Darling v. Western Thrift & Loan, No. CV-06-123-B-W.

• Decision Date: 20 February 2009
• Docket Number: No. CV-06-123-B-W.
• Parties: Joseph and Roxanne DARLING, Plaintiffs, v. WESTERN THRIFT & LOAN, Defendant.
• Court: U.S. District Court — District of Maine

600 F.Supp.2d 189

Joseph and Roxanne DARLING, Plaintiffs, v. WESTERN THRIFT & LOAN, Defendant.

No. CV-06-123-B-W.

United States District Court, D. Maine.

February 20, 2009.

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David J. Van Dyke, Hornblower, Lynch, Rabasco & Van Dyke, Lewiston, ME, for Plaintiffs.

Ali Parvaneh, Robert Sabahat, Madison Harbor, ALC, Irvine, CA, Steven J. Mogul, Gross, Minsky & Mogul, P.A., Bangor, ME, for Defendant.

ORDER AFFIRMING RECOMMENDED DECISION ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

JOHN A. WOODCOCK, JR., Chief Judge.

Homeowners Roxanne and Joseph Darling claim their mortgage broker, Western Thrift & Loan (Western), defrauded them and violated state and federal consumer protection regimes when its agent induced them to refinance their home with an adjustable rate mortgage that is becoming more expensive by the day. Before the Court is Western's motion for summary judgment, which the Magistrate Judge has recommended be granted in part and denied in part. Because the Court agrees with the Magistrate Judge that (1) Western should be granted judgment on the sole federal cause of action, (2) it is appropriate that the Court exercise supplemental jurisdiction over the remaining state law claims, and (3) there exist genuine issues of material fact with respect to each element of all remaining claims, the Court affirms the recommendations of the Magistrate Judge.

I. STATEMENT OF FACTS

With significant expenditures planned, the Darlings refinanced their $190,000 mortgage by borrowing $266,250 in 2005, leaving them roughly $75,000 in cash. They thought they had borrowed on the cheap: one percent for one year, and yearly increases of only one-tenth of one percent, at most, each year thereafter. It turns out the terms of the new loan are dramatically different. The interest rate increased far more rapidly than expected, and the principal amount has grown, or negatively amortized, because they have been paying only a portion of the interest due. Crying foul, the Darlings filed suit against their lender, IndyMac Bank; their individual mortgage broker, Paul Mikhail; and his employer, Western.

After voluntarily moving to dismiss IndyMac and Mr. Mikhail, the Darlings filed a Second Amended Complaint naming Western as the sole defendant. Second Am. Compl. for Actual and Punitive Damages, Inj. Relief and for Decl. J. on Rescission under TILA, Violations of Maine's Unfair and Deceptive Practices Act, Negligent Misrepresentation, Breach of Fiduciary Duty and Malice (Docket #32) (Second Am. Compl.). Western moved for summary judgment. Def. Western Thrift & Loan's Mot. for Summ. J. or, in the Alternative, Mot. for Partial Summ. J./Summ. Adjudication (Docket # 45) (Def.'s Summ. J. Mot.); Def. Western Thrift & Loan's Supporting Statement of Material Facts in Supp. of its Mot. for Summ. J. or Alternatively Partial Summ. J./Summ. Adjudication (Docket # 46) (Western's SMF). The Darlings responded and Western replied. Pls.' Opp'n to Def. Western Thrift & Loan's Mot. for Summ. J. (Docket # 51); Pls.' Counter-Statement of Material Facts in Dispute in Supp. of their Opp'n to Def. Western Thrift & Loan's Mot. for Summ. J. (Docket #52) (Darlings' SMF); Def. Western Thrift & Loan's Reply to Pls.' Opp'n to Mot. for Summ. J., or in the Alternative, Mot. for Partial Summ. J./Summ. Adjudication (Docket # 59); Def. Western Thrift & Loan's Reply Statement of Material Facts in Supp. of its Reply to Pls.' Opp'n to Mot. for Summ. J., or in the Alternative, Mot. for Partial Summ. J./Summ. Adjudication (Docket # 60) (Western's RSMF). The Magistrate Judge filed with the Court her recommended decision on Western's motion on August 12, 2008. Recommended Decision (Docket # 61) (Rec. Dec.). Western filed its objections and the Darlings filed their response thereto on August 22 and 26, respectively. Objection to Magistrate's Recommended Decision and Request for De Novo Review and Oral Argument (Docket # 62) (Def.'s Obj.); Pl.'s Opp'n to Def.'s Objection to the Magistrate Judge's Recommended Decision Respecting the Def.'s Mot. for Summ. J. (Docket #63) (Pls.' Resp.).

