Paterson v. Wells Fargo Bank, N.A. et al
Filing
37
MEMORANDUM OPINION AND ORDER: Signed by the Honorable Harry D. Leinenweber on 9/27/2012:Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ERIC PATERSON,
Plaintiff,
v.
Case No 11 C 7954
WELLS FARGO BANK, N.A., also
d/b/a WELLS FARGO HOME
MORTGAGE and WELLS FARGO
FINANCIAL, and DOES 1-15,
Hon. Harry D. Leinenweber
Defendants.
MEMORANDUM OPINION AND ORDER
Before the Court are Defendant’s Request for Judicial Notice
and Motion to Dismiss.
For the reasons stated herein, the motions
are granted in part and denied in part.
I.
BACKGROUND
Plaintiff Eric Paterson sues Defendant Wells Fargo Bank, N.A.
over his refinanced home loans. He alleges violations of the Truth
in Lending Act (“TILA”), 15 U.S.C. § 1601, et seq., the Illinois
Consumer Fraud Act (“ICFA”), 815 ILL . COMP . STAT. 505/2, and the
Illinois Fairness in Lending Act (“IFLA”), 815 ILL . COMP . STAT .
120/5.
Plaintiff also brings common law claims of negligent
misrepresentation, fraud in the inducement, and breach of fiduciary
duty.
The following is a summary of the detailed allegations in the
Complaint.
In March 2007, Plaintiff purchased his first home in
St. Charles, Illinois for $188,250.
He financed the purchase
through two mortgage loans from Bank of America, N.A.
The first Bank of America loan was for $150,600 and had a 30year term and a fixed rate of interest of 6.375%.
The second loan
was for $28,200 for 15 years at a fixed interest rate of 8.375%.
Plaintiff’s combined monthly payment on these loans (including
principal, interest, and escrowed tax payments) was $1,430.42. The
total combined cost to Plaintiff over the life of the loans would
have been $222,397.43.
At the time Plaintiff refinanced, he held
$11,676 in equity.
On or about January 9, 2009, Defendant’s employee Jon Mize
(“Mize”), “cold called” Plaintiff with an offer to refinance
Plaintiff’s mortgage loans and use Plaintiff’s home equity to pay
off his existing car loan.
Mize made disparaging comments about
Plaintiff’s Bank of America loans and told Plaintiff that he could
get better loan terms by refinancing with Wells and making one
monthly mortgage payment instead of two.
Plaintiff declined Mize’s initial offer to refinance.
Mize
continued to pursue Plaintiff, however, and eventually Plaintiff
agreed
to
refinance,
but
without
rolling
in
his
car
loan.
Plaintiff told Mize that he was unfamiliar with lending procedures,
but that he trusted Mize and that he would rely on Mize’s judgment
to acquire the best loan terms for Plaintiff.
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Plaintiff
refinanced
a
Defendant
as
has
a
mortgage
high
school
before.
trustworthy
and
education,
Mize
and
represented
experienced,
had
never
himself
repeatedly
and
telling
Plaintiff that he would get the best loan terms available.
Mize
and Defendant controlled all aspects of the refinancing process,
including choosing the loans for which Plaintiff applied and
completing the applications.
Three to five times in the application process, Mize suggested
loan terms to Plaintiff, only to tell him later that he no longer
qualified for them (despite Plaintiff’s actually strong credit
scores). Plaintiff repeatedly asked, and was assured, that his new
monthly payments would include property tax payments.
Mize told
Plaintiff that he would not finalize the transaction unless he made
the loan “good” for Plaintiff.
On February 11, 2009, Plaintiff closed on his new loan in 20
minutes, with Mize as the closing agent and notary.
At closing,
Mize instructed Plaintiff to take steps to improve his credit
score, telling him that he could then refinance again in six months
on even better terms.
The refinanced loan had a 40-year term and
an adjustable rate that started at 8.5% (with a maximum rate of
14.5%).
The principal amount of the loan was $186,691.69, which
given the appraised value of Plaintiff’s home ($187,000), left him
$308.31 in equity.
