Nichols v. FDIC

Can You Sue Over a Mortgage You Signed After Reviewing It With a Lawyer? Nichols v. FDIC, No. 17-35556 (9th Cir. 2019)

Boland Aarab PLLP

Rarely, on facts like these. In Nichols v. FDIC, No. 17-35556 (9th Cir. June 4, 2019), an unpublished memorandum, the Ninth Circuit affirmed summary judgment against a homeowner who sued the FDIC, as receiver for Washington Mutual Bank, over her 2005 adjustable-rate mortgage. The court held that her closing documents disclosed the risk of negative amortization, and that she could not show reasonable reliance on a loan officer’s earlier statements because she had the full terms, signed the disclosures, and had a lawyer at closing.

Key Takeaways

• A written warning that “[t]he principal balance on your loan can increase even though you are making the required monthly payments” satisfied the Truth in Lending Act’s negative-amortization disclosure (Nichols, mem. at 2).
• Using the Federal Reserve’s model disclosure forms satisfied the other applicable TILA requirements (mem. at 2).
• Negligent misrepresentation and fraud both require reasonable reliance. Reliance on oral promises was not reasonable where the borrower had the written terms, signed them and had legal counsel (mem. at 4–5).
• The decision is unpublished and “is not precedent except as provided by Ninth Circuit Rule 36-3” (mem. at 1 n.*).

In this case sheet: At a glance · Watch the argument · What the court held · Our position · What it means · Laws · When it applies · How hard · Related law · FAQ

The lawyers who argued this case are the lawyers who handle yours. Contact Boland Aarab PLLP for a free consultation at (406) 315-3737.

At a glance

Watch the oral argument

Samir F. Aarab argued Nichols before the Ninth Circuit in Seattle on May 17, 2019. Watch the argument on the Ninth Circuit’s official channel.

What did the Ninth Circuit hold in Nichols v. FDIC?

Diana Nichols took out a variable-rate mortgage with Washington Mutual Bank (WaMu) in 2005. After WaMu failed, she sued the FDIC as its receiver. She alleged that the loan’s terms differed from what WaMu employee Sean O’Connor had described before closing (mem. at 1–3). The district court granted summary judgment to the FDIC. Reviewing de novo, the Ninth Circuit found no genuine dispute of material fact on any claim (mem. at 2):

1. Truth in Lending Act. The closing documents warned that the principal balance could increase even with required payments, which satisfied the negative-amortization disclosure. WaMu’s use of the Federal Reserve’s model forms satisfied the other provisions. The three-day advance-disclosure rule applied only to loans with much higher interest rates (mem. at 2–3).
2. Contract and good faith. WaMu paid out the full loan amount and so performed. Washington recognizes the duty of good faith only in relation to a specific contract term, and pre-closing statements are not a contract term (mem. at 3).
3. Negligence. An “unconscionable loan” negligence theory was barred by Washington’s independent duty rule. Negligent misrepresentation failed for lack of reasonable reliance: she realized at closing that the terms differed, had the disclosures in front of her and signed them, and a lawyer explained the terms and her three-day rescission right (mem. at 3–5).
4. Fraud. Fraud also requires reasonable reliance, so it failed for the same reason (mem. at 5).
5. Unjust enrichment, unconscionability and duress. The contract was enforceable, so unjust enrichment was unavailable. The loan terms, “although unfavorable to her, do not shock the conscience,” and financial pressure alone is not duress (mem. at 5–6).

The court treated unconscionability and duress as defenses, not freestanding claims. It held any request to declare the 2005 loan unenforceable moot, because she was now bound by a modified loan with her current servicer (mem. at 5 n.2). It did not reach whether she had ratified the loan (mem. at 6 n.3).

What did we argue, and how did the Court differ?

Our position. On Ms. Nichols’s behalf, we argued that:

• she did not receive the TILA disclosure that her loan could negatively amortize, and should have received disclosures three days before closing;
• WaMu was bound by what its loan officer told her before closing, under contract, good-faith, negligence and fraud theories;
• the loan was unconscionable and signed under duress, so WaMu should not keep its benefits (mem. at 2–6).

How the court differed. The panel held that the written record answered each claim:

• the disclosure language was in the closing documents;
• the three-day rule did not apply to her loan’s rate;
• her own knowledge at closing, her signatures and her lawyer’s advice made reliance on earlier oral statements unreasonable as a matter of law (mem. at 2–5).

No judge dissented.

What did Nichols mean for the law?

Little, by design. The disposition is unpublished and “not precedent except as provided by Ninth Circuit Rule 36-3” (mem. at 1 n.*). Unpublished Ninth Circuit dispositions issued after 2007 may be cited, but they do not bind later courts (Fed. R. App. P. 32.1; 9th Cir. R. 36-3).

The case also arose in Washington and applied Washington law to the state-law claims, because the parties did not dispute that it governed (mem. at 3 n.1). It did not decide any question of Montana law.

