Finnegan et al v. Solie et al
ORDER granting in part and denying in part 7 the Bank Defendants' Motion to Dismiss (Written Opinion). Signed by Judge Donovan W. Frank on 07/08/2011. (rlb)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Thomas F. Finnegan and Mary E. Finnegan,
Civil No. 10-4553 (DWF/JSM)
OPINION AND ORDER
Danny D. Solie, SunTrust Mortgage, and
Federal National Mortgage Association,
B. Shane Barnes, Esq., Jonathan D. Miller, Esq., and Karl J. Yeager, Esq., Meagher &
Geer, PLLP, counsel for Plaintiffs.
Danny D. Solie, Defendant.
Benjamin E. Gurstelle, Esq., Brent R. Lindahl, Esq., and Christianne A. R. Whiting, Esq.,
Briggs & Morgan, PA, counsel for Defendants SunTrust Mortgage and Federal National
This matter is before the Court on a Motion to Dismiss brought by Defendants
SunTrust Mortgage (“SunTrust”) and Federal National Mortgage Association (“Fannie
Mae”) (collectively, the “Bank Defendants”). The Bank Defendants seek an order
dismissing the claims against them with prejudice. For the reasons set forth below, the
motion is granted in part and denied in part. The Court dismisses the claims against the
Bank Defendants but without prejudice.
Plaintiffs Thomas F. Finnegan and Mary E. Finnegan reside at the property legally
described as Lot 20, Block 2, Prairie East Second Addition, Hennepin County, Minnesota
(the “Property”). (Am. Compl. ¶ 1.) Before October 15, 2007, the Property was a
single-family residence owned by the Finnegans. (Id. ¶ 9.) At all times relevant to the
allegations in the Amended Complaint, the Property was the Finnegans’ primary
residence. (Id. ¶ 10.)
In or about September 2007, the Finnegans’ then-mortgagee1 commenced a
foreclosure by advertisement against the Property. (Id. ¶ 11.) In October 2007,
Defendant Danny D. Solie approached the Finnegans about purchasing the Property
before the foreclosure fully ran its course. (Id. ¶ 12.) The Finnegans and Solie entered
into a purchase agreement on or about October 6, 2007 (the “Purchase Agreement”). (Id.
¶ 15.) At a closing on October 15, 2007, the Finnegans deeded the Property to Solie via
warranty deed which was recorded on October 19, 2007 (the “Deed”). (Id. ¶¶ 14, 16.)
Also on October 15, the Finnegans and Solie entered into a lease agreement and a
purchase agreement for the repurchase of the property by the Finnegans (the “Lease” and
the “Subsequent Purchase Agreement”). (Id. ¶ 19.)
At the October 15, 2007 closing, Solie gave a mortgage in favor of SunTrust or its
predecessor, which was recorded against the Property on October 19, 2007 (the
The identity of the Finnegans’ mortgagee at the time of the September 2007
foreclosure is not provided in the Amended Complaint.
“Mortgage”). (Id. ¶ 21.) Solie later failed to pay SunTrust the payments required under
the Mortgage. (Id. ¶ 25.) SunTrust then commenced a foreclosure action against the
Property and purchased the Property on April 29, 2010. (Id. ¶ 26.) Fannie Mae obtained
an interest in the property pursuant to an assignment of the Sherriff’s Certificate dated
April 30, 2010 and recorded in the Hennepin County Recorder’s Office as Document
No. A9518977 (Id. ¶ 5.) The redemption period expired on October 29, 2010. (Id. 26.)
The Finnegans commenced this action in Hennepin County District Court on or
about October 14, 2010. SunTrust removed the action to this Court on November 15,
2010, and the Finnegans filed the Amended Complaint on November 17, 2010. In the
Amended Complaint, the Finnegans allege seven counts: (1) violations of Minn. Stat.
§ 325N; (2) violations of Minn. Stat. § 325F.69; (3) cancellation of conveyances;
(4) violation of Truth in Lending Act (“TILA”) and Home Ownership Equity Protection
Act (“HOEPA”); (5) equitable mortgage; (6) rescission under TILA and HOEPA; and
(7) declaratory judgment.
The Bank Defendants moved for dismissal, arguing that only Count VI, which
seeks a rescission of the loan from SunTrust to Solie, and Count VII, which seeks a
declaratory judgment that the Mortgage “in favor of SunTrust be deemed void and
unenforceable, or in the alternative that SunTrust deliver to Plaintiffs a satisfaction of the
Mortgage,” implicate SunTrust or Fannie Mae. The Bank Defendants assert that the
Finnegans do not have standing to assert these claims and that, even if the Finnegans had
standing, the claims would fail as a matter of law.
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
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.
