Bonte v. U.S. Bank, N.A.

In the

United States Court of Appeals

For the Seventh Circuit

No. 09-2455

T RAVIS M. B ONTE and JOLENE A. B ONTE,

Plaintiffs-Appellants,

v.

U.S. B ANK, N.A.,

Defendant-Appellee.

Appeal from the United States District Court

for the Western District of Wisconsin.

No. 3:08-cv-00696—Stephen L. Crocker, Magistrate Judge.

A RGUED F EBRUARY 9, 2010—D ECIDED O CTOBER 19, 2010

Before P OSNER, R OVNER, and S YKES, Circuit Judges.

R OVNER, Circuit Judge. Travis and Jolene Bonte sued

U.S. Bank, N.A. under the Truth in Lending Act (“TILA”),

15 U.S.C. §§ 1640, et seq., seeking mortgage rescission.

Their complaint alleges that U.S. Bank succeeded a mort-

gage lender that violated TILA by misstating certain

charges related to the Bontes’ mortgage. The district

court granted U.S. Bank’s motion to dismiss, Fed. R. Civ.

P. 12(b)(6), after concluding that the Bontes failed to

2 No. 09-2455

respond to U.S. Bank’s contention that none of the mis-

statements identified in the complaint were “material,” as

required by TILA for mortgage rescission. The Bontes

appeal, but again fail to provide any meaningful re-

sponse to U.S. Bank’s claim that none of the allegedly

misstated disclosures entitle them to rescission. We

thus affirm the dismissal of their complaint.

I.

According to the facts in the complaint, which we

accept as true at this stage, the Bontes own their home

in Woodville, Wisconsin. In December 2005, they took

out a third mortgage on the home through FMF Capital,

LLC for approximately $315,000, payable over a 30-year

period. The proceeds of the mortgage were used, in part,

as payment on the Bontes’ first mortgage with Chase

Bank and their second mortgage with Bremer Bank.

Subsequently, the loan was transferred to U.S. Bank,

which initiated foreclosure proceedings against

the Bontes. The foreclosure action was dismissed in

April 2007.

The Bontes later filed suit in federal district court

seeking rescission of the third mortgage based on “inaccu-

rate and inconsistent disclosures” in their HUD-1 settle-

ment statement and required TILA statement and dis-

closures. U.S. Bank moved to dismiss the Bontes’ com-

plaint under Federal Rule of Civil Procedure 12(b)(6)

for failure to state a claim, arguing that none of the

alleged errors in the disclosure statements related to

a “material” disclosure, as required for rescission more

No. 09-2455 3

than three days after the mortgage. In response, the

Bontes reiterated the allegations in their complaint and

argued generally that TILA should be liberally con-

strued in favor of consumers.

The district court granted U.S. Bank’s motion to

dismiss, concluding that the Bontes had failed to demon-

strate that the facts laid out in their complaint entitled

them to rescission. In response to U.S. Bank’s assertion

in its motion to dismiss that none of the ten allegedly

misstated charges identified in the Bontes’ complaint

were “material,” the Bontes had simply restated the

facts set forth in their complaint and described the

general legal standards applicable in TILA cases. Con-

cluding that this failure to respond amounted to

waiver, the district court dismissed their complaint

for failure to state a claim. Waiver aside, the district

court further concluded that U.S. Bank’s arguments

were substantively correct, entitling it to dismissal on

the merits.

II.

We review de novo the district court’s grant of a

motion to dismiss under Fed. R. Civ. P. 12(b)(6). E.g., Reger

Dev., LLC v. Nat’l City Bank, 592 F.3d 759, 763 (7th

Cir. 2010). We accept all facts in the complaint as true,

view them in the light most favorable to the Bontes, and

draw all reasonable inferences in their favor. Id. Although

the bar to survive a motion to dismiss is not high, the

complaint must “contain sufficient factual matter,

accepted as true, to ‘state a claim to relief that is plausible

4 No. 09-2455

on its face.’ ” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)

(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

Because the Bontes seek rescission of their loan well

outside the ordinary three-day period allowed under

TILA, see 15 U.S.C. § 1635(a); 12 C.F.R. § 226.23(a)(3),

they must demonstrate that the lender failed to make

a required “material” disclosure, see 15 U.S.C. § 1635(f)

(extending right of rescission to earlier of three years

or until the sale of the property); 12 C.F.R. § 226.23(a)(3);

see also R.G. Fin. Corp. v. Vergara-Nunez, 446 F.3d 178,

187 (1st Cir. 2006) (noting that TILA allows rescission

for up to three years when lender omits certain

material disclosures). The Bontes’ complaint identifies

ten separate charges that differed on their TILA state-

ment and disclosures and the accompanying HUD-1

settlement statement for the mortgage. The Bontes allege

that taken together, the discrepancies between the two

documents (both attached to the complaint) misstated

the “APR, the amount financed, and finance charge

associated with this transaction.”