II. THE RECOMMENDED DECISION

Following a comprehensive recitation of the facts, the Magistrate Judge addressed each of the Darlings' six claims, beginning with the only one arising under federal law.

A. Summary Judgment on the Truth in Lending Act Claim

Plaintiffs allege that Western violated the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq., by failing to disclose information material to the loan transaction. The Magistrate Judge concluded TILA's one-year statute of limitation bars this claim. Rec. Dec. at 215 (citing 15 U.S.C. § 1640(e)). The Darlings do not object to this conclusion. See Pls.' Resp. at 2. Because the Court agrees that the claim is time-barred, and the Plaintiffs do not object, the Court grants Western summary judgment on the TILA claim.

B. Supplemental Jurisdiction under 28 U.S.C. § 1367

Granting summary judgment on the only claim arising under federal law requires that the Court decide whether to exercise jurisdiction over the remaining state law claims. The statute conferring supplemental jurisdiction on the district courts states, in part:

(a) Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution.

28 U.S.C. § 1367(a). The First Circuit has observed that "state and federal claims form part of the same constitutional case if they `derive from a common nucleus of operative fact' or `are such that ... would ordinarily be expected to [be] tried ... in one judicial proceeding.'" Penobscot Indian Nation v. Key Bank of Me., 112 F.3d 538, 563-64 (1st Cir.1997) (alterations in original) (quoting United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966)). The Court is satisfied that the state law tort claims and the time-barred TILA claim derive from a common nucleus of operative fact—the IndyMac loan transaction—and that exercise of supplemental jurisdiction is proper, notwithstanding dismissal of the only claim over which the Court had original jurisdiction. See 28 U.S.C. § 1367(c); Cao v. Puerto Rico, 525 F.3d 112, 116 (1st Cir.2008). Furthermore, the Magistrate recommended that the Court exercise continuing jurisdiction over the Darlings' state law claims, and neither party objected to this recommendation. The Court will continue to exercise supplemental jurisdiction over the state law claims.

C. The State Law Claims and Western's Objections

Western filed six objections in its request for de novo review of the recommended decision. Its first, a general objection that the Magistrate Judge failed to cite adequately the summary judgment record, is directed to the Magistrate Judge's recommendations on all the Darlings' remaining claims. Def.'s Obj. at 3. The Court does not address the general objection independently. Instead, the Court considers it throughout this Order, viewing the supported facts in the light most favorable to the Darlings, the non-movants, and giving them the benefit of all reasonable inferences. See Cordi-Allen v. Conlon, 494 F.3d 245, 248 (1st Cir.2007); Robinson v. Wright, 460 F.Supp.2d 178, 182 (D.Me.2006). For the sake of clarity, the Court discusses Western's objections not in the sequence Western presents them, but in the sequence the Magistrate Judge analyzed the Darlings' underlying claims.

1. Objections to Recommended Decision on Fourth Cause of Action for Fraud

In Western's motion for summary judgment, it contended the Darlings' allegations of fraud are insufficiently particular and run afoul of Federal Rule of Civil Procedure 9(b). Def.'s Summ. J. Mot. at 18; Fed.R.Civ.P. 9(b). In its objection to the recommended decision, Western reiterates this contention and notes that the Magistrate Judge failed to address it.

Where, as here, "state law governs the burden of proving fraud at trial, the procedure for pleading fraud in federal courts in all diversity suits is governed by the special pleading requirements of Federal Rule of Civil Procedure 9(b)." Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985); Siegemund v. Shapland, 247 F.Supp.2d 1, 7 (D.Me.2003). Rule 9(b) requires that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). In other words, Rule 9(b) requires a fraud plaintiff to specify "the time, place, and content of an alleged false representation." Greebel v. FTP Software, Inc., 194 F.3d 185, 193 (1st Cir.1999) (internal quotation omitted). The First Circuit has articulated Rule 9(b)'s three purposes: "(1) to place the defendants on notice and enable them to prepare meaningful responses; (2) to preclude the use of a groundless fraud claim as a pretext to discovering a wrong or as a `strike suit'; and (3) to safeguard defendants from frivolous charges which might damage their reputations." New Eng. Data Servs., Inc. v. Becher, 829 F.2d 286, 289 (1st Cir.1987).

Western states that the Darlings "do not allege which terms of the loan transaction were allegedly misrepresented, and therefore Western and Mikhail are left to guess which terms were allegedly misrepresented." Def.'s Obj. at 7. However, the Darlings allege that Mr. Mikhail misrepresented, among other things, the impact of the variable interest rate on their loan and the facts surrounding Western's compensation. Second Am. Compl. ¶¶ 13-15, 47. This is minimally sufficient for Rule 9(b) purposes. What is more, Western's arguments belie its position. Western vigorously disputes each specific alleged...