Dietz et al v. Beneficial Loan and Thrift Co. et al
Filing
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MEMORANDUM OPINION AND ORDER 1. Beneficial's Motion to Dismiss (Doc. No. 4 ) is GRANTED. 2. Plaintiffs' Second Amended Complaint (Doc. No. 3 ) is DISMISSED WITH PREJUDICE. 3. As to Counts 1 and 2 only (Plaintiffs' TILA claims), this Order is STAYED for forty-five (45) days to allow Plaintiffs to amend their rescission claim. Should Plaintiffs amend the claim so as to adequately allege a rescission claim within the prescribed time period, the stay will be lifted as to Counts 1 an d 2 and the Motion to Dismiss will be denied without prejudice. The Court will entertain a future motion to dismiss should the Defendants take the position that the complaint, as amended, continues to fail to state a claim under TILA. Should Plaintif fs fail to amend the claim so as to adequately allege a rescission claim within the prescribed time period, the stay will be lifted and Counts 1 and 2 will be dismissed with prejudice. (Written Opinion). Signed by Judge Donovan W. Frank on 6/10/11. (BJS)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Vicky A. Dietz and
Terry B. Dietz,
Civil No. 10-3752 (DWF/TNL)
Plaintiffs,
v.
MEMORANDUM
OPINION AND ORDER
Beneficial Loan and Thrift Co., a
Minnesota corporation, and John
and Jane Does 1-10,
Defendants.
_____________________________________________________________________
Michael J. Keogh, Esq., Keogh Law Office, counsel for Plaintiffs.
Chad A. Snyder, Esq., and Michael H. Frasier, Esq., Snyder Gislason Frasier LLC,
counsel for Beneficial Loan and Thrift Co.
_____________________________________________________________________
INTRODUCTION
This matter is before the Court on a Motion to Dismiss brought by Defendant
Beneficial Loan and Thrift Co. (“Beneficial”). For the reasons set forth below, the Court
grants the motion.
BACKGROUND
On December 15, 2006, Plaintiffs entered into a loan agreement with Beneficial in
the principal amount of $292,450. (Second Am. Compl. ¶ 13, Ex. 2.) The loan was a
refinance of an existing home, with additional funds to pay off multiple consumer debts.
(Id. ¶ 17.) At the closing, Plaintiffs were provided copies of various documents,
including a Loan Agreement (including Truth-in-Lending Disclosure), a Mortgage
security instrument, a HUD-1A Settlement Statement, and four copies of a Notice of
Right to Cancel. (Id. ¶15, Ex. 2.)
In November 2008, Plaintiffs stopped making payments on the loan. (Id. ¶ 30,
Ex. 5 (noting that “as of December 8, 2009, payment on [Plaintiffs’] account is 383 days
past due” and that “the foreclosure process has been initiated”).) On November 23, 2009,
Plaintiffs sent Beneficial a document entitled “Actual Notice to Rescind; Notice Pursuant
to RESPA (QWR); & Request for Accounting.” (Id. ¶ 28, Ex. 4.) In the November 23,
2009 notice, Plaintiffs indicated that they “did not receive the correct Truth in [L]ending
Disclosure Statements,” that Beneficial’s “failure to provide effective notice of these
mandatory disclosures effectively extends our rescission rights under 15 U.S.C.
§ 1635(f),” and that Plaintiffs “hereby give effective notice to rescind.” (Id. ¶ 28, Ex. 4
at 1.)
