Summary
In Cardiello v. The Money Store, 2001 WL 604007 (S.D.N.Y. 2001), one of the few reported cases, the court dismissed the action on statute of limitations grounds and did not reach the merits of the plaintiffs' argument that undisclosed interest was charged on their loan.
Summary of this case from Haynes v. Homeq Servicing CorporationOpinion
00 Civ. 7332 (NRB)
May 31, 2001
OPINION AND ORDER
Plaintiffs Sam and Maria Cardiello (collectively "the Cardiellos" or "plaintiffs") bring this action for compensatory and statutory damages against defendants The Money Store, Inc., TMS Mortgage, Inc. and The Money Store/Empire State, Inc. (collectively "Money Store" or "defendants") under the Federal Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq., and various state causes of action. Furthermore, pursuant to Fed.R.Civ.P. 23(a) and 23(b)(3), plaintiffs seek to represent certain classes of persons who purchased and/or maintained residential home equity loans with defendants during the period from October 1, 1994 to the present. Defendants now move to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(6) and 28 U.S.C. § 1367(c). For the reasons stated below, defendants' motion is granted and plaintiffs' complaint is dismissed.
BACKGROUND
In May 1985, plaintiffs obtained a home mortgage ("the Loan") from defendants. At the time, defendants provided plaintiffs a Truth in Lending Disclosure Statement ("the disclosure statement" or "the statement"). The disclosure statement stated an amount financed of $30,264, a finance charge of $46,423, an annual percentage rate of 15.12% and a payment total of $76,687. According to the statement, plaintiffs would pay-off the loan through 180 monthly payments of $426.04, due on the fifteenth of every month, with the last payment being due on or about May 15, 2000. The statement also provided that:
Unless otherwise indicated, all facts are drawn from the Complaint and documents referenced in the Complaint that are admissible on a motion to dismiss.
"The amounts shown as the finance charge and total payments are based on the assumption that you will pay the monthly installments when due. Late payment of the monthly installments will increase the finance charge and total of payments, early payment will decrease them." Reply Aff. of Mark Buechner, Ex. H.
Over the course of the next fifteen years, plaintiffs made payments of $426.04 each month. In January 2000, plaintiffs received a notice from the Money Store that stated that as of May 2000, the original time of the Loan's maturity, plaintiffs would still owe $2,157.16 in principal. Plaintiffs thereafter contacted the Money Store and questioned the apparent discrepancy between the Loan's maturity date as set-out in the disclosure statement and the notice of the remaining principal due. By letter dated January 19, 2000, the Money Store responded to plaintiffs' inquiry by explaining that the principal balance was still due and owing, notwithstanding the original maturity date on the disclosure statement. The Money Store sent two additional letters, on or about April 3, 2000 and May 26, 2000, advising plaintiffs of the outstanding balance due on the Loan and demanding that the balance be paid promptly.
Plaintiffs retained counsel who wrote a letter to the Money Store on or about June 8, 2000, requesting an explanation of the monies defendants claimed plaintiffs owed. On or about June 13, 2000, the Money Store provided a Payoff Statement to plaintiffs' counsel that demanded payment of $2,157.16 in unpaid principal and $56.56 in interest accumulated on the outstanding balance. By a "standardized debt collection letter" dated June 21, 2000, the Money Store notified plaintiffs that unless they remitted the $2,249.07 they allegedly owed, within thirty days, the Money Store would "invoke any and all remedies provided for in the Note and Security Instrument, including but not limited to the foreclosure sale of the property." Complaint at § 33.
On June 28, 2000, P.T. Winterbottom ("Mr. Winterbottom"), a Customer Relations Specialist at the Money Store, wrote a direct response to plaintiffs' counsel's letter of June 8, 2000. In his letter, Mr. Winterbottom explained that the actual principal owed could vary from the amount originally forecast on the disclosure statement if borrowers made late payments. Furthermore, Mr. Winterbottom noted, due to the Money Store's agreement with the Federal Trade Commission ("FTC") in 1991, the interest calculation methodology on plaintiffs' loan was changed, effective August 1990. Mr. Winterbottom declared that the change resulted in a benefit to borrowers and that a check in the amount of $235.86 was forwarded to plaintiffs on or about February 14, 1992 to compensate them for the change in methodology. Mr. Winterbottom concluded by stating that:
Mr. Winterbottom's response specifically refers to plaintiffs' counsel's letter as the letter "received.., on June 9, 2000." Reply Aff. of Mark Buechner, Ex. F.
