Fendon v. Bank of America, N.A.

Filing 18

MEMORANDUM Opinion and Order Signed by the Honorable Rebecca R. Pallmeyer on 3/8/2017. Civil case terminated. Mailed notice. (etv, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JAMES. FENDON,
Plaintiff,
v.
BANK OF AMERICA, N.A.
Defendants.

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No. 16 C 3531
Judge Rebecca R. Pallmeyer

MEMORANDUM OPINION AND ORDER
Plaintiff James Fendon has filed a pro se suit for a declaratory judgment that Defendant
Bank of America, N.A. ("Bank of America") willfully violated the Truth in Lending Act ("TILA"), 15
U.S.C. § 1635, by bringing a foreclosure action against him in state court after he had already
sought rescission of his mortgage loan. In addition to the declaration, Plaintiff seeks to recover
all the money paid in connection with the loan and a judgment voiding the mortgage. Defendant
contends that Plaintiff's suit effectively asks this court to review the state court's judgment in the
foreclosure action.

Defendant, therefore, has moved to dismiss for lack of subject-matter

jurisdiction because the Rooker-Feldman doctrine bars federal district courts from reviewing the
judgments of state courts. Even if the court were not barred from hearing Plaintiff's case,
Defendant urges, Plaintiff's suit must be dismissed because it is barred by the statute of
limitations and does not state a claim under TILA. For the reasons set forth below, the court
grants Defendant's motion [9].
BACKGROUND
The court takes the following facts from the allegations in Plaintiff's complaint and from
documents central to Plaintiff's claim that he refers to in the complaint and which the parties
have attached to their briefs. See Adams v. City of Indianapolis, 742 F.3d 720, 729 (7th Cir.
2014). Plaintiff entered into a mortgage agreement with Countrywide Bank, FSB sometime in
the summer of 2007. Plaintiff's complaint refers to a "refinance home loan," which he says he

entered into on July 13, 2007. (Compl. for Decl. J. (hereinafter "Compl.") [1] ¶ 5.) In his
response to Defendant's motion to dismiss, Plaintiff attaches the loan's "lock-in agreement,"
which Plaintiff signed on August 8, 2007 and which lists the loan's origination date as July 13,
2007. (Lock-in Agreement, Ex E. to Pl.'s Resp. to Def.'s Mot. to Dismiss (hereinafter "Pl.'s
Resp.") [15], 1, 3.)

The mortgage agreement and the accompanying fixed/adjustable rate

promissory note that Fendon executed, both of which Defendant attached to the motion to
dismiss, were signed on August 8, 2007. (Mortgage, Ex. A to Def.'s Mem. in Supp. of it Mot. to
Dismiss (hereinafter "Def.'s Mem.") [10-1], 26; Fixed/Adjustable Rate Note (hereinafter "Note"),
Ex. B. to Def.'s Mem. [10-2], 4.)

The mortgage agreement names Mortgage Electronic

Registration Systems, Inc. ("MERS"), as nominee for Countrywide and its successors and
assigns. (Mortgage at 2.) In June 2011, MERS assigned the mortgage to BAC Home Loans
Servicing, LP ("BAC"). (Assignment of Mortgage, Ex. C to Def.'s Mem. [10-3].) Defendant is a
successor by merger to BAC.
Under TILA, borrowers have an unconditional right to rescind a loan within three days of
the transaction's consummation. See 15 U.S.C. § 1635(a); Jesinoski v. Countrywide Home
Loans, Inc., 135 S. Ct. 790, 792 (2015). The three-day period is extended to a three-year
period if a lender fails to satisfy TILA's disclosure requirements. See 15 U.S.C. § 1635(f);
Jesinoski, 135 S. Ct. at 792. Plaintiff alleges that he did not receive the information disclosures
that TILA requires. Specifically, he alleges that the loan documents did not name a specific
lender, misstated the annual interest rate and monthly payment amounts, and failed to disclose
that he would be charged $515 for an appraisal. (Compl. ¶¶ 6–9.) Plaintiff asserts that he
provided written notice of his intent to rescind the loan on three occasions, each of which was
within three years of the loan's execution date. (Id. ¶ 11.) In his response to the motion to
dismiss, Plaintiff identifies the dates on which he sent the notices as August 15, 2008, April 16,
2009, and June 17, 2010. (Pl.'s Resp. to Def.'s Mot. to Dismiss (hereinafter "Pl.'s Resp.") [15],
2.) When a consumer rescinds a loan, the creditor's security interest becomes void, and the
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creditor is required within twenty days of receiving the notice of rescission to return any money
or property it has received in connection with the transaction. 12 C.F.R. § 226.23(d). 1 Plaintiff
alleges that, in a May 2011 letter, Defendant acknowledged receipt of Plaintiff's rescission
notices but claimed that he had waived his right to rescind the loan on August 8, 2007. (Compl.
¶ 11.) 2
Defendant filed a foreclosure action in state court, seeking to enforce its security
interest, on October 24, 2011. 3 More than four years later, on March 23, 2016, the state court
entered an order of possession confirming the foreclosure sale to Federal National Mortgage
Association, who was substituted as plaintiff in the action in place of Defendant. (See Order in
Fed. Nat'l Mortg. Ass'n v. Fendon, No. 11 CH 36847, Ex. D to Def.'s Mem. [10-4].) That same
day, Plaintiff filed his complaint for declaratory judgment in this court. (Compl. at 1.)

