United States District Court, N.D. Illinois
March 29, 2004.
STEPHANIE SPANN; LEONILA T. NINI; EUFRONIONINI; JOHNHARDT; ROBBIN VERBECK; STEPHANIE HAFFORD; CHARLES B. POINDEXTER; MAUREEN F. POINDEXTER; DAVID B. WALKER; SHUNDRA R. WALKER; JESSIE DODD; JAMES BECKIUS; LINDA WHITEHEAD; LYNELL B. WINGFIELD, JAIRO IVAN SARRIA; BEATRE SARRIA; MICHELLE MORGAN; SHARON FINNERTY; DONALD APPLETON; and JEANETTE APPLETON, Plaintiffs
COMMUNITY BANK OF NORTHERN VIRGINIA; GUARANTY NATIONAL BANK OF TALLAHASSEE; HOMECOMINGS FINANCIAL NETWORK, INC.; HOUSEHOLD FINANCIAL SERVICES, INC.; RESIDENTIAL FUNDING CORPORATION; and DOES 1-25, Defendants
The opinion of the court was delivered by: AMY J. ST. EVE, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs have filed a two-count Second Amended Complaint ("SAC")
against multiple Defendants, including Community Bank of Northern
Virginia ("Community Bank"). Count I alleges violations of the Truth in
Lending Act, 15 U.S.C. § 1601 et seq. (`TILA"), as amended
by the Home Ownership and Equity Protection Act, 15 U.S.C. § 1639
("HOEPA"). Count II seeks recovery against Community Bank and Guaranty
National Bank for a violation of Section
4.1a of the Illinois Interest Act, 815 ILCS 205/4. la. Plaintiffs
seek rescission, statutory damages, and declaratory relief. Defendant
Community Bank has moved to dismiss Plaintiffs' complaint. For the
reasons set forth below, Defendant Community Bank's motion is granted.
I. Allegations in the SAC
Only certain Plaintiffs borrowed money from Community Bank and have
asserted claims against Community Bank: Stephanie Spann, Leonila T. Nini
and Eufronio Nini (the "Ninis"), John Hardt and Robbin Verbeck (the
"Hardt/Verbecks"), Lynell B. Wingfield, and Sharon Finerty (collectively,
the "Community Bank Plaintiffs"). The Community Bank Plaintiffs reside in
Illinois: Spann resides in Rockford; the Ninis reside in Darien; the
Hardt/Verbecks live in Collinsville; Wingfield lives in O'Fallon; and
Finerty resides in Homewood.
Each of the Community Bank Plaintiffs obtained a residential second
mortgage loan nominally made from Community Bank. Plaintiffs allege that
these loans had high "points and fees, typically amounting to 10% of the
loan balance." (R. 50-1, SAC ¶ 28.) They contend that these loans
were extensions of consumer credit subject to TILA and HOEPA. Plaintiffs
further allege that Community Bank actually did not make the loans at
issue in this case. Instead, EquityPlus Financial made the loans and in
effect "rented" Community Bank's banking charter to issue them.
(Id. ¶ 31.) Thus, Plaintiffs allege that the loans only
nominally originated from Community Bank.
The Community Bank Plaintiffs allege that the finance charges on their
second mortgage loans are understated and the amounts financed are
overstated on the TILA disclosures furnished to them in connection with
these second mortgages. (Id. ¶ 186.) They further allege
annual percentage rate was understated on the TILA financial
disclosures and the advance HOEPA disclosures "by an amount exceeding any
applicable tolerances." (Id. ¶ 187.)
The Community Bank Plaintiffs seek to rescind the loans made or held by
Defendants under TILA and Regulation Z of the Federal Reserve Board,
12 C.F.R. part 226. They also seek statutory damages available under both
TILA and HOEPA, and to obtain a declaratory judgment regarding their
obligations toward Defendants.
