Begala v. PNC Bank

• Decision Date: 03 February 2000
• Docket Number: 99-3652,Nos. 98-3360,s. 98-3360
• Parties: (6th Cir. 2000) John A. Begala, Steven W. Borchers, Cynthia Edwards, Plaintiffs-Appellants, v. PNC Bank, Ohio, National Association, Defendant-Appellee. Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 776

214 F.3d 776 (6th Cir. 2000)

John A. Begala, Steven W. Borchers, Cynthia Edwards, Plaintiffs-Appellants, v. PNC Bank, Ohio, National Association, Defendant-Appellee.

Nos. 98-3360, 99-3652

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: February 3, 2000

Decided and Filed: June 7, 2000

Appeal from the United States District Court for the Southern District of Ohio at Cincinnati. No. 97-00717--Sandra S. Beckwith, District Judge.

Paul M. De Marco, WAITE, SCHNEIDER, BAYLESS & CHESLEY, Cincinnati, Ohio, for Appellants.

Glenn V. Whitaker, Phillip J. Smith, VORYS, SATER, SEYMOUR & PEASE, Cincinnati, Ohio, for Appellee.

Before: WELLFORD, BATCHELDER, and DAUGHTREY, Circuit Judges.

OPINION

ALICE M. BATCHELDER, Circuit Judge.

Plaintiff John Begala filed his first lawsuit against PNC Bank on January 23, 1997. The lawsuit was based upon allegations that PNC violated the Truth-in-Lending Act ("TILA"), 15 U.S.C. §1601 et seq., as well as various state laws by offering "payment holidays" to its loan customers without fully disclosing the additional interest that those customers would incur by accepting PNC's offer. Defendant PNC sought dismissal under Fed. R. Civ. P. 12(b)(6), and the district court dismissed plaintiff's TILA claims on July 30, 1997¹. Begala brought a timely appeal and we affirmed the district court's decision on December 28, 1998. See Begala v. PNC Bank (Begala I), 163 F.3d 948 (6th Cir. 1998), cert. denied, 120 S.Ct. 166 (1999).

Begala again filed suit against PNC in the same federal court on August 5, 1997, while the appeal in Begala I was still pending. In the second suit, Begala alleged the same facts he had pled in Begala I, but this time he alleged violations not only of TILA and the same assortment of state laws but also the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §1962, and the National Bank Act ("NBA"), 12 U.S.C. §§ 85 and 86. PNC again moved for dismissal arguing that the duplicative claims in second suit were barred by res judicata and that the new claims failed to state a claim upon which relief could be granted under Fed. R. Civ. P. 12(b)(6). In response to PNC's motion, Begala amended his complaint to add two new plaintiffs, Stephen Borchers and Cynthia Edwards. PNC countered by again moving to dismiss the amended complaint citing res judicata and failure to state a claim under Fed. R. Civ. P. 12(b)(6).

On March 6, 1998, the district court dismissed all of plaintiffs' federal claims, finding that Begala's individual claims were barred by the doctrine of res judicata and that the remaining claims were insufficient under Fed. R. Civ. P. 12(b)(6)². Plaintiffs took a two-fold approach to attacking that decision. First, they filed a timely notice of appeal from the order dismissing their claims. Second, they sought clarification of the order by the district court under Fed. R. Civ. P. 60(b) on the issue of whether the plaintiffs would be allowed to amend their complaint. The district court denied the plaintiffs' motion for clarification on April 9, 1999, and plaintiffs' sought a timely appeal from the April 9th order as well. The appeals have been consolidated for consideration by this Court.

I. FACTUAL BACKGROUND

The facts in this case are generally undisputed. Plaintiffs Begala, Borchers and Edwards all took out installment loans with PNC's predecessor in interest. After PNC acquired the loans, PNC sent periodic letters to these (and other similar) debtors offering a "payment holiday." The terms of the letter indicated that the customer would be allowed to skip a payment now in return for the customer's agreement (1) to pay an "extension fee" in place of the monthly payment and (2) to pay an additional payment at the end of the loan³ The plaintiffs each allege that when the time came to pay off their respective loans, they were unfairly surprised to discover that they had incurred additional interest charges. In addition, plaintiff Borchers alleges that a "payment holiday" was imposed upon him by PNC without his explicit authorization. The plaintiffs allege that this practice of offering payment holidays without fully disclosing the additional fees and interest charges incurred violates federal law, specifically TILA, RICO and NBA. With the exception of the unauthorized payment holiday allegation, PNC generally does not dispute the facts as alleged, but rather claims its practice does not violate any laws.

