Tucker et al v. Charles Schwab Bank et al

Filing 41

MEMORANDUM Opinion and Order Signed by the Honorable John J. Tharp, Jr on 3/29/2013:Notices mailed by Judicial staff. (slb, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
MARION J. TUCKER and
STEPHANIE TUCKER,
Plaintiffs,
v.
CHARLES SCHWAB BANK, f/k/a
Charles Schwab Bank, N.A., and
MORGAN STANLEY CAPITAL I,
INC., f/k/a Morgan Stanley Dean Witter
Corporation,
Defendants.

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No. 12-CV-3399

Judge John J. Tharp, Jr.

MEMORANDUM OPINION AND ORDER
The plaintiffs, Marion and Stephanie Tucker, allege that Defendants Morgan Stanley
Capital I, Inc. (“Morgan Stanley”) and Charles Schwab Bank (“Charles Schwab”) violated the
Illinois Consumer Fraud and Deceptive Business Practices Act (the “ICFA”) and the Illinois
Uniform Deceptive Trade Practices Act (the “IDPA”) and committed fraud, attempted
conversion, and unjust enrichment. The Tuckers also allege that Morgan Stanley (but not Charles
Schwab) violated the Fair Debt Collection Practices Act (the “FDCPA”) and the Illinois
Collection Agency Act (the “ICAA”). Both defendants move to dismiss all of the plaintiffs’
claims pursuant to Rule 12(b)(6). For the reasons stated below, the Court grants the defendants’
motions to dismiss without prejudice.

I.

Background 1
On February 9, 2005, the Tuckers signed a mortgage note and mortgage in favor of

Morgan Stanley. Cmplt. ¶ 13. The mortgage conveyed a security interest in the Tuckers’
property located in Olympia Fields, Illinois (the “property”) to Morgan Stanley. Id. ¶¶ 1, 14. On
March 1, 2005, Morgan Stanley transferred ownership in the mortgage note and mortgage to a
mortgage-backed-securities trust (the “Trust”), which listed Morgan Stanley as the servicer. Id. ¶
15. After filing certain forms with the SEC, the complaint alleges that the Trust filed a
“Certification and Notice of Termination,” and the Trust was no longer registered. Id. ¶ 16. The
Tuckers further allege, without providing any detail, that the Trust itself terminated and was
dissolved on May 26, 2006, when its final form 10-K was filed with the SEC. Id. ¶¶ 16-17.
According to the Tuckers, upon termination of the Trust, the Trust’s certificate holders received
the Trust’s assets and became the holders of the note and mortgage. 2 Id. ¶ 19.
After the Trust allegedly dissolved, Morgan Stanley Home Loans (an entity that the
Tuckers implicitly admit is distinct from Morgan Stanley) began communicating with the
plaintiffs about the mortgage. Id. ¶¶ 20-21; Resp. Br. (Dkt. 37) at ¶ 13. The first communication
consisted of a letter dated January 4, 2011 from Morgan Stanley Home Loans to the Tuckers
confirming a payment the Tuckers had made in December 2010. Cmplt. ¶ 20, Ex. H. On May 16,
2011, Morgan Stanley Home Loans induced the Tuckers to enter into a formal mortgage

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The Court accepts the Tuckers’ well-pleaded factual allegations as true and construes all
reasonable inferences in their favor. Gessert v. United States, 703 F.3d 1028, 1033 (7th Cir.
2013).
2

Defendant Charles Schwab disputes that ownership of the mortgage note and mortgage
transferred to the Trust and claims that it owns both. See Charles Schwab MTD (Dkt. 19) at 711; Charles Schwab Reply Br. (Dkt. 39) at Ex. 1. But because the plaintiffs sufficiently alleged
that the mortgage note and mortgage were transferred to the Trust, the Court accepts this as true
for the purpose of the motion to dismiss.
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repayment plan. Id. ¶ 21, Ex. I. Later, on January 30, 2012, Defendant Charles Schwab filed a
complaint against the Tuckers to foreclose on the mortgage. Id. ¶ 22, Ex. J.
II.

