Banaszak v. CitiMortgage, Inc. et al
Filing
62
OPINION and ORDER Sustaining in Part and Rejecting in Part 44 Plaintiff's Objections, Adopting in Part and Rejecting in Part 43 REPORT AND RECOMMENDATION, Granting in Part and Denying in Part 20 MOTION to Dismiss filed by CitiMortgage, Inc. Signed by District Judge Thomas L. Ludington. (SGam)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
NORTHERN DIVISION
ANTHONY BANASZAK,
Plaintiff,
v
Case No. 13-cv-13710
Honorable Thomas L. Ludington
CITIMORTGAGE, INC., et al.,
Defendants.
__________________________________________/
ORDER SUSTAINING IN PART AND OVERRULING IN PART PLAINTIFF’S
OBJECTIONS, ADOPTING IN PART AND REJECTING IN PART MAGISTRATE
JUDGE’S REPORT AND RECOMMENDATION, AND GRANTING IN PART AND
DENYING IN PART DEFENDANTS’ MOTION TO DISMISS
Plaintiff Anthony Banaszak initiated this case against Defendant CitiMortgage, alleging
that it had violated several provisions of the Servicemembers Civil Relief Act, 50 U.S.C. §§ et
seq. (“SCRA”) and had engaged in common-law fraud. The allegations relate to CitiMortgage’s
management of his residential mortgage loan while he was on active duty status.
On November 1, 2013, CitiMortgage filed a motion to dismiss Banaszak’s complaint
pursuant to Federal Rule of Civil Procedure 12(b)(6). The motion was referred to United States
Magistrate Judge Charles Binder, who issued a report recommending that CitiMortgage’s motion
be granted and that Banaszak’s complaint be dismissed. Banaszak timely filed objections to the
Magistrate Judge’s recommendation.1
Upon review of the parties’ filings, CitiMortgage’s motion to dismiss will be granted in
part and denied in part. Banaszak’s claims for violation of SCRA §§ 561 and 518 and for
1
The report and recommendation also addressed the merits of Banaszak’s motion to dismiss Defendant Chase
Bank’s counterclaim, ECF No. 33. However, after the recommendation was filed, the parties agreed to withdraw
Banaszak’s motion to dismiss and dismiss the complaint against Defendant Chase with prejudice. See ECF No. 53.
Accordingly, the parts of the recommendation addressing Banaszak’s motion to dismiss will be rejected as moot.
common law fraud will be dismissed pursuant to Rule 12(b)(6). However, because Banaszak has
adequately pleaded a claim for violations § 527 and § 591 of the SCRA, those claims will not be
dismissed.
I
Anthony Banaszak is a captain in the United States Armed Services. On November 11,
2003, Banaszak executed a mortgage securing property located at 1031 South Lincoln Street,
Bay City, Michigan.2 Compl. ¶ 4. The promissory note reflected a 30-year loan with a fixed rate
of interest at 6.875%. Compl. Ex. 1.
In September 2004, Banaszak was ordered to active duty from September 2004 through
March 31, 2006, and Banaszak explains that active duty “materially affected” his ability to pay
his mortgage. Compl. ¶ 5-7, Ex. 4. Because Banaszak was unable to comply with the terms of
his mortgage, Citibank prepared a Loan Modification Agreement in which Banaszak
acknowledged that he had not paid certain interests, costs, and expenses as required by his
mortgage agreement. Specifically, the 2006 Loan Modification Agreement noted that accrued
interest, costs, and expenses in the amount of $27,219.82 had not been paid and would therefore
be added to Banaszak’s principal balance. The 2006 Loan Modification further stated that the
annual interest rate would remain at 6.875%. Id.
In September 2007, Banaszak was once again called for active duty, and he remained on
active duty until March 5, 2013. Compl. ¶¶ 11-12, 16, 20-22, 24. Basnaszak claims that this
period of active duty “materially affected” his ability to comply with his mortgage obligations.
Therefore, while he was on active duty in 2008, he once again entered into a Loan Modification
Agreement with CitiMortgage in which he acknowledged that certain interest, costs, and
2
Union Federal Bank of Indianapolis issued the mortgage and subsequently assigned it to CitiMortgage. Compl. ¶
44.
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expenses had not been paid in accordance with the mortgage terms. Compl. ¶ 26. According to
the 2008 Loan Modification Agreement, those accrued costs would be added to the principal
balance, resulting in a new unpaid principal balance of $215,364.03. The September 2008 Loan
Modification again confirmed that the annual interest rate was 6.875%. Id.
