Findlay v. Citimortgage, Inc. , 813 F. Supp. 2d 108 ( 2011 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
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VERONICA FINDLAY, )
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Plaintiff, )
)
)
v. ) Civil Action No. 10-2091 (RBW)
)
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CITIMORTGAGE, INC., et al., )
)
Defendants. )
____________________________________)
MEMORANDUM OPINION
Veronica Findlay, the plaintiff in this civil action, seeks damages and declaratory relief
under the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 (2006), the Real Estate Settlement
Procedures Act ("RESPA"), 12 U.S.C. § 2601 (2006), the District of Columbia Consumer
Protection Procedures Act ("CPPA"), D.C. Code § 28-3901 (2007), and District of Columbia
common law for harms allegedly incurred as a result of the defendants' "abusive mortgage
refinancing practices." See Complaint ("Compl.") ¶¶ 3-8, 191-98. Currently before the Court is
defendant CitiMortgage, Inc.'s motion to dismiss. After carefully considering the Complaint, the
defendant's motion, and all memoranda of law relating to that motion, 1 the Court concludes for
the following reasons that it must grant in part and deny in part the defendant's motion to
dismiss.
1
In addition to the Complaint and the defendant's motion to dismiss, the Court considered the following submissions
in rendering its decision: (1) Memorandum of Points and Authorities in Support of Defendant CitiMortgage, Inc.'s
Motion to Dismiss ("Def.'s Mem."); (2) Plaintiff's Opposition to Defendant CitiMortgage, Inc.'s Motion to Dismiss
("Pl.'s Opp'n"); and (3) Defendant CitiMortgage, Inc.'s Reply in Response to Plaintiff's Opposition to Motion to
Dismiss ("Def.'s Reply").
I. BACKGROUND
The plaintiff purchased her home, located at 1330 T Street, S.E. in Washington D.C. (the
"Property"), in 1988. Compl. ¶ 37. She refinanced her mortgage nineteen years later in January
2007, with the assistance of defendant Thomas Cardwell, a mortgage broker. Id. ¶¶ 42-43.
Upon closing the loan, she obtained "an Indymac adjustable rate mortgage in the amount of
$264,000," id. ¶ 43, and "a cash payment from the Indymac refinance transaction," which she
used to make her monthly mortgage payments, id. ¶ 45.
In October 2007, the plaintiff again sought to refinance her mortgage with Mr. Cardwell's
assistance, this time hoping to obtain a lower monthly payment and a fixed rate mortgage. Id. ¶
46. The plaintiff alleges that Mr. Cardwell led her to believe that she would receive both a lower
monthly payment and a fixed rate mortgage, and that, relying on these representations, the
plaintiff agreed to refinance her mortgage loan on the terms promised by Mr. Cardwell. Id.With Mr. Cardwell and defendant Aapex Financial Group, Inc. ("Aapex") serving as the loan
originators and CitiMortgage as the lender, the plaintiff closed on the loan on October 8, 2007
("October 2007 loan"). Id. ¶¶ 47, 53. The October 2007 loan had a principal indebtedness of
$323,000. Id. ¶ 54. The plaintiff received a cash payment for the refinancing of the Property in
the amount of $35,616, and, once again, she used the payment to make her monthly mortgage
payments. Id. ¶ 56.
The plaintiff makes several allegations of impropriety concerning the October 2007 loan
which serve as the basis for this litigation. See id. ¶¶ 48-100. She first alleges that the terms of
the October 2007 loan did not comport with Mr. Cardwell's representations. Id. ¶¶ 4-5, 54-55.
Her monthly mortgage payments, for instance, did not decrease as Mr. Cardwell had allegedly
promised, but increased from $1,880 to $2,061 per month, with the principal increasing as well
from $264,000 to $323,000. Id. And instead of the fixed rate mortgage she desired, the October
2
2007 loan was a "complex mortgage product with a hybrid adjustable rate mortgage, known as
an 'exploding' ARM." Id. ¶ 4. The Complaint asserts that this type of loan was "unsuitable" for
the plaintiff, who is "a disabled senior on a fixed income." Id. Second, the plaintiff claims that
the agent conducting the closing failed to, among other things, "ask [the plaintiff] for
identification," id. ¶ 60, "administer an oath to [the plaintiff]," id. ¶ 61, or "notarize [the
plaintiff's] signature in her presence," id. ¶ 62. Third, the plaintiff contends that she was charged
unjustified fees—totaling over $20,000—in connection with the closing. Id. ¶ 67. Fourth, the
plaintiff asserts that "CitiMortgage did not clearly and accurately disclose the [f]inance
[c]harges" associated with the loan. Id. ¶ 74. She further claims that CitiMortgage failed to
deliver the required loan documents at the closing, that the Truth in Lending disclosures that
CitiMortgage did deliver were incorrect, and that she did not receive two copies of her Notice of
the Right to Cancel as required by the TILA. Id. ¶¶ 87-94.
