Group One Development, Inc et al v. Bank of Lake Mills et al
MEMORANDUM OPINION AND ORDER granting 8 MOTION to Dismiss , granting 7 MOTION to Dismiss 1 Complaint (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
United States District Court
Southern District of Texas
July 07, 2017
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
GROUP ONE DEVELOPMENT, INC;
GERARDO DIAZ-BLANCO; and
BANK OF LAKE MILLS and FORA
David J. Bradley, Clerk
CIVIL ACTION NO. H-17-0375
MEMORANDUM OPINION AND ORDER
Pending before the court are Fora Financial, LLC's
Motion to Dismiss (Docket Entry No. 7) and Defendant Bank of Lake
("BLM") Motion to Dismiss
(Docket Entry No.
reasons stated below, the motions will be granted.
Factual and Procedural Background
In September of 2016 plaintiffs Group One Development,
exclusively with Fora,
and Fora eventually serviced the
and Gerardo Diaz obtained a
induced them to go forward with the loan by assuring them that the
loan was "uncollateralized" and "unsecured" and that Fora had "no
Except as noted, alleged facts are taken from Plaintiffs'
Original Complaint ("Plaintiffs' Complaint"), Docket Entry No. 1.
right to any of
relied on Gafni' s
statements even though the Business Loan and
personal belongings." 2
containing the terms of the
"Collateral" as defined in the Agreement.
Group One eventually obtained a loan of $159,400.00.
was guaranteed by Diaz-Blanco and Diaz.
The Agreement contains a
Payment Schedule that calls for 214 payments of $897.09 to be made
each "Business Day" followed by a final payment of $896.74, for a
total repayment of $192,874.00.
That amount would include interest
in the amount of $33,474.00, or approximately twenty-one percent of
the principal. 3
result in "an annual interest rate of more than 35.00%." 4
Plaintiffs allege that Defendants have violated Texas lending
and usury laws and that Gafni fraudulently induced Plaintiffs to
enter into the Agreement.
Plaintiffs also allege that Defendants
Collection Practices Act
( "FDCPA") ,
the Racketeer Influenced and Corrupt
Plaintiffs' Complaint, Docket Entry No. 1, p. 4
Business Loan and Security Agreement Supplement, Docket Entry
No. 1-1, p. 4.
Plaintiffs' Complaint, Docket Entry No. 1, p. 4 ~ 10.
Plaintiffs do not explain how they calculated the alleged annual
But because the outcome is unaffected by the use of
Plaintiffs' rate, the court will assume without deciding that
Plaintiffs' calculations are accurate.
Organizations Act ("RICO"), 18 U.S.C.
Credit Service Organization Act
1961, et seq., and Texas's
TEX. FIN. CoDE,
Plaintiffs seek damages and injunctive relief.
move for dismissal under Federal Rule of Civil Procedure 12(b) (6)
on the basis of Plaintiffs'
failure to state a claim upon which
relief can be granted. 5
In a motion to dismiss under Rule 12(b) (6),
the court must
"'accep[t] all well-pleaded facts as true and vie[w] those facts in
the light most favorable to the plaintiff.'"
Bowlby v. City of
Aberdeen, Mississippi, 681 F.3d 215, 219 (5th Cir. 2012)
assumption of truth."
"are not entitled to the
"[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 Atlantic Corp. v. Twombly,
ami t ted) .
allegations must be enough to raise a right to relief above the
Id. at 1965.
Although Defendants move separately for dismissal, the
arguments in Fora's Motion to Dismiss (Docket Entry No. 7) address
all of Plaintiffs' claims and apply equally to either defendant.
The court will therefore focus on the arguments in Fora's motion.
plaintiff's legal theory is incorrect:
"When a complaint raises an
arguable question of law which the district court ultimately finds
Rule 12(b) (6) grounds is appropriate.
" [W] hen
Neitzke v. Williams,
complaint, however true, could not raise a claim of entitlement to
relief, this basic deficiency should . .
be exposed at the point
of minimum expenditure of time and money by the parties and the
quotation marks omitted)
Texas Lending and Usury Claims
Plaintiffs allege that Defendants charged an interest rate in
excess of the rate permitted by the Texas Finance Code.
argue that the Agreement clearly states that it will be governed by
applicable federal law and, to the extent not preempted by federal
argument, Plaintiffs argue that venue is proper in Texas. 7
Fora's Motion to Dismiss, Docket Entry No.
