Suing under the Truth-in-Lending Act (TILA)

Federal District Court Opinions

STOVALL v. LAKANU, (Minn. 11-17-2006) Dwayne D. Stovall and
Sengkham Douangthammavngsa, Plaintiffs, v. Alexander O.
Lakanu, Defendant. Civil No. 05-2593 (PAM/JJG). United
States District Court, D. Minnesota. November 17, 2006

MEMORANDUM AND ORDER

PAUL MAGNUSON, Senior District Judge

This matter is before the Court on Defendant Alexander O.
Lakanu’s Motion to Dismiss and Motion for Summary Judgment,
and Plaintiffs Dwayne D. Stovall and Sengkham
Douangthammavngsa’s Motion for Partial Summary Judgment.
For the reasons set forth below, the Court denies all of
the Motions.

BACKGROUND

This action arises from a real estate transaction between
Douangthammavngsa and Lakanu for a home located at 8747
Chicago Avenue South in Bloomington, Minnesota.
Douangthammavngsa immigrated to the United States from Laos
about twenty years ago. She is now married to Stovall, but
they were not married at the time of the transaction.
Lakanu was a licensed Minnesota real estate salesperson
during the relevant events.

In 2003, Douangthammavngsa owned her home at 8747 Chicago
Avenue South as a single homeowner. She experienced some
financial difficulties, and the mortgage holder commenced
foreclosure proceedings. The parties dispute whether Lakanu
first contacted Page 2 Douangthammavngsa or vice versa,
but in either event, the parties began discussing the
possibility of Lakanu purchasing the property from
Douangthammavngsa. During the negotiations,
Douangthammavngsa and Lakanu discussed executing a contract
for deed in conjunction with the purchase agreement.
Douangthammavngsa claims that the parties explicitly agreed
to the contract for deed but that Lakanu never provided the
written document. Lakanu denies that the parties finalized
any terms on a contract for deed.

On May 15, 2003, Douangthammavngsa and Lakanu executed a
purchase agreement in the amount of $195,300. The agreement
did not mention a contract for deed. Shortly after the
purchase agreement was signed, Douangthammavngsa and Lakanu
executed a seller facilitator services agreement, which
required Douangthammavngsa to pay Lakanu an eleven percent
commission. Plaintiffs contend that Lakanu acted
unilaterally in raising his commission from four to eleven
percent, despite Douangthammavngsa’s signature on the
document. Lakanu concedes that he wrongfully backdated the
document to May 14, 2003, but he denies that he acted
unilaterally. Lakanu further admits that he did not provide
any truth-in-lending forms to Douangthammavngsa.

Douangthammavngsa claims that Lakanu took advantage of her
limited ability to read and understand English and that she
was unaware of the nature of the entire transaction.
According to Stovall, he and Douangthammavngsa had no idea
that the property would be titled in Lakanu’s name or that
Lakanu intended to take out a mortgage on the property.
Stovall further alleges that Lakanu explained the
transaction as follows: their monthly payment would
increase from $1,120 to $1,395; they would receive $2,500
cash from the Page 3 transaction; and they would have two
years to pay off a new $30,000 loan. In contrast, Lakanu
thought that after he purchased the property, Plaintiffs
would lease the property from him for six months to
establish a payment history, and then they would execute
the contract for deed.

According to Douangthammavngsa, Lakanu had promised to give
her an earnest money check in the amount of $9,765 after
the closing. Lakanu disagrees, asserting that the parties
agreed to apply the money toward the down payment, which
would reduce Plaintiffs’ monthly rental payment. The
purchase agreement itself reflects that Lakanu paid no
earnest money but paid $9,765 in cash as a down payment
toward the purchase price. The settlement statement
reflects that Plaintiffs, as sellers, were due no cash, but
actually owed $189.14. Lakanu paid this amount for
Plaintiffs at the closing, based on his prior
representation that the transaction would not cost them any
money.