At some point in 2010, the plaintiff defaulted on her loan and was unable to obtain a loan
modification from CitiMortgage. See id. ¶ 98; Def.'s Mem. at. 3. CitiMortgage thereafter
initiated a foreclosure action against the plaintiff by sending her a Notice of Foreclosure on June
23, 2010. Compl. ¶ 99. In August 2010, the servicing of the plaintiff's October 2007 loan was
transferred from CitiMortgage to Acqura Loan Services ("Acqura"). Id. ¶ 100. According to the
Complaint, "the transfer did not affect the terms or condition of [the plaintiff's] loan documents
other than the terms directly related to the servicing of her loan." Id. On October 4, 2010, the
plaintiff sent a Notice of Rescission to CitiMortgage and Acqura, a copy of which is attached as
Exhibit A to the Complaint. See id., Exhibit A (October 4, 2010 Loan Rescission Notice). The
Notice claims a right to rescind the October 2007 loan based on CitiMortgage's purported failure
to provide "material disclosures" required by the TILA. Id.3
On October 6, 2010, the plaintiff instituted this action in the Superior Court of the
District of Columbia. Her Complaint contains ten counts, seven of which are asserted against
CitiMortgage. Those counts include Count II (for violations of the CPPA), Compl. ¶¶ 121-25;
Count III (also for violations of the CPPA), id. ¶¶ 126-35; Count IV (for negligence), id. ¶¶ 136-
44; Count VI (for violations of the TILA), id. ¶¶ 158-83; Count VIII (for violations of the
RESPA), id. ¶¶ 191-98; Count IX (for civil conspiracy), id ¶¶ 199-204; and Count X (for joint
venture), id. ¶¶ 205-11. The Plaintiff seeks actual damages, treble damages, attorneys' fees,
reasonable costs, equitable relief, a declaratory judgment entitling her to rescind the mortgage
pursuant to the TILA, and an equitable modification of her "right to tender." Id. at 29-30. She
also requests punitive damages as part of her negligence claim. Id. ¶ 144.
CitiMortgage removed the case to this Court on December 9, 2010, and, on December 30,
2010, moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). In support of its
motion, CitiMortgage asserts the following grounds for dismissal of the Complaint: (1) the
plaintiff's TILA claim for damages is time-barred, Def.'s Mem. at 4-5; (2) the Complaint fails to
state a claim for rescission under the TILA because the plaintiff fails to allege the ability to
tender the amounts borrowed, id. at 5-8; (3) the plaintiff's RESPA claims are time-barred, id. at
8; (4) the plaintiff's CCPA claims fail as a matter of law, id. at 8-11; (5) the plaintiff's negligence
claim fails as a matter of law, id. at 11-12; (6) the Complaint fails to state a claim for civil
conspiracy; id. at 13-14; (7) the Complaint fails to state a claim for joint venture, id. at 14-15;
and (8) the Complaint fails to demonstrate entitlement to an award of punitive damages, id. at
15-16. The plaintiff has responded in opposition to the defendant's motion, disputing each
ground for dismissal asserted therein. See generally Pl.'s Opp'n.
4
II. STANDARD OF REVIEW
"A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests whether the
complaint properly states a claim on which relief may be granted." Davis v. Billington, 775 F.
Supp. 2d 23, 32 (D.D.C. 2011). For a complaint to survive a Rule 12(b)(6) motion, Federal Rule
of Civil Procedure 8(a) requires only that it provide a "short and plain statement of the claim
showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Although "detailed factual
allegations" are not required, a plaintiff must provide "more than an unadorned, the-defendant-
unlawfully-harmed-me accusation," Ashcroft v. Iqbal, ____ U.S. ____, ____, 129 S. Ct. 1937,
1949 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555–57 (2007)), in order to "give
the defendant fair notice . . . of what the claim is and the grounds upon which it rests," Twombly,
550 U.S. at 555 (citation omitted). Nor may a plaintiff offer mere "labels and conclusions . . .
[or] a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555.
Rather, a "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to
relief that is plausible on its face.'" Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at
570).
A claim is facially plausible "'when the plaintiff pleads factual content that allows the
court to draw [a] reasonable inference that the defendant is liable for the misconduct alleged.'"
Id. (quoting Twombly, 550 U.S. at 556). "A complaint alleging facts which are merely
consistent with a defendant's liability . . . stops short of the line between possibility and
plausibility of entitlement to relief." Id. (citing Twombly, 550 U.S. at 557) (internal quotation
marks omitted).
In evaluating a Rule 12(b)(6) motion, the complaint must be liberally construed in the
plaintiff's favor and all well-pleaded factual allegations must be accepted as true. Davis, 775 F.
Supp. 2d at 32-33. But while the Court must accept well-pleaded factual allegations, any
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conclusory allegations are not entitled to an assumption of truth, and even those allegations
pleaded with factual support need only be accepted insofar as "they plausibly give rise to an
entitlement to relief." Iqbal, 129 S. Ct. at 1950.
III. LEGAL ANALYSIS
A. Count VI: TILA Claims
1. Statute of Limitations Challenge to Damages Under the TILA
Count VI of the Complaint seeks damages under the TILA for, among other things, the
defendant's alleged failure to deliver "material disclosures" required by the TILA and for the
defendant's delivery of "materially inaccurate" disclosure statements. Compl. ¶¶ 168-77. The
defendant contends that the applicable statute of limitations for TILA damages claims is one
year, which begins to run "from the date the transaction is consummated." Def.'s Mem. 4-5.
Noting that the plaintiff's loan was consummated at the closing held on October 8, 2007, see
Compl. ¶ 53, and that the plaintiff filed suit nearly three years later on October 6, 2010, the
defendant maintains that her TILA damages claim is time-barred, Def.'s Mem. at 5. For the
reasons that follow, the Court agrees.
Under §1640(e) of the TILA, claims for damages must be brought "within one year from
the date of the occurrence of the violation." 2 15 U.S.C. § 1640(e). "In closed-end consumer
credit transactions, such as the one in this case, the [TILA's] limitations period begins to run on
the date of settlement." Johnson v. Long Beach Mortg. Loan Trust, 2001-4, 451 F. Supp. 2d 16,
39 (D.D.C. 2006) (citing Postow v. OBA Fed. Sav. & Loan Assoc., 627 F.2d 1370, 1380 (D.C.
