Court Opinion

ID: 2678099
Source: CourtListenerOpinion
Date Created: 2014-06-12 14:00:37.939169+00
Date Added: 2024-06-11T09:37:49.893161
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                           Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                  File Name: 14a0123p.06

                 UNITED STATES COURT OF APPEALS
                              FOR THE SIXTH CIRCUIT
                                _________________

 RL BB ACQUISITION, LLC,                             ┐
                               Plaintiff-Appellee,   │
                                                     │
                                                     │       No. 13-6034
       v.                                            │
                                                      >
                                                     │
 BRIDGEMILL COMMONS DEVELOPMENT GROUP,               │
 LLC, et al.,                                        │
                             Defendants,             │
                                                     │
                                                     │
 STARR STONE DIXON,                                  │
                            Defendant-Appellant.     │
                                                     ┘
                      Appeal from the United States District Court
                 for the Eastern District of Tennessee of Chattanooga.
                No. 1:11-cv-00208—Harry S. Mattice, Jr., District Judge.
                                Argued: March 14, 2014
                           Decided and Filed: June 12, 2014

                Before: MERRITT, MOORE, and CLAY, Circuit Judges.
                              _________________

                                      COUNSEL

ARGUED: Thomas E. Ray, SAMPLES, JENNINGS, RAY & CLEM, PLLC, Chattanooga,
Tennessee, for Appellant. Samuel B. Zeigler, TAYLOR ENGLISH DUMA LLP, Atlanta,
Georgia, for Appellee. ON BRIEF: Thomas E. Ray, SAMPLES, JENNINGS, RAY & CLEM,
PLLC, Chattanooga, Tennessee, for Appellant. Samuel B. Zeigler, TAYLOR ENGLISH DUMA
LLP, Atlanta, Georgia, for Appellee.

                                            1
No. 13-6034            RL BB Acquisition v. Bridgemill Commons Dev., et al.                      Page 2

                                            _________________

                                                  OPINION
                                            _________________

        CLAY, Circuit Judge. In this action for breach of guaranty, Defendant Starr Stone Dixon
(“Starr”) appeals the district court’s holding that she cannot assert a violation of the Equal Credit
Opportunity Act (“ECOA”), 15 U.S.C. § 1691 et seq., and its implementing regulation,
Regulation B, 12 C.F.R. § 202.1 et seq., 12 C.F.R. § 1002.1 et seq.,1 as an affirmative defense.
Starr also appeals the court’s grant of summary judgment in favor of Plaintiff RL BB
Acquisition, LLC. We hold that a violation of ECOA and Regulation B can be asserted as an
affirmative defense of recoupment, and therefore REVERSE in part, VACATE in part, and
REMAND.

                                              BACKGROUND

        Starr’s husband, Defendant H. Bernard Dixon (“Bernard”), spent a lifetime making his
fortune as a franchisee for numerous fast food chains. In 2005, Bernard decided to invest
millions in two residential developments in the Atlanta exurbs—one named Bridgemill
Commons and the other named Mabry Farms. His timing could have been better. In the wake of
the global financial crisis of 2008, these investments were left nearly $10 million in debt.
Bernard sought to refinance this debt on more flexible terms.

        To accomplish this refinancing, Bernard approached John Bryan, a loan officer at the
Cleveland, Tennessee branch of BB&T Bank, where Bernard had been a customer and borrower
since the early 2000s.        Bernard initially hoped to refinance the outstanding debt on both
developments. The Mabry Farms development owed approximately $3.2 million to United
Community Bank (the “UCB Loan”). The Bridgemill Commons development owed $6.4 million
to Regions Bank (the “Regions Loan”). The listed borrower on the Regions Loan was Defendant
Bridgemill Commons Development Group, LLC (“BCDG”), a Georgia company owned by

        1
          Regulation B was first promulgated as 12 C.F.R. § 202.1 et seq. See 40 Fed. Reg. 49,298 (Oct. 22, 1975).
During the pendency of this action, Regulation B was reissued as 12 C.F.R. § 1002.1 et seq., “making only certain
non-substantive, technical, formatting, and stylistic changes.” 76 Fed. Reg. 79,442, 79,442 (Dec. 21, 2011). For
ease of reference, we will cite to both versions.
No. 13-6034        RL BB Acquisition v. Bridgemill Commons Dev., et al.           Page 3

Bernard that had been created to purchase the Bridgemill Commons development. Bernard gave
BB&T a personal financial statement in support of his loan application, detailing his and Starr’s
financial circumstances as of March 31, 2008. BB&T also appraised the Bridgemill Commons
development, valuing it as $5.65 million.

