Frappier v. Countrywide Home Loan
Filing
OPINION issued by Michael Boudin, Appellate Judge; Kermit V. Lipez, Appellate Judge and Jeffrey R. Howard, Appellate Judge. Published. [10-2193]
Case: 10-2193
Document: 00116229836
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Date Filed: 07/07/2011
Entry ID: 5563329
United States Court of Appeals
For the First Circuit
No. 10-2193
MARK FRAPPIER,
Plaintiff, Appellant,
v.
COUNTRYWIDE HOME LOANS, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Michael A. Ponsor,
U.S. District Judge]
Before
Boudin, Lipez and Howard,
Circuit Judges.
Valeriano Diviacchi with whom Diviacchi Law Office was on
brief for appellant.
Brook L. Ames with whom James W. McGarry, Mark T. Knights and
Goodwin Procter LLP were on brief for appellee.
July 7, 2011
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BOUDIN, Circuit Judge. In this diversity case, plaintiff
Mark
Frappier
sued
defendant
Countrywide
Home
Loans,
Inc.
("Countrywide"), alleging that Countrywide engaged in prohibited
predatory lending practices with respect to his home mortgage loan
for a property at 26 Matthews Road in Southwick, Massachusetts (the
"home").
The district court granted Countrywide's motion for
summary judgment, and Frappier appeals.
Frappier and his second wife purchased the home in 1999
with an $88,272 mortgage loan.
Over the next six years, he
refinanced the loan four times, each time pulling more equity out
of the property. The further refinancing at issue in this case was
precipitated by Frappier's March 2006 divorce from his third wife,
pursuant to which Frappier was required either to sell the home by
a set deadline or to refinance the then existing $193,000 mortgage
loan to remove his ex-wife's name from the loan.
At first, Frappier tried to sell the home, applying (with
his new girlfriend) for a mortgage loan from Countrywide on another
Southwick property (the "South Longyard Road property"), contingent
upon the sale of the home.
Countrywide loan originator Richard
Mamuszka, who was paid by Countrywide strictly on commission, was
the employee who worked with Frappier and his girlfriend on their
loan application in this transaction and with Frappier in his
subsequent transactions.
Sometimes the couple met with Mamuszka
but usually the dealings were by telephone.
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In this and in the later applications, Frappier provided
information and Mamuszka filled in the application form, this first
one being completed in August 2006.
Frappier says that the couple
were seeking a full-document loan, requiring verification of income
and assets, and that he submitted such documents.
Countrywide
asserts that the application was for a stated income, stated asset
("SISA") mortgage loan, which involves little verification but is
based largely on the borrowers' credit score and asserted income.
Frappier's
completed
South
Longyard
Road
property
application stated, inaccurately, that his employment position was
operations manager at a parish church, that his monthly base
employment income was $5,563, that he received $2,656.25 in monthly
social security income, and that his total monthly income was
therefore $8,219.25.
In fact, Frappier was earning about $1,200
per month as a part-time janitor at the church, and received $2,100
per month in disability retirement income, for a total income of
$3,300 per month.
Frappier states in an affidavit, not inconsistent with
his less precise deposition testimony, that he submitted the
correct income documentation to Mamuszka, including tax returns
showing an employment income of about $1,200 per month in 2005 and
2006, and that he never told Mamuszka to list his occupation as
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operations manager or to inflate his income.1
Entry ID: 5563329
Mamuszka testified
in his deposition that he never inflated a borrower's occupation
title or income so that the borrower could qualify for a loan.
South
Longyard
Road
property
loan
was
approved
but
The
never
effectuated because Frappier was unable to sell his home in the
time required by his divorce agreement.
Because Frappier was unable to sell the home, he was
obligated to refinance his existing mortgage, and in September 2006
he asked Mamuszka about obtaining a refinancing.
On September 19,
Mamuszka took by telephone Frappier's application for what the
parties agree was a SISA mortgage loan.
were the
same
as
before.
The
Frappier's income and job
application
listed
Frappier's
occupation as operations manager and his base employment income as
$5,563 per month; unlike the prior application, it did not list any
social security income.
Again, the parties now dispute who was to
blame for the false statements.
The closing date--the date on which Frappier signed the
mortgage application and the mortgage loan closed--was October 27,
2006.
Although Frappier's testimony is not clear on this point,
his subsequent sworn affidavit asserts that he never received a
copy of his loan application or any other documents before October
1
Elsewhere, Frappier states that Mamuszka did tell him that
Mamuszka would need to change his occupation title to make it sound
better and "would take care of it," but Frappier says that he did
not understand that to mean that Mamuszka would enter a fraudulent
occupation title or income.