II. Related Class Action Complaints
Litigation has taken place in Pennsylvania that is relevant to this
case. On May 1, 2001, a class action complaint, entitled Davis et al.
v. Community Bank of Northern Virginia et al. was filed in the Court
of Common Pleas of Allegheny County, Pennsylvania, (G.D. 01-8643.) The
Davis plaintiffs commenced the case on behalf of themselves and
all person who received secondary mortgage loans funded by the Community
Bank of Northern Virginia where the loan was secured by real property in
Pennsylvania. On or about July 3, 2001, the Davis plaintiffs
filed an amended complaint on behalf of the same class. (R. 42-1, Sur
Surreply in Supp. of Mot. to Dismiss, Ex. A.) On July 27, 2001, the
Davis defendants removed the case to the United States District
Court for the Western District of Pennsylvania. (Civil Action, 01-1406
(W.D. Pa.)). The Western District of Pennsylvania remanded that case to
state court on April 25, 2002. (R. 42-1, Sur Surreply in Supp. of Mot. to
Dismiss, Ex. B,) On June 12, 2002, the Davis plaintiffs filed a Second
Amended Complaint ("Davis second amended complaint").
(Id. Ex. C). In the Davis second amended complaint, the
plaintiffs sought to represent a purported class of persons who received
a secondary mortgage from Community Bank where "(a) the loan is secured
by real property in Pennsylvania (the `Pennsylvania Class'), (b) the loan
is secured by real property
anywhere in the United States (the `National Class'), and where the
loan meets the definition of high-cost mortgage set forth at
15 U.S.C. § 1602(aa)(1)(A)-(B). (Id. Ex. C, ¶ 1.) On July 9, 2002,
the Davis defendants again removed the case to the Untied States
District Court for the Western District of Pennsylvania. (Civil Action
02-1201 (W.D. Pa.)). This time the case remained in federal court. On
July 25, 2002, the Davis plaintiffs filed a third amended
complaint on behalf of the same class. (R. 42-1, Sur Surreply in Supp. of
Mot. to Dismiss, Ex. D.) In or about November, 2003, a Consolidated
Amended Cass Action Complaint was filed in the Davis case in the
United States District Court for the Western District of Pennsylvania on
behalf of the National Class where the loan was repurchased by
Residential Funding Corporation. (Id. Ex. E. ¶ 369.)
The Western District of Pennsylvania consolidated Davis with
Kessler et al v. GMAC Residential Funding Corp., et al, sub nom In Re
Community Bank of Northern Virginia and guaranty National Bank of
Tallahassee Second Mortgage Loan Litigation, Civil Action No.
03-0425 (W.D. Pa.), in order to obtain certification of the settlement
class and approval of the settlement. Plaintiffs allege that they opted
out of the settlement in the Davis action, but the court
invalidated their opt-out submissions. The validity of Plaintiffs'
opt-out currently is on appeal in Davis.
The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test
the legal sufficiency of a complaint, not the merits of the case. See
Triad Assocs., Inc. v. Chicago Hous. Auth., 892 F.2d 583, 586 (7th
Cir. 1989). When considering a motion to dismiss, the Court considers
"whether relief is possible under [any] set of facts that could be
with [the] allegations." Bartholet v. Reishauer A.G.
(Zurich), 953 F.2d 1073, 1078 (7th Cir. 1992). The Court views the
complaint "in the light most favorable to the plaintiff, taking as true
all well-pleaded factual allegations and making all possible inferences
from those allegations in his or her favor." Lee v. City of
Chicago, 330 F.3d 456, 459 (7th Cir. 2003). See also Thomas v.
Law Firm of Simpson & Cybak, 354 F.3d 696, 697 (7th Cir. 2004).
The Court is not, however, "obliged to accept as true legal conclusions
or unsupported conclusions of fact." Hickey v. O'Bannon,
287 F.3d 656, 658 (7th Cir. 2002).
In deciding this motion to dismiss, the Court can consider any
documents incorporated or referenced in the complaint. See Tierney v.
Vahle, 304 F.3d 734, 738 (7th Cir. 2002); Menominee Indian Tribe
of Wis. v. Thompson, 161 F.3d 449, 456 (7th Cir. 1998), cert.
denied, 526 U.S. 1066 (1999).
Statute of limitations defenses are frequently inappropriate for
resolution on a motion to dismiss because their application often depends
upon factual determinations. Johnson Controls, Inc. v. Exide
Corp., 129 F. Supp.2d 1137, 1142 (N.D. Ill. 2001). If a plaintiff
alleges facts that show that his action is time-barred, however, he may
plead himself out of court. Id. All reasonable inferences must
be drawn in plaintiffs' favor when a defendant seeks a dismissal because
the claim is time-barred. Cornfield by Lewis v. Consol. High Sch.
