                               In the

United States Court of Appeals
                For the Seventh Circuit

No. 07-2400

C HARLES D OSS,
                                                   Plaintiff-Appellant,
                                   v.

C LEARWATER T ITLE C O ., et al.,
                                                             Defendants,
and

F IRST F RANKLIN F INANCIAL C ORP., et al.,

                                                Defendants-Appellees.


              Appeal from the United States District Court
         for the Northern District of Illinois, Eastern Division.
            No. 06 C 6170—Samuel Der-Yeghiayan, Judge.



   A RGUED S EPTEMBER 4, 2008—D ECIDED D ECEMBER 24, 2008




  Before M ANION, W OOD , and T INDER, Circuit Judges.
  W OOD , Circuit Judge. Although this case began as a suit
under the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601
et seq., along with supplemental state theories, it was
nipped in the bud by the district court with a dismissal
for failure to state a claim upon which relief can be
2                                               No. 07-2400

granted. See F ED. R. C IV. P. 12(b)(6). In granting that
motion, however, the district court failed to take the
alleged facts in the light most favorable to the pleader—a
perspective that remains in force even after the Supreme
Court’s decision in Bell Atlantic Corp. v. Twombly, 550 U.S.
544 (2007). Once we sort through a few jurisdictional
issues, it becomes clear that Doss is entitled to proceed
with his lawsuit. We therefore reverse and remand for
further proceedings.


                             I
  On August 27, 2004, Charles Doss refinanced the mort-
gage on his home. He used the services of a company
called The Loan Arranger, which put him in touch
with Franklin Financial Corporation. Franklin agreed to
loan Doss $135,000, on the condition (among other things)
that he obtain title insurance. Doss did so, giving his
business to Clearwater Title Company. Unbeknownst to
Doss, The Loan Arranger and Clearwater were affiliated
with one another; worse, Clearwater was unlicensed. At
the closing of the refinancing transaction Doss was given
a document entitled Itemization of Amount Financed. The
Itemization indicated that Doss was to be charged $500
for the title insurance, but the HUD-1 Settlement State-
ment form reveals that Doss was actually charged $1,470
for that item. On November 13, 2006, Doss filed this
lawsuit in federal court, asserting that TILA had been
violated in various ways in the course of his refinancing
deal, as had the Illinois Consumer Fraud and Deceptive
Business Practices Act, 815 ILCS § 505/1 et seq. The defen-
No. 07-2400                                               3

dants named in the TILA count were Franklin, JPMorgan
Chase Bank N.A., Saxon Mortgage Services, Inc., and a
John Doe; Clearwater, Franklin, and The Loan Arranger
were the defendants named in the Consumer Fraud count.
Chase owned the note and the mortgage, and Saxon was
servicing the mortgage. Chase and Saxon had filed for
foreclosure on March 29, 2006, some six and a half months
before Doss sued. Doss settled with Clearwater and The
Loan Arranger at some point before the motion, and so
they play no part in this appeal.
  The position of appellant Franklin requires some addi-
tional explanation. Early in the proceedings, Doss moved
for default judgment against Franklin; the district court’s
order of February 28, 2007, disposing of that motion
reads in relevant part as follows:
    Plaintiff Charles Doss’ motion for default judgment as
    to defendant First Franklin Financial Corporation is
    granted. Default is hereby entered in favor of the
    plaintiff Charles Doss and against defendant First
    Franklin Financial Corporation.
While it is not entirely clear from this order whether the
court was merely entering a default under F ED. R. C IV . P.
55(a), or a default judgment under Rule 55(b)(2), later
proceedings convince us that it was a default judgment.
Franklin so interpreted it, which is why it filed a motion
seeking to set aside the “default judgment”; the district
court acknowledged that motion in an order dated
March 15, 2007. As far as this record shows that is the
last time the district court focused on Franklin’s part of
the case. This was, therefore, the district court’s final
disposition with respect to Franklin.
4                                               No. 07-2400