In his

response to the motion to dismiss, Plaintiff asserts that he filed his complaint in this case in the
morning of March 23, prior to the entry of judgment in the state court case. (Pl.'s Resp. at 1.) In
the complaint, Plaintiff requests a "judgment voiding the mortgage, ordering return of all money
paid in connection with the property and any other relief the court may grant." (Compl. at 4.)
Defendant contends that this court lacks subject-matter jurisdiction over the case
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Once the creditor returns the money or property the consumer has provided in
connection with the loan and takes other necessary actions to reflect the termination of its
security interest, the consumer must tender any money or property he has received through the
transaction (or its reasonable value). See 12 C.F.R. § 226.23(d)(3). As the Seventh Circuit has
noted, this obligation of the borrower to return the loan principal "often has the practical effect of
ruling out rescission, if the borrower has already used the money to cover urgent financial
obligations." Marr v. Bank of Am., N.A., 662 F.3d 963, 966 (7th Cir. 2011). The parties do not
address whether Plaintiff Fendon would in fact be able to return the funds loaned to him, were
the court to enforce rescission. As Judge Feinerman of this court has explained, when
rescission claims are litigated, the majority of courts modify the default to require an initial
showing that the borrower has the funds to pay the bank. See Iroanyah v. Bank of America,
N.A., 851 F. Supp. 2d 1115, 1125-26 (N.D. Ill. Mar. 14, 2012).
2

In the motion to dismiss, Defendant does not assert that Plaintiff waived his right
to rescind or explain the basis for its alleged representation to Plaintiff that he had waived his
right.
3

The court presumes that Defendant alleged in state court that Plaintiff was in
default on the loan, though neither party says so expressly.
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because Plaintiff's claim is "inextricably intertwined" with the state court's judgment and is thus
barred under the Rooker-Feldman doctrine. See, e.g., Taylor v. Fed. Nat'l Mortg. Ass'n, 374
F.3d 529, 533 (7th Cir. 2004). Plaintiff insists that his claim is not barred because he filed suit in
federal court prior to the entry of judgment in state court and because he alleges a prior injury
that the state court failed to remedy. Defendant urges the court to dismiss Plaintiff's complaint
even if the court finds it has jurisdiction because the suit is time-barred and because Plaintiff
fails to state a claim under TILA. The court addresses these arguments below.
DISCUSSION
Defendant moves to dismiss for lack of subject-matter jurisdiction under Federal Rule of
Civil Procedure 12(b)(1) and for failure to state a claim under Rule 12(b)(6).

For facial

challenges to subject-matter jurisdiction, the courts apply the same standard used for evaluating
motions to dismiss under Rule 12(b)(6). Lardas v. Grcic, 847 F.3d 561, 565 (7th Cir. 2017).
The court accepts the truth of the factual allegations in Plaintiff's complaint in determining
whether Plaintiff's allegations provide a basis for the exercise of jurisdiction and state a
plausible claim for relief. Id. In addition, because Plaintiff is proceeding pro se, the court
construes his filings liberally. Erickson v. Pardus, 551 U.S. 89, 94 (2007). "[A] pro se complaint,
however inartfully pleaded, must be held to less stringent standards than formal pleadings
drafted by lawyers." Id.
I.

Rooker-Feldman
The Supreme Court is the only federal court authorized to reverse and modify state-court

judgments. See 28 U.S.C. § 1257. Thus, under the so-called Rooker-Feldman doctrine, federal
district courts lack jurisdiction over suits brought by plaintiffs seeking review of unfavorable
state-court judgments. See Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 283–
84 (2005) (discussing Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and D.C. Ct. of App. v.
Feldman, 460 U.S. 462 (1983)). In addition to cases in which a plaintiff expressly requests
reversal of a state court judgment, Rooker-Feldman also bars federal claims that are
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"inextricably intertwined" with a state court judgment, even if the plaintiff failed to raise the
federal claims in state court and does not expressly request review of the state court's
judgment. See Brown v. Bowman, 668 F.3d 437, 442 (7th Cir. 2012).
Defendant contends that Plaintiff's TILA-based rescission claim is inextricably
intertwined with the judgment in the state-court action because a favorable finding for Plaintiff on
his rescission claim would undermine the validity of the state court's foreclosure judgment. See
Williams v. Ameriquest Mortg. Co., No. 14 CV 0401, 2014 WL 3687729, at *4 (N.D. Ill. July 24,
2014) (rescission claim inextricably intertwined with foreclosure judgment where injury to be
redressed arises from foreclosure).

