The opinion of the court was delivered by: John D. Bates United States District Judge
Plaintiff George R. Hughes brings this action against Vincent Abell, Calvin Baltimore, Modern Management Company, and Wells Fargo Bank. His claims relate to two transactions involving Hughes' residence, a property in Washington, DC, which Hughes purchased in 1997. In 2004, Hughes transferred title to the property to Abell in a transaction also involving Baltimore and Modern Management. Then, in 2006, Hughes nonetheless entered into a mortgage transaction with Wells Fargo, not disclosing to Wells Fargo that he had previously transferred title to the property.
With respect to Abell, Baltimore, and Modern Management, Hughes brings claims for violations of the D.C. Consumer Protection Procedures Act ("CPPA"), the Truth in Lending Act ("TILA") and the Home Ownership and Equity Protection Act ("HOEPA"), a claim for common law fraud, and a claim for an equitable mortgage. With respect to Wells Fargo, Hughes alleges violations of the CPPA. Hughes maintains that he is the rightful owner of the residence and he seeks to quiet title with respect to both Abell and Wells Fargo. Wells Fargo asserts counterclaims against Hughes for equitable subrogation, equitable lien, unjust enrichment, fraud, and breach of contract, and against Abell for fraud, quiet title, equitable subrogation, and unjust enrichment. Abell asserts a cross-claim for quiet title against Wells Fargo.
Now before the Court are Wells Fargo's motion for summary judgment on its claims against the other parties and Abell's renewed motion for summary judgment on Hughes' claims against Abell and Modern Management. Although the numerous claims in this case belie easy description, Wells Fargo's primary contention is that the evidence in the record shows that Hughes was aware that Abell claimed ownership of the residence at the time that Hughes entered into the transaction with Wells Fargo. Wells Fargo argues that Hughes' knowledge should bar any recovery against Wells Fargo and also warrants judgment in Wells Fargo's favor on its claims. Abell, for his part, moves out of disagreement with this Court's prior decision rejecting his argument that Hughes' claims are barred by the statute of limitations.
For the reasons discussed below, the Court will grant Wells Fargo's motion in part and deny it in part. As described below, the Court has reached two primary conclusions at this stage of the proceedings. With respect to Wells Fargo's claims, the Court concludes that Hughes committed fraud against Wells Fargo. Nonetheless, the Court rejects Wells Fargo's assertion that Hughes' conduct bars his recovery under the CPPA. This claim will be permitted to proceed, but in more limited form than as alleged by Hughes' complaint.
There are many other issues in this case, some of which can also be resolved now based on the fraud determination. Others are also largely decided by the fraud decision, but technically cannot be resolved until the resolution of the CPPA claim or the resolution of the dispute between Hughes and Abell about the prior transaction. Many of these issues will nonetheless fall easily into place once the other claims in the case are resolved.
Accordingly, the Court will grant Wells Fargo's motion with respect to the fraud claim, as well as with respect to some, but not all, of Wells Fargo's other claims. For the reasons discussed below, the Court will also deny Abell's motion.
Hughes purchased 5236 5th Street, NW, Washington, DC ("the Property") in November 1997. Am. Compl. [Docket Entry 53] ¶¶ 4, 9. He took out two mortgages against the Property in order to pay for it, the larger of the two from Chase Manhattan Bank. Id. ¶¶ 10, 12. After Hughes became delinquent on the larger loan in 2004, Chase Manhattan notified him that it would foreclose. Id. ¶¶ 13, 14. Hughes needed to pay arrears in the amount of $16,485.51, plus costs and fees, to prevent the auction of his home in September 2004. Id. ¶ 4. Prior to foreclosure, Calvin Baltimore, working with Abell and Modern Management, solicited Hughes's business and represented that he would help Hughes remain in his home. Id. ¶¶ 15--17, 24. Hughes signed a series of documents, the effect of which was to transfer title to the property to Abell, who then rented it back to Hughes. Id. ¶¶ 20, 25. Hughes alleges that he understood the transaction "as a way to retain ownership of his home." Id. ¶ 24.
