Legal Case Summary

The next matter is Tolado versus Indie Mack. The morning your honours. Martin Bryce and with me, Damien Dina Cola for the appellant defendant, One West Bank. I respectfully reserve five minutes for a rebuttal. There's no disputes about the basic facts of this case. The plaintiffs that Tolado's obtained a loan. We're aware. Yes. We know there are many issues on this matter. There are. The first issue I'd like to address is Fyria, which I know you're familiar with, your honours. And the point I wanted to make there is this. The entity that originated the loan was Indie Mack Bank FSB, which failed in July 2008, a year after the loan was originated. Approximately a year later in March 2009, the FDIC as receiver transferred certain assets of the failed Indie Mack to one to one West. Later that year, the Tolados demanded the cancellation of their loan. And when one West failed to cancel the loan, the Tolados sued

. The entire premise for both their demand that the loan be canceled and their subsequent suit involved Indie Mack's conduct. You need to do nothing more than read the amended complaints or the trial courts finding the fact and conclusions of law here. They're all about the origination of this loan. How it was originated, what took place when it was originated, what disclosures the Tolados did or didn't receive. Well, that just the failure to give notice simply delays the right to rescind. Is that correct under Pennsylvania unfair trade? Yes, the door to door sales act in that respect is similar to Thailand. They had a continuing right to rescind. They contend because of their failure to obtain the notice. Correct. And the cause of action they say arises from the failure to rescind. Part of one West. That I disagree with, Your Honor, and accepting that premise would essentially eviscerate Fyria. Because what would happen is every purchasing institution would be opened up to claims not only under the Pennsylvania door to door sales act, but the laws of all 50 states as well as Thailand itself and as well as for instance common law fraud. Any, any statute or any common law cause of action that would allow you the right to rescind. Notwithstanding Fyria's terms and what liabilities were or weren't transferred to the purchasing institution

. You was a plaintiff bar where we would be able to come in and say we gotcha. Okay, but do we have to go that far? They are very clear that the claim that they're bringing is for one West own violation of the law. It's own misconduct. It's the only misconduct that's alleged in the complaint. The only involvement of one West is that it didn't take steps to refund payments to plaintiffs or terminate security interests within attendees. That's it. And the district court as I read the opinion didn't find that one West did anything wrong. So the whole claim against one West must be based upon even though under Fyria it can't be the misconduct of Indy Mac. Exactly George Barry. It is. It's not based on anything one West did because one West did nothing other than fail to say sure the loan cancelled jurisdiction. Exactly. That's it exactly your honor. And the argument they try to make and it puts the proverbial rabbit in the hat is no we're not suing you one West because of anything Indy Mac did. We're suing you for failure to honor our cancellation demand, but they didn't make a gratuitous cancellation demand

. They have in order to seek and ultimately sue for the failure to cancel a loan you have to premise that on something such as for instance a material violation of Tyler with a failure to obtain a notice of light to cancel under Tyler or the failure to get the notice they contend was required under the door to door sales act. And that failure was Indy Mac's not one West's failure. All right let me ask you a question. If if supposing we say fire, it does apply and then the plaintiffs have to seek an administrative remedy. Are they time borrowed on that? Well, if I read provides for from notice at least 90 days so has that time likely past your honor looking at a calendar. I think that's a safe conclusion. However, what what every court to have squarely looked at this issue and most recently the ninth circuit and bench Benson and we submitted that through a 28 J letter. But the DC circuit, the sixth circuit, the ninth circuit and Benson, the 11th circuit has said litigants can't create their own bed and then by failing to even attempt to exhaust the administrative claims to the purchasing institution and then say, oh well now we can't sue or we can't bring a claim against the FDIC to allow them to do that. As every circuit to have looked at this issue is held would eviscerate the statute. I mean it would completely excuse them. If they if they wanted to they could bring a claim against you for your own misconduct that's not tied to Indy Mac, your independent misconduct. But then I think in Benson, I think makes this fairly clear, then even though it might not be be run into fire. There's nothing alleged here that would state a claim under any law. It's just they didn't cancel. I agree

. If you do any of that. If you look at not only the amended complaint but the letter demanding cancellation itself, it's all Indy Mac. I mean, for instance, Toronto, there's I think little question that if if after one West purchased this loan, it just for whatever reason, triple their interest rate or impose the fee that the note or mortgage didn't require, that would be one West's wrong. And if I read it would have nothing to do with that. But that's not this case. What this case is is Indy Mac's failure to give them the notice they contend was required by the door to door act. And that's plainly strategic pleading which every circuit has said if I read by read bars. If I might briefly just touch on two other issues. Number one, Hola. Clearly we're talking about a disclosure here. And clearly that falls within B9 of the OTS regulation. Clearly this deals with the origination and servicing of this loan. So clearly that is within B10. The district court ignored both B9 and B10 of the operative OTS regulation. And just assumed that this was a generally applicable commercial law

. It plainly is not. It is plainly a disclosure. The case is plainly premised upon a state law that required a certain disclosure they contend and they're alleged failure to receive that disclosure. And then after it's in on all fours with B9 and B10. It's not a generally applicable commercial law such as say a breach of contract where again using my hypothetical. If we didn't then it's some fee post purchase and started charging them for it. Then that would obviously be outside of B9 and B10 and all and all likelihood they'd be able to sue for breach of contract. That's not this case though. So their claim is also preempted under Hola. If we were in the seventh circuit here. What would your argument be? It would be the same. The awkward case which I think you're referring to your honor doesn't hold any differently. The court was dealing with a very unclear complaint there and the court noted that it was impossible to definitively say which claims were preempted, which claims weren't. Go back to the district court to sort this out. Here again the one thing that is plain about this case is it's a disclosure case

. It's predicated entirely on there alleged failure to receive a disclosure mandated solely by state law that's plainly within B9 and B10. So the state law here doesn't it's not general commercial law. It's not general common law. Well on a space your honor it's not the door to door sales act. Among other things you have to have for instance a door to door sale 25 dollars more of a good or a merchandise under no stretch of the imagination is that generally applicable. Help me here. Supposing there is jurisdiction. Yes. Supposing there's no preemption under Hola. Correct your honor or Tyler or either or. Supposing the federal the Pennsylvania act applies because we find one west was a seller. You know supposing all of their arguments go their way and we say the district court was right to void to void alone. Don't they still lose in the sense that they have to pay back what was paid to them or paid on their behalf they cannot just receive what they paid in. So that I'm not sure they win even if there is there a time limit on when they had to demand back the principal amount and you're failure to demand back the principal amount within the time limit. Does that doesn't that then bar you from requesting that the principal amount be be returned to you

. I would agree with you your honor and one of the other egregious things about the district courts order here to answer your question judge Barry is they don't have to return anything the district courts order requires us to return every single payment they made whether or not that payment is made up of not only interest or fees but principal as well as escrow items such as taxes and insurance we paid on their behalf we have to give it all back to them. I'm talking about right that's one aspect the other aspect is them returning the principal amount to you and aren't you time barred from asking that they do that. Oh we are on a no I would say we are we are not time barred because isn't there a time limit in the statute. I don't believe that's correct your honor. Well it's a reasonable remedy I don't know if it would be equitable to make you pay the whole thing and as we note in our brief there's very little law on this but the door to our sales act like Tyler it's intent if and when it applies and if and when it's violated is to return the party to the status quo and that clearly is not what is happening. Yes there may be some equitable power to to reorder or condition but there's no power whatsoever in the statute nothing that reads it in our view that would allow the district court assuming everything you said judge Barry to simply give them the house free and clear. I just I think I've gotten us all off the track I mean because I candidly think that the most important argument is the jurisdictional argument under under fire and it may even be that if we have to dismiss for lack of jurisdiction that might be a good result for the other side. I do agree sense that they would still have you know alone that they've been paying off. I can't argue with you there your honor and no amount of time but in fairness to to my opponent I did want to give you the opportunity to address or I wanted to address the penalty order. Here with $10,000 an arbitrary can I begin that discussion by mentioning that I am the district judge he was reversed and Newton. Oh I noticed that your honor but I didn't want to say I didn't want to say anything in some respects frankly I think this is a more shocking frankly penalty than than there would have been easier for us in all candor if the district court attempted to coerce a settlement by just making us pay a thousand or $10,000 fine as opposed to demanding that our CEO in the job less than the job. I think this is a very important argument for us in two weeks who has never offered as a witness here never had any involvement in the settlement negotiations fly across the country on just a few days notice. So do we remain to the district court so she can get notice. I would submit your honor no there is there is no basis to remain. If we find that district court did not have jurisdiction with that sanction fall of its own weight that would be my initial position yes judge Barry that we shouldn't have been before the district court in the first place so consequently that the sanction order fails for lack of subject matter jurisdiction

