Wise v. Mortgage Lenders Network Usa, Inc.

• Decision Date: 14 March 2006
• Docket Number: No. CIV.A. 05-4044.,CIV.A. 05-4044.
• Citation: 420 F.Supp.2d 389
• Parties: Thomas WISE, et al., Plaintiffs, v. MORTGAGE LENDERS NETWORK USA, INC., et al., Defendants
• Court: U.S. District Court — Eastern District of Pennsylvania

420 F.Supp.2d 389

Thomas WISE, et al., Plaintiffs, v. MORTGAGE LENDERS NETWORK USA, INC., et al., Defendants

No. CIV.A. 05-4044.

United States District Court, E.D. Pennsylvania.

March 14, 2006.

COPYRIGHT MATERIAL OMITTED

Brian R. Mildenberg, Mildenberg & Stalbaum PC, Sherri J. Braunstein, Mildenberg & Stalbaum PC, Philadelphia, PA, for Thomas Wise, Florine Wise H/W, Plaintiffs.

John B. Joyce, Grenen & Birsic PC, Michael A. Burger, Grenen & Birsic PC, Cheryl Roth Herzfeld, The Public Ledger Bldg, Philadelphia, PA, for Mortgage Lenders Network USA, Inc., Savings Mortgage, Inc., John Doe Trust, John Doe Trustee, John Does#'s 1-100, Defendants.

MEMORANDUM

BAYLSON, District Judge.

I. Introduction

Presently before this Court are two Partial Motions to Dismiss, pursuant to F.R. Civ. P. 12(b)(6), filed separately by Defendants Savings Mortgage, Inc. ("Savings Mortgage") and Mortgage Lenders Network U.S.A. ("MLN") (collectively, "Defendants"), contending certain claims are time-barred by the applicable statute of limitations. For the reasons set forth below, Defendants' Motions to Dismiss will be denied.

II. Background

A. Allegations in the Complaint

This is a predatory lending case. According to the First Amended Complaint, Plaintiffs needed money in order to make necessary repairs and improvements to their home, particularly floor and roof repairs. First Amended Compl. at ¶¶ 19, 24, 32. Seeking to find a fixed, thirty-year conventional loan with a large cash disbursement, they hired Defendant Savings Mortgage as their mortgage broker. Plaintiffs wanted Savings Mortgage to assist them in re-financing their existing mortgage, on which they owed a principal of $80,000, while paying approximately the same monthly payment. Id. at ¶¶ 26, 34. Savings Mortgage referred the Plaintiffs to Defendant MLN, a lender engaged primarily in the extension of "sub-prime" mortgage loans. Both Defendants assured them that applying for a loan with MLN was in their best interests. Id. at ¶¶ 29, 91.

On or about August 21, 2001, Plaintiffs closed on a mortgage with MLN. Id. at ¶ 36. Instead of the promised loan, MLN issued Plaintiffs a thirty-year loan in the principal amount of $97,200, with a variable interest rate starting at 8.9 percent, not to exceed 14.9 percent, and only $2,880 in cash. Id. at ¶¶ 37-38, 59. The loan resulted not only in higher monthly payments, but also increased Plaintiffs' secured indebtedness by $17,000.¹ Id. at ¶¶ 39, 41, 61, 66. Plaintiffs allege they initially refused to sign at least some of the documents because the loan they were offered was not the one for which they applied and they believed it not beneficial to them, but agreed to the terms after Defendants Savings Mortgage and/or MLN repeatedly promised to refinance the mortgage after two years and disburse cash sufficient for their home repairs at that time. Id. at ¶¶ 47-48. Further, they aver they were not notified as to the reasons the originally-desired loan was denied, nor were they provided with all necessary disclosures and paperwork prior to the loan closing. Id. at ¶¶ 44-45, 77. Despite their promise, Defendant MLN refused to refinance the loan and disburse the promised funds after two years. Id. at ¶¶ 32, 42, 54-55. Moreover, because of their reliance on the promise, Plaintiffs assert they did not realize that they had been defrauded until MLN refused to refinance, more than two years after the initial loan. Id. at ¶¶ 73, 76, 95. Finally, Plaintiffs sent Defendant MLN a letter of rescission on July 8, 2004, pursuant to the Truth in Lending Act ("TILA"), to which MLN failed to properly respond. Id. at ¶¶ 89, 102-108. Thereafter, on July 28, 2005, Plaintiffs filed this civil action.

The First Amended Complaint sets forth ten counts. Relevant to the motions to dismiss are claims against Defendant MLN pursuant to TILA (Count I), the Home Ownership and Equity Protection Act of 1994 ("HOEPA") (Count II), and the Equal Credit Opportunity Act ("ECOA") (Count IV),² a common-law fraud claim against both Defendants (Count V), and a common-law claim for breach of fiduciary duty (Count VIII) against Defendant Savings Mortgage. Id. at 11198-114, 128-148, 174-179. Plaintiffs seek relief in the form of declaratory relief, compensatory damages, treble damages, attorneys' fees and costs and other relief as is reasonable and just. Id. at 31-32.

