WALSH et al v. HOUSEHOLD FINANCE CORPORATION III et al

Filing 50

MEMORANDUM OPINION. Signed by Judge Kevin McNulty on 11/17/16. (cm )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
LAURA WALSH and PAUL L.
GREER, JR.,

Civ. No. 15-4112 (KM) (MAR)

Plaintiffs,
MEMORANDUM OPINION
HOUSEHOLD FINANCE CORP. III,
U.S. BANK TRUST, N.A., DEUTSCHE
BANK NATIONAL TRUST, and LSF9
MASTER PARTICIPATION TRUST,
Defendants.

MCNULTY, U.S.D.J.:
I.

Introduction
The plaintiffs, Laura Walsh and Paul L. Greer, Jr., bring this action

seeking to enforce a purported rescission of a note and mortgage on a
residential property in Englewood, New Jersey. The amended complaint (ECF
no. 3, referred to herein as the Complaint, and cited as “Compi.”) alleges that
the defendants, Household Finance Corp. III (“HFC III”), U.S. Bank Trust, N.A.
(“U.S. Bank”), Deutsche Bank National Trust (“Deutsche Bank”), and LSF9
Master Participation Trust (“LSF9”), violated the Truth in Lending Act (“TILA”),
15 U.S.C.

§ 1635 et seq., and related Regulation Z, 12 C.F.R. § 226.23. The

Complaint demands a return of the note and mortgage, restitution of moneys
paid under the note, statutory damages under TILA, and attorney’s fees.
Now before the Court is the motion of Defendant HFC III, pursuant to
Fed. R. Civ. P. 12(b)(6), to dismiss the Complaint. (ECF no. 34) Defendants U.S.
Bank and LSF9 have also submitted a motion to dismiss pursuant to Rules
12(b)(1) and 12(b)(6). (ECF no. 36) For the reasons set forth below, those

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motions are granted. Also before the Court is Plaintiffs’ motion to Deem LSF9’s
Motion to Dismiss Deficient and Strike from the Record. (ECF no. 42) That
motion is denied.
II.

Factual Background
On March 21, 2007, Plaintiffs obtained a loan in the amount of

$468,967.49 from Defendant HFC III to refinance an existing mortgage on their
house, located at 364 Knickerbocker Road, Englewood, New Jersey (the
“Property”). (Compi.

¶f

5, 11) The loan was secured by a mortgage on the

Property. (Id., Ex. A)
On March 27, 2007, HFC III sent a letter to Plaintiffs noting that the loan
had been processed and disbursed, that the account number had changed,
and that the first payment due date had been adjusted based on the actual
disbursement date. (Id.

¶J

12, 13, Ex. B)

Nearly eight years later, on February 20, 2015, Plaintiffs mailed a Notice
of Rescission to HFC III and to U.S. Bank, stating that Plaintiffs were
rescinding the transaction pursuant to the Federal Truth in Lending Act
(“TILA”). (Compi.

¶J

16, 19) Similarly, on March 20, 2015, Plaintiffs sent a

Plaintiffs move this Court to “Deem LSF9’s Motion to Dismiss Deficient and
Strike [it] from the Record” (ECF no. 42), for lack of compliance with Rule 7.1 of the
Federal Rules of Civil Procedure. Rule 7.1 requires that “[a] nongovernmental
corporate party must file two copies of a disclosure statement that: (1) identifies any
parent corporation and any publicly held corporation owning 10% or more of its stock;
or (2) states that there is no such corporation.” LSF9 has not filed a Corporate
Disclosure Statement in this case. Indeed, if LSF9 were a nongovernmental
corporation, it would be required to comply with Rule 7.1. However, a document
submitted by Plaintiffs in support of its motion confirms that LSF9 is a statutory trust
formed under Delaware law. (ECF no. 42, Ex. C) Although a requirement that trusts
file disclosure forms might further facilitate screening of circumstances calling for a
federal judge’s recusal, the Advisory Committee intentionally structured Rule 7.1(a) in
a limited fashion, and “the language of the rule limits its application to
nongovernmental corporations and does not embrace other economic entities.” 5
Charles Alan Wright et al., Federal Practice and Procedure § 1197 (3d ed. 2016).
Therefore, as a trust, LSF9 is not subject to Rule 7.1.
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2

Notice of Rescission to Deutsche Bank. (Id.
2

¶

22) Plaintiffs allege that none of

the defendants contested the Notice of Rescission within the twenty days
required under TILA. (Id.

