Wolfington v. Reconstructive Orthopaedic Assocs. II PC

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 17-3500 & 18-1182

ANDREW WOLFINGTON, individually and on behalf of all

others similarly situated,

Appellant

v.

RECONSTRUCTIVE ORTHOPAEDIC ASSOCIATES II

PC, a/k/a the Rothman Institute; ROTHMAN INSTITUTE;

DOES 1 THROUGH 10, inclusive

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(E.D. Pa. No.: 16-cv-04935)

District Judge: Michael M. Baylson

Argued: October 23, 2018

(Opinion filed: August 20, 2019)

Before: KRAUSE, COWEN, and FUENTES, Circuit Judges

Peter H. LeVan, Jr. [ARGUED]

LeVan Law Group

130 North 18th Street

One Logan Square, 27th Floor

Philadelphia, PA 19103

Counsel for Appellant

Laura D. Ruccolo [ARGUED]

Capehart Scatchard

8000 Midlantic Drive

Laurel Corporate Center, Suite 300S

P.O. Box 5016

Mount Laurel, NJ 08054

Counsel for Appellee

________________

OPINION OF THE COURT

________________

FUENTES, Circuit Judge

This is an appeal from the District Court’s entry of

judgment on the pleadings against appellant-plaintiff Andrew

Wolfington on his claim under the Truth in Lending Act1 (“the

Act”). Wolfington’s claim under the Act stems from

reconstructive knee surgery he received from defendant-

appellee Reconstructive Orthopaedic Associates II PC, also

known as the Rothman Institute (“Rothman”). Wolfington

alleged that Rothman failed to provide disclosures required by

the Act when it permitted him to pay his deductible in monthly

installments following surgery. The District Court entered

1

15 U.S.C. § 1601 et seq.

2

judgment on Wolfington’s claim because it determined he had

failed to allege that credit had been extended to him in a

“written agreement,” as required by the Act’s implementing

regulation, Regulation Z.2 After entering judgment, the

District Court also sua sponte imposed sanctions on

Wolfington’s counsel. Because we agree that Wolfington

failed to adequately allege the existence of a written

agreement, but conclude that counsel’s investigation and

conduct were not unreasonable, we affirm in part and reverse

in part.

I. Background

Because the District Court granted judgment on the

pleadings,3 we accept the well-pled allegations in Wolfington’s

Complaint as true. Those allegations may be summarized as

follows:

A. Wolfington’s Surgery

Wolfington agreed on January 12, 2016 to have surgery

provided by Rothman, scheduled for January 21, 2016. As part

of the January 12 agreement, Wolfington signed a document

titled “Financial Policy.”4 The Policy provided that

Wolfington agreed to pay any outstanding deductible not

2

12 C.F.R. § 226.1 et seq.

3

See JA 16-18, JA 18 n.6. Because the District Court also

purported to grant summary judgment in the alternative, we

note facts outside the pleadings as appropriate.

4

JA 87; Financial Policy, Mot. J. Pleadings Ex. A, Wolfington

v. Reconstructive Orthopaedic Assocs., II, P.C., No. 16-cv-

4935 (E.D. Pa. Nov. 7, 2016), ECF No. 10-4 at 5.

3

covered by his insurance before his surgery took place. The

day before Wolfington’s surgery, however, Wolfington’s

father informed Rothman that Wolfington was unable to pay

his deductible, then around $2,000. Rothman orally agreed to

accept a $200 “initial payment” by Wolfington and to permit

him to pay the remaining deductible in monthly installments of

$100 (the “January 20 Agreement”).5 Wolfington received two

emails on January 20, one confirming the $200 payment and

the other confirming the establishment of the payment plan and

listing the credit card to which payments would be charged.

The Complaint quotes both emails in full. Wolfington had

surgery as scheduled, but subsequently failed to make any

further payments on his outstanding deductible.

B. Proceedings in the District Court

Wolfington filed a putative class action in the District

Court, alleging that Rothman had extended him credit in the

January 20 Agreement, subject to the Truth in Lending Act, but

failed to provide disclosures required by the Act. The

Complaint set forth two claims, including one for violation of

the Act. His second claim, for violation of the Electronic

Funds Transfer Act, was later withdrawn. Rothman filed an

Answer with counterclaims for breach of contract and a Motion

for Judgment on the Pleadings, which included a copy of the

Financial Policy, along with other documents.

Prior to issuing its decision on Rothman’s Motion, the

District Court conducted a six-minute telephone conference

with the parties on the record on December 14, 2016.6 During

5

JA 87.

6

Cf. JA 100, JA 104.

4

that telephone conference, the District Court addressed two

factual issues with the parties. First, the District Court

confirmed that Wolfington had made no payments pursuant to

the January 20 Agreement. Second, the District Court asked if

there was “anything in writing confirming this arrangement?”7

Wolfington’s counsel replied, “[T]he only information that we

have is the confirmation receipts with respect to an online bill

payment plan . . . that indicated the $100 a month payments.”8

Defense counsel then stated, “That’s correct . . . . There’s no

signed agreement by the plaintiff to make the payments.”9

Eight days after the telephone conference, the District

Court granted Rothman’s Motion. In granting the Motion, the

District Court first determined that it could properly rely on the

Financial Policy, reasoning that the allegations in the

Complaint referenced and relied on it. The District Court also

relied on counsel’s statement at oral argument, stating,

“[U]nder the concession of Plaintiff’s counsel . . . there is no

longer any dispute as to any material fact, establishing that

there was no finance charge and no ‘written agreement’

between the parties.”10 Based on that evidence, the District

Court concluded that Wolfington failed to allege the existence

of a written agreement for the extension of credit.

In its memorandum, the District Court framed its

decision as a judgment on the pleadings under Rule 12(c). The

District Court analyzed Wolfington’s claims only under the

standard for Rule 12(c) and provided no substantive analysis

7

JA 101.

8

JA 101-02.

9

JA 102.

10

JA 28.

5

of the standard for summary judgment under Rule 56. Pursuant

to Rule 12(c), the District Court declined to consider “certain

documents” Rothman attached to its Motion in order to avoid

“converting the instant Motion into one for summary

judgment.”11 After determining it would grant judgment on the

pleadings, however, the District Court stated, “Alternatively,

Defendant’s motion will be converted into one for summary

judgment, pursuant to Rule 12(d), which will also be

granted.”12 Wolfington moved for reconsideration under Rule

59(e), which the District Court denied.

In granting Rothman’s Motion, the District Court also

sua sponte initiated sanctions proceedings under Rule 11

against Wolfington’s counsel. Prior to imposing sanctions, the

District Court accepted declarations from Wolfington’s

counsel, conducted a hearing, and received supplemental

briefing. The District Court concluded that sanctions in the

form of attorneys’ fees were appropriate, reasoning that

counsel could have reasonably discovered both the lack of a

written agreement and Wolfington’s failure to make any

payments on the deductible before filing the Complaint.

Ultimately, the District Court imposed sanctions under Rule 11

of $38,447.91. The sanctions were imposed solely for

11

JA 18.

12

JA 28. The District Court’s later descriptions of its

December 2016 entry of judgment on the pleadings further

muddled the standard it chose to apply. In its September 2017

memorandum imposing sanctions under Rule 11, the District

Court described Rothman’s Motion for Judgment on the

Pleadings both as “pursuant to Rule 12(c) because it attached

factual materials” and “as a Rule 56 motion [upon which]

summary judgment was entered for” Rothman. JA 41, 43.