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27.
Frappier also testified that at the closing he blindly signed
but
did
not
read
the
loan
application
or
other
papers
that
Countrywide's attorney told him to sign because earlier "Mr.
Mamuszka said he'd take care of it.
He said to sign this; I'll
take care of it, and you'll be all set."
The documents state, of
course, that the signer has read them and that the information set
forth is correct.2
Countrywide then provided Frappier with a loan in the
amount of $189,500, secured by a mortgage on the home, with a fixed
interest rate of 6.875 percent for the first seven years and an
adjustable rate of up to 11.875 percent for the remainder of the
loan.
The loan made Frappier's payments total between $1,500 and
$1,600 per month--similar to the monthly payments on the home that
Frappier and his third wife were making before their divorce.
On November 17, 2006--three weeks after the first home
mortgage loan closed--Mamuszka took by telephone a second home
mortgage application for Frappier, this time in the amount of
$38,500 as an equity loan for the home, Frappier aiming to pay off
credit card debt and various obligations incident to the divorce.
2
Mamuszka testified that he had a standard practice of sending
the mortgage application documents to the customer after he filled
out the forms and well before closing; that he had a standing
practice of telling the customer to review all documents to make
sure that everything was correct before signing them; and that he
did not think that he appeared at any customer's closing, including
Frappier's.
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The second mortgage was a fixed-rate mortgage at 10.375 percent,
which would require additional monthly payments of about $330.
This application once again listed Frappier's occupation
as operations manager but now listed his total monthly income as
$8,883.31--the sum of (1) the false $5,563 base employment income
figure used in both of Frappier's earlier mortgage applications and
(2) $3,320.31 in monthly social security disability income.
Frappier again says he never provided the false information and did
not read the papers before signing them; Countrywide asserts that
Mamuszka obtained everything from Frappier himself.
The second
home mortgage loan closed on December 13, 2006.
In or around February 2008, Frappier began to have
trouble making payments on both mortgage loans, and he defaulted on
the loans later in the year.
Countrywide foreclosed on the home
and in February 2009, sent Frappier a form listing the balance of
principal outstanding for his mortgage as $187,013.78 and the fair
market value of the property as $359,604.28.
In May 2009, Frappier filed suit against Countrywide in
Massachusetts state court, alleging a violation of Mass. Gen. Laws
ch. 93A ("Chapter 93A"), unjust enrichment, a violation of the
implied covenant of good faith and fair dealing, negligence, and
entitlement to equitable relief, namely, rescission of the loan
note and an injunction ordering the removal of the loan from his
credit history.
The complaint's theory was that Countrywide
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fraudulently inflated his occupation title and income so that it
could qualify him for a mortgage loan for which he would not have
otherwise qualified and which Countrywide knew he could not repay.
If not for the mortgage loan, Frappier alleged, he could have sold
the property, paid off his prior mortgage, had more than $50,000
left over from the equity, not suffered a loan default, and not
lost the value of the payments he made to Countrywide through 2008.
Countrywide removed the case to federal court and moved
for summary judgment, which Frappier opposed, cross moving himself.
Thereafter,
the
district
court
granted
Countrywide's
motion,
finding that Frappier had produced no evidence that Countrywide
knew, believed, or intended that Frappier would default. The court
noted that the mortgage required monthly payments similar to the
prior mortgage on the house and that Frappier himself attributed
the default to several unforeseeable factors, such as a change in
job and increased heating costs.
Frappier then appealed.
We review the district court's decision de novo, Tayag v.
Lahey Clinic Hosp., 632 F.3d 788, 791 (1st Cir. 2011), for any
error of law and to determine whether any genuine issue of material
fact barred summary judgment, Hunt v. Golden Rule Ins. Co., 638
F.3d 83, 86 (1st Cir. 2011).
Ordinarily, sworn testimony by the
opposing party may preclude summary judgment, Velazquez-Garcia v.
Horizon Lines of P.R., Inc., 473 F.3d 11, 18 (1st Cir. 2007),
although evidence from the moving party may resolve factual issues
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where no contrary evidence was tendered, Statchen v. Palmer, 623
F.3d 15, 18 (1st Cir. 2010).
Countrywide argues that Frappier himself conceded that he
had supplied Mamuszka with the critical false statement that his
base monthly income was $5,563.
