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Beneficial Mortgage TILA Class Action Defense Case: By Joining Class Action Settlement Homeowners Released Any Federal Truth In Lending Act (TILA) Claims Against Lender Virginia Court Holds

Federal District Court Grants Defense Motion to Dismiss TILA Claims Against Lender Upholding Releases Signed by Plaintiffs and Distinguishing Case from Others that Held TILA Releases Void

Two homeowners filed suit against a lender seeking rescission and statutory damages for its alleged failure to make disclosures required under the federal Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 et seq. Tucker v. Beneficial Mortgage Co., ___ F.Supp.2d ___, 2006 WL 1975769 (E.D. Va. 2006). Defense attorneys moved to dismiss the complaint on the grounds that plaintiffs were bound by a class action settlement negotiated by the Virginia Attorney General, and that the action was brought outside TILA’s one-year limitations period. The district court agreed with the defense, specifically holding that plaintiffs released their TILA claims as part of the class action settlement, and that “[p]laintiffs may waive their rights to bring TILA claims in a class action lawsuit.” Slip Opn., at 2.

Briefly, plaintiffs refinanced their home with Beneficial Mortgage in September 2002 – three months before the Virginia Attorney General negotiated a settlement of a consumer class action lawsuit against the lender. Plaintiffs affirmatively joined the settlement and in October 2003 signed a general release absolving Beneficial of liability for “all civil claims . . . whether known or unknown.” Slip Opn., at 3-4 (citation omitted). In September 2004, plaintiffs sought to rescind their Beneficial loan on the grounds that Beneficial “failed to make certain material TILA and Home Ownership and Equity Protection Act (‘HOEPA’) disclosures regarding the loan, including finance charges, the amount financed, and the annual percentage rate.” Id., at 4. Plaintiffs then filed suit in October 2005, alleging that these failures extended their right to rescind the transaction to three years. Id. The district court disagreed.

First, the Court held that release signed by plaintiffs as part of the class action settlement was enforceable. The Court distinguished several cases that held TILA releases void on the grounds that in those cases the releases “were effectuated by the creditors acting in their own interests rather than by a third party acting in the interests of the borrowers.” Slip Opn., at 9. The Virginia Attorney General did not negotiate from a position of “unequal bargaining power,” the lender did not present the release to the borrowers “on a take-it-or-leave-it basis,” a refusal to enforce the release “may undermine the ability of individuals as well as State Attorneys General to negotiate settlements in future lawsuits as defendants would have no incentive to settle, and a refusal to enforce the agreement would affect all other consumers who executed the settlement agreement and were awaiting funds to be paid thereunder.” Id., at 8 and 10-11. Second, the Court held that a one-year statute of limitations applied to the alleged TILA violations, and that under any analysis that time period had run before plaintiffs filed suit. Id., at 11-12.

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