       Based on this information, BB&T concluded that Bernard and BCDG were not
independently creditworthy for a loan large enough to refinance both the Regions Loan and the
UCB Loan.     Bryan informed Bernard of this conclusion, but suggested that BB&T could
refinance the Regions Loan, so long Bernard could find additional collateral. Bernard agreed to
pledge nearly 40,000 shares of BB&T stock and a corporate debenture. Starr agreed to pledge
the same number of BB&T shares, which she owned individually. Including these new pledges,
Bernard had over $8.8 million of collateral supporting his loan application. Based on BB&T’s
underwriting policies, the bank determined that it could issue a loan of approximately $6.1
million—still less than the Regions Loan.

       To shore up the application, Bernard executed a personal guaranty, meaning that he
would be personally liable in the case of a default by the borrower, which would be BCDG.
Starr also executed a guaranty—and it is this agreement that gives rise to the appeal now before
us.

       The parties dispute how Starr came to execute her guaranty. Bryan asserts that he
initially discussed the possibility of Bernard’s daughters—who had apparently received a good
deal of the family fortune—providing some collateral or a guaranty to support the loan. Bryan
asserts that Bernard suggested that Starr act as guarantor instead. For his part, Bernard insists
that Bryan demanded that Starr provide a guaranty. One piece of documentary evidence lends
credence to Bernard’s version of events. BB&T produced a summary of the requirements for the
loan, which Bryan gave to Bernard on May 2, 2008. Item one in the summary reads: “[Starr]
will be required to co-sign the notes with her future release subject to negotiation.” (R. 68-1,
Bryan Aff., at 389.) Bryan counters that this summary simply reflects Bernard’s own suggestion
that his wife execute a guaranty. Starr herself concedes that she never spoke with Bryan or
anyone from BB&T; rather, Bernard told her that BB&T required her signature. Starr claims she
No. 13-6034         RL BB Acquisition v. Bridgemill Commons Dev., et al.            Page 4

felt tremendous pressure to sign a guaranty, although she admits that the pressure did not come
directly from BB&T.

       The loan transaction closed on June 4, 2008. On that date, BCDG issued a note for $6.4
million, plus interest, to BB&T (the “BCDG Note”). Bernard and Starr executed three security
agreements related to the BCDG Note. They also each executed a guaranty, which made them
individually liable for the amount owed on the BCDG Note. That note came due by its own
terms on June 5, 2010. The district court found that by that date, Defendants had paid down less
than $2 million of the principal. On February 25, 2011, BB&T transferred the BCDG Note and
the guarantees to Rialto Real Estate Fund, LP. Rialto in turn transferred the BCDG Note and
guarantees to Plaintiff on July 27, 2011.

       On August 12, 2011, Plaintiff filed suit in the U.S. District Court for the Eastern District
of Tennessee on the basis of diversity jurisdiction. Plaintiff asserted five causes of action,
including breach of guaranty against Starr. Defendants answered on December 12, 2011. In the
answer, Starr asserted that her guaranty was unenforceable since it violated ECOA and
Regulation B—specifically, Regulation B’s prohibition on requiring spouses to guarantee loans.
See 12 C.F.R. § 202.7(d), 12 C.F.R. § 1002.7(d). Starr later moved for summary judgment on
this ground, while Plaintiff filed its own motion for summary judgment on the merits of its
breach-of-guaranty claim. The district court held that Starr could not raise violations of ECOA
and Regulation B as an affirmative defense. The court also held that Plaintiff had proven that
Starr was liable under her guaranty, but the amount of damages remained to be resolved. After
the parties stipulated to the amount of damages, the district court entered a final judgment.
Starr’s appeal timely followed.2

                                            DISCUSSION

I.     ECOA AND REGULATION B

       Congress enacted ECOA in 1974 “to eradicate credit discrimination waged against
women, especially married women whom creditors traditionally refused to consider for
individual credit.” Mays v. Buckeye Rural Elec. Coop., 277 F.3d 873, 876 (6th Cir. 2002)
       2
        BCDG and Bernard did not appeal.
No. 13-6034             RL BB Acquisition v. Bridgemill Commons Dev., et al.                        Page 5