6

Wolfington’s claim under the Truth in Lending Act, and not

for the withdrawn claim under the Electronic Funds Transfer

Act, although the District Court stated it retained the authority

to impose sanctions on the withdrawn claim.

II. Discussion13

On appeal, Wolfington challenges the District Court’s

entry of judgment on the pleadings under Rule 12(c) and

imposition of sanctions under Rule 11. For the reasons below,

we conclude that Wolfington has failed to adequately allege a

violation of the Truth in Lending Act, but that his counsel’s

investigation and conduct were not unreasonable. We

therefore affirm the entry of judgment on the pleadings and

reverse the imposition of sanctions.

A. Truth in Lending Act

First, Wolfington challenges the District Court’s entry

of judgment on the pleadings on his claim under the Truth in

Lending Act. In particular, Wolfington contends that (1) the

District Court erred under Rule 12(c) by considering material

outside the pleadings—namely, counsel’s purported

concession that there was no written agreement—and, (2) he

has adequately alleged (a) the extension of credit, (b) the

13

We have jurisdiction to review the District Court’s final

judgment pursuant to 28 U.S.C. § 1291. The District Court had

subject-matter jurisdiction under 28 U.S.C. § 1331.

Wolfington also alleges that this Court has jurisdiction

pursuant to 28 U.S.C. § 158(d). That provision, however, is

applicable only to appeals from the final judgments of

bankruptcy courts. See Celotex Corp. v. Edwards, 514 U.S.

300, 313 (1995).

7

consummation of a credit transaction, and (c) a written

agreement. Although we conclude the District Court erred in

considering material outside the pleadings, we affirm the entry

of judgment on the pleadings because Wolfington has failed to

allege the existence of a written agreement, as required by

Regulation Z.

1. Applicable Law

(a) Judgment on the Pleadings

A motion for judgment on the pleadings under Rule

12(c) “is analyzed under the same standards that apply to a

Rule 12(b)(6) motion.”14 Consequently, the court must “view

the facts presented in the pleadings and the inferences to be

drawn therefrom in the light most favorable to the nonmoving

party,” and may not grant the motion “unless the movant

clearly establishes that no material issue of fact remains to be

resolved and that he is entitled to judgment as a matter of

law.”15 Thus, in deciding a motion for judgment on the

pleadings, a court may only consider “the complaint, exhibits

attached to the complaint, matters of public record, as well as

undisputedly authentic documents if the complainant’s claims

are based upon these documents.”16

If the court considers matters outside pleadings other

than documents “integral to or explicitly relied upon in the

14

Revell v. Port Auth. of N.Y. & N.J., 598 F.3d 128, 134 (3d

Cir. 2010).

15

In re Asbestos Prods. Liab. Litig. (No. VI), 822 F.3d 125, 133

n.6 (3d Cir. 2016) (quoting Jablonski v. Pan Am. World

Airways, Inc., 863 F.2d 289, 290-91 (3d Cir. 1988)).

16

Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010).

8

complaint,”17 the “motion must be treated as one for summary

judgment under Rule 56.”18 Conversion of a motion under

Rule 12 to one for summary judgment requires that “the

procedures of Rule 56 govern.”19 Those procedures include

providing the parties at least ten days’ notice and the

opportunity to submit evidence of record to support or oppose

summary judgment.20 Review on appeal is de novo.21

(b) Truth in Lending Act

Wolfington brings his sole remaining claim under the

Truth in Lending Act22 and its implementing regulation

promulgated by the Federal Reserve Board, Regulation Z.23

17

Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014) (internal

quotation mark and emphasis omitted) (quoting In re

Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d

Cir. 1997)).

18

Fed. R. Civ. P. 12(d).

19

Rose v. Bartle, 871 F.2d 331, 340 (3d Cir. 1989).

20

Id.

21

Zimmerman v. Corbett, 873 F.3d 414, 417 (3d Cir. 2017).

22

15 U.S.C. § 1601 et seq.

23

12 C.F.R. § 226.1 et seq. Primary authority for enforcement

of the Act was transferred from the Federal Reserve Board to

the Consumer Financial Protection Bureau in 2010. Dodd-

Frank Wall Street Reform and Consumer Protection Act, Pub.

L. No. 111-203, § 1100A(1), 124 Stat. 1376, 2107 (codified in

part at 15 U.S.C. § 1602(b)). The Bureau’s regulations are

codified in Part 1026 of Title 12 of the Code of Federal

Regulations and are materially identical to those promulgated

by the Board for purposes of this appeal. Unless noted

9

The Act and Regulation Z require a “creditor” extending credit

to make certain disclosures24 before the “consummation” of the

credit transaction.25

To be subject to the Act’s disclosure requirements, a

lender must qualify as a “creditor” both in general and in the

particular challenged transaction.26 Under Regulation Z, a

creditor is a person “who regularly extends consumer credit

that is subject to a finance charge or is payable by written

agreement in more than 4 installments (not including a down

payment)” and to whom the debt in dispute “is initially

payable, either on the face of the note or contract, or by

agreement when there is no note or contract.”27 “Credit” is “the

right to defer payment of debt or to incur debt and defer its

payment.”28

otherwise, we will refer to both agencies collectively as “the

Board.”

24

15 U.S.C. § 1638(a).

25

46 Fed. Reg. 50,288, 50,323 (Oct. 9, 1981), as reprinted in

12 C.F.R. pt. 226, supp. I, cmt. 17(b) (2012), available at

https://www.govinfo.gov/content/pkg/CFR-2012-title12-

vol3/pdf/CFR-2012-title12-vol3-part226-appI-id377.pdf; cf.

Bartholomew v. Northampton Nat’l Bank, 584 F.2d 1288, 1296

(3d Cir. 1978) (“The Truth-In-Lending Act requires that

creditors make full disclosure prior to the extension of

credit.”).

26

Pollice v. Nat’l Tax Funding, L.P., 225 F.3d 379, 411 (3d

Cir. 2000).

27

12 C.F.R. § 226.2(a)(17)(i). The parties agree that Rothman

did not extend credit subject to a finance charge.

28

Id. § 226.2(a)(14).

10

Under Regulation Z, in the Federal Reserve Board

staff’s view, a written credit agreement requires more than an

“informal workout arrangement” of debt or “a unilateral

written communication by either the creditor or the

customer.”29 Instead, a written agreement requires “some new

evidence of indebtedness executed by the customer, such as a

new note, contract or other form of written agreement.”30

However, the requirement of a written agreement is not

satisfied by a “letter that merely confirms an oral agreement.”31

Once an entity qualifies as a creditor, it must make the

required disclosures before the “consummation” of the credit

transaction.32 A credit transaction is consummated when the

“consumer becomes contractually obligated on a credit

transaction.”33

It is under this law that we consider Wolfington’s

appeal.

2. The District Court Erred in Entering

Judgment on the Pleadings or, in the

Alternative, Summary Judgment

Wolfington first argues that the District Court

improperly relied on counsel’s purported admission during the

December 14, 2016 telephone conference that there was no

29

Part 226—Truth in Lending Official Staff Interpretations, 42

Fed. Reg. 40,424, 40,425 (Aug. 10, 1977).

30

42 Fed. Reg. at 40,425.

31

46 Fed. Reg. at 50,293, as reprinted in 12 C.F.R. pt. 226,

supp. I, cmt. 2(a)(17).

32

46 Fed. Reg. at 50,323. Rothman does not dispute that it did

not make the required disclosures.

33

12 C.F.R. § 226.2(a)(13).

11

written agreement between the parties. Wolfington is correct,

for three reasons.