Although plaintiffs did not include a copy of this letter in the Complaint, they explicitly referred to it. Complaint at ¶ 36-7 (note that Complaint erroneously numbers two paragraphs as paragraph 36). The Second Circuit has ruled that a court may consider documents relied upon by the plaintiff, but which are not attached to the Complaint. See I. Meyer Pincus Assoc. v. Oppenheimer Co., 936 F.2d 759, 762 (2d Cir. 1991); 5 Wright Miller, Federal Practice Procedure § 1327 at 489 and n. 15 (when "plaintiff fails to introduce a pertinent document as part of his pleading, defendant may introduce the exhibit as part of his motion attacking the pleading."). This also holds true for defendants' letter of July 17, 2000, infra. Complaint at ¶ 40 (see infra, note 9).
According to the Complaint, defendants entered an Agreement Containing a Consent Order ("the FTC Agreement") in June 1991 "settling charges that Defendants were violating TILA in connection with residential mortgage loan transactions." Complaint at ¶ 37. Under the Agreement, defendants were required, inter alia, "to make adjustments and/or refunds for each of their customers who were impacted by the alleged violations contained in the Consent Order. . . ." Id. at 38.
"although we are under no obligation to do so, in the interest of fostering amicable customer relations, the Money Store has reapplied all of the Cardiello's payments from the inception of the loan using the latter interest calculation method. As a result of this reapplication the current outstanding balance of the subject loan is now $163.21, due June 15, 2000."
The letter explained that a spreadsheet describing the reamortization was attached and invited plaintiffs to contact Mr. Winterbottom directly, at his personal extension.
On July 17, 2000, Mr. Winterbottom mailed plaintiffs a "follow-up" letter. See Reply Aff. of Mark Buechner, Ex. G. Mr. Winterbottom first addressed plaintiffs' concern about being unable to locate a description of the "simple interest" method by directing them to the description of the method found on their TILA disclosure statement and apparently enclosing a copy of the statement with the pertinent passage highlighted. Next, Mr. Winterbottom responded to plaintiffs' assertion that they did not receive a check from the Money Store in connection with the FTC agreement. He informed plaintiffs that he regretted that the Money Store did not have a copy of the check itself, but referred the plaintiffs to the spreadsheet enclosed in his letter of June 28 as evidence that the change in interest calculation was to plaintiffs' advantage. Finally, "in the interest of amicable customer relations," the Money Store agreed to waive the remaining balance on plaintiffs' account and release the lien on its secured property. Mr. Winterbottom stated that he was returning plaintiffs' July 6, 2000 personal check for $191.71 with the letter and again invited plaintiffs to contact him directly on his personal extension.
Plaintiffs appear to have written defendants a letter on July 6, 2000 in which they submitted a check for the balance due. Since that letter is not explicitly referred to in the Complaint, however, we do not consider it on this motion to dismiss.
Plaintiffs filed this action on September 27, 2000 and defendants moved to dismiss on January 19, 2001.
STANDARD OF REVIEW
Defendants move to dismiss plaintiffs' claims, pursuant to Fed.R.Civ.P. 12(b)(6) and 28 U.S.C. § 1367(c). In considering a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), we accept as true all material factual allegations in the Amended Complaint, Atlantic Mutual Ins. Co. v. Balfour Maclaine Int'l. Ltd., 968 F.2d 196, 198 (2d Cir. 1992), and may grant the motion only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Still v. DeBuono, 101 F.3d 888, 891 (2d Cir. 1996); see Conley v. Gibson, 355 U.S. 41, 48 (1957). "General, conclusory allegations need not be credited, however, when they are belied by more specific allegations of the complaint." Hirsch v. Arthur Andersen Co., 72 F.3d 1085 (2d Cir. 1995) (citing Jenkins v. S A Chaissan Sons, Inc., 449 F. Supp. 216, 227 (S.D.N.Y. 1978); 5A Charles A. Wright Arthur R. Miller, Federal Practice and Procedure § 1363, at 464-65 (2d ed. 1990). In addition to the facts set forth in the Amended Complaint, we may also consider documents attached thereto and incorporated by reference therein, Automated Salvage Transp., Inc. v. Wheelabrator Envtl. Sys., Inc., 155 F.3d 59, 67 (2d. Cir. 1998), matters of public record such as case law and statutes, Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 75 (2d. Cir. 1998), and matters of judicial notice. See Brass v. American Film Technologies, Inc., 987 F.2d 142, 150 (2d Cir. 1993); Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir. 1991).
