Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-18-56373/USCOURTS-ca9-18-56373-0/pdf.json

Parties Involved:
Does
Appellee
Maxine Gilliam
Appellant
Joel Levine
Appellee

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MAXINE GILLIAM, Trustee of the

Lou Easter Ross Revocable Trust,

Plaintiff-Appellant,

v.

JOEL LEVINE, Trustee of the Joel

Sherman Revocable Trust; DOES, 1

through 30, inclusive,

Defendants-Appellees.

No. 18-56373

D.C. No.

2:18-cv-02580-

PSG-KS

OPINION

Appeal from the United States District Court

for the Central District of California

Philip S. Gutierrez, District Judge, Presiding

Submitted February 14, 2020*

Pasadena, California

Filed April 14, 2020

Before: Mary M. Schroeder, Marsha S. Berzon,

and Ryan D. Nelson, Circuit Judges.

Opinion by Judge Schroeder

*

 The panel unanimously concludes this case is suitable for decision

without oral argument. See Fed. R. App. P. 34(a)(2).

Case: 18-56373, 04/14/2020, ID: 11659968, DktEntry: 22-1, Page 1 of 11
2 GILLIAM V. LEVINE

SUMMARY**

Consumer Credit

The panel reversed the district court’s dismissal of claims

under the Truth in Lending Act, the Real Estate Settlement

Procedures Act, Regulation Z, and California’s Rosenthal

Fair Debt Collection Act, which all provide certain

protections to borrowers in consumer credit transactions.

In her capacity as a trustee, plaintiff obtained a loan to

make repairs to a personal residence occupied by her niece,

the trust beneficiary. The panel held that a trust created by an

individual for tax and estate planning purposes does not lose

all state and federal consumer disclosure protections when it

seeks to finance repairs to a personal residence for the trust

beneficiary, rather than for the trustee herself. Accordingly,

the loan transaction remained a consumer credit transaction. 

The panel reversed the district court’s dismissal for failure to

state a claim and remanded for further proceedings.

COUNSEL

Donald Reid, Law Office of Donald W. Reid, Fallbrook,

California, for Plaintiff-Appellant.

W. Derek May, Law Office of W. Derek May, Upland,

California, for Defendants-Appellees.

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

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

Case: 18-56373, 04/14/2020, ID: 11659968, DktEntry: 22-1, Page 2 of 11
GILLIAM V. LEVINE 3

OPINION

SCHROEDER, Circuit Judge:

This case presents an issue of first impression under

federal and state regulation of consumer credit transactions. 

The issue arises because the Truth-in-Lending Act (“TILA”),

Real Estate Settlement Procedures Act (“RESPA”),

Regulation Z, and California’s Rosenthal Fair Debt

Collection Practices Act all provide certain protections to

borrowers in consumer credit transactions. See 15 U.S.C.

§§ 1631–1634; 12 U.S.C. § 2603; 12 C.F.R.

§§ 226.17–226.20; Cal. Civ. Code § 1788.22. The case

concerns a loan obtained by Appellant-Borrower Maxine

Gilliam, acting in her capacity as a trustee. She obtained that

loan to make repairs to a personal residence that is occupied

by her niece, who is the trust beneficiary. The issue is

whether this loan should be considered a consumer credit

transaction. Because the Borrower did not herself intend to

live in the house, the district court held that this was not a

consumer credit transaction, and dismissed the complaint. 

The district court reached this conclusion even though the

loan was for the benefit of the trust beneficiary, a member of

the Borrower’s family.

Under applicable statutes and regulations, however, a

trust created by an individual for tax and estate planning

purposes, like the one in this case, does not lose all state and

federal consumer disclosure protections when it seeks to

finance repairs to a personal residence for the trust

beneficiary, rather than for the trustee herself. The

transaction remains a consumer credit transaction. We

therefore reverse and remand.

Case: 18-56373, 04/14/2020, ID: 11659968, DktEntry: 22-1, Page 3 of 11
4 GILLIAM V. LEVINE

The facts are straightforward. In 2016, the Borrower,

Maxine Gilliam, acting in her capacity as trustee of the Lou

Ross Easter trust, obtained a loan from Appellee-Lender Joel

Levine to finance repairs to a residential property that was the

main asset of the trust. That property was the security for the

loan. This trust was created by the Borrower’s sister, Lou, for

the benefit of Lou’s daughter. After her sister died, the

Borrower became the trustee. According to her complaint,

the Borrower obtained the loan from Lender Levine to make

repairs to the property so that her niece, as the sole

beneficiary of the trust, could continue to reside there.

