(quoting Triad Assoes,, Inc. vy. Chicago Hous. Auth., 892 F.2d 583, 586 (7th Cir. 1989)). In considering
a motion to dismiss, we must accept all well-pled allegations in the complaint as true and draw all
reasonable inferences in the plaintiffs’ favor, See id. at 1520-21; MCM Partners, Inc. v, Andrews-
Bartlett & Assoc., Ine,, 62 F.3d 967, 972 (7th Cir. 1995), affd 161 F.3d 443 (7th Cir. 1998), cert. denied
528 U.S. 810 (1999). Therefore, a complaint should not be dismissed “unless it appears beyond all
doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to

relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957).

As noted above, plaintiffs have raised two claims under the Truth in Lending Act and one claim
under the Illinois Consumer Fraud Act. Compliance with the TILA is a complete defense under Illinois
law to any claim brought under the CFA. Jackson v. South Holland Dodge, Inc., 755 N.E.2d 462, 467-
68 (ill, 2001). Thus, the threshold question that we must consider in assessing all of the motions to

dismiss is whether the plaintiffs have stated a cause of action under the TILA.

Congress enacted the TILA 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, and to protect the consumer against inaccurate and unfair credit billing and
credit card practices.” 15 U.S.C. § 1601(a); see also Mourning v. Family Publications Service, Inc., 411
U.S. 356, 363-68 (1973) (discussing the purpose and history of the TILA). Congress was particularly
concerned about the practice engaged in by many lenders of advertising low credit rates to attract
customers but then burying the cost of those lower credit rates by increasing the price of goods sold.
Mourning, 411 U.S. at 365. Here, plaintiffs claim that the defendants did just that by advertising low

credit rates but then later recouped the cost of those rates by charging more for title insurance,


claims that a reasonable price for title insurance would have been $527.80. The difference between the
amount charged and the amount that would have been reasonable is thus $362.20, much less than 0.5%
of the total amount borrowed by Sotelo (or $563.93). Thus, Sotelo also may not state a claim for relict

under the TILA.

‘The plaintiffs believe that we should conduct our calculations differently. Specifically, they
argue that, in determining the difference between the amount disclosed by the defendants as the finance
charge and the actual finance charge, we should compare the entire $890 paid by the defendants for title
insurance with 0.5% of the total amount borrowed rather than first subtracting from the $890 the amount
that plaintiffs allege that a reasonable title insurance company would charge. We cannot agree with the
plaintiffs’ contention as a matter of common sense. Plaintiffs claim that the defendants folded a hidden
finance charge into cost of their title insurance. They do not contend that the entire cost of the lille
insurance constituted a finance charge. Thus, we must discern how much of the total cost of the title
insurance was made up ofa finance charge. In order to do so, we must subtract from the amount charged
a reasonable rate for title insurance. To do otherwise would be to penalize the defendants for the portion

of the entire title insurance cost that actually went to providing the plaintiffs with title insurance.

Although only two other cases have dealt with this question,‘ the courts in both of those cases
have reached the same conclusion. See Guise v. BWM Mortgage, L.L.C., No. 03-C-4123, 2003 WL
22019346 (N.D. Ill. Aug. 26, 2003); Walker v. Gateway Financial Corp., No. 03-C-4263, 2003 WL
22318843 (N.(, II], Oct, 7, 2003). Moreover, the plain language of § 1605(f) suggests that the plaintiffs’

proposed formula is untenable. As stated above, the tolerance for accuracy provision provides that a

Interestingly, aside from these two cases, no federal court, either inside or outside of the
Northern District of Illinois has considered the question of how to calculate the TILA’s 0.5% tolerance
for accuracy. Perhaps this is because the plaintiffs in Guise, Walker, and the present case have all been
represented by the same counsel.



ETG for title insurance was “nearly twice the basic amount” of $527.80 quoted by Chicago Title for
similar coverage. (Compl. § 26.)

In their complaint, Quinn and Sotelo allege that ETG is an entity under common ownership’ with
the mortgage broker, Prime Investment and that Prime Investment engaged in the practice of obtaining
title insurance from ETG. (Compl. {ff 18, 32.) The plaintiffs further claim that the defendants
intentionally colluded to overcharge their customers (including the plaintiffs) on title insurance. The
purpose of this scheme was to itnpose upon the plaintiffs a hidden finance charge without having to
disclose the amount of the finance charge to consumers under the TILA.