The disclosure requirements under TILA may be

found in the statute itself, 15 U.S.C. §§ 1601 et seq., the

implementing regulation (“Regulation Z,” promulgated

by the Federal Reserve Board), 12 C.F.R. §§ 226.1-226.59,

and the Federal Reserve Board’s binding Staff Commen-

tary, 12 C.F.R. pt. 226, Supp. I; see also 15 U.S.C. § 1604(a)

(directing the Board to prescribe regulations imple-

menting TILA) amended by PL 111-203, July 21, 2010, 124

Stat 1376. Ordinarily, we defer to the Commentary when

interpreting TILA and its disclosure requirements. See

No. 09-2455 5

Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565 (1980)

(“[D]eference [to the Federal Reserve Board] is especially

appropriate in the process of interpreting the Truth in

Lending Act and Regulation Z.”); Hamm v. Ameriquest

Mortg. Co., 506 F.3d 525, 528 (7th Cir. 2007) (“Courts

pay particular heed to the FRB Staff Commentary to

TILA’s regulations when evaluating an alleged TILA

violation.”). Section 226.18 of Regulation Z identifies

eighteen pieces of information to be disclosed to bor-

rowers in credit transactions such as the Bontes’ mort-

gage. See 12 C.F.R. § 226.18(a)-(r).

Of these eighteen disclosures, the following five qualify

as “material” so as to support rescission for up to three

years: (1) the annual percentage rate (“APR”); (2) the

finance charge; (3) the amount financed; (4) the total of

payments; and (5) the payment schedule. See 12 C.F.R.

§ 226.23(a)(3). As stated above, the Bontes’ complaint

alleges that the charges listed on their TILA disclo-

sure statement (which conformed to the model Truth-in-

Lending Disclosure Statement in Appendix H-2 of Reg-

ulation Z) misstated the finance charge, the APR, and

the amount financed. But the Bontes never explain how

the ten allegedly misstated charges are related to the

finance charge, the APR, and the amount financed.

The finance charge includes any fee or charge repre-

senting the cost of credit, from interest (ordinarily the

largest component of the finance charge) to any trans-

action fees “imposed directly or indirectly by the

creditor as an incident to or a condition of the extension

of credit.” 12 C.F.R. § 226.4(a). The APR and the amount

6 No. 09-2455

financed are derived from the finance charge and the

amount of the note. See 12 C.F.R. § 226.22(a)(1) (“The

annual percentage rate is a measure of the cost of

credit, expressed as a yearly rate[.]”). The amount

financed is the total loan amount after subtracting out

any pre-paid finance charges. See 12 C.F.R. § 226.18(b)

(amount financed is net amount of credit extended for

the consumer’s use). Thus, the APR and the amount

financed are derived from the finance charge. The three

together essentially represent the cost of credit. Cf. Fed.

Deposit Ins. Corp., FDIC Law, Regulations, Related Acts,

Part 226—Truth In Lending (Regulation Z) §226.1(b),

http://www.fdic.gov/regulations/laws/rules/6500-1400.html

(explaining that purpose of TILA “is to promote the

informed use of consumer credit by requiring disclosures

about its terms and cost”).

In its motion to dismiss and again in its brief on

appeal, U.S. Bank explains, with citations to the relevant

regulations and Commentary, why none of the ten al-

legedly inaccurate charges identified in the Bontes’ com-

plaint are part of the APR, finance charge, or amount

financed—in short, “material” disclosures as required

for rescission under TILA. For example, four of the al-

legedly misstated charges identified in the complaint

relate to disbursement of loan proceeds—i.e., how the

Bontes used their loan (to pay off other mortgages). U.S.

Bank maintains that disbursements to creditors and

loan payoffs are unrelated to the finance charge, the

APR, or the amount financed.