(quotation marks omitted).           In Congress’ judgment, one’s marital status—along with race,
religion, and other traits, which were added to the statute in 1976—generally “are, and must be,
irrelevant to a credit judgment.”              S. Rep. No. 94-589, at 3 (1976), reprinted in 1976
U.S.C.C.A.N. 403, 405; see also Lewis v. ACB Bus. Servs., Inc., 135 F.3d 389, 406 (6th Cir.
1998). ECOA thus makes it “unlawful for any creditor to discriminate against any applicant,
with respect to any aspect of a credit transaction [] on the basis of . . . sex or marital status,”
among other things. 15 U.S.C. § 1691(a).

         Congress mandated that the agency charged with overseeing ECOA—first the Federal
Reserve, now the Consumer Financial Protection Bureau—promulgate regulations “to carry out
the [statute’s] purposes.” 15 U.S.C. § 1691b(a). Regulation B is the result of Congress’
directive.    Like ECOA, Regulation B aims “to promote the availability of credit to all
creditworthy applicants without regard to . . . sex [or] marital status [and other factors] . . . [and]
prohibits creditor practices that discriminate on the basis of any of these factors.” 12 C.F.R.
§ 202.1(b), 12 C.F.R. § 1002.1(b). This case focuses on a portion of Regulation B that we will
refer to as the “spouse-guarantor rule,” which prohibits a creditor from requiring an applicant’s
spouse to guarantee a credit instrument, even if the creditor requires someone to execute a
guaranty. See 12 C.F.R. § 202.7(d)(5), 12 C.F.R. § 1002.7(d)(5). “The applicant’s spouse may
serve as an additional party [supporting the application], but the creditor shall not require that the
spouse be the additional party.”3 Id.

         Creditors who violate ECOA or Regulation B may be sued for actual damages, punitive
damages, and attorneys’ fees. See 15 U.S.C. § 1691e. But only “applicants” have the ability to
sue for ECOA violations. See id. ECOA’s definition of “applicant” does not explicitly include
guarantors. See 15 U.S.C. § 1691a(b). Regulation B, however, contains its own definition of
“applicant,” and that definition allows guarantors to sue for violations of the spouse-guarantor
rule. See 12 C.F.R. § 202.2(e), 12 C.F.R. § 1002.2(e).

         3
           Another portion of the spouse-guarantor rule prohibits creditors from “requir[ing] the signature of an
applicant’s spouse . . . , other than a joint applicant, on any credit instrument if the applicant qualifies under the
creditor’s standards of creditworthiness for the amount and terms of the credit requested.” 12 C.F.R. § 202.7(d)(1),
12 C.F.R. § 1002.7(d)(1). Limited exceptions allow a creditor to require an applicant’s spouse’s signature if the
creditor reasonably believes the signature necessary to satisfy the debt in the event of default. See 12 C.F.R.
§ 202.7(d)(2)–(4), 12 C.F.R. § 1002.7(d)(2)–(4).
No. 13-6034         RL BB Acquisition v. Bridgemill Commons Dev., et al.             Page 6

       This appeal raises two issues of first impression concerning ECOA’s statutory and
regulatory scheme. First, we must determine whether Regulation B’s definition of “applicant,”
which differs from the definition in ECOA, is entitled to deference such that guarantors may
raise ECOA claims. Second, we must decide if a spouse-guarantor can assert a violation of
Regulation B—and therefore of ECOA—as an affirmative defense. We review these questions
of statutory and regulatory interpretation de novo. See Metro. Hosp. v. U.S. Dep’t of Health &
Human Servs., 712 F.3d 248, 255 (6th Cir. 2013); Bowling Green v. Martin Land Dev. Co.,
561 F.3d 556, 558 (6th Cir. 2009).

II.    REGULATION B’S DEFINITION OF “APPLICANT” IS ENTITLED TO DEFERENCE

       ECOA’s protections and remedies apply to “applicants” for credit, whom the statute
defines as “any person who applies to a creditor directly for an extension, renewal, or
continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an
amount exceeding a previously established credit limit.” 15 U.S.C. § 1691a(b). While ECOA’s
definition of applicant does not overtly include guarantors, Regulation B’s definition of applicant
does for the purposes of enforcing spouse-guarantor rule. See 12 C.F.R. § 202.2(e), 12 C.F.R.
§ 1002.2(e).

