Opinion ID: 2832760
Heading Depth: 2
Heading Rank: 4

Heading: Rescission in Recoupment

Text: As part of the discussion of her alleged state law claims, i.e., common law fraud and Chapter 93A, Sheedy also advances in her brief the argument that her request for rescission in recoupment is immune from any limitations period because the equitable remedy of recoupment can be raised defensively at any time. We first describe these remedies by noting that recoupment is fundamentally different from rescission. See In re O'Connell, No. 11–10940, 2012 WL 2685149, at  (Bankr. D. Mass. July 6, 2012) (Recoupment and rescission are [like] apples and oranges.). On the one hand, [r]escission affects a return to the status quo. Schwartz v. Rose, 634 N.E.2d 105, 109 (Mass. 1994). It is the 'unmaking' or 'voidance' of a contract. May v. SunTrust Mort., Inc., 7 N.E.3d 1036, 1042 (Mass. 2014) (quoting Black's Law Dictionary 1420-21 (9th. ed. 2009)). Thus, in order to obtain rescission of a transaction, the party requesting such remedy must restore or offer to restore all that he received under it. Bellefeuille v. Medeiros, 139 N.E.2d 413, 415 (Mass. 1957) (citations omitted). On the other hand, recoupment allows a defendant to 'defend' against a claim by asserting -- up to the amount of the claim -- the defendant's own claim against the plaintiff growing out of the same transaction. Bolduc v. Beal Bank, SSB, 167 F.3d 667, 672 (1st Cir. 1999) There is no time limit to raise recoupment as a defense. See May, 7 N.E.3d at 1043 -17- ([T]he right to recoupment contains no time limitations on assertion of the right. This accords with the common-law understanding of recoupment as a defensive mechanism whereby a defendant may, at any time, assert claims against the plaintiff in reduction of the plaintiff's claims when those claims arise out of the same transaction; it is an offsetting of liabilities within a transaction. (alteration omitted) (citing Bose Corp. v. Consumers Union of U.S., Inc., 326 N.E.2d 8 (Mass. 1975))); see also Bull v. United States, 295 U.S. 247, 262 (1935) (explaining that recoupment is allowed in the nature of a defense arising out of some feature of the transaction upon which the plaintiff's action is grounded [and that it] is never barred by the statute of limitations so long as the main action itself is timely). In the instant case, this means that if Sheedy is granted the requested relief of rescission in recoupment, she would be allowed to avoid the Secured Creditor's foreclosure action by reviving her own claim arising under the 2004 Transaction. That would result in rescission being a setoff against foreclosure. Yet, in recoupment, there is a difference between a defendant obtaining damages caused by a plaintiff and the defendant obtaining rescission of a mortgage-secured obligation owed to the plaintiff. See Beach, 523 U.S. at 411 (Since a statutory rescission right could cloud a bank's title on foreclosure, Congress may well have chosen to circumscribe that risk, while permitting recoupment of -18- damages regardless of the date a collection action may be brought.); see also May, 7 N.E.3d at 1042. Thus, the question becomes whether rescission is available to Sheedy in recoupment. Under Massachusetts common law, recoupment and rescission were consistently treated as separate, nonoverlapping remedies [,] . . . as [these] are inconsistent remedies, a person who has once elected to pursue one of them cannot afterwards seek the other. May, 7 N.E.3d at 1042 (alterations omitted) (citations and internal quotation marks omitted). Despite this apparent preclusion of rescission in recoupment, Sheedy argues that the Supreme Judicial Court's decision in May does not impede her from obtaining such relief. In that case, debtors in a position equivalent to Sheedy's filed an adversary proceeding against a creditor, also within a Chapter 13 bankruptcy case, seeking rescission of a home-refinancing loan transaction. The statute at issue in May, however, was not Chapter 93A. Instead, it was the Massachusetts Consumer Credit Cost Disclosure Act (MCCCDA), Mass. Gen. Laws ch. 140D, §§ 1-35, the TILA-equivalent state statute that governs the rights and duties of creditors and obligors (borrowers or consumers) engaged in consumer credit transactions . . . [including] the refinancing of a consumer's home where the consumer grants a mortgage to the creditor to secure the refinancing loan. May, 7 N.E.3d at 1037. The Supreme Judicial Court concluded that rescission is not a remedy in recoupment for violations of the -19- MCCCDA, in part because under the common-law[,] recoupment does not include the use of rescission as a form of recoupment. Id. at 1043. Sheedy's