The November 23, 2009 notice also states that it is a “qualified written request”
(“QWR”) as defined by 12 U.S.C. § 2605(e)(1)(B), and requests various documents and
information. (Id. ¶ 28, Ex. 4 at 2.) The requested information includes, in summary,
(1) a complete and detailed payment history on the account; (2) an explanation of how
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the “Amount Financed” was calculated by the underwriter in the Truth in Lending
Disclosure Statement and supporting documentation; (3) the amount of and other
information regarding various expenses or fees charged (such as fees for appraisal and
title insurance); (4-6) certified copies of various agreements between Beneficial and other
financial entities that relate to Plaintiffs’ account (i.e., Master Pooling and Service
Agreements, recourse agreements, trust agreements); (7) certified copies of Truth in
Lending disclosures provided at closing; (8) certified copies of documents sent to
Plaintiffs by previous servicers or sub-servicers; (9) “accounting ledger cards” and
similar documents regarding “the crediting of any and all Promissory Notes, money
equivalents, or similar instruments, identified as or evidencing assets provided by and/or
signed by the borrowers and consumers related to this Account”; (10) “[a] certified copy
of disclosures in [Beneficial’s] file allegedly provided at any alleged closing or
consummation”; (11) a copy of all account receivables or payable relating to Plaintiffs’
account; (12) the particulars of Plaintiffs’ account setting forth each item recorded since
origination; (13) an identification of the source of funds used to fund the loan; (14) an
identification of the source of funds used by Beneficial to purchase any Promissory Notes
and similar instruments; and (15) certified copies of all checks obtained or issued by
Beneficial and used to fund this obligation. (Id. ¶ 28, Ex. 4. at 2-4.) Plaintiffs also
requested various documents related to public disclosure of securities under SEC rules.
(Id. at 4-5.)
On December 8, 2009, Beneficial responded to Plaintiffs’ November 23, 2009
notice. The response reads, in relevant part:
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After a thorough review of your inquiry, we are unable to determine any
specific error that you believe has occurred in the servicing of the
referenced account, nor any specific corrective action you are seeking. If
you have any items of concern, please specifically identify your concerns
so that we may evaluate them accordingly.
Because your inquiry contained several information requests, we have
enclosed the following documents that are relevant and pertinent to the
servicing of the referenced account for your review:
•
•
•
•
•
•
•
•
•
•
•
Loan Agreement (Including Truth-In-Lending Disclosure)
Recorded Mortgage
Optional Credit Insurance Disclosure
Servicing Transfer Disclosure Statement
Loan Summary
Arbitration Rider
Notice of Negative Credit Reporting Disclosure
Notice of Right to Cancel
Good Faith Estimates
HUD-1A Settlement Statement
Payment History
In reference to your request to initiate a rescission of the above referenced
account; after a thorough review of your correspondence, we are unable to
identify and/or validate the specific error(s) regarding the above referenced
account that would allow for the transaction to be rescinded. Please be
advised that although your Beneficial loan is a joint account, we were only
required to provide you with one copy of the Truth-In-Lending Disclosure
at the signing of your loan. If you believe any other item(s) are violations
of the Truth-In-Lending Act, please identify them so that we may evaluate
them accordingly.
(Second Am. Compl. ¶ 30, Ex. 5.)
On December 16, 2009, Plaintiffs were served with a Notice of Mortgage
Foreclosure Sale. (Id. ¶ 46, Ex. 6.) The foreclosure sale was held on July 15, 2010.
(Id.)
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On or around August 25, 2010, Plaintiffs commenced this action. Plaintiffs
amended their complaint twice. In their Second Amended Complaint, Plaintiffs allege
four causes of action against Defendants: Failure to Rescind Under the Truth in Lending
Act (“TILA”), 15 U.S.C. § 1601, et seq., and Reg. Z; violations of TILA and Reg. Z;
violation of the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2601,
et seq., and a recoupment claim; and a claim under the Minnesota Deceptive Trade
Practices Act, Minn. Stat. §§ 325D.43, et seq. (“MDTPA”). Beneficial now moves to
dismiss all of Plaintiffs’ claims in the Second Amended Complaint.
DISCUSSION
In deciding a motion to dismiss pursuant to Rule 12(b)(6), a court assumes all
facts in the complaint to be true and construes all reasonable inferences from those facts
in the light most favorable to the complainant. Morton v. Becker, 793 F.2d 185, 187 (8th
Cir. 1986). In doing so, however, a court need not accept as true wholly conclusory
allegations, Hanten v. Sch. Dist. of Riverview Gardens, 183 F.3d 799, 805 (8th Cir.
