1Paragraph 26 of the Complaint states this date to be March,

2000.

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF WEST VIRGINIA

CHARLESTON DIVISION

CHESTER BROWN and

MELANIE BROWN,

Plaintiffs,

v. CIVIL ACTION NO. 2:02-0041

MORTGAGESTAR, INC.,

ALLIANCE FUNDING,

SUPERIOR BANK FSB, and

FAIRBANKS CAPITAL CORP.,

Defendants.

MEMORANDUM OPINION AND ORDER

Pending are the motions of Defendant MortgageStar, Inc.

(MortgageStar) for partial dismissal or, alternatively, for partial

summary judgment and Fairbanks Capital Corp. (Fairbanks) to

dismiss. For reasons discussed below, MortgageStar’s motions are

GRANTED in part and DENIED in part; Fairbanks’ motion is DENIED.

I. FACTUAL AND PROCEDURAL BACKGROUND

The facts stated in the Complaint are presumed to be true for

purposes of this motion. Plaintiffs, husband and wife, contacted

an agent of MortgageStar in July, 20001 after they viewed its

television advertisement offering home equity loans.

MortgageStar’s agent met with the Browns at Hardee’s in

Chapmanville, Logan County, West Virginia, and offered a loan at

8.9 percent annual percentage rate (APR). The Browns submitted an

application for the loan to the agent, but no copy was provided to

them, nor were they told MortgageStar and its agent were brokering

the loan for another lender.

The Browns met the agent for closing on December 8, 2000 at

the same location. The lender, Alliance Funding, had prepared and

forwarded to the Plaintiffs all the documents necessary to close

the loan. These documents were backdated to December 7, 2000. At

the December 8 meeting, the Browns disputed the loan APR because it

was higher than the one initially offered. The agent encouraged

them to sign the papers anyway, saying, “Go ahead and sign and

we’ll adjust the rate in six months.” Plaintiffs accepted the

loan, but called the agent the next day to cancel. After the agent

reassured them the APR would be reduced in six months, the Browns

decided not to cancel the loan. Defendants did not pay off the

Browns’ outstanding loans as represented in the closing documents,

but simply kept the money. On November 27, 2001 the Browns gave

cancellation notice, but Defendants did not respond.

MortgageStar moved to dismiss Counts I, II, III, IV, VIII, and

IX of the Amended Complaint for failure to state a claim under Rule

2The Amended Complaint contains no Count VII and two Counts

IX, the first of which alleges Truth in Lending Act (TILA)

violations (IX-A) and the second of which alleges fraudulent

misrepresentation (IX-B). The Amended Complaint also references

“Defendant Lockhart and First Security,” who are not named as

defendants or otherwise identified. (Compl. ¶ 47.)

Count I names only Defendant Alliance Funding, which prepared

the loan documents, and alleges unauthorized practice of law.

Because MortgageStar is not named nor in any way implicated in this

count, its motion to dismiss is DENIED as moot with regard to Count

Plaintiffs also assert Counts VIII and IX-A, pertaining to

TILA, do not refer to MortgageStar. Accordingly, MortgageStar’s

motions to dismiss these counts against it are DENIED as moot.

Count IX-B alleges fraudulent misrepresentation that the

interest rate would be reduced after six months. As the facts are

recounted, this count appears to implicate MortgageStar as the

entity that brokered the loan and allegedly made the

misrepresentations. Also, MortgageStar makes no argument the count

for fraudulent misrepresentation should be dismissed. Accordingly,

any motion to dismiss Count IX-B as against MortgageStar is DENIED.

12(b)(6) or, alternatively, for summary judgment.2 Fairbanks

Capital also moved to dismiss pursuant to Rule 12(b)(6).

II. DISCUSSION

A. Motions to Dismiss

Our Court of Appeals has often stated the settled standard

governing the disposition of a motion to dismiss pursuant to Rule

12(b)(6), Federal Rules of Civil Procedure:

In general, a motion to dismiss for failure to state a

claim should not be granted unless it appears certain

that the plaintiff can prove no set of facts which would

support its claim and would entitle it to relief. In

considering a motion to dismiss, the court should accept

as true all well-pleaded allegations and should view the

complaint in a light most favorable to the plaintiff.

Mylan Laboratories, Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir.

1993) (citations omitted); see also Brooks v. City of Winston-

Salem, 85 F.3d 178, 181 (4th Cir. 1996); Gardner v. E.I. Dupont de

Nemours and Co., 939 F. Supp. 471, 475 (S.D. W.Va. 1996). It is

through this analytical prism the Court evaluates Defendants’

motions.

B. Summary Judgment

Rule 12(b) also provides:

If, on the motion asserting the defense numbered (6) to

dismiss for failure of the pleading to state a claim upon

which relief can be granted, matters outside the pleading

are presented to and not excluded by the court, the

motion shall be treated as one for summary judgment and

disposed of as provided in Rule 56, and all parties shall

be given reasonable opportunity to present all material

made pertinent to such a motion by Rule 56.