$477,426.34.
The total cost of the refinanced loan will be
The loan included a $7,180.43 “discount point” fee,
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and a $2,814.26 payment to Plaintiff.
It also included a $473
payment to one of Plaintiff’s “creditors” – to whom Plaintiff
actually owed no money.
Plaintiff accepted these arrangements on
Mize’s advice.
Plaintiff’s payments did not include the promised escrowed
taxes; an escrow account was established later, further increasing
the monthly payment.
The loan has a three percent prepayment
penalty charge for the first 34 months.
After the closing, Plaintiff took steps to further improve his
credit. In May 2009, however, after discussing his loan terms with
a friend, Plaintiff learned that refinancing within six months
would be impossible, as the prepayment penalty, which would have
been rolled into the new loan balance, would have made the new loan
principal exceed the value of his home.
As a result of the loan,
Plaintiff’s monthly payments and cost of credit have increased, and
he struggles to make ends meet.
II.
LEGAL STANDARD
At this stage, the Court accepts as true all well-pleaded
facts in the Complaint and draws all inferences in Plaintiff’s
favor. See Cole v. Milwaukee Area Tech. Coll. Dist., 634 F.3d 901,
903 (7th Cir. 2011).
A complaint must contain a “short and plain
statement of the claim” containing sufficient factual matter to
allow the Court to reasonably infer that Defendant is liable for
the alleged misconduct.
FED . R. CIV . P. 8(a)(2); Ashcroft v. Iqbal,
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556
U.S.
662,
particularity.
678
(2009).
Fraud
must
be
pled
with
FED. R. CIV . P. 9(b).
III.
A.
claims
ANALYSIS
Defendant’s Request for Judicial Notice
Defendant asks the Court not to notice particular facts, but
to consider certain loan-related documents without converting its
motion to one for summary judgment.
Courts may
consider
new
documents
See FED . R. CIV . P. 12(d).
provided
with
a
motion
to
dismiss, if they “are referred to in plaintiff’s complaint and are
central to [his] claim.” Venture Assocs. Corp. v. Zenith Data Sys.
Corp., 987 F.2d 429, 431 (7th Cir. 1993).
There is no objection to the Court considering Defendant’s
Exhibits
referenced
C-F,
on
which
the
are
executed
Complaint.
The
copies
of
Court will
loan
documents
consider
them.
Regarding Defendant’s Exhibits A and B, these documents are not
mentioned in the Complaint, and were executed on dates similarly
unmentioned in the pleadings.
The Court will not consider them.
Defendant’s Exhibit G is a copy of the Notice of Right to
Cancel executed by Plaintiff on February 11, 2009.
Plaintiff
attached an unexecuted copy of the same document to his Complaint;
therefore, Defendant claims, the executed copy is appropriate for
consideration.
As discussed below, however, the timeliness of
Plaintiff’s TILA claim depends on whether he was given two copies
of this disclosure (he claims that he was not).
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See 12 C.F.R.
§ 226.23(b)(1).
Thus, the second copy is integral to Defendant’s
defense, but not the Complaint.
Cf. Mayoral v. WMC Mortg., LLC,
No. 08 C 7292, 2009 WL 3272697, at *3 (N.D. Ill. Oct. 6, 2009)
(refusing to consider such a Notice under similar circumstances).
Defendant’s request is denied as to its Exhibit G.
The Court
similarly declines to consider Plaintiff’s declaration in resolving
the motion to dismiss.
B.
TILA Rescission
Plaintiff claims that Defendant failed to provide him with two
copies of the required notice of right to rescind.
§ 226.23(b)(1).
to
rescind
See 12 C.F.R.
If true, this failure extended Plaintiff’s right
from
three
days
to
three
years.
12
C.F.R.
§ 226.23(a)(3).
Defendant moves to dismiss Count I, arguing that the executed
copy of the Notice attached to its request for judicial notice,
along with the unexecuted copy Plaintiff attached to his Complaint,
proves that two copies were delivered.
copy is not part of the pleadings.
