Kirschbaum et al v. Wells Fargo, N.A.

Filing 22

MEMORANDUM OPINION & ORDER: (1) 8 MOTION to Dismiss for failure to state a claim by Wells Fargo, N.A. is GRANTED. (2) All claims alleged in Complaint against Wells Fargo are DISMISSED WITH PREJUDICE. (3) all pending motions or requests for re lief DENIED AS MOOT. (4) all deadlines and scheduled proceedings CONTINUED GENERALLY. (5) Clerk shall STRIKE THIS MATTER FROM ACTIVE DOCKET. (6) FINAL AND APPEALABLE ORDER and THERE IS NO JUST CAUSE FOR DELAY. Signed by Judge Joseph M. Hood on 3/30/2017.(GLD)cc: COR, Pro Se Plaintiffs via U.S. Mail

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON

LEN KIRSCHBAUM AND
KIM KIRSCHBAUM,
Plaintiffs,
v.

WELLS FARGO, N.A., A/K/A
WELLS FARGO HOME MORTGAGE INC.
Defendant.

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Civil Case No.
5:16-cv-136-JMH
MEMORANDUM OPINION
& ORDER

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**
**
**
**
This matter is before the Court upon the Motion to Dismiss
filed by Defendant, Wells Fargo, N.A., a/k/a Wells Fargo Home
Mortgage Inc. (“Wells Fargo”) [DE 8].

Plaintiffs Len Kirschbaum

and Kim Kirschbaum (“Plaintiffs”) have filed a Response [DE 10]
and Wells Fargo has filed a Reply in further support of its Motion
[DE 11].
I.

Thus, the matter is fully briefed and ripe for review.

Factual and Procedural Background
Although the allegations of the pro se Complaint filed by

Plaintiffs are vague, the Complaint generally alleges that Wells
Fargo wrongfully foreclosed on real estate belonging to Plaintiffs
and violated

various

provisions

of

the

Truth

in

Lending

Act

(“TILA”), 15 U.S.C. § 1601, et seq., the underlying Regulation Z,
12

C.F.R.

§

226.1,

et

seq.,

and

the

Real

Estate

Procedures Act (“RESPA”), 12 U.S.C. § 2601, et seq.

1

Settlement
Plaintiffs

request rescission of the Mortgage and Note at issue, clear title
to the property, damages for emotional distress as a result of
“countless telephone calls ascertaining the delinquency of the
bill and or mortgage,” statutory damages for violations of TILA,
RESPA, and “the Unfair and Deceptive Acts and Practices,” treble
damages

for

“usurious

interest,”

return

of

Plaintiffs’

down

payment, installments, late payments, and other payments, as well
as interest on the entire amount of the loan, and costs of the
litigation.

Plaintiffs also seek injunctive relief enjoining the

foreclosure

action

“preliminarily

and

and

all

other

permanently,”

activities

as

well

as

complained
an

of

injunction

enjoining Wells Fargo from “keeping relevant documents such as,
complete loan package but not limited there to and to forward all
foreclosure documents” to Plaintiffs.
Although
details

Plaintiffs’

regarding

the

Complaint

foreclosure

[DE 1-1 at ¶¶ 110-25].
does
action

not

provide

specific

referenced

therein,

copies of the docket sheet, Foreclosure Complaint, and the Judgment
from Wells Fargo Bank, N.A. v. Kirschbaum, Case No. 15-CI-326,
filed in the Jessamine Circuit Court in Jessamine County, Kentucky,
are attached to Wells Fargo’s Motion to Dismiss [DE 8-2, State
Court Record]. 1

According to these documents, Plaintiffs obtained

a mortgage loan from Central Bank on December 1, 2005 (the “Loan”)

1

The propriety of considering these documents on Wells Fargo’s
motion to dismiss is discussed more fully in part II., infra.
2

[DE 8-2].

In connection with the Loan, Plaintiffs executed a

promissory note (the “Note”) and a mortgage (the “Mortgage”)
pledging

their

property

located

at

152

Cherrybrook

Drive,

Nicholasville, Kentucky as collateral for the Loan [Id.].

The

Mortgage was filed on December 7, 2005 in Mortgage Book 802, Page
391 of the Jessamine County Clerk’s Office and was subsequently
assigned to Wells Fargo [Id.].

After Plaintiffs’ defaulted in the

payment of the Note and Mortgage, Wells Fargo filed the foreclosure
action on or around May 26, 2015 [Id.]. 2

A Judgment and Order of

Sale was entered by the Jessamine Circuit Court on March 7, 2016,
finding in Wells Fargo’s favor and referring the matter to the
Master Commissioner for judicial sale.