Cir. 1980)). Here, the settlement for the plaintiff's loan occurred, and the limitations period
began to run, on October 8, 2007. See Compl. ¶ 53. Yet the plaintiff did not file this action until
2
TILA claims for rescission, by contrast, are subject to a three year statute of limitations. See 15 U.S.C.§ 1635(f )
("An obligor's right of rescission shall expire three years after the date of consummation of the transaction or upon
the sale of the property, whichever occurs first").
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October 6, 2010, nearly three years after the settlement and well outside the one-year period
mandated by § 1640(e).
While acknowledging that she filed suit more than year after the settlement, the plaintiff
nonetheless seeks to invoke the "recoupment" exception to the TILA's one-year limitations
period. Pl.'s Opp'n at 17-18. That exception provides as follows: "This subsection does not bar a
person from asserting a violation of this subchapter in an action to collect the debt which was
brought more than one year from the date of the occurrence of the violation as a matter of
defense by recoupment or set-off in such action." 15 U.S.C. § 1640(e) (emphasis added). The
plaintiff maintains that she "brought [this] action as a defensive measure, specifically as a
defense to the foreclosure initiated by CitiMortgage" and that she is therefore permitted to "assert
a recoupment or set-off claim in defense to the foreclosure beyond the limitations period." Pl.'s
Opp'n at 19. Although the plaintiff may have filed suit in response to the defendants' foreclosure
efforts, she has not asserted a TILA claim "as a matter of defense" in "an action to collect the
debt" brought by a lender against a debtor. Rather, she has brought an affirmative TILA claim
for damages against the defendant-lender in a lawsuit she initiated, and the recoupment exception
thus is inapplicable. See Moor v. Travelers Ins. Co., 784 F.2d 632, 634 (5th Cir. 1986) ("When
the debtor hales the creditor into court, as Moor has done in this case, the claim by the debtor is
affirmative rather than defensive. As such, it is subject to the one- . . . year limitations
provisions" of the TILA); Johnson, 451 F. Supp. 2d at 39 (rejecting recoupment defense and
dismissing claim as time-barred where debtor brought affirmative TILA claim against lender);
Van Pier v. Long Island Sav. Bank, 20 F. Supp. 2d 535, 536 (S.D.N.Y. 1998) ("plaintiff argues
that his TILA claim in effect constitutes assertion of a defense of recoupment to the foreclosure
sale initiated by defendants, and therefore is not within the one-year limitations period. Under
the plain language of the statute, however, this argument is unavailing, because here plaintiff
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asserts his TILA claim affirmatively, in an action for damages that he himself commenced, and
not as a defense 'in an action to collect the debt.'"); see also Beach v. Ocwen Fed. Bank, 523 U.S.
410, 412 (1998) (noting that, under § 1640(e), "a borrower may assert the right to damages 'as a
matter of defense by recoupment or set-off' in a collection action brought by the lender even after
the one year is up." (emphasis added)). 3 The Court, accordingly, concludes that the plaintiff's
TILA damages claim is time-barred under § 1640(e)'s one-year limitations period as discerned
from the face of the Complaint and that the claim must be dismissed with prejudice.
2. Rescission Under the TILA and the Plaintiff's Ability to Tender Loan Amount
In addition to seeking damages, Count VI of the Complaint asserts a right to rescind the
mortgage loan based upon the defendants' alleged TILA violations. Compl. ¶ 178. The
defendant argues that, in order to state a claim for rescission under the TILA, the plaintiff must
allege an ability to tender the principal loan amount back to the defendant, which the defendant
claims the plaintiff is unable to do. Def.'s Mem. at 5. The plaintiff responds that neither the
TILA nor the law of this Circuit requires a plaintiff to plead an ability to tender the principal loan
amount in support of a rescission claim. Pl.'s Opp'n at 12.
Section 1635(b) of the TILA establishes the following framework for exercising the right
of rescission:
When an obligor exercises his right to rescind under subsection (a) of this section,
he is not liable for any finance or other charge, and any security interest given by
the obligor, including any such interest arising by operation of law, becomes void
upon such a rescission. Within 20 days after receipt of a notice of rescission, the
creditor shall return to the obligor any money or property given as earnest money,
downpayment, or otherwise, and shall take any action necessary or appropriate to
reflect the termination of any security interest created under the transaction. If the
creditor has delivered any property to the obligor, the obligor may retain
3
The plaintiff cites two cases wherein courts permitted defensive claims of usury and fraud even though the claims
would have been time-barred if brought affirmatively. See In re Bishop, 79 B.R. 94, 96 (Bankr. D.D.C. 1987)
(permitting defensive usury claim beyond statute of limitations); King v. Kitchen Magic, Inc., 391 A.2d 1184, 1187
(D.C. 1978) (permitting defensive fraud claim beyond statute of limitations). Setting aside the merits of these
cases, they do not concern the TILA's limitations period for damages claims and thus are inapposite.
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possession of it. Upon the performance of the creditor's obligations under this
section, the obligor shall tender the property to the creditor, except that if return of
the property in kind would be impracticable or inequitable, the obligor shall
tender its reasonable value. Tender shall be made at the location of the property
or at the residence of the obligor, at the option of the obligor. If the creditor does
not take possession of the property within 20 days after tender by the obligor,
ownership of the property vests in the obligor without obligation on his part to
pay for it. The procedures prescribed by this subsection shall apply except when
otherwise ordered by a court.
