Mincey v. World Savings Bank, Fsb

• Decision Date: 15 August 2008
• Docket Number: C.A. No. 2:07-cv-03762-PMD.
• Parties: Bonnie MINCEY, Stephanie O'Rourke, and Tina Singer, individually and on behalf of all others similarly situated, Plaintiffs, v. WORLD SAVINGS BANK, FSB; Golden West Financial Corporation; and Wachovia Corporation, Defendants.
• Court: U.S. District Court — District of South Carolina

614 F.Supp.2d 610

Bonnie MINCEY, Stephanie O'Rourke, and Tina Singer, individually and on behalf of all others similarly situated, Plaintiffs, v. WORLD SAVINGS BANK, FSB; Golden West Financial Corporation; and Wachovia Corporation, Defendants.

C.A. No. 2:07-cv-03762-PMD.

United States District Court, D. South Carolina, Charleston Division.

August 15, 2008.

COPYRIGHT MATERIAL OMITTED

Andrew Hoyt Rowell, III, Daniel Oakes Myers, Robert S. Wood, Catherine H. McElveen, Richardson Patrick Westbrook and Brickman, Mt. Pleasant, SC, Evan D. Buxner, Walther Glenn Law Associates, St Louis, MO, for Plaintiffs.

Frank W. Gibbes, K. Stacie Corbett, T. Thomas Cottingham, III, Hunton and Williams, Charlotte, NC, for Defendants.

ORDER

PATRICK MICHAEL DUFFY, District Judge.

This matter is before the court upon three motions: (1) a Motion to Dismiss filed by Defendants Golden West Financial Corporation ("Golden West") and Wachovia Corporation ("Wachovia"); (2) a Motion for Judgment on the Pleadings filed by Defendant World Savings Bank, FSB ("WSB" or "World"); and (3) a Cross-Motion for Judgment on the Pleadings filed by Plaintiffs Bonnie Mincey, Stephanie O'Rourke, and Tina Singer ("Plaintiffs"). For the reasons set forth herein, the court grants the Motion to Dismiss filed by Golden West and Wachovia. The court grants in part and denies in part WSB's Motion for Judgment on the Pleadings and also grants in part and denies in part Plaintiffs' Motion for Judgment on the Pleadings.¹

BACKGROUND

Plaintiffs filed the instant lawsuit on November 16, 2007 as a class action, though as of this date, a class has not been certified, and an Amended Complaint was filed on January 18, 2008. The Amended Complaint states that such action is brought

based on Defendants' failure to clearly and conspicuously disclose to Plaintiffs and the Class Members, in Defendants' Option Adjustable Rate Mortgage ("Option ARM") loan documents and in the required disclosure statements accompanying the loans, (i) the actual interest rate on which the payment amounts listed in the Truth in Lending Disclosure Statements are based (12 C.F.R. § 226.17); (ii) that making the payments according to the payment schedule in the Truth in Lending Disclosure Statement provided by Defendants will result in negative amortization and that the principal balance will increase (12 C.F.R. § 226.19); and (iii) that the payment amounts listed on the Truth in Lending Disclosure Statement are insufficient to pay both principal and interest.

(Am. Compl. ¶ 1.) The Amended Complaint explains that an Option ARM "is a monthly adjustable rate mortgage that gives the borrower multiple monthly payment options. When the borrower receives his or her monthly statement, it provides options to pay a minimum payment amount, an interest only payment, a payment based on a 30-year amortization, or a 15-year amortization." (Id. ¶ 20.) The Amended Complaint also states,

Up to 80 percent of all Option ARM borrowers make only the minimum payment each month, often because they are not properly informed about the terms of the loan. The unpaid interest is then added to the balance of the mortgage, a process called "negative amortization." Once the balance reaches a set amount, usually 125 percent of the original loan principal, the loan is automatically reset to a higher rate.

(Id. ¶ 23.)

Plaintiffs assert the Defendants "engaged in a campaign of deceptive conduct and concealment aimed at maximizing the number of consumers who would accept this type of loan in order to maximize Defendants' profits, even as Defendants knew their conduct could cause long-term difficulties for consumers and could result in the loss of their homes through foreclosure." (Id. ¶ 29.) According to Plaintiffs, Defendants "failed to disclose, and by omission, failed to inform Plaintiffs of the fact that Defendants' Option ARM loan was designed to, and did, cause negative amortization to occur." (Id. ¶ 30.) Plaintiffs further allege that "the payment schedule provided by Defendants was guaranteed to be insufficient to pay all of the interest due, let alone both principal and interest, which was certain to result in negative amortization." (Id. ¶ 34.) These interest charges above and beyond the fixed payment "were added to the principal balance on [Plaintiffs'] home loans in ever-increasing increments, substantially increasing the principal balance on their home loans and reducing the equity in these borrowers' homes." (Id. ¶ 38.) The Amended Complaint also states,