Dist. No. 230, 991 F.2d 1316, 1324 (7th Cir. 1993).
I. The Rescission Claims
The Community Bank Plaintiffs allege that the transactions at issue are
subject to rescission pursuant to 15 U.S.C. § 1635 and
12 C.F.R. § 226.23. Section 226.23 requires a
consumer to exercise her right to rescission within three business
days from either the date of consummation, delivery of notice of the
right to rescind, or delivery of all material disclosures, whichever is
later. 12 C.F.R. § 226.23(a).
Section 1635(f) sets forth a time limit for the consumer to exercise
her right to rescind. It provides, in relevant part, "[a]n 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, notwithstanding the fact that the information and
forms required under this section or any other disclosures required under
this part have not been delivered to the obligor."
15 U.S.C. § 1635(f).
Community Bank argues that Spann, Wingfield and the Hardt/Verbecks all
obtained their loans more than three years prior to the filing of this
action on October 3, 2003. Based on the allegations in the SAC,
Defendant's timeline is accurate: Lynell closed on May 28, 1999; Spann
closed on June 15, 2000; and the Hardt/Verbecks closed on August 18,
2000. Each of these closing dates took place more than three years before
the filing of this lawsuit. Accordingly, Community Bank argues that the
rescission claims of these Plaintiffs are rime-barred pursuant to
15 U.S.C. § 1635. The Community Bank Plaintiffs contend that the
three-year statute of limitations is tolled, and thus their claims are
II. Tolling of the Rescission Claims
"Tolling doctrines stop the statute of limitations from running even if
the accrual date has passed." Cada v. Baxter Healthcare Corp.,
920 F.2d 446, 450 (7th Cir. 1991). Plaintiffs argue that the three-year
statute of limitations for their rescission claims is tolled for two
reasons. First, Plaintiffs asserted that the filing of the Davis
class action in Pennsylvania tolled it. Second, Plaintiffs claim that the
statute of limitations is suspended under the doctrine of fraudulent
concealment. Before addressing either of these arguments, the Court
first addresses whether the three-year statute of limitations for
Plaintiffs' rescission claim is subject to tolling.
A. The Three-Year Limitation Period is Not Subject to
In Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), the
Supreme Court held that Section 1635(f) "completely extinguishes the
right of rescission at the end of the 3-year period." Id. at
412. The Beach Court noted that the "`ultimate question' is
whether Congress intended that `the right shall be enforceable in any
event after the prescribed time.'" Id. at 416 (citations
omitted). The Supreme Court concluded that "Section 1635(f) . . .
takes us beyond any question whether it limits more than the time for
bringing a suit, by governing the life of the underlying right as well.
The subsection says nothing in terms of bringing an action but instead
provides that the `right of rescission [under the Act] shall expire' at
the end of the time period. It talks not of a suit's commencement but of
a right's duration, which it addresses in terms so straightforward as to
render any limitation on the time for seeking a remedy superfluous."
Id. at 417 (citations omitted). The Beach Court went on
to compare Section 1635(f) to other provisions of TILA and concluded that
Congress deliberately intended to preclude a federal right to rescind
after the expiration of the three-year period. Id. at 419.
Given the Supreme Court's interpretation of Section 1635(f) and a plain
reading of the text of the statute, the Court agrees with Defendant
Community Bank that the three-year limitation period for TILA rescission
claims is incompatible with tolling. See Taylor v. Money Store,
No. 00-35930, 2002 WL 1769962 (9th Cir. Aug. 1, 2002) (quoting
Beach, 523 U.S. 412-13: "Equitable tolling does not apply to
rescission under this provision of TILA, because § 1635(f) completely
extinguishes the right of rescission at the end of the 3-year period,"
the lender has never made the required disclosure"); Harris v.
EMC Mortgage Corp., No. Civ. A. 01-4868, 2002 WL 32348324 (E.D. Pa.
Apr. 10, 2002) (holding that TILA's three-year statute of limitations on
rescission claims is not subject to tolling). Plaintiffs' attempt to
distinguish Beach on the ground that it did not address tolling
under the doctrine of fraudulent concealment is unpersuasive and
conflicts with the clear language of Section 1635(f).