DISCUSSION
I. Federal Truth in Lending Act
TILA's primary purpose is to help the unsophisticated consumer understand the real costs of financing. Thus, the Act seeks "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various terms available to him and avoid the uninformed use of credit." 15 U.S.C. § 1601. "To accomplish its purpose, the TILA and its implementing Regulation Z require lenders to disclose to consumers certain material terms clearly and conspicuously in writing, in a form that the consumer may examine and retain for reference." In re Ralls, 230 B.R. 508, 515 (E.D.Pa 1999). 15 U.S.C. § 1640 creates a private right of action for violations of TILA.
Plaintiffs allege that defendants violated § 1638 of TILA and Regulation Z, 12 C.F.R. § 226.18, in two respects. First, plaintiffs allege that the disclosure statement defendants provided them in 1985 misrepresented the amount of principle and finance charges plaintiffs were required to pay. Furthermore, plaintiffs contend that defendants took affirmative steps in the first half of 2000 to conceal these misrepresentations and coerce plaintiffs to pay the disputed sums. Second, plaintiffs allege that defendants failed to compensate plaintiffs, pursuant to the FTC Agreement, for TILA violations arising from defendants' method of calculating interest. For the purposes of deciding this motion, we will assume that the disclosure statement defendants provided to plaintiffs violated § 1638 of TILA and Regulation Z, 12 C.F.R. § 226.18.
Plaintiffs have chosen not to pursue their third and fourth claims for relief under 15 U.S.C. § 1666. See Plaintiffs' Opposition Brief at note 1. Accordingly, these claims are dismissed.
This allegation was not articulated in the Complaint. However, since plaintiffs raise it in their opposition papers and would be permitted to amend the Complaint to add it, we consider it on this motion.
Congress provided a one year statute of limitations for private actions based on violations of TILA. See 15 U.S.C. § 1640(e) ("[A]ny action under this section may be brought . . . within one year from the date of the occurrence of the violation."). It is well-settled law that in "closed-end credit" transactions, like the one at issue, the "date of the occurrence of violation" is no later than the date the plaintiff enters the loan agreement or, possibly, when defendant performs by transmitting the funds to plaintiffs. See Salois v. Dime Sav. Bank, 128 F.3d 20, 25 (1st Cir. 1997); King v. State of California, 784 F.2d 910, 914 (9th Cir. 1986); K/O Ranch, Inc. v. Norwest Bank, 748 F.2d 1246, 1248-49 (8th Cir. 1984); In re Smith (Smith v. American Fin. Sys., Inc.), 737 F.2d 1549, 1552 (11th Cir. 1984); Bartholomew v. Northampton Nat. Bank, 584 F.2d 1288, 1296 (3d Cir. 1978); Stevens v. Rock Springs Nat. Bank, 497 F.2d 307, 309-10 (10th Cir. 1974); Wachtel v. West, 476 F.2d 1062, 1066 (6th Cir. 1973); Van Pier v. Long Island Sav. Bank, 20 F. Supp.2d 535, 538-39 (S.D.N.Y. 1998). Thus, at the latest, plaintiffs' TILA claims accrued when the mortgage was closed in 1985 and when the Money Store allegedly failed to comply with the FTC Settlement in 1991. In either case, the one year statute of limitations ran years ago unless plaintiffs can demonstrate that it should be tolled.