Analysis
A. The Tuckers Fail to Adequately Plead Termination of the Trust.
The Tuckers’ claims against both Morgan Stanley and Schwab are predicated on their

allegation that the Trust terminated and was dissolved while it held the mortgage and note to the
Tuckers’ property. Morgan Stanley notes that the Tuckers’ allegations on this point are “vague
and confusing,” and the Court agrees. As the only factual basis for alleging that the Trust
terminated while it was the holder of the mortgage and note, the Tuckers attach a document that
they call the Trust’s “Certification and Notice of Termination,” but which in reality is a notice of
termination of the Trust’s registration with the SEC. Although “vague and confusing,” the
complaint appears to claim that de-registration terminated the trust itself. See, e.g., Cmplt. (Dkt.
1) ¶¶ 16-17 (mischaracterizing the trust’s “Certification and Notice of Termination of
Registration” as merely “Notice of Termination,” and implying that the trust was terminated in
conjunction with the filing of its final 10-K Annual Report).
To the extent that the Tuckers’ claims depend on the thesis that the Trust’s deregistration
with the SEC terminated the trust itself, they are frivolous. Whether a mortgage-backed security
trust is registered with the SEC has nothing at all to do with its legal existence, and de-registering
the Trust does not terminate the Trust’s existence. See, e.g., 15 U.S.C. § 78l(g)(4); 17 C.F.R. §
240.12g-4. Although at this stage the Court must take the Tuckers’ factual allegations as true and
draw all reasonable inferences in their favor, see Gessert, 703 F.3d at 1033, the Court need not
accept specious claims uncritically. To the extent that the Tuckers allege that the Trust was
dissolved due to its deregistration with the SEC, that allegation is simply an erroneous legal
conclusion to which no deference is owed. And if the plaintiffs did not intend to allege that
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deregistration terminated the trust, and that the Trust was dissolved by some other act, they have
provided no facts whatsoever that would (if true) establish, or even plausibly suggest, that the
Trust was actually dissolved. Either way, at present the Tuckers’ allegations regarding the
termination of the Trust are insufficient to “state a claim to relief that is plausible on its face,”
and they do not “raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555, 570 (2007).
Because the Tuckers have failed to allege sufficient facts to plausibly show that the Trust
was dissolved, and all of their claims turn on that claim, their complaint will be dismissed in its
entirety without prejudice. The Tuckers have leave to file an amended complaint, if they are able
to do so consistent with the requirements of Fed. R. Civ. P. 11, within 30 days. Though the
Tuckers’ entire complaint is being dismissed without prejudice, the Court will nonetheless
review the Tuckers’ claims against the Morgan Stanley and Charles Schwab to determine
whether there are other independent grounds for dismissal.
B. The Tuckers Fail to State Any Claims Against Morgan Stanley.
Even if the Tuckers had alleged the facts necessary to show that the Trust was dissolved
in 2006, they would still fail to state any valid claim against Morgan Stanley. The Tuckers argue
that Morgan Stanley violated federal and state law 3 by: (1) sending the plaintiffs a confirmation
letter regarding their payment on a loan, and (2) entering into a formal repayment plan with the

