Court Opinion

ID: 3034054
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:50:27.809439+00
Date Added: 2024-06-11T11:48:28.763297
License: Public Domain

Opinions of the United
2008 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

11-4-2008

In Re: Sterten
Precedential or Non-Precedential: Precedential

Docket No. 07-2237

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2008

Recommended Citation
"In Re: Sterten " (2008). 2008 Decisions. Paper 186.
http://digitalcommons.law.villanova.edu/thirdcircuit_2008/186

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2008 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
                                    PRECEDENTIAL

 UNITED STATES COURT OF APPEALS
      FOR THE THIRD CIRCUIT

                No. 07-2237

       IN RE: GAYLE L. STERTEN,
                           Debtor

        GAYLE L. STERTEN;
   WILLIAM C. MILLER, ESQ., Trustee

                      v.

OPTION ONE MORTGAGE CORPORATION;
       MAIN LINE CAPITAL, INC.;
    VILLAGE LAND TRANSFER, INC.

                           Gayle L. Sterten,
                                 Appellant

 Appeal from the United States District Court
   for the Eastern District of Pennsylvania
     (D.C. Civil Action No. 06-cv-00651)
 District Judge: Honorable Timothy J. Savage

         Argued September 22, 2008
  Before: BARRY, AMBRO, and GARTH, Circuit Judges

             (Opinion filed: November 4, 2008 )

David A. Scholl, Esquire (Argued)
Regional Bankruptcy Center of Southeastern PA
6 St. Albans Avenue
Newtown Square, PA 19073-0000

      Counsel for Appellant

Donna M. Doblick, Esquire (Argued)
Reed Smith
435 Sixth Avenue
Pittsburgh, PA 15219-0000

Mark S. Melodia, Esquire
Reed Smith
136 Main Street, Suite 250
Princeton Forrestal Village
Princeton, NJ 08540-0000

      Counsel for Appellee

                OPINION OF THE COURT

AMBRO, Circuit Judge

                              2
        The Truth in Lending Act, 15 U.S.C. § 1601, et seq.,
imposes disclosure requirements on creditors, exposing them to
such penalties as money damages, attorney’s fees and recission
for failure to disclose finance charges accurately. See § 1635(a)
& (g); § 1640(a). However, in 1995, in an effort to prevent
creditors from being subject to “extraordinary liability” for
small disclosure discrepancies, Congress amended the Act to
include a “tolerances for accuracy” provision. 141 Cong. Rec.
H9514-01 (daily ed. Sept. 27, 1995) (statement of Rep. Leach).
Under that provision, a creditor is not liable for undisclosed
finance charges if those charges fall within a specified range of
error. 15 U.S.C. § 1605(f). We decide whether a Truth in
Lending Act defendant who does not specifically defend on the
ground that any inaccuracies in its disclosure fell within the
tolerance range waives the protection that provision provides.
In procedural parlance, we decide whether a tolerances for
accuracy defense is affirmative (requiring that it be pled
specifically) or general (thus not requiring that it be pled
specifically).

       We hold that the defense is general, and that a defendant
need not specifically raise the Act’s tolerances provision in
order to avoid liability for disclosure errors that fall within its
range. We thus affirm the ruling of the District Court.

               I. Facts and Procedural History

     In February 2001, Gaye L. Sterten secured a loan in the
amount of $132,000 from Option One Mortgage Corporation.

                                3
The purpose of the loan was to refinance the second mortgage
on her home and to consolidate her medical and credit card bills.
Sterten obtained the loan through a mortgage broker, Main Line
Capital, working with one of Main Line’s owners, Thomas
Girone. Girone was also the President of the title insurance
agency used in the transaction, Village Land Transfer, Inc. The
closing for the loan took place at Sterten’s home with only
Sterten and Girone present. Girone helped Sterten execute an
Adjustable Rate Note in favor of Option One and a mortgage
granting Option One a lien on her real property to secure the
loan. Sterten signed, among other documents, a HUD-1
Settlement Statement, the mortgage, a Truth in Lending
Disclosure Statement, and a mandatory Notice of Right to
Cancel.

