OCTOBER TERM, 1997
Syllabus
BEACH ET ux.
v. OCWEN FEDERAL BANK
CERTIORARI TO THE SUPREME COURT OF FLORIDA No. 97-5310. Argued
March 2, 1998-Decided April 21, 1998
Petitioners David and Linda Beach refinanced their Florida house
in 1986 with a loan from Great Western Bank. In 1991, they stopped
making mortgage payments, and in 1992 Great Western began this
foreclosure proceeding. Respondent bank was thereafter substituted
as the plaintiff. The Beaches acknowledged their default but raised
affirmative defenses, alleging,
inter alia, that the bank's
failure to make disclosures required by the Truth in Lending Act
gave them the right under 15 U. S. C. § 1635 to rescind the
mortgage agreement. The Florida trial court rejected that defense,
holding, among other things, that any right to rescind had expired
in 1989 under § 1635(f), which provides that the right of
rescission "shall expire" three years after the loan closes. The
State's intermediate appellate court affirmed, as did the Florida
Supreme Court. That court remarked that § 1635(f)'s plain language
evidences an unconditional congressional intent to limit the right
of rescission to three years and distinguished its prior cases
permitting a recoupment defense by ostensibly barred claims as
involving statutes of limitation, not statutes extinguishing rights
defensively asserted.
Held: A borrower may not assert the § 1635 right to
rescind as an affirmative defense in a collection action brought by
the lender after § 1635(f)'s 3-year period has run. Absent "the
clearest congressional language" to the contrary,
Reiter v.
Cooper, 507 U.
S. 258, 264, a defendant may raise a claim in recoupment, a
"'defense arising out of some feature of the transaction upon which
the plaintiff's action is grounded,'"
Rothensies v.
Electric Storage Battery Co., 329 U. S. 296, 299
(quoting
Bull v.
United States, 295 U. S. 247, 262), even
if the applicable statute of limit ation would otherwise bar the
claim as an independent cause of action. The 3-year period of §
1635(f), however, is not a statute of limitation that governs only
the institution of suit; instead, it operates, with the lapse of
time, to extinguish the right of rescission. The section's
uncompromising statement that the borrower's right "shall expire"
with the running of time manifests a congressional intent to
extinguish completely the right of rescission at the end of the
3-year period. The absence of a provision authorizing rescission as
a defense stands in stark contrast to § 1640(e), which expressly
provides that the Act's I-year limitation on actions for recovery
of damages "does not bar ... assert[ion of] a violation ... in an
action ... brought more than one year from the
411
date of the ... violation as a matter of defense by recoupment."
This quite different treatment of recoupment of damages and
rescission in the nature of recoupment must be understood to
reflect a deliberate intent on the part of Congress, see
Bates v.
United States, 522 U. S. 23, 2930, and
makes perfectly good sense. Since a statutory rescission right
could cloud a bank's title on foreclosure, Congress may well have
chosen to circumscribe that risk, while permitting recoupment of
damages regardless of the date a collection action may be brought.
Pp. 415-419.
692 So. 2d 146, affirmed.
SOUTER, J., delivered the opinion for a unanimous Court.
Bruce S.
Rogow argued the cause for petitioners.
With him on the briefs were
Beverly A. Pohl and
Michael
Tankersley.
Carter G. Phillips argued the cause for respondent. With him on
the brief were James A. Huizinga, Michael F. Wasserman, Steven
Ellison, and Patricia Lebow. *
JUSTICE SOUTER delivered the opinion of the Court. Under the
Truth in Lending Act, 82 Stat. 146, 15 U. S. C. § 1601
et
seq., when a loan made in a consumer credit transaction is
secured by the borrower's principal dwelling, the borrower may
rescind the loan agreement if the lender fails to deliver certain
forms or to disclose important terms accurately. See 15 U. S. C. §
1635. Under § 1635(f) of the statute, this right of rescission
"shall expire" in the usual case three years after the loan closes
or upon the sale of the secured property, whichever date is
earlier. The question here is whether a borrower may assert this
right to rescind as an affirmative defense in a collection action
brought by the lender more than three years after the
consummation
*Briefs of
amici curiae urging reversal were filed for
the American Association of Retired Persons by
Jean
Constantine-Davis and
Nina F.
Simon; and for
Dorothy Botelho et al. by
Richard J.
Rubin and
Gary Klein.
Thomas M. Hefferon, John C.
Englander, and
Jeremiah S.
Buckley filed a brief for the Federal
Home Loan Mortgage Corp. et al. as
amici curiae urging
affirmance.
412
of the transaction. We answer no and hold that § 1635(f)
completely extinguishes the right of rescission at the end of the
3-year period.
