St. Hill v. Tribeca Lending Corp.

Summarized by Allen Levine ,
15 years 3 months ago

Citation:

No. 09-2214, 09-2215 & 09-2367 (3d Cir. Dec. 8, 2010)

Tag(s):

3rd Circuit

Ruling:

The Court of Appeals for the Third Circuit affirmed the District Court’s rejection of the Debtor’s claim to rescind her loan against defendant Tribeca Lending Corporation (“Tribeca”) under the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et seq., and the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), 73 P.S. § 201-1 et seq., although on different grounds. The Court of Appeals held that neither statute applied to the Debtor’s loan because the mortgage was principally for business, not commercial, purposes. The Court of Appeals affirmed the District Court’s granting of summary judgment in favor of defendant Financial & Consulting Strategies, Inc. (“FCS”), denying the Debtor’s misrepresentation claim under Pennsylvania’s Credit Services Act (“CSA”), 73 P.S. § 2181 et seq., and Loan Broker Trade Practice Regulations (”LBTPR”), 37 Pa. Code § 305.1. The CSA and LBTPR did not apply to FCS because FCS was a mortgage broker licensed by the Commonwealth of Pennsylvania and regulated by the Pennsylvania Department of Banking. The Court of Appeals further upheld the District Court’s rejection of the Debtor’s claims for fraud under the UTPCPL against defendants Tribeca and FCS because the UTPCPL does not apply to non-consumer transactions. The Court of Appeals did not reach the issue of whether Tribeca violated the TILA because it did not apply.

Procedural context:

Appeal from decision after trial and order from the United States District Court for the Eastern District of Pennsylvania rejecting the Debtor’s claim for rescission, denying the Debtor’s claim for money damages and rejecting the Debtor’s fraud related claim. Cross-appeal from the District Court’s ruling that defendant Tribeca Lending Corporation (“Tribeca”) violated the Truth in Lending Act (“TILA”) by failing to disclose the fees that the Debtor paid her mortgage broker.

Facts:

In 2004, Debtor Jennifer St. Hill (“Debtor”) filed for Chapter 7 bankruptcy relief after experiencing difficulty with her debt collection business. In 2006, the Debtor decided to refinance her home mortgage to pay the trustee in bankruptcy and satisfy her business creditors. In order to obtain the loan, the Debtor was referred to Francis Kilson, who provided general financial advice. Kilson was not a mortgage broker. Kilson then referred the Debtor to David Diamond, a mortgage broker for FCS. Diamond arranged the loan transaction with Tribeca. The Debtor had originally agreed to pay Kilson $13,500 for his services, which payment would not come out of the loan proceeds. The Debtor also agreed to pay Diamond $13,000, pursuant to a brokerage contract. Tribeca’s loan officer informed Diamond that he would have to waive his fees in order to proceed with the particular type of loan which was arranged for the Debtor. After settlement, the Debtor paid Diamond approximately $13,000 over the course of one year. Fourteen months after closing the loan, the Debtor attempted to rescind it on the ground that Kilson and Tribeca violated various disclosure requirements. After a two-day bench trial, the District Court ruled that the Debtor was not entitled to rescind the loan. The court held that the TILA did not require Kilson’s fee disclosure because he was not a mortgage broker. Although the District Court found that Tribeca violated the TILA by failing to disclose Diamond’s broker fees, the Debtor was unable to recover damages because the one-year statute of limitations had elapsed. The District Court also rejected the Debtor’s claims under the UTPCPL. On appeal to the Third Circuit, the Debtor argued that Tribeca failed to fully disclose the financing charges in connection with Diamond’s and Kilson’s fees and made other disclosure violations in relation to the adjustable interest rate and the “Notice of Right to Cancel.” The Court of Appeals quickly dispelled with the Debtor’s claims against Kilson because he was not a mortgage broker and therefore, was not subject to the TILA. With respect to the Debtor’s claims against Tribeca, the Court of Appeals affirmed the District Court’s determination, albeit on different grounds. The Third Circuit stated that the TILA and the UTPCPL apply only to consumer credit transactions. The TILA does not apply to “credit transactions involving extensions of credit primarily for business, commercial or agricultural purposes.” In reviewing the “transaction as a whole,” the Court of Appeals concluded that the Debtor was unable to prove at trial that the primary purpose of her loan was consumer-related. The Debtor obtained the mortgage on her home in order to pay her business creditors. She had previously used her home for collateral for business obligations. Based upon the Debtor’s testimony, the District Court found that the Debtor “needed the loan ‘for the trustee to satisfy her business creditors during a Chapter 7 bankruptcy.’” Although the Debtor highlighted that only 29% of the loan went to her creditors, this fact did not alter the loan’s primary purpose, which was to pay her business creditors. Comparing the facts of the instant case to Gombosi v. Carteret Mortg. Corp., 894 F. Supp. 176 (E.D. Pa. 1995), the Third Circuit found that the other payments from the loan, which consisted of satisfaction of the existing mortgage (a condition to the Tribeca loan) and the settlement charges and fees, were inconsequential to the Debtor’s purpose in obtaining the loan. Additionally, the new loan resulted in a higher interest rate and higher monthly payments. Thus, the TILA did not apply to the Debtor’s loan. For the same reasons, the UTPCPL did not apply to the loan. The Court of Appeals noted that another reason the UTPCPL did not apply to the mortgage was because that Act is meant to protect consumers at home from solicitation. No one solicited the Debtor in her home with respect to the loan. With respect to the Debtor’s claims against defendant FCS under the CSA and the LBTPR, the Third Circuit found that the District Court did not err in granting FCS summary judgment. The CSA does not apply to any person “holding a license . . . to make loans or extensions of credit . . . who is subject to regulation and supervision by an official or agency of the Commonwealth or United States.” 73 P.S. § 2182. Because FSA was a mortgage broker licensed by the Commonwealth and regulated by the Pennsylvania Department of Banking, the CSA did not apply as a matter of law. For similar reasons, the LBTPR did not apply.

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