About one month later, in October 2008, CitiMortgage sent Banaszak a letter confirming
that his interest rate had been lowered so as to comply with SCRA: “According to your previous
notification and in accordance with the [SCRA], CitiMortgage, Inc. (CMI) adjusted the effective
interest rate on your mortgage loan to 6.000%.” Compl. Ex. 8 at 8. The letter further noted that
his interest rate would revert back to 6.785% on October 1, 2008, given that “Banaszak has been
released from active duty as of 09/01/07.” Id.
When Banaszak returned from active duty in 2013, he discovered that the Bay County
Treasurer had posted a foreclosure notice on his property for non-payment of property taxes.
Compl. ¶ 30. As a result, Banaszak filed this lawsuit seeking damages and an injunction
prohibiting the foreclosure.
II
The Servicemembers Civil Relief Act was passed “to enable [servicemembers] to devote
their entire energy to the defense needs of the Nation.”
50 U.S.C. App. § 502(1).
It
accomplishes this purpose by imposing limitations on judicial proceedings that could take place
while a member of the armed forces is on active duty, including loans, contract enforcement, and
other civil actions. 50 U.S.C. App. § 501 et seq. These limitations are “always to be liberally
construed to protect those who have been obliged to drop their own affairs to take up the burdens
of the nation.” Boone v. Lightner, 319 U.S. 561, 575 (1943).
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This case involves four provisions of the SCRA dealing with the administration and
collection of private debts. Those provisions are summarized as follows:
§ 527 provides that obligations incurred by the servicemember before entering
military service may not bear an interest rate greater than 6% during the period of
military service and, in some cases, for a year after discharge from the military.
Any interest charged over the 6% interest rate must be forgiven.
§ 591 permits a servicemember to apply for relief from collection of debts.
§ 518(3) provides that servicemember’s claim for SCRA protection “shall not
itself (without regard to other considerations)” provide the basis for an adverse
credit report on the servicemember.
§ 561 provides that a servicemember’s real estate cannot be foreclosed on for the
purpose of collecting tax or other assessments.
In addition to his claims under the SCRA, Banaszak also claims that CitiMortgage committed
common-law fraud by violating the SCRA with respect to the promissory note and subsequent
loan modifications.
In his report, the Magistrate Judge recommended that each of Banaszak’s claims against
CitiMortgage be dismissed for failure to state a claim pursuant to Rule 12(b)(6). Banaszak
objected to this recommendation, and further asserted that the Magistrate Judge “[did] not
construe Plaintiff’s Complaint in a light most favorable to the Plaintiff, [did] not accept all of the
factual allegations as true or that Plaintiff can prove a set of facts in support of his claims[sic],
thus entitling him to relief.” Obj. at 2, ECF No. 44. Therefore, this Court will review each of
Banaszak’s claims de novo.
A
Banaszak first objects to the Magistrate Judge’s finding that he had failed to state a claim
pursuant to 50 App. U.S.C. § 527, which prohibits charging a servicemember on active duty an
interest rate higher than 6.000%. Obj. 5. With respect to mortgages, the rate ceiling applies
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“during the period of military service and one year thereafter.” Id. at § 527(a)(1)(A). Any
interest charged in excess of this statutory ceiling is forgiven. Id. at § 527(a)(2). Once the
servicemember provides written notice and a copy of the orders calling the servicemember into
active duty to the creditor, the interest rate ceiling applies retroactively and is “effective as of the
date on which the servicemember is called to military service.” Id. at § 527(b)(2).
The Magistrate’s Judge found that Banaszak had never actually paid more than a 6%
interest rate; this finding was based on an October 8, 2008 letter from CitiMortgage to Banaszak,
in which CitiMortgage acknowledged that his monthly interest rate had been retroactively
adjusted to 6.00%. Compl., Ex. 7 at 9. The letter further acknowledged that Banaszak had been
released from active duty in September 2007, and therefore his interest rate would rise back to
6.875% in October 2008.
The Magistrate Judge relied on this letter in concluding that
“Plaintiff’s complaint acknowledges that, once notified of active duty status, Defendant
CitiMortgage retroactively adjusted the interest rate and paid subsidies to meet that end.” Rep.
& Rec. at 13, ECF No. 43. Based on this letter, the Magistrate Judge concluded that Banaszak
had not actually ever paid more than 6.00% in interest.
Therefore, the Magistrate Judge
recommended that Banaszak’s claim for violation of § 527 be dismissed for failure to state a
claim.
