Stuart v. Lasalle Bank National Association et al

Filing 28

MEMORANDUM OPINION. Signed by District Judge James R. Spencer on 2/10/2010. (cgar)

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION DONALD E. STUART, Plaintiff, v. LASALLE BANK NATIONAL ASSOCIATION, As Trustee Under the Pooling and Servicing Agreement Dated as of December 1, 2006, GSAMP Trust 2006HE8, AEGIS LENDING CORPORATION, BAC NORTH AMERICAN HOLDING COMPANY, BANK OF AMERICA, and ANY UNKNOWN HOLDER OF NOTE AS TO LOAN TRANSACTION DATED JULY 25, 2006 BETWEEN PLAINTIFF AND AEGIS LENDING CORPORATION SECURED BY DEED OF TRUST THAT WAS A LIEN ON HIS HOME AT 2323 BUCKNER STREET, PETERSBURG, VA 23805, Defendants. MEMORANDUM OPINION THIS MATTER is before the Court on Defendant Bank of America's Motion to Dismiss (Docket No. 19). After examining the motion, the associated briefs, and the A m e n d e d C o m p l a i n t , t h e C o u r t f i n ds that oral argument is unnece s s a r y s i n c e t h e f a c t s a n d l e g a l c o n t e n t i o n s a r e a d e q u a t e l y p r e s e n t e d a n d o r a l a r g u m e n t w o uld not aid in the 1 Action No. 3:09­CV­459

decisional process. E.D. Va. Loc. Civ. R. 7(J). For the reasons stated below, the Court GRANTS the Motion. I. BACKGROUND This declaratory judgment action concerns allegedly improper fi n a n c e f e e s u n d e r the Truth in Lending Act ("TILA"). In 2006, Plaintiff Donald Stuart entered into a consumer refinance mortgage loan with Aegis Lending Corporation by executing a promissory note and deed of trust, which placed a security interest on Stuart's home located in Petersburg, Virginia.1 Aegis later assigned Stuart's note to LaSalle Bank, National Association, which by merger became Bank of America. As part of the transaction, creditor Aegis provided debtor Stua r t c e r t a i n m a t e r i a l disclosures required by TILA,2 including the annual percentage rate; number, amount, and d u e d a t e o f p a y m e n t s ; a n d a n y f i nance charges. Stuart was also i n f o r m e d t h a t u n d e r certain circumstances he would have a right to cancel the transaction. This dispute specifically concerns a notary fee of $250.00, which was listed on the Settlement Statement as being paid to a thirdparty company named Accurate Closings. (Bank Mem. in Supp. Mot. to Dismiss, Exh. B, at 2.) National Lending Services was the c l o s i n g a g e n t f o r t h e transaction. Subsequently, Stuart breached the mortgage loan by failing to make payments on the note. Accordingly, a nonjudicial foreclosure was institut ed on Stuart's Petersburg

These facts are taken from Stuart's Complaint and are assumed true for purposes of this M o t i o n . S e e Mylan Labs., Inc. v. Matkari , 7 F . 3 d 1 1 3 0 , 1 1 3 4 ( 4 t h C i r . 1 9 9 3 ) .
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The Bank does not dispute that St u a r t ' s m o r t g a g e t r a n s a c t i o n w a s covered by TILA. 2

home. In May 2008, during the pendency of the foreclosure, Stuart sent the Bank a r e s c i s s i o n l e t t e r , c l a i m i n g t h a t the mortgage loan should be re s c i n d e d b e c a u s e t h e B a n k failed to disclose that part of the notary fee was a finance ch arge in violation of TILA. Although the Bank has yet to hon o r t h e r e s c i s s i o n l e t t e r , t h e f o r e c l o s u r e s a l e w a s c a n c e l l e d . I n J u l y 2 0 0 9 , S t u a r t i n i t i a t e d t h i s s u i t , s e e k i n g a declaratory judgment that he properly rescinded the mortgage and also requesting the Court determine an amount due in tender by him. Stuart amende d his complaint in October 2009 . The Bank has now filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). II. LEGAL STANDARD Rule 8 of the Federal Rules of Civil Procedure requires a complaint stating a claim f o r r e l i e f t o c o n t a i n a s h o r t p la i n s t a t e m e n t o f t h e c l a i m t h a t g i v e s t h e d e f e n d a n t f a i r n o t i c e of what the claim is and the grounds upon which it rests. Fed. R. Civ. P. 8(a)(2); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Defendants police this requirement using Rule 12(b)(6), which permits a party to test the legal sufficiency of a complaint. Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) (citing 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1356 (1990)). A 12(b)(6) motion does n o t , h o w e v e r , " r e s o l v e c o n t e s t s s u r r o u n d i n g t h e f a c t s , t h e m e r i ts of a claim, or the a p p l i c a b i l i t y o f d e f e n s e s . " I d . As a result, in resolving a 12(b)(6) motion, a court must r e g a r d a l l o f p l a i n t i f f ' s w e l l p l e a d e d a l l e g a t i o n s a s t r u e , M y l a n L a b s . , I n c . v . M a t k a r i , 7 F.3d 1130, 1134 (4th Cir. 1993), as well as any facts that could be proved consistent with those allegations, Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). In contrast, the court does not have to accept legal conclusions couched as factual allegations, Twombly, 550 U.S. at

