Godwin Chungag, et al v. Wells Fargo Bank, N.A.

Filing

Per Curiam OPINION filed : The district court's judgment is AFFIRMED, decision not for publication pursuant to local rule 206. Damon J. Keith, Circuit Judge; Raymond M. Kethledge, Circuit Judge and Bernice Bouie Donald, Circuit Judge.

Case: 11-1353

Document: 006111340925

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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 12a0643n.06
FILED

No. 11-1353

Jun 19, 2012
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
GODWIN CHUNGAG; IRENE S. CHUNGAG,
Plaintiffs-Appellants,
v.
WELLS FARGO BANK, N.A., d/b/a WELLS
FARGO HOME MORTGAGE,
Defendant-Appellee.

Before:

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LEONARD GREEN, Clerk

ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE EASTERN
DISTRICT OF MICHIGAN

KEITH, KETHLEDGE, DONALD, Circuit Judges.

PER CURIAM. This case arises out of a mortgage dispute. Plaintiffs-Appellants, the
Chungags, entered into a mortgage agreement in 1998 in connection with their purchase of a
$250,000 house in Detroit. To buy the house, they made a $50,000 down payment and executed a
$200,000 promissory note, secured by a 30-year mortgage on the house, that required monthly
payments of $1,264.14, due on the first of every month. From 2006 to 2009, the Chungags made
multiple payments in amounts well above their required monthly mortgage payment, and Wells
Fargo used the excess money to reduce the amount of outstanding principal in the mortgage. The
Chungags stopped making payments in January 2010, and when Wells Fargo foreclosed on the house
based on the Chungags’ perceived default, the Chungags sued to prevent the sheriff’s sale of their
house. The district court held that the Chungags had defaulted on the mortgage and dismissed their
claims accordingly. For the following reasons, we AFFIRM.

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I. BACKGROUND
On October 30, 1998, Godwin and Irene Chungag executed a mortgage for a house located
at 525 Lodge Drive in Detroit, Michigan to secure a $200,000 note executed on the same day. The
house was priced at $250,000, and the Chungags had made a $50,000 down payment before
executing the mortgage. The 30-year mortgage provided for regular monthly payments, “with the
full debt, if not paid earlier, due and payable on November 1, 2028.”
Under the terms of the agreement, the Chungags were required to make monthly payments
of $1,264.14 until the note matured on November 1, 2028. Between 2006 and 2009, the Chungags
paid double the amount of their monthly payments each month, and they also made a large payment
of $54,214.48 on July 7, 2007. Wells Fargo applied the excess amounts above the required monthly
payment to the principal balance on the mortgage note. The Chungags stopped making monthly
payments in early 2010, by which point they had built up substantial equity in the house. As of
January 21, 2010, the outstanding principal balance on the mortgage loan was $89,188.41.
After the Chungags stopped making monthly mortgage payments, Wells Fargo declared them
in default. On or around November 8, 2010, the Chungags received a Notice of Foreclosure Sale of
their house, with the sheriff’s sale scheduled for November 17, 2010. The Chungags filed this action
in state court on November 15, 2010. Their complaint: (1) sought a stay of the sheriff’s sale based
on a request to quiet title because they did not believe they were in default; (2) alleged violations of
the Michigan Consumer Protection Act; (3) alleged defamation; (4) alleged intentional infliction of
emotional distress (“IIED”); (5) sought exemplary damages; and (6) alleged violations of the Fair

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Debt Collection Practices Act. The case subsequently was removed to federal court based on
diversity jurisdiction.
Once in federal court, on December 1, 2010, Wells Fargo moved to dismiss the complaint
for failure to state a claim, attaching the mortgage agreement to support their motion. The district
court heard oral argument on the motion on February 16, 2011, and entered an order granting the
motion and dismissing the complaint on February 17, 2011. The Chungags timely appealed. The
Chungags have not appealed the district court’s dismissal of their defamation, Michigan Consumer
Protection Act, and Fair Debt Collection Practices Act claims; they only appeal the dismissal of their
claim based on quiet title, their IIED claim, and their claim for exemplary damages. We therefore
limit our review to those claims.
II. DISCUSSION
A.

