Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_08-cv-01026/USCOURTS-caed-1_08-cv-01026-5/pdf.json

Nature of Suit Code: 430
Nature of Suit: Banks and Banking
Cause of Action: 15:1601 Truth in Lending

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

DONALD E. MARTIN,

Plaintiff,

v.

NATIONAL CITY MORTGAGE CO.,

 et al.,

Defendants.

 /

CASE NO. 1:08-cv-01026-SMS

ORDER GRANTING DEFENDANT’S

MOTION FOR JUDGMENT ON THE

PLEADINGS (F.R.Civ.P. 12(c))

(Doc. 40)

Defendant PNC Bank, N.A., as successor by merger to National City Bank f/d/b National

City Mortgage Co., moves for entry of judgment on the pleadings, pursuant to F.R.Civ. P. 12(c). 

Plaintiff has filed no opposition. This Court has reviewed the papers and has determined that this

matter is suitable for decision without oral argument pursuant to Local Rule 78-230(h). Having

considered all written materials submitted, the Court orders that Defendant’s motion be granted

and that judgment be entered in Defendant’s favor. 

I. Background

On August 25, 2006, Plaintiff refinanced his home with a $268,950 first mortgage and

$350,000 second mortgage to National City Bank. The loan proceeds were used to pay off

existing first and second mortgages totaling approximately $470,000 and to pay settlement

charges totaling approximately $9,408. Plaintiff received a cash balance of approximately

$139,683. The Complaint alleges that Plaintiff received a Good Faith Estimate, Truth in Lending

disclosure statements, HUD-1 settlement statement and Notice of Right to Cancel, attaching

these documents as exhibits and incorporating them by reference.

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On May 5, 2008, Cal-Western Reconveyance Corporation declared Plaintiff to be in

default for nonpayment of the first mortgage. Plaintiff responded on May 20, 2008, sending

National City Bank a notice to rescind. On July 18, 2008, Plaintiff filed this lawsuit, alleging

violations of the Truth in Lending Act (15 U.S.C. § 1640(e)) (“TILA”) and California’s Unfair

Competition Law (Cal. Business and Prof’l Code § 17200 et seq.), and seeking rescission and

damages. Defendant answered on November 14, 2008. Both parties have consented to

jurisdiction of a magistrate judge. 

II. Legal Standard for Judgment on the Pleadings

“After the pleadings are closed–but early enough not to delay trial–a party may move for

judgment on the pleadings.” F.R.Civ.P. 12(c). A motion for judgment on the pleadings is a

“means to challenge the sufficiency of the complaint after an answer has been filed.” New.Net,

Inc. v. Lavasoft, 356 F.Supp.2d 1090, 1115 (C.D.Cal. 2004). 

A court evaluates a motion for judgment on the pleadings using the same standard

applicable to motions to dismiss. Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9

th

Cir.), cert. denied, 493 U.S. 812 (1989). “Judgment on the pleadings is proper when the moving

party clearly establishes on the face of the pleadings that no material issue of fact remains to be

resolved and that it is entitled to judgment as a matter of law.” Hal Roach Studios, Inc. v.

Richard Feiner and Co., Inc., 896 F.2d 1542, 1550 (9 Cir. 1989). A court must assume that the th

material facts alleged in the complaint are truthful and construe all inferences that may

reasonably be drawn from the allegations in favor of the responding party. General Conference

Corp. of Seventh-Day Adventists v. Seventh-Day Adventist Congregational Church, 887 F.2d

228, 230 (9 Cir. 1989), cert. denied, 493 U.S. 1079 (1990). th

When a court rules on a motion to dismiss, it may consider the complaint, the exhibits to

the complaint, and matters subject to judicial notice under F.R.E. 201. Brewer v. Indymac Bank,

609 F.Supp.2d 1104, 1112 (E.D.Cal. 2009). Summary judgment is properly ordered when no

issue of material fact exists and the moving party is entitled to judgment as a matter of law. 

Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

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In addition, Rule 12(d) provides:

If, on a motion under Rule . . . 12(c), matters outside the pleadings are presented

to and not excluded by the court, the motion must be treated as one for summary

judgment under Rule 56. All parties must be given a reasonable opportunity to

present all the material that is pertinent to the motion.

Defendant’s inclusion of a copy of the Notice of Right to Cancel, signed by Plaintiff to

acknowledge receipt at closing, could be considered a matter outside the pleadings. In his

complaint, Plaintiff acknowledged receiving the Notice at closing and included a unsigned copy

of the Notice as an Exhibit to the Complaint. Plaintiff argues, however, that his receipt of the

Notice is immaterial since the Lender failed to provide full disclosure as defined by TILA and the

regulations promulgated under it (“Regulation Z”). Accordingly, this Court need not consider

the document provided by Defendant and orders it excluded from consideration of Defendant’s

motion for judgment on the pleadings.

III. Discussion

A. Plaintiff’s Contentions

TILA is intended “to assure a meaningful disclosure of credit terms so that the consumer

will be able to compare more readily the various credit terms available to him and avoid the

uninformed use of credit.” 15 U.S.C. § 1601(a). TILA mandates disclosure instead of

substantively regulating the terms that creditors may include in their financial products. Hauk v.

J.P. Morgan Chase Bank USA, 552 F.3d 1114, 1120 (9 Cir. 2009). Plaintiff alleges that the th

documents appended to his complaint as exhibits 2-8 and incorporated into his complaint by

reference failed to disclose “the true nature and cost of the Transaction.”

In particular, Plaintiff alleges that the Good Faith Estimate identifies service fees and

charges unlike the actual service fees and charges set forth on the HUD-1. Because of the

discrepancy in the amounts, Plaintiff alleges that the credit report fee and the notary fee are not

bona fide, reasonable, or in good faith. Plaintiff further alleges that the HUD-1 identifies charges

deducted from the amount financed that constitute finance charges, as defined in 15 U.S.C. §

1605 (a) and Reg. Z § 226.4(a), but were not set forth on the Truth-in-Lending disclosure form.

Defendant challenges the sufficiency of the complaint, arguing (1) that Plaintiff’s

rescission claim is time-barred, (2) that Plaintiff has failed to tender the loan proceeds as required

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to rescind the loan, (3) that Plaintiff’s TILA claim is time-barred, and (4) that Plaintiff fails to

state a state-law claim. Because this Court concludes that Plaintiff’s TILA claims are barred by

the applicable statutes of limitations, it need not reach Defendant’s other arguments.

B. Rescission Claims

Under TILA, a borrower may rescind the transaction until midnight of the third business

day after the closing. 15 U.S.C. § 1635 (a) and (b); Semar v. Platte Valley Savings and Loan

Ass’n, 791 F.2d 699, 701 (9 Cir. 1986). If the lender fails to comply with TILA disclosure th

requirements, however, the rescission period may be extended for three years. 15 U.S.C. §

1635(f); Semar, 791 F.2d at 701-02. A failure of compliance may arise from the lender’s failure

to provide notice of the borrower’s right of rescission or to provide all material disclosures

required.

Plaintiff acknowledges receipt of the Notice of Right to Cancel, but contends that the

three-day rescission period did not apply because Defendant failed to make all necessary material 

disclosures under TILA and Regulation Z. TILA provides, in pertinent part:

[T]he obligor shall have the right to rescind the transaction until midnight of the

third business day following the consummation of the transaction or the delivery

of information and rescission forms required under this section together with a

statement containing the material disclosures required under this subchapter,

whichever is later . . . . .

15 U.S.C. § 1635 (a). See also 12 C.F.R. § 226.23 (a)(3).

“‘Material disclosures’ means the required disclosures of the annual percentage rate, the finance

charge, the amount financed, the total payments, the payment schedule, and the disclosures and

limitations referred to in § 236.32 (c) and (d). 12 C.F.R. § 226.23 (a)(3) n. 48. Credit report fees

and notary fees are not material finance charges in a real estate transaction if they are bona fide

and reasonable in amount. 12 C.F.R. § 226.4 (c)(7)(iii). If Defendant failed to provide material

disclosures, Plaintiff’s rescission claims are timely.