I
The declared purpose of the Act is "to assure a meaningful
disclosure of credit terms so that the consumer will be able to
compare more readily the various credit terms available to him and
avoid the uninformed use of credit, and to protect the consumer
against inaccurate and unfair credit billing and credit card
practices." 15 U. S. C. § 1601(a); see
Mourning v.
Family
Publications Service, Inc., 411 U. S. 356, 363-368
(1973). Accordingly, the Act requires creditors to provide
borrowers with clear and accurate disclosures of terms dealing with
things like finance charges, annual percentage rates of interest,
and the borrower's rights. See §§ 1631, 1632, 1635, 1638. Failure
to satisfy the Act subjects a lender to criminal penalties for
noncompliance, see § 1611, as well as to statutory and actual
damages traceable to a lender's failure to make the requisite
disclosures, see § 1640. Section 1640(e) provides that an action
for such damages "may be brought" within one year after a violation
of the Act, but that a borrower may assert the right to damages "as
a matter of defense by recoupment or set-off" in a collection
action brought by the lender even after the one year is up.
Going beyond these rights to damages, the Act also authorizes a
borrower whose loan is secured with his "principal dwelling," and
who has been denied the requisite disclosures, to rescind the loan
transaction entirely "until midnight of the third business day
following the consummation of the transaction or the delivery of
the information and rescission forms required under this section
together with a statement containing the material disclosures
required under this subchapter, whichever is later." § 1635(a). A
borrower who exercises this right to rescind "is not liable for any
finance or other charge, and any security interest given by [him],
including any such interest arising by operation of law, becomes
void" upon rescission. § 1635(b). Within 20 days
413
after receiving notice of rescission, the lender must "return to
the [borrower] any money or property given as earnest money,
downpayment, or otherwise, and shall take any action necessary or
appropriate to reflect the termination of any security interest
created under the transaction."
Ibid. The Act provides,
however, that the borrower's right of rescission "shall expire
three years after the date of consummation of the transaction or
upon the sale of the property, whichever occurs first," even if the
required disclosures have never been made. § 1635(f).1 The Act
gives a borrower no express permission to assert the right of
rescission as an affirmative defense after the expiration of the
3-year period.
The borrowers in this case, petitioners David and Linda Beach,
built a house in Jupiter, Florida, in 1986 with a secured $85,000
construction loan from Fidelity Federal Savings Bank of Florida. In
the same year, the Beaches refinanced the house with a loan from
Great Western Bank.2 In 1991, the Beaches stopped making mortgage
payments, and in 1992 the bank began this foreclosure proceeding.
The Beaches acknowledged their default but raised affirmative
defenses, alleging that the bank's failure to make disclosures
required by the Act3 gave them rights under §§ 1635 and
1 The Act provides a limited extension of this 3-year time
period when "(1) any agency empowered to enforce the provisions of
this subchapter institutes a proceeding to enforce the provisions
of this section within three years after the date of consummation
of the transaction, (2) such agency finds a violation of this
section, and (3) the obligor's right to rescind is based in whole
or in part on any matter involved in such proceeding." 15 U. S. C.
§ 1635(f). Under such circumstances, "the obligor's right of
rescission shall expire three years after the date of consummation
of the transaction or upon the earlier sale of the property, or
upon the expiration of one year following the conclusion of the
proceeding, or any judicial review or period for judicial review
thereof, whichever is later."
Ibid.
20cwen Federal Bank was substituted as the plaintiff while this
case was pending in the trial court.
3 Specifically, the Beaches claimed that the bank had failed to
disclose properly and accurately (1) the amount financed, in
violation of § 1638(a)(3); (2) the finance charge, in violation of
§ 1638(a)(3); (3) the annual percentage rate, in violation of §
1638(a)(4); (4) the number, amounts, and timing of
414
1640 to rescind the mortgage agreement and to reduce the bank's
claim by the amount of their actual and statutory damages.
The Circuit Court of the 15th Judicial Circuit of Florida agreed
that under § 1640 the Beaches were entitled to "offset the amount
owed to Great Western" by $396 in actual damages and $1,000 in
statutory damages because the bank had overstated the monthly
mortgage payment by $0.58 and the finance charge by $201.84. But
the court rejected the Beaches' effort to rescind the mortgage
under § 1635, holding that the loan at issue was immune to
rescission as part of a "residential mortgage transaction" (defined
in § 1602(w)) and, in the alternative, that any right to rescind
had expired after three years, in 1989. The court found it telling
that Congress had included no saving clause to revive an expired
right of rescission as a defense in the nature of recoupment or
setoff.
The State's intermediate appellate court affirmed,
Beach
v.
Great Western Bank, 670 So. 2d 986 (Fla. 4th Dist. Ct.
App. 1996), and so did the Supreme Court of Florida, which
addressed only the issue of rescission as a defense,
Beach
v.