However, the Defendant’s
Even if it were, the existence
of a second copy does not mean that two were given to Plaintiff in
the manner required by the regulations.
See Robbins v. Nationwide
Advantage Mortg. Co., No. 10–CV–822–JPS, 2011 WL 6888573, at *1 n.2
(E.D. Wis. Dec. 30, 2011) (noting that the existence of two copies
does not prove that the consumer received two copies he could keep,
as required).
Therefore, Plaintiff’s allegation that he received
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only one copy of the required disclosure is sufficient; Defendant’s
Motion to Dismiss is denied as to Count I.
C.
Breach of Fiduciary Duty
The Court turns next to the fiduciary claim, as several of
Plaintiff’s other claims depend upon its sufficiency.
Illinois
law,
relationships
like
mortgagor-mortgagee
Under
are
not
automatically fiduciary in nature, but may become so in particular
circumstances.
Pommier v. Peoples Bank Marycrest, 967 F.2d 1115,
1119 (7th Cir. 1992).
To support this claim, Plaintiff had to
plead facts indicating that he placed his trust in Defendant, who
accepted that trust and as a result gained dominion and influence
over Plaintiff. Id. In assessing whether a fiduciary relationship
exists, courts consider factors such as “kinship, age disparity,
health, mental condition, education, business experience, and the
extent of reliance.”
Id.
(Eventually, Plaintiff will have to
prove this relationship by clear and convincing evidence, not a
mere preponderance.)
At this stage, Plaintiff has adequately pled a breach of a
fiduciary duty.
He particularly alleged, e.g., his own limited
education and experience as compared to Mize and Defendant; that he
explicitly, avowedly placed his trust in them, which was accepted;
and that they controlled the application decisions, process, and
closing, all while assuring him that they were acting in his best
interest.
Instead of doing so, he alleges, they lied about his
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loan terms and creditworthiness, overcharged him, and failed to
give him important information. That is sufficient, at this stage,
to proceed on a breach of fiduciary duty claim.
See Suarez v. JP
Morgan Chase Bank, NA, No. 10–cv–3382, 2011 WL 2149427, at *7-8
(N.D. Ill. June 1, 2011).
The fact that Plaintiff initially rejected the offer to “roll”
his car loan into a refinanced loan does not defeat his claim; the
alleged fiduciary relationship of trust and dominance developed
after that initial contact.
Nor does Defendant offer any support
for its claim (raised first in its reply) that no fiduciary
relationship could arise before the parties’ relationship was
formalized by contract.
D.
Count IV stands.
Fraud in the Inducement and Negligent Misrepresentation
Plaintiff’s
negligent
alternative
misrepresentation
misstatements,
and attacked
claims
are
on
for
common
law
premised
on
the
grounds.
same
the
fraud
same
and
alleged
The
Court
therefore addresses them together. To state an Illinois common law
fraud claim, Plaintiff must allege that:
(1) Defendant made a
false statement of material fact; (2) knowing its falsity; (3)
intending Plaintiff to act on it; (4) Plaintiff justifiably relied
upon it; and (5) Plaintiff was damaged by that reliance.
See
Connick v. Suzuki Motor Co., 675 N.E.2d 584, 591 (Ill. 1996).
“Negligent misrepresentation has essentially the same elements,”
except that the defendant need not know that the statement was
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false; it need only have been careless or negligent in ascertaining
the statement’s truth if it owed Plaintiff a duty of accurate
information.
Properties,
Kopley
Ltd.,
876
Group
V.,
N.E.2d 218,
L.P.
228
v.
Sheridan
(Ill.
App.
Edgewater
Ct.
2007).
Reasonable reliance is usually a question of fact, but can be
determined as a matter of law if no trier of fact could find it
reasonable.
Cozzi Iron & Metal, Inc. v. U.S. Office Equipment,
Inc., 250 F.3d 570, 574 (7th Cir. 2001).
