Ridenour et al v. Bank of America et al

Filing 34

MEMORANDUM DECISION AND ORDER. NOW THEREFORE IT IS HEREBY ORDERED, that Defendants' Motion to dismiss 23 is DENIED. Defendants' Motion to Take Judicial Notice 24 is GRANTED. Plaintiffs' Motion to Take Judicial Notice 29 and cor rected motion and 33 are GRANTED. Plaintiffs' Motion to Substitute 31 is GRANTED IN PART AND DENIED IN PART. The Court will grant the Ridenours 60 days from the date this order is filed to obtain the bankruptcy trustee's formal aband onment of the pre-discharge claims or to amend their complaint to substitute the trustee as plaintiff in this case. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (st)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

L. STEPEHN RIDENOUR and VICKEY
J. RIDENOUR,

Case No. 2:13-CV-00317-BLW
MEMORANDUM DECISION AND
ORDER

Plaintiffs,
v.
BANK OF AMERICA N.A. and BAC
HOME LOANS SERVICING, LP FKA
COUNTRYWIDE HOME LOANS
SERVICING LP,
Defendants.

INTRODUCTION
The Court has before it a motion to dismiss filed by the defendant Bank of
America, motions to take judicial notice filed by both parties, and a motion to substitute a
party filed by plaintiffs Stephen and Vickey Ridenour. The motions are fully briefed and
at issue. For the reasons explained below, the Court will deny the motion to dismiss,
grant the motions for judicial notice, and grant in part the motion to substitute.
FACTS
The Ridenours allege that the Bank breached its agreement to modify their home
mortgage loan, strung them along with false promises, destroyed their credit, and caused
them emotional distress. The Bank denies these charges and seeks to dismiss this action.

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In July 2005, the Ridenours took out a home loan, secured by a deed of trust, to
finance the purchase of their house on the Spokane River near Post Falls, Idaho. By
2008, the Ridenours were experiencing financial difficulty. When Stephen Ridenour
contacted the Bank regarding the trouble, he was advised by a Bank representative to stop
making payments on his loan so that the Ridenours could be considered for a loan
modification. The Ridenours followed that advice.
The Ridenours filed the necessary paperwork, and on June 8, 2009, they received
from the Bank a loan modification agreement. The loan modification agreement
contained an unpaid principal balance of $572,230.52, set monthly payments at
$3,755.10, fixed the interest rate at 6.375%, and assigned a maturity date of August 1,
2035. The Ridenours noticed that their names were misspelled on the loan modification
agreement, so they corrected the misspelling and returned the loan modification
agreement otherwise unchanged.
Days later, the Ridenours received a letter from the Bank claiming that the
Ridenours had impermissibly altered the loan modification agreement by correcting the
misspelling and that the Bank was therefore “rescinding the agreement.” See First
Amended Complaint (docket no. 22) at ¶ 21. Confused by the rejection, Stephen
Ridenour contacted the Bank, and a representative promised Stephen that the Bank would
expedite a new loan modification agreement with the correct spelling of “Ridenour” in
time for the Ridenours to return the agreement before the deadline for accepting the loan
modification offer, July 5, 2009. But the Bank failed to do anything despite the

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Ridenours’ repeated attempts to prompt some action. The deadline passed with the Bank
never having sent the corrected loan modification agreement. On July 29, 2009, the
Ridenours filed a voluntary petition for Chapter 7 bankruptcy.1 In their petition, the
Ridenours listed their home as an asset and disclosed that the Bank was the secured
creditor of the home. On December 5, 2009, the bankruptcy court discharged the
Ridenours from bankruptcy. The bankruptcy did not discharge the debt owed by the
Ridenours to the Bank.
Following the Bank’s rejection in June of 2009 of the original loan modification
agreement, the Bank negotiated over either a resurrection of that agreement or a new one
– it is not clear which was the case from the allegations in the First Amended Complaint.
At any rate, over the next several months, the Ridenours were shuttled between
innumerable Bank representatives who gave conflicting accounts of the modification’s
status but were united in demanding that the Ridenours provide more information.
Finally, on November 30, 2010, the Bank denied the Ridenours’ request for a new loan
modification agreement. The Bank stated that the request was denied due to a negative
net present value (“NPV”) for the home, and informed the Ridenours that they had thirty
days to request the data the Bank used to calculate the NPV.