The Bontes also allege a discrepancy in the disclosure

of property taxes, but property taxes are specifically

No. 09-2455 7

excluded from the finance charge by the binding Com-

mentary. 12 C.F.R. Part 226, Supp. I, § 226.4(a)(1)(i)(A)

(explaining that “taxes . . . paid by both cash and credit

customers” are not finance charges). U.S. Bank further

explains that four more of the alleged errors—title in-

surance, ARM endorsement, recording service fees, and

courier fees—relate to charges paid to a title company,

not a creditor. But with limited exceptions not alleged

here, TILA specifically exempts fees payable to third

parties such as title companies. See 15 U.S.C. § 1605(a)

(“The finance charge shall not include fees and amounts

imposed by third party closing agents (including . . . title

companies)[.]”); 12 C.F.R. § 226.4(a)(2) (same). Moreover,

these four charges are exempted from the finance

charge by 15 U.S.C. § 1605(e)(1)-(6), which excludes fees

for “title insurance” and other fees for “preparing loan-

related documents.” See also 12 C.F.R. § 226.4(c)(7). That

leaves only the alleged misstatement of the settlement

fees, which U.S. Bank contends are exempted by the

same two exclusions just discussed. Moreover, U.S. Bank

points out that the Bontes allege an overstatement of

their settlement fees, and TILA prohibits only the under-

statement of the required disclosures. See 15 U.S.C.

§ 1605(f)(1)(B); 12 C.F.R. § 226.23(g)(1)(ii); see also Car-

michael v. The Payment Center, Inc., 336 F.3d 636, 641-42

(7th Cir. 2003) (affirming summary judgment for lender

that overstated finance charge and total of payments

because TILA “protects consumers only when the

stated amount is less than the amount required to be

disclosed”) (emphasis in original).

In response, the Bontes repeat the mistake they made

in the district court and essentially ignore U.S. Bank’s

8 No. 09-2455

substantive arguments. Instead, they argue generally

that their complaint properly alleged a TILA violation

and that the district court erroneously held their com-

plaint to a higher standard than that envisioned by

Twombly and its progeny. They also by and large ignore

the district court’s holding on waiver and spend the

majority of their brief discussing the liberal standard to

be applied to complaints on a motion to dismiss and the

fact that TILA is to be construed liberally in favor of

consumers. True as that may be, it does little to establish

that the allegations in the Bontes’ complaint are in fact

enough “to raise a right to relief above the speculative

level.” Twombly, 550 U.S. at 555. U.S. Bank has cogently

explained why, taking all of the allegations in the com-

plaint as true, the Bontes have failed to demonstrate

their entitlement to rescission under TILA.

The Bontes insist that their complaint is sufficient

because it lays out with specificity “ten material and

substantial errors in Lender’s TILA disclosure of the

amount financed, the finance charge, and the applicable

APR.” But as detailed above, none of the ten errors are

in fact related to the amount financed, the finance

charge, and the applicable APR, notwithstanding the

Bontes’ unsupported legal statement to the contrary.

Although we are required at this stage to accept the

Bontes’ factual allegations as true, we are not “ ‘bound

to accept as true a legal conclusion couched as a factual

allegation.’ ” Id. (quoting Papasan v. Allain, 478 U.S. 265,

286 (1986)); see also Iqbal, 129 S. Ct. at 1949 (“[T]he tenet

that a court must accept as true all of the allegations

contained in a complaint is inapplicable to legal conclu-

sions.”).

No. 09-2455 9

Instead of responding to U.S. Bank’s arguments and

explaining how a single charge in their complaint does

relate to the cost of credit, the Bontes continue to

protest that their allegation of ten discrepancies between

the HUD-1 settlement statement and the TILA disclosures

amounts to a satisfactory “short and plain statement of

the claim,” Fed. R. Civ. P. 8(a)(2), showing their entitle-

ment to relief. Not so. U.S. Bank has explained that the

facts alleged, taken as true, simply do not give rise to a

right to rescission—the only relief requested in the com-

plaint. Thus, the liberal construction of TILA that the

Bontes urge cannot save them from their failure to

respond to U.S. Bank with an argument that the

complaint does indeed support their entitlement to

relief. See Segal v. Geisha NYC, LLC, 517 F.3d 501, 504 (7th

Cir. 2008) (“[I]t is . . . clear that a complaint that satisfies

Rule 8(a)’s pleading requirements might still warrant

dismissal under Rule 12(b)(6) if the facts pled cannot

result in any plausible relief.”).