. I would submit it fails on its on its merits anyway because it was plainly put in place to coerce a settlement and it was directed just like the order in Newton with all due respect judge for off solely on all the defendant thank you your honor we never remember which cases we got reversed in do we. I try not to remember the cases I lose either your honor but I don't think there is any any basis because the order was was plainly inappropriate under rule 16 was plainly a violation of of due process was plainly arbitrary there's a payment of $10,000 tied to nothing to the to the clerk of court. I think we understand anything else you want to know you are I have reserved five minutes. Thank you very much. Good morning. Scott Michaelman public citizen for Jose and Maria Teato may please the court in refining in refinancing their mortgage the Teato's negotiated one set of terms in Spanish and got another one on the contract they couldn't read that they signed in English. There was no notice of the right to cancel as required under Pennsylvania law to the notice to the right to cancel never expired when the Teato's tried to exercise in August of 2009 the holder of their loan one west refused in violation of 201-7 E and G it is that violation for which the Teato's are here seeking relief. Now my opponent suggests that the fire reager a sectional bar must apply because otherwise they're going to be the courts are going to be flooded with claims against assuming banks for the misconduct of predecessor banks the banks that used to help hold those assets. But as the cases that both sides have cited in their brief make clear that is not true when the assuming bank is charged with the originating banks misconduct the cases get thrown out they've all gotten thrown out but what those cases do not address is and and what a few cases have said can go forward such as the DC circuit in American national and the ninth circuit in Benson is where the assuming bank is charged with the bank. That's right. Okay now your own the only misconduct charged against one west is in paragraphs 35 and 37 of your complaint essentially they did not take steps to refund payments to plaintiffs or terminate the security interests in their home. That's the only allegation as to one west. That's absolutely right your honor and it's possible that if the district court had gone beyond an awarded treble damages based on things that in the MAC had done deceptively that would that that could come within fire as bar but this allegation relates only to one west failure which is a violation of the CPL sections 201-7 E and G they had a duty to cancel they didn't cancel not a duty to cancel based on their own this conduct. It doesn't matter where the duty to cancel. Only misconduct you say was the fact they didn't cancel

. That's correct your honor but that that right to cancel that cancellation period existed under state law whether one west liked it or not so they had to comply with Pennsylvania law they were the owner of the asset when the Teados exercise their right to cancel the right to cancel hadn't run. That's a claim under what law I mean just that state to claim under under the under the CPL your honor under section under section 201-7 G you agree that nothing that happened with Enrique or none of this none of the facts that the reason that they were supposed to cancel one west that they had to cancel. We don't have we don't know the reason why we can't know the reason why because of course that's all under fire. That would take the claim under fire. Right if they if they sought a remedy for Indie Max misconduct if they start sought to pin that on one west and get damages for that that might run a trouble. Why are you saying they should cancel but but there's no reason why they had to cancel. They had to they they were and they were able to cancel at that point because the notice of cancellation had not been given into the cancellation period had not run as a matter of state law. And so it's it's true that it doesn't matter why and the reason why this wouldn't open the floodgate is because they're so this is a very unusual situation where the cancellation period remains open for all of this time. But it but because the cancellation period remain why they why they had to cancel that's that's not it because otherwise if we know why if we know why they had to cancel because Enrique and the broker and the honor. You know if we know why they had to cancel you're into strategic clear pleading here and you're going through the back door or attempting to what you're barred from going through the front. It's it's it's it's not a back door claim your honor if if one west had complied with the cancellation demand that the haute auto's made in August of 2009 when they won west owned the loan. There would be no lawsuit here. They own the asset value of the loan leaving the liabilities with FDIC. Those those cannot be separated in that manner. They can't if they're so separated in the agreement of of of transfer

. Actually in the analogous tile of context a number of what did the what did the agreement between. Indie Mac and fire and then fire when fire. The real. Sold the Indie Mac assets to one west what did the agreements say about what one west was acquiring. It said it was requiring the assets and not the liabilities right however there there are two sources of law here that make clear that they can't. So easily get rid of the right to rescission that runs against that asset first of all under pencil Daniel law there the an assigner. The principal of any law wouldn't affect the deal between Indie Mac excuse me between FDIC and one west would it well it would in terms of what what one west takes one west isn't isn't that preempted. No no no. So you know what the because because under Pennsylvania law an assign or can't cannot give more cannot assign more rights than he has so the right to collect on the loan free from the right of rescission that goes along with it under state law those those are bundled together they can't be separated out in that manner. And for this reason a number of courts in the federal title of context have held that the that the right of rescission exists not with standing fire. And not with standing agreements agreements like this one in which failed banks assets are transferred to an assuming bank without the liabilities. So for example in the king versus long beach mortgage case 672 F sub second 235 at 247 the district of Massachusetts held that not with standing a non assignment of liabilities to the assuming bank. The the homeowner could still exercise rescission versus the assuming bank. Which are not bound by that even if it's relevant that that's true your honor but but there have been numerous cases following that case showing that one one cannot separate the the right to rescind and pull it off of the asset into this general category of liabilities it runs with the asset itself. And so either they had the asset with the right to rescind or or they didn't take the asset at all. In fact under Pennsylvania law the the duties of the under the CPL are not wavable duties. So so so they couldn't they couldn't separate it in that manner I'll give you hypothetical imagine if this were an entirely fraudulent mortgage. Imagine if they forged the taillot of signature nobody had ever been to the taillot house. And imagine the anymacted all these things wrong and then ultimately it ended up in the hands of one west. Could one west collect on that loan because they'd taken the quote unquote assets but not the liabilities and the mortgage was entirely fraudulent. I don't think they could I think firey allows that the that a claim they solely on what the assuming bank had has done and not not trying to penalize them for anything that the failed bank did is still allowable otherwise that fraudulent mortgage. But when you claim against one west is completely dependent upon what in the mac did what the failed bank did is really absent that you've got no claim. Well absent that we've got no right to cancel because in in the mac failed to trigger the beginning of the right to cancel under Pennsylvania law. But since the right of right to cancelation still existed when one west mistake here one west misconduct was was in. But you're not talking about cancellation as to one west you're saying did not take steps to refund payments to plaintiff and terminate the security interest. That's that's that is cancellation or honor that's that's what that's what the complaint asked for the re the refunding of payments the cancellation of the security interest were the undoing of the transaction which is what the district court ordered. But is the timeliness of account the timeliness of this. An issue the 10 days is this what. Is that important? Well to your independent claim you're on it the the timeliness issue as to whether the teato's cancellation was timely no no you said they didn't respond in time. Ah right within 10 days within 10 business days and it seems to have real kind of sex appeal for 10 days I'm wondering you mean it that way or not

. In fact under Pennsylvania law the the duties of the under the CPL are not wavable duties. So so so they couldn't they couldn't separate it in that manner I'll give you hypothetical imagine if this were an entirely fraudulent mortgage. Imagine if they forged the taillot of signature nobody had ever been to the taillot house. And imagine the anymacted all these things wrong and then ultimately it ended up in the hands of one west. Could one west collect on that loan because they'd taken the quote unquote assets but not the liabilities and the mortgage was entirely fraudulent. I don't think they could I think firey allows that the that a claim they solely on what the assuming bank had has done and not not trying to penalize them for anything that the failed bank did is still allowable otherwise that fraudulent mortgage. But when you claim against one west is completely dependent upon what in the mac did what the failed bank did is really absent that you've got no claim. Well absent that we've got no right to cancel because in in the mac failed to trigger the beginning of the right to cancel under Pennsylvania law. But since the right of right to cancelation still existed when one west mistake here one west misconduct was was in. But you're not talking about cancellation as to one west you're saying did not take steps to refund payments to plaintiff and terminate the security interest. That's that's that is cancellation or honor that's that's what that's what the complaint asked for the re the refunding of payments the cancellation of the security interest were the undoing of the transaction which is what the district court ordered. But is the timeliness of account the timeliness of this. An issue the 10 days is this what. Is that important? Well to your independent claim you're on it the the timeliness issue as to whether the teato's cancellation was timely no no you said they didn't respond in time. Ah right within 10 days within 10 business days and it seems to have real kind of sex appeal for 10 days I'm wondering you mean it that way or not. Yes yes or honor when they fail to respond within 10 days they violated their duty under section 201-7G which says they must cancel within 10 days they also we don't know anything about why they why they got to the point where they must cancel because that's fairer that's fairer. So we all we know is that as to some claim we don't know what it is they didn't cancel within 10 days. The only the only thing that the only reason that any max conduct is relevant here is that the cancellation period remained open that's all that matters from you can throw out everything else that any max did just but because the cancellation period remained open that was where one west obligation comes in. Why is there a reason to cancel other than in the max conduct how can you avoid in the max conduct here. Well the reason to cancel I mean in terms of the taos reason to cancel are in terms of legal justice. The legal reason is why would you're you're faulting you're faulting one west for not canceling and you're not giving me a reason independent of what Indie MAC did for why they couldn't well they well it is true the Indie MAC's failure led to the cancellation period not beginning to run. But they were they're not we're not seeking damages from one west for Indie MAC's deceptive practices for instance all all we're getting here is the cancellation that the taos were entitled to under state law and the state law exists to protect people like the taos who get into these these door to door transactions in languages they don't understand and it happens very quickly and all the sudden they have an unaffordable market. So so contra bringing this action if you if you had exhausted your your administrative remedies against Indie MAC and FFIC I see kind of no problem with this. But they didn't how how could they are on there there's no indication of the record they even knew they had a claim at that point and also there's no indication that they would have known they wanted to cancel because they didn't understand yet the terms of the mortgage the way it worked the way the interest would adjust and rise. So the claims process was was of no use to them yet because as far as they knew they had gotten something different than what they bargained for so in this case not holding one west exempt from their duty to cancel imposed under state law would would leave the taos in exactly the position that the pencil being a legislature designed to protect them from. But one west wasn't the seller well one west assumed assumed those duties under Pennsylvania law. It is assumed certain things but it it it didn't assume the duties that the sellers should have committed to have performed prior to the transfer to to FDIC did it. Yes or on or it did. Those got stuck in FDIC and and something more came out the one west. No you're on there is a matter of Pennsylvania law a an assign or this is federal what talking about not Pennsylvania law

