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BYNUM v. EQUITABLE MORTGAGE GROUP

April 7, 2005.

GEORGETTE H. BYNUM, Plaintiff,
v.
EQUITABLE MORTGAGE GROUP, et al., Defendants.



The opinion of the court was delivered by: SUZANNE CONLON, District Judge

MEMORANDUM OPINION AND ORDER

Georgette Bynum, a paralyzed, seventy-nine year old widow, brings suit over the refinancing of her home mortgage. Bynum contends she desired a $10,000 home improvement loan but was induced to acquire a $75,000 loan that contained undisclosed terms and exorbitant charges. Bynum asserts she did not receive money for home repairs, and that she was unable to afford the mortgage. Foreclosure proceedings were instituted against her.

Bynum sues Manufacturers and Traders Trust ("Manufacturers"), holder and assignee of her mortgage, for violating the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., the Home Ownership and Equity Protection Act ("HOEPA"), codified as amendments to TILA, the District of Columbia Interest and Usury Statute, D.C. Code § 28-3301(f), the District of Columbia Mortgage Lender and Broker Act ("MLBA"), D.C. Code § 26-1101 et seq., the District of Columbia Consumer Protections Procedure Act ("CPPA"), D.C. Code § 28-3901 et seq., and for rescission, fraud and breach of contract. See 3rd Am. Compl. at Counts I-VI, IX-X. Manufacturers asserts an equitable subrogation counterclaim. Bynum sues Equitable Mortgage Group, Inc. ("Equitable"), her mortgage broker, under the MLBA and CPPA, and for promissory estoppel, breach of fiduciary duty and conversion, conspiracy to convert and aiding and abetting conversion. See 3rd Am. Compl. at Counts VII-XI. Finally, Bynum sues Dimarcus Waldo, proprietor of Dutchmans Home Improvement Co., under the CPPA and for conversion, conspiracy to convert and aiding/abetting conversion. See 3rd Am. Compl. at Counts VII, X. Bynum seeks damages, rescission and declaratory relief. Only two defendants remain.*fn1 Before the court are Manufacturers' motions to dismiss and for summary judgment, Equitable's motion for summary judgment, and Bynum's motion for partial summary judgment.*fn2 BACKGROUND

  A. Loan Application with Equitable

  The following material facts are undisputed unless otherwise noted.*fn3 Georgetta Bynum resides in Washington, D.C. In 1997, Bynum contacted Equitable, a licensed mortgage broker, about refinancing her home mortgage. Bynam had previously refinanced her mortgage on three occasions, and sought a fourth refinancing to obtain $10,000 in cash for home improvements. On November 18, 1997, Bynum signed several documents provided by Equitable, including: (1) a loan application that reflected an estimated total loan amount of $85,000 and a prospective interest rate of 9.99%; (2) an agreement to obtain a loan commitment, which identified Equitable as a mortgage broker, set forward the brokerage agreement terms between Bynum and Equitable, estimated an $8,000 broker fee due at closing, and declared Equitable did not owe Bynum a fiduciary duty; and (3) a good faith estimate of the costs and fees Bynum would face in connection with the loan. See Equitable Exs. K, L-M. The documents Bynum signed and dated November 18, 1997, are also signed and dated by Equitable representative Kenneth Thompson. See id. The loan application reflects it was obtained in a "face to face interview." See id. at Ex. K. Thompson contends he met with Bynum at her home on November 18, 1997, where he explained the documents to her, explained Equitable's status as a broker who would help her find a lender, and answered her questions. Thompson submits a detailed affidavit describing his meeting with Bynum. Equitable Ex. B. At her deposition, Bynum did not recall meeting with Thompson; her affidavit attests Thompson did not come to her home. See Bynum Ex. A at ¶ 4; Ex. B at 11-12.