       Nearly two years later, Sterten sent a letter to Option One
contending that the closing of the loan had not been done in
accordance with the requirements of the Truth in Lending Act
and requesting a recission of the loan. On March 18, 2003, after
Option One had disputed her right to rescind, Sterten filed a
Chapter 13 bankruptcy petition in the Bankruptcy Court for the
Eastern District of Pennsylvania. Option One then filed a proof
of claim. In response, Sterten filed an adversary proceeding in
her bankruptcy case, seeking recission of the loan along with
various statutory penalties. 1 Sterten alleged two specific Truth

  1
    In addition to naming Option One, Sterten’s complaint also
named Main Line and Village Land Transfer. The claims
against those parties were settled on the day of the trial.

                                4
in Lending Act violations: (1) that she was never provided with
either her Truth in Lending disclosure statement or her Notice
of Right to Cancel form; and (2) that the finance charges were
not accurately disclosed. Option One denied both allegations,
maintaining specifically with respect to its disclosure of the
finance charges that it “acted at all times relevant hereto in full
compliance with all applicable laws and/or acts.” Option One’s
Answer ¶ 9.

        A trial was held, at which both Sterten and Girone
testified. The Bankruptcy Court found Girone more credible
than Sterten on whether she had received the required forms and
ruled in Option One’s favor on that claim. With respect to the
adequacy of Option One’s disclosure, the parties agreed that ten
specific fees and charges listed on the HUD-1 Settlement
Statement, totaling roughly $2,000, had not been included as
part of the “Finance Charge” disclosed in the Truth in Lending
Disclosure Statement. The Court examined each fee and
concluded that only two of them—a $25 “mark up” in the
appraisal fee and $32 charged for notary services—qualified as
“finance charges” under the Truth in Lending Act.2 The Court
then sua sponte applied the Act’s tolerances for accuracy

    2
      Under the Act’s implementing regulation, Regulation Z,
many “[r]eal-estate related fees” are excluded from the finance
charge if they are “bona fide and reasonable in amount.” 12
C.F.R. § 226.4(c)(7). The Bankruptcy Court concluded that all
but the “mark up” of the appraisal fees and the notary charges fit
with the exceptions set out in § 226.4(c)(7).

                                5
provision, 15 U.S.C. § 1605(f), concluding that, because the $57
in nondisclosed finance charges were within the tolerance range,
the disclosure was “accurate as a matter of law.” It thus entered
judgment in favor of Option One on both the recission and the
damages claims.

       Sterten then filed a Motion to Alter or Amend the
Bankruptcy Court’s order. She argued that the Court should not
have applied the Act’s tolerances for accuracy provision because
Option One had failed to raise it as an affirmative defense and
had therefore waived it.3 On January 4, 2006, the Bankruptcy
Court granted Sterten’s motion, concluding that § 1605(f) is an
affirmative defense and that, because “Option One failed to raise
§ 1605(f) in its pleadings, at trial, or at any other point in th[e]
proceeding,” it waived the defense. Sterten v. Option One
Mortgage Corp. (In re Sterten), Bankr. No. 03-14014, 2006
Bankr. LEXIS 4130, at *10–11 (Bankr. E.D. Pa. Jan. 4, 2006).
The Court declared recission and awarded Sterten $2,000 in
statutory damages along with reasonable attorney’s fees. Id. at
*11.

  3
    Sterten’s motion raised two additional claims that are not at
issue in this appeal. She challenged (1) the Court’s factual
conclusion that the required forms were delivered to her at
closing, and (2) its determination that the Truth in Lending Act
did not require the fees beyond the $57 in appraisal overcharge
and notary fee to be included in the Disclosure Statement.

                                 6
       Option One then appealed to the District Court.4 On
March 22, 2007, the District Court reversed the Bankruptcy
Court’s amended judgment, holding that “[b]ecause the
‘tolerances for accuracy’ provision is not an affirmative defense,
the Bankruptcy Court’s original verdict in favor of Option One
was correct and should not have been disturbed.” Sterten v.
Option One Mortgage Corp. (In re Sterten), 479 F. Supp. 2d
479, 485 (E.D. Pa. 2007). It therefore ordered the Bankruptcy
Court’s initial judgment restored. Id. Sterten timely appealed.