Standard of Review
We review de novo the grant of a motion to dismiss brought under Federal Rule of Civil

Procedure 12(b)(6). Pulte Homes, Inc. v. Laborers’ Int’l Union of N. Am., 648 F.3d 295, 301 (6th
Cir. 2011). Under Rule 12(b)(6), we must assume the plaintiffs’ factual allegations are true and,
construing the complaint in the light most favorable to the non-moving party, determine whether the
complaint states a valid claim for relief. Paige v. Coyner, 614 F.3d 273, 277 (6th Cir. 2010); Bower
v. Fed. Express Corp., 96 F.3d 200, 203 (6th Cir. 1996). To defeat a 12(b)(6) motion, the
complaint’s “factual allegations must be enough to raise a right to relief above the speculative level
on the assumption that all of the allegations in the complaint are true.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007) (internal citations omitted).

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B.

Claim to Prevent Foreclosure
In their complaint, the Chungags sought to prevent Wells Fargo from foreclosing on their

house by seeking a declaration stating that they had not defaulted on the loan based on their multiple
prior payments in amounts greater than the required monthly payment, and that there would be no
default until the “outstanding principal balance on the loan is higher than the amount due under the
amortization schedule of the loan.” They styled this claim as a request to quiet title. There is no
dispute that the Chungags were the fee owners of the property and that they signed a mortgage to
secure repayment of the promissory note taken to purchase the house, so title is not the issue here.
The only issue is whether the Chungags’ failure to make monthly payments on the due dates for a
period of time constitutes a default, which hinges on the language of the contract.
“In diversity cases, this court applies state law in accordance with the controlling decisions
of the Michigan Supreme Court.” Prestige Cas. Co. v. Mich. Mut. Ins. Co., 99 F.3d 1340, 1348 (6th
Cir.1996) (citations omitted). We have described our approach to contract interpretation under
Michigan law as follows:
In Michigan, the proper interpretation of a contract is a question of law. . . . The goal
of contract construction is to determine and enforce the parties’ intent on the basis
of the plain language of the contract itself. Michigan courts examine contractual
language and give the words their plain and ordinary meanings. If the language of
the contract is unambiguous, the court construes and enforces the contract as
written. . . . Only when contract language is ambiguous does its meaning become a
question of fact.
A contract is ambiguous if its words may reasonably be understood in different ways.
In other words, a contract is ambiguous when its provisions are capable of conflicting
interpretations. Courts cannot simply ignore portions of a contract in order to avoid
a finding of ambiguity or in order to declare ambiguity. Instead, contracts must be

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construed so as to give effect to every word or phrase as far as practicable. However,
courts may not impose an ambiguity on clear contract language.
Certified Restoration Dry Cleaning Network, LLC v. Tenke Corp., 511 F.3d 535, 543-44 (6th Cir.
2007) (internal citations, emphasis, and brackets omitted).
The district court held that the plain language of the contract clearly states that a failure to
make payments of $1,264.14 on the first day of each month constitutes a default, and that, having
failed to do that, the Chungags were in default. The district court specifically highlighted several
requirements from the mortgage contract that it believed clearly established that the Chungags had
defaulted:
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The borrower “will pay principal and interest by making payments every month.”

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The borrower “will make my monthly payments on the 1st day of each month
beginning on DECEMBER 1, 1998.”

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The borrower “will make these payments every month until I have paid all of the
principal and interest and any other charges described below that I may owe under
this Note. My monthly payments will be applied to interest before principal.”

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The “monthly payment will be in the amount of U.S. $1,264.14.

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The borrower has “the right to make payments of principal at any time before they
are due. A payment of principal only is known as a ‘prepayment.’”

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When the borrower makes a prepayment, the borrower “will tell the Note Holder in
writing that I am doing so.”

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The borrower “may make a full prepayment or partial prepayments without paying
any prepayment charge. The Note Holder will use all of [the borrower’s]
prepayments to reduce the amount of principal that [the borrower] owe[s] under this
Note.