   In response to Doss’s complaint, Chase and Saxon jointly
filed a motion under Rule 12(b)(6) to dismiss for failure to
state a claim. That motion introduced a new factual
assertion into the case: it alleged that Doss sold the prop-
erty by a quitclaim deed dated June 27, 2006; the deed
was recorded on June 29, 2006. They attached a copy of
that deed to their motion. Based on this new evidence,
Chase and Saxon argued that Doss no longer had a right
to rescind the transaction. See 15 U.S.C. § 1635(f). Doss
then filed a response, in which he asserted that he had
not sold or otherwise transferred his property, and that
the deed attached to the defendants’ motion was a forg-
ery. Indeed, Doss continued, he had filed a quiet title claim
in the Circuit Court of Cook County and had caused a lis
pendens notice to be recorded with the Cook County
Recorder of Deeds. Doss attached a copy of both his
state court complaint and his lis pendens notice to his
response.
  The district court granted the motion to dismiss in an
order dated April 17, 2007. It decided to take judicial
notice of the deed of sale, offering the following explana-
tion:
      In the instant action, we can take judicial notice of
    the Deed, which is a matter of public record. Although
    Doss claims that the Deed is a forgery he has not
    presented any evidence that shows the Deed has been
    found invalid by the state court. Doss cannot prevent
    a dismissal of this action merely by presenting allega-
    tions of fraud on the part of the Alleged Buyers. At this
    juncture, the Deed is evidence of a valid sale of the
No. 07-2400                                               5

    House. Therefore, based upon the record before us,
    we conclude that Doss no longer has a right to rescis-
    sion and we grant the motion to dismiss.
With the TILA claim gone, the district court exercised its
discretion to dismiss Doss’s supplemental state law
arguments as well. It noted at the end of its order that
the action was dismissed without prejudice. In addition, it
rules that “[a]ll pending dates and motions are hereby
stricken as moot.” The effect of the last sentence was to
deny Franklin’s motion to set aside the default judg-
ment against it.
  Doss filed a timely motion for reconsideration or, in the
alternative, for leave to file an amended complaint. He
argued that the defendants’ allegation that his TILA
rights had expired was an affirmative defense, and thus
not an appropriate subject for a dismissal under Rule
12(b)(6). Moreover, he said, there was an evidentiary
dispute about the status of the supposed conveyance. He
urged the district court to permit him to amend his com-
plaint so that he could assert that the conveyance was
invalid and that no sale of his property had taken place.
Finally, Doss suggested that the district court stay its
proceedings until the state court action was resolved,
pointing out that his right to rescind under TILA was
due to expire on August 27, 2007.
  The district court, in an order dated May 24, 2007, denied
all of Doss’s requests. It held that he was precluded
from taking the position that the defendants were trying
to use an affirmative defense, because he had not said
anything about this in his response to their motion to
6                                               No. 07-2400

dismiss. In any event, the court considered this argu-
ment to be without merit, because, it said, § 1635(f) is not
a statute of limitations, but rather is a condition precedent
to bringing a TILA rescission action. The court thought
that Doss’s request for discovery also came too late, and
it saw no reason to grant the requested stay because it
had no way of predicting what the state court would do.
  Doss filed a notice of appeal on June 14, 2007. While the
case was pending before this court, the state court entered
a judgment on August 23, 2007, in Doss’s favor, finding
that the deed had not been delivered, nor had any owner-
ship interest in the property been conveyed to another
person.


                             II
  In some ways, it is hard to know where to begin, apart
from saying that this litigation took a bad fall off the
rails. We should comment, however, both on the district
court’s jurisdiction and on appellate jurisdiction, before
explaining why that is the case. We first address the
district court’s subject-matter jurisdiction, and then our
own appellate jurisdiction.
  The defendants have argued before this court that the
district court lacked subject-matter jurisdiction over
Doss’s TILA claim because he had sold the property
before he claimed a right to rescission. The statute, they
point out, provides that:
    An obligor’s right of rescission shall expire three
    years after the date of consummation of the trans-
No. 07-2400                                                  7