       Regulation B was promulgated under ECOA’s express grant of rulemaking authority.
See 15 U.S.C. § 1691b. We will therefore defer to the regulatory definition of “applicant” if this
provision survives the two-step inquiry of Chevron, U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984).       At step one, we ask “whether Congress has directly
addressed the precise question at issue.” Mayo Found. for Med. Educ. & Research v. United
States, 131 S. Ct. 704, 711 (2011) (quotation marks omitted). If so, Congress’ intent naturally
overrides a contrary regulatory construction. See City of Arlington, Tex. v. F.C.C., 133 S. Ct.
1863, 1868 (2013). But if Congress was silent or the statute is ambiguous on the issue at hand,
then “the question for the court is whether the agency’s answer is based on a permissible
construction of the statute.” Chevron, 467 U.S. at 843.

       Turning to the statute before us, at Chevron step one we must ask whether ECOA’s
definition of “applicant” unambiguously excludes guarantors, or whether the statute is
ambiguous on this issue. “[A]pplying the ordinary tools of statutory construction,” we hold that
No. 13-6034         RL BB Acquisition v. Bridgemill Commons Dev., et al.             Page 7

the statutory definition is ambiguous because it could be read to include third parties who do not
initiate an application for credit, and who do not seek credit for themselves—a category that
includes guarantors. Arlington, 133 S. Ct. at 1868. We reach this conclusion based on two broad
terms in the definition, “applies” and “credit.”

       First, “applies.” Dictionaries define this verb as “to make an appeal or a request esp.
formally and often in writing and usu. for something of benefit to oneself,” Webster’s Third New
Int’l Dictionary 105 (1993), or “[t]o make an approach to (a person) for information or aid; to
have recourse or make application to, to appeal to; to make a (formal) request for.” Oxford
English Dictionary (3d ed. 2008), available at http://www.oed.com/view/Entry/9724.                A
guarantor does not traditionally approach a creditor herself asking for credit. Rather, as was the
case here, a guarantor is a third party to the larger application process. But a guarantor does
formally approach a creditor in the sense that the guarantor offers up her own personal liability to
the creditor if the borrower defaults. A guarantor’s offer is not gratuitous; she makes it in
consideration for credit that she hopes the borrower will receive. Certainly, a guarantor does not
ordinarily make the initial approach to a creditor, and one permissible reading of this term is that
only the initial applicant can be deemed to “apply” for credit. But the text could just as easily
encompass all those who offer promises in support of an application—including guarantors, who
make formal requests for aid in the form of credit for a third party.

       The term “credit” furthers the ambiguity of the statutory definition. ECOA defines
“credit” as “the right granted by a creditor to a debtor to defer payment of debt or to incur debts
and defer its payment or to purchase property or services and defer payment therefor.” 15 U.S.C.
§ 1691a(d). As this definition makes clear, an “applicant” requests credit, but a “debtor” reaps
the benefit. The use of these two different terms suggests that the applicant and the debtor are
not always the same person. See Sosa v. Alvarez-Machain, 542 U.S. 692, 711 n.9 (2004). If an
applicant is not necessarily the debtor, it would be reasonable to conclude that the applicant
could be a third party, such as a guarantor.

       Moving from the text to ECOA’s larger context, see Disc. Tobacco City & Lottery, Inc. v.
United States, 674 F.3d 509, 549 (6th Cir. 2012), we see no reason to artificially limit the
possible meanings of “applicant.” ECOA prohibits discrimination “with respect to any aspect of
No. 13-6034        RL BB Acquisition v. Bridgemill Commons Dev., et al.            Page 8

a credit transaction,” 15 U.S.C. § 1691(a) (emphasis added), and we have previously noted that
the statute has “broad remedial goals.” Barney v. Holzer Clinic, Ltd., 110 F.3d 1207, 1211 n.6
(6th Cir. 1997). This context confirms what the plain language reveals—ECOA’s definition of
“applicant” could be construed to cover a guarantor. The statute is therefore ambiguous and we
move on to Chevron step two.