The distinction between "open-end" credit (i.e., an open line of credit like a credit card or revolving credit facility) and a "closed-end credit" (i.e., a consummated loan like a mortgage or auto loan), is discussed in Baskin v. G. Fox Co., 550 F. Supp. 64, 66-67 (D. Conn. 1982)
Although the Second Circuit has yet to determine whether the doctrine of equitable tolling applies delay the commencement of the running of the statute of limitations under TILA, § 1640, the weight of authority overwhelmingly suggests that it does. See Ellis v. General Motors Acceptance Corp., 160 F.3d 703, 706 (11th Cir. 1998) (equitable tolling can apply to TILA § 1640 actions); Ramadan v. Chase Manhattan Corp., 156 F.3d 499 (3d Cir. 1998) (same); Lawyers Title Ins. Corp. v. Dearborn Title Corp., 118 F.3d 1157, 1166-67 (7th Cir. 1997) (same); King v. State of California, 784 F.2d 910, 914-15 (9th Cir. 1986) (same); Jones v. TransOhio Sav. Ass'n, 747 F.2d 1037, 1039-43 (6th Cir. 1984) (same);Eubanks v. Liberty Mortgage Banking Ltd., 976 F. Supp. 171, 174 (E.D.N Y 1997) (same); Campbell v. Chandler Assoc., Inc., No. 95-CV-1770, 1997 U.S. Dist. LEXIS 3998, 1997 WL 151889 at *2 (N.D.N.Y. March 28, 1997) (same); but see Hardin v. City Title Escrow Co., 797 F.2d 1037, 1039-41 (D.C. Cir. 1986) (dicta suggesting that equitable tolling would not apply to a TILA § 1640 claim). We find ourselves in agreement with the essential analysis underlying the weight of precedent and, accordingly, consider whether the federal doctrine of fraudulent concealment tolls plaintiffs' TILA § 1640 claims.
The federal doctrine of fraudulent concealment tolls the statute of limitations "where a plaintiff has been injured by fraud and `remains in ignorance of it without any fault or want of diligence or care on his part.'" Holmberg v. Armbrecht, 327 U.S. 392, 397 (1946) (quoting Bailey v. Glover, 88 U.S. 342, 348 (1874)); see fitzgerald v. Seamans, 553 F.2d 220, 228 (D.C. Cir. 1977) ("(r)ead into every federal statute of limitations . . . is the equitable doctrine that in case of defendant's fraud or deliberate concealment of material facts relating to his wrongdoing, time does not begin to run until plaintiff discovers, or by reasonable diligence could have discovered, the basis of the lawsuit.");Atlantic City Elec. Co. v. General Elec. Co., 312 F.2d 236, 239 (2d Cir. 1962) (en banc). Specifically,
"The Second Circuit finds equitable tolling on the basis of fraudulent concealment if the plaintiff shows "(1) that the defendant concealed from him the existence of his cause of action, (2) that he remained in ignorance of that cause of action until some point within [the applicable statutory period] of the commencement of his action, and (3) that his continuing ignorance was not attributable to lack of diligence on his part." Campbell, 1997 U.S. Dist. LEXIS 3998 at *5 (citing State of New York v. Hendrickson Bros., Inc., 840 F.2d 1065, 1083 (2d Cir. 1988))
The sine qua non of fraudulent concealment is that the defendant fraudulently concealed from the plaintiff his cause of action during the time in which plaintiff could have brought that action. Absent such allegations, equitable tolling does not apply. See In re Woolaghan, 140 B.R. 377, 382 (W.D. Pa. 1992); Hubbard v. Fidelity Federal Bank, 824 F. Supp. 909 (C.D. Cal. 1992), aff'd in part and rev'd in part, 91 F.3d 75 (9th Cir. 1994).
In cases involving TILA, "the courts have held uniformly that fraudulent conduct beyond the nondisclosure itself is necessary to equitably toll the running of the statute of limitations." Pettola v. Nissan Motor Accept. Corp., 44 F. Supp.2d 442, 450 (D.Conn. 1999) (citing Evans v. Rudy-Luther Toyota, Inc., 39 F. Supp.2d 1177 (D. Minn. 1999); Jones v. Saxon Mortg., 980 F. Supp. 842, 846 (E.D. Va. 1997);Kicken v. Valentine Prod. Credit Ass'n, 628 F. Supp. 1008, 1011 (D. Neb. 1984), aff'd, 754 F.2d 378 (8th Cir. 1984) (table decision); Hughes v. Cardinal Fed. Sav. Loan Ass'n, 566 F. Supp. 834, 838 (S.D. Ohio 1983)). The holdings make good sense because if the very nondisclosure or misrepresentation that gave rise to the TILA violation also tolled the statute of limitations, the effect of the statute of limitations would be nullified. See Hughes, 566 F. Supp. at 838 ("otherwise the one-year statute of limitations would be tolled in almost every TILA action in which a non-disclosure violation was found and the statutory limitations provision would be a nullity"). Thus, we turn to the Complaint and look for the fraudulent conduct defendants are alleged to have undertaken, aside from the purported misrepresentation on the disclosure statement, during the one-year statute of limitations period following the loan.
