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Group One Development, Inc. v. Bank of Lake Mills

United States District Court, S.D. Texas, Houston Division

July 7, 2017

GROUP ONE DEVELOPMENT, INC; GERARDO DIAZ-BLANCO; and GERARDO DIAZ, Plaintiffs,
v.
BANK OF LAKE MILLS and FORA FINANCIAL, LLC, Defendants.

          MEMORANDUM OPINION AND ORDER

          SIM LAKE UNITED STATES DISTRICT JUDGE.

         Pending before the court are Fora Financial, LLC's ("Fora") Motion to Dismiss (Docket Entry No. 7) and Defendant Bank of Lake Mill's ("BLM") Motion to Dismiss (Docket Entry No. 8). For the reasons stated below, the motions will be granted.

         I. Factual and Procedural Background

         In September of 2016 plaintiffs Group One Development, Inc. ("Group One"), Gerardo Diaz-Blanco, and Gerardo Diaz obtained a loan from BLM.[1] During the loan process Plaintiffs dealt exclusively with Fora, and Fora eventually serviced the loan. Plaintiffs allege that Jonathan Gafni, a Fora representative, induced them to go forward with the loan by assuring them that the loan was "uncollateralized" and "unsecured" and that Fora had "no right to any of [Plaintiffs'] personal belongings."[2] Plaintiffs relied on Gafni's statements even though the Business Loan and Security Agreement ("the Agreement") containing the terms of the loan states that borrowers grant a security interest in "Collateral" as defined in the Agreement.

         Group One eventually obtained a loan of $159, 4 00.00. The loan was guaranteed by Diaz-Blanco and Diaz. The Agreement contains a Payment Schedule that calls for 214 payments of $897.09 to be made each "Business Day" followed by a final payment of $896.74, for a total repayment of $192, 874.00. That amount would include interest in the amount of $33, 474.00, or approximately twenty-one percent of the principal.[3] Plaintiffs allege that the terms of the loan result in "an annual interest rate of more than 35.00%."[4]

         Plaintiffs allege that Defendants have violated Texas lending and usury laws and that Gafni fraudulently induced Plaintiffs to enter into the Agreement. Plaintiffs also allege that Defendants violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692, et seq., the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961, et seq., and Texas's Credit Service Organization Act ("CSOA"), Tex. Fin. Code, Chapter 393. Plaintiffs seek damages and injunctive relief. Defendants move for dismissal under Federal Rule of Civil Procedure 12(b)(6) on the basis of Plaintiffs' failure to state a claim upon which relief can be granted.[5]

         II. Legal Standard

         In a motion to dismiss under Rule 12 (b) (6), the court must "'accep[t] all well-pleaded facts as true and vie [w] those facts in the light most favorable to the plaintiff.'" Bowlby v. City of Aberdeen, Mississippi, 681 F.3d 215, 219 (5th Cir. 2012) (citation omitted). Legal conclusions, however, "are not entitled to the assumption of truth." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009). "[A] plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1964-65 (2007) (internal quotation marks omitted). "Factual allegations must be enough to raise a right to relief above the speculative level[.]" Id. at 1965.

         Dismissal under Rule 12(b)(6) is appropriate when a plaintiff's legal theory is incorrect: "When a complaint raises an arguable question of law which the district court ultimately finds is correctly resolved against the plaintiff, dismissal on Rule 12(b) (6) grounds is appropriate . . . ." Neitzke v. Williams, 109 S.Ct. 1827, 1833 (1989). " [W] hen the allegations in a complaint, however true, could not raise a claim of entitlement to relief, this basic deficiency should ... be exposed at the point of minimum expenditure of time and money by the parties and the court." Twombly, 127 S.Ct. at 1966 (citation and internal quotation marks omitted).

         Ill. Analysis

         A. Texas Lending and Usury Claims

         Plaintiffs allege that Defendants charged an interest rate in excess of the rate permitted by the Texas Finance Code. Defendants argue that the Agreement clearly states that it will be governed by applicable federal law and, to the extent not preempted by federal law, by Wisconsin law.[6] Instead of responding to Defendants' argument, Plaintiffs argue that venue is proper in Texas.[7] Based on the plain language of the Agreement[8] the court concludes that it is governed by Wisconsin law and, as applicable, federal law governing institutions insured by the Federal Deposit Insurance Corporation.

         The viability of Plaintiffs' usury claims therefore depends on whether the interest rate is usurious under Wisconsin law. The relevant statute, which sets out maximum interest rates allowed under various circumstances, states that it "shall not apply to loans to corporations or limited liability companies." Wis.Stat. § 138.05(5). The statute also states that it "does not apply to any loan or forbearance in the amount of $150, 000 or more made after May 26, 1978 unless secured by an encumbrance on a one- to four-family dwelling which the borrower uses as his or her principal place of residence." Id. at § 138.05(7).

         Fora argues that the loan was made to a corporation, Group One, and therefore is not subject to a maximum interest rate under Wisconsin law. Diaz-Bianco and Diaz argue that they, too, are borrowers and that the loan therefore does not fall under the § 138.05(5) exception.[9] Plaintiffs cite the fact that in several places they signed individually as "borrowers." The court finds Fora's Reply persuasive: (1) elsewhere in the Agreement Group One alone is identified as the borrower; (2) the loan proceeds were paid to Group One, not to the individual plaintiffs; and (3) the individual plaintiffs also signed the Agreement as guarantors, a step that would be redundant if they were already responsible for repayment as borrowers.[10] Moreover, even if the individual plaintiffs were borrowers, they offer no argument for why the exception in § 138.05(7) does not apply based on the loan amount of more than $150, 000. The court therefore concludes that Plaintiffs' lending and usury claims fail as a matter of law.

         B. ...


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