In re Wentz

• Decision Date: 02 September 2008
• Docket Number: Bankruptcy No. 07-34235.,Adversary No. 08-3053.
• Citation: 393 B.R. 545
• Parties: In re Areta J. WENTZ, Debtor. Areta J. Wentz, Plaintiff v. Saxon Mortgage et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

393 B.R. 545

In re Areta J. WENTZ, Debtor Areta J. Wentz, Plaintiff v. Saxon Mortgage et al., Defendants.

Bankruptcy No. 07-34235.

Adversary No. 08-3053.

United States Bankruptcy Court, S.D. Ohio, Western Division.

September 2, 2008.

COPYRIGHT MATERIAL OMITTED

Charles J. Roedersheimer, Dayton, OH, for Debtor counsel.

Nathan L. Swehla, Cincinnati, OH, Steven E. Elder, Wilmington, OH, Michelle Polly-Murphy, Wilmington, OH, for Saxon Mortgage.

Heidi Smith, Worthington, OH, Michael Hrabcak, Worthington, OH, for Deborah Kistner.

Office of the United States Trustee, Columbus, OH.

Jeffrey M. Kellner, (Chapter 13 Trustee), Scott G. Stout, (Staff Attorney for the Chapter 13 Office), Dayton, OH.

Decision Denying Saxon Mortgage's Motion for Partial Judgment on the Pleadings

GUY R. HUMPHREY, Bankruptcy Judge.

This opinion concerns whether certain of Plaintiff's causes of action for damages under federal consumer protection statutes concerning mortgage loans, and related attorney fees and costs associated with the pursuit of those causes of action, are barred by the applicable statutes of limitation, if they were not commenced within one year of the occurrence of the alleged violations.

Introduction

On September 27, 2007, the Debtor, Areta J. Wentz (the "Debtor" or the "Plaintiff") filed a Chapter 13 petition (Estate Docket 1, hereinafter "Est. Doc.") and a Chapter 13 plan (Est.Doc.5). On November 5, 2007, Saxon Mortgage ("Saxon") filed a secured proof of claim in the amount of $120,892.67 (Proof of Claim 5-1). The Chapter 13 plan proposed that the Debtor would file an adversary proceeding to avoid Saxon's mortgage on the Debtor's principal residence and to obtain a determination that Saxon's mortgage is rescinded and void. Saxon objected to the plan on November 23, 2007 (Est.Doc.17). In a January 25, 2008 agreed order, the parties agreed to escrow the funds used to pay the mortgage pending the resolution of the status of Saxon's mortgage through an adversary proceeding (Est.Doc.29). A confirmation order was entered on February 13, 2008 (Est.Doc.33).

On February 26, 2008, the Debtor filed a multi-defendant complaint against, among others, Saxon (Doc. 1). On March 31, 2008, Saxon filed an answer (Doc. 10). On May 1, 2008, Saxon filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(c), applicable by Bankruptcy Rule 7012 (Doc. 14), arguing that some of the Plaintiff's claims seeking damages, based on various federal consumer lending protection statutes detailed below, were filed beyond the applicable one year statutes of limitation. The Debtor filed a response on May 12, 2008 (Doc. 15), arguing that those causes of action were seeking to recoup damages against Saxon's proof of claim and, therefore, were not subject to the one year statutes of limitation under a recognized recoupment exception. Saxon filed a reply brief on May 30, 2008, asserting that the damages causes of action were not "defensive" and, therefore, could not be raised in recoupment (Doc. 20).

Jurisdiction

This court has subject matter jurisdiction to decide the legal issues presented in this adversary proceeding. McDaniel v. ABN Amro Mtge. Group, 364 B.R. 644, 648 (S.D.Ohio 2007).

Issues

The issues are whether any of the Debtor's causes of action which seek monetary damages, based on the Truth in Lending Act, 15 U.S.C. § 1601, et seq. ("TILA"); the Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601-17 ("RESPA"); or the Home Ownership and Equity Protection Act, 15 U.S.C. § 1639 ("HOEPA"), are time barred by the applicable one year statutes of limitation for those statutes or are subject to an exception for recoupment or, in the instance of the TILA and HOEPA damages claims, an alternative statute of limitation.

Standard for Federal Rule of Civil Procedure 12(c)

Federal Rule of Civil Procedure 12(c), applicable to this adversary proceeding by Bankruptcy Rule 7012, states that "[a]fter the pleadings are closed—but early enough to not delay trial—a party may move for judgment on the pleadings." A motion to dismiss under Federal Rule of Civil Procedure 12(c) is the same as a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 581-82 (6th Cir.2007).

Federal Rule of Civil Procedure 12(b)(6) states that a defendant may move to dismiss a complaint for "failure to state a claim upon which relief can be granted." The Sixth Circuit has stated that "[d]ismissal of a complaint for the failure to state a claim on which relief may be granted is appropriate only if it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Thomas v. Eby, 481 F.3d 434, 437 (6th Cir.2007) (citation omitted). To survive a defendant's motion, the plaintiff's complaint "must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory." Varljen v. Cleveland Gear Co., Inc., 250 F.3d 426, 429 (6th Cir.2001) (citations and internal quotation marks omitted).