The Complaint makes the generalized allegation that "[t]he foregoing acts and omissions of Defendants were undertaken by them willfully, maliciously, intentionally, knowingly, and/or in gross or reckless disregard of the rights of Plaintiffs." Complaint at ¶ 42. However, a cursory examination reveals that all of the "acts and omissions" attributed to defendants occurred in 2000. Complaint at ¶ 23-40 (acts and omissions described allegedly occurred between January 2000 — July 7, 2000). In order to make even a prima facie case for equitable tolling, plaintiffs would have to allege that defendants took actions, apart from the disclosure statement and during the one-year statute of limitations period, in an attempt to fraudulently conceal plaintiffs' cause of action. However, the Complaint does not allege that defendants committed any act of fraud towards plaintiffs or, indeed, any act whatsoever during the year following the disclosure statement. Thus, equitable tolling does not apply and any questions concerning the. nature of defendants' acts in the year 2000 are moot.
Turning plaintiffs' second cause of action under TILA § 1640, we find no merit in the contention that defendants violated TILA by allegedly failing to mail a check to plaintiffs pursuant to the FTC Agreement. Leaving aside the question of whether plaintiffs have any evidence to support this allegation, TILA provides no relief for the Money Store's failure to pay. Failure to comply with an FTC agreement simply is not a TILA violation of TILA § 1638. Accordingly, plaintiffs have failed to state a claim under TILA § 1640.
We do not look beyond the four corners of the Complaint and the narrow range of related documents in deciding this motion. However, we do note that defendants have proffered substantial evidence to suggest that plaintiffs received and cashed a check from the Money Store as compensation from the FTC Agreement. Specifically, defendants have produced a contemporary computer print-out of a compliance report submitted to the FTC as part of the Agreement in which they reported that plaintiffs had cashed a check for $235.86 that had cleared on March 31, 1992. See Aff. of Mark Buechner in Motion to Dismiss, Ex. C, D. Furthermore, defendants aver that they have located a box containing the checks that the Money store sent to customers as part of its compliance with the FTC Agreement, but which were not cashed by customers. Defendants swear that they have reviewed the checks in the box and that the check to plaintiffs was not among them. See Reply Aff. of Mark Buechner at ¶ 4. Despite plaintiffs' protestations to the contrary, this evidence would likely be admissible as business records.
Finally, in an effort to avoid application of the one-year statute of limitations, plaintiffs raise the alternative grounds "separate accrual" and "triviality." Although plaintiffs dress their argument in the garb of the "separate accrual" doctrine, it fails for the same reason that courts have rejected a "continuing violation" theory for TILA claims — namely, it is well-settled that TILA claims for inaccurate disclosure statements accrue at the time loans are made, not upon each payment inconsistent with the statement's terms. See Van Pier v. Long Island Sav. Bank, 20 F. Supp.2d 535, 538-39 (S.D.N.Y. 1998) (citing numerous authorities). The doctrine of "triviality" fares no better. It provides that a plaintiff's claims generally do not accrue until his injury is sufficiently severe that he is put on notice that he may be injured. The paradigm example is someone punched in the face who does not discover until some years later that the injury has actually caused a degenerative condition whose signs have only recently become outwardly manifest. In contrast to this hidden condition, evidence of discrepancies between the disclosure statement and the underlying terms of the loan is immediately available by simply comparing the loan documents, disclosure statement and any account statements. Accordingly, courts have consistently held that TILA claims accrue at the time of the loan is made, not when events thrust evidence of the violation in front of plaintiffs' eyes. Id.
Taken together, plaintiff's arguments reflect a basic misunderstanding about the breadth of TILA's application. Although remedial in their purpose, TILA's disclosure requirements are precise in their focus. In the case of "closed-end credit" arrangements, as at bar, they deal almost exclusively with the time leading up to and including the loan transaction itself. The one-year statute of limitations, paucity of provisions dealing with events after the requisite disclosures, and explicit language of 15 U.S.C. § 1634 only provide further evidence of Congress' intent not to extend TILA liability far beyond the loan transaction itself. Plaintiffs' TILA claims fail because they attempt to relate-back conduct temporally and causally remote from the disclosure statement. Thus, for the reasons stated above, plaintiffs' claims under TILA § 1640 for violations of TILA § 1638 and Regulation Z, 12 C.F.R. § 226.18 are dismissed.