Even assuming arguendo that the three-year period were subject
to tolling, both of Plaintiffs' tolling arguments fail as addressed
B. The Davis/Kessler Class Action Did Not Toll the Statute of
In American Pipe and Construction Co. v. Utah, 414 U.S. 538,
94 S.Ct. 756, 38 L.Ed.2d 713 (1974), rehearing denied
415 U.S. 952, the Supreme Court addressed the tolling effect a class action
has on the statute of limitations. It held that "the commencement of a
class action suspends the applicable statute of limitations as to all
asserted members of the class. . . ." Id. at 554, 94 S.Ct.
at 756. In Crown, Cork & Seal Co., Inc. v. Parker,
462 U.S. 345, 353-54, 103 S.Ct. 2392, 76 L.Ed.2d 628 (1983), the Supreme Court
extended the American Pipe holding beyond just those members of
the purported class who sought to intervene: "the commencement of a class
action suspends the applicable statute of limitations as to all asserted
members of the class who would have been parties had the suit been
permitted to continue as a class action. Once the statute of limitations
has been tolled, it remains tolled for all members of the putative class
until class certification is denied. At that point, class members may
choose to file their own suits or to intervene as plaintiffs in the
pending action." Id. at 353-54, 103 S.Ct. at 2397-98 (citation
omitted). The Supreme Court recognized that this tolling rule would not
impair the policies behind statutes of limitations, namely, putting the
defendants on notice of adverse claims
and preventing plaintiffs from sleeping on their rights, because
the filing of a class action achieves these goals. Id. at
352-53, 103 S.Ct. at 2397.
Citing American Pipe, Plaintiffs argue that the three-year
statute of limitations for then-rescission claims against Community Bank
has been tolled by the inclusion of the Plaintiffs in the Davis
class action. Plaintiffs argue that the applicable statute of limitations
was tolled between May 1, 2001 with the filing of the Davis
complaint in the Court of Common Pleas of Allegheny County, Pennsylvania,
and October 3, 2003, the date on which Plaintiffs opted out of the
settlement. Because they filed this case on October 3, 2003, Plaintiffs
argue that the three-year statute of limitations has not expired with
respect to any of the individual Plaintiffs suing Community Bank.
1. Members of the Class
Defendant first contends that the Davis filing did not toll
the statute of limitations on Plaintiffs' TILA claims because Plaintiffs
were not members of the putative class alleged in the Davis
complaint. Community Bank argues that the Davis complaint's
putative class was limited to borrowers whose second mortgage loans were
secured by real property in Pennsylvania.
The original Davis complaint and the amended complaint only
purported to represent the class of persons "who received secondary
mortgage loans funded by Community [Bank], secured by real property in
Pennsylvania, and who were damaged by the predatory lending practices
alleged herein." (R. 39-1, Surreply to Def.'s Reply in Supp. of Mot. to
Dismiss, Ex. A). The Davis second amended complaint and third
amended complaint, however, both sought to represent a nationwide class,
namely, "all persons who received a secondary mortgage loan where the HUD
1 Settlement Statement executed by the borrower in connection with the
indicates that the lender for the loan" was Community Bank, and
where "the loan is secured by real property anywhere in the United
States" and "meets the definition of high-cost mortgage set forth in
15 U.S.C. § 1602(aa)(1)(A)-(B)." (R. 42-1, Sur Surreply in Supp. of Mot.
to Dismiss, Exs. C & D). The Davis second and third amended
complaints therefore appear to include Plaintiffs as putative class
members. The Davis second amended complaint was not filed,
however, until June 12, 2002. As discussed below, mere inclusion in the
class is insufficient to toll the statute of limitations. The
Davis complaint must have alleged the same causes of action at issue
in this case in order to toll the statute.
2. The Davis Plaintiffs Did Not Include
TILA Claims In Their Pleadings
Defendant next argues that the Davis complaint did not toll
the statute of limitations for Plaintiffs' THA claims because the
Davis plaintiffs failed to allege any TILA violations. Because
the tolling doctrine only applies to the claims that were pending on
behalf of the class and the Davis plaintiffs did not allege any
TILA claims, Defendant argues that the statute of limitations does not
toll as to the TILA claims asserted in this case.
