where the violation is alleged to have occurred.”

12 U.S.C. § 2614.

iii. Historical treatment

In some statutory contexts, there is a venerable, consistent

line of Supreme Court cases construing whether a particular

limitations provision is jurisdictional. See, e.g., Bowles,

551 U.S. at 210–13; John R. Sand & Gravel Co. v. United

States, 552 U.S. 130, 137–39 (2008). Here we have no such

historical guidance, as the Supreme Court has not addressed

whether RESPA’s limitations period is jurisdictional, nor has

our court. In the absence of Supreme Court precedents the

case for deference to historical guidance is much weaker here

than in cases such as Bowles, 551 U.S. 205.

We do, however, have pertinent established law in this

circuit, namely King, 784 F.2d 910; see also Ramadan v.

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28 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

Chase Manhattan Corp., 156 F.3d 499, 501–05 (3d Cir.

1998) (following King’s holding as to TILA). King is

precedent in this circuit, and is persuasive authority in this

case.

King construed TILA’s similarly worded limitations

period, and held it amenable to equitable tolling. The TILA

limitations provision is as follows:

(e) Jurisdiction of courts; limitations on

actions; State attorney general enforcement

Except as provided in the subsequent

sentence, any action under this section may be

brought in any United States district court, or

in any other court of competent jurisdiction,

within one year from the date of the

occurrence of the violation . . . .

15 U.S.C. § 1640(e). Like the RESPA limitations period,

then, the parallel TILA provision appears in the same

sentence as a reference to “jurisdiction” and under the

heading “Jurisdiction of courts; limitations on actions.”10

10 There is one distinction. The TILA limitations provision, as passed by

Congress, appeared as one subsection in a section headed “Civil liability.”

See Consumer Credit Protection Act, Pub. L. 90-321, § 130(e), 82 Stat.

146, 157 (1968). The subheading “Jurisdiction of courts” was added in the

codification process. In contrast, the RESPA limitations provision, as

passed by Congress, appeared under the heading “Jurisdiction of Courts.”

See Real Estate Settlement Procedures Act of 1974, Pub. L. 93-534, § 16,

88 Stat. 1724, 1731 (1974). We do not ascribe significance to this

distinction for present purposes. Whatever its origin, the heading just

identifies a subject matter; it does not identify the subsection as

jurisdiction-creating.

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 29

King was decided without the benefit of the Supreme

Court’s recent admonitions against “profligate use” of the

term “jurisdiction[al].” Payne, 653 F.3d at 868 (internal

quotation marks omitted); see Arbaugh, 546 U.S. at 510. But

King necessarily relied upon an understanding that the TILA

limitations period was non-jurisdictional; otherwise, King

could not have held the limitations period contained in the

subsection subject to equitable tolling. Reflecting that

understanding of King, the Seventh Circuit, in Lawyers Title

Insurance Corp. v. Dearborn Title Corp., 118 F.3d 1157 (7th

Cir. 1997), relied in part upon King’s reasoning when it

expressly declined to follow the D.C. Circuit’s contrary

holding in Hardin. Lawyers Title held, instead, that the

RESPA limitations period is not jurisdictional and may be

equitably tolled. See Lawyers Title, 118 F.3d at 1166–67.11

Countrywide argues that Judge Posner’s opinion for the

court in Lawyers Title is not persuasive, because it relies upon

the premise that federal limitations periods “are universally

. . . nonjurisdictional” unless they involve “actions against the

United States.” Id. at 1166 (quoting Cent. States, Se. & Sw.

Areas Pension Fund v. Navco, 3 F.3d 167, 173 (7th Cir.

1993)). The Supreme Court’s more recent equitable tolling

jurisprudence indicates that the line is not quite so bright. For

example, in Bowles, the Court held that “time limits for filing

a notice of appeal are jurisdictional in nature.” 551 U.S. at

206.

11 Two other circuits have reserved the question of whether RESPA’s

limitations period may be equitably tolled. See Egerer v. Woodland

Realty, Inc., 556 F.3d 415, 424 n.18 (6th Cir. 2009); Snow v. First Am.

Title Ins. Co., 332 F.3d 356, 361 n.7 (5th Cir. 2003).

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30 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

But Irwin, decided before Lawyers Title, began from a

similar premise — that “time requirements in lawsuits

between private litigants are customarily subject to ‘equitable

tolling.’” Irwin, 498 U.S. at 95. The difference between the

“universally” adverb in Lawyers Title, 118 F.3d at 1166, and

the “customarily” adverb in Irwin, 489 U.S. at 95, appears to

reflect hyperbole in the former, but not a difference in

fundamental concept. In contrast, Hardin applied the sort of

rigidly formalistic jurisdictional analysis that the Supreme

Court’s recent cases have eschewed.