15 U.S.C. § 1635(b). To be sure, the text of the TILA does not require a plaintiff to demonstrate
an ability to tender the principal loan amount before exercising the right of rescission. But that
does not end the Court's inquiry, for the right to rescind, though "statutorily granted" by the
TILA, "remains an equitable doctrine subject to equitable considerations." Brown v. Nat'l
Permanent Fed. Sav. & Loan Assoc., 683 F.2d 444, 447 (D.C. Cir. 1982) (per curiam). For
instance, district courts have "the equitable power to condition rescission upon the return of the
loan proceeds by [the plaintiff]." Id. at 449.
Yet, the fact that district courts have discretion to condition rescission upon return of the
principal does not mean that a plaintiff is required, as the defendant suggests, to allege in her
complaint an ability to tender the loan amount in order to state a claim for rescission. Such a
pleading requirement would conflict with the sequence of rescission procedures outlined in the
TILA, under which the lender, not the debtor, must tender first. See 15 U.S.C. § 1635(b)
("Within 20 days after receipt of a notice of rescission, the creditor shall return to the obligor any
money or property given as earnest money, downpayment, or otherwise . . . . Upon the
performance of the creditor's obligations under this section, the obligor shall tender the property
to the creditor"). Consistent with this reasoning, another member of this Court has concluded
that there is no ability-to-tender pleading requirement under the TILA:
Several courts have held that a rescission claim should be dismissed (with leave to
amend) for failure to allege an ability to tender the principal to the creditor. See,
e.g., Montoya v. Countrywide Bank, F.S.B., No. C09-00641, 2009 WL 1813973,
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at *5 (N.D. Cal. June 25, 2009). However, this Court is not persuaded that ability
to tender is a pleading requirement for a TILA rescission claim. As the D.C.
Circuit noted in Brown v. National Permanent Federal Savings and Loan
Association, 683 F.2d 444 (D.C. Cir. 1982) (per curiam), § 1635(b) does not
require that a debtor tender first; it is the creditor that must tender before the
borrower's obligation arises. Id. at 447. Because the statute states that the
security interest becomes void once the right to rescind is exercised, a rescission
claimant should not be required to plead an ability to tender the property to the
creditor. Moreover, several courts have recognized that inability to tender is a
factual question more appropriate for resolution on summary judgment. See, e.g.,
Moore v. Wells Fargo Bank, N.A., 597 F. Supp. 2d 612, 616-17 (E.D. Va. 2009).
Courts are, however, free to exercise equitable discretion to modify rescission
procedures, and rescission under TILA may be conditioned on the debtor's return
of any money received. Id.; 15 U.S.C. § 1635(b). Although the Court finds that it
is not appropriate to modify the rescission procedure at the motion to dismiss
stage, it may require Plaintiffs to prove an ability to tender the principal balance
before ordering rescission.
Freese v. Empire Fin. Servs., 725 F. Supp. 2d 130, 138 (D.D.C. 2010) (Kollar-Kotelly, J.). This
member of the Court agrees with the rationale of Freese and finds that, while it may eventually
be necessary for the Court to exercise its equitable power to condition rescission upon the
plaintiff's ability to tender the principal, the plaintiff is by no means required to plead her ability
to tender the loan amount in order to survive a motion to dismiss. Furthermore, given its fact-
specific nature, the determination of the plaintiff's ability to pay the principal would, as noted in
Freese, be more appropriately addressed at the summary judgment stage.
The Court's conclusion is not at odds with the case upon which the defendant principally
relies, American Mortgage Network, Inc., v. Shelton, 486 F.3d 815 (4th Cir. 2007). There, the
Fourth Circuit "adopt[ed] the majority view of reviewing courts that unilateral notification of
cancellation does not automatically void the loan contract." Id. at 821. The court reasoned that
"'[t]he natural reading of § 1653(b) is that the security interest becomes void when the obligor
exercises a right to rescind that is available in the particular case, either because the creditor
acknowledges that the right of rescission is available, or because the appropriate decision maker
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[, e.g., a court,] has so determined . . . . Until such decision is made, the [borrowers] have only
advanced a claim seeking rescission." Id. (quoting Large v. Conseco Fin. Servicing Corp., 292
F.3d 49, 54-55 (1st Cir. 2002)) (emphasis added). Applying this principle, the court in Shelton
upheld the district court's denial of the remedy of "unconditional rescission" because the debtors
"admitted" they were "unable to tender the loan proceeds." Id. Here, the Court is neither
declaring the plaintiff's mortgage loan "automatically void" based upon her unilateral rescission
notice, nor is it providing the remedy of "unconditional rescission"—it is only finding that the
plaintiff was not required to plead her ability to tender in the Complaint. The issue may, as
already noted, be raised at later stages of the litigation. Thus, the defendants' motion to dismiss
the plaintiff's TILA rescission claim must be denied.
B. Count VIII: RESPA Claim
Count VIII of the Complaint seeks monetary damages for alleged violations of the
RESPA pursuant to 12 U.S.C. § 2607. Compl. ¶¶ 191-98. In moving for dismissal, the
defendants contend that this claim, like the plaintiff's TILA damages claim, is time-barred.
Def.'s Mem. at 8. The statute of limitations for RESPA claims brought under § 2607 is one year.
See 12 U.S.C. § 2614 ("Any action pursuant to the provisions of section . . . 2607 . . . of this title
may be brought . . . within . . . 1 year in the case of a violation of section 2607 or 2608 of this
title from the date of the occurrence of the violation."). "The 'date of the occurrence' language in
§ 2614 refers to the date of the closing." Chen v. Bell-Smith, 768 F. Supp. 2d 121, 149 (D.D.C.
