Good morning. I think many of you expected that you would be at Philadelphia this morning. And I hope you're thrilled to be in Newark. We are thrilled to have you here. I guess though you're not here because Judge Garth and I only stood in court rooms where our district of New Jersey. We will begin by hearing arguments. Council, this is our fifth case and Otoss is the last case. We're going to reverse the order and hear Otoss before we hear a dawn. I don't know if Council for those cases are in the courtroom. Good. Thank you. Those of us who use yellow pads still are in good shape. You could do that on the computer. Yes, once again, I'm David Scholl
. I represent Gay Sturden. She's the Pellan. The low. She was a debtor in bankruptcy and she filed an adversary proceeding when she was planning. But I will refer to her as debtor. I would like to reserve three minutes of my argument time for a bottle of my man. Gratitude. Thank you. One of the things that I'd like you to focus on is what test and I've looked through in our various tests that one sees for distinguishing rule 8B from 8C. distinguishing affirmative defenses from general defenses. What test would you suggest we use? Well, I think what I think that what I would suggest because this case I think shows it. I think if it's something that's going to present an issue that one of the parties might present evidence that the otherwise wouldn't because they don't know that the matter is going to be raised, then I think it's an affirmative defense. What evidence would your client have raised and affirmative defense per se? Didn't lead it
. We would have emphasized that many of the finance charges that we claim were excessive were padding. In fact, the two that the court found were excessive were both padding. One was the padding of the notary fee, which is only $8. They had charged $40 and the other was the broker was taking part of the appraisal fee and charging for that. You mean that you would have contested the fact finding of the lower court? I would have certainly emphasized those issues. No, would you have contested the fact of the lower court? Yes, I think we would have emphasized that the matter should have been fact found on that specific issue. And on those facts, isn't our standard or review of clearly erroneous? On fact finding it is, but the court didn't make any findings on those issues. The trial court, it's a matter of fact, of course found that it wasn't affirmative defense and the court found that the fact finding would you have had the trial court make? A bad faith finding? A finding about the nature of the finance charges that were overcharged. That they were charged in bad faith. Yes, they were actually they were padding. What did you allege that at all in your complaint? Well, we allege many things because many of my questions, my question was, did you allege that? We certainly raised issues about those charges. Yes, we said that the notary charge was excessive. We said that the appraisal theme is excessive
. Let me rephrase my question. Did you allege that they were excessive because they were charged in bad faith? Not in the complaint, Your Honor, because we didn't know really until we got to the trial and we heard what Mr. Jerome was the only witness for the defense said. And then we found out that, yes indeed, that's what these things were. They were padding. Let me ask you then picking up on that. If you didn't allege bad faith in the complaint and you realize the number here is, it's not $100. Everybody talks about it. It's one half of 1%, which I guess is about $660 in this particular case. It's about 606. 606, okay. What makes you think that they're coming back to you and saying, well, it's under 606, isn't affirmative defense. I really want to get my arms around what you think when you think an affirmative defense is such that it must be under 8c, but well, I think it's something, again, that raises an issue that isn't apparent from what the plaintiff has alleged
. And in this case, what is that? What does that mean on fair surprise, or does that mean a logical inference of the allegation of the complaint or what? Well, I think the defendant was incumbent on the defendant to say that we believe that all of these charges are not only valid, as they said, they're all valid, but we believe that they're all in good faith. They weren't padding. They were nothing that was charged. And therefore, we believe that because of 1605F, that we're entitled to judgment. But as a matter of fact, they said nothing about 1605F, not in their pleadings, not in the pre-trial memorandum. They denied it generally, which is okay for a general defense under 8b. The question is, do they have to plead something under 8c? I mean, the things that are listed under 8c are things like, you know, stash limitations, latches, waiver, whatever. Now, you know, right and Miller says that one of the things that you can look to is whether the particular issue is a logical inference of the allegation of the complaint. But also, right, Miller says that's total logical, and it doesn't seem to really help you discern when something's an affirmative defense or not. It then says, or others say, that okay, you admit the allegations of the complaint, but you say there's something else that helps you deny liability. And that makes some superficial sense because that's the way it appears that 8c reads. And then the third one is, at least that I can discern, is that there's unfair surprise. You were surprised by the fact that they didn't plead it