1. Credit Report and Notary Fees

Plaintiff first contends that the credit report fee and notary fee are neither bona fide,

reasonable or in good faith, because the discrepancy between the amounts shown on the Good

Faith Estimate of Closing Costs and the HUD-1 exceeds the disclosure tolerance set forth in 12

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C.F.R. § 226.23(h)(2). The Good Faith Estimate sets forth a charge of $16.08 for the credit 1

report fee in contrast to an actual charge of $42.08 for the first mortgage on the HUD-1, and no

charge for a notary fee as opposed to $90.00 on the HUD-1. 

The Good Faith Estimate is not intended to indicate precisely the amounts that will be

reflected on the HUD-1. The Good Faith Estimate states:

The information provided below reflects estimates of the charges which you are

likely to incur at the settlement of your loan. The fees are estimates–the actual

charges may be more or less. Your transaction may not require a fee for every

item listed. The numbers listed beside the estimates generally correspond to the

numbered lines contained in the HUD-1 or HUD-1A settlement statement which

you will receive at settlement. The HUD-1 or HUD-1A settlement statement will

show you the actual cost for the items paid at settlement.

Nonetheless, relying on 12 C.F.R. § 226.23(h)(2), which addresses the tolerance for disclosures

in the event of an error on the Truth-in-Lending Disclosure Statement, as set forth in Exhibit H to

Regulation Z, Plaintiff alleges that the $116 difference between estimated and actual credit report

and notary fees entitles him to rescind the $268,950 loan transaction. The tolerance formula for

misstatements on the Truth-in-Lending form simply has no application to a discrepancy between

the Good Faith Estimate and the HUD. As previously noted, in a residential transaction, the

credit report and notary fees are not part of the finance charges unless they are not bona fide and

reasonable. 12 C.F.R. § 226.4 (c)(7)(iii).

That said, Plaintiff never provides a factual basis from which this Court could find that

the credit report or notary fees were not bona fide or reasonable. “Rule 8(a)’s simplified pleading

standard applies to all civil actions, with limited exceptions,” none of which applies to this

action. Swierkiewicz v. Sorema N. A., 534 U.S. 506, 512 (2002). Pursuant to Rule 8(a), a

complaint must contain “a short and plain statement of the claim showing that the pleader is

entitled to relief . . . .” Fed. R. Civ. P. 8(a). “Such a statement must simply give the defendant

fair notice of what the plaintiff’s claim is and the grounds upon which it rests.” Swierkiewicz,

534 U.S. at 512. Detailed factual allegations are not required, but “[t]hreadbare recitals of the

 The Good Faith Estimate does not indicate if it applies to one or both loans extended to Plaintiff but includes no explicit

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references to the second mortgage.

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elements of the cause of action, supported by mere conclusory statements, do not suffice.” 

Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949 (2009), citing Bell Atlantic Corp. v.

Twombly, 550 U.S. 544, 555 (2007). “Plaintiff must set forth sufficient factual matter accepted

as true, to ‘state a claim that is plausible on its face.’” Iqbal, 129 S.Ct. at 1949, quoting Twombly,

550 U.S. at 555. While factual allegations are accepted as true, legal conclusions are not. Iqbal,

129 S.Ct. at 1949. Plaintiff’s allegations that the credit report and notary fees are not bona fide

or reasonable is just such a legal conclusion.

Although accepted as true in a motion for judgment, “[f]actual allegations must be

[sufficient] to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555

(citations omitted). A plaintiff must set forth “the grounds of his entitlement to relief,” which

“requires more than labels and conclusions, and a formulaic recitation of the elements of a cause

of action.” Id. at 555-56 (internal quotation marks and citations omitted). To adequately state a

claim against a defendant, a plaintiff must set forth the legal and factual basis for his claim.