First and foremost, the admission was a “matter[]

outside the pleadings”34 and improperly considered in deciding

a motion for judgment on the pleadings. Motions for judgment

on the pleadings under Rule 12(c) are considered under the

same standard as motions to dismiss under Rule 12(b)(6),35 and

it is well established that a motion to dismiss may be decided

based only on the “complaint, exhibits attached to the

complaint, matters of public record, as well as undisputedly

authentic documents if the complainant’s claims are based

upon these documents.”36 Although the District Court stated

that it accepted the facts of Wolfington’s Complaint as true and

that it did not consider matters outside the pleadings,37 it

nonetheless expressly relied on counsel’s purported admission

during oral argument, stating, “[U]nder the concession of

Plaintiff’s counsel . . . there is no longer any dispute as to any

material fact.”38 Because the District Court relied on matters

outside the pleadings, it erred in entering judgment on the

pleadings.

We have previously determined that admissions by

counsel at oral argument may not support dismissal under Rule

12(b)(6). In Schmidt v. Skolas, we reversed the dismissal of a

suit for breach of fiduciary duty based on an admission by

34

Fed. R. Civ. P. 12(d).

35

Revell, 598 F.3d at 134.

36

Mayer, 605 F.3d at 230.

37

JA 13, JA 18 n.6.

38

JA 28.

12

counsel.39 In that case, counsel admitted at oral argument that

the relevant conduct occurred outside the applicable statute of

limitations.40 The dissent argued that the plaintiff should have

been bound by counsel’s admission.41 The majority, however,

reversed the dismissal, reasoning that where “the pleading does

not reveal when the limitations period began to run . . . the

statute of limitations cannot justify Rule 12 dismissal,” despite

counsel’s admission.42 Similarly, in Bruni v. City of

Pittsburgh, we concluded that the District Court erred in

granting a motion to dismiss based “upon testimony given at

the [previous preliminary injunction] hearing and the

supplemental declarations filed by” the parties.43 Thus, in this

case, the District Court improperly considered counsel’s

purported admission.

39

Schmidt, 770 F.3d at 249-50; id. at 254 (Rendell, J.,

dissenting).

40

Id. at 254 (Rendell, J., dissenting).

41

Id. at 255 & n.3.

42

Id. at 251 (majority opinion) (alteration in original) (quoting

Barefoot Architect, Inc. v. Bunge, 632 F.3d 822, 835 (3d Cir.

2011)); accord Baker v. Putnal, 75 F.3d 190, 197 (5th Cir.

1996) (“In effect, the trial court adopted portions of the

defendants’ claims as fact without acknowledging any

contradiction with the complaint. . . . In so doing, the court

failed to apply the standards of Rule 12(b)(6). Dismissal under

these circumstances was error.”)

43

824 F.3d 353, 361 (3d Cir. 2016).

13

Second, an admission must be “unequivocal” to be

binding.44 Ordinarily, an “admission of counsel during the

course of trial is binding on his client.”45 “However, to be

binding . . . admissions must be unequivocal.”46 Counsel’s

purported admission was not. As noted above, the District

Court asked, “[I]s there anything in writing confirming this

arrangement?”47 Wolfington’s counsel responded that “the

only information that we have is the confirmation receipts with

respect to an online bill payment plan . . . that indicated the

$100 a month payments.”48 Counsel for Rothman then stated,

“That’s correct . . . . There’s no signed agreement by the

plaintiff to make the payments.”49 Notably, in imposing

sanctions later, the District Court placed emphasis on the

statement by Rothman’s counsel, not Wolfington’s.50 The

statement by Wolfington’s counsel did not amount to an

“unequivocal” admission that there was no written agreement,

and the District Court’s reliance on the statement as a binding

admission was improper.

44

Glick v. White Motor Co., 458 F.2d 1287, 1291 (3d Cir.

1972) 1291 (citing Oscanyan v. Arms Co., 103 U.S. 261

(1880)).

45

Id. (citing Rhoades, Inc. v. United Air Lines, Inc., 340 F.2d

481 (3d Cir. 1965)); accord Berckeley Inv. Grp., Ltd. v. Colkitt,

455 F.3d 195, 211 n.20 (3d Cir. 2006) (stating that a client may

be bound by counsel’s admissions in “pleadings or briefs”).

46

Glick, 458 F.2d at 1291 (citing Oscanyan v. Arms Co., 103

U.S. 261 (1880)).

47

JA 101.

48

JA 101-02.

49

JA 102.

50

JA 42.

14

Third and finally, to the extent that the District Court

converted Rothman’s Motion for Judgment on the Pleadings

into one for summary judgment under Rule 12(d),51 it failed to

provide Wolfington with the required notice. In particular, the

District Court was required to allow “the parties [to] have at

least ten days[’] notice” before converting the Motion under

Rule 12(d).52 “Although notice need not be express, we have

recommended that district courts provide express notice

because it ‘is easy to give and removes ambiguities.’”53

Here, Wolfington had insufficient notice of the

conversion to summary judgment. The District Court entered

judgment only eight days after counsel’s purported admission

during the December 14, 2016 telephone conference, and it

gave no indication during that conference that it was

considering converting the Motion to one for summary

judgment. Further, Rothman’s motion was captioned only as

a “Motion for Judgment on the Pleadings or in the Alternative

to Bifurcate Discovery,”54 and it was only in Rothman’s Reply

Brief in Support of Its Motion Under Federal Rule 12(c) that

the possibility of conversion was raised.55 Nowhere in the

record before us did the District Court acknowledge that

51

JA 28 (“Alternatively, Defendant’s motion will be converted

into one for summary judgment, pursuant to Rule 12(d) . . . .”).

52

Rose, 871 F.2d at 340.

53

Bruni, 824 F.3d at 360 n.9 (quoting In re Rockefeller Ctr.

Props., Inc. Sec. Litig., 184 F.3d 280, 288 n.11 (3d Cir. 1999)).

54

JA 74.

55

Reply Br. at 2, Wolfington v. Reconstructive Orthopaedic

Assocs. II, P.C., No. 16-cv-4935 (E.D. Pa. Dec. 5, 2016), ECF

No. 17.

15

possibility. That was insufficient notice of conversion under

Rule 12(d).

3. Because Wolfington Failed to Sufficiently

Plead the Existence of a Written

Agreement, the District Court’s Error

Was Harmless

Despite the erroneous conversion of the Motion for

Judgment on the Pleadings into one for summary judgment, we

conclude that that error was harmless. A district court’s

“failure to give adequate notice [under Rule 12(d)] does not . . .

require automatic reversal.”56 Instead, the error may be

excused if the complaint likewise failed to state a claim under

Rule 12(b)(6), rendering the district court’s failure “harmless

error.”57

Rothman raises three arguments that Wolfington failed

to state a claim under the Truth in Lending Act: (a) there was

no extension of “credit” by Rothman to Wolfington; (b) any

extension of credit was not “consummated” under the Act; and,

(c) any credit agreement was not in writing. We conclude that,

although Wolfington has sufficiently pled the extension of

credit and consummation of the credit transaction, he failed to

plead the existence of a written agreement.

(a) Extension of credit

The parties first dispute whether Wolfington’s

arrangements with Rothman constituted an extension of

56

Rose, 871 F.2d at 342.

57

Id.; accord Bruni, 824 F.3d at 361-62.

