Gisondi v. COUNTRYWIDE HOME LOANS, INC. et al

I N THE UNITED S TATES B ANKRUPTCY C OURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
I N RE 	: CHAPTER 13
:
MAUREEN GISONDI 	:
D EBTOR( S) 	: B ANKRUPTCY NO. 08-14444 SR
MAUREEN GISONDI 	:
PLAINTIFF 	:
V. 	:
:
COUNTRYWIDE HOME L OANS, I NC., 	:
CROSS COUNTRY FUNDING , LLC 	:
D EFENDANTS 	:
________________________________ : A DV. NO. 08-170
OPINION
B Y: STEPHEN RASLAVICH, CHIEF UNITED STATES B ANKRUPTCY JUDGE .
Introduction
Before the Court are two matters: Plaintiff’s Motion for Permission to Amend
Complaint and Defendant Countrywide Home Loans, Inc.’s Motion for Summary
Judgment. Both of the motions are opposed. After a hearing held on March 5, 2009,
the Court took the matters under advisement. For the reasons set forth below, leave to
amend the complaint will be granted but only in part.1 That ruling effectively moots the
motion for summary judgment.
Facts
This litigation derives from the Plaintiff’s refinancing of her mortgage loan. In
1This is a core proceeding as it involves disallowance of a claim against the estate and
the determination of the validity of a lien.
See 28 U.S.C. § 157(b)(2)(B), (K).
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August 2006 she refinanced that loan with Countrywide Bank, N.A. (the Bank) Two
years later, the Plaintiff retained counsel with regard to the loan. On June 2, 2008, her
counsel wrote to the Bank and Countrywide Home Loans, Inc., (Countrywide) with
three things in mind. First, Plaintiff was unsure of who held the mortgage loan on her
home and so requested the identity of the holder pursuant to TILA.2 Second, she made
what is known as a
qualified written request under RESPA.3 This was a request for an
explanation of the loan terms, the account balance, a breakdown of how each payment
was applied, and all disclosures as required by applicable state and consumer lending
law. Third, the letter stated Plaintiff’s intention to rescind the loan.
	See Plaintiff’s
Motion for Leave to Amend, Ex. B.
On July 1, 2008, Countrywide acknowledged receipt of the June 2 letter and
asked for additional time to respond.
	Id., Ex. C. Whether that request was granted is
unclear. The next written communication is dated July 74 and is again from
Countrywide. It explains that privacy concerns prevented it from discussing the matter
with counsel without Plaintiff’s written consent.
	Id., Ex. D.
About one month later, the Plaintiff filed this Chapter 13 case.
	See Case # 08-
14444. Her Chapter 13 plan deals with the Countrywide loan.
	See Defendant’s
Response to Motion for Leave to Amend, Ex. H. It explains that she has rescinded the
2Truth in Lending Act, 15 U.S.C. § 1601 et seq.
3Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq.
4This letter references two telephone conversations between Debtor’s counsel and
Countrywide but what was discussed at those times is not indicated.
2
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loan and proposes that she will file a complaint to enforce rescission.
	Id. On July 21,
the Debtor filed this adversary proceeding against Countrywide
Home Loans, Inc. as
the lender and Cross Country Funding LLC as the loan broker; the Bank was not
named.
	See Case # 08-170, Defendant’s Motion, Ex. I (emphasis added). The
Complaint pleads four counts: Count I alleges that Countrywide violated TILA; Counts
II and III allege that Cross Country violated the Pennsylvania Credit Services Act,5 the
Loan Brokers Trade Practices Regulations,6 and the Unfair Trade Practices and
Consumer Protection Law7 ; and Count IV alleges that Countrywide violated RESPA.
Based on those violations, the Plaintiff seeks to rescind the loan and to collect
damages.
	See Complaint.
On August 21, Countrywide filed its answer, affirmative defenses and cross claim
to the complaint.
	Id., Ex. J. The answer identified Wells Fargo (SAMI II 2006-AR 7) as
the owner of Plaintiff’s loan.
	Id., ¶ 1. For its part, Cross Country did not respond and a
default judgment would be entered against it on October 2.