Because Plaintiff fails to do so here, his claims relating to credit report and notary fees are not

cognizable.

2. Deductions from Amount Financed

At paragraph 25, the complaint alleges: “The HUD-1 Settlement Statement, Exhibit 7, also

identifies additional charges deducted from the ‘Amount Financed’ that are actually ‘Finance

Charges’ as that term is defined under [15] U.S.C. § 1605(a) and Reg. Z § 226.4(a).” Again,

Plaintiff alleges that these amounts materially understate the finance charges, exceeding the

tolerance range set forth in 12 C.F.R. § 226.23(h)(2). Because Plaintiff fails to allege with

specificity which additional charges Defendant failed to include as finance charges, this allegation

also fails to state a claim.

3. Rescission Is Untimely

Because Plaintiff fails to allege cognizable claims that Defendant failed to provide any

material disclosure required by TILA, the applicable statutory period in which he could have

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brought a claim for rescission ended at midnight on the third business day following the loan

closing. Having been brought long after that date, Plaintiff’s claims for rescission are untimely.

C. Plaintiff’s Claim for Damages

“In any action in which it is determined that a creditor has violated this section, in addition

to rescission the court may award relief under section 1640 of this title for violations of this

subchapter not relating to the right to rescind.” 15 U.S.C. §1635(g). Private causes of action for

monetary damages are authorized by 15 U.S.C. § 1640(a). Actions for damages may be “brought

in any United States District Court or any other court of competent jurisdiction, within one year of

the date of the violation.” 15 U.S.C. § 1640(e). Although a creditor violates TILA when it makes

inaccurate disclosures, the borrower must bring a suit for damages within one year of the date on

which the inaccurate disclosures were made. Hubbard v. Fidelity Federal Bank, 91 F.3d 75, 79

(9 Cir. 1996). th

Inaccurate disclosures are deemed to arise on the closing date of the loan. King v.

California, 784 F.2d 910, 915 (9 Cir. 1986), cert. denied, 484 U.S. 802 (1987). Accepting th

Plaintiff’s allegations as true, Plaintiff had one year from August 25, 2006, or until August 25,

2007, to bring an action for damages for inaccurate disclosure at the closing of the mortgage

loans. 15 U.S.C. § 1640(e); Hubbard, 91 F.3d at 79. By the time Plaintiff filed this lawsuit on

July 18, 2008, the statutory period had long expired. Plaintiff’s claims for damages are precluded

by the statute of limitations.

D. State Claim

Pursuant to 28 U.S.C. § 1367(a), in any civil action in which the district court has original

jurisdiction, the district court “shall have supplemental jurisdiction over all other claims in the

action within such original jurisdiction that they form part of the same case or controversy under

Article III,” except as provided in subsections (b) and (c). “[O]nce judicial power exists under 

§ 1367(a), retention of supplemental jurisdiction over state law claims under 1367(c) is

discretionary.” Acri v. Varian Assoc., Inc., 114 F.3d 999, 1000 (9 Cir. 1997). “The district court th

my decline to exercise supplemental jurisdiction over a claim under subsection (a) if . . . the

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district court has dismissed all claims over which it has original jurisdiction.” 28 U.S.C. § 1367

(c)(3). The Supreme Court has cautioned that “if the federal claims are dismissed before trial . . .

the state claims should be dismissed as well.” United Mine Workers of Amer. v. Gibbs, 383 U.S.

715, 726 (1966). Because this Court dismisses Plaintiff’s federal claims as untimely, it declines

to exercise supplemental jurisdiction over Plaintiff’s state claim.

IV. Conclusion

In accordance with the foregoing, this Court hereby ORDERS that:

1. Defendant’s Motion for Judgment on the Pleadings is GRANTED; and

2. The Clerk of Court is directed to enter judgment, dismissing this action with

prejudice.

IT IS SO ORDERED.

Dated: February 18, 2010 /s/ Sandra M. Snyder 

icido3 UNITED STATES MAGISTRATE JUDGE

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