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Hickman v. Wells Fargo Bank N.A.

January 26, 2010

MICHAEL HICKMAN, AN INDIVIDUAL, ON HIS OWN BEHALF AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
WELLS FARGO BANK N.A., DEFENDANT.



The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge

MEMORANDUM OPINION AND ORDER

Before the Court is Defendant Wells Fargo Bank, N.A.'s ("Defendant") Motion to Dismiss ("Motion"). For the following reasons, the Court grants in part and denies in part Defendant's Motion.

BACKGROUND

Plaintiff Michael Hickman ("Plaintiff") brings this class action on behalf of himself and all others similarly situated alleging that Defendant, a national banking association, illegally reduced credit limits on home equity lines of credit ("HELOCs") in violation of the Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA"), Regulation Z of the Truth in Lending Act, 12 C.F.R. § 226.5b ("Regulation Z"), and various state laws. For the purposes of this Motion, the Court assumes the following allegations are true.

Plaintiff obtained a $75,000 HELOC secured by real property located at 313 S. Hudson Street, Westmont, Illinois from Defendant on May 10, 2006. (R. 1, Complaint, ¶ 14; R. 1-2, Equity Line with FlexAbility Agreement and Disclosure Statement (the "Contract"), p. 1.) The terms of Plaintiff's HELOC are governed by the Contract. Section 18 of the Contract provides that Defendant may "close [the] Account to future advances . . . [if] the value of the Property declines significantly below its original appraised value." (R. 1-2, Contract, § 18.) In addition, the Contract provides that, in the event of a closure or suspension of the account, Plaintiff "will continue to be responsible for full payment of the balance of [his] Account as well as all other account obligations, according to the terms of this Agreement." Id. Section 9 provides that each year the Contract is in effect, "a $75 non-refundable Annual Fee will be charged to [Plaintiff's] account." Id. at § 9.

On October 14, 2008, Defendant sent Plaintiff a letter indicating that Defendant was lowering the credit limit on Plaintiff's account to $31,039.83. (R. 1-1, October 14, 2008 letter from Defendant to Plaintiff ("October 14, 2008 Letter"), p. 1.) In the October 14, 2008 Letter, Defendant informed Plaintiff that "we are lowering the credit limit of your Account to $31,039.83 due to a substantial decline in the value of the property securing the Account." Id. (emphasis in original). The October 14, 2008 Letter did not provide Plaintiff with the value of the property as determined by Defendant or the method by which Defendant determined the value of the property. Id.

After receiving the October 14, 2008 Letter, Plaintiff contacted Defendant and requested the basis for Defendant's decision to reduce his HELOC. Defendant responded by letter dated October 20, 2008 and informed Plaintiff that Defendant valued Plaintiff's property using an automated valuation model ("AVM"). (R. 1-3, October 20, 2008 letter from Defendant to Plaintiff ("October 20, 2008 Letter"), p. 1.) Defendant further informed Plaintiff that, based on its valuation procedures, the value of the property as of May 1, 2008 was $531,000. Id.

Plaintiff alleges, on information and belief, that the value of the property securing his HELOC has not declined significantly in value. (R. 1, Complaint, ¶ 30.) Plaintiff further alleges, on information and belief, that the AVM methodology employed by Defendant is inaccurate and unsubstantiated, making its use unfair, deceptive, and readily subject to manipulation. Id. at ¶ 31. Plaintiff also alleges that even if his property did experience a decline in value, Defendant did not have any factual basis to conclude that a significant decline was still in effect at the time it reduced his HELOC on October 14, 2008. Id. at ¶ 33.

Plaintiff alleges, on information and belief, that Defendant's lowering of his credit limit damaged his credit rating and increased the cost of credit to him. Id. at ¶ 17. In addition, after reducing Plaintiff's line of credit, Defendant continued to charge Plaintiff a $75 annual fee. Id. at ¶ 3. On January 26, 2009, Plaintiff received a notice indicating that Defendant increased the spending limit on his Wells Fargo credit card from $20,000 to $24,000.

LEGAL STANDARD

"A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police of Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). Pursuant to Rule 8(a)(2), a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). As the Seventh Circuit recently explained, this "[r]ule reflects a liberal notice pleading regime, which is intended to 'focus litigation on the merits of a claim' rather than on technicalities that might keep plaintiffs out of court." Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002)). This short and plain statement must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). Under the federal notice pleading standards, a plaintiff's "factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. Put differently, a "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 570). "[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 127 S.Ct. 2197, 2200, 167 L.Ed.2d 1081 (2007); Justice v. Town of Cicero, 577 F.3d 768, 771 (7th Cir. 2009) (court construes complaint in light most favorable to plaintiff drawing all reasonable inferences in plaintiff's favor).

ANALYSIS

I. Request for Judicial Notice

"Documents attached to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his claim." Menominee Indian Tribe v. Thompson, 161 F.3d 449, 456 (7th Cir. 1998). Defendant requests that the Court take judicial notice of seven additional documents. "Judicial notice of historical documents, documents contained in the public record, and reports of administrative bodies is proper." Id. See also Fed.R.Evid. 201. Plaintiff does not oppose Defendant's request for judicial notice and indeed relies on several documents presented by Defendant in its opposition to the Motion.