Great Western Bank, 692 So. 2d 146 (1997).4 That court
remarked on the plain language of § 1635(f) as evidence of
unconditional congressional intent to limit the right of rescission
to three years and explained that its prior cases permitting a
defense of recoupment by an ostensibly barred claim were
distinguishable because, among other things, they involved statutes
of limitation, not statutes extinguishing rights defensively
asserted.
Because the reading of § 1635(f) given by the Supreme Court of
Florida conflicts with the decisions of several other
payments scheduled to repay the obligation, in violation of §
1638(a)(6); and (5) the total of payments, in violation of §
1638(a)(5).
4 Although the per curiam opinion posed the question as one
"[u]nder Florida law," 692 So. 2d, at 147, it distinguished cases
based on state law as inapposite and held that a defense of
rescission was unavailable under the Act after three years.
415
courts,5 we granted certiorari, 522 U. S. 912 (1997), to
determine whether under federal law the statutory right of
rescission provided by § 1635 may be revived as an affirmative
defense after its expiration under § 1635(f). We affirm.
II
The Beaches concede that any right they may have had to
institute an independent proceeding for rescission under § 1635
lapsed in 1989, three years after they closed the loan with the
bank, but they argue that the restriction to three years in §
1635(f) is a statute of limitation governing only the institution
of suit and accordingly has no effect when a borrower claims a §
1635 right of rescission as a "defense in recoupment" to a
collection action. They are, of course, correct that as a general
matter a defendant's right to plead "recoupment," a "'defense
arising out of some feature of the transaction upon which the
plaintiff's action is grounded,'"
Rothensies v.
Electric
Storage Battery Co., 329 U. S. 296, 299 (1946)
(quoting
Bull v.
United States, 295 U. S. 247, 262
(1935)), survives the expiration of the period provided by a
statute of limitation that would otherwise bar the recoupment claim
as an independent cause of action. So long as the plaintiff's
action is timely, see
ibid., a defendant may raise a claim
in recoupment even if he could no longer bring it independently,
absent "'the clearest congressional language'" to the contrary.
Reiter v.
Cooper, 507 U. S. 258, 264 (1993)
(quoting
United States v.
Western Pacific R. Co., 352
U. S. 59, 71 (1956)). As we have said before, the object of a
statute of limitation in keeping "stale litigation out of the
courts," id., at 72, would be distorted if the statute were
5 See,
e. g., In re Barsky, 210 B. R. 683 (Bkrtey. Ct. ED
Pa. 1997);
In re Botelho, 195 B. R. 558 (Bkrtey. Ct. Mass.
1996);
In re Shaw, 178 B. R. 380 (Bkrtey. Ct. NJ 1994);
Federal Deposit Ins. Corp. v.
Ablin, 177 Ill. App. 3d
390, 532 N. E. 2d 379 (1988);
Community Nat. Bank &
Trust Co. of N. Y. v.
McClammy, 525 N. Y. S. 2d 629,
138 App. Div. 2d 339 (1988);
Dawe v.
Merchants Mortgage
and Trust Corp., 683 P. 2d 796 (Colo. 1984) (en bane).
416
applied to bar an otherwise legitimate defense to a timely
lawsuit, for limitation statutes "are aimed at lawsuits, not at the
consideration of particular issues in lawsuits,"
ibid.
The Beaches come up short, however, on the question whether this
is a case for the general rule at all. The issue here is not
whether limitation statutes affect recoupment rights, but whether §
1635(f) is a statute of limitation, that is, "whether [it]
operates, with the lapse of time, to extinguish the right which is
the foundation for the claim" or "merely to bar the remedy for its
enforcement."
Midstate Horticultural Co. v.
Pennsylvania
R. Co., 320 U. S.
356, 358359, and n. 4 (1943). The "ultimate question" is
whether Congress intended that "the right shall be enforceable in
any event after the prescribed time,"
id., at 360; accord,
Burnett v.
New York Central R. Co., 380 U. S. 424 (1965), and
in this instance, the answer is apparent from the plain language of
§ 1635(f). See
Good Samaritan Hospital v.
Shalala,
508 U. S. 402, 409 (1993).
The terms of a typical statute of limitation provide that a
cause of action mayor must be brought within a certain period of
time. So, in
Reiter v.
Cooper, supra, at 263-264, we
concluded that 49 U. S. C. § 11706(c)(2), providing that a shipper
"'must begin a civil action to recover damages under [§
11705(b)(3)] within two years after the claim accrues,'" was a
statute of limitation raising no bar to a claim made in recoupment.
See Note, Developments in the Law: Statutes of Limitations, 63
Harv. L. Rev. 1177, 1179 (1950) (most statutes of limitation
provide either that "all actions ... shall be brought within" or
"no action ... shall be brought more than" so many years after "the
cause thereof accrued" (internal quotation marks omitted)); H.
