Suttle v. Calk
| Decision Date | 09 September 2020 |
| Docket Number | Case No. 19 C 4541 |
| Parties | STEPHANIE SUTTLE, Plaintiff, v. STEPHEN CALK and THE FEDERAL SAVINGS BANK, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
OPINION AND ORDER
Stephanie Suttle has sued Stephen Calk and The Federal Savings Bank ("TFSB") for violations of the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq., its implementing Federal Reserve Board Regulation Z, 12 C.F.R. Pt. 226 ("Regulation Z"), the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"), 815 ILCS 505/1 et seq., common law fraud, and promissory estoppel. Defendants move to dismiss plaintiff's first amended complaint for failure to state a claim. (Dkt. 19.) The motion is denied.1
In 2016, Suttle began working with NFM Lending to refinance her and her ex-husband's home mortgage to pay off her ex-husband's interest in their marital home following theirdivorce. Suttle communicated with Calk about her plans to refinance because Calk was an old friend and the president of TFSB. On or about October 15, 2016, Calk solicited Suttle's home mortgage refinance business.
To obtain Suttle's business, Calk represented that he had experience, wanted to help, was a friend, and that TFSB would be cheaper and more efficient than other banks or lenders, among other representations. Suttle relied on these representations and abandoned her application with NFM Lending to complete her loan transaction with Calk and TFSB.
Suttle informed Calk that she had access to $330,000 in an IRA to buy out her ex-husband's interest in the home but needed another $60,000. She told Calk that she would have to replace the money in her IRA within 60 days to avoid significant penalties. Calk advised her to complete a loan application that would allow TFSB to issue a mortgage secured by her home to pay back the IRA in time to avoid penalties.
Thereafter, Calk instructed Suttle to wire $417,000 to TFSB to pay off the mortgage with her ex-husband. On October 21, 2016, before Suttle signed any loan documents, Suttle transferred $417,000 to TFSB. Subsequently, Calk informed Suttle that he would wait for her direction to pay off her ex-husband. Despite this communication, on or about October 26, 2016, prior to her execution of any loan documents, Calk transferred $395,000 to Suttle's ex-husband without her knowledge or consent.
Suttle did not receive the loan documents until October 28, 2016. After she received the documents, defendants applied intense pressure on her to sign. Defendants sent Suttle multiple messages, e-mails, and phone calls until she signed. The documents that Suttle signed did not reflect the loan agreement that the defendants promised.
Instead of the mortgage refinance loan that Calk promised, Suttle received a one-year, high-interest bridge loan. But she was unaware of the nature of the transaction because the terms of the loan documents were unclear, inconspicuous, and impossible to understand. In addition, Suttle did not receive mandatory disclosure forms required under TILA.
Shortly thereafter, Suttle contacted Calk for the funds to repay her IRA to avoid the early withdrawal tax penalties. Calk informed Suttle that he was unable to return her money because TFSB had paid her ex-husband and the funds she transferred to TFSB were being held as collateral (presumably for the loan to Suttle).
Suttle was charged a $9,840 administration fee for making the loan and has been billed 5% of the $417,000 principal on a monthly basis, which is automatically deducted from her cash collateral. She was not informed of, nor did she knowingly agree to, any of the loan terms, fees, or arrangements.
On July 5, 2018, Suttle sent the defendants a written notice to rescind the transaction. The defendants did not respond, and this action followed.
A motion to dismiss under Rule 12(b)(6) challenges a complaint for failure to state a claim on which relief may be granted. In ruling on a Rule 12(b)(6) motion, the court accepts as true all well-pleaded facts in the plaintiff's complaint and draws all reasonable inferences from those facts in the plaintiff's favor. Active Disposal, Inc. v. City of Darien, 635 F.3d 883, 886 (7th Cir. 2011). To survive a Rule 12(b)(6) motion, the complaint must not only provide the defendant with fair notice of a claim's basis but must also establish that the requested relief is plausible on its face. See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L.Ed.2d 868 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L.Ed.2d 929 (2007).The allegations in the complaint must be "enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555, 127 S. Ct. 1955. At the same time, the plaintiff need not plead legal theories; it is the facts that count. Hatmaker v. Mem'l Med. Ctr., 619 F.3d 741, 743 (7th Cir. 2010); see also Johnson v. City of Shelby, 574 U.S. 10, 135 S. Ct. 346, 346 (2014) (per curiam) ().
