The opinion of the court was delivered by: Denlow, United States Magistrate Judge.
2. TILA as Amended in 1995 Governs Rescission Damages
Prior to 1995, § 1640 provided for statutory damages in the
amount of twice the finance charges, with a maximum of $1,000 and
a minimum of $100. The 1995 amendment was designed to establish a
more generous minimum and maximum for certain secured
transactions. Strange, 129 F.3d at 947. For those credit
transactions secured by real property or a home, "subsection
(A)(iii) [now] establishes a floor of $200 and a ceiling of
$2,000." Id. Because Plaintiffs pray for damages only for
rescission violations on or after August 21, 1997, the statute,
as amended, governs any damages award. Aquino, 606 F. Supp. at
506 n. 2. (because plaintiff's notice of rescission took place
after the effective date of the 1982 amendment, the violations
relating to the rescission are governed by the statute as
It is also clear from the plain language of the statute that
damages are to be assessed for each transaction. Shepeard v.
Quality Siding & Window Factory, Inc., 730 F. Supp. 1295, 1308 n.
24 (D.Del. 1990). Because three separate transactions are
involved, Plaintiffs are entitled to $6,000 in statutory damages.
3. Damages Are Mandatory
Damages are mandatory for a technical violation, even if the
plaintiff suffers no actual damages. Cowen v. Bank United of
Tex. FSB., 70 F.3d 937, 940 (7th Cir. 1995) ("Ordinarily one
cannot seek damages . . . unless one has suffered a loss, but the
Truth in Lending Act allows a monetary recovery even if the
failure to disclose . . . caused the borrower no harm."); Purtle
v. Eldridge Auto Sales, Inc., 91 F.3d 797, 801 (6th Cir. 1996)
(agreeing with the reasoning of the Fifth Circuit Court of
Appeals and the Eighth Circuit Court of Appeals that "once a
court finds a violation of the TILA, no matter how technical, the
court has no discretion as to the imposition of civil liability."
A plaintiff is entitled to statutory damages for a disclosure
violation if the action for damages is brought within one year of
the violation. A plaintiff is also entitled to statutory damages
for a rescission violation if the plaintiff exercises his right
to rescind within three years.
Defendants argue that statutory damages are time barred because
of the one year limitation period in 1640(e) to bring an action
for damages. Defendants claim that because the action for
violations of TILA were filed on August 25, 1997 for violations
occurring on February 11, 1995, July 10, 1995, and July 15, 1995,
a time frame in excess of one year, statutory damages are barred.
Defendants misinterpret the statute. Section 1640 also allows
damages for rescission violations, not simply for disclosure
violations, as explained above. Thus, Plaintiffs are not
precluded from bringing a damages action for rescission
The obligations of a creditor upon the exercise of an obligor's
right to rescind are clearly spelled out in the TILA.
15 U.S.C.A . . § 1635(b) (1998).
This Court has found that Defendants violated their duty to
disclose information and committed a technical violation of TILA.
Clay v. Johnson, 22 F. Supp.2d at 842. Furthermore, this Court
found that Plaintiffs properly and timely exercised their right
of rescission, and that Defendants have no viable affirmative
defenses. Id. Based on these findings, this Court granted
partial summary judgment to Plaintiffs on the issue of liability.
Id. at 843.
Defendants did not comply with their obligations upon the
Plaintiff's exercise of their right to rescind as outlined in §
1635(b). By refusing to honor Plaintiff's rescission requests,
Defendants have committed rescission violations, which entitle
Plaintiffs to statutory damages. In this case, Plaintiffs entered
into three separate transactions dated February 11, 1995, July
10, 1995 and July 15, 1995. Each of the transactions contained
disclosure violations, for which Plaintiffs have a right of
rescission. Subsequently, the Plaintiffs properly and timely
exercised their right of rescission on all three transactions on
August 21, 1997. On August 25, 1997 Plaintiffs filed this suit.
On the next day, Ree Clay filed for Bankruptcy under Chapter 13
of the Bankruptcy Code.
filing of this lawsuit, this Court is precluded from assessing
statutory damages as they relate to disclosure violations.