[Id.].

Plaintiffs filed

the Complaint in this case in the Jessamine Circuit Court on April
8, 2016 [DE 1-1].
2016

[DE

1].

This case was removed to this Court on May 5,

Plaintiffs

also

filed

a

voluntary

Chapter

13

bankruptcy petition in the Eastern District of Kentucky on April
14, 2016, and Wells Fargo filed a notice of automatic stay in the
foreclosure action on April 21, 2016, staying the foreclosure sale
[DE 8-2]. 3

2

Wells Fargo filed an Amended Complaint in the foreclosure action
on or around August 31, 2015 [DE 8-2].
3 As noted by Wells Fargo, the automatic stay provision of the
United States Code provides for the stay of judicial proceedings
against the debtor that are commenced before the commencement of
the bankruptcy case or that are to recover a claim against the
debtor that arose before the commencement of the case. 11 U.S.C.
§ 362(a)(1).
The Complaint in this case was initiated by the
3

II.

Standard of Review

Wells Fargo seeks dismissal of Plaintiffs’ Complaint pursuant
to Fed. R. Civ. P. 12(b)(1) and 12(b)(6).

Specifically, Wells

Fargo argues that Plaintiffs’ claims seeking rescission of the
foreclosure action pursuant to TILA should be dismissed pursuant
to Rule 12(b)(1) and that the remainder of Plaintiffs’ claims
should be dismissed pursuant to Rule 12(b)(6) for failure to state
a claim.
A

Rule

12(b)(1)

motion

can

either

attack

the

claim

of

jurisdiction on its face, in which case all allegations of the
plaintiff must be considered as true, or it can attack the factual
basis for jurisdiction, in which case the trial court must weigh
the evidence and the plaintiff bears the burden of proving that
jurisdiction exists. See RMI Titanium Co. v. Westinghouse Elec.
Corp., 78 F.3d 1125, 1133–35 (6th Cir. 1996); United States v.
Ritchie, 15 F.3d 592, 598 (6th Cir. 1994); Ohio Nat'l Life Ins.
Co. v. United States, 922 F.2d 320, 325 (6th Cir.1990).
Defendants

have

put

forth

a

“factual

attack”

on

the

Here,
Court’s

jurisdiction to hear this case; thus, the Court need not presume
the facts in the Complaint as true.

RMI Titanium Co., 78 F.3d at

1134.

debtors rather than against them, thus the automatic stay does not
apply.
4

Conversely, a motion to dismiss pursuant to Fed. R. Civ. P.
12(b)(6) tests the sufficiency of Plaintiffs’ complaint. In ruling
on a Rule 12(b)(6) motion to dismiss, the court “must construe the
complaint in the light most favorable to the plaintiff and accept
all allegations as true.”

Keys v. Humana, Inc., 684 F.3d 605, 608

(6th Cir. 2012)(citation omitted). 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, 678 (2009) (citing Bell Atl. 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.
Generally,

matters

outside

Id.
the

pleadings

may

not

be

considered by the Court in ruling on a motion to dismiss pursuant
to Rule 12(b)(6) without converting the motion to a motion for
summary judgment.
addition

to

the

See Fed. R. Civ. Pro. 12(d).
allegations

in

the

complaint,

However, “[i]n
the

court

may

consider other materials that are integral to the complaint, are
public records, or are otherwise appropriate for the taking of
judicial notice.”

Wyser-Pratte Management Co., Inc. v. Telxon

Corp., 413 F.3d 553, 560 (6th Cir. 2005)(citations omitted).

The

Foreclosure Complaint and Judgment from the Jessamine Circuit
Court are referred to in the Complaint and are, indeed, integral
5

to Plaintiffs’ allegations of wrongful foreclosure.

Moreover,

these documents are public records and are appropriate for the
taking of judicial notice, as they can be accurately and readily
determined from the Jessamine Circuit Court records, a source whose
accuracy cannot reasonably be questioned.

Fed. R. 201(c).

For

all of these reasons, the Court may consider these materials in
ruling on Wells Fargo’s motion without converting the motion to a
motion for summary judgment.
III. Analysis
A. Plaintiffs’ TILA Claims
In their Complaint, Plaintiffs allege various violations of
the lender’s disclosure obligations arising under TILA, 15 U.S.C.
§ 1601, et seq., and seek money damages, as well as rescission of
the entire loan transaction [DE 1-1]. TILA “was enacted to promote
the informed use of credit by consumers by requiring meaningful
disclosure of credit terms.”