    action or upon the sale of the property, whichever
    occurs first . . . .
15 U.S.C. § 1635(f). They note as well that the Supreme
Court, in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1997),
characterized § 1635(f) as a statute of repose, holding
there that borrowers had no right to assert a right to
rescind as an affirmative defense in an action to collect
brought by a lender more than three years after the con-
summation of the transaction. Ocwen, 523 U.S. at 419.
  The Ocwen opinion contains not a word about the
subject-matter jurisdiction of the district court. It presents
only an example of a case in which a claim is doomed
to fail on the merits. It is worth repeating what the Su-
preme Court had to say about this in Bell v. Hood, 327
U.S. 678 (1946):
    Jurisdiction, therefore, is not defeated as respondents
    seem to contend, by the possibility that the aver-
    ments might fail to state a cause of action on which
    petitioners could actually recover. For it is well
    settled that the failure to state a proper cause of action
    calls for a judgment on the merits and not for a dis-
    missal for want of jurisdiction. Whether the com-
    plaint states a cause of action on which relief could be
    granted is a question of law and just as issues of fact
    it must be decided after and not before the court has
    assumed jurisdiction over the controversy. If the
    court does later exercise its jurisdiction to deter-
    mine that the allegations in the complaint do not
    state a ground for relief, then dismissal of the case
    would be on the merits, not for want of jurisdiction. . . .
8                                                No. 07-2400

    The previously carved out exceptions are that a
    suit may sometimes be dismissed for want of juris-
    diction where the alleged claim under the Constitu-
    tion or federal statutes clearly appears to be immate-
    rial and made solely for the purpose of obtaining
    jurisdiction or where such a claim is wholly insub-
    stantial and frivolous.
Id. at 682-83. The Court has steadfastly followed this rule
in the years since Bell. See, e.g., Oneida Indian Nation of
New York State v. County of Oneida, New York, 414 U.S. 661,
666-67 (1974); Steel Co. v. Citizens for a Better Environment,
523 U.S. 83, 89 (1998); Arbaugh v. Y&H Corp., 546 U.S. 500,
513-16 (2006).
  We acknowledge that some of our sister circuits have
characterized § 1635(f) as “jurisdictional,” without any
discussion of these Supreme Court cases. See Miguel v.
Country Funding Corp., 309 F.3d 1161, 1164 (9th Cir. 2002);
see also Hayes v. General Motors Corp., 94 F.3d 644, *4 (6th
Cir. 1996) (unpublished) (citing Tennessee law). Hayes,
however, is nonprecedential, and nothing seems to have
turned on the label in Miguel, since the bank (which was
the party seeking to take advantage of the three-
year period of repose) does not seem to have slept on its
rights.
  In our view, there is nothing jurisdictional about
§ 1635(f)’s period of repose. Just like the 15-employee
requirement in Title VII discussed in Arbaugh, supra, it
is merely a precondition to a substantive right to relief.
Interesting though the point is, however, this is not a
disagreement that we need to push in this case. The
No. 07-2400                                                  9

issue here is not whether the alleged sale of Doss’s prop-
erty acts as a jurisdictional bar to his lawsuit. It is instead
whether there was a sale at all. Even the defendants
concede that both the district court and this court have
jurisdiction to determine that question. That is why
the defendants urged the district court to focus on the
timeliness of Doss’s response, rather than its jurisdiction.
  We therefore move on to the question of appellate
jurisdiction. As we noted earlier, the district court’s order
dismissing Doss’s case was “without prejudice.” Normally,
“a dismissal without prejudice is not a final order for
purposes of appellate jurisdiction under 28 U.S.C.
§ 1291.”Kaba v. Stepp, 458 F.3d 678, 680 (7th Cir. 2006).
We have gone so far as to say that dismissals without
prejudice are “canonically non-final.” Id., quoting Glaus v.
Anderson, 408 F.3d 382, 385 (7th Cir. 2005), in turn quoting
Am. States Ins. Co. v. Capital Assoc. of Jackson County, 392
F.3d 939, 940 (7th Cir. 2004). Doss’s case, however, falls
within the recognized exceptions to that canonical non-
finality: first, reading the district court’s orders as a
whole, we have no doubt that the district court was
finished with this case once and for all; and second, any
new action that Doss might try to bring would be barred
by the three-year statute of repose by this time. We thus
conclude that we have appellate jurisdiction notwith-
standing the language in the district court’s order.


