John Moretti, et al v. Bank of New York Mellon, et al

Filing

OPINION filed: AFFIRMED, decision not for publication. We AFFIRM the district court's grant of summary judgment in favor of Defendants. We also DENY the Morettis' request for attorney's fees and costs. Damon J. Keith, Circuit Judge; Deborah L. Cook, Circuit Judge; and Bernice Bouie Donald, (AUTHORING), Circuit Judge.

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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 15a0198n.06
Case No. 13-2187
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

FILED
JOHN MORETTI and LAURA MORETTI,
Plaintiffs-Appellants,
v.
BANK OF NEW YORK MELLON, FKA
BANK OF NEW YORK, AS TRUSTEE FOR
THE BENEFIT OF
CERTIFICATEHOLDERS CWMBS, INC.
CHL MORTGAGE PASS THROUGH
TRUST SERIES 2005-2, MORTGAGE PASS
THROUGH CERTIFICATES, 2005-2; BANK
OF AMERICA, N.A., SUCCESSOR BY
MERGER TO BAC HOME LOANS
SERVICING, L.P.,

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Mar 11, 2015
DEBORAH S. HUNT, Clerk

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

Defendants-Appellees.
BEFORE: KEITH, COOK, and DONALD, Circuit Judges.
BERNICE BOUIE DONALD, Circuit Judge. Plaintiffs-Appellants John and Laura
Moretti appeal a district court decision dismissing their contract claims against DefendantsAppellees Bank of New York Mellon, et al. regarding a mortgage loan on residential property in
Michigan. Plaintiffs claim that, prior to any default of their own, Defendants had repudiated the
loan modification agreement between the parties by demanding more than twice the agreed-upon
monthly payment. Defendants argue that they did not repudiate the contract and that Plaintiffs
defaulted on their loan. After completion of discovery, an extension for further development of

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the record, and two hearings on the matter, the district court granted Defendants’ motion for
summary judgment. For the reasons that follow, we AFFIRM.
I. BACKGROUND
Plaintiffs-Appellants John and Laura Moretti (the “Morettis”) purchased the residential
property at issue in Alden, Michigan, in November 2003. On January 14, 2005, John Moretti
executed an adjustable rate promissory note in favor of Countrywide Home Loans, Inc., d/b/a/
America’s Wholesale Lender (“Countrywide”) for $520,000.00. (R.29-2, PageID #249-52.) To
secure the note, the Morettis executed a mortgage on the property in favor of Countrywide the
same day. (R.29-3, PageID #254-65.) They also executed an adjustable rate rider and second
home rider to supplement the mortgage with Countrywide. (R.29-4, PageID #267-75.)
The Morettis had difficulty making the mortgage payments on the property. On March
18, 2009, Countrywide and John Moretti entered into a Loan Modification Agreement, which
stated in relevant part:
1. As of the 1st day of April, 2009, the amount payable under the
Note or Security Instrument (the “Unpaid Principal Balance”) is
U.S. $536,186.98, consisting of the amount(s) loaned to the
Borrower by the Lender which may include, but not limited to, any
past due principal payments, interest, fees and/or costs capitalized
to date.
2. The Borrower promises to pay the Unpaid Principal Balance,
plus interest, to the order of the Lender. Interest will be charged
on the Unpaid Principal Balance from the 1st day of April, 2009.
The Borrower promises to make monthly payments in the amount
of U.S. $1,340.47 beginning on the 1st day of May, 2009. The
monthly payment will adjust in accordance with the Note, and
any other loan document that is affixed to or incorporated into
the Note and Rider and provides for, implements or relates to any
change or adjustment in the monthly payment amount under the
Note. If on the 1st day of February, 2035 (the “Maturity Date”),
the borrower still owes amounts under the Note and Security
Instrument, as amended by this Agreement, the Borrower will pay
these amounts in full on the Maturity Date.

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(R.29-5, PageID #277 (emphasis added).)
On April 6, 2009, Countrywide paid $29,963.76 to the county treasurer for delinquent
taxes on the property.