Motion to Dismiss, Docket Entry No. 8, pp. 1-3.
Plaintiffs' Response to Both Defendants' Rule 12(b) (6)
Motions to Dismiss and Brief in Support Thereof ("Response") ,
Docket Entry No. 17, pp. 4-5 ~ 11.
on the plain language of the Agreement 8 the court concludes that it
governed by Wisconsin
governing institutions insured by the Federal Deposit Insurance
The viability of Plaintiffs' usury claims therefore depends on
whether the interest rate is usurious under Wisconsin law.
which sets out maximum interest rates allowed
under various circumstances,
states that it "shall not apply to
loans to corporations or limited liability companies."
The statute also states that it "does not apply to
any loan or forbearance in the amount of $150,000 or more made
after May 26, 1978 unless secured by an encumbrance on a one- to
principal place of residence."
Fora argues that the loan was made to a corporation,
One, and therefore is not subject to a maximum interest rate under
Diaz-Blanco and Diaz argue that they,
borrowers and that
138.05(5) exception. 9
loan therefore does not
Plaintiffs cite the fact that in several
places they signed individually as "borrowers."
The court finds
Agreement, Docket Entry No. 1-1, p. 11 , 37 ("CONSEQUENTLY,
THIS AGREEMENT WILL BE GOVERNED BY FEDERAL LAW APPLICABLE TO AN
FDICINSURED INSTITUTION AND TO THE EXTENT NOT PREEMPTED BY FEDERAL
LAW, THE LAWS OF THE STATE OF WISCONSIN WITHOUT REGARD TO CONFLICT
OF LAW RULES. The legality, enforceability and interpretation of
this Agreement and the amounts contracted for, charged and reserved
under this Agreement will be governed by such laws.")
Plaintiffs' Response, Docket Entry No. 17, p.5 , 12.
Fora's Reply persuasive:
(1) elsewhere in the Agreement Group One
alone is identified as the borrower;
the loan proceeds were
paid to Group One, not to the individual plaintiffs; and (3) the
individual plaintiffs also signed the Agreement as guarantors, a
step that would be redundant if they were already responsible for
plaintiffs were borrowers,
they offer no argument
for why the
exception in§ 138.05(7) does not apply based on the loan amount of
more than $150,000.
The court therefore concludes that Plaintiffs'
lending and usury claims fail as a matter of law.
Plaintiffs claim that were fraudulently induced into obtaining
the loan by Gafni.
The elements of fraud under Texas law are:
(1) that a material representation was made; (2) the
representation was false; (3) when the representation was
made, the speaker knew it was false or made it recklessly
without any knowledge of the truth and as a positive
assertion; (4) the speaker made the representation with
the intent that the other party should act upon it; (5)
the party acted in reliance on the representation; and
(6) the party thereby suffered injury."
Langlois v. Wells Fargo Bank National Association,
297 S.W.3d 768,
581 F. App'x
"One of the
justifiably relied on the misrepresentation to suffer injury."
°Fora's Reply to Plaintiffs'
Dismiss, Docket Entry No. 18, p. 3.
Parts & Accessories, L.L.C. v. VM Motori, S.P.A., 112 S.W.3d 854,
858 (Tex. App. -Houston [14th Dist.] 2003)
unambiguous terms of a written agreement between the parties is not
justified as a matter of law."
Plaintiffs allege that they relied to their detriment upon the
assurances of Fora representative John Gafni that the loan would be
"unsecured" and "uncollateralized" in deciding to obtain the loan.
Defendants argue that Plaintiffs' reliance was not justified as a
law because Gafni' s
oral representation was directly
contradicted by the terms of the Agreement.
The court agrees.
Paragraph 10 of the Agreement, titled "SECURITY INTEREST" (emphasis
unambiguously states that Group One grants BLM a
"continuing security interest in and to any and all 'Collateral'"
as defined in the Agreement . 11
Because any reliance on Gafni's
alleged statements was unjustified as a matter of law, Plaintiffs'
allegations cannot support a claim for fraudulent inducement.