Plaintiff
claims
that
misstatements, including:
Defendant
knowingly
made
numerous
that the new loan had better terms than
his old ones that Plaintiff would be able to refinance again
shortly after closing, and that the loan would include a tax
escrow.
He alleges that the misstatements were intended to, and
did, induce Plaintiff to refinance with Defendant. As a result, he
alleges, his equity was stripped and he had higher monthly loan
payments over a longer loan term.
In its reply, Defendant argues that many of the claimed lies
were true, or else mere puffery.
Plaintiff had no chance to
respond to these claims, however; they are waived.
Defendant properly presents two related arguments.
Because
the misstatements conflict with the terms of the contract, it
claims, the counts either fail as a matter of law or reliance on
the statements was per se unreasonable.
Generally, a party has no
fraudulent inducement claim if it had a chance to read the contract
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terms which contradict the false statements. Regensberger v. China
Adoption Consultants, Ltd., 138 F.3d 1201, 1207 (7th Cir. 1998).
This
“duty
to
learn”
may
generally
bar
a
fraud
claim,
see
Belleville Nat. Bank v. Rose, 456 N.E.2d 281, 284 (Ill.App.Ct.
1983), or defeat a claim of reasonable reliance. See Regensberger,
138 F.3d at 1207.
There are, however, exceptions to that rule.
Plaintiff
suggests several; the Court need address only one. Illinois courts
may excuse ignorance of contract terms where, as alleged here, a
fiduciary rushed the plaintiff in signing the documents, giving him
little chance to scrutinize them.
See Tuchowski v. Rochford, 368
Ill.App.3d 441, 444-45 (2006) (citing Melvin State Bank v. Crowe,
239 N.E.2d 483 (Ill. App. Ct. 1968)).
The Court cannot agree with
Defendant that the Seventh Circuit eviscerated that exception in
Carr v. CIGNA Securities, Inc., 95 F.3d 544, 548 (7th Cir. 1996).
That case focused on Oregon law, involved clearer disclosures than
those alleged here, and noted that some fiduciary relationships may
still dispel the duty to learn.
Id. at 547-48.
Accordingly, at
this stage, the duty to learn the contents of the mortgage contract
does not bar Plaintiff’s common law claims (Counts III and VI).
E.
Deception under ICFA
Plaintiff also brings a deception claim under the ICFA, which
requires:
(1) a deceptive act or practice by defendant; (2) its
intent that Plaintiff rely on the deception; and (3) that the
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deception took place during a course of conduct involving trade or
commerce.
Robinson v. Toyota Motor Credit Corp., 775 N.E.2d 951,
960 (Ill. 2002).
the injury.
The deception also must have proximately caused
Cozzi, 250 F.3d 570 at 576.
The Court has already addressed, above, why Defendant’s dutyto-learn argument fails at this stage. (Defendant does not seem to
argue that fiduciary relationship exception cannot apply under the
ICFA.) The Court notes that Defendant’s cited cases either did not
involve a fiduciary claim, Bank of Am., N.A. v. Shelbourne Dev.
Group, Inc., 732 F.Supp.2d 809 (N.D. Ill. 2010), or involved a
failed one, see RBS Citizens, N.A. v. Sanyou Import, Inc., No. 11
C 1820, 2011 WL 2712744, at *3 (N.D. Ill. July 13, 2011).
Furthermore, Plaintiff appears to be correct that reasonable
reliance
on
deception
the
claim,
misstatements
despite
a
is
few
not
an
District
Appellate Court cases to the contrary.
element
Court
of
and
an
ICFA
Illinois
As the Seventh Circuit
recognized in Cozzi, federal courts should follow the Illinois
Supreme Court, which has stated that reliance is not a requirement
under the ICFA.
Cozzi, 250 F.3d at 576 (7th Cir. 2001) (citing
Connick, 675 N.E.2d at 593.). Robinson v. Toyota Motor Credit
Corp.,
the
more
recent
Illinois
Supreme
Court
case
on which
Defendant relies, did not change this rule as relevant here – it
involved allegedly deceptive contract terms, not pre-contractual
misrepresentations.