Banaszak claims that the Magistrate Judge erred in two ways: First, he claims that the
SCRA is violated when a servicemember incurs, i.e., is charged, an interest rate higher than
6.000%, even if he is never actually pays more than the 6.000% rate. This interpretation has
been rejected by every court to consider the issue; they are unanimous in holding that if a
servicemember never actually pays more than the 6.000% interest rate, then there is no § 527
claim. See, e.g., Newton v. Bank of McKenny, 2012 WL 1752407, at *9 (E.D. Va. May 16, 2012)
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(rejecting plaintiffs’ SCRA claim related to interest in excess of the 6% rate cap because “the
plaintiffs never paid any overcharges”); Frazier v. HSBC Mortgage Servs., 401 F. App’x 436,
439 (11th Cir. 2010) (affirming summary judgment for defendant where, despite the fact that
plaintiff’s account statements included two different annual percentage rates, plaintiff admitted
that “since she was called to active duty, she has never actually paid HSBC more than 6%
interest on her loan, even for the few months when she was allegedly charged interest rates in
excess of 6%); Koenig v. Waukesha State Bank, 2006 WL 2334841, at *4 (E.D. Wis. Aug. 10,
2006) (rejecting plaintiff’s SCRA claim under § 527 because plaintiff never actually paid more
than 6% interest). Therefore, this objection is unavailing.
Second, Banasazk alleges that he did pay more than the 6.000% cap because he paid late
fees and costs based on the higher interest rate.
In other words, because CitiMortgage
improperly charged him interest at a too-high rate, he was unable to make payments and was
forced to pay late fees and other charges. As implied in Newton, this type of claim for damages
is sufficient to allege a violation of § 527: “Ordinarily the appropriate remedy [for allegations of
overcharging] would be damages in the amount of the overcharge.” 2012 WL 1752407, at *9
(E.D. Va. May 16, 2012). Thus, Banaszak has adequately pleaded damages associated with the
alleged violation of § 527.
CitiMortgage, however, contends that Banaszak’s own exhibits illustrate that he was
never actually required to pay any costs associated with the higher interest rate. CitiMortgage
emphasizes the October 2008 letter from its Loan Department in which it acknowledges that it
“adjusted the effective interest rate on [Banaszak’s] mortgage loan to 6.000%. As a result,
[Banaszak has] been receiving a monthly subsidy of $131.35.” Compl. ¶ 8, at 9.
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Although the October 2008 letter provides some evidence that CitiMortgage retroactively
adjusted Banaszak’s interest rate, it is not evidence that CitiMortgage continued to do so during
Banaszack’s later military tours. Indeed, the fact that CitiMortgage adjusted his 2004-2006
interest rates does not automatically support the conclusion that it properly adjusted his 20092013 interest rates. Indeed, Banaszack’s complaint, though somewhat inartfully pleaded, does
not limit the supposed violations of § 527 to the years prior to 2008:
Defendant, CitiMortgage, by failing and refusing to lower the interest rate on the
Mortgage to nor[sic] more than six percent (6%) per annum interest from the date
of the notification of mobilization to active military duty of Plaintiff Banaszak
and continuing to a point in time that is one year after the release from active duty
of Plaintiff Banaszak, has violated and continues to violate 50 U.S.C. App. § 527
and has caused and continues to cause damages to Plaintiff Banaszak.
Compl. ¶ 50. Thus, Banaszak’s allegations span the time from when he first went on active duty
in 2004 until the time he brought the lawsuit.
Because Banaszak’s allegations span from 2004 and on, the fact that CitiMortgage may
have retroactively adjusted his interest rate in 2008 does not necessarily prove that the interest
rate from 2008 onward was proper. Indeed, the October 2008 letter provides that Banazack’s
interest rate will return to 6.875% beginning that same month: “According to our records,
Anthony J Banaszak has been released from active duty as of 09/01/07. Therefore, your subsidy
will be terminated effective with your 10/01/08 payment.” Compl. Ex. 8 at 9.
Nor does the letter indicate that CitiMortgage reversed any overcharges as a result of that
improper rate. Of course, after discovery, it may indeed be the case that Banaszak never paid an
interest rate higher than 6.00%. However, Banaszak has sufficiently alleged a violation of 28
U.S.C. App. § 527. Therefore, because the Magistrate Judge relied on a 2008 letter to conclude
that Banaszak never paid more than 6.00% interest in 2009, 2010, 2011, 2012, or 2013,
Banaszak’s objection will be sustained.
