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Truth in Lending: 11.2.4.4 Pleading to Show Standing

The Supreme Court summarized the crux of its Ramirez decision as “No concrete harm, no standing.”205 While the Court did not provide an equally pithy explanation of what constitutes concrete harm, plaintiffs should still strive to explain their injury as explicitly as possible to survive pro forma motions to dismiss. Of course, surviving a motion to dismiss is not the same as prevailing on a motion for summary judgment.

Truth in Lending: 11.3.4.1.1 General

Upon the filing of the bankruptcy petition, all property of the debtor becomes property of the bankruptcy estate.258 The estate’s property includes the debtor’s existing legal claims.

Truth in Lending: 11.3.4.1.2 Removing the TILA claim from the bankruptcy estate

The debtor has the ability to exclude property interests, including legal claims, from the bankruptcy estate. The debtor can accomplish this in two ways. One way is to “exempt” the property interest. The other is to have the bankruptcy estate “abandon” any interest in the property. Exemption and abandonment are specific concepts defined by the Bankruptcy Code. The Code sets out the procedures that a debtor must follow in order to have estate property exempted or abandoned. As will be discussed below, it is important that practitioners familiarize themselves with these procedures.

Truth in Lending: 11.3.4.1.3 Did the TILA claim arise before the bankruptcy filing?

For purposes of determining whether a legal claim belongs to the debtor or to the bankruptcy estate, the timing of the filing of the petition for bankruptcy relief is critical. If the claim arose after the filing of the chapter 7 petition for relief, then it remains the borrower’s cause of action and does not generally become part of the bankruptcy estate.283

Truth in Lending: 11.3.4.1.4 Standing in chapter 13 bankruptcy

In a chapter 13 case, the debtor normally has the right to control any litigation because the debtor remains in possession of all property of the estate.290 Thus, most courts have held that a chapter 13 debtor has standing to pursue a prepetition legal claim.291 As in chapter 7, the debtor must list any prebankruptcy legal claims on the schedule of assets.

Truth in Lending: 11.3.4.2.1 General

Practitioners are more likely to see bankruptcy standing issues raised after a bankruptcy case has closed, rather than while it remains open. Because of a peculiar twist in bankruptcy law, the bankruptcy standing problem may turn up as a surprise many years after a bankruptcy. Standing difficulties arise when the consumer omitted an existing legal claim from past bankruptcy schedules and seeks to pursue the claim later.

Truth in Lending: 11.3.4.3.1 General background

In addition to facing standing problems, debtors may be judicially estopped from pursuing unscheduled claims after bankruptcy.321 Judicial estoppel is an equitable doctrine intended to protect the integrity of the court by preventing a party from intentionally changing positions in litigation depending upon the “exigencies of the moment.”322 The doctrine precludes a party from asserting a claim in a legal proceeding inconsistent with a claim the same party made in a previous proceeding.

Truth in Lending: 11.3.4.3.3 Judicial estoppel and mistake or inadvertence

Judicial estoppel is never appropriate when the party’s assertion of a prior inconsistent position was due to mistake or inadvertence.351 The omission of the legal claim from the bankruptcy schedules must have been intentional.352 Consumers filling out bankruptcy schedules seldom meet this requirement with respect to TILA claims. They were often completely unaware that the claims existed when they signed off on the list of their assets.

Truth in Lending: 11.3.4.3.4 The effect of dismissal, plan confirmation, and relief from the stay

A court’s adoption of the party’s asserted position in the prior proceeding is a required element of judicial estoppel.374 In the bankruptcy context, the debtor party must have received an unfair advantage from the bankruptcy court’s acceptance of its position. Depending on the circumstances, a party may be able to dispute whether the bankruptcy court “accepted” a debtor’s position that included an omission from schedules.

Truth in Lending: 11.3.4.3.5 Postpetition legal claims

As was true for the analysis of standing, the claim’s inclusion in the bankruptcy estate depends on when the claim arose. Practitioners should examine when the incidents that gave rise to the TILA claims took place.

Truth in Lending: 11.3.4.3.7 Rescission and other equitable clams

If properly planned with a view toward exemptions, a rescission should not produce nonexempt equity that must be liquidated for the benefit of creditors. In most instances there should be no valid argument that the omission of a TILA rescission claim was motivated by bad faith. In general, claims for injunctive relief are not subject to judicial estoppel: they do not produce cash assets for a bankruptcy estate.399 The same should be true for a TILA rescission claim.

Truth in Lending: 11.3.4.3.8 State law standards

Practitioners should also consider whether state law, rather than federal law, sets the standard for judicial estoppel in a given case. For example, when the consumer raises TILA claims in a state court foreclosure action, state law standards for judicial estoppel should apply.

Truth in Lending: 11.3.4.3.9 Class actions

Judicial estoppel also arises in the context of class actions. Defendants opposing class certification motions have raised both bankruptcy standing and bankruptcy judicial estoppel arguments against proposed class representatives.

Truth in Lending: 11.5.1 Availability of Declaratory and Injunctive Relief

Injunctive and declaratory relief are not specifically mentioned in TILA, but a number of courts have found such relief available.434 District courts have inherent power to issue equitable relief. In Califano v. Yamasaki,435 the Supreme Court held that “[a]bsent the clearest command to the contrary from Congress, federal courts retain their equitable power to issue injunctions in suits over which they have jurisdiction.”

Truth in Lending: 11.5.2.2.1 Nature of Younger abstention

The first hurdle to declaratory and injunctive relief when there is a related state court proceeding is the Younger abstention doctrine. The circumstances justifying Younger abstention are “exceptional,” and “[a]bstention is not in order simply because a pending state-court proceeding involves the same subject matter.”452

Truth in Lending: 11.5.2.2.4 How courts have applied Younger in TILA rescission cases

Since a TILA rescission case is solely between two private parties and is not a challenge to any state court procedure, Younger abstention should not bar a federal court from enjoining a pending state court foreclosure if the plaintiff can meet the other requirements for injunctive relief.485 The Ninth Circuit reached this conclusion in a case involving eviction of a tenant after foreclosure:

Truth in Lending: 11.5.2.4.1 The Act and its exceptions

Another potential impediment is the Anti-Injunction Act, which prohibits federal courts from granting injunctions to stay proceedings in state courts.506 Courts have ruled that the term “proceedings” includes foreclosure sales scheduled to enforce state court judgments.507 The Act applies only when there is a pending state proceeding, not where a state proceeding is merely threatened508 or has concluded.

Truth in Lending: 11.5.2.5.2 Where the consumer is the defendant in the federal case

According to the Supreme Court’s formulation, the doctrine applies only to federal cases “brought by” state court losers.534 Sometimes, the consumer will be the defendant rather than the plaintiff in the federal suit. For example, the doctrine would not apply if a creditor that won a state court foreclosure judgment then filed an action in federal court seeking a declaratory judgment that the consumer’s rescission attempt was invalid. In that case, the consumer could fully litigate their rescission claim in a defensive posture.

Truth in Lending: 11.5.2.5.5 Where the federal parties are different than the state parties

The Supreme Court has made it clear that the Rooker-Feldman doctrine does not apply if the federal plaintiff was not a party to the state case.550 Even if the federal plaintiff is in privity with a party to the state case, the doctrine does not apply.551 Thus, a prior state court judgment against one of two co-owners of a home will not be a basis for invoking the doctrine to bar a federal suit by the other co-owner.552 An inter