period, which in this case would not expire until December 27, 2002. See Cplt. {4(B) (alleging
that mortgage was executed on December 27, 1999). A consumer’s right to rescind a transaction
under the TILA is unaffected by an assignment: “{a]ny consumer who has the right to rescind a
transaction under section 1635 of this title may rescind the transaction as against any assignee of
the obligation.” 15 U.S.C. §1641(c).

We first address defendants’ affirmative defense of rescission. Defendants allege that
they have made a demand for rescission, Answer 414, and even if they had not done so, their
filing of an affirmative defense and counterclaim seeking rescission would be sufficient to
constitute a demand for rescission under the TILA. Taylor, 97 F.3d at 100; Eveland v. Star Bank,
N.A., 976 F. Supp. 721, 726 (S.D. Ohio 1996); Elliott v. ITT Corp., 764 F. Supp. 102, 105-06
(N.D. Ill. 1991).

Fairbanks argues that defendants are not entitled to assert rescission as an affirmative
defense because Fairbanks is a mere “servicer” of the loan and thus is not an assignee within the
meaning of §1641(c). A “servicer” is the person or entity “responsible for servicing [the] loan” —
that is, for “receiving ... scheduled periodic payments from [the) borrower.” 12 U.S.C.
§2605(i)(2) & (3) (cross-referenced in 15 U.S.C. §1641(f)(3)). A servicer of a consumer debt is
not considered an assignee for purposes of §1641 “unless the servicer is or was the owner of the
obligation.” 15 U.S.C. §1641(f)(1). And a servicer is not considered the owner of the obligation
based on assignment made “solely for the administrative convenience of the servicer in servicing
the obligation.” Id. §1641(f)(2).

Fairbanks contends that it is a mere servicer and that the assignment was made solely for

its administrative convenience in servicing the loan. This contention is contradicted by



from this that “[a]pparently Congress did not wish to impose liability for damages and attomey’s
fees on an assignee who was not responsible for and who had no notice of TILA disclosure
violations at the time of an assignment.” Jd. Though §1641(c) permits the consumer to rescind
against an assignee, the court found no TILA provision permitting an award of damages or
attomey’s fees against an assignee for violating that provision. Thus, it concluded, “[rJescission
is ... the only remedy against [the assignee] to which [the consumer] is entitled.” Id.

This Court finds itself in respectful disagreement with Brodo. First of all, despite the use
of the word “creditor” in §1640(a)’s introductory language, it is clear from §1640 taken asa
whole that Congress intended for §1640(a)’s remedies to apply to any creditor or assignee that
violates TILA’s provisions. If Brodo were correct that the remedies described in §1640(a) were
available only against the initiating creditor, there would have been no reason for Congress to
include in §1640(b) and (c) defenses to liability “under this section” (i.e., §1640) that are
available to “[a] creditor or assignee.” 15 U.S.C. §1640(b) & (c) (emphasis added). In
construing a statute, a court must read it as an integrated whole, so as to give meaning to all of its
terms. See, e.g., In re McFarland, 84 F.3d 943, 946-47 (7th Cir. 1996) (citing United States v.
Nordic Village, Inc., 503 U.S. 30, 35-36 (1992)), Brodo’s reading of §1640(a) does not conform
to that requirement.

Second, the text of §1640(a) itself indicates that attomey’s fees, at least, are available
from an assignee, and not just from the originating creditor, for violating a consumer’s right to
rescind. Section 1640(a)(3) provides that “in the case of any successful action to enforce the
foregoing liability or in any action in which a person is determined to have a right of rescission

under section 1635 of this title, the costs of the action, together with a reasonable attorney's fee



an administrative convenience-type assignment. But defendants have denied the authenticity of
the assignment. It would be inappropriate for the Court to rely on a document of disputed
authenticity without converting Fairbanks’ motion to a motion for summary judgment, see Fed.
R. Civ, P. 12(b), a step which Fairbanks has not urged and which the Court would not do in any
event without allowing defendants an opportunity for discovery.

Moreover, without knowing more about the transaction between the lender and Fairbanks,
the inference that Fairbanks seeks to have the Court draw from the amount of consideration
recited in the assignment document is certainly debatable: it is not unusual for assignments —
like releases ~ to recite token consideration for purposes of form even if more substantial
consideration was actually provided. In addition, the fact that Fairbanks brought suit in its own
name as the “owner” of the note indicates that the assignment, at least as of the time Fairbanks
filed suit, was not merely a matter of “administrative convenience.” Indeed, Fairbanks has cited
no authority suggesting that rescission cannot be demanded of an assignee that has the legal
status necessary to file suit against the debtor.