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Banaszak has adequately pleaded a claim for damages related to overcharging and
overpayment, but he will not be able to recover damages for emotional distress. Although
Banaszak is alleging a violation of the SCRA, the SCRA merely amends the contract between
the parties: “[T]he provisions of the SSCRA provide for an effective amendment of contractual
provisions regarding interest rates during the period when a serviceman is in the service on
active duty.” Newton, 2012 WL 1752407, at *8 (citing Cathey v. First Republic Bank, 2001 WL
36260354, at *6 (W.D. La. July 6, 2001). Thus, Banaszak can only recover damages pursuant to
his § 527 claim if he could recover those damages in a breach of contract claim.
In Michigan, the general rule is that damages for emotional distress cannot be recovered
in an action for breach of contract. See Kewin v. Mass. Mut. Life Ins. Co., 295 N.W.2d 50, 53
(Mich. 1980). In addition, the more appropriate remedy would be damages in the amount of the
overcharge. Newton, 2012 WL 1752407, at *9. Because Banaszak cannot recover damages
related to his emotional distress pursuant to § 527, this part of his complaint will be dismissed.
However, he has otherwise adequately pleaded a claim for overcharge-related damages pursuant
to § 527, and therefore his objection will be sustained.
B
Banaszak next objects to the Magistrate Judge’s determination that his request for
injunctive relief pursuant to 28 U.S.C. App. § 591 is not ripe. Section 591 provides that “[a]
servicemember may, during military service or within 180 days of termination of or release from
military service, apply to a court for” injunctive relief. By the plain terms of the statute,
Banaszak had only 180 days after his military service ended in which to apply for injunctive
relief. See Rodriguez v. American Express, 2006 WL 908613, at *8 (E.D. Cal. Apr. 7, 2006).
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The Magistrate Judge noted that Banaszak had not filed a motion for stay pursuant to §
591 at the time he decided CitiMortgage’s motion to dismiss on April 10, 2014. And the
Magistrate Judge further concluded that any subsequent request for relief would be untimely
under the statute.
Banaszak contends that his request for injunctive relief is “ripe” because the Complaint
should be construed as a motion for relief pursuant to § 591—an about-face from his earlier
argument. In his response to Defendants’ motion to dismiss, he concedes that he did not file a
motion for a stay and, by implication, that a motion for a stay is distinct from a complaint:
“Captain Banaszak did not feel a Motion [for stay] was appropriate at the time he filed his
Complaint.” Resp. at 10, ECF No. 32. Indeed, the Magistrate Judge expressly relied on this
concession in his recommendation: “I suggest that since Plaintiff has conceded that he has not
filed a motion for stay . . . that this claim is unripe and should be dismissed.” Rep. & Rec. 17.
Having received the Magistrate Judge’s recommendation, Banaszak now attempts to
argue the opposite: that for purposes of § 591, his Complaint should be treated as a motion for
stay. In support of his claim, Banaszak relies on the holding in Santana-Archivald v. Banco
Popular De Puerto Rico, 2012 WL 2359432 (D.P.R. June 19, 2012).
In Santana-Archivald, the plaintiff filed a complaint alleging several violations of the
SCRA and requested anticipatory relief pursuant to § 519. The Santana-Archivald court did not
dismiss any allegations in the plaintiff’s complaint, which included a request for injunctive relief
pursuant to § 519. The Santana-Archivald court concluded that, because the plaintiff had
adequately alleged violations of § 527 of the SCRA, she had also adequately requested relief
pursuant to § 591: “The SCRA requires similar pleadings, which the complaint satisfies, to
engage the anticipatory relief provision. See 50 U.S.C. app. § 591.” Id. at *2. Banaszak thus
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contends that this Court should do the same—decline to dismiss the § 519 claim in the complaint
because he has also adequately alleged violations of the SCRA.
CitiMortgage, however, contends that this Court should follow Rodriguez v. American
Express, 2006 WL 908613, at *8 (E.D. Cal. Apr. 7, 2006). In Rodriguez, a plaintiff filed a
complaint for relief pursuant to the SCRA. Although the complaint was filed within the time
period prescribed by § 591, the plaintiff did not file a separate motion for a stay pursuant to §
591. Id. The district court concluded that: (1) a stay pursuant to § 591 is not self-executing; and
(2) a complaint will not be construed as a motion: “Plaintiff had the burden to file and serve a
separate motion for stay and failed to do so.” Id. The Rodriguez court therefore dismissed the
plaintiff’s claim for relief pursuant to § 591. Id.