The Option ARM loans sold by Defendants all have the following uniform characteristics:

(a) The loan has a low fixed payment amount for the first 10 years of the Note, as evidenced in the payment schedule provided by Defendants;

(b) The payment amount is wholly unrelated to the interest rate listed on the Note and Truth in Lending Disclosure Statement;

(c) The Note states that each payment will go to both principal and interest;

(d) The payment amounts listed in the Truth in Lending Disclosure Statement are not sufficient to pay the actual interest being charged, and none of the payments up through the first 10 years of the Note are applied to the principal balance;

(e) The low payment amount listed in the Note and Truth in Lending Disclosure Statement was intended by Defendants to mislead consumers into believing that the low payments for the first 10 years of the loan were based on the listed interest rate;

(f) The chief marketing gimmick, minimum payment, was intended to misleadingly portray to consumers that the low payments would continue for years with no negative amortization;

(g) The payment has a capped annual increase on the payment amount;

(h) If the unpaid balance on the loan exceeds a certain percentage of the original principal borrowed (usually 125 percent), the payment automatically reset[s] at a higher interest rate and/or payment amount; and

(i) The loan includes a prepayment penalty for a period up to three (3) years, thereby preventing consumers from refinancing during that time.

(Id. ¶ 45.) Plaintiffs list the following causes of action in their Amended Complaint: (1) violation of the Truth in Lending Act ("TILA") and the corresponding regulations; (2) "fraudulent omissions;" (3) violation of the South Carolina Unfair Trade Practices Act ("SCUTPA"); and (4) breach of contract and the implied covenant of good faith and fair dealing. (See Am. Compl.) As noted above, several motions are pending in the instant case, and the court will address each one in turn.

ANALYSIS

A. Motion to Dismiss Filed by Golden West and Wachovia

Golden West and Wachovia filed a Motion to Dismiss pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure on February 21, 2008. (See Doc. No. [23].) This motion asserts Plaintiffs "have inappropriately sued two entities [(Golden West and Wachovia)] with which they have no relationship whatsoever." (Mem. in Supp. of Mot. to Dismiss at 1.) These Defendants state,

Plaintiffs do not allege that they had any contact with either Wachovia or Golden West, nor do the loan documents attached to their Complaint support any such allegations. Plaintiffs' Complaint alleges essentially nothing against Wachovia or Golden West. Instead, Plaintiffs improperly lump Wachovia and Golden West with World but make no specific, substantive allegations against Wachovia or Golden West.

(Id. at 1-2.) Golden West and Wachovia assert the documents attached to the Complaint² demonstrate that Plaintiffs' only relationship was with WSB and that "Plaintiffs' conclusory allegations of `agency, servitude, joint venture, division, ownership, subsidiary, alias, assignment, alter-ego, partnership, or employment,' without any factual support, are insufficient" under Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). (Id. at 2.) Golden West and Wachovia further state,

[T]he loan documents attached to [Plaintiffs'] Complaint clearly disclose that Golden West and Wachovia are not "creditors" under the TILA, thereby mandating dismissal of those claims ... Plaintiffs have failed to plead fraud with sufficient particularity. Finally, because Plaintiffs have no relationship with Golden West or Wachovia, whether contractual or otherwise, they cannot assert claims for unfair trade practices, breach of contract, and breach of the implied covenant of good faith and fair dealing against them.

(Mem. in Supp. of Mot. to Dismiss at 3.)

Plaintiffs filed a Response in Opposition on April 4, 2008, asserting they "have properly pleaded that World Savings Bank acted as the agent of Golden West and Wachovia in making the loan, and that Defendants were acting in concert with each other or were joint participants and collaborators in the acts complained of in Plaintiffs' First Amended Class Action Complaint." (Resp. in Opp'n to Mot. to Dismiss at 1.) Plaintiffs further assert "there is ample evidence that these Defendants are properly named parties and had direct involvement in Plaintiffs' and Class Members' loans." (Id.)

1. Standard of Review for Motion to Dismiss Pursuant to Rule 12(b)(6)

Upon reading all the documents in the record associated with the Motion to Dismiss, it is clear the parties have differing views on the standard this court should employ in evaluating a Motion to Dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Golden West and Wachovia cite Twombly for the proposition that "`[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level....'" (Mem. in Supp. of Mot. to Dismiss at 3-4 (quoting Twombly, 127 S.Ct. at 1965).) Plaintiffs,...