In Count VI, the Finnegans assert a claim against SunTrust seeking rescission of
the Mortgage made to Solie by SunTrust due to an alleged failure to provide disclosures
required under TILA. The Bank Defendants assert that the Finnegans lack standing to
pursue such a claim. The Bank Defendants argue that the Finnegans have no statutory
right to rescission under TILA because the Finnegans were not the obligor on the
TILA requires a creditor to make certain disclosures “to the person who is
obligated on . . . a consumer credit transaction.” 15 U.S.C. § 1631(a). Among the
required disclosures is notice of the obligor’s right to rescind:
in the case of any consumer credit transaction . . . in which a security
interest . . . is or will be retained in any property which is used as the
principal dwelling of the person to whom credit is extended, the obligor
shall have the right to rescind the transaction until midnight of the third
business day following the consummation of the transaction or the delivery
of the information and rescission forms required under this section . . .
whichever is later . . . .
15 U.S.C. § 1635(a). The Finnegans are not obligors on the Mortgage and thus do not
have statutory rescission rights under TILA.
The Finnegans assert, however, that they are not required to be obligors on the
subject mortgage in order to have standing to raise claims under TILA, relying on
Pregler v. First NLC Fin. Servs. LLC, No. 09-cv-2428, 2010 WL 3548484 (D. Minn.
Sept. 7, 2010). In Pregler, a claim for rescission under TILA was permitted to proceed
where the plaintiff was not listed as a borrower or mortgagor on the subject mortgage,
which was obtained by the plaintiff’s then-boyfriend. Id. at *1-3. The result in Pregler
was based on the regulations issued by the Board of Governors of the Federal Reserve
System to implement TILA (“Regulation Z”). Regulation Z provides, in pertinent part,
that “[i]n a credit transaction in which a security interest is or will be retained or acquired
in a consumer’s principal dwelling, each consumer whose ownership interest is or will be
subject to the security interest shall have the right to rescind the transaction.” 12 C.F.R.
§ 226.23(a)(1). For purposes of rescission, Regulation Z defines consumer to “include
a natural person in whose principal dwelling a security interest is or will be retained or
acquired, if that person’s ownership interest in the dwelling is or will be subject to the
security interest.” 12 C.F.R. § 226.2(a)(11).
The Finnegans assert that they have an ownership interest in the Property. The
Finnegans acknowledge that they deeded the property to Solie via warranty deed. The
Finnegans contend, however, that the transaction with Solie was an equitable mortgage in
which no fee interest was transferred to Solie. The Bank Defendants respond that the
Finnegans should be estopped from challenging Solie’s authority to mortgage the
property and estopped from rescinding the SunTrust Mortgage. The Bank Defendants
rely on Esty v. Cummings, 83 N.W. 420 (Minn. 1900).
Esty involved an action in ejectment. Id. at 420. The property at issue had been
owned by the defendant’s husband subject to three mortgages, and two of the mortgages
had been foreclosed upon. Id. Before the redemption period expired, the defendant and
her husband executed and delivered a warranty deed to the holder of the third mortgage.
Id. That individual then obtained a mortgage from the plaintiff, the proceeds of which
were used to redeem the property. Id. at 420-21. After the mortgage in favor of the
plaintiff was defaulted upon, the plaintiff foreclosed and the property was not redeemed.
Id. at 421. The defendant then attempted to defeat the plaintiff’s title by asserting that the
transaction involving the holder of the third mortgage was an equitable mortgage. Id.
The Minnesota Supreme Court held that “the defendant is estopped from denying the
validity of plaintiff's mortgage. She clothed [the third party] with title to the property,
empowered him to make a loan thereon for her benefit, and cannot now be heard to
dispute that which her conduct induced, and was intended to bring about.” Id.
The Court concludes that Esty applies here. The Finnegans admit that they deeded
the property to Solie via warranty deed, thus clothing Solie with title to the Property. The
Finnegans thus empowered Solie to make a loan for their benefit. The Amended
Complaint contains no allegations from which the Court could infer that SunTrust did not
make the mortgage to Solie in good faith. Accordingly, the Finnegans are estopped from
asserting that they retained an ownership interest in the Property. See Esty, 83 N.W.
at 421; cf. Proulx v. Hirsch Bros., Inc., 155 N.W.2d 907, 912 (Minn. 1968) (“Rescission
and restoration will not be granted to the prejudice of bona fide purchasers acquiring
rights subsequent to the execution of the instrument sought to be canceled.”). Without an
assertable ownership interest, the Finnegans lack standing to rescind the Mortgage that
SunTrust made to Solie.
