Personius v. Homeamerican Credit

• Decision Date: 21 November 2002
• Docket Number: No. 02 C 4777.,02 C 4777.
• Citation: 234 F.Supp.2d 817
• Parties: Kristen PERSONIUS, Max E. Personius, George Kinimonth, Noreen Corcoran, and Ruth Woodside, Plaintiffs, v. HOMEAMERICAN CREDIT, INC., d/b/a Upland Mortgage, Defendant.
• Court: U.S. District Court — Northern District of Illinois

234 F.Supp.2d 817

Kristen PERSONIUS, Max E. Personius, George Kinimonth, Noreen Corcoran, and Ruth Woodside, Plaintiffs, v. HOMEAMERICAN CREDIT, INC., d/b/a Upland Mortgage, Defendant.

No. 02 C 4777.

United States District Court, N.D. Illinois, Eastern Division.

November 21, 2002.

Cathleen M. Combs, Daniel A. Edelman, Edelman, Combs & Latturner, Chicago, IL, for Plaintiffs.

Thomas Justin Cunningham, Simon A. Fleischman, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

CASTILLO, District Judge.

Plaintiffs filed suit against Defendant Homeamerican Credit, Inc., d/b/a Upland Mortgage ("Upland"), for alleged violations of the Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA"), and Federal Reserve Board Regulation Z, 12 C.F.R. § 226 ("Regulation Z"). Presently before the Court is Upland's motion to dismiss Plaintiffs' complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). For the reasons set out in this opinion, we grant Upland's motion. (R. 9-1.)

RELEVANT FACTS

Each of the plaintiffs executed residential loans with Upland: (1) Max and Kristen Personius in July 2000; (2) George Kinimonth and Noreen Corcoran in April 2001; and (3) Ruth Woodside in November 1999. (R. 1, Compl. ¶¶ 8, 24, 37.) On June 26, 2002, Plaintiffs' counsel sent Upland a letter requesting rescission of the three loans due to alleged noncompliance with TILA. (R. 9, Def.'s Mem, Ex. A, June 26 letter.) Upland's counsel responded on July 1, 2002, requesting an explanation of the alleged TILA breaches. (Id., Ex. B, July 1 letter.) On July 2, 2002, Plaintiffs' counsel faxed a letter detailing the alleged irregularities in each loan transaction that entitled Plaintiffs to rescind the loans. (Id., Ex. C, July 2 letter.) Specifically, Plaintiffs alleged various violations of TILA including mis-dating loan documents and failing to provide copies of TILA disclosures at closing. (Id.) On July 3 Plaintiffs filed the instant one-count complaint, raising the same claims as those identified in its July 2 letter to Upland. (R. 1, Compl. ¶¶ 49-54.) Plaintiffs seek rescission of the loans, statutory damages, attorney fees and any other relief the Court deems appropriate. (Id. at 9.) On July 8, prior to receiving Plaintiffs' complaint, Upland responded to the notice of rescission by agreeing to rescind the three loan transactions. (R. 9, Def.'s Mem, Ex. D, July 8 letter.) Upland informed Plaintiffs that it had "initiated the process necessary to rescind the [loans]," and would be sending a letter "containing an itemized statement of the rescission amount" and a closing date. (Id.) On July 18, 2002, Upland sent a letter containing each Plaintiffs rescission amounts and requesting a closing date. (Id., Ex. E, July 18 letter.) On August 9 Upland sent Plaintiffs releases to be executed in conjunction with the loan rescissions. (Id., Ex. F, Aug. 9 letter.) The releases sought a full discharge of Plaintiffs' TILA claims against Upland pending the rescission of the loans. Plaintiffs refused to sign the releases and voluntarily dismiss the complaint, maintaining that it was their right to seek statutory damages and attorney fees separately from and in addition to the rescission of the loans. On September 9, 2002, Upland filed the present motion to dismiss pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. Upland claims that Plaintiffs lack standing to sue, given Upland's earlier offer to rescind the loans, and that Plaintiffs' claims for statutory damages and attorney fees are time barred.

