Bryant v. Mortgage Capital Resource Corp.

• Decision Date: 14 January 2002
• Docket Number: No. 1:00-CV-0671-BBM.,1:00-CV-0671-BBM.
• Citation: 197 F.Supp.2d 1357
• Parties: Stephen L. BRYANT et al., Plaintiffs, v. MORTGAGE CAPITAL RESOURCE CORPORATION et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

197 F.Supp.2d 1357

Stephen L. BRYANT et al., Plaintiffs, v. MORTGAGE CAPITAL RESOURCE CORPORATION et al., Defendants.

No. 1:00-CV-0671-BBM.

United States District Court, N.D. Georgia, Atlanta Division.

January 14, 2002.

COPYRIGHT MATERIAL OMITTED

Franklin R. Nix, Law Offices of Franklin R. Nix, Atlanta, GA, Dennis Stewart, Andrew W. Hutton, Milberg Weiss Bershad Hynes & Lerach LLP, San Diego, CA, for Plaintiffs.

Thomas R. Johnson, Joseph Leibowicz, Kirkpatrick & Lockhart, LLP, Pittsburgh, PA, T. Edward Malpass, Attorney at Law, Irvine, CA, Carol V. Clark, Scott H. Michalove, McCalla, Raymer, Padrick, Cobb, Nichols & Clark, LLC, Roswell, GA, Sallie G. Smylie, Kirkland & Ellis, Chicago, IL, for Defendants.

ORDER

MARTIN, District Judge.

This putative class action, arising under, inter alia, the Truth in Lending Act ("TILA"), is currently before the court on defendants' motion to dismiss the second amended complaint [Doc. No. 38-1]; plaintiffs' motion to extend time to respond to the defendants' motion to dismiss [Doc. No. 40-1]; defendants' motion for a protective order staying discovery [Doc. No. 42-1]; plaintiffs' motion to extend the class certification deadline [Doc. No. 45-1]; plaintiffs' motion to exceed the page limitations [Doc. No. 46-1]; and defendants' motion to suspend the requirements of Local Rule 7.1(D) [Doc. No. 50-1].

I. Background

A. Factual Background

Plaintiffs bring this action stating that they are members of a putative class¹ seeking relief against their mortgage lender, Mortgage Capital Resource ("MCR").² Plaintiffs allege MCR engaged in predatory lending practices in violation of state and federal law. Defendants Residential Funding Corporation ("RFC") and Chase Manhattan Bank (as Indenture Trustee in care of RFC)³ purchased and otherwise acquired a large number of MCR-originated high cost, high interest loans thereby, allegedly, incurring liability as assignees under TILA (as amended by the Home Ownership and Equity Protection Act of 1994 ("HOEPA")). See 15 U.S.C. § 1641(d)(1).⁴

1. MCR's Alleged Fraudulent Scheme

Plaintiffs assert that MCR engaged in a predatory lending scheme by issuing HOEPA loans⁵ to consumers with good overall credit without complying with the disclosures provisions laid out in TILA. These high cost second mortgage loans permitted homeowners to borrow money against the equity in their homes under a closed-end credit transaction characterized by unusually high interest rates and/or upfront transaction fees. Because they typically yield a high return and involve little risk to the holder of the loan, HOEPA loans are easily transferrable in the secondary market.

To attract potential borrowers, plaintiffs allege that MCR contacted homeowners by mail with brochures promoting low cost, low interest loans. Plaintiffs contend that MCR targeted consumers with positive credit and encouraged them to complete loan applications over the phone. Plaintiffs further contend MCR would thereafter execute a "bait and switch" whereby MCR would hurry borrowers through the closing and substitute high cost, high interest loans for the more favorable loans originally applied for by plaintiffs. Plaintiffs assert that MCR's practices violate HOEPA insofar as the company failed to timely disclose information required under the Act.⁶ In particular, plaintiffs submit that, by hurrying loan applicants through the closing process, MCR violated 15 U.S.C. § 1639(b)(1), which mandates that disclosures under HOEPA "shall not be given less than 3 business days prior to consummation of the transaction." According to plaintiffs, such disclosure was not provided until the time of closing.

In addition, plaintiffs allege that, in an attempt to conceal its wrongdoing, MCR falsified closing documents so as to reflect that the mandatory disclosures were timely provided to plaintiffs. Plaintiffs contend that MCR's scheme denied plaintiffs the protections provided by TILA, including the mandatory "cooling off" period designed to enable unsuspecting consumers to recognize and avoid the predatory features of high cost, high interest loans.⁷

2. Assignee Defendants: RFC & Chase Manhattan

RFC's involvement in the present action is tied to its purchase and acquisition of a large number of the MCR-originated HOEPA loans.⁸ Under the federal truth-in-lending laws, civil actions brought against a creditor may, with limited exceptions, be maintained against an assignee. 15 U.S.C. § 1641(d)(1). Relying on this provision and the alleged violations committed by MCR, plaintiffs seek to impose liability upon RFC based solely upon its acquisition of MCR's high cost mortgages in the secondary market.⁹