1

The Court takes judicial notice of the Ridenours’ bankruptcy petition, the Ridenours’ statement of
intention, the order discharging the Ridenours from bankruptcy, the parties’ stipulation to dismiss case no.
2:11-cv-00627-BLW-MHW without prejudice, and the Court’s prior order of dismissal without prejudice.
Fed. R. Evid. 201(b)(2); Harris v. Cnty. of Orange, 682 F.3d 1126, 1131-32 (9th Cir. 2012).
Consideration of these documents will not convert the Bank’s motion to dismiss into a motion for
summary judgment. United States v. Ritche, 342 F.3d 903, 907-08 (9th Cir. 2003).

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The Ridenours promptly sent a written request for the NPV data so that they could
appeal the denial. Six months later, the Ridenours received the NPV data, riddled with
errors. The Ridenours wrote to correct the NPV data and continue the loan modification
appeal process. The Bank denied the Ridenours’ appeal. The Bank again cited the NPV
as a reason for the denial, and the Ridenours again challenged the accuracy of the NPV
data. While the Ridenours’ second challenge to the NPV value was pending, the Bank
notified the Ridenours that their home was scheduled to be sold at a trustee’s sale.
On October 27, 2011, the Ridenours sued the Bank on various contract and tort
theories for the Bank’s alleged mishandling of a home loan modification, and obtained an
injunction enjoining the pending foreclosure. That suit was later dismissed by stipulation
as the parties agreed to pursue loss mitigation efforts.
When those efforts failed, the Ridenours filed this action on July 19, 2013. After
the Bank moved to dismiss the complaint, Judge Tallman – sitting by designation from
the Circuit – issued an opinion in which he: (1) took judicial notice of documents filed in
other courts and county recorders’ offices; (2) dismissed all defendants except the Bank
and BAC Home Loans, and held that they are a single entity; (3) dismissed without
prejudice the fraud and promissory estoppel claims, granting the Ridenours’ leave to
amend those claims; (4) barred recovery on the negligent infliction of emotional distress
claim for any act occurring before October 27, 2009, and held that the Ridenours alleged
an act within that time frame by asserting that the bank foreclosed on their home on
September 17, 2010; (5) held that the negligent infliction claim could not be based on a

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violation of the certain guidelines, but also held that the Ridenours “could rely on the
general duty to avoid foreseeable risks of harm” and allowed them to so amend their
complaint; (6) held that by correcting their names on the loan modification agreement,
the Ridenours did not turn their acceptance into a counteroffer; and (7) held that the
Ridenours have properly pled damages by alleging that they lost the benefit of the
agreement’s lower interest rate. Ridenour v. Bank of Am., N.A., 23 F.Supp.3d 1201, 1206
(D. Idaho 2014).
Judge Tallman allowed the Ridenours to file a First Amended Complaint to
address deficiencies, and after that was filed, the Bank filed its second motion to dismiss,
which is the motion now before the Court. The Bank argues that (1) the Ridenours
claims are precluded by their discharge in bankruptcy; (2) their claims for fraud and
negligent infliction of emotional distress are time-barred; (3) their claim for promissory
estoppel fails for lack of detrimental reliance; and (4) their claim for negligent infliction
fails because the Bank owed them no duty.
The Court will examine each of these arguments below.
ANALYSIS
Effect of Bankruptcy
The Bank argues that the Ridenours’ bankruptcy precludes them from filing any
claim that accrued prior to the bankruptcy. Those claims are the property of the
bankruptcy estate, not the Ridenours, and in any event, the Ridenours are estopped from
pursuing those claims because they failed to list them in the bankruptcy, argues the Bank.

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When the Ridenours filed their bankruptcy petition, a bankruptcy estate was
created. See 11 U.S.C. § 541(a); Cusano v. Klein, 264 F.3d 936, 945 (9th Cir. 2001).
Throughout the bankruptcy proceedings, the Ridenours had a duty to schedule as assets
on their bankruptcy petition all of their accrued causes of action against the Bank. See
Cusano, 264 F.3d at 945; Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 785
(9th Cir. 2001).
The Ridenours’ bankruptcy was filed in July of 2009 and closed in December of
2009. The Bank points out that the Ridenours’ claims are based in large part on the
Bank’s letter of June 2009 rejecting the loan modification agreement on the ground that
the Ridenours modified the spelling of their names. The Bank argues that because these
claims accrued in June of 2009, they existed during the pendency of the bankruptcy,
should have been listed as assets, and now belong to the Trustee rather than the
Ridenours.
The Ridenours respond that for more than a year after that June 2009 letter, and
for many months even after the bankruptcy had closed, the Bank continued to reassure
them that a loan modification was forthcoming. The First Amended Complaint describes
a dizzying series of representations by legions of Bank employees – a different one each
time – promising the Ridenours that modification documents would be sent and
requesting reams of additional information. If these allegations are true, and the Court
must assume their truth in this proceeding, the Bank was misleading the Ridenours into
believing that it would ultimately accept a modification. Would it be fair to hold that the

