Mukarugwiza v. JPMorgan Chase Bank NA et al

Filing 35

ORDER that Defendant MetLife Home Loans, LLC's Motion to Dismiss Pursuant to Rule 12(b)(6) (Doc. 24 ) is denied. FURTHER ORDERED that Plaintiff file by 07/10/15, a second amended complaint that corrects the Verified Amended Complaint's allegedly erroneous allegation regarding the date by which Save Our Home participants must have taken out a mortgage. See order for details. Signed by Judge Neil V. Wake on 6/30/15. (NKS)

1

WO

2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE DISTRICT OF ARIZONA

8
9

Zawadi Mukarugwiza,
Plaintiff,

10
11

ORDER

v.

12

No. CV-15-00079-PHX-NVW

JPMorgan Chase Bank NA, et al.,

13

Defendants.

14
Before the court is Defendant MetLife Home Loans, LLC’s (“MetLife”) Motion to

15
16

Dismiss Pursuant to Rule 12(b)(6) (Doc. 24). The Motion will be denied.

17
18

I.

BACKGROUND

19

In 2009 Plaintiff Zawadi Mukarugwiza took out a home loan from MetLife and

20

executed a deed of trust that named MetLife as beneficiary. (Doc. 20 at 2.) She began

21

making full and timely monthly payments but soon fell into financial hardship after

22

losing one of her two jobs. (Id.) To replace the lost income, Mukarugwiza turned to the

23

Arizona Department of Housing (“Department”), which administers a program called

24

Save Our Home Arizona (“Save Our Home”), funded by the U.S. Treasury Department’s

25

Hardest Hit Fund. (Id.) Save Our Home assists struggling borrowers by covering

26

incoming arrearage, making a portion of monthly loan payments, and contributing to

27

principal reduction upon borrowers’ “graduation” from the program. (Id. at 4.) In return

28

for a guaranteed stream of payments, participating lenders must agree to “foreclosure

1

abeyance” provisions that prohibit foreclosure of approved borrowers’ homes. (Id.) The

2

Hardest Hit Fund Agreement (“HHF Agreement”) between the Department and MetLife,

3

for instance, contains the following language: “Upon notification that a borrower has

4

been conditionally approved for HHF, [MetLife] shall not initiate the foreclosure process

5

or, if the borrower is already in the foreclosure process, conduct a foreclosure sale for 45

6

days, with any extensions by mutual consent of [the Department] and [MetLife].” (Doc.

7

20-2 at 2.)

8

The Department determined that Mukarugwiza met Save Our Home’s qualifying

9

criteria and conditionally approved her application on April 10, 2012. (Doc. 20 at 3.)

10

Two weeks later, on April 23, 2012, the Department notified MetLife that it had issued

11

final approval for Mukarugwiza.

12

executed a second deed of trust on her home in favor of the Department and had it

13

recorded on May 15, 2012. (See id. at 3-4.) Mukarugwiza and Save Our Home jointly

14

made timely payments to MetLife following her enrollment in the program. (Id. at 4.)

(Id.)

As required by the program, Mukarugwiza

15

Despite receipt of these payments, and despite the foreclosure abeyance provision

16

in MetLife’s HHF Agreement, MetLife recorded a substitution of trustee on May 21,

17

2012, authorizing Quality Loan Service to sell the home at auction. (Id. at 5.) MetLife

18

also noticed a trustee’s sale of Mukarugwiza’s home for August 29, 2012, although no

19

auction occurred on that date. (Id.) Sometime in 2013, MetLife sold Mukarugwiza’s

20

loan and associated servicing rights to JP Morgan Chase Bank (“JP Morgan”), which sold

21

the home to IH2 Property at an August 29, 2013 trustee’s sale. (Id. at 6.) As a result of

22

the foreclosure, the Department terminated Mukarugwiza’s participation in Save Our

23

Home. (Id. at 6-7.) “Termination meant that house payment assistance ceased . . . and

24

Save Our Home cancelled the disbursement of $34,654 to her lender on her behalf, which

25

would have cured all arrearage on the loan and brought it current.” (Id. at 7.) In addition,

26

Mukarugwiza was unable to obtain a loan modification, and she was “disqualified . . .

27

from the Save Our Home loan principal reduction feature, which in her case would have

28

-2-

1

reduced the balance of her loan by $80,000.” (Id.) IH2 Property subsequently obtained a

2

court order directing Mukarugwiza to surrender her home within five days. (Id.)