The only papers Baltimore provided Hughes at the end of the transaction were a lease agreement and an option agreement. Id. ¶ 21. Baltimore told Hughes that he would provide him with copies of the other papers, but never did, despite Hughes's repeated attempts to contact Baltimore and obtain copies. Id. The lease agreement provided that Hughes would pay $1034.76 per month, which Hughes alleges that he believed would "cover his mortgage as well as the loan." Id. ¶ 20. Attached to the lease was an "Option Agreement" that provided that Hughes could purchase his home for $75,000.00 within the next year. Id. ¶ 22. Baltimore explained that Modern Management would help Hughes refinance the loan at the end of the year. Id. ¶ 20. Hughes also received $10,000.00 up front as part of this transaction. Id. Assuming Hughes borrowed $30,000 under this loan - the $10,000 payment and approximately $20,000 to cover arrears - the annual percentage rate would have been 122.57%, based on twelve monthly payments of $1034.76 and a final payment of $75,000. Id. ¶ 23. At the time of this transaction in September 2004, the property was worth $147,060, according to D.C. property tax assessment records. Id. ¶ 24.
Around August 2006, Hughes received notice from Chase Manhattan that it had changed his contact information to that of the offices of Modern Management. Id. ¶ 29. He also received notice from Modern Management that he was behind in his payments. Id. ¶ 30. Hughes approached defendant Wells Fargo to seek refinancing of his Chase Manhattan mortgage. Id. ¶¶ 31, 32. With respect to his transaction with Abell, Hughes told Wells Fargo, orally and in writing, "that he had previously borrowed money (from Calvin Baltimore) to stop a foreclosure against the Property." Id. ¶ 34. Wells Fargo tried unsuccessfully to reach Baltimore and did not find any recordation of Hughes' transaction with Abell upon inquiring at the Recorder of Deeds. Id. Wells Fargo suggested to Hughes that he discuss his transaction with Baltimore with a lawyer, and Hughes spoke with the law firm of Weinstock, Friedman, and Friedman, P.A. See Decl. of George Hughes [Docket Entry 115-2] ¶¶ 18, 21-22.
Wells Fargo offered to refinance Hughes' Chase Manhattan mortgage so long as Hughes consolidated his second mortgage and other nonmortgage debts, which together totaled $33,517.03, into his agreement with Wells Fargo. Id. ¶¶ 33, 36. Hughes would also receive $61,080.22 up front at closing. Id. ¶ 36. The statute of limitations had passed for some of these nonmortgage debts. Id. ¶ 35. Hughes's outstanding balance on his Chase Manhattan mortgage was $87,775.43, so that after consolidation Wells Fargo was proposing to make a loan with a 38% increase over the value of Hughes's prior mortgage debt. Id. ¶ 36. Hughes was to pay $1,604.18 per month for this loan; his previous monthly payment to Chase Manhattan was $815 per month. Id. ¶¶ 11, 42. This payment amounted to approximately 46% of Hughes's monthly income of $3,511.83. Id. ¶ 38. Hughes reported this income to Wells Fargo and made no representations about whether it would increase or decrease in the future. Id. The application that Wells Fargo prepared for his loan indicates that Hughes had monthly income of $3,783.33 per month. Id. ¶ 37.
Wells Fargo reserved the right to increase the loan's initial interest rate of 7.875% up to a limit of 13.875% after the first two years of the loan. Id. ¶ 41. Wells Fargo's representative told Hughes that "he did not need to worry about the loan being an adjustable-rate mortgage, because he should be able to refinance the loan before the rate changed," which Hughes has not been able to do. Id. ¶ 43-44. Hughes accepted these terms and closed the loan on September 22, 2006. Id.
¶ 40. Hughes paid $10,127.32 in closing costs. Id. ¶ 46. Prior to the commencement of the transaction between Hughes and Wells Fargo on September 22, and unbeknownst to either party, on September 15, 2006, Abell recorded a deed transferring title of the property from Hughes to Abell. Id. ¶ 47.