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555, or "unwarranted inferences, unreasonable conclusions, or arguments," E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000); see also Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009). With these principles in mind, the court must ultimately ascertain whether the plaintiff has stated a "plausible, not merely speculative, claim for relief." Twombly , 5 5 0 U . S . a t 5 5 5 . " D e t e r m i n i n g w h e t h e r a c o m p l a i n t states a plausible claim for r e l i e f [ i s ] . . . a contextspecific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 129 S. Ct. at 1950. While Rule 8(a)(2) requires a showing, not simply a blanket assertion of "en titlement to relief," the plai ntiff is not required to show that it is likely to obtain relief. Twombly, 550 U.S. at 556 n.3; Iqbal, 129 S. Ct. at 1949. In the end, if the complaint alleges--directly or indirectly--each of the elements of "some viable legal theory," the plaintiff should be given the opportunity to prove that claim. Twombly, 550 U.S. at 563 n.8. III. DISCUSSION S t u a r t a l l e g e s t h a t t h e B a n k , v i a t h e c l o s i n g a g e n t i n v o l v e d i n the mortgage transaction, violated TILA by charging him an undisclosed fina nce charge as part of a $250 n o t a r y f e e . T h e B a n k a r g u e s t h a t the closing agent was not an a g e n t f o r t h e B a n k a n d t h a t the Act specifically exempts not a r y f e e s c h a r g e d b y c l o s i n g a g e nts from inclusion as a finance charge. A. Background on the Truth in Lending Act In regulating the relationship between lenders and consumers, the Truth in Lending Act aims to ensure meaningful disclosure of credit terms and to protect consumers from

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inaccurate and unfair credit billing practices. 15 U.S.C. § 16 01(a). TILA requires lenders to disclose the cost of credit to borrowers as a dollar amount. T his is done by disclosing, among other things, the amount financed, the finance charge, the annual percentage rate, and the total sale price. 15 U.S.C. § 1638(a); 12 C.F.R. § 226.18. The "finance charge" is the sum of all charges, minus certain exclusions, payable by the borrower and imposed by the creditor incident to the extension of credit. 15 U.S.C. § 1605(a). TILA and its implementing regulation, Regulation Z, identify what fees are included i n a n d e x c l u d e d f r o m t h e f i n a n c e c h a r g e . I d . ; 12 C.F.R. § 226.4. Examples of fees included in the finance charge are interest, points, credit report fees, service charges, and borrower paid mortgage broker fees. 15 U.S.C. § 1605(a); 12 C.F.R. § 226.4(b). Moreover, under Regulation Z, the "Special Rule" f o r c l o s i n g a g e n t s s t a t e s t h a t Fees charged by a third party that conducts the loan closing (such as a s e t t l e m e n t a g e n t , a t t o r n e y , o r e s c r o w o r t i t l e c o m p a n y ) a r e f i n ance charges only if t h e c r e d i t o r : (i) Requires the particular services for which the consumer is charged; (ii) Requires the imposition of the charge; or (iii) Retains a portion of the thirdparty charge, to the extent of the portion retained. 12 C.F.R. § 226.4(a)(2) (emphasis added). S o m e f e e s a r e s p e c i f i c a l l y e x e m p t e d f r o m i n c l u s i o n a s a f i n a n c e charge. Examples of these excludable fees include certain real estate related fees, such as charges for title insurance, property appraisals and notary fees, provided they ar e b o n a f i d e a n d reasonable. 15 U.S.C. § 1605(e); 12 C.F.R. § 226.4(c)(7). Because only reasonable fees are excludable, any unreasonable amo u n t m u s t b e i n c l u d e d i n t h e f i n a n c e c h a r g e . 1 2 C . F . R . § 226.4(c)(7).