attempts to distinguish May from the present case are fruitless. Pointing to no supporting source, Sheedy asks us to conclude that, while Massachusetts law does not allow rescission in recoupment in claims arising under the MCCCDA, the legislative intent can easily be avoided by any defendant raising an identical claim as a Chapter 93A claim. That is, without explanation, Chapter 93A permits a defendant to revive in recoupment what the legislature expressly wanted foreclosed by the statute of limitations under the statute intended to protect such borrower. We are unpersuaded. Even the May court's statement of the question before it directly addresses and forecloses the issue in the instant case: whether any laws of the Commonwealth pertaining to recoupment provided for or recognize rescission as a form of recoupment, at least where rescission is used defensively to meet an obligation due. Id. at 1041. In answering this question in the negative, the Supreme Judicial Court emphasized that a borrower could seek rescission -- where allowed -- but not in recoupment. Id. at 1043 ([R]ecoupment and rescission are separate, and common-law recoupment does not include the use of rescission as a form of recoupment.). Furthermore, May recognizes that it is possible for a future plaintiff to have a defensive -20- claim for damages under Chapter 93A that could be raised in recoupment, but not a claim for rescission. Id. at 1044 n.17 (Here, however, because the plaintiffs' claim alleging a violation of G.L. c. 93A is tied to their asserted right to rescission, which does not exist, their c. 93A claim currently does not appear to offer relief.). Sheedy only offers one argument to differentiate her case from May, stating that since Sheedy is proceeding under the federal statute, [May] does not control since it applies only to the [TILA-equivalent] state statute. This argument contradicts another statement in Sheedy's brief that the reason we should ignore the statute of limitations applicable to her TILA claim in the first place is that a plaintiff may preserve a right of rescission under Chapter 93A of the Massachusetts General Laws. Moreover, in her complaint, Sheedy's sole remedy request under Chapter 93A was for rescission. Thus, we conclude that, inasmuch as May does not allow rescission in recoupment under the MCCCDAA, and rescission in recoupment is not allowed pursuant to Massachusetts common law, Sheedy has not advanced anything to support that -- based on the same facts -- a defendant may circumscribe the statutes to revive such a claim through Chapter 93A. Consequently, Sheedy may not assert a claim for rescission in recoupment under Chapter 93A. -21- E. The Fraud, Deceit, and Misrepresentation Claim Sheedy argues that the forensic audit report obtained from MFI-Miami found that the terms of the Truth in Lending statement contradict the terms of the loan because the payment due on the sixty-first month turned out to be $4,055.05, instead of the $4,331.58 that WAMU disclosed to her. Thus, because she was notified when she entered into the loan that she would have to pay a higher amount than what she ended up having to pay, she was necessarily deceived. Another such example of claimed deceit and misrepresentation is the fact that the Note stated that she would have to pay $4,109.56 per month for the first sixty months, but she was only required to pay $2,446.88 each of these months. Accordingly, Sheedy stresses that WAMU induced her into entering a loan with false and misleading information. As a preliminary observation, while it may be a violation of federal and state laws and regulations in some circumstances, Sheedy does not explain how telling a borrower that she will be responsible for a higher amount than what is actually demanded of her fraudulently induces such a borrower into entering a loan that she would not have otherwise executed.10 In any event, Sheedy's argument is misleading because the amount actually paid by her 10 We do not rule out that some borrowers may be defrauded by entering into contracts that demand higher payments than what are actually required of them, e.g., when a borrower expects lower overall interest expense based on higher payments up-front. -22- during the initial sixty-month period was based on the addendum to the Note and not on what the Note itself provided. To successfully pursue a fraud claim under Massachusetts law, Sheedy had to establish that (1) [WAMU] made a false representation with knowledge of its falsity for the purpose of inducing plaintiffs to act thereon; (2) that [Sheedy] relied upon the representation as true and acted upon it to [her] detriment; and (3) that [her] reliance was reasonable