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Frese v. Empire Financial Services

July 27, 2010


The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge


This action was originally filed by Plaintiffs Susan Frese and Kevin McCarthy in the Superior Court for the District of Columbia and was removed to this Court by Defendant Deutsche Bank National Trust Company, as Trustee ("Deutsche Bank"). Plaintiffs' Second Amended Complaint, filed in this Court on November 9, 2009, alleges violations of the District of Columbia Consumer Protection Procedures Act (DCCPPA), D.C. Code §§ 28-3901 et seq., the Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 et seq., and the District of Columbia Mortgage Lender and Broker Act (MLBA), D.C. Code §§ 26-1101 et seq., and also asserts claims for common law fraud, breach of fiduciary duty, and negligent supervision. The majority of these claims are asserted against Defendant Empire Financial Services ("Empire Financial"), which has filed an answer to the Second Amended Complaint; the only claim asserted against Deutsche Bank is an alleged violation of TILA. Also named as a defendant is Land Title LLC, which has not entered an appearance in this matter. Presently pending before the Court is Defendant Deutsche Bank's [26] Motion to Dismiss Plaintiffs' Second Amended Complaint. Plaintiffs have filed a response brief opposing Deutsche Bank's motion to dismiss, and Deutsche Bank has filed a reply. For the reasons explained below, the Court shall DENY Deutsche Bank's Motion to Dismiss Plaintiffs' Second Amended Complaint.


The following facts are drawn from the allegations in the Second Amended Complaint and public records of which the Court may take judicial notice.

Plaintiff Susan Frese ("Frese") is a resident of the District of Columbia who lives in a three-bedroom house at 751 Gresham Place, N.W. (the "Property"). Second Am. Compl. ("SAC") ¶ 3. Frese purchased the property in July 2005 for $275,000 with a "no down payment" mortgage obtained through Defendant Empire Financial. Id. ¶ 11. The mortgage was an "interest only" mortgage with an interest rate of between 6 and 7 percent, and monthly payments were approximately $1500, including escrow of taxes and hazard insurance. Id. Frese thought her interest rate was too high and contacted Empire Financial in the fall of 2005 and spring of 2006 to ask if better financing options were available. Id. ¶ 13. In the spring of 2006, an agent of Empire Financial called Frese and told her that a new program was available offering a one percent interest rate for three years. Id. ¶ 14. Frese expressed interest and agreed to refinance her mortgage. See id. ¶¶ 14-15. In mid-April 2006, approximately three weeks prior to closing, Frese asked what her monthly payments would be. Id. ¶ 15. The agent explained that her monthly payments would be $1000 per month or less but that the principal balance would go up by "a couple of dollars" a month. Id. The agent did not explain the concept of "negative amortization" or that the interest was variable and that a 3% prepayment penalty would be imposed if the loan were refinanced within three years. Id. ¶¶ 16-17. Frese never received any documents prior to closing. Id. ¶ 20.

The closing occurred on May 2, 2006, at the Property. SAC ¶ 21. An agent for Defendant Land Title LLC appeared at the Property and presented Frese with the closing documents, which she signed. Id. ¶¶ 24-25. Frese noticed that the amortization documents showed her principal balance going up by $900 a month, and she interrupted the closing to call the agent at Empire Financial. Id. ¶¶ 26, 28. The Empire Financial agent disclaimed knowledge of the negative amortization and said he would review it and call Frese back. Id. ¶ 29. Relying on these statements, Frese signed the rest of the documents, and she received copies of the documents from Land Title LLC as well as checks totaling $14,000, her proceeds from the transaction. Id. ¶¶ 30-31. Frese noticed that the documents falsely represented that she had a pre-closing interview with the president of Empire Financial. Id. ¶ 35.

On December 16, 2007, Frese filed for Chapter 7 bankruptcy protection in the United States Bankruptcy Court for the District of Columbia. See SAC ¶ 36; In re Susan Frese, No. 07-00681 (Bankr. D.D.C. filed Dec. 16, 2007) (hereinafter, "Bankruptcy Action"). Plaintiff Kevin McCarthy is the trustee of Frese's Chapter 7 bankruptcy estate. SAC ¶ 4. In her bankruptcy petition, Frese claimed the Property as exempt and acknowledged the loan secured by the Property, but she did not claim that the loan was disputed. See Voluntary Petition at Schedules C & D, Bankruptcy Action, Dkt. No. [1]. Frese listed the owner of the loan as American Home Mortgage; she did not list Defendant Deutsche Bank as a creditor in her bankruptcy filing. See id.; SAC ¶ 37. Frese stated to the Bankruptcy Court her intention to keep the loan collateral and continue to make regular payments. See Voluntary Petition at 30, Bankruptcy Action, Dkt. No. [1]. On January 11, 2008, Frese filed amended schedules with the Bankruptcy Court listing her personal property and real property claimed as exempt. See Summary of Schedules - Amended, Bankruptcy Action, Dkt. No. [12]. On her amended Schedule B, under the category "Other contingent and unliquidated claims of every nature, including tax refunds, counterclaims of the debtor, and rights to setoff claims," Frese listed "Claim Against Empire Services & Land Title" with an estimated value of "unknown." Id. at 4. Frese received a discharge from bankruptcy on April 8, 2008. See Discharge of Debtor, Bankruptcy Action, Dkt. No. [16].

