Summary
In Christopher, the plaintiff filed a complaint against a mortgage lender, a mortgage broker, and the assignee of the plaintiff's mortgage, Associates Financial Services Corp., alleging violations of federal consumer protection statutes as well as state law claims.
Summary of this case from Binder v. Weststar Mortg., Inc.Opinion
Civil Action No. 05-01149.
January 20, 2006
MEMORANDUM
Plaintiff John Christopher filed a complaint in the Court of Common Pleas of Philadelphia County on January 28, 2005 against defendants First Mutual Corp., Richard Kelly, and Associates Financial Services Corp. ("Associates"), alleging violations of the Equal Credit Opportunity Act ("ECOA"), the Home Ownership Equity Protection Act ("HOEPA"), the Real Estate Settlement Procedures Act ("RESPA"), and claims under state law. Defendants First Mutual and Kelly removed the action to this Court. Jurisdiction is based on 28 U.S.C. § 1331 and 28 U.S.C. § 1367. Before me now are Associates' motion to dismiss, plaintiff's response, and Associates' reply thereto.
BACKGROUND
John Christopher owns a row home in north Philadelphia. In 1995, he took out a home equity loan through East Coast Mortgage to finance home improvements ("1995 Loan"). The principal balance was $11,800 and the monthly payment was $165.00. The 1995 Loan was reassigned multiple times, ultimately to Money Store.
On November 7, 1997, after receiving a telemarketing call from Kelly, a mortgage broker, Christopher refinanced the 1995 Loan through First Mutual ("1997 Loan"). The mortgage covered the home equity loan and also refinanced Christopher's first mortgage. The principal balance was $22,000, with monthly payments of $254.63 over fifteen years. Christopher alleges that more than ten percent of the loan was used to pay fees. The 1997 Loan was subsequently assigned to Associates.
On November 30, 1998, after another call from Kelly, Christopher refinanced the 1997 Loan, again through First Mutual ("1998 Loan"). The principal balance of the 1998 loan was $31,000, with monthly payments of $365.11 over fifteen years. Associates allegedly demanded $21,645 to satisfy the $22,000 mortgage. The 1998 Loan was later assigned to Associates.
In January 2000, Plaintiff once again agreed to refinance. He refinanced the 1998 Loan through First Mutual ("2000 Loan") on January 31, 2000. The 2000 Loan had a principal amount of $38,250.00, with monthly payments of $321.63 over thirty years. Plaintiff alleges that Associates required $30,870 to satisfy the 1998 Loan, which had an original principal of $31,000. More than nine percent of the loan was used to pay fees. The remainder of the loan paid off plaintiff's real estate taxes and utility bills. The 2000 Loan was subsequently assigned to Homeq Servicing Corporation.
In Christopher's complaint, he seems to assert four different claims against Associates. First, in Count IV, Christopher claims that Associates violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 P.S. § 201-1 et. seq., by imposing "credit costs and charges expressly prohibited by Federal and Pennsylvania Law" and engaging in "fraudulent or deceptive conduct which created a likelihood of confusion or misunderstanding." In Count VI, Christopher asserts that all defendants "made material misrepresentations and omitted material information in order to induce plaintiff to consummate the home equity loan." These misrepresentations included (1) the failure to disclose that a third-party broker was being used; (2) the representations that the home equity loan was beneficial to him and necessary to finance the home improvements; and (3) failing to explain why some loan proceeds were used to pay tax and utility bills. In Count VII, Christopher alleges a RESPA violation. He claims that "in the course of this transaction the lender gave the loan broker a fee, kickback, or thing of value pursuant to an understanding between the lender and the broker that the broker would refer business to the lender" and that "the fee paid to the lender for recording and other charges was a payment" based on services not actually performed. In Count IX, Christopher asserts a breach of contract claim, arguing that Associates demanded amounts in excess of that due under the mortgage and that the interest and finance charges in the loan held by Associates exceeded permissible amounts. Christopher does not specify which loan gave rise to the breach of contract claim.
The majority of his claims are asserted against First Mutual and Kelly.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss all or part of an action for "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6) (2004). In ruling on a 12(b)(6) motion, I must accept as true all well-pleaded allegations of fact, and any reasonable inferences that may be drawn therefrom, in plaintiff's complaint and must determine whether "under any reasonable reading of the pleadings, plaintiffs may be entitled to relief." Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996) (citations omitted). Nevertheless, in evaluating plaintiff's pleadings I will not credit any "bald assertions." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1429 (3d Cir. 1997). Nor will I accept as true legal conclusions or unwarranted factual inferences. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). "The complaint will be deemed to have alleged sufficient facts if it adequately put the defendant on notice of the essential elements of the plaintiff's cause of action." Nami, 82 F.3d at 65. A Rule 12(b)(6) motion is proper only if the plaintiff "can prove no set of facts in support of his claim which would entitle him to relief."Conley, 355 U.S. at 45-46.