Lakanu claims he approached Plaintiffs at the end of the
six-month lease period about executing the contract for
deed. However, Stovall was incarcerated at the time, and
according to Lakanu, Douangthammavngsa could not afford to
purchase the property by herself. Douangthammavngsa recalls
that Lakanu knocked on her door and demanded $10,000 in
cash. Douangthammavngsa did not have that much money at the
time, and further, she believed she was entitled to a
two-year payoff period. In January 2004, Lakanu advised
Plaintiffs that he would list the home for sale, and he
apparently did so in April 2004. According to Lakanu, the
parties continued to operate under the oral month-to-month
lease agreement until September 2004, when
Douangthammavngsa stopped paying rent and Page 4 refused
to let Lakanu on the premises.

Approximately a year after the closing, Plaintiffs brought
a complaint against Lakanu before the Minnesota Association
of Realtors Professional Standards Committee. The hearing
panel determined that Lakanu violated several ethical rules
by involving Douangthammavngsa in a false statement on the
settlement statement, by naming a false consideration on
the statement, and by failing to provide written
disclosures and agreements. The panel also found that
Lakanu did not make any false or misleading statements
about his business practices, commission, or taking an
interest in the property.

In September or October 2005, Plaintiffs wrote a letter to
Lakanu in which they “accepted” his “offer” of $211,350.
(Lakanu Aff. Exs. G, H.) There is no record of a response
by Lakanu. In June 2006, Lakanu drafted a purchase
agreement for a one-year contract for deed in the amount of
$216,000. There is no record of a response by Plaintiffs.

Based on these events, Plaintiffs are suing Lakanu under
the Truth-in-Lending Act (TILA) and Home Ownership and
Equity Protection Act (HOEPA), 15 U.S.C. § 1601 et
seq. and 12 C.F.R. § 226.1 et seq.; and under the
Minnesota Prevention of Consumer Fraud Act (CFA), Minn.
Stat. §§ 325F.68-.70. Plaintiffs are also
bringing claims for civil theft under Minn. Stat. §
609.53, subd. 4; common law fraud; breach of contract;
negligent misrepresentation; promissory estoppel; equitable
estoppel; unjust enrichment; breach of fiduciary duty;
negligence; fraudulent inducement of contract; and slander
of title. Lakanu has counterclaimed, asserting that he is
the owner of the property and seeking declaratory and
monetary relief. Page 5

DISCUSSION

A. Lakanu’s Motion to Dismiss

1. Standard of Review

Lakanu brings his Motion to Dismiss under Federal Rule of
Civil Procedure 12(b)(1), challenging the Court’s subject
matter jurisdiction. A motion to dismiss for lack of
subject matter jurisdiction under Rule 12(b)(1) may
challenge the complaint either on its face or on the
factual truthfulness of its averments. Titus v. Sullivan, 4
F.3d 590, 593 (8th Cir. 1993). Lakanu is challenging the
complaint on its face.

When a defendant challenges the complaint on its face, the
Court reviews the pleadings and affords the plaintiff the
same protections that it would receive on a Rule 12(b)(6)
motion to dismiss. See Osborn v. United States, 918 F.2d
724, 729 n. 6 (8th Cir. 1990). The Court takes the factual
allegations as true and will dismiss the complaint only if
the plaintiff fails to allege an essential element for
subject matter jurisdiction. See Titus, 4 F.3d at 593. When
determining whether to grant a motion to dismiss for
failure to state a claim upon which relief may be granted,
the Court must construe the pleadings in the light most
favorable to the non-moving party and view the facts
alleged in the complaint as true. See Fed.R.Civ.P.
12(b)(6); Hamm v. Groose, 15 F.3d 110, 112 (8th Cir. 1994).
The Court also must draw all reasonable inferences in the
non-moving party’s favor. United States v. Stoltz, 327 F.3d
671, 674 (8th Cir. 2003). Dismissal is warranted only if
relief cannot be afforded under any set of facts that could
be proved consistent with the allegations. Hafley v.
Lohman, 90 F.3d 264, 266 (8th Cir. 1996). Page 6