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If [the borrower] makes “a partial prepayment, there will be no changes in the due
date or in the amount of [the borrower’s] monthly payments unless the Note Holder
agrees in writing to those changes.”

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If [the borrower] do[es] not pay the full amount of each monthly payment on the date
it is due, [the borrower] will be in default.”

Reading these terms, the district court held that “[w]hether Plaintiffs’ excess payments in 2006
through 2009 are considered ‘prepayments’ of principal does nothing to obviate the undisputed fact
that Plaintiffs have not paid their monthly mortgage payments by their due date and are in default.”
“There is no contractual language that supports Plaintiffs’ claim” that their excess payments should
have been treated as “advance payments” instead of prepayments of principal. To the contrary, the
district court observed, other provisions of the contract explicitly state that applying insurance or
condemnation proceeds to reduce the principal balance “shall not extend or postpone the due date
of the monthly payments” owed under the contract. With respect to prepayments, the contract also
states, “If [the borrower] makes a partial prepayment, there will be no changes in the due date or in
the amount of my monthly payment unless the Note Holder agrees in writing to those changes.”
The Chungags argue that this interpretation is “ludicrous and contrary to common sense,” and
is “an extraordinary and illogical proposition devoid of any support in logic or fact” because it would
cause numerous people to default on their mortgage simply by making a late payment. They also
argue that Wells Fargo had a “duty” to treat the excess payments as “advance payments” that
“advanced the due date” to a date that “must be based on the amortization schedule.” Finally, the
Chungags argue that because the contract requires the borrower to state in writing that a certain
payment is to be treated as a prepayment of principal, a failure to make such a statement in writing

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requires an excess payment to be treated as an advance payment. Wells Fargo responds that “[t]here
is nothing in the note—or in the mortgage—that requires, or even allows, Wells Fargo to treat excess
payments made by plaintiffs as advance payments in the fashion plaintiffs now contemplate after the
fact.” Wells Fargo is correct.
The provisions highlighted by the district court, together with other provisions of the
agreement, establish that the mortgage and note did not create a duty for Wells Fargo to treat the
excess payments as advance payments. The Chungags offer no authority or contractual language that
suggests that such a duty exists. To be sure, the contract requires the borrower to state in writing that
he intends an excess payment to be treated as a prepayment of principal, and there is no evidence the
Chungags made any such statement. Indeed, they deny making any such written statement. But the
contract does not speak to what should happen when the borrower makes an excess payment without
an accompanying written statement, and there is nothing in the contract that prohibits Wells Fargo
from treating excess payments as prepayments, which is the most natural and logical course of
action. Meanwhile, the contract unambiguously states that the borrower must make monthly
payments of $1,264.14 on the first of the month to avoid default, and that the due dates of monthly
payments will not change based on partial prepayments or other required payments. There is no
dispute that the Chungags failed to make their monthly payments for a number of months.
Accordingly, they are in default, and the district court properly dismissed their claim seeking to
prevent the sheriff’s sale of the house.

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C.

Claim for Intentional Infliction of Emotional Distress
The Chungags’ complaint also raised a state law tort claim for intentional infliction of

emotional distress. In Michigan, a plaintiff alleging IIED must allege (1) extreme and outrageous
conduct, (2) intent or recklessness, (3) causation, and (4) severe emotional distress. See Dalley v.
Dykema Gossett PLLC, 788 N.W.2d 679, 694 (Mich. Ct. App. 2010). The defendant’s conduct must
be “so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of
decency, and to be regarded as atrocious and utterly intolerable in a civilized community.” Walsh
v. Taylor, 689 N.W.2d 506, 517 (Mich. Ct. App. 2004) (quotations and citations omitted). In
Michigan, this standard is not satisfied when the plaintiff essentially claims that the defendant
“breached contracts with him in various ways and foreclosed on his property.” Usery v. Option One
Mortgage Corp., 2007 WL 2192657, *16 (Mich. Ct. App. July 31, 2007). “In a contractual setting,
a tort claim must be based instead on the breach of a duty distinct from the contract.” Hayley v.
Allstate Ins. Co., 686 N.W.2d 273, 277 (Mich. Ct. App. 2004) (citation omitted). The district court
dismissed this claim, holding that “[p]laintiffs allege no facts that suggest any extreme or outrageous
conduct” by Wells Fargo or “that would impose a duty on [Wells Fargo] that is distinct from its
contractual obligations.”
On appeal, the Chungags argue first that there has not been enough discovery “to determine
the nature and scope of the emotional distress Plaintiffs have suffered.” But the extent of the distress
does not matter unless the conduct itself was actionable under IIED. To that end, they allege that
Wells Fargo “intentionally reported false information on their credit, falsely claimed that Plaintiffs
are in default and that [their] house would be sold and plaintiffs evicted,” and that Wells Fargo

