Court Need Not Accept Legal Conclusion, Couched As Factual Allegation, As True At 12(b)(6) Stage
BONTE v. U.S. BANK (October 19, 2010)
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Travis and Jolene Bonte own a home in the small village of Woodville in west-central Wisconsin. In late 2005, they took out a third mortgage on the home. A few years later, the Bontes brought an action for rescission. They alleged that there were ten discrepancies between the HUD-1 settlement statement and the Truth in Lending Act (TILA) statement and disclosures. U.S. Bank, the mortgage holder, moved to dismiss for failure to state a claim. It argued that none of the errors alleged related to a “material” disclosure as required for TILA rescission. In response, the Bontes simply restated their allegations and the applicable legal standard. Judge Crocker (W.D. Wis.) dismissed the complaint, holding that the Bontes waived their opposition to the motion by failing to respond but also concluding that U.S. Bank was correct. The Bontes appeal.
In their opinion, Judges Posner, Rovner, and Sykes affirmed. The Court agreed with U.S. Bank’s statement of the applicable law – that rescission (at least after three days) requires proof of a “material” non-disclosure. Regulation Z identifies eighteen required disclosures and names five of them as material: the APR, the finance charge, the amount financed, the total of payments, and the payment schedule. The Court noted that the Bontes alleged that the ten errors related to the APR, the finance charge, and the amount financed. But U.S. Bank went through each of the errors and showed how they did not related to any material disclosure. The Bank provided citations and reasons why each did not qualify as a material disclosure. The Court noted that the Bontes failed to respond to any of the Bank’s arguments. Just as they did in the district court, they merely restated their conclusory allegation that the errors related to material disclosures. Iqbal requires a two-step approach. The Bontes meet the first step – a “short and plain statement” of their claim. But they failed, said the Court, to satisfy the second prong – demonstrating a plausible entitlement to relief. Just because they couched their allegation of materiality as a factual allegation, a court is not required to accept it as true. It is, in fact, a legal conclusion – not a factual allegation. By failing to respond to the Bank’s arguments, they have waived any argument that the errors related to material disclosures.
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Christine Muro held a Target "Guest Card" for a few years. In late 1999, she paid off the balance and requested that her account be closed. In 2004, Target sent her an unsolicited Visa Card. Muro never used, or even activated, the card. She brought an action under §§ 1637 and 1642 of the Truth in Lending Act (“TILA”). With respect to § 1642, which prohibits the unsolicited issuance of a credit card, the court denied class certification. It concluded that Muro's claims were not typical of the claims of most of the proposed class (because most of the class members had an open “Guest Card” account) and that she had failed to establish numerosity with respect to the claims for which her claims were typical. Muro settled her individual § 1642 claim, reserving the right to appeal the denial of class certification. The court granted summary judgment to Target and denied class certification on the § 1637 claims. Muro appeals.