¶J

17, 20, 23) Both U.S. Bank and Deutsche Bank

claim an interest in the Plaintiffs’ mortgage and property. (Id. ¶j 8-9)
On July 1, 2015, Plaintiffs filed the four-count Complaint in this action
as pro se litigants, seeking to enforce their right of rescission under TILA.
(Compi. ¶1 4) Counts One and Two demand the enforcement of rescission under
U.S.C.

§

1635(a) (granting consumers the right to rescind) and 12 C.F.R.

§

226.23 (stating that rescission is effective when the consumer mails the notice
of rescission). (Id.

¶J

26-27, 39-40) Count Three alleges that the transaction

was never consummated. (Id.

¶J

66-78) Count Four demands restitution

arising out of Plaintiff’s alleged rescission. (Id.

¶

85) In particular, Plaintiffs

demand that the defendants return at least $88,000 that they paid under the
note, as well as statutory fines, damages, attorney’s fees and costs. (Id.)
III.

DISCUSSION
A. Legal Standard
Defendants HFC III, U.S. Bank, and LSF9 have moved to dismiss the

Complaint for failure to state a claim, pursuant to Fed. R. Civ. P. 12(b)(6). Rule
12(b)(6) provides for the dismissal of a complaint, in whole or in part, if it fails
to state a claim upon which relief can be granted. The defendant, as the moving
party, bears the burden of showing that no claim has been stated. Hedges v.
United States, 404 F.3d 744, 750 (3d Cir. 2005). In deciding a Rule 12(b)(6)
motion, a court must take the allegations of the complaint as true and draw
reasonable inferences in the light most favorable to the plaintiff. Phillips v.
County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (traditional “reasonable
inferences” principle not undermined by Two mbly, see infra).

Deutsche Bank is a defendant in this action, but did not file a motion to
dismiss. Because none of the grounds for dismissal are specific to the movants, the
complaint will be dismissed in its entirety.
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Federal Rule of Civil Procedure 8(a) does not require that a complaint
contain detailed factual allegations. Nevertheless, “a plaintiff’s obligation to
provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will
not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, the
complaint’s factual allegations must be sufficient to raise a plaintiff’s right to
relief above a speculative level, so that a claim is “plausible on its face.” Id. at
570; see also Umland v. PLANCO Fin. Serv., Inc., 542 F.3d 59, 64 (3d Cir. 2008).
That facial-plausibility standard is met “when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (citing Twombly, 550 U.S. at 556). While “[t]he plausibility standard
is not akin to a ‘probability requirement’.

.

.

it asks for more than a sheer

possibility.” Iqbal, 556 U.S. at 678.
Where, as here, a plaintiff is proceeding pro

Se,

the complaint is “to be

liberally construed,” and, “however inartfully pleaded, must be held to less
stringent standards than formal pleadings drafted by lawyers.” Erickson v.
Pardus, 551 U.S. 89, 93-94 (2007). Nevertheless, “pro se litigants still must
allege sufficient facts in their complaints to support a claim.” Mala v. Crown
Bay Marina, Inc., 704 F.3d 239, 245 (3d Cir. 2013). “While a litigant’s pro se
status requires a court to construe the allegations in the complaint liberally, a
litigant is not absolved from complying with Twombly and the federal pleading
requirements merely because s/he proceeds pro se.” Thakar v. Tan, 372 F.
3
App’x 325, 328 (3d Cir. 2010) (citation omitted).

Defendants U.S. Bank and LSF9 move in the alternative to dismiss under Rule
12(b)(1) for lack of subject matter jurisdiction. They cite several doctrines: 1) the
Colorado River doctrine; 2) New Jersey’s entire controversy doctrine; 3) the Rooker
Feldman doctrine; 4) res judicata; and 5) collateral estoppel or issue preclusion.
Certain of these doctrines (res judicata, collateral estoppel, entire controversy) are not
jurisdictional. I assume the 12(b)(1) motion is not intended to apply to them.
3

The application of Rooker is doubtful, because the defendants do not claim that
there has been a final judgment in the State foreclosure action. (See ECF no. 36-1 at 9
4

B. Truth in Lending Act (TILA) Claims
Plaintiffs seek to enforce the rescission of the note and mortgage
allegedly effected by operation of law on February 20, 2015, pursuant to the
Truth in Lending Act (“TILA”), 15 U.S.C.

