Jackson v. Bank of Am. Corp.

• Decision Date: 29 March 2013
• Docket Number: No. 12–3338.,12–3338.
• Parties: Phillip JACKSON and Deborah Jackson, Plaintiffs–Appellants, v. BANK OF AMERICA CORPORATION; Countrywide Financial Corporation; Countrywide Home Loans, Inc., doing business as America's Wholesale Lender; Mortgage Electronic Registration Systems, Inc.; and Federal National Mortgage Association, Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

711 F.3d 788

Phillip JACKSON and Deborah Jackson, Plaintiffs–Appellants,

v.BANK OF AMERICA CORPORATION; Countrywide Financial Corporation; Countrywide Home Loans, Inc., doing business as America's Wholesale Lender; Mortgage Electronic Registration Systems, Inc.; and Federal National Mortgage Association, Defendants–Appellees.

No. 12–3338.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 14, 2013.

Decided March 29, 2013.

Joseph D. Reed, Andrew J. Thompson (argued), Attorneys, Thompson Law Office, Carmel, IN, for Plaintiffs–Appellants.

Annette M. Haas, Attorney, Barnes & Thornburg LLP, Indianapolis, IN, Steven R. Smith (argued), Attorney, Bryan Cave, Chicago, IL, for Defendants–Appellees.

Before BAUER and KANNE, Circuit Judges, and ZAGEL, District Judge. ^*

KANNE, Circuit Judge.

In April 2003 Phillip and Deborah Jackson applied for and obtained a $282,500 home mortgage refinancing loan with a 30–year fixed interest rate of 5.875% from Countrywide Home Loans, Inc. doing business as America's Wholesale Lender (“AWL”). (R. 27–2 at 75–87.) To secure the loan, the Jacksons granted AWL a mortgage on their home, which was duly recorded in Hamilton County, Indiana, in May 2003. (R. 27–2 at 118); (R. 27–2 at 24.) The Jacksons used a mortgage broker—Midwest Financial & Mortgage Services, Inc. (“MFMS”)—to apply for the loan. (R. 27–2 at 120.) The Jacksons allege that the remaining defendant-appellees have been “involved with the mortgage process in various capacities.” (Appellant's Br. at 8.)

The Jacksons were initially able to make timely payments on the loan but went into default in March 2010. (R. 27–2 at 121.) Although there was no foreclosure action taken by the banks at the time (nor has there been in the intervening time period), the Jacksons initiated an action to quiet title on the property in Hamilton County Circuit Court in December 2011. They additionally claimed that some or all of the defendants negligently evaluated the Jacksons' ability to repay the loan and that the loan contract was substantively and procedurally unconscionable. The defendants removed the case to the Southern District of Indiana in January 2012 and, the next month, filed a motion to dismiss under Fed.R.Civ.P. 12(b)(6). The Jacksons amended their complaint, but the district court granted the motion to dismiss on all counts in September 2012. Jackson v. Bank of Am. Corp., No. 12–cv–79, 2012 WL 4052285 (S.D.Ind. Sept. 13, 2012).

The Jacksons timely filed this appeal, challenging the district court's dismissal of each of their three claims: negligence, unconscionability, and quiet title. We address each below and affirm the district court's dismissal.

I. Jurisdiction

Before we address the merits, we must dispose of a brief jurisdictional issue. In an order dated December 20, 2012, we noted that the Jacksons' filings did not comply with Circuit Rule 28(a)(1) because they failed to establish diversity jurisdiction. (Dkt. 18.) We requested that the parties clarify whether and why our jurisdiction was appropriate. At issue was one defendant—MFMS—whom the Jacksons identified as an Indiana citizen.¹ As the Jacksons themselves are Indiana citizens, if MFMS was also an Indiana citizen, then complete diversity would be destroyed and federal jurisdiction would be improper. See Schur v. L.A. Weight Loss Ctrs., Inc., 577 F.3d 752, 758 (7th Cir.2009).

In response, the Jacksons restated their “knowledge and belief” that MFMS is “incorporated in Indiana and its principal place of business is in Indiana.” (Dkt. 22 at 2.) Thus, the Jacksons offered that it would be appropriate for this court to remand the case to the district court with instructions to send the case back to the Hamilton County Circuit Court, where it was initially filed. ( Id.)

The defendants filed a docketing statement that attached records searches from both the Kentucky and Indiana Secretaries of State that show MFMS to be a Kentucky corporation with its principal place of business in Ohio. (Dkt. 14–2.) On this basis, we are confident that the requirements for diversity jurisdiction are satisfied. See28 U.S.C. § 1332(c)(1); see also Wachovia Bank, N.A. v. Schmidt, 546 U.S. 303, 306, 126 S.Ct. 941, 163 L.Ed.2d 797 (2006).