Plaintiff responds that the Rooker-Feldman doctrine is

inapplicable in his case because he filed this suit prior to entry of the judgment in state court. In
addition, he argues that his federal claim is not barred because it alleges an injury prior to the
state court action—the failure to respond to his notice of rescission—that the state court failed to
remedy. Defendant observes that Plaintiff has not established that his complaint was filed prior
to the entry of final judgment in the state court action. But at the motion-to-dismiss stage, the
court accepts the truth of Plaintiff's allegations and does not require him to produce supporting
evidence. Firestone Fin. Corp. v. Meyer, 796 F.3d 822, 827 (7th Cir. 2015) ("The relevant
question [at the motion-to-dismiss stage] is not whether a [plaintiff's] factual allegations are
true.") (emphasis in original).) 4 Assuming that Plaintiff did file his federal lawsuit before the
entry of judgment in state court, his claim appears to be outside the scope of Rooker-Feldman's
jurisdictional bar. See Exxon, 544 U.S. at 284 (confining doctrine to cases brought by plaintiffs

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Plaintiff's allegation regarding the timing of his suit appears in his response to
Defendant's motion to dismiss. (See Pl.'s Resp. at 1.) Defendant urges the court to strike such
allegations, as well as the attached exhibits, that were not contained in his complaint because "it
is axiomatic that a complaint may not be amended by the briefs in opposition to a motion to
dismiss." Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1107 (7th Cir. 1984). The court
declines to strike Plaintiff's new allegations. Although parties may not use briefs to amend their
pleadings, it also well established that a plaintiff need not include all of the essential facts in his
complaint and "may add them by affidavit or brief in order to defeat a motion to dismiss if the
facts are consistent with the allegations of the complaint." Help At Home Inc. v. Med. Capital,
L.L.C., 260 F.3d 748, 752–53 (7th Cir. 2001).
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complaining of injuries "caused by state-court judgments rendered before the district court
proceedings commenced") (emphasis added); see id. at 293 ("[N]either Rooker nor Feldman
supports the notion that properly invoked concurrent jurisdiction vanishes if a state court
reaches judgment on the same or related question while the case remains sub judice in a
federal court.").
Defendant faults Plaintiff for failing to identify "a recognized exception to the applicability
of the Rooker-Feldman doctrine in the Seventh Circuit." (Def.'s Reply in Supp. of its Mot. to
Dismiss (hereinafter "Def.'s Reply"), 4.) A brief review of Seventh Circuit authority on this issue,
however, reveals that the Seventh Circuit does indeed recognize the exception to the doctrine
Plaintiff identifies and has done so for over fifteen years. See Long v. Shorebank Dev. Corp.,
182 F.3d 548, 555 (7th Cir. 1999) (recognizing distinction between federal claim alleging injury
caused by state-court judgment and "a federal claim alleging a prior injury that a state court
failed to remedy" and stating that latter is not barred under Rooker-Feldman).

Construed

liberally, the complaint alleges an injury prior to, and independent of, the foreclosure judgment—
namely, Defendant's failure to rescind his loan and to return the mortgage payments Plaintiff
had already made at the time of rescission. True, a finding that Plaintiff’s loan was rescinded
prior to the foreclosure action would be inconsistent with the state-court judgment of foreclosure.
See In re Madera, 586 F.3d 228, 232 (3d Cir. 2009) (explaining inconsistency between grant of
rescission and foreclosure judgment). But strictly speaking, Rooker-Feldman does not bar this
complaint.
Instead, the possibility of inconsistent judgments in a case like this may be better
resolved by the doctrine of claim preclusion. See Sykes v. Cook Cty. Circuit Court Prob. Div.,
837 F.3d 736, 742 (7th Cir. 2016) ("[T]he Supreme Court has warned not to confuse RookerFeldman with claim preclusion: 'If a federal plaintiff presents some independent claim that
denies a legal conclusion that a state court has reached in a case to which he was a party, then
there is jurisdiction, and state law determines whether the defendant prevails under principles of
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preclusion.") (quoting Exxon, 544 U.S. at 293) (emendations omitted). Because Defendant has
not made such an argument, the court declines to address it here, as Plaintiff’s claim fails for
another reason: it is untimely.
II.