Under TILA, in a consumer credit transaction, the creditor

must disclose to the borrower, among other items, the amount

of payments and when each is due. 15 U.S.C. § 1602(v). The

statute provides there must be disclosure of “the number and

amount of payments, [and] the due dates or periods of

payments scheduled to repay the indebtedness.” Id. Here,

the Borrower alleges that the Lender’s loan disclosures were

materially inconsistent with the terms of the loan, leading her

to believe that the final payment date was one year later than

the payment date contained in the loan documents. Because

the due date disclosures did not accurately reflect the terms of

the loan, the Borrower filed a complaint in district court

seeking rescission of the loan under TILA. See 15 U.S.C.

§ 1635(i)(4) (relating to rescission remedy in consumer credit

transactions); 12 C.F.R. § 226.15 (same). She also sought

damages against the Lender under California’s Rosenthal Act

because the Lender allegedly used unfair means to collect a

consumer debt. She additionally sought recovery of damages

caused by the inaccurate disclosure, including accounting and

reimbursement for payments that she should not have been

obligated to make. See 15 U.S.C. § 1640 (permitting

Case: 18-56373, 04/14/2020, ID: 11659968, DktEntry: 22-1, Page 4 of 11
GILLIAM V. LEVINE 5

recovery of “any actual damage sustained by such person as

a result of the failure” to provide adequate disclosures).

These rescission and damage remedies are available only

in “consumer credit transactions.” 15 U.S.C. § 1635(i)(4);

12 U.S.C. § 2606(a); Cal. Civ. Code § 1788.2(e). TILA

defines such transactions carefully. For a loan to qualify as

a consumer credit transaction under the statute, a borrower

must demonstrate that the loan was extended to (1) a natural

person, and was obtained (2) “primarily for personal, family,

or household purposes.” 15 U.S.C. § 1602(i). Extensions of

credit to organizations are excluded, as are credit transactions

performed for non-consumer purposes, such as loans for a

business purpose, even when that loan is obtained by a

natural person. Id. § 1603.

Congress enacted RESPA in 1974 “to increase the supply

of information available to mortgage consumers . . . and to

eliminate abusive practices.” Schuetz v. Banc One Mortg.

Corp., 292 F.3d 1004, 1008 (9th Cir. 2002). Although the

“settlement process” targeted by RESPA was initially limited

to the negotiation and execution of mortgage contracts,

Congress subsequently expanded RESPA’s application to

encompass loan servicing as well. See Medrano v. Flagstar

Bank, FSB, 704 F.3d 661, 665 (9th Cir. 2012); Pub. L. No.

101–625, tit. IX, subtit. C, § 941, 104 Stat. 4405 (1990). Like

TILA, RESPA does not apply to “credit transactions

involving extensions of credit primarily for business,

commercial, or agricultural purposes.” 12 U.S.C.

§ 2606(a)(1).

The Rosenthal Act seeks to “prohibit debt collectors from

engaging in unfair or deceptive acts or practices in the

collection of consumer debts.” Cal. Civ. Code § 1788.1 (b). 

Case: 18-56373, 04/14/2020, ID: 11659968, DktEntry: 22-1, Page 5 of 11
6 GILLIAM V. LEVINE

It imposes liability upon debt collectors that engage in

various unfair debt collection practices. See, e.g., id.

§ 1788.10. The Act defines consumer debt as “money,

property, or their equivalent, due or owing or alleged to be

due or owing from a natural person by reason of a consumer

credit transaction.” Id. § 1788.2(f). As in TILA, a consumer

credit transaction is defined as a loan that was extended to a

natural person for consumer purposes. See id. § 1788.2(e).

Federal regulations are important tools to implement

consumer protection statutes. The Consumer Financial

Protection Bureau (“CFPB”) has interpretive authority over

the provisions of TILA and RESPA. The CFPB issues

Regulation Z that contains interpretive regulations imposing

“even more precise” disclosure requirements than TILA

itself. See Hauk v. JP Morgan Chase Bank USA, 552 F.3d

1114, 1118 (9th Cir. 2009). Courts defer to the CFPB’s

Official Staff Commentary to Regulation Z. See Anderson

Bros. Ford v. Valencia, 452 U.S. 205, 219 (1981) (“[A]bsent

some obvious repugnance to the statute, . . . [Regulation Z]

should be accepted by the courts, as should the [Bureau’s]

interpretation of its own regulation.”). Our court has said the

Commentary is “controlling unless demonstrably irrational.” 

