United States District Court, S.D. Texas, Houston Division
GROUP ONE DEVELOPMENT, INC; GERARDO DIAZ-BLANCO; and GERARDO DIAZ, Plaintiffs,
BANK OF LAKE MILLS and FORA FINANCIAL, LLC, Defendants.
MEMORANDUM OPINION AND ORDER
LAKE UNITED STATES DISTRICT JUDGE.
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.
Factual and Procedural Background
September of 2016 plaintiffs Group One Development, Inc.
("Group One"), Gerardo Diaz-Blanco, and Gerardo
Diaz obtained a loan from BLM. 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." 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.
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. Plaintiffs allege that the terms of the
loan result in "an annual interest rate of more than
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.
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.
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).
Texas Lending and Usury Claims
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. Instead of
responding to Defendants' argument, Plaintiffs argue that
venue is proper in Texas. Based on the plain language of the
Agreement the court concludes that it is governed by
Wisconsin law and, as applicable, federal law governing
institutions insured by the Federal Deposit Insurance
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 §
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. 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. 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.