Wright, 133 B.R. at 708-9. However, these disclosure violations
gave Plaintiffs the right to rescind within three years pursuant
to § 1635(f). The TILA limits statutory damages to twice the
finance charge with a minimum of $200 and a maximum of $2,000. In
the case at hand, twice the amount of the finance charge for each
transaction is in excess of $2,000. Therefore, Plaintiffs are
entitled to $2,000 statutory damages for each of the three
rescission violations, for a total of $6,000.
B. PLAINTIFFS ARE ENTITLED TO REASONABLE ATTORNEY'S FEES.
In addition to statutory damages, Plaintiffs are entitled to
reasonable attorney's fees under TILA. Section 1640 provides,
"[A]ny creditor who fails to comply with any
requirement imposed under this part, including any
requirement under section 1635 of this title . . .
with respect to any person is liable to such person
in an amount equal to the sum of —
(3) in the case of any successful action to enforce
the foregoing liability or in any action in which a
person is determined to have a right of rescission
under section 1635 of this title, the costs of the
action, together with a reasonable attorney's fee as
determined by the court."
15 U.S.C.A. § 1640(a)(3) (1998).
"The language in section 1640(a) unequivocally entitles a
successful Truth-in-Lending plaintiff to an award of attorney's
fees, and leaves only the amount of the award to the court's
discretion." de Jesus v. Banco Popular de Puerto Rico,
918 F.2d 232, 233 (1st Cir. 1990). See also Alyeska Pipeline Service Co.
v. Wilderness Society, 421 U.S. 240, 262 n. 34, 95 S.Ct. 1612,
1624 n. 34, 44 L.Ed.2d 141 (1975) ("[o]ther statutes which are
mandatory in terms of awarding attorneys' fees include . . . the
Truth in Lending Act, 15 U.S.C. s1640(a)"); Strange,
129 F.3d 943 (awarding reasonable attorney's fees and statutory damages).
Although the Seventh Circuit has not ruled directly on this
point, it has analogized the attorney's fees provision in the
TILA to that of the parallel provision in the Fair Debt
Collection Practices Act ("FDCPA"), a statute with identical
language. Zagorski v. Midwest Billing Serv. Inc.,
128 F.3d 1164, 1166 n. 3 (7th Cir. 1997). The Seventh Circuit has held
that it is in agreement with the Second Circuit that the award of
attorney's fees to a prevailing plaintiff in a FDCPA action is
mandatory. Id. In support of this holding, the Seventh Circuit,
in its reasoning, mentions that the First Circuit in de Jesus
has held that attorney's fees to a successful plaintiff in a TILA
case are mandatory, thus implying that it would rule in a similar
fashion should the occasion present itself. Id.
It is a "settled proposition that congressional goals
underlying the Truth-in-Lending Act include the creation of `a
system of private attorney generals' who will be able to aid the
effective enforcement of the Act." Sosa v. Fite, 498 F.2d 114,
121 (5th Cir. 1974). To effectuate this goal, Congress has
provided for mandatory fees to all successful plaintiffs,
realizing that "most TILA plaintiffs are not `model borrowers.'"
Semar v. Platte Valley Fed. Sav. & Loan Assoc., 791 F.2d 699
(9th Cir. 1986). "Congress did not intend for TILA to apply only
to sympathetic consumers; Congress designed the law to apply to
all consumers, who are inherently at a disadvantage in loan and
credit transactions." Id. Thus, because the "attorney's fees
provision is phrased in mandatory, rather than discretionary
terms, it is evident that fees may be denied a successful
plaintiff only in the most unusual of circumstances" such as bad
faith, obdurate conduct, unjust hardship, or special
circumstances. de Jesus, 918 F.2d at 234 & n. 4. Prevailing
plaintiffs are entitled to attorney's fees regardless of the
amount of recovery
awarded, In re Pine, 705 F.2d 936, 938 (7th Cir. 1983) and
regardless of whether the plaintiff suffered actual damages.
Purtle, 91 F.3d at 802.
The time limitation to bring an action for attorney's fees
under § 1640 is the same limitation previously discussed for
statutory damages. Plaintiffs are entitled to reasonable
attorney's fees when they exercise their right to rescind within
three years and obtain rescission. Semar, 791 F.2d at 706;
Aquino, 606 F. Supp. at 509-510.