15 U.S.C. § 1634 reads: "If information disclosed in accordance with this part is subsequently rendered inaccurate as the result of any act, occurrence, or agreement subsequent to the delivery of the required disclosures, the inaccuracy resulting therefrom does not constitute a violation of this part."
II. Real Estate Settlement Procedures Act
Congress enacted RESPA after finding "that significant reforms in the real estate settlement process are needed to insure that consumers throughout the Nation are provided with greater and more timely information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices. . . ." 15 U.S.C. § 2601(a). To wit, Congress intended RESPA to improve disclosure of settlement costs, reduce kickbacks and costly referral fees, reduce required escrow payments for real estate taxes and insurance and improve recordkeeping of land title information. 15 U.S.C. § 2601(b)
RESPA § 2605(e), the provision at issue, provides that when a covered mortgagor receives a "qualified written request" from a borrower "for information relating to the servicing of such loan, the servicer shall provide a written response acknowledging receipt of the correspondence within 20 days (excluding legal public holidays, Saturdays, and Sundays) unless the action requested is taken within such period." RESPA § 2605(e)(1)(a). Furthermore, no later than 60 days (excluding legal public holidays, Saturdays, and Sundays) after the receipt of the request, the servicer must:
"(A) make appropriate corrections in the account of the borrower, including the crediting of any late charges or penalties, and transmit to the borrower a written notification of such correction (which shall include the name and telephone number of a representative of the servicer who can provide assistance to the borrower);
(B) after conducting an investigation, provide the borrower with a written explanation or clarification that includes —
(i) to the extent applicable, a statement of the reasons for which the servicer believes the account of the borrower is correct as determined by the servicer; and
(ii) the name and telephone number of an individual employed by, or the office or department of, the servicer who can provide assistance to the borrower; or
(C) after conducting an investigation, provide the borrower with a written explanation or clarification that includes —
(i) information requested by the borrower or an explanation of why the information requested is unavailable or cannot be obtained by the servicer; and
(ii) the name and telephone number of an individual employed by, or the office or department of, the servicer who can provide assistance to the borrower." RESPA § 2605(e)(1)
If a defendant fails to respond to a qualified inquiry in the manner prescribed by RESPA § 2605, he may be liable for plaintiffs' actual damages, costs and, "in the case of a pattern or practice of noncompliance with the requirements of this section," additional damages not to exceed $1000. RESPA § 2605(f)(1)(A) and (B), (f)(3)
Plaintiffs allege that defendants' inadequate response to plaintiffs' "qualified written request" of June 8, 2000 violated RESPA § 2605. Specifically, plaintiffs allege that defendants "knowingly and/or recklessly misrepresented the correct amount owed by Plaintiffs, [and] by failing to acknowledge that there had been a violation of the disclosure requirements. . . ." Complaint at ¶ 53. For the purposes of this motion, we will assume that the Loan was covered by RESPA § 2605 and that plaintiffs' letter of June 8, 2000 constituted a "qualified written request." Nonetheless, plaintiffs' claim is without merit.
Defendants' letter of June 28, 2000 fulfilled defendants' RESPA § 2605(e)(1)(a) obligation to acknowledge receipt within 20 days. See Complaint at ¶ 36; Aff. of Mark Buechner in Motion to Dismiss, Ex. F (June 28, 2000 letter from P.T. Winterbottom to plaintiffs' counsel Paul Grobman) ("I am writing in response to your undated correspondence, which was received in our Collections Department on June 9, 2000 . . .").
Defendants' letter of July 17, 2000 clearly fulfilled defendants' obligations under RESPA § 2605(e)(2). The letter clearly provided the "reasons for which the servicer believes the account of the borrower is correct as determined by the servicer," the "information requested by the borrower [the description of "simple interest"] or an explanation of why the information requested is unavailable or cannot be obtained by the servicer [explaining that cashed FTC check was destroyed]," and "the name and telephone number of an individual [P.T. Winterbottom] employed by, or the office or department of, the servicer who can provide assistance to the borrower."
The Complaint describes this letter as having been sent on July 7, 2000. Complaint at ¶ 40. However, a copy of the letter was enclosed in Aff. of Mark Buechner in Motion to Dismiss, Ex. G, and is dated July 17, 2000. The difference is immaterial, however, as both dates fall well within the 60 day response time provided under RESPA § 2605(e)(2).