In sum, on the present state of the pleadings the Court is unable to say that there is no set
of facts under which Fairbanks would be considered an assignee obligated under §1641(c) to
honor a proper demand for rescission. The Court therefore denies Fairbanks’ motion to strike
defendants’ second affirmative defense.

Defendants’ counterclaim for damages and attomey’s fees is based on two alleged TILA
violations: the alleged improper undermining of defendants’ right to rescind at the time the loan
was made, and Fairbanks’ failure to rescind the transaction following defendants’ demand for

rescission. We begin with the former.


Fairbanks’ own complaint. In the complaint, Fairbanks alleges, without qualification, that it is
“the owner and legal holder of [the] note, mortgage, and indebtedness.” Cplt. 4(N). A court
may treat an admission in a party’s pleading as a binding admission. See Cooper v. Carl A.
Nelson & Co., 211 F.3d 1008, 1014 (7th Cir. 2000); Taylor v. Monsanto Co., 150 F.3d 806, 809
(7th Cir. 1998). Though it is premature to determine whether this admission will conclusively
bind Fairbanks for the remainder of this litigation, the allegation is sufficient, for present
purposes, to defeat Fairbanks’ contention that it is a mere servicer not liable under §1641: a
servicer which owns the debt is considered an assignee for purposes of §1641. 15 U.S.C.
§1641((1).

The Court also rejects Fairbanks’ argument that it is clear that the assignment was made
“solely for [its] administrative convenience,” which if so would preclude it from being treated as
the “owner” of the debt. Jd. §1641(f)(2). Defendants have squarely alleged that Fairbanks is an
assignee of the loan — an allegation sufficient to permit them to assert rescission against
Fairbanks, see 15 U.S.C. §1641(c) — and they allege nothing that hints at the possibility that the
assignment was made solely for Fairbanks’ administrative convenience. In the present context,
the Court must take defendants’ allegations as true and can grant Fairbanks’ motion only if it
appears beyond doubt that defendants can prove no set of facts consistent with their allegations
that would sustain their counterclaim and defense, Hishon v. King & Spaulding, 467 U.S. 69, 73
(1984) (motion to dismiss); Conley v. Gibson, 355 U.S. 41, 45-46 (1957) (same); Williams v.
Jader Fuel Co., 944 F.2d 1388, 1400 (7th Cir. 1991) (motion to strike affirmative defense).
Fairbanks points out that the assignment, which is attached to Fairbanks’ complaint, recites that it

was made in return for payment of $10, and argues that the low price can only be consistent with



defendants have set forth the predicate for a claim against Fairbanks.” In their counterclaim,
defendants seek damages and attorney’s fees based on this claim.

Fairbanks argues that a consumer cannot obtain damages or attorney’s fees against an
assignee for failure to rescind a transaction. It relies on §1640(a), the TILA provision that
generally describes the remedies available for violations of the statute. Section 1640(a) provides
that “any creditor who fails to comply with any requirement imposed under [the TILA],
including any requirement under section 1635 of this title,” is liable for actual damages, statutory
damages, and attorney’s fees. 15 U.S.C. §1640(a) (emphasis added). The statute defines the
term “creditor” as denoting the entity to which the debt “is initially payable on the face of the
evidence of indebtedness,” id. §1602(f) (emphasis added), which in this case was EquiCredit, not
Fairbanks. Thus, Fairbanks argues, these remedies are not available against an assignee.

In Brodo v. Bankers Trust Co., 847 F. Supp. 353, 359 (E.D. Pa. 1994), the court adopted
Fairbanks’ proposed construction of the statute, concluding that an assignee cannot be held liable
for damages and attorney’s fees under TILA for failure to respond to a valid rescission notice
because it is not a “creditor” within the meaning of §1640(a). /d. at 359. The court
acknowledged that §1641(a) permits the imposition of civil liability against an assignee, but
noted that the statute limits liability to violations that are apparent from the disclosure statement

— which would not include a refusal to honor a request for rescission. Jd. The court inferred

? The Court agrees with Fairbanks’ argument that it is not automatically liable for its
simple failure to comply with the rescission demand. Rescission under TILA is not automatic if
the lender disputes the borrower’s claim that rescission is warranted. Large v. Conseco Finance
Servicing Corp., 292 F.3d 49, 55 (1st Cir. 2002). The questions of whether rescission is
appropriate, and whether Fairbanks is liable for failure to comply with the rescission demand,
will be determined at a later point in this litigation; they cannot be determined on a motion to
dismiss the counterclaim for failure to state a claim.