	See Case # 08-170,
docket # 17. That closed the pleadings and the Court issued a scheduling order on
November 13. That order set a deadline for discovery of January 9, 2009. Summary
judgment motions were due on January 23.
Plaintiff served a request for documents and answers to interrogatories on
5Credit Services Act, 73 P.S. §2181 et seq
6Loan Brokers Trade Practices, 10 Pa.Code §305.1 et seq.
7Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1 et seq.
3
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December 19, 2008. Countrywide answered that request on January 20. It also
undertook its own discovery when it deposed the Plaintiff.8 Finally, Countrywide filed a
motion for summary judgment—presently before the court—on January 23. The
Plaintiff filed a response to the summary judgment request and this motion for leave to
amend her complaint. Because the summary judgment request may be rendered moot,
in part or in whole, by the disposition of the motion to amend, the latter motion will be
taken up first.
Applicable Rules and the
Proposed Amendment
Amendment of pleadings is governed by Fed. R.Bankr.P. 7015, which
incorporates Fed.R.Civ.P. 15. The rule provides, in pertinent part:
(a)
Amendments Before Trial.
(1)
Amending as a Matter of Course. A party may
amend its pleading once as a matter of course:
(A) before being served with a responsive pleading; or
(B) within 20 days after serving the pleading if a responsive
pleading is not allowed and the action is not yet on the trial
calendar.
(2)
Other Amendments. In all other cases, a party may
amend its pleading only with the opposing party's written
consent
or the court's leave. The court
should freely give
leave when justice so requires.
Fed.R.Civ.P. 15(a)(1),(2) (2007) (emphasis added). The Supreme Court has made it
clear that the application of this presumption is “a mandate to be heeded.”
	Foman v.
Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). It furthers the
8The record does not indicate when that took place or whether Countrywide served its
own written discovery.
4
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policy of trying cases on their merits.
	Id. It also avoids that possibility of the opposing
party suffering prejudice or surprise. 6 Wright & Miller,
Federal Practice and Procedure,
Civil 2d § 1474. The precise delineation of when leave should be granted or denied is
impossible; therefore, the determination is left to the sound discretion of the trial judge.
NAACP v. Harrison, 907 F.2d 1408, 1417 (3d Cir.1990). This requires the Court to
consider the positions of
both parties and the effect that the request will have on them.
Wright & Miller,
supra at § 1487. For that reason, the court may deny a request to
amend when the moving party has demonstrated undue delay, bad faith or dilatory
motive or where the amendment would prejudice the opposing party.
	See Foman,
supra, id.;
Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir.2002). Equally,
an amendment will be denied where it is futile.
	Id.
In this instance it is not the causes of action which the amendment would
change, but the parties. Plaintiff proposes to drop Countrywide
Home Loans from
Count I and to add Countrywide
Bank, N.A. (the Bank) and Wells Fargo (SAMI 2006-AR
7) (Wells) to that same claim and only that one. Rule 21 of the Federal Rules of Civil
Procedure 9 provides that “[o]n motion or on its own, the court may at any time, on just
terms, add or drop a party.” F.R.C.P 21. The overview to the rule explains that it gives
the court discretion to liberally permit the joinder or deletion of parties.
	Id. It also
promotes the policy of efficiency in allowing a court to manage the litigation in the
interests of justice.
	See Balgowan v. State of New Jersey, 115 F.3d 214, 217 (3d Cir.
9Made applicable by B.R. 7021.
5
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1997);
see also 4
Moore’s Federal Practice, § 21.02[1]. The rule shares with Rule 15
the same standard for determining whether such relief should be granted: i.e., undue
delay, bad faith, dilatory motive, prejudice, and futility.
	Jackson v. Rohm & Haas Co.,
2006 WL 3761981 *1 (E.D.Pa.2006)
Why Countrywide Objects
to the Amendment
Countrywide maintains generally that the Plaintiff is guilty of undue delay in
requesting to amend when she did. This, it goes on to explain, would also result in
prejudice. Aside from delay, Countrywide adds, the Debtor’s claims as to Wells are
futile. S
ee generally Countrywide’s Brief.
