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T. Carlton Richardson v. Capital One

March 16, 2012


The opinion of the court was delivered by: James E. Boasberg United States District Judge


Plaintiff T. Carlton Richardson took out a 30-year home-mortgage loan in 2003 from a predecessor to Defendant Capital One Bank. After eight years, he paid off the loan in full by refinancing. He then brought this pro se action alleging that the Bank had violated 15 U.S.C. § 1615 by using a method of calculating interest called the Rule of 78s and, in so doing, failed to refund Richardson excess interest he was properly owed when he refinanced. Defendant now brings the instant Motion to Dismiss, arguing that Plaintiff has not sufficiently pled any violation of federal law. Because the Court agrees, it will dismiss Plaintiff's federal claim. Having done so, the Court will also decline to exercise supplemental jurisdiction over Plaintiff's state-law claims, which he may refile in the appropriate state court.


According to the Complaint, which the Court must presume true for purposes of this Motion, Richardson took out a $137,000 mortgage loan in September 2003 from B. F. Saul Mortgage Co., predecessor in interest to Capital One. Compl., ¶ 8. The loan was payable over a thirty-year period at an interest rate of 5.625%. Id. To pay off the principal and interest in full by the end of the loan's term, Richardson was required to make monthly payments of $788.65. Id., ¶¶ 9-10. He alleges that the loan was amortized using the Rule of 78s. Id., ¶ 9.

Richardson refinanced his mortgage on September 9, 2011, repaying the loan in full by taking out a new loan from Capital One at a lower interest rate. Id., ¶ 11. Then, on October 3, he sent Capital One a written request for a refund in the amount of $24,602: $21,191 for excess interest paid, $789 for an unnecessary monthly payment, and the remainder for interest on Richardson's overpayments. Id., ¶ 13. Plaintiff included with his request excerpts from 15 U.S.C. § 1615, which prohibits use of the Rule of 78s "for the purpose of calculating any refund of interest" when "a consumer prepays in full the financed amount under any consumer credit transaction." 15 U.S.C. §§ 1615(a)-(b); Compl., ¶ 12. As of October 18, 2011, the day before this action was filed, Capital One had not responded to Richardson's request. Compl., ¶ 12.

In bringing this action, Richardson contends that the Bank's use of the Rule of 78s in amortizing his loan and its retention of excess payments violated 15 U.S.C. § 1615, D.C. Code § 28-3905(k)(1), and the parties' loan agreement. Id., ¶¶ 5-7. In addition to declaratory and injunctive relief, Plaintiff seeks a minimum of $72,000 in treble damages and $25,000 in punitive damages. Id., ¶¶ 17-20. Capital One has now moved to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim, Def. Mot. at 6, 8, and Plaintiff has subsequently cross-moved for Summary Judgment.

II.Legal Standard

In evaluating Defendant's Motion to Dismiss, the Court must "treat the complaint's factual allegations as true . . . and must grant plaintiff 'the benefit of all inferences that can be derived from the facts alleged.'" Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000) (quoting Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir. 1979)) (internal citation omitted); see also Jerome Stevens Pharms., Inc. v. FDA, 402 F.3d 1249, 1253 (D.C. Cir. 2005). This standard governs motions to dismiss under both Rules 12(b)(1) and 12(b)(6). See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974) ("in passing on a motion to dismiss, whether on the ground of lack of jurisdiction over the subject matter or for failure to state a cause of action, the allegations of the complaint should be construed favorably to the pleader"); Walker v. Jones, 733 F.2d 923, 925-26 (D.C. Cir. 1984) (same). The Court need not accept as true, however, "a legal conclusion couched as a factual allegation," nor an inference unsupported by the facts set forth in the Complaint. Trudeau v. Fed. Trade Comm'n, 456 F.3d 178, 193 (D.C. Cir. 2006) (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986) (internal quotation marks omitted).

Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of an action where a complaint fails to "state a claim upon which relief can be granted." Although the notice pleading rules are "not meant to impose a great burden on a plaintiff," Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 347 (2005), and "detailed factual allegations" are not necessary to withstand a Rule 12(b)(6) motion, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007), "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (internal quotation omitted). Plaintiff must put forth "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. Though a plaintiff may survive a 12(b)(6) motion even if "recovery is very remote and unlikely," Twombly, 550 U.S. at 555 (citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)), the facts alleged in the complaint "must be enough to raise a right to relief above the speculative level." Id. at 555.

As the Court does not consider Plaintiff's Motion, it need not set out the standard for motions for summary judgment under Fed. R. Civ. P. 56.


A. Section 1615 and the Rule of 78s

When a consumer prepays a loan in full, the creditor must, as a general matter, promptly refund any unearned interest to the debtor. See 15 U.S.C. § 1615(a)(1). This requirement applies even when the "prepayment [is] made in connection with the refinancing, consolidation, or restructuring of the transaction." Id., § 1615(a)(3)(A). Section 1615(b), entitled "Use of 'Rule of 78's' prohibited," obligates a lender to calculate the amount of the refund using "a method which is at least as favorable to the consumer as the actuarial method."

The Rule of 78s, also known as the sum-of-the-digits or direct-ratio method, is "a shorthand means of determining the interest earned at any point in the term of a credit purchase." Wiskup v. Liberty Buick Co., Inc., 953 F. Supp. 958, 968 (N.D. Ill. 1997). It uses a mathematical formula to calculate unearned finance charges "on a loan in which finance charges have been precomputed." Kedziora v. Citicorp Nat. Services, Inc., 780 F. Supp. 516, 523 (N.D. Ill. 1991). To determine the amount of unearned interest at a given point in a loan's term, the formula multiplies the total agreed-upon interest by a fraction in which the numerator is "the sum of the series of integers between 1 and the number of payments yet to be made" and the denominator is "the sum of a series of integers between 1 and the number of payments originally contracted for." Id. Represented as an equation, the Rule of 78s is: u = f * [k(k)/n(n)] where "u" equals the ...

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