2011) (citing Snow v. First Am. Title Ins. Co., 332 F.3d 356, 359 (5th Cir. 2003) and Palmer v.
Homecomings Fin., LLC, 677 F. Supp. 2d 233, 237-38 (D.D.C. 2010)). As previously noted, the
closing in this case took place on October 8, 2007, Compl. ¶ 53, and the plaintiff did not file suit
until October 6, 2010. The plaintiff's RESPA claim is, therefore, time-barred as discerned from
the face of the Complaint.
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The plaintiff again maintains, as she did in opposition to dismissal of her TILA damages
claim, that her RESPA claim is not time-barred because it is "defensive in nature" and is asserted
"by way of recoupment in response to CitiMortgage's Notice of Foreclosure." Pl.'s Opp'n at 20.
This argument is even weaker in the RESPA context because, as the plaintiff admits, the
"RESPA does not have an explicit [recoupment] provision as [the] TILA does." Id. Needless to say,
the plaintiff cites no authority permitting the assertion of an otherwise time-barred RESPA claim as a
defensive measure by way of recoupment. Even assuming such an exception existed, the plaintiff's
RESPA claim, like her TILA damages claim, is asserted not as a defensive measure but as an
affirmative claim in a lawsuit that she initiated. Accordingly, the Court rejects the plaintiff's
argument and dismisses the RESPA claim as time-barred with prejudice.
C. Counts II and III: CCPA Claims for Unconscionability
Count III of the complaint alleges that the defendant's mortgage refinancing practices
were unconscionable under the CPPA. Compl. ¶¶ 126-35. The defendant maintains that the
allegations in Count III cannot withstand a motion to dismiss because they are nothing more than
conclusory lists of elements of claims without factual support. Def.'s Mem. at 10-11 (citing
Iqbal, 129 S. Ct. at 1949). The plaintiff of course responds that she has adequately pleaded
violations of the CPPA in accordance with the law of this Circuit. Pl.'s Opp'n at 22.
Section § 28-3904 of the CPPA provides in pertinent part as follows:
It shall be a violation of this chapter, whether or not any consumer is in fact
misled, deceived or damaged thereby, for any person to:
****
(r) make or enforce unconscionable terms or provisions of sales or leases; in
applying this subsection, consideration shall be given to the following, and other
factors:
(1) knowledge by the person at the time credit sales are
consummated that there was no reasonable probability of payment
in full of the obligation by the consumer;
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****
(2) knowledge by the person at the time of the sale or lease of the
inability of the consumer to receive substantial benefits from the
property or services sold or leased;
****
(5) that the person has knowingly taken advantage of the inability
of the consumer reasonably to protect his interests by reasons of
age, physical or mental infirmities, ignorance, illiteracy, or
inability to understand the language of the agreement, or similar
factors.
D.C. Code § 28-3904(r)(1), (2), & (5). As the statute indicates, subsections (1) through (5) are
merely factors to consider in determining whether the terms or provisions of sales or leases are
unconscionable, see id., so a plaintiff is not required to satisfy each subsection in order to state a
claim for unconscionability under the CPPA. Regarding the statute's applicability in this case,
the District of Columbia Court of Appeals has made clear that "§ 28-3904(r) applies to real estate
mortgage finance transactions." DeBerry v. First Gov't Mortg. & Investors Corp., 743 A.2d 699,
703 (D.C. 1999).
The plaintiff alleges that the defendant violated subsection (r)(1) of § 28-3904 when it
"made, funded, and/or securitized loans to [the plaintiff] that were unsuitable, unaffordable, and
unconscionable, and which were made with knowledge that there was no reasonable expectation
that she would be able to repay the loan as structured," and that "[d]uring the underwriting
process, [the defendant] knew or should have known that based on [the plaintiff's] income and
monthly expenses that the loan to her was unaffordable and unsuitable." Compl. ¶ 130. The
plaintiff further claims that the defendant violated subsection (r)(5) by "knowingly taking
advantage of [her] inability to protect her own interests by reason of her disability, age,
ignorance, lack of sophistication, and other factors, in extending her a loan product which was
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unconscionable, unsuitable, and unaffordable." Id. ¶ 132. As factual support for these
assertions, the plaintiff alleges that she has a sixth grade education, has been disabled since 1998,
has a total monthly income of $853 from Social Security disability benefits (i.e., far less than
half of her alleged $2,061 monthly mortgage payment), and that she provided proof of her
monthly income when she obtained her loan. Id. ¶¶ 39-41, 51, 55.
Similar claims of unconscionability under the CPPA have been sustained in this Circuit.
See, e.g., Williams v. First Gov't Mort. & Invest. Corp., 225 F.3d 738, 744 (D.C. Cir. 2000)
(upholding jury verdict that home refinancing lender violated CPPA by making loan to borrower
who the lender either knew would be unable to repay or by taking advantage of borrower's
inability to protect his own interests, where evidence showed that borrower was 61 years old and
retired due to disability, the monthly loan payment was more than half the borrower's monthly
income, borrower had only a sixth grade education, and loan officer did not explain loan
documents to borrower); Hughes v. Abell, ____ F. Supp. 2d ____, ____, 2010 WL 4630227, at
*5 (D.D.C. 2010) (denying motion to dismiss CPPA claim brought under § 28-3904(r)(1) where
plaintiff alleged that lender was aware that terms of loan required nearly half of his income and
that the plaintiff had no prospects for increased income); Johnson, 451 F. Supp. 2d at 38(denying motion to dismiss CPPA claim brought under § 28-3904(r)(1) and (2) where the
plaintiff alleged that his monthly loan payment was more than half of his income and that he was
elderly, had limited education, limited ability to comprehend the nature of the loans, limited
economic resources, and lacked business sophistication).