Plaintiffs allege that they are "consumers" and that defendant
Fora is a "debt collector" as defined by the FDCPA.
however, that the debt at issue is not a "debt" as defined by the
Docket Entry No. 1-1, p. 6.
statute . 12
The FDCPA defines "debt" as "any obligation or alleged
obligation of a consumer to pay money arising out of a transaction
in which the money, property, insurance, or services which are the
subject of the transaction are primarily for personal, family, or
household purposes .
personal, family, or household purposes.
And the Agreement states
that "Borrower certifies that the Loan proceeds will be used for
business purposes only and will not be used for personal, family or
household purposes. " 13
obligation is not a "debt" under the FDCPA, that the cited FDCPA
therefore fail as a matter of law.
Specifically, Plaintiffs allege that Defendants:
(a) made extortionate extensions of credit to the
Plaintiffs in violation of 18 U.S.C. § 892, by making
loans to the Plaintiffs that were not enforceable in
Texas and that were at a rate of interest in excess of
300% per annum.
(b) knowingly engaged in a monetary transaction in
criminally derived property of a value greater than
$10,000 and derived from specified unlawful activity in
violation of 18 U.S.C. § 1957(a).
Fora's Motion to Dismiss, Docket Entry No. 7, pp. 14-15.
Docket Entry No. 1-1, p. 5
4 (emphasis in original).
Plaintiffs' Complaint, Docket Entry No. 1, p. 12
bringing a RICO claim must allege "1) a person who engages in 2) a
pattern of racketeering activity, 3) connected to the acquisition,
or control of an enterprise."
Houston Independent School District,
Jan. 17, 2017).
"To establish a 'pattern of racketeering activity'
a plaintiff must show 'at least two predicate acts of racketeering
related and amount
criminal activity. '"
to or pose a
(citing Tel-Phonic Servs. , Inc. v. TBS
International, Inc., 975 F.2d 1134, 1139-40 (5th Cir. 1992)).
extortionate if "it is the understanding of the creditor and the
debtor at the time it is made that delay in making repayment or
failure to make repayment could result in the use of violence or
other criminal means to cause harm to the person, reputation, or
property of any person."
Plaintiffs do not
allege that either they or the Defendants understood at the time
the loan was made that Defendants might use violence or criminal
means to harm Plaintiffs if they delayed making or failed to make
Moreover, even if Plaintiffs' first alleged predicate
act were supported by factual allegations,
Plaintiffs allege no
"criminally derived property."
allege sufficient facts
Because Plaintiffs have failed to
to support a
finding of predicate acts
Plaintiffs' RICO claims fail as a matter of law.
Credit Service Organization Act Claims
Fora argues that it does
Organizations" as defined in the CSOA.
not qualify as a "credit services organization" because the alleged
activities do not involve an "extension of consumer credit. " 14
credit" as "the right to defer payment of debt offered or granted
primarily for personal, family, or household purposes or to incur
the debt and defer its payment."
TEx. FIN. CoDE§ 393.001(4).
the reasons stated above, the court concludes that the loan was not
primarily for personal, family, or household purposes.
have failed to allege facts sufficient to support a finding that
either defendant qualifies as a credit services organization under
Plaintiffs' CSOA claims therefore fail as a matter of
Fora's Motion to Dismiss, Docket Entry No. 7, pp. 15-16.
Request for Injunctive Relief
injunction may be granted only if the movant shows a substantial
likelihood of success on the merits.
See Affiliated Professional
Home Health Care Agency v. Shalala,
164 F.3d 282,
Because Plaintiffs' substantive claims will be dismissed,
Plaintiffs are not entitled to injunctive relief.
Leave to Amend
Rule 15(a) provides that leave to amend should be "freely give[n]
. when justice so requires."
FED. R. Crv. P. 15(a) (2).
may deny leave to amend, however, if the amendment would be futile.
accord Schiller v.
Physicians Resource Group Inc., 342 F.3d 563, 566 (5th Cir. 2003);
332 F. 3d 854,
Plaintiffs have not indicated how they would amend their Complaint,
amendments with their request.
The court therefore concludes that
amendment would be futile.
Conclusions and Order
For the reasons stated above,
matter of law.
claims fail as a
Defendant Fora Financial, LLC's ("Fora") Motion to
(Docket Entry No.
and Defendant Bank of Lake Mill's
GRANTED and this action will be dismissed with prejudice.
SIGNED at Houston, Texas, on this 7th day of July, 2017.
UNITED STATES DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?