Johnson v. Wells Fargo Home Mortg., Inc., 635 F.3d 401,

417 (9th Cir. 2011) (internal quotation marks and alteration

omitted).

The Borrower filed this action in district court in March

2018. The Lender moved to dismiss, arguing, without

statutory or regulatory authority, that a residential loan to a

trust can be considered a consumer credit transaction only

where the trustee-borrower lives at the residence. The

Borrower, relying on the Official Staff Commentary to

Regulation Z, maintained that her complaint should not be

Case: 18-56373, 04/14/2020, ID: 11659968, DktEntry: 22-1, Page 6 of 11
GILLIAM V. LEVINE 7

dismissed because the Commentary provides that loans to

trusts like hers should be treated as consumer credit

transactions. See 12 C.F.R. pt. 1026, Supp. 1, § 1026.3

Comment 3(a)-10 (explaining that “[c]redit extended for

consumer purposes to certain trusts is considered to be credit

extended to a natural person rather than credit extended to an

organization”).

The district court agreed with the Lender’s position that

the loan was not a consumer credit transaction because the

trust property securing the loan was not the Borrower’s

primary residence, even though it was the residence of her

niece. The district court dismissed the complaint. On appeal,

the Lender tries to defend that result, and asserts that, as a

general rule, a trust does not qualify as a natural person under

TILA, and cannot be party to a consumer credit transaction,

subject only to a limited exception where the loan is to

finance the residence of the trustee.

The CFPB’s Official Staff Commentary to Regulation Z,

however, provides a general consumer credit rule that differs

from the one the Lender posits and the district court accepted. 

The Commentary’s guidance is that “[c]redit extended for

consumer purposes to certain trusts is considered to be credit

extended to a natural person rather than credit extended to an

organization.” 12 C.F.R. pt.1026, Supp. 1, § 1026.3

Comment 3(a)-10. These “certain trusts” include trusts that

were created for tax or estate planning purposes. Id. For

consumers who place assets in a trust, the regulation thus

effectuates TILA’s definition of consumer credit transactions:

those that are “primarily for personal, family, or household

purposes.” 15 U.S.C. § 1602(i). The trust in this case is for

the benefit of the trustee’s niece. Under the Commentary, a

loan for “personal, family, or household purposes” of the

Case: 18-56373, 04/14/2020, ID: 11659968, DktEntry: 22-1, Page 7 of 11
8 GILLIAM V. LEVINE

beneficiary of this type of trust is a consumer credit

transaction.

Further undermining the Lender’s position is the

Commentary’s explanation that it is the substance of the

transaction that matters. The Commentary explains that,

“[r]egardless of the capacity . . . in which the loan documents

are executed,” trusts should be considered natural persons

under TILA, so long as the transaction was obtained for a

consumer purpose, because, “in substance (if not form)

consumer credit is being extended.” 12 C.F.R. pt. 1026,

Supp. 1, § 1026.3 Comment 3(a)-10.i. The Lender’s position,

by contrast, draws an artificial distinction between a loan

obtained for the benefit of the trustee alone, and a loan

obtained for the benefit of trust beneficiaries.

The Lender does not meaningfully address this

Commentary to Regulation Z. Instead, here, as in the district

court, he seeks to draw a general rule from the facts of a few

cases that when a trust borrows funds to finance repairs to a

residence, the collateral for the loan must be the primary

domicile of the trustee. Three federal district court cases

have been cited to support that view. See Amonette v.

Indymac Bank, 515 F. Supp. 2d 1176 (D. Haw. 2007); Shirley

v. Wachovia Mortg. FSB, No. 10-3870 SC, 2011 WL 855943

(N.D. Cal. Mar. 9, 2011); Galindo v. Financo Fin., Inc., No.

07-03991 WHA, 2008 WL 4452344 (N.D. Cal. Oct. 3, 2008).

None of those cases, however, support the Lender’s

position. None stand for the general proposition that a trust

cannot be party to a consumer credit transaction under TILA

unless the trustee resides at the property. None suggest that

borrowing for a familial, personal, or household purpose of

the trust beneficiary makes a loan commercial in nature. 

Case: 18-56373, 04/14/2020, ID: 11659968, DktEntry: 22-1, Page 8 of 11
GILLIAM V. LEVINE 9

None hold that the Official Staff Commentary to Regulation

Z is irrational or contrary to law. See Johnson, 635 F.3d at

417.

