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Am. Gen. Fin., Inc. v. Bassett (In re Bassett) - 285 F.3d 882 (9th Cir. 2002)

Rule:

A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals is conspicuous. Language in the body of a form is "conspicuous" if it is in larger or other contrasting type or color. But in a telegram any stated term is "conspicuous". Whether a term or clause is" conspicuous" or not is for decision by the court. A term is conspicuous if a reasonable person in the buyer's position would not have been surprised to find the term in the contract. A court decides conspicuousness as a matter of law.

Facts:

Darlene Bassett bought two chairs and two ottomans, and financed the purchase with a secured loan from American General Finance, Inc. (Finance).  Months later, Bassett filed a voluntary Chapter 7 bankruptcy petition. Before receiving a discharge, Bassett signed a reaffirmation agreement with Finance. Bassett kept up with her payments to Finance for a few months but eventually stopped. Finance sent a series of letters, first friendly and later pointed, asking to be paid. Bassett responded by moving to reopen her bankruptcy so that she could bring the present putative class action lawsuit. Bassett argued that the reaffirmation agreement she signed was unenforceable and that Finance's collection letters were therefore illegal. Under a number of theories, she sought damages and a declaration that the reaffirmation agreement was unenforceable because it failed to comply with 11 U.S.C. § 524(c)(2)(A), which required the agreement to have a "clear and conspicuous" statement that "advises the debtor that the agreement may be rescinded at any time prior to discharge or within sixty days after such agreement is filed with the court." The bankruptcy court concluded that the agreement was enforceable and granted Finance's motion for judgment on the pleadings. The Bankruptcy Appellate Panel reversed, concluding that the reaffirmation agreement was not enforceable and that Finance's attempted collection of the debt violated Bassett's discharge. The BAP remanded so that Bassett could proceed with claims for civil contempt and violation of the automatic bankruptcy stay. Finance appealed and Bassett cross-appealed the BAP's affirmance of the dismissal of an implied cause of action under 11 U.S.C. § 524, and of her state law and Truth in Lending Act claims.

Issue:

Did the right-to-rescind statement comply with the requisites of 11 U.S.C. § 524(c)(2)(A), hence, enforceable?

Answer:

Yes.

Conclusion:

The Court of Appeals for the Ninth Circuit noted that the rescission agreement took up significantly less than one side of a page, and the right-to-rescind statement was the first sentence in the agreement, that even the least attentive reader was likely to see it. According to the Court, no aspect of the formatting or appearance of the statement made it less visible or difficult to read. A reasonable person "would not have been surprised to find" the agreement's right-to-rescind statement. The Court thus held that the right-to-rescind statement was clear and conspicuous as required by 11 U.S.C. § 524, and that Bassett's reaffirmation agreement was therefore enforceable. Bassett's claims for violation of the post-discharge injunction, civil contempt, violation of the Washington Consumer Protection Act, unjust enrichment, and violation of the Truth in Lending Act all require a finding that the reaffirmation agreement was unenforceable. Thus, they all fail.

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