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Seldon v. Home Loan Services

August 4, 2009


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


Plaintiffs, Troy Seldon and Belinda Moore, filed this lawsuit against defendants Home Loan Services, Inc. ("Home Loan"), doing business as First Franklin Loan Services, and First Franklin Financial Corporation ("First Franklin"), also doing business as First Franklin Loan Services, for violations of federal and state law arising out of their home mortgage loan. In their third amended complaint ("TAC"), plaintiffs bring a series of claims against both defendants: (1) a claim for rescission of the loan and recoupment based on improper disclosures pursuant to the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601, et seq.; (2) a claim for fee-splitting under the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. §§ 2602, et seq.; (3) a claim for unlawful debt collection practices pursuant to the Pennsylvania Fair Credit Extension Uniformity Act ("FCEUA"), 73 Pa. Stat. Ann. §§ 2270.1, et seq.; (4) a claim for fraudulent and deceptive conduct pursuant to the Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 Pa. Stat. Ann. §§ 201-1, et seq.; and (5) a common law claim for fraud based on defendants' alleged misrepresentations.

Presently before the court is defendants' motion to dismiss the TAC for failure to state a claim for which the court can grant relief pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the court will grant in part and deny in part defendants' motion.

I. Facts and Procedural Background

Plaintiffs' TAC arises out of defendants' alleged "predatory lending" in relation to plaintiffs' home mortgage loan and a modification of the terms of its repayment. (TAC ¶¶ 1, 17, 26.) Presuming the truth of all factual allegations in the complaint, as required for the purposes of this motion, the court gleans the following facts.

On November 3, 2004, plaintiffs closed on a loan for their residence, 6811 Grebe Place in Philadelphia, and agreed to a mortgage and note, with First Franklin as the lender and Home Loan as the servicer of the loan. (Id. ¶¶ 12, 13, 17.) According to plaintiffs, defendants told them that the loan would benefit or benefitted plaintiffs, that "their fees and costs were usual and customary" fees, that the finance charge and amount financed included "fees and costs," that "their loans were conventional or fixed," and that plaintiffs owed "certain amounts." (Id. ¶ 51.) Plaintiffs allege that defendants' above statements turned out to be false. (Id.) Plaintiffs further claim that Home Loan bought the loan after the November 4 closing, but failed its duty to service the loan properly. (Id. ¶¶ 42, 43.) Home Loan failed to "record assignments [timely], attribute loan payments [to] principal and interest . . ., calculate monthly and pay-off payment[s] [sic] pursuant to the terms of the [l]oan, assess bona fide and reasonable charges . . ., and submit notices [of these charges] to [p]laintiffs." (Id.)

Sometime in 2006, plaintiffs fell behind in making their mortgage payments due in large part to Troy Seldon's loss of employment. (Id. ¶ 18.) Plaintiffs contacted First Franklin and the parties arranged an alternative repayment plan intended to bring plaintiffs current on their mortgage. (Id. ¶¶ 19, 26.) Plaintiffs allege that in communications concerning this plan, defendants made material misrepresentations to plaintiffs concerning who had authority over the loan and the nature of repayment plan. (Id. ¶¶ 27, 28, 30, 32, 33.)

During the time plaintiffs were negotiating the repayment plan, First Franklin allegedly became a part of Home Loan either by a merger or Home Loan's acquisition of First Franklin. (Id. ¶ 20.) As a result, First Franklin and Home Loan used the same phone number and mailing address. (Id. ¶ 20.) Moreover, the defendants "acted interchangeably" in dealing with plaintiffs. (Id. ¶ 22.) Plaintiffs claim that each time they called defendants concerning their loan they "never spoke with the same individual" and were "passed to different departments." (Id. ¶¶ 23-24.) As a result, plaintiffs claim they received "conflicting information" and suffered confusion. (Id. ¶¶ 21, 25.)

On top of this confusion, plaintiffs allege that defendants deceived them about the nature of the repayment plan. Defendants told plaintiffs that under the repayment plan plaintiffs' monthly payments would rise from $600.00 to $700.00. (Id. ¶¶ 28, 30.) Defendants also told plaintiffs that if plaintiffs made all required payments under the repayment plan, the repayment plan would end in April 2007 and plaintiffs' required monthly payment would return to $600.00 per month. (Id. ¶¶ 27-28.)