B. Procedural Background

Plaintiffs filed their original complaint on July 28, 2005, followed by an Amended Complaint ("First Amended Complaint") filed on December 19, 2005. On January 6, 2006 (Doc. No. 11), Defendant MLN filed a Motion to Dismiss Counts I, II, IV and V of Plaintiffs' First Amended Complaint, contending that these claims are time-barred by the applicable statute of limitations. Savings Mortgage filed a Motion to Dismiss Counts V and VIII on January 6, 2006 (Doc. No. 12), similarly alleging a time-bar. On February 2, 2006, Plaintiffs filed separate Responses to Defendant MLN (Doc. No. 16) and Savings Mortgage (Doc. No. 17). Both Defendants then filed Reply briefs (Doc. Nos. 18 and 19) on February 9, 2006.

III. Jurisdiction and Legal Standard

A. Jurisdiction

This Court has federal question jurisdiction under 28 U.S.C. § 1331, as this action is brought pursuant to numerous federal statutes, including TILA, 15 U.S.C. § 1601 et seq, HOEPA, 15 U.S.C. § 1639 et seq, and ECOA, 15 U.S.C. § 1691 et seq.³ This Court also has supplemental jurisdiction, pursuant to 28 U.S.C. § 1367, to consider Plaintiffs' state law claims.

Venue is appropriate in this district, pursuant to 28 U.S.C. § 1391 because the claim arose in this judicial district.

B. Legal Standard

When deciding a motion to dismiss pursuant to F.R. Civ. P. 12(b)(6), the court may grant the motion only if, accepting all well-pleaded allegations in the complaint as true, and viewing them in the light most favorable to plaintiff, the plaintiff is not entitled to relief. Doug Grant, Inc. v. Greate Bay Casino Corp., 232 F.3d 173 183 (3d Cir.2000). Accordingly, a federal court may dismiss a complaint for failure to state a claim only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations. Doe v. Delie, 257 F.3d 309, 313 (3d Cir.2001).

IV. Contentions

Defendant MLN moves to dismiss the TILA (excepting rescission) (Count I), HOEPA (excepting rescission) (Count II), ECOA (Count IV), and fraud (Count V) claims, contending that they are time-barred by the applicable statutes of limitations. Defendant Savings Mortgage urges the Court to dismiss the fraud (Count V) and breach of fiduciary duty (Count VIII) claims, similarly arguing that they are untimely. (Def. MLN's Mem. at 4-11; Def. Savings Mortgage Mem. at 3-5, 8-10).

Plaintiffs argue that their claims were timely filed. With regard to the TILA, HOEPA, and ECOA counts, Plaintiffs contend that equitable tolling applies. (Pl's Response to MLN at 11-20). Similarly, Plaintiffs argue Pennsylvania's well-established "discovery rule" is applicable to toll their fraud and breach of fiduciary duty claims. (Pl's Response to MLN at 20-23; Pl's Response to Savings Mortgage at 11-16).

V. Discussion

A. TILA, HOEPA, and ECOA Claims (Equitable Tolling)

Under both TILA and HOEPA⁴, there is a one (1) year statute of limitations in which an action for damages may be brought. 15 U.S.C. § 1640(e). ECOA imposes a two (2) year statute of limitations for bringing an action. 15 U.S.C. § 1691(e).

Generally, a statute of limitations begins to run when the cause of action accrues. Oshiver v. Levin, Fishbein Sedran & Berman, 38 F.3d 1380, 1385 (3d Cir.1994). If the limitations period has passed, a Defendant may raise a limitations defense, but only if "the time alleged in the statement of a claim shows that the cause of action has not been brought within the statute of limitations." Robinson v. Johnson, 313 F.3d 128, 135 (3d Cir.2002). If a time-bar is not clear based on the face of the complaint, then the motion to dismiss should be denied and the issue should be decided at a later stage of the litigation. Ballard v. Nat'l City Mortgage Co., 2005 WL 147075, *1 (E.D.Pa. Jan.21, 2005) (TILA, HOEPA, and ECOA).

Further, the doctrine of "equitable tolling" operates to stop the statute of limitations from running where the claim's accrual date has already passed. Id. at 1387. It thus allows a court "to extend a statute of limitations on a case-by-case basis to prevent inequity." Colletti v. N.J. Transit Corp., 50 Fed.Appx. 513 (3d Cir. 2002) (unpublished opinion); Smith v. EquiCredit Corp., 2002 WL 32349873, *3 (E.D.Pa. Oct.4, 2002).⁵ The Third Circuit has identified three scenarios when equitable tolling may be appropriate: (1) where the defendant has actively misled the plaintiff respecting the plaintiff's cause of action, (2) where the plaintiff in some extraordinary way has been prevented from asserting his or her rights, or (3) where the plaintiff has timely asserted his or her rights mistakenly in the wrong forum. Oshiver, 38 F.3d at 1387. Thus, pursuant to the first Oshiver alternative, equitable tolling is appropriate to avoid unjust results where there has been fraudulent concealment. Smith, 2002 WL 32349873 at *4; Solar v. Millenium Financial, Inc., 2002 WL 1019047, *2 (E.D.Pa. May 17, 2002). However, the party seeking tolling must also demonstrate that he or she "exercised reasonable diligence in investigating and bringing the claims." Miller v. N.J. Dep't of Corrections, 145 F.3d 616, 618-19 (3d Cir.1998); Smith, 2002 WL 32349873 at *4.

Contending that they are time-barred by the applicable statutes of limitations, Defendant MLN moves to dismiss the TILA (excepting rescission) (Count I), HOEPA (excepting rescission) (Count II), and ECOA (Count IV) claims. Defendant argues that, assuming arguendo that the alleged violations did occur, they would have occurred on or before the closing date of the loan, August 21, 2001. Thus, the latest Plai...