       Our task at Chevron step two is to determine whether the regulation stems from a
permissible construction of the statute. “In answering this question, we need not conclude that
the agency construction was the only one it permissibly could have adopted to uphold the
construction, or even the reading we would have reached if the question initially had arisen in a
judicial proceeding.” Alliance for Cmty. Media v. F.C.C., 529 F.3d 763, 778 (6th Cir. 2008)
(quotation marks and alteration omitted). Since “at least one of the natural meanings” of
applicant includes guarantors, we conclude that “the agency’s interpretation [] represents a
permissible one entitled to deference.” Harris v. Olszewski, 442 F.3d 456, 467 (6th Cir. 2006).
It was also a result that the regulators reached with caution. When the Federal Reserve began the
process of amending Regulation B to cover guarantors, it initially proposed that guarantors
would be deemed applicants throughout the regulation. See 50 Fed. Reg. 48,018, 48,020 (Nov.
20, 1985). This definition would have allowed guarantors to sue for violations of any portion of
Regulation B. But the final version limited the definition of applicant so it would only apply to
the spouse-guarantor rule. The Federal Reserve reached this conclusion “in response to the
concerns of industry commenters who believed that the unlimited inclusion of guarantors and
similar parties in the definition might subject creditors to a risk of liability for technical
violations of various provisions of the regulation.” Id. This reasoned response is not “arbitrary,
capricious, or manifestly contrary to the statute.” Household Credit Servs., Inc. v. Pfennig,
541 U.S. 232, 239 (2004) (quotation marks omitted).

       Our conclusion accords with the vast majority of courts that have examined this issue.
See Empire Bank v. Dumond, No. 13-CV-388, 2013 WL 6238605, at *6 (N.D. Okla. Dec. 3,
2013) (collecting cases). But in 2007, this universal deference to Regulation B was upset by a
paragraph of dicta in a Seventh Circuit decision, Moran Foods, Inc. v. Mid-Atlantic Market
Development Co., 476 F.3d 436 (7th Cir. 2007).         According to Moran, “there is nothing
No. 13-6034         RL BB Acquisition v. Bridgemill Commons Dev., et al.              Page 9

ambiguous about” the statutory definition of “‘applicant’ and no way to confuse an applicant
with a guarantor.” Id. at 441. Furthermore, allowing guarantors to press ECOA claims “opens
vistas of liability that the Congress that enacted the Act would have been unlikely to accept.” Id.
While ECOA lawsuits typically involve modest amounts of damages, if guarantees can be struck
down for violations of the statute, then “the creditor might lose the entire debt.” Id.

       As we explained above, ECOA’s definition of “applicant” is not straightforward and is
easily broad enough to capture a guarantor. Moran does not offer a competing interpretation of
the statute apart from its offhanded dismissal of Regulation B’s definition. Furthermore, we are
not troubled by the prospect of guarantors being made whole after a creditor violates the law. A
creditor will only lose its entire debt if the borrower immediately defaults and the pledged
collateral turns out to be worthless. We will not strike down a valid regulation to salvage bad
underwriting. Congress has also been unmoved by this argument. ECOA has undergone several
amendments since the Federal Reserve included guarantors within the definition of
“applicant”—including an extensive amendment to the statute after Moran was decided—and
none has clarified that the term “applicant” cannot include guarantors. We will not construe a
statute in reliance on “legislative silence that is contrary to all other textual and contextual
evidence of congressional intent.” United States v. Martin, 438 F.3d 621, 632 (6th Cir. 2006)
(quotation marks omitted). But nor will we invalidate a regulation over a disagreement with an
agency’s policy which Congress has had time and opportunity to reverse.

       Regulation B’s definition of “applicant” constitutes a valid construction of the statutory
definition of that term. A guarantor may therefore seek relief for violations of the spouse-
guarantor rule.

III.   A SPOUSE-GUARANTOR CAN ASSERT AN AFFIRMATIVE DEFENSE OF RECOUPMENT

       A creditor who violates Regulation B necessarily violates ECOA itself. See 15 U.S.C.
§ 1691a(g). An applicant harmed by the creditor’s violation of Regulation B has the full range of
ECOA remedies available to her. See 12 C.F.R. § 202.16(b), 12 C.F.R. § 1002.16(b). If a
guarantor discovers a violation of the spouse-guarantor rule, she is free to bring an independent
No. 13-6034            RL BB Acquisition v. Bridgemill Commons Dev., et al.                     Page 10

lawsuit (or a counterclaim) within ECOA’s statute of limitations.4 The question before us now is
whether ECOA’s remedies include asserting violations of the statute and Regulation B as an
affirmative defense in an action to recover on the underlying debt.