16

“credit.” As noted above, under Regulation Z, “credit” is “the

right to defer payment of debt or to incur debt and defer its

payment.”58 The parties’ dispute centers on whether

Wolfington’s arrangements were merely an informal workout

agreement of “preexisting” debt, a requirement they believe is

established by the Seventh Circuit’s decision Bright v. Ball

Memorial Hospital.59 We ultimately conclude that the

presence of “preexisting” debt is irrelevant under the Act and

that the arrangements between Wolfington and Rothman

constituted an extension of credit.

In Bright, which pre-dated the most relevant

amendments to Regulation Z, the Seventh Circuit concluded

that payment arrangements between a hospital and two former

patients were not subject to the Act. The Bright court affirmed

the dismissal of the plaintiff-debtors’ Truth in Lending claims

on two grounds. First—and discussed more fully below—it

concluded that some of the credit transactions were not

“consummated” because there was no evidence that the debtors

accepted the payment terms offered by the hospital.60

Second—and bearing on this issue—the Bright court

concluded that two of the debtors’ transactions did not

constitute an extension of credit. 61 Instead, it determined the

transactions were “an informal workout arrangement,”62

58

12 C.F.R. § 226.2(a)(14).

59

616 F.2d 328, 333 (7th Cir. 1980).

60

Id. at 333-34. We address Rothman’s contention that

Wolfington’s credit transaction was not “consummated”

below.

61

Id. at 334.

62

Id. (quoting 42 Fed. Reg. at 40,425).

17

pursuant to a 1977 Federal Reserve Board interpretation of an

older version of Regulation Z.

That interpretation provided that the Act’s requirements

are applicable only to “formal written workout

arrangement[s],” which “involve some new evidence of

indebtedness executed by the customer, such as a new note,

contract or other form of written agreement.”63 In contrast, “an

informal workout arrangement” does not trigger the Act’s

requirements.64 Because the debtors’ agreements with the

hospital “were reached without a new written evidence of

[their] indebtedness,” the Bright court concluded they were

merely an informal workout arrangement and not an extension

of credit.65

Pursuant to Bright, Rothman and Wolfington dispute at

length whether the January 12 Financial Policy created a

“preexisting debt” and whether the subsequent January 20

Agreement was merely an “informal workout arrangement” of

that debt.66

We believe that dispute is misplaced because whether

debt is “preexisting” is irrelevant under both Bright and the

Act. The critical issue in Bright was not whether the debt was

63

42 Fed. Reg. at 40,425 (citing 12 C.F.R. § 226.2(p) (1977)

(defining “consumer credit”)).

64

Id.

65

616 F.2d at 335.

66

Appellee Br. at 9 (“The District Court correctly concluded

that under the facts as pled Rothman did not extend credit but

instead attempted to collect a pre-existing debt.”); id. at 14-15,

17-20, 24; Reply at 14-17.

18

“preexisting” but the level of formality required to establish an

extension of credit.67 In defining that level of formality, the

Bright court relied on the Federal Reserve Board’s 1977 staff

interpretation, which contrasted the extension of credit in a

formal “written” agreement with an “informal workout

arrangement.”68 There was no extension of credit in that case,

not because the debt was preexisting, but because there were

no formal written “evidence” of the credit transaction.69 Thus,

in Bright, the presence of “preexisting” debt was entirely

irrelevant to a claim under the Act.

Likewise, the presence of “preexisting” debt is

irrelevant under the plain text of the Act and Regulation Z,

amended since Bright, as well. As noted above, the Act defines

credit as “the right granted by a creditor to a debtor to defer

payment of debt or to incur debt and defer its payment.”70 That

“definition contemplates that one who confers a right to pay a

pre-existing debt in more than four installments will be a

‘creditor.’”71 Limited to Wolfington’s pleadings, we conclude

he has sufficiently pled that he was conferred such a right. He

alleges that Rothman permitted him to pay off the remaining

deductible stemming from his surgery at the rate of $100 per

month. Because the Act reaches extensions of credit to defer

payment of both preexisting and newly incurred debts, it is

irrelevant whether the January 12 Financial Policy created a

67

616 F.2d at 334.

68

42 Fed. Reg. at 40,425.

69

616 F.2d at 334 (quoting 42 Fed. Reg. at 40,425).

70

15 U.S.C. § 1602(f); accord 12 C.F.R. § 226.2(a)(14)

(“Credit means the right to defer payment of debt or to incur

debt and defer its payment.”).

71

Pollice, 225 F.3d at 413.

19

debt or not. Thus, we conclude that Wolfington has

sufficiently pled an extension of “credit.”

In reaching that conclusion, we part ways with the

Bright court in analyzing whether a written agreement is

required for an extension of “credit.” At the time of the Bright

decision, a written agreement was required only by the Federal

Reserve Board’s 1977 staff interpretation.72 However, that

requirement was expressly added to Regulation Z in 1981,

when the Federal Reserve Board opted to include it under the

definition of “creditor.”73 Consequently, we conclude that the

contrast between a formal “written” agreement and an

“informal workout” of preexisting debt is better analyzed,

infra, under Rothman’s argument that Wolfington failed to

plead a written agreement under the definition of “creditor.”

(b) Consummation

Second, Rothman and Wolfington dispute whether the

extension of credit was “consummated” under the Act. As

noted above, a creditor must make the Act’s required

disclosures before “consummation” of the credit transaction; a

credit transaction is “consummated” only at “the time that a

consumer becomes contractually obligated on a credit

72

Compare 42 Fed. Reg. at 40,425, with 12 C.F.R. § 226.2(s)

(1981).

73

46 Fed. Reg. 20,848, 20,851 (Apr. 7, 1981) (“The definition

has also been revised to require, if there is no finance charge,

that there be a written agreement to pay in more than four

installments, in order for a person offering credit to be

considered a creditor. This is narrower than in the current

regulation, which covers both oral and written agreements.”).

20

transaction.”74 Under an older version of that requirement,75

the Bright court concluded that the credit transactions in that

case were not consummated.76 It reached that conclusion

because the debtors’ sporadic payments were “clearly not

responsive to either of th[e] work-out agreements” offered by

the hospital.77 Because the patients in Bright never responded

to the hospital’s offered payment plans, they never manifested

assent to the proposed agreements.78 Consequently, the court

concluded that there was no contractual relationship between

the parties and the credit transaction was never

consummated.79

We conclude that, unlike the transactions in Bright, the

January 20 Agreement was consummated. The court in Bright

concluded that there was insufficient evidence of a binding

contractual agreement to constitute “consummation” of the

credit transaction. Based solely on the pleadings, however, we

conclude that Wolfington sufficiently pled the formation of a

contractual agreement: offer, acceptance, and “mutual assent

to essential terms.”80 He pled that he reached a payment

agreement with Rothman that involved a down payment and

monthly installments “until the balance of the deductible was

fully satisfied.”81

74

12 C.F.R. § 226.2(a)(13).

75

Id. § 226.2(kk) (1980).

76

616 F.2d at 333.

77

Id.

78

Id. at 333-34.

79

Id.

80

Flender Corp. v. Tippins Int’l, Inc., 830 A.2d 1279, 1284

(Pa. Super. Ct. 2003).

81

JA 87.

21

In response, Rothman raises three arguments, none of

which is availing. First, it argues that Wolfington did not enter

into a contractual agreement because he never “signed any

written document agreeing to make payments.”82 Rothman

misconstrues the requirements for formation of a “legally

binding contract.”83 It is black-letter law that, as a general

matter, no signed document is required to create a contractual

obligation. Instead, the exchange of promises to perform is

sufficient to form a contract.84 Wolfington has pled such an

exchange. This is sufficient, on a motion for judgment on the

pleadings, to infer the existence of a contractual agreement.