§ 1635. Under TILA:

Consumers have an absolute right to rescind for three business
days after closing on the loan. [15 U.S.C.] § 1635(a). To exercise
this “no questions asked” right of rescission, the obligor on the
mortgage note must simply notifr the creditor of his intention to do
so, consistent with the applicable regulations. Id. § 1635(a), (b). No
court filing is necessary to effectuate this right. If the lender fails to
make the requisite disclosures before the loan commences, the
three-day restriction on the right of rescission does not begin to
run. A consumer who does not receive the requisite disclosures
has a right to rescind that lasts until three days after the
disclosures are received. Id. § 1635(a). That right of rescission is
not perpetual, however, even if the consumer never receives all of
the requisite disclosures. The right “expire[s] three years after the
(“The Foreclosure Action is still pending ....“)) See Exxon Mobil Corp. v. Saudi Basic
Indus., Inc., 544 U.S. 280, 284 (2005).
Colorado River abstention, though jurisdictional in nature, may require no more
than a stay of federal proceedings, and is dependent on a complex weighing of factors
that may require the development of a factual record. See Nationwide Mut. Fire Ins. Co.
v. George V. Hamilton, Inc., 571 F.3d 299, 307 (3d Cir. 2009).

I therefore assume at the outset that the Court possesses subject matter
jurisdiction. The plaintiffs assert a claim under a federal statute, suggesting strongly
that there is federal-question jurisdiction. See 28 U.S.C. § 1331. Because it does not
appear to a certainty—at least at the present stage of the proceedings—that no federal
question is presented, and because the complaint is so clearly time-barred by a
statute of repose, I would grant the motions of HFC III, U.S. Bank, and LSF9, on a
Rule 12(b)(6) basis.
Finally, however, there is authority for the proposition that the TILA statute of
repose is itself of jurisdictional stature. Miguel v. Country Funding Corp., 309 F.3d
1161, 1164 (9th Cir.2002) (“[Section] 1635(1) is a statute of repose, depriving the
courts of subject matter jurisdiction when a [Section] 1635 claim is brought outside
the three-year limitation period.”). See also Beach v. Ocwen Federal Bank, 523 U.S.
410, 118 5. Ct. 1408 (1998) (TILA 3-year period is not a mere time limit, but a
limitation on the underlying right); Williams v. Wells Fargo Home Mortg., Inc., 410 Fed.
App’x 495, 499 (3d Cir. 2011) (holding that “the right ceases to exist once a statute of
repose has run”). Because the analysis herein does not exceed what can be considered
on a Rule 12(b)(6) motion, the distinction between 12(b)(6) and 12(b)(1) makes no
difference here.
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date of consummation of the transaction or upon the sale of the
property, whichever occurs first.” Id. § 1635
Sherzer v. Homestar Mortgage Servs., 707 F.3d 255, 256 (3d Cir. 2013). The
requirement that a request for rescission under TILA be brought within three
years is a firm deadline, i.e., a statute of repose that is not subject to tolling.
See 15 U.S.C.

§ 1635(1); Community Bank, 622 F.3d at 301 n.18; Williams v.

Wells Fargo Home Mortg., Inc., 410 Fed. App’x 495, 499 (3d Cir. 2011).
“Consummation” is defined as “the time that a consumer becomes
contractually obligated on a credit transaction.” Regulation Z, 12 C.F.R.

