Reiser v. Residential Funding Corp.

Decision Date25 May 2004
Docket NumberNo. -3 CV 0619 DRH.,-3 CV 0619 DRH.
Citation420 F.Supp.2d 940
PartiesEdward and Pamela REISER, and Janet Greenlee, individually and on behalf of all others similarly situated, Plaintiffs, v. RESIDENTIAL FUNDING CORPORATION a/k/a GMAC-RFC, Defendant.
CourtU.S. District Court — Southern District of Illinois

Eric G. Calhoun, Lawson, Fields et al., Richard J. Pradarits, Jr., Attorney at Law, Addison, TX, for Plaintiffs.

Nina M. Faber, Roy W. Arnold, Thomas L. Allen, Reed Smith, Pittsburg, PA, Peter J. Kennedy, Reed Smith, Los Angeles, CA, Richard K. Hunsaker, Robert H. Shultz, Jr., James A. Telthorst, Heyl, Royster et al., Edwardsville, IL, for Defendant.


HERNDON, District Judge.

I. Introduction and Background

Now before the Court is Defendant Residential Funding Corporation's motion to dismiss (Doc. 26). Based on the following, the Court denies the motion.

On February 13, 2004, Plaintiffs, individually and on behalf of all others similarly situated, filed a First Amended Complaint against Residential Funding Corporation a/k/a GMAC-RFC ("RFC") for violations of the Illinois Interest Act, 815 ILCS 205/4.1, violations of the Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA"), as amended by the Home Ownership Equity Protection Act, 15 U.S.C. § § 1635, 1639, & 1640 ("HOEPA") violations of the Real Estate Settlement Protection Act, 12 U.S.C. § 2601 et seq. ("RESPA"), Conspiracy, Common Law Fraud and violations of the Illinois Consumer Fraud Act, 815 ILCS 505/1 et seq. (Doc. 23).1 Plaintiffs allege the second mortgage loans they obtained from Mortgage Capital Resource Corporation ("Mortgage Capital") included illegal and deceptive charges and that RFC, which took assignment of the second mortgage notes, is liable for Mortgage Capital's violations of Illinois law and federal law.

Plaintiffs Edward and Pamela Reiser, a married couple, and Janet Greenlee reside in Illinois (Doc. 23, ¶ ¶ 12-13). The Reisers and Greenlee obtained second mortgages from Mortgage Capital (Doc. 23, ¶ ¶60 & 63). The Reisers' second mortgage was for $34,000 and had an interest rate of 13.125% while Greenlee's second mortgage was for was for $35,000 and had an interest rate of 17.25% (Doc. 23, ¶ ¶ 61 & 63). Both mortgages charged various items as "fees", including origination fees, loan discount fees, processing fees, underwriting fees and document preparation fees, coupled with non bona fide closing costs (Doc. 23, ¶ ¶ 61 & 63). Plaintiffs describe these loans as "High Loan to Value" loans ("HLTV loans") because they are secured by a second mortgage on residential property where the total outstanding debt on the dwelling often exceeds the fair market value of the property (Doc. 23, ¶ 29).

Each note and mortgage secured by Plaintiffs included provisions that the rights and duties of Mortgage Capital were assignable and that the laws of the state of where the property was located would govern the mortgages (Doc. 23, ¶¶ 33 & 34). Plaintiffs maintain that Mortgage Capital did not maintain its own loan portfolio; rather the loans were pooled and sold to investors either through bulk loan sales or by securitizing the loans into pools of mortgaged-backed securities (Doc. 23, ¶ 35). Plaintiffs contend that Mortgage Capital used Johnson & Payne, PLC (Mortgage Capital's purported settlement agent) as a tool to funnel fraudulent settlement charges to Mortgage Capital and its officers (Doc. 23, ¶ 69). Plaintiffs further allege that Mortgage Capital, Johnson & Payne, and Kenneth Ketner, CEO of Mortgage Capital, conspired with each other to mislead borrowers and others concerning the kickback arrangement with Johnson & Payne, inflated finder fees and closing charges, and that they deliberately prepared misleading and inaccurate HUD-1 settlement statements (Doc. 23, ¶ 70). Plaintiffs allege that RFC is liable by way of the Home Ownership and Equity Protection Act, 15 U.S.C. § 1641(d).2

With regard to the Named Plaintiffs, the amended complaint alleges that on October 30, 1999, the Reisers obtained a twenty-five year second mortgage home equity loan from Mortgage Capital in the principal amount of $34,000.00 and that on November 4, 2024 (the last scheduled payment date), the Reisers will have paid a total of $116,001.00 on the loan including $85,571.00 in interest. The amended complaint further alleges that Greenlee also obtained a twenty-five year second mortgage home equity loan from Mortgage Capital in the principal amount of $35,000.00 and that on November 24, 2004 (the last scheduled payment date), Greenlee will have paid $153,051.00 on the loan and including $121,971.00 in interest.