  Bynum's refinancing loan application and background financial information were submitted to Thompson's supervisor, Charles Ruiz, and to First Government, a mortgage lender. First Government agreed to offer Bynum a $75,000 refinancing loan at a 9.9% interest rate. Bynum initially qualified for and accepted a 10.5% interest rate, but First Government lowered the rate when Equitable voluntarily surrendered a portion of its own compensation to allow her the benefit of the reduced rate. As a result, Equitable ultimately received a $5,475 fee instead of the originally estimated $8,000 fee. After forwarding the materials to First Government, Equitable had no further involvement in the negotiation, structure and settlement of Bynum's loan.

  B. Loan Settlement with First Government and Valley Title

  Settlement of the refinancing loan occurred at Bynum's home on February 28, 1998. Prior to settlement, First Government provided Bynum with a finance agreement and loan commitment, which set forth the $75,000 loan amount, term, interest rate and annual percentage rate of Bynum's loan. Bynum signed and initialed each document. Alan Friedman, a settlement agent with Valley Title Company, reviewed First Government's loan documents with Bynum, as well as the HUD-1 statement that Valley Title prepared pursuant to First Government's instructions. Bynum signed the documents Friedman presented including: (1) the HUD-1 statement reflecting the final terms of the loan, including the amount, term, interest rate and fees and charges; and (2) a letter to Wilshire Credit regarding payoff of her prior mortgage loan. Bynum executed a deed of trust securing repayment of the $75,000 loan by encumbering her property and a promissory note evidencing the $75,000 loan made to her by First Government. At the conclusion of settlement, Friedman signed a settlement agent affidavit before a notary public attesting Bynum signed the refinancing documents. Further, Friedman notarized Bynum's deed of trust. His notary seal reflects he is a certified notary in "Baltimore County, Maryland."

  Bynum's home was given a $130,000 appraisal value. The February 28th settlement reflects insurance and property reserve charges. Bynum did not receive a separate written statement indicating that she could pay taxes and insurance directly, nor did she receive a HOEPA early warning disclosure at least three days before settlement. Bynum had previously executed a promissory note in the principal amount of $62,000 payable to Crusader Savings Bank, the repayment of which was secured by a deed of trust encumbering the property. Accordingly, Bynum's loan from First Government refinanced the loan secured by the Crusader deed of trust. The proceeds of the loan executed by the First Government deed of trust paid: (1) $53,417.24 to retire Bynum's Crusader deed of trust; and (2) $3,680.81 to the District of Columbia to fully pay delinquent real estate taxes.

  C. Bynum Endorses Her Loan Check

  Shortly following settlement, Bynum received a $9,162.55 check from Valley Title dated March 5, 1998. The check was made payable to Bynum and reflected the funds generated to her from the refinancing. After receiving the check from Valley Title, a man named Tim Byrd came to Bynum's home. Bynum had previously met with Byrd on several occasions to discuss her desired home improvements. Byrd told Bynum he worked for Equitable. Byrd pressured Bynum to endorse the check and told her the repair work would not begin unless she gave the check to him. He further indicated the check would be placed in an escrow account. When Bynum resisted Byrd's request, he purportedly telephoned his boss, who spoke with Bynum and informed her the endorsed check was needed for her home repairs. Bynum endorsed the check and gave it to Byrd. No repair work was done to Bynum's home.

  Bynum telephoned First Government, the Better Business Bureau, her District of Columbia council member and Equitable regarding Byrd's actions. Upon calling Equitable, Bynum spoke with Ruiz. She explained that she had signed the check and given it to Byrd, who told her he worked for Equitable. In fact, Byrd worked for Dutchmans, a company entirely independent from and unconnected to Equitable. Dutchmans leased a separate, partitioned office with its own entrance in one of Equitable's suites for four months. Ruiz told Bynum that Byrd did not work for Equitable, and Bynum admitted Byrd had not presented her with a business card or any paperwork evidencing a relationship with Equitable. Nevertheless, Ruiz told Bynum he would try to locate Byrd to find out what happened to her check and why the home repair work was not done. Ruiz first spoke to Thompson, who did not know anything about Bynum's home improvement work or her incident with Byrd. Ruiz then contacted Dimarcus Waldo, Dutchmans' owner, who told Ruiz that Byrd had cashed the check and disappeared. Ruiz forwarded Waldo's explanation to Bynum. Equitable had no further contact with Bynum.