        Many courts have addressed whether ECOA violations can be asserted as an affirmative
defense, and those courts have generally taken one of three positions. See Bank of the West v.
Kline, 782 N.W.2d 453, 459–61 (Iowa 2010). First, several courts, including the district court in
this case, have held that ECOA violations cannot be raised as an affirmative defense—only as a
claim or counterclaim. See, e.g., Riggs Nat’l Bank of Wash., D.C. v. Linch, 829 F. Supp. 163,
169 (E.D. Va. 1993), aff’d on other grounds, 36 F.3d 370 (4th Cir. 1994). Second, some
courts—including the only two federal courts of appeals to have addressed this issue—have held
that ECOA violations can be raised as a defense of recoupment. See Bolduc v. Beal Bank, SSB,
167 F.3d 667, 672 (1st Cir. 1999); Silverman v. Eastrich Multiple Investor Fund, L.P., 51 F.3d
28, 32–33 (3d Cir. 1995). And third, a group of courts have allowed violations of ECOA to be
asserted as the affirmative defense of illegality, which entirely invalidates the offending
instrument. See, e.g., Kline, 782 N.W.2d at 462–63. We now join with the First and Third
Circuits and hold that a defendant may raise a violation of ECOA and Regulation B as an
affirmative defense of recoupment.

        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, 167 F.3d at 672 (quotation marks omitted). “Recoupment claims are
generally not barred by a statute of limitations so long as the main action is timely.” Reiter v.
Cooper, 507 U.S. 258, 264 (1993). Basic principles of equity compel this result—“it would be
incongruous to hold that once a lawsuit is properly before the court, decision must be made
without consideration of all the issues in the case and without the benefit of all the applicable
law.” United States v. W. Pac. R.R., 352 U.S. 59, 72 (1956). As a result, we allow defendants to

         4
          When Starr executed her guaranty in June 2008, the statute of limitations for ECOA violations was two
years. See Mays v. Buckeye Rural Elec. Coop., 277 F.3d 873, 879 (6th Cir. 2002). The Dodd-Frank Act
subsequently extended the limitations period to five years. See Pub. L. No. 111-203, § 1085(7), 124 Stat. 1376,
2085 (2010) (codified at 15 U.S.C. § 1691e(f)); see also 12 C.F.R. § 1002.16(b)(2). Starr first raised her ECOA
defense in December 2011; however, she has not attempted to take advantage of the five-year statute of limitations.
We therefore need not decide if the new limitations period is applicable to her.
No. 13-6034        RL BB Acquisition v. Bridgemill Commons Dev., et al.           Page 11

raise an affirmative claim as a defense of recoupment, “absent the clearest congressional
language to the contrary.” Beach v. Ocwen Fed. Bank, 523 U.S. 410, 415 (1998) (quotation
marks omitted).

       We see no command in ECOA or Regulation B to deny defendants the ability to assert a
violation as a recoupment defense. To the contrary, Congress has explicitly granted courts the
ability to craft appropriate equitable remedies for ECOA violations, 15 U.S.C. § 1691e(c),
reflecting the statute’s “broad remedial goals.” Barney, 110 F.3d at 1211 n.6. Allowing a
recoupment defense “also protects the ill-informed spouse where the bank happens or chooses to
wait more than two [or five] years before suing on the note.” Bolduc, 167 F.3d at 672. By
contrast, prohibiting a recoupment defense “would seriously undermine the Congressional intent
to eradicate gender and marital status based credit discrimination.” Silverman, 51 F.3d at 33
(quoting Integra Bank/Pittsburgh v. Freeman, 839 F. Supp. 326, 329 (E.D. Pa. 1993)). And if
the guaranty was illegally obtained in the first place, “a creditor may not claim legal reliance”
when it comes time to enforce the instrument. Id. (quoting Integra, 839 F. Supp. at 329).

