In the

United States Court of Appeals

For the Seventh Circuit

No. 07-2400

CHARLES DOSS,

Plaintiff-Appellant,

v.

CLEARWATER TITLE CO., et al.,

Defendants,

and

FIRST FRANKLIN FINANCIAL CORP., et al.,

Defendants-Appellees.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 06 C 6170—Samuel Der-Yeghiayan, Judge.

ARGUED SEPTEMBER 4, 2008—DECIDED DECEMBER 24, 2008

Before MANION, WOOD, and TINDER, Circuit Judges.

WOOD, Circuit Judge. Although this case began as a suit

under the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601

et seq., along with supplemental state theories, it was

nipped in the bud by the district court with a dismissal

for failure to state a claim upon which relief can be
2 No. 07-2400

granted. See FED. R. CIV. P. 12(b)(6). In granting that

motion, however, the district court failed to take the

alleged facts in the light most favorable to the pleader—a

perspective that remains in force even after the Supreme

Court’s decision in Bell Atlantic Corp. v. Twombly, 550 U.S.

544 (2007). Once we sort through a few jurisdictional

issues, it becomes clear that Doss is entitled to proceed

with his lawsuit. We therefore reverse and remand for

further proceedings.

I

On August 27, 2004, Charles Doss refinanced the mortgage on his home. He used the services of a company

called The Loan Arranger, which put him in touch

with Franklin Financial Corporation. Franklin agreed to

loan Doss $135,000, on the condition (among other things)

that he obtain title insurance. Doss did so, giving his

business to Clearwater Title Company. Unbeknownst to

Doss, The Loan Arranger and Clearwater were affiliated

with one another; worse, Clearwater was unlicensed. At

the closing of the refinancing transaction Doss was given

a document entitled Itemization of Amount Financed. The

Itemization indicated that Doss was to be charged $500

for the title insurance, but the HUD-1 Settlement Statement form reveals that Doss was actually charged $1,470

for that item. On November 13, 2006, Doss filed this

lawsuit in federal court, asserting that TILA had been

violated in various ways in the course of his refinancing

deal, as had the Illinois Consumer Fraud and Deceptive

Business Practices Act, 815 ILCS § 505/1 et seq. The defen-
No. 07-2400 3

dants named in the TILA count were Franklin, JPMorgan

Chase Bank N.A., Saxon Mortgage Services, Inc., and a

John Doe; Clearwater, Franklin, and The Loan Arranger

were the defendants named in the Consumer Fraud count.

Chase owned the note and the mortgage, and Saxon was

servicing the mortgage. Chase and Saxon had filed for

foreclosure on March 29, 2006, some six and a half months

before Doss sued. Doss settled with Clearwater and The

Loan Arranger at some point before the motion, and so

they play no part in this appeal.

The position of appellant Franklin requires some additional explanation. Early in the proceedings, Doss moved

for default judgment against Franklin; the district court’s

order of February 28, 2007, disposing of that motion

reads in relevant part as follows:

Plaintiff Charles Doss’ motion for default judgment as

to defendant First Franklin Financial Corporation is

granted. Default is hereby entered in favor of the

plaintiff Charles Doss and against defendant First

Franklin Financial Corporation.

While it is not entirely clear from this order whether the

court was merely entering a default under FED. R. CIV. P.

55(a), or a default judgment under Rule 55(b)(2), later

proceedings convince us that it was a default judgment.

