Fayant et al v. US Bank National Association et al, No. 2:2016cv00139 - Document 48 (E.D. Wash. 2017)
Court Description: ORDER GRANTING DEFENDANTS' MOTIONS AND ORDER TO SHOW CAUSE. Granting with prejudice 13 Motion to Dismiss for Failure to State a Claim; granting with prejudice 16 Motion to Dismiss for Failure to State a Claim. Signed by Judge Salvador Mendoza, Jr. (SK, Case Administrator)
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Fayant et al v. US Bank National Association et al Doc. 48 1 2 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON 3 4 5 WILLIAM R. FAYANT and JULIE L. FAYANT, Plaintiffs, 6 7 v. 9 ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE U.S. BANK NATIONAL ASSOCIATION and WASHINGTON TRUST BANK, 10 No. 2:16-CV-00139-SMJ Defendants. 8 11 Before the Court, without oral argument, are Defendants Washington Trust 12 Bank and U.S. Bank National Association’s Motions to Dismiss, ECF Nos. 13 and 13 16, respectively. Through these motions, Defendants seek to have the Plaintiffs’ 14 complaint dismissed for failure to state a claim upon which relief can be granted. 15 See generally ECF Nos. 13 and 16. Before Plaintiffs replied to Defendants’ 16 motions, the Court notified all parties that, pursuant to Federal Rule of Civil 17 Procedure 12(d), it would treat the motions to dismiss as summary judgment 18 motions. ECF No. 25. However, for reasons detailed below, the Court reviews the 19 motions under the motion to dismiss standard. Plaintiffs oppose Defendants’ 20 motions. See ECF Nos. 28 and 29. ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 1 Dockets.Justia.com 1 Having reviewed the pleadings and the file in this matter, the Court is fully 2 informed and GRANTS Defendants’ motions. The Plaintiffs fail to present a 3 cognizable legal theory or to allege sufficient facts to support a cognizable legal 4 theory, necessitating their complaint’s dismissal. Further, because, as detailed 5 below, this and other courts have repeatedly rejected nearly identical claims filed 6 by Plaintiffs’ counsel, Jill Smith, the Court ORDERS Ms. Smith to show cause 7 why the Court should not impose sanctions or recommend disciplinary 8 proceedings against her and ORDERS Defendants’ counsel to file a statement 9 concerning attorneys’ fees. 10 I. BACKGROUND 11 In 2005 and 2006, Plaintiffs and Spokane County, Washington residents 12 William Robert Fayant and Julie Lorraine Fayant obtained loans from Cherry 13 Creek Mortgage (“Cherry Creek”) and Washington Trust Bank (“WTB”). ECF 14 Nos. 14, 14-1, 14-2, 17, and 17-1. The Cherry Creek loan and relevant documents 15 concerning the loan were subsequently endorsed and assigned to U.S. Bank 16 National Association (“U.S. Bank”). ECF Nos. 17 and 17-1. They used their home 17 in Liberty Lake, Washington as collateral for the loans. ECF Nos. 14-2 and 17-1 18 (deeds of trust encumbering the subject property). 19 About a decade later, in a letter dated September 24, 2015, Plaintiffs 20 purported to rescind the subject loans. ECF No. 1-1. Four days later, Plaintiffs ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 2 1 sent another letter to the same parties purporting to void any security interest U.S. 2 Bank, Cherry Creek or WTB had in the Plaintiffs’ home. Id. Aside from noting 3 the loan numbers, the letters do not provide the date on which the loans were 4 secured. 5 Several months later, on April 29, 2016, Plaintiffs filed their complaint 6 against U.S. Bank, Cherry Creek, and WTB. ECF No. 1. In it, Plaintiffs allege 7 violations of the Truth in Lending Act (“TILA” or “the Act”) and seek injunctive 8 relief. See generally ECF No. 1. Specifically, Plaintiffs state that they mailed U.S. 9 Bank, Cherry Creek, and WTB the rescission notices in September 2015. 10 Plaintiffs claim none of the three institutions complied with their purported duties 11 as allegedly set forth in TILA. This, Plaintiffs allege, led to the cancellation and 12 voiding of the loan contracts and notes encumbering their home by operation of 13 law. Id. at 2–3. They also claim that the loan in dispute was never consummated. 14 Id. at 3. Moreover, Plaintiffs allege that on January 21, 2016, they “filed and had 15 recorded with the Spokane County [sic] an Affidavit of Rescission, instrument # 16 6466789 of a loan transaction.” Id. at 4. Plaintiffs state they attached it as Exhibit 17 C of the complaint, but no such exhibit is attached to the complaint or present 18 elsewhere in the record. As relief to the asserted harm, Plaintiffs seek temporary, 19 permanent, and mandatory injunctions against U.S. Bank, Cherry Creek, and 20 WTB. Id. at 4–6. ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 3 1 About two months after Plaintiffs filed their complaint, on June 21, 2016, 2 the Court approved the parties’ stipulated motion to dismiss then Defendant 3 Cherry Creek from this lawsuit. ECF No. 10. Three days later, Defendant WTB 4 filed its Rule 12(b)(6) motion to dismiss the complaint. ECF No. 13. About a 5 month later, Defendant U.S. Bank also filed a Rule 12(b)(6) motion to dismiss the 6 complaint. ECF No. 16. 7 Thereafter, the Court set a briefing schedule for the parties’ response and 8 reply briefs—and also granted Plaintiffs’ request to file a surreply brief— 9 addressing Defendants’ motions to dismiss. ECF Nos. 24, 25, and 39. Also, in an 10 abundance of caution, the Court alerted the parties that it would consider the 11 Defendants’ motions to dismiss as motions for summary judgment pursuant to 12 Rule 12(d). ECF No. 25; see Rule 12(d) (“If, on a motion under Rule 12(b)(6) or 13 12(c), matters outside the pleadings are presented to and not excluded by the 14 court, the motion must be treated as one for summary judgment under Rule 56. All 15 parties must be given a reasonable opportunity to present all the material that is 16 pertinent to the motion.”) 17 II. MOTION TO DISMISS STANDARD 18 A claim may be dismissed pursuant to Rule 12(b)(6) either for lack of a 19 cognizable legal theory or failure to allege sufficient facts to support a cognizable 20 legal theory. Taylor v. Yee, 780 F.3d 928, 935 (9th Cir. 2015). “Threadbare ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 4 1 recitals of the elements of a cause of action, supported by mere conclusory 2 statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To 3 survive a motion to dismiss under Rule 12(b)(6), a complaint must allege “enough 4 facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. 5 Twombly, 550 U.S. 544, 570 (2007). A claim is plausible on its face when “the 6 plaintiff pleads factual content that allows the court to draw the reasonable 7 inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. 8 at 678. “Where the well-pleaded facts do not permit the court to infer more than 9 the mere possibility of misconduct, the complaint has alleged—but has not 10 ‘show[n]’—‘that the pleader is entitled to relief.’” Id. at 679 (quoting Fed. R. Civ. 11 P. 8(a)(2)). 12 III. DISCUSSION 13 U.S. Bank and WTB moved to dismiss the complaint pursuant to Rule 14 12(b)(6) claiming: (1) Plaintiffs’ rescission argument is factually unsupported; (2) 15 the claims are time-barred, (3) Plaintiffs have not offered to tender the borrowed 16 funds as TILA requires; and (4) res judicata and judicial estoppel bars the claims. 17 ECF No. 13 at 7–20; ECF No. 16 at 5–11. 18 As noted above, the Court notified the parties that it would treat the motions 19 as summary judgment motions to provide the parties adequate time to brief the 20 issues, thus permitting the Court to consider material beyond the complaint in ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 5 1 reaching a decision. ECF No. 25. However, in certain circumstances, courts can 2 consider documents outside the pleadings without converting a 12(b)(6) motion 3 into a Rule 56 motion for summary judgment. Particularly, where a complaint 4 incorporates documents by reference or attaches documents to the complaint, or in 5 matters of judicial notice, courts may consider these materials without implicating 6 Rule 12(d). United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). This is 7 also true where a “plaintiff refers extensively to the document or the document 8 forms the basis of the plaintiff’s claim.” Id. Upon review of the parties’ filings and 9 the case file, this doctrine applies to the documents the Court considered in 10 reaching its decision. Further, and as discussed below, the Plaintiffs fail to present 11 a cognizable legal theory. Accordingly, the Court conducts its analysis under the 12 motion to dismiss standard and dismisses the complaint. 13 A. Plaintiffs fail to present a cognizable legal theory. 