Each party thus relies on different district court decisions that reached diametric
conclusions: Santana-Archivald provides that a complaint is sufficient to invoke relief pursuant
to § 591, while Rodriguez requires a plaintiff to file a separate motion requesting relief pursuant
to § 591. Both cases, Santana-Archivald and Rodriguez, are persuasive authority for this Court.
But in light of the prescription in Boone that the SCRA “must be liberally construed” to protect
servicemen, Santana-Archivald presents the better interpretation of § 591.
Indeed, nothing in the plain language of § 591 requires a plaintiff to file a separate
motion for relief:
(a) Application for relief
A servicemember may, during military service or within 180 days of termination
of or release from military service, apply to a court for relief . . . .
50 App. U.S.C. § 591. Section 591 thus does not require a servicemember to apply for relief in
any particular way. Thus, as in Santana-Archivald, Banaszak can apply for relief by filing a
complaint.
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As in Santana-Archivald, Banaszak has adequately pleaded a claim pursuant to 50 App.
U.S.C. § 527, and therefore he has also adequately pleaded a claim for relief pursuant to § 591.
And because the Complaint was filed within the time period ascribed by § 591,3 Banaszak has
adequately stated a claim for relief, and his objection will be sustained.
C
Banaszak next objects to the Magistrate Judge’s determination that his request for
damages pursuant to 50 U.S.C. App. § 561 failed to state a claim. Section 561 prohibits the sale
of real property to enforce the collection of a tax or other assessment. Moreover, if the real
property has been sold, a servicemember has the right to redeem or commence an action to
redeem the servicemember’s property. However, § 561 makes clear that it applies only to real
property that is sold for the purpose of “enforce[ing] the collection of a tax or assessment. 50
App. U.S.C. § 561; see also Jimenez v. Miami-Dade County, 2013 WL 214673, at *4 (S.D. Fla.
Jan. 18, 2013).
The Magistrate Judge concluded that, because no sale to enforce collection of a tax
assessment has occurred, § 561 had not been violated: “I suggest that according to the plain
language of the statute, since no sale to enforce collection of a tax assessment occurred, nor is
one pending, § 561 has not been violated.” Rep. & Rec. 15.
Banaszak objects to this conclusion, claiming that, although the improper foreclosure sale
was never completed, the mere fact that a foreclosure action was initiated is sufficient to state a
claim pursuant to § 561.
3
As noted, the Magistrate Judge’s recommendation was based on the fact that Banaszak conceded that he had not
yet filed a motion for stay, separate and apart from his complaint. After the Magistrate Judge issued the
recommendation, Banaszak filed a motion for stay pursuant § 591, which was rejected because it fell outside the
statutory time period. However, because the Complaint will be construed as an application for a stay, and because
the parties concede that the Complaint was filed within the statutory time period, the Magistrate Judge’s denial of
Banaszak’s motion for stay is moot.
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Although the parties focus on whether a foreclosure sale was completed, the dispositive
issue is whether the attempted foreclosure was pursuant to the “enforce[ment of] the collection of
a tax or assessment. 50 App. U.S.C. § 561. Here, Banaszak did not allege in his complaint that
CitiMortgage4 had sold his property for the purpose of enforcing the collection of a tax or
assessment. Instead, Banasazk alleged that:
Defendant CitiMortgage, by failing and refusing to abide by the mortgage
contract with Plaintiff Banaszak continuing until a period of up to 180 days after
the termination of, or release from active military duty, has violated and continues
to violate the provisions of 50 U.S.C. App. § 561.
Compl. ¶ 72. Thus, Banaszak’s allegation is that CitiMortgage breached the promissory note and
is attempting to sell the property because of that breach. There is no mention of a failure to pay
taxes or a sale to enforce a tax assessment.
To the extent that Banaszak contends that CitiMortgage had an obligation to pay the taxes
on the real property, this contention is directly contradicted by the mortgage documents. The
Mortgage provides that Banaszak is responsible for any taxes that arise in connection with his
property:
Charges to Borrower and Protection of Lender’s Rights in the Property
Borrower shall pay all governmental or municipal charges, fines and impositions
that are not included in paragraph 2. Borrower shall pay these obligations on time
directly to the entity which is owed the payment. . . . If Borrower fails to make
these payments or the payments required by paragraph 2,5 or fails to perform any
other covenants and agreements contained in this Security Instrument, or there is
a legal proceeding that may signficiantly affect Lender’s rights in the Property
(such as a proceeding in bankruptcy, for condemnation or to enforce laws or
regulations), then Lender may do and pay whatever is necessary to protect the
4
In contrast, paragraph 30 of the Complaint notes that “Bay County Treasurer posted a foreclosure notice on
Plaintiff Banaszak’s residence for non-payment of property taxes.” Curiously, however, Banaszak did not bring a §
561 claim against the Bay County Treasurer.