Furthermore, far more important than this technical compliance is the bottom-line: defendant waived the balance of plaintiffs' loan. The very purpose of RESPA § 2605 is to guarantee that lenders respond to borrowers concerns. Since it is difficult to imagine a greater accommodation than forgiving the entire amount of a loan in dispute, it strikes this Court that defendants went far beyond what was required of them under RESPA § 2605. Certainly, they did not violate it. Moreover, even assuming plaintiffs could allege that defendants had failed to comply with RESPA § 2605 in some technical respect, plaintiffs appear to have suffered no damages — the entire balance of the loan was waived.
To the extent plaintiffs' claim that defendants violated RESPA § 2605(e)(2) by "taking action with respect to the inquiry of the borrower" prior to providing plaintiffs with the information they requested (a claim proposed in their opposition brief but not appearing in the Complaint), they misconstrue the statute. Specifically, plaintiffs contend that defendants' demands for payment in their letters of June 13 and 21, 2000 constituted "taking action" which plaintiffs argue RESPA § 2605(e)(2) forbids. RESPA § 2605(e)(2) states, in relevant part: "Not later than 60 days . . . after the receipt from any borrower of any qualified written request under paragraph (1) and, if applicable, before taking any action with respect to the inquiry of the borrower, the servicer shall [investigate and respond to plaintiff's inquiry]." Putting aside the impact of the qualification "if applicable," it does not appear that sending letters reminding customers of balances due and the consequences of failing to pay constitutes "action with respect to the inquiry of the borrower."
A review of the legislative history and relevant caselaw provides no explicit guidance as to the meaning of "action with respect to the inquiry of the borrower." In this absence, we look to the statute's plain meaning and purpose. RESPA's basic purpose is to protect borrowers from exploitation by lenders. Disclosure and timely response requirements, such as RESPA § 2605, serve to inform borrowers. However, disclosure or response is of little value if lenders have instituted some significant action involving third parties while their investigation is ongoing. It appears from the statute's language and structure that provisions such as RESPA § 2605(e)(3), which prohibits a lender from reporting to a "consumer reporting agency" any overdue payment disputed by a borrower in a qualified inquiry, guard against this risk. We read RESPA § 2605(e)(2)'s "action with respect to the inquiry of the borrower" in the same manner — i.e., a lender cannot take an adverse action against the borrower, related to a qualified inquiry, before responding to the inquiry. Reading it to mean that lenders cannot correspond with borrowers about an inquiry at all until they have investigated it fully would create a needless technical obstacle unrelated to the statute's objectives. In the absence of any indication Congress intended this expansive reading, we will not find it.
Although we need not decide here what precisely would constitute "action[s] with respect to the inquiry of the borrower," they might well include commencing foreclosure proceedings against the borrower or suing the borrower. However, sending standard balance due demand letters alone does not constitute an "action with respect to the inquiry of the borrower." Indeed, we take judicial notice of the fact that a great deal of correspondence from consumer lenders is standardized, computer generated notices that are routinely issued with little or no individual review. Although automation would not excuse otherwise illegal actions, elevating routine notices to statutory violation in the absence of any harm is wholly unwarranted. Thus, we find that defendants' letters of June 13 and 21, 2000 did not constitute "action[s] with respect to the inquiry of the borrower" and, accordingly, did not violate RESPA § 2605(e)(2). Accordingly, plaintiffs' RESPA claim is dismissed.
III. State Claims
We have dismissed plaintiffs' federal claims which were the sole predicate for federal jurisdiction. When federal claims are dismissed, retention of state law claims under supplemental jurisdiction is left to the discretion of the trial court. See 28 U.S.C. § 1367(c)(3) (1994) ("[d]istrict courts may decline to exercise supplemental jurisdiction over a claim [if] . . . (3) the district court has dismissed all claims over which it has original jurisdiction."); Purgess v. Sharrock, 33 F.3d 134, 138 (2d Cir. 1994); In re Merrill Lynch Ltd. Partnerships Litig., 7 F. Supp. 2 d 256, 258 (S.D.N.Y. 1997). We decline to exercise supplemental jurisdiction over plaintiffs' New York state law claims. Accordingly, we dismiss them.
CONCLUSION
For the reasons discussed above, plaintiffs' federal claims are dismissed for failure to state a claim on which relief can be granted and we decline to exercise supplemental jurisdiction over the remaining state law claims.
IT IS SO ORDERED.