14 1. Truth in Lending Act 15 “Congress passed the Truth in Lending Act, 82 Stat. 146, as amended, to 16 help consumers avoid the uninformed use of credit, and to protect the consumer 17 against inaccurate and unfair credit billing.” Jesinoski v. Countrywide Home 18 Loans, Inc., 135 S.Ct. 790, 791–92 (2015) (citing 15 U.S.C. § 1601(a)) (internal 19 quotations omitted). The Act permits certain borrowers to rescind a loan “until 20 midnight of the third business day following consummation of the transaction or ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 6 1 the delivery of the [disclosure required by the Act], whichever is later, by 2 notifying the creditor, in accordance with regulations of the [Federal Reserve] 3 Board, of his intention to do so.” Id. at 792 (citing 15 U.S.C. § 1635(a)) (internal 4 quotation omitted). The Act also temporally limits borrowers’ right to rescind. 5 Three years from the date the transaction is consummated or upon the property’s 6 sale, whichever comes first, the right to rescind expires. Id. (citing 15 U.S.C. § 7 1635(f)). This applies even if the lender never made the required disclosures. Id. 8 These protections apply to “any consumer credit transaction . . . in which a 9 security interest . . . is or will be retained or acquired in any property which is 10 used as the principal dwelling of the person to whom credit is extended.” 15 11 U.S.C. § 1635(a). A borrower “need only provide written notice to a lender in 12 order to exercise his right to rescind.” Jesinoski, 135 S.Ct. at 793. 13 A transaction is consummated under TILA at the “time that a consumer 14 becomes contractually obligated on a credit transaction.” Jenkins, et al v. Wells 15 Fargo Bank, N.A., No. Cl6-452-TSZ, 2016 WL 7440867, *2 (W.D. Wash. Dec. 16 27, 2016) (citing Jackson v. Grant, 890 F.2d 118, 120 (9th Cir. 1989)). State law 17 determines when a person becomes contractually obliged. Id. (citations omitted). 18 In Washington, a contract is formed when the parties objectively manifest their 19 mutual assent to sufficiently definite contractual terms. Keystone Land & Dev. Co. 20 ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 7 1 v. Xerox Corp., 152 Wn.2d 171, 177–78 (2004). Consideration must also support 2 the contract. Jenkins, 2016 WL 7440867 at *2 (citations and quotations omitted). 3 4 5 2. The record indicates the subject loans were consummated and rescission has long been unavailable to Plaintiffs. 6 Plaintiffs’ theory of their case focuses on events from 2015. In short, 7 Plaintiffs argue that since more than twenty days passed from when Defendants 8 received the notices of rescission mailed in September 2015, Plaintiffs’ financial 9 obligations under the subject loans ended. ECF No. 1 at 2–3; ECF No. 28 at 2; 10 ECF No. 29 at 2. They also take the seemingly contradictory position that the 11 subject loans were never consummated. ECF No. 1 at 3; ECF No. 28 at 2; ECF 12 No. 29 at 2. These positions are in disaccord. As at least one other court has noted 13 in fielding a case asserting substantially similar claims under substantially the 14 same legal theory, “[e]ither the loan was consummated when the promissory note 15 and deed of trust were executed . . . and plaintiffs’ July 2015 notice of rescission 16 is untimely, or the loan is unconsummated and there is nothing to rescind.” 17 Jenkins, 2016 WL 7440867 at *2. 18 Here, the record indicates that Plaintiffs executed documents that 19 consummated the subject loans with Defendants as lenders. ECF No. 14 (Decl. of 20 Christopher G. Varallo); ECF No. 14-1, Ex. A. (credit agreement between WTB ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 8 1 and Plaintiffs and dated September 19, 2006); ECF No. 14-2, Ex. B (note 2 encumbering Plaintiffs’ subject property and naming WTB as grantees, dated 3 September 12, 2006); ECF No. 17 (Affidavit of Mary D. Lee explaining that 4 Cherry Creek granted to U.S. Bank the note encumbering the subject property and 5 noting that Plaintiffs signed a TILA disclosure statement in 2005); ECF No. 17-1, 6 Ex. A (loan settlement statement providing Plaintiffs with a $204,000 loan from 7 Cherry Creek, dated April 27, 2005); ECF No. 17-1, Ex. B (note signed by 8 Plaintiffs promising to pay the subject loan, which was endorsed without recourse 9 by Cherry Creek to U.S. Bank, dated April 22, 2005); ECF. No. 17-1, Ex. C (deed 10 of trust between Plaintiffs and Cherry Creek that was subsequently assigned to 11 U.S. Bank, dated April 22, 2005); ECF. No. 17-1, Ex. D (TILA disclosure 12 statement signed by Plaintiffs on April 22, 2005). 