. How can you possibly be surprised that they might claim at trial that there was under $606 worth of damages here? Well, because we had alleged many, many more issues and they could have well been well over that amount, but if they were going to claim that that was one of their arguments, among other arguments, and they should have put it down. They should have at least targeted it in their briefs or mentioned if the pre-trial they mentioned it nowhere. But you would counsel to the debtor below, is that correct? Yes. And I mean, if there's anybody that knows this stuff, it's you. I think I do know this stuff, but there are many, many issues that can be raised in truth in lending cases, and we can't foresee everyone. Actually, in this case, we thought we had some other arguments that we thought would prevail. Of course, the court ruled against us. On 8 of the 10, but the point is, how were you surprised that they didn't say that there is a tolerances for accuracy 1605F defense here? I don't know what to say. When somebody has the defense, you expect them to raise it somewhere, sometimes somehow. You don't expect it to be raised to respond to it with the court, which is really what happened. Well, let me paraphrase Jim Rose's question. How he asked, how were you surprised? I'm going to ask, how were you prejudiced? Was prejudiced because I didn't have the opportunity to present evidence that would have related specifically to the nature of those overcharging. Which the bad faith, which was a alleged
. Well, I think I understand this argument. Thank you, John. And of course, John, I think you understand that the only case that's ruled on this issue, other than this case, is the Inge case. I think it's pronounced Inge. Isn't it dictated in that case because there was a question of whether the plaintiff included it in his complaint. Here you're talking about an affirmative defense. Well, I think there's a big difference. It's dictated. It is dictated, but it's certainly stated by the court. And the court, I don't think. But the court didn't address this problem. I think I understand your position. I don't think Inge is necessarily on point
. Well, I mean, it's, I think it's on point in two ways, you're on first, the court says, just quoting the page. But Inge deals with what a plaintiff must alleged or not alleged. This is a, your case is what a defendant must put in as an affirmative defense. I mean, this is just the opposite of it. And Inge doesn't even begin to discuss why 1605F is an affirmative defense or should they? There's no analysis at all. Well, the court says, and there's a reason for that because it's a plaintiff. Pardon? And there's a reason there's no analysis. They don't have to analyze anything when it's a plaintiff. It's talking about whether the plaintiff must make an allegation. They want to not only state specifically that it is an affirmative defense, potential affirmative defense, where they say potential because again, you're right, it's the plaintiff not the defendant's, the defendant wouldn't. But then the court goes on to state about the nature of 1605. Yeah, let me understand something. Because you challenge a $57 charge, which they court found to be reasonable
. You are seeking a rescission of $132,000 mortgage, $2,000 in damages, and some $19,500 in the attorney's fees. Am I correct? Well, is that correct? Is that what you are seeking? Receiving rescission? Well, you're seeking the attorney's fees as well, aren't you? Yes. And you're seeking the $2,000 in damages as well. Yes. And this despite the fact that the reason that the tolerance provision was included in the truth and lending act was because the Senator Sarbon at least, Sarbon did not want to have the kind of higgling and haggling over minimal discrepancies that might result from error. Isn't that so? Anything less than $100 was not to be considered as being a violation. Isn't that so? In some circumstances, or in this case, there's a specific exception. If in fact there's a foreclosure brought, then it's only $30. But there's no foreclosure here. There's no foreclosure here. Not yet. What? We don't. We don't deal with hyperfac
. Whatever the $35, the effect of a $35 amount would be in another case, it's not relevant to all I'm doing here. The point is that the Congress did not say that you could never have a small defect and not be able to resent that that would have been Congress's policy wouldn't allow the issue. That's what's. That's what's. Basically, $16.05F treats something as being accurate for purposes of the truth and lending act even though it isn't completely one-to-one ratio. And in this case, you have a margin of $606, you said. And the court found that it was $57. Court found it was $57. That is correct. I mean, we challenged, of course, other things, but the court found that there were $57. And that's not on the no appeal from that scene. What was the total amount you alleged in your complaint? Did you give an amount that you thought? No
