LaTonya INGE, Plaintiff, Jody Holman, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. ROCK FINANCIAL CORPORATION; d/b/a Rock Financial Corp.; d/b/a Rock Financial; d/b/a Boulder Financial; d/b/a Fresh Start Loan Center, a Division of Rock Financial; d/b/a Fresh Start Loan Center; d/b/a MoveEasy, a Michigan Corporation, Defendant-Appellee.
No. 00-2003.
United States Court of Appeals, Sixth Circuit.
Argued October 26, 2001. Decided and Filed February 26, 2002.
281 F.3d 613
George G. Kemsley (briefed), Bodman, Longley & Dahling LLP, Detroit, MI, James J. Walsh (argued and briefed), Bodman, Longley & Dahling LLP, Ann Arbor, MI, for Defendant-Appellee.
Before: JONES and CLAY, Circuit Judges; DOWD, District Judge.*
OPINION
CLAY, Circuit Judge.
Plaintiff, Jody Holman, seeks our review of the district court‘s dismissal of her second amended complaint for failure to state a claim against Defendant, Rock Financial Corporation, under the Truth in Lending Act (“TILA“),
BACKGROUND
On February 27, 1998, Plaintiff borrowed money from Defendant, a real estate lender, to refinance the purchase of her home. In making and settling the loan, Defendant assessed Plaintiff certain fees as part of Defendant‘s finance charge. Prior to closing the loan, Defendant disclosed some, but not all, of these fees to Plaintiff. Specifically, the HUD-1 settlement statement provided to Plaintiff at closing identified two previously undisclosed fees: a charge of $120 for “Document preparation” and a charge of $200 to the Title Office for “Settlement or closing.”
On December 18, 1998, Plaintiff and non-appealing co-plaintiff, LaTonya Inge (“Inge“), filed a complaint, styled as a class action, against Defendant in the Circuit Court for Kent County, Michigan, seeking damages and injunctive relief and alleging in Count I, unfair or deceptive acts or practices pursuаnt to
On September 22, 1999, Plaintiff and Inge filed an amended complaint asserting TILA claims against Defendant and attaching copies of the same materials that accompanied the complaint in the state court. On November 8, 1999, Defendant filed a motion to dismiss the amended complaint. Two weeks later, Magistrate Judge Doylе A. Rowland issued a scheduling/case management order, setting a December 1, 1999 deadline for amendments to the pleadings. Plaintiff and Inge subsequently filed a timely motion for leave to file a second amended complaint, with accompanying brief and proposed second amended complaint. Ten days later, Defendant filed a reply brief in support of its motion to dismiss the amended complaint, addressing matters raised in the proposed second amended complaint. Plaintiff and Inge filed their second amended complaint on January 7, 2000, again attaching HUD-1 documents and a guide to settlement costs by HUD.
On April 11, 2000, the district court granted Defendant‘s motion to dismiss the TILA claims in the second amended complaint. The district court dismissed Inge‘s TILA claim as time-barred pursuant to the one-year statute of limitations in
Seven days later, on April 18, 2000, Plaintiff filed a motion for leave to file a third amended complaint, desiring to cure the defects in pleading identified by the district court in its order
On July 19, 2000, the district court denied Plaintiff‘s motion for leave to file a third amended complaint. The district court first held that Plaintiff had failed to show “good cause” under
DISCUSSION
I. APPELLATE JURISDICTION
Prior to addressing the merits of Plaintiff‘s appeal, we must determine our jurisdiction. See Gen. Acquisition, Inc. v. GenCorp, Inc., 23 F.3d 1022, 1024 (6th Cir.1994). Our appellate jurisdiction extends to “all final decisions of the district courts.”
