Wright v. Residential Acceptance Network

Filing 61

MEMORANDUM DECISION granting 44 Motion to Dismiss ; granting 44 Motion to Dismiss for Failure to State a Claim ; finding as moot 10 Motion for Preliminary Injunction. Signed by Judge David Sam on 9/13/11. (jmr)

THE UNITED STATES DISTRIf~:R;:r~R THE DISTRICT OF UTAH

U.S. QlSIRYClGu

CENTRAL DIV1SW

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BY :- . -J.-:--:--. -'- Case No. 2:11CV402 DS
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DRUE WRIGHT
Plaintiff,
vs.

)

)

MEMORANDUM
DECISION

RESIDENTIAL ACCEPTANCE
)
NETWORK, WELLS FARGO BANK, N.A.,
and ETITLE INSURANCE AGENCY
)
Defendant.

)

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I. INTRODUCTION

In this case, PlaintiffDrue Wright is attempting to rescind a loanj:ransaction that occurred
on April 23, 2009. This transaction refinanced indebtedness incurred by Plaintiff on December
3,2008, which was initially made payable to Residential Acceptance Network, Inc ("RAN") and
.was later assigned to Wells Fargo. Plaintiff asserts claims for rescission, negligence, and
negligent misrepresentation based on the failure of RAN, the originating-lender in the 2009
transaction as well, to properly disclose a finance charge on its Truth in Lending Act ("TILA")
disclosures. Mr. Wright alleges that RAN understated the finance charge by $294.40. Defendant
Wells Fargo has filed this Motion to Dismiss. The Court finds that each of Plaintiffs claims fail
as a matter of law. The Motion to Dismiss is granted.

II. ANALYSIS

I. Plaintiff's Claim for Rescission Fails as the Transaction at Issue is Exempt from TILA's
Right of Rescission.

Wells Fargo Bank has set forth a thorough and compelling argument as to why Plaintiffs
claim for rescission should fail. (Wells Fargo's Mem. in Sup. of Mot. to Dismiss 2-7 [Doc.
#45].) In short, the refinance transaction at issue is exempt from a right of rescission under
TILA. Pursuant to 15U.S.C. § 1635(e)(2), TILA'srightofrescissiondoes not apply to "a
transaction which constitutes a refinancing or consolidation (with no new advances) of the
principal balance then due and any accrued unpaid finance charges of an existing extension of
credit by the same creditor secured by an interest in the same property." Plaintiff argues, without

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citation to any legal authority, that "Wells Fargo was the creditor of the 2008 transaction"
because "the 'principal balance then due' on the 2008 transaction ... was ... due to Wells
Fargo." (Pl.'s Mem. In Opp. 3.) Based on this, Plaintiff asserts that "RAN was not the 'same
creditor' ... [and the] transaction is not exempt from TILA rescission." (Id At 3-4)
As defined by TILA and Regulation Z, however, RAN was the original creditor, and the
same creditor, for purposes of this exemption. (15 U.S.C. § 1602(f); Reg. Z, 12 C.F.R. §
226.2(17)(1) and 12 C.F.R. Pt. 226, Supp. 1 ~ 2(a)(17).) TILA's definition of "creditor" extends
only to RAN. TILA states that "[t]he term 'creditor' refers only to a person who ... is the person
to whom the debt arising from the consumer credit transaction is initially payable on the face of
the evidence of indebtedness." 15 U.S.C. § 1602(f).
The official staff commentary to Regulation Z, in defining the term "creditor," states that
"the obligation must be payable to the person in order for that person to
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considered a

creditor." Reg. Z, 12 C.F.R. Pt. 226, Supp 1 fl2(a)(17). It goes on to explain that this term does
not extend to assignees: "[i]f an obligation is initially payable to one person, that person is the
creditor even if the obligation by its terms is simultaneously assigned to another person." ld
Even in such situation, the party to whom the obligation is initially payable "is the only creditor
in the transaction." ld By this definition, Wells Fargo clearly cannot be considered the creditor
with respect to the 2008 Note that was refinanced.
The official staff commentary also explains which party is considered "the same creditor"
for purposes of the refinancing exemption. Regulation Z explains that [tjhe right to rescind does
not apply to .... [a] refinancing or consolidation by the same creditor of an extension of credit
already secured by the consumer's principle dwelling." Reg. Z, 12 C.F.R. § 226.23(f). The
official staff commentary explains that the exemption extends to "refinancings (including