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Ridenours should have included their claims against the Bank in their bankruptcy when
throughout those proceedings the Bank was misleading the Ridenours into believing the
Bank would work with them?
At the same time, both sides allege that the Bank clearly rescinded the original
loan modification agreement in June of 2009. What is not clear from the First Amended
Complaint is whether the Bank’s dizzying series of alleged misrepresentations thereafter
related to a second and different modification agreement, or a resurrection of the original
modification agreement. It makes a big difference. If it was the former, then the
Ridenours should have included in the bankruptcy their claims asserting their entitlement
to the original modification agreement – they knew the original agreement was dead and
gone by June of 2009. But if it was the latter, the Ridenours did not realize when they
filed for bankruptcy that they had any legal dispute over the original modification
agreement because the Bank was promising to resurrect that agreement, and continued to
do so throughout the bankruptcy proceedings.
If the Ridenours should have listed their claims in the bankruptcy, those claims
remain the property of the bankruptcy estate. See Cusano, 264 F.3d at 946. The Bank
rightly concedes, however, that the Ridenours’ claims are not property of the bankruptcy
estate to the extent that any claim accrued after the Ridenours were discharged from
bankruptcy. These circumstances have two consequences for the Ridenours.
First, in addition to satisfying the Article III requirements of standing, the
Ridenours must, as a prudential matter, “assert [their] own legal interests” in a suit.

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Dunmore v. United States, 358 F.3d 1107, 1112 (9th Cir. 2004). If the bankruptcy estate
owns pre-petition causes of action, it is the bankruptcy estate, and not the Ridenours, that
is the real-party-in-interest. Id.
Second, the Ridenours may be estopped from asserting pre-discharge claims.
Ordinarily “[i]n the bankruptcy context, a party is judicially estopped from asserting a
cause of action not raised in a reorganization plan or otherwise mentioned in the debtor’s
schedules or disclosure statements.” Hamilton, 270 F.3d at 784. Estoppel “protect[s] the
integrity of the bankruptcy process,” which “depends on full and honest disclosure by
debtors of all of their assets.” Id. at 785 (quoting In re Costal Plains, 179 F.3d 197, 208
(5th Cir. 1999) (emphasis omitted)).
In Dunmore, the Ninth Circuit recognized that both consequences may be
addressed by allowing the debtors an opportunity to reopen the bankruptcy proceeding.
358 F.3d at 1112-13 & n.3. Indeed, the Ridenours have reopened their bankruptcy. See
Ridenour Brief (Dkt. No. 28) (representing that “[t]he bankruptcy case has been reopened”).
With the bankruptcy reopened, the trustee would be afforded the opportunity “to
ratify, join, or be substituted into th[is] action.” Fed. R. Civ. P. 17(a)(3). If the trustee
ratifies the Ridenours’ prosecution of the suit by formally abandoning those claims to the
Ridenours, see Turner v. Cook, 362 F.3d 1219, 1226 (9th Cir. 2004), the Ridenours
would be the proper plaintiffs at that time, thus alleviating any prudential concerns over
the Ridenours’ standing. Furthermore, this approach protects the integrity of the

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bankruptcy proceeding by “giving the bankruptcy trustee an opportunity to [retain and]
administer the unscheduled claims.” Dunmore, 358 F.3d at 1113 n.3.
The Bank resists this result by citing to McCallister v. Dixon, in which the Idaho
Supreme Court held that “reopening bankruptcy proceedings will not cure non-disclosure
to a bankruptcy court so as to avoid application of judicial estoppel.” 303 P.3d 578, 584
(Idaho 2013). However, McCallister does not stand for the proposition that reopening a
bankruptcy proceeding should not be allowed under any circumstances.2 What concerned
the Idaho Supreme Court was the potential gamesmanship of the bankruptcy proceedings
by debtors turned plaintiffs. Id. at 584. The path this case will take under Rule 17(a)(3)
addresses these concerns by affording the bankruptcy trustee the right of first refusal over
these claims. It also alleviates the concern, raised in McCallister, that “alleged
tortfeasors would not be held responsible for their torts.” See id. at 585.
Therefore, the Court will grant the Ridenours sixty (60) days from the date this
order is filed to obtain the bankruptcy trustee’s formal abandonment of the pre-discharge
claims or to amend their complaint to substitute the trustee as plaintiff in this case. The
Court realizes that the Ridenours have already moved to substitute the trustee as plaintiff
in this case. However, the Court believes the more prudent course is to see if the
Ridenours can secure the trustee’s abandonment of the pre-discharge claims before the
substitution occurs.