We disagree with Defendant‘s jurisdictional argument. A timely motion to alter or amend judgment brought pursuant to
Here, seven days after entry of the district court‘s order dismissing her second amended complaint, Plaintiff filed her motion to file a third amended complaint. Plaintiff‘s April 18, 2000 motion makes no mention of Rule 59(e) and does not facially purport to be a “motion for reconsideration” of the dismissal order; rather, Plaintiff references only
Similarly, we do not find fatal to our jurisdiction the language contained in Plaintiff‘s notice of appeal. While Plaintiff stated in her notice that she was “tak[ing] an appeal from” the July 19, 2000 denial of the motion to amend, it is abundantly clear to us that Plaintiff sought our review of the district court‘s April 11, 2000 dismissal order as well. Both parties fully briefed us on their views of the propriety of the dismissal and dedicated the majority of their time at oral argument to presenting their respective positions on the sufficiency of Plaintiff‘s pleadings. See, e.g., Foman v. Davis, 371 U.S. 178, 181 (1962) (noting, in concluding that the petitioner intended to appeal both the dismissal and denial of post-dismissal motions, that the parties briefed and argued the merits of the dismissal). Plaintiff‘s failure to name the April 11, 2000 dismissal order in her notice of appeal is, at most, harmless error under the circumstances of this case, and we will not view it as an obstacle to our jurisdiction. See Am. Employers Ins. Co. v. Metro Regional Transit Auth., 12 F.3d 591, 594-95 (6th Cir.1993) (concluding that failure to identify underlying judgment in second notice of appeal that named only the denial of a post-judgment motion was harmless error); Boburka v. Adcock, 979 F.2d 424, 426 (6th Cir.1992) (holding that failure to name a directed verdict in notice of appeal from the denial of post-judgment motions did not defeat jurisdiction when appellant‘s interest in aрpealing the directed verdict was clear from appellant‘s briefs to the Court); Petru v. City of Berwyn, 872 F.2d 1359, 1361-62 (7th Cir.1989) (treating notice of appeal from denial of Rule 59(e) motion as encompassing earlier judgment where the appellant‘s intent to appeal judgment was clear and appellee suffered no prejudice); 11 Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice and Procedure § 2818, at 192-93 (2d ed.1995) (“if an appeal is erroneously taken from the denial of the motion, rather than from the judgment, the court will treat the appeal as being from the judgment“). But cf. United States v. Universal Mgmt. Servs., Inc., Corp., 191 F.3d 750, 756 (6th Cir.1999) (finding no appellate jurisdiction over denial of a motion to reconsider where the notice of appeal named only the prior order granting summary judgment).
II. DISMISSAL OF PLAINTIFF‘S SECOND AMENDED COMPLAINT
We review de novo the district court‘s order granting a motion to dismiss for failure to state a claim upon which relief may be granted pursuant to
One of the primary purposes of the TILA is “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.”
The TILA defines “finance charge” as “the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit.”
A finance charge also does not include “fees and amounts imposed by third party closing agents (including settlement agents, attorneys, and escrow and title companies) if the creditor does not require the imposition of the charges or the services provided and does not retain the charges.”
A. Failure to Plead Disclosure Variance Exceeding $100
Defendant argues, and the district court concluded, that the allegations of Plaintiff‘s second amended complaint are insufficient as a matter of law because, before inviting examination of the bona fide or reasonable nature of Defendant‘s document preparation charges or the propriety of excluding settlement or closing fees, the “Tolerances for accuracy” provision of TILA,
Pursuant to § 1605(f), a creditor‘s finance charge disclosure “shall be treated as being accurate ... if the amount disclosed as the finance charge ... does not vary from the actual finance charge by more than $100.”
Section 1649(a) provides, in relevant part:
For any closed end consumer credit transaction that is secured by real property or a dwelling, that is subject to this subchapter, and that is consummated before September 30, 1995, a creditor or any assignee of a creditor shall have no civil, administrative, or criminal liability under this subchapter for, and a consumer shall have no extended recission rights under section 1635(f) of this title with respect to ...
(3) any disclosure relating to the finance charge imposed with respect to the transaction if the amount or percentage actually disclosed —
(A) may be treated as accurate for purposes of this subchapter if the amount disclosed as the finance charge does not vary from the actual finance charge by more than $200....
