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Blake v. Custom Mortgage Solutions

March 17, 2009

DONNA M. BLAKE, JAYSON E. COHEN, MICHELLE M COHEN AND DENISE A. DISCHERT, PLAINTIFFS,
v.
CUSTOM MORTGAGE SOLUTIONS, INC., AND ROBERT DISCHERT, DEFENDANTS.



The opinion of the court was delivered by: Rufe, J.

MEMORANDUM OPINION AND ORDER

Before the Court are Defendants' respective Motions to Dismiss [Doc. Nos. 3 & 8], Plaintiffs' Responses [Doc. Nos. 5 & 9], and Defendants' Reply thereto [Doc. No. 11]. Defendants claim via separate, but nearly identical Motions to Dismiss that Plaintiffs' Complaint should be dismissed in its entirety on the grounds that Plaintiffs' claims were extinguished by a previous settlement agreement. Plaintiffs argue that Defendants failed to perform under the terms of the settlement agreement and are therefore not entitled to the protection of its release or any effect of collateral estoppel. In their Complaint, Plaintiffs allege that Defendants have engaged in common law fraud and fraudulent misrepresentation in violation of various Pennsylvania consumer protection laws. For the reasons set forth below, the Court will grant each Defendant's Motion to Dismiss.

I. Factual and Procedural Background

Plaintiffs Donna M. Blake, Michelle M. Cohen and Denise A. Dischert are sisters, and Jayson E. Cohen is the husband of Michelle M. Cohen (collectively "Plaintiffs").*fn1 Defendant Robert Dischert ("Dischert" ) is a first cousin to Plaintiffs and an agent of Defendant Custom Mortgage Solutions ("Custom").*fn2 On or about November 1, 2005 Dischert approached each of the Plaintiffs and informed them that he could obtain each a mortgage from World Savings Bank ("World") with an interest rate of 1.95% per year. Plaintiffs claim that, at the time, each of the sisters held mortgages with fixed interest rates between 4.99% and 5.49%, numbers that were on par with the prime mortgage interest rates of the day. Each of the sisters maintained current mortgage payments.*fn3 Dischert continued to solicit the sisters via e-mail and oral communication, offering the possibility of refinancing their mortgages at a lower rate. At some point, he provided each of the sisters with copies of "Truth in Lending Disclosure Statements" which set forth the terms of the loan proposal.*fn4

On November 28, 2005 the Cohens and Denise Dischert each agreed, in separate meetings, to refinancing their mortgages based on the belief that they would obtain a loan that included a mortgage with a fixed interest rate of 1.95%.*fn5 Each settlement was conducted by an employee of Hunter Settlement and attended by Dischert.*fn6

The Cohens and Denise Dischert both allege that during the course of their respective settlements they pointed out discrepancies between the terms listed on the paperwork they were provided and what Dischert had previously told them.*fn7 They allege that Dischert continued to reassure them that they would receive loans at a fixed annual interest rate of 1.95% and that the representative from Hunter Settlement present at the meetings made no attempt to dispute him. Plaintiffs claim that Hunter Settlement was selected specifically by Defendants Dischert and Custom because Hunter Settlement representatives would be silent about in their knowledge that misrepresentations about rates were being made.*fn8 Among the documents the Cohens and Denise Dischert received to memorialize the loan transaction were the Federal Truth-in-Lending Act ("TILA")*fn9 , a Disclosure Statement, a Settlement Statement, and Notices of the Right to Cancel.*fn10

A little more than a week after the Cohens and Denise Dischert entered into loan agreements, on December 6, 2005, the third sister, Donna Blake, also entered into a similar loan agreement with the promise of a 1.95% fixed annual interest rate.*fn11 The settlement meeting was conducted in her home and attended by Dischert and a representative from Hunter Settlements. Blake also alleges that she pointed out the loan paperwork did not appear to list the interest rate Defendant Dischert had promised her, but claims that the representative from Hunter Settlements told her she would need to speak directly to Custom regarding any such issues.*fn12 Blake also alleges that Hunter Settlements was picked because of its representative's willingness to remain evasive about any misrepresentations.*fn13 At the time of the settlement Blake was also provided with a Federal Truth-in-Lending Act, a Disclosure Statement, a Settlement Statement, and Notices of the Right to Cancel.

Plaintiffs claim that the loan documents show that each party paid significant up front fees directly to Custom.*fn14 They also allege that the documents show that Custom received payments from World for its "services" upon the completion of each loan agreement.*fn15 Sometime after the initial loan settlement meetings, Plaintiffs claim they learned that their loans were not at the fixed annual interest rate of 1.95%, but instead were agreements known as "pick-a-payment" loans.*fn16 These are loans that require a small minimum payment, but accrue interest at variable rates.*fn17 On or about May 5, 2006 counsel for Donna Blake forwarded a letter to World electing to rescind the loan transaction as the product of affirmative fraud and material violations of the TILA.*fn18 On or about May 15, 2006 the Cohens did the same, as did Denise Dischert on May 24, 2006.*fn19

On July 12, 2006 the three sisters as well as Jayson Cohen jointly filed a Complaint (the "First Complaint") in this Court against World, Custom and Robert Dischert alleging violation of various Pennsylvania consumer protection laws.*fn20 At the request of the parties, the action was referred by the Court to Magistrate Judge Carol Sandra Moore wells for settlement purposes.*fn21 On or about July 24, 2007 the parties executed a Settlement Agreement (the "Settlement Agreement") and release.*fn22 As part of the Settlement Agreement World agreed to enter into a loan modification agreement with each of the Plaintiffs; World was to issue a check in the amount of $7,000 to Plaintiffs' attorney David A. Scholl, Esquire; and Custom was to issue a check for $10,000 payable to World, to be accomplished within 30 days of the Settlement Agreement.*fn23

Plaintiffs allege that World subsequently communicated to them that their loan modifications were contingent upon Custom's payment of $10,000 and that without such payment World would not alter the loans as the Settlement Agreement intended.*fn24 Plaintiffs claim that they took it upon themselves to pay World $10,000 in an effort to ensure their loan modifications.*fn25 On September 17, 2007 Plaintiffs filed a Motion to Enforce the Settlement Agreement, which specifically addressed the $10,000 payment they had already made to World.*fn26 The Motion was referred to Magistrate Judge Carol Sandra Moore Wells and a hearing was held regarding the matter on December 19, 2007. Following that hearing a Stipulation and Order was entered stating that any right to the $10,000 payment described in the parties' Settlement Agreement which World had against Custom and/or Defendant Dischert was assigned to the Plaintiffs in consideration of their $10,000 payment to World.*fn27 Subsequently, on February 19, 2008, Plaintiff's Motion to Enforce the Settlement Agreement was dismissed as moot by this Court.*fn28

Approximately two weeks later, Plaintiffs filed the Second Complaint alleging that Defendants have engaged in common law fraud in violation and fraudulent misrepresentation in violation of various Pennsylvania consumer protection laws, identical to the violations alleged in the First Complaint. The issues have been briefed and the matter is ready for disposition.

II. Legal Standard for Rule 12(b)(6) Motion to Dismiss

When considering a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a court must accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, and view them in the light most favorable to the plaintiff.*fn29

The Supreme Court has recently clarified this standard of review, explaining that "[a] plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do" without the allegation of sufficient facts in support.*fn30 In order to survive a motion to dismiss, a plaintiff must allege facts that "raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)."*fn31 A court ...


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