All of these factors point towards a conclusion that the

RESPA limitations period does not “implicat[e] [the district

court’s adjudicatory] authority,” Reed Elsevier, 559 U.S. at

161, but, instead, is an ordinary “filing deadline,” a

“quintessential claim-processing rule[].” See Sebelius, 133 S.

Ct. at 825. We so conclude.

b. The presumption of equitable tolling applies

As the RESPA limitations period is not jurisdictional,

RESPA claims are presumptively amenable to equitable

tolling, see Irwin, 489 U.S. at 95, unless Congress has clearly

indicated otherwise. There is no such indication in the statute.

Many of the considerations on which we relied as to the

jurisdictional issue, particularlythe permissive language used

in the limitations provision, also help to negate any clear

barrier to equitable tolling. In addition, we are guided by the

analysis in King, 784 F.2d 910, which applied an approach

with respect to equitable tolling generally consistent with the

recent cases. King’s logic with regard to the TILA limitation

period applies equally to the parallel RESPA provision.

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 31

King began by asking “whether tolling the statute in

certain situations [would] effectuate the congressional

purpose” of the statute, always “our basic inquiry” when

determining whether a limitations period may be equitably

tolled. Id. at 914–15. Because TILA is a broadly remedial

consumer-protection statute, King reasoned, “an inflexible

rule that bars suit one year after consummation [of the loan]”

would be “inconsistent with legislative intent.” Id. at 914.

King also recognized, however, that Congress did not intend

to expose lenders “to a prolonged and unforeseeable

liability.” Id. King therefore struck the balance between

consumer protection and predictable liability by holding that

the TILA limitations period could, “in the appropriate

circumstances,” be equitably tolled, but only “until the

borrower discovers or had reasonable opportunity to discover

the fraud or nondisclosures that form the basis of the TILA

action.” Id. at 915.

As we have recently recognized, RESPA is, like TILA,

“intended . . . to serve consumer-protection purposes.”

Medrano v. Flagstar Bank, FSB, 704 F.3d 661, 665 (9th Cir.

2012). Consistent with those purposes, we have concluded

that “RESPA’s provisions relating to loan servicing

procedures should be construed liberally to serve the statute’s

remedial purpose.” Id. at 665–66 (internal quotation marks

omitted). By the same token, “tolling the statute [of

limitations] in certain situations [would] effectuate the

congressional purpose” of protecting consumers. King,

784 F.2d at 915. There may be situations in which a

consumer is unable to file suit within the statutory limitations

period precisely because of a real estate service provider’s

obfuscation or failure to disclose.

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32 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

We hold, therefore, that although the limitations period in

12 U.S.C. § 2614 ordinarily runs from the date of the alleged

RESPA violation, “the doctrine of equitable tolling may, in

the appropriate circumstances, suspend the limitations period

until the borrower discovers or had reasonable opportunity to

discover” the violation. King, 784 F.2d at 915. Just as for

TILA claims, district courts may evaluate RESPA claims

case-by-case “to determine if the general rule would be unjust

or frustrate the purpose of the Act and adjust the limitations

period accordingly.” Id.

* * *

The district court dismissed plaintiffs’ RESPA Section 8

claims as time-barred, holding that “the [RESPA] limitations

period begins to run as of the date of closing,” and thereby

assuming that the period could not be equitably tolled. Rather

than “decide ab initio issues that the district court has not had

an opportunity to consider and that present questions of first

impression in our circuit,” Badea, 931 F.2d at 575 n.2, we

decline, for the reasons explained, to affirm the dismissal of

the Merritts’ Section 8 claims on alternate grounds. Instead,

we reach the issue that was the basis for dismissal, failure to

comply with the statutory limitations period. In light of our

holding today regarding equitable tolling, we vacate the

dismissal of the Section 8 claims on limitations grounds and

remand for reconsideration. On remand, the district court may

consider such evidence as it deems appropriate to determine

on what date the Merritts discovered or had reasonable

opportunity to discover the alleged Section 8 violations and

whether they filed their complaint within a year of that date.

If the district court determines that the plaintiffs’ RESPA

Section 8 claims are not time-barred, it should permit

substantive amendment of the claims upon an appropriate

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 33

request and continue with further proceedings consistent with

this opinion. See Lucas, 66 F.3d at 248 (“Unless it is

absolutely clear that no amendment can cure the defect . . . a

pro se litigant is entitled to notice of the complaint’s

deficiencies and an opportunity to amend.”).