Franklin so interpreted it, which is why it filed a motion

seeking to set aside the “default judgment”; the district

court acknowledged that motion in an order dated

March 15, 2007. As far as this record shows that is the

last time the district court focused on Franklin’s part of

the case. This was, therefore, the district court’s final

disposition with respect to Franklin.
4 No. 07-2400

In response to Doss’s complaint, Chase and Saxon jointly

filed a motion under Rule 12(b)(6) to dismiss for failure to

state a claim. That motion introduced a new factual

assertion into the case: it alleged that Doss sold the property by a quitclaim deed dated June 27, 2006; the deed

was recorded on June 29, 2006. They attached a copy of

that deed to their motion. Based on this new evidence,

Chase and Saxon argued that Doss no longer had a right

to rescind the transaction. See 15 U.S.C. § 1635(f). Doss

then filed a response, in which he asserted that he had

not sold or otherwise transferred his property, and that

the deed attached to the defendants’ motion was a forgery. Indeed, Doss continued, he had filed a quiet title claim

in the Circuit Court of Cook County and had caused a lis

pendens notice to be recorded with the Cook County

Recorder of Deeds. Doss attached a copy of both his

state court complaint and his lis pendens notice to his

response.

The district court granted the motion to dismiss in an

order dated April 17, 2007. It decided to take judicial

notice of the deed of sale, offering the following explanation:

In the instant action, we can take judicial notice of

the Deed, which is a matter of public record. Although

Doss claims that the Deed is a forgery he has not

presented any evidence that shows the Deed has been

found invalid by the state court. Doss cannot prevent

a dismissal of this action merely by presenting allegations of fraud on the part of the Alleged Buyers. At this

juncture, the Deed is evidence of a valid sale of the
No. 07-2400 5

House. Therefore, based upon the record before us,

we conclude that Doss no longer has a right to rescission and we grant the motion to dismiss.

With the TILA claim gone, the district court exercised its

discretion to dismiss Doss’s supplemental state law

arguments as well. It noted at the end of its order that

the action was dismissed without prejudice. In addition, it

rules that “[a]ll pending dates and motions are hereby

stricken as moot.” The effect of the last sentence was to

deny Franklin’s motion to set aside the default judgment against it.

Doss filed a timely motion for reconsideration or, in the

alternative, for leave to file an amended complaint. He

argued that the defendants’ allegation that his TILA

rights had expired was an affirmative defense, and thus

not an appropriate subject for a dismissal under Rule

12(b)(6). Moreover, he said, there was an evidentiary

dispute about the status of the supposed conveyance. He

urged the district court to permit him to amend his complaint so that he could assert that the conveyance was

invalid and that no sale of his property had taken place.

Finally, Doss suggested that the district court stay its

proceedings until the state court action was resolved,

pointing out that his right to rescind under TILA was

due to expire on August 27, 2007.

The district court, in an order dated May 24, 2007, denied

all of Doss’s requests. It held that he was precluded

from taking the position that the defendants were trying

to use an affirmative defense, because he had not said

anything about this in his response to their motion to
6 No. 07-2400

dismiss. In any event, the court considered this argument to be without merit, because, it said, § 1635(f) is not

a statute of limitations, but rather is a condition precedent

to bringing a TILA rescission action. The court thought

that Doss’s request for discovery also came too late, and

it saw no reason to grant the requested stay because it

had no way of predicting what the state court would do.

Doss filed a notice of appeal on June 14, 2007. While the

case was pending before this court, the state court entered

a judgment on August 23, 2007, in Doss’s favor, finding

that the deed had not been delivered, nor had any ownership interest in the property been conveyed to another

person.

II

In some ways, it is hard to know where to begin, apart

from saying that this litigation took a bad fall off the

rails. We should comment, however, both on the district

court’s jurisdiction and on appellate jurisdiction, before

explaining why that is the case. We first address the

district court’s subject-matter jurisdiction, and then our

own appellate jurisdiction.

The defendants have argued before this court that the

district court lacked subject-matter jurisdiction over

Doss’s TILA claim because he had sold the property

before he claimed a right to rescission. The statute, they

point out, provides that:

An obligor’s right of rescission shall expire three

years after the date of consummation of the trans-
No. 07-2400 7

action or upon the sale of the property, whichever

occurs first . . . .

15 U.S.C. § 1635(f). They note as well that the Supreme

Court, in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1997),

characterized § 1635(f) as a statute of repose, holding

there that borrowers had no right to assert a right to

rescind as an affirmative defense in an action to collect

brought by a lender more than three years after the consummation of the transaction. Ocwen, 523 U.S. at 419.