The defendant tries to distinguish these cases by emphasizing that the plaintiff had
obtained a prior refinance loan with Indymac nine months before her loan with the defendant
where she agreed to pay a monthly mortgage payment $1,000 in excess of her income. Def.'s
Reply at 9; Compl. ¶¶ 44-45. The Court does not discern what relevance the defendant is
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according to this prior transaction, but, if anything, it bolsters the plaintiff's position that she is an
unsophisticated consumer who did not fully understand her loan terms. Indeed, the supposed
reason why the plaintiff sought to refinance with the defendant in the first place was because she
"wanted a lower monthly mortgage payment," Compl. ¶ 46, thus indicating that she did not
appreciate the Indymac loan terms until months after she consummated the transaction. And the
alleged fact that she believed the loan with the defendant would lower her monthly payment,
when it purportedly raised the payment, id. ¶¶ 46, 55, further supports her claim that she was an
unsophisticated borrower.
The plaintiff also asserts that the defendant violated subsection (r)(2) of § 28-3904 "by
refinancing [her] mortgage loan without providing her substantial benefits and instead extending
a loan product that was unconscionable, unsuitable, and unaffordable." Compl. ¶ 131.
According to the Complaint, "the refinance worked to [the plaintiff's] substantial detriment . . . ,
causing her to pay some combination of substantial costs and fees." Id. The defendant maintains
that, contrary to these allegations, the plaintiff did receive a benefit in the form of the "'cash-out
payment of approximately $35,616 from the refinance.'" Def.'s Reply at 9 (quoting Compl. ¶
56). However, the Complaint alleges that the plaintiff's monthly mortgage payments and
principal increased significantly under the terms of the defendant's loan, Compl. ¶¶ 54-55,
arguably off-setting any temporary benefit gained by the defendant's up-front cash payment.
Given the gross disparity between the plaintiff's loan indebtedness and her monthly income, of
which the defendant was allegedly aware, one could infer knowledge on the defendant's part "of
the inability of the consumer to receive substantial benefits from the property or services sold or
leased," D.C. Code § 28-3904(r)(2).
15
In sum, the Court is satisfied that the plaintiff's allegations, when viewed in the light most
favorable to her, give rise to a plausible claim to relief under subsections (r)(1), (r)(2), and (r)(5)
of D.C. Code § 28-3904. The defendant's motion to dismiss Count III is therefore denied.
The defendant has also moved to dismiss Count II of the Complaint, which alleges in part
that several of the defendants violated § 28-3904(r)(2) by "charging [the plaintiff] with . . . high
closing costs and finance[] charges without providing [the plaintiff] with substantial benefits,"
Compl. ¶ 124, including an "outrageous loan discount to [Aapex] of $10,720, which was 3.3% of
the total value of the refinance; and the outrageous application fee payable to Mortgage
Empowerment which was almost 1% the total value of the refinance, $3,200," id. ¶ 123. The
defendant maintains that these factual allegations "do not state what specific acts each defendant
committed in violation of the Act," and that none of the allegations concerning the negotiation
and closing of the October 2007 loan implicate CitiMortgage in particular. Def.'s Mem. at 9.
While Count II does not clarify which defendant assessed the charges to the plaintiff, a liberal
construction of the Complaint suggests that CitiMortgage had some involvement in overcharging
the plaintiff in violation of § 28-3904(r)(2). See Compl. ¶ 67 (alleging that the plaintiff "paid
over $20,000 in fees and costs to settle the CitiMortgage loan"); id. ¶ 70 (alleging that the
settlement fees included a $550 "commitment fee" to CitiMortgage and a $10,720.37 charge for
a payment made by CitiMortgage). Having found that Count II adequately alleges that the
defendant violated at least one subsection of § 28-3904(r), the Court declines to dismiss Count II
for failure to state a claim.
D. Count IV: Negligence
Count IV of the Complaint asserts a negligence claim against the defendant. Compl. ¶¶
136-44. In moving to dismiss this claim, the defendant contends that the plaintiff has failed to
adequately allege that it owed a legal duty to the plaintiff. Def.'s Mem. at 12. The plaintiff
16
responds that she has identified several applicable duties, including a mortgage lender's duty of
care to borrowers, a duty arising by virtue of a statute, and a lender's duty of care to avoid
dealing with brokers who violate industry standards. Pl.'s Opp'n at 28-30.
To establish a negligence claim, a plaintiff must show "(1) a duty, owed by the defendant
to the plaintiff, to conform to a certain standard of care; (2) a breach of this duty by the
defendant; and (3) an injury to the plaintiff proximately caused by the defendant's breach."
District of Columbia v. Fowler, 497 A.2d 456, 463 n.13 (D.C. 1985). Whether a duty exists is a
question of law for the Court. Hedgepeth v. Whitman Walker Clinic, 22 A.3d 789, 793 (D.C.
2011). Making this determination is "essentially a question of whether the policy of the law will
extend the responsibility for the conduct to the consequences which have in fact occurred." Id.(internal quotation marks and citation omitted).