Subsequent to American Pipe, the Supreme Court noted that "the
tolling effect given to the timely prior filings in American Pipe.
. . . depended heavily on the fact that [that] filing involved
exactly the same cause of action subsequently asserted. This factor was
more than a mere abstract or theoretical consideration because the prior
filing . . . necessarily operated to avoid the evil against which the
statute of limitations was designed to protect" Johnson v. Ry. Exp.
Agency, Inc., 421 U.S. 454, 467, 95 S.Ct. 1716, 1723-24,
44 L.Ed.2d 295 (1975). In his concurring opinion in Crown, Cork &
Seal, Justice Powell also recognized that American Pipe's
holding is limited to claims asserted by the purported class:
"The tolling rule oF American Pipe is a
generous one, inviting abuse. It preserves for
class members a range of options pending a
decision on class certification. The rule should
not be read, however, as leaving a plaintiff free
to raise different or peripheral claims following
denial of class status. In American Pipe
we noted that a class suit `notifies the
defendants not only of the substantive claims
being brought against them. . . .' When thus
notified, the defendant normally is not prejudiced
by tolling of the statute of limitations. It is
important to make certain, however, that
American Pipe is not abused by the
assertion of claims that differ from those raised
in the original class suit."
Crown, Cork & Seal Co., Inc. v. Parker, 462 U.S. at
354-55, 103 S.Ct. at 2398 (citations omitted). Thus, the Davis
complaint only tolled the statute of limitations as to those claims
actually alleged against Community Bank in the Davis action. To
hold otherwise would prejudice Community Bank by allowing Plaintiffs to
assert claims of which Community Bank did not have timely notice. See
also Southwire Co. v. J.P. Morgan Chase & Co., No. MDL 1303,
2004 WL 414799, at *18 (W.D. Wis. Mar. 3, 2004) ("Thus, to claim a
tolling benefit from a previous class action, the legal theory on which
the class action plaintiffs sued must be the same as the theory used by
the plaintiffs claiming the tolling benefit. Because the Heliotrope
actions did not involve the same causes of action as those in plaintiffs'
present case against defendants, plaintiffs may not claim any tolling
benefit from the Heliotrope class actions.").
A review of the pleadings in Davis reveals that the
Davis plaintiffs did not allege the same causes of action
involved in this lawsuit, thus the Davis case did not toll the
statute of limitations for Plaintiffs in this case. The original
complaint filed in the Allegheny Court of Common Pleas on May 1, 2001 did
not contain any TILA claims for rescission. Although Plaintiffs concede
this point, (R. 39-1, Pls.' Surreply p.3), they argue the docket sheet
entry from the July 27, 2001 removal of the Davis case to the
United States District Court for the Western District of Pennsylvania
reflects that the Davis defendants premised removal on liability
15 U.S.C. § 1640 "which sets out the civil liability of those who
violate the Truth in Lending Act." (Id.) Surprisingly,
Plaintiffs fail to cite or rely on the underlying pleadings from that
removal. Indeed, a review of those pleadings demonstrates the
flaw in Plaintiffs' argument. The Davis Amended Complaint
pending at the time of removal did not contain a TILA case. (R. 42-1, Sur
Surreply in Supp. of Mot. to Dismiss, Ex. A.) The Davis Amended
Complaint alleged that the Davis defendants were precluded from
raising a holder in due course defense pursuant to
15 U.S.C. § 1641(d)(1). (Id., Ex. A ¶ 54.) The Davis plaintiffs
alleged that Section 1641(d)(1) did not create a basis for federal court
jurisdiction because it "merely eliminates the holder in due course
defense, it does not provide a basis for federal subject matter
jurisdiction." (Id. Ex. A ¶ 54). The Davis
defendants removed the amended complaint on the basis of these
allegations, arguing that they raised a federal question. The District
Court remanded the case to state court, holding that the Section 1641
reference "does not transform their state law claims to ones arising
under federal law. Rather § 1641(d)(1) eliminates a state law defense
for assignees of certain mortgages, thereby subjecting them to all claims
and defenses which a borrower could assert against his original lender."
(Id., Ex. B p.6). The court found that the Davis
plaintiffs only asserted state law claims against the defendants.
