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Sarsfield v. Citimortgage

April 20, 2010


The opinion of the court was delivered by: Sylvia H. Rambo United States District Judge


Before the court is Defendant Citimortgage, Inc.'s ("Citimortgage") motion to dismiss Plaintiffs Neil and Shelly Sarsfield's amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim. (Doc. 36.) Specifically, Citimortage asserts that Plaintiffs' state law claims are barred either by the gist of the action doctrine or the economic loss doctrine, and that Plaintiffs' federal Truth-in-Lending claim is barred by the applicable statute of limitations. The parties have briefed the issues, and the matter is ripe for disposition. For the reasons that follow, the court will grant Defendant's motion to dismiss but will permit Plaintiffs' leave to amend their Truth-in-Lending claim.

I. Background

A. Facts

The following facts are taken from Plaintiffs' amended complaint and the attachments thereto. Plaintiffs are residents of Adams County, Pennsylvania, who, on November 2, 2007, purchased a home located at 3125 Emmitsburg Road, Gettysburg, Pennsylvania, through a mortgage loan issued by ABN Amro Mortgage Group, Inc. ("ABN Amro"). Defendant is the successor by merger to ABN Amro.*fn1

Plaintiffs' decision to purchase this house was based, in part, on the Initial Escrow Account Disclosure Statement (the "initial disclosure") provided by Defendant, which estimated their monthly mortgage payments as $3,053.37 per month. Of this amount, $524.19 per month would be placed into escrow to pay private mortgage insurance and real estate taxes on the property, and the rest would be applied to principal and interest. The initial disclosure estimated the yearly school taxes to be $1,577.88, and the yearly city and county taxes to be $546.82. Thus, the total real estate tax estimate was $2,124.70 per year.

On July 7, 2008, after they had purchased the house, Plaintiffs received a new Escrow Account Disclosure Statement from Defendant (the "subsequent disclosure"). The subsequent disclosure revealed that the yearly school tax was actually $4,143.08, and the yearly city and county taxes totaled $1,195.97. Thus, according to the subsequent disclosure, the total taxes were $5,339.05 per year, a difference of $3,214.35 from the initial disclosure. The subsequent disclosure also revealed a total escrow shortage of $6,632.74 due to the initial disclosure's incorrect estimate of the applicable taxes. All of this caused Plaintiffs' monthly mortgage payments to increase from $3,053.37 per month to $3,878.24 per month.

Plaintiffs assert that had they been provided with a more accurate estimate of their yearly tax obligations they would not have incurred the mortgage debt or purchased the house, and would not have incurred various expenditures in connection with the property. The mortgage was for $385,000. (See Doc. 49-2.) Plaintiffs estimate that their other expenditures connected with the property total $130,000.

B. Procedural History

Plaintiffs filed their complaint on May 4, 2009. (Doc. 1.) Defendant filed its motion to dismiss, (Doc. 9), on July 6, 2009. After briefing, on October 21, 2009, the court issued an order granting in part and denying in part Defendant's motion. (Doc. 15.) Specifically, the court dismissed Plaintiffs' count under the Real Estate Settlement Procedures Act, ("RESPA"), 12 U.S.C. § 2601 et. seq., but granted Plaintiffs leave to amend this count. The court denied Defendant's motion to dismiss Plaintiffs' negligence count.

At the request of the parties, this case was sent to a United States Magistrate Judge for a settlement conference, and Plaintiffs' obligation to file an amended complaint was stayed pending settlement discussions. The case did not settle. Plaintiffs filed their amended complaint on January 25, 2010. (Doc. 33.)

Plaintiffs raise five claims in their amended complaint. First, they reassert a claim for negligence. Specifically, they assert that Defendant owed them a statutory duty to use reasonable care in servicing their mortgage pursuant to the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq., and the federal regulations implementing RESPA, 24 C.F.R. §§ 3500.7(c)(2), and 3500.17(g)(1)(i) and (k). Plaintiffs also assert that Defendant owed them a tort duty to use reasonable care in servicing the mortgage which arose either from the mortgage contract and/or the relationship between Defendant and Plaintiffs in light of the gravity of foreseeable harm to Plaintiffs if Defendant failed to use such reasonable care. Finally, Plaintiffs assert that Defendant had a duty to not issue the loan because Plaintiffs' debt-to-income ratio indicated they could not afford the mortgage. Plaintiffs allege that these duties were breached when Defendant failed to provide a reasonable estimate of the escrow expenses and when it issued the loan, and that Plaintiffs were damaged as a result.

Second, Plaintiffs assert that Defendant violated the federal Truth-in-Lending Act, ("TILA"), 15 U.S.C. § 1601 et seq., by not providing required disclosures to Plaintiffs at least seven (7) days before consummation of the mortgage. See 15 U.S.C. § 1638(b)(2)(A), (B).

Third, Plaintiffs assert that Defendant committed common law fraud by misrepresenting the amount of their tax and escrow obligations when they knew of, or were recklessly indifferent to, the fact that the initial disclosures were false. Plaintiffs assert that Defendant's misrepresentations were intentional and were designed to induce Plaintiffs to incur the mortgage debt.

Fourth, Plaintiffs assert a claim of negligent misrepresentation based on the same allegations contained in their fraud count.

Finally, Plaintiffs assert that Defendant violated Pennsylvania's Unfair Trade Practices Act and Consumer Protection Law, 73 Pa. Cons. Stat. Ann. § 201-1 et seq., through its unfair and deceptive initial disclosure that materially misrepresented the amount of taxes Plaintiffs were required to escrow.

On February 8, 2010, Defendant filed its motion to dismiss Plaintiffs' amended complaint. (Doc. 36.) Defendant asserts that Plaintiffs' TILA claim is barred by the applicable statute of limitations, and that all of Plaintiffs' state common law and statutory claims are barred by the gist of the action doctrine, or the economic loss doctrine, or both.

II. Legal Standard

When presented with a motion to dismiss for failure to state a claim, the court "must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions," Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009), and ultimately must determine "whether the facts alleged in the complaint are sufficient to show that the plaintiff has a 'plausible claim for relief.'" Id. at 211 (quoting Ashcroft v. Iqbal, ___U.S.___, 129 S.Ct. 1937, 1950 (2009)).

The complaint must do more than allege the plaintiff's entitlement to relief; it must "show such an entitlement with its facts." Fowler, 578 F.3d at 211 (citations omitted). As the Supreme Court instructed in Iqbal, "[w]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not 'show[n]'-'that the pleader is entitled to relief.'" Iqbal, 129 S.Ct. at 1950 (quoting Fed. R. Civ. P. 8(a) (alterations in original).) In other words, a claim has "facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 1949 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements do not suffice." Id.

"To decide a motion to dismiss, courts generally consider only the allegations contained in the complaint, exhibits attached to the complaint and matters of public record." Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993) (citations omitted); see also Sands v. McCormick, 502 F.3d 263, 268 (3d Cir. 2007). The court may consider "undisputedly authentic document[s] that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the [attached] document[s]." Pension Benefit, 998 F.2d at 1196.

Additionally, "documents whose contents are alleged in the complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered." Pryor v. Nat'l Collegiate Athletic Ass'n, 288 F.3d 548, 560 (3d Cir. 2002) (citation omitted); see also U.S. Express Lines, Ltd. v. Higgins, 281 F.3d 383, 388 (3d Cir. 2002) ("Although a district court may not consider matters extraneous to the pleadings, a document integral to or explicitly relied upon in the complaint may be considered without converting the motion to dismiss into one for summary judgment.") (internal quotation omitted). ...

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