Miller v. Pacific Shore Funding ( 2004 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
DAVID MILLER; ROSALIE MILLER; 
CHIMA GILBERT-IHEME,
Plaintiffs-Appellants,
v.
PACIFIC SHORE FUNDING; AMAXIMIS
LENDING, L.P.; GMAC, Residential
Funding Corporation; HOMEQ
SERVICING CORPORATION, formerly  No. 03-1029
known as TMS Mortgage; BANC
ONE FINANCIAL SERVICES,
INCORPORATED; MBNA AMERICA
(Delaware), N.A.; HOUSEHOLD
FINANCE CORPORATION; BANKERS
TRUST COMPANY OF CALIFORNIA,
N.A.,
Defendants-Appellees.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Frederic N. Smalkin, Senior District Judge.
(CA-02-569-S)
Argued: October 30, 2003
Decided: January 28, 2004
Before WIDENER, MOTZ, and DUNCAN, Circuit Judges.
Affirmed by unpublished per curiam opinion.
2 MILLER v. PACIFIC SHORE FUNDING
COUNSEL
ARGUED: Edwin David Hoskins, E. DAVID HOSKINS, L.L.C.,
Baltimore, Maryland, for Appellants. Gerard Joseph Gaeng, ROSEN-
BERG, PROUTT, FUNK & GREENBERG, L.L.P., Baltimore, Mary-
land, for Appellees. ON BRIEF: Craig L. McCullough,
ROSENBERG, PROUTT, FUNK & GREENBERG, L.L.P., Balti-
more, Maryland; James W. Bentz, Roy W. Arnold, John M. McIntyre,
REED SMITH, L.L.P., Pittsburgh, Pennsylvania; John T. Prisbe,
VENABLE, BAETJER & HOWARD, Baltimore, Maryland; Mitchel
H. Kider, WEINER, BRODSKY, SIDMAN & KIDER, P.C., Wash-
ington, D.C.; Daniel J. Tobin, KIRPATRICK & LOCKHART, L.L.P.,
Washington, D.C.; Gregory L. Lockwood, POPE & HUGHES, P.A.,
Towson, Maryland; Daniel H. Squire, WILMER, CUTLER & PICK-
ERING, Washington, D.C., for Appellees.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
David and Rosalie Miller and Chima Gilbert-Iheme filed a putative
class action against Pacific Shore Funding, a secondary mortgage
lender, and seven assignees in Maryland state court, which the defen-
dants subsequently removed to federal court based on diversity of citi-
zenship and the requisite jurisdictional amount. The complaint alleges
that the defendants issued secondary mortgage loans with improper
and excessive closings costs in violation of Maryland law. We affirm
the district court’s dismissal of the complaint.
I.
David and Rosalie Miller allege that on February 22, 2000, they
obtained a secondary mortgage loan from Pacific Shore Funding
MILLER v. PACIFIC SHORE FUNDING 3
("Pacific"). They contend that at closing they were charged a number
of fees including: a funding fee ($195), a processing fee ($295), an
express mail fee ($15), a signing fee ($150), a sub escrow fee ($350),
an abstract or title search fee ($150), and a flood certification fee
($18). Sometime thereafter, their loan was allegedly assigned to
GMAC-Residential Funding Corporation ("GMAC").
Chima Gilbert-Iheme alleges that on October 13, 1998, he also
obtained a secondary mortgage loan from Pacific. He asserts that
Pacific charged him additional fees at closing including: an appraisal
fee ($75), a credit report fee ($6), a funding fee ($175), a processing
fee ($275), a messenger/state tax fee ($415), a document signing fee
($125), a sub escrow fee ($200), a title exam fee ($150), a document
prep fee ($25), and a flood certification fee ($17). Although these fees
were charged at closing, Gilbert-Iheme maintains they were not paid
at that time, but instead were included in the total indebtedness on the
loan and paid in monthly installments as a portion of the loan princi-
pal. Sometime thereafter, his loan was allegedly assigned to MBNA
America (Delaware), N.A. ("MBNA") and Household Finance Corpo-
ration ("Household").
The Millers and Gilbert-Iheme (collectively "Plaintiffs") contend
that their respective closing costs exceed those permitted under the
Maryland Secondary Mortgage Loan Law ("SMLL"). They maintain
that other Maryland consumers similarly obtained secondary mort-
gage loans from Pacific and similarly suffered damage from the com-
pany’s assertedly "predatory lending practices." Plaintiffs seek to
represent these consumers in a certified class action. Plaintiffs’ three-
count complaint alleges violations of the SMLL and the Maryland
Consumer Protection Act ("CPA"), and seeks a declaration that the
loan contracts are void or voidable as illegal contracts against public
policy. Named as defendants in the complaint are the loan originator
(Pacific) and seven entities alleged to be subsequent purchasers,
assignees, or holders of the Maryland secondary mortgage loans initi-
ated by Pacific (collectively the "Lenders").1
1
These entities include Amaximis Lending, L.P., GMAC-Residential
Funding Corporation, Homeq Servicing Corporation, f/k/a TMS Mort-
gage, Banc One Financial Services, Inc., MBNA America (Delaware),
N.A., Household Financing Corporation, N.A., and Bankers Trust Com-
pany of California, N.A.