(R.64-5, PageID #1222-23.) This created an escrow deficiency of

$29,963.76 on the Morettis’ loan account. (R.64-5, PageID #1223.) Countrywide notified the
Morettis of the payment and deficiency in a letter dated April 6, 2009. (R.64-5, PageID #1224.)
The letter explained that Countrywide had paid the taxes to protect its interest in the property and
that, under the terms of their mortgage, the Morettis were required to reimburse Countrywide for
the amount. (R.64-5, PageID #1224; see also R.29-3, PageID #256 (“Borrower shall pay to
Lender on the day Periodic Payments are due under the Note, until the Note is paid in full, a sum
(the “Funds”) to provide for payment of amounts due for . . . taxes and assessments and other
items which can attain priority over this Security Instrument as a lien or encumbrance on the
Property[.]”).) The letter also stated that Countrywide would “increase [the Morettis’] monthly
mortgage payment to fund the escrow account at a level sufficient to pay [their] property taxes
on the next tax due date” and that their “next monthly statement [would] reflect [their] new
payment amount.” (R.64-5, PageID #1224.)
The Morettis timely made the first required payment of $1,340.47 for May 2009 under
the Loan Modification Agreement. (R.55-1, PageID #628, 642; R.59-2, PageID #861.) This
payment was applied toward the loan. (R.55-1, PageID #628, 642.)
Countrywide then sent the Morettis a document dated May 1, 2009, that set out payment
options under the modified loan: “Option 1 Amortized Payment (principal and interest) – based
on your remaining term[,]” which the document indicated would be $2,487.64, due May 1, 2009,
and “Option 2 15-Year Amortized Payment (principal and interest)[,]” which the document
indicated would be $4,836.10, due May 1, 2009. (R.37, PageID #548.) On May 6, 2009,

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Countrywide sent the Morettis a follow-up letter. (R.55-1, PageID #644-46.) The letter began
with the heading, “Significant Payment Increase Alert,” and continued, “[t]his is a message to
alert you that based on monthly payment options you have selected and potential future interest
rate changes, the monthly Minimum Payment on your mortgage will increase significantly.”
(R.55-1, PageID #644.) However, the bottom of the first page stated, “[p]lease note this is not a
notice of payment increase, but simply a forecast of what your new payment may be in the future
if your payment habits remain the same.” (R.55-1, PageID #644.) The next page contained the
following text and chart:
POSSIBLE PAYMENT INCREASE (FOR INFORMATIONAL PURPOSES ONLY)
Current
Principal
Balance

$536,185.98

Current Principal
Balance as a
Percentage of
Original Loan
Amount
103.11%

Estimated
Principal
Balance at
Recalculation

Current
Interest
Rate

Estimated
Remaining
Term at
Recalculation

Estimated
New Monthly
Minimum
Payment

598,000.00

3.000%

320

$2,717.08

Current
Minimum
Payment

$1,340.47

Increase From
Current
Minimum
Payment
$1,376.61

(R.55-1, PageID #645.) During this time, the Morettis’ mortgage passed from Countrywide to
BAC Home Loans Servicing LP, which then merged into Defendant Bank of America, N.A.
(“BANA”). (Appellee Br. 6, n.1.)
After the Morettis’ initial May 2009 payment, John Moretti states that he submitted two
further payments of $1,340.47 (the June and July 2009 payments), but that neither check was
cashed. (R.55-2, PageID #696-97.) BANA’s records indicate that the Morettis remitted only a
second payment of $1,340.47 on or about July 2, 2009, which was posted to the loan as their
June 2009 payment. (R.55-1, PageID #628, 642.) Confused about the May 2009 mailings from
Countrywide, John Moretti called the company to clarify. He states he was repeatedly told that
someone would “look into it,” but that no one ever called him back. (R.55-2, PageID #671-72;
674; 676.)

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On July 2, 2009, BANA sent a letter to the Morettis stating that the loan payment for July
2009 had not been received and that the total due on the loan was $5,764.26. (R.30-1, PageID
#281.) After litigation began, BANA explained that this amount included the scheduled July
2009 payment of $1,340.47, a $4,318.20 escrow payment, and a $105.59 late fee, but this
itemization was not part of the July 2, 2009, letter to the Morettis. (R.30-1, PageID #281; see
also R.73, PageID #1241-42.) John Moretti states that his calls—now to BANA instead of
Countrywide—continued unreturned. (R.55-2, PageID #676 (“[T]he theme was that they would
look into it and get back to me to see what ha[d] happened.”).)
The Morettis submitted no further payment after July 2009. (R.55-2, PageID #694-95.)
On March 31, 2010, BANA sent the Morettis a letter stating that the bank had not received the
requisite past-due payments and that the property was subject to foreclosure. (R.30-2, PageID
#283.) On April 5, 2010, the mortgage was assigned to Defendant Bank of New York Mellon
(“BNYM”). (R.30-4, PageID #288.) John Moretti filed for Chapter 7 bankruptcy on April 21,
2010.