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If a mortgage lender fails to disclose finance charges accurately, it has violated the Act, exposing the lender to penalties such as money damages, at t o r n e y ' s f e e s , a n d rescission. 15 U.S.C. §§ 1635(a) & (g), 1640(a).3 If a borrower seeks rescission, TILA requires the borrower to tender to the creditor the loan proceeds, less any payments that had been made. Id. § 1635(b). The court may modify this process where appropriate, including where borrowers do not evidence the ability or intent to comply with their rescission obligations. See id.; see also Powers v. Sims & Levin, 542 F.2d 1216, 1221 (4th Cir. 1976) (noting that a court may "circumscribe the right of rescission to avoid the perpetration of stark inequity" such as "when it is known that the borrowers did not intend and were not prepared to tender restitution of the funds expended by the lender"). B. Whether Part of the Notary Fee Was an Unreasonable Finance Charge Imposed by Aegis S t u a r t a l l e g e s t h a t A e g i s i m p o s e d the notary fee through the clo s i n g a g e n t , N a t i o n a l Lending Services, and thus can be held accountable for the unre a s o n a b l e f i n a n c e c h a r g e under TILA. The Bank says that Stuart's allegations are implausible legal conclusions that cannot survive a motion to dismiss. Besides Stuart's conclusory assertion that Aegis

TILA does, however, leave some room for small errors. Under the statute's "tolerances for accuracy" provision, 15 U.S.C. § 1605(f), damages may be awarded for such a disclosure violation only if "the amount disclosed as the finance charge . . . [varies] from the actual finance charge by more than $100." Id. § 1605(f)(1)(A). Typically, if a lender fails to disclose a finance charge that exceeds the tolerance level, the borrower can rescind the mortgage within three days following the transaction. 15 U.S.C. § 1635(a). But when the mortgagor has instituted a foreclosure action, such as in this case, TILA lowers the tolerance amount to $35, id. § 1635(i)(2); 12 C.F.R. § 226.23(h)(2)(i), and the time period is extended to three years, 15 U.S.C. § 1635(f). Stuart's Amended Complaint alleges that at least $100 of the notary fee was an undisclosed, improper finance charge and that he sought rescission within three years of entering into the July 2006 agreement.
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imposed the fee, the Bank states that Stuart has offered no factual evidence that Aegis required the particular services for which Stuart was charged, required the imposition of the fee, or retained any portion of the fee, as is required by the Special Rule for it to be considered a "finance charge." Because either the closing agent or the notary Accurate Closings actually imposed the notary fee, the Bank says that the Special Rule dictates that the fee is specifically not consi d e r e d a f i n a n c e c h a r g e u n d e r T I L A . The Bank further claims that accepting Stuart's broad agency theory would e v i s c e r a t e t h e S p e c i a l R u l e " s i nce nearly any conceivable closi ng agent fee would be `imposed' by the closing agent in its general capacity as an agent for the lender." (Bank Mem. in Supp. Mot. to Dismiss 13.) Such a result, the Bank say s , c a n n o t b e c o r r e c t b e c a u s e it would render the Special Ru le completely meaningless. Asserting that he has met his pleading obligations, Stuart poin ts to his Amended Complaint, which alleges that "Ae gis required Stuart to pay a n o t a r y f e e o f $ 2 5 0 . 0 0 . " (Amend. Compl. ¶ 9A.) In his re s p o n s e t o t h e B a n k ' s m o t i o n ( i . e . n o t i n t h e A m e n d e d Complaint), Stuart explains that Aegis required the fee, in his view, because to get a s e c u r i t y i n t e r e s t i n h i s h o m e , t he Bank had to record the notar i z e d d e e d o f t r u s t i n t h e p u b l i c r e c o r d s . T h u s , i n S t u a r t ' s v i e w , A e g i s i s n o t p r o t e c t e d by the Special Rule and was required to disclose any notary fee that was unreasonable or no t b o n a f i d e . The outcome of this Motion hinges on TILA's Special Rule for closing agents. Under this rule, Aegis was required to reveal the alleged finance charges included with the notary fee only if Aegis (1) required the documents to be notarized, (2) required the notary fee, or (3) retained a portion of the notary fee. See 12 C.F.R. § 226.4(a)(2)(i)(iii). Stuart's

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A m e n d e d C o m p l a i n t m e r e l y s t a t e s the legal conclusion that "Aegi s required Stuart to pay a n o t a r y f e e o f $ 2 5 0 . 0 0 . " ( A m e n d . C ompl. ¶ 9A.) It is well sett l e d , h o w e v e r , t h a t "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 129 S. Ct. at 1949. Stuart's allegations are simply sterile legal conclusions that "are not entitled to the assumption of truth." Id. at 1950. Stripped of such legal incantation, these allegations provide insufficient factual support that Aegis r e q u i r e d t h e n o t a r y f e e . A s a r e sult, Stuart's Amended Complai n t f a i l s t o s u f f i c i e n t l y p l e a d a violation of TILA, and the Bank's Motion to Dismiss is GRANTED.4 IV. CONCLUSION For the reasons articulated above, the Court GRANTS the Bank's Motion. An appropriate Order will accompany this memorandum. Let the Clerk send a copy of this memorandum to all counsel of record. It is SO ORDERED.

/s/ James R. Spencer Chief United States District Judge

Entered this 10th day of February 2010

Whether the notary fee was reasonable or bona fide is not relevant if there is insufficient allegations that Aegis was actually the one to impose the charge. Similarly, the Court notes that because there are insufficient allegations that Aegis imposed the fee, the Court does not address the Bank's tender argument.
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