4 MILLER v. PACIFIC SHORE FUNDING
II.
The Lenders moved to dismiss Plaintiffs’ complaint. Collectively,
they articulated three main arguments supporting dismissal. First, they
contended that Gilbert-Iheme’s claims were filed outside the applica-
ble statute of limitations, and thus were time-barred. Second, they
maintained that Plaintiffs lacked standing to pursue claims against
those Lenders who did not take assignment of their loans. Finally, the
Lenders asserted that Plaintiffs failed to state a claim on which relief
could be granted.
With respect to Gilbert-Iheme, the court dismissed all of his claims
either by concluding they were time-barred, or that he was without
standing to pursue them. Miller v. Pac. Shore Funding, 224 F. Supp.
2d 977, 997 (D. Md. 2002). In particular, the court dismissed Gilbert-
Iheme’s claims against the loan originator (Pacific) and the two sub-
sequent holders of his loan (MBNA and Household) on statute of lim-
itations grounds, and dismissed his claims against the other five
Lenders for lack of standing. Id. at 990, 996-97.
The court then dismissed all but one of the Millers’ claims, con-
cluding that they had either failed to state a claim upon which relief
could be granted, or that the Millers lacked standing. Id. at 997. Spe-
cifically, the court held that the Millers had no claim against the loan
originator (Pacific) or the subsequent holder of their loan (GMAC)
under the CPA, nor were they entitled to declaratory relief. Id. at 993-
994, 997.2 The court further held that the Millers lacked standing to
pursue any claims against the remaining six Lenders. Id. at 996-97.
The court engaged in an extensive analysis prior to dismissing each
of these claims.
In addressing the statute of limitations defense with respect to
Gilbert-Iheme, the court applied Maryland’s "discovery rule" to deter-
mine the governing accrual date. Id. at 986. Because the disputed
"charges were all expressly identified in the closing documents," the
court concluded that Gilbert-Iheme had sufficient knowledge of the
circumstances giving rise to his injury on October 13, 1998, and
2
Plaintiffs do not appeal the court’s denial of their claim for declara-
tory relief.
MILLER v. PACIFIC SHORE FUNDING 5
therefore the limitations period accrued at that time. Id. at 986. Since
Gilbert-Iheme did not file this action until January 16, 2002, three
months after the controlling three-year statute of limitations had
expired, the court deemed his claims time-barred. Id. at 986, 990.
The district court rejected Gilbert-Iheme’s contention that his
action did not accrue until he became aware that his loans might not
comply with the SMLL because "[k]nowledge of facts . . . not actual
knowledge of their legal significance, starts the statute of limitations
running." Id. (emphasis in original); see also Moreland v. Aetna U.S.
Healthcare, Inc., 831 A.2d 1091, 1096 (Md. App. 2003)(adopting the
reasoning of the district court in this case). The court further held that
Gilbert-Iheme failed to allege any deceptive acts "that would retard
his discovery of the facts and circumstances enabling him to file suit,"
and thus the limitations period could not be tolled on account of
fraud. Id. at 987-89. Finally, the court was not convinced that a new
actionable SMLL violation occurred each month when Gilbert-Iheme
paid his mortgage bill, beginning the running of the limitations period
anew. Id. at 989. Although the court acknowledged the ingenuity of
this argument, it concluded that the "punctuated charging, receipt, and
collection are no more than the lingering, ongoing, continuing aspects
of a unitary action initiated more than three years ago." Id. at 990.
After disposing of Gilbert-Iheme’s claim on limitations grounds,
the district court determined that none of the Plaintiffs had standing
to sue the Lenders who did not hold, and had never held, the named
Plaintiffs’ loans. Id. at 995-96. The court concluded that Plaintiffs
could not demonstrate two of the three elements necessary to establish
standing — traceability and redressability — with respect to the non-
holder Lenders, and that characterizing the suit as a putative class
action did not cure this fatal defect. Id. Finding that Plaintiffs failed
to "establish that they have been harmed by each of the defendants,"
the district court dismissed the claims raised against the Lenders that
did not take assignment of Plaintiffs’ respective loans. Id. at 996-97.