Suttle's TILA claim primarily rests on her allegations that she was entitled to two copies of a notice of the right to rescind that disclosed the material terms of the loan, the security interest in the home, the right to rescind, how to rescind, the effects of rescission, and the date the rescission option expired, as required by 15 U.S.C. § 1635 and Regulation Z, 12 C.F.R. § 226.23.3 She did not receive those disclosures and therefore, she argues, may invoke her right to rescind the transaction within three years under 12 U.S.C. § 1635(a), (f). Defendants argue that Suttle's TILA claim fails because the transaction of which she complains involves a "residential mortgage transaction," which is exempt from TILA's disclosure and rescission provisions. See Dunn v. Bank of Am. N.A., 844 F.3d 1002, 1005 (8th Cir. 2017); French v. Wilson, 446 F. Supp. 216, 218 (D.R.I. 1978); Saldate v. Wilshire Credit Corp., 268 F.R.D. 87, 96 (E.D. Cal. 2010).
TILA is a federal consumer protection statute intended to promote the "'informed use of credit' by assuring 'meaningful disclosure of credit terms to consumers.'" Ford Motor CreditCo. v. Milhollin, 444 U.S. 555, 559, 100 S.Ct. 790 (1980) (quoting 15 U.S.C. § 1601(a)). Pursuant to Congressional authority, the Federal Reserve Board promulgated Regulation Z, which sets forth detailed disclosure requirements to be made in consumer credit transactions.
TILA and Regulation Z extend special protections to homeowners, including a right of rescission for any loan transaction in which the borrower's principal dwelling is used as security. See 15 U.S.C. § 1635(a); 12 C.F.R. § 226.23. Under Regulation Z, a creditor is required to "deliver two copies of the notice of the right to rescind to each consumer entitled to the right to rescind." 12 C.F.R. § 226.23(b)(1). The notice "shall be on a separate document that identifies the transaction" and shall "clearly and conspicuously" disclose the consumer's right to rescind the transaction. Id. If proper disclosures are made, the homeowner's rescission period ends at "midnight of the third business day following consummation [of the loan], delivery of the notice [of the right to rescind], or delivery of all material disclosures, whichever occurs last." 12 C.F.R. § 226.23(a)(3). If the required notice or material disclosures are not delivered, the right to rescind shall expire three years after consummation. See 12 C.F.R. § 226.23(a)(3).
Defendants' argument, that the loan transaction is exempt from TILA's disclosure and rescission provisions, fails. See 12 U.S.C. § 1635(e). Under § 1635(x), a residential mortgage transaction means "a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained against the consumer's dwelling to finance the acquisition or initial construction of such dwelling." According to Regulation Z, a residential mortgage transaction "does not include a transaction involving a consumer's principal dwelling if the consumer had previously purchased and acquired some interest to the dwelling, even though the consumer had not acquired full legal title." 12 C.F.R. Pt. 226, Supp. I, Subpt. A § 226.2(a)(24)5(i). "Examplesof new transaction involving a previously acquired dwelling include . . . an extension of credit made to a joint owner of property to buy out the other joint owner's interest." Id. at (ii).
Suttle specifically alleges that she obtained the extension of credit from TFSB to buy out her ex-husband's interest in their marital home. Even if TFSB had provided the loan Suttle requested, it would not have been exempt from TILA. More to the point, the consumer credit transaction reflected in the documents attached to defendants' motion is not a residential mortgage transaction and is therefore subject to Regulation Z, including the rescission rules of § 226.23. See 12 C.F.R. Pt. 226, Supp. I, Subpt. A § 226.2(a)(24)5(ii).
Suttle contends that she has a right to rescind the transaction under 12 C.F.R. § 226.23(a)(1) and, because defendants failed to provide her with two copies of a notice of the right to rescind as required by subsection (a)(2), she properly rescinded on July 5, 2018, within the three-year window allowed by subsection (a)(3). Consequently, Suttle has sufficiently pleaded facts to survive a motion to dismiss.4
Suttle's complaint asserts state law claims for violation of the ICFA (Count III), for common law fraud (Count IV), and promissory estoppel (Count V). For the following reasons, the court denies defendants' motion to dismiss.5
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