As explained by the Supreme Court in Iqbal, we follow

a two-pronged approach in assessing the sufficiency of

a complaint. First, we consider whether the complaint

contains an adequate “short and plain statement of the

claim showing that the pleader is entitled to relief,” as

required by Rule 8(a)(2). Iqbal, 129 S. Ct. at 1949. As

the Bontes argue vigorously on appeal, their com-

plaint satisfies this standard. It lays out the alleged dis-

crepancies between the HUD-1 settlement statement

and the TILA disclosures, and then labels them misstate-

ments of the APR, amount financed, and finance

charge—errors that would in theory be material and

10 No. 09-2455

support entitlement to rescission. On its face, it appears

to be a plausible enough theory. See Twombly, 550 U.S.

at 570 (“[W]e do not require heightened fact pleading

of specifics, but only enough facts to state a claim to

relief that is plausible on its face.”).

Secondly, when the complaint contains well-pleaded

factual allegations, “a court should assume their veracity

and then determine whether they plausibly give rise

to an entitlement to relief.” Iqbal, 129 S. Ct. at 1950. As it

is now abundantly clear, it his here that the Bontes’

complaint falls short. Assuming the truth of each of the

ten allegedly misstated charges in the complaint, U.S.

Bank lays out why the Bontes still are not entitled to

rescission. The silence resulting from the Bontes’ failure

to file a response brief is deafening.

That silence leaves us to conclude, as did the dis-

trict court, that the Bontes concede that the charges iden-

tified in their complaint are not “material” disclosures

that would warrant rescission under TILA. Failure to

respond to an argument—as the Bontes have done

here—results in waiver. See United States v. Farris, 532

F.3d 615, 619 (7th Cir. 2008) (“Farris failed to respond to

the Government’s argument in a Reply Brief, and ac-

cordingly, we find that Farris waived his sufficiency

of the evidence challenge[.]”); Williams v. REP Corp.,

302 F.3d 660, 667 (7th Cir. 2002) (“Yet, given another

opportunity to address the effect of Trial Rule 4.4 in

his reply brief, Mr. Williams again ignored the issue

and, indeed, failed to respond to REP International’s

waiver argument. Under these circumstances, we must

No. 09-2455 11

hold that Mr. Williams has waived any argument that

Trial Rule 4.4 would permit the exercise of personal

jurisdiction over REP International.”). Just as the Bontes

fail on appeal to grapple with the basis of the district

court’s decision, they fail completely to respond to the

specific arguments set forth in U.S. Bank’s brief as to

why their complaint fails to state a claim for relief. Kirksey

v. R.J. Reynolds Tobacco Co., 168 F.3d 1039, 1042 (7th

Cir. 1999) (“If [judges] are given plausible reasons for

dismissing a complaint, they are not going to do the

plaintiff’s research and try to discover whether there

might be something to say against the defendants’ rea-

soning.”); see also County of McHenry v. Ins. Co. of the

West, 438 F.3d 813, 818 (7th Cir. 2006) (“When presented

with a motion to dismiss, the non-moving party

must proffer some legal basis to support his cause of

action.”) (internal quotations omitted).

As to the district court’s similar conclusion that the

Bontes conceded the validity of U.S. Bank’s arguments

by failing to respond, they have yet again provided

precious little in the way of argument. The Bontes do

assert in their brief that their response in the district

court to U.S. Bank’s motion to dismiss was not tanta-

mount to waiver. Specifically, the Bontes claim that

because they “opposed the lender’s motion for dismissal,

and identified for the lower court the factual and legal

basis for their claim for TILA rescission,” their response

“did not constitute a ‘waiver’ by any stretch of the imagi-

nation.” But they seem to have again missed the point:

identifying the “factual and legal basis” of their claim

does little to save them from dismissal when U.S. Bank

12 No. 09-2455

has painstakingly explained precisely why that factual

basis, taken as true, does not in fact warrant the re-

quested relief.

In sum, the Bontes have largely failed on appeal to

grapple with the basis of the district court’s decision—

their waiver resulting from their failure to respond to

the merits of U.S. Bank’s motion to dismiss. More im-

portantly, they have repeated that failure again on ap-

peal. Their failure to respond to U.S. Bank’s arguments

leads us also to conclude that they have waived any

argument that the allegedly erroneous TILA disclosures

are in fact “material.” This leaves us no choice but to

accept U.S. Bank’s assertions—supported as they are

by pertinent legal authority—that the allegations in the

Bontes’ complaint do not entitle them to relief.

III.

For the foregoing reasons, we A FFIRM the judgment of

the district court dismissing the Bontes’ complaint for

failure to state a claim upon which relief may be granted.

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