§

226.2(a)(13). The point at which a consumer becomes “contractually obligated”
defined by state law. See Carmen v. Metrocities Mortg., No. 08-2729, 2010 WL
421115, at *6 (D.N.J. Feb. 1, 2010) (citing Jackson v. Grant, 890 F.2d 118, 120
(9th Cir. 1989)). “Under New Jersey state law, the elements of a valid contract
are offer, acceptance, and consideration.” Timm v. Wells Fargo Bank, N.A., No.
CV158363MASTJB, 2016 WL 5852848, at *3 (D.N.J. Sept. 29, 2016) (citing
Smith v. SBC Commc’ns Inc., 839 A.2d 850, 283 (N.J. 2004)). It follows that
once those elements were in place, the consumer is “contractually obligated.”
That date is the closing date, when the contract is executed. See Bartholomew
v. Northampton Nat. Bank of Easton, Easton, Pa., 584 F.2d 1288, 1296 (3d Cir.
1978).
The defendants argue that the Complaint should be dismissed on the
grounds that the loan transaction was consummated on March 21, 2007, upon
the execution of the loan refinancing. In their view, Plaintiffs’ right to rescind
expired, at the latest, on March 21, 2010, under the TILA three-year statute of
repose. (ECF nos. 34-4 at 8, 36-1 at 17) Plaintiffs’ notice of rescission, however,
was furnished in February 2015—nearly eight years after the loan refinancing
and nearly five years after the expiration of the TILA statute of repose.
Plaintiffs respond that their notice was nevertheless timely. First, they
allege that the defendants never made disclosures required by TILA. (Compl.
14, 46-47) Consequently, the three-day restriction on the right of rescission
never began to run. Plaintiffs further argue that the three-year statute of
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¶f

repose was never triggered because the credit transaction was never
consummated. That alleged lack of consummation is premised on Plaintiffs’
argument that they were never contractually obligated to HFC III by the note
and mortgage.
Plaintiffs’ conclusory legal allegations are unsupported by well-pled,
plausible facts permitting an inference that their contractual obligations on the
note and mortgage did not arise. They allege that HFC III was the loan
originator but did not itself fund the loan. (Compl. 1]] 14, 29, 46, 72, Ex. A)
“[Rjather, someone else or some other entity [was responsible for] funding
and/or lending and/or table funding the loan.” (Compi. 1 72) HFC III, they say,
earned a “commission” on the loan by “posing” as the lender. (Id.) HFC III thus
allegedly “us[ed] subterfuge” to conceal its actual role in the loan transaction.
(Compl. ]i 14, 29, 73) Essentially, Plaintiffs allege that HFC III was not the
“true lender” because the money came from elsewhere. Without a properly
identified lender, they say, there was no enforceable contract under New Jersey
4
law.
It is no ordinary fraudster which obligates itself to, and does, advance
$484,000 to its “victim,” concealing only the ultimate source of the funds. At
any rate, Plaintiffs’ reasoning fails because the Complaint’s allegations do not
plausibly support an inference that the contract between Plaintiffs and HFC III
was unenforceable under New Jersey law for lack of an identified lender.

The Complaint also appears to allege fraud and intentional misrepresentation of
the true lender’s identity. (See, e.g., Compi. ¶11 73-74, 76) Aside from failing to plead
all of the elements of fraud, let alone with the particularity required by Fed. R. Civ. P.
Rule 9(b), the additional allegations depend on the same unsupported assertion that
underlies the lack of a valid contract theory—that HFC III misrepresented that it was
the lender when it was not in fact the true lender.
4

In their opposition briefs, Plaintiffs additionally argue that there was no valid
contract formation because Plaintiffs and the defendants never exchanged
consideration. (ECF nos. 45 at 20, 46 at 41) Because the Complaint does not contain
any allegations that Plaintiffs did not receive the mortgage loan, this appears to be a
variation on Plaintiffs’ allegations that the loan was funded by a third party, not HFC
III.
7

Pursuant to the refinance loan on the Property, Plaintiffs were to, and
apparently did, receive $468,967.49. The loan agreement clearly identifies HFC
III as the lender, and the note and mortgage are likewise between the plaintiffs
and HFC 111.5 (Compl.

¶J

5, 11; Ex. A) The Complaint also clearly indicates that

Plaintiffs executed the note and mortgage. (Id.