Delay and Prejudice
Delay, in and of itself, does not require that a motion to amend a complaint be
denied; however, at some point, the delay will become ‘undue’ placing an unwarranted
burden on the court and may work prejudice to the adversary.
	See Cureton v. Nat'l
Collegiate Athletic Ass'n, 252 F.3d 267, 273 (3d Cir.2001) The Third Circuit has
emphasized that prejudice to the non-moving party is the touchstone for the denial of
an amendment.
	Arthur v. Maersk, Inc., 434 F.3d 196, 204 (3d Cir.2006) That being
said, the non-moving party cannot merely claim prejudice, but “must show that it was
unfairly disadvantaged or deprived of the opportunity to present facts or evidence
which it would have offered had the ... amendments been timely.”
Bechtel v. Robinson,
886 F.2d 644, 652 (3d Cir.1989) (citations omitted). In other words, the defendants
bears the burden of proof as to prejudice
. See AMS Construction Co. v. Reliance
6
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Insurance Co., 2006 WL 1967336 *3 (E.D.Pa.)
Countrywide maintains that the request to amend comes more than six months
after suit was filed and one month after the close of discovery.
	See Countrywide’s
Brief, 2. In her motion for leave to amend, Plaintiff explained that Countrywide’s
summary judgment request “clarified” who originally made the loan and who presently
holds it. That, Countrywide responds, is belied by the record. In the case of the
originator, such information, it says, was known to Plaintiff in 2006 when the loan was
made. The loan documents identify Countrywide Bank, N.A. as the lender.
Countrywide’s Brief, 5. The identity of the holder, it continues, was disclosed in
Countrywide’s Answer filed on August 21, 2008.
	Id. The Court finds Countrywide to be
correct in these regards and, indeed, Plaintiff’s counsel would candidly admit at the
hearing that he was guilty of an oversight on his part.
	See Transcript of March 5, 2009
Hearing (T-), 15. Plaintiff maintains, however, that any delay was not undue.
In reviewing the record, the Court finds both parties to be guilty of some delay
here. The first instance of delay may be attributed to Countrywide. The Court
observes that Plaintiff’s June 2 letter specifically asked both Countrywide and the Bank
to identify the holder of the loan. Again, at the time Plaintiff was apparently unclear as
to with whom she was in privity. And Plaintiff was entitled to an answer to this
question: TILA provides that “[u]pon written request by the obligor,
the servicer shall
provide the obligor, to the best knowledge of the servicer, with the name, address, and
telephone number of the owner of the obligation or the master servicer of the
obligation.” 15 U.S.C. § 1641(f)(2) (emphasis added) The servicer of this loan is
7
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Countrywide.
	See Answer, ¶1. Thus, Countrywide was required to disclose Wells as
the holder of Plaintiff’s loan
upon receipt of the June 2 letter making that request
and
not after it was sued. 10 Instead, it refused to answer claiming privacy concerns. That
left Plaintiff in the dark on the holder issue. All the information which Plaintiff received
from Countrywide on that question was correspondence bearing the letterhead
“Countrywide Home Loans.” It was not unreasonable, then, for Plaintiff to think that
she was in privity with Countrywide. At that point in the case, the delay lies at the feet
of Countrywide.
Until, that is, when Countrywide identified Wells as the holder of Plaintiff’s loan
in its Answer. That response was filed on August 21. Yet, it would be another five
months before Plaintiff sought leave to add Wells as a defendant (February 2).
Countrywide considers this delay to be inexcusable. It contends that Plaintiff should
have sought leave to amend the moment Wells was named in Countrywide’s Answer.
To be sure, there is some appeal to that argument. That would have avoided the
possibility of duplicative discovery. Yet, even assuming that Plaintiff’s inaction is
unjustified, that still leaves the question of whether allowing the amendment somehow
prejudices Countrywide.
Countrywide says it will and for two reasons: it will have to undertake more
discovery and the Plaintiff will given an unfair advantage. As to discovery, Countrywide
10Troubling to the Court here is the fact that this is not the first time which it has found
that Countrywide to have engaged in this seemingly deceptive practice of not disclosing the
name of the lender when required to do just that.