Timeliness of Plaintiff's Claim
Defendant contends that Plaintiff's claim for rescission under TILA is barred by the Act's

three-year statute of repose. 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 . . . ."); 12 C.F.R. §
226.23(a)(3) ("[T]he right to rescind shall expire 3 years after consummation . . . .").

In

Jesinoski, the Supreme Court clarified that a consumer does not need to bring suit within the
three-year period in order to rescind the loan; rather, a consumer may exercise the right to
rescind merely by notifying the creditor of his intention to rescind. Jesinoski, 135 S. Ct. at 792.
Defendant argues that Plaintiff has not adequately alleged that he notified Defendant of his
intention to rescind the loan within three years of August 8, 2007, the date of the loan's
execution. The court disagrees. Plaintiff alleges that he provided Defendant written notice of
his intent to rescind on August 15, 2008, April 16, 2009, and June 17, 2010, and the letter from
June 17, 2010 states clearly: "[Y]ou are hereby notified I want the loan voided." (Letter of June
17, 2010, Ex. A to Pl.'s Resp.) Plaintiff has adequately alleged that he notified Defendant of his
intend to rescind the loan within three years of August 8, 2007.
Jesinoski makes clear that a consumer need only provide written notice within the threeyear period to rescind a loan under TILA. But that case does not address the question of how
much time a consumer has to enforce his right to rescission in court. In Jesinoski, the plaintiffs
mailed their notices of rescission exactly three years after executing their mortgage agreement.
The creditor replied to the notice, refusing to acknowledge the validity of the rescission, and the
plaintiffs brought suit a little less than a year later seeking a declaration of rescission and
damages.

Jesinoski, 135 S. Ct. at 791.

Defendant contends that, to enforce a right to

rescission in court, a consumer must file suit within one year after the creditor's failure to
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respond to a written rescission notice. In support, Defendant invokes 15 U.S.C. § 1640, which
authorizes an action for damages arising from a violation of the Act "within one year from the
date of the occurrence of the violation." 15 U.S.C. § 1640(e). Under the Act's implementing
regulations, once a creditor has received a notice of rescission, the creditor has 20 calendar
days in which to return any money or property to the consumer and to "take any action
necessary to reflect the termination of the security interest." 12 C.F.R. § 226.23(d)(2). Thus,
Defendant argues, even if Plaintiff had provided his rescission notice on the last day of the
three-year period (August 8, 2010) and Defendant violated the Act by failing to respond within
20 calendar days (by August 28, 2010), Plaintiff would have to file his suit by August 28, 2011
(one year after Defendant's failure to respond). Plaintiff did not file suit in this case, however,
until March 23, 2016, four-and-a-half years after the latest date on which Defendant could have
violated TILA by failing to respond to a rescission notice from Plaintiff.
Plaintiff does not respond to Defendant's argument that his suit is barred because he
failed to bring it within a year of Defendant's purported violation; instead, he insists his complaint
is not time-barred because he provided a written rescission notice within the applicable threeyear period. (Pl.'s Resp. at 1.) But that is not contested. The fact that a consumer provides a
timely notice of rescission does not mean that he has an indefinite period in which he can sue to
enforce his rescission right. It would be "contrary to principles of justice and efficiency, and to
the intent of the applicable statutes in this case, to accept a theory espousing no time limit for
filing claims for enforcement of rescission."

Rosenfield v. HSBC Bank, USA, No.

CIVA10CV00058MSKMEH, 2010 WL 2163787, at *12 (D. Colo. May 26, 2010). The court
agrees with other courts in this district who have concluded that TILA's one-year limitations
period for damages actions applies to suits seeking enforcement of rescission.

See, e.g.,

Cocroft v. HSBC Bank USA, N.A., No. 10 C 3408, 2012 WL 1378645, at *3 (N.D. Ill. Apr. 20,
2012) (Kennelly, J.); Stewart v. BAC Home Loans Servicing, LP, No. 10 C 2033, 2011 WL
862938, at *6 (N.D. Ill. Mar. 10, 2011) (Kendall, J.) (suit filed within five months of notice of
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rescission was timely). Perhaps Plaintiff could have raised the issue of rescission as a defense
in the state-court foreclosure action; this court concludes only that he waited too long to bring
suit in this court to enforce the purported rescission of his loan.
CONCLUSION
For the reasons stated above, the court grants Defendant's motion to dismiss [9].
ENTER:

Dated:

March 8, 2017

_________________________________________
REBECCA R. PALLMEYER
United States District Judge

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