LEGAL STANDARDS

In considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1), which challenges this Court's subject matter jurisdiction, and under Rule 12(b)(6), which asserts a failure to state a claim on which relief may be granted, we must accept the complaint's well-pleaded factual allegations as true and draw reasonable inferences from those allegations in the plaintiffs favor. Transit Express, Inc. v. Ettinger, 246 F.3d 1018, 1023 (7th Cir. 2001). Dismissal is appropriate only if it appears beyond a doubt that the plaintiff can prove no set of facts in support of the claim that would entitle the plaintiff to relief. Kennedy v. Nat'l Juvenile Det. Ass'n., 187 F.3d 690, 695 (7th Cir.1999); Cortez ex rel. Cortez v. Calumet Pub. Sch. Dist. # 132, No. 01 C 8201, 2002 WL 31177378, *1 (N.D.Ill. Sept.30, 2002). Furthermore, when a defendant challenges subject matter jurisdiction under Rule 12(b)(1), we may properly look beyond the complaint and consider any evidence submitted on the issue. Meridian Rail Prods. Corp. v. Amsted Indus., Inc., No. 02 C 3708, 2002 WL 31103479, *2 (N.D.Ill. Sept.18, 2002).

ANALYSIS

First, Upland claims that Plaintiffs lack standing to sue because its offer to rescind the loans effectively vitiated any litigable dispute, and thus divested this Court of subject matter jurisdiction. See Rand v. Monsanto Co., 926 F.2d 596, 597-98 (7th Cir.1991); Greisz v. Household Bank (Ill.), N.A., 176 F.3d 1012, 1015 (7th Cir.1999). Plaintiffs argue that Upland's offer to rescind is defective because: (1) Upland failed to terminate its security interest in the loans as required by Regulation Z, 12 C.F.R. § 226.23(d)(2); and (2) Upland is prohibited from requiring Plaintiffs to sign a release from liability as a condition of rescission. (R. 13, Pl.'s Resp. at 9-12.)

We agree with Upland that its presuit offer to rescind the loans rendered Plaintiffs' claim for rescission moot. Thus, Plaintiffs lack standing to sue and we do not have jurisdiction to hear the case. See U.S. Const. Art. III, § 2; United States v. Balint, 201 F.3d 928, 936 (7th Cir.2000) (recognizing that "a case is moot if there is no possible relief which the court could order that would benefit the party seeking it"). The relief that Plaintiffs sought and was available to them¹ was fulfilled by Upland's agreement to rescind the loans. Plaintiffs' arguments that Upland's offer to rescind was defective does not alter this result.

Although it is true that upon a notice of rescission TILA generally requires that the creditor perform first and unilaterally by returning monies and releasing its security interest, see 15 U.S.C. § 1635(b), there is no absolute prohibition against conditioning rescissions on some act by the borrower. For example, a court may exercise its equitable discretion under the last sentence of § 1635(b) to condition rescission upon some affirmative act of the debtor. See AFS Fin., Inc. v. Burdette, 105 F.Supp.2d 881, 881-82 (N.D.Ill.2000) (noting that court may require, as condition of rescission, that borrowers tender amounts previously advanced); Rowland v. Magna Millikin Bank of Decatur, N.A., 812 F.Supp. 875, 880-81 (C.D.Ill.1992) (conditioning return of money paid to bank on consumer tendering reasonable value of new windows installed under contract); see also Williams v. Homestake Mortgage Co., 968 F.2d 1137, 1142 (11th Cir.1992); Fed. Dep. Ins. Corp. v. Hughes Dev. Co., 938 F.2d 889, 890 (8th Cir.1991). Furthermore, we question whether the release that Upland sought can even be considered a "condition of rescission" in the TILA sense of the term. Upland simply sought an assurance from Plaintiffs that Upland would not be hailed into court after satisfying their demands by rescinding the loans. Such releases are routine and proper in the course of settlements and offers of judgment, and merely serve to protect a defendant's interest in finality after satisfying a plaintiffs demands. Oswald v. McGarr, 620 F.2d 1190, 1198 (7th Cir. 1980) (stating that "[a] settlement offer is a compromise and may include a release of claims not before the court."); In re Brand Name Prescription Drugs, No. 94 C 897, 1996 WL 167347, at *2 (N.D.Ill. Apr.4, 1996) (noting that settlement provisions requiring releases of all claims related to dispute are "reasonable and customary").

Plaintiffs further argue that Upland's rescission was defective because it was not consummated within the 20-day period provided under the Act, and therefore Plaintiffs have standing to sue for rescission. 15 U.S.C. § 1635(b). But standing is determined from the date of the filing of the complaint. Lujan v. Defenders of Wildlife, 504 U.S. 555, 587 n. 4, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). Plaintiffs filed their lawsuit before the expiration of the 20-day filing period, so they had no knowledge as to whether Upland would agree to rescind or whether Upland's performance would be defective. Moreover, according to the Official Staff Commentary to Regulation Z, 12 C.F.R. Pt. 226, Supp. I, cited by Plaintiffs in their brief, Upland was not required to fully perform within the 20-day period. The Staff Commentary explains that "[t]he 20-day period for the creditor's...