Fla Appeals Court: Expired Statute Of Limits No Bar To Raising Alleged ECOA Violations As Valid F'closure Defense; Trial Court 'Reversals' List Grows

In a case emanating from Walton County, Florida, a state appeals court has ruled that, notwithstanding the expiration of the statute of limitations for bringing a lawsuit, alleged violations of the Federal Equal Credit Opportunity Act ["ECOA"] by a homeowner/wife (who served solely as a guarantor on a loan taken by her co-owner/husband) can be raised as a valid defense to a foreclosure action in Florida, and in finding that there were disputed issues of material fact on this affirmative defense, held that the granting of summary judgment in the case at bar to the foreclosing lender, Whitney National Bank, was premature and reversed a ruling of the trial court to the contrary.(1)

For the ruling, see Chen v. Whitney National Bank, Case No. 1D10-5718 (Fla. App. 1st DCA, July 22, 2011).

(1) Part of the court's analysis follows (bold text is my emphasis):

• With respect to the ECOA affirmative defense, Whitney argued below and on appeal that the defense was inadequate as a matter of law because the language of ECOA does not allow voiding a guaranty as an affirmative defense; rather, the Lins could seek only an affirmative remedy for the alleged ECOA violation.
  
  Whitney further argued that, if the defense was intended to be an affirmative claim, it was barred by the two-year statute of limitations in 15 U.S.C. § 1691e(f). Appellants argue on appeal, as they did below, that the alleged ECOA violation may be raised as an affirmative defense in an action to enforce the guaranty, even after the expiration of the statute of limitations. We agree with Appellants for the reasons that follow.

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• ECOA provides that an applicant aggrieved by a violation of the act may bring a federal civil action against the creditor to recover actual damages, punitive damages, and attorney's fees. See 15 U.S.C. § 1691e(a), (b), (d). ECOA does not expressly authorize an aggrieved applicant to raise an alleged ECOA violation as an affirmative defense to a claim by a creditor on the debt, and there is a split of authority in the federal and state courts as to whether this remedy is available.
  
  The only court in Florida to have directly considered the issue is Matsco v. Clermont Center for Comprehensive Dentistry, P.A., 2010 WL 746709 (M.D. Fla. Mar. 2, 2010). In that case, the federal district court struck the defendant spouses' affirmative defenses that Matsco, through its predecessors, violated the ECOA by having them execute personal guaranties solely in their capacity as spouses. Id. at *1. The court concluded that ECOA did not provide for the invalidation of a guaranty or the underlying obligation as an available remedy or as an affirmative defense. Id. at *3 (citing other federal district court cases).
  
  We do not find Matsco persuasive because it did not even acknowledge the conflicting case law, apparently because the defendant spouses in that case did not submit any decisional authority or argument to the court. Id.
  
  Indeed, there are a number of federal and state cases holding contrary to Matsco that ECOA can be used defensively after the statute of limitations has run on an affirmative claim. See, e.g., LOL Finance Co. v. F.J. Faison, Jr. Revocable Trust, 2010 WL 3118630, at *8 (citing cases from the First Circuit, Third Circuit, federal district courts, and state supreme courts), adopted by 2010 WL 3118583 (D. Minn. Aug. 4, 2010).
  
  The split of authority on this issue was recently canvassed by the Iowa Supreme Court in Bank of the West v. Kline, 782 N.W.2d 453 (Iowa 2010). The court explained in Kline that courts have "staked out three general positions" on the use of an alleged violation of the ECOA after the statute of limitations has run: (1) a debtor can only assert an ECOA violation as a counterclaim; (2) a debtor can assert an ECOA violation as an affirmative defense in the nature of recoupment; and (3) a debtor can assert an ECOA violation as an affirmative defense based on the defense of illegality. Id. at 458-61. After analyzing each position in detail, the court adopted the position allowing a debtor to assert an ECOA violation as an affirmative defense to void an obligation made in contravention to ECOA. Id. at 463.
  
  The court reasoned that it would frustrate the purpose of ECOA and be contrary to public policy to enforce an obligation that violated ECOA, such as a guaranty required of the spouse of an independently creditworthy debtor. Id. The court further reasoned that a creditor should not benefit from its discriminatory practices and that releasing the spouse from liability under a guaranty made in violation of ECOA would deter discriminatory practices. Id.
  
  Finally, the court reasoned that allowing a guarantor to assert an ECOA violation as a defense to the creditor's claim, even after the statute of limitations had run on an affirmative claim under ECOA, best protected victims of credit discrimination because most debtors would not know about ECOA's provisions against discrimination until they consulted an attorney or until the creditor sought to enforce the guaranty. Id.
  
  We find this analysis persuasive. It is also consistent with Florida law, which recognizes that the illegality of a contract may be raised as an affirmative defense. See Harris v. Gonzalez, 789 So.2d 405 (Fla. 4th DCA 2001).
  
  Similar to Iowa law discussed in Kline, the Florida Supreme Court has expressed that "where a statute pronounces a penalty for an act, a contract founded upon such act is void, although the statute does not pronounce it void or expressly prohibit it." Town of Boca Raton v. Raulerson, 146 So. 576, 577 (Fla. 1933).

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The following two points appear to be clearly worthy of note:

(I) On the basis of the underlying legal rationale in this case, there appears to be no reason why said rationale would not be equally applicable where a homeowner alleges violations of the Federal Truth in Lending Act and other applicable Federal and state lending statutes as a defense to a foreclosure action.

(II) Until the Florida Supreme Court addresses this issue, and to the extent there are no conflicting rulings from sister Florida appeals courts, the ruling by Florida's 1st District Court of Appeal in Chen v. Whitney National Bank is binding, not only on all trial courts within the 1st District, but on all trial courts throughout the state. See:

Gross v. State, 765 So. 2d 39 (Fla. 2000):

• A trial court is obligated to follow decisions of the district court of appeal, and where there is no decision on point from the district court for the circuit in question, the trial court is bound to follow precedents of other district courts of appeal. See Pardo v. State, 596 So.2d 665, 666-67 (Fla.1992) ("[I]n the absence of interdistrict conflict, district court decisions bind all Florida trial courts.").

Pardo v. State, 596 So. 2d 665 (Fla. 1992):

• This Court has stated that "the decisions of the district courts of appeal represent the law of Florida unless and until they are overruled by this Court." Stanfill v. State, 384 So.2d 141, 143 (Fla. 1980).
  
  Thus, in the absence of interdistrict conflict, district court decisions bind all Florida trial courts. Weiman v. McHaffie, 470 So.2d 682, 684 (Fla. 1985).
  
  The purpose of this rule was explained by the Fourth District in State v. Hayes:
  
  "The District Courts of Appeal are required to follow Supreme Court decisions. As an adjunct to this rule it is logical and necessary in order to preserve stability and predictability in the law that, likewise, trial courts be required to follow the holdings of higher courts--District Courts of Appeal.
  
  The proper hierarchy of decisional holdings would demand that in the event the only case on point on a district level is from a district other than the one in which the trial court is located, the trial court be required to follow that decision.
  
  Alternatively, if the district court of the district in which the trial court is located has decided the issue, the trial court is bound to follow it.
  
  Contrarily, as between District Courts of Appeal, a sister district's opinion is merely persuasive."
  
  333 So.2d 51, 53 (Fla. 4th DCA 1976) (footnote and citations omitted).[5]
  
  [See generally Taylor Mattis, Stare Decisis Among and Within Florida's District Courts of Appeal, 18 Fla.St.U.L.Rev. 143, 155-160 (1990).]