Conclusion

We reverse the district court’s dismissal of plaintiffs’

TILA rescission claim and remand for further proceedings on

that claim. As to plaintiffs’ RESPA Section 8 claims, we

vacate the dismissal and remand to the district court for

further consideration in accordance with this opinion.

REVERSED IN PART, VACATED IN PART, AND

REMANDED FOR FURTHER PROCEEDINGS.

KLEINFELD, Senior Circuit Judge, dissenting:

I respectfully dissent.

We review a 12(b)(6) dismissal de novo,1and can affirm

on any ground, regardless of whether the district court relied

on it.2

 

1 Edwards v. Marin Park, Inc., 356 F.3d 1058, 1061 (9th Cir. 2004).

2

Janicki Logging Co. v. Mateer, 42 F.3d 561, 564 (9th Cir. 1994). The

majority cites dicta in Gillibeau v. City of Richmond, 417 F.2d 426, 431

(9th Cir. 1969), a 1969 case, for the proposition that we should not, in the

first instance, affirm a dismissal on Rule 8 grounds where the district court

did not act upon the Rule 8 motions. On the other hand, we said, possibly

in dicta, but possibly in holding, in a 1988 case, Sparling v. Hoffman

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34 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

This complaint violated Federal Rule of Civil Procedure

8(a)(2). The Rule requires a “short and plain statement of the

claim showing that the pleader is entitled to relief.”3 We are

indulgent with pro se complaints, but even for them, there are

limits.

The Merritt complaint is neither “short” nor “plain.” It is

68 pages long, 398 paragraphs. Nor were they deprived of

opportunities to clarify what their claims were. Though they

call the complaint their “Second Amended Complaint,” the

truth is that it is their fifth version. They got leave to file this

version of their complaint by filing a motion explaining that

the amendments would be “clarifications,” along with a

“stipulation” to which Countrywide did not stipulate. The

leave to amend they thus obtained mooted out Countrywide’s

pending motion to dismiss, so it was not adjudicated. The

plaintiffs then filed their amended complaint which was

materially different from the one submitted to the district

court with their motion for leave to amend. Far from

“clarifying” their previous complaints, this new complaint

Construction Co., 864 F.2d 635, 640 (9th Cir. 1988), that even if the

pleading did state a claim upon which relief could be granted, “the

complaint would be deficient under Rule 8(a) ofthe Federal Rules ofCivil

Procedure which requires ‘a short and plain statement of the claim

showing that the pleader is entitled to relief.’” In the case before us, the

court noted that the Merritts’ second amended complaint was “mostly

unintelligible.” The district court further noted that the Merritts’

allegations and claims purported to be “made, at least in part,

‘hypothetically.’” It took note of the defendant’s motion to dismiss under

Rule 8, but treated it as moot, because of the dismissal for failure to state

a claim under Rule 12. I think we should affirm on Rule 8 grounds, and

may, under Sparling.

 

3

 Fed. R. Civ. P. 8(a)(2).

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 35

added an additional 69 paragraphs, 16 pages, and yet another

cause of action.

We have articulated five factors for evaluating whether a

plaintiff should be given leave to amend: “(1) bad faith,

(2) undue delay, (3) prejudice to the opposing party,

(4) futility of amendment; and (5) whether plaintiff has

previously amended his complaint.”4 We have held that the

“district court’s discretion to deny leave to amend is

particularly broad where plaintiff has previously amended the

complaint.”5 Here, the Merritts have submitted five different

complaints to the district court. Further amendment would

unduly prejudice the defendants. The defendants have

responded to two of the Merritts’ five prolix,

incomprehensible complaints, doubtless at great expense for

their own lawyers. Defendants have filed numerous motions

addressing those complaints, for violation of Rule 8,

misrepresentations, failure to state claims upon which relief

may be granted, and lack of appropriate service. That is a lot

of wasted money. Plaintiffs imposed this unfair prejudice on

defendants by their vague prolixity and multiple filings.

The Merritts’ most recent amendments made their

complaint even more prolix, and less “short and plain.”

Countrywide’s combined motion to strike and dismiss placed

the Merritts on notice that their complaint failed to comply

with Rule 8, but they made no attempt to bring their

complaint into compliance with the rules. Because of this

4 Allen v. City of Beverly Hills, 911 F.2d 367, 373 (9th Cir. 1990)

(emphasis added).

5

Id. (quoting Ascon Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149,

1160 (9th Cir. 1989)).

