Opinion ID: 564316
Heading Depth: 2
Heading Rank: 1

Heading: Jonathan's Claim.

Text: 12 15 U.S.C. Sec. 1635(a) (1988) governs decision in this case, and provides: 13 Except as otherwise provided in this section, in the case of any consumer credit transaction (including opening or increasing the credit limit for an open end credit plan) in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the Board [of Governors of the Federal Reserve System], of his intention to do so. The creditor shall clearly and conspicuously disclose, in accordance with regulations of the Board, to any obligor in a transaction subject to this section the rights of the obligor under this section. The creditor shall also provide, in accordance with regulations of the Board, appropriate forms for the obligor to exercise his right to rescind any transaction subject to this section. 14 Id. (emphasis added). 15 The district court ruled that the Property was not Jonathan's principal dwelling within the meaning of section 1635(a), based upon both the facts of record and the court's assessment of the credibility of the witnesses. We must affirm this finding unless we deem it clearly erroneous, and must accord due regard ... to the opportunity of the trial court to judge of the credibility of the witnesses. Fed.R.Civ.P. 52(a). We find no basis for reversal. 16 Jonathan lived at the Property from 1968, when he was five years old, to 1971. He thereafter lived at various other locations in Suffolk County with his natural mother until she relocated to Texas in 1976. Commencing that year, he lived with his father and Shari at 26 Hitherbrook Road in St. James, New York. 17 Beginning in 1975, the Property was leased to tenants. They moved out in June 1984 because of inability to pay the rent, but left most of their furniture there. Jonathan graduated from college in 1984, and lived at the Property beginning sometime after July 4, 1984. He thus lived there on August 10, 1984, the closing date for the second mortgage transaction. He began Touro Law School that fall, and moved out of the Property around Labor Day, 1984. 18 During that summer, Jonathan received his mail at a post office box in St. James. The telephone and electric services for the Property were not registered in his name. Rather, they were registered in the former tenant's name, and subsequently in Shari's name. His only possessions at the Property were a single bed, small dresser, radio, clock, folding table, and four chairs. These possessions occupied only one room, while the former tenant's furniture remained in the rest of the house. From September through December 1984, the former tenant resumed residence at the Property rent-free. Jonathan never made any payment on the first or second mortgage on the Property. Payments on the first mortgage were made from rental receipts on the property; when no such receipts were available, Shari made the payments. 19 We have been unable to find any case addressing the issue whether a particular residence was a borrower's principal dwelling within the meaning of section 1635(a). However, the Board of Governors of the Federal Reserve System has issued Regulation Z to implement the TILA, see 12 C.F.R. Sec. 226.1 (1991) et seq., and id. Sec. 226.23(a) reiterates the principal dwelling requirement of section 1635(a). An official staff interpretation of this provision by the Board's Division of Consumer and Community Affairs, see 12 C.F.R. Pt. 226, App. C (1991), states: A consumer can only have one principal dwelling at a time. A vacation or other second home would not be a principal dwelling. See 12 C.F.R. Pt. 226, Supp. I, at 392 (1991). Especially in view of the deference that we owe to the district court's findings of fact and credibility assessments, we conclude that given the very temporary nature of Jonathan's 1984 summer sojourn at the Property, this was at best his vacation or second home, not his section 1635(a) principal dwelling. 20 Once the district court reached this conclusion, it noted that Jonathan also sought a declaratory judgment forfeiting [LISB's] security interest in the premises at 12 Glen Ridge Avenue, and then determined that [a]s the [TILA] is not applicable to this case, the provision which appears dispositive is Section 7-4.6 of the Estates Powers & Trusts Law. The district court concluded that LISB relied on the veracity of Shari Scott's representation that she was the custodian of Jonathan Scott and, in so doing, it is protected by the provisions of EPTL Sec. 7-4.6.... [LISB] may proceed to foreclose on the mortgage that it extended to Shari Scott. 21 In ruling that LISB was entitled under EPTL Sec. 7-4.6 to rely on Shari's representation that she was acting as Jonathan's custodian, the district court adjudicated the question whether the security interest acquired by LISB covered Jonathan's one-third share. Our problem with this adjudication is that the issue had not been placed in controversy by the pleadings. 22 The amended complaint included only a single cause of action. It asserted subject matter jurisdiction under 28 U.S.C. Sec. 1331 (1988) by virtue of relief sought under TILA. The relief sought was the rescission of the mortgage in its entirety for failure of the lender to advise the mortgagor of a residence of the right to cancel, as required by TILA, 15 U.S.C. Sec. 1635(a) (1988), and 12 C.F.R. Sec. 226.23 (1991). 23 Had the complaint sought, in addition, to set aside that portion of the mortgage covering Jonathan's one-third share by reason of the absence of Jonathan's consent, this would have raised a claim under New York law which would not have come within the federal court's jurisdiction except by exercise of pendent jurisdiction, ancillary to the TILA claim. Although one of the recitations of the complaint mentioned Jonathan's lack of consent to the mortgage, no such second cause of action was asserted; nor did any of the several paragraphs specifying the relief sought include relief freeing Jonathan's share from the mortgage on this basis. 24 The same issue could of course have been asserted by LISB in a bank counterclaim seeking declaratory judgment that its mortgage validly covered Jonathan's share, notwithstanding his absence of consent, by reason of the bank's reliance on Shari's assertion of custody. LISB's answer, however, asserted no such counterclaim. (LISB's third-party claim against Shari included reference to the bank's right-to-rely under the EPTL. But that cause of action, to which Jonathan in any event was not a party, was severed pending resolution of Jonathan's action against LISB.) It is true that LISB's proposed findings of fact and conclusions of law sought a declaration that it had lawfully relied upon Shari's representation of custody. It is questionable, however, whether such an assertion in proposed findings validly introduces an unpleaded cause into a litigation. 25 If it were clear that the parties believed they were litigating the ancillary issue, we might well allow the judgment to stand notwithstanding the objection that it had not been raised by the pleadings, especially if the implicated issues of state law were not controversial and if retrial would impose a substantial duplicative burden and expense. Here, however, none of these conditions is present. LISB has instituted a foreclosure action in state court where these questions may appropriately be addressed. Further, the state law issue as to the meaning of section 7-4.6 is far from clear because that provision has rarely been interpreted by New York courts. Were a federal court deciding whether to assert pendent jurisdiction over a claim requiring interpretation of such a statute, its obscurity and the paucity of pertinent state judicial precedent would argue in favor of deferring in favor of the state courts. 4 See L.A. Draper & Son v. Wheelabrator-Frye, Inc., 735 F.2d 414, 428 (11th Cir.1984). These considerations lead us to vacate the judgment of the district court insofar as it resolves a claim that was not pleaded, leaving the issue of LISB's reliance upon Shari's representation of custody to be determined by the state court in LISB's action to foreclose its mortgage. 26