Plaintiffs allege that none of defendants' characterizations of the repayment plan became reality. Defendants sent statements to plaintiffs asking for "varying monthly amounts" of payment, including amounts of $800.00 and $900.00. (Id. ¶¶ 32-33.) Additionally, after making all of these varying requested payments under the repayment plan, plaintiffs contacted Home Loan in April 2007 to inquire about terminating the repayment plan. (Id. ¶¶ 35-36.) Despite plaintiffs' alleged compliance with, and completion of, the repayment plan, a representative of Home Loan stated that the loan was not current and that plaintiffs required monthly payment would now be $900.00. (Id. ¶¶ 36, 39.) The representative also "inquired about the condition of Plaintiffs' house," (id. ¶ 37), and stated that Home Loan "was only interested in taking Plaintiffs' home," (id. ¶ 38). At some point, Home Loan imposed unspecified late fees, attorney fees, taxes and other loan charges "without proper disclosure, justification, and/or explanation." (Id. ¶ 40.) As a result, plaintiffs took out a second mortgage to pay these charges. (Id.) Plaintiffs allege that sometime later they determined that at the closing of the original loan they incurred closing charges that "were neither bona fide nor reasonable" and received defective disclosures. (Id. ¶ 41.)

Plaintiffs allege defendants collectively caused a series of injuries: emotional distress and embarrassment; damage to credit rating; financial loss, including loss of opportunity, equity, or both; possible or actual loss of their premises; attorney fees and costs; and "other injuries to be determined in discovery or at trial, including aggravation of a pre-existing condition(s)." (Id. ¶ 45.)

Plaintiffs filed their initial complaint on October 10, 2007. In response to a motion to dismiss and a motion for a more definite statement from defendants Home Loan and First Franklin, plaintiffs filed an amended complaint on January 17, 2008. The amended complaint named only Home Loan as a defendant; as a result, the clerk terminated First Franklin as a party. Both original defendants, nonetheless, answered that amended complaint. Upon this court's order granting leave to amend, plaintiffs filed their second amended complaint on April 1, 2008, naming as defendants Home Loan and three additional parties-AMC Funding Corporation ("AMC"), its president Thomas Mizgerd, and Wells Fargo Bank, N.A. After answering the complaint, Home Loan and First Franklin filed a motion for judgment on the pleadings on May 13, 2008. On September 5, 2008, defendants Mizgerd and AMC filed a motion to dismiss for lack of appropriate service pursuant to Rule 12(b)(5).

Following plaintiffs' responses to both motions, plaintiffs' cross-motion for judgment on the pleadings, and oral argument on all motions, the court granted judgment on the pleadings for Home Loan and First Franklin, without prejudice to the right of plaintiffs to file a motion for permission to file a third amended complaint. Order, Seldon v. Home Loan Servs., Inc., No. 07cv04480 (E.D. Pa. Dec. 3, 2008). The court also granted the motion to dismiss from Mizgerd and AMC and dismissed Wells Fargo, N.A. due to plaintiffs' failure to serve the complaint in a timely manner. Id. On December 22, 2008, plaintiffs filed a motion for leave to file a third amended complaint and a motion for enlargement of time to serve Mizgerd, AMC, and Wells Fargo, N.A., but two days later withdrew their claims against Mizgerd and AMC. The court denied plaintiffs' motion for enlargement of time, but granted leave to file an amended complaint against First Franklin and Home Loan. Sixteen months after filing their original complaint and after ample opportunity to conduct discovery, plaintiffs filed a third amended complaint on February 10, 2009.*fn1 Defendants filed the motion to dismiss the third amended complaint on February 24, 2009. Plaintiffs responded and defendants replied.

II. Standard of Review

A motion to dismiss under Rule 12(b)(6) tests the sufficiency of a complaint. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). "[U]nder Rule 12(b)(6) the defendant has the burden of showing no claim has been stated." Kehr Packages, Inc. v. Fidelcor, 926 F.2d 1406, 1409 (3d Cir. 1991). When evaluating a motion to dismiss, the court must accept as true all well-pleaded allegations of fact in the plaintiff's complaint, and any reasonable inferences that may be drawn therefrom must be viewed in the light most favorable to the plaintiff. See Phillips v. County of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008); Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996). The complaint must rest on factual allegations, not on unsupported legal conclusions. See Papasan v. Allain, 478 U.S. 265, 286 (1986) ("Although for the purposes of [a] motion to dismiss [a court] must take all the factual allegations in the complaint as true, [the court is] not bound to accept as true a legal conclusion couched as a factual allegation."); Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997) (stating that "court need not credit a complaint's 'bald assertions' or 'legal conclusions' when deciding a motion to dismiss").

The complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). This statement must "'give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citing Conley v. Gibson, 355 U.S. 41, 47 (1957)); see also Phillips, 515 F.3d at 234 (reasoning that notice pleading standard encompasses concept of a "showing," which "requires only notice of a claim and its grounds"). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, 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." Id. (citations and alterations omitted); see Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."). Furthermore, "[f]actual allegations must be enough to 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)." Id. (citations omitted); see also Phillips, 515 F.3d at 234-35. A plaintiff must show a "plausible" or "reasonably founded hope" of success. Twombly, 550 U.S. at 556, 559 (internal quotation marks and citations omitted). Nevertheless, "[t]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997).

III. Discussion

Defendants argue that the court must dismiss this third amended complaint because it is untimely and lacks the essential factual allegations to set forth a claim upon which this court can grant plaintiffs relief. Plaintiffs disagree and also contend that because defendants answered a previous complaint, they are barred from moving for dismissal. Accordingly, the court will address parties' procedural argument before proceeding to the sufficiency of plaintiffs' claims.

A. Procedural Issues

Defendants argue that the court need not consider plaintiffs' untimely response to defendants' motion and should grant the motion as unopposed. Plaintiffs contend that because defendants answered two previous complaints, defendants "should be estopped" from bringing a motion to dismiss. (Mem. Law Supp. Pls.' Resp. Defs. Home Loan Servs. & First Franklin Fin. Corp.'s Mot. Dismiss ("Pls.' Resp.") 11.)

As to the timeliness of plaintiffs' response, the rules of this court direct that "any party opposing [a] motion shall serve a brief in opposition . . . within fourteen (14) days after service of the motion and supporting brief." E.D. Pa. Local R. Civ. P. 7.1(c) (2008). Because defendants served their motion to dismiss via electronic filing, plaintiffs had an additional three days to respond. See E.D. Pa. Local R. Civ. P. 5.1.2 (incorporating Procedural Order on Electronic Case Filing, which provides under § 8(e) that "service by electronic means [is entitled to] adding [of] three (3) days to the prescribed period to respond"). Defendants served their motion on plaintiffs on February 24, 2009 and plaintiffs responded on March 16, 2009, three days past the deadline. The court did not dismiss the complaint for lack of a response to the motion, as it could have, in the interim three days. Rather than now declare the response untimely and subject defendants to the additional cost of responding to a potential plaintiffs' motion for an enlargement of time to file a response, the court will accept the response despite its unexplained untimeliness.

Plaintiffs argue that because defendants answered two previous complaints, which lacked the specificity of the presently filed third amended complaint, defendants are estopped from arguing that the complaint fails the Twombly standard due to its lack of specificity. Plaintiffs' argument misses the mark. The court's standard for reviewing a motion to dismiss pertains to whether the pending complaint sets forth sufficient detail to establish a legal claim to relief, in addition to sufficient detail to permit a responsive pleading. See Phillips, 515 F.3d at 235 (noting that claimant must provide both "fair notice" of the claim and "grounds on which the claim rests" (citing Twombly, 550 U.S. at 556 n.3)). Thus, plaintiffs' argument fails.*fn2

B. Substantive Claims

In moving for dismissal, defendants argue that plaintiffs' complaint fails to support any of its claims with sufficient factual allegations to meet the Twombly standard. For each of their claims, plaintiffs point to selected allegations that, they argue, set forth a claim for which the court can grant relief. In light of the Twombly standard, the court will address each of plaintiffs' remaining claims in the order set forth in the complaint.*fn3

1. Claims under the Truth in Lending Act

In their first claim, plaintiffs allege that under the TILA and its related regulations, they have the right to rescind the loan and receive recoupment from defendants because defendants failed to provide required material disclosures in that the disclosures plaintiffs received included unreasonable fees making them inaccurate. Defendants maintain that plaintiffs' complaint lacks ...

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