See Meyer v. Argent Mortgage LLC, et al,
379 B.R. 529, 551-552 (Bankr.E.D.Pa.2007)
8
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anticipates having again to depose the Plaintiff as well as other individuals and entities
not presently parties to the action. Countrywide’s Brief, 4. In this district, courts differ
as to whether additional discovery made necessary after an amendment constitutes
prejudice.
	Compare Kuhn v. Phila. Elec.Co., 85 F.R.D. 86, 88 (E.D.Pa.1979) (denying
leave to amend when discovery had already been completed and amendment would
require additional discovery);
Cummings v. City of Philadelphia, 2004 WL 906259 *4
(E.D.Pa.) (finding “substantial or undue prejudice where the amendment would have
asserted new claims, where new discovery would have been necessary, where the
motion for leave was filed months after the factual basis for the amendment was
discovered by the moving party, and where the motion for leave was brought after
summary judgment motions were filed”)
with Dole v. Arco Chem. Co., 921 F.2d 484,
488 (3d Cir. 1990) (holding that the party opposing amendment had not demonstrated
sufficient prejudice by pointing to redrafting a motion for summary judgment along
with possible need to conduct additional discovery) and
Amquip Corp v. Admiral Ins.
Co., 231 F.R.D. 197, 200-01 (E.D.Pa.2005) (reasoning that any prejudice would be
remedied by allowing additional discovery). However, additional discovery is not in and
of itself prejudicial. While at a certain point the prospect of more discovery can weigh
sufficiently against leave to amend a complaint, this case has not reached that point.
Moreover, unlike the
Meyer case, cited
supra n.8, this is not an instance where one or
more of the issues have been tried and reduced to judgment. Considering the extent
to which the case has progressed, allowing Plaintiff to amend her complaint would not
prejudice the Defendant.
9
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Countrywide’s second assertion of prejudice is tactical. It sees leave to amend
as giving Plaintiff undue leverage. It explains that another motion for summary
judgment from their side will have to be filed, and that when that happens Plaintiff will
be better prepared to respond knowing the arguments ahead of time. Countrywide’s
Brief, 4. The Court considers this argument unpersuasive. It speculates that the
second summary motion will essentially resemble the first. But even accepting that as
a given, the Court dismisses any notion that prejudice flows from the Plaintiff then
being “better prepared.” Too, it still leaves the question of why any significant
additional discovery would be necessary if the amendment is permitted. In sum, the
Court finds no demonstrable prejudice to Countrywide in granting Plaintiff leave to
amend.
Futility
The Court turns next to Countrywide’s claim of futility. This argument pertains
solely to the inclusion of Wells as a defendant. An amendment is futile if it would not
survive a motion to dismiss for failure to state a claim upon which relief could be
granted.
	See In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d
Cir.1997) (
citing Glassman v. Computervision Corp., 90 F.3d 617, 623 (1st Cir.1996)).
In determining whether the amendment would be futile, the district court applies the
same standard of legal sufficiency as under Fed.R.Civ.P. 12(b)(6).
	See id. A motion to
dismiss pursuant to Rule 12(b)(6) may be granted only if, accepting all well pleaded
allegations in the complaint as true, and viewing them in the light most favorable to
plaintiff, plaintiff is not entitled to relief.
	Maio v. Aetna, Inc., 221 F.3d 472, 481 (3rd
10
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Cir. 2000). "The issue is not whether a plaintiff will ultimately prevail but whether the
claimant is entitled to offer evidence to support the claims."
Scheuer v. Rhodes, 416
U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).
Countrywide argues that the TILA claim against Wells is futile for two reasons:
first, there has been no refusal to rescind on the part of Wells; and second, because
Wells took the assignment of the loan in good faith, it is thereby afforded the
protections of an innocent purchaser. Countrywide’s Brief, 8-9.
Timing of the
Rescission Claim
Countrywide’s first argument opposing the addition of Wells is procedural. It
claims that the record does not indicate that Wells, the present holder, has refused to
honor Plaintiff’s rescission request. The written rescission request to Wells was dated
February 2, 2009, yet the Motion for Leave to Amend the Complaint to sue Wells for
failing to honor the rescission was filed the very next day (February 3). Under TILA, a
lender has twenty (20) within which to honor a legitimate rescission request.