It points to its own assertion to
this effect at the end of paragraph 13 of its statement of
undisputed material facts that Frappier's own counter-statement
failed to deny. But this was patently an oversight: Frappier's own
statement elsewhere asserted that at no time did he "instruct or
request" Mamuszka "to inflate his income" above its true $3,300
monthly figure, and he had denied in his deposition and affidavit
that he gave Mamuszka any false information about his income or
title.
Countrywide cites to us two precedents on failure to deny
a
statement
of
undisputed
facts.
Both,
however,
are
readily
distinguishable;3 and based on a practical rather than a technical
approach to the problem,
City of Waltham v. U.S. Postal Serv., 11
F.3d 235, 243 (1st Cir. 1993) (Breyer, C.J.); see also Swallow v.
Fetzer Vineyard, 46 F. App'x 636, 638-39 (1st Cir. 2002), Frappier
did contradict Mamuszka's version.
3
Indeed, the district court's
In Stonkus v. City of Brockton School Dep't, 322 F.3d 97,
100, 102 (1st Cir. 2003), the plaintiff filed no opposition to the
defendant's motion for summary judgment or statement of undisputed
material facts; in Zimmerman v. Puccio, 613 F.3d 60, 63 (1st Cir.
2010), the district court deemed the plaintiffs' statement of facts
admitted in the absence of proper opposition by the defendants.
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own local rule says statements of undisputed facts will be deemed
admitted "unless controverted by the statement required to be
served by opposing parties."
D. Mass. Local R. 56.1 (emphasis
added).
Thus, whether Frappier deceived Mamuszka or Mamuszka
deliberately falsified the loan application is a question of fact
suitable for trial.
If the latter, Mamuszka would have defrauded
his own employer, not Frappier.
The problem for Countrywide is
that Massachusetts' Supreme Judicial Court ("SJC") has read chapter
93A to hold that making a loan that the lender knows cannot be paid
back may be an "unfair or deceptive act[] or practice[]," Mass.
Gen. Laws ch. 93A, ยง 2(a), giving the borrower a cause of action.
Commonwealth v. Fremont Inv. & Loan, 897 N.E.2d 548 (Mass. 2008).
The holding of Fremont was that Chapter 93A prohibits
"the origination of a home mortgage loan that the lender should
recognize at the outset the borrower is not likely to be able to
repay."
897 N.E.2d at 560.
The district court acknowledged
Fremont but found that Frappier had not produced evidence that
Countrywide knew, should have known, or intended to set him up for
default through the October 2006 home mortgage loan.
The reasons
given, however, do not seem to us to justify summary judgment.
First,
the
district
court
reasoned
that
Countrywide
should not have anticipated Frappier's default because the terms of
the
October
2006
mortgage
were
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comparable
to
the
terms
of
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Frappier's previous mortgage in that they required similar $1,500
to $1,600 monthly payments, at least while the introductory rate
was still in effect (as it was when Frappier defaulted).
Frappier
argues
that
although
the
introductory
rate
But
monthly
payments were similar, his circumstances were visibly different.
The 2005 mortgage issued by the previous lender had two
borrowers--Frappier and his third wife--and Frappier says that both
were income earners contributing to the monthly payments; in
contrast, Frappier was the only borrower for the October 2006
Countrywide loan.
Countrywide argues that Frappier produced no
evidence that his third wife contributed to the monthly payments,
but it is undisputed that she was a co-borrower listed on the
mortgage, and anyway, in most two-income households, income of each
spouse lessens the joint burden.
Second, the district court reasoned that Countrywide
should not have anticipated Frappier's default because, in his
deposition testimony, Frappier attributed the default to several
factors, including the fact that he changed jobs, the high cost of
heating oil, and other incidental expenses.
But this hardly means
that Countrywide should not have recognized at the outset that
Frappier was likely to default.
Frappier's argument is that the mortgage was doomed to
foreclosure from the start because it required him to pay about
three-quarters of his income to cover debts, including about half
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of his income to Countrywide alone; and although he was able to
manage payments for about eighteenth months, even then the balance
of principal outstanding was still over $187,000, and it was
unreasonable from the outset to anticipate that he could repay the
loan.
Countrywide makes additional arguments not relied upon by
the district court as to why it should not have anticipated
Frappier's default.
One is that Frappier told Mamuszka that his
monthly income was $5,563, and, indeed, the loan applications
stated that his monthly base income was $5,563.