  Equitable never employed Byrd. Dutchmans' bank records subsequently established that Bynum's check was improperly negotiated for deposit into Dutchmans' account, and was altered by an unauthorized party to read "Dutchmans, For Deposit Only" above Bynum's signature. Bynum acknowledges Dutchmans received the check proceeds. D. Assignment of Bynum's Promissory Note and Deed of Trust

  First Government subsequently assigned Bynum's promissory note and deed of trust to ContiMortgage. ContiMortgage filed a suggestion of bankruptcy and Manufacturers became the holder of the February 28th promissory note and deed of trust.*fn4 Manufacturers was not involved in the application or closing of Bynum's loan. Bynum ceased making payments on the loan after February 5, 1999 and foreclosure proceedings were initiated. Bynum sent a letter to ContiMortgage and First Government on August 3, 1999, providing notice of her intent to rescind and cancel the note and deed of trust.

  DISCUSSION

  I. Motion to Dismiss

  On January 15, 2004, Manufacturers moved to dismiss Counts I-VI, VIII of the complaint pursuant to Rule 12(b)(6). Manufacturers answered Bynum's third amended complaint on February 24, 2004. Manufacturers' summary judgment motion on Counts IX-X was filed on March 17, 2004. "Where matters outside the complaint are presented to the court in support of a motion to dismiss under Fed.R.Civ.P. 12(b)(6), such motion shall be treated as a motion for summary judgment and disposed of under Fed.R.Civ.P. 56." Romero-Ostolaza v. Ridge, No. 03-1890, 2005 U.S. Dist. LEXIS 5189, *2 (D.D.C. 2005). When addressing a motion to dismiss under Rule 12(b)(6), the court may not consider facts outside the four corners of the complaint unless it treats the motion to dismiss as a motion for summary judgment. See Fed.R.Civ.P. 12; Currier v. Postmaster Gen., 304 F.3d 87, 88 (D.C. Cir. 2002). Manufacturers' motion to dismiss and Bynum's response require consideration of matters outside the complaint and will be treated as a summary judgment motion.

  II. Legal Standard

  Summary judgment is appropriate when the moving papers and affidavits show there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once a moving party meets its burden, the non-movant must go beyond the pleadings and set forth specific facts showing there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). A genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. The court considers the record as a whole and draws all reasonable inferences in the light most favorable to the opposing party, however the non-movant must establish more than the existence of a mere scintilla of evidence in support of its position. Fed.R.Civ.P. 56(c); Anderson, 477 U.S. at 252; Celotex, 477 U.S. at 325. The non-movant may not rely solely on allegations or conclusory statements, and if the non-movant's evidence is merely colorable or is not significantly probative, summary judgment may be granted. Anderson, 477 U.S. at 249-50; Greene v. Dalton, 164 F.3d 671, 675 (D.C. Cir. 1999).

  III. Bynum's Substantive Claims Against Manufacturers — Assignee Liability

  Manufacturers argues it is entitled to summary judgment on all of Bynum's substantive HOEPA, TILA and state law claims because Bynum accepted First Government's Rule 68 offer of judgment. Manufacturers asserts it is a privy to First Government, the alleged offending party, as assignee of Bynum's note and security interest. Because Bynum has recovered for First Government's liability, Manufacturers contends Bynum may not pursue claims against it as assignee. Manufacturers argues Bynum has recovered for any of First Government's substantive violations of law, and is not entitled to recover twice for the same alleged wrongful conduct. Bynum contends an assignee of a HOEPA loan is subject to liability for any claim that could be asserted against the original lender, and that a Rule 68 judgment accepted on behalf of one defendant does not resolve the claims against all defendants. Bynum's claims must be rejected.