	See 15
U.S.C. § 1635(b); 12 C.F.R. § 226.23(d)(2);
Johnson v. Chase Manhattan Bank, N.A.,
2007 WL 2033833 *4 (E.D.Pa.) (observing that creditor has twenty days within which to
honor valid rescission request) The Court finds this argument to be overly technical. It
is true that, at the time of the filing of Plaintiff’s motion for leave to amend, the twenty
day (20) rescission period within which the holder must honor rescission had not yet
run. But that time had certainly elapsed by the date of the hearing (March 5) and there
was no indication from Wells that it would accede to rescission. T-17. So it is only
11
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correct as a technical matter to say that any rescission claim was not ripe when the
Plaintiff filed this motion. By now, the very real (and perhaps likely) possibility exists
that the rescission request will not be honored and that litigation will be necessary.
The timing (however, premature) of Plaintiff’s request for leave to amend, then, should
not preclude it from relief.
Damages Versus Rescission;
The Assignee’s State of Mind
The second objection to adding Wells goes more to the substance of the claim.
Countrywide argues that the amendment fails to allege what is required to establish
assignee liability under TILA: that the violation was “apparent on the face of the
disclosure statement provided in connection” with the transaction. Countrywide’s Brief,
9
quoting 15 U.S.C. § 1641(e)(1)(A). The Court finds this argument to be well made,
but
only as to the TILA damage claim. TILA imposes assignee liability in consumer
credit transactions secured by real property only if the violation is “apparent on the face
of the disclosure statement.” 15 U.S.C. § 1641(e)(1)(A) (2003). Section 1641(e)
further explains that a violation is apparent on the face of the disclosure statement if:
(A) 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; or
(B) the disclosure statement does not use the terms or
format required to be used by this subchapter.
15 U.S.C. § 1641(e)(2)(A), (B) (2003). This means that it is to the disclosure statement
and other assigned document that the assignee must look if it is to later claim that it
12
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took the loan in good faith.
	See Ramadan v. Chase Manhattan Corp, 229 F.3d 194, 198
(3d Cir. 2000) (noting that the TILA assignee liability provisions do not impose any duty
of additional inquiry on assignees) The proposed amended pleading alleges only what
the lender allegedly failed to do in the way of disclosure. There is no differentiation
alleged as to what the Bank
qua lender did versus what Wells
qua assignee did. From
all appearances, the two entities are interchangeable. In other words, the amendment
fails to allege that Wells took the loan notwithstanding patent TILA violations.
	See
Kane v. Equity One, Inc., 2003 WL 22939377 *4 (E.D.Pa.) (dismissing TILA complaint
against assignee of lender for failure to plead any violations apparent on the face of the
assigned loan documents);
Reagoso v. MERS, et al, 2007 WL 1655376 *5
(Bankr.E.D.Pa.) 	As a result, this Court finds that the proposed amendment to recover
damages from Wells would be futile.
The same, however, would not be the outcome with regard to the Plaintiff’s
proposed rescission claim. TILA provides that “[a]ny consumer that has the right to
rescind a transaction under section 1635 of this title may rescind the transaction
as
against any assignee of the obligor.” 15 U.S.C. § 1641(c)(emphasis added);
see Kane,
supra, **4-6;
see also In re Armstrong, 288 B.R. 404, 417 (Bankr.E.D.Pa.2003)
(recognizing rescission right as against assignee who took loan in good faith) Plaintiff
is correct, then, in stating that the failure to plead the assignee’s knowledge of the TILA
violation is irrelevant to the question of whether the amendment sufficiently pleads a
rescission claim. T-25. As a consequence, the Court finds that the allegations of a
TILA violation on the
lender’s part are sufficient for purposes of maintaining a rescission
13
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claim as to its assignee. So leave will be granted to the Plaintiff to add Wells as a
defendant to Count I but only to that extent.