3

Mukarugwiza filed suit in this court on January 16, 2015. (Doc. 1.) Her Verified

4

Amended Complaint, submitted on April 13, 2015, seeks damages and declaratory relief

5

on two counts of breach of contract, one count of wrongful foreclosure, and one count of

6

negligent performance of an undertaking. Mukarugwiza does not seek rescission of the

7

sale to IH2 Property. (Doc. 20 at 7.) The pending Motion urges dismissal of the Verified

8

Amended Complaint for failure to state a claim upon which relief can be granted, as

9

provided by Federal Rule of Civil Procedure 12(b)(6).

10
11

II.

LEGAL STANDARD

12

When considering a motion to dismiss, a court evaluates the legal sufficiency of

13

the plaintiff’s pleadings. Dismissal under Rule 12(b)(6) of the Federal Rules of Civil

14

Procedure can be based on “the lack of a cognizable legal theory” or “the absence of

15

sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police

16

Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). To avoid dismissal, a complaint need include

17

“only enough facts to state a claim for relief that is plausible on its face.” Bell Atlantic

18

Corp. v. Twombly, 550 U.S. 544, 570 (2007).

19

On a motion to dismiss under Rule 12(b)(6), all allegations of material fact are

20

assumed to be true and construed in the light most favorable to the non-moving party.

21

Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). However, the principle that a

22

court accepts as true all of the allegations in a complaint does not apply to legal

23

conclusions or conclusory factual allegations. Ashcroft v. Iqbal, 566 U.S. 662, 678

24

(2009). Further, “[t]hreadbare recitals of the elements of a cause of action, supported by

25

mere conclusory statements, do not suffice.” Id. “A claim has facial plausibility when

26

the plaintiff pleads factual content that allows the court to draw the reasonable inference

27

that the defendant is liable for the misconduct alleged.” Id. “The plausibility standard is

28

not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a

-3-

1

defendant has acted unlawfully.” Id. To show that the plaintiff is entitled to relief, the

2

complaint must permit the court to infer more than the mere possibility of misconduct.

3

Id. If the plaintiff’s pleadings fall short of this standard, dismissal is appropriate.

4
5

III.

ANALYSIS

6

A.

7

MetLife argues the court must dismiss Mukarugwiza’s first two causes of action,

8

which allege breach of the HHF Agreement between the Department and MetLife,

9

because she lacks “standing” to press those claims. (Doc. 24 at 7.) Where a plaintiff was

10

not a party to a contract, her ability to sue for breach turns on whether she is an intended

11

beneficiary, or merely an incidental beneficiary, of that contract. The parties agree that to

12

“prove intended beneficiary status, ‘the third party must show that the contract reflects

13

the express or implied intention of the parties to the contract to benefit the third party.’”

14

GECCMC 2005-C1 Plummer St. Office Ltd. P’ship v. JP Morgan Chase Bank, N.A., 671

15

F.3d 1027, 1033 (9th Cir. 2012). “The contract need not name a beneficiary specifically

16

or individually in the contract; instead, it can specify a ‘class clearly intended by the

17

parties to benefit from the contract.’” Id. But establishing “third-party beneficiary status

18

in the context of a government contract is a comparatively difficult task”:

19
20
21
22
23
24
25
26

Breach of contract

Parties that benefit from a government contract are generally
assumed to be incidental beneficiaries, rather than intended beneficiaries,
and so may not enforce the contract absent a clear intent to the contrary.
This ‘clear intent’ hurdle is a high one. It is not satisfied by a
contract’s recitation of interested constituencies, vague, hortatory
pronouncements, statements of purpose, explicit reference to a third party,
or even a showing that the contract operates to the third parties’ benefit and
was entered into with them in mind. Rather, we examine the precise
language of the contract for a clear intent to rebut the presumption that the
third parties are merely incidental beneficiaries.
Id. at 1033-34 (brackets, citations, and most internal quotation marks omitted).

27

Here, the language of the HHF Agreement is relatively sparse. It certainly does

28

not state expressly that borrowers such as Mukarugwiza are intended beneficiaries. But

-4-

1

parties who contract to forbid foreclosure of enrolled borrowers’ homes could hardly be

2

indifferent to those borrowers’ fates. As Mukarugwiza notes, at least one court in this

3

District has previously found that materially identical language in an HHF agreement

4

“clearly expresses an intent to benefit those borrowers for whom the lender receives

5

notification of conditional approval for HHF.” Martinez v. Cenlar FSB, No. CV-13-

6

00589-TUC-CKJ, 2014 WL 4354875, at *5 (D. Ariz. Sept. 3, 2014). MetLife has not

7

cited to any authority that reaches a different conclusion on similar facts. In the absence

8

of contrary authority, the court concludes that Mukarugwiza “is within the class of

9

persons that is an intended beneficiary of the [HHF] Agreement.” Id. The motion to

10

dismiss the first and second causes of action will be denied.1

11

B.