. We said that she hadn't got the notices or a sin, which would have, of course, given an amount. But there were a number of charges that we can tell you. Totally how much. Totally. Aggregating right. It probably would have been over the $600. I know we claimed the title in charge of charges. Successive. And there were numerous other charges. There were settlement fee charges. There were charges to charge her just to go out to her house, which, she said, they didn't really want her to go out to the house. They just happened to come there. There were numerous charges. The loan was really filled up with the large number of charges that the court found only as to that $57. And I think that the only reason that the Inge court can go on and discusses specifically about the nature of the tolerance, which they do, is because they're pointing out that it isn't just any excess charge that gives rise to the tolerance, that it has to be, and in fact, if it is padding, which is exactly what these charges are in the mind of the Inge court, that would not constitute the defense. I think I've used up my 12 minutes, so I do want to mention. We'll get your order, but thank you. Good morning, Your Honor, Donna Doblich. On behalf of Option 1, Mortgage Corporation, Your Honor, to answer the question that you know is recently posed in Mr. Schultz, indicated on the appendix on page 3 in Judge Kerry's initial opinion, Mr. Ertchen challenged $2,179 in fees as being improperly excluded from the final charge. She challenged, in other words, far more than the $660 you would have been required to prove to demonstrate an entitlement to rescission, the bankruptcy court, methodically went through each of the charges, the evidence regarding to each charge, and rejected those, having concluded that those were bonafide and reasonable. At the outset, when they're making, then, if they make an allegation that aggregates $2,179, the next thing you have to do is file your answer, and then the question becomes, do you file an answer that lists as an affirmative defense that there is a tolerances for accuracy point, or is that in effect, call it an element? But what do you mean? It sounds to me like from what you're saying is maybe you should have alleged that there was a tolerances for accuracy defense. Here the issue of materiality was the front and center in the pleadings and in the pretrial statement and paragraph 9 of for complaint. She characterized the allegation as, were there material violation, material disclosure violation. Option 1 denied that, denied materiality and denied that in fact any errors had occurred
. The loan was really filled up with the large number of charges that the court found only as to that $57. And I think that the only reason that the Inge court can go on and discusses specifically about the nature of the tolerance, which they do, is because they're pointing out that it isn't just any excess charge that gives rise to the tolerance, that it has to be, and in fact, if it is padding, which is exactly what these charges are in the mind of the Inge court, that would not constitute the defense. I think I've used up my 12 minutes, so I do want to mention. We'll get your order, but thank you. Good morning, Your Honor, Donna Doblich. On behalf of Option 1, Mortgage Corporation, Your Honor, to answer the question that you know is recently posed in Mr. Schultz, indicated on the appendix on page 3 in Judge Kerry's initial opinion, Mr. Ertchen challenged $2,179 in fees as being improperly excluded from the final charge. She challenged, in other words, far more than the $660 you would have been required to prove to demonstrate an entitlement to rescission, the bankruptcy court, methodically went through each of the charges, the evidence regarding to each charge, and rejected those, having concluded that those were bonafide and reasonable. At the outset, when they're making, then, if they make an allegation that aggregates $2,179, the next thing you have to do is file your answer, and then the question becomes, do you file an answer that lists as an affirmative defense that there is a tolerances for accuracy point, or is that in effect, call it an element? But what do you mean? It sounds to me like from what you're saying is maybe you should have alleged that there was a tolerances for accuracy defense. Here the issue of materiality was the front and center in the pleadings and in the pretrial statement and paragraph 9 of for complaint. She characterized the allegation as, were there material violation, material disclosure violation. Option 1 denied that, denied materiality and denied that in fact any errors had occurred. In the pretrial statement listed as one of the legal issues for trial, was whether there were material violations of the tealous disclosure requirements. Again, any notion of unfair requirements? So, is what you're saying that you would not have known that, well, I don't know, maybe to get the trial. When you do, somebody sends you the complaint, but don't you look at the charges and say, look, we dispute these particular charges. There's 10 of them, I guess, in total. And that because we think that they're wrong on the numbers, our number is x and x is less than 1 half of 1%. What analysis do you go through in preparing your answer? Well, the defendant's original position was that all of the 10 charges were properly excluded. They were amount paid to third parties. They were bona fide and reasonable in all respects. And therefore, there was no error. There was a zero dollar error on the disclosure statement. The evidence of trial, there were some ambiguity as to whether or not there was perhaps a markup on the appraisal fee. And there was testimony that the notary fee, which was not expressly even mentioned in the complaint, had been marked the fact that it could all be. At that point, then it's an argument of the greater assumes the lesser