Barrett v. JP Morgan Chase Bank,

N.A., 445 F.3d 874, 875 (6th Cir. 2006)(quoting Begala v. PNC Bank,
Ohio, N.A., 163 F.3d 948, 950 (6th Cir. 1998)).

Accordingly, TILA

“requires creditors to provide borrowers with clear and accurate
disclosures of terms dealing with things like finance charges,
annual percentage rates of interest, and the borrower’s rights.”
Beach v. Ocwen Federal Bank, 523 U.S. 410, 412 (1998)(citations
omitted).

6

In addition to being subject to statutory and actual damages
traceable to a lender’s failure to make the required disclosures,
“the Act also authorizes a borrower whose loan is secured with his
‘principal

dwelling,’

and

who

has

been

denied

the

disclosures, to rescind the loan transaction entirely.”

requisite
Id.

In

these circumstances, the borrower has the right to rescind the
loan agreement for up to three business days after the transaction.
See 15 U.S.C. § 1635(a).

Moreover, “[w]hen the lender ‘fails to

deliver certain forms or to disclose important terms accurately’
to the borrower, the Act extends the borrower's right to rescind
the transaction to three years.”

Barrett, 445 F.3d at 875-876

(quoting Beach, 523 U.S. at 411).
1. This
Court
has
Subject-Matter
Plaintiff’s Claim for Rescission

Jurisdiction

Over

To the extent that Plaintiffs’ Complaint seeks rescission of
the Loan due to an alleged failure to provide the disclosures
required under TILA, Wells Fargo argues that this Court does not
have subject-matter jurisdiction over this claim, as this claim is
barred

by

doctrine

the

Rooker-Feldman

precludes

this

doctrine.

Court

“from

The

exercising

jurisdiction over final state-court judgments.”
546 U.S. 459, 463 (2006).

Rooker–Feldman
appellate

Lance v. Dennis,

In Exxon Mobil Corp. v. Saudi Basic

Indus. Corp., 544 U.S. 280 (2005), the United States Supreme Court
explained:

7

[t]he Rooker-Feldman doctrine...is confined to cases of
the kind from which the doctrine acquired its name:
cases brought by state-court losers complaining of
injuries caused by state-court judgments rendered before
the district court proceedings commenced and inviting
district court review and rejection of those judgments.
Rooker-Feldman does not otherwise override or supplant
preclusion doctrine or augment the circumscribed
doctrines that allow federal courts to stay or dismiss
proceedings in deference to state-court actions.
Id. at 284.
The Court further explained that “[i]f a federal plaintiff
‘present[s] some independent claim, albeit one 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 preclusion.’”
Id. at 293 (quoting GASH Assocs. V. Rosemont, 995 F.2d 726, 728
(7th Cir. 1993)(alterations in original)). The Sixth Circuit Court
of Appeals has noted that the scope of Rooker-Feldman has been
tightened

post-Exxon

Mobile

Corp.,

and

distinguishes

“between

plaintiffs who bring an impermissible attack on a state court
judgment

—

situations

in

which

Rooker-Feldman

applies

—

and

plaintiffs who assert independent claims before the district court
— situations in which Rooker-Feldman does not apply.”

Kovacic v.

Cuyahoga County Dep’t of Children and Family Services, 606 F.3d
301, 309 (6th Cir. 2010)(citations omitted).

Accordingly, “the

pertinent inquiry after Exxon is whether the ‘source of the injury’
upon which plaintiff bases his federal claim is the state court

8

judgment,

not

simply

whether

the

injury

complained

of

‘inextricably intertwined’ with the state-court judgment.”

is
Id.

(citing McCormick v. Braverman, 451 F.3d 382, 394-95 (6th Cir.
2006).
Here,

with

respect

to

Plaintiffs’

TILA

claim

seeking

rescission, Plaintiffs are not complaining of an injury caused by
the state court foreclosure judgment.

Rather, the source of

Plaintiffs’ alleged injury is the alleged failure of the lender in
their loan transaction to make the disclosures required under TILA.
Therefore, Plaintiffs’ Complaint presents an independent claim and
Rooker-Feldman does not apply.

See Veasley v. Federal Nat. Mortg.

Ass’n (FNMA), 623 Fed.App’x. 290 (6th Cir. 2015)(where plaintiff
sued a mortgage assignee and purchaser at a foreclosure sale,
alleging that the foreclosure sale was invalid based on improper
chain of title, Rooker-Feldman did not preclude jurisdiction over
the plaintiff’s case because the source of plaintiff’s injury was
an alleged faulty mortgage assignment, thus plaintiff raised a
claim independent from the state court judgment of foreclosure);
Brown v. First Nationwide Mortg. Corp., 206 Fed. App’x 436, 440
(6th Cir. 2006)(plaintiff’s complaint alleging fraud in connection
with state court foreclosure proceedings not barred by RookerFeldman because it did not claim the source of plaintiff’s injury
was the foreclosure decree itself, but rather concerned the actions

9

of defendants that preceded the decree).