But whether
Frappier so represented to Mamuszka is a disputed question of
material
fact;
and
Frappier
also
claims
to
have
signed
the
applications without knowing that they contained false information
inserted
by
Mamuszka--again
something
that
Countrywide
might
dispute at trial.
In many circumstances a signatory may be bound by the
contents of a document he signed even if he has not read it; but
Massachusetts, along with other courts, is often more forgiving at
least where deliberate fraud by the other side confronts mere
negligence by the signer.
E.g., King v. Motor Mart Garage Co., 146
N.E.2d 365, 367 (Mass. 1957).
Indeed, it appears Massachusetts may go even further.
Thus, in Commonwealth v. H&R Block, Inc., 25 Mass. L. Rep. 92, 2008
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Mass. Super. LEXIS 427, at *29 (Mass. Super. Nov. 25, 2008) (Gants,
J.), the court held that under Chapter 93A, a SISA loan
may be an unfair or deceptive act if the
lender used this vehicle to issue loans based
on loan applications that it knew or should
have known were false, and thereby in some
fashion encouraged or tolerated the borrower's
false representations.
See also Silva v. OneWest Bank, FSB, 27 Mass. L. Rep. 61, 2010
Mass. Super. LEXIS 106, at *9 (Mass. Super. May 19, 2010); Fazio v.
Bank of America, NA, 27 Mass. L. Rep. 81, 2010 Mass. Super. LEXIS
108, at *9 (Mass. Super. May 13, 2010).
Countrywide next argues that even if Frappier's monthly
income was only $3,300, he still would have qualified for the loan
and should have been able to repay it because payment would still
be slightly less than half his income.
But Countrywide's own
practices certainly do not control whether the loan was foreseeably
likely to go into default--Countrywide was protected either way by
the value of the house--and Frappier has some evidence based on
Countrywide's own documents that the true $3,300 income figure
would have failed Countrywide's minimum debt-to-income ratio.4
Countrywide argues that the documents are inadmissible on
summary judgment because they have not been authenticated. We need
4
Frappier's monthly mortgage debt obligations on the October
2006 mortgage were close to half of his real income ($1,500 to
$1,600 on his $3,300 income); and, if one included his other nonmortgage debts of which Frappier says Countrywide was aware, his
total debt-to-income ratio would be 73.57 percent.
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not decide this issue because Frappier, who admittedly has the
burden of establishing the elements required by Fremont, has at
least raised triable issues as to both what Countrywide knew and
whether it would have made the loan knowing Frappier's true income.
After all, if Mamuszka did raise Frappier's income level without
the latter's knowledge, it was arguably because he thought it
necessary to secure and justify the loan.
Besides his principal Chapter 93A claim, Frappier brought
a claim for unjust enrichment to recover all paid interest on the
October 2006 mortgage loan. To recover for unjust enrichment under
Massachusetts
knowingly
law,
received
Frappier
a
must
benefit
(2)
show
at
that
his
(1)
expense
Countrywide
(3)
under
circumstances that would make retention of that benefit unjust.
See Mass. Eye & Ear Infirmary v. QLT Phototherapeutics, Inc., 552
F.3d 47, 57 (1st Cir. 2009).
Frappier's theory of injustice is
more or less the same as his chapter 93A theory.
The district court dismissed the claim for the same
reason as the chapter 93A claim: solely on the ground that there
was no evidence in the record to conclude that Countrywide had any
reason to believe that Frappier was at a heightened risk of
default, so Frappier's payment of interest to Countrywide could not
have been unjust.
If there are other reasons to support the
dismissal, Countrywide has not identified them, so this claim too
must be remanded.
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Frappier's third claim was based on yet another theory-the covenant of good faith and fair dealing, FAMM Steel, Inc. v.
Sovereign Bank, 571 F.3d 93, 100 (1st Cir. 2009)--and in part on a
second transaction.
Countrywide, Frappier contends, did not care
whether he was able to repay the October 2006 loan and, in granting
him the December 2006 loan, Countrywide reduced the equity that he
had
in
the
home,
increased
the
sum
of
his
monthly
mortgage
payments, and thus increased his risk of default on the October
2006 loan.
It may be debatable whether the state court glosses on
the covenant concept make it a third vehicle for Frappier's "likely
to default" theory that underpins the first two claims.
See
generally FAMM Steel, 571 F.3d at 100; Shawmut Bank, N.A. v.
Wayman, 606 N.E.2d 925, 928 (Mass. App. Ct. 1993).
In any event,
the district court dismissed the claim on the same ground as the
other two and we must remand it too so far as the claim is directed
to the October 2006 loan.