12

Mukarugwiza’s third cause of action is styled as one for wrongful foreclosure.

13

According to the Verified Amended Complaint, MetLife “had a legal duty to Ms.

14

Mukarugwiza not to foreclose, or initiate foreclosure once and while she met certain

15

Program conditions” and “had a statutory duty under the Arizona Deeds of Trust Act not

16

to foreclose unless the loan account was in default.” (Doc. 20 at 11.) Mukarugwiza

17

alleges she was not in default during her enrollment in Save Our Home, and MetLife

18

therefore “breached its duty to Ms. Mukarugwiza by initiating the foreclosure process by

19

substituting a trustee and noticing the sale.” (Id. at 11-12.)

Wrongful foreclosure

20

MetLife argues this cause of action is deficient in three ways. First, on MetLife’s

21

view, “[a]ny duty to not foreclose here would have to arise from the HHF Agreement,”

22
23
24
25
26
27
28

1

The Verified Amended Complaint alleges that to qualify for Save Our Home, an
applicant must “have a mortgage created on or before January 1, 2009.” (Doc. 20 at 3.)
But Mukarugwiza alleges that she purchased her home sometime “in 2009.” (Id. at 2.)
MetLife therefore contends Mukarugwiza cannot be an intended third-party beneficiary
of the HHF Agreement because she did not meet Save Our Home’s qualifying criteria.
(Doc. 24 at 9.) In her Response, Mukarugwiza claims the Verified Amended
Complaint’s allegation regarding pre-2009 loans was an “error,” and that in fact no such
requirement exists. (Doc. 31 at 7.) The court assumes for purposes of the pending
Motion that Mukarugwiza’s statement is accurate, and Mukarugwiza will be granted ten
days in which to file a second amended complaint that corrects only this discrepancy.
Accordingly, dismissal on the theory that Mukarugwiza “pleaded herself out of her
claims” is not appropriate. (Doc. 32 at 6.)
-5-

1

under which Mukarugwiza has no enforceable rights. (Doc. 24 at 9.) As explained

2

above, however, the court finds Mukarugwiza is an intended third-party beneficiary of

3

the HHF Agreement and therefore is not barred from seeking relief under that contract.

4

Second, MetLife maintains that Mukarugwiza has not pled sufficient facts to state

5

a claim. MetLife cites to In re Mortg. Elec. Registration Sys., 754 F.3d 772 (9th Cir.

6

2014), where the Ninth Circuit noted that under California law, a wrongful foreclosure

7

plaintiff must allege that “the trustee or mortgagee caused an illegal, fraudulent, or

8

willfully oppressive sale of real property pursuant to a power of sale in a mortgage or

9

deed of trust.” 754 F.3d at 784 (emphasis added). Because it was JP Morgan, not

10

MetLife, that actually sold Mukarugwiza’s home to IH2 Property at the August 29, 2013

11

trustee’s sale, MetLife asserts it did not “cause” the sale in question.

12

“Arizona, though a nonjudicial foreclosure state, has not expressly recognized the

13

tort of wrongful foreclosure.” Id. Still, several courts in this District have assumed such

14

a tort exists under Arizona law. Schrock v. Fed. Nat’l Mortg. Ass’n, No. CV 11-0567-

15

PHX-JAT, 2011 WL 3348227, at *6 (D. Ariz. Aug. 3, 2011) (collecting cases). Those

16

courts have not adopted the elements of California’s wrongful foreclosure tort when

17

determining liability under Arizona law. See, e.g., id. at *7 (reciting Georgia and Nevada

18

tests). But even assuming Arizona courts would employ the California standard, there is

19

no reason to think they would do so as stringently as MetLife suggests. Although

20

MetLife did not itself sell Mukarugwiza’s home, it recorded the notice of trustee’s sale

21

under which JP Morgan sold the home. (Doc. 20 at 5-6.) That recordation contributed,

22

directly and substantially, to the foreclosure of Mukarugwiza’s home. MetLife has not

23

shown that Mukarugwiza’s pleading is insufficient.