DISCUSSION
1. Count IV — UTPCPL Violations
In Christopher's UTPCPL claims, he asserts that Associates imposed expressly prohibited credit costs and other charges and otherwise engaged in fraudulent or deceptive conduct which created a likelihood of confusion or misunderstanding. The basis for these claims seems to be Associates' "overcharge of the mortgage."
The overcharge is the only fact attributed to Associates in Christopher's complaint. He does not describe any personal interaction with Associates, only that two loans were ultimately assigned to them and they received more than the outstanding principal when he refinanced.
The Pennsylvania UTPCPL contains twenty specific forms of prohibited conduct and a catchall provision covering other forms of "fraudulent or deceptive conduct which creates a likelihood of confusion or misunderstanding. 73 Pa. Cons. Stat. § 201-2 (2005). The UTPCPL is to be liberally construed to effectuate the legislature's goal of consumer protection. Commonwealth v. Monumental Properties Inc., 460, 329 A.2d 812, 817 (Pa. 1974);Keller v. Volkswagen of America, Inc., 733 A.2d 642, 646 (Pa.Super.Ct. 1999). Christopher seems to assert his claims against Associates under 73 Pa. Cons. Stat. § 201-2(xxi), the catchall provision.
In his complaint, Christopher cites three separate parts of 73 Pa. Cons. Stat. § 201-2. One section follows an allegation addressed specifically to actions by defendant Kelly. Christopher also asserts a violation of 73 Pa. Cons. Stat. § 201-2(v) against Associates by addressing the claim to "all defendants" in his complaint, but seems to retract this claim in his response to Associates' motion to dismiss. He also alleges no specific facts in either his complaint or his response which would give rise to Associates' liability under that UTPCPL section.
The catchall provision originally only covered fraudulent conduct, and courts interpreting the statute required the plaintiff to meet the increased requirements for pleading fraud.See, e.g., Hammer v. Nichol, 659 A.2d 617, 619-20 (Pa.Super. 1995); Prime Meats, Inc. v. Yochim, 619 A.2d 769 (Pa.Super. 1993). In 1996, however, the Pennsylvania legislature amended the catchall provision, expanding it to cover both fraudulent and deceptive conduct. Since then, courts have divided on whether a plaintiff must meet the heightened fraud pleading requirement.Compare Skurnowicz v. Lucci, 798 A.2d 788, ¶ 19 (Pa.Super. 2002) (plaintiff must plead elements of common law fraud), with Flores v. Shapiro Kreisman, 246 F. Supp. 2d 427, 432 (E.D. Pa. 2002) ("by adding a prohibition on "deceptive" conduct, the 1996 amendment to the CPL eliminated the need to plead all of the elements of common law fraud in actions under the CPL"). The Pennsylvania Supreme Court has not yet addressed this issue.
I review the 1996 changes in the statute with the goals of effectuating the legislature's purpose, giving meaning to every word in the statute, and making the amendment have meaning. As the Supreme Court has noted, "It is our duty `to give effect, if possible, to every clause and word of a statute.'" United States v. Menasche, 348 U.S. 528, 538 (1955) quoting Montclair v. Ramsdell, 107 U.S. 147, 152 (1882); see also Flores v. Shapiro Kreisman, 246 F. Supp. 2d 427, 432 (E.D. Pa. 2002) ("Under general principles of statutory interpretation, no word should be rendered redundant."). Courts have previously recognized the legislature's broad goal to protect consumers in these transactions. See, e.g., Keller, 733 A.2d at 646 ("It is to be liberally construed in order to effectuate its purpose."). Further, the legislature must have had a reason for amending the statute to add "deceptive." Considering these factors, I find under the amended statute, the catchall provision extends consumer protection to cover both fraudulent and deceptive conduct. It is no longer necessary for a plaintiff to plead all of the elements of common law fraud to recover under the UTPCPL catchall provision. If a plaintiff alleges fraud under the UTPCPL, he must still plead all the elements of common law fraud. If a plaintiff alleges deceptive conduct under the UTPCPL, however, he need not meet the traditional heightened pleading standard. I will review Christopher's assertions to see if they fall under either category.