. In the pretrial statement listed as one of the legal issues for trial, was whether there were material violations of the tealous disclosure requirements. Again, any notion of unfair requirements? So, is what you're saying that you would not have known that, well, I don't know, maybe to get the trial. When you do, somebody sends you the complaint, but don't you look at the charges and say, look, we dispute these particular charges. There's 10 of them, I guess, in total. And that because we think that they're wrong on the numbers, our number is x and x is less than 1 half of 1%. What analysis do you go through in preparing your answer? Well, the defendant's original position was that all of the 10 charges were properly excluded. They were amount paid to third parties. They were bona fide and reasonable in all respects. And therefore, there was no error. There was a zero dollar error on the disclosure statement. The evidence of trial, there were some ambiguity as to whether or not there was perhaps a markup on the appraisal fee. And there was testimony that the notary fee, which was not expressly even mentioned in the complaint, had been marked the fact that it could all be. At that point, then it's an argument of the greater assumes the lesser. Option one's position had been that there was not even a zero dollar variant. Importive, Mr. Schull. So there was a general denial as opposed to a need for an affirmative defense. That's right, your honor. Because the facts and the argument that would be necessary to show that there was a zero dollar variant, a zero dollar error, was the same fact, the same argument that would be used to show there was a one dollar error, or a $57 error. So then that leads to my question to Mr. Schull at the outset. What test would you suggest that we use to differentiate general defense from an affirmative defense? Well, when you look at the list of the touchdown of what unifies those affirmative defenses, is that it's something that the defendant would need to introduce new facts, new evidence for argument. Outside the fore, outside the parameters of the facts, evidence and argument, the plaintiff would need to introduce, to prove his or her case. So for example, in a simple breach contract case, it's a general defense to show that there was no consideration, for example, because that's an element of the plaintiff case. If on the other hand, the argument is that there was a validly formed contract, but it was procured by fraud and the inducement, that is an argument that would require new facts, new evidence, new argument, and therefore rule 8p requires that it be affirmative completed. Here again, the facts necessary to show a zero dollar error are the same fact, the same test that would be used to show an error of one dollar
. Option one's position had been that there was not even a zero dollar variant. Importive, Mr. Schull. So there was a general denial as opposed to a need for an affirmative defense. That's right, your honor. Because the facts and the argument that would be necessary to show that there was a zero dollar variant, a zero dollar error, was the same fact, the same argument that would be used to show there was a one dollar error, or a $57 error. So then that leads to my question to Mr. Schull at the outset. What test would you suggest that we use to differentiate general defense from an affirmative defense? Well, when you look at the list of the touchdown of what unifies those affirmative defenses, is that it's something that the defendant would need to introduce new facts, new evidence for argument. Outside the fore, outside the parameters of the facts, evidence and argument, the plaintiff would need to introduce, to prove his or her case. So for example, in a simple breach contract case, it's a general defense to show that there was no consideration, for example, because that's an element of the plaintiff case. If on the other hand, the argument is that there was a validly formed contract, but it was procured by fraud and the inducement, that is an argument that would require new facts, new evidence, new argument, and therefore rule 8p requires that it be affirmative completed. Here again, the facts necessary to show a zero dollar error are the same fact, the same test that would be used to show an error of one dollar. But you don't even have to show a zero dollar error. Do you have a free pass for the first $100 or the first in this case, $600 and $6? It's not a free pass, Your Honor. It was a legislative accommodation made in 1995 in response to a case involving a diminimus $25 fee, and as Judge Barth recognized, it's a very draconian remedy. It's rescissioned up alone. It's dashed to retunnel these attorney fees. And Congress built in a tolerance whereby diminimus violations, intentional or unintentional, the state of mind is not, Mr. Schultz says, germane to that legal analysis. At the end of the day, it does not, it does not account the result of the decision. I have a question on the standard of review. You say that we stand in the shoes of the district court and review the bankruptcy courts findings of fact and conclusions of law under Aquilaeronius and plenary standard of review respectively. But the bankruptcy court and the district court came to opposite conclusions. Aren't we really reviewing in this case the conclusion of the district court? Well, Your Honor, it's ultimately a no-vose-handered review because under the National Union Fire Insurance case the question of whether or not it's a general defendant under AP or affirmative defendant under AP is a question of law. Well, is it exclusively a question of law? It is your honor