Second, Rothman relies on Bright to argue that there

was no contractual agreement because there was “no new

indebtedness”85 as a result of Rothman and Wolfington’s oral

82

Appellee Br. at 15; see also id. at 16-17 (“Consummation

occurs when the plaintiff becomes legally obligated on the

‘debt.’ Here, the only document legally obligating Plaintiff

was the written Agreement of January 12, 2016.” (citations

omitted)); id. at 21.

83

Id. at 16.

84

See Greene v. Oliver Realty, Inc., 526 A.2d 1192, 1195 (Pa.

Super. Ct. 1987). The Federal Reserve Board’s Official Staff

Commentary on Regulation Z provides that state law governs

the consummation of a credit transaction, stating: “State law

governs. When a contractual obligation on the consumer’s part

is created is a matter to be determined under applicable law;

Regulation Z does not make this determination.” 46 Fed. Reg.

at 50,292.

85

Appellee Br. at 17; see also id. at 20 (“Plaintiff was not

extended credit, Plaintiff was provided an alternative to pay a

22

exchange—in other words, that the debt was “preexisting.”86

This argument is unavailing for the reasons described above—

the Act plainly “contemplates that one who confers a right to

pay a pre-existing debt in more than four installments will be a

‘creditor.’”87 Thus, it is irrelevant that the debt was preexisting

so long as the agreement conferred a right to postpone payment

of that debt in four or more installments. As determined above,

Wolfington has sufficiently pled that he was contractually

conferred such a right.

Finally, Rothman relies on Bright to argue there was no

contract formed between the parties because Wolfington failed

to make payments toward his deductible.88 That argument

misconstrues the analysis in Bright of the debtors’ payments.

As described above, the Bright court analyzed the debtors’

payments, not because payments were required to form a

contract, but because it was analyzing whether there was

evidence that the debtors accepted the terms of repayment

offered by the hospital. Despite Rothman’s arguments, Bright

does not require payments to contractually consummate a

credit transaction, but merely recognizes that performance may

be evidence of acceptance under well-established contract

law.89

debt that was due before his surgery . . . .”); id. at 24

(“Defendant contacted [Wolfington] informally to work out a

payment arrangement of the existing debt in an informal

manner.”).

86

Id. at 20.

87

Pollice, 225 F.3d at 413.

88

Appellee Br. at 13-14, 17-18, 21-24.

89

Rothman’s arguments regarding “no new indebtedness”

could potentially be relevant to the existence of consideration

23

(c) Writing

Third, the parties dispute whether credit was extended

to Wolfington in a “written agreement,” as required by

Regulation Z. That dispute requires us to resolve two related

issues: (1) whether Wolfington’s allegations satisfy

Regulation Z’s “written agreement” requirement, and (2)

whether the interpretation of that requirement by the Federal

Reserve Board staff is entitled to deference from this Court.

We conclude that Wolfington’s allegations do not satisfy the

staff interpretation and that interpretation is entitled to

deference. Consequently, we will affirm the District Court’s

grant of judgment on the pleadings.

As relevant here, Regulation Z defines a creditor as a

“person who regularly extends consumer credit that . . . is

payable by written agreement in more than four installments

(not including a down payment).”90 The requirement of a

formal writing has long been established under the Act and

Regulation Z. Prior to the addition of the “written agreement”

requirement to Regulation Z in 1981,91 the Federal Reserve

Board’s 1977 staff interpretation instructed that the

Regulation’s disclosure requirements were not triggered

without a “formal written workout arrangement [that]

involve[s] some new evidence of indebtedness executed by the

underlying Wolfington’s contractual agreement. Rothman,

however, has failed to raise any argument regarding

consideration on appeal, which it has consequently waived.

See infra Section II.B.2.

90

12 C.F.R. § 226.2(a)(17)(i).

91

46 Fed. Reg. at 20,851.

24

customer, such as a new note, contract or other form of written

agreement.”92

Under that long-standing interpretation, the Board does

not consider “a unilateral written communication by either the

creditor or the customer (such as a letter confirming matters

previously discussed either orally or in writing) [to] render[] a

workout arrangement formal and subject to the disclosure

requirements of Regulation Z.”93 A formal agreement is

distinct from “informal” agreements such as those “by

telephone.”94 That interpretation was affirmed by the Board

after amending Regulation Z to expressly require a “written

agreement,” explaining that a “letter that merely confirms an

oral agreement does not constitute a written agreement.”95

Based on the requirements of Regulation Z, Rothman

contends that Wolfington has failed to allege the existence of

written agreement.96 Wolfington responds that the January 20

emails either constitute a writing for purposes of Regulation Z

92

42 Fed. Reg. at 40,425.

93

42 Fed. Reg. at 40,425.

94

Id.

95

46 Fed. Reg. at 50,293, as reprinted in 12 C.F.R. pt. 226,

supp. I, cmt. 2(a)(17). The Consumer Financial Protection

Bureau has reissued the Federal Reserve Board staff

interpretation verbatim. 12 C.F.R. pt. 1026, supp. I, cmt.

2(a)(17) (2019), available at

https://www.govinfo.gov/content/pkg/CFR-2019-title12-

vol9/pdf/CFR-2019-title12-vol9-part1026.pdf.

96

Appellee Br. at 25-28.

25

or are “indicative of a separate written agreement between the

parties.”97

We conclude that, under the staff’s interpretation of

Regulation Z, Wolfington failed to sufficiently plead the

existence of a written credit agreement. Although Regulation

Z does not necessarily require the written agreement itself to

meet all the formalities of a contractual agreement,98 the

official staff interpretation requires, at the very least, that the

agreement be “executed by the customer.”99 Wolfington has

failed to allege that he has executed or signed such an

agreement. Instead, he merely alleges that the January 20

Agreement was negotiated by his father. Nowhere does he

allege that he signed a written agreement, and the January 20

email correspondence was merely “confirming” the

“previously discussed” agreement.

Further, any written documents in Rothman’s

possession would not meet the requirements of the staff’s

official interpretation. Although it may be reasonable to infer

that Rothman has some documentation regarding the credit

transaction, Wolfington fails to allege that he has signed it.

Under the staff’s official interpretation, those allegations are

insufficient to establish a “written agreement.”

In supplemental briefing, however, Wolfington

contends that the staff’s interpretation of Regulation Z’s

requirement of a “written agreement” is not entitled to

97

Appellant Br. at 34.

98

See 12 C.F.R. § 226.2(a)(17)(i) (defining “creditor” “when

there is no note or contract”).

99

42 Fed. Reg. at 40,425.

26

deference from this Court and that we should construe that term

de novo. Rothman argues that the staff’s interpretation is

entitled to deference under the Supreme Court’s decision Auer

v. Robbins.100

We agree with Rothman with respect to the deference

owed to the staff interpretation. In Auer, the Supreme Court

determined that an agency’s interpretation of its own

regulations is “controlling unless ‘plainly erroneous or

inconsistent with the regulation.’”101 That basic principle has

been stated in a number of permutations, and in Kisor v. Wilkie,

the Court took “the opportunity to restate, and somewhat

expand on, those principles.”102 According to the decision in

Kisor, Auer deference is “rooted” in “a presumption that

Congress would generally want the agency to play the primary

role in resolving regulatory ambiguities.”103 That presumption,

“though it is always rebuttable,” rests on the inference that

100

519 U.S. 452 (1997). Although deference to an agency’s

interpretations of its own regulations is often traced to the

Court’s decision in Auer, the doctrine was first formally

articulated in Bowles v. Seminole Rock & Sand Co., 325 U. S.