          II. Jurisdiction and Standard of Review

       The Bankruptcy Court had jurisdiction over Sterten’s
adversary proceeding under 28 U.S.C. § 157. The District Court
had jurisdiction over the appeal of the Bankruptcy Court’s order
under 28 U.S.C. § 158(a). We have jurisdiction over the District
Court’s reversal of the Bankruptcy Court under 28 U.S.C.
§ 158(d).

       In reviewing an appeal to a District Court of a bankruptcy
decision, “we stand in the shoes of the District Court and review
the Bankruptcy Court’s decision.” IRS v. Pransky (In re

   4
     While Option One’s appeal was pending, the Bankruptcy
Court held a remedy hearing. Sterten v. Option One Mortgage
Corp. (In re Sterten), 352 B.R. 380 (Bankr. E.D. Pa. 2006). The
Court concluded that Sterten had a repayment obligation of
$118,819.16, payable in 302 monthly installments, and awarded
her $19,500 in attorney’s fees. Id. at 390.

                                7
Pransky), 318 F.3d 536, 542 (3d Cir. 2003) (citation and internal
quotation marks omitted). Accordingly, “[w]e review [the
Bankruptcy Court’s] findings of fact for clear error and its legal
conclusions de novo.” Id. Determining whether the Truth in
Lending Act’s tolerances for accuracy provision is an
affirmative defense is a question of law. See Wolf v. Reliance
Standard Life Ins., 71 F.3d 444, 446 (1st Cir. 1995) (explaining
that whether a defense is “a waivable affirmative defense is a
pure question of law”). Thus, we review the Bankruptcy
Court’s determination on that issue de novo. We review a
court’s decision not to treat a defense as waived for abuse of
discretion. Cetel v. Kirwan Fin. Group, Inc., 460 F.3d 494, 506
(3d Cir. 2006).

                         III. Analysis

       The Truth in Lending Act’s tolerances provision reads in
pertinent part as follows:

       (f) Tolerances for accuracy

       In connection with credit transactions not under
       an open end credit plan that are secured by real
       property or a dwelling, the disclosure of the
       finance charge and other disclosures affected by
       any finance charge—

              (1) shall be treated as being
              accurate for purposes of [a claim

                                8
             for damages] if the amount
             disclosed as the finance charge—

                       (A) does not vary
                       f rom the a ctua l
                       finance charge by
                       more than $100;
                       [and]

             ....

             (2) shall be treated as being
             accurate for purposes of [a claim
             for recission] if—

                       (A) . . . the amount
                       disclosed as the
                       finance charge does
                       not vary from the
                       actual finance charge
                       by more than an
                       amount equal to one-
                       half of one percent of
                       the total amount of
                       credit extended . . . .

15 U.S.C. § 1605(f).

      Neither party disputes that the $57 in undisclosed finance

                                 9
charges falls within the tolerance range for both Sterten’s
damages claim and her claim for recission.5 What Sterten
disputes is whether Option One was in a position to take
advantage of the protection § 1605(f) provides. Sterten makes
two specific arguments on that point. First, she argues that the
Truth in Lending Act’s tolerances for accuracy provision sets
out an affirmative defense that Option One waived by not
pleading it in the initial stages of the litigation.6 Second, she
argues that, even if Option One was not required to raise the
tolerances provision as an affirmative defense, its failure to raise
the defense in any fashion at any point in the litigation amounted
to a waiver.

   5
    Because the total loan amount was $132,000, the tolerance
range for Sterten’s recission claim is $660. 15 U.S.C.
§ 1605(f)(2)(A).
       6
       Option One contends that it did raise the tolerances
provision as an affirmative defense in its answer. See Option
One’s Br. 20. Its argument to that effect is, however,
unconvincing.      Its answer included a section labeled
“Affirmative Defenses,” which asserted, among other defenses,
that “Option One Mortgage Corporation acted at all times
relevant hereto in full compliance with all applicable laws and
acts.” Option One’s Answer, Affirmative Defenses ¶ 3. But
simply contending that, as a general matter, the applicable laws
were complied with is not enough to plead a true affirmative
defense adequately.