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consolidations) by the original creditor. The original creditor is the creditor to whom the
written agreement was initially made payable." Under this binding authority, the original
creditor was RAN, and RAN did not lose that designation when the assignee of the 2008 Note
became Wells Fargo. And because RAN was also the creditor in the 2009 refinancing, the right
of rescission does not apply. Plaintiff has not refuted or tried to distinguish this authority.
Plaintiff asserts that his TILA claim for rescission should be allowed to stand because (1)
Wells Fargo stands as an assignee to RAN's beneficial interest in the Trust Deed, and (2) TILA is
meant to protect consumers. Neither of these arguments is sufficient to overcome the specific
terms of TILA, outlined above. In addition, in a refinancing transaction, such as this one, a
borrower requires little protection under TILA This is because "without any significant new
money, the consumer's residence [is] no more at risk after the refinancing than before, and ...
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rescission rights [are] therefore unnecessary whether the new loan was made by the same creditor
or by a different one." Ralph 1. Rohner and Fredrick H. Miller, Truth in Lending ~ 8.02[2][c]
(2000).

II. Plaintiff's Claims for Negligence and Negligent Misrepresentation Fail as to Wells
Fargo.
Plaintiffs negligence-based claims deal with the TILA disclosures that were provided at
the time Plaintiff obtained his loan in April 2009. The Amended Complaint states, "RAN
miscalculated and tnisdisclosed the finance charges and APR calculation~ in Plaintiffs Truth-InLending disclosure." (Amended Complaint, p.3.) Although Plaintiff concedes that his tort-based
claims arise from RAN's alleged wrongdoing, not that of Wells Fargo, he argues that Wells
Fargo, as an assignee of the indebtedness secured by the Deed of Trust, acquired liability for
RAN's alleged negligence. There is no legal support for this argument. Plaintiff asserts that
Wells Fargo should be liable for RAN's negligence because Wells Fargo acquired an asset from
RAN-Plaintiffs indebtedness. Plaintiff has failed, however, to identify any facts that would
suggest Wells Fargo also agreed to be liable for RAN's negligent acts or that Wells Fargo
possessed any control over RAN at the time of those negligent acts.
Plaintiffs Negligence-Based Claims are also barred by the economic loss rule. The
economic loss rule in Utah provides that when a relationship between parties is contractual,
"economic damages are not recoverable in negligence absent physical damage or bodily injury."

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SME Indus., Inc. v. Thompson, Ventulett, Stainback & Assocs. Inc., 28 P.3d 669.680 (Utah

2001). This doctrine "marks the fundamental boundary between contract law, which protects
expectancy interests created through agreement between the parties, and tort law, which protects
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individuals and their property from physical harm by imposing a duty oft"easonable care."
Davencourt at Pilgrims Landing Homeowners Association v. Davencourt at Pilgrims Landing,
Le, 221 P .3d 234, 242 (Utah 2009) (quoting SME, 28 P .3d at 680). Plaintiff alleges in this case

that the only relationship between Wells Fargo and Plaintiff is due to the deed of trust, (Amended
Complaint,-r 3), and the only losses are economic (Jd. ,-r,-r 31, 39). Thus Plaintiff s negligencebased claims fail as a matter of law.

CONCLUSION

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For the foregoing reasons, Defendant Wells Fargo Bank, N.A.'s Motion to Dismiss is
hereby granted and the Complaint is dismissed with prejudice. This decision renders Plaintiffs
Motion for Preliminary Injunction (Doc. #10-11) moot.
SO ORDERED.
DATED this

IJ~dayof ~ ,2011.
BY THE COURT:

DAVID SAM
SENIOR JUDGE
U.S. DISTRICT COURT

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