UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
January 6, 2010
JOHN AND MARIA PAYAN, INDIVIDUALLY AND AS H/W, PLAINTIFFS,
GREENPOINT MORTGAGE FUNDING, INC., AMERICAN MORTGAGE, INC., KAREN MCHALE INDIVIDUALLY AND/OR D/B/A AMERICAN MORTGAGE,: INC., HOMEQ SERVICING CORPORATION, AND JOHN DOES 1-10, DEFENDANTS.
The opinion of the court was delivered by: Hillman, District Judge
Plaintiffs, John and Maria Payan, sought to finance the purchase of their new residence by obtaining a loan subject to a mortgage on their property. With the assistance of their mortgage brokers, American Mortgage, Inc. and Karen McHale, plaintiffs obtained a loan from Litton Loan Servicing, LP. However, because the loan did not feature the favorable terms that plaintiffs had sought and could not be refinanced in a timely manner, plaintiffs, relying on the suggestion of their broker, refinanced into another loan with GreenPoint Mortgage Funding, Inc. ("GreenPoint"). After they had entered into the mortgage loan with GreenPoint, plaintiffs learned that the loan's terms also were unfavorable to them and detrimental to their interests.
On December 31, 2008, plaintiffs filed a complaint in this Court against GreenPoint, American Mortgage, McHale, Litton Loan Servicing LP and its general partner, Litton GP, LLC (collectively, "Litton"), and Homeq Servicing Corporation ("Homeq"), who handled the administration of the loan.*fn1 Among their allegations, plaintiffs averred that defendants misrepresented and failed to disclose material information in relation to the mortgage loans, thereby violating several statutes including the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., and the New Jersey Consumer Fraud Act ("CFA"), N.J.S.A. § 56:8-1 et seq. In response to plaintiffs' claims, GreenPoint filed a Motion for Judgment on the Pleadings, which is presently the sole matter before this Court.
For the reasons expressed below, GreenPoint's Motion for Judgment on the Pleadings will be granted, but plaintiffs' claims will be dismissed without prejudice. Plaintiffs will have fourteen (14) days from the date of this Opinion to file an amended complaint.
This Court exercises subject matter jurisdiction over plaintiffs' remaining federal claim pursuant to 28 U.S.C. § 1331 and may exercise supplemental jurisdiction over any related state law claims pursuant to 28 U.S.C. § 1367.
Plaintiffs sought to finance the purchase of their new residence by obtaining a loan subject to a mortgage on their property. To facilitate the loan, plaintiffs relied on American Mortgage and McHale, an employee of American Mortgage, to act as its mortgage broker. By April 2006, plaintiffs were scheduled to finalize a loan that American Mortgage and McHale (collectively, "broker") had obtained for them.
According to plaintiffs, however, problems arose surrounding the loan. Originally scheduled for April 24, 2006, the closing was rescheduled for April 17, 2006. Despite repeated requests and the closing's imminency, the broker failed to provide plaintiffs in advance with pertinent details regarding the loan, such as the monthly payment, interest rate, and closing costs. In addition, McHale did not appear at the closing to assist plaintiffs as she had promised to do. Because certain documents were not forwarded to the title company, the closing was delayed further on April 17th. Moreover, the loan did not include all of the terms that were promised to plaintiffs. Via telephone, plaintiffs spoke with McHale who assured plaintiffs that they should sign the papers and that the loan would be refinanced within thirty days to comport with their expectations. As a result of that conversation, plaintiffs signed the documents at closing and purchased the property. At some point after the closing, Homeq assumed the administration of the loan, including collecting, monitoring, reporting, and remitting loan payments.
Assurances notwithstanding, the broker could not refinance the loan as plaintiffs had expected and desired. Nevertheless, the broker informed plaintiffs of another loan which might be more favorable to them but with slightly higher monthly payments. Plaintiffs accepted the broker's suggestion and, in November 2006, the broker, according to plaintiffs' complaint, "refinanced Plaintiffs into a complex, negative amortization, Payment-Option, Adjustable Rate Mortgage through [GreenPoint], without disclosure of the details and terms of the loan, just advising Plaintiffs that the program was similar to the COSI loan" they wanted from the outset. The loan was in the amount of approximately $256,500 and was secured by a mortgage on plaintiffs' property.