  Generally, HOEPA subjects mortgage assignees to increased liability for HOEPA loans. Cooper v. First Gov't Mortgage and Investors Corp., 238 F.Supp.2d 50, 55-56 (D.D.C. 2002). Congress enacted HOEPA to force the high cost mortgage market to police itself, and made HOEPA loan assignees subject to "all claims and defenses, whether under TILA or other law, that could be raised against the original lender." Id. Ordinarily, a HOEPA loan assignee's argument that it is not liable for the mistakes of the assignor is without merit. See Cooper, 238 F.Supp.2d at 55-56; see also In re Rodrigues, 278 B.R. 683, 688 (Bankr. R.I. 2002). It is not clear, however, how a Rule 68 judgment against the original lender affects assignee liability for the lender's substantive violations of the Act.

  Rule 68 provides:
At any time more than 10 days before the trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against the defending party for the money or properly or to the effect specified in the offer, with costs then accrued.
Therefore, Bynum correctly notes that an accepted Rule 68 offer of judgment constitutes a settlement between the parties making and accepting the offer. See e.g., Marek v. Chesny, 473 U.S. 1, 5 (1985) (characterizing Rule 68 offer as pretrial settlement and stating "the plain purpose of Rule 68 is to encourage settlement and avoid litigation"); Delta Airlines v. August, 450 U.S. 346, 350 (Rule 68 pertains to settlement offers). A Rule 68 judgment that does not dispose of all claims and parties does not constitute a final judgment against all claims and parties. See e.g., Acceptance Indem. Ins. Co. v. Southeastern Forge, Inc., 209 F.R.D. 697, 699-700 (M.D. Ga. 2002) (reading Rule 68 in light of Rule 54(b) and holding accepted Rule 68 offer not a final judgment against any party that did not participate in the offer).

  The fact that a Rule 68 judgment with one party does not automatically bar claims against other parties is the reason Bynum's claims against Equitable are not subject to dismissal based on her acceptance of First Government's offer of judgment. However, Bynum's claims against Manufacturers are exclusively premised on its relationship as assignee and holder of First Government's note. Bynum's acceptance of First Government's offer of judgment was predicated on her understanding that First Government did not hold her loan and was thus unable to provide her with the rescission remedy. See Equitable Mem. Ex. U. Therefore, First Government's offer of judgment did not resolve Bynum's rescission claim. However, while Bynum's acceptance further purported to reserve her other claims against Manufacturers, her acceptance stated that the offer of judgment is "a resolution of First Government's liability in this matter." Id. In exchange for her release of all claims and resolving First Government's liability, Bynum received $3,600. Thereafter, she dropped all claims against First Government.

  An assignee merely steps into the shoes of the assignor. See e.g., SEC v. Bilzerian, 378 F.3d 1100, 1108 (D.C. Cir. 2004). Accordingly, an assignee's liability can be no greater than the assignor's. While the Act provides an assignee is subject to any claims that may be brought against the assignor, Bynum may no longer bring her claims against the assignor — she has obtained a judgment on those claims. Bynum makes no claim that Manufacturers independently violated her rights under federal and state law. Rather, all claims are based on First Government's actions, for which she received full satisfaction. By maintaining her substantive claims against Manufacturers, Bynum seeks a double recovery for the lender's violations. Accordingly, Manufacturers' summary judgment motion on Bynum's substantive HOEPA, TILA and state law claims (except rescission) must be granted.

  IV. Bynum's Rescission Claims Against Manufacturers

  Bynum moves for summary judgment on her claims that she validly rescinded the deed of trust under TILA, HOEPA and on account of improper notarization. Specifically, Bynum alleges her mortgage constitutes a high cost loan under HOEPA, 15 U.S.C. § 1602(aa). Bynum contends she validly rescinded the deed of trust on August 9, 1999 under §§ 1635(a), (f), 1639(b)(1) and 1602(u) because First Government failed to make required disclosures three or more days prior to the transaction's completion in violation of § 1639(b)(1). Bynum further argues the rescission was valid under TILA because First Government failed to accurately disclose and characterize the loan's finance charges and amount financed under §§ 1632(a), 1635. Accordingly, Bynum moves for summary judgment on her rescission claim against Manufacturers as holder of the promissory note and deed of trust. Finally, Bynum contends the deed is invalid because it was illegally notarized under ...


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