Hughes brought the present action on January 15, 2009 in the Superior Court of the District of Columbia. Wells Fargo removed the case to this Court on January 29, 2009. Hughes asserts the following claims against Abell, Baltimore, and Modern Management: violations of the CPPA (Count I), creation of an equitable mortgage (Count II), violations of TILA and HOEPA (Count III), common law fraud (Count IV), and usury (Count VIII). Am. Compl. ¶¶ 50--79, 95-98. Against Wells Fargo, Hughes asserts violations of the CPPA (Count V) and common law negligence (Count VII). Id. ¶¶ 80--84, 90-94. Count VI seeks to quiet title against both Wells Fargo and Abell. Id. ¶¶ 85--89. Abell filed counterclaims against Hughes for quiet title, rent or possession, unjust enrichment, and fraud. Countercl. [Docket Entry 70] ¶¶ 43-69. Abell also filed a cross-claim to quiet title against Wells Fargo. Cross-cl. [Docket Entry 70] ("Abell Cross-cl. Against Wells Fargo") ¶¶ 74-75. Wells Fargo filed crossclaims against Abell for fraud (Count I), quiet title (Count II), equitable subrogation (Count III), and unjust enrichment (Count IV). Cross-cl. [Docket Entry 12] ("Wells Fargo Cross-cls. Against Abell") ¶¶ 6-33. Wells Fargo also asserts the following counterclaims against Hughes: equitable subrogation (Count I), equitable lien (Count II), unjust enrichment (Count III), fraud (Count IV), and breach of contract (Count V). Wells Fargo Bank, N.A.'s Am. Answer and Countercls. to Pl. George R. Hughes' Compl. [Docket Entry 30] ("Wells Fargo Countercls. Against Hughes").
This Court previously ruled, in July 2009, on Wells Fargo's motion to dismiss Hughes's original complaint. Hughes v. Abell, 634 F. Supp. 2d 110 (D.D.C. 2009). The Court ruled that Hughes had alleged facts sufficient to state an unconscionability claim under the CPPA, and that Hughes's quiet title count also survived. Wells Fargo's motion to dismiss was, however, granted in part, because Hughes failed adequately to allege misrepresentation under the CPPA. Wells Fargo then filed an answer to Hughes' complaint and then an amended answer, which contained Wells Fargo's counterclaims against Hughes. Hughes was granted leave to file an amended complaint with restated allegations of misrepresentations under the CPPA in May 2010. Wells Fargo filed a motion to dismiss this amended complaint and Abell filed a motion for summary judgment on some, but not all, of the claims against him. After the filing of these motions and during the course of ongoing discovery, the Court was informed of a privilege dispute arising from a subpoena directed to the Weinstock firm by Wells Fargo. After considering argument from the parties and reviewing relevant documents in camera, the Court ruled that the content of communications between Hughes and staff of the law firm was protected by the attorney-client privilege.
In November 2010, the Court ruled on Wells Fargo's motion to dismiss and Abell's motion for summary judgment. Hughes v. Abell, 794 F. Supp. 2d 1 (D.D.C. 2010). The Court denied Wells Fargo's motion in its entirety, granted Abell's motion with respect to the usury claim, and denied Abell's motion with respect to the remaining claims. Id. at 15. Wells Fargo then filed an answer to the amended complaint.
Wells Fargo filed the present motion for summary judgment in April 2011. In January 2012, the Court ordered supplemental briefing on whether a declaration by Hughes that was attached to Hughes' opposition to Wells Fargo's motion waived the attorney-client privilege with respect to the content of his communications with the Weinstock firm. A hearing on the motion for summary judgment, as well as the privilege issue, was held on February 24, 2012. The Court then ruled that Hughes' declaration did waive the attorney-client privilege with respect to his communications with the firm in the time period surrounding his transaction with Wells Fargo. The Court subsequently released a partially redacted version of a document produced by the Weinstock firm that had previously been provided to the Court for in camera review. The document, entitled "Redacted Intake Notes Summary," described communications between Hughes and Weinstock firm staff. The Court ordered Wells Fargo to refile its motion for summary judgment with a supplemental memorandum addressing the significance, if any, of the released document. On March 23, 2012, Hughes stipulated to the dismissal of his negligence claim (Count VII) against Wells Fargo. Wells Fargo then refiled its motion for summary judgment with a supplemental memorandum addressing the significance of the released documents. On April 20, 2012, Abell filed a renewed motion for summary judgment on all the remaining counts that Hughes alleges against Abell and Modern Management. The motions are now ripe for decision by the Court.