In considering a motion to dismiss, the court "must consider as true the well-pleaded allegations of the complaint and construe them in the light most favorable to the plaintiff." Id. However, the court "need not accept as true legal conclusions or unwarranted factual inferences" in the complaint. Id. (citations omitted). The Supreme Court has recently reminded the federal courts that while a plaintiff need not provide detailed factual allegations to survive a motion to dismiss pursuant to Rule 12(b)(6), "a plaintiff's obligation to provide the `grounds' of his `entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007) (citations omitted).¹

Analysis

The Allegations in the Plaintiff's Complaint against Saxon

The following allegations from the Plaintiff's complaint are relevant to Saxon's 12(c) motion:

• Under the provisions of 15 U.S.C. § 1640(a)(1)-(3)² a borrower is entitled to damages for violations of TILA and HOEPA and as counterclaims as to any collection effort of a creditor liable for a TILA or HOEPA violation (Doc. 1, ¶ 96).

• All causes of action by Plaintiff against Saxon ... are claims asserted by Plaintiff against and directly related to the claims filed by Saxon.... (Doc. 1, ¶ 97).

FIRST CLAIM—TILA DISCLOSURE VIOLATIONS

• The failure of Saxon ... to Provide Plaintiff ... with timely Notices of the Right to Cancel for Loan 1 and Loan 2 at loan closing is a violation of 15 U.S.C. § 1635(a) and Regulation Z, 12 CFR § 226.23(b)(1) (Doc. 1, ¶ 104).

• The failure of Saxon ... to provide the Truth in Lending Disclosure to Plaintiff for Loan 1 and Loan 2 so as to disclose the annual APR, finance charges, variable rate terms, penalty payments and other disclosure requirements for both loans at closing is a violation and non compliance with 15 U.S.C. §§ 1632, 1637a and 1638 and 12 CFR § 226.18 and 226.19 (Doc. 1, ¶ 105).

• The failure of Saxon ... to provide variable rate and adjustable rate loans including a Charm booklet that explains variable rate loans in a consumer friendly manner for Loan 1 is a violation of and non-compliance with 15 U.S.C. § 1637a(a)(2) and amplified by 12 CFR § 226.19(b) (Doc. 1, ¶ 106).

• The failure of Saxon ... to properly evaluate and consider the ability of Plaintiff to meet payments based on disclosed income information on the Loan 1 and Loan 2 Uniform Loan Application provided to Plaintiff after closing demonstrates and reflects a pattern and practice of extending credit without properly considering consumers and Plaintiffs ability (sic) to pay mortgage payments in violation of 15 U.S.C. § 1639(h) (Doc. 1, ¶ 107).

• The failure to comply with TILA disclosures as set forth in the preceding paragraphs of the First Claim by Saxon for Loan 1 and Loan 2 ... are material mis-disclosures or non-disclosures under TILA, 15 U.S.C. § 1605(u) (Doc. 1, ¶ 108).

• The failure of Saxon to respond to Plaintiff's TILA rescission with a tender offer is a TILA violation under 15 U.S.C. § 1635(b) (Doc. 1, ¶ 109).

• Plaintiff is entitled to damages under 15 U.S.C. § 1640(a)(1)-(3), as well as costs and attorney fees because of the TILA non-disclosure and misdisclosures required by TILA and the rescission actions by Plaintiff for Loan 1 or Loan 2 (Doc. 1, ¶ 111).

• Plaintiff is further entitled to additional damages under 15 U.S.C. § 1635(g) and § 1640(a)(2) for the failure of Saxon to respond and submit a tender offer to Plaintiff as required when a borrower exercises the right of rescission (Doc. 1, ¶ 112).

SECOND CLAIM—HOEPA NON-COMPLIANCE

• Saxon also failed to properly consider the stated income of Plaintiff and ability to make payments for the monthly mortgage loan payments for Loan 1 and Loan 2 and has done so with other borrowers on other loans (Doc. 1, ¶ 120).

• Saxon's failure to properly consider Plaintiff's ability to make payments on Loan 1 and Loan 2 based on her stated income and a pattern and practice of failure to consider borrowers ability (sic) to meet mortgage payments is a violation of 15 U.S.C. § 1639(h) (Doc. 1, ¶ 121).

• Plaintiff is entitled to statutory damages and enhanced damages pursuant to 15 U.S.C. §§ 1640(a)(4) for failure of to comply (sic) with HOEPA disclosure provisions of 1639(a), (b) and (h) (Doc. 1, ¶ 122).

• Plaintiff is further entitled to costs and attorney fees for violations of HOEPA (Doc. 1, ¶ 123).

SEVENTH CLAIM—RESPA VIOLATION-KICKBACK

• The payment of the YSP [yield spread premium] of $2400 by Saxon to Randall for brokering Loan 1 in addition to a broker=s (sic) fee was in violation of RESPA, 12 U.S.C. § 2607(a)³ as a kickback or percentage of fee based upon the broker and lender obtaining an additional fee without proper disclosure or...