In Count 1, brought by Quinn on behalf of a class against Ameriquest, plaintiffs claim that the
practice of artificially deflating the finance charges by concealing part of those charges in the cast of title
insurance violated the TILA’s requirement that lenders disclose the exact amount of finance charges
imposed ona loan. 15 U.S.C. § 1637. Quinn requests, inter afia, a declaration on behalf of the class
that class members may rescind their transactions with Ameriquest. (Compl. 447.) In Count If, brought
individually by Quinn and Sotelo against Ameriquest, the defendants claim that they have a right to
rescind their loan agrcements with Ameriquest. In Count IJ, brought by Quinn and Sotelo on behalf of
a class against all of the defendants, the plaintiffs claim that the practice of overcharging for title

insurance violated § 2 of the [inois Consumer Fraud Act, 815 Ill, Comp. Stat. 505/2.

ANALYSIS

We are presented here with a motion to dismiss pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure. "The purpose of a motion to dismiss is to test the sufficiency of the

complaint, not to decide the merits." Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990)

“Quin and Sotello allege that Defendant Laura C. Dantuma is the principal officer and owner of
both Prime insurance and ETG. (Compl. { 9.)


To preclude lenders from engaging in the type of scheme alleged by the plaintiffs, the TILA
mandates strict disclosure requirements with regard to finance charges. Specifically, before a creditor
may enter a transaction with a consumer, he must disclose to the consumer the method by which the
creditor determines the principal balance on the loan, the amount of the finance charge imposed on the
loan, the applicable financing rates, and any other charges which may be imposed in addition to the
finance charge. 15 U.S.C. § 1637. The question thus becomes whether the defendants have violated the
TILA by failing to disclose finance charges, as they are required to do under § 1637. In order to answer

this question, we must first consider what constitutes a finance charge for purposes of the TILA.

‘The Federal Reserve Board, charged by Congress with implementing the TILA, defined the term
“finance charge” as the “cost of consumer credit as a dollar amount.” 12 C.F.R. § 226.4(a) (2002)
(hereinafter “Regulation Z”). Regulation Z includes a list of charges that are specifically excluded from
the definition of “finance charge.” 12 C.F.R. § 226.4(c). Among those fees excluded are any fees for
title insurance, as long as those fees are “bona fide and reasonable in amount.” 12 CPR. §
226.4(c)(7)(i). Plaintiffs claim that the title insurance that they purchased from ETG does not fall under
the title insurance exception because it was not “bona fide and reasonable in amount.” Plaintiffs thus
argue that the defendants should have disclosed the amount charged for title insurance as a finance

charge.

A plaintiff may bring a cause ofaction under the TILA to rescind a loan contract where a lender
has failed to fully disclose or has otherwise hidden finance charges from a borrower. 15 U.S.C, § 1640.
To stem the tide of litigants bringing such claims where the hidden finance charges are de minimus,
however, Congress amended the TILA in 1995 to provide that lenders would not be liable under the Act
as long as their disclosed finance charges were within a certain permissible range of tolerance for
accuracy. See Smith v. Highland Bank, \08 F.3d 1325, 1327 n.4 (11th Cir. 1997) (discussing the

5


creditor will not be liable for a violation of the TILA where “the amount disclosed as the finance charge
does not vary from the actual finance charge by more than an amount equal to one-half of one percent
of the total amount of credit extended.” 15 U.S.C. § 1605(f) (emphasis added). The phrase “does not
vary from” instructs us to look at the difference between what was actually disclosed as the finance
charge and what the finance charge would have been if the defendants had not overcharged for
insurance. The result of this calculation would simply be inaccurate if plaintiffs were allowed to insert
the entire amount charged for insurance rather than the amount that the plaintiffs claim was

unreasonable. Thus, we cannot find that the plaintiffs have stated a cause of action under the TILA,’

CONCLUSION

For the foregoing reasons, we grant the defendants’ motions to dismiss with regard to Counts

land Ill, We also grant Ameriquest’s motion to strike paragraphs 15-18, 24-34 and 35 of the complaint,

Because we dismiss the portions of the plaintiffs’ complay ich purport to state a claim on behalf of a

class, plaintiffs’ motion for class certification is als:

MARVIN E. ASPBA~ a

United States District Judge

Dated i wl 3/o 4

"Plaintiffs also provide a complex statutory construction argument in support of their position.
The statutory construction argument is based on a detailed look at the difference in meaning of the word
“if” as compared with the meaning of the phrase “to the extent that” as used throughout the TILA,
Although statutory construction may be a useful tool for untangling Congressional intent where that
intent is ambiguous, it is not relevant in cases, such as the present action, where the statutory language is
clear. Judge Shadur, when presented with the identical statutory argument, provided a particularly astute
response: “Plaintiffs’ counsel try to extricate themselves from the vise of [an] extraordinarily clear
conclusion by seeking to obscure the path of logic with a good deal of verbal underbrush. But not much
of an analytical machete is needed to hack through that underbrush to recognize that this is precisely the
kind of situation for which Congress enacted” the tolerance for accuracy provisions of the TILA.
Walker, 2003 WL at *2.



Minvte Order Farm (967)

United States District Court, Northern District of Tllinois

[Name of Assigned Judge Marvin Aspen Sitting Judge if Other
— or Magistrate Judge than Assigned Judge
CASE NUMBER 03 C 5059 DATE 1/23/2004
CASE Eric Quinn, ct al vs. Ameriqust Mortgage, ct al
TITLE
{In the following box (a) indicate the party filing the motion, ¢.g., plaintitt, defendant, 3rd purty plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
(1) o Filed mation of [ usc listing in “Motion” box above. | |
(2) im Brief in support of motionduc
(3) a Answer brief to motion due____.- Reply to answer brief duc____.
(4) qa Ruling/Hearing on _____setfor__ at.
(5) a Status hearing[held/continued to] [set for/re-set for}on____set for aat_
(6) o Pretrial conlerence[held/continued to] [set for/re-set for] on __— set for at
(7) o Trialfset for/re-set for]on_— at
(8) q {Bench/Jury trial] [Llearing] held/continued to at__
(9) Qo This case is dismissed [with/without] prejudice and without costs|by/agreement/pursuant to)

OFRCP4(m) OlocalRule 41.1 OFRCP41(a)1) OO FROP41(a)(2),

ao (Other docket entry] Enter Memorandum Opinion and Order: Defendants’ motions to dismiss (16-
1, 20-1 & 24-1) with regard to Counts I and Ill are granted. We also grant Ameriquest’s motion to strike
paragraphs 15-18, 24-34, and 35 of the complaint. Because we dismiss the portions of the plaintiffs’
complaint which purport to state a claim on behalf of a class, plaintiff motion for class certification (18-
1) is also denicd.

(1) @ {Por further detail see order attached to the original minute order,]

No notices required, advised m open court. Document

Number

{

notices required.
No es required. nuinber af nutives

Notices mailed by judge's staff. JAN 26 2004

Notified counsel by telephone,

date docketed

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legislative history and purpose behind the 1995 amendments to the TILA). Specifically, in 15 U.S.C.
§ 1605(f}, Congress stated that finance charges “shall be treated as being accurate for purposes of [the

TILA’s rescission provision)” as long as “the amount disclosed as the finance charge does not vary from
the actual finance charge by more than an amount equal to one-half of one percent of the total amount

of credit extended.” See also 12 C.F.R. § 226.23(g) (allowing a tolerance of one half of one percent).

Thus, the issue of whether plaintiffs have stated a claim for relief under the ‘TIT.A (and, by
extension, under the ICFA) for failure to include the overcharge on insurance in its finance rate boils
down to a simple mathematical calculation. We must determine whether the amount allegedly
overcharged for insurance by the defendants was greater or less than 0.5% of the total amount borrowed
by the plaintiffs. The total amount borrowed by Quinn was $128,700. One half of one percent of that
amount is $643.50, The amount charged for title insurance was $890. Quinn claims that a reasonable
price for title insurance would have been $539.44.' The amount overcharged is thus $890 minus
$539.44, or $350.56. Because $350.56 is less than 0.5% of the amount borrowed by Quinn (or $539.44),

he may not state a claim for cclief under the TILA.

‘The same calculation presents similar results for Sotelo, Sotelo borrowed $112,786.68. One

half of one percent of that amount is $563.93. The amount charged for title insurance was $890. Sotelo

‘The plaintiffs attempt, in their responses to the various motions to dismiss, to argue that the
reasonable price for insurance would actually be much lower than that stated in their complaint.
Although this may be the case, we cannot consider new facts raised in a response to a motion to dismiss.
Inve Matter of Wade, 969 F.2d 241, 249 (7th Cir. 1992) (reiterating the rule that a district court is
confined to the pleadings when considering a motion to dismiss). It was the plaintiffs who chose to
allege what they thought a reasonable price would have been for title insurance and they must now live
with that allegation or amend their complaint.