13 Plaintiffs also argue that the Court should deny U.S. Bank’s motion to 14 dismiss because the documents at issue regarding the U.S. Bank loan were 15 confusing and the true lender was not properly identified. ECF No. 29 at 6–9. Yet 16 Plaintiffs’ own alleged course of conduct supports that they knew the identities of 17 the institutions from which they borrowed. Filings from Plaintiffs’ bankruptcy 18 proceedings list U.S. Bank and WTB as creditors with an interest in the subject 19 property. ECF No. 14-1, Ex. H at 103 (listing U.S. Bank and WTB as creditors 20 holding secured claims in the subject property and noting the dates on which the ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 9 1 claims were incurred). Although the exhibit is hard to read in some places, the 2 document notes the dates when Plaintiffs incurred their debts to Defendants as 3 being in either 2005 or 2006. Id. In either case, that is well before the purported 4 notices of rescission were sent in September 2015. 5 These facts overwhelmingly support the Court’s finding that the subject 6 loans were consummated over ten years ago. Therefore, under TILA, the three- 7 year period available for Plaintiffs to seek the loans’ rescission has well since 8 passed. Given that Plaintiffs do not assert a cognizable legal theory as detailed 9 above, it is unnecessary for the Court to consider the parties’ remaining arguments 10 and the Court DISMISSES the complaint. Moreover, for the reasons detailed 11 below, the Court does so with PREJUDICE. 12 IV. ORDER TO SHOW CAUSE 13 The Court is well aware that it is one of several federal courts in which 14 Plaintiffs’ counsel, Jill Smith, has sought to test a legal theory that courts have 15 repeatedly rejected. See, e.g., Johnson v. Bank of New York Mellon, No. C16- 16 0833JLR, 2016 WL 4211529, *1 n. 1 (W.D. Wash. Aug. 10, 2016) (listing nine 17 cases in which Plaintiffs’ counsel has unsuccessfully asserted substantially similar 18 claims and advanced essentially the same legal theory). Several of these courts 19 have imposed monetary and other sanctions on Ms. Smith. Id. Indeed, Chief Judge 20 Rice in this very district has presided over a strikingly similar case and recently ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 10 1 imposed sanctions on Plaintiffs’ counsel in the amount of $5,000 and ordered her 2 to pay the defendant’s attorneys’ fees in the amount of $5,869.16. Brophy v. J.P. 3 Morgan Chase Bank, No. 16-CV-053-TOR, ECF No. 27 (E.D. Wash. Jan. 17, 4 2017). In deciding to impose sanctions, Chief Judge Rice assessed the legal theory 5 Ms. Smith presented—which is essentially the same as the one advanced in this 6 Court—and found it legally frivolous. Id. at 19. 7 The Court has compared the complaint and other filings in the instant case 8 with those in Brophy. The complaints are astonishingly similar, indeed they are 9 almost carbon copies of each other save for a few factual details. Moreover, 10 several of Ms. Smith’s filings in both cases are substantially the same. The factual 11 differences, particularly the fact that here, Plaintiffs Fayant recorded an “Affidavit 12 of Rescission” whereas the Brophy plaintiffs did not, do not lead to an outcome in 13 this case different from that in Brophy. This fact calls into question Ms. Smith’s 14 representations to the Court. 15 Moreover, Ms. Smith’s actions have led this and multiple other courts to 16 expend limited judicial resources on matters that likely should never have been 17 brought before our courts in the first instance—at least since Ms. Smith was first 18 made aware that her legal theory concerning rescission under TILA is meritless. 19 Indeed, by this Court’s count, including the case at bar, Ms. Smith has filed at 20 ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 11 1 least thirteen cases in federal courts presenting the same frivolous argument.1 2 Perhaps more disturbingly, Ms. Smith has presumably been charging members of 3 the public attorneys’ fees knowing full well that courts have repeatedly found no 4 merit to her legal theory concerning rescission actions under TILA. This Court is 5 duty-bound to protect the public from harm. Accordingly, the Court must consider 6 the harm or potential harm of Ms. Smith’s actions on members of the public in 7 deciding whether to impose sanctions and, if so, determining appropriate sanctions 8 in this case. 9 Ms. Smith could have easily taken steps to prevent the imposition of 10 sanctions in other cases, and potentially in this case, by comporting with Rule 11. 