II. Analysis

Our review of a district court's dismissal of a complaint for failure to state a claim is de novo. Alexander v. McKinney, 692 F.3d 553, 555 (7th Cir.2012). When “[e]valuating the sufficiency of the complaint, we construe it in the light most favorable to the nonmoving party, accept well-[pled] facts as true, and draw all inferences in her favor.” Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1146 (7th Cir.2010) (internal brackets omitted). The “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ( quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

Because this is a diversity case, state substantive law applies. Blood v. VH–1 Music First, 668 F.3d 543, 546 (7th Cir.2012). Here, the case was removed to district court in Indiana and neither party argued choice of law; therefore, Indiana law controls. Ryerson Inc. v. Fed. Ins. Co., 676 F.3d 610, 611–12 (7th Cir.2012). Our job in applying Indiana law is to “use our own best judgment to estimate how the [Indiana] Supreme Court would rule.” Blood, 668 F.3d at 546. Where the Indiana Supreme Court has not spoken directly to an issue, we may give “proper regard” to Indiana's lower courts. Comm'r v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967); Blood, 668 F.3d at 546.

A. Negligence

The Jacksons' first claim is that the various financial institutions they sued negligently evaluated the Jacksons' ability to repay the loan; specifically, the institutions used the Jacksons' gross income rather than net income to determine the likelihood of repayment. The elements of a negligence claim in Indiana would be familiar to most first-year law students: “ ‘(1) a duty owed to plaintiff by defendant, (2) breach of duty by allowing conduct to fall below the applicable standard of care, and (3) a compensable injury proximately caused by defendant's breach of duty.’ ” Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 635 (7th Cir.2007) (internal emphasis removed) ( quoting Bader v. Johnson, 732 N.E.2d 1212, 1216–17 (Ind.2000)). The Jacksons cannot advance beyond the first element. They cannot show that the defendant-appellee institutions actually owed them a duty; without a duty, there is no cognizable negligence claim. See Bader, 732 N.E.2d at 1216–17. Accordingly, the district court's dismissal of the claim was appropriate.

The Jacksons argue that the financial institutions owed them a “fiduciary duty.” (Appellants' Br. at 10.) The Jacksons, however, have not cited any law (of Indiana, or any other jurisdiction) for this proposition; they have argued only that they “disagree[d]” with the appellees and “respectfully” disagreed with the district court's conclusion that no such duty exists. ( Id.) However, it is clear under Indiana law that a fiduciary duty does not arise “between a lender and a borrower unless certain facts exist which establish a relationship of trust and confidence between the two.” Block v. Lake Mortg. Co., 601 N.E.2d 449, 452 (Ind.Ct.App.1992); see also Am. Heritage Banco, Inc. v. Cranston, 928 N.E.2d 239, 246 (Ind.Ct.App.2010) (“the mere existence of a relationship between parties of bank and customer or depositor does not create a special relationship of trust and confidence.”); Huntington Mortg. Co. v. DeBrota, 703 N.E.2d 160, 167 (Ind.Ct.App.1998) (“Mortgages do not transform a traditional debtor-creditor relationship into a fiduciary relationship absent an intent by the parties to do so.”). “Although the existence of a confidential relationship depends upon the facts of each case, it can be generally stated that a confidential relationship exists whenever confidence is reposed by one party in another with resulting superiority and influence exercised by the other.” DeBrota, 703 N.E.2d at 167. Here, the Jacksons have not alleged anything more than the typical mortgagor-mortgagee relationship. But, a mortgage contract does not, on its own, create a confidential relationship between a creditor and a debtor. Catalan v. GMAC Mortg. Corp., 629 F.3d 676, 693 (7th Cir.2011). Without a relevant duty, there is no tort. The district court properly dismissed the Jacksons' negligence claim.

B. Unconscionability

The Jacksons' second claim is that the mortgage contract they entered into was unconscionable and should be set aside. In Indiana, an unconscionable contract is one that “no sensible man not under delusion, duress or in distress would make, and [that] no honest and fair man would accept.” Weaver v. Am. Oil Co., 257 Ind. 458, 276 N.E.2d 144, 146 (1971). Although Indiana recognizes unconscionability, courts do not regularly accept it as an argument; we have previously described Indiana as “unfriendly” to unconscionability generally. Amoco Oil Co. v. Ashcraft, 791 F.2d 519, 522–23 (7th Cir.1986) (collecting cases). Under Indiana law, a contract may be substantively unconscionable, procedurally unconscionable, or both. DiMizio v. Romo, 756 N.E.2d 1018, 1023 (Ind.Ct.App.2001). The Jacksons, however, failed to allege facts that would support any unconscionability determination in Indiana. Accordingly, the district court also properly dismissed this claim.

“Substantive unconscionability refers to oppressively one-sided and harsh terms of a contract.” Id. This is particularly likely where the consumer “is not in a position to shop around for better terms.” Terry v. Ind. State Univ., 666 N.E.2d 87, 93 (Ind.Ct.App.1996). The Jacksons alleged neither any particularly unfair terms, nor that they were unable to shop around. The terms of their loan were manifestly conventional:...