Plaintiffs were unaware of the agreement's terms until they received monthly mortgage statements. Upon learning of the terms, plaintiffs contacted GreenPoint, who informed them that their loan was nothing like the COSI loan they had sought to obtain. Contrary to the broker's representations, the second monthly statement from GreenPoint indicated that plaintiffs' interest rate increased from 2.5% to 9.25% and that monthly payments rose from $1,365 to $2,400.
Plaintiffs refinanced out of the loan in 2007. Thereafter, on December 31, 2008, plaintiffs filed a complaint in this Court against GreenPoint, American Mortgage, McHale, Homeq, and Litton.*fn3 Among the allegations set forth in their complaint, plaintiffs aver that American Mortgage and McHale made several material misrepresentations to them, including that the broker could secure plaintiffs an affordable loan featuring the best possible terms given plaintiffs' circumstances. Germane to the present matter, plaintiffs also allege that GreenPoint violated the TILA by failing to make material disclosures concerning the "amount financed," the "finance charge," and the "annual percentage rate," among other pertinent information. Similarly, plaintiffs claim that GreenPoint failed to disclose charges and fees for which plaintiffs ultimately bore the cost, such as the "'Yield Spread Premium'" ("YSP"), and that a number of those charges and fees were neither bona fide nor reasonable. In addition, plaintiffs state that GreenPoint did not provide each of them with two copies of the notice of the right to rescind as is mandated by the TILA. Finally, plaintiffs seem to intimate that GreenPoint failed to enforce its own underwriting guidelines, resulting in the issuance of a mortgage loan on which plaintiffs were destined to default, and that some sort of agency relationship may have existed between defendants, including GreenPoint and the broker.
Plaintiffs conclude that had defendants acted appropriately and in accordance with their duties and responsibilities, "the loan would not have closed, or, if it did, it would have closed upon different more beneficial terms." As a consequence of this misconduct, plaintiffs seek, among other remedies, to rescind the mortgage loan agreement with GreenPoint. In response, GreenPoint has moved for judgment on the pleadings.
Presently before this Court is GreenPoint's Motion for Judgment on the Pleadings.
A. Standard for Motion for Judgment on the Pleadings
A Rule 12(c) motion for judgment on the pleadings may be filed after the pleadings are closed. Fed. R. Civ. P. 12(c); Turbe v. Gov't of V.I., 938 F.2d 427, 428 (3d Cir. 1991). Under Rule 12(c), the movant must clearly establish that "no material issue of fact remains to be resolved and that he is entitled to judgment as a matter of law." Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d Cir. 2008) (citation and internal quotation marks omitted). In analyzing a Rule 12(c) motion, a court applies the same legal standards as applicable to a motion filed pursuant to Rule 12(b)(6). Turbe, 938 F.2d at 428. Thus, a court must accept all well-pleaded allegations in the complaint as true and view them in the light most favorable to the plaintiff. Evancho v. Fisher, 423 F.3d 347, 351 (3d Cir. 2005).
Further, although Rule 12(d) provides that a court should treat a Rule 12(b)(6) or 12(c) motion as a motion for summary judgment whenever matters outside the pleadings are considered, the Third Circuit has clarified that "[m]erely attaching documents to a Rule 12(c) motion, however, does not convert it to a motion under Rule 56." CitiSteel USA, Inc. v. GE, 78 Fed. Appx. 832, 834-35 (3d Cir. 2003). In ruling on a motion to dismiss, a court has "'discretion to address evidence outside the complaint . . . .'" Id. at 835 (quoting Pryor v. Nat'l Collegiate Athletic Ass'n, 288 F.3d 548, 559 (3d Cir. 2002)). Thus, the court "'may consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document.'"*fn4 Id. (quoting PBGC v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993)).
