Dhade v. Huntington Learning Centers, Inc.
MEMORANDUM OPINION Signed by Judge Colm F. Connolly on 10/9/2019. (nmf)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
HERMAN DHADE, as an individual
and on behalf of others similarly
Civil Action No. 17-1834-CFC
Robert J. Cahall, MCCORMICK & PRIORE, P.C., Wilmington, Delaware; Cary
Ichter, ICHTER DAVIS LLC, Atlanta, Georgia; William Daniel Davis, ICHTER
DAVIS LLC, Atlanta, Georgia
Counsel for Plaintiff
Robert J. Katzenstein, SMITH, KATZENSTEIN & JENKINS LLP, Wilmington,
Delaware; Scott McIntosh, QUARLES & BRADY LLP, Washington, D.C.
Counsel for Defendants
October 9, 2019
CONNOLLY, UNITED STASD
Plaintiff Herman Dhade filed this putative class action on behalf of himself and
all others similarly situated against Defendant Huntington Leaming Centers, Inc.
(Huntington). The single count ofDhade's complaint alleges that Huntington
violates the Equal Credit Opportunity Act (ECOA), 15 U.S.C. § 169 et seq. That
act creates a private right of action for applicants for credit.
Huntington has moved to dismiss the complaint pursuant to Federal Rules of
Civil Procedure 12(b)(l) and 12(b)(6). D.I. 7. In support of its motion, it argues,
among other things, that because Dhade alleges he is a prospective applicant and
not an applicant for credit, the complaint fails to state a claim upon which relief
can be granted and Dhade lacks standing. I agree that the ECOA's private right of
action only covers applicants and not prospective applicants. Accordingly, I will
grant Defendant's motion to dismiss with prejudice.
Huntington is a Delaware corporation that sells Huntington Learning Center®
franchises. D .I. 1 at ,r 3. These franchises offer tutoring and test preparation
services to customers. D.I. 1 at ,r 3. Dhade applied to Huntington on April 5, 2017
for two franchises in Michigan. D.I. 1, ,r 25; D.I. 5-2 at 2. In his application,
Dhade answered "yes" to the question: "Would you like to discuss our in-house
financing option with us?" D.I. 1, ,r 27.
The next day, Huntington provided Dhade a package that contained a Franchise
Agreement, numerous related contracts, and a franchise disclosure document
(FDD). D.I. 1 at ,r 28; D.I. 5-1. The FDD identified six "risk factors" for Dhade to
"please consider ... before buying this franchise." D.I. 5-1 at 3. Risk factor
number six read:
THE FRANCIDSEE'S SPOUSE MUST SIGN A
PERSONAL GUARANTEE MAKING SUCH SPOUSE
JOINTLY AND SEVERALLY LIABLE FOR THE
AGREErv:IENT, WIDCH ALSO PLACES THE
SPOUSE'S PERSONAL ASSETS AT RISK. YOU MAY
WANT TO CONSIDER TIDS WHEN MAKING A
parties agree that Huntington's 12(b)( 1) lack-of-standing argument presents a
facial attack on Dhade' s claim and that I should apply to that argument the same
legal standard that governs Rule 12(b)(6) motions. See Constitution Party ofPa. v.
Aichele, 757 F.3d 347, 358 (3d Cir. 2014). Accordingly, in considering
Huntington's motion, I accept as true all factual allegations in the complaint and
view those facts in the light most favorable to Dhade. See Umland v. Planco Fin.
Servs ., 542 F .3d 59, 64 (3d Cir. 2008).
DECISION TO PURCHASE
Id. A copy of the personal guarantee, titled "Guarantee Agreement," was attached
as Exhibit A to the Franchise Agreement. The Guarantee Agreement obligated
each of its signatories to be "bound by, and perform according to, each and all of
the provisions, covenants, and conditions of the Franchise Agreement and this
Guarantee[.]" Id. at 127.
In "Item 10" of the FDD, titled "Financing," Huntington disclosed that new
franchisees in Michigan and all states other than California could borrow from
Huntington's affiliate, Huntington Learning Corporation, up to $100,000 for
working capital and opening expenses. Id. at 22. Item 10 also provided in relevant
If you obtain financing from [Huntington Leaming
Corporation], you must sign [Huntington Learning
Corporation's] negotiable promissory note (the
"Promissory Note") in the form attached as Exhibit Sand
the security agreement (the "Security Agreement") in the
form attached as Exhibit T. Each of borrower's partners,
shareholders, and members must personally guarantee the
Promissory Note by signing the promissory note guarantee
("Promissory Note Guarantee") in the form attached as
Exhibit U. The Security Agreement provides that
financing will be secured by the Franchise Agreement,
related agreements, and all Franchised Business assets.
Id. at 23.
On April 26, 2017, Huntington sent Dhade a document titled "Huntington
Learning Center In-House Financing" and a Huntington Learning Corporation
form for Dhade to complete titled "Request for Huntington Financing."
D.I. 1, ,r 29; D.I. 5-3 at 1, 5. In an email sent to Huntington two days later, Dhade
stated that his spouse "will not be involved in the business" and therefore asked if
"she still need[ed] to sign" the personal guarantee. D.I. I, ,r 31. Huntington
responded that same day: "Yes, she will need to sign absolutely." Id.
In June 2017, Dhade emailed Huntington a "Request to be Awarded a
Huntington Learning Center Franchise." D.I. 5-5 at 1. In his franchise request,
Dhade stated that the purchasers of the franchises would be two companies he
wholly owned, Fluffy Bunny, Inc. and Purple Butterfly, Inc. D.I. 5-5 at 1; D.I. 1, ,r
34. Dhade also emailed Huntington "a request to remove my spouse from the
personal guarantee." D.I. 5-5 at 1. In response to these requests, Huntington sent
Dhade a proposed limited guarantee that capped the amount of his spouse's
potential monetary obligations. D.I. 1 at ,r 38. Dhade's spouse refused to sign this
limited guarantee, and, "as a result," Dhade "withdrew his application for a
Huntington Learning Center® franchise and did not submit the 'Request for
Huntington Financing."' D.I. 1 at ,r 39.
Dhade seeks in his complaint injunctive relief and damages for himself and a
putative class for alleged violations of the ECOA. Dhade alleges that he and all
other members of the putative class are entitled to relief under the ECOA because
they are "prospective applicants within the meaning of 12 C.F.R. §§ 1002.2(3) and
Dhade further alleges that Huntington is liable under
§ 1691 e of the ECOA because Huntington's spousal guarantee requirement ( 1) is
prohibited by 12 C.F.R. § 1002.7(d)(l), D.I. 1, ,r 59; and (2) "discourage[s] on a
prohibited basis a reasonable person from making or pursuing an application" for
credit in violation of 12 C.F.R. § 1002.4(b), D.I. 1, ,r 60.
To state a claim upon which relief can be granted a complaint must contain "a
short and plain statement of the claim showing that the pleader is entitled to relief."
Fed. R. Civ. P. 8(a)(2). Detailed factual allegations are not required, but the
complaint must set forth enough factual matter, accepted as true, to "state a claim
to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007). A claim is facially plausible when the factual content allows the court
to draw the reasonable inference that the defendant is liable for the misconduct
alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). When considering Rule
12(b)(6) motions to dismiss, the court must accept as true all factual allegations in
the complaint and view them in the light most favorable to plaintiffs. Umland, 542
F.3d 59 at 64.
Huntington makes a number of arguments in support of its motion to dismiss,
but I need only address its primary contention-namely, that Dhade is not entitled
to relief under the ECOA because, by his own admission, he was never an
applicant for credit. I agree that Dhade' s failure to allege that he was an applicant
for credit requires dismissal of his complaint under both Rule 12(b)(l) for lack of
standing and l 2(b)(6) for failure to state a claim upon which relief can be granted.