Only in Amonette did the issue of whether a trust could be

party to a consumer credit transaction arise. In that case, the

underlying facts involved a loan to a trust secured by the

house in which the trustee lived. 515 F. Supp. 2d at 1178. 

The court held that the loan to the trust was a consumer credit

transaction. Id. The court correctly observed that the trustee

was a consumer because the loan was secured by the trustee’s

home. Id. at 1186. The court did not purport to limit

consumer credit transactions involving trusts to the particular

situation in that case. Instead, its holding rested on the

conclusion that the loan was obtained for a personal,

consumer purpose. Id. at 1185. The decision in Amonette

correctly anticipated the most recent Commentary to

Regulation Z, which expressly provides that loans to trusts,

set up by individuals for tax and estate planning purposes,

should be considered consumer credit transactions. See

12 C.F.R. pt. 1026, Supp. 1, § 1026.3 Comment 3(a)-10. 

Amonette involved such a situation.

The second case, Shirley, involved a trustee who lived at

the trust property, but the issue in that case was not whether

the loan was a consumer credit transaction. 2011 WL

855943, at *4. Instead, the issue was who was entitled to

receive TILA disclosures. Id. The court held that TILA

disclosures need not be provided to the beneficiaries of the

trust, in addition to the trustee. Id. (“The Court finds that

Wachovia’s disclosure obligations extended to the trustee . . .

and not to the trust’s beneficiaries or settlors.”).

Case: 18-56373, 04/14/2020, ID: 11659968, DktEntry: 22-1, Page 9 of 11
10 GILLIAM V. LEVINE

Galindo did not involve a trust at all. That case involved

a loan to an individual person, who refinanced a four-plex to

purchase another property in which she did not reside and

which she intended to rent to others. 2008 WL 4452344,

at *1. The district court in Galindo held that the transaction

at issue was not a consumer credit transaction, because the

complaint failed to allege that the loan was obtained for a

consumer, as opposed to a commercial, purpose. Id. at *4. 

In this case, the Borrower has alleged a personal, consumer

purpose—that the loans were obtained to support a member

of her family.

None of these cases support the Lender’s theory that a

trustee’s loan for a purely personal purpose, here for the

home of the beneficiary, is not a consumer credit transaction. 

All are consistent with the Borrower’s position that such a

loan is a consumer credit transaction. All are also consistent

with TILA’s purpose, which our court effectuates by

“constru[ing] the Act’s provisions liberally in favor of the

consumer.” Hauk, 552 F.3d at 1118 (internal quotation marks

omitted). The Commentary to Regulation Z assists our

interpretation and provides a sensible rule that “credit

extended for a consumer purpose to certain trusts is

considered to be credit extended to a natural person, rather

than credit extended to an organization.” 12 C.F.R. pt. 1026,

Supp. 1, § 1026.3 Comment 3(a)-10.

In this case, at the pleading stage, we conclude that the

Borrower has sufficiently alleged this loan was obtained for

a consumer purpose. As detailed in her complaint, the

Borrower obtained this loan for a personal, household, or

familial purpose—to enable her niece, the trust beneficiary,

to continue to live in the trust property. That the Borrower

obtained this loan so the trust beneficiary could continue to

Case: 18-56373, 04/14/2020, ID: 11659968, DktEntry: 22-1, Page 10 of 11
GILLIAM V. LEVINE 11

reside at the trust property supports, rather than undermines,

the conclusion that the loan was taken out for a consumer

purpose, because consumer purposes include personal,

household, and familial purposes under TILA. See 15 U.S.C.

§ 1602(i) (including transactions that are “primarily for

personal, family, or household purposes”).

The definitions of consumer credit transaction under

TILA and the Rosenthal Act are identical. See id.; Cal. Civ.

Code § 1788.2(e) (same). And RESPA’s definition of

protected transactions requires only that the transaction be for

a consumer purpose. See 12 U.S.C. § 2606(a). We therefore

conclude that trusts like the one in this case can be considered

natural persons under the Rosenthal Act, and that the

transaction here is to be regarded as a consumer credit

transaction under all three statutes.

The district court erred in construing the statutes in this

case too narrowly. The complaint should not have been

dismissed. A consumer, by placing assets in a trust for

personal estate planning purposes, does not lose all protection

for the trust beneficiary under these federal and state

consumer protection laws. We therefore reverse and remand

for further proceedings.

REVERSED and REMANDED.

Case: 18-56373, 04/14/2020, ID: 11659968, DktEntry: 22-1, Page 11 of 11