1999), or legal conclusions drawn by the pleader from the facts alleged. Westcott v. City
of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). A court may consider the complaint,
matters of public record, orders, materials embraced by the complaint, and exhibits
attached to the complaint in deciding a motion to dismiss under Rule 12(b)(6). Porous
Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999).
To survive a motion to dismiss, a complaint must contain “enough facts to state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
545 (2007). Although a complaint need not contain “detailed factual allegations,” it must
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contain facts with enough specificity “to raise a right to relief above the speculative
level.” Id. at 555. As the United States Supreme Court recently reiterated, “[t]hreadbare
recitals of the elements of a cause of action, supported by mere conclusory statements,”
will not pass muster under Twombly. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)
(citing Twombly, 550 U.S. at 555). In sum, this standard “calls for enough fact[s] to raise
a reasonable expectation that discovery will reveal evidence of [the claim].” Twombly,
550 U.S. at 556.
I.
TILA
In Counts 1 and 2 of their Second Amended Complaint, Plaintiffs assert claims for
failure to rescind and violations under TILA and its implementing regulations. Beneficial
moves to dismiss these claims, arguing that they fail because Plaintiffs’ rescission rights
expired prior to the initiation of this action, Plaintiffs’ damages claims are barred by
TILA’s one-year statute of limitations, and Plaintiffs are not entitled to rescission because
they have not alleged an ability to tender the loan amount to Beneficial.
Plaintiffs’ principal demand under TILA is for rescission. However, rescission
under TILA is conditioned on repayment of the amounts advanced by the lender.
Yamamoto v. Bank of N.Y., 329 F.3d 1167, 1170 (9th Cir. 2003). The Court has
concluded that it is appropriate to dismiss rescission claims under TILA at the pleading
stage based on the plaintiff’s failure to allege an ability to tender loan proceeds. See, e.g.,
Franz v. BAC Home Loans Servicing, LP, Civil No. 10-2025 (DWF/FLN), 2011 WL
846835, at *3 (D. Minn. March 8, 2011) (citing Garza v. Am. Home Mortg., No. CV F
08-1477 LJO GSA, 2009 WL 188604, at *5 (E.D. Cal. Jan. 27, 2009) (stating that
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“rescission is an empty remedy without [the borrower’s] ability to pay back what she has
received”)); Hintz v. JP Morgan Chase Bank, Civil No. 10-119 (DWF/AJB), 2010 WL
4220486, at *4 (D. Minn. Oct. 20, 2010). Because Plaintiffs have failed to plead the
ability to tender, their rescission claim is dismissed with prejudice.1 However, the Court
will stay the dismissal of Plaintiffs’ TILA claims for forty-five (45) days to allow
Plaintiffs to amend their claims. Should Plaintiffs fail to amend their TILA claims so as
to adequately allege a claim for rescission within the prescribed time period, the claims
will be dismissed with prejudice. The Court will address the parties’ additional
arguments regarding the merits and timeliness of Plaintiffs’ TILA claims on a later
motion to dismiss if this issue still remains.
Plaintiffs also seek damages under TILA. Beneficial submits that this claim should
be dismissed because it is time-barred. Section 1640(e) provides that an action for
damages under TILA must be brought “within one year from the date of the occurrence
of the violation . . . .” 15 U.S.C. § 1640(e). Plaintiffs closed on their loan on or around
December 15, 2006, but did not file this action until August 25, 2010. Therefore, to the
extent that Plaintiffs’ claim for damages under TILA is based on alleged violations that
occurred at the closing, it is time-barred.2
1
In so concluding, the Court does not hold that a plaintiff must allege the ability to
immediately tender the entire loan amount.
2
Plaintiffs argue that Defendants violated TILA by failing to respond to their valid
rescission notice, thus allowing Plaintiffs a three-year period to rescind and an additional
year to bring a claim of damages after Defendants allegedly denied their rescission
(Footnote Continued on Next Page)
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II.
