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Lee v. Cincinnati Capital Corp.

United States District Court, E.D. Michigan, Southern Division

January 16, 2020

Owen V. Lee, et al., Plaintiffs,
Cincinnati Capital Corporation, et al., Defendants.



         This is a putative class action brought against two Defendants: 1) Cincinnati Capital Corporation (“Cincinnati Capital”); and 2) Joseph Engelhart, the Chief Executive Officer and owner of that corporation (“Engelhart”). The matter is currently before the Court on Motions to Dismiss brought under Fed.R.Civ.P. 12(b)(6). After the motions were fully briefed, the Court heard oral argument on January 9, 2020.

         As explained below, the Court shall GRANT the Motion to Dismiss brought by Defendant Engelhart and dismiss the claims against him. Plaintiffs are not attempting to pierce the corporate veil. Rather, they seek to hold Engelhart personally liable - by virtue of being a corporate officer, based upon a single provision in Michigan's Secondary Mortgage Lender Act (“SMLA”). This Court does not read that provision as holding a corporate officer personally liable in a civil action brought under the Act and there are no factual allegations as to Engelhart that would support the other causes of action being brought against him personally.

         As to Defendant Cincinnati Capital's Motion to Dismiss, Plaintiffs agree that they cannot bring any claims that pre-date the receivership of the bank that loaned them money. The Court shall deny the motion as to the remaining challenges. The primary challenges in it are statute-of-limitations challenges and such challenges are generally not appropriately brought under a Fed.R.Civ.P. 12(b)(6) motion to dismiss. Moreover, as to the timeliness of Plaintiffs' SMLA claims, it appears that Plaintiffs' position has merit, which means that at least some of the claims appear timely.


         Plaintiffs Owen V. Lee and Heather Lee (“Plaintiffs” or “the Lees”) filed this putative class action in state court. On July 22, 2019, Defendants removed the action to federal court, based upon both diversity jurisdiction and federal-question jurisdiction.

         Plaintiffs filed a First Amended Class Action Complaint (ECF No. 8) on August 19, 2019, naming the following two defendants: 1) Engelhart, an individual; and 2) Cincinnati Capital, an Ohio corporation. It asserts the following claims: 1) “Violation of the SMLA, Mich. Comp. Laws Ann. § 493.51, et seq.” (Count I); 2) “Unjust Enrichment/Restitution” (Count II); 3) “Violation of Truth-in-Lending Act, 15 U.S.C. §§ 1601, et seq.” (Count III); and 4) “Violation of the Real Estate Settlement Procedures Act 12 U.S.C. §§ 2601, et seq.” (Count IV).

         Plaintiffs allege that Defendant Cincinnati Capital is an Ohio Corporation. (First Am. Compl. at ¶ 10). Defendant Engelhart is the “Chief Executive Officer, owner, and agent of” Cincinnati Capital. (Id. at 11). Plaintiffs describe the nature of this action as follows:

