of fraud against First Government was based primarily on First Government's alleged failure to disclose the terms of the loan before settlement. And Williams asserted that Industry Mortgage, through Greg Lilienfield, was aware of and actually participated in the fraud perpetrated by First Government. See Blackman v. Hustler Magazine, 620 F. Supp. 1501, 1509, modified on other grounds, 255 U.S. App. D.C. 135, 800 F.2d 1160 (1986) (D.D.C. 1984) (an agent of an entity only binds that entity when the agent acts with actual or apparent authority or the entity ratifies the acts).
C. Claim # 3: Unconscionability
Plaintiff alleged in his complaint that the loans were unconscionable under D.C. Uniform Commercial Code, D.C. Code § 28:2-302. Defendant noted that the U.C.C. provision applies only to goods, not loans. D.C. Code §§ 28:2-102, 28:2-105(1). Plaintiff responded by stating that his claim of unconscionability was a common law claim based on Williams v. Walker-Thomas Furniture Co., 121 U.S. App. D.C. 315, 350 F.2d 445 (D.C. Cir. 1965). That case holds that a contract is unconscionable (and therefore unenforceable) when (1) one party has no meaningful choice and (2) the terms unreasonably favor one side. 350 F.2d at 449. Plaintiff asserted that the loans in this case met both prongs of the test for unconscionability.
The claim of common law unconscionability appears to apply only defensively, for example, as a response to an attempt to enforce a contract. See Restatement (Second) of Contracts § 208(g). Because the loans issued by CMM and Mr. Hardesty were paid off and no enforcement of those loans was involved, the claims of unconscionability against them were dismissed. The unconscionability claims against First Government and Industry Mortgage, on the other hand, were not dismissed. First Government had sold the mortgage loan and was not the party seeking enforcement, but the unconscionability claim against First Government was not dismissed because disputed issues remained about the relationship between First Government and Industry Mortgage.
D. Claim # 4: D.C. Usury Statute
Under D.C. law, a loan secured by a mortgage or deed of trust violates the Usury Statute if the lender fails to furnish the borrower with a separate written statement that complies with the disclosure provision of the Truth in Lending Act ("TILA"). D.C. Code § 28-3301(f)(3). The Usury Statute is also violated when a lender misrepresents material facts about the loan or fails to state material facts. D.C. Code § 28-3312. As explained in the next section, plaintiff asserted that defendants First Government and Industry Mortgage did not comply with the requirements under TILA. If those allegations were true, then defendants also violated the Usury Statute.
Defendants challenged this claim as time-barred, insisting that D.C. Code § 28-3304 applies a one-year statute of limitations. Plaintiff responds that a three-year statute of limitation applies in this case because in interpreting § 28-3301(f), D.C. adopts the regulations that govern TILA, including presumably a three-year statute of limitation that begins when a lender fails to make material disclosures at the time of the loan. Because D.C. Code § 28-3304 appears to apply only to actions to recover usurious interest, and not to failures to comply with TILA disclosures, the plaintiff's reading of the statute was the more natural one. The alleged failure to make the material disclosure occurred well within three years of when this suit was brought, therefore the claim was not barred by the statute of limitations.
E. Claim # 5: Truth in Lending Act (TILA)
Plaintiff requested declaratory relief rescinding the third loan under TILA. TILA regulates consumer credit transactions in which security interest is taken in the borrower's principal residence. 15 U.S.C. § 1601 et seq. Under TILA, the lender is required to make five material disclosures to the consumer before the loan can be consummated: the amount financed, the finance charge, the annual percentage rate (APR), the payment schedule, and the total of payments. 15 U.S.C. § 1602(u); 12 C.F.R. § 226.23 n.48 (Reg. Z). If a lender fails to make any of the material disclosures, or makes any of them inaccurately, the consumer has the right to rescind the loan transaction for three years from the date of consummation. 15 U.S.C. § 1635; 12 C.F.R. § 226.23(a)(3) (Reg. Z).
Plaintiff alleged that First Government failed to include as part of the finance charge a payment of $ 1,273.27 for purchase of a credit life insurance policy. Failure to disclose that charge, if purchase of the insurance was a condition of extending the credit, would violate TILA. 12 C.F.R. § 226.4 (Reg. Z). Genuine issues of material fact for trial were whether Mr. Williams willingly chose to purchase the insurance and whether the term of the loan was properly disclosed. The motion for summary judgment on the TILA count was denied.
United States District Judge
Date: July 17, 1997
ORDER - FILED APR 29 1997
Having considered the defendants' motions for summary judgment, the oppositions thereto, and the arguments made at the April 17, 1997 hearing, it is this 28th day of April, 1997
ORDERED that defendant Central Money Mortgage Co.'s motion for summary judgment [# 30] is denied as to counts # 1 and # 2 and granted as to count # 3. It is
FURTHER ORDERED that defendant Charles Hardesty's motion for summary judgment [# 30] is denied as to count # 1 and granted as to counts # 2 and # 3. It is
FURTHER ORDERED that defendant First Government Mortgage's motion to dismiss [# 34], which is treated as a motion for summary judgment, is denied as to all counts. It is
FURTHER ORDERED that defendant Industry Mortgage's motion for summary judgment [# 35] is denied as to all counts.
A memorandum opinion will follow.
United States District Judge