II. ANALYSIS

We review de novo a district court's dismissal for failure to state a claim. Sistrunk v. City of Strongsville, 99 F.3d 194, 197 (6th Cir. 1996). To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a "complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory." Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988) (internal quotation marks and citations omitted).

We must treat as true all of the well-pleaded allegations of the complaint. All allegations must be construed in the light most favorable to the plaintiff. In order for a dismissal to be proper, it must appear beyond doubt that the plaintiff would not be able to recover under any set of facts that could be presented consistent with the allegations of the complaint.

Bower v. Federal Express Corp., 96 F.3d 200, 203 (6th Cir. 1996) (citations omitted). "Although this standard for Rule 12(b)(6) dismissals is quite liberal, more than bare assertions of legal conclusions is ordinarily required to satisfy federal notice pleading requirements." Scheid, 859 F.2d at 436 (citing 5A C. WRIGHT & A. MILLER, FEDERAL PRACTICE & PROCEDURE § 1357, at 596 (1969)). In addition, we review de novo district court dismissals of cases on res judicata grounds. Gargallo v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 918 F.2d 658 (6th Cir. 1990).

A. RES JUDICATA

The district court concluded that named-plaintiff Begala's individual federal claims in this action were barred by res judicata because the claims of Begala I were dismissed under Fed. R. Civ. P. 12(b)(6) and Begala simply reasserted the same facts in the present lawsuit. The doctrine of res judicata has four elements:

1.A final decision on the merits in the first action by a court of competent jurisdiction;

2.The second action involves the same parties, or their privies, as the first;

3.The second action raises an issue actually litigated or which should have been litigated in the first action;

4.An identity of the causes of action.

Sanders Confectionary Prods., Inc. v. Heller Financial, Inc., 973 F.2d 474, 480 (6th Cir. 1992).

Begala's individual claims, previously dismissed by a court of competent jurisdiction, make essentially the same factual allegations between the same parties as did his claims in Begala I; therefore, his individual claims are precluded. See City of Canton v. Maynard, 766 F.2d 236, 239 (6th Cir. 1985) (per curiam) (affirming district court's 12(b)(6) dismissal of cause of action under principles of res judicata). Begala tries to distinguish this suit from Begala I by arguing that while the claims in the first lawsuit were limited to PNC's activities in carrying out its payment holiday program, the second lawsuit challenges the entire scheme of PNC in association with other entities to impose, collect, and cover up unlawful charges. This is a meaningless distinction. The payment holidays Begala challenged without success in Begala I are the same payment holidays at issue here. The law does not allow Begala the luxury of returning to federal court with the same set of facts until he succeeds in alleging a federal cause of action. See Sanders, 973 F.2d at 484 ("Identity of causes of action means an 'identity of the facts creating the right of action and of the evidence necessary to sustain each action.'"); see also Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 401-2 (1981) (explaining that res judicata is animated by principles of finality rather than by concerns of individual equity).

B.TILA

Plaintiffs Borchers and Edwards claim that PNC violated its duty under TILA to disclose the fact that additional finance charges would be assessed due to the payment holidays, as well as the amount of such charges. Begala made this very argument in his first lawsuit. The district court dismissed it for failure to state a claim, and we affirmed. See Begala I, 163 F.3d at 951-2. The only basis that plaintiffs advance for distinguishing this action from the first lawsuit is an allegation in which named-plaintiff Borchers claims that PNC granted him a payment holiday on one occasion without his authorization. Plaintiffs contend that this factual difference brings the current action within the scope of Travis v. Boulevard Bank, N.A., 880 F. Supp. 1226 (N.D. Ill. 1995), a case which we distinguished but nevertheless spoke approvingly of in affirming the dismissal of Begala I. Specifically, we said of Travis:

In that case, the bank, without proper authorization, procured insurance against Travis's default and then charged Travis for the premium payments. Faced with a scenario in which the principal amount of a consumer's indebtedness was unilaterally increased by the lender, the district court correctly concluded that the insurance purchase "and the subsequent addition of the resulting premiums to Plaintiffs' existing indebtedness constituted a new credit transaction."

Begala I, 163 F.3d at 951 n.1.

Plaintiffs make much of the fact that PNC's alleged actions, like those of the bank in Travis, were unilateral. That, however, is not the basis on which we distinguished Travis. We held in Begala I that payment deferrals cannot be construed as new credit transactions, and Travis was distinguishable because the bank in that case had increased the principal amount of the plaintiff's indebtedness. See id. In this case, there is no allegation that the principal amount of the loans...