Defendants are under the mistaken impression that, because the
disclosure violation occurred in excess of one year prior to the
filing of this suit, Plaintiffs are time barred by the one year
limitation period, and that rescission is the only remedy
available to Plaintiffs. This simply is not the case.
The Fifth Circuit addressed the interplay of the rescission
provision as set forth in section 1635 and the civil penalty
provision provided in section 1640.
[I]t is unsurprising that the rescission provision of
the Truth-in-Lending Act does not address the issue
of attorneys' fees, for that section, unlike the
civil penalty provision of section 1640 which does
allow for such fees, does not even contemplate the
necessity of judicial intervention to effect
rescission. On the contrary, the section creates
legal remedies which have binding legal effect absent
court action. Thus, under section 1635, a debtor's
notice of rescission operates ipso facto to abrogate
the contract, without the necessity for judicial
acquiescence or ratification. Section 1640, on the
other hand, provides for a system of monetary
penalties which can only be implemented by the
courts, hence the relevance of litigation costs in
enforcing civil penalties was abundantly clear to
Congress. In sum, [the Plaintiff] has been forced to
resort to federal court only because the creditors
refused to recognize and abide by the plain operation
of the rescission remedy, which should have been
afforded self-operating effect without the need for
Sosa, 498 F.2d at 121-122.
In summary, the actions in the rescission provision are self
help remedies, designed by Congress to be carried out by a
creditor and debtor without any need for lawyers, lawyers fees or
judges. A creditor may choose not to acknowledge a debtor's right
to rescind, however, he does so at its own peril. If the debtor
is then forced to bring a federal action to enforce his right to
rescind, and if the debtor then prevails in that subsequent
lawsuit proving that he properly exercised his right to rescind
due to non-disclosure, then the creditor has not only violated
TILA for failure to disclose, but also for failure to recognize a
rescission as outlined in 1635(b). In either case, defendants are
liable for reasonable attorney's fees.
C. THE COURT HAS DISCRETION TO DETERMINE REASONABLE ATTORNEY'S
Although the award of attorney's fees are mandatory, the amount
of the award must be reasonable, as determined by the court.
Semar, 791 F.2d at 706; de Jesus, 918 F.2d at 235. The court
must follow well known guidelines of reasonableness, and failure
to follow the guidelines is an abuse of discretion. Semar, 791
F.2d at 706.
The Seventh Circuit has upheld the application of the
"lodestar" method in determining reasonableness of attorney's
fees. Under this method, "[t]he fee claimant bears the burden of
substantiating the hours worked and the rate claimed. Once he has
done so . . ., the district court may increase or decrease the
amount in light of the [Hensley v. Eckerhart, 461 U.S. 424, 103
S.Ct. 1933, 76 L.Ed.2d 40 (1983)] factors, which include the time
and labor required, skill needed, amount involved and results
obtained, time limitations imposed by the case, experience, and
reputation and ability of the lawyers."
Strange, 129 F.3d at 946 (citations omitted). The court must
accompany any modifications with a "concise but clear
explanation." Id. Furthermore, the court may not reduce an
award of fees by an arbitrary amount simply because they appear
to be excessive. Id.
In Strange, the Seventh Circuit upheld a district court's
rejection of $21,743.75 in attorney's fees on a $100 statutory
damage claim, finding the 123 hours in fees requested
unreasonable "in light of the stakes involved in the litigation
and the time and labor that reasonably should have been
expended." Id. The appellate court upheld the reduced amount of
$3,000 in attorney's fees, finding that it was "not an unfounded,
arbitrary reduction based on the court's subjective view of what
might be excessive." Id.