5
Paragraph 2 of the Security Instrument provides that “Borrower shall include in each monthly payment, together
with the principal and interest as set forth in the Note and any late charges, a sum for (a) taxes and special
assessments levied or to be levied against the Property . . . .” Compl. Ex. 2 at 5. Paragraph 2 thus confirms that it is
Banaszak’s, not CitiMortgage’s, obligation to pay taxes arising from the real property.
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value of the Property and Lender’s rights in the Property, including payment of
taxes . . . .
Compl. Ex. 2 at 7. Thus, CitiMortgage had the right to pay taxes on the property, but not the
obligation to do so. Moreover, both the 2006 and the 2008 Loan Modifications provide that
“[t]he Borrower also will comply with all the other covenants, agreements, and requirements of
the Security Instrument, including without limitation, the Borrower’s covenants and agreements
to make all the payments of taxes . . . .” Compl. Ex. 5 at 6; Ex. 8 at 3. Thus, by the express
terms of all the mortgage documents, Banaszak is responsible for any tax assessments.6
Section § 561 only prohibits foreclosures that were taken for the purpose of enforcing a
tax assessment. Banaszak has not pleaded that Citimortgage foreclosed or attempted to foreclose
on the property to enforce a tax assessment. Rather, by the plain terms of the complaint, it is the
Bay County Treasurer who initiated the foreclosure proceeding to enforce its tax assessment.
Therefore, Banaszak’s objections will be overruled and this claim will be dismissed.
D
Banaszak next objects to the Magistrate Judge’s conclusion that he has not stated a claim
for relief under 50 App. U.S.C. § 518. Section 518 prohibits a creditor from using the fact that a
servicemember-debtor asserted his rights as the basis for an adverse report of credit
unworthiness. Koenig v. Waukesha State Bank, 2006 WL 2334841, at *7 (E.D. Wis. Aug. 10,
2006). Thus, if CitiMortgage were to make an adverse report to a credit bureau regarding
Banaszak’s credit worthiness based upon the fact that he applied for protection under the Act,
then CitiMortgage would violate § 518. Id.
6
“While a Court considering a motion under Rule 12(b)(6) usually must accept a plaintiff’s allegations as true, ‘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.’” Moody v. CitiMortgage, Inc., 2014 WL 3501051, at *5 (W.D. Mich. July 14, 2014)
(quoting N. Ind. Gun & Outdoor Shows, Inc. v. City of S. Bend¸163 F.3d 449, 454 (7th Cir. 1998)).
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In his complaint, Banaszak requests that “this Court prohibit[] the Defendant from
making any adverse report relating to the creditworthiness of Plaintiff Banaszak to agencies
engaged in the practice of assembling or evaluating consumer credit information . . . as a result
of his exercise of his rights under the SCRA.” Compl. ¶ 62. Banaszak did not, however, allege
that CitiMortgage has attempted to make an adverse credit report; instead, Banaszak seeks
protection in case CitiMortgage tries to file an adverse report in the future.
Specifically,
Banaszak “seeks a further order of this Court prohibiting the Defendant from making any
adverse report relating to the creditworthiness of Plaintiff Banaszack” “in the event this Court
grants the relief requested” with regard to Banaszack’s other claims. Compl. ¶ 68. Indeed,
Banaszak admits that he is seeking relief pursuant § 518 “simply as a matter of precluding the
Defendants from adversely reacting.” Obj. at 3.
Thus, Banaszack seeks an injunction directing CitiMortgage to comply with the law. But
courts have repeatedly held that injunctions that simply require a defendant to “obey the law”—
such as the one requested by Banaszak—are impermissible. Equal Emp’t Oppor. Comm’n v.
Wooster Brush Co. Emps. Relief Ass’n, 727 F.2d 566, 576 (6th Cir. 1984); S.C. Johnson & Son,
Inc. v. Clorox Co., 241 F.3d 232, 240-41 (2d Cir. 2001); Elend v. Basham, 471 F.3d 1199, 12091210 (11th Cir. 2006). Therefore, because Banaszack is requesting relief in the form of an
impermissible injunction requiring CitiMortgage to comply with the law in the future, he has not
stated a claim under § 518 for which relief may be granted. Banaszak’s objection will therefore
be overruled.