Accordingly, this Court

has jurisdiction over Plaintiffs’ rescission claim. 4
2. Plaintiffs’ TILA Claims are Time-Barred
Although Plaintiffs’ TILA claims survive Rooker-Feldman, they
must still be dismissed, as they are time-barred.

The statute of

limitations for a TILA claim for damages is governed by 15 U.S.C.
§ 1640(e), which provides in pertinent part:
Except as provided in the subsequent sentence, any
action under this section may be brought in any United
States district court, or in any other court of competent
jurisdiction, within one year from the date of the
occurrence of the violation...”
15 U.S.C. § 1640(e).

For alleged disclosure violations, this date

is the date that the transaction is consummated, which is the date
that the borrow signs the loan documents and becomes obligated to
pay.

See United States v. Petroff-Kline, 557 F.3d 285, 286 (6th

Cir. 2009).
Here, Plaintiffs’ Complaint alleges:

“On or about 2006

Plaintiff and Defendant purported to execute a Mortgage and Note,
purported loan number 0641859756.

The said purported mortgage and

note were never consummated by signing therein” [DE 1-1, ¶6].
However, although Plaintiffs may allege that they never signed the

4

As noted in Exxon Mobile Corp., this Court may be bound to
recognize the claim- and issue-preclusive effects of the state
court judgment, but “[p]reclusion, of course, is not a
jurisdictional matter.” Exxon Mobil Corp., 544 U.S. at 293 (citing
Fed. R. Civ. Pro. 8(c)).
10

note, the allegations in the Complaint make clear that something
happened in 2006 with respect to the Mortgage and Note that
resulted in Plaintiffs entering into some sort of relationship
with Wells Fargo pursuant to which Wells Fargo had obligations to
make the disclosures that Plaintiffs allege that it failed to make.
For example, the next paragraphs of the Complaint allege:
7. Either before, during and/or after the settlement,
Defendant (Wells Fargo) failed and/or refused to provide
defendant [sic] with copies of important documents,
including the complete mortgage and note, which would
explain their consumer rights, as well as other rights,
including but not limited to, the right to cancel the
contract and the Federal Truth in Lending Disclosures.
8. Defendants also intentionally failed and/or refused
to provide defendant [sic] various disclosures that
would indicate to plaintiffs that the contract entered
into was void and illegal. Said defendant, failed to
disclose that the loan obtained had an interest rate
higher than stated and in the preliminary disclosures,
which preliminary disclosures were never given.
9. Defendant’s attorney and/or settlement officer did
not furnish defendant [sic] with copies of numerous
important settlement documents, ever in the loans [sic]
history.
[DE 1-1, ¶¶6-9].
Thus, Plaintiffs are not contending that there was never any
relationship between Plaintiffs and Wells Fargo’s predecessor-ininterest to the Loan.
the

Mortgage

and

Indeed, despite Plaintiffs’ allegation that

Note

were

never

consummated

by

signing,

Plaintiffs’ Complaint also refers to “the settlement” of the loan,
the

“contract

entered

into”,

the

11

interest

rate

of

the

Loan,

“settlement

documents”

and

the

Loan’s

“history”.

Although

Plaintiffs’ may allege that the Mortgage and Note were not signed,
they concede that a relationship between the parties with respect
to the Note and related Mortgage existed and, according to their
allegations, began in 2006.

Any inferences to the contrary would

be completely unwarranted factual inferences that the Court need
not accept as true, even on a Rule 12(b)(6) motion to dismiss.
See Gahafer v. Ford Motor Co., 328 F.3d 859, 861 (6th Cir.
2003)(quoting Morgan v. Church’s Fried Chicken, 829 F.2d 10, 12
(6th Cir. 1987)).
Moreover, although Plaintiffs’ Complaint is not barred by
the Rooker-Feldman doctrine, this Court is bound to recognize the
claim- and issue-preclusive effects of the state court judgment.
Exxon Mobil Corp., 544 U.S. at 293.

A federal court must afford

full faith and credit to state court judgments. U.S. Const., Art.
IV, § 1.

This rule is codified in the Full Faith and Credit Act,

which requires a federal court to afford preclusive effect to a
state court judgment to the same degree it would be afforded such
effect by a state court located in the jurisdiction where the
federal court sits.