Similarly, the Davis second amended complaint, the
Davis third amended complaint and the Davis
consolidated amended complaint do not allege the TILA rescission causes
of action at issue in this case. Accordingly, under American
Pipe, the three-year statute of limitations period in
15 U.S.C. § 1635(f) was not tolled, and the rescission claims of Spann,
Wingfield, and the Hardt/Verbeck's are barred.
3. Relation Back
After allowing the parties to file a sur reply to the motion to dismiss
and a sur sur reply, the Court informed the parties that it would allow
no further briefing on the motion to dismiss unless specifically ordered
by the Court. Plaintiffs thereafter attempted to disguise further
arguments through a Motion for Judicial Notice. (R. 58-1, Pls.' Mot. for
Judicial Notice.) In that motion, Plaintiffs argued that the Court should
take judicial notice of the filing of the Davis second amended
complaint, and `that at a minimum the allegations in this case relate
back to July 25, 2002." (Id. at ¶ 8.) Although the Court
granted the motion to the extent the Community Bank Plaintiffs asked the
Court to take judicial notice of the content of the attached pleadings
from the Davis case, the Court did not grant Plaintiffs leave to
advance new arguments. Thus the "relation back" argument raised by
Plaintiffs for the first time in their Motion for Judicial Notice is
waived. See United States v. Collins, ___ F.3d ___, 2004 WL
502202 at *5 (7th Or. Mar. 15, 2004) (arguments not raised in opening
briefs are waived).
Even if considered on the merits, Plaintiffs' argument fails. The
relation back doctrine of Federal Rule of Civil Procedure 15(c) does not
apply to claims that are pending in separate cases. See Bailey v. N.
Ind. Pub. Serv. Co., 910 F.2d 406, 413 (7th Cir. 1990).
C. Tolling Based on Fraudulent Concealment
Plaintiffs next seek to extend the statute of limitations for their
TILA rescission claims through the doctrine of fraudulent concealment.
The doctrine of fraudulent concealment, also known as equitable estoppel,
tolls the statute of limitations "if the defendant takes active steps to
prevent the plaintiff from suing in time," Cada v. Baxter Healthcare
Corp., 920 F.2d 446, 450-51 (7th Cir. 1990), "such as by hiding
evidence or promising not to plead the statute of limitations."
Speer v. Rand McNally & Co., 123 F.3d 658, 663 (7th
Cir. 1997) (citations and quotations omitted). "The granting of equitable
estoppel should be premised on a defendant's improper conduct as well as
a plaintiffs actual and reasonable reliance thereon." Hentosh v.
Herman M. Finch University of Health Sciences/The Chicago Medical
School, 167 F.3d 1170, 1174 (7th Cir. 1999) (citations and
quotations omitted). The "doctrine contemplates that the plaintiff has
discovered, or . . . should have discovered, that the defendant
injured him, and denotes efforts by the defendant above and
beyond the wrongdoing upon which the plaintiffs claim is founded to
prevent the plaintiff from suing in time." Id. (citations and
quotations omitted). The alleged acts of fraudulent concealment must
constitute more than a failure to disclose the alleged initial fraudulent
conduct See Sharp v. United Airlines, Inc., 236 F.3d 368, 372
(7th Cir. 2001). Courts should apply equitable estoppel "sparingly."
Nat'l R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 113, 122 So.
Ct. 2061, 2072, 153 L.Ed.2d 106 (2002).
Plaintiffs allege that fraudulent concealment has tolled the statute of
limitations here "in that the finance charge and APR miscalculations are
undetectable by the average borrower." (R. 50-1, SAC ¶ 4a.) This sole
allegation fails to show that Community Bank took any affirmative steps
to conceal Plaintiffs' cause of action. They have not alleged any
wrongdoing above and beyond the wrongdoing upon which the Plaintiffs'
claim is founded. Plaintiffs have not alleged any deliberate effort on
the part of Community Bank to prevent them from suing. Accordingly, they
"cannot avoid the statute of limitations based on the doctrine of
equitable estoppel." Reeves v. Frierdich, No. 99-1201, 99-1301,
2000 WL 10284, *4 (7th Cir. Jan. 4, 2000). See also Hentosh, 167
F.3d at 1174, Coda, 920 F.2d at 451.