Christopher has failed to assert a fraud claim upon which relief can be granted. The elements of fraud in Pennsylvania are: (1) a representation; (2) which is material to the transaction in question; (3) made falsely, with knowledge of the falsity or reckless disregard for the truth; (4) with the intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and (6) injury proximately caused by the reliance. See Youndt v. First Nat'l Bank, 868 A.2d 539, 545 (Pa. Super 2005); see also Bortz v. Noon, 729 A.2d 555, 560 (Pa. 1999). Christopher has not alleged any contact with Associates, and has also not specified any misrepresentations made by Associates. Therefore, his claim cannot fall under the "fraudulent" part of the catchall provision.
Christopher's UTPCPL claim against Associates is also not saved by the "deceptive" part of the catchall provision. Deception, which is very similar to fraud, is defined as "intentional misleading by falsehood spoken or acted." Black's Law Dictionary 406 (6th ed. 1990). An act or a practice is deceptive or unfair if it has the capacity or tendency to deceive. Commonwealth ex rel. Zimmerman v. Nickel, 26 Pa. D. C.3d 115, 120 (Pa. D. C. 1983) citing FTC v. Raladam Company, 316 U.S. 149, 152; 62 S. Ct. 966, 968 (1942);see also In re Patterson, 263 B.R. 82, 94 (Bankr. E.D. Pa. 2001) (defining deceptive act as "act of intentionally giving a false impression or a tort arising from a false representation made knowingly or recklessly with the intent that another person should detrimentally rely on it"). Christopher has not asserted any facts which would lead to Associates' liability for deceptive conduct. As stated above, the only specific conduct he attributes to Associates is accepting more than the remaining principal on Christopher's loans when he refinanced. There were no representations and no contact between Christopher and Associates. Therefore, the overcharging also cannot constitute deception.
Under the UTPCPL heading of his complaint, Christopher also asserts that Associates and the other defendants "imposed credit costs and charges expressly prohibited by Federal and Pennsylvania law, which is a per se unfair or deceptive practice." Christopher does not mention which charges by Associates were expressly prohibited. By omitting these facts, he has not adequately put the defendant on notice of the essential elements of the plaintiff's cause of action. I cannot credit his bald assertions of misconduct without any supporting facts. Thus, I will dismiss Christopher's UTPCPL claim with leave to amend if he can assert facts to give Associates notice of their alleged imposition of illegal charges.
Because Christopher has not offered any facts describing the charges, I cannot analyze whether his claim properly falls under UPTCPL. Upon cursory review, I doubt that he will be able to survive summary judgment on this claim without asserting any contact with Associates.
2. Count VI — Fraud
The heading of Count VI of Christopher's complaint states: "Fraud — All Defendants." In his response to Associates' motion to dismiss, Christopher concedes that he has no fraud claim against Associates. Therefore, I will dismiss the fraud claim against Associates.
He states, "While plaintiff could have been clearer in the proofreading and final draft of the heading, Associates could not believed count VI was directed to it as each of the averments refer specifically to the loan broker."
3. Count VII — RESPA
Christopher also seems to assert a RESPA claim against Associates. In this count, however, he only mentions the "lender" (presumably the original lender on each loan) and the loan broker (Kelly). Associates was merely assigned two of the loans; Christopher does not assert that they had any involvement in inducing him to enter into the loans. Therefore, I will dismiss the RESPA claim against Associates, again with leave to amend if Christopher can specify on what basis he seeks to hold Associates liable.
In his response to Associates' motion to dismiss, he notes that "counts IV, V, and VII are directed to all defendants." Later in his response, however, Christopher argues that this court lacks jurisdiction over his claims against Associates because they are only state law claims. Even later in his response, he notes that subject matter jurisdiction is premised on the viability of the RESPA claim. As I discuss hereinafter, I have jurisdiction regardless of the survival of the RESPA claim because Christopher's claims against Associates form part of the same claim or controversy as his federal claims against First Mutual and Kelly.
4. Count IX — Breach of Contract
Christopher bases his breach of contract claim against Associates on his allegations that Associates demanded amounts in excess of that due under the mortgage and that the interest and finance charges in the loan held by Associates exceeded permissible amounts. Associates argues that Christopher's breach of contract claim is barred by the applicable statute of limitations.
"The failure of a party to a contract to perform in accordance with its terms gives the other party a cause of action for a breach." 1 P.L.E. CONTRACTS 491 (2005). In a contract case, a cause of action accrues when the breach occurs. Romeo Sons v. P.C. Yezbak Son, 652 A.2d 830, 832 (Pa. 1995). Although Christopher does not specify which contract, or mortgage agreement, was breached by Associates, Christopher does assert that to satisfy both loans Associates received more than the principal. There are only two loans and I will give him the benefit of the doubt by assuming that he meant both loans that were eventually assigned to Associates. If Associates demanded more than the amount due to them under the mortgages, as Christopher asserts, then they breached the contracts. In this case, the alleged breach must have occurred at the time of closing, when the mortgage was extinguished. The 1997 loan closed on November 30, 1998. The 1998 loan closed on January 31, 2000.