       The courts that have rejected any affirmative defense for violations of ECOA and
Regulation B generally proceed along two fronts. First, these courts point out that ECOA does
not expressly permit affirmative defenses, while it lays out a detailed remedial scheme of actual
and punitive damages, plus attorneys’ fees. See, e.g., Riggs, 829 F. Supp. 2d at 169. This
approach is backwards. Congress does not need to specify that a statutory cause of action can be
raised as a recoupment defense—we presume it can, “absent the clearest congressional language
to the contrary.” Beach, 523 U.S. at 415 (quotation marks omitted). Far from clearly prohibiting
this form of relief, ECOA permits the courts to “grant such equitable and declaratory relief as is
necessary to enforce the requirements imposed” by the statute. 15 U.S.C. § 1691e(c). Second,
these courts assert that effectively invalidating a guaranty through a recoupment defense “is a
remedy too drastic . . . to implement simply by reading between the lines of [] ECOA.” CMF
Va. Land, L.P. v. Brinson, 806 F. Supp. 90, 95 (E.D. Va. 1992). This conclusion is not for us to
make. Regulation B permits spouse-guarantors to sue for their actual damages from entering
into an illegally required guaranty. A recoupment defense simply allows the spouse-guarantor to
No. 13-6034           RL BB Acquisition v. Bridgemill Commons Dev., et al.                   Page 12

recover these actual damages in a different procedural posture. In short, we see no reason to
refuse to recognize a defense of recoupment for violations of ECOA and Regulation B.5

IV.     THE MERITS OF THE SPOUSE-GUARANTOR DEFENSE

        At this point, we would ordinarily turn to the merits of the spouse-guarantor defense in
this case. The district court, however, did not reach the merits and the parties did not fully brief
them on appeal. We will not rule on this issue in the first instance. See United States v. Henry,
429 F.3d 603, 618 (6th Cir. 2005). We therefore vacate the district court’s grant of summary
judgment against Starr and remand to allow that court to consider the merits of Starr’s
affirmative defense. We will take this opportunity to set out how a motion for summary
judgment concerning violations the spouse-guarantor rule should be decided.

        We generally evaluate the merits of an ECOA claim using burden-shifting framework
developed in McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973). See Mays v. Buckeye
Rural Elec. Coop., 277 F.3d 873, 876 (6th Cir. 2002); Lewis v. ACB Bus. Servs., Inc., 135 F.3d
389, 406 (6th Cir. 1998). The burden-shifting framework operates well in the run-of-the-mill
ECOA claim, when an individual is denied credit on the basis of a protected characteristic, such
as race, sex, or marital status. The typical ECOA plaintiff is very similar to a Title VII plaintiff,
who has been denied a job or promotion or whose employment conditions have worsened
because of a protected characteristic. In both cases, the plaintiff must prove discrimination, and
the McDonnell Douglas burden-shifting approach “is intended progressively to sharpen the
inquiry into [this] elusive factual question.” Tex. Dep’t of Cmty. Affairs v. Burdine, 450 U.S.
248, 255 n.8 (1981). But Regulation B prohibits “requir[ing]” the guaranty of a spouse as a
general matter, regardless of whether the creditor’s motivation is benign or invidious. 12 C.F.R.
§ 202.7(d)(1), (5), 12 C.F.R. § 1002.7(d)(1), (5).            Where plaintiffs do not need to prove
discrimination, we have no need for the McDonnell Douglas approach.

        To prove a violation of the spouse-guarantor rule, a spouse-guarantor need only prove
that her spouse applied for credit, and either the creditor “require[d] the signature of [the]

        5
         We hold that the recoupment defense is available as a matter of federal law. We do not address whether
Tennessee courts (Starr’s guaranty is governed by Tennessee law) would recognize a defense of illegality for
guarantees procured in violation of ECOA and Regulation B.
No. 13-6034         RL BB Acquisition v. Bridgemill Commons Dev., et al.           Page 13

applicant’s spouse” if the applicant was individually creditworthy, 12 C.F.R. § 202.7(d)(1), 12
C.F.R. § 1002.7(d)(1), or the creditor “require[d] that the spouse be the additional party” when it
determined that the applicant was not independently creditworthy and would need the support of
an additional party. 12 C.F.R. § 202.7(d)(5), 12 C.F.R. § 1002.7(d)(5). If the creditor seeks
refuge in one of the regulatory exceptions, see 12 C.F.R. § 202.7(d)(2)–(4), 12 C.F.R.
§ 1002.7(d)(2)–(4), the creditor bears the burden of proving that the exception applies. Thus, on
remand, the district court should consider whether Starr has introduced any evidence that BB&T
required her signature, not merely the signature of another person, as a guaranty on Bernard’s
loan.

                                        CONCLUSION

        For the foregoing reasons, we REVERSE the district court’s conclusion that Starr may
not raise a violation of ECOA and Regulation B as an affirmative defense, VACATE the district
court’s grant of summary judgment against Starr, and REMAND for further proceedings
consistent with this opinion.