                                10
           A.   Is the Tolerances for Accuracy Provision an
                Affirmative Defense?

       Federal Rule of Civil Procedure 8(b)7 allows a party to
contest the particulars of a complaint simply by issuing a
general denial in a responsive pleading. See 5 Charles Allen
Wright & Arthur R. Miller, Federal Practice & Procedure
§ 1265 (3d ed. 2004), at 546–47 (“Wright & Miller”) (“No
prescribed set of words need be employed in framing the general
denial; any statement making it clear that the defendant intends
to put in issue all of the averments in the opposing party’s
pleading is sufficient.”). That is what Option One did when it
asserted in its answer that, with respect to its disclosures, it
“acted at all times relevant hereto in full compliance with all
applicable laws and/or acts.” Rule 8(c) governs affirmative
defenses, which are generally waived if not specifically raised
“by responsive pleading or by appropriate motion.” Elliot &
Frantz, Inc. v. Ingersoll-Rand Co., 457 F.3d 312, 321 (3d Cir.
2006). At the time of these proceedings, Rule 8(c) stated in
pertinent part that “[i]n pleading to a preceding pleading, a party
shall set forth affirmatively [several listed defenses] and any
other matter constituting an avoidance or affirmative defense.” 8

       7
       Federal Rule of Civil Procedure 8 was applicable to
Sterten’s bankruptcy proceedings under Bankruptcy Rule 7008.
   8
    Following an amendment that became effective December
1, 2007, the Rule now states: “In responding to a pleading, a
party must affirmatively state any avoidance or affirmative

                                11
Fed. R. Civ. P. 8(c) (emphasis added). The question we face is
whether the Truth in Lending Act’s tolerance for error is
invoked by a Rule 8(b) general denial, or whether it falls within
Rule 8(c)’s catch-all “any other matter” provision and therefore
requires affirmative pleading.

       Rule 8(c) itself provides little guidance for determining
which defenses, other than those specifically set out, fall within
its ambit. Our Court has yet to endorse any particular approach
to making that determination.9

defense, including: [19 listed defenses].” Fed. R. Civ. P.
8(c)(1). The amendment was not intended to alter the rule
substantively. See 5 Wright & Miller § 1270 (Supp. 2008), at
110 (explaining that the “changes were not intended to have a
substantive effect”).
     9
       We addressed the defining features of an affirmative
defense in National Union Fire Insurance Co. v. City Savings,
F.S.B. of Pittsburgh, Pa., 28 F.3d 376 (3d Cir. 1994). We cited
Black’s Law Dictionary’s definition of an “affirmative defense”
as “[a] matter asserted by defendant which, assuming the
complaint to be true, constitutes a defense to it. A response to
a plaintiff’s claim which attacks the plaintiff’s [legal] right to
bring an action, as opposed to attacking the truth of [the] claim.”
Id. at 393 (citing Black’s Law Dictionary 60 (6th ed. 1990))
(emphasis in original) (first alteration in original). However, the
issue in National Union was not, as it is here, whether a
particular defense is deemed affirmative. Rather, it was whether
an affirmative defense counts as a “claim” or “action” for

                                12
        Many courts in addressing this issue have focused on the
relationship between the defense in question and the plaintiff’s
primary case. Thus, for instance, the Court of Appeals for the
Fifth Circuit has stated that “pertinent to the analysis [of
whether a defense is an affirmative defense] is the logical
relationship between the defense and the cause of action asserted
by the plaintiff.” Ingraham v. United States, 808 F.2d 1075,
1079 (5th Cir. 1987). The Ingraham Court also explained that
this “inquiry requires [among other things] a determination . . .
whether the matter at issue fairly may be said to constitute a
necessary or extrinsic element in the plaintiff’s cause of action.”
Id. The Court of Appeals for the First Circuit has held that the
“test for whether a given defense falls within the Rule 8(c)
‘residuary’ clause is whether the defense shares the common
characteristic of a bar to the right of recovery even if the general
complaint were more or less admitted to.” Wolf, 71 F.3d at 449
(citation and internal quotation marks omitted).

        As a theoretical matter, this focus on whether a defense
raises factual or legal issues other than those put in play by the
plaintiff’s cause of action nicely tracks the distinction between
a general denial and an affirmative defense. When we are

purposes of the application of a particular jurisdictional bar. See
id. at 392–95 (addressing whether the jurisdictional bar of the
Financial Institution Reform, Recovery and Enforcement Act of
1989, 12 U.S.C. § 1821(d)(13)(D), applies to affirmative
defenses). National Union thus does not dictate the course of
our inquiry here.

                                13
asking whether a particular defense is an affirmative defense,
what we are really asking is whether that defense is adequately
asserted merely by denying the allegations made in the
complaint, or whether more is required. To answer that
question, we need to determine whether the defense notes issues
not raised, even by implication, in the complaint.

       In practice, however, focusing solely on the relationship
between the defense and the plaintiff’s cause of action is of
limited use where, as here, what is at issue is precisely the
nature of that relationship. See 5 Wright & Miller § 1271 (3d
ed. 2004), at 601 (noting that “this mode of analysis has a
certain tautological quality to it because all it suggests is that
matters that are not part of the plaintiff’s substantive case are to
be pleaded affirmatively—but, in a sense, determining what
matters are part of the plaintiff’s case is the very thing to be
ascertained by deciding whether a certain issue is or is not an
affirmative defense”). Option One’s argument is that the
tolerances provision defines what counts, for legal purposes, as
an accurate Truth in Lending Act disclosure, and thus Sterten
invoked the provision when she alleged that Option One’s
disclosures were inaccurate. See Option One’s Br. 13 (“[T]he
debtor’s claim fails once the court applies the very statutory
scheme that creates the claim in the first place, not because the
lender has introduced any extrinsic facts or countervailing
principles of law.”) (emphasis in original). Sterten’s argument,
on the other hand, is that the tolerances provision sets out a
statutory exception to liability that a defendant must
demonstrate applies to the undisclosed finance charges. See

                                14
Sterten’s Reply Br. 2 (“[I]t is not true . . . that a borrower cannot
prevail if the finance charge under-disclosure is less than one-
half of one percent of the finance charge. The lender is obliged
to show ‘something more,’ i.e., that the tolerance applies to the
charges at issue.”).

        It is helpful to look instead at what Rule 8(c) is intended
to avoid. As we have explained in a different context, “[t]he
purpose of requiring the defendant to plead available affirmative
defenses in his answer is to avoid surprise and undue prejudice
by providing the plaintiff with notice and the opportunity to
demonstrate why the affirmative defense should not succeed.”
Robinson v. Johnson, 313 F.3d 128, 134–35 (3d Cir. 2002); see
also Ingraham, 808 F.2d at 1079 (“Central to requiring the
pleading of affirmative defenses is the prevention of unfair
surprise. A defendant should not be permitted to ‘lie behind a
log’ and ambush a plaintiff with an unexpected defense.”). As
a practical matter, that is the proper focus of our
inquiry—whether, given what Sterten was already required to
show, Option One’s failure to raise the tolerance issue
specifically deprived her of an opportunity to rebut that defense
or to alter her litigation strategy accordingly.

       We see no reason to think that Sterten suffered any
“unfair surprise” as a consequence of Option One’s failure to
plead specifically the tolerances for accuracy defense. The
analysis a plaintiff must undertake to show any undisclosed
finance charges under the Truth in Lending Act—that there were
discrepancies between what was charged and what was

                                 15
disclosed in the Truth in Lending Disclosure Statement, and that
those undisclosed fees fall within the Act’s definition of a
“finance charge”—is the same analysis required to show that the
undisclosed charges exceeded § 1605(f)’s range of error. As the
District Court aptly noted, “In her complaint, Sterten alleged all
disclosure violations she believed were attributable to Option
One . . . . Sterten does not, and cannot, argue that had she been
aware earlier that § 1605(f) was implicated, she would have
alleged more substantial violations . . . .” Sterten, 479 F. Supp.
2d at 483. Thus it is hard to see how Option One’s failure to
invoke the tolerances provision disadvantaged Sterten in any
way.

        Sterten nonetheless contends that there was unfair
surprise in her case, arguing that “the ‘tolerance’ defense is not
a mechanical process which would be applied and churn out a
result in exactly the same manner whether it were raised by a
party defendant prior to trial or not raised until after trial.”
Sterten’s Br. 18. She makes two specific arguments in support
of this claim, neither of which persuades us.

