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JOHNSON v. KNOW FINANCIAL GROUP L.L.C.

May 26, 2004.

JOHN L. and MABEL A. JOHNSON, Plaintiffs,
v.
THE KNOW FINANCIAL GROUP, L.L.C., and BANC ONE ACCEPTANCE CORPORATION, d/b/a Bank One, N.A., Defendants THE KNOX FINANCIAL GROUP, L.L.C. and BANC ONE ACCEPTANCE CORPORATION, d/b/a Bank One, N.A., Third Party Plaintiffs, v. CHELSEA SETTLEMENT AGENCY OF PITTSBURGH, INC. Third Party Defendant



The opinion of the court was delivered by: FRANKLIN VAN ANTWERPEN, District Judge

MEMORANDUM AND ORDER

Plaintiffs John and Mabel Johnson assert an array of federal and state claims against Defendant mortgage broker The Knox Financial Group, L.L.C. ("Knox") and lender Banc One Acceptance Corporation d/b/a Bank One, N.A. ("Bank One") (collectively "Defendants"). Specifically, Count One of Plaintiffs' Second Amended Complaint contends that Defendant Bank One violated the federal Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA"), and the federal Home Ownership and Equity Protection Act, 15 U.S.C. § 1639 et seq. ("HOEPA"). With respect to state based claims, the Second Amended Complaint avers violations of the Pennsylvania Credit Services Act, 73 Pa.C.S. § 2181 et seq. ("CSA"), the Pennsylvania Loan Broker Trade Practice Regulations, 37 Pa.ADC 305.3(a)(1)-(4), and the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa.C.S. § 201-1 et seq. ("UTPCPL"). These claims arise out of a refinance mortgage loan that the parties closed on November 29, 2000.

Presently before the Court is Defendant Bank One's Motion For Summary Judgment on Count One of the Second Amended Complaint, Defendants' Motion To Dismiss Second Amended Complaint, and Plaintiffs' Cross-Motion For Partial Summary Judgment As To Their Truth-In-Lending Claims Against Bank. For the following reasons, we grant-in-part and deny-in-part Defendant Bank One's Motion For Summary Judgment and deny Plaintiffs' Cross-Motion For Partial Summary Judgment. In light of these findings, we deny Defendants' Motion To Dismiss Second Amended Complaint.

 I. Statement of Jurisdiction

  We have jurisdiction to adjudicate Plaintiffs' federal TILA and HOEPA claims pursuant to 28 U.S.C. § 1331. We exercise our supplemental jurisdiction under 28 U.S.C. § 1367(a) to consider Plaintiffs' state law claims, as they arise out of the same transaction or occurrence as do their federal claims.

 II. Standard of Review

  The court shall render summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). An issue is "genuine" only if there is a sufficient evidentiary basis on which a reasonable jury could find for the non-moving party. Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is "material" only if it might affect the outcome of the suit under governing law. Id. at 248, 106 S.Ct. 2505, 91 L.Ed.2d 202.

  On a motion for summary judgment, the moving party bears the initial burden of identifying those portions of the record that it believes demonstrate the absence of material fact. Celotex Corp. v. Catrett. 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). To defeat summary judgment, the non-moving party must respond with facts of record that contradict the facts identified by the movant and would support a favorable jury finding. Id. at 321 n.3, 106 S.Ct. 2548, 91 L.Ed.2d 265 (quoting Fed.R.Civ.P. 56(e)); Anderson. 477 U.S. at 248-49, 106 S.Ct. 2505, 91 E.Ed.2d 202; see First Nat'l Bank of Pa. v. Lincoln Nat'l Life Ins. Co., 824 F.2d 277, 282 (3d Cir. 1987). The party opposing summary judgment may not rest upon mere allegations or denials, but must set forth specific facts, presenting affirmative evidence showing that there is a genuine issue for trial. Anderson. 477 U.S. at 256-57, 106 S.Ct. 2505, 91 E.Ed.2d 202.

 III. Procedural Posture and Background

  The following section outlines the basic facts and procedural history surrounding this matter. We undertake a more in-depth review of the facts in connection with our legal analysis.

  At some time in the year 2000, Plaintiffs were solicited by Defendant Knox to refinance the mortgage on their home in Easton, Pennsylvania. Plaintiffs had previously procured two loans in connection with their residence. The first, a mortgage from Delta Funding Corporation ("Delta"), closed on February 3, 1998. (J. Johnson Aff. ¶ 5.) At that time, pursuant to Delta's instructions, Plaintiffs transferred the title to the home from themselves and their daughter, Joanne Cressman, to themselves only. (Id. at ¶ 5.) Plaintiffs have been the exclusive owners of the home since that time. (Id.) On October 7, 1998, Plaintiffs closed a subsequent loan from Indymac Mortgage Holdings, Inc. ("Indymac") (Id. at ¶ 6.) The present loan ("Loan") was made to Plaintiffs by Defendant Bank One on November 29, 2000. Defendant Knox brokered the Loan, and Third-Party Defendant Chelsea Settlement Agency of Pittsburgh, Inc. ("Chelsea") served as the settlement and title insurance agent for the Loan. Plaintiffs obtained the Loan in an effort to reduce their monthly mortgage payments (Id. at ¶ 10) and repay credit card indebtedness (Second Am. Compl. ¶ 8.)