Wood, 1 Limitation of Actions § 1, pp. 2-3 (4th ed. 1916)
("[S]tatutes which provide that no action shall be brought, or
right enforced, unless brought or enforced within a certain time,
are ... statutes of limitation").
417
To be sure, a limitation provision may be held to be nothing
more than a bar to bringing suit, even though its terms are
ostensibly more ambitious than the language of the classic
formulations cited above. Thus, for example, in
Distribution
Servs., Ltd. v.
Eddie Parker Interests, Inc., 897 F.2d
811 (1990), the Fifth Circuit concluded that § 3(6) of the
Carriage of Goods by Sea Act is a statute of limitation permitting
counterclaim brought by way of recoupment, despite its
fierce-sounding provision that "the carrier and the ship shall be
discharged from all liability in respect of loss or damage unless
suit is brought within one year after delivery of the goods," 46 U.
S. C. App. § 1303(6).
Section 1635(f), however, takes us beyond any question whether
it limits more than the time for bringing a suit, by governing the
life of the underlying right as well. The subsection says nothing
in terms of bringing an action but instead provides that the "right
of rescission [under the Act] shall expire" at the end of the time
period. It talks not of a suit's commencement but of a right's
duration, which it addresses in terms so straightforward as to
render any limitation on the time for seeking a remedy superfluous.
There is no reason, then, even to resort to the canons of
construction that we use to resolve doubtful cases, such as the
rule that the creation of a right in the same statute that provides
a limitation is some evidence that the right was meant to be
limited, not just the remedy. See
Midstate Horticultural Co.,
supra, at 360;
Burnett, supra, at 427, n. 2;
Davis v.
Mills, 194 U. S. 451, 454
(1904).
The Act, however, has left even less to chance (if that is
possible) than its "expire" provision would allow, standing alone.
It is useful to look ahead to § 1640 with its provisions for
recovery of damages. Subsection (e) reads that the i-year limit on
actions for damages "does not bar a person from asserting a
violation of this subchapter in an action to collect the debt which
was brought more than one year from
418
the date of the occurrence of the violation as a matter of
defense by recoupment or set-off in such action, except as
otherwise provided by State law." 15 U. S. C. § 1640(e). Thus the
effect of the 1-year limitation provision on damages actions is
expressly deflected from recoupment claims. The quite different
treatment of rescission stands in stark contrast to this, however,
there being no provision for rescission as a defense that would
mitigate the uncompromising provision of § 1635(f) that the
borrower's right "shall expire" with the running of the time.
Indeed, when Congress amended the Act in 1995 to soften certain
restrictions on rescission as a defense in § 8, 109 Stat. 275-276,
15 U. S. C. §§ 1635(i)(1) and (2) (1994 ed., Supp. I), it took care
to provide that any such liberality was "subject to the [three
year] time period provided in subsection (f),"
ibid., and it
left a borrower's only hope for further recoupment in the slim
promise of § 1635(i)(3), that "[n]othing in this subsection affects
a consumer's right of rescission in recoupment under State law." §
8, 109 Stat. 276.6 Thus, recoupment of damages and rescission in
the nature of recoupment receive unmistakably different treatments,
which under the normal rule of construction are understood to
reflect a deliberate intent on the part of Congress. See
Bates v.
United States, 522 U. S. 23, 29-30 (1997)
('" "[W]here Congress includes particular language in one section
of a statute but omits it in another section of the same Act, it is
generally presumed that Congress acts intentionally and purposely
in the disparate inclusion or exclusion"''') (quoting
Russello v.
United States, 464 U. S. 16, 23 (1983),
in turn quoting
United States v.
Wong Kim Bo,
472 F.2d
720, 722 (CA5 1972)). And the distinction thus indicated makes
perfectly good sense. Since a statutory right of rescission could
cloud a bank's title on foreclosure,
6 Since there is no claim before us that Florida law purports to
provide any right to rescind defensively on the grounds relevant
under the Act, we have no occasion to explore how state recoupment
law might work when raised in a foreclosure proceeding outside the
3-year period.
419
Congress may well have chosen to circumscribe that risk, while
permitting recoupment damages regardless of the date a collection
action may be brought. See Board of Governors of Federal Reserve
System, Annual Report to Congress on Truth in Lending for the Year
1971, p. 19 (Jan. 3, 1972); National Commission on Consumer
Finance, Consumer Credit in the United States 189-190 (Dec.
1972).
We respect Congress's manifest intent by concluding that the Act
permits no federal right to rescind, defensively or otherwise,
after the 3-year period of § 1635(f) has run. Accordingly, we
affirm the judgment of the Supreme Court of Florida.
It is so ordered.
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