Robinson, 775 N.E.2d at 962, 964 (noting that
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there were insufficient facts alleged to support a deception claim,
and the contract terms were clear.)
Accordingly, Count II’s
deception claim survives.
F.
Unfairness under ICFA
The ICFA also prohibits unfair acts or practices. Id. at 960.
Conduct is “unfair” if it:
immoral,
unethical,
(1) violates public policy; (2) is
oppressive,
substantially injures consumers.
or
Id.
unscrupulous;
and
(3)
All three criteria need not
be satisfied; “[a] practice may be unfair because of the degree to
which it meets one of the criteria or because to a lesser extent it
meets all three.”
Id. at 961 (citation and internal quotations
omitted).
The ICFA should be liberally construed to protect
consumers.
Id. at 960.
Plaintiff alleges that Defendant’s conduct violated the public
policy of the Illinois Fairness in Lending Act (“IFLA”), 815 Ill.
Comp. Stat. 120/3.
In its reply, Defendant essentially concedes
that this element is adequately pled.
The Court agrees.
The second prong is met where the conduct is “so oppressive
that the consumer has little choice but to submit.”
Shell Oil Co., 612 F.3d 932, 935 (7th Cir. 2010).
Siegel v.
The third is met
if the injury “(1) [is] substantial; (2) [is not] outweighed by any
countervailing
benefits
to
consumers
or
competition
that
the
practice produces; and (3) [is one] that consumers themselves could
not reasonably have avoided.” Id.
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Defendant argues that Plaintiff had other loan options, and
was not coerced or threatened; therefore, it claims, he had other
meaningful options, and the conduct was not oppressive. Second, it
argues, he cannot establish injury, in that he could have avoided
the claimed harm by reading, and refusing to sign, the loan
documents.
Plaintiff
environment
interests
of
while
trust,
contends
that
claiming
exploiting
his
to
Defendant
work
trust
in
and
created
Plaintiff’s
relative
an
best
ignorance.
Therefore, he claims, the conduct was oppressive and he could not
have reasonably avoided his injury.
Plaintiff’s argument on the second two prongs is not strong.
Nonetheless,
in
light
of
the
fact
that:
(a)
the
Court
is
permitting the fiduciary claim to proceed; (b) the first prong was
adequately pled, and (c) the ICFA is to be liberally construed to
protect
consumers,
the
Court
will
not
dismiss
the
Count
II
unfairness claim at this juncture.
G.
IFLA Claim
Finally, Plaintiff brings a claim under the Illinois Fairness
in Lending Act (“IFLA”), 815 ILL. COMP . STAT . 120/5. Defendant moves
to dismiss this count, noting that:
“[i]f the same events or
circumstances would constitute the basis for an action under [the
IFLA] or an action under any other Act, the aggrieved person . . .
may not bring actions . . . under more than one of the two
Acts. . . .”
Id. at (b).
(emphasis added).
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Plaintiff argues that the IFLA’s legislative history indicates
that this bar was aimed only at eliminating duplication between the
IFLA and the Illinois Human Rights Act.
However, the Court knows
of no cases, nor does Plaintiff cite any, that have followed such
an interpretation.
very argument.
Indeed, the cases appear to reject Plaintiff’s
See, e.g., Smith v. United Residential Servs. &
Real Estate, Inc., 837 F.Supp.2d 818, 824 n. 9 (N.D. Ill. July 25,
2011).
The Court agrees that the statutory language is clear.
Plaintiff asks the Court, if it must dismiss one count to avoid
duplication,
to
dismiss
Count
V.
Accordingly,
Count
V
is
dismissed.
IV.
For
the
reasons
CONCLUSION
stated
herein,
Defendant’s
request
for
“judicial notice” is granted as to Exhibits C, D, E, and F and
denied as to Exhibits A, B, and G.
Additionally, Defendant’s
motion to dismiss is granted as to Count V, and denied as to the
remaining claims.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
DATE:9/27/2012
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