We believe that the Barry case supports neither Defendant‘s argument nor the district court‘s conclusion that
Our examination of § 1605(f) leads us to conclude that it does not impose an independent pleading hurdle for TILA plaintiffs. Our conclusion stems from the general nature of the TILA as a whole, as well as the intent of Congress in promulgating the tolerance provision in 1995. As a remedial statute, we must construe TILA‘s terms liberally in favor of consumers. See Begala v. PNC Bank, Ohio, Nat‘l Ass‘n, 163 F.3d 948, 950 (6th Cir.1998); Murphy v. Household Fin. Corp., 560 F.2d 206, 210 (6th Cir.1977); see also N.C. Freed Co., Inc. v. Bd. of Governors of the Fed. Reserve Sys., 473 F.2d 1210, 1214 (2d Cir.1973) (“The Act is remedial in nature, designed to remedy what Congressional hearings revealed to be unscrupulous and predatory creditor practices throughout the nation.“) (footnote and citations omitted). When we apply the TILA liberally in favor of Plaintiff, we reach the conclusion that Congress’ remedial purpose for TILA is best effectuated by construing the § 1605(f) tolerance provision as a potential affirmative defense, rather than as an essential element of a finance charge disclosure claim. Moreover, in comparison to the stronger language of § 1649(a) explicitly precluding liability for creditors under specified circumstances, § 1605 merely states that disclosures “shall be treated as being accurate.”
Our conclusion is reinforced by the statements of Senator Sarbanes, then the ranking Democratic member and now chairperson of the Banking Committee, offered during Senate consideration of the 1995 amendments:
This bill increases the tolerance fоr statutory damages, lifting the bar that determines what constitutes a violation....
This increased tolerance for errors is intended to protect lenders from the small errors of judgment that occurred in the Rodash case. It is obviously not intended to give lenders the right to pad fees up to the tolerance limit of $100. For example, if a delivery associated with the closing cost on a home mortgage costs $30, $30 should be charged and disclosed as part of the finance charge. A lender cannot arbitrarily raise an additional $70 simply because there is a wider tolerance.
141 Cong. Rec. S 14567 (daily ed. Sept. 28, 1995) (statement of Senator Sarbanes). Senator Sarbanes’ comments, particularly his condemning the padding of fees up to the $100 tolerance, continue to demonstrate Congress’ intent to protect consumers against questionable lending practices. At the same time, as Senator Sarbanes explained, lenders also receive protection through the tolerance provision where they can show their disclosure minimally deviates from the actual amount charged. The overriding policy behind the TILA, however, remains focused on consumer protection; the responsibility to allege the minimal nature of the disclosure, and therefore the absence of a violation, should rest with the lender.
We therefore conclude that the district court erred in dismissing Plaintiff‘s second amended complaint for failure to allege a variance between the disclosed and actual finance charges exceeding the $100 tolerance for accuracy of
B. Exclusion of Challenged Fees
Although the district court focused almost exclusively on the tolerance provision in dismissing Plaintiff‘s second amended complaint, Defendant argues that the allegations of Plaintiff‘s second amended complaint fail to state a TILA disclosure claim because Defendant was under no obligation to include the fees for “document preparation” and “settlement or closing” in its presettlement disclosures. While we believe the allegations of Plaintiff‘s second amended complaint adequately challenge Defendant‘s undisclosed document preparation fee, Plaintiff‘s allegations regarding fees for settlement and closing do not sufficiently state that these fees were non-excludable from the finance charge.
1. Fees for “Document Preparation”
Plaintiff‘s second amended complaint alleges that Defendant‘s document preparation fee was “not bona fide and reasonable” and that Defendant imposed the charge to cover its costs of preparing the mortgage and promissory note. Plaintiff further alleges that the document preparation fee exceeded the cost of preparing the note and mortgage. Defendant contends that these allegations are conclusory and lack sufficient factual components to state a TILA violation.
Defendant argues that Plaintiff‘s second amended complaint demonstrates that the document preparation fee was bona fide by alleging that Defendant prepared the mortgagе and note documents. Concerning the reasonableness requirement, Defendant argues that Plaintiff‘s allegation that the fee charged exceeded Defendant‘s cost is insufficient. According to Defendant, to state a claim of improperly excluded document preparation fees, Plaintiff was required to allege facts showing Defendant‘s charges differed from those of other local businesses. Plaintiff‘s complaint does not allege specific facts distinguishing Defendant‘s fees from others in the locality, and thus Defendant argues that Plaintiff‘s complaint fails to state that Defendant‘s fees were unreasonable and ineligible for exclusion from the finance charge.
