Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_09-cv-02035/USCOURTS-azd-2_09-cv-02035-1/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 15:1601 Truth in Lending

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Renee M. Zinni; Marco S. D’Alonzo, 

Plaintiffs, 

vs.

M&I Marshall & Ilsley Bank, et al., 

Defendants. 

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No. CV-09-2035-PHX-FJM

ORDER

We now have before us defendant M&I Marshall & Ilsley Bank’s (the “Bank”) motion

for summary judgment (doc. 64), plaintiffs’ response (doc. 69), the Bank’s reply (doc. 70),

plaintiffs’ motion for summary judgment (doc. 59), the Bank’s response (doc. 67), and

plaintiffs’ reply (doc. 71). We also have before us plaintiffs’ motion to strike the Bank’s

rebuttal expert report (doc. 60), the Bank’s response (doc. 66), and plaintiffs’ motion for

default judgment against defendant Larry J. Hargrove (doc. 58). 

I

Plaintiffs allege in their amended complaint that they contracted with defendant Larry

Hargrove to remodel their property located in Scottsdale, Arizona. They obtained a loan

from defendant M&I Bank to refinance their original mortgage in the amount of $230,000,

plus an additional $200,000 for the construction project. Plaintiffs assert numerous claims

against the Bank, including violations of the Truth in Lending Act, 15 U.S.C. § 1635

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(“TILA”), the Real Estate Settlement Procedures Act, 12 U.S.C. § 2607 (“RESPA”), the

Home Ownership Equity Preservation Act, 15 U.S.C. § 1639 (“HOEPA”), the Fair Debt

Collection Practices Act, 15 U.S.C. § 1692(e) (“FDCPA”), and against the Bank and

Hargrove for breach of contract, negligent misrepresentation, negligence, and fraud.

Plaintiffs now seek summary judgment on two TILA claims. They argue that the Bank

violated TILA (1) by failing to fully disclose the interest payment schedule during the

construction phase of the loan, and (2) by paying construction draw proceeds directly to the

contractor. The Bank moves for summary judgment on each of the claims asserted in

plaintiffs’ amended complaint. 

A.

Plaintiffs first argue that the Bank violated TILA by failing to properly disclose the

payment schedule for the construction phase of their loan. The plaintiffs’ Disclosure

Statement provided only that plaintiffs were obligated to make “12 payments of interest only

during construction.” PSOF, ex. 4. 

TILA generally requires that a creditor disclose the “number, amount, and due dates

or period of payments scheduled to repay the total of payments.” 15 U.S.C. § 1638(a)(6).

Plaintiffs contend that their loan is governed by 12 C.F.R. § 226.18(g)(2), which provides,

“[i]n a transaction in which a series of payments varies because a finance charge is applied

to the unpaid principal balance,” the creditor must disclose “(i) [t]he dollar amounts of the

largest and smallest payments in the series; [and] (ii) [a] reference to the variations in the

other payments in the series.” 12 C.F.R. § 226.18(g)(2). Plaintiffs argue that the Disclosure

Statement’s notation of “12 payments of interest only during construction,” does not satisfy

this disclosure requirement. 

We agree with the Bank that plaintiffs’ reliance on § 226.18(g)(2) is misplaced.

Instead, plaintiffs’ loan is governed by 12 C.F.R. § 226.17(c)(6), which applies to a loan that

is “a multiple-advance loan to finance the construction of a dwelling,” that will be

permanently financed by the same creditor. Where the “creditor chooses to disclose the

construction and the permanent financing as one transaction,” as the Bank did here, we look

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to 12 C.F.R. § 226, Appendix D, Part II(C) for the relevant disclosure requirements. Under

Appendix D, Part II(C)(1), the disclosure need not “reflect[] the number or amounts of

payments of interest only that are made during the construction period.” Instead, the Bank

is only required to disclose “[t]he fact that interest payments must be made and the timing

of such payments.” 12 C. F. R. § 226, Appendix D, Part II(C)(1). Plaintiffs’ TILA

Disclosure Statement disclosed that plaintiffs would be required to make “12 payments of

interest only during construction.” This satisfied 12 C.F.R. § 226.17(c)(6), including 12

C.F.R. § 226, Appendix D, Part II(C). 

We reject plaintiffs’ argument that the Bank’s disclosure obligation is instead

governed by Appendix D, Part II(C)(2), which applies to multiple-advance construction loans

where the borrower is required to pay interest on the entire loan amount from the loan’s

inception without regard to actual disbursements. The evidence does not show that plaintiffs

paid interest on the entire loan amount during the construction phase. 

Plaintiffs’ Disclosure Statement provided that after the construction period, plaintiffs

were required to make 48 equal monthly payments of $2,586.41, followed by 299 equal

monthly payments of $2,373.54. In contrast, the payments made during the construction

phase varied widely, indicating the application of interest to a changing principal balance.

Moreover, the pre-construction payments were significantly less than the post-construction

payments applied to the full loan amount. We conclude that the Bank’s disclosure

obligations were governed by 12 C.F.R. § 226.17(c)(6) and that the Bank satisfied its

disclosure obligations. 

B.