The relationship between a debtor and creditor is ordinarily a contractual one, lacking any
fiduciary duties. See Geiger v. Crestar Bank, 778 A.2d 1085, 1091 (D.C. 2001). Nevertheless,
as the plaintiff notes, "'mortgage lenders may owe a duty of care to borrowers'" under certain
circumstances. Pl.'s Opp'n at 28 (quoting Hughes, 2010 WL 4630227, at *7). In Hughes, for
example, another member of this Court held that the plaintiff adequately pleaded a negligence
claim against a mortgage lender based on allegations that "he paid $10,127.32 in closing costs to
obtain the loan from the defendant," the lender misstated his monthly income in the loan, the
lender "provided a loan for which he would be paying over 50% of his gross monthly income,"
and the lender "mistakenly assured him that he 'did not need to worry' about the loan being an
adjustable rate mortgage because he 'should be able to refinance the loan.'" Hughes, 2010 WL
4630227, at *7. The plaintiff also cites High v. McLean Financial Corp., 659 F. Supp. 1561(D.D.C. 1987). There, the plaintiffs alleged that the defendant-lender assured them that there
were "no problems" with their mortgage application. Id. at 1570. Later, another lending
17
institution whom the plaintiffs did not know would be involved in the loan application process
informed the plaintiffs that it was denying their application. Id. The plaintiffs thereafter brought
suit against the lender, alleging that it had negligently processed and reviewed the plaintiffs' loan
application and negligently failed to inform them that another institution would decide whether
to grant the plaintiffs' loan. Id. Denying the defendant's motion to dismiss, the court held that
the plaintiffs stated a claim for negligence because "the defendant bank owed a duty to process a
loan application with reasonable care when it had guaranteed the interest rate and the applicant
had paid a loan processing fee." Id.The plaintiff relies on Hughes and High for the proposition that the defendant, by
accepting the plaintiff's processing fee, undertook a "duty to non-negligently evaluate" the
suitability of the loan for the plaintiff, presumably taking into account her personal financial
circumstances. Pl.'s Opp'n at 29. Those cases do not support the imposition of such a broad duty
on mortgage lenders and, even assuming that they did, this Court declines to impose such a duty
here. Hughes and High do, to be sure, stand for the proposition that a lender undertakes a duty to
a borrower when its employees make certain assurances to the borrower during the loan
negotiation process. See Hughes, 2010 WL 4630227, at *7 (noting assurances made to borrower
regarding suitability of adjustable rate mortgage); High, 659 F. Supp. at 1570 (noting that lender
told borrowers there would be "no problem" with their loan application). But the plaintiff does
not allege that any assurances were made to her by the defendant or its employees. Instead, the
plaintiff has alleged that Mr. Cardwell, the mortgage broker, made misleading promises to her
about the loan. Compl. ¶ 47. And there is no allegation that Mr. Cardwell was the defendant's
employee or agent. The Court, therefore, is not convinced that the purported duty advanced by
the plaintiff has a legal basis.
18
The plaintiff also argues that the defendant's alleged violations of the CPPA constitute
evidence of negligence. Pl.'s Opp'n at 29-30. The CPPA, however, provides an express private
right of action for violations of the statute (under which the plaintiff has asserted claims that the
Court has sustained against dismissal, see supra p. 15-16). Since the statute creates an express
and seemingly comprehensive right of action, the Court does not anticipate that the District of
Columbia Court of Appeals would recognize a common law claim for violations of the CPPA.
See Atwater v. Dist. of Columbia Dept. of Consumer & Reg. Affairs, 566 A.2d 462, 465 (D.C.
1989) ("The Consumer Protection Procedures Act is a comprehensive statute designed to provide
procedures and remedies for a broad spectrum of practices which injure consumers"); cf.
Johnson v. Sawyer, 47 F.3d 716, 729 (5th Cir. 1995) ("We can think of no reason for a Texas
court to create a common law cause of action for [a] statutory violation" when "there is a
comprehensive and express statutory private cause of action for the statutory violation."). Thus,
the Court will not permit the plaintiff to predicate negligence liability upon the defendant's
alleged CPPA violations.
The plaintiff lastly contends that the defendant "violated its duty of care by failing to
ensure that the Aapex brokered loan met industry standards." Pl.'s Opp'n at 30. She notes that
Aapex had a publicly reported reputation of "illegal behavior" and that the company had been
cited for wrongful lending practices by multiple states. Id. The plaintiff claims that the
defendant "had a duty to exercise reasonable care toward its borrowers and breached that duty by
continuing to partner with Aapex in the in the origination of [the] loan." Id. Yet, the plaintiff
fails to cite any authority recognizing a mortgage lender's duty to avoid partnering with mortgage
brokers of ill-repute, and the Court discerns no basis for imposing such a duty. In short, the
19
plaintiff has failed to adequately allege a legal duty owed to her by the defendant and her
negligence claim must therefore be dismissed without prejudice. 4
E. Count IX: Civil Conspiracy
Count IX of the Complaint sets forth a claim of civil conspiracy against all defendants.
Compl. ¶¶ 199-204. The elements of civil conspiracy are "(1) an agreement between two or
more persons; (2) to participate in an unlawful act, or in a lawful act in an unlawful manner; and
(3) an injury caused by an unlawful overt act performed by one of the parties to the agreement
(4) pursuant to, and in furtherance of, the common scheme." Exec. Sandwich Shoppe v. Carr
Realty Corp., 749 A.2d 724, 738 (D.C. 2000) (quoting Griva v. Davison, 637 A.2d 830, 848
(D.C. 1994)). In the District of Columbia, civil conspiracy is recognized not as an independent
tort but as a "means for establishing vicarious liability for [an] underlying tort." Id. (quoting
Halberstam v. Welch, 705 F.2d 472, 479 (D.C. Cir. 1983)). Consequently, "'civil conspiracy
depends on performance of some underlying tortious act.'" Id. (alteration omitted).