We cannot agree with Defendant‘s analysis of Plaintiff‘s document preparation allegations. Even though some discovery has apparently taken place during the course of this litigation, the district court dismissed Plaintiff‘s TILA claim оn a Rule 12(b)(6) motion, rather than on summary judgment. Considering only the standard applicable to motions under Rule 12(b)(6), whether “it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations,” Hishon, 467 U.S. at 73, Plaintiff‘s complaint is not so lacking as to foreclose any recovery for failure to disclose the document preparation fees. For instance, Plaintiff alleges that the document preparation charge was not reasonable. This allegation invites some degree of inquiry into the facts and circumstances of the case, generally inappropriate at the pleadings stage, although perhaps resolvable on summary judgment after discovery. Cf. Smith v. Fid. Consumer Discount Co., 898 F.2d 896, 902 (3d Cir.1990) (remanding TILA claim for resolution of material question of fact about reasonableness and bona fide nature of document preparation fees); In re Grigsby, 119 B.R. 479, 488 (Bankr.E.D.Pa.1990) (quoting a truth-in-lending treatise for the princiрles that a fee is bona fide if the creditors’ employees performed the services and reasonable depending on its comparison to charges imposed by local businesses), vacated on state law grounds only by 127 B.R. 759 (E.D.Pa.1991). Plaintiff could conceivably have alleged the unreasonableness of the fees with more detail and specificity, but we do not conclude that her merely describing the fees as “not bona fide and reasonable” fails to state a claim as a matter of law.
2. Fees for “Settlement or Closing”
The HUD 1 form given to Plaintiff at closing includes a previously undisclosed “Settlement or closing fee” to the Title Office of $200. (J.A. at 213.) Plaintiff‘s second amended complaint alleges that the settlement or closing fee was for a service Defendant required and “was not primarily for an excludable activity.” (J.A. at 177.) Defendant challenges Plaintiff‘s allegation regarding the settlement or closing fee as inadequate under Regulation Z.
The staff of the Federal Reserve Board has elaborated on Regulation Z‘s treatment of closing charges for services provided by third parties.3 The Federal Reserve Board staff has explained:
Required closing agent. If the creditor requires the use of a closing agent, fees charged by the closing agent are included in the finance charge only if the creditor requires the particular service, requires the imposition of the charge, or retains a portion of the charge. Fees charged by a third-party closing agent may be otherwise excluded from the finance charge under [12 C.F.R.] § 226.4.... A charge for conducting or attending a closing is a finance charge and may be excluded only if the charge is included in and is incidental to a lump-sum closing fee excluded under § 226.4(c)(7).
Lump sum charges. If a lump sum charged for several services includes a charge that is not excludable, a portion of the total should be allocated to that service and included in the finance charge. However, a lump sum charged for conducting or attending a closing (for example, by a lawyer or a title company) is excluded from the finance charge if the charge is primarily for services related to items listed in § 226.4(c)(7) (for example, reviewing or completing documents), even if other incidental services such as explaining various documents or disbursing funds for the parties are performed. The entire charge is excluded even if a fee for the incidental services would be a finance charge if it were imposed separately.
Here, for Plaintiff to claim that Defendant violated TILA by excluding the lump settlement or closing fee paid to the Title Company, Plaintiff needed, at a minimum, to identify the service provided by the Title Company. If, as Plaintiff alleges, the service was not primarily for an activity excludable from the finance charge under § 226.4(c)(7), then it would place a minuscule burden on Plaintiff to allege what non-excludable service Defendant required the Title Company to perform. Cf. Layell v. Home Loan & Inv. Bank, F.S.B., 244 B.R. 345, 351 (E.D.Va.1999) (remanding to bankruptcy court for determination of which part of a third-party document preparation charge was non-excludable). In the absеnce of any allegation of what non-excludable service the Title Company provided, Plaintiff‘s second amended complaint failed to state a TILA violation arising out of undisclosed fees for “settlement or closing.”