28 U.S.C. § 1738; Migra v. Warren City Sch.

Dist. Bd. of Educ., 465 U.S. 75, 77 n. 1 (1984).
In

Kentucky,

the

rule

of

res

judicata

operates

to

bar

repetitious suits involving the same cause of action and is formed
by two subparts: 1) claim preclusion and 2) issue preclusion.
12

Yeoman v. Commonwealth, Health Policy Bd., 983 S.W.2d 459, 464465 (Ky. 1998).

“Claim preclusion bars a party from re-litigating

a previously adjudicated cause of action and entirely bars a new
lawsuit on the same cause of action.”
omitted).

Id. at 465 (citations

Tis doctrine “prevents the relitigation of the same

issues in a subsequent appeal and includes every matter belonging
to the subject of the litigation which could have been, as well as
those which were, introduced in support of the contention of the
parties on the first appeal.”

Miller v. Administrative Office of

the Courts, 361 S.W.3d 867, 871-872 (quoting Huntzinger v. McCrae,
818 S.W.2d 613, 615 (Ky. Ct. App. 1990)).

Three elements must be

present for further litigation to be barred by claim preclusion:
“(1) identity of the parties, (2) identity of the causes of action,
and (3) resolution on the merits.”

Coomer v. CSX Transp., Inc.,

319 S.W.3d 366, 371 (Ky. 2010)(citations omitted). In deciding
whether

two

lawsuits

concern

the

same

controversy,

the

“key

inquiry” is whether they both arise from the same “transactional
nucleus of facts.”

Id. (citing Yeoman, 983 S.W.2d at 465).

Here, there is clearly identity of the parties, as Plaintiffs
and Wells Fargo were both parties to the foreclosure case in the
Jessamine Circuit Court.

In addition, both cases arise from the

same “transaction nucleus of facts,” namely the validity of the
Note and Mortgage on the property located at 152 Cherrybrook Drive,
Nicholasville, KY, 40356, as well as Wells Fargo’s right to enforce
13

the terms of the Note and Mortgage.

Finally, the Judgment and

Order of Sale entered by the Jessamine Circuit Court on March 7,
2016 resolved the case on the merits and further provided that it
“is a final judgment and there is no just reason for delay” and
directed the Circuit Clerk to serve Notice of Entry pursuant to
Kentucky Rules of Civil Procedure (CR) Rule 77.04 [DE 8-2 at
Judgment and Order of Sale].

Thus, the claims in the foreclosure

case were resolved on the merits.

For all of these reasons,

Plaintiffs here are precluded from re-litigating the findings of
the Jessamine Circuit Court as set forth in the Judgment and Order
of Sale.
In the Judgment and Order of Sale, the Jessamine Circuit Court
found that the allegations contained in the Complaint filed by
Wells Fargo in that case are true, including that Wells Fargo is
entitled to enforce the Note attached to the Complaint, which is
signed by both Len and Kim Kirschbaum and executed on December 1,
2005 [Id.].

The Jessamine Circuit Court further found that the

Note is secured by a Mortgage upon the real estate owned by Len
and

Kim

Kirschbaum

located

at

152

Cherrybrook

Drive,

Nicholasville, KY 40356, which was also attached to Wells Fargo’s
Complaint, is dated December 1, 2005, and is signed by Len and Kim
Kirschbaum [Id.].
Thus, for purposes of the statute of limitations analysis,
the Court finds that the date the Loan was consummated was December
14

1, 2005.
occurrence

Accordingly, December 1, 2005 is also the “date of the
of

the

violation”

under

15

U.S.C.

§

1640(e).

Accordingly, any action for the purported TILA violations must
have been brought by December 1, 2006.

Even if the Court were to

consider the date of the violation to be in 2006, as alleged by
Plaintiffs, Plaintiffs still would have been required to bring
their claims by 2007.

This lawsuit was not filed until 2016, well

after the expiration of the statute of limitations.

Accordingly,

Plaintiffs’ claims for damages under TILA are time-barred pursuant
to the statute of limitations provided by 15 U.S.C. § 1640(e).
Similarly, Plaintiffs’ claim for rescission is also timebarred.

As

noted

above,

a

loan

made

in

a

consumer

credit

transaction secured by the borrower’s principal dwelling may be
rescinded

by

the

borrower

within

three

days

following

the

consummation of the transaction or the delivery of the disclosures
required by TILA, whichever is later.

Barrett, 445 F.3d at 877

(citing Beach, 523 U.S. at 411; 15 U.S.C. § 1635(a).