8



‘Minute Order Porm (06/97)

United States District Court, Northern District of Illinois

a ned J Sitting Judge If Othe
sandr Magistrate Judge Matthew F. Kennelly than Aasigned Judge
CASE NUMBER 02 C 3930 DATE 10/9/2002
CASE Fairbanks vs. Jenkins
TITLE
{ln the following box (a) indicate the party filing the mation, e.g, plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

MOTION: of the motion being presented.)

DOCKET ENTRY:

qt) Oo Filed motion of [ use listing in “Motion” box above.]

(2) QO Brief in support of motion due

(3) 0 Answer brief to motion due. . Reply to answer brief due__.

(4) ia Ruling/Hearingon__setfor___at

(5) Oo Status hearing[held/continued to] [set for/re-set for]on___setfor__at

(6) QO Pretrial conference[held/continued to] [set for/re-set for]on__—setfor__——sat__—.
(7) o Trial[set for/re-set for]on ss at__

(8) Oo [Bench/Jury trial) [Hearing] held/continued to___at

(9) 1) This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OOFRCP4(m) OlLocal Rule 41.1 COFRCP41(a\(1) OO FRCP41(a)(2).

ao [Other docket entry] For the reasons set forth on the attached Memorandum Opinion and Order,
the Court denies plaintiff's motion to dismiss the counterclaim and strike the second affirmative defense
(12-1,2) and also denies defendant’s motion for identification and joinder of the real party in interest (14-
1). The Court grants defendants leave to file, on or before 10/16/02, an amended answer and counterclaim
as discussed above. Plaintiffs’ answer to the amended counterclaim is to be filed by 10/23/02.

a1) @f [For further detail see order attached to the original minute order.]
No notices required, advised in open court.

No notices required.

Notices mailed by judge's staff,

Notified counsel by telephone.

V | Docketing to mail notices.
Mail AO 450 form.

Copy to judge/magistrate judge.
courtroom
OR deputy’s
initials
(-, -Date/timne received i
\. central Clerk’$ Office



In sum, this Court disagrees with Brodo and concludes that an assignee that refuses to
honor a proper demand for rescission may in fact be held liable under the TILA for attorney’s
fees. Certain of the reasons upon which this Court has relied to reach this conclusion likewise
tend to support defendants’ claim for statutory damages. But the Court need not make a
definitive ruling in that regard in the present context, as Fairbanks’ potential liability for
attorney’s fees is sufficient to permit defendants’ counterclaim to survive.

For these reasons, the Court denies Fairbanks’ motion to strike and its motion to dismiss.

2. Defendants’ motion for joinder of real party in interest
and disclosure of whether diversity jurisdiction exists.

Based on Fairbanks’ argument that it is merely an assignee for “administrative
convenience” against which no TILA claims can be made, defendants argue that Fairbanks may
not be the real party in interest in the case. Federal Rule of Civil Procedure 17(a) provides that
“[e]very action shall be prosecuted in the name of the real party in interest,” a requirement that
exists to protect defendants from suit by persons who lack the ability to make final and binding
decisions about the litigation as well as from a later action on the same claim by another party,
and to ensure that the judgment entered in the case will have proper preclusive effect. See, e.g.,
Gogolin & Stelter v. Karn’s Auto Imports, Inc., 886 F.2d 100, 102 (5th Cir. 1989); FDIC v, Main
Hurdman, 655 F. Supp. 259, 267 (E.D. Cal. 1987); Jn re Tainan, 48 B.R. 250, 252 (Bankr. E.D.
Pa. 1985).

The Court has concluded that at least for present purposes, it appears that Fairbanks is in
fact the owner of the note and mortgage on which the lawsuit is based. See Cplt. {4(N); supra at

5. For this reason, the Court does not currently perceive any significant doubt regarding whether

11



as determined by the court” is available. 15 U.S.C. §1640(a)(3) (emphasis added). Congress’
use of the disjunctive indicates that liability for attorney’s fees, at least, is not limited to actions
against the creditor that initiated the loan but rather applies in “any action” in which a right to
rescind is determined to exist.

