James v. Detroit Prop. Exch.

Decision Date10 August 2020
Docket NumberCivil Case No. 18-13601
PartiesNatalie James, et al., Plaintiffs, v. Detroit Property Exchange, et al., Defendants.
CourtU.S. District Court — Eastern District of Michigan

Sean F. Cox United States District Court Judge


This contentious putative class action is currently before the Court on cross-motions for summary judgment. These are somewhat unusual motions in that they were filed before Plaintiffs have filed a motion seeking class certification and filed before discovery has been completed. Because they are cross-motions, the parties have extensively briefed the issues. Oral argument was heard on July 30, 2020.

Plaintiffs' motion does not ask the Court to grant summary judgment in their favor, even as to just liability, as to any of the ten counts in the operative complaint. Rather, Plaintiffs ask the Court to make two legal rulings that they believe will impact their claims: 1) that the transactions at issue in this case are "'residential mortgage transactions' within the meaning of 15 U.S.C. § 1602(x)" (because they are either installment sales agreements that give rise to a purchase money security interest or are "credit sales" under 15 U.S.C. 1602(h)); and 2) whether multiple individuals or entities may be treated as a single creditor for purposes of TILA/HOEPA.

Defendants' motion is titled "Summary Judgment" (as opposed to partial summary judgment) but it does not make any arguments seeking dismissal of the counts asserted against the two individual Defendants (Michael Kelly and Crystian Segura). Rather, it seeks dismissal of claims asserted against the "Entity Defendants" and asks the Court to rule that: 1) the Entity Defendants cannot be held liable under TILA or HOEPA because they are not "creditors" under those Acts; and 2) rent-to-own agreements and land contracts are not regulated by TILA or HOEPA, as shown by the fact that there are legislative efforts that would regulate such agreements.

For the reasons explained below, the Court shall deny without prejudice the first issue raised in Defendants' motion, and the second issue raised in Plaintiffs' motion, because the Entity Defendants may be creditors under the Acts by virtue of engaging in "credit sales," but at this juncture, Plaintiffs cannot address the issue of whether the Entity Defendants "regularly" engage in such transactions. And Plaintiffs' request for the Court to rule that Plaintiffs can meet that requirement under their alternative veil-piercing theory is premature given that they may be able to make the required showing once discovery is completed.

As to the first request in Plaintiffs' motion, whether the Court should rule that the transactions at issue are "residential mortgage transactions," the Court shall deny that request without prejudice as well. Notably, neither party has adequately explained how such a ruling would impact the ten counts of the operative complaint in this case.

Finally, as to Defendants' argument that residential rent to own agreements are not covered under the Acts because there are efforts to pass specific legislation to regulate such agreements, the Court rejects that argument because the fact that there is specific legislation being proposed to regulate these agreements does not necessarily mean that they are not covered under these existing Acts.

A. Procedural Background

Acting through counsel, three individuals filed this putative class action as named plaintiffs, asserting claims against five named Defendants, on November 19, 2018.

The action is in federal court based upon federal-question jurisdiction. This Court declined to exercise supplemental jurisdiction over any state-law claims. (See ECF No. 85).

At this juncture, the Second Amended Class Action Complaint (ECF No. 90) is the operative complaint in this case. It was filed on December 9, 2019. It includes the following eight named Plaintiffs: 1) Natalie James; 2) Jerome Day; 3) Carl Austin, 4) Veronica Sherrell; 5) Andre Mack; 6) Eric Ingram; 7) Shanon Cobb; and 8) Jazmine Cobb. It asserts claims against Defendant Detroit Property Exchange ("DPE"), its owner Michael Kelly, another individual named Crystian Segura, and a litany of entities that Kelly owns or controls, along with "John Doe Entities 1-20). The Second Amended Class Action Complaint includes the following ten counts:

1) "Violation of the HOEPA (Mandatory Disclosures), 15 U.S.C. § 1639(a), 12 C.F.R. § 1026.32(c) (as to all Entity Defendants)" (Count I);
2) "Violation of the TILA and HOEPA (Ability to Repay), 15 U.S.C. § 1639(h), 12 C.F.R. § 1026.43(c) (As to all Entity Defendants)" (Count II);
3) "Violation of the HOEPA (Pre-Loan Counseling), 15 U.S.C. § 1639(u), 12 C.F.R. § 1026.34(a)(5) (As to all Entity Defendants) (Count III);
4) "Violation of the TILA (Loan Origination", 15 U.S.C. § 1639b (As to Defendant Crystian Segura and Defendant Michael Kelly)" (Count IV);
5) "Violation of TILA (Loan Origination", 15 U.S.C. § 1639b (As to all Entity Defendants)" (Count V);
6) "Violation of HOEPA, 15 U.S.C. § 1639(k) (As to all Entity Defendants)" (Count VI);7) "Violation of 15 U.S.C. 1639r and 12 CFR § 1026.34(b) (As to all entity Defendants)" (Count VII);
8) "Violation of 15 U.S.C. § 1639h (as to all Entity Defendants)" (Count VIII);
9) "Piercing the Corporate Veil (to impose liability upon Michael Kelly for the actions of all Defendants Entities") (Count IX); and
10) "Declaratory Judgment (As to all Defendants)" (Count X).