24

Finally, MetLife claims there can be no wrongful foreclosure cause of action

25

under Arizona law because the measure of damages to which a plaintiff would be entitled

26

“is the difference between the value of the property in question at the date of foreclosure

27

and the remaining balance due on the indebtedness.” (Doc. 24 at 10 (citation omitted).)

28

Because this remedy would give “the borrower the same benefit that is provided by

-6-

1

Arizona’s anti-deficiency statute, A.R.S. § 33-814(G), whether foreclosure was wrongful

2

or not,” MetLife believes no claim can exist at all. (Id. at 10-11.) But even on MetLife’s

3

view, Mukarugwiza would be entitled to damages for loss of value in her house if the

4

value exceeded the encumbrance.

5

expenses, her damaged credit rating, and her inability to modify her loan, among other

6

things. (Doc. 20 at 9, 13.) MetLife’s theory for dismissal is inadequate even on its own

7

terms.

She also seeks damages arising from moving

8

C.

9

Mukarugwiza’s final cause of action essentially alleges that MetLife was negligent

10

in servicing her loan. (Doc. 20 at 12-13.) MetLife first claims Mukarugwiza cannot state

11

such a claim because “[t]here is no ‘special relationship’ between a lender and borrower

12

in the ordinary loan context,” with the result that tort damages for breach of the implied

13

covenant of good faith are not available. (Doc. 24 at 11.) This objection is difficult to

14

understand, given that Mukarugwiza’s negligence claim is not grounded in the implied

15

covenant of good faith.

16

Negligent performance of an undertaking

MetLife next argues that tort damages are barred by Arizona’s economic loss

17

doctrine.

18

circumstances. For example, “a plaintiff who contracts for construction cannot recover in

19

tort for purely economic loss, unless the contract otherwise provides” or unless

20

“economic loss is accompanied by physical injury to persons or other property.” See

21

Flagstaff Affordable Hous. L.P. v. Design Alliance, Inc., 223 Ariz. 320, 326-27, 223 P.3d

22

664, 670-71 (2010). But the Arizona Supreme Court has cautioned that the economic

23

loss doctrine should not “be applied with a broad brush.” Id. at 329, 223 P.3d at 673.

24

“The principal function of the economic loss doctrine . . . is to encourage private ordering

25

of economic relationships and to uphold the expectations of the parties by limiting a

26

plaintiff to contractual remedies for loss of the benefit of the bargain.” Id. at 327, 223

27

P.3d at 671. “Rather than rely on the economic loss doctrine to preclude tort claims by

That doctrine bars tort recovery for non-physical injuries in certain

28

-7-

1

non-contracting parties, courts should instead focus on whether the applicable substantive

2

law allows liability in the particular context.” Id.

3

MetLife has cited no authority suggesting the economic loss doctrine bars a third-

4

party beneficiary’s tort recovery from a lender. Cf. Wilson v. GMAC Mortg., LLC, No.

5

CV 11-00546-PHX-FJM, 2011 U.S. Dist. LEXIS 104331, at *10 (D. Ariz. Sept. 14,

6

2011) (declining to apply economic loss doctrine to “breach of a duty of care arising from

7

the relationship between” borrower and loan servicer where that breach “exist[ed]

8

independent of” agreement between them). Moreover, Arizona federal courts “have

9

routinely held that lenders and loan servicers have a non-contractual duty towards

10

borrowers which can give rise to negligence claims.” McIntosh v. IndyMac Bank, FSB,

11

No. CV-11-1805-PHX-GMS, 2012 U.S. Dist. LEXIS 7057, at *8 (D. Ariz. Jan. 23, 2012)

12

(collecting cases). “At least one court has held that this duty of care ‘is very narrow.’”

13

Id. at *9. Even at its narrowest, however, the duty of care surely includes an obligation

14

not to initiate foreclosure proceedings based—apparently—on an erroneous calculation

15

of the borrower’s obligations under her loan. Mukarugwiza’s fourth cause of action must

16

be allowed to proceed.

17
18

IT IS THEREFORE ORDERED that Defendant MetLife Home Loans, LLC’s
Motion to Dismiss Pursuant to Rule 12(b)(6) (Doc. 24) is denied.

19

IT IS FURTHER ORDERED that Plaintiff file by July 10, 2015, a second

20

amended complaint that corrects the Verified Amended Complaint’s allegedly erroneous

21

allegation regarding the date by which Save Our Home participants must have taken out a

22

mortgage.

23

Dated this 30th day of June, 2015.

24

Neil V. Wake
United States District Judge

25
26
27
28

-8-