However,

“[i]n the event a bank does not comply with the Act’s disclosure
requirements, the three-day right to rescind becomes a three-year
right to rescind, which expires three years ‘after the date of
consummation of the transaction or upon the sale of the property,
whichever occurs first.’”

Id. (citing 15 U.S.C. § 1635(f)).

In

addition, a plaintiff filing suit based on an attempted rescission

15

must do so within one year of seeking rescission under TILA.

15

U.S.C. § 1640(e).
Accordingly, Plaintiffs would have had until December 2008,
three years after the date that the loan was consummated, to submit
a notice of rescission and an additional year after that, or until
December 2009, to file a lawsuit seeking rescission under TILA.
There are no allegations in the Complaint that Plaintiffs ever
gave Wells Fargo or any other entity notice of an intention to
seek to rescind the Loan, much less that any such notice was given
prior to December 2008.

Moreover, Plaintiffs’ Complaint was filed

in 2016, well after the December 2009 deadline.

Accordingly,

Plaintiffs’ claim for rescission under TILA must be dismissed as
time-barred.
3. Plaintiffs’ TILA Claims are Dismissed as Res Judicata
Even if Plaintiffs’ claims were not time-barred, all of
Plaintiffs’ claims pursuant to TILA, including those purportedly
based on TILA’s implementing regulation, Regulation Z, 12 C.F.R.
§

226.1,

et

seq.

should

have

been

brought

as

compulsory

counterclaims in the Jessamine Circuit Court action and the failure
to do so forecloses their litigation here.

See Chau v. First

Federal Bank, No. 5:10-CV-353-JMH, 2010 WL 5139354, at *2-*3 (E.D.

16

Ky. Dec. 9, 2010). 5

Kentucky Rules of Civil Procedure (CR) Rule

13.01 provides as follows:
A pleading shall state as a counterclaim any claim which
at the time of serving the pleading the pleader has
against any opposing party, if it arises out of the
transaction or occurrence that is the subject matter of
the opposing party's claim and does not require for its
adjudication the presence of third parties of whom the
court cannot acquire jurisdiction.
CR 13.01.

“The counterclaim must be asserted only if it [arises]

out of the transaction or occurrence that is the subject matter or
foundation of the opposing party's claim. If it is not presented
by pleading the matter will be res judicata, and it would not
support an independent action.”
163, 164 (Ky. 1961).

England v. Coffey, 350 S.W.2d

“Kentucky law thus precludes assertion of

counterclaims for the first time in a subsequent action,” and the
same is true where the subsequent action is filed or removed to a
federal court. Holbrook v. Shelter Insurance Company, 186 Fed.
App’x. 618, 622, 2006 WL 1792514 (6th Cir. 2006). “[C]laims coming
within the definition of ‘compulsory counterclaim’ are lost if not
raised at the proper time.”

Bluegrass Hosiery, Inc. v. Speizman

Indus., Inc., 214 F.3d 770, 772 (6th Cir.2000), citing Baker v.
Gold Seal Liquors, Inc., 417 U.S. 467, 469 n. 1 (1974).

5

This Court’s ruling in Chau dismissed various federal claims
against a lender, including TILA and RESPA claims, after a judgment
of foreclosure had been entered against the plaintiffs in Kentucky
state court.
This Court’s decision was affirmed by the Sixth
Circuit Court of Appeals. See Chau et al v. First Federal Bank et
al, 5:10-CV-353-JMH, ECF No. 21 (E.D.Ky. 2011).
17

The rationale is simple, as explained by the United States
Supreme Court in Southern Const. Co. v. Pickard:
The requirement that counterclaims arising out of the
same transaction or occurrence as the opposing party's
claim ‘shall’ be stated in the pleadings was designed to
prevent
multiplicity
of
actions
and
to
achieve
resolution in a single lawsuit of all disputes arising
out of common matters.
The Rule was particularly
directed against one who failed to assert a counterclaim
in one action and then instituted a second action in
which that counterclaim became the basis of the
complaint.
See, e.g., United States v. Eastport S.S.
Corp., 2 Cir., 255 F.2d 795, 801–802.
Southern Const. Co. v. Pickard, 371 U.S. 57, 60 (1962) (construing
Fed. R. Civ. P. 13).

See also Williams v. Carter Bros., 390 S.W.2d

873, 875 (Ky.1965)(“The real purpose of [Ky. CR] 13.01 is to
require that all issues be resolved between the parties in one
trial and to avoid the multiplicity of trials.”).
Here, Plaintiffs’ TILA claims that they now seek to prosecute
against

Wells

Fargo

arise

out

of

the

same

transactions

or

occurrences as Wells Fargo’s claims against them in the foreclosure
action and were claims that Plaintiffs had at the time they served
their responsive pleading in that action.