410 (1945), and existed in the Court’s jurisprudence even prior

to Seminole Rock, Kisor v. Wilkie, 139 S. Ct. 2400, 2411

(2019).

101

Auer, 519 U.S. at 461 (internal quotation marks omitted)

(quoting Robertson v. Methow Valley Citizens Council, 490

U.S. 332, 359 (1989)).

102

139 S. Ct. at 2414.

103

Id. at 2412 (plurality opinion); accord id. at 2416 (majority

opinion) (“[W]e give Auer deference because we presume, for

a set of reasons relating to the comparative attributes of courts

and agencies, that Congress would have wanted us to.”).

27

“when granting rulemaking power to agencies, Congress

usually intends to give them, too, considerable latitude to

interpret the ambiguous rules they issue.”104

That presumption, however, may be rebutted by

showing that “an interpretation does not reflect an agency’s

authoritative, expertise-based, ‘fair[, or] considered

judgment.’”105 Thus, an agency’s interpretation of a regulation

is entitled to deference under Auer only if five criteria are met:

(1) the regulation must be “genuinely ambiguous” after the

court has “exhaust[ed] all the ‘traditional tools’ of

104

Id.at 2412 (plurality opinion); accord id. at 2415 (majority

opinion) (“[W]hen the reasons for that presumption do not

apply, or countervailing reasons outweigh them, courts should

not give deference to an agency’s reading . . . .” (citation

omitted)). In his supplemental briefing, Wolfington contends

that Rothman has forfeited any argument that the staff

interpretation is entitled to deference under Auer.

Wolfington’s contention, however, is misplaced. As the Kisor

Court noted, deference under Auer is a “presumption”

regarding congressional intent, which may be rebutted as

described below. Thus, the burden rests on the party

challenging the application of Auer. Neither party addressed

Auer in its opening brief or before the District Court, and the

relevant forfeiture here is not Rothman’s, but Wolfington’s

failure to rebut the presumption of deference. Nonetheless,

given our “obligati[on]” to “perform [our] reviewing and

restraining functions” under Auer, we will consider

Wolfington’s arguments. Kisor, 139 S. Ct. at 2415.

105

Kisor, 139 S. Ct. at 2415 (alteration in original) (quoting

Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 155

(2012)).

28

construction”106; (2) the interpretation must be “reasonable,”

falling “within the zone of ambiguity the court has identified

after employing all its interpretive tools”107; (3) “the character

and context of the agency interpretation” must entitle it “to

controlling weight”108 as the agency’s “authoritative” or

“official position”109 such as “‘official staff memoranda’ that

were ‘published in the Federal Register’”110; (4) the agency’s

“interpretation must in some way implicate its substantive

expertise”111; and, finally, (5) the “agency’s reading of a rule

must reflect ‘fair and considered judgment,’” that is more than

a “convenient litigating position” or a “post hoc

rationalizatio[n].”112

Those five requirements have been met by the staff

interpretation. First, the term “written agreement” is

ambiguous. On one hand, the plain text of the term suggests

that the extension of credit must be reduced to a fully integrated

written instrument.113 On the other hand, we assume that

106

Id. (quoting Chevron U.S.A. Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837, 843, n. 9 (1984)).

107

Id. at 2415-16.

108

Id. at 2416 (citing Christopher, 567 U.S. at 155; United

States v. Mead Corp., 533 U.S. 218, 229-31 (2001)).

109

Id. (quoting Mead, 533 U.S. at 257-259, 258 n. 6 (Scalia, J.,

dissenting)).

110

Id. (quoting Ford Motor Credit Co. v. Milhollin, 444 U.S.

555, 566 n.9, 567 n.10 (1980)).

111

Id. at 2417.

112

Id. (alteration in original) (quoting Christopher, 567 U.S. at

155).

113

See Agreement, Black’s Law Dictionary (11th ed. 2019)

(defining “formal agreement” as “[a]n agreement for which the

29

legislation and regulations are promulgated “against the

background of the total corpus juris of the states,”114 including

principles of contract such as the statute of frauds, which

requires that a “writing” contain only the essential terms of an

agreement.115 Neither the Act nor Regulation Z defines a

“written agreement.” In light of those conflicting principles—

the plain text of the regulation and the background of state

law—the term “written agreement” is ambiguous.

law requires not only the consent of the parties but also a

manifestation of the agreement in some particular form (e.g., a

signed writing), in default of which the agreement is

unenforceable”); Contract, Black’s Law Dictionary (11th ed.

2019) (“A written contract is one which, in all its terms, is in

writing.”).

114

Atchison, Topeka & Santa Fe Ry. Co. v. Brown & Bryant,

Inc., 159 F.3d 358, 362-63 (9th Cir. 1997) (quoting Atherton v.

Fed. Deposit Ins. Corp., 519 U.S. 213, 218 (1997)); accord

O’Melveny & Myers v. Fed. Deposit Ins. Corp., 512 U.S. 79,

85 (1994) (“Nor would we adopt a court-made rule to

supplement federal statutory regulation that is comprehensive

and detailed; matters left unaddressed in such a scheme are

presumably left subject to the disposition provided by state

law.”).

115

E.g., Trowbridge v. McCaigue, 992 A.2d 199, 201 (Pa.

Super. Ct. 2010); Strausser v. PRAMCO, III, 944 A.2d 761,

765 (Pa. Super. Ct. 2008) (“We agree with appellant that the

writing requirement of the Statute of Frauds can be satisfied by

the amalgam of multiple documents[.]”); Haines v. Minnock

Constr. Co., 433 A.2d 30, 33 (Pa. Super. Ct. 1981) (“The

Statute of Frauds is satisfied by the existence of a written

memorandum . . . sufficiently indicating the terms of the oral

agreement . . . .”).

30

Second, the staff interpretation is reasonable; it resolves

the ambiguity between the plain text of Regulation Z and state

law closer to the former, requiring more than a

“memorandum . . . indicating the terms of the oral agreement,”

as would be required by the statute of frauds.116

Third, the “character and context” of the staff

interpretation entitle it to deference. The 1977 staff

interpretation requiring a formal writing was published in the

Federal Register, and the staff reaffirmed its interpretation after

Regulation Z was amended to require a “written agreement.”

The Consumer Financial Protection Bureau reissued that same

interpretation without alteration. Thus, the staff interpretation

constitutes the agencies’ “official position.”

116

Haines, 433 A.2d at 33. Wolfington argues that the staff

interpretation is unreasonable because it would allow a creditor

“to exempt itself from TILA’s consumer protections through

the simple expedient of documenting the parties’ credit

arrangements through confirmatory emails rather than a formal

written agreement.” Appellant Letter Br. at 5. That argument

is misplaced for two reasons. First, as discussed at length, the

Board has required a formal writing since at least 1977, and

there is no evidence that creditors have systematically sought

to circumvent the Act’s disclosure requirements by avoiding

formal written agreements. Second, the reasonableness

requirement of Kisor simply requires the agency’s

interpretation to fall within the regulation’s “zone of

ambiguity.” 139 S. Ct. at 2416. The staff interpretation easily

meets that requirement.