        First, Sterten notes that, while the tolerance range when
a creditor seeks recission is normally one-half of one percent of
the total amount of credit extended, 15 U.S.C. § 1605(f)(2)(A),
it shrinks to $35 when foreclosure proceedings have been filed,
§ 1635(i)(2). Therefore, she contends, the application of the
tolerance defense depends on facts outside the debtor’s primary
case—namely, whether foreclosure has begun. Sterten’s Br. 19.
While this claim is undeniably true, it is hard to see how it

                               16
presents an unfair surprise problem. Whether foreclosure
proceedings have, in fact, begun is something a Truth in
Lending Act plaintiff is in a position to know. There is thus no
reason why a plaintiff under the Act would be surprised or
burdened by the application of one range of tolerance rather than
another. That the amount of error tolerated varies if foreclosure
proceedings have begun is not, then, enough to place the
pleading burden on the defendant. See Gomez v. Toledo, 446
U.S. 635, 640–41 (1980) (explaining that placing the pleading
burden on the defendant is appropriate where a defense hinges
on “facts peculiarly within the knowledge and control of the
defendant”).

          Second, Sterten argues that, had she “known that
‘tolerance’ of the finance charges was at issue, she may have
well undertaken to prove or argue that these charges were
institutional rather than attributable to mere mathematical error.”
Sterten’s Br. 20 (emphasis in original). But there is nothing to
suggest that applying the tolerances provision turns on the
motives of the creditor. The sole support Sterten provides for
that proposition is one reference in case law to a statement by
then-Senator Paul Sarbanes offered in support of adding the
tolerances provision to the Act. Id. (citing Inge v. Rock Fin.
Corp., 281 F.3d 613, 622 (6th Cir. 2002)). Inge quotes Senator
Sarbenes as saying that “[t]his increased tolerance for errors is
intended to protect lenders from . . . small errors of judgment .
. . . It is obviously not intended to give lenders the right to pad
fees up to the tolerance limit . . . .” 281 F.3d at 622 (quoting
141 Cong. Rec. S 14567 (daily ed. Sept. 28, 1995) (statement of

                                17
Senator Sarbanes)). But there is nothing in the actual text of
§ 1605(f) to indicate that courts have authority to condition
application of the provision on the reason for a particular
disclosure error. On the contrary, the provision clearly states
that “the disclosure of the finance charge . . . shall be treated as
being accurate for purposes of this subchapter if the amount
disclosed as the finance charge—[falls within the specified
tolerances].” 15 U.S.C. § 1605(f) (emphasis added). Thus, as
Option One’s motives do not appear relevant to the analysis,
Sterten was not prejudiced by losing the opportunity to bring
those motives into question.

       Given, then, what is needed to establish a Truth in
Lending Act disclosure violation, we cannot say that the failure
to plead the tolerance issue specifically threatens a Truth in
Lending Act plaintiff with unfair surprise. We therefore
conclude that § 1605(f) is not an affirmative defense.

        Sterten argues that this conclusion is inconsistent with
Inge, which is the case the Bankruptcy Court primarily relied on
in concluding that § 1605(f) does amount to an affirmative
defense. See Sterten, 2006 Bankr. LEXIS 4130, at *6–10. But
Inge dealt with a separate matter. It concerned whether a
plaintiff must allege in his or her complaint that “the difference
between Defendant’s initially disclosed finance charge and the
actual finance charge exceeded” the tolerance range or else be
subject to dismissal for failure to state a claim. Inge, 281 F.3d
at 616. The Inge Court sided with the plaintiff, holding that the
Truth in Lending Act does not require that a complaint

                                18
specifically contend that the claimed disclosure errors exceeded
the § 1605(f) threshold in order to state a recognized claim. Id.
at 621. We do not dispute that conclusion here. We only stress
that there is nothing inconsistent about holding, as the Inge
Court did, that § 1605(f) “does not impose an independent
pleading hurdle for [Truth in Lending Act] plaintiffs,” id., and
concluding, as we do here, that § 1605(f) is not an affirmative
defense that must be pled specifically by a defendant. Under
notice pleading standards, it is sufficient for a plaintiff to plead
an error in the disclosed finance charges to bring the statutory
definition of error into play. See Bell Atl. Corp. v. Twombly, __
U.S. __,127 S. Ct. 1955, 1964 (2007) (describing the notice
pleading standard). For that same reason, it is sufficient for a
defendant to deny that it made any disclosure errors in order to
invoke § 1605(f) as well.

        It is true that the Inge Court went on to suggest that
“Congress’ remedial purpose for [the Truth in Lending Act] is
best effectuated by construing the § 1605(f) tolerances provision
as a potential affirmative defense, rather than as an essential
element of a finance charge disclosure claim.” 281 F.3d at 621.
But that dictum is not required by Inge’s holding, and, for the
reasons set forth above, we choose not to adopt that suggestion
here.

      In sum, because the Truth in Lending Act’s tolerances for
accuracy defense is not affirmative, but can be put in play by a
general denial, Option One did not forfeit the chance to benefit
from the provision by failing to raise the tolerance issue

                                19
specifically in answer to Sterten’s complaint.

B.     Did Option One Waive the Protection of § 1605(f) by
       not Raising It at Any Point in the Litigation?

        Sterten argues that even if Option One were not required
to raise the tolerance issue at the pleading stage, its “complete
failure . . . to raise the issue of the ‘tolerance’ defense in any
way, shape, or form to the [Bankruptcy Court] must generally be
viewed as a waiver of that defense.” Sterten’s Br. 21. More
specifically, Sterten maintains that the Bankruptcy Court’s
“raising of the ‘tolerance’ defense issue sua sponte deprived
[Sterten] of the ability to argue that the ‘tolerance’ should not
apply due to the presence of foreclosure proceedings or because
the specific overcharges were . . . not the subject of an innocent
miscalculation.” Id. at 22–23.

       This argument fails for the same reason the previous
argument did—Sterten cannot establish that she suffered any
prejudice as a result of Option One’s failure to raise the issue.
Cf. Cetel, 460 F.3d at 506 (holding that, even in the case of an
affirmative defense, there is no waiver if there is “no
prejudice”). First, in her Motion to Alter or Amend the
Bankruptcy Court’s initial order, Sterten conceded that
foreclosure proceedings had not been filed in her case, noting
instead that “if at any time [Option One] attempts to commence
a foreclosure action against the Debtor, the ‘tolerance’ will be
reduced to $35.” Sterten’s Mot. to Alter or Amend Court’s
Order ¶ 7 (emphasis added). Clearly, Sterten could not have

                               20
been prejudiced by being deprived of an opportunity to present
an argument—that her case falls under the lower tolerance range
that applies after foreclosure proceedings begin—that the facts
made unavailable to her. Second, as discussed above, the Truth
in Lending Act’s various scenarios for tolerating minor
inaccuracies do not hinge on the reasons behind the disclosure
errors. Yet again, Sterten suffered no prejudice by being denied
the opportunity to make an argument not relevant to whether she
prevails.

        We do not dispute that the most prudent course for
Option One was to argue—in its answer or otherwise—that, if
it made any disclosure errors, those errors fell within the
tolerance range rather than relying on the Bankruptcy Court’s
sua sponte application of § 1605(f). Still, Option One’s general
denial that it committed any disclosure violations was sufficient
to preserve the tolerance issue. Given that denial, and given the
absence of any real prejudice suffered by Sterten, the
Bankruptcy Court’s sua sponte application of § 1605(f) was not
improper.

                       IV. Conclusion

        Option One did not forfeit the defense afforded by the
Truth in Lending Act’s tolerances for accuracy provision by
failing to raise it specifically before the Bankruptcy Court. The
defense was general. That it was directly raised sua sponte by
the Bankruptcy Court is thus permitted. That Court’s initial
judgment was therefore correct—Option One’s disclosures were

                               21
“accurate as a matter of law” because the amount of undisclosed
finance charges was within the statutory margin of error.
Accordingly, we affirm the District Court’s order directing the
Bankruptcy Court to restore its initial judgment in favor of
Option One.

                              22