1. This complaint is against Defendants for violations of the Secondary Mortgage Loan Act, Mich. Comp. Laws Ann. § 493.51, et seq., (“SMLA”), the Truth-in-Lending Act 15 U.S.C. § 1601, et seq., (“TILA”), the Real Estate Settlement Procedures Act 12 U.S.C. § 2601, et seq. (“RESPA”), and for Unjust Enrichment/Restitution under the laws of the State of Michigan, based upon the unjust collection and retention of payments, to which they were not entitled, made by the Lees and the Putative Class.
2. A violation of SMLA occurs when “[a] person, association, nonprofit corporation, common law trust, joint stock company, limited liability company, or any other group of individuals, however organized, or any owner, partner, member, officers, director, trustee, employee, agent, broker, or representative thereof” (Mich. Comp. Laws Ann. § 493.77(2), “[e]ngages in this state in the business of a broker, lender, or servicer without a license or registration under this act” (Mich. Comp. Laws Ann. § 493.77(2)(a)), or “[a]cts as a secondary mortgage loan officer in this state and is not a licensed secondary mortgage loan officer under the mortgage loan originator licensing act.” Mich. Comp. Laws Ann. § 493.77(2)(b).
3. Defendants violated the SMLA when they conducted business with the Lees and the Putative Class despite being unlicensed under SMLA. Mich. Comp. Laws Ann. § 493.77(2).
4. Section 27 of SMLA provides that a violation of SMLA is also subject to the penalty and remedy provisions of the Credit Reform Act, which expressly includes “a class action” as a form of relief. Mich. Comp. Laws Ann. § 493.77(1); Mich. Comp. Laws Ann. § 445.1861(3).
5. Defendants' collection of principal and interest mortgage payments without a license gives rise to a claim for Unjust Enrichment/ Restitution as the law prohibits them from collecting such payments.
6. Further, Defendants violated various provisions of TILA and RESPA by failing to make certain disclosures or otherwise failing to provide certain information to the Lees and the Putative Class.

(First Am. Compl. at 2-3). The supporting factual allegations include:

18. The Lees own their home, real property located at 49363 Parkshore Court in Northville, Michigan (the “Subject Property”).
19. On November 4, 2005, the Lees secured a home equity line of credit (“HELOC”) in the amount of $525, 000 from Main Street Bank.
20. Main Street Bank, located at 201 E. Main Street, Northville, Michigan, 48167, was a full service financial institution that was organized and existed under the laws of the State of Michigan.
21. To secure repayment of the HELOC, the Lees granted Main Street Bank a second mortgage on the Subject Property, behind in priority to their primary mortgage, which was recorded with Wayne County register of deeds (the “Second Mortgage”).
22. On October 10, 2008, Main Street Bank was closed by the Michigan Office of Financial & Insurance Services and the Federal Deposit Insurance Corporation (“FDIC”) was named receiver.
23. Sometime after it was appointed receiver, the FDIC sold to Cincinnati Capital a portfolio of loans and mortgages originated and owned by Main Street Bank (the “Loans”).
24. Among the Loans was the Lees' HELOC and Second Mortgage.
25. In addition to the Lees' HELOC and Second Mortgage, the Loans included 229 similar loans that had been originated and owned by Main Street Bank and that were secured by real property located in the State of Michigan.
26. On the date of purchase, the Loans had a book value of $13, 632.991.90, for which Cincinnati Capital paid a total purchase price of $1, 554, 161.08 - or 11.4 cents per dollar of the book value.
27. Upon information and belief, the FDIC, as receiver, transferred to Cincinnati Capital all rights to collect and enforce the terms of these 230 Loans.
28. On June 18, 2009, an Assignment of Mortgage was recorded with the Wayne County Register of Deeds wherein the FDIC assigned the Second Mortgage to Cincinnati Capital (the “Assignment”).
29. Engelhart authorized the Assignment as CEO of Cincinnati Capital.
30. At various times after the HELOC and Second Mortgage was sold to Cincinnati Capital, the Lees attempted to contact Defendants regarding, among other things, the financial hardship they were experiencing in relation to the HELOC and Second Mortgage, copies of various documents related to the loan, the loan history, and other related information.
31. Most of these requests went unanswered with Cincinnati Capital responding, only in October 2015 and May 2019, with parts of the information requested.
32. Among other things, Defendants never provided proof that Cincinnati Capital acquired the HELOC and Second Mortgage, notice of the basis of any change to the interest rate of the loan, and calculations of the payment, adequate periodic statements, or required disclosures.
33. Based upon the dealings between the Lees and Defendants, upon information and belief, Defendants failed to provide requested or required information or notices to the other 229 mortgage holders.

(Id. at ¶¶ 18-33).