Fed. R. Civ. P. 12(b). Under Rule 56(c), summary judgment shall be

rendered if the “pleadings, depositions, answers to

interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment

as a matter of law.” Fed. R. Civ. P. 56(c).

C. MortgageStar

Count II alleges violations of Article 6C of the West Virginia

Consumer Credit and Protection Act, pertaining to Credit Services

Organizations, 46A-6C-1, et seq. A credit services organization

3“Person” includes an organization, W. Va. Code § 46A-1-

102(31), and “organization” includes a corporation. Id. at § 46A-

1-102(29).

includes,

a person[3] who, with respect to the extension of credit

by others and in return for the payment of money or other

valuable consideration, provides, or represents that the

person can or will provide, any of the following

services:

. . .

(2) Obtaining an extension of credit for a buyer; or

(3) Providing advice or assistance to a buyer with

regard to subdivision . . . (2) of this subsection.

W. Va. Code § 46A-6C-2(a). The parties agree that under this

definition MortgageStar was acting as a credit services

organization. The statute continues:

(b) The following are exempt from this article:

(1) A person authorized to make loans or extension of

credit under the law of this state or the United States

who is subject to regulation and supervision by this

state or the United States, or a lender approved by the

United States secretary of housing and urban development

for participation in a mortgage insurance program under

the National Housing Act (12 U.S.C. Section 1701 et

seq.)[.]

W. Va. Code § 46A-6C-2(b).

MortgageStar presents the affidavit of its President, Richard

A. Weiner, which avers MortgageStar was licensed as a mortgage

lender by the State, effective August 7, 2000, and approved by the

U.S. Secretary of Housing and Urban Development (HUD) to act as a

4Plaintiffs moved to file a surreply. That motion is GRANTED

and the Court has considered the attached surreply. In that

document, Plaintiffs argue the Division of Banking “requires

brokers comply with Article 6C, Chapter 46A.” (Pls.’ Surreply at

2.) Plaintiffs provide no authority for this proposition.

The only relevant statute the Court can locate requires

mortgage brokers, as well as lenders and servicers, to register and

comply with all requirements in Article 6C, Chapter 46A, only if

they charge or receive money from a borrower “before completing

performance of all services the licensee has agreed to perform for

the borrower.” W. Va. Code § 31-17-8(k). Where, as in the instant

case, the broker fee is paid at the loan closing, this statute

appears inapplicable.

non-supervised lender beginning September 1, 1999. Thus,

MortgageStar argues, it is exempt from the provisions of Article

6C.

Plaintiffs respond this interpretation would wipe out

application of the broker disclosure law. According to Plaintiffs,

if the Article 6C exemption were interpreted to mean that any

broker engaging in brokering activities, which also happens to have

a lending license in its own name, is exempt from law, the intent

of the law would be undercut. Plaintiffs claim the intent of the

exemption was that lenders, while lending their own money, are

exempt. Plaintiffs provide no authority for this interpretation

and, in fact, the plain language of the law does not support it.4

As quoted above, a credit services organization is a person

who, “with respect to the extension of credit by others and in

return for payment of money or other valuable consideration,

5Some of Plaintiffs’ claims under the Credit Services

Organization Act have commonlaw equivalents. For example,

Plaintiffs’ statutory claim concerning MortgageStar’s alleged

deceptive conduct with regard to the APR has a commonlaw equivalent

in Plaintiffs’ fraudulent misrepresentation count, Count IX-B.

Similarly, Plaintiffs’ fraud allegation, Count VI, subsumes the

statutory claim that MortgageStar charged the buyer solely for

referral to a retail seller of credit, where the credit was

substantially the same as that available to the general public from

other sources. See W. Va. Code § 46A-6C-3((2).

Nevertheless, the Court realizes that many other apparent

protections provided by the Credit Services Organization article,

such as broker disclosure requirements and separate contracts for

provision of broker services including a prominent cancellation

notice, are lost in situations such as those presented by the

instant case. The undersigned, however, is duty bound to interpret

the plain language of the statute.

provides . . . the following services.” W. Va. Code § 46A-6C-

2(a)(emphasis added). By definition, organizations subject to

Article 6C are acting “with regard to the extension of credit by

others,” that is, not lending their own money. Nor does any other

portion of the article alter this interpretation. Accordingly,

because MortgageStar was a HUD-approved lender during the period in

which these events are alleged to have occurred, MortgageStar is

exempt from the requirements of Article 6C, pursuant to W. Va. Code

§ 46A-6C-2(b)(1).5

Because the Court considered materials outside the pleadings,

that is, the affidavit of MortgageStar’s president, the motion is

considered as one for summary judgment, and MortgageStar’s motion

for summary judgment on Count II is GRANTED.