III. DENIAL OF LEAVE TO AMEND
We also believe the district court erred in denying Plaintiff‘s post-dismissal request to file a third amended complaint. The district court stated two reasons for denying Plaintiff‘s request to amend: failure to demonstrate good cause for delay pursuant to
Insofar as the district court relied on Rule 16(b) as a basis for denying Plaintiff‘s request for leave to amend, we conclude that the district court abused its discretion. Pursuant to Rule 16(b), a scheduling order establishing deadlines for matters such as joinder and amendments to pleadings “shall not be modified except upon a showing of good cause and by leave of the district judge.”
The district court found an absence of good cause under Rule 16(b) because Plaintiff sought to remedy the matters giving rise to dismissal of her second amended complaint. The district court based its finding on an unpublished decision of this Court, Lower v. Albert, Nos. 97-2122, 97-2123, 1999 WL 551414 (6th Cir. July 20, 1999). In Lower, a panel of this Court found that the district court did not abuse its discretion in refusing post-dismissal leave to аmend when the plaintiffs sought to cure deficiencies identified in their pleading. Id. at *3-*4. For two reasons, however, Lower has little bearing on our review of the district court‘s denial of leave to amend in the instant case. First, this Court‘s unpublished decisions “are never controlling authority.” Fonseca v. Consol. Rail Corp., 246 F.3d 585, 591 (6th Cir.2001). Second, because the Lower Court discussed the good cause issue in a very limited fashion, we do not find that panel‘s disposition of the issue to be persuasive.
Under the circumstances of the instant case, we believe that Plaintiff presented good cause for requesting leave to amend after the expiration of the December 1, 1999 deadline in the scheduling order. Defendant first raised the issue of the $100 tolerance provision in its November 5, 1999 motion to dismiss the first amended complaint. Even a cursory examination of Defendant‘s brief in support of that motion and subsequent reply brief seeking dismissal of the second amended complaint reveals no citation of authority, other than
To the extent that the district court found Plaintiff‘s third amended complaint unable to withstand a motion to dismiss for failure to satisfy the tolerance provision of § 1605(f), we reiterate our earlier conclusion that a TILA plaintiff is not obligated to plead a variance exceeding $100 to state an inadequate disclosure claim. The district court erred in refusing to allow the amendment based on its incorrect view of the TILA tolerance provision, and we therefore reverse the district court‘s order denying leave to file a third amended complaint.4 On remand, the district court shall permit Plaintiff to file her third amended complaint.
CONCLUSION
For the foregoing reasons, we REVERSE the district court‘s order dismissing Plaintiff‘s second amended complaint for failure to state a claim upon which relief may be granted. We also REVERSE the district court‘s order denying Plaintiff leave to file a third amended complaint. We REMAND this case for further proceedings consistent with this opinion.
I respectfully dissent from the majority‘s opinion because, in my view, the case below was either improperly or untimely removed, resulting in lack of jurisdiction in the district court.
Title 28, Section 1446, outlines the procedure for removal. Subsection (b) contains two paragraphs, the first of which states that “notice of removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defеndant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based[.]” The second paragraph of subsection (b) states that:
[i]f the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable[.] (italics added).
The Complaint in this case was filed in state court on December 18, 1998 and set forth several state law claims in five counts,1-1 all based on the same factual allegations. Although the defendant/appellee, Rock Financial Corporation (“Rock” or “defendant“), received the Summons and Complaint on March 8, 1999, a Notice of Remоval was not filed until May 13, 1999. Since this was well beyond thirty days from Rock‘s receipt of the “initial pleading,” the removal must have been based on some “other paper.” In fact, the Notice of Removal stated:
On April 15, 1999, plaintiffs filed and served their Response to Defendant‘s Motion for Protective Order which asserted that their causes of action were based upon federal law. (See Exhibit 7 at pp. 3-4). This pleading was the first paper filed by plaintiff [sic] from which it may be ascertained that the case is one which is removable.
