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May 2011

Dallas Office Employs Unusual Defense to Prevail Against TILA and RESPA Claims

Gordon & Rees's client, a local bank, had extended a series of loans and renewals to a local developer and his wife who were building their own home. When the borrowers failed to make required payments, the bank foreclosed. Borrowers filed for bankruptcy and sued the bank, claiming that it had failed to make disclosures required by the Truth-in-Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). This case had the additional complexity of the borrowers' causes of action having been purchased by a trust specializing in pursuing claims of this nature against lenders.

Dallas Partner Bob Bragalone and Senior Counsel Steve Lawson determined that it was very likely that all disclosures had been made in all pertinent transactions. However, of greater interest for purposes of disposing of the case were the potential statute of limitations defense and a somewhat exotic judicial estoppel defense. The latter defense emerged upon the discovery that the borrowers had not listed their claim against the bank as an asset of their respective bankrupt estates even though in their complaint - which was verified - they had claimed that the violations they were alleging were clear on the face of the lending documents at issue. Plaintiffs thus took a position in the bankruptcy (not listing the claim as an asset) opposed to their later claim of liability against the bank, judicially estopping them from asserting their TILA and RESPA claims following their discharge and the closing of the bankruptcy estates.

Because they had sworn in their complaint that the violations were obvious on the face of the material instruments, they also effectively deprived themselves of any "fraudulent concealment" response to both the limitations and estoppel defenses.

When these arguments were made directly to counsel for the trust and borrower plaintiffs, counsel agreed to nonsuit the case with no money paid in settlement.

Robert A. Bragalone



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