In addition, Plaintiffs must plead their claim of fraudulent
concealment with sufficient
particularity under Rule 9(b) to survive a motion to dismiss.
See Ackerman v. Northwestern Mut. Life Ins. Co., 172 F.3d 467,
469 (7th Cir. 1999). Here, Plaintiffs have failed to do so, thus their
fraudulent concealment allegation fails.
The three-year statute of limitations has run on the rescission claims
of Spann, Wingfield, and the Hardt/Verbecks. Because Plaintiffs cannot
toll the three-year statute of limitations, it would be fufile for
Plaintiffs to amend their complaint yet again in an attempt to
sufficiently allege fraudulent concealment. Accordingly, the rescission
claims of Spann, Wingfield, and the Hardt/Verbecks are dismissed with
III. Statute of Limitations for Statutory Damages Under
Defendant also argues that Plaintiffs' statutory damages under TILA are
barred by the statute of limitations. Plaintiffs' statutory damage claim
under TILA is governed by 15 U.S.C. § 1640(e), Section 1640(e)
states, in relevant part, "Any action under this section may be brought
in any United States district court, or in any other court of competent
jurisdiction, within one year from the date of the occurrence of the
violation." 15 U.S.C. § 1640(e). Given that Plaintiffs obtained the
loans at issue more than one year before the riling of this case on
October 3, 2003, Defendant argues mat Plaintiffs' TILA statutory damage
claims are time-barred. The Court agrees.
Plaintiffs again seek to toll the statute of limitations based on the
Davis action and fraudulent concealment For the reasons detailed
above, both of these arguments fail. Neither the filing of the
Davis action nor Plaintiffs' sparse allegations of fraudulent
concealment tolled the one-year statute of limitations.
Because Plaintiffs' statutory damages claims are subject to equitable
estoppel, the Court
dismisses these claims without prejudice. The Community Bank
Plaintiffs may amend their complaint with respect to the doctrine of
IV. Section 4.1(a) of the Illinois Interest Act
Count II of Plaintiffs' complaint rests on Section 4.1(a) of the
Illinois Interest Act (the "Act"). Section 4.1(a) of the Act provides:
"Where there is a charge in addition to the stated
rate of interest payable directly or indirectly by
the borrower and imposed directly or indirectly by
the lender as a consideration for the loan, or for
or in connection with the loan of money, whether
paid or payable by the borrower, the seller, or
any other person on behalf of the borrower to the
lender or to a third party, or for or in
connection with the loan of money . . . whether
denominated `points,' `service charge,'
`discount,' `commission,' or otherwise, and
without regard to declining balances of principal
which would result from any required or optional
amortization of the principal of the loan, the
rate of interest shall be calculated in the
The percentage of the principal amount of the loan
represented by all of such charges shall first be
computed, which in the case of a loan with an
interest rate in excess of 8% per annum secured by
residential real estate . . . shall not exceed 3%
of such principal amount.
815 ILCS 205/4.1a, et. seq. In other words, Section 4.1a
precludes a lender from charging more than 3% of the amount of the loan
principal on loans with an annual interest rate over 8%.
Defendant seeks to dismiss Count n on the basis that Section 4 of the
1981 amendments to the General Interest Rate statute removed all limits
on interest rates, points, and other compensation that a lender could
charge on mortgage loans, including those in Section 4.1a of the Act.
See 815 ILCS 205/4(1)(L). Section 4 of the 1981 amendments,
which the legislature enacted subsequent to the promulgation of Section
4. la of the Act, provides that "[i]t is lawful to charge, contract for,
and receive any rate or amount of interest or compensation with respect
to the following transactions: . . . Loans secured by a mortgage on
real estate." 815 ILCS
205/4(1)(L), Defendant argues that the 1981 amendment cannot
coexist with the Section 4.1a limitations, and therefore the 1981
amendments to the General Interest Rate statute implicitly repealed
In Currie v. Diamond Mortgage Corp. of Illinois, 859 F.2d 1538
(7th Cir. 1988), the Seventh Circuit took the same position advocated by
Defendant. In Currie, the Seventh Circuit affirmed the
bankruptcy court's holding*fn1 that the 1981 amendments to the General
Interest Rate statute repealed Section 4.1a of the Act.*fn2
Currie, 859 F.2d at 1542-43. The Seventh Circuit reasoned that
the Currie plaintiffs' argument that Section 4.1a was consistent
with the 1981 amendments "cannot be reconciled with the clear language
and purpose of Section 4 which allows lenders to charge any rate of
interest and any other compensation for loans such as that of
plaintiffs." Id. at 1542. The Seventh Circuit further noted:
If Section 4. la is allowed to stand with the
amended Section 4, Section 4. la would impose a
limit on the amount of points which lenders may
charge on loans in excess of 8% per annum, while
Section 4 enables lenders to charge any amount of
compensation for such loans. Clearly, the failure
to repeal Section 4. la was an oversight of the
Id. at 1453.