Summary
The Court will grant Plaintiff’s Motion for Permission to Amend Complaint in part
and will deny it in part. Plaintiffs’ request to add defendant Wells Fargo (SAMI II 2006-
AR 7) as a Defendant to Count I will be allowed, but only for purposes of rescission and
not damages. Plaintiff’s request to add Countrywide Bank, N.A. as a defendant as to
Count I will be granted as proposed. Plaintiff shall have ten (10) days from the date of
entry of this Opinion to file an amended complaint consistent with this ruling and to
proceed in accordance with B.R. 7004.
	See Nelson v. Adams USA, Inc., 529 U.S. 460,
465-466, 120 S.Ct. 1579, 1584 (2000) (explaining that rule allowing amendment of
pleadings must comport with due process of law that Constitution guarantees);
see also
Hershey Foods Corp. v. Padilla, 168 F.R.D. 7, 10 (D.P.R. 1996) (stating that Plaintiff
who was allowed to join defendant pursuant to Rule 21 must then comply with Rules 3
and 4 of the Federal Rules of Civil Procedure relating to the issuance of a summons and
service on the added party)
The effect of granting leave to amend the complaint as proposed necessarily
moots the request for summary judgment.
	See Boarhead Farm Agreement v. Advanced
Environmental Technology Corp., 381 F.Supp.2d 427, 437 (E.D.Pa.2005) (concluding
that granting leave to amend complaint mooted pending summary judgment motion)
An appropriate Order follows.
14
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By the Court:
_________________________________
Stephen Raslavich
Chief U.S. Bankruptcy Judge
Dated: 	April 2, 2009
15
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I N THE UNITED S TATES B ANKRUPTCY C OURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
I N RE 	: CHAPTER 13
:
MAUREEN GISONDI 	:
:
D EBTOR( S) 	: B ANKRUPTCY NO. 08-1444 	SR
:
MAUREEN GISONDI 	:
PLAINTIFF 	:
:
V. 	:
COUNTRYWIDE HOME L OANS, I NC., 	:
CROSS COUNTRY FUNDING , LLC 	:
D EFENDANTS 	:
________________________________ : A DV. NO. 08-170
ORDER
AND NOW, upon consideration of the Plaintiff’s Motion for Permission to Amend
Complaint and Defendant Countrywide Home Loans, Inc.’s Motion for Summary
Judgment, after a hearing held on March 5, 2009, and for the reasons set forth in the
foregoing Opinion, it is hereby:
Ordered, that the Plaintiff’s Motion is granted as follows: Count I may be
amended to drop Countrywide Home Loans, Inc. and to add Wells Fargo (SAMI II
2006-AR 7) and Countrywide Bank, N.A.; and it is
Further Ordered, that as to Wells Fargo (SAMI II 2006-AR 7), Count I may be
amended to plead a claim for rescission only; and it is
Further Ordered, that Plaintiff shall have ten (10) days from the date of the
entry of this order to file an amended complaint consistent with the foregoing Opinion
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and proceed in accordance with the applicable rules of civil procedure with regard to
obtaining a summons for and effecting service of process upon an added party; and it
is 	Further Ordered, that as a result of the disposition of the Plaintiff’s Motion,
Defendant’s Motion for Summary Judgment is denied as moot.
By the Court:
Stephen Raslavich
Dated: April 2, 2009 	Chief U.S. Bankruptcy Judge
2
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Interested Parties:
George Conway, Esquire
Office Of The U.S. Trustee
833 Chestnut Street
Suite 500
Philadelphia PA 19106
Counsel for Plaintiff
David A. Scholl, Esquire
6 St. Albans Avenue
Newtown Square, PA 19073
Counsel for Defendant
Countrywide Home Loans, Inc.
Daniel J.T. McKenna, Esquire
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
1735 Market Street, 51st Fl
Philadelphia, PA 19103
Cross Country Funding LLC
701 Spring Mill Avenue
Conshohocken, PA 19428
Wells Fargo (SAMI II 2006 AR 7)
Wells Fargo Home Mortgage, Inc.
Corporation Services Co.
2704 Commerce Drive
Harrisburg, PA 17110
3
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