United States District Court, E.D. Michigan, Southern Division
Owen V. Lee, et al., Plaintiffs,
Cincinnati Capital Corporation, et al., Defendants.
OPINION & ORDER ON DEFENDANTS' MOTIONS TO
F. COX UNITED STATES DISTRICT COURT JUDGE
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.
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.
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.
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
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).
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. §
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
(First Am. Compl. at 2-3). The supporting factual allegations
18. The Lees own their home, real property located at 49363
Parkshore Court in Northville, Michigan (the “Subject
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
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
24. Among the Loans was the Lees' HELOC and Second
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
29. Engelhart authorized the Assignment as CEO of Cincinnati
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
(Id. at ¶¶ 18-33).
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.”
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.
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
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).
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....”
Engelhart and Defendant Cincinnati Capital each filed a
separate Motion to Dismiss but they raise some of the same
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
Plaintiffs' First Amended Complaint Fails To State A
Claim Against Engelhart, The Individual Defendant, Upon Which
Relief Can Be Granted.
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 ...