Ultimately, a district court, in weighing a motion to dismiss, asks "'not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claim.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 563 n.8 (2007) (quoting Scheuer v. Rhoades, 416 U.S. 232, 236 (1974)); see Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) ("The Supreme Court's Twombly formulation of the pleading standard can be summed up thus: 'stating . . . a claim requires a complaint with enough factual matter (taken as true) to suggest' the required element. This 'does not impose a probability requirement at the pleading stage,' but instead 'simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of' the necessary element." (quoting Twombly, 550 U.S. at 556)). A court need not credit either "'bald assertions'" or "'legal conclusions'" in a complaint when deciding a motion to dismiss. In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1429-30 (3d Cir. 1997). Similarly, "[a] motion for judgment on the pleadings, like a motion to dismiss, will be granted if the plaintiff has not articulated enough facts to 'raise a right to relief above the speculative level.'" Bangura v. City of Philadelphia, 2009 U.S. App. LEXIS 16672, at *8 (3d Cir. Jul. 29, 2009) (quoting Twombly, 550 U.S. at 555). The defendant bears the burden of showing that no claim has been presented. Hedges v. U.S., 404 F.3d 744, 750 (3d Cir. 2005).
B. Voluntary Dismissal
To begin, GreenPoint has challenged plaintiffs' claims for alleged violations of the TILA, the Home Ownership and Equity Protection Act ("HOEPA"), 15 U.S.C. § 1639 et seq., and the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq. In response, plaintiffs have voluntarily withdrawn their HOEPA and RESPA claims and no longer seek statutory damages or recoupment under the TILA. Rather, plaintiffs continue to assert their TILA claim against GreenPoint but only for rescission of the mortgage loan, and also persist in their claim under the CFA.
GreenPoint does not seem to object to plaintiffs' withdrawal. Accordingly, because of plaintiffs' voluntary withdrawal of those claims, plaintiffs' claims against GreenPoint pursuant to the HOEPA and the RESPA are dismissed in their entirety and plaintiffs' claims seeking statutory damages or recoupment under the TILA also are dismissed.*fn5
C. Truth in Lending Act
GreenPoint argues that, in spite of plaintiffs' assertions to the contrary, it made all requisite disclosures to plaintiffs as evinced by the documents that plaintiffs received prior to and during the closing and which they signed. In particular, GreenPoint explains that plaintiffs received, and signed, a "Truth-in-Lending Disclosure Statement" and a "Truth-in-Lending Summary Statement." Those documents, submits GreenPoint, conspicuously and properly disclosed the amount financed and the finance charge, along with other necessary information, in accordance with the TILA. Further, GreenPoint challenges the sufficiency of plaintiffs' claims, suggesting that plaintiffs' complaint lacks factual specificity as required by federal pleading standards. Plaintiffs reiterate that GreenPoint did not properly disclose certain charges and fees as part of the finance charge and that certain charges and fees were not bona fide or reasonable.
The "TILA is a federal consumer protection statute, intended to promote the informed use of credit by requiring certain uniform disclosures from creditors."*fn6 In re Cmty. Bank of N. Va. & Guar. Nat'l Bank of Tallahassee Second Mortg. Loan Litig., 418 F.3d 277, 303 (3d Cir. 2005). "Among other things, creditors who make loans secured by a borrower's principal dwelling are required to provide all borrowers with 'material disclosures,' including 'the annual percentage rate, the finance charge, the amount financed, the total [of] payments, [and] the payment schedule.'" Id. at 304 (quoting 12 C.F.R. § 226.23); see 15 U.S.C. § 1638 (enumerating required disclosures by creditor). "If 'material disclosures' are not provided or inaccurately provided, the creditor is strictly liable and a borrower has the right to rescind the loan up to '3 years after consummation, upon transfer of all of the consumer's interest in the property, [or] upon sale of the property, whichever occurs first.'" Cmty. Bank, 418 F.3d at 303 (quoting 12 C.F.R. § 226.23).