The Ocwen opinion contains not a word about the

subject-matter jurisdiction of the district court. It presents

only an example of a case in which a claim is doomed

to fail on the merits. It is worth repeating what the Supreme Court had to say about this in Bell v. Hood, 327

U.S. 678 (1946):

Jurisdiction, therefore, is not defeated as respondents

seem to contend, by the possibility that the averments might fail to state a cause of action on which

petitioners could actually recover. For it is well

settled that the failure to state a proper cause of action

calls for a judgment on the merits and not for a dismissal for want of jurisdiction. Whether the complaint states a cause of action on which relief could be

granted is a question of law and just as issues of fact

it must be decided after and not before the court has

assumed jurisdiction over the controversy. If the

court does later exercise its jurisdiction to determine that the allegations in the complaint do not

state a ground for relief, then dismissal of the case

would be on the merits, not for want of jurisdiction. . . .
8 No. 07-2400

The previously carved out exceptions are that a

suit may sometimes be dismissed for want of jurisdiction where the alleged claim under the Constitution or federal statutes clearly appears to be immaterial and made solely for the purpose of obtaining

jurisdiction or where such a claim is wholly insubstantial and frivolous.

Id. at 682-83. The Court has steadfastly followed this rule

in the years since Bell. See, e.g., Oneida Indian Nation of

New York State v. County of Oneida, New York, 414 U.S. 661,

666-67 (1974); Steel Co. v. Citizens for a Better Environment,

523 U.S. 83, 89 (1998); Arbaugh v. Y&H Corp., 546 U.S. 500,

513-16 (2006).

We acknowledge that some of our sister circuits have

characterized § 1635(f) as “jurisdictional,” without any

discussion of these Supreme Court cases. See Miguel v.

Country Funding Corp., 309 F.3d 1161, 1164 (9th Cir. 2002);

see also Hayes v. General Motors Corp., 94 F.3d 644, *4 (6th

Cir. 1996) (unpublished) (citing Tennessee law). Hayes,

however, is nonprecedential, and nothing seems to have

turned on the label in Miguel, since the bank (which was

the party seeking to take advantage of the threeyear period of repose) does not seem to have slept on its

rights.

In our view, there is nothing jurisdictional about

§ 1635(f)’s period of repose. Just like the 15-employee

requirement in Title VII discussed in Arbaugh, supra, it

is merely a precondition to a substantive right to relief.

Interesting though the point is, however, this is not a

disagreement that we need to push in this case. The
No. 07-2400 9

issue here is not whether the alleged sale of Doss’s property acts as a jurisdictional bar to his lawsuit. It is instead

whether there was a sale at all. Even the defendants

concede that both the district court and this court have

jurisdiction to determine that question. That is why

the defendants urged the district court to focus on the

timeliness of Doss’s response, rather than its jurisdiction.

We therefore move on to the question of appellate

jurisdiction. As we noted earlier, the district court’s order

dismissing Doss’s case was “without prejudice.” Normally,

“a dismissal without prejudice is not a final order for

purposes of appellate jurisdiction under 28 U.S.C.

§ 1291.”Kaba v. Stepp, 458 F.3d 678, 680 (7th Cir. 2006).

We have gone so far as to say that dismissals without

prejudice are “canonically non-final.” Id., quoting Glaus v.

Anderson, 408 F.3d 382, 385 (7th Cir. 2005), in turn quoting

Am. States Ins. Co. v. Capital Assoc. of Jackson County, 392

F.3d 939, 940 (7th Cir. 2004). Doss’s case, however, falls

within the recognized exceptions to that canonical nonfinality: first, reading the district court’s orders as a

whole, we have no doubt that the district court was

finished with this case once and for all; and second, any

new action that Doss might try to bring would be barred

by the three-year statute of repose by this time. We thus

conclude that we have appellate jurisdiction notwithstanding the language in the district court’s order.