. Yes yes or honor when they fail to respond within 10 days they violated their duty under section 201-7G which says they must cancel within 10 days they also we don't know anything about why they why they got to the point where they must cancel because that's fairer that's fairer. So we all we know is that as to some claim we don't know what it is they didn't cancel within 10 days. The only the only thing that the only reason that any max conduct is relevant here is that the cancellation period remained open that's all that matters from you can throw out everything else that any max did just but because the cancellation period remained open that was where one west obligation comes in. Why is there a reason to cancel other than in the max conduct how can you avoid in the max conduct here. Well the reason to cancel I mean in terms of the taos reason to cancel are in terms of legal justice. The legal reason is why would you're you're faulting you're faulting one west for not canceling and you're not giving me a reason independent of what Indie MAC did for why they couldn't well they well it is true the Indie MAC's failure led to the cancellation period not beginning to run. But they were they're not we're not seeking damages from one west for Indie MAC's deceptive practices for instance all all we're getting here is the cancellation that the taos were entitled to under state law and the state law exists to protect people like the taos who get into these these door to door transactions in languages they don't understand and it happens very quickly and all the sudden they have an unaffordable market. So so contra bringing this action if you if you had exhausted your your administrative remedies against Indie MAC and FFIC I see kind of no problem with this. But they didn't how how could they are on there there's no indication of the record they even knew they had a claim at that point and also there's no indication that they would have known they wanted to cancel because they didn't understand yet the terms of the mortgage the way it worked the way the interest would adjust and rise. So the claims process was was of no use to them yet because as far as they knew they had gotten something different than what they bargained for so in this case not holding one west exempt from their duty to cancel imposed under state law would would leave the taos in exactly the position that the pencil being a legislature designed to protect them from. But one west wasn't the seller well one west assumed assumed those duties under Pennsylvania law. It is assumed certain things but it it it didn't assume the duties that the sellers should have committed to have performed prior to the transfer to to FDIC did it. Yes or on or it did. Those got stuck in FDIC and and something more came out the one west. No you're on there is a matter of Pennsylvania law a an assign or this is federal what talking about not Pennsylvania law. Well but but Pennsylvania law governs the interpretation of the contract and they couldn't take the the assets not subject to the defenses and the counter claims those are the those are the holdings of the people's Pittsburgh cases and himes to which one west has no answer. But one west I mean just but common sense did not sell the loan to the taos. They sell the loan. They sold the asset and the asset was subject to the defense of rescission. But is that what the Pennsylvania act is designed to remedy. Yes or on or the design to remedy what what happened through Indie Mac that act is designed to remedy what happened through Indie Mac isn't it. It's it's designed to give the consumer the opportunity to cancel a transaction that they were fooled with and they're it's designed to give that to have that right run with the contract now usually in the normal case and this is why this is an unusual case that they won't have brought implications usually that right runs out pretty fast. But when proper notice is not given the right continues the right continue to exist and so it did exist when when the taos sent one west their notice now one west had 10 days to to understand state law and figure out that they took this asset subject to a rescission right. And respectfully contrary to your honor suggestion dismissing this case under fire you would not help the taos it would leave them with a loan they can't afford to pay. And that and that Pennsylvania attempted to protect them from but that because someone different holds it now. Well would the if if if the court finds new jurisdiction where I said it would help him that the alternative would be if we were to go and say well the district court clearly should have given the correct remedy if she rescinded avoided the loan and that would have been returning the parties to where they were precisely before the loans granted which means that they receive is $36,000 or $28,000 that the taos received back and the 150. $15,000 loan is is returned so you know that's where I'm saying you know better everybody just goes away here. Well no respectfully not your honor if the remedy was if if this court would were to determine as we think they should as we think you should that there is jurisdiction and there is no preemption and there and that there is a valid claim if the only difficulty were with the remedy as was stated in the complaint. So if the state is not going to be able to pay the money under under a different remedy if the taos owed money they could obtain other financing to pay back whatever money they owe now we don't think they do we think the law is clear that that one west had 10 days the same 10 days they had to cancel to demand their money back they didn't that was their own mistake and and they're stuck with it. So so we don't think there's a problem with the remedy but if that was where the only problem it would be appropriate to affirm in all other respects and remand for re determination of the remedy

. Well but but Pennsylvania law governs the interpretation of the contract and they couldn't take the the assets not subject to the defenses and the counter claims those are the those are the holdings of the people's Pittsburgh cases and himes to which one west has no answer. But one west I mean just but common sense did not sell the loan to the taos. They sell the loan. They sold the asset and the asset was subject to the defense of rescission. But is that what the Pennsylvania act is designed to remedy. Yes or on or the design to remedy what what happened through Indie Mac that act is designed to remedy what happened through Indie Mac isn't it. It's it's designed to give the consumer the opportunity to cancel a transaction that they were fooled with and they're it's designed to give that to have that right run with the contract now usually in the normal case and this is why this is an unusual case that they won't have brought implications usually that right runs out pretty fast. But when proper notice is not given the right continues the right continue to exist and so it did exist when when the taos sent one west their notice now one west had 10 days to to understand state law and figure out that they took this asset subject to a rescission right. And respectfully contrary to your honor suggestion dismissing this case under fire you would not help the taos it would leave them with a loan they can't afford to pay. And that and that Pennsylvania attempted to protect them from but that because someone different holds it now. Well would the if if if the court finds new jurisdiction where I said it would help him that the alternative would be if we were to go and say well the district court clearly should have given the correct remedy if she rescinded avoided the loan and that would have been returning the parties to where they were precisely before the loans granted which means that they receive is $36,000 or $28,000 that the taos received back and the 150. $15,000 loan is is returned so you know that's where I'm saying you know better everybody just goes away here. Well no respectfully not your honor if the remedy was if if this court would were to determine as we think they should as we think you should that there is jurisdiction and there is no preemption and there and that there is a valid claim if the only difficulty were with the remedy as was stated in the complaint. So if the state is not going to be able to pay the money under under a different remedy if the taos owed money they could obtain other financing to pay back whatever money they owe now we don't think they do we think the law is clear that that one west had 10 days the same 10 days they had to cancel to demand their money back they didn't that was their own mistake and and they're stuck with it. So so we don't think there's a problem with the remedy but if that was where the only problem it would be appropriate to affirm in all other respects and remand for re determination of the remedy. That's a that's a some that you get through for rare but I'd like you to talk a little bit about the homeowners loan act and what the district court did here has a lot of appeal but how do you get around subsection B. Yes Your Honor I think the key question about subsection B is whether in those categories in subsection B of the regulation refer to all laws affecting lending in any way or only laws that are targeted against lenders and lending practices. Why isn't this targeted. Well it's not targeted your honor because the door to door sales act is a law of general applicability it applies to all exchanges in the door to door context whether it's whether you're selling alone whether you're selling a refrigerator whether you're selling stereo whether you're selling plumbing services this is a law of general applicability I disagree with my opponent's characterization that the carving out a door to door category makes it not generally applicable the question is was it generally applicable applicable versus specific to lenders and you can see that. In the OTS 1996 opinion letter stating that the Indiana consumer protection law was valid the OTS explained in that letter that the consumer protection law was not preempted because it applies and now I'm quoting without regard to whether the transaction involves an extension of credit. This is OTS's own interpretation and we think it's a good one because it makes a clear dividing line dividing line embraced by the seventh and the sixth circuits between those laws specifically aimed at an extension of credit and those laws like the door to door sales act here that apply broadly to all types of transatlantic. Now the district court concluded that the Pennsylvania acts language requirement was not preempted by Federal law because it only incidentally affected lending, right? Yes, Your Honor. So one under C that she went under C without looking at B. Well, once if it's not targeted at lending it doesn't fall within those B categories and the question becomes whether it is a general commercial and consumer law with only an incidental effect the district court correctly found that it does have an only incidental effect because it requires at most in this case a couple of extra pieces of paper or notice. How can how can a requirement be incidental if it affected the entire lending transaction here and she threw up the lending transaction because of because of the incidental effect? Well, certainly if small requirements aren't complied with they can have large consequences but the requirement itself is incidental. The requirement itself is incidental respectfully Your Honor because all they required but all the Pennsylvania law required was additional notification to be given to the consumer. Now that's got to be an easy thing to do. You provide an additional form that's it that's that's all that needs to needs to happen here and contrast that with the situation the OTS encountered with the California law that it discussed in its 1999 letter. In that case it held the California law preempted because it applied differently county by county it was impossible with its vague standards for banks to know what to comply with. This is very easy the CPL says exactly what they have to provide and when and how all they have to do is is provide a couple of extra pieces of paper in a different language of the same thing that they've they've negotiated and then the consumers protected and they've complied with the right back to what any back did wrong