Although in their complaint plaintiffs allege that GreenPoint did not make all material disclosures as required by the TILA, GreenPoint, as part of its present motion, has provided documentation, signed by plaintiffs, which seems to properly set forth the material disclosures mandated by the TILA.*fn7 In their opposition papers to the present motion, plaintiffs reassert that not all material disclosures were made by GreenPoint and that, although Regulation Z excludes certain charges and fees from being disclosed as part of the "finance charge," those charges must nonetheless be "bona fide and reasonable in amount." If not bona fide and reasonable, submit plaintiffs, then those charges must be disclosed. According to plaintiffs, whether those fees charged by GreenPoint were bona fide and reasonable raises an issue that necessitates discovery and is inappropriate for resolution at this stage of the litigation.
Regulation Z provides that the "finance charge is the cost of consumer credit as a dollar amount" and "includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit." 12 C.F.R. § 226.4(a). Although the finance charge must be disclosed to the borrower, 12 C.F.R. § 226.18(d), Regulation Z enumerates a number of charges excluded from the finance charge, 12 C.F.R. § 226.4(c). Among those charges which do not constitute part of the finance charge are certain "[r]eal-estate related fees" incurred "in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount."
12 C.F.R. § 226.4(c)(7). If the fees are not bona fide or are unreasonable, then they must be disclosed. Jefferies v. Ameriquest Mortg. Co., 543 F. Supp. 2d 368, 379 n.13 (E.D. Pa. 2008).
In spite of plaintiffs' accurate recitation of the law, their complaint fails to satisfy federal pleading standards, especially in light of the documentation furnished by GreenPoint.*fn8 In particular, plaintiffs fail to state with requisite specificity which charges and fees were not properly disclosed and why certain charges and fees are not bona fide and are unreasonable in amount.*fn9 See Seldon v. Home Loan Servs., Inc., 647 F. Supp. 2d 451, 461 (E.D. Pa. 2009) (finding that "plaintiffs have not set forth sufficient factual allegations that defendants failed to disclose the finance charge by not disclosing fees at all or charging unreasonable fees" because they "provide no factual allegations as to how defendants failed to disclose at all any of the fees listed in the complaint" and "provide no allegation whatsoever as to how any of these fees qualify as unreasonable or non-bona fide"). Without more, plaintiffs' assertions are merely "'bald assertions'" and "'legal conclusions'" without any factual support.*fn10 In re Burlington Coat Factory Sec. Litig., 114 F.3d at 1429-30; see Iqbal, 129 S.Ct. at 1949 (noting that "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice" to sustain the alleged claim against a motion to dismiss). The shortcomings of plaintiffs' complaint are further illuminated by their failure to adequately retort GreenPoint's legal arguments and its reliance on documentation which belie the generalized allegations contained in the complaint.*fn11
Similarly, plaintiffs' complaint is devoid of any facts demonstrating that an agency relationship existed between GreenPoint and the broker or any of the other defendants. Thus, plaintiffs fail to specify how and why GreenPoint may be accountable for actions committed by the other defendants. See Garczynski v. Countrywide Home Loans, Inc., 2009 U.S. Dist. LEXIS 71417, at *14 (E.D. Pa. Aug. 12, 2009) (finding that plaintiffs alleged no facts sufficient to support claim that mortgage broker was agent of lender).
Aside from the issue of material disclosures, plaintiffs also argue that GreenPoint failed to provide each of them with two notices of their right to rescind, as is required by the TILA. GreenPoint, on the other hand, has submitted two documents entitled "Notice of Right to Cancel." Along with explaining plaintiffs' rights to cancel the loan transaction and the procedure to do so, the notices also state: "The undersigned each acknowledge receipt of two copies of NOTICE of RIGHT TO CANCEL . . . ." One notice is signed by John Payan and the other is signed by Maria Payan. Given plaintiffs' signatures on these documents, GreenPoint asserts that plaintiffs' TILA claim regarding lack of notice must fail.