¶J

11-12) Plaintiffs do not allege

that they did not receive the benefit of their refinance loan, and do not allege
factually that they received the benefit from a party other than HFC

JJJ•6

Even if I credit the Complaint’s unsupported allegation of third-party
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funding, that fact would not render the note and mortgage unenforceable
under state law. There is no plausible allegation that the loan was not funded;
the documents clearly reflect that the refinancing occurred, and plaintiffs
themselves base their claim upon their having made monthly payments on the
loan totaling some $88,000. Assuming that HFC III, rather than drawing on its
own funds, caused the funding to issue from some third party, that would not
vitiate its status as the party that contracted with Plaintiffs. Plaintiffs offer no
legal authority for their theory that consummation occurs only if the identified
creditor/mortgagor self-funds the loan. Nor do Plaintiffs point to persuasive
authority that, despite the clear identification of a lender in the executed loan

See Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014) (“an exception to the
general rule is that a ‘document integral to or explicitly relied upon in the complaint’
may be considered ‘without converting the motion to dismiss into one for summary
judgment.’ “) (quoting In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d
Cir. 1997)); Pension Ben. Guczr. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196
(3d Cir. 1993).

In fact, Exhibit B to the Complaint is a letter from HFC III to Plaintiffs following
the processing and disbursement of the loan that provides information about HFC III’s
servicing of the loan.
6

The Complaint alleges no facts giving rise to a plausible inference that Plaintiffs’
loan was funded by anyone other than HFC III. Plaintiffs’ briefing does no better. In
addressing this point, Plaintiffs merely “invite” the defendants to prove that HFC III
self-funded the loan. (ECF nos. 45 at 20, 46 at 41) (“Plaintiffs invite Defendant to show
the actual consideration i.e. money that came from Defendant’s bank account and
exchanged hands with Plaintiffs consummated the transaction.”) But it is Plaintiffs’
burden to meet the pleading standards of Rule 8(a) by alleging facts supporting a
plausible inference, and they fail to do so here.
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8

documents, no contract is formed until an alleged third-party funder is
disclosed. See Schiano v. MBNA, No. CV 5-177 1 (JLL), 2016 WL 4257761, at
*10 (D.N.J. Aug. 10, 2016) (rejecting similar theory). In short, if HFC III
honored its funding obligation to the Plaintiffs, it doesn’t really matter where it
got the money.
Although Plaintiffs cite as support Jackson v. Grant, 890 F.2d 118 (9th
Cir. 1989), that case is inapposite. The Jackson court held that a loan
transaction was not “consummated” for the purpose of TILA’s notice
requirements until a lender was identified. Id. at 121. The loan documents
signed by the borrower and broker initially left the lender’s name blank and the
borrower granted the broker the authority to later fill in the name of a lender.
Id. The loan documents also explicitly stated that the broker was not the lender

and that the borrower was not guaranteed a loan at the time of signing the loan
documents. Id. As the court explained: “No one, including [the broker], had
agreed to extend credit to [the borrower] as of that date and no loan transaction
was ‘consummated.” Id. The court held that the transaction was only
consummated at a later date when the broker, unable to find another lender,
agreed to fund the loan itself. Id. In short, the Jackson agreement was a
contract between a would-be borrower and a broker, who undertook to find a
lender.
The contract in this case is different. HFC III contracts to be a lender, not
a broker. HFC III was clearly identified as the lender (not a broker) on March
21, 2007, when Plaintiffs and HFC III executed the promissory note and
security agreement. HFC III undertook to advance the funds, and if it had failed
to do so, it would have been in breach. The Plaintiffs undertook the obligations
of borrowers and mortgagors. They were contractually obligated by the
execution of the agreement, note and mortgage on March 21, 2007. There are
no facts plausibly alleged that would vitiate that obligation. Based on the
allegations in the Complaint, the transaction was consummated on March 21,
2007. As a result, Section 1635(f)’s three-year statute of repose extinguished
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Plaintiffs’ right of rescission on March 21, 2010. The February 20, 2015 “Notice
of Rescission” sent to HFC III and U.S. Bank came nearly five years too late.
Accordingly, the Complaint, which demands restitution and enforcement
of rescission, must be dismissed in its entirety.
IV.

CONCLUSION
For the reasons set forth above, I will deny Plaintiffs’ motion to deem

LSF9’s motion to dismiss deficient and strike it from the record. (ECF no. 42) I
will grant the motions of Defendants HFC III, U.S. Bank, and LSF9 (ECF nos.
34, 36) to dismiss the Complaint for failure to state a claim. Because the
complaint is time-barred under a categorical three-year statute of repose,
which is not subject to tolling, this dismissal is with prejudice. An appropriate
Order follows.

Dated: November 17, 2016

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