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continued to “put daily notes” on the house, “take pictures of the house,” and “continues to send [its]
agents to the house to tell Plaintiffs’ family that they should not be in the house.” They offer no
cases suggesting that this amounts to IIED. In response, Wells Fargo points out that the threshold
for IIED is extremely high and that a defendant typically is not liable under IIED “where he has done
no more than to insist upon his legal rights in a permissible way, even though he is well aware that
such insistence is certain to cause emotional distress.” Roberts v. Auto-Owners Ins. Co., 374 N.W.2d
905, 909 (Mich. 1985). Wells Fargo is correct.
Although the facts of this case are unfortunate, the facts alleged in the complaint do not rise
to the level of extreme, outrageous conduct on the part of Wells Fargo that, if proven true, would be
actionable in tort in Michigan. See Farah v. Bank of America, N.A., 2011 WL 2507881, *4 (Mich.
Ct. App. June 23, 2011). The facts establish that Wells Fargo rightly believed that the Chungags
were in default on their mortgage and initiated foreclosure proceedings thereafter. To be sure, it
appears that Wells Fargo could have handled the matter more delicately, but the fact remains that
the bank was within its rights to pursue foreclosure on the house. If the Chungags had not defaulted,
it is possible that Wells Fargo’s attempts to collect payments not actually owed to them through
“[c]ontinuous unnecessary harassment” might be actionable. See Margita v. Diamond Mortgage
Corp., 406 N.W.2d 268, 271-73 (Mich. Ct. App. 1987). But that is not what happened here: Wells
Fargo had a right to foreclose on the property and, in any event, the factual allegations do not evince
a pattern of continuous unnecessary harassment that could be deemed sufficiently outrageous.
Accordingly, the Chungags have failed to state a claim for IIED, see Roberts, 374 N.W.2d at 909,
and the district court properly dismissed this claim.

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D.

Claim for Exemplary Damages
The Chungags also raised a claim for exemplary damages. The district court dismissed this

claim, holding that Michigan law does not recognize a separate claim for exemplary damages. It
observed that exemplary damages are only available as a form of compensation for an injury. The
Chungags argue that Michigan courts have allowed a plaintiff to amend a complaint to add a claim
for exemplary damages, citing Sherrard v. Stevens, 440 N.W.2d 2 (Mich. Ct. App. 1988). Wells
Fargo argues that there is no separate action for exemplary damages in Michigan law. Wells Fargo
is correct.
The district court correctly held that under Michigan law, exemplary damages are a form of
damages, and do not constitute a separate cause of action. Kozma v. Chelsea Lumber Co., 2010 WL
2836327, *8 (Mich. Ct. App. July 20, 2010) (“[T]his Court notes that exemplary damages are a form
of compensation for an injury and that they do not qualify as a cause of action.”) Indeed, Sherrard,
the case cited by the Chungags, supports this conclusion. 440 N.W.2d at 5 (“[T]he amendment
[allowing a prayer for exemplary damages] did not raise new factual allegations, but merely claimed
new types of damages arising from the same set of factual allegations.”). Because there is no distinct
claim for exemplary damages, this claim was properly dismissed.
III. CONCLUSION
For the foregoing reasons, the district court’s judgment is AFFIRMED.