Regulation Z provides that "a creditor shall deliver two copies of the notice of the right to rescind to each consumer entitled to rescind" and that certain information must be set forth in the notice. 12 C.F.R. § 226.23(b)(1). "Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under [the TILA] by a person to whom information, forms, and a statement is required to be given pursuant to this section does no more than create a rebuttable presumption of delivery thereof." 15 U.S.C. § 1635(c).
Here, plaintiffs' signatures appear on separate documents, each identified as "Notice of Right to Cancel." Based on the notices' express language, the person who signs each document acknowledges that he or she received two copies of the "Notice of Right to Cancel" document. Plaintiffs do not dispute that they signed the notices and that the signatures appearing on the notices are theirs. Accordingly, a rebuttable presumption arises in favor of GreenPoint. See 15 U.S.C. § 1635(c). Because plaintiffs do not offer any explanation to rebut the presumption, plaintiffs' claim that they each received only one notice of the right to rescind must be dismissed. See Gonzales v. CIT Group/Consumer Fin., Inc., 2008 U.S. Dist. LEXIS 89092, at **7-9 (E.D. Pa. Oct. 30, 2008) (rejecting plaintiff's argument that she did not receive two copies of notice of right to rescind because defendant presented a notice signed by plaintiff in which she acknowledged receipt of two copies and because plaintiff did not proffer sufficient evidence to rebut the presumption); see also Garza v. Am. Home Mortg., 2009 U.S. Dist. LEXIS 40518, at **8-9 (E.D. Cal. Apr. 28, 2009) (holding that where plaintiff acknowledged by signature that she had received two copies of notice of right to cancel, plaintiff was "unable to rest on [her] complaint's allegation" and was "required to offer some evidence in support of the allegation" (citation and internal quotation marks omitted)).
Therefore, for the foregoing reasons, plaintiffs' TILA claims against GreenPoint must be dismissed.
D. New Jersey Consumer Fraud Act
GreenPoint argues that plaintiffs have not asserted a viable CFA claim because they have not alleged facts sufficient to satisfy the CFA's elements and, thus, to state a cause of action under the statute. Plaintiffs defend their CFA claim by suggesting that a violation of the TILA may also constitute a per se violation of the CFA and that, alternatively, GreenPoint's issuance of a "Pay Option ARM," which plaintiffs supposedly could not afford, violated the CFA.
To state a prima facie case under the CFA, a plaintiff must demonstrate three elements: (1) unlawful conduct by the defendant; (2) an ascertainable loss by the plaintiff; and (3) a causal connection between the defendant's unlawful conduct and the plaintiff's ascertainable loss. Bosland v. Warnock Dodge, Inc., 964 A.2d 741, 749 (N.J. 2009). Regarding the second element, the plaintiff must show that he or she has "suffer[ed] a definite, certain and measurable loss, rather than one that is merely theoretical." Id.; see Weinberg v. Sprint Corp., 801 A.2d 281, 283 (N.J. 2002) ("[T]o have standing under the [CFA] a private party must plead a claim of ascertainable loss that is capable of surviving a motion for summary judgment."). Further, when the alleged misconduct consists of an omission, the plaintiff must also demonstrate the defendant's intent. See Cox v. Sears Roebuck & Co., 647 A.2d 454, 462 (N.J. 1994).
In their complaint, plaintiffs do not identify any particular facts in support of their CFA claim nor do they plead the elements of a CFA claim. Subsequently, in their opposition brief to GreenPoint's motion, plaintiffs argue that violations of the TILA and other statutes may constitute a per se violation of the CFA. Further, it is in their rebuttal, or sur-reply, to GreenPoint's motion that plaintiffs first claim that the issuance of a "Pay Option ARM" violated the CFA because GreenPoint knowingly loaned plaintiffs a mortgage they could not afford.