Plaintiffs also allege that this is a fact question that should not be addressed in a motion to
dismiss. Although the ultimate determination of what constitutes a reasonable price for title insurance is
a question of fact, the plaintiffs must at least al/ege in their complaint that they have met the statutory
minimum for stating a claim under the TILA in order to survive a motion to dismiss.

6



UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
ERIC QUINN and )
MARIA SOTEL.O, )
)
Plaintiffs, )
)
v. ) Case No. 03-CV-5059
)
AMERIQUEST MORTGAGE COMPANY; )
ESTATE TITI.E GROUP, L.L..C.; )
PRIME INVESTMENT MORTGAGE )
CORPORATION; )
LAURA C. DANTUMA; )
and DOES 1-10, ) <
) t ot
Defendants. ) ey yw

MEMORANDUM OPINION AND ORDER

MARVIN E. ASPEN, District Judge:

Plaintiffs Eric Quinn and Maria Sotelo filed a three-count complaint against defendants
Ameriquest Mortgage Company, Estate Title Group, L.L.C., Prime Investment Mortgage Corporation,
Laura C, Dantuma, and Does 1-10 (collectively “defendants”).! The complaint charges violations of the
Truth in Lending Act, 15 U.S.C. § 1601 et seq. (“TILA”) and the Illinois Consumer Fraud Act, 815 Tit.
Comp. Stat, 505/2 (“ICFA”). The defendants filed three separate motions to dismiss,” For the following

reasons, we grant all threc of the motions and order the dismissal of Counts I and IIT of the plaintiffs’

‘Does 1-10 are “persons or entities, unknown to plaintiffs, who have or claim an interest in
plaintiffs’ loan.” (Compl. § 10.)

?Ameriquest filed a motion requesting that we dismiss Counts I and IL and that we strike
paragraphs 15-18, 24-34 and 35 of the complaint. Prime and Dantuma filed a joint motion requesting
dismissal of Count II, ETG also filed a separate motion requesting that we dismiss Count IIL, None of
the defendants have requested dismissal of Count II, so we do not consider the legal sufficiency of that
claim in the present opinion.


complaint.’ Because we dismiss the portions of the plaintiffs’ complaint which purport to state a claim on
behalf of a class, plaintiffs’ motion for class certification, filed on August 15, 2003, is also denied.
BACKGROUND

For the purpose of a motion to dismiss, we accept all well-pled allegations as true. MCM
Partners, Inc. v, Andrews-Bartlett & Assoc., Inc., 62 F.3d 967, 972 (7th Cir, 1995). We therefore recite
the facts as the plaintiffs present them in their complaint.

In December 2002, Plaintiff Eric Quinn obtained a $128,700 mortgage loan from Defendant
Ameriquest Mortgage Company (“Ameriquest”) that he used for “personal, family or household
purposes.” (Compl. ff 11-12.) Quinn used Defendant Prime Investment Mortgage Corporation (“Prime
Investment”) as his mortgage broker. (Compl. { 18.) fle was assessed a finance charge of $211,962.12
in relation to his loan. He also purchased title insurance from Defendant Estate Title Group (“ETG”)
at a price of $890. (Compl. { 16.) Quinn alleges that the $890 charged by ETG for the title insurance
was substantially greater than the $539.44 quoted by Chicago Title, “a much larger and more substantial
company” for similar coverage. (Compl. § 17.)

Plaintiff Maria Sotelo’s claims are similar to those of Quinn. Specifically, she claims thataround
December 2002, she contacted Prime Investment to obtain money to pay for home improvements.
(Compl. JJ 19-20.) Prime Investment arranged financing through Ameriquest in the amount of
$112,786.68 and was assessed a finance charge of $215,090.82, (Compl. ¥ 23.) Like Quinn, Sotelo paid

$890 for title insurance that she purchased from ETG. Sotelo claims that the amount that she paid to

*Lhis court has original jurisdiction over this action pursuant to 28 U.S.C. § 1331 because it is an
action brought under the laws of the United States (specifically, the TILA). The partics do not dispute
that this court also has supplemental jurisdiction over plaintiffs’ state law claims pursuant to 28 U.S.C. §
1367.