In In re Pine, 705 F.2d 936, 939 (7th Cir. 1983) the Seventh
Circuit found that an award of attorney's fees in the amount of
$2,500 for 40 hours work was not excessive, even though only
$1,000 in statutory damages was actually at stake in the
litigation. Although the court stated that "[t]he amount of money
at stake in a case is always highly relevant to the
reasonableness of an attorney's fee request", the court rejected
the argument that Congress intended to limit the attorney's fee
awards to the amount of damages obtained. Id. The Seventh
Circuit pointed out that its decision was in line with its
holding in Mirabal v. General Motors Acceptance Corp.,
576 F.2d 729 (7th Cir. 1978), in which the court upheld a district court's
reduced award of $2,000 in attorney's fees based on a $2,000
statutory damages recovery. The Mirabal court agreed with the
district court's findings that 350 hours of an attorney's time
was "clearly out of proportion with the amount in controversy"
and that "[t]o grant attorney's fees greatly in excess of a
client's recovery requires strong support from the circumstances
of the particular case." Id. at 730.
Other circuits have used similar guidelines in determining the
reasonableness of attorney's fees:
The factors are the time and labor required, the
novelty and difficulty of the questions involved, the
skill requisite to perform the legal service
properly, the preclusion of other employment by the
attorney due to acceptance of the case, the customary
fee, whether the fee is fixed or contingent, time
limitations imposed by the client or the
circumstances, the amount involved and the results
obtained, the experience, reputation, and ability of
the attorneys, the "undesirability" of the case, the
nature and length of the professional relationship
with the client, and awards in similar cases.
Semar, 791 F.2d at 706.
Because the question of the amount of attorney's fees was not
discussed at trial, the Court will schedule this issue for oral
D. DEFENDANTS ARE ENTITLED TO THE REASONABLE VALUE OF THE
INSTALLED HOME IMPROVEMENTS.
Defendants are entitled to $38,000 as the reasonable value of
the home improvements that were installed. This amount is reduced
by any amount Plaintiffs have paid to date on the three
transactions, which is approximately $20,000. This amount is also
reduced by the statutory damages of $6,000. Therefore, Defendants
are still owed approximately $12,000 which will be paid pursuant
to the bankruptcy payment schedule.
The TILA provides that, upon rescission, the creditor must
"return to the obligor any money or property given as earnest
money, down payment, or otherwise, and shall take any action
necessary or appropriate to reflect the termination of any
security interest." 15 U.S.C. § 1635(b). After the creditor has
first fulfilled these obligations, the "obligor shall tender the
property to the creditor, except that if return of the property
in kind would be impracticable or inequitable, the obligor shall
tender its reasonable value." Id.
Absent evidence to the contrary, the reasonable value of
property is the contract price. Rowland v. Magna Millikin Bank
of Decatur, 812 F. Supp. 875, 881 (C.D.Ill. 1992); Shepeard v.
Quality Siding & Window Factory, Inc., 730 F. Supp. 1295, 1307
(D.Del. 1990). The Court heard testimony from Plaintiff's expert,
who testified that the estimated value for the job, including a
5-15% profit to the general contractor, was $12,400. Plaintiff's
expert further testified that it would cost an estimated $5,000
to repair the existing work to bring it up to the standards of
workmanlike quality. The Court finds it incredible that the
estimated value of all the mentioned work, including a 5-15%
profit margin to the contractor, can possibly be only $12,340. If
this were correct, Mr. Bilfeld would be charging a 224% premium
on his product, which this Court finds difficult to believe.
The Defendant presented testimony by Mr. Bilfeld that the
reasonable value for the job was $40,000, the contract price. He
further testified that he subcontracts all the work and that the
subcontractors are responsible for repair work if there are any
customer complaints, otherwise he will not use them again.
Therefore, the additional cost to Mr. Bilfeld to address customer
complaints is nothing. The Court found Mr. Bilfeld's testimony
more credible than that of Plaintiff's expert, considering the
large amount of work that was performed.
Plaintiffs testified that they contacted Mr. Bilfeld through a
referral from a friend for whom Mr. Bilfeld had done some home
improvements. They did not obtain estimates from other
contractors, and continued to enter into new contracts with the
Defendants over the course of several months. These contracts
were entered into freely at arms length. Plaintiffs are educated
and intelligent individuals who agreed that the reasonable value
of the work, if totally completed, was $40,000. This
understanding was manifest throughout the agreements they
Having found the testimony of Mr. Bilfeld more credible than
the testimony of Plaintiff's expert, and that Plaintiffs freely
entered into arms length transactions with Defendants, the Court
finds that the $40,000 contract price is the most appropriate
starting point from which to determine a reasonable value.