         The First Amended Complaint asks the Court to “certify a class action of all persons impacted by Defendants' improper activity under SMLA, specifically, the mortgagors whose loans were purchased by Defendants and which were originally executed in favor of Main Street Bank (as certified, “the Class”). (Id. at 14). “The Class Definition would include all persons impacted by Defendants' improper activity under SMLA, Unjust Enrichment/ Restitution, TILA, and RESPA, specifically, the mortgagors whose loans were purchased by Defendants and which were originated by Main Street Bank.” (Id.). “Upon information and belief, the Class consists of members who acquired each of 230 loans, the Loans purchased by Defendants from the FDIC, and joinder of all these members is impracticable.” (Id.).

         On September 10, 2019, Defendant Cincinnati Capital Corporation filed a Motion to Dismiss, brought pursuant to Fed.R.Civ.P. 12(b)(6). On September 16, 2019, Defendant Engelhart filed his own Motion to Dismiss, also brought pursuant to Fed.R.Civ.P. 12(b)(6). Both motions were fully briefed and heard by the Court on January 9, 2020.


         Defendants brought the two pending motions, which include both statute-of-limitations challenges and challenges to the sufficiency of the pleaded caused of actions, pursuant to Fed.R.Civ.P. 12(b)(6).

         “That rule, however, ‘is generally an inappropriate vehicle for dismissing a claim based upon a statute of limitations.'” Engleson v. Unum Life Ins. Co. of America, 723 F.3d 611, 616 (6th Cir. 2013) (quoting Cataldo v. U.S. Steel Corp, 676 F.3d 542, 547 (6th Cir. 2012)). That is because a plaintiff is not obligated to plead around an affirmative defense to state a claim. Cataldo, supra, at 547. “But, sometimes the allegations in the complaint affirmatively show that the claim is time-barred. When that is the case, ” “dismissing the claim under Rule 12(b)(6) is appropriate.” In any event, “[b]ecause the statute of limitations is an affirmative defense, the burden is on the defendant to show that the statute of limitations has run.” Campbell v. Grand Trunk Western R. Co., 238 F.3d 772, 775 (6th Cir. 2001).

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of the complaint and will be granted if the plaintiffs have failed “to state a claim upon which relief can be granted....” This Court must construe the complaint in the light most favorable to the plaintiff, accept all the factual allegations as true, and determine whether the plaintiff can prove a set of facts in support of its claims that would entitle it to relief.” Bovee v. Coopers & Lybrand C.P.A., 272 F.3d 356, 360 (6th Cir. 2001). The plaintiff must plead “enough facts to state a claim to relief that is plausible on its face, ” otherwise the complaint will be dismissed. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). The plausibility standard requires the plaintiff to “raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Id. at 555 (citations omitted). The complaint must include more than “labels and conclusions” and “formulaic recitation[s] of the elements of a cause of action....” Id.


         Defendant Engelhart and Defendant Cincinnati Capital each filed a separate Motion to Dismiss but they raise some of the same grounds.

         As to Defendant Engelhart's motion, the Court need not proceed past the first ground because, as explained below, Plaintiffs failed to sufficiently plead any claims against him. The rest of the challenges will be addressed as to Defendant Cincinnati Capital.

         I. Plaintiffs' First Amended Complaint Fails To State A Claim Against Engelhart, The Individual Defendant, Upon Which Relief Can Be Granted.

         In his motion, Defendant Engelhart notes that Plaintiffs' have asserted all counts against him personally but asserts that “nowhere in the amended complaint do Plaintiffs' provide any specific allegations of wrongdoing against” him. (Def.'s Br. at 6). He notes that Plaintiffs reference “Defendants” together, without including any factual allegations specific to him. He notes that “[o]ther than the fact that he is the CEO and signed the assignment of mortgage on behalf of the FDIC under his authority from a power of attorney, Plaintiffs fail to plead any other facts to support a claim against him personally.” (Id. at 8). As such, Defendant Engelhart assumes that Plaintiffs are seeking to pierce the corporate veil and hold him ...

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