(R. 1 at 2, italics added). The “Exhibit 7” referenced in the notice was plaintiffs’ response to a motion for protective order filed by Rock.
Thus, a determination of whether this case was properly removed requires, first, an analysis of this “other paper” to ascertain whether it contained language that would have triggered removal, and second, a comparison of the “initial pleading” to this “other paper” to ascertain whether, in fact, there was nothing in the initial pleading which would have triggered removal. As explained more fully below, in my view, this dual analysis reveals that the district court had no jurisdiction because the removal was either improper or untimely.
In support of removal on the basis of federal question jurisdiction, the Notice of Removal made reference to “Exhibit 7,” the response of plaintiffs to Rock‘s motion for protective order. In that response, plaintiffs had argued that:
... the suggestion that Plaintiff‘s [sic] claims are grounded solely on the unauthorized practice of law claim, is belied by a close examination of Counts 1, 4 and 5 of the Complaint. Those counts, in addition to focusing on [Rock‘s] unauthorized preparation of legal documents, challenge [Rock‘s] charging fees for document preparation that exceed the actual costs of preparing the final legal papers as defined by Regulation X and the HUD Settlement Costs booklet promulgated pursuant to Regulation X. Thus, the Defendant‘s bald assertion that this case will evaporate after the Court hears Defendant‘s summary disposition motion is neither consistent with a fair reading of Plaintiff‘s [sic] well pleaded complaint nor is it supported by the history of the “document preparation cases” that have been filed in the Kent County Circuit Court, including the Krause case ....
(R. 1, Ex. 7, at 3-4, italics added). Rock asserted that this mention of “Regulation X and the HUD Settlement Costs booklet” was its first indication that plaintiffs were stating a federal claim.
In my view, plaintiffs’ mere mention of Regulation X (which is not even applicable in this case)2-1 and the HUD Settlement Costs booklet was simply not a trigger for removal. If it were, then virtually identical language in plaintiffs’ Complaint surely should also have triggered removal.
All of the counts of the Complaint were phrased in state law terms; however, Count 1 (the Michigan Consumer Protection Act claim) alleged in part as follows:
35. In the course of chаrging Plaintiffs and the class members a “document preparation” fee for the service of preparing final legal papers in connection with their real estate mortgage loan operations, Rock Financial violated M.C.L. § 445.903; MSA 19.418(3) of the MCPA by engaging in the following unfair, unconscionable, or deceptive methods, acts or practices:
* * * * * *
(d) Failing to reveal a material fact, the omission of which tends to mislead or deceive the consumer, and which fact could not reasonably be known by the consumer, in violation of Sec. 3(s), including but not limited to:
* * * * * *
ii. Tending to mislead or deceive the borrower about the actual expense or cost of preparing the “final legal papers,” where HUD regulations provide that the fee is to cover the cost of preparing the “final legal papers” but the bank failed to reveal the actual cost was less than that charged to the bоrrower.
(J.A. at 23-24, italics added). Counts 4 and 5 allege “innocent” and negligent misrepresentation with respect to the document preparation fee, although they contain no specific allegations similar to ¶ 35(d)(ii) above relating to HUD documents or regulations. The original Complaint also had several attachments, including a copy of the HUD Guide relating to “Settlement Costs.”3-1
On June 21, 1999, plaintiffs made essentially the same point in a motion to remand wherein they argued that “[u]nder black-letter law, citation to Regulation X in a brief, or reliance on an aspect of Federal law to support a state law claim, does not confer federal court jurisdiction.” (R. 6, ¶ 3). Plaintiffs later withdrew their motion to remand and, instead, moved for leave to amend their complaint. The district court granted the motion and, for the first time, a Truth-in-Lending (“TILA“) claim under
In summary, I believe that one of two things happened here with respect to federal question jurisdiction: the district сourt either (1) lacked subject matter jurisdiction because no federal claim was ever alleged prior to removal; or (2) improperly failed to remand a case which had been untimely removed.
I would never reach the merits of this case relating to the pleading requirements for a TILA action. Rather, I would remand to the district court with directions to vacate all orders and remand the case to state court. I, therefore, respectfully dissent.