The Court therefore takes judicial notice of the following documents because they are matters of public record and because they are central to Plaintiff's claim: (i) Home Equity Line of Credit Mortgage by Plaintiff in Favor of Defendant, (R. 16-1, Wells Fargo's Request for Judicial Notice, Ex. 1); (ii) Purchase Money Mortgage by Plaintiff in favor of Defendant, (id. at Ex. 2); and (iii) Special Warranty Deed in Favor of Plaintiff, (id. at Ex. 3). The Court also takes judicial notice of the following administrative documents: (i) June 26, 2008 Federal Deposit Insurance Corporation ("FDIC") Financial Institution Letter, 2008 WL 2552743, (id. at Ex. 5); (ii) August 26, 2009 Memorandum issued by the United States Department of the Treasury entitled "Home Equity Line of Credit Account Management Guidelines" available on its official website, (id. at Ex. 6); and (iii) May 24, 2005 FDIC Financial Institution Letter, 2005 WL 1237869, (id. at Ex. 7). Menominee Indian Tribe, 161 F.3d at 456; see also Laborers' Pension Fund v. Blackmore Sewer Constr., Inc., 298 F.3d 600, 607 (7th Cir. 2002) (taking judicial notice of information contained on the FDIC official website). The Court declines to take judicial notice of the "parcel search results" pertaining to 313 S. Hudson Street, Westmont, Illinois (R. 16-1, Request for Judicial Notice, Ex. 4) because Defendant has not established that it is part of the public record or necessary for resolution of its Motion.

II. Motion to Dismiss

Defendant requests the Court to dismiss Plaintiff's Complaint in its entirety for failure to state a claim pursuant to Rule 12(b)(6). For the following reasons, the Court grants in part and denies in part Defendant's Motion.

A. Violations of TILA and Regulation Z -- Counts II, IV, and VI

In Counts II, IV, and VI, Plaintiff alleges that Defendant's reduction of Plaintiff's HELOC violated TILA and Regulation Z. For the following reasons, the Court dismisses Counts IV and VI of Plaintiff's Complaint. The Court denies Defendant's Motion with respect to Count II.

1. Count II - Reduction of HELOC Limits

In Count II, Plaintiff claims that Defendant reduced his HELOC in violation of TILA and Regulation Z. Pursuant to TILA, a creditor may "[p]rohibit additional extensions of credit or reduce the credit limit applicable to an account under [an open end consumer credit] plan during any period in which the value of the consumer's principle dwelling which secures any outstanding balance is significantly less than the original appraisal value of the dwelling." 15 U.S.C. § 1647(c)(2)(B). Similarly, under Regulation Z, a creditor may not change any term of a HELOC agreement, except that, a creditor may "[p]rohibit additional extensions of credit or reduce the credit limit applicable to an agreement during any period in which [] [t]he value of the dwelling that secures the plan declines significantly below the dwelling's appraised value for purposes of the [home equity] plan." 12 C.F.R. § 226.5b(f)(3)(vi)(A). The official staff commentary to Regulation Z issued by the Federal Reserve Board (the "Official Commentary") further explains that "[w]hat constitutes a significant decline for purposes of § 226.5b(f)(3)(vi)(A) will vary according to individual circumstances. In any event, if the value of the dwelling declines such that the initial difference between the credit limit and the available equity (based on the property's appraised value for purposes of the plan) is reduced by fifty percent, this constitutes a significant decline in the value of the dwelling for purposes of § 226.5b(f)(3)(vi)(A)." Official Commentary, cmt. 5(b)(f)(3)(iv)-6.*fn1

In order to state a claim for violation of TILA and Regulation Z, Plaintiff must sufficiently allege that (i) Defendant reduced his HELOC (ii) during a period in which the value of his property did not decline to "significantly less than the original appraised value of the dwelling." 15 U.S.C. § 1647(c)(2)(B); 12 C.F.R. § 226.5b(f)(3)(vi)(A). Defendant does not dispute that Plaintiff has alleged that Defendant reduced his HELOC. Instead, Defendant argues that Plaintiff's conclusory statement that "on information and belief, neither Hickman's property nor the property of the Class members has significantly declined in value," (R. 1, Complaint, ¶ 9), is insufficient to survive a 12(b)(6) motion to dismiss. Relying on Iqbal, Defendant reasons that Plaintiff's allegations are no more than conclusions.

Defendant's reading of federal pleading requirements, however, is too narrow. As the Seventh Circuit has explained, "courts must accept a plaintiff's factual allegations as true, but some factual allegations will be so sketchy or implausible that they fail to provide sufficient notice to defendants of the plaintiff's claim." Brooks, 578 F.3d at 581. Here, Plaintiff's Complaint provides Defendant with sufficient notice of Plaintiff's claim. Plaintiff specifically alleges that Defendant reduced his ...


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