(R.31-3, PageID #297-301.)

On July 22, 2010, BNYM began foreclosure-by-

advertisement proceedings on the property, (R.30-5, PageID #290), and a foreclosure sale was
ultimately scheduled for January 20, 2012, (R.31-2, PageID #295). The sale has been suspended
pending conclusion of the present litigation.
The Morettis filed a complaint against BANA, BNYM, and others associated with the
mortgage in state court on May 6, 2011. (R.1-2, PageID #9-22.) Defendants removed the claim
to federal court, (R.1-3, PageID #25-26), and the Morettis filed an amended complaint shortly
thereafter on fourteen counts including breach of contract, fraud, and wrongful foreclosure,
(R.16, PageID #136-55). After discovery, Defendants moved for judgment on the pleadings and
for summary judgment. The district court held a hearing on August 1, 2012, and finding the

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record insufficient, re-opened discovery and asked the parties to investigate further. (R.43,
PageID #581; R.56, PageID #838.) After further development of the record, supplemental
briefings from both sides, and a second hearing on August 8, 2013, the district court granted
summary judgment to Defendants on all claims and dismissed the Morettis’ case. (R.66, PageID
#122; R.67, PageID #1228; R.73, PageID #1264-65.) The Morettis appeal.
II. ANALYSIS
The Morettis argue that the district court erred in granting summary judgment because
they presented a genuine issue of material fact for trial on their contract claims against
Defendants.1 We review de novo a district court’s grant of summary judgment. Vander Boegh
v. Energy Solutions, Inc., 772 F.3d 1056, 1059 (6th Cir. 2014). “Summary judgment is properly
granted when, viewing the evidence in the light most favorable to the nonmoving party, there is
no genuine issue as to any material fact and the moving party is entitled to judgment as a matter
of law.” Freeze v. City of Decherd, Tenn., 753 F.3d 661, 664 (6th Cir. 2014). “[F]actual
allegations must be enough to raise a right to relief above the speculative level and to state a
claim to relief that is plausible on its face.” Keys v. Humana, Inc., 684 F.3d 605, 608 (6th Cir.
2012) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 554, 555, 570 (2007)) (internal quotation
marks omitted).
The Morettis raise arguments in favor of remand under multiple theories of contract law.
Their first claim is that, under the principle of contra proferentem, any ambiguity in the contract
drafted by Defendants—i.e., the Loan Modification Agreement—must be interpreted in favor of
the Morettis. See, e.g., Klapp v. United Ins. Grp. Agency, Inc., 663 N.W.2d 447, 453-55 (Mich.
2003). Under Michigan law, they argue, “if a contract is ambiguous, as the loan modification

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On appeal, the Morettis have abandoned their claims related to the foreclosure process in light of intervening
decisions issued by the Michigan Supreme Court. (Appellant Br. 1; Appellant Reply Br. 4.)

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documents are in the present case, then the meaning of the contract is a question of fact and the
fact finder must examine extrinsic evidence to ascertain the intents of the parties.” (Appellant
Br. 20.) But by their own admission, the Morettis did not find the Loan Modification Agreement
ambiguous: they understood the terms of the contract, agreed to it, and began performance
thereunder. (Appellant Br. 8 (“It is clear that Appellants knew the [r]amifications of the loan
modification agreement and stood ready and able to make the agreed upon monthly payment of
$1,340.47.”).) They acknowledge this issue in part by clarifying that it is the combination of the
contract with Defendants’ subsequent communications to the Morettis that “create[d] an
ambiguity that must be resolved in favor of Appellants.” (Appellant Br. 18-19.) But they offer
no argument or authority under which we might interpret the communications as part of the
contract itself, and Michigan’s application of contra proferentem requires that the language of the
contract itself be ambiguous. Only with that ambiguity established does the fact finder proceed
to contemplate “such extrinsic evidence as the parties’ conduct, the statements of its
representatives, and past practice to aid in interpretation.” Klapp, 663 N.W.2d at 454 (quoting
Penzien v. Dielectric Prods. Eng’g Co., Inc., 132 N.W.2d 130, 132 (Mich. 1965)) (internal
quotation marks omitted). Accordingly, the Morettis present no genuine issue of fact on this
claim.
Nor do the Morettis present evidence that they are entitled to proceed to trial under the
“first breach rule” in contract. It is true that, in Michigan, “one who first breaches a contract
cannot maintain an action against the other contracting party for his subsequent breach or failure
to perform.” Frost v. Wells Fargo Bank, N.A., 901 F. Supp. 2d 999, 1008 (W.D. Mich. 2012)
(quoting Flamm v. Scherer, 198 N.W.2d 702, 706 (Mich. Ct. App. 1972)). It is also true that
questions regarding the parties’ credibility are primarily for a jury. See, e.g., Bd. of Cnty Rd.