See Bluegrass Hosiery,

214 F.3d at 772–73 (stating that obligation to file compulsory
counterclaims arises only when a “pleading” must be made as that
term is understood under Rule 15 for purposes of applying bar to
those claims in a subsequent lawsuit).

In other words, Plaintiffs

were required to bring the claims averred in the Complaint in this
matter in the state court action as compulsory counterclaims at
18

the time of their first pleading, i.e., their answer, in that
matter.

Accordingly, Plaintiffs' TILA claims against Wells Fargo,

all of which could and should have been raised as compulsory
counterclaims in foreclosure action in Jessamine Circuit Court,
shall be dismissed as res judicata.
For all of the foregoing reasons, the Court finds that all of
Plaintiffs’ claims pursuant to TILA, including claims that purport
to be based TILA’s implementing regulation, Regulation Z, 12 C.F.R.
§ 226.1, et seq., must be dismissed.

Accordingly, the Court need

not address the remainder of Wells Fargo’s arguments with respect
to Plaintiffs’ TILA and Regulation Z claims. 6
B. Plaintiffs’ RESPA Claims
The remainder of Plaintiffs’ claims purport to assert claims
based on the Real Estate Settlement Procedures Act (“RESPA”), 12
U.S.C. § 2601, et seq.

RESPA was enacted “to insure that consumers

throughout the Nation are provided with greater and more timely
information on the nature and costs of the settlement process and
are protected from unnecessarily high settlement charges caused by
certain abusive practices that have developed in some areas of the

6

Wells Fargo also argues that Plaintiffs cannot maintain a claim
for rescission under TILA because their loan was a “residential
mortgage transaction” that is not subject to the right of
rescission pursuant to the exception set forth in 15 U.S.C. §
1635(e), and that Plaintiffs’ rescission claim fails because they
do not allege that they are ready and willing to return the parties
to the status quo.
19

country.” 12 U.S.C. § 2601. Accordingly, RESPA “places guidelines
on closing costs and settlement procedures and requires that
consumers

receive

settlement.”

various

disclosures

through

their

mortgage

Khadher v. PNC Bank, N.A., 577 Fed. App’x. 470, 480

(6th Cir. 2014).

RESPA creates a private cause of action for three

kinds of acts:
(1)

payment of a kickback and unearned fees for real
estate
settlement
services,
12
U.S.C.
§
2607(a),(b);

(2)

requiring a buyer to use a title insurer selected
by the seller, 12 U.S.C. § 2697(b); and

(3)

the failure by a loan servicer to give proper notice
of a transfer of servicing rights or to respond to
a qualified written request for information about
a loan, 12 U.S.C. § 2605(f).

Rouse v. Farmer, No. 5:14-cv-331-KKC, 2015 WL 1179967 at *3 (E.D.
Ky. Mar. 12, 2015)(citing Washington v. National City Mortg. Co.,
No. 10-5042, 2011 WL 1842836, at *7 (N.D. Cal. 2011)).
Plaintiffs do not specify upon which provision of RESPA their
claims rely.

Rather, Plaintiffs generally allege that they did

not receive a good faith estimate copy from Wells Fargo (Count
IX); that Wells Fargo failed to disclose that the Loan has an
interest

rate

higher

than

the

rate

reflected

in

preliminary

disclosures (Count XIX); that Wells Fargo failed to disclose loan
origination fees (Count XX); and that Wells Fargo failed to provide
Plaintiffs with adequate notice of default, right to cure, and

20

acceleration

of

the

loan

transaction

(Count

XXIII),

all

in

violation of 12 U.S.C. § 1601 et seq. [DE 1-1].
The Court is aware that “[p]ro se complaints are to be held
'to less stringent standards than formal pleadings drafted by
lawyers,' and should therefore be liberally construed.”
v. Curtin, 631 F.3d 380, 383 (6th Cir. 2011).

Williams

At the same time,

courts must place certain limits on the lenient treatment given to
pro se litigants who are not “‘automatically entitled to take every
case to trial.’”