RFC moves to dismiss the First Amended Complaint, arguing that it fails to state any claim upon which relief can be granted. Specifically, RFC argues that the section of the Illinois Interest Act upon which Plaintiffs sue has been impliedly repealed; that Plaintiffs' TILA, RESPA and Consumer Fraud claims are barred by the applicable statute of limitations and/or repose; that Plaintiffs have failed to adequately plead fraudulent concealment and/or equitable tolling; and that the conspiracy and common-law fraud claims are barred for failure to adequately plead the requisite factual elements. Plaintiffs oppose the motion. The Court rules as follows.

II. Motion to Dismiss Standard

When reviewing a motion to dismiss under Rule 12(b)(6), the Court merely looks at the sufficiency of the complaint, Swierkiewicz v. Sorema N.A., 534 U.S. 506, 508, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002); Autry v. Northwest Prem. Services, Inc., 144 F.3d 1037, 1039 (7th Cir.1998); it does not decide whether the plaintiff has a winning claim. Herdrich v. Pegram, M.D., 154 F.3d 362, 369 (7th Cir.1998); see also McCormick v. City of Chicago, 230 F.3d 319, 323-26 (7th Cir.2000) (analyzing Leatherman v. Tarrant County, 507 U.S. 163, 113 S.Ct. 1160, 122 L.Ed.2d 517 (1993) and reversing the Rule 12(b)(6) dismissal of claims based on §§ 1981 & 1983); Bennett v. Schmidt, 153 F.3d 516, 518 (7th Cir.1998) ("Complaints need not plead law or match facts to every element of a legal theory ...."). Thus, "[a] complaint should not be dismissed for failure to a state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts to support his claim which would entitle him to relief." Smith v. Cash Store Mgmt., Inc., 195 F.3d 325, 327 (7th Cir.1999) (citations and internal quotation marks omitted). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims ... Rule 12(b)(6) should be employed only when the complaint does not present a legal claim." Id. "This simplified notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims." Swierkiewicz, 534 U.S. at 512, 122 S.Ct. 992, 152 L.Ed.2d 1. All well-pleaded facts are accepted as true, and all reasonable inferences are drawn in favor of the plaintiff. See e.g. Jackson v. E.J. Brach Corp., 176 F.3d 971, 977-78 (7th Cir.1999).

As a general rule, the Court must consider only the allegations made on the face of the complaint when ruling on a motion to dismiss. See FED.R.CIV.P. 12(b)(6). This includes documents the plaintiff has attached to the complaint. See FED.R.CIV.P. 10(c). If matters outside the pleadings are placed before the district court, the court must convert the defendant's 12(b)(6) motion into a motion for summary judgment under FED. R.CIV.P. 56. See Carter v. Stanton, 405 U.S. 669, 671, 92 S.Ct. 1232, 31 L.Ed.2d 569 (1972); see also Venture Assoc. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir.1993). As an exception to the general rule, the Seventh Circuit has held that documents attached to a motion to dismiss are considered to be part of the pleadings if they are referred to in the plaintiffs complaint and are central to his claim. See id. at 431-32; see also Wright v. Associated Ins. Cos., Inc., 29 F.3d 1244, 1248 (7th Cir.1994). Although the plaintiff is under no obligation to attach documents relating to her claim, a defendant may introduce certain documents if the plaintiff has failed to do so. Venture Assocs. Corp., 987 F.2d at 431. "Such documents may be considered by a district court in ruling on the motion to dismiss." Wright, 29 F.3d at 1248.

III. Analysis
A. Illinois Interest Act

First, RFC argues that the Court should dismiss Plaintiffs' claims that are based on § 4.1a(f) of the Illinois Interest Act because that section has been impliedly repealed. The Court rejects this argument. Earlier this year, this undersigned district judge addressed this exact issue in Landmann v. Bann-Cor, 2001-CV-0417-DRH, 2004 WL 1944789 (S.D. Ill. Feb. 26, 2004). This Court found that section 4.1a(f) of the Illinois Interest Act had not been repealed. Specifically, this Court held:

The Court agrees with Judge Coar's conclusion that although ... the reasoning of Currie is persuasive ... the Illinois Supreme Court would most likely adopt the results in the Hicks decision based upon the legislature's 1991 amendments to sections 4 and 4.1a and the principle that repeal by implication is strongly disfavored. Thus, the Court finds that the Named Plaintiffs may pursue their § 4.1a(f) claim against the remaining Defendants.

Id. at p. 15 (quoting Jackson v. Resolution GGF OY, 1995 WL 562120, *6 (N.D.Ill. Sept. 20, 1995)). Moreover, on March 31, 2004, the Illinois Court of Appeals for the First District (the same Court that decided Fidelity Financial Services, Inc. v. Hicks, 214 Ill.App.3d 398, 158 Ill.Dec. 221, 574 N.E.2d 15 (1991)) considered the issue of whether the federal Depository Institutions Deregulation and Monetary Control Act of 1980 ("DIDMCA"), 12 U.S.C. § 1735 et seq. preempted § 4.1a of the Illinois Interest Act. U.S. Bank National Association v. Clark, 348 Ill.App.3d 856, 283 Ill.Dec. 268, 807 N.E.2d 1109 (2004...

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