B. Procedural Background

Plaintiffs initiated this action in March 2000 with the filing of their complaint against MCR, RFC, and Chase Manhattan Bank alleging violations of 15 U.S.C. § 1639 (HOEPA). In their original Complaint, plaintiffs alleged that MCR's violations of HOEPA rendered MCR liable for damages under 15 U.S.C. § 1640(a)(4) and subjected RFC and Chase Manhattan Bank to assignee liability pursuant to 15 U.S.C. §§ 1641(d)(1) & (2). A few weeks later, plaintiffs filed their first amended complaint [Doc. No. 3-1] alleging additional causes of action under state and federal law, including the Federal Racketeer Influenced and Corrupt Practices Act ("RICO"), state RICO laws, and various state common law causes of action.¹⁰ Thereafter, MCR filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Central District of California. Based upon MCR's filing of bankruptcy, this court, on February 22, 2001, entered an Order [Doc. No. 31-2] staying the present action pursuant to the automatic stay provisions of 11 U.S.C. § 362. In May 2001, the presiding bankruptcy court lifted the section 362 stay. Plaintiffs immediately filed a motion to lift the stay previously entered by this court [Doc. No. 32-1]. Plaintiffs' motion was granted by the court on June 28, 2001 [Doc. No. 33-1].

On July 27, 2001, plaintiffs filed their second amended complaint [Doc. No. 34-1] asserting that they are representatives of a class of individuals and alleging that MCR, RFC, and Chase Manhattan Bank are liable for the following: (1) acts which violate TILA (as amended by HOEPA); (2) acts which violate Georgia RICO law; and (3) acts constituting common law fraud.¹¹ RFC has moved to dismiss plaintiffs' complaint pursuant to Fed.R.Civ.P. 12(b)(6) [Doc. No. 38-1].

II. Discussion

A. Motion to Dismiss

1. Legal Standard

A complaint should be dismissed under Rule 12(b)(6) only where it appears beyond doubt that no set of facts could support the plaintiff's claims for relief. Fed.R.Civ.P. 12(b)(6); Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Linder v Portocarrero, 963 F.2d 332, 334 (11th Cir. 1992). In ruling on a motion to dismiss, the court must accept the facts pleaded in the complaint as true and construe them in the light most favorable to the plaintiff. See Quality Foods de Centro Am., S.A. v. Latin Am. Agribusiness Dev. Corp., S.A., 711 F.2d 989, 994-95 (11th Cir.1983).

2. Truth-in-Lending Act

a. Section 1641(b)

The court will first address the question of whether, in a case involving a rescindable contract, a writing acknowledging receipt of the disclosures required under 15 U.S.C. § 1639 constitutes "conclusive proof" of compliance with the act as provided for in section 1641(b).¹² RFC asserts that plaintiffs' signatures attesting to their receipt of the loan documents three days prior to closing constitutes conclusive proof that plaintiffs were provided the disclosure mandated by section 1639, such that a subsequent assignee could rely upon them. RFC argues that, because plaintiffs' claims are grounded solely upon allegations relating to disclosures which were not timely delivered and were falsely dated, it must be true that when plaintiffs knowingly signed misdated loan documents they, in effect, provided RFC with an absolute defense to their claims of assignee liability. Plaintiffs counter that RFC's reliance upon the "conclusive proof" provision of section 1641(b) is misplaced as it is inapplicable to rescindable transactions. Instead, plaintiffs assert that the "rebuttable presumption" provision found in section 1635(c) more appropriately governs the present dispute because that section was intended to apply to all loans subject to the right of rescission.

As noted, the evidentiary effect of a signed disclosure statement is addressed in two sections of TILA, 15 U.S.C. §§ 1641(b) and 1635(c).¹³ The question regarding the appropriate application of these provisions can be stated as follows: whether, in cases involving a rescindable transaction, plaintiffs' signed acknowledgments confirming delivery of the required disclosures under TILA constitute "conclusive proof" of compliance with the act as provided in section 1641(b) or merely creates a "rebuttable presumption" as provided in section 1635(c).¹⁴

Pointing to the plain language of section 1641(b), plaintiffs argue that Congress was attempting to establish a framework whereby all transactions subject to the right of rescission would be governed by the more relaxed evidentiary standard of section 1635(c).¹⁵ Conversely, RFC contends that, because plaintiffs do not seek rescission under section 1635, but instead seek damages under sections 1640 and 1641, they cannot invoke the lesser evidentiary standard provided under section 1635(c).¹⁶

Upon an extensive review of the parties' arguments, the court is persuaded that section 1641(b)'s "conclusive proof" standard is inapplicable to the rescindable contracts which are the subject of this proceeding.¹⁷ As noted previously, Congress explicitly excepted transactions subject to the operation of section 1635(c) from the "conclusive proof" standard enunciated in section 1641(b). In so doing, Congress further extended the heightened degree of protection that has...