  As detailed in our prior Memorandum and Order entered on July 7, 2003, see Johnson v. Banc One Acceptance Corp., 278 F. Supp.2d 450, 453 (E.D. Pa. 2003), the principal amount of the Loan was $72, 000 at an annual percentage rate of 10.765 percent. The refinancing Loan, secured by the Plaintiffs' residence, was structured such that Plaintiffs were required to make one hundred and seventy-nine monthly payments of $621.15 commencing on January 18, 2001, and a single balloon payment of $59, 231.22 as the one hundred eightieth payment on December 18, 2015. This meant that Plaintiffs' total payments would amount to $170, 417.07 over fifteen years. As indicated on the face of the Truth in Lending Disclosures form, of this, some $103, 588.07 was the "finance charge" and $66, 829.00 was the "amount financed." (Second Am. Compl. Ex. A.) The Truth in Lending form further reveals that there were prepaid finance charges of $5, 171.00, as well as other itemized charges which include charges for "Insurance Companies" of $627.40, "fld/transunion" of $6.00, "tl srch/chelsea tl" of $10.00, and "tx info/chelsea" of $15.00. (Id.) The settlement statement associated with the transaction clarifies that charges imposed for an abstract or title search ($10), notary fees ($10), title insurance ($627.40), flood determination ($6) and tax information ($15) were not included in the calculation of the prepaid finance charges. (Id. at Ex. C.)

  Plaintiffs allege, inter alia, that their new monthly payments in fact exceeded their prior monthly mortgage payments in contradiction of Knox's solicitation. They sought to rescind the refinancing Loan by letter dated September 30, 2002. (Id. at Ex. B.) Bank One did not respond to their letter, and Plaintiffs subsequently filed suit.

  This action was originally commenced on January 28, 2003. Plaintiffs submitted an Amended Complaint to this Court on May 6, 2003. In a Memorandum and Order entered on July 7, 2003, this Court granted-in-part and denied-in-part Defendants' Motion To Dismiss Plaintiffs' Amended Complaint. See 278 F. Supp.2d 450. Specifically, we allowed Plaintiffs to proceed forward with their claims that (1) Defendant Bank One violated TILA by failing to include in the computation of the finance charge the title insurance premium and notary charges; (2) Defendant Bank One failed to make disclosures required pursuant to the HOEPA; and (3) Defendants violated the Pennsylvania CSA, the Pennsylvania Loan Broker Trade Practice Regulations, and the UTPCPL. Id at 456-57, 458-460. The parties were provided a period of discovery. We granted Defendants' Motion To Dismiss Plaintiffs' Amended Complaint with respect to, inter alia, Plaintiffs' allegation that Defendant Bank One violated TILA by failing to respond to their exercise of their alleged right of rescission. Id. This Court, however, reinstated that claim by Order dated August 5, 2003, and it now appears in Count One of the Second Amended Complaint. We noted that Plaintiffs' rescission claim would not be time barred in the event the Loan falls within the purview of HOEPA.*fn1 The August 5, 2003 Order further permitted Plaintiffs to amend the Amended Complaint. Defendants Bank One and Knox thereafter moved to join Chelsea as a third-party defendant on October 8, 2003. Defendants filed the motions sub judice on March 16, 2004.

 IV. Discussion

  Count One of Plaintiffs' Second Amended Complaint seeks rescission of the Loan transaction, statutory damages and attorney fees against Bank One. Plaintiffs aver two alternative theories in support of their claim to the remedy of rescission. First, Plaintiffs contend that Defendant Bank One violated TILA through its failure to accurately disclose the finance charge associated with the Loan. (Second Am. Compl. ¶ 25.) Assuming Plaintiffs are correct in their assertion that a materially inaccurate TILA-prescribed disclosure extends the applicable rescission period statute of limitations to three years, see infra notes 1, 14, then Defendant Bank One is entitled to summary judgment only if it demonstrates that the disclosed finance charge was accurate as a matter of law. See 15 U.S.C. § 1605(f); Regulation Z, 12 C.F.R. § 226.23(g). Second, if, as Plaintiffs contend in Count One, the Loan is subject to the provisions of the HOEPA, and if the appropriate HOEPA pre-settlement disclosures were not furnished, then Plaintiffs must be permitted to rescind. When the terms of a mortgage meet the prerequisites of 15 U.S.C. § 1602(aa), HOEPA requires a creditor to deliver certain pre-closing disclosures at least three business days prior to the loan closing. Newton v. United ...


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