RESPA
In Count 3 of the Second Amended Complaint, Plaintiffs allege that Defendants
violated RESPA by failing to make appropriate corrections to Plaintiffs’ account in
response to the QWR, failing to transmit written notice of such corrections, failing to
provide a reasonable explanation as to why all documentation and information sought
was not provided within sixty days, and by providing information to consumer reporting
agencies regarding alleged overdue payments related to the QWR. Plaintiffs also assert
that they are entitled to recoup the actual and statutory civil penalty provided by RESPA.
Beneficial asserts that Plaintiffs have failed to allege a RESPA violation.
Specifically, Beneficial argues that the November 23, 2009 notice does not constitute a
QWR under RESPA and that Plaintiffs have failed to allege any actual damages.
RESPA requires that when a “servicer of a federally related mortgage loan
receives a [QWR] from the borrower . . . for information related to the servicing of such
loan, the servicer shall provide a written response acknowledging receipt of the
correspondence within 20 days . . . unless the action requested is taken within such
period.” 12 U.S.C. § 2605(e)(1)(A). According to Plaintiffs’ Second Amended
Complaint, Plaintiffs sent Beneficial a purported QWR on November 23, 2009. (Second
(Footnote Continued From Previous Page)
notice. (Doc. No. 12 at 7-8.) However, as explained above, Plaintiffs have failed to state
a claim for rescission. Unless Plaintiffs are able to adequately allege such a claim, there
appears to be no basis for Plaintiffs to avoid the one-year statute of limitations on their
damage claim under TILA.
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Am. Compl., Ex. 4.) The parties dispute whether the November 23, 2009 notice
constitutes a QWR.
A QWR is a:
written correspondence, other than notice on a payment coupon or other
payment medium supplied by the servicer, that (i) includes, or otherwise
enables the servicer to identify, the name and account of the buyer; and
(ii) includes a statement of the reasons for the belief of the borrower, to the
extent applicable, that the account is in error or provides sufficient detail to
the servicer regarding other information sought by the borrower.
12 U.S.C. § 2605(e)(1)(B).
Based on the allegations in the Second Amended Complaint and the attached
purported QWR, the Court concludes that Plaintiffs’ November 23, 2009 notice does not
constitute a QWR. In the November 23, 2009 notice, Plaintiffs did not identify any
purported errors in Plaintiffs’ account or request the correction of the same. Nor did
they ask questions related to Beneficial’s servicing of the loan or identify any errors in
loan servicing. Instead, the notice identified a laundry list of requests for documents and
information, most of which are completely unrelated to the servicing of the loan and lie
outside the scope of RESPA.3 For example, Plaintiffs sought information related to the
loan’s closing and origination, loan ownership and the contractual relationships between
Beneficial and other companies, unrelated general correspondence, the source of funds
3
“Servicing” means “receiving any scheduled periodic payments from a borrower
pursuant to the terms of any loan, including amounts for escrow accounts . . . and making
the payments of principal and interest and such other payments with respect to the
amounts received from the borrower as may be required pursuant to the terms of the
loan.” 12 U.S.C. § 2605(i)(3).
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used by Beneficial to purchase promissory notes or similar instruments, payments made
or received by Beneficial to fund the loan, information regarding broker’s services, and
documents related to SEC rules.
Plaintiffs did request some information that could relate to the servicing of the
loan, such as a request for a complete history of Plaintiffs’ payments. However,
Plaintiffs did not identify any reasons for a belief that the account (or payment history) is
in error and, in any event, Beneficial provided Plaintiffs’ payment history in its
December 8, 2009 correspondence. (Second Am. Compl. ¶ 30, Ex. 5.)
In addition, even reading Plaintiffs’ Second Amended Complaint liberally,
Plaintiffs fail to adequately plead damages caused by the alleged failure to respond to the
purported QWR. Plaintiffs have not alleged any facts to show that Defendants’ failure to
respond to the purported QWR caused Plaintiffs harm. Nothing in the Second Amended
Complaint suggests that Plaintiffs needed any of the information requested in the letter in
order to make payments on the property. Thus the Second Amended Complaint fails to
state facts that would show that any damage to Plaintiffs was attributable to Defendants’
lack of response.4
4
In their Second Amended Complaint, Plaintiffs allege that “Defendants have
willfully engaged in a pattern or practice of non-compliance with the requirements of the
mortgage servicer provisions of RESPA as set forth in 12 U.S.C. § 2605.” (Second Am.