Third, §1641(e)(1) and its counterpart §1641(a) plainly are not the exclusive means of
imposing TILA liability on assignees. Both provisions state that a civil action may be brought
against an assignee only for violations apparent from the disclosure statement “[e]xcept as
otherwise specifically provided in this subchapter.” 15 U.S.C. §1641(a) & (e)(1). But §1641(c)
is such an exception: it specifically provides that a customer has the right to rescind against “any
assignee of the obligation,” id. §1641(c) (emphasis added), and not just against the more limited
set of assignees described in §1641(a) and (e)(1).

Finally, denying a consumer whose demand for rescission was refused by an assignee the
ability to recover attorney’s fees upon successful court action to enforce her TILA rights would
undermine the policies underlying the TILA and its private enforcement mechanism. The TILA
provides for an award of attorney’s fees to a successful consumer in order to ensure that the
consumer is made whole and to encourage enforcement of the statute’s requirements. Hannon v.
Security National Bank, 537 F.2d 327, 328 (9th Cir. 1976); Corbett v. Keene Co-operative Bank,
498 F. Supp. 800, 802 (D.N.H. 1980); Liberty Loan Corp. v. Boyajian, 407 F. Supp. 308, 311
(D.R.I. 1976); Jones v. Seldon’s Furniture Warehouse, Inc., 357 F. Supp. 886, 887 (E.D. Va.
1973). If consumers were precluded from recovering attorney’s fees in this context, they would
be chilled from seeking enforcement even in meritorious cases, as it is common for TILA

plaintiffs to be persons of limited means who are unable to finance expensive litigation.

10



The TILA provides that an action for a violation involving a consumer loan secured by
real property may be maintained against an assignee “only if the violation for which such action
or proceeding is brought is apparent on the face of the disclosure statement,” except as
specifically provided in the statute, 15 U.S.C. §1641(e)(1). According to Fairbanks, the alleged
deprivation of the right to rescind does not satisfy that test. Under the TILA, a violation is
apparent on the face of the disclosure statement if “the disclosure can be determined to be
incomplete or inaccurate by a comparison among the disclosure statement, any itemization of the
amount financed, the note, or any other disclosure of disbursement.” Id. §1641(e)(2) (emphasis
added). Defendants contend that documents likely to have been in the credit file transferred to
Fairbanks as part of the assignment included instructions to the closing agent which disclosed the
disbursements and directed retum of the closing package, including the allegedly improper
“confirmation” of non-rescission, to the lender. Response to Motion to Dismiss, p. 11. Though
defendants’ counterclaim currently includes no allegation that the alleged TILA violation was
apparent from the disclosure statement — an allegation that is, in the Court’s view, necessary to
maintain this type of claim against an assignee — the Court is confident based on defendants’
response to the motion to dismiss that if given the opportunity, they would amend the
counterclaim to include such an allegation.

Defendants’ other claim is that after the assignment, Fairbanks directly violated the TILA
by refusing to honor defendants’ demand for rescission. The statute requires a creditor to take
steps to rescind the transaction within twenty days of receipt of the consumer’s demand for
rescission, 15 U.S.C. §1635(b), and as noted earlier this obligation applies to assignees like

Fairbanks. Jd. §1641(c). Because Fairbanks failed to perform the steps required by §1635(b),



documents.' Defendants, in addition to objecting to Fairbanks’ motion, have fired their own shot
across Fairbanks’ bow: based on Fairbanks’ argument that it is not truly an assignee of the note
and mortgage for purposes of TILA, defendants argue that Fairbanks is not the “real party in
interest” and thus cannot prosecute the case on its own behalf under Fed. R. Civ. P. 17(a). They
have asked the Court to require the joinder of NationsCredit d/b/a EquiCredit as the real party in
interest and suggest that once that is done, diversity jurisdiction may be lacking.
Discussion

1, Plaintiff's motion to strike affirmative defense and dismiss counterclaim

The TILA provides that a consumer has the right to rescind, among other transactions, a
consumer credit transaction in which a security interest is retained on the consumer’s home. This
right extends until the third business day after the later of two dates: the date on which the
transaction is consummated, or the date on which disclosure and rescission forms are delivered to
the consumer. 15 U.S.C. §1635(a). Ifthe creditor fails to deliver the forms, or fails to provide
the required information, then the right to rescind extends for three years after the transaction’s
consummation. Jd. §1635(f); 12 C.F.R. §226.23(a)(3). See Smith v. Highland Bank, 108 F.3d
1325, 1326 (11th Cir. 1997); Taylor v. Domestic Remodeling, Inc., 97 F.3d 96, 98 (Sth Cir.
1996). Defendants’ allegation that their right to rescind was not properly disclosed is sufficient

to bring into play, for purposes of the present motion at least, the extended three-year rescission

' Fairbanks’ motion also included an argument that because defendants attached to their
counterclaim an unsigned copy of the purported “confirmation” of non-rescission, that
contradicted their allegation that they had actually signed such a document and thus undermined
their TILA affirmative defense and counterclaim, The Court rejected this argument in open court
without requiring defendants to respond to it; defendants contend that they were never given a
copy of the executed document after they signed it.