2. Merits

Lakanu first seeks dismissal of the TILA and HOEPA claim
based on TILA’s one-year statute of limitations. TILA
provides for statutory penalties if a creditor does not
make certain disclosures. 15 U.S.C. § 1640(a). To
prevail on a claim for damages for a TILA violation, a
plaintiff must bring suit within one year from “the date of
the occurrence of the violation.” Id. § 1640(e).
However, if the disclosures are never made, there is a
continuing right to rescind, which is not dependent on the
one-year limitations period imposed on a claim for damages.
Rudisell v. Fifth Third Bank, 622 F.2d 243 (6th Cir. 1980).
The right of rescission “shall expire three years after the
date of consummation of the transaction or upon sale of the
property, whichever occurs first, notwithstanding the fact
that” the required disclosures have not been made. 15
U.S.C. § 1635(f).

The facts in the Complaint occurred in 2003. Plaintiffs
filed this action on November 8, 2005. Thus, if Plaintiffs
were seeking damages under TILA, the claim would be barred.
However, Plaintiffs are seeking rescission under §
1635(f) because Lakanu never provided the required
disclosures. Thus, the TILA and HOEPA claim is not barred.

Lakanu next suggests briefly that Plaintiffs are suing for
both rescission of a contract and for damages under the
contract, which he claims are mutually exclusive remedies.
However, seeking mutually exclusive remedies in a complaint
is not a basis for dismissal. See Fed.R.Civ.P. 8(a)
(permitting plaintiffs to plead in the alternative).
Additionally, this is not a typical contract situation
because TILA, not state contract law, provides for the
remedy of rescission. Page 7

Finally, Lakanu asks the Court not to exercise
supplemental jurisdiction over Plaintiffs’ state law
claims. This argument fails because the Court has not
dismissed Plaintiffs’ federal law claims. Accordingly, the
Court denies Lakanu’s Motion to Dismiss in its entirety.

B. Plaintiffs’ Motion for Partial Summary Judgment

1. Standard of Review

Summary judgment is proper if there are no disputed issues
of material fact and the moving party is entitled to
judgment as a matter of law. Fed.R.Civ.P. 56(c). As the
United States Supreme Court has stated, “[s]ummary judgment
procedure is properly regarded not as a disfavored
procedural shortcut, but rather as an integral part of the
Federal Rules as a whole, which are designed `to secure the
just, speedy, and inexpensive determination of every
action.'” Celotex Corp. v. Catrett, 477 U.S. 317, 327
(1986) (quotation omitted). The Court must view the
evidence and the inferences that may be reasonably drawn
from the evidence in the light most favorable to Lakanu as
the non-moving party. See Enter. Bank v. Magna Bank, 92
F.3d 743, 747 (8th Cir. 1996).

The moving party bears the burden of showing that there is
no genuine issue of material fact and that it is entitled
to judgment as a matter of law. Id. A party opposing a
properly supported motion for summary judgment may not rest
on mere allegations or denials, but must set forth specific
facts in the record showing that there is a genuine issue
for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
256 (1986); Krenik v. Le Sueur, 47 F.3d 953, 957 (8th Cir.
1995). Page 8

2. Merits

Plaintiffs move for summary judgment only on the CFA
claim, advancing two arguments. They first contend that the
record establishes a violation of the CFA as a matter of
law. Plaintiffs also argue that Lakanu is collaterally
estopped from litigating the claim.

The CFA defines an unlawful fraud, misrepresentation, or
deceptive practice as follows:

The act, use, or employment by any person of any fraud,
false pretense, false promise, misrepresentation,
misleading statement or deceptive practice, with the
intent that others rely thereon in connection with the
sale of any merchandise, whether or not any person has in
fact been misled, deceived, or damaged thereby. . . .