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Morgan Stanley argues that if the Court dismisses the Tuckers’ federal FDCPA claim, it should
decline to exercise supplemental jurisdiction over the Tuckers’ state law claims. Morgan Stanley
MTD (Dkt. 17) at 3, 4, 8. But the Tuckers properly invoked the Court’s diversity of citizenship
jurisdiction. Cmplt. ¶¶ 2, 5, 9, 11. Because Morgan Stanley does not challenge the Court’s
diversity jurisdiction, its argument that the Court “should decline to exercise supplemental
jurisdiction” is misplaced.
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plaintiffs for their mortgage. Id. ¶¶ 20-21, Ex. H-I. 4 These two facts underlie all of the plaintiffs’
claims against Morgan Stanley. 5
Though the Tuckers’ complaint alleges that Morgan Stanley sent the confirmation letter
and entered into the formal repayment plan, the exhibits attached to the complaint do not
mention the Morgan Stanley entity that the Tuckers sued, but rather only Morgan Stanley Home
Loans. “It is a well-settled rule that when a written instrument contradicts allegations in the
complaint to which it is attached, the exhibit trumps the allegations.” N. Ind. Gun & Outdoor
Shows, Inc. v. City of South Bend, 163 F.3d 449, 454 (7th Cir. 1998). Because the Tuckers’
exhibit refutes their factual allegations, they have not alleged facts sufficient to state their claims
against the Morgan Stanley entity that they named as a defendant. See id. at 455.
After Morgan Stanley’s motion pointed out that their exhibits involved Morgan Stanley
Home Loans rather than the defendant, Morgan Stanley Capital I, Inc., the Tuckers contended for
the first time that “[o]n information and belief, Morgan Stanley Capital and Morgan Stanley
Home Loans were working together to collect the debt.” Resp. Br. (Dkt. 37) at ¶ 13. Even if the
Court ignores the Tuckers’ improper attempt to amend their complaint in a response brief, see
Agnew v. Nat’l Collegiate Athletic Ass’n, 683 F.3d 328, 348 (7th Cir. 2012) (briefs in opposition
to a motion to dismiss may not amend the complaint), they still fail to provide any factual basis
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Exhibits attached to a complaint become a part of it for all purposes, and the Court can consider
the exhibit in its decision without converting the motion to dismiss into a motion for summary
judgment. See Tierney v. Vahle, 304 F.3d 734, 738 (7th Cir. 2002); Fed. R. Civ. P. 10(c).
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The plaintiffs argue that Morgan Stanley violated the FDCPA and ICAA by making false
representations in connection with the collection of a debt, evidenced by both the letter and
repayment plan. Cmplt. ¶¶ 25-43, 74-93. Furthermore, the plaintiffs’ quiet title claim depends on
the letter and repayment plan to show that Morgan Stanley asserted legal title to the mortgage
note and mortgage. Id. ¶¶ 44-53. And the plaintiffs argue that Morgan Stanley committed fraud,
attempted conversion, and unjust enrichment by collecting (and soliciting to collect) funds from
the Tuckers through the confirmation letter and repayment plan. Id. ¶¶ 54-64. Finally, plaintiffs
argue that Morgan Stanley violated the ICFA and the IDPA by holding itself out as the servicer
of the mortgage in these communications. Id. ¶¶ 65-73.
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for their conclusory allegation that Morgan Stanley was in any way involved in the events
alleged.; Hickey v. O’Bannon, 287 F.3d 656, 658 (7th Cir. 2002) (the Court is “not obliged to
accept as true legal conclusions or unsupported conclusions of fact”). In fact, the Tuckers’
complaint never mentions Morgan Stanley Home Loans at all. The Tuckers appear to have sued
the wrong Morgan Stanley entity, which provides the Court with an independent basis to dismiss
the Tuckers’ claims against Morgan Stanley without prejudice.
C. The Fraud, Attempted Conversion, and Unjust Enrichment Claims Against
Charles Schwab Fail on Their Own Merits, But the Tuckers’ Other Claims
Would Survive if They Properly Alleged that the Trust Was Dissolved.
Several of the plaintiffs’ claims against Charles Schwab would be dismissed even if the
plaintiffs had adequately pleaded that the trust terminated in 2006, so the Court addresses the
arguments regarding those claims as well.
1. Quiet Title
The plaintiffs argue that Charles Schwab has no legal interest in the mortgage, and that its
state court complaint to foreclose constitutes a cloud on the title to the property. Charles Schwab
claims that the Tuckers effectively seek to “have this Court declare the mortgage unenforceable
and the note unsecured under the guise that the Plaintiffs are unsure of whom to pay.” Charles
Schwab MTD (Dkt. 19) at 8. That is wrong. The Tuckers “do not contest that the holder of [the
mortgage] is entitled to enforce it;” they allege only that Charles Schwab is not the holder of the
note. Resp. Br. (Dkt. 36) ¶ 10. Under Illinois law, to prevail on a quiet title action “it is not
required that a perfect title be established.” Dudley v. Neteler, 392 Ill. App. 3d 140, 143, 924
N.E.2d 1023, 1026 (Ill. App. Ct. 2009). Rather, the Tuckers “must establish title superior to that
of defendants.” Id. In their complaint, the Tuckers request a declaration stating only that Charles
Schwab has no interest in their property or any mortgage on it. Cmplt. (Dkt. 1) at 15-16.