11 The Advisory Committee Notes to Rule 11 indicates that the rule continues to require litigants to ‘stop-and-think’ before initially making legal or factual contentions. It also, however, emphasizes the duty of candor by subjecting litigants to potential sanctions for insisting upon a position after it is no longer tenable and by generally providing protection against sanctions if they withdraw or correct contentions after a potential violation is called to their attention. 12 13 14 15 Fed. R. Civ. P. 11 advisory committee’s notes to 1993 Amendment subdivisions 16 (b) and (c). This language makes clear that once Ms. Smith had reason to know 17 18 19 20 1 Chief Judge Rice notes that the court in Johnson v. Mellon, No. C16-0833JLR, 2016 WL 4211529, (W.D. Wash. Aug. 10, 2016), identified at least ten cases asserting the same arguments. Brophy, No. 16-CV-053-TOR, ECF No. 27 at 25. Counting Brophy and the instant case makes at least thirteen. ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 12 1 that the arguments presented in this case were roundly rejected by other courts, 2 she had a duty to make this Court aware of those decisions. Yet, she did not. 3 The discussion above leads this Court to ask—what will it take for Ms. 4 Smith to cease filing the same frivolous lawsuits asserting a legally flawed reading 5 of TILA? Monetary sanctions have so far failed, necessitating other action. 6 Indeed, in addition to likely imposing monetary sanctions, Judge Zilly in the 7 Western District of Washington recently notified Ms. Smith that he is considering 8 requiring Ms. Smith to file a copy of his December 27, 2016 order in the case 9 before him along with any order imposing sanctions “each time she files a TILA 10 rescission action in federal court” and referring her to the Washington State Bar 11 Association. Jenkins, 2016 WL 7440867 at *4. 12 Accordingly, this Court ORDERS Plaintiffs’ counsel Ms. Jill Smith to file 13 with this Court a statement explaining why she believes this Court should not: (1) 14 impose sanctions pursuant to Federal Rule of Civil Procedure 11(c); (2) award 15 Defendants attorneys’ fees for the costs incurred in resisting this lawsuit; (3) order 16 Ms. Smith to file a copy of this Order along with any order imposing sanctions 17 each time she files a TILA rescission action in federal court; (4) order Ms. Smith 18 to provide Plaintiffs Fayant with a copy of this Order along with any order 19 imposing sanctions; (5) order Ms. Smith to fully reimburse Plaintiffs for any 20 attorneys’ fees or costs paid by Plaintiffs in conjunction with this case and file ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 13 1 certification with the court that have done so, as the court in Johnson, 2016 WL 2 4211529 at *5, previously ordered her to do in a similar case; (6) refer Ms. Smith 3 to the Washington State Bar for potential disciplinary action; and (7) pursuant to 4 Local Rule 83.3, recommend the initiation of disciplinary proceedings to the chief 5 judge of the Eastern District of Washington. 6 Additionally, the Court ORDERS Defendants’ counsel to file with this 7 Court a statement detailing the attorneys’ fees they incurred in this litigation. Such 8 a statement must state with specificity the hours worked, reasonable hourly rates 9 charged by each attorney and/or other professional who worked on the case, and 10 provide enough information about each person’s credentials, qualifications, and 11 experience to allow the Court to render a reasoned judgment on appropriate fees, 12 if any, to award. All counsel are instructed to file such statements by February 13 10, 2017. 14 Accordingly, IT IS HEREBY ORDERED: 15 1. 13, is GRANTED WITH PREJUDICE. 16 17 18 Defendant Washington Trust Bank’s Motion to Dismiss, ECF No. 2. Defendant U.S. Bank’s Motion to Dismiss, ECF No. 16, is GRANTED WITH PREJUDICE. 19 20 ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 14 1 3. Plaintiffs’ Counsel Ms. Jill Smith of the Natural Resource Law 2 Group PLLC in Seattle, WA is ORDERED to file a statement as 3 detailed above by no later than February 10, 2017. 4 4. statement as detailed above by no later than February 10, 2017. 5 6 7 8 9 10 Defendant Washington Trust Bank’s counsel is ORDERED to file a 5. Defendant U.S. Bank’s counsel is ORDERED to file a statement as detailed above by no later than February 10, 2017. IT IS SO ORDERED. The Clerk’s Office is directed to enter this Order and provide copies to all counsel. DATED this 26th day of January 2017. 11 12 __________________________ SALVADOR MENDOZA, JR. United States District Judge 13 14 15 16 17 18 19 20 ORDER GRANTING DEFENDANTS’ MOTIONS AND ORDER TO SHOW CAUSE - 15
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