Because the Court has already dismissed the plaintiff's negligence claim, that claim
cannot serve as the "underlying tort" for her civil conspiracy claim. The defendant suggests that
the plaintiff's negligence claim is the only "underlying tort" alleged in the Complaint that could
sustain her civil conspiracy claim. Def.'s Mem. at 14. The plaintiff, on the other hand, contends
that the defendants' alleged CPPA violations would be sufficient predicates for a civil conspiracy
claim. Pl.'s Opp'n at 31. The Court does not agree. While it has not reached this conclusion, the
District of Columbia Court of Appeals has expressed skepticism about statutory violations
serving as "underlying torts" for civil conspiracy claims where the statutory right at issue has no
common law tort analogue. See Exec. Sandwich Shoppe, 749 A.2d at 738 (directing trial court
4
The Court dismisses this claim without prejudice because it is not inconceivable that the plaintiff could cure the
pleading deficiencies identified by the Court.
20
to consider on remand "authority which suggests that a claim of civil conspiracy does not lie for
violation of a statute such as the [District of Columbia Human Rights Act]," and noting rejection
of comparable civil conspiracy claim in Monsanto v. Electronic Data Sys. Corp., 141 A.D.2d 514(N.Y. App. Div. 1988), but declining to resolve the issue). In asserting that CPPA violations can
serve as civil conspiracy predicates, the plaintiff notes that the CPPA represents a codification of
the District of Columbia's common law unconscionability doctrine. Pl.'s Opp'n at 32. At
common law, though, unconscionability was used as a defense in contract actions, not as a basis
for obtaining damages in tort. See Williams v. Cent. Money Co., 974 F. Supp. 22, 28 (D.D.C.
1997) ("The claim of common law unconscionability appears to apply only defensively, for
example, as a response to an attempt to enforce a contract." (citing Restatement (Second) of
Contracts § 208, cmt. g (1981))). Since the CPPA does not appear to have a common law tort
analogue, this Court assumes that the District of Columbia Court of Appeals would not recognize
a civil conspiracy claim based solely upon violations of the CPPA. Accordingly, the plaintiff's
civil conspiracy claim must be dismissed without prejudice. 5
F. Count X: Joint Venture
Count X of the Complaint sets forth a claim for joint venture against all defendants.
Compl. ¶¶ 205-11. CitiMortgage asserts that joint venture is not a recognized cause of action in
the District of Columbia. Def.'s Mem. at 15. The plaintiff responds that she has adequately
pleaded joint venture as a theory of liability under District of Columbia law. Pl.'s Opp'n at 35
(citing Faison v. Nationwide Mortg. Corp., 839 F.2d 680 (D.C. Cir. 1987)). As the Court
understands the plaintiff's argument, she is not asserting joint venture as an independent cause of
action, but rather is seeking to hold the defendants jointly and severally liable for damages
5
The Court dismisses the civil conspiracy claim without prejudice because it may be possible for the plaintiff to
adequately re-plead her negligence claim, which could, in turn, serve as the underlying tort for her civil conspiracy
claim.
21
resulting from misconduct that occurred in connection with an alleged "joint venture" of the
defendants. See Pl.'s Opp'n at 35.
The Circuit in Faison did refer to what appears to be a joint venture theory of liability
under District of Columbia law, though it did not discuss the standards or elements for such a
theory. See Faison, 839 F.2d at 685 ("If any of the defendants in this case is found to be a party
to a joint venture that caused tortious injury to plaintiffs, those joint venturers are also joint
tortfeasors" (citing Stevens v. Hall, 391 A.2d 792, 794 (D.C. 1978))). Nor does the District of
Columbia Court of Appeals decision cited by the Faison court, Stevens v. Hall, set forth any
standards for joint venture liability. See Stevens, 391 A.2d at 794. Nevertheless, assuming the
plaintiff could pursue such a theory under District of Columbia law, it is clear that she would
have to allege some underlying tortious conduct. See Faison, 839 F.2d at 685. And as explained
in the context of the plaintiff's civil conspiracy claim, the plaintiff has failed to adequately allege
an underlying tort against the defendant. The plaintiff's claim for joint venture liability must
therefore be dismissed without prejudice. 6
IV. CONCLUSION
For the foregoing reasons, the Court concludes that the defendant's motion to dismiss
must be granted as to the TILA claim for damages (Count VI), and the RESPA claim (Count
VIII), and that those claims must be dismissed with prejudice. The Court further concludes that
the motion must be granted as to the negligence claim (Count IV), the civil conspiracy claim
(Count IX), and the joint venture claim (Count X), and that those claims must be dismissed
6
The Court dismisses the joint venture claim without prejudice because the plaintiff could possibly adequately re-
plead her negligence claim.
22
without prejudice. Finally, the Court finds that the defendant's motion must be denied as to the
TILA claim for rescission (Count VI), and the CPPA claims (Counts II and III). 7
SO ORDERED this 26th day of September, 2011. 8
REGGIE B. WALTON
United States District Judge
7
The defendant has also moved, in the alternative, to strike the plaintiff's request for punitive damages under her
negligence claim. Def.'s Mem. at 16. The Court need not consider this alternative request in light of its dismissal of
the plaintiff's negligence claim.
8
The Court will contemporaneously issue an Order consistent with this Memorandum Opinion.
23