Countrywide argues in the alternative that the attack on
the
December
loan
is
an
independent
claim
for
a
different
transaction essentially forfeited because Frappier did not mention
the December second home mortgage or any facts pertaining to it in
his complaint.
This is correct and a new transaction cannot be
asserted for the first time at summary judgment.
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However, the
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district court might on remand allow an amendment to the complaint.
Kunelius v. Town of Stow, 588 F.3d 1, 19 (1st Cir. 2009).
Frappier's fourth claim was based on negligence.
Under
Massachusetts law, Frappier would have to show (1) a legal duty of
care owed by Countrywide to him, (2) a breach of that duty, (3)
proximate or legal cause, and (4) actual damage or injury.
v. Galgano, 329 F.3d 236, 241 (1st Cir. 2003).
Primus
In wielding this
theory, Frappier is not clear as to what action he is attacking;
but the most coherent version is that Countrywide should be liable
if it were merely careless in extending a loan he was unlikely to
repay. However, "under Massachusetts law, the relationship between
a lender and a borrower, without more, does not establish a
fiduciary relationship."5
Frappier argues that he worked with Mamuszka for months,
had his personal telephone number, and trusted him because Mamuszka
repeatedly offered to "take care" of his mortgage.
Massachusetts
case law does allow some room for unusual facts in which one side
invites, and the other side reposes, a special trust and reliance.
FAMM Steel, 571 F.3d at 102 (citing Broomfield v. Kosow, 212 N.E.2d
556, 560 (Mass. 1965)). But Frappier cites no case involving facts
5
FAMM Steel, 571 F.3d at 102 (citing Superior Glass Co. v.
First Bristol Cnty. Nat'l Bank, 406 N.E.2d 672, 674 (Mass. 1980)).
See also Clark v. Rowe, 701 N.E.2d 624, 629 (Mass. 1998); Urman v.
South Bos. Sav. Bank, 674 N.E.2d 1078, 1081 (Mass. 1997); Nat'l
Shawmut Bank of Bos. v. Hallett, 78 N.E.2d 624, 628 (Mass. 1948);
cf. FDIC v. Fordham (In re Fordham), 130 B.R. 632, 648 (Bankr. D.
Mass. 1991).
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as mundane as his own, and the examples we have found are far more
extreme. E.g., Patsos v. First Albany Corp., 741 N.E.2d 841 (Mass.
2001); Warsofsky v. Sherman, 93 N.E.2d 612, 614-16 (Mass. 1950).
Frappier's more developed argument is that Fremont should
be read or extended to support a common law negligence claim
against a
bank
that
carelessly
overextends
credit.
But
the
Superior Court author of the Fremont doctrine, now on the SJC
himself, went out of his way to say that "an act may violate
Chapter 93A without constituting a cause of action under any common
law tort," Commonwealth v. Fremont Inv. & Loan, 23 Mass. L. Rep.
567, 2008 Mass. Super. LEXIS 46, at *24 (Mass. Super. Feb. 25,
2008) (Gants, J.).
Chapter 93A usually requires a level of fault
going beyond mere negligence,6
and if common law negligence is to
be expanded in Massachusetts, it should be done by the state
courts.
Finally, Frappier sued for rescission/equitable relief
and asked for an injunction ordering the removal of the October
2006 home mortgage loan from his credit history.
The district
court found that the count did not articulate a cause of action and
that there were no facts in the case that would justify the
6
See Baena v. KPMG LLP, 453 F.3d 1, 3 (1st Cir. 2006); Damon
v. Sun Co., Inc., 87 F.3d 1467, 1484 n.10 (1st Cir. 1996); see also
Darviris v. Petros, 812 N.E.2d 1188, 1192-93 (Mass. 2004); Meyer v.
Wagner, 709 N.E.2d 784, 793 (Mass. 1999); Walsh v. Chestnut Hill
Bank & Trust Co., 607 N.E.2d 737, 740 (Mass. 1993).
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requested injunctive relief.
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On appeal, Frappier has not offered
a contrary argument.
Accordingly, we affirm the district court's decision
insofar as it dismissed (1) the covenant claim relating to the
December loan, (2) the negligence claim in its entirety, and (3)
the rescission/equitable relief claim, but we vacate the dismissal
of the other claims and also the covenant claim so far as it may
relate only to the October 2006 loan, and we remand the case for
proceedings consistent with this opinion. Costs are awarded to the
appellant.
It is so ordered.
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