. But you don't even have to show a zero dollar error. Do you have a free pass for the first $100 or the first in this case, $600 and $6? It's not a free pass, Your Honor. It was a legislative accommodation made in 1995 in response to a case involving a diminimus $25 fee, and as Judge Barth recognized, it's a very draconian remedy. It's rescissioned up alone. It's dashed to retunnel these attorney fees. And Congress built in a tolerance whereby diminimus violations, intentional or unintentional, the state of mind is not, Mr. Schultz says, germane to that legal analysis. At the end of the day, it does not, it does not account the result of the decision. I have a question on the standard of review. You say that we stand in the shoes of the district court and review the bankruptcy courts findings of fact and conclusions of law under Aquilaeronius and plenary standard of review respectively. But the bankruptcy court and the district court came to opposite conclusions. Aren't we really reviewing in this case the conclusion of the district court? Well, Your Honor, it's ultimately a no-vose-handered review because under the National Union Fire Insurance case the question of whether or not it's a general defendant under AP or affirmative defendant under AP is a question of law. Well, is it exclusively a question of law? It is your honor. So that, but who's legal determination are we reviewing here? Here on an appeal from the district court that ultimately is a review of the bankruptcy. Who reversed the district court? Reverse the bankruptcy court. Correct. So we reverse the bankruptcy court? Again, if we go along with you? Procedurally, you would be affirming the district court. That's what I'm asking. The words from the bankruptcy court weren't there. In the initial bankruptcy court decision, he found, he thoughtically went through all of the charges found that she had in fact received the disclosure statement and rejected most of the arguments. And what is the second bankruptcy court? It was the same judge, Judge Kerry, on a motion to alter or amend the judgment was one that's way your argument. Wasn't the second decision after Judge Kerry went to Delaware? Or am I getting my case? There was, there was another decision where another bankruptcy court after Judge Kerry left quantified the amount in the terms of the first judgment. Not an issue on this appeal. The fact that that's been a state pending given the district court. Reverse. I'd also point out that as a district court for I've noted below, Mr
. So that, but who's legal determination are we reviewing here? Here on an appeal from the district court that ultimately is a review of the bankruptcy. Who reversed the district court? Reverse the bankruptcy court. Correct. So we reverse the bankruptcy court? Again, if we go along with you? Procedurally, you would be affirming the district court. That's what I'm asking. The words from the bankruptcy court weren't there. In the initial bankruptcy court decision, he found, he thoughtically went through all of the charges found that she had in fact received the disclosure statement and rejected most of the arguments. And what is the second bankruptcy court? It was the same judge, Judge Kerry, on a motion to alter or amend the judgment was one that's way your argument. Wasn't the second decision after Judge Kerry went to Delaware? Or am I getting my case? There was, there was another decision where another bankruptcy court after Judge Kerry left quantified the amount in the terms of the first judgment. Not an issue on this appeal. The fact that that's been a state pending given the district court. Reverse. I'd also point out that as a district court for I've noted below, Mr. and did not argue on their prejudice in any way. These were arguments hypothetical of what she would have done might have done that as I indicated when I began my argument. She challenged these that were well above and beyond the threshold she needed to show to recover here. The bankruptcy court made findings fast, refuting the appeal. Thank you. There are no further questions. I'll rely on my break. Thank you. Thank you. No, thank you. Rebuttal. Yes, thank you. One other issue I just would note is that not only was it not pleaded as an affirmative defense, but the 1605 issue was not raised at all, not at any point, not even in post-trouse emissions