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Comm’rs of Kalamazoo Cnty v. Bera, 129 N.W.2d 427, 429 (Mich. 1964). But the Morettis do
not develop this argument beyond merely quoting legal principle, and it is unclear what issue of
credibility or intent they seek to have decided by a jury under this theory. To the extent the
Morettis seek to argue that Defendants’ communications in May and July 2009 signify a breach
of the Loan Modification Agreement, the claim is too underdeveloped to create a genuine dispute
for trial.
The core of the Morettis’ case is their claim that Defendants’ communications in May
and July 2009 “unilaterally altered” the Loan Modification Agreement to demand increased
payment.

(Appellant Br. 22.)

Per the claim, this constituted a repudiation of the Loan

Modification Agreement between the parties, effectively relieving the Morettis of any obligation
to continue payment and entitling them to recovery.
However, as discussed at length by the district court, repudiation of a contract requires
more than confusion or misunderstanding. To repudiate a contract, a party must “unequivocally
declare[] the intent not to perform[.]” Appalachian Railcar Servs., Inc. v. Boatright Enters., Inc.,
602 F. Supp. 2d 829, 879 (W.D. Mich. 2008) (quoting Skladanowski v. Clear Channel Radio,
No. 261004, 2006 WL 3682184, at *1 n.2 (Mich. Ct. App. Dec. 14, 2006)). The Morettis have
put forward no evidence, written or otherwise, wherein Defendants declare an intent not to
perform their responsibilities under the Loan Modification Agreement. At best, the Morettis can
point to areas of confusion. While Defendants’ letters and statements in May and July 2009
were far from models of clarity, viewed in light of the requirements set out in the note, mortgage,
and loan modification, these communications were consistent with the Morettis’ contract. (R.73,
PageID #1261-62 (wherein the district court explains that “the written documents from May, I
think by the plaintiff’s own admission, don’t repudiate the agreement, don’t pull back the $1,300

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payment, but rather do what actually some of the other loan documents require. . . . [B]ecause
it’s a variable rate, there is something in the note that obligates the lender to present amortization
scenarios so that the borrower knows what he or she is getting into if they scroll ahead and don’t
increase payments.”).)
The verbal communication between John Moretti and Defendants similarly fails to
provide sufficient basis for repudiation. The district court discussed this evidence as follows:
[W]hen I read the statements from Mr. Moretti, I think he’s being
honest in saying he was very confused, that he called the bank and
he was clearly very frustrated, didn’t feel like he was getting
anywhere, but the common refrain—and it happens in multiple
places—the common refrain is, you know, “We’ll look into it and
get back to you.” . . . But just hearing that, “Okay, so you’re
confused, and I’ll look into it,” that doesn’t repudiate anything.
(R.73, PageID #1262.) We agree. Absent any evidence of an unambiguous repudiation of the
Loan Modification Agreement by Defendants, the Morettis have not established a genuine issue
of material fact to be tried before a jury on this theory.
Finally, the Morettis claim that they are entitled to reformation of the Loan Modification
Agreement on the basis of innocent misrepresentation.

To establish an innocent

misrepresentation, a party must show “(1) a representation in a transaction between two parties;
(2) that is false; (3) that actually deceives the other party; (4) that the other party relied on; (5)
that the other party suffered damage from; and (6) [that] the party making the misrepresentation
benefitted from it.” In re Moiles, 840 N.W.2d 790, 797 (Mich. Ct. App. 2013), judgment rev’d
in part, vacated in part on other grounds, 843 N.W.2d 220 (Mich. 2014).

Despite their

subjective confusion regarding the communications with Defendants, the Morettis have not
presented evidence that Defendants made any false representation regarding the Loan

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Modification Agreement.

Accordingly, this claim also fails to present a genuine issue of

material fact for consideration by a jury.
III. CONCLUSION
For the reasons stated above, we AFFIRM the district court’s grant of summary judgment
in favor of Defendants. We also deny the Morettis’ request for attorney’s fees and costs.

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