Plaintiffs rely on Gaines v. Phills, 389 So.2d 445 (La.App.
2d Cir. 1980) and Pearson v. Colonial Financial Serv.,
526 F. Supp. 470 (M.D.Ala. 1981) for the argument that the Court
should disregard the contract price and find the reasonable value
of the improvements to be that testified to by Plaintiffs expert.
Plaintiffs reliance is misplaced. In Gaines, the original
contract price was $19,000. The homeowners terminated the
contract prior to the completion of the work. Thus, the court
used the estimated increase in market value of the home to arrive
at a reasonable value of $4,050 for the work that was performed.
Gaines is clearly distinguishable because the work was
completely performed and Plaintiffs executed completion
certificates. In Pearson, the court gave no reason for
determining that the reasonable value was $3,000 instead of the
$5,400 contract price, other than that there was "conflicting
testimony." Pearson, 526 F. Supp. at 474. This Court
respectfully declines to follow suit. If Plaintiffs were unhappy
with the contract price, which they now claim is over three times
the fair market value, they should have either negotiated the
price up front with the Defendants or procured estimates from
other contractors. Market value is typically defined as what a
willing buyer is willing to pay to a willing seller at an arms
length transaction. Plaintiffs were willing buyers, Defendants
were willing sellers. The transaction was at arms length. The
Court sees no reason to intervene.
Although the right to rescind is statutorily granted,
rescission is an equitable remedy, the purpose of which is to
return the parties as nearly as possible to the positions they
were in before they
entered the transaction. Cox v. First Nat'l Bank of Cincinnati,
633 F. Supp. 236, 240 (S.D.Ohio 1986). As such, it is subject to
equitable considerations "to avoid the perpetration of stark
inequity." Brown v. Nat'l Permanent Fed. Sav. & Loan Assoc.,
683 F.2d 444, 448 (D.C.Cir. 1982). Thus, "when rescission is
attempted under circumstances which would deprive the lender of
its legal due, the attempted rescission will not be judicially
enforced unless it is so conditioned that the lender will be
assured of receiving its legal due." Id.
The TILA was amended to expressly provide for courts to
consider traditional equitable notions in applying the statutory
grant of rescission. The last sentence of § 1635(b) now reads as
follows: "The procedures prescribed by this subsection shall
apply except when otherwise ordered by a court."
15 U.S.C. § 1635(b). The Senate Report discussing this provision states:
Upon application by the consumer or the creditor a
court is authorized to modify the section's
procedures where appropriate. For example, a court
might use this discretion in a situation where a
consumer in bankruptcy . . . proceedings is
prohibited from returning the property. The committee
expects that the courts, at any time during the
rescission process, may impose equitable conditions
to ensure that the consumer meets his obligations
after the creditor has performed his obligations as
required under the act.
S.Rep. No. 96-368, 96th Cong., 1st Sess. 29 (1979) (quoted in
Brown, 683 F.2d at 447 n. 2.)
In applying this provision, the Sixth Circuit has held that
plaintiffs who sought to rescind a home improvement contract
because of a TILA disclosure violation were entitled to
rescission. Rudisell v. Fifth Third Bank, 622 F.2d 243, 254
(6th Cir. 1980). However, in order to most nearly put the parties
back into the condition they were in prior to the transaction,
the court conditioned the rescission upon the return by the
plaintiffs of the reasonable value of the property received by
The Court finds that Plaintiffs are entitled to rescission,
however the court conditions the rescission upon the repayment by
the Plaintiffs to the Defendants of $38,000 for the reasonable
value of the improvements, less any amounts paid to date, less
$6,000 in statutory damages owed to Plaintiffs by Defendants. The
security interest must remain in place until the obligation is
For the foregoing reasons, the Court awards Plaintiffs $6,000
in statutory damages. Plaintiffs are liable to Defendants for
$38,000 for reasonable value of improvements, less any amounts
paid to date on the contracts, less $6,000 in statutory damages.
The issue of the amount of attorney's fees will be set for oral
argument. A final judgment will be entered on the issue of
damages after attorney's fees are decided.