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Therefore, to succeed on their quiet title claim they need only show that Charles Schwab is not
entitled to enforce the mortgage, not that the mortgage is wholly unenforceable.
Charles Schwab next argues that it is the holder of the mortgage note and it cites to the
complaint it filed in state court as evidence of that fact. See Charles Schwab MTD (Dkt. 19). at
7-8. But the state court complaint attaches only copies of the mortgage note and mortgage
without providing any proof of assignment to Charles Schwab. See Cmplt. Ex. J. Charles Schwab
presented a purported proof of assignment for the first time as an attachment to its reply brief.
See Charles Schwab Reply Br. (Dkt. 39) at Ex. 1.
On a Rule 12(b)(6) motion to dismiss, the Court may consider “the complaint itself,
documents attached to the complaint, documents that are critical to the complaint and referred to
in it, and information that is subject to proper judicial notice.” Geinosky v. City of Chicago, 675
F.3d 743, 745 n.1 (7th Cir. 2012). Here, the Tuckers did not attach any proof of assignment to
their complaint, nor did they refer to the proof of assignment in the complaint. In fact, the
plaintiffs expressly deny the existence of any assignment. Cmplt. ¶¶ 22-23.
The Court declines to take judicial notice of the assignment because it is subject to
reasonable dispute. See Fed. R. Evid. 201(b) (“The court may judicially notice a fact that is not
subject to reasonable dispute because it: (1) is generally known within the trial court’s territorial
jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot
reasonably be questioned.”). Charles Schwab admits in its reply brief that it did not record the
assignment until July 26, 2012, after the complaint and motions to dismiss were filed. Charles
Schwab Reply Br. (Dkt. 39) at 2. As the plaintiffs deny that any assignment took place, there are
questions of fact regarding the validity of the assignment that necessitate further discovery and
prevent judicial notice. Therefore, the Court cannot consider the mortgage assignment that

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Charles Schwab attached to its reply brief. Taking the facts alleged in the complaint as true, then,
if the Tuckers had adequately alleged that the Trust dissolved while it owned their mortgage and
note, they would have adequately pleaded a quiet title claim against Charles Schwab.
2. Fraud, Attempted Conversion, and Unjust Enrichment 6
In Count III of their complaint, the Tuckers allege fraud, attempted conversion, and
unjust enrichment claims against Charles Schwab. The Tuckers argue that Charles Schwab
committed fraud by recording a lis pendens and filing a complaint to foreclose on the property
without an interest in the mortgage note or mortgage. The elements of common law fraud are:
(1) a statement by defendant; (2) of a material nature as opposed to
opinion; (3) that was untrue; (4) that was known or believed by the
speaker to be untrue or made in culpable ignorance of its truth or
falsity; (5) that was relied on by the plaintiff to his detriment; (6)
made for the purpose of inducing reliance; and (7) such reliance
led to the plaintiff’s injury.
Chow v. Aegis Mortg. Corp., 185 F. Supp. 2d 914, 917 (N.D. Ill. 2002) (quoting Duran v. Leslie
Oldsmobile, Inc., 229 Ill. App. 3d 1032, 1039, 594 N.E.2d 1355, 1360 (Ill. App. Ct. 1992))
(internal quotation marks omitted). Rule 9(b) requires a party to “state with particularity the
circumstances constituting fraud.” Fed. R. Civ. P. 9(b).
The Tuckers fail to allege particular facts required to meet each element of common law
fraud. Assuming that Charles Schwab’s lis pendens and complaint to foreclose on the property
constitute untrue statements of a material nature, the Tuckers still fail to allege that they relied on