II. Summary Judgment Standard
Summary judgment is appropriate when the pleadings and the evidence demonstrate that "there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c)(2). The party seeking summary judgment bears the initial responsibility of demonstrating the absence of a genuine dispute of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party may successfully support its motion by identifying those portions of "the pleadings, the discovery and disclosure materials on file, and any affidavits" which it believes demonstrate the absence of a genuine issue of material fact. Fed. R. Civ. P. 56(c)(2); see Celotex, 477 U.S. at 323.
In determining whether there exists a genuine issue of material fact sufficient to preclude summary judgment, the court must regard the non-movant's statements as true and accept all evidence and make all inferences in the non-movant's favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). A non-moving party, however, must establish more than the "mere existence of a scintilla of evidence" in support of its position. Id. at 252. By pointing to the absence of evidence proffered by the non-moving party, a moving party may succeed on summary judgment. Celotex, 477 U.S. at 322. "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50 (citations omitted). Summary judgment is appropriate if the non-movant fails to offer "evidence on which the jury could reasonably find for the [non-movant]." Id. at 252.
a. Hughes' Claims Against Wells Fargo
Hughes has two remaining claims against Wells Fargo. First, he alleges that Wells Fargo violated the CPPA by providing him financing on unconscionable terms and misrepresenting material facts about the transaction. Second, Hughes seeks to quiet title on the Property on the ground that Wells Fargo obtained its security interest in the Property in violation of the CPPA.
i. Hughes' Claim Under the CPPA
Hughes asserts that Wells Fargo's financing practices are unconscionable within the meaning of D.C. Code § 28-3904(r). Am. Compl. ¶¶ 80--83. The CPPA applies to real estate finance transactions like the one in this case. DeBerry v. First Gov't Mortgage & Investors Corp., 743 A.2d 699, 703 (D.C. 1999). Whether a practice is unconscionable under this provision is determined by weighing several factors, including "knowledge by the person at the time credit sales are consummated that there was no reasonable probability of payment in full of the obligation by the consumer," "knowledge by the person at the time of the sale or lease of the inability of the consumer to receive substantial benefits from the property or services sold or leased," and "that the person has knowingly taken advantage of the inability of the consumer reasonably to protect his interests." D.C. Code § 28-3904(r)(1), (2), (5).
Hughes supports his claim that Wells Fargo provided him financing on which "there was no reasonable probability of payment in full," id. § 28-3904(r)(1), with allegations that the financing requires payment of an excessive share of his income. Hughes alleges that his monthly payment to Wells Fargo amounts to approximately 46% of his monthly income. Am. Compl. ¶ 38. He further alleges that although the interest rate at the time was the minimum allowed by Wells Fargo's terms, that rate may increase in the future. Id. ¶ 42. Because Hughes made no representation about whether his present income would remain constant or increase, that - coupled with the adjustable rate - could result in future monthly payments of more than half of his income. Id. ¶ 37.
Hughes next alleges that Wells Fargo's terms are unconscionable under D.C. Code § 28-3904(r)(2) because Wells Fargo knew that he would be unable "to receive substantial benefits" from Wells Fargo's terms. Through the refinancing, Hughes received $61,080.22 upon closing and consolidated $33,517.03 in other debt. Am. Compl. ¶¶ 35, 36. Notwithstanding these apparent benefits, Hughes contends that the refinancing also doubled his monthly mortgage payment and paid off debt on which the statute of limitations had run. Id. ¶¶ 35, 42.
Finally, Hughes alleges that Wells Fargo has "knowingly taken advantage of the inability of the consumer reasonably to protect his interests." D.C. Code § 28-3904(r)(5). He asserts that a representative from a settlement company retained by Wells Fargo had Hughes "sign a stack of papers" but only gave Hughes "unsigned copies" and that "no notary was present." Am. Compl. ¶ 40.
The Court has previously concluded that, in consideration of these three factors under section 28-3904(r), Hughes stated a claim of unconscionability under the CPPA. Hughes, 794 F. Supp. 2d at 9. The Court determined that "[a]t minimum, Hughes sufficiently alleges that, under the ...