The general statute of limitations for contract claims is four years. See 42 Pa. Cons. Stat. § 5525(a)(8). Pennsylvania, however, provides a twenty year statute of limitations for contracts under seal. 42 Pa. Cons. Stat. § 5529. "An instrument containing the word `seal' or its equivalent is deemed a sealed instrument if the maker adopts the seal." See Klein v. Reid, 422 A.2d 1143, 1144 (Pa.Super. 1980). This presumption can be rebutted. See id.; see also Federal Deposit Ins. Corp. v. Barness, 484 F. Supp. 1134, 1149 n. 9 (E.D. Pa. 1980) ("The presence of the printed word "(Seal)" opposite defendant's signature on the promissory note gives rise to only a rebuttable presumption that defendant adopted the seal, therby rendering the note a sealed instrument.").
The 1998 mortgage contains the typed words "IN WITNESS WHEREOF, I hereunto set my hand and official seal." It also contains the word "seal" by each of the witness' signatures. Associates has not yet presented any evidence to rebut the presumption that the contract was not under seal. It was printed on the original documents; it was not later added by Christopher or a agent of First Mutual or Associates. The 1998 mortgage, therefore, was a contract under seal and subject to the twenty year statute of limitations.
Christopher has not asserted that the 1997 mortgage was a contract under seal, so any contract claims relating to that mortgage are time-barred. Therefore, I will dismiss any claims he has regarding the 1997 mortgage for statute of limitations purposes unless he asserts that they were executed under seal and thus fall under the longer statute of limitations.
In this section of the complaint, Christopher also asserts his rights to three times the amount of the excess charges paid, plus reasonable attorneys fees and costs, citing 41 Pa. Cons. Stat. §§ 502 and 503. These statutes prohibit usury and provide for a four year statute of limitations. See 41 Pa. Cons. Stat. § 502. As I discussed above, the date the alleged breach occurred was January 31, 2000. Christopher's cause of action for usury expired four years from that date, on January 31, 2004, and his complaint in this case was not filed until January 28, 2005. Therefore, any cause of action under 41 Pa. Cons. Stat. §§ 502 or 503 is dismissed with prejudice.
5. Jurisdiction
In his response, Christopher seems to contest this court's jurisdiction over his claims against Associates and asks that I remand the case to state court. If I dismiss the RESPA claim against Associates, Christopher argues, I must remand the remaining claims against Associates to state court. As 28 U.S.C. § 1367 provides:
[I]n any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.
The key question in these inquiries is whether the state and federal claims form a "common nucleus of operative fact." See Lyon v. Whisman, 45 F.3d 758, 760 (3d Cir. 1995). As to this test, it has been stated that "mere tangential overlap of facts is insufficient, but total congruity between the operative facts . . . is unnecessary." Nanavati v. Burdette Tomlin Memorial Hosp., 857 F.2d 96, 105 (3d Cir. 1988).
Christopher's state claims meet this threshold. His federal claims against First Mutual and Kelly, under the Equal Credit Opportunity Act ("ECOA"), the Home Ownership Equity Protection Act ("HOEPA"), the Real Estate Settlement Procedures Act ("RESPA"), all surround the four loans issued to Christopher, including their creation, terms, transfers, and satisfaction. Christopher's state claims, against First Mutual, Kelly, and Associates, are based on the same set of facts. Due to this substantial overlap, Christopher should not be expected to litigate and First Mutual and Kelly should not have to defend this action in two separate jurisdictions. The claims against Associates overlap the other claims against First Mutual and Kelly; three of the counts are directed concurrently to First Mutual, Kelly and Associates. Under § 1367, I also have jurisdiction over Christopher's state law claims against Associates. Therefore, I have jurisdiction over all of Christopher's federal and state claims.
An appropriate order follows.
ORDER
AND NOW, this 20th day of January 2006, upon consideration of defendant's motion to dismiss, Plaintiff's response, and defendant's reply thereto, and for the reasons set forth in the accompanying memorandum, defendant's motions to dismiss are denied as to Christopher's breach of contract claim against Associates based upon satisfaction of the 1998 mortgage. The defendants' motions to dismiss are GRANTED as to all other claims.Plaintiff is granted leave to amend his Complaint within thirty days regarding his claims against Associates under UTPCPL, RESPA, and his breach of contract claim premised upon the 1997 mortgage. If plaintiff intends to assert a fraud claim under UTPCPL he must plead the elements of common law fraud. All other claims against Associates for which defendant's motions are granted are DISMISSED WITH PREJUDICE.