III

Assured of our jurisdiction, we are now ready to turn to

the merits. We review the district court’s dismissal for
10 No. 07-2400

failure to state a claim de novo, accepting as true all of the

factual allegations contained in the complaint. Segal v.

Geisha NYC LLC, 517 F.3d 501, 504 (7th Cir. 2008). “We may

affirm the dismissal only if the complaint fails to set forth

‘enough facts to state a claim to relief that is plausible on

its face.’ ” Id. (quoting St. John’s United Church of Christ v.

City of Chicago, 502 F.3d 616, 625 (7th Cir. 2007), which

quoted Twombly, supra, 550 U.S. at __, 127 S.Ct. at 1974. The

Supreme Court’s decision in Erickson v. Pardus, 127 S.Ct.

1955, 2197 (2007), put to rest any concern that Twombly

signaled an end to notice pleading in the federal courts.

And nothing in Twombly or Erickson changed the rules

under which a party making a motion under FED. R. CIV.

P. 12 is entitled to rely on new evidence, documentary

or otherwise.

The district court’s principal mistake was in thinking

that it was entitled to rely on the deed of sale attached to

the defendants’ Rule 12(b)(6) motion, in the course of

adjudicating that motion. Whether or not the deed was

the kind of document for which judicial notice was

proper—a point to which we turn in a moment—there is

no doubt that it was a “matter outside the pleadings,”

within the meaning of Rule 12(d). That rule says that if

“matters outside the pleadings are presented to and not

excluded by the court, the motion [under Rule 12(b)(6) or

Rule 12(c)] 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.” If the district court had followed

the instructions in Rule 12(d), then Doss would have had

an opportunity both to present and to support his asser-
No. 07-2400 11

tion that the deed was not what it appeared to be. The

district court would have seen that there were issues of

material fact that had to be resolved, and the case

would have continued before the district court.

Although there exists a narrow exception to the Rule

12(d) instructions that permits a district court to take

judicial notice of matters of public record without converting a Rule 12(b)(6) motion into a motion for summary

judgment, the district court erred in thinking that the

deed was a proper subject for judicial notice. See General

Electric Capital Corporation v. Lease Resolution Corporation,

128 F.3d 1074, 1080-81 (1997). Statements in documents

affecting an interest in property do fall within an exception to the hearsay rule, see FED. R. EVID. 803(15), but we

do not see how, when the defendants proposed the deed

for judicial notice, the court could have found that it was

“not subject to reasonable dispute” within the meaning

of FED. R. EVID. 201(b) once Doss filed his response.

Judicial notice “merits the traditional caution it is given,

and courts should strictly adhere to the criteria by the

Federal Rules of Evidence before taking judicial notice

of pertinent facts.” General Electric Capital Corporation, 128

F.3d at 1081. It takes more than an exception to the

hearsay rule, in other words, to justify judicial notice.

We could go on, but this is enough to show that the

judgment of the district court dismissing Doss’s TILA

claims must be reversed. The situation with respect to

Franklin is more complex. The district court was

mistaken to think that Franklin’s motion to set aside the

default judgment against it was moot. Rightly or wrongly,
12 No. 07-2400

however, the case ended with the default judgment

against Franklin still in place. Franklin did not file a crossappeal from that ruling, and so we are powerless to change

it here. See Greenlaw v. United States, 128 S.Ct. 2559, 2564

(2008). (We express no opinion about any power the

district court might have on remand to set aside the

decision against Franklin.) The supplemental state

theories under the Consumer Fraud Act must also be

reinstated, since they were dismissed only because the

predicate federal claim was no longer before the court.

We have no need to address the defendants’ complaints

about Doss’s effort to bring the later Illinois proceedings

to our attention, as they have played no part in our disposition of the case.

The judgment of the district court is REVERSED and the

case is REMANDED for further proceedings consistent

with this opinion. Circuit Rule 36 shall apply on remand.

12-24-08