Farah v. Wellington, 295 Fed.App’x. 743, 748

(6th Cir. 2008)(quoting Pilgrim v. Littlefield, 92 F.3d 413, 416
(6th Cir. 1996)).
inferential

All complaints “'must contain either direct or

allegations

respecting

all

material

sustain a recovery under some viable legal theory.'”

elements

to

In re Travel

Agent Com’n Antitrust Litigation, 583 F.3d 896, 903 (6th Cir. 2009)
(quoting Edison v. State of Tenn. Dep't of Children's Servs., 510
F.3d 631, 634 (6th Cir. 2007)).
Here, Plaintiffs have failed to sufficiently allege that
Wells Fargo has engaged in conduct that gives rise to a cause of
action under RESPA.

As noted, Plaintiffs do not base any of their

RESPA claims on the provisions of RESPA upon which private causes
of action have previously been recognized, specifically 12 U.S.C.
§ 2607 (a), (b)(payment of kickbacks or unearned fees for real
estate settlement services); 12 U.S.C § 2608(b) (requiring buyer
to use a title insurer selected by seller); and/or 12 U.S.C §
21

2605(f) (failure of loan servicer to give proper notice of a
transfer of servicing rights or to respond to qualified written
request

for

violation

about

a

loan).

Nor

do

the

factual

allegations supporting Plaintiffs’ purported claims under RESPA
allege facts that would support a private cause of action for
violations of any other provisions of RESPA.
Specifically, Count XX alleges that Wells Fargo “failed to
disclose

to

plaintiff

that

the

loan

obtained

required

loan

origination fees, whereas the Preliminary Disclosures reflected no
such fees as required by 12 U.S.C. § 2601 et seq. [DE 1-1].
assuming

that

this

allegation

could

be

broadly

Even

construed

as

alleging a claim under 12 U.S.C. § 2607, Plaintiffs’ loan closed
in December 2005.

As Plaintiffs’ complaint was not filed until

2016, any claim under 12 U.S.C. § 2607 is such barred by the oneyear limitations period applicable to such claims pursuant to 12
U.S.C. § 2614.
Moreover, Count IX alleges that “[n]o good faith estimate
copy was received from defendant,” as required by RESPA [DE 1-1].
This could possibly be construed as a claim for violation of 12
U.S.C. § 2604(c), which requires a lender to provide “a good faith
estimate of the amount or range of charges for specific settlement
services the borrower is likely to incur in connection with the
settlement as prescribed by the [Bureau of Consumer Financial
Protection].”

12 U.S.C. § 2604(c).
22

However, “there is no private

civil action for a violation of 12 U.S.C. § 2604(c).”

Collins v.

FMHA-USDA, 105 F.3d 1366, 1368 (11th Cir. 1997)(further noting
that “neither the statute nor the legislative history reveals a
congressional intent to create a private cause of action, and
actually indicate that Congress intended not to provide such a
remedy...”).
The remainder of Plaintiffs’ purported RESPA claims allege a
failure to adequately disclose that the interest rate of the loan
is higher than the rate reflected in the preliminary disclosure
(Count XIX) and a failure to provide Plaintiffs with adequate
notice of default, right to cure, and acceleration of the loan
transaction (Count XXIII).

However, Plaintiffs fail to show how

these claims implicate RESPA, much less allege facts that would
support a private cause of action under RESPA.

Thus, these claims

do not meet the minimal requirements of factual specificity and
sufficiency “to raise a right to relief above the speculative
level,” and are also dismissed on this basis.

Twombly, 550 U.S.

at 545.
Finally, as with Plaintiffs’ TILA claims, Plaintiffs’ RESPA
claims arise out of the same transaction or occurrence that was
the subject matter of the foreclosure action in the Jessamine
Circuit Court and were claims that Plaintiffs had at the time they
served

their

responsive

pleading

in

that

action.

CR

13.01.

Accordingly, should have been brought as compulsory counterclaims
23

in the foreclosure action.

Thus, like Plaintiffs’ TILA claims,

Plaintiffs’ RESPA claims shall be dismissed as res judicata.
IV.

CONCLUSION

For the reasons articulated above, Plaintiffs have failed to
state a claim upon which relief may be granted.

Accordingly, IT

IS HEREBY ORDERED that:
(1)

the Motion to Dismiss filed by Wells Fargo [DE 8] is

GRANTED;
(2)

all claims alleged in the Complaint [DE 1-1] against

Wells Fargo are DISMISSED WITH PREJUDICE;
(3)

all pending motions or requests for relief are DENIED AS

MOOT;
(4)

all deadlines and scheduled proceedings are CONTINUED

GENERALLY;
(5)

that the Clerk shall STRIKE THIS MATTER FROM THE ACTIVE

DOCKET;
(6)

that this ORDER is FINAL AND APPEALABLE ORDER and THERE

IS NO JUST CAUSE FOR DELAY.
This the 30th day of March, 2017.

24