BONTE v. U.S. BANK (October 19, 2010)

Travis and Jolene Bonte own a home in the small village of Woodville in west-central Wisconsin. In late 2005, they took out a third mortgage on the home. A few years later, the Bontes brought an action for rescission. They alleged that there were ten discrepancies between the HUD-1 settlement statement and the Truth in Lending Act (TILA) statement and disclosures. U.S. Bank, the mortgage holder, moved to dismiss for failure to state a claim. It argued that none of the errors alleged related to a “material” disclosure as required for TILA rescission. In response, the Bontes simply restated their allegations and the applicable legal standard. Judge Crocker (W.D. Wis.) dismissed the complaint, holding that the Bontes waived their opposition to the motion by failing to respond but also concluding that U.S. Bank was correct. The Bontes appeal.

In their opinion, Judges Posner, Rovner, and Sykes affirmed. The Court agreed with U.S. Bank’s statement of the applicable law – that rescission (at least after three days) requires proof of a “material” non-disclosure. Regulation Z identifies eighteen required disclosures and names five of them as material: the APR, the finance charge, the amount financed, the total of payments, and the payment schedule. The Court noted that the Bontes alleged that the ten errors related to the APR, the finance charge, and the amount financed. But U.S. Bank went through each of the errors and showed how they did not related to any material disclosure. The Bank provided citations and reasons why each did not qualify as a material disclosure. The Court noted that the Bontes failed to respond to any of the Bank’s arguments. Just as they did in the district court, they merely restated their conclusory allegation that the errors related to material disclosures. Iqbal requires a two-step approach. The Bontes meet the first step – a “short and plain statement” of their claim. But they failed, said the Court, to satisfy the second prong – demonstrating a plausible entitlement to relief. Just because they couched their allegation of materiality as a factual allegation, a court is not required to accept it as true. It is, in fact, a legal conclusion – not a factual allegation. By failing to respond to the Bank’s arguments, they have waived any argument that the errors related to material disclosures.