Relying on 12 C.F.R. § 226.34(a)(i), plaintiffs next contend that the Bank violated

TILA by paying the construction draw proceeds directly to Larry Hargrove, plaintiffs’

contractor, rather than directly to them, or jointly to them and Hargrove. Section 226.34(a)

applies to a “consumer credit transaction that is secured by the consumer’s principal

dwelling, and in which . . . [t]he total points and fees payable by the consumer at or before

loan closing will exceed the greater of 8 percent of the total loan amount, or $400.” See 12

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1

Plaintiffs assert numerous other allegations to support their breach of contact claim,

but they abandon those claims by failing to respond to the Bank’s motion for summary

judgment. See Fed. R. Civ. P. 56(e)(3); LRCiv 7.2(i). 

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C.F.R. § 226.32(a)(1)(ii). Plaintiffs borrowed $437,500. To fall within § 226.34(a) they

would have had to pay $35,000 in points and fees ($437,500 x .08), but they paid less than

$2,000. See PSOF, ex. 5. Therefore, because plaintiffs did not pay points and fees that

exceeded 8% of their total loan amount, § 226.34(a) does not apply. 

Moreover, on April 9, 2008, plaintiffs and the Bank executed a construction loan

agreement that explained the method by which payments would be made during construction.

The agreement expressly stated that “disbursements of Construction Loan proceeds by

Lender shall be made pursuant to wire transfers paid to the Contractor . . . or directly to

Borrower, as Lender may determine.” DSOF, ex. 10 at § 4.03. Therefore, plaintiffs

expressly authorized direct payments to Hargrove. 

The Bank did not violate TILA by paying loan proceeds directly to the contractor. 

II

The Bank moves for summary judgment on all claims asserted in plaintiffs’ amended

complaint. Plaintiffs do not respond to the Bank’s motion with respect to Counts 2 (RESPA),

3 (HOEPA), 4 (FDCPA), 8 (breach of duty of good faith and fair dealing), 9 (negligent

misrepresentation), 10 (negligence), 11 (fraud), and 12 (negligent infliction of emotional

distress). Therefore, the Bank’s motion for summary judgment is granted on each of these

claims. See Fed. R. Civ. P. 56(e)(3); LRCiv 7.2(i).

With respect to Count 5 (breach of contract), plaintiffs allege that the Bank, through

its loan officer, Bob Goodrich, breached the construction loan agreement by advancing funds

to contractor Larry Hargrove without first verifying that Hargrove had fully performed each

phase of the construction. Amended Complaint ¶ 128.1

 

The construction loan agreement provided that “Lender is under no duty to visit the

construction site, or to supervise or observe construction.” DSOF, ex. 10, ¶ 7.13(c).

Nevertheless, plaintiffs claim that Bob Goodrich “led [them] to believe that before any

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construction loan funds [were] disbursed to the contractor, the bank would inspect the

property to make sure that the work that needed to be done was 100% complete.” PCSOF

¶ 67. Plaintiffs contend that Goodrich’s representations orally modified the written

agreement and imposed upon the Bank an affirmative duty to inspect plaintiffs’ property

before disbursing construction funds. We disagree.

The Bank advanced five construction disbursements, each at plaintiffs’ written

authorization. DSOF, ex. 9. Plaintiffs were personally involved in the construction project,

completing much of the work themselves. Amended Complaint ¶ 42. They were therefore

aware of the construction progress as they continued to authorize the disbursements. On

February 15, 2009, after 8 months of construction and 4 disbursement authorizations,

plaintiffs met with Hargrove and once again approved his request for a disbursement. Id. ¶¶

40-45. Plaintiffs signed the disbursement form provided by Hargrove and the Bank

disbursed the funds on the same day. 

Plaintiffs’ own allegations belie their claim that the parties orally modified the

contract to require the Bank to inspect the property before disbursing funds. Plaintiffs were

aware of the construction delays but continued to authorize disbursements. Id. ¶¶ 41-42.

Plaintiffs have not presented a triable issue of fact showing that the written agreement was

orally modified. Therefore, we grant the Bank’s motion for summary judgment on the breach

of contract claim in Count 5. 

III

Finally, the plaintiffs move for entry of default judgment against Larry Hargrove (doc.

58). Plaintiffs served Hargrove on January 22, 2008, but he has failed to answer or otherwise

defend this action. Therefore, pursuant to Rule 55(b)(2), Fed. R. Civ. P., we grant plaintiffs’

motion for entry of default judgment against Larry Hargrove (doc. 58).

IV

IT IS ORDERED GRANTING defendants’ motion for summary judgment (doc. 64),

and DENYING plaintiffs’ motion for summary judgment (doc. 59). Judgment is granted in

favor of defendant M&I Marshall & Ilsley Bank and against plaintiffs on all claims.

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IT IS ORDERED DENYING plaintiffs’ motion to strike as moot (doc. 60).

IT IS FURTHER ORDERED GRANTING plaintiffs’ motion for default judgment

against Larry Hargrove (doc. 58). Plaintiffs shall file with the court a proposed form of

default judgment against Hargrove no later than 10 days from entry of this order.

DATED this 10th day of May, 2011.

Case 2:09-cv-02035-FJM Document 72 Filed 05/11/11 Page 6 of 6