What it does illustrate is a general point that recurs in lending cases: when the written disclosures are clear, signed, and reviewed with counsel, claims based on earlier oral assurances face a steep reliance problem.

Which laws and rules apply?

• 15 U.S.C. § 1638: TILA disclosures for closed-end credit (mem. at 2; 2005 version applied)
• 15 U.S.C. § 1639: requirements for certain high-rate mortgages, including the three-day advance-disclosure rule (mem. at 2–3; 2005 version applied)
• 12 C.F.R. § 226.18: Regulation Z disclosure content (mem. at 2; 2005 version applied)
• Fed. R. App. P. 32.1 and Ninth Circuit Rule 36-3: citation of unpublished dispositions
• Washington common law on contract, good faith, the independent duty rule, negligent misrepresentation, fraud, unjust enrichment, unconscionability and duress (mem. at 3–6)

When might Nichols apply to you?

• A loan officer promised terms that are not in the papers. Courts look first at what you signed. If you learned at closing that the terms differed, relying on the earlier promise is hard to defend (mem. at 4).
• You had a lawyer at closing. Legal advice and a rescission period you did not use weigh against claims of reasonable reliance and duress (mem. at 4–6).
• You have since modified the loan. A request to void the original loan may be moot once a modification governs (mem. at 5 n.2).

How hard is it to defeat summary judgment in a mortgage case?

• Review is de novo, but the borrower still needs a real factual dispute. The Ninth Circuit reviewed the summary judgment fresh and still found no genuine question of material fact on any claim (mem. at 2).
• Reliance is an element. Negligent misrepresentation and fraud both require reasonable reliance (mem. at 4–5).
• Model forms protect lenders. Use of the Federal Reserve’s model forms satisfied the applicable TILA provisions (mem. at 2).
• Unfavorable is not unconscionable. The terms must “shock the conscience” (mem. at 5).

Related law and later decisions

Statutes and rules

• 15 U.S.C. § 1638 and 15 U.S.C. § 1639: both substantially amended after 2005, including by the Dodd-Frank Act (2010). The court applied the 2005 versions.
• 12 C.F.R. § 226.18: Regulation Z. Rulemaking authority for most mortgage disclosures later moved to the Consumer Financial Protection Bureau.
• Fed. R. App. P. 32.1 and Ninth Circuit Rule 36-3
• No Montana statute or rule is involved.

Later decisions citing this case

• None found. An exact-docket search (September 2026) returned no later opinion citing it.

The Boland Aarab Way

Samir F. Aarab of Boland Aarab PLLP represented Diana Nichols in the Ninth Circuit and argued the appeal in Seattle. The court affirmed. We include results like this one because a record of real cases, argued in person before federal appellate judges, says more about a firm than a list of selected outcomes. You can watch the argument and judge the work yourself. That same preparation goes into our serious trucking and injury cases and wrongful death claims. When you hire Boland Aarab, you work directly with the attorneys who argue in courts like this one.

Frequently Asked Questions

Is an unpublished Ninth Circuit memorandum binding precedent? No. Nichols states that it “is not precedent except as provided by Ninth Circuit Rule 36-3” (mem. at 1 n.*). It may be cited, but it does not bind later courts (Fed. R. App. P. 32.1).

Does a lender’s model TILA form satisfy the disclosure rules? In Nichols, WaMu’s use of the Federal Reserve’s model forms satisfied the applicable TILA provisions, and a written negative-amortization warning met the specific requirement (mem. at 2).

Can you rely on what a loan officer told you if the papers say otherwise? Reliance must be reasonable. In Nichols, it was not, because the borrower saw the different terms at closing, signed the disclosures and had a lawyer’s advice (mem. at 4–5).

Work With the Lawyers Behind These Cases

Boland Aarab is a Great Falls trial firm. The same attorneys who brief and argue before the Montana Supreme Court and the Ninth Circuit handle our clients’ serious injury, trucking and wrongful-death cases from the first call. Contact Boland Aarab PLLP for a free consultation at (406) 315-3737.

About Boland Aarab PLLP: Boland Aarab PLLP is a Great Falls, Montana trial firm. Its attorneys, Caitlin Boland Aarab and Samir F. Aarab, have appeared in more than 40 matters before the Montana Supreme Court and have argued twice before the U.S. Court of Appeals for the Ninth Circuit. The firm carries on the Great Falls practice Thomas E. Boland began in 1974. Meet our attorneys.

Sources:

• Nichols v. FDIC, No. 17-35556 (9th Cir. June 4, 2019) (mem.) (official PDF)
• Oral argument video, May 17, 2019 (Ninth Circuit) and audio
• 15 U.S.C. § 1638
• 15 U.S.C. § 1639
• 12 C.F.R. § 226.18
• Fed. R. App. P. 32.1
• Ninth Circuit Rules

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship.