Graham et al v. Bank of America N.A.
Filing
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ORDER GRANTING DEFENDANT'S MOTION TO DISMISS 15 . Signed by Judge BARRY M. KURREN on 3/29/2012. ~ Defendant's Motion to Dismiss is GRANTED, and Plaintiffs are given until April 30, 2012 to amend their complaint with respect t o their TILA and UDAP claims. (ecs, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
RODERICK WINSTON GRAHAM, )
et al.
)
)
Plaintiffs,
)
)
vs.
)
)
BANK OF AMERICA N.A.,
)
)
Defendant.
)
______________________________ )
Civ. No. 11-00546 BMK
ORDER GRANTING
DEFENDANT’S MOTION TO
DISMISS
ORDER GRANTING DEFENDANT’S MOTION TO DISMISS
Before the Court is Defendant Bank of America, N.A.’s Motion to
Dismiss Plaintiff’s Complaint. (Doc. # 15.) After careful consideration of the
motion, the supporting and opposing memoranda, and the arguments of counsel,
Defendant’s motion to dismiss is GRANTED.
BACKGROUND
On September 8, 2011, Plaintiffs Roderick Winston Graham and
Tetuanui Graham filed the Complaint in this action. (Doc. # 1.) Plaintiffs’
complaint alleges in relevant part that Defendant: 1) violated the Truth in Lending
Act (“TILA”) by failing to make proper disclosures and by failing to honor
Plaintiffs’ rescission request; and 2) committed an Unfair and Deceptive Business
Act Practice (“UDAP”) under Chapter 480 of the Hawaii Revised Statutes.1 (Id. at
¶¶ 31-35.) The complaint alleges that Countrywide Bank FSB (“Countrywide”)
loaned Plaintiffs money on September 11, 2008, and that the loan was secured by a
mortgage on Plaintiffs’ residence. (Doc. # 1 at ¶¶ 14, 16.) Plaintiffs were told they
would receive all closing documents at the closing, but did not receive any
documents at closing. (Id. at ¶ 19.) Ten days after closing, Plaintiffs received
closing documents from Countrywide. (Id. at ¶ 20.) The closing took place at
Kahuku Elementary School, and the only people present were the Plaintiffs and a
notary. (Id. at ¶¶ 21, 24.) On September 7, 2011, Plaintiffs rescinded the loan by
sending a letter to Countrywide and Defendant. (Id. at ¶ 23 & Ex. E.) Plaintiffs
allege that Countrywide has been purchased by Defendant, and that Defendant
currently owns and services the loan. (Id. at ¶¶ 28, 29.)
STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss
a claim for “failure to state a claim upon which relief can be granted[.]” Dismissal
of the complaint, or any claim within it, may be based on either a “‘lack of a
cognizable legal theory’ or ‘the absence of sufficient facts alleged under a
1
The Complaint also asserts a claim for unlicensed brokering, but Plaintiff has
withdrawn that claim. (Doc. # 21 at 2.)
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cognizable legal theory.’” Johnson v. Riverside Healthcare Sys., LP, 534 F.3d
1116, 1121–22 (9th Cir. 2008) (quoting Balistreri v. Pacifica Police Dep’t, 901
F.2d 696, 699 (9th Cir.1990)). “To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, ––––, 129 S.Ct. 1937,
1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
“A claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556).
DISCUSSION
I.
Plaintiffs’ TILA Claims are Dismissed With Leave to Amend.
Count I of the complaint states a claim for damages under TILA for
failing to honor Plaintiffs’ rescission request, and a claim for rescission based on
improper disclosures provided by Defendant. (Doc. # 1 at ¶¶ 31-33.)2 Defendants
argue that these claims are untimely. (Mem. in Supp. of Mot. at 6-7.) The Court
dismisses Plaintiffs’ TILA rescission claim with leave to amend because Plaintiffs
2
Defendant asserts that the Complaint alleges claims against “Chase” and “Wamu”
but not against Defendant. (Mem. in Supp. of Mot. at 5-6.) Plaintiffs assert that this was a
clerical error. (Mem. in Op. to Mot. at 9.) For the purposes of deciding this motion, the Court
assumes the Complaint alleges claims against Defendant. If Plaintiffs amend their complaint,
they are required to amend the Complaint to reflect the proper defendant.
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did not allow a reasonable amount of time for Defendant to respond to their
rescission request. The Court dismisses the TILA damages claim with leave to
amend because it is based on the failure to honor Plaintiff’s rescission request.
15 U.S.C. § 1640(a)(1) provides a cause of action for damages from
breaches of TILA. However, 15 U.S.C. § 1640(e) provides that “[a]ny action
under this section may be brought in any United States district court . . . within one
year from the date of the occurrence of the violation . . . .” Because Plaintiffs
allege that Countrywide made improper disclosures on or near the date of the loan,
their claims for damages under TILA stemming from the loan origination process
are barred by the applicable statute of limitations.
Plaintiffs assert that “Bank of America’s refusal to rescind after
receiving proper notice of rescission forms the basis of Plaintiffs’ TILA damage
claim, and each Plaintiff is entitled to $2000.00 statutory damages for that
violation.” (Mem. in Op. to Mot. at 5.) Courts have held that the statute of
limitations for claims involving the wrongful failure to rescind a loan transaction
runs from the date the plaintiffs submit their rescission request. See Kishimoto v.
H&R Block Mortg. Corp., Inc., Civ. Nos. 09-00451 & 10-00601 SOM-RLP, 2011
WL 1135158, at *7 (D. Haw. Mar. 24, 2011) (“Because TILA provides a borrower
one year to file suit from the date of a lender’s improper refusal to rescind, a
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damage claim made in late 2009 based on a failure to rescind in the summer of
2009 is not time-barred.”).
At oral argument, Defendant asserted that Plaintiffs fail to state a
claim for rescission under TILA because Plaintiffs received a properly completed
notice of right to rescind shortly after the loan was consummated. (See Doc. # 1
Ex C.) Defendant argues that Plaintiffs’ rescission claim fails because they had
three days to rescind the loan from receiving the notice of right to cancel.
Furthermore, the Court notes that if Plaintiffs did not have a right to rescind the
loan, their claim for damages arising from Defendant’s failure to honor their
request to rescind also fails.
15 U.S.C. § 1635(a) provides that “the obligor shall have the right to
rescind the transaction until midnight of the third business day following the
consummation of the transaction or the delivery of the information and rescission
forms required under this section together with a statement containing the material
disclosures required under this subchapter, whichever is later . . . .” (Emphasis
added.) If Plaintiffs never received a properly completed notice of right to rescind,
they were entitled to three years from the date of the loan to rescind the transaction.
See 15 U.S.C. § 1635(f) (“An obligor’s right of rescission shall expire three years
after the date of consummation of the transaction . . . notwithstanding the fact that
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the information and forms required under this section or any other disclosures
required under this part have not been delivered to the obligor . . . .”). Plaintiffs’
complaint concedes that they received the notice of the right to rescind
approximately ten days after the loan was consummated. (Doc. # 1 at ¶¶ 18, 20,
27, Ex. C.) At oral argument, Plaintiffs asserted that the notice of right to rescind
was confusing and misleading. Plaintiffs assert that they had three years to rescind
the loan because the notice of right to cancel was not properly completed. See 15
U.S.C. § 1635(f).
The Court concludes that Defendant has not shown that the notice of
right to rescind triggered the three day rescission time period. In Stanton v. Bank
of America, N.A., this Court rejected a similar argument with respect to a
substantively identical notice of right to cancel. Civ. No. 09-00404 LEK-BMK,
2011 WL 6011785, at *5 (D. Haw. Nov. 30, 2011). In that case, the plaintiff
received a notice of right to cancel on February 12, 2007, “stating that the date of
the transaction was February 1, 2007 and that [she] had until midnight on February
5, 2007 to cancel each loan.” Id. at *4 (quotation marks omitted). The notice of
right to rescind did not state the specific date upon which the plaintiff was required
to rescind the transaction, but stated that the plaintiff had three days from receipt of
the notice of right to rescind. Id. at *5. The Court held that Semar v. Platte Valley
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Federal Sav. & Loan Ass’n, 791 F.2d 699, 704 (9th Cir. 1986) applied and was not
overruled by the 1995 amendments to TILA. Id. at *16-17. The Court held that in
“spite of the use of the model forms in this case, Plaintiff may still assert a claim
that the three-year rescission period applied because, under the specific
circumstances of the transactions at issue, Plaintiff did not receive clear and
conspicuous notice of her right to cancel.” Id. at *17. The Court held that whether
“the disclosures that Plaintiff received were clear and conspicuous is a question of
fact that is not appropriate for summary judgment.” Id. Therefore, Court denied
defendants’ motion for summary judgment on that basis. Based on the Court’s
analysis in Stanton, this Court concludes that it cannot grant Defendant’s motion to
dismiss on this ground, because it is unclear that the notice of right to rescind
complied with TILA as a matter of law.