6Fairbanks moved to dismiss as well under Rule 9(b), which

requires fraud be pled with particularity. Because Fairbanks is

not named nor implicated in any of the fraud claims, this motion is

D. Counts III and IV

With regard to Counts III and IV, MortgageStar moves to

dismiss the class claims brought on behalf of a purported class of

all consumers who (a) signed a loan agreement in West Virginia with

the Defendant Alliance Funding in the five years immediately

preceding the filing of the action, (b) where the contracts were

solicited by a mortgage broker without written disclosure of cost

of services and services to be performed, and (c) the agreements

included payment of a mortgage broker fee. The affidavit from

MortgageStar’s President avers MortgageStar brokered only the

Browns’ loan in West Virginia in 2000 and brokered no loans with

Alliance in West Virginia from 1996 through 1999 nor in 2001.

Because no motion for class certification is pending at this

time, the Court declines to consider the issue. MortgageStar’s

motions for dismissal on Counts III and IV are DENIED without

prejudice and may be renewed at the appropriate time.

E. Fairbanks Capital Corp.

Fairbanks moved to dismiss the Complaint against it pursuant

to Rule 12(b)(6), claiming it is only a subsequent servicer of the

loan and could have had no part in the alleged misconduct.6

DENIED as moot.

Plaintiffs counter that, according to the limited information

provided, Fairbanks took assignment of the loan in October, 2001.

Thus far in discovery, Fairbanks has refused to reveal who holds

the loan, that is, who is the assignee, if it is not. Further,

Fairbanks services the loan, has made all collection attempts

against the Plaintiffs, and is the current functional holder of the

loan.

Assignees are liable for statutory damages for TILA violations

only when the violations are proven to be apparent on the face of

the documents assigned. See 15 U.S.C. § 1641(a). The Complaint

lists several alleged discrepancies in principal amount and APR

among the TIL disclosure statement, deed of trust, and note. These

alleged discrepancies, apparent on the face of the documents, are

sufficient to hold the assignee liable for TILA violations.

Fairbanks’ motion is DENIED without prejudice and may be reasserted

once discovery reveals the holder of the loan and, if that holder

is not Fairbanks, any relations, contractual or otherwise, between

it and Fairbanks, which may be relevant to this action.

Fairbanks also moves to dismiss Plaintiffs’ claim for

rescission under Count IX-A because it does not allege Plaintiffs

gave written notice of cancellation, and “cryptically references

more than one transaction.” (Fairbanks’ Reply Mem. at 4.) Under

notice pleading, a plaintiff must provide only “a short and plain

statement of the claim showing that the pleader is entitled to

relief.” Fed. R. Civ. P. 8(a). Additionally, “Each averment of a

pleading shall be simple, concise, and direct. No technical forms

of pleading . . . are required.” Fed. R. Civ. P. 8(e).

The Complaint alleges:

11. (b) The plaintiffs gave cancellation of the

transactions on November 27, 2001. The notice directed

all further communications to Plaintiff’s counsel.

(Compl. ¶ 11(b), (c).) Count IX-A alleges “The Defendant took no

appropriate action in response to the Plaintiffs’ timely

cancellation, in violation of 15 U.S.C. § 1635 and Regulation Z, 12

C.F.R. § 226.23.” These short and plain statements are sufficient

to meet the requirements of Rules 8(a) and (e) and put the

Defendants on notice as to the nature of the claim. As the party

demanding payment from Plaintiffs, whether as holder of the loan or

agent of the holder, i.e., servicer, Fairbanks would be the

appropriate party to respond to and act upon the tendered

rescission notice. Accordingly, Fairbanks’ motion to dismiss Count

IX-A against it is DENIED.

III. CONCLUSION

MortgageStar’s motions to dismiss Counts I, VIII, IX-A, and

IX-B are DENIED. MortgageStar’s motions to dismiss Counts III and

IV are DENIED without prejudice. MortgageStar’s motion for summary

judgment on Count II is GRANTED. Fairbanks’ motions to dismiss are

DENIED without prejudice, except its motion to dismiss Count IX-A

is DENIED. Plaintiffs’ motion to file a surreply is GRANTED.

The Clerk is directed to send a copy of this Order to counsel

of record and publish it on the Court’s website at

http://www.wvsd.uscourts.gov.

ENTER: April 4, 2002

__________________________________

Charles H. Haden II, Chief Judge

For Plaintiffs

Daniel F. Hedges, Esq.

8 Hale Street

Charleston, WV 25301

For Defendant MortgageStar

Kenneth E. Webb, Esq.

BOWLES RICE MCDAVID GRAFF & LOVE

P. O. Box 1386

Charleston, WV 25325-1386

Donald A. Rea, Esq.

Alison E. Goldenberg, Esq.

GORDON, FEINBLATT, ROTHMAN, HOFFBERGER & HOLLANDER

The Garrett Building

233 East Redwood Street

Baltimore, MD 21202

For Defendant Fairbanks

William W. Booker, Esq.

John R. McGhee, Jr., Esq.

KAY, CASTO & CHANEY

P. O. Box 2031

Charleston, WV 25327-2031

David M. Souders, Esq.

Cynthia G. Swann, Esq.

WEINER BRODSKY SIDMAN KIDER

1300 Nineteenth Street, N.W.

Fifth Floor

Washington, DC 20036-1609