3



In their answer to the complaint, defendants stated that they had insufficient knowledge
regarding the allegation that Fairbanks was the assignee of the note and mortgage, sce Answer
4(N), a statement that operates as a denial of that allegation. See Fed. R. Civ. P. 8(b). They also
noted that the copy of the purported assignment attached to the complaint was unexecuted and
therefore denied its authenticity. Answer {3.

In their second affirmative defense, defendants alleged that at the time they executed the
note and mortgage, they were not given proper notice of their right to rescind the transaction
within three business days pursuant to the Truth in Lending Act, 15 U.S.C. §1635 & 12 C.F.R.
§226.23, and that a document they signed at closing purporting to “confirm” that they were not
rescinding was invalid because it improperly negated their right to rescind. Answer, Second Aff.
Def. 49-13. Defendants further alleged that the legal effect of this was to give them an extended
three-year period in which to rescind; they asserted that they have given notice of their election to
rescind. Jd. 914. Finally, defendants alleged that under 15 U.S.C. §1641, they are entitled to
assert the right to rescind against any assignee of the loan. Id. 415.

Defendants also asserted a counterclaim which incorporates the allegations from their
second affirmative defense. In the counterclaim, they restated their demand for rescission of the
transaction and made a claim for damages and attorney’s fees under the TILA against Fairbanks
and NationsCredit Financial Services Corp., doing business as EquiCredit Corporation of Illinois.

Fairbanks has moved to strike the affirmative defense and to dismiss the counterclaim
pursuant to Fed. R. Civ. P. 12(b)(6). It argues that it is not the type of assignee against which a
TILA claim may be asserted and that in any event it cannot be sued for damages under the TILA

as an assignee because the alleged violation did not appear on the face of the pertinent



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION DoCKE TI ED

ocr
16 209

FAIRBANKS CAPITAL CORP., )
)

Plaintiff, )

)

vs. ) Case No. 02 C 3930

)

JOHNNY JENKINS and ANNIE J. )
WESSON-JENKINS, )
)

Defendants. )

MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:

In December 1999, defendants Johnny Jenkins and Annie Wesson-Jenkins obtained a
loan from EquiCredit Corporation of Illinois and executed a promissory note in the amount of
$86,250, secured by a mortgage on their home in Schaumburg, Illinois. In June 2002, plaintiff
Fairbanks Capital Corp., alleging that it was “the owner and legal holder of said note, mortgage,
and indebtedness,” Cplt. 14(N), filed suit against the defendants, alleging that they had defaulted
on their obligation to make payments on the loan and seeking to foreclose the mortgage.
Fairbanks attached to its complaint copies of the note, mortgage, and an unsigned and undated
document entitled “Assignment of Mortgage,” stating that EquiCredit “does hereby sell, assign,
transfer and set over” the mortgage to Fairbanks, for consideration of $10. The complaint
alleged that the Court had jurisdiction by reason of diversity of citizenship; Fairbanks is a Utah
corporation with its principal place of business in that state, the defendants are Illinois citizens,

and the amount claimed to be due is just over $85,472. 28 U.S.C. §1332(a).

0



Fairbanks is the real party in interest. If discovery turns up evidence that creates such doubt,
there will be ample time for the parties to raise the issue and for the Court to make the necessary
determination. For these reasons, the Court denies defendants’ motion for identification and
joinder of the purported real party in interest.
Conclusion

For the reasons stated above, the Court denies plaintiffs’ motion to dismiss the
counterclaim and strike the second affirmative defense [docket item 12-1 & 12-2) and also denies
defendants’ motion for identification and joinder of the real party in interest [docket item 14-1].
The Court grants defendants leave to file, on or before October 16, 2002, an amended answer and
counterclaim as discussed above. Plaintiffs’ answer to the amended counterclaim is to be filed

by October 23, 2002.

MATTHEW F. KENNELL
United States District Judge
Date: October 9, 2002

12