Defendant also asserts that Plaintiffs’ TILA rescission claim should be
dismissed because they filed their lawsuit one day after submitting their request to
rescind the loan. (Mem. in Reply at 5.) Plaintiffs submitted their request to
rescind the loan on September 7, 2011, and filed their complaint on September 8,
2011. (Doc. # 1 at ¶ 23.) Defendant asserts that courts in this district have held
that “Plaintiffs cannot seek damages for Defendants’ failure to honor a request for
rescission before Defendants received such request and had an opportunity to
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respond to it.” See Rodrigues v. Newport Lending Corp., Civ. No. 10-00029 HGLEK, 2010 WL 4960065, at *6 (D. Haw. Nov. 29, 2010). The Court agrees with
Defendants that the TILA claim for the failure to honor Plaintiffs’ rescission
request must be dismissed because Plaintiffs did not allow Defendant a reasonable
amount of time to respond to the rescission request. However, the Court concludes
that leave to amend the complaint is appropriate because, at this point, Plaintiffs
may be able to claim that Defendants did not respond properly to their rescission
request. See Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (holding that
leave to amend should be granted “if it appears at all possible that the plaintiff can
correct the defect”) (internal quotations and citations omitted).
Defendant also asserts that this is a residential mortgage transaction
and that the right to rescind does not apply to this transaction. (Mem. in Supp. of
Mot. at 7-8); See 15 U.S.C. § 1635(e)(1). Plaintiffs assert that the purpose of this
loan was to refinance their home residence, and that a residential mortgage
transaction occurs when “a mortgage . . . is created or retained against the
consumers dwelling to finance the acquisition or initial construction of such
dwelling.” (Mem. in Op to Mot. at 7-8); 15 U.S.C. § 1602(x). Plaintiffs assert that
they already owned their home at the time the loan was consummated. (Mem. in
Op. to Mot. at 7.) At oral argument, Defendant did not dispute Plaintiffs’ reading
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of TILA, but requested that Plaintiffs amend the complaint to clearly state that the
loan was not a residential mortgage transaction. Plaintiffs are therefore given leave
to amend their complaint to clarify that the transaction at issue is not a residential
mortgage transaction.
Defendant asserts that Plaintiffs waived their right to rescind the loan
by accepting the benefits of the loan. (Mem. in Supp. of Mot. at 9.) Defendant
cites to case law stating that parties to a contract can waive their right to rescind by
accepting the contract’s benefits. See Gill v. Rich, 128 Cal. App. 4th 1254, 1264
(2005). However, Defendant has not produced any authority that in a TILA case
where the three year period to rescind has been triggered by a TILA violation, the
plaintiff’s acceptance of loan benefits waives the right to rescind. Therefore, the
Court concludes that Plaintiffs have not waived their statutory rights under TILA
by accepting the benefits of the loan.
Finally, Defendant asserts that the TILA claim is inadequately pled
because “Plaintiffs have not – and cannot – sufficiently allege any facts
establishing that Defendant violated TILA.” (Mem. in Supp. of Mot. at 9-10.)
Specifically, Defendant asserts that Plaintiffs failed to specify how TILA was
violated and failed to plead detrimental reliance, which is a necessary element of a
TILA damages claim. (Id. at 10.) As discussed above, Defendant’s argument
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regarding the ability to prove a TILA violation is not persuasive because Plaintiffs
have alleged that the notice of right to cancel was improperly disclosed and that
Defendant failed to honor their request to rescind. (Doc. # 1 at ¶¶ 32, 33.)
