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SPANN v. COMMUNITY BANK OF NORTHERN VIRGINIA

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
v.
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 Page 2 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.

FACTUAL BACKGROUND

 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 that the Page 3 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 Page 4 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.

  LEGAL STANDARDS

  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 established consistent Page 5 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).

  ANALYSIS

 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 Page 6 consumer to exercise her right to rescission within three business days from either the date of consummation, delivery of notice of the right to ...


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