Compl. ¶ 59.) RESPA does allow for a civil penalty of $1,000 “in the case of a pattern or
practice of noncompliance.” 12 U.S.C. § 2605(f)(1)(B). However, Plaintiffs’ allegations
regarding a pattern or practice are wholly conclusory and insufficient to state a cause of
action.
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For the above reasons, the Court concludes that Plaintiffs have failed to state a
RESPA claim upon which relief can be granted. The Court therefore dismisses Count 3
with prejudice.
III.
Minnesota Deceptive Trade Practices Act
In Count 4 of their Second Amended Complaint, Plaintiffs assert a violation of the
MDTPA. Beneficial argues that this claim is properly dismissed because Plaintiffs have
not pleaded the claim with particularity, they are not suing to obtain a public benefit, the
alleged conduct does not fall within the MDTPA, and to the extent that Plaintiffs’
MDTPA claims are based on violation of TILA or RESPA, they are preempted by federal
law. In their opposition, Plaintiffs do not respond to these arguments or otherwise
provide any support for their MDTPA claim.
The MDTPA is governed by the heightened pleading standards of Fed. R. Civ. P.
9(b). See Russo v. NCS Pearson, Inc., 462 F. Supp. 2d 981, 1003 (D. Minn. 2006). Rule
9(b) requires a party alleging fraud to “state with particularity the circumstances
constituting fraud or mistake.” Plaintiffs allege that they are acting in the capacity of a
private attorney general “to remedy the ongoing unlawful, unfair and fraudulent business
practices alleged herein”: that “Defendants . . . have committed acts of unfair
competition proscribed by Minn. DTPA including the practices alleged herein”; that
Defendants engaged in “‘unlawful’ business practices” and “‘unfair’ business practices”;
that Defendants “have systematically violated the provisions of TILA, RESPA, the
Transaction, the contract between the parties, and to such extent as to induce confusion of
source, sponsorship of services, and rescission rights of Plaintiff”; and that “each
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Defendant made one or more misrepresentations and/or failed to make accurate
representations and/or failed to provide material information about the Transaction.”
(Second Am. Compl. ¶¶ 62-3, 66-7, 71.)
The Court concludes that Plaintiffs have failed to state a claim under the MDTPA.
Plaintiffs have failed to allege a specific deceptive trade practice or any specifics as to
who committed fraud, when the fraud was committed, or the nature of the fraud.
Plaintiffs’ allegations fail to satisfy Rule 9(b)’s particularity requirement and Count 4 is
properly dismissed with prejudice.5
CONCLUSION
Accordingly, IT IS HEREBY ORDERED that:
1.
Beneficial’s Motion to Dismiss (Doc. No. [4]) is GRANTED.
2.
Plaintiffs’ Second Amended Complaint (Doc. No. [3]) is DISMISSED
WITH PREJUDICE.
3.
As to Counts 1 and 2 only (Plaintiffs’ TILA claims), this Order is
STAYED for forty-five (45) days to allow Plaintiffs to amend their rescission claim.
Should Plaintiffs amend the claim so as to adequately allege a rescission claim within the
prescribed time period, the stay will be lifted as to Counts 1 and 2 and the Motion to
Dismiss will be denied without prejudice. The Court will entertain a future motion to
dismiss should the Defendants take the position that the complaint, as amended,
5
Moreover, the Court agrees with Beneficial that Plaintiffs cannot bring a claim
under the MDTPA because they are not seeking to obtain a public benefit. See DeVary v.
Countrywide Home Loans, Inc., 701 F. Supp. 2d 1096, 1109 (D. Minn. 2010).
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continues to fail to state a claim under TILA. Should Plaintiffs fail to amend the claim so
as to adequately allege a rescission claim within the prescribed time period, the stay will
be lifted and Counts 1 and 2 will be dismissed with prejudice.
Dated: June 10, 2011
s/Donovan W. Frank
DONOVAN W. FRANK
United States District Judge
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