Finally, the court concluded that although the Millers set forth a
viable claim under the SMLL, they stated no cause of action under the
CPA, and were not entitled to declaratory relief. Id. at 990-94.
Accordingly, the only portion of the complaint to survive these initial
6 MILLER v. PACIFIC SHORE FUNDING
proceedings was the Millers’ claim against Pacific and GMAC alleg-
ing violations of the SMLL. Id. at 997.
Several months later, with only the Millers’ SMLL claim remain-
ing, Pacific and GMAC brought to the court’s attention the fact that
the Millers had filed for Chapter 7 bankruptcy eleven months after
closing on the disputed loan. The court ordered the Millers to show
cause "why [it] should not dismiss their action in toto." After consid-
ering the Millers’ response, the court concluded that, like Gilbert-
Iheme, their cause of action accrued no later than the date of the loan
closing. Miller v. Pac. Shore Funding, 287 B.R. 47, 50 (D. Md.
2002). Pursuant to the Bankruptcy Code provision establishing that
"all legal or equitable interests of the debtor in property as of the com-
mencement of the case" becomes the property of the estate, 11 U.S.C.
§ 541(a)(1) (2003), the court held that the Millers’ SMLL cause of
action belonged to the bankruptcy estate, rendering the bankruptcy
trustee the only person with standing to pursue it. Miller, 287 B.R. at
49-50. Because the Millers, the only remaining named Plaintiffs,
could therefore assert no viable cause of action, the court then dis-
missed the complaint in its entirety for lack of subject matter jurisdic-
tion. Id. at 52.
The Millers and Gilbert-Iheme appeal.
III.
After carefully considering the record, the briefs, and the applica-
ble law, and having the benefit of oral argument, we conclude that the
district court properly dismissed Plaintiffs’ complaint. We agree that
Gilbert-Iheme’s claims are time-barred, and that, as a result of the
Millers’ subsequent bankruptcy filing, their SMLL claim can only be
pursued by the bankruptcy trustee. Because this disposes of the
entirety of Plaintiffs’ complaint, we need not address whether Plain-
tiffs lacked standing against the non-holder Lenders, or whether
Plaintiffs stated a cause of action under the CPA.
A.
We affirm the district court’s holding that Gilbert-Iheme’s claims
against Pacific, MBNA, and Household are time-barred for the rea-
MILLER v. PACIFIC SHORE FUNDING 7
sons stated by the district court, and find the court’s reasoning equally
applicable to the other five Lenders. We engage in further discussion
only to clarify one issue.
Before the district court and again at oral argument, Gilbert-Iheme
argued that his claims did not accrue at closing, but instead accrued
anew upon each mortgage payment. This argument, premised solely
on the fact that he financed the disputed closing costs rather than pay-
ing them in full at closing, misconstrues the character of the closing
fees at issue, and fails to recognize the material distinction between
interest payments and fees.
Interest payments are charged on an ongoing basis and do not
become a legally enforceable debt until they accrue. For example, as
Plaintiffs’ counsel recognized at oral argument, if a consumer chooses
to pay off the principal of his mortgage at an earlier date than speci-
fied in the loan agreement, a lender would not be entitled to collect
the unaccrued future interest. The closing costs charged here, on the
other hand, even if rolled into the loan principal, become a legally
enforceable obligation as soon as the loan is issued. The mere fact
that a consumer decides to finance this obligation is of no conse-
quence. If a consumer chooses to pay off his loan principal at an ear-
lier date, the lender would still be entitled to collect the unpaid
portion of the fees. Thus, regardless of how the fees are paid —
through financing or at closing — they become a legally enforceable
debt as of the closing date. Accordingly, Gilbert-Iheme’s claims
accrued when he signed the closing documents and paid the disputed
fees, even though that payment was through the expedient of a prom-
issory note. Cf. American Inn v. Sun Trust Banks, Incorporated, No.
01-1888, 2002 WL 220018 (4th Cir. 2002) (holding under Virginia
law debtor’s claim that bank incorrectly calculated interest accrued at
time each individual interest payment was made). The three-year stat-
ute of limitations having run, his claims are now time-barred.
B.
We also affirm the dismissal of the Millers’ claims for lack of sub-
ject matter jurisdiction as a result of their subsequent bankruptcy fil-
ing. The district court properly concluded that only the bankruptcy
trustee can pursue the Millers’ SMLL claim against Pacific and
8 MILLER v. PACIFIC SHORE FUNDING
GMAC; moreover, this rationale applies equally to the Millers’ CPA
claim, as well as to their claims against the remaining Lenders.
IV.
Accordingly, the judgment of the district court is
AFFIRMED.