Because all of plaintiffs' claims have been dismissed, either voluntarily or by this Court, plaintiffs' assertion that the violation of another statute also constitutes a violation of the CFA is moot. Insofar as plaintiffs allege that the issuance of the "Pay Option ARM" violates the CFA, plaintiffs expressly raise the argument as grounds for the CFA claim for the first time in their rebuttal to GreenPoint's motion when they should have conspicuously stated that claim in their complaint. See Frederico v. Home Depot, 507 F.3d 188, 202 (3d Cir. 2007) ("It is axiomatic that the complaint may not be amended by the briefs in opposition to a motion to dismiss." (citation and internal quotation marks omitted)); Smithkline Beecham PLC v. Teva Pharms. USA, Inc., 2007 U.S. Dist. LEXIS 45703, at *3 (D.N.J. Jun. 22, 2007) ("Reply briefs are not the time to present new argument."). Further, plaintiffs offer no support that their theory is cognizable under the CFA, which would require that GreenPoint committed unlawful conduct, that plaintiffs suffered an ascertainable loss, and that a causal relationship existed between GreenPoint's misconduct and plaintiffs' loss. To satisfy the federal pleading standard, plaintiffs' complaint must expressly set forth factual allegations that satisfy the elements of a CFA claim. See Fed. R. Civ. P. 8(a)(2) ("A pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief . . . ."). Plaintiffs have not fulfilled their responsibility.
Therefore, having failed to properly articulate their claim in their complaint, plaintiffs' CFA claim is dismissed.
E. Leave to Amend Complaint
Were this Court to find their complaint defective, plaintiffs have requested an opportunity to amend their complaint. GreenPoint suggests that leave to amend should not be granted because plaintiffs already had an opportunity to do so and to enable them to amend now would contradict the Scheduling Order in which May 29, 2009 was identified as the final day to submit any amended pleadings.
Federal Rule of Civil Procedure 15(a)(2) provides that "a party may amend its pleading only with the opposing party's written consent or the court's leave." Fed. R. Civ. P. 15(a)(2). "The court should freely give leave when justice so requires."
Id. Here, the Court finds that justice requires that plaintiffs have an opportunity to amend their complaint to cure the deficiencies identified in this Opinion as well as any others that may exist. See Carmen v. Metrocities Mortg. Corp., 2009 U.S. Dist. LEXIS 42245, at *23 (D.N.J. May 18, 2009) (dismissing plaintiffs' TILA and CFA claims, among others, without prejudice and granting plaintiffs fourteen days to file amended complaint).
Considering the signed loan documents furnished by GreenPoint and the vagueness of plaintiffs' complaint, it is unclear for sure whether or not there may be some charges or fees which were not bona fide or reasonable or were otherwise not properly disclosed. For example, to the extent that plaintiffs may demonstrate that any of the particular charges or fees highlighted in their opposition brief to the present motion may have been improperly calculated or undisclosed, plaintiffs should set forth that claim in their amended complaint with the requisite specificity. Moreover, given that plaintiffs consummated their loan with GreenPoint about three years ago, the statute of limitations may expire on plaintiffs' claims if they were not afforded an opportunity to amend.
Therefore, plaintiffs' TILA and CFA claims against GreenPoint are dismissed without prejudice. Moreover, plaintiffs are granted leave to amend and file their complaint with regards to GreenPoint within fourteen (14) days of the date of this Opinion. Any amended complaint filed must abide by the pleading standards set forth in Twombly and Iqbal as well as meet the standards set by Federal Rule of Civil Procedure 11(b).
For the foregoing reasons, GreenPoint's Motion for Judgment on the Pleadings is granted insofar as plaintiffs' claims against GreenPoint are dismissed without prejudice. However, the Court grants plaintiffs leave to amend and file their complaint with regards to GreenPoint within fourteen (14) days of the date of this Opinion. Failure to file their amended complaint within the prescribed time period will result in the dismissal of all claims against GreenPoint with prejudice. An Order consistent with this Opinion shall be entered.
NOEL L. HILLMAN, U.S.D.J.