31

Fourth, the staff interpretation implicates the agencies’

substantive expertise. Although Wolfington argues that the

scope of a “written agreement” is an “interpretive issue[]” that

“fall[s] more naturally into a judge’s bailiwick,”117 he ignores

the relationship between the scope of a “written agreement”

and the implementation of the Act and Regulation Z. That

implementation is uniquely within the Board’s province, as the

scope of the “written agreement” requirement affects the

efficient enforcement of the Act and the extent of creditors’

disclosure duties. Indeed, the relevance of the agency’s

substantive expertise is particularly apparent in the fact that

Congress has provided a defense for any “act done or omitted

in good faith in conformity with any . . . interpretation” of

Regulation Z promulgated by the Board118—including its

interpretation of the “written agreement” requirement. Under

that statutory scheme, the interpretation of the Act and

Regulation Z are well within the Board’s substantive expertise.

Finally, the staff interpretation reflects the agencies’

“fair and considered judgment.” 119 The requirement of a

formal writing has been enforced by two different agencies for

more than forty years and has been reaffirmed repeatedly both

in staff interpretations and by the incorporation of the

requirement in Regulation Z.

Thus, we conclude that the staff interpretation of a

“written agreement” is entitled to deference from this Court.

117

Appellant Letter Br. at 4 (quoting Kisor, 139 S. Ct. at 2419).

118

15 U.S.C. § 1640(f).

119

Kisor, 139 S. Ct. at 2417 (quoting Christopher, 567 U.S. at

155).

32

Because Wolfington has not pled such an agreement, we will

affirm the District Court’s judgment on the pleadings.

B. Rule 11 Sanctions

Second, Wolfington’s counsel challenges the District

Court’s sua sponte imposition of sanctions under Rule 11 in

the form of attorneys’ fees. Rule 11 requires that “[e]very

pleading, written motion, and other paper must be signed by at

least one attorney of record.”120 “By presenting to the court a

pleading, written motion, or other paper,” an attorney certifies

“after an inquiry reasonable under the circumstances” that “the

claims, defenses, and other legal contentions are warranted by

existing law or by a nonfrivolous argument for extending,

modifying, or reversing existing law” and that “the factual

contentions have evidentiary support.”121

Although the imposition of sanctions previously

focused on counsel’s subjective good faith, “the test is now an

objective one of reasonableness.”122 The reasonableness of

counsel’s conduct depends on a number of factors, including,

“the amount of time available to . . . conduct[] the factual and

legal investigation; the necessity for reliance on a client for the

underlying factual information; the plausibility of the legal

position advocated” and “the complexity of the legal and

120

Fed. R. Civ. P. 11(a).

121

Fed. R. Civ. P. 11(b)(2)-(3).

122

Lieb v. Topstone Indus., 788 F.2d 151, 157 (3d Cir. 1986)

(quoting Eavenson, Auchmuty & Greenwald v. Holtzman, 775

F.2d 535, 540 (3d Cir. 1985)).

33

factual issues implicated.”123 A court may not sua sponte

initiate proceedings under Rule 11 after “voluntary dismissal

or settlement of the claims” at issue.124 The District Court’s

imposition of sanctions is reviewed for abuse of discretion.125

The District Court imposed sanctions on Wolfington’s

counsel for three reasons: (1) failing to investigate and obtain

Wolfington’s bank records; (2) alleging that there was a

“written agreement” between the parties and an “extension of

credit”; and, (3) alleging that Wolfington could serve as an

adequate class representative.126 Below, we analyze each of

the District Court’s grounds for imposing sanctions as well as

whether a district court may sua sponte award attorneys’ fees.

Although Wolfington’s counsel raises a number of arguments

challenging the imposition of sanctions, we conclude that

counsel’s conduct did not run afoul of Rule 11 and therefore

do not reach those other arguments.

1. Failure to Investigate Bank Records

123

Mary Ann Pensiero, Inc. v. Lingle, 847 F.2d 90, 95 (3d Cir.

1988).

124

Fed. R. Civ. P. 11(c)(5)(B).

125

Ford Motor Co. v. Summit Motor Prods., 930 F.2d 277, 289

(3d Cir. 1991).

126

JA 59-64. The District Court states that it initiated Rule 11

proceedings for a fourth reason, because “[s]everal of the

allegations in the Complaint were false.” JA 46. However, the

District Court does not discuss any false allegations as an

independent reason to impose sanctions and appears to have

integrated that reason with its other three.

34

The District Court’s first reason for imposing

sanctions—counsel’s failure to investigate and obtain

Wolfington’s bank records—rested on the fact “that

[Wolfington] made no payment to Rothman after his surgery

on January 21, 2016.”127 According to the District Court, had

counsel “taken the simple step of obtaining [Wolfington’s]

bank records . . . it would have been obvious that allegations

that Rothman was deducting $100.00 a month from

[Wolfington’s] bank account beginning in February 21, 2016

were utterly false.”128

Such payments, however, are irrelevant to a claim under

the Truth in Lending Act. “‘The Truth in Lending Act is a

disclosure law . . . . It is the obligation to disclose, not the duty

of subsequent performance, towards which the Act is

directed.’”129 The irrelevance of actual payments by the debtor

is belied by the Act’s structure. As noted above, a creditor is

required to make the Act’s mandated disclosures before the

credit transaction is consummated—that is, when the borrower

becomes “contractually obligated on a credit transaction.”130

The borrower’s contractual obligation to make payments,

however, does not arise until after the consummation of the

credit transaction and, consequently, after the creditor is

required to make the Act’s mandated disclosures. Thus, a

127

JA 60 (reasoning that the bank records would show that

“Plaintiff made no payments to Rothman”).

128

JA 61.

129

Davis v. Werne, 673 F.2d 866, 869 (5th Cir. 1982) (omission

in original) (internal quotation marks omitted) (quoting

Burgess v. Charlottesville Savings & Loan Ass’n, 477 F.2d 40,

44-45 (4th Cir. 1973)).

130

12 C.F.R. § 226.2(a)(13).

35

creditor’s obligations under the Act precede a debtor’s

obligations under contract both temporally and logically.

In this case, Wolfington’s alleged payments were

relevant only to his withdrawn claim under the Electronic

Funds Transfer Act.131 That claim, however, could not serve

as a basis for sua sponte sanctions under Rule 11, because it

was withdrawn. Rule 11 provides, “The court must not impose

a monetary sanction . . . on its own, unless it issued the show-

cause order under Rule 11(c)(3) before voluntary dismissal” of

the claims at issue,132 a provision that was added by

amendments to the Rule in 1993.133 Because that claim was

withdrawn before the District Court ordered counsel to show

cause, it consequently could not serve as grounds for the

imposition of sanctions.

Despite the express language of Rule 11, the District

Court stated that it did “not credit counsel’s contention that [it]

could not impose sanctions for the voluntarily dismissed EFTA

claim.”134 The District Court cited two pre-amendment cases,

Cooter & Gell v. Hartmarx Corp.135 and Schering Corp. v.

Vitarine Pharm., Inc.136 for the proposition that it may impose

sanctions on withdrawn claims. Neither of those decisions,

131

JA 95. The factually incorrect allegations regarding

Wolfington’s payments appeared in the Complaint only under

the heading “EFTA.” JA 94.

132

Fed. R. Civ. P. 11(c)(5)(B).

133

Fed. R. Civ. P. 11 advisory committee’s note to 1993

amendment.

134

JA 57 n.12.