Section 1691 e of the ECOA creates a private right of action for individual and
class actions. Section 1691e(a) provides: "Any creditor who fails to comply with
any requirement imposed by this subchapter shall be liable to the aggrieved
applicant for any actual damages sustained by such applicant acting either in an
individual capacity or as a member of a class." § 1691e(a) (emphasis added).
The ECOA defines "applicant" as "any person who applies to a creditor directly
for an extension, renewal, or continuation of credit, or applies to a creditor
indirectly by use of an existing credit plan for an amount exceeding a previously
established credit limit." 15 U.S.C. § 1691a(b). The statutory definition accords
with the ordinary meaning of applicant, which is "a person who applies for
employment, help, etc." Applicant, Webster's New World College Dictionary (5th
"There is nothing ambiguous about 'applicant."' Moran Foods, Inc. v. Mid-
Atlantic Mkt. Dev. Co., LLC, 476 F.3d 436,441 (7th Cir. 2007). "The plain
language of the ECOA unmistakably provides that a person is an applicant only if
she requests credit." Hawkins v. Cmty. Bank ofRaymore, 761 F.3d 937,941 (8th
Cir. 2014) (quotation marks and citation omitted), a.ff'd per curiam by an equally
divided Court, 136 S.Ct. 1072 (2016). In this case, Dhade alleges that he
"withdrew his application for a Huntington Learning Center® franchise and did
not submit the 'Request for Huntington Financing.'" D.I. 1 at ,r 39. Moreover,
Dhade does not allege that he submitted to Huntington Learning Corporation the
Promissory Note, Security Agreement, or Promissory Note Guarantee discussed in
Item 10 of the FDD. Thus, although Dhade was an applicant for a Huntington
franchise, he was never an applicant for credit and does not have a private right of
action under the ECOA. Accord Alexander v. AmeriPro Funding, Inc., 848 F.3d
698, 707-8 (5th Cir. 2017), cert. denied 138 S. Ct. 421 (2017). Nor do any
members of the putative class have a private right of action under the ECOA
because, as Dhade alleges in his complaint, they are only "prospective applicants,"
not applicants. D.I. 1 at ,r,r 41, 66.
Dhade argues that I should extend the ECOA's definition of"applicant" to
cover a "prospective applicant" because 12 C.F.R. § 1002.4(b), promulgated by the
Consumer Financial Protection Bureau (CFPB) pursuant to the ECOA, prohibits a
creditor from making any statement ''to applicants or prospective applicants that
would discourage on a prohibited basis a reasonable person from making or
pursuing an application." This argument fails for three reasons. First, § 1002.4(b)
does not change the definition of "applicant," let alone expand the definition to
include "prospective applicant"; on the contrary, the use of the disjunctive "or" in
§ 1002.4(b) makes clear that the CFPB draws a distinction between "applicants"
and "prospective applicants." Second, the ECOA vested the CFPB with
enforcement powers that are more expansive than the private right of action
authorized by§ 1691e(a). Compare§ 1691c with§ 169le. Thus, it makes sense
that the CFPB would promulgate regulations that extend to parties not covered by
the ECOA's private right of action. Third, even if§ 1002.4(b) could somehow be
read as evidence that the CFPB intended to expand the definition of"applicant,"
courts only defer to an agency's interpretation of a statute when the text of the
statute is ambiguous. Fair Hous. Rights Ctr. in Se. Pennsylvania v. Post Goldtex
GP, LLC, 823 F.3d 209, 214 (3d Cir. 2016). "If the intent of Congress is clear, that
is the end of the matter." Chevron, US.A., Inc. v. Nat. Res. Def Council, Inc., 467
U.S. 837,842 (1984). Without statutory text making clear Congress's intent to
authorize a private right of action for prospective applicants, a cause of action for
prospective applicants "does not exist and courts may not create one, no matter
how desirable that might be as a policy matter, or how compatible with the
statute." Alexander v. Sandoval, 532 U.S. 275, 286-87 (2001). In this case, the
text of the ECOA is unmistakably clear that only applicants are covered by its
private right of action.