Furthermore, Plaintiffs attached those disclosures to the Complaint. With respect
to detrimental reliance, it appears that Plaintiffs have not alleged detrimental
reliance, which is a necessary element of a TILA claim for actual damages. See In
re Smith, 289 F.3d 1155, 1157 (9th Cir. 2002) (“We join with other circuits and
hold that in order to receive actual damages for a TILA violation . . ., a borrower
must establish detrimental reliance.”) (internal citation omitted). If Plaintiffs
amend their complaint, they can address this issue.
Based on the above analysis, the Court dismisses the TILA claims for
damages and rescission with leave to amend the complaint.
II.
Plaintiffs’ UDAP Claim is Dismissed.
Plaintiffs’ Complaint alleges that Defendant committed unfair and
deceptive business practices in violation of HRS Chapter 480 by making “false
representations as to the terms of the loan and application,” failing to provide
Plaintiffs with documents in a timely fashion, and charging Plaintiffs “excessive”
amounts. (Doc. # 1 at ¶ 33.)
There are “three elements essential to recovery under H.R.S. §
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480–13: (1) a violation of H.R.S. chapter 480; (2) injury to the plaintiff’s business
or property resulting from such violation; and (3) proof of the amount of
damages.” Hawaii Med. Ass’n v. Hawaii Med. Serv. Ass’n, Inc., 148 P.3d 1179,
1215–16 (Haw. 2006) (footnote omitted). HRS § 480-2 provides that “[u]nfair
methods of competition and unfair or deceptive acts or practices in the conduct of
any trade or commerce are unlawful.” A practice is unfair “when it offends
established public policy and when the practice is immoral, unethical, oppressive,
unscrupulous or substantially injurious to consumers.” Chandler v. Washington
Mut. Bank, F.A., Civ. No. 10-00487 ACK-KSC, 2011 WL 6140926, at *10 (D.
Haw. Dec. 9, 2011) (quotations marks omitted) (quoting Rosa v. Johnston, 651
P.2d 1228, 1234 (Haw. App. 1982)).
Defendant asserts that Plaintiffs’ UDAP claim should be dismissed
because it is predicated on their TILA claim, fails to properly allege actual
damages, and fails to allege fraud with sufficient particularity. (Mem. in Supp. of
Mot. at 10-13.) Plaintiffs assert that their UDAP claim is adequately pled because
the failure to provide documents at closing also violates HRS Chapter 480
“separate and apart from TILA,” and their complaint alleged actual damages. (Op.
to Mot. to Dismiss at 9-11.)
The Court concludes that Plaintiffs have not stated a claim for UDAP.
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To the extent that Plaintiffs’ UDAP claim relies upon conduct regulated by TILA,
it is preempted. Courts in this district have held that UDAP claims premised on the
same conduct in TILA claims are preempted. Chandler, 2011 WL 6140926, at *11
(holding that a UDAP claim is preempted to the extent it is based on TILA
violations). Thus, Plaintiffs’ allegations that Countrywide failed to provide timely
notice of the right to rescind do not state a claim for UDAP.
To the extent that Plaintiffs assert that other conduct such as false
representations or “excessive charges” supports their UDAP claim, they have not
pled them with the requisite specificity to state a claim for UDAP. See Iqbal, 129
S.Ct. at 1949 (quoting Twombly, 550 U.S. at 570) (“To survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’”). Neither the Complaint nor
the opposition to the motion to dismiss lay out sufficient factual matter underlying
a UDAP claim outside the scope of Plaintiff’s TILA claim. Plaintiffs fail to assert
what constituted the UDAP violation and when it occurred. Therefore, the Court
dismisses Plaintiffs’ UDAP claim.
CONCLUSION
Defendant’s Motion to Dismiss is GRANTED, and Plaintiffs are
given until April 30, 2012 to amend their complaint with respect to their TILA and
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UDAP claims.
DATED: Honolulu, Hawaii, March 29, 2012.
IT IS SO ORDERED.
/S/ Barry M. Kurren
Barry M. Kurren
United States Magistrate Judge
Graham v. Bank of America N.A., Civ. No. 11-00546 BMK, ORDER GRANTING
DEFENDANT’S MOTION TO DISMISS
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