135

496 U.S. 384, 398 (1990).

136

889 F.2d 490, 496 (3d Cir. 1989).

36

however, involved sanctions imposed sua sponte,137 and to the

extent they permit a court to sua sponte impose sanctions on

claims that were withdrawn before any show cause order was

issued, they were superseded by the 1993 amendments to Rule

11. Those amendments expressly provide that “a monetary

sanction imposed after a court-initiated show cause order . . .

be imposed only if the show cause order is issued before any

voluntary dismissal.”138 Consequently, the District Court was

incorrect that it could impose sanctions for Wolfington’s

withdrawn claim if it so determined.

2. Allegations of Extension of Credit and a

Written Agreement

The District Court’s second reason for imposing

sanctions, because there was no “extension of credit” and no

“written agreement,” was also in error. In imposing sanctions,

the District Court concluded that counsel unreasonably alleged

the “extension of credit” because Wolfington failed to make

payments to Rothman.139 The District Court reasoned that

without any payments, there was no consideration, and

consequently, no extension of credit.140 This is incorrect;

under Pennsylvania law, the exchange of bargained-for

137

496 U.S. at 389; 889 F.2d at 494.

138

Fed. R. Civ. P. 11 advisory committee’s note to 1993

amendment.

139

JA 62.

140

Id. Although the contractual obligations of the parties are

most relevant to consummation of the credit transaction, we

follow the District Court’s analysis of consideration under the

label of “extension of credit,” without adopting or endorsing it.

See supra note 106.

37

promises constitutes valid consideration.141 Thus, the District

Court erred in concluding that there was no extension of credit

because Wolfington failed to make payments; instead, the

extension of credit was valid upon the exchange of promises.

Further, the District Court erred in concluding that

counsel unreasonably alleged the existence of a “written

agreement.” The reasonableness of the allegations in a

complaint and counsel’s underlying investigation depend, in

part, on the “the complexity of the legal and factual issues

implicated.”142 The Federal Reserve Board’s interpretation of

the “written agreement” requirement now in Regulation Z

dates from 1977 and is buried in the annals of the Federal

Register. Although those interpretations are entitled to

deference, counsel’s failure to find them was not unreasonable.

Instead, counsel raised a reasonable argument, interpreting the

text of Regulation Z to require only a “writing . . . to confirm

what the oral agreement was,” an interpretation the District

Court acknowledged was plausible.143 Thus, counsel’s

reliance on the January 20 email as a “written agreement” was

not unreasonable, despite ultimately being incorrect.

3. Class Allegations

The District Court’s third ground for imposing

sanctions—counsel’s class-related allegations—also rested on

counsel’s failure to obtain Wolfington’s bank records. The

District Court stated, “If the bank records had been secured, it

would have been obvious that there was no basis whatsoever

141

See Greene, 526 A.2d at 1195.

142

Mary Ann Pensiero, 847 F.2d at 95.

143

JA 202-03.

38

to allege Plaintiff could represent a class,” presumably because

he failed to make payments to Rothman.144 This ground fails

for the same reasons as the first: Wolfington’s failure to make

payments to Rothman is irrelevant to his Truth-in-Lending

claim.

4. Sua Sponte Award of Attorneys’ Fees

Finally, the District Court erred in imposing sanctions

in the form of an award of attorneys’ fees under Rule 11 sua

sponte. Rule 11 does not permit a district court to award

attorneys’ fees in proceedings initiated under the Rule sua

sponte. Rule 11(c)(4) defines the sanctions available to the

sanctioning court. It provides, “The sanction may include

nonmonetary directives; an order to pay a penalty into court;

or, if imposed on motion and warranted for effective

deterrence, an order directing payment to the movant of part or

all of the reasonable attorney’s fees and other expenses directly

resulting from the violation.”145 Unlike for the imposition of

“nonmonetary” sanctions and “penalt[ies]” paid to the court,

Rule 11(c)(4) allows an award of attorneys’ fees only “if

imposed on motion.” That provision was added to Rule 11 as

subsection (c)(2) by the Rule’s 1993 amendments; the

Advisory Committee’s notes to the 1993 amendments confirm

this reading of the Rule.146 The 1993 notes provide, “The

power of the court to act on its own initiative is retained, but

with the condition that this be done through a show cause

order. . . . The revision provides that a monetary sanction

144

JA 63-64.

145

Fed. R. Civ. P. 11(c)(4).

146

Fed. R. Civ. P. 11 advisory committee’s note to 1993

amendment.

39

imposed after a court-initiated show cause order be limited to

a penalty payable to the court.”147 Thus, a court may not

require payment of attorneys’ fees in Rule 11 proceedings

initiated sua sponte.148

For the above reasons, the District Court abused its

discretion in imposing sanctions. Because the imposition of

sanctions is necessarily fact-intensive and only Rule 11 was

briefed by the parties in the District Court or addressed by the

District Court, we decline to consider in the first instance

whether sanctions could have been imposed on other grounds.

C. Leave to Amend

Finally, we consider Wolfington’s belated request for

leave to amend his Complaint. Motions to amend under Rule

15 are typically granted liberally, and a court may deny leave

to amend only when “(1) the moving party has demonstrated

undue delay, bad faith or dilatory motives, (2) the amendment

would be futile, or (3) the amendment would prejudice the

other party.”149 However, “[w]hen a party seeks leave to

amend a complaint after judgment has been entered, it must

also move to set aside the judgment pursuant to Federal Rule

of Civil Procedure 59(e) or 60(b), because the complaint

147

Id.

148

Accord Hutchinson v. Pfeil, 208 F.3d 1180, 1184 (10th Cir.

2000); Thornton v. Gen. Motors Corp., 136 F.3d 450, 455 (5th

Cir. 1998).

149

United States ex rel. Customs Fraud Investigations, LLC v.

Victaulic Co., 839 F.3d 242, 249 (3d Cir. 2016) (quoting

United States ex rel. Schumann v. Astrazeneca Pharm. L.P.,

769 F.3d 837, 849 (3d Cir. 2014)).

40

cannot be amended while the judgment stands.”150 “Where a

timely motion to amend judgment is filed under Rule 59(e), the

Rule 15 and 59 inquiries turn on the same factors.”151

Nonetheless, “in non-civil rights cases, district courts have no

obligation to offer leave to amend before dismissing a

complaint unless the plaintiff properly requests it.”152

Wolfington requests leave to amend in a footnote in a

supplemental letter brief filed with this Court. However, on

appeal, Wolfington fails to address whether he meets the

standards for leave to amend under Rule 15(a). He likewise

failed to move to amend his Complaint in the District Court.

Consequently, we decline to consider those issues.

150

Jang v. Bos. Sci. Scimed, Inc., 729 F.3d 357, 367-68 (3d Cir.

2013) (citing Fletcher-Harlee Corp. v. Pote Concrete

Contractors, Inc., 482 F.3d 247, 252 (3d Cir. 2007)).

151

Cureton v. NCAA, 252 F.3d 267, 272 (3d Cir. 2001)

(citations omitted); Newark Branch, NAACP v. Harrison, 907

F.2d 1408, 1417 (3d Cir. 1990) (“Accordingly, courts have

held that grants for leave to amend complaints should be

routinely granted to plaintiffs, even after judgments of

dismissal have been entered against them, if the appropriate

standard for leave to amend under Fed. R. Civ. P. 15(a) is

satisfied.”); Adams v. Gould, Inc., 739 F.2d 858, 864 (3d Cir.

1984) (concluding that Rule 15(a) standard governs motion to

amend after entry of judgment).

152

Jang, 729 F.3d at 367 (citing Fletcher-Harlee, 482 F.3d at

252).

41

IV. Conclusion

For the foregoing reasons, we will affirm in part and

reverse in part.

42