. That's a that's a some that you get through for rare but I'd like you to talk a little bit about the homeowners loan act and what the district court did here has a lot of appeal but how do you get around subsection B. Yes Your Honor I think the key question about subsection B is whether in those categories in subsection B of the regulation refer to all laws affecting lending in any way or only laws that are targeted against lenders and lending practices. Why isn't this targeted. Well it's not targeted your honor because the door to door sales act is a law of general applicability it applies to all exchanges in the door to door context whether it's whether you're selling alone whether you're selling a refrigerator whether you're selling stereo whether you're selling plumbing services this is a law of general applicability I disagree with my opponent's characterization that the carving out a door to door category makes it not generally applicable the question is was it generally applicable applicable versus specific to lenders and you can see that. In the OTS 1996 opinion letter stating that the Indiana consumer protection law was valid the OTS explained in that letter that the consumer protection law was not preempted because it applies and now I'm quoting without regard to whether the transaction involves an extension of credit. This is OTS's own interpretation and we think it's a good one because it makes a clear dividing line dividing line embraced by the seventh and the sixth circuits between those laws specifically aimed at an extension of credit and those laws like the door to door sales act here that apply broadly to all types of transatlantic. Now the district court concluded that the Pennsylvania acts language requirement was not preempted by Federal law because it only incidentally affected lending, right? Yes, Your Honor. So one under C that she went under C without looking at B. Well, once if it's not targeted at lending it doesn't fall within those B categories and the question becomes whether it is a general commercial and consumer law with only an incidental effect the district court correctly found that it does have an only incidental effect because it requires at most in this case a couple of extra pieces of paper or notice. How can how can a requirement be incidental if it affected the entire lending transaction here and she threw up the lending transaction because of because of the incidental effect? Well, certainly if small requirements aren't complied with they can have large consequences but the requirement itself is incidental. The requirement itself is incidental respectfully Your Honor because all they required but all the Pennsylvania law required was additional notification to be given to the consumer. Now that's got to be an easy thing to do. You provide an additional form that's it that's that's all that needs to needs to happen here and contrast that with the situation the OTS encountered with the California law that it discussed in its 1999 letter. In that case it held the California law preempted because it applied differently county by county it was impossible with its vague standards for banks to know what to comply with. This is very easy the CPL says exactly what they have to provide and when and how all they have to do is is provide a couple of extra pieces of paper in a different language of the same thing that they've they've negotiated and then the consumers protected and they've complied with the right back to what any back did wrong. Well, that's that's the question of whether the CPL is protected and I think I think to look at that you do have to go back to the transaction and look at what in the MAC did wrong but but in terms of back into fire. Well, in FIREA doesn't doesn't prevent looking at at the entire transaction for for other purposes the question is whether this court has jurisdiction over the specific claim that one West was liable for its own failure to cancel. So that's so that's how how FIREA comes in in that limited respect so like like the decisions in Benson and American national insurance we're seeking to impose liability on one West for one West own conduct in derogation of state law. I see my time is expired but what what are the what are the questions to do you ask my colleagues if there's any other areas they would like to ask questions. No, thank you very much Mr. Michael. Mr. Rice. Yes, thank you again, Your Honours. I heard opposing council repeatedly invoke Pennsylvania law as the law that controls what one West did or did not purchase from the FDIC. That is plainly wrong there is utterly no support for it. FIREA expressly in 1821 D2G and in several other provisions and this has been recognized by the courts most recently the 9th Circuit in the case involving JP Morgan at 671 F3 1027 that FIREA expressly empowers the FDIC to both transfer and retain the FDIC. The FDIC has the power to determine whether or not it is going to transfer liability and nothing in FIREA and no authority says that has to be subject to the laws of 50 different states. It would patently make no sense as this court is recognized and as every court that's looked at FIREA has recognized the statute serves two purposes. You want the orderly and prompt wrap up with out litigation of a failed financial institution and FIREA wants to encourage other financial institutions to come in and purchase the assets of the failed institution

. Well, that's that's the question of whether the CPL is protected and I think I think to look at that you do have to go back to the transaction and look at what in the MAC did wrong but but in terms of back into fire. Well, in FIREA doesn't doesn't prevent looking at at the entire transaction for for other purposes the question is whether this court has jurisdiction over the specific claim that one West was liable for its own failure to cancel. So that's so that's how how FIREA comes in in that limited respect so like like the decisions in Benson and American national insurance we're seeking to impose liability on one West for one West own conduct in derogation of state law. I see my time is expired but what what are the what are the questions to do you ask my colleagues if there's any other areas they would like to ask questions. No, thank you very much Mr. Michael. Mr. Rice. Yes, thank you again, Your Honours. I heard opposing council repeatedly invoke Pennsylvania law as the law that controls what one West did or did not purchase from the FDIC. That is plainly wrong there is utterly no support for it. FIREA expressly in 1821 D2G and in several other provisions and this has been recognized by the courts most recently the 9th Circuit in the case involving JP Morgan at 671 F3 1027 that FIREA expressly empowers the FDIC to both transfer and retain the FDIC. The FDIC has the power to determine whether or not it is going to transfer liability and nothing in FIREA and no authority says that has to be subject to the laws of 50 different states. It would patently make no sense as this court is recognized and as every court that's looked at FIREA has recognized the statute serves two purposes. You want the orderly and prompt wrap up with out litigation of a failed financial institution and FIREA wants to encourage other financial institutions to come in and purchase the assets of the failed institution. That is of critical importance to our financial system. If this court were to accept their argument it's no understatement to say you'd be upending that. What was it we were supposed to do either not buy the asset or in order to if you accept their proposition, convince ourselves that we weren't buying some undue risk. Go out and interview the Tolados and every other bar were to make sure that the transaction wasn't in Spanish while we were at it. Should we have redone the finance charges to make sure there was no continuing right to rescind under Tyler and Council is dead wrong when he says this is a rare case with a continuing right to rescind. Tyler clearly grants that right as do other state laws and the common law. Should we have interviewed the Tolados and every other bar were to make sure that they in fact got the two notices of right to cancel under Tyler. Under this course decision in Capucho we can't rely upon the acknowledgement. What kind of a monkey wrench would that throw into the FDIC's attempt to promptly and expeditiously wrap up the failed Indie Mac to convince us and every other financial institution out there that might be buying the assets, the loans of a failed institution to do so. If you accept their argument we'd be crazy if we did it because we'd be buying unknown liabilities and FIRIA is precisely structured to prevent that. They don't dispute that under the master purchase agreement pursuant to its express powers under FIRIA the FDIC retained all liabilities period. They don't dispute that as a matter of fact they couldn't have gone into the FDIC and demanded whatever relief they wanted from the FDIC after the FDIC took over Indie Mac in 2008. They did have notice of that failure. In the appendix at page 420 is correspondence from their council, the Tolados Council in early 2009 to Indie Mac Federal which is one of the institutions created by the FDIC as part of this process noting that they received notice in July of 2008. They knew even if you were to assume for the sake of argument that they didn't know about all of this I would submit that they are dispute then with the FDIC not the purchasing institution

. That is of critical importance to our financial system. If this court were to accept their argument it's no understatement to say you'd be upending that. What was it we were supposed to do either not buy the asset or in order to if you accept their proposition, convince ourselves that we weren't buying some undue risk. Go out and interview the Tolados and every other bar were to make sure that the transaction wasn't in Spanish while we were at it. Should we have redone the finance charges to make sure there was no continuing right to rescind under Tyler and Council is dead wrong when he says this is a rare case with a continuing right to rescind. Tyler clearly grants that right as do other state laws and the common law. Should we have interviewed the Tolados and every other bar were to make sure that they in fact got the two notices of right to cancel under Tyler. Under this course decision in Capucho we can't rely upon the acknowledgement. What kind of a monkey wrench would that throw into the FDIC's attempt to promptly and expeditiously wrap up the failed Indie Mac to convince us and every other financial institution out there that might be buying the assets, the loans of a failed institution to do so. If you accept their argument we'd be crazy if we did it because we'd be buying unknown liabilities and FIRIA is precisely structured to prevent that. They don't dispute that under the master purchase agreement pursuant to its express powers under FIRIA the FDIC retained all liabilities period. They don't dispute that as a matter of fact they couldn't have gone into the FDIC and demanded whatever relief they wanted from the FDIC after the FDIC took over Indie Mac in 2008. They did have notice of that failure. In the appendix at page 420 is correspondence from their council, the Tolados Council in early 2009 to Indie Mac Federal which is one of the institutions created by the FDIC as part of this process noting that they received notice in July of 2008. They knew even if you were to assume for the sake of argument that they didn't know about all of this I would submit that they are dispute then with the FDIC not the purchasing institution. In fact under FIRIA and it's B5B and C there's an exception to the timeliness requirement where claims are concerned before the FDIC. If you contend and you can demonstrate that you didn't actually receive notice but they didn't try any of that. As the 9th Circuit noted they in Benson they simply assumed futility and there's no reason to assume futility. That does not excuse strategic pleading and that is you put a judge's body is precisely what they are attempting to do here and that's precisely what FIRIA does in countenance. Now what they can't escape is they unlike Benson and a number of other cases and they are cited in the briefs. In Benson for instance there was the contention in the 9th Circuit properly said this is outside FIRIA where JPMorgan the purchasing bank continued to engage in the alleged Ponzi scheme. That's different obviously there's no allegation that we continued to engage in our own wrongdoing. You've got other cases like the American National Insurance case or the village of Oakwood case where actually it's really American National Insurance where there was an allegation that JPMorgan Chase itself engineered the downfall of WAMU. Well that was obviously independent misconduct by JPMorgan Chase if true that's obviously outside FIRIA. They can't point to anything like that here and they don't because they're... Or he asked to ask you any independent supposed claim it would be the state of claim probably. Yes, you're on it. Because that's what it was in Benson wasn't it? Well yes and what the 9th Circuit ended up saying was you failed to state any misconduct by JPMorgan Chase but if there had been if you had then clearly that would be outside of FIRIA

. In fact under FIRIA and it's B5B and C there's an exception to the timeliness requirement where claims are concerned before the FDIC. If you contend and you can demonstrate that you didn't actually receive notice but they didn't try any of that. As the 9th Circuit noted they in Benson they simply assumed futility and there's no reason to assume futility. That does not excuse strategic pleading and that is you put a judge's body is precisely what they are attempting to do here and that's precisely what FIRIA does in countenance. Now what they can't escape is they unlike Benson and a number of other cases and they are cited in the briefs. In Benson for instance there was the contention in the 9th Circuit properly said this is outside FIRIA where JPMorgan the purchasing bank continued to engage in the alleged Ponzi scheme. That's different obviously there's no allegation that we continued to engage in our own wrongdoing. You've got other cases like the American National Insurance case or the village of Oakwood case where actually it's really American National Insurance where there was an allegation that JPMorgan Chase itself engineered the downfall of WAMU. Well that was obviously independent misconduct by JPMorgan Chase if true that's obviously outside FIRIA. They can't point to anything like that here and they don't because they're... Or he asked to ask you any independent supposed claim it would be the state of claim probably. Yes, you're on it. Because that's what it was in Benson wasn't it? Well yes and what the 9th Circuit ended up saying was you failed to state any misconduct by JPMorgan Chase but if there had been if you had then clearly that would be outside of FIRIA. Now they did seek damages from us by the way. That's plainly incorrect when they say they only saw cancellation. Subparagraph E of their amended complaint at page 62 of the appendix they saw trouble damages from us. Now ultimately the district court declined to award damages but they saw them from us. Did the court in the opening paragraph describe it as a damages case? Well at the end of the day is a practical matter you're on it. But that's what this is because what we are going to be required to do is write them a check returning every single dime they ever paid. And that frankly as a practical matter is damages. And that's simply not countenanced by FIRIA. They're amended complaint also by the way. Saw it to have the district court set a different obligation from the to repay over over time which the district court also declined to do and I would submit. But to answer your earlier question judge Roth there was no basis in the door to door sales act to require that. Subparagraph A said they had to tender any merchandise to us in connection with their cancellation demand. Subparagraph I also speak to merchandise being tendered. The district court of course concluded while this was a service though and I would submit the district court can't have that both ways which is another way in which it aired. I mean ultimately the door to door sales act is really a square peg that the district court tried to fit through around whole it just doesn't fit

. Now they did seek damages from us by the way. That's plainly incorrect when they say they only saw cancellation. Subparagraph E of their amended complaint at page 62 of the appendix they saw trouble damages from us. Now ultimately the district court declined to award damages but they saw them from us. Did the court in the opening paragraph describe it as a damages case? Well at the end of the day is a practical matter you're on it. But that's what this is because what we are going to be required to do is write them a check returning every single dime they ever paid. And that frankly as a practical matter is damages. And that's simply not countenanced by FIRIA. They're amended complaint also by the way. Saw it to have the district court set a different obligation from the to repay over over time which the district court also declined to do and I would submit. But to answer your earlier question judge Roth there was no basis in the door to door sales act to require that. Subparagraph A said they had to tender any merchandise to us in connection with their cancellation demand. Subparagraph I also speak to merchandise being tendered. The district court of course concluded while this was a service though and I would submit the district court can't have that both ways which is another way in which it aired. I mean ultimately the door to door sales act is really a square peg that the district court tried to fit through around whole it just doesn't fit. Where this where this kind of a case is concerned and there's simply no support for the ultimate remedy that the district court in reposed here. If there's nothing else I don't want to take up anymore. Thank you Mr. Price. Thank you. Council did an excellent job. We thank you very much. Case was very well argued. I'd like to have a transcript made of the argument and ask you to share in the costs preparing the transcript and if you would go by the clerk's office before you leave. I'll tell you how to do that. That will give us an opportunity to review the argument in some detail. Thank you very much.

The next matter is Tolado versus Indie Mack. The morning your honours. Martin Bryce and with me, Damien Dina Cola for the appellant defendant, One West Bank. I respectfully reserve five minutes for a rebuttal. There's no disputes about the basic facts of this case. The plaintiffs that Tolado's obtained a loan. We're aware. Yes. We know there are many issues on this matter. There are. The first issue I'd like to address is Fyria, which I know you're familiar with, your honours. And the point I wanted to make there is this. The entity that originated the loan was Indie Mack Bank FSB, which failed in July 2008, a year after the loan was originated. Approximately a year later in March 2009, the FDIC as receiver transferred certain assets of the failed Indie Mack to one to one West. Later that year, the Tolados demanded the cancellation of their loan. And when one West failed to cancel the loan, the Tolados sued. The entire premise for both their demand that the loan be canceled and their subsequent suit involved Indie Mack's conduct. You need to do nothing more than read the amended complaints or the trial courts finding the fact and conclusions of law here. They're all about the origination of this loan. How it was originated, what took place when it was originated, what disclosures the Tolados did or didn't receive. Well, that just the failure to give notice simply delays the right to rescind. Is that correct under Pennsylvania unfair trade? Yes, the door to door sales act in that respect is similar to Thailand. They had a continuing right to rescind. They contend because of their failure to obtain the notice. Correct. And the cause of action they say arises from the failure to rescind. Part of one West. That I disagree with, Your Honor, and accepting that premise would essentially eviscerate Fyria. Because what would happen is every purchasing institution would be opened up to claims not only under the Pennsylvania door to door sales act, but the laws of all 50 states as well as Thailand itself and as well as for instance common law fraud. Any, any statute or any common law cause of action that would allow you the right to rescind. Notwithstanding Fyria's terms and what liabilities were or weren't transferred to the purchasing institution. You was a plaintiff bar where we would be able to come in and say we gotcha. Okay, but do we have to go that far? They are very clear that the claim that they're bringing is for one West own violation of the law. It's own misconduct. It's the only misconduct that's alleged in the complaint. The only involvement of one West is that it didn't take steps to refund payments to plaintiffs or terminate security interests within attendees. That's it. And the district court as I read the opinion didn't find that one West did anything wrong. So the whole claim against one West must be based upon even though under Fyria it can't be the misconduct of Indy Mac. Exactly George Barry. It is. It's not based on anything one West did because one West did nothing other than fail to say sure the loan cancelled jurisdiction. Exactly. That's it exactly your honor. And the argument they try to make and it puts the proverbial rabbit in the hat is no we're not suing you one West because of anything Indy Mac did. We're suing you for failure to honor our cancellation demand, but they didn't make a gratuitous cancellation demand. They have in order to seek and ultimately sue for the failure to cancel a loan you have to premise that on something such as for instance a material violation of Tyler with a failure to obtain a notice of light to cancel under Tyler or the failure to get the notice they contend was required under the door to door sales act. And that failure was Indy Mac's not one West's failure. All right let me ask you a question. If if supposing we say fire, it does apply and then the plaintiffs have to seek an administrative remedy. Are they time borrowed on that? Well, if I read provides for from notice at least 90 days so has that time likely past your honor looking at a calendar. I think that's a safe conclusion. However, what what every court to have squarely looked at this issue and most recently the ninth circuit and bench Benson and we submitted that through a 28 J letter. But the DC circuit, the sixth circuit, the ninth circuit and Benson, the 11th circuit has said litigants can't create their own bed and then by failing to even attempt to exhaust the administrative claims to the purchasing institution and then say, oh well now we can't sue or we can't bring a claim against the FDIC to allow them to do that. As every circuit to have looked at this issue is held would eviscerate the statute. I mean it would completely excuse them. If they if they wanted to they could bring a claim against you for your own misconduct that's not tied to Indy Mac, your independent misconduct. But then I think in Benson, I think makes this fairly clear, then even though it might not be be run into fire. There's nothing alleged here that would state a claim under any law. It's just they didn't cancel. I agree. If you do any of that. If you look at not only the amended complaint but the letter demanding cancellation itself, it's all Indy Mac. I mean, for instance, Toronto, there's I think little question that if if after one West purchased this loan, it just for whatever reason, triple their interest rate or impose the fee that the note or mortgage didn't require, that would be one West's wrong. And if I read it would have nothing to do with that. But that's not this case. What this case is is Indy Mac's failure to give them the notice they contend was required by the door to door act. And that's plainly strategic pleading which every circuit has said if I read by read bars. If I might briefly just touch on two other issues. Number one, Hola. Clearly we're talking about a disclosure here. And clearly that falls within B9 of the OTS regulation. Clearly this deals with the origination and servicing of this loan. So clearly that is within B10. The district court ignored both B9 and B10 of the operative OTS regulation. And just assumed that this was a generally applicable commercial law. It plainly is not. It is plainly a disclosure. The case is plainly premised upon a state law that required a certain disclosure they contend and they're alleged failure to receive that disclosure. And then after it's in on all fours with B9 and B10. It's not a generally applicable commercial law such as say a breach of contract where again using my hypothetical. If we didn't then it's some fee post purchase and started charging them for it. Then that would obviously be outside of B9 and B10 and all and all likelihood they'd be able to sue for breach of contract. That's not this case though. So their claim is also preempted under Hola. If we were in the seventh circuit here. What would your argument be? It would be the same. The awkward case which I think you're referring to your honor doesn't hold any differently. The court was dealing with a very unclear complaint there and the court noted that it was impossible to definitively say which claims were preempted, which claims weren't. Go back to the district court to sort this out. Here again the one thing that is plain about this case is it's a disclosure case. It's predicated entirely on there alleged failure to receive a disclosure mandated solely by state law that's plainly within B9 and B10. So the state law here doesn't it's not general commercial law. It's not general common law. Well on a space your honor it's not the door to door sales act. Among other things you have to have for instance a door to door sale 25 dollars more of a good or a merchandise under no stretch of the imagination is that generally applicable. Help me here. Supposing there is jurisdiction. Yes. Supposing there's no preemption under Hola. Correct your honor or Tyler or either or. Supposing the federal the Pennsylvania act applies because we find one west was a seller. You know supposing all of their arguments go their way and we say the district court was right to void to void alone. Don't they still lose in the sense that they have to pay back what was paid to them or paid on their behalf they cannot just receive what they paid in. So that I'm not sure they win even if there is there a time limit on when they had to demand back the principal amount and you're failure to demand back the principal amount within the time limit. Does that doesn't that then bar you from requesting that the principal amount be be returned to you. I would agree with you your honor and one of the other egregious things about the district courts order here to answer your question judge Barry is they don't have to return anything the district courts order requires us to return every single payment they made whether or not that payment is made up of not only interest or fees but principal as well as escrow items such as taxes and insurance we paid on their behalf we have to give it all back to them. I'm talking about right that's one aspect the other aspect is them returning the principal amount to you and aren't you time barred from asking that they do that. Oh we are on a no I would say we are we are not time barred because isn't there a time limit in the statute. I don't believe that's correct your honor. Well it's a reasonable remedy I don't know if it would be equitable to make you pay the whole thing and as we note in our brief there's very little law on this but the door to our sales act like Tyler it's intent if and when it applies and if and when it's violated is to return the party to the status quo and that clearly is not what is happening. Yes there may be some equitable power to to reorder or condition but there's no power whatsoever in the statute nothing that reads it in our view that would allow the district court assuming everything you said judge Barry to simply give them the house free and clear. I just I think I've gotten us all off the track I mean because I candidly think that the most important argument is the jurisdictional argument under under fire and it may even be that if we have to dismiss for lack of jurisdiction that might be a good result for the other side. I do agree sense that they would still have you know alone that they've been paying off. I can't argue with you there your honor and no amount of time but in fairness to to my opponent I did want to give you the opportunity to address or I wanted to address the penalty order. Here with $10,000 an arbitrary can I begin that discussion by mentioning that I am the district judge he was reversed and Newton. Oh I noticed that your honor but I didn't want to say I didn't want to say anything in some respects frankly I think this is a more shocking frankly penalty than than there would have been easier for us in all candor if the district court attempted to coerce a settlement by just making us pay a thousand or $10,000 fine as opposed to demanding that our CEO in the job less than the job. I think this is a very important argument for us in two weeks who has never offered as a witness here never had any involvement in the settlement negotiations fly across the country on just a few days notice. So do we remain to the district court so she can get notice. I would submit your honor no there is there is no basis to remain. If we find that district court did not have jurisdiction with that sanction fall of its own weight that would be my initial position yes judge Barry that we shouldn't have been before the district court in the first place so consequently that the sanction order fails for lack of subject matter jurisdiction. I would submit it fails on its on its merits anyway because it was plainly put in place to coerce a settlement and it was directed just like the order in Newton with all due respect judge for off solely on all the defendant thank you your honor we never remember which cases we got reversed in do we. I try not to remember the cases I lose either your honor but I don't think there is any any basis because the order was was plainly inappropriate under rule 16 was plainly a violation of of due process was plainly arbitrary there's a payment of $10,000 tied to nothing to the to the clerk of court. I think we understand anything else you want to know you are I have reserved five minutes. Thank you very much. Good morning. Scott Michaelman public citizen for Jose and Maria Teato may please the court in refining in refinancing their mortgage the Teato's negotiated one set of terms in Spanish and got another one on the contract they couldn't read that they signed in English. There was no notice of the right to cancel as required under