                              III
  Assured of our jurisdiction, we are now ready to turn to
the merits. We review the district court’s dismissal for
10                                                No. 07-2400

failure to state a claim de novo, accepting as true all of the
factual allegations contained in the complaint. Segal v.
Geisha NYC LLC, 517 F.3d 501, 504 (7th Cir. 2008). “We may
affirm the dismissal only if the complaint fails to set forth
‘enough facts to state a claim to relief that is plausible on
its face.’ ” Id. (quoting St. John’s United Church of Christ v.
City of Chicago, 502 F.3d 616, 625 (7th Cir. 2007), which
quoted Twombly, supra, 550 U.S. at __, 127 S.Ct. at 1974. The
Supreme Court’s decision in Erickson v. Pardus, 127 S.Ct.
1955, 2197 (2007), put to rest any concern that Twombly
signaled an end to notice pleading in the federal courts.
And nothing in Twombly or Erickson changed the rules
under which a party making a motion under F ED. R. C IV.
P. 12 is entitled to rely on new evidence, documentary
or otherwise.
  The district court’s principal mistake was in thinking
that it was entitled to rely on the deed of sale attached to
the defendants’ Rule 12(b)(6) motion, in the course of
adjudicating that motion. Whether or not the deed was
the kind of document for which judicial notice was
proper—a point to which we turn in a moment—there is
no doubt that it was a “matter outside the pleadings,”
within the meaning of Rule 12(d). That rule says that if
“matters outside the pleadings are presented to and not
excluded by the court, the motion [under Rule 12(b)(6) or
Rule 12(c)] must be treated as one for summary judg-
ment under Rule 56. All parties must be given a reason-
able opportunity to present all the material that is
pertinent to the motion.” If the district court had followed
the instructions in Rule 12(d), then Doss would have had
an opportunity both to present and to support his asser-
No. 07-2400                                                11

tion that the deed was not what it appeared to be. The
district court would have seen that there were issues of
material fact that had to be resolved, and the case
would have continued before the district court.
  Although there exists a narrow exception to the Rule
12(d) instructions that permits a district court to take
judicial notice of matters of public record without convert-
ing a Rule 12(b)(6) motion into a motion for summary
judgment, the district court erred in thinking that the
deed was a proper subject for judicial notice. See General
Electric Capital Corporation v. Lease Resolution Corporation,
128 F.3d 1074, 1080-81 (1997). Statements in documents
affecting an interest in property do fall within an excep-
tion to the hearsay rule, see F ED. R. E VID. 803(15), but we
do not see how, when the defendants proposed the deed
for judicial notice, the court could have found that it was
“not subject to reasonable dispute” within the meaning
of FED. R. E VID. 201(b) once Doss filed his response.
Judicial notice “merits the traditional caution it is given,
and courts should strictly adhere to the criteria by the
Federal Rules of Evidence before taking judicial notice
of pertinent facts.” General Electric Capital Corporation, 128
F.3d at 1081. It takes more than an exception to the
hearsay rule, in other words, to justify judicial notice.
  We could go on, but this is enough to show that the
judgment of the district court dismissing Doss’s TILA
claims must be reversed. The situation with respect to
Franklin is more complex. The district court was
mistaken to think that Franklin’s motion to set aside the
default judgment against it was moot. Rightly or wrongly,
12                                                No. 07-2400

however, the case ended with the default judgment
against Franklin still in place. Franklin did not file a cross-
appeal from that ruling, and so we are powerless to change
it here. See Greenlaw v. United States, 128 S.Ct. 2559, 2564
(2008). (We express no opinion about any power the
district court might have on remand to set aside the
decision against Franklin.) The supplemental state
theories under the Consumer Fraud Act must also be
reinstated, since they were dismissed only because the
predicate federal claim was no longer before the court.
We have no need to address the defendants’ complaints
about Doss’s effort to bring the later Illinois proceedings
to our attention, as they have played no part in our dis-
position of the case.
  The judgment of the district court is R EVERSED and the
case is R EMANDED for further proceedings consistent
with this opinion. Circuit Rule 36 shall apply on remand.




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