E
Banaszak’s final objection concerns the Magistrate Judge’s recommendation that his
fraud claim be dismissed. The Magistrate Judge concluded that Banaszack had not only failed to
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meet the heightened pleading standard set forth in Federal Rule of Civil Procedure 9(b), he had
also failed to allege facts that could satisfy the elements of a fraud claim.
Pursuant to Rule 9(b), “a party must state with particularity the circumstances
constituting fraud or mistake.” The Sixth Circuit interprets “Rule 9(b) as requiring plaintiffs to
allege the time, place, and content of the alleged misrepresentation on which he or she relied; the
fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the
fraud. Yuhasz v. Brush Wellman, Inc., 341 F.3d 559, 563 (6th Cir. 2003).
Under Michigan law, common-law fraud requires proof that:
(1)
the defendant made a material representation;
(2)
the representation was false;
(3)
when the defendant made the representation, the defendant knew that it
was false, or made it recklessly, without knowledge of its truth as a
positive assertion;
(4)
the defendant made the representation with the intention that the plaintiff
would act upon it;
(5)
the plaintiff acted in reliance upon it; and
(6)
the plaintiff suffered damage.
Cummin v. Robinson Twp., 770 N.W.2d 421, 435 (Mich. Ct. App. 2009).
In his complaint, Banaszak appears to argue that violations of specific provisions of the
SRCA are grounds for fraud:
Defendant committed fraud and misrepresented their intentions/actions and
deceived the Plaintiff Banaszak when Defendant:
A.
Coerced Plaintiff Banaszak into executing two separate loan modifications
as outlined in Exhibits 4 &7, above, which included a substantial higher
principal amount due because of wrongfully assessing interest, late fees
and penalties. 50 U.S.C. App. § 518.
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B.
Adversely impacted Plaintiff Banaszak’s creditworthiness to a reporting
agency in the practice of assembling or evaluating consumer credit
information. 50 U.S.C. App. § 518.7
C.
Failed and/or refused to properly compute Plaintiff Banaszak’s period of
military service. 50 U.S.C. App. § 526.
D.
Failed and/or refused to lower and continue to keep lowered the interest
rate obligation under the terms of the Note and Mortgage. 50 U.S.C. App.
§ 527.
E.
Failed and/or refused to stay proceedings and/or adjust Plaintiff
Banaszak’s obligations under the note & mortgage so as to preserve
Plaintiff Banaszak’s interest in said obligation. 50 U.S.C. App. § 533.
F.
Failed and/or refused to pay/advance/maintain real property taxes in
accordance with the Note & Mortgage, including initiating a non-judicial
foreclosure sale during Plaintiff Banaszak’s period of active duty. 50
U.S.C. App. § 561.
G.
Failed and/or refused to afford Plaintiff Banaszak the protections outlined
in 50 U.S.C. App. § 591, including staying Plaintiff Banaszak’s
obligations under the promissory Note & Mortgage for the duration of
Plaintiff BAnaszak’s active military duty period.
Compl. ¶ 80. As is clear from the Court’s reproduction of Plaintiff’s allegations, each “fraud”
allegation is in fact an alleged violation of the SRCA.
Indeed, this point is underscored by Banaszak’s objection to the Magistrate Judge’s
report regarding the fraud claim: “Plaintiff objects to the Court’s failure to recognize
Defendant’s violations of § 527.” Obj. at 15. In other words, Banaszak is apparently arguing
that if CitiMortgage violated § 527, it necessarily also engaged in common-law fraud.
But to the extent that Banaszak’s complaint appears to argue that violations of the SCRA
are fraud per se under Michigan law, this claim will be rejected. Banaszak has provided no
7
This assertion directly contradicts Banaszak’s previous assertions in the Complaint that CitiMortgage has not yet
filed an adverse report with credit reporting agencies. Because Banaszak concedes in his briefs that no adverse
report has been filed, the Court need not accept this allegation as true.
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caselaw to support this proposition. And to the Court’s knowledge, no Michigan court has
concluded that the elements of common law fraud are met whenever the SCRA is violated.
Banaszak also explains in his objections that “[c]learly Citimortgage engaged in
fraudulent conduct when it induced Captain Banaszak to execute a modification that was
contrary to the Consent Decree/Court Order [in United States v. Bank of America Corp. et al]
prohibiting Citimortgage from executing contracts as it did with Captain Banaszak.”