Minn. Stat. § 325F.69, subd. 1. Plaintiffs assert
that Lakanu’s deceptive practices consisted of failing to
provide written agreements on the contract for deed
arrangement and the lease, back-dating the document
providing for an increased eleven percent commission,
keeping $9,765 in earnest money, failing to disclose the
total amount of compensation received, failing to provide
documentation of the transaction to his employer, not
providing TILA disclosures, and taking advantage of
Douangthammavngsa’s limited English and lack of
sophistication in real estate matters.

If the Court were to view the facts in the light most
favorable to Plaintiffs, Lakanu’s actions could very well
be considered deceptive or fraudulent. However, the Court
must view the record favorably to Lakanu, and the record is
replete with genuine issues of material fact. Of particular
trouble to Plaintiffs is the lack of evidence indicating
that Lakanu acted with the requisite intent. Lakanu
concedes that he employed some careless business Page 9
practices, but denies he intended for Plaintiffs to rely on
any purported misrepresentations in connection with the
sale of the house.

After examining the parties’ evidence, the Court finds
that Lakanu’s failure to provide written agreements on the
contract for deed arrangement and the lease were not
necessarily fraudulent, especially since Lakanu’s
characterization and understanding of the terms did not
change. Further, there is no evidence that Lakanu failed to
reduce the agreements to writing for the express purpose of
defrauding Plaintiffs. Viewed in the light most favorable
to Lakanu, the record shows that Lakanu was merely careless
in this aspect of his dealings with Plaintiffs. As far as
Lakanu’s back-dating the seller facilitator services
agreement, Douangthammavngsa does not allege she was unaware
of the eleven percent commission rate or that Lakanu
back-dated the document in order to defraud her into
selling her home. Plaintiffs accuse Lakanu of wrongfully
keeping $9,765, but this accusation is rebutted by the
settlement statement, which does not reflect this amount as
owed to the sellers. This contention is also refuted by
Lakanu’s statement that the amount was put toward the down
payment to benefit Plaintiffs by reducing their monthly
rental payment.

Plaintiffs claim that Lakanu failed to disclose the total
amount of compensation he received, but this position is
contradicted by a finding of the Minnesota Association of
Realtors Professional Standards Committee. The hearing
panel found that Lakanu did not falsely represent his
commission or his interest in the property. Further,
Plaintiffs do not explain how Lakanu’s failure to provide
documentation of the transaction to his employer
constituted fraud against Plaintiffs under the CFA or was
an attempt to induce Page 10 Douangthammavngsa to sell her
home.

Regarding Lakanu’s failure to provide TILA disclosures,
this also could be characterized as a careless business
practice, and Plaintiffs have not explained how the
omission was intended to induce Douangthammavngsa to sell.
Finally, Plaintiffs’ assertion that Lakanu attempted to
take advantage of Douangthammavngsa’s limited English and
lack of sophistication in real estate matters is
contradicted by evidence that she has lived in the United
States for twenty years and has engaged in at least one
other real estate transaction.

Because numerous genuine issues of material fact exist on
the CFA claim, the Court cannot grant summary judgment to
Plaintiffs as a matter of law.

Turning to the issue of collateral estoppel, Plaintiffs
argue that the doctrine applies to prevent Lakanu from
opposing their CFA claim. Collateral estoppel bars the
relitigation of issues that were litigated, determined, and
essential to a prior action. Hauser v. Mealer, 263 N.W.2d
803, 806 (Minn. 1978). Collateral estoppel consists of the
following elements: (1) the issues are identical; (2) there
was a final judgment on the merits; (3) the party subject
to estoppel was a party in the prior case; and (4) the
party subject to estoppel had a full and fair opportunity
to be heard on the issue. Aufderhar v. Data Dispatch,
Inc., 452 N.W.2d 648, 650 (Minn. 1990).