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36 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

history, dismissal with prejudice was justified. Although

dismissal with prejudice for failure to comply with the rules

requires consideration of less drastic alternatives,6here there

were none, as it did not appear that plaintiffs were prepared,

even after five tries, to make a short and plain statement of

claims for which theywere entitled to relief. Their misleading

stipulation had already burdened Countrywide with the need

to brief a second motion to dismiss. Allowing the Merritts a

sixth attempt to plainly state their claims would be too

prejudicial to the defendants to be a fair alternative under

these circumstances.

The majority opinion does a heroic job of stating claims

clearly on behalf of the Merritts. But plaintiffs did not state

them. It is not fair to defendants to perform these legal

services for plaintiffs, even pro se plaintiffs, where the

plaintiffs do not evidently have good claims. “Prolix,

confusing complaints such as the ones plaintiffs filed in this

case impose unfair burdens on litigants and judges. As a

practical matter, the judge and opposing counsel, in order to

perform their responsibilities, cannot use a complaint such as

the one plaintiffs filed, and must prepare outlines to

determine who is being sued for what. Defendants are then

put at risk that their outline differs from the judge’s, that

plaintiffs will surprise them with something new at trial

which they reasonably did not understand to be in the case at

all, and that res judicata effects of settlement or judgment will

be different from what they reasonably expected. [T]he rights

6

See, e.g., Nevijel v. N. Coast Life Ins. Co., 651 F.2d 671, 674 (9th Cir.

1981).

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MERRITT V. COUNTRYWIDE FINANCIAL CORP. 37

of the defendants to be free from costly and harassing

litigation must be considered.”7

If plaintiffs had what looked like a strong claim that ought

to be adjudicated on the merits, judicial creation of a

complaint for them might not be so unfairly prejudicial.8 But

they do not. What they appear to be saying in their 398-

paragraph complaint is that they bought a $729,000 house,

and borrowed $739,000 for it, because the seller lowballed

them into thinking they were going to get the house for

$719,000. They seem to be saying that Countrywide’s agent

persuaded them to lie, which they did, in their loan

application, such as by saying that Mrs. Merritt was

employed when she was actually receiving disability

payments (later terminated). And they seem to be saying that

because they were minorities they were offered a more ample

adjustable rate mortgage instead of a less ample fixed rate

mortgage loan than they would otherwise be entitled to.

Were we limited to 12(b)(6) dismissal, we would have to

assume for purposes of decision that the plausible factual

statements (but not the legal conclusions and editorializing

rhetoric) in the complaint were true.9 We are not so limited

7 McHenry v. Renne, 84 F.3d 1172, 1179–80 (9th Cir. 1996) (internal

quotation marks omitted) (alteration in original).

8

See, e.g., Von Poppenheim v. Portland Boxing & Wrestling Comm’n,

442 F.2d 1047, 1052 n.4 (9th Cir. 1971) (“Since harshness is a key

consideration in the district judge’s exercise of discretion, it is appropriate

that he consider the strength of a plaintiff’s case if such information is

available to him before determining whether dismissal with prejudice is

appropriate.”).

 

9 Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012).

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38 MERRITT V. COUNTRYWIDE FINANCIAL CORP.

under Rule 8 analysis, which I suggest ought to be applied.

Under Rule 12 analysis, some of the claims are plausible at

least in part. Obviously, if Countrywide did not properly

provide the loan papers to the Merritts, a claim if timely

could be made. Tender of the full amount received is not in

all circumstances a sine qua non for a pleading claiming

rescission, though some sort of equitable judgment requiring

tender must be made if rescission is granted, to assure that the

plaintiff does not get to keep what it bought and also get all

the money back.10

It is hard to say whether plaintiffs even seek a rescission

remedy that could be allowed. The prayer in their complaint

seeks a return of all the money they have “invested in their

property,” plus compensatory damages, plus $2,000,000 in

punitive damages, plus a “prime loan at current market rates”

(far lower than the housing bubble interest rates that prevailed

when they bought their $729,000 house), or for them to be

able to walk away with the reimbursements and damages.

Their appellate brief is more modest, but was not before the

district court.

Their pleading seems to say that they have been living in

a $729,000 house for what is now almost six years without

paying anything toward the price. If they got past their Rule

8 problems, and their Rule 12 problems, their equities appear

to be weak. The Merritts have had five chances to state this

claim. Prejudice and futility counsel against giving them a

sixth try. We ought to let the dismissal with prejudice stand.

10

See Yamamoto v. Bank of New York, 329 F.3d 1167, 1171, 1173 (9th

Cir. 2003).

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