Pennsylvania law to the notice to the right to cancel never expired when the Teato's tried to exercise in August of 2009 the holder of their loan one west refused in violation of 201-7 E and G it is that violation for which the Teato's are here seeking relief. Now my opponent suggests that the fire reager a sectional bar must apply because otherwise they're going to be the courts are going to be flooded with claims against assuming banks for the misconduct of predecessor banks the banks that used to help hold those assets. But as the cases that both sides have cited in their brief make clear that is not true when the assuming bank is charged with the originating banks misconduct the cases get thrown out they've all gotten thrown out but what those cases do not address is and and what a few cases have said can go forward such as the DC circuit in American national and the ninth circuit in Benson is where the assuming bank is charged with the bank. That's right. Okay now your own the only misconduct charged against one west is in paragraphs 35 and 37 of your complaint essentially they did not take steps to refund payments to plaintiffs or terminate the security interests in their home. That's the only allegation as to one west. That's absolutely right your honor and it's possible that if the district court had gone beyond an awarded treble damages based on things that in the MAC had done deceptively that would that that could come within fire as bar but this allegation relates only to one west failure which is a violation of the CPL sections 201-7 E and G they had a duty to cancel they didn't cancel not a duty to cancel based on their own this conduct. It doesn't matter where the duty to cancel. Only misconduct you say was the fact they didn't cancel. That's correct your honor but that that right to cancel that cancellation period existed under state law whether one west liked it or not so they had to comply with Pennsylvania law they were the owner of the asset when the Teados exercise their right to cancel the right to cancel hadn't run. That's a claim under what law I mean just that state to claim under under the under the CPL your honor under section under section 201-7 G you agree that nothing that happened with Enrique or none of this none of the facts that the reason that they were supposed to cancel one west that they had to cancel. We don't have we don't know the reason why we can't know the reason why because of course that's all under fire. That would take the claim under fire. Right if they if they sought a remedy for Indie Max misconduct if they start sought to pin that on one west and get damages for that that might run a trouble. Why are you saying they should cancel but but there's no reason why they had to cancel. They had to they they were and they were able to cancel at that point because the notice of cancellation had not been given into the cancellation period had not run as a matter of state law. And so it's it's true that it doesn't matter why and the reason why this wouldn't open the floodgate is because they're so this is a very unusual situation where the cancellation period remains open for all of this time. But it but because the cancellation period remain why they why they had to cancel that's that's not it because otherwise if we know why if we know why they had to cancel because Enrique and the broker and the honor. You know if we know why they had to cancel you're into strategic clear pleading here and you're going through the back door or attempting to what you're barred from going through the front. It's it's it's it's not a back door claim your honor if if one west had complied with the cancellation demand that the haute auto's made in August of 2009 when they won west owned the loan. There would be no lawsuit here. They own the asset value of the loan leaving the liabilities with FDIC. Those those cannot be separated in that manner. They can't if they're so separated in the agreement of of of transfer. Actually in the analogous tile of context a number of what did the what did the agreement between. Indie Mac and fire and then fire when fire. The real. Sold the Indie Mac assets to one west what did the agreements say about what one west was acquiring. It said it was requiring the assets and not the liabilities right however there there are two sources of law here that make clear that they can't. So easily get rid of the right to rescission that runs against that asset first of all under pencil Daniel law there the an assigner. The principal of any law wouldn't affect the deal between Indie Mac excuse me between FDIC and one west would it well it would in terms of what what one west takes one west isn't isn't that preempted. No no no. So you know what the because because under Pennsylvania law an assign or can't cannot give more cannot assign more rights than he has so the right to collect on the loan free from the right of rescission that goes along with it under state law those those are bundled together they can't be separated out in that manner. And for this reason a number of courts in the federal title of context have held that the that the right of rescission exists not with standing fire. And not with standing agreements agreements like this one in which failed banks assets are transferred to an assuming bank without the liabilities. So for example in the king versus long beach mortgage case 672 F sub second 235 at 247 the district of Massachusetts held that not with standing a non assignment of liabilities to the assuming bank. The the homeowner could still exercise rescission versus the assuming bank. Which are not bound by that even if it's relevant that that's true your honor but but there have been numerous cases following that case showing that one one cannot separate the the right to rescind and pull it off of the asset into this general category of liabilities it runs with the asset itself. And so either they had the asset with the right to rescind or or they didn't take the asset at all. In fact under Pennsylvania law the the duties of the under the CPL are not wavable duties. So so so they couldn't they couldn't separate it in that manner I'll give you hypothetical imagine if this were an entirely fraudulent mortgage. Imagine if they forged the taillot of signature nobody had ever been to the taillot house. And imagine the anymacted all these things wrong and then ultimately it ended up in the hands of one west. Could one west collect on that loan because they'd taken the quote unquote assets but not the liabilities and the mortgage was entirely fraudulent. I don't think they could I think firey allows that the that a claim they solely on what the assuming bank had has done and not not trying to penalize them for anything that the failed bank did is still allowable otherwise that fraudulent mortgage. But when you claim against one west is completely dependent upon what in the mac did what the failed bank did is really absent that you've got no claim. Well absent that we've got no right to cancel because in in the mac failed to trigger the beginning of the right to cancel under Pennsylvania law. But since the right of right to cancelation still existed when one west mistake here one west misconduct was was in. But you're not talking about cancellation as to one west you're saying did not take steps to refund payments to plaintiff and terminate the security interest. That's that's that is cancellation or honor that's that's what that's what the complaint asked for the re the refunding of payments the cancellation of the security interest were the undoing of the transaction which is what the district court ordered. But is the timeliness of account the timeliness of this. An issue the 10 days is this what. Is that important? Well to your independent claim you're on it the the timeliness issue as to whether the teato's cancellation was timely no no you said they didn't respond in time. Ah right within 10 days within 10 business days and it seems to have real kind of sex appeal for 10 days I'm wondering you mean it that way or not. Yes yes or honor when they fail to respond within 10 days they violated their duty under section 201-7G which says they must cancel within 10 days they also we don't know anything about why they why they got to the point where they must cancel because that's fairer that's fairer. So we all we know is that as to some claim we don't know what it is they didn't cancel within 10 days. The only the only thing that the only reason that any max conduct is relevant here is that the cancellation period remained open that's all that matters from you can throw out everything else that any max did just but because the cancellation period remained open that was where one west obligation comes in. Why is there a reason to cancel other than in the max conduct how can you avoid in the max conduct here. Well the reason to cancel I mean in terms of the taos reason to cancel are in terms of legal justice. The legal reason is why would you're you're faulting you're faulting one west for not canceling and you're not giving me a reason independent of what Indie MAC did for why they couldn't well they well it is true the Indie MAC's failure led to the cancellation period not beginning to run. But they were they're not we're not seeking damages from one west for Indie MAC's deceptive practices for instance all all we're getting here is the cancellation that the taos were entitled to under state law and the state law exists to protect people like the taos who get into these these door to door transactions in languages they don't understand and it happens very quickly and all the sudden they have an unaffordable market. So so contra bringing this action if you if you had exhausted your your administrative remedies against Indie MAC and FFIC I see kind of no problem with this. But they didn't how how could they are on there there's no indication of the record they even knew they had a claim at that point and also there's no indication that they would have known they wanted to cancel because they didn't understand yet the terms of the mortgage the way it worked the way the interest would adjust and rise. So the claims process was was of no use to them yet because as far as they knew they had gotten something different than what they bargained for so in this case not holding one west exempt from their duty to cancel imposed under state law would would leave the taos in exactly the position that the pencil being a legislature designed to protect them from. But one west wasn't the seller well one west assumed assumed those duties under Pennsylvania law. It is assumed certain things but it it it didn't assume the duties that the sellers should have committed to have performed prior to the transfer to to FDIC did it. Yes or on or it did. Those got stuck in FDIC and and something more came out the one west. No you're on there is a matter of Pennsylvania law a an assign or this is federal what talking about not Pennsylvania law. Well but but Pennsylvania law governs the interpretation of the contract and they couldn't take the the assets not subject to the defenses and the counter claims those are the those are the holdings of the people's Pittsburgh cases and himes to which one west has no answer. But one west I mean just but common sense did not sell the loan to the taos. They sell the loan. They sold the asset and the asset was subject to the defense of rescission. But is that what the Pennsylvania act is designed to remedy. Yes or on or the design to remedy what what happened through Indie Mac that act is designed to remedy what happened through Indie Mac isn't it. It's it's designed to give the consumer the opportunity to cancel a transaction that they were fooled with and they're it's designed to give that to have that right run with the contract now usually in the normal case and this is why this is an unusual case that they won't have brought implications usually that right runs out pretty fast. But when proper notice is not given the right continues the right continue to exist and so it did exist when when the taos sent one west their notice now one west had 10 days to to understand state law and figure out that they took this asset subject to a rescission right. And respectfully contrary to your honor suggestion dismissing this case under fire you would not help the taos it would leave them with a loan they can't afford to pay. And that and that Pennsylvania attempted to protect them from but that because someone different holds it now. Well would the if if if the court finds new jurisdiction where I said it would help him that the alternative would be if we were