. and did not argue on their prejudice in any way. These were arguments hypothetical of what she would have done might have done that as I indicated when I began my argument. She challenged these that were well above and beyond the threshold she needed to show to recover here. The bankruptcy court made findings fast, refuting the appeal. Thank you. There are no further questions. I'll rely on my break. Thank you. Thank you. No, thank you. Rebuttal. Yes, thank you. One other issue I just would note is that not only was it not pleaded as an affirmative defense, but the 1605 issue was not raised at all, not at any point, not even in post-trouse emissions. And as a result, the court was really ruling. But if they're saying that number zero, a general defense would work under 8B. They're saying 100% of the $2,179 were disputing. Well, I understand that, but I think that when you can of course plead that, a general defense, and then also in the alternative, pleaded an affirmative defense. An affirmative defense is what you're going to rely on, and that's what they have. But my question to you is, let's just assume for the moment that, okay, so you plead, she says $2,179. And if somehow they should have said it was actually under $606. Therefore, it's deemed accurate. How is that, how were you prejudice to use judge guards, were I focused on surprise? How were you unfairly surprised? Well, we didn't know that the nature of the charges was an issue. And the nature of the charges is important. If one follows again the analysis of the Indie case, were they safe? It's padding? That it's just as Judge Barry was asking. But how were you unfairly surprised? They're saying it's zero. Should they have made an affirmative defense then? Well, not if they would have been sustained on that, of course, but they wouldn't have had to plead an affirmative defense
. And as a result, the court was really ruling. But if they're saying that number zero, a general defense would work under 8B. They're saying 100% of the $2,179 were disputing. Well, I understand that, but I think that when you can of course plead that, a general defense, and then also in the alternative, pleaded an affirmative defense. An affirmative defense is what you're going to rely on, and that's what they have. But my question to you is, let's just assume for the moment that, okay, so you plead, she says $2,179. And if somehow they should have said it was actually under $606. Therefore, it's deemed accurate. How is that, how were you prejudice to use judge guards, were I focused on surprise? How were you unfairly surprised? Well, we didn't know that the nature of the charges was an issue. And the nature of the charges is important. If one follows again the analysis of the Indie case, were they safe? It's padding? That it's just as Judge Barry was asking. But how were you unfairly surprised? They're saying it's zero. Should they have made an affirmative defense then? Well, not if they would have been sustained on that, of course, but they wouldn't have had to plead an affirmative defense. So if it's then a little more than zero, $57, why is that any different than zero? Well, because again, they can prevail only if 16.05F comes into play. And 16.05F comes into play only if it's raised and brought into the case. Here again, it wasn't, it isn't just the case that they're not raising his affirmative defense. They didn't raise it period so that the court brought into the case. But you still haven't answered my question as to how were you, clearly an expert in this? How were you surprised unfairly? It's hard to say, I mean, if you're saying I'm an expert, nothing surprises me. I guess, I guess nothing surprises me. Your reputation precedes you. Let me take that as a back-handed compliment. Well, I appreciate that, Your Honor. And I want surprised, though. I was surprised when the court raises something that hasn't been argued to it
. So if it's then a little more than zero, $57, why is that any different than zero? Well, because again, they can prevail only if 16.05F comes into play. And 16.05F comes into play only if it's raised and brought into the case. Here again, it wasn't, it isn't just the case that they're not raising his affirmative defense. They didn't raise it period so that the court brought into the case. But you still haven't answered my question as to how were you, clearly an expert in this? How were you surprised unfairly? It's hard to say, I mean, if you're saying I'm an expert, nothing surprises me. I guess, I guess nothing surprises me. Your reputation precedes you. Let me take that as a back-handed compliment. Well, I appreciate that, Your Honor. And I want surprised, though. I was surprised when the court raises something that hasn't been argued to it. And I think the court felt that it was unfair and felt that as a result of it. The court was just trying to do the right thing, saying, wait a minute, this is, this is the minimus. I mean, why are we here? I mean, the court just trying to be very practical about it. Well, not the bankruptcy court in motion for reconsideration. I mean, they had the same considerations and yet the court ruled in our favor. So that's the bottom line of the bankruptcy court decision. And I think the court was exercising its discretion to say, well, you know, I raised this to respond to and maybe I shouldn't have done that and giving us a chance to come back to the bankruptcy court and say, and that's why I keep asking the questions. I ask about a B and a C because I think there needs to be some clarification in this area. All right. I appreciate that, Your Honor. Thank you. Well, thank you. It's very well argued
. And we will take it under advised law. We'll now hear argument in Allen V. Long