In 1989, the Illinois Department of Financial Institutions issued an
opinion letter regarding the Currie decision:
It is the Department's position that the Currie
Court clearly held that the 1981
amendments to Section 4(1)(L) . . . provide
that it is lawful to charge any rate of
interest or compensation on loans secured by a
mortgage on real estate. This amendment is so
clearly inconsistent with the points limitation in
Section 4.1 a of the Statute that such limitation
is necessarily repealed. Under these
circumstances, the licensee [i.e., the lender] is
no longer hound by the points limitation in
Jackson v. Resolution GGF Oy, 136 F.3d 1130, 1132 (7th
Subsequently, the First District Appellate Court of Illinois addressed
the same issue in Fidelity Fin. Serv., Inc. v. Hicks,
214 Ill. App.3d 398, 158 Ill Dec. 221, 574 N.E.2d 15 (Is1 Dist. 1991), and
declined to follow Currie, The Hicks court refused to
find that Section 4 of the 1981 amendments to the General Interest
statute repealed Section 4.1a because, in part, Section 4.1a still
remained on the books. Furthermore, the Hicks found the two
Section 4 and Section 4.1a address charges of a
different nature, and are not incompatible.
Section 4.1a, rather than being inimical to the
intent of Section 4, facilitates Section 4. By
permitting any amount or rate of interest, the
legislature provided that the cost of money could
be passed to the borrower, assuring more money for
lending. By limiting ancillary charges in
connection with loans, the legislature assured
that costs passed to borrowers accurately
reflected the cost of money, assuring a more
competitive market while limiting the
possibilities for abuse.
Id. at 403-04. Although the Hicks court
acknowledged Currie's contrary holding, it stated that "neither
the Seventh Circuit nor the Opinion Letters of state agencies bind state
courts," Id. at 402. In Jackson v. Resolution GGF Oy,
136 F.3d at 1132, the Seventh Circuit noted the conflict between its
holding in Currie and the holding in Hicks. Jackson,
however, did not resolve the conflict.
Plaintiffs urge the Court to adopt the holding of Hicks. It is
clear, however, that "an intermediate appellate court decision is not
binding evidence of state law in circumstances when it is not a good
predictor of what the state's highest court would do in a similar case."
Hill v. International Harvester,
798 F.2d 256, 261 n. 12 (7th Cir. 1986). Given the clear
inconsistencies between the plain language of the 1981 amendments to
Section 4 of the General Interest Statute and the language of Section 4.
la of the Act, the Court cannot agree with the holding in Hicks,
and instead will follow the Seventh Circuit's holding in Currie. See
Krone v. 125 Home Loan Owner Trust, Case No. Ol-CV-0691 (S.D. Ill.
Aug. 27, 2003) (Reagan, J.). The Court holds that Section 4 of the 1981
amendments is inconsistent with Section 4. la of the Act. Accordingly,
Count II is dismissed with prejudice.
The three-year statute of limitations on Plaintiffs' claims for
rescission under TILA has expired for Spann, Wingfield, and the
Hardt/Verbecks. Accordingly, their rescission claims are time barred, and
the Court dismisses them with prejudice for the reasons set forth above.
Similarly, the one-year statute of limitations for all of the Community
Bank Plaintiffs has expired. Because the one-year statute of limitations
is subject to tolling, these claims are dismissed without prejudice. The
Community Bank Plaintiffs have until April 16, 2004 to file a Third
Amended Complaint addressing the deficiencies of their fraudulent
concealment allegations. Finally, Count II is dismissed with prejudice.