to go and say well the district court clearly should have given the correct remedy if she rescinded avoided the loan and that would have been returning the parties to where they were precisely before the loans granted which means that they receive is $36,000 or $28,000 that the taos received back and the 150. $15,000 loan is is returned so you know that's where I'm saying you know better everybody just goes away here. Well no respectfully not your honor if the remedy was if if this court would were to determine as we think they should as we think you should that there is jurisdiction and there is no preemption and there and that there is a valid claim if the only difficulty were with the remedy as was stated in the complaint. So if the state is not going to be able to pay the money under under a different remedy if the taos owed money they could obtain other financing to pay back whatever money they owe now we don't think they do we think the law is clear that that one west had 10 days the same 10 days they had to cancel to demand their money back they didn't that was their own mistake and and they're stuck with it. So so we don't think there's a problem with the remedy but if that was where the only problem it would be appropriate to affirm in all other respects and remand for re determination of the remedy. That's a that's a some that you get through for rare but I'd like you to talk a little bit about the homeowners loan act and what the district court did here has a lot of appeal but how do you get around subsection B. Yes Your Honor I think the key question about subsection B is whether in those categories in subsection B of the regulation refer to all laws affecting lending in any way or only laws that are targeted against lenders and lending practices. Why isn't this targeted. Well it's not targeted your honor because the door to door sales act is a law of general applicability it applies to all exchanges in the door to door context whether it's whether you're selling alone whether you're selling a refrigerator whether you're selling stereo whether you're selling plumbing services this is a law of general applicability I disagree with my opponent's characterization that the carving out a door to door category makes it not generally applicable the question is was it generally applicable applicable versus specific to lenders and you can see that. In the OTS 1996 opinion letter stating that the Indiana consumer protection law was valid the OTS explained in that letter that the consumer protection law was not preempted because it applies and now I'm quoting without regard to whether the transaction involves an extension of credit. This is OTS's own interpretation and we think it's a good one because it makes a clear dividing line dividing line embraced by the seventh and the sixth circuits between those laws specifically aimed at an extension of credit and those laws like the door to door sales act here that apply broadly to all types of transatlantic. Now the district court concluded that the Pennsylvania acts language requirement was not preempted by Federal law because it only incidentally affected lending, right? Yes, Your Honor. So one under C that she went under C without looking at B. Well, once if it's not targeted at lending it doesn't fall within those B categories and the question becomes whether it is a general commercial and consumer law with only an incidental effect the district court correctly found that it does have an only incidental effect because it requires at most in this case a couple of extra pieces of paper or notice. How can how can a requirement be incidental if it affected the entire lending transaction here and she threw up the lending transaction because of because of the incidental effect? Well, certainly if small requirements aren't complied with they can have large consequences but the requirement itself is incidental. The requirement itself is incidental respectfully Your Honor because all they required but all the Pennsylvania law required was additional notification to be given to the consumer. Now that's got to be an easy thing to do. You provide an additional form that's it that's that's all that needs to needs to happen here and contrast that with the situation the OTS encountered with the California law that it discussed in its 1999 letter. In that case it held the California law preempted because it applied differently county by county it was impossible with its vague standards for banks to know what to comply with. This is very easy the CPL says exactly what they have to provide and when and how all they have to do is is provide a couple of extra pieces of paper in a different language of the same thing that they've they've negotiated and then the consumers protected and they've complied with the right back to what any back did wrong. Well, that's that's the question of whether the CPL is protected and I think I think to look at that you do have to go back to the transaction and look at what in the MAC did wrong but but in terms of back into fire. Well, in FIREA doesn't doesn't prevent looking at at the entire transaction for for other purposes the question is whether this court has jurisdiction over the specific claim that one West was liable for its own failure to cancel. So that's so that's how how FIREA comes in in that limited respect so like like the decisions in Benson and American national insurance we're seeking to impose liability on one West for one West own conduct in derogation of state law. I see my time is expired but what what are the what are the questions to do you ask my colleagues if there's any other areas they would like to ask questions. No, thank you very much Mr. Michael. Mr. Rice. Yes, thank you again, Your Honours. I heard opposing council repeatedly invoke Pennsylvania law as the law that controls what one West did or did not purchase from the FDIC. That is plainly wrong there is utterly no support for it. FIREA expressly in 1821 D2G and in several other provisions and this has been recognized by the courts most recently the 9th Circuit in the case involving JP Morgan at 671 F3 1027 that FIREA expressly empowers the FDIC to both transfer and retain the FDIC. The FDIC has the power to determine whether or not it is going to transfer liability and nothing in FIREA and no authority says that has to be subject to the laws of 50 different states. It would patently make no sense as this court is recognized and as every court that's looked at FIREA has recognized the statute serves two purposes. You want the orderly and prompt wrap up with out litigation of a failed financial institution and FIREA wants to encourage other financial institutions to come in and purchase the assets of the failed institution. That is of critical importance to our financial system. If this court were to accept their argument it's no understatement to say you'd be upending that. What was it we were supposed to do either not buy the asset or in order to if you accept their proposition, convince ourselves that we weren't buying some undue risk. Go out and interview the Tolados and every other bar were to make sure that the transaction wasn't in Spanish while we were at it. Should we have redone the finance charges to make sure there was no continuing right to rescind under Tyler and Council is dead wrong when he says this is a rare case with a continuing right to rescind. Tyler clearly grants that right as do other state laws and the common law. Should we have interviewed the Tolados and every other bar were to make sure that they in fact got the two notices of right to cancel under Tyler. Under this course decision in Capucho we can't rely upon the acknowledgement. What kind of a monkey wrench would that throw into the FDIC's attempt to promptly and expeditiously wrap up the failed Indie Mac to convince us and every other financial institution out there that might be buying the assets, the loans of a failed institution to do so. If you accept their argument we'd be crazy if we did it because we'd be buying unknown liabilities and FIRIA is precisely structured to prevent that. They don't dispute that under the master purchase agreement pursuant to its express powers under FIRIA the FDIC retained all liabilities period. They don't dispute that as a matter of fact they couldn't have gone into the FDIC and demanded whatever relief they wanted from the FDIC after the FDIC took over Indie Mac in 2008. They did have notice of that failure. In the appendix at page 420 is correspondence from their council, the Tolados Council in early 2009 to Indie Mac Federal which is one of the institutions created by the FDIC as part of this process noting that they received notice in July of 2008. They knew even if you were to assume for the sake of argument that they didn't know about all of this I would submit that they are dispute then with the FDIC not the purchasing institution. In fact under FIRIA and it's B5B and C there's an exception to the timeliness requirement where claims are concerned before the FDIC. If you contend and you can demonstrate that you didn't actually receive notice but they didn't try any of that. As the 9th Circuit noted they in Benson they simply assumed futility and there's no reason to assume futility. That does not excuse strategic pleading and that is you put a judge's body is precisely what they are attempting to do here and that's precisely what FIRIA does in countenance. Now what they can't escape is they unlike Benson and a number of other cases and they are cited in the briefs. In Benson for instance there was the contention in the 9th Circuit properly said this is outside FIRIA where JPMorgan the purchasing bank continued to engage in the alleged Ponzi scheme. That's different obviously there's no allegation that we continued to engage in our own wrongdoing. You've got other cases like the American National Insurance case or the village of Oakwood case where actually it's really American National Insurance where there was an allegation that JPMorgan Chase itself engineered the downfall of WAMU. Well that was obviously independent misconduct by JPMorgan Chase if true that's obviously outside FIRIA. They can't point to anything like that here and they don't because they're... Or he asked to ask you any independent supposed claim it would be the state of claim probably. Yes, you're on it. Because that's what it was in Benson wasn't it? Well yes and what the 9th Circuit ended up saying was you failed to state any misconduct by JPMorgan Chase but if there had been if you had then clearly that would be outside of FIRIA. Now they did seek damages from us by the way. That's plainly incorrect when they say they only saw cancellation. Subparagraph E of their amended complaint at page 62 of the appendix they saw trouble damages from us. Now ultimately the district court declined to award damages but they saw them from us. Did the court in the opening paragraph describe it as a damages case? Well at the end of the day is a practical matter you're on it. But that's what this is because what we are going to be required to do is write them a check returning every single dime they ever paid. And that frankly as a practical matter is damages. And that's simply not countenanced by FIRIA. They're amended complaint also by the way. Saw it to have the district court set a different obligation from the to repay over over time which the district court also declined to do and I would submit. But to answer your earlier question judge Roth there was no basis in the door to door sales act to require that. Subparagraph A said they had to tender any merchandise to us in connection with their cancellation demand. Subparagraph I also speak to merchandise being tendered. The district court of course concluded while this was a service though and I would submit the district court can't have that both ways which is another way in which it aired. I mean ultimately the door to door sales act is really a square peg that the district court tried to fit through around whole it just doesn't fit. Where this where this kind of a case is concerned and there's simply no support for the ultimate remedy that the district court in reposed here. If there's nothing else I don't want to take up anymore. Thank you Mr. Price. Thank you. Council did an excellent job. We thank you very much. Case was very well argued. I'd like to have a transcript made of the argument and ask you to share in the costs preparing the transcript and if you would go by the clerk's office before you leave. I'll tell you how to do that. That will give us an opportunity to review the argument in some detail. Thank you very much