Plaintiffs' Second Amended Class Action Complaint asks the Court to certify a class defined as follows:

A Class of persons who sought to purchase real property from any of the Defendants at any time from November 19, 2015 through final judgment, and who have signed:
(a) any document or documents that Defendants characterize as a "Rent to Own" transaction, OR
(b) two or more of the following documents drafted by or on behalf of Defendants: "lease," "option to purchase," "real estate purchase agreement," OR
(c) a document with the title "Land Contract."

(Id. at ¶ 22).

Plaintiffs have not yet filed a motion seeking class certification. Counsel for the parties believed that the best way to proceed in this case was for them to stay further discovery and file cross-motions for summary judgment to address discrete legal issues pertaining to Plaintiffs claims. (See ECF No. 101).

The parties have since filed those cross-motions for summary judgment. A zoom hearing was held on July 30, 2020.

B. Factual Background

This Court's practice guidelines are included in the Scheduling Order and provide, consistent with Fed. R. Civ. P. 56 (c) and (e), that:

a. The moving party's papers shall include a separate document entitled Statement of Material Facts Not in Dispute. The statement shall list in separately numbered paragraphs concise statements of each undisputed material fact, supported by appropriate citations to the record. . .
b. In response, the opposing party shall file a separate document entitled Counter-Statement of Disputed Facts. The counter-statement shall list in separately numbered paragraphs following the order or the movant's statement, whether each of the facts asserted by the moving party is admitted or denied and shall also be supported by appropriate citations to the record. The Counter-Statement shall also include, in a separate section, a list of each issue of material fact as to which it is contended there is a genuine issue for trial.
c. All material facts as set forth in the Statement of Material Facts Not in Dispute shall be deemed admitted unless controverted in the Counter-Statement of Disputed Facts.

(Scheduling Order at 2-3).

The parties complied with the Court's practice guidelines for summary judgment motions such that Plaintiffs' motion includes a "Statement of Material Facts Not In Dispute" ("Pls.' Stmt. A") and Defendants' response brief includes a "Counter-Statement of Disputed Facts" ("Defs.' Stmt. A"). In addition, along with Defendants' motion it submitted a "Statement of Material Facts Not In Dispute" ("Defs.' Stmt. B") and in response, Plaintiffs submitted a "Counter-Statement Of Disputed Facts" ("Pls.' Stmt. B").

The relevant evidence submitted by the parties is set forth below. Unless stated otherwise, these facts are undisputed.

The eight named Plaintiffs in this case are individuals who currently reside (or who at all relevant times did reside) in single family homes they sought to purchase from Defendants inDetroit, Michigan. (Stmts. A at ¶ 1).

Defendant Michael Kelly is the sole owner of Defendant Detroit Property Exchange Company. Detroit Property Exchange Company is the sole owner of the remaining entities that are named as Defendants in this case. (Stmts. A at ¶¶ 2-3). "Together, [those] Defendant entities and all other entities owned by Detroit Property Exchange Company constitute 'Detroit Property Exchange.'" (Stmts. A at ¶ 4). Detroit Property Exchange specializes in homeownership. Most of Detroit Property Exchange's clientele want to purchase a home and some want to lease a home. (Stmts. A at ¶¶ 5-6).

From the time frame of 2015 to the present, Detroit Property Exchange primarily engages in the sale of homes to individuals through what it refers to as "rent to own" transactions. (Stmts. A at ¶ 7). Defendants admit that "rent to own" (RTO) is synonymous with "lease with option to purchase" ("LWO"). (Id. at ¶ 8).

"Defendants' so-called 'rent to own' transactions are the transactions at issue in this case." (Stmts. A at ¶ 10). The named Plaintiffs executed what Defendants refer to as a "rent to own" agreement or a "lease with an option to purchase." (Stmts. A at ¶ 11). The agreements at issue in this case are similar but not identical.

For example, named Plaintiffs Natalie James and Jerome Day entered into a written "Residential Lease With Option Agreement" with Defendant Homes of Detroit, LLC. (ECF No. 107-2). Under that agreement, James and Day agreed to...

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