Dhade also points to 12 C.F.R. § 1002.7(d)(l) as further justification for
extending§ 1691e's private cause of action to cover his alleged claim. That
section provides in relevant part that "a creditor shall not require the signature of
an applicant's spouse or other person, other than a joint applicant, on any credit
instrument if the applicant qualifies under the creditor's standards of
creditworthiness for the amount and terms of the credit requested." Thus,
§ 1002.7(d)(l)-like § 1691e(a)-applies only to applicants for credit. Since
Dhade alleges in his complaint that he never applied for credit, § 1002.7(d)(l) has
no bearing on the sufficiency of his claim or his standing to bring this suit.
Finally, I reject Dhade's assertion that the Third Circuit in Chiang v. Veneman,
385 F.3d 256 (3d Cir. 2004) "recognized [that] prospective credit applicants
have a private right of action under the ECOA." D.I. 10 at 12. Dhade argues that
the court in Chiang "affirmed, in part, certification of a class of both applicants
and attempted applicants for credit asserting claims under the ECOA." D.I. 10 at
12 (emphasis in the original). He reasons that if attempted applicants have a
private right of action then prospective applicants should have a private right of
Assuming for argument's sake that attempted applicants and prospective
applicants are the same thing, Chiang does not help Dhade. First, although the
plaintiffs' claims in Chiang arose "primarily under" the ECOA, Chiang v.
Veneman, 385 F.3d 256,259 (3d Cir. 2004), the complaint in question included
alleged violations of the Fair Housing Act, the Administrative Procedure Act, and
the Fourteenth Amendment of the Constitution, see Chiang v. Veneman, 213
F.R.D. 256,258 (D.V.I. 2003), aff'd in part, vacated in part 385 F.3d 256 (3d Cir.
2004 ). Accordingly, the class ultimately certified by the Third Circuit in Chiang
was not limited to credit applicants or attempted credit applicants but instead
[a]11 Virgin Islanders who applied or attempted to apply
for, and/or received, housing credit, services, home
ownership, assistance, training, and/or educational
opportunities from the USDA through its Rural
Development offices (and predecessor designations)
located in the U.S. Virgin Islands at any time between
January 1, 1981 and January 10, 2000.
Chiang, 385 F .3d at 274. Given the variety of claims at issue in Chiang, it would
be a stretch to say that by certifying this class the Third Circuit implicitly
recognized that "attempted applicants" have claims under the ECOA.
Second, and more importantly, to the extent Chiang addresses the elements
ofECOA, it calls for the dismissal ofDhade's complaint. The court in Chiang
expressly stated that to establish a prima facie case under the ECOA a plaintiff
"must show," among other things, that he "applied for credit from defendants" and
"was denied credit." Id. at 259. That holding is entirely consistent with the
language of§ 1691 e and precludes Dhade-who neither applied for nor was
denied credit-from asserting a private cause of action under the ECOA.
Dhade's single claim is for a violation of the ECOA. D.I 11157-85. Because
Dhade and the proposed class members were not applicants within the meaning of
the ECOA, they do not have a private right of action under the ECOA. Therefore,
Dhade and the proposed class members lack standing, and the complaint fails to
state a claim upon which relief can be granted. Accordingly, I will grant
Huntington's motion to dismiss the complaint with prejudice. 2
The Court will issue an Order consistent with this Memorandum Opinion.
"[I]f a complaint is subject to a Rule 12(b)(6) dismissal, a district court must
permit a curative amendment unless such an amendment would be inequitable or
futile." Phillips v. Cty. ofAllegheny, 515 F .3d 224, 245 (3d Cir. 2008). Where, as
here, leave to amend would be futile, dismissal with prejudice is appropriate.
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