Plaintiffs base their collateral estoppel argument on the
results of the hearing panel of the Minnesota Association
of Realtors Professional Standards Committee. The Court
finds Plaintiffs’ argument without merit, however, because
the violations of ethical standards by Lakanu do not equate
to deceptive or fraudulent practices under the CFA.
Lakanu’s Page 11 ethical violations were (1) failing to
protect and promote Douangthammavngsa’s interests and treat
all parties honestly; (2) exaggerating, misrepresenting, or
concealing facts on the settlement statement; and (3)
failing to memorialize certain agreements in writing. These
ethical standards are not identical to the CFA’s definition
of deceptive or fraudulent practices, which requires a
finding that the wrongdoer intended another person to rely
on the misrepresentation or deceptive practice in
connection with a sale.

In concluding that Lakanu did not treat Douangthammavngsa
honestly, the hearing panel noted that Lakanu advised her of
how he was going to report the $9,765 on the settlement
statement, thereby involving her in his misrepresentation.
However, Lakanu’s misrepresentation was made on the
settlement statement, not to Douangthammavngsa. Further,
Lakanu advised her of his course of action, and she
assented to it; she was not deceived by it. Thus, the
administrative proceedings do not conclusively establish
that Lakanu intended for Douangthammavngsa to rely on the
false statement in selling her home. The hearing panel also
sanctioned Lakanu for failing to reduce disclosures and
agreements to writing, but it made no findings that this
conduct was fraudulent or deceptive.

In sum, the issues in this civil action and the ethics
proceedings are not identical. See In re Panel Case No.
17289, 669 N.W.2d 898, 905 (Minn. 2003). There are
fundamental differences between professional ethical
standards and the law. See id. (finding that an imposition
of ethical sanctions did not collaterally estop an attorney
from challenging sanctions under Rule 11). Accordingly,
Plaintiffs’ request for summary judgment based on
collateral estoppel is denied. Page 12

C. Lakanu’s Motion for Summary Judgment

Lakanu filed a Motion for Summary Judgment on October 25,
2006, only seven days before the hearing scheduled on the
first two motions. Notwithstanding the untimeliness of the
Motion, the Court finds the argument made therein without
merit. Lakanu requests summary judgment based on the
alleged bad faith of Plaintiffs’ affidavits under Federal
Rule of Civil Procedure 56(g). However, Rule 56(g) does not
provide for an award of summary judgment as a sanction for
a party’s submission of affidavits made in bad faith; it
provides only that a court may award a party reasonable
expenses in responding to such affidavits or issue a
finding of contempt. See Fed.R.Civ.P. 56(g). Lakanu’s
Motion for Summary Judgment is accordingly denied.

CONCLUSION

Plaintiffs’ TILA and HOEPA claim for rescission is not
barred by TILA’s one-year statute of limitations, and
Plaintiffs are permitted to plead mutually exclusive
remedies. Thus, Lakanu is not entitled to dismissal.
Plaintiffs are not granted summary judgment on their CFA
claim because genuine issues of material fact exist as to
whether Lakanu’s statements and acts were fraudulent or
deceptive, and whether he intended for Douangthammavngsa to
rely on any misrepresentations or fraudulent acts.
Additionally, collateral estoppel does not apply to
establish a CFA violation by Lakanu. Finally, Lakanu is not
entitled to summary judgment under Rule 56(g) because even
if Plaintiffs’ affidavits were made in bad faith, summary
judgment is not an appropriate remedy. Accordingly, IT IS
HEREBY ORDERED that: Page 13

1. Lakanu’s Motion to Dismiss (Docket No. 36) is DENIED;

2. Plaintiffs’ Motion for Partial Summary Judgment
(Docket No. 42) is DENIED;

3. Lakanu’s Amended Motion to Dismiss (Docket No. 44) is
DENIED; and

4. Lakanu’s Motion for Summary Judgment (Docket No. 50)
is DENIED. Page 1