Contrary to Banaszak’s assertion, it is not “clear” that CitiMortgage engaged in
fraudulent conduct. Banaszak refers to a consent decree apparently entered against CitiMortgage
in a different proceeding—but he does not refer to any
particular consent decree in the
Complaint, does not provide a copy as an exhibit to the Complaint, and he does not provide a
case citation. The Court, therefore, cannot determine what is being referred to.
But even assuming that the Consent Decree prohibits Citimortgage from “engag[ing] in a
loan modification with a soldier in excess of 6% and [from] charg[ing] fees or costs associated
with said modification, Banaszak still has not adequately pleaded a fraud claim under Michigan
or federal law. Banaszak has not alleged that CitiMortgage made a false, material representation,
nor has he alleged the time, place, and content of the misrepresentation. Nowhere in his
complaint does Banaszack identify an alleged misrepresentation.
Because an alleged
misrepresentation is the foundation of a fraud claim under Michigan law, Banaszak has not
stated a claim for fraud.
Finally, it is noteworthy that, even if Banaszak had adequately pleaded a claim for fraud,
it would be precluded by the parties’ contractual agreement memorialized in the mortgage note.
Fraud claims, which sound in tort, are precluded by the rule that prevents pursuing a tort remedy
when the parties’ relationship is governed by a contract. Sherman v. Sea Ray Boats, Inc., 649
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N.W.2d 783 (Mich. Ct. App. 2002) (“Michigan case law expressly provides that an action in tort
may not be maintained where a contractual agreement exists, unless a duty, separate and distinct
from the contractual obligation, is established.”).
Here, four of Banaszak’s seven fraud claims arise out of his mortgage note. See Compl. ¶
80 A (CitiMortgage coerced Banaszak into signing the mortgage note); D (“Failed . . . to lower
and continue to keep lowered the interest rate obligation under the terms of the Note and
Mortgage”); E (“Failed and/or refused to stay proceedings and/or adjust Plaintiff Banaszak’s
obligations under the note & mortgage”); F (“Failed and/or refused to pay/advance/maintain real
property taxes in accordance with the Note & Mortgage”). Each of these allegations asserts a
breach of the promissory note, and therefore Banaszak would be precluded from recovering in
tort.
Banaszak has met neither the heightened pleading requirements for fraud required by the
Federal Rules of Civil Procedure, nor the requirements to state a claim for fraud under Michigan
law. Accordingly, his objection will be overruled and his fraud claims against CitiMortgage will
be dismissed.
F
In his objections, Banaszack requests permission to amend his complaint to allege a
violation of § 561 for failure to pay insurance on his real property: “Plaintiff desires an
opportunity to amend his Complaint to include this additional violation [of § 561] by
Defendant.” Obj. 12.
To begin, this Court’s rules prohibit requesting specific relief from the Court as a part of
a response to an opponent’s motion or as objections to a Magistrate Judge’s recommendation.
See Motion Practice Guidelines for Judge Thomas L. Ludington, Separate Motion and Brief,
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available at http://www.mied.uscourts.gov/Judges/guidelines/topic.cfm?topic_id=360 (“Motions
may not be included within or appended to a response or a reply.”). Accordingly, the portion of
Banaszak’s objections addressing amendment of his complaint will be disregarded.
III
Accordingly, it is ORDERED that Plaintiff Banaszak’s objections (ECF No. 44) are
SUSTAINED IN PART AND REJECTED IN PART.
It is further ORDERED that the Magistrate Judge’s Report & Recommendation (ECF
No. 43) is ADOPTED IN PART AND REJECTED IN PART.
It is further ORDERED that Defendant CitiMortgage’s Motion to Dismiss (ECF No. 20)
is GRANTED IN PART AND DENIED IN PART. Plaintiff Banaszak’s claims pursuant to 50
U.S.C. App. § 561, 50 U.S.C. App. § 518, and for fraud are DISMISSED WITH PREJUDICE.
To the extent that Banaszak seeks to recover damages related to emotional distress pursuant to §
527, this claim will be DISMISSED WITH PREJUDICE.
s/Thomas L. Ludington
THOMAS L. LUDINGTON
United States District Judge
Dated: September 10, 2014
PROOF OF SERVICE
The undersigned certifies that a copy of the foregoing order was served
upon each attorney or party of record herein by electronic means or first
class U.S. mail on September 10, 2014.
s/Tracy A. Jacobs
TRACY A. JACOBS
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