Count VII states: “To the extent that the subject transaction is rescinded, Plaintiffs
request that the Mortgage, filed for record against the Property in favor of SunTrust be
deemed void and unenforceable, or in the alternative that SunTrust deliver to Plaintiffs a
satisfaction of the Mortgage.” (Am. Comp. ¶ 80.) The Bank Defendants assert that
because the Finnegans cannot rescind the Mortgage, this claim necessarily fails. The
Counts I Through V
The Bank Defendants contend that they are not implicated by Counts I through V
and that because Counts VI and VII fail, they are entitled to judgment against the
Finnegans. The Finnegans assert the claims against the Bank Defendants are not limited
to Counts VI and VII. The Finnegans assert that their claims are primarily against the
Property and substantially affect the ownership of the Property. The Finnegans argue that
the Bank Defendants, as parties claiming an interest in the Property, are therefore
necessary parties to this litigation.
The Court disagrees. In Count I, the Finnegans assert that Solie violated Minn.
Stat. § 325N. Count I consists of 27 paragraphs, none of which implicate any action that
the Bank Defendants either took or failed to take. Even if Count I were construed to have
been pled against the Bank Defendants, the Court would conclude that the Finnegans
failed to satisfy the pleading requirements set forth in Twombly and Iqbal. Minn. Stat.
§ 325N.18 expressly states that “[n]o action under this section shall affect the rights in the
foreclosed property held by a good faith purchaser for value.” Absent some factual
allegation that SunTrust and Fannie Mae are not good faith purchasers for value, the
Finnegans have failed to raise a right to relief based on an alleged violation of Section
325N above the speculative level. Count II asserts that a violation of Minn. Stat. § 325N
is also a violation of Minn. Stat. § 325F.69 and once again alleges only that Solie’s
actions were violations.
Count III is entitled “Cancellation of Conveyances” and does contain a reference
to SunTrust. (See Am. Compl. ¶ 60.) Paragraph 60 states: “Pursuant to Minn. Stat.
325N.13, Plaintiffs hereby notify Defendant Solie and SunTrust of their exercise of their
right to cancel the Purchase Agreement, the Deed, the Subsequent Purchase Agreement,
and the Lease.” The Court has already concluded, however, that the Finnegans have not
stated a claim against SunTrust under Section 325N. In addition, each of the identified
contracts or conveyances are between the Finnegans and Solie. Count III therefore fails
to implicate any act or failure to act by the Bank Defendants and the Court concludes that
the Finnegans have failed to state a claim against the Bank Defendants in Count III.
Counts IV and V relate to the Finnegans’ allegation that their transaction with
Solie resulted in an equitable mortgage. Count IV asserts that Solie failed to provide the
disclosures required under TILA as part of that transaction. Count V asserts that Solie
may not divest the Finnegans of their alleged ownership interest except through a
foreclosure under Minnesota forfeiture law. Those claims are expressly pled against
Solie and do not challenge any act or failure to act by the Bank Defendants.
The Finnegans have therefore failed to state a claim against the Bank Defendants
as to Counts I through V. The Finnegans assert that the Bank Defendants are
nevertheless necessary parties because the Bank Defendants claim interests in the
Property. The Finnegans rely on Minn. Stat. § 559.01, which provides a cause of action
whereby a person in possession of real property may bring an action against another who
claims an interest in that property. The Court concludes that, notwithstanding the
existence of an adverse possession action under Minnesota law, the Finnegans have not
satisfied the pleading requirements under the Federal Rules of Civil Procedure for any
cause of action for which the Bank Defendants are a necessary party.
As an initial matter, the Finnegans have not pled an action under Section 559.
Even if, however, the Amended Complaint were construed to include a claim under
Section 559, the Court’s inquiry would not end there. The Finnegans are still required to
satisfy the pleading requirements of Twombly and Iqbal. Here, assuming all facts in the
complaint to be true and construing all reasonable inferences from those facts in the light
most favorable to the Finnegans, the Amended Complaint fails to state a claim for relief
that implicates the Bank Defendants’ interests in the Property. As discussed above, the
Finnegans are estopped from challenging the SunTrust Mortgage based on their equitable
mortgage theory, and the Finnegans have failed to state a claim under Minn. Stat. § 325N
that implicates the Bank Defendants. The Amended Complaint does not contain any
other avenue through which the Finnegans may attempt to challenge the Bank
Defendants’ interest in the Property, and so the Finnegans have also failed to state a claim
under Minn. Stat. § 559.01.
The Finnegans have therefore failed to state a claim showing that they are entitled
to relief against the Bank Defendants, and the motion to dismiss must be granted.
However, in view of the liberal pleading requirements of the Federal Rules of Civil
Procedure, and because of the early stage of the proceedings in this action, the Court
grants the motion without prejudice.
Accordingly, IT IS HEREBY ORDERED that:
The Bank Defendants’ Motion to Dismiss (Doc. No. ) is GRANTED IN
PART and DENIED IN PART as follows:
Plaintiffs’ Amended Complaint (Doc. No. ), as it is
asserted against the Bank Defendants, is DISMISSED WITHOUT
Dated: July 8, 2011
s/Donovan W. Frank
DONOVAN W. FRANK
United States District Judge
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