under the circumstances. FAMM Steel, Inc. v. Sovereign Bank, 571 F.3d 93, 105-106 (1st Cir. 2009) (citing Rodi v. S. New Eng. Sch. of Law, 532 F.3d 11, 15 (1st Cir. 2008)). We take these elements in that order, beginning with the knowledge element. Because Sheedy does not argue that WAMU had knowledge of the falsity of the information, we assume that she implies that it should have been apparent to WAMU that the Note and the Truth in Lending statement contained different information, and that one of the numbers was wrong. However, absent more detailed evidence, it is not obvious that a payment amount provided in the disclosure is deceptive when the interest rate is variable -- by its own terms the payment amount will be the result of applying the interest formula at a future time. See 12 C.F.R. § 226.18(f) (listing the required disclosures for variable rate). Even assuming that the variable payment amounts could be predicted and that WAMU should have had knowledge that the amounts disclosed in -23- the two documents were different, Sheedy still failed to establish the remaining elements. Sheedy's arguments also fail when it comes to the reliance element. She first recognizes that the details disclosed by WAMU were contradictory and that any reasonable person would be confused by this discrepancy[,] yet she claims that she still relied on the higher payment amounts represented by WAMU and acted upon them to her detriment. Sheedy does not argue that this resulted in any specific harm. Instead, she simply asks that we find quite irrationally that she was harmed by the alleged fraud based on the fact that she was later required to make lower payments. Finally, Sheedy does not establish how her reliance on confusing and contradictory disclosures was reasonable under the circumstances, especially in light of the facts that she had been in the real estate industry and had a real estate broker license since the early 1980s. See Yorke v. Taylor, 124 N.E.2d 912, 916 (Mass. 1955) (noting reliance cannot be deemed reasonable when alleged misrepresentation is palpably false).11 11 Because we conclude that Sheedy's allegations on appeal are insufficient to establish her underlying fraud claim, we need not examine the effects of the MFI-Miami report's exclusion or the Secured Creditors arguments that any liability by WAMU was retained by the FDIC. -24- F. The Objection to the Secured Claim Sheedy presents on appeal a short conclusory argument that the Secured Creditors did not explain why their claim for costs and attorney fees is reasonable and necessary, and thus the claim should be disallowed. Additionally, citing to In re Plant, 288 B.R. 635 (Bankr. D. Mass 2003), without any effort to develop an argument, Sheedy states simply that the Secured Claim does not comply with the court's rule for allowing attorney fees. Sheedy does not state what those rules are.12 We think this is nothing more than a skeletal presentation of the argument; it is thus waived.13 See Matt v. HSBC Bank USA, N.A., 783 F.3d 368, 373 (1st Cir. 2015) (These issues are stated 'in the most skeletal way, leaving the court to do counsel's work, create the ossature for the argument, and put flesh on its bones.' (quoting Zannino, 895 F.2d at 17)). G. Deutsche Bank's Standing as Sheedy's Creditor In essence, Sheedy's standing challenge is that Deutsche Bank cannot enforce the Mortgage against her because it was 12 In re Plant includes a detailed explanation of the applicability of Federal Rule of Bankruptcy Procedure 2016 and Massachusetts Local Bankruptcy Rule 2016-1. 288 B.R. at 663-64. Those rules in turn list a number of requirements for applications for compensation and fees against the estate. Sheedy does not explain how these were not followed. 13 The district court found the Secured Creditors had presented an affidavit with sufficient information for Sheedy to explain what her objection was. -25- transferred into the Securitized Trust in violation of the PSA, six years after the trust was created. However, it is Sheedy who lacks standing to challenge Deutsche Bank's claim against her on this ground. Sheedy cannot question Deutsche Bank's status as her creditor unless she challenge[s] a mortgage assignment as invalid, ineffective, or void[,] rather than as an assignment that is only voidable. Culhane v. Aurora Loan Services of Nebraska, 708 F.3d 282, 291 (1st Cir. 2013). Yet a valid challenge for violations of the terms of a PSA would result in the assignment being voidable and not void. Butler v. Deutsche Bank Tr. Co. Americas, 748 F.3d 28, 37 (1st Cir. 2014) (Under Massachusetts law, it is clear that claims alleging disregard of a trust's PSA are considered voidable, not void.).