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Charles Schwab argues that the Tuckers only assert a quiet title action, i.e. Count II, against
them. Charles Schwab Reply Br. (Dkt. 39) at 1. Indeed, the Tuckers stated in their response brief
that they “have stated no other claims against Defendant Charles Schwab.” Resp. Br. (Dkt. 36) at
¶ 15. But the complaint contains specific factual assertions against Charles Schwab in Counts III
and IV. Cmplt. ¶¶ 55, 57, 62, 66-67, 71, 73. Viewing the complaint in the light most favorable to
the Tuckers, the Court finds that it does attempt to set forth claims against Charles Schwab in
Counts III and IV, and therefore it will consider Charles Schwab’s arguments for dismissing
those claims.
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those statements, or that they were injured by their reliance. Because the Tuckers fail to allege
particular facts establishing the required elements of fraud, their fraud claim fails.
Charles Schwab also correctly argues that it cannot be liable for conversion by seeking to
foreclose on real property. Under Illinois law, an action for conversion only lies for personal
property—not real property. See Sandy Creek Condo. Ass’n v. Stolt & Egner, Inc., 267 Ill. App.
3d 291, 295, 642 N.E.2d 171, 175 (Ill. App. Ct. 1994); In re Thebus, 108 Ill. 2d 255, 260, 483
N.E.2d 1258, 1260 (1985). Because the Tuckers claim that Charles Schwab is attempting to take
their real property, Charles Schwab cannot be liable for conversion. 7
Finally, the Tuckers have also failed to plead a plausible claim of unjust enrichment
against Charles Schwab because they do not allege any facts showing that Charles Schwab was
unjustly enriched to the impoverishment of the Tuckers. See Cmplt. ¶¶ 54-64; Sherman v. Ryan,
392 Ill. App. 3d 712, 734, 911 N.E.2d 378, 399 (Ill App. Ct. 2009) (The elements of unjust
enrichment are: “(1) an enrichment, (2) an impoverishment; (3) a relation between the
enrichment and impoverishment, (4) the absence of justification and (5) the absence of a remedy
provided by law.”). Therefore, because the plaintiffs have not pleaded sufficient facts to support
claims for fraud, conversion or unjust enrichment, Count III would be dismissed even if the
Tuckers had adequately pleaded that the Trust was dissolved.
3. ICFA and IDPA
The Tuckers allege in Count IV of their complaint that Charles Schwab has violated the
ICFA and the IDPA by recording a lis pendens and filing a complaint to foreclose on the
property. To state a claim under the ICFA,

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Additionally, the plaintiffs actually pleaded “attempted conversion” rather than actual
conversion, and the Seventh Circuit has rejected similar claims. See United States v. Stefonek,
179 F.3d 1030, 1036 (7th Cir. 1999) (“There are no ‘attempted torts.’”).
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a plaintiff must allege: (1) an unfair or deceptive act or practice by
the defendant; (2) the defendant’s intent that the plaintiff rely on
the deception; (3) that the deception occurred in the course of
conduct involving trade or commerce; (4) actual damage to the
plaintiff; and (5) that such damages were proximately caused by
the defendant’s deception.
Thrasher-Lyon v. Ill. Farmers Ins. Co., 861 F. Supp. 2d 898, 908-09 (N.D. Ill. 2012). Because
the ICFA asserts fraud, it requires plaintiffs to plead with particularity. Freedom Mortg. Corp. v.
Burnham Mortg., Inc., 720 F. Supp. 2d 978, 1004 (N.D. Ill. 2010). The Tuckers allege that
Charles Schwab has attempted to take their property by recording a lis pendens and moving to
foreclose on the false pretext that it has rights under the note or mortgage. Cmplt. ¶¶ 66, 71. The
Court cannot presently credit Charles Schwab’s argument that it is the true holder of the note and
mortgage, and must accept the Tuckers’ allegations. Read broadly, the Tuckers’ allegations
would be sufficient to meet the necessary ICFA elements.
To state a claim under the IDPA, the plaintiff must allege facts showing that the
defendant “engaged in a deceptive trade practice” such as “[passing] off goods or services as
those of another” or conduct that “similarly creates a likelihood of confusion or
misunderstanding.” 8 815 ILCS 510/2(a)(1), (12). The Tuckers’ IDPA allegations hinge on
whether any valid assignment of the mortgage to Charles Schwab occurred. As explained above,
the Court may not consider the assignment of the mortgage that Charles Schwab attached to its
reply brief, nor its argument that the Tuckers defaulted on their mortgage. Rather, it must accept
the plaintiffs’ allegation that no assignment took place. Therefore, had the Tuckers adequately

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Charles Schwab correctly notes that the IDPA does not allow for the recovery of damages
without a separate common law or statutory violation. See Vincent v. Alden-Park Strathmoor,
Inc., 399 Ill. App. 3d 1102, 1110-11, 928 N.E.2d 115, 122-23 (Ill. App. Ct. 2010); Glazewski v.
Coronet Ins. Co., 108 Ill. 2d 243, 252-53, 483 N.E.2d 1263, 1267 (1985). But because the
Tuckers also seek injunctive relief, and because they do claim other common law and statutory
violations, the IDPA claim need not be dismissed on that basis.
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alleged the dissolution of the Trust, they would also have adequately alleged a violation of the
IDPA.
*

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For the reasons set forth above, the Court grants the defendants motions to dismiss the
complaint without prejudice.

Entered: March 29, 2013
John J. Tharp, Jr.
United States District Judge

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