On August 7, 2008, Plaintiff McCarthy filed an application with the Bankruptcy Court to employ Thomas C. Wilcox, an attorney, to:

represent the bankruptcy estate as special counsel on monetary claims owned by the Debtor pre-petition on a fee-shifting basis in two cases: 1) a claim in DC Superior Court against Empire Financial Services and Land Title Inc. for monetary damages arising from a refinancing that took place on Ms. Frese's residence in May 2006; and 2) a claim against the firm that funded Ms. Frese's current loan, American Home Mortgage (AHM), which is currently in Chapter 11 in Delaware.

Application By Trustee to Employ Special Counsel, Bankruptcy Action, Dkt. No. [21].According to the application, McCarthy has an agreement with Frese that with respect to the AHM litigation, Frese will receive any equitable relief recovery and the bankruptcy estate will receive any monetary relief recovery (with special counsel receiving one-third of the value of the total recovery plus expenses). Id. On August 29, 2008, the Bankruptcy Court granted the application, which was unopposed. See Bankruptcy Action, Dkt. No. [23].On December 17, 2008, Deutsche Bank entered an appearance in the Bankruptcy Court (as "Trustee for HarborView Mortgage Loan Trust Mortgage Loan Pass-Through Certificates, Series 2006-7, c/o American Home Mortgage Servicing, Inc.") and filed a Motion for Relief from Automatic Stay, noting that it had a security interest in the Property and that Frese had defaulted on her loan, owing over $350,000. See Motion for Relief from Automatic Stay, Bankruptcy Action, Dkt. No. [25]. Deutsche Bank sought an order enabling Deutsche Bank to foreclose on the Property. Id. Deutsche Bank's motion was the first notice Frese had that anyone other than American Home Mortgage owned her loan. SAC ¶ 44. Deutsche Bank's motion, which was unopposed, was granted by the Bankruptcy Court on January 6, 2009. See Order Granting Relief from Automatic Stay, Bankruptcy Action, Dkt. No. [30].

On January 7, 2009, Frese filed this action in Superior Court for the District of Columbia, which Deutsche Bank removed to this Court.*fn1 Deutsche Bank has agreed not to foreclose on the Property while this action is pending. See SAC ¶ 46. Count I of the Second Amended Complaint alleges that Empire Financial and Land Title LLC violated the DCCPPA by, inter alia, failing to provide Frese with written disclosures and misrepresenting material facts regarding her refinance loan. Id. ¶ 52. Count II asserts a claim of common law fraud against Empire Financial for allegedly making false representations to Frese about her refinance loan with intent to deceive her. See id. ¶¶ 56-58. In Count III, Plaintiffs claim that Deutsche Bank is vicariously liable for violations of the Truth in Lending Act that occurred during the closing, such as the alleged failure to disclose materials terms of the loan including the finance charge and amount financed. Id. ¶ 64. Count IV asserts a claim under the D.C. Mortgage Lender and Broker Act against Empire Financial for allegedly failing to provide Frese with an accurate financing statement prior to closing and closing the refinancing at a residential location. Id. ¶ 71. Count V asserts a claim of breach of fiduciary duty against Empire Financial and Land Title LLC for allegedly failing to act in Frese's best interests regarding the refinance loan. Id. ¶¶ 77-83. Count VI asserts a claim of negligent supervision against Empire Financial for its alleged failure to supervise its agent in a satisfactory manner. Id. ¶¶ 87-93. Plaintiffs pray for rescission of the loan agreements as well as monetary damages.


Deutsche Bank has moved to dismiss the claim against it pursuant to Federal Rule of Civil Procedure 12(b)(6). The Federal Rules of Civil Procedure require that a complaint contain "'a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to 'give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)); accord Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam). Although "detailed factual allegations" are not necessary to withstand a Rule 12(b)(6) motion to dismiss, to provide the "grounds" of "entitle[ment] to relief," a plaintiff must furnish "more than labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555; see also Papasan v. Allain, 478 U.S. 265, 286 (1986). Instead, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, __ U.S. __, 129 S.Ct. 1937, 1949 (2009) (citing Twombly, 550 U.S. at 556).

In evaluating a Rule 12(b)(6) motion to dismiss for failure to state a claim, the court must construe the complaint in a light most favorable to the plaintiff and must accept as true all reasonable factual inferences drawn from well-pleaded factual allegations. In re United Mine Workers of Am. Employee Benefit Plans Litig., 854 F. Supp. 914, 915 (D.D.C. 1994); see also Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir. 1979) ("The complaint must be 'liberally construed in favor of the plaintiff,' who must be granted the benefit of all inferences that can be derived from the facts alleged."). However, as the Supreme Court recently made clear, a plaintiff must provide more than just "a sheer possibility that a defendant has acted unlawfully." Iqbal, 129 S.Ct. at 1950. Where the well-pleaded facts set forth in the complaint ...

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