2

To the contrary, the court approved of the substitution of the bankruptcy trustee as plaintiff in that case.
Id. at 585.

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Tort Claims
The Bank argues that the Ridenours’ claims for fraud and negligent infliction of
emotional distress are barred by the relevant statutes of limitations. “A claim may be
dismissed under Rule 12(b)(6) on the ground that it is barred by the applicable statute of
limitations only when the running of the statute is apparent on the face of the complaint.
[A] complaint cannot be dismissed unless it appears beyond doubt that the plaintiff can
prove no set of facts that would establish the timeliness of the claim.” Von Saher v.
Norton Simon Museum of Art, 592 F.3d 954, 969 (9th Cir. 2009).
The Bank further argues that the Ridenours failed to properly plead their claims
for promissory estoppel and negligent infliction of emotional distress. To survive a
motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to
“state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 570 (2007). A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged. Id. at 556. The plausibility standard is not akin to a
“probability requirement,” but it asks for more than a sheer possibility that a defendant
has acted unlawfully. Id. Where a complaint pleads facts that are “merely consistent
with” a defendant’s liability, it “stops short of the line between possibility and plausibility
of entitlement to relief.” Id. at 557.
The Supreme Court identified two “working principles” that underlie Twombly in
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). First, the court need not accept as true, legal

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conclusions that are couched as factual allegations. Id. Rule 8 does not “unlock the
doors of discovery for a plaintiff armed with nothing more than conclusions.” Id. at 67879. Second, to survive a motion to dismiss, a complaint must state a plausible claim for
relief. Id. at 679. “Determining whether a complaint states a plausible claim for relief
will . . . be a context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Id.
Fraud
There is a three-year statute of limitations for fraud claims in Idaho. I.C. § 5218(4). The parties agree the relevant filing date to measure the limitations period is
October 27, 2011, the date that the Ridenours filed their first action against the Bank.
Thus, to be timely, the Ridenours’ fraud claim must have accrued after October 27, 2008.
The Bank argues it accrued two months earlier in August of 2008 when the Ridenours
defaulted on their home loan, and that this action is therefore untimely.
The Court disagrees. The Ridenours’ complaint alleges multiple fraudulent
statements by the Bank in 2009 and thereafter concerning the rescission of the agreement
and subsequent promises to reinstate a modification. These fraud allegations all occurred
after October 27, 2008. Thus, the Court denies the Bank’s attempt to dismiss the fraud
claim as untimely.
Promissory Estoppel
The Bank claims the Ridenours have failed to properly plead their claim for
promissory estoppel. Specifically, the Bank alleges that the Ridenours have failed to

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allege how they detrimentally relied on the Bank’s promises. The Court disagrees. The
First Amended Complaint alleges that the Ridenours relied on the Bank’s promises when
they followed the Bank’s direction to default on their loan. Following that direction from
the Bank was detrimental, the Ridenours allege in the First Amended Complaint, because
it lowered their credit rating, lengthened their loan payoff time, saddled them with fees
and charges, increased the interest they were paying, and ultimately led to foreclosure
rather than to the promised modification of the loan. This shows that the Ridenours
sufficiently pled detrimental reliance.
Negligent Infliction of Emotional Distress
There is a two-year statute of limitations for a claim of negligent infliction of
emotional distress, measured “as of the time of the occurrence, act or omission
complained of.” I.C. § 5-219(4). Negligent infliction of emotional distress is generally
characterized as a continuing tort. See Johnson v. McPhee, 210 P.3d 563, 573
(Id.Ct.App. 2009). A continuing tort is “one inflicted over a period of time; it involves a
wrongful conduct that is repeated until desisted, and each day creates a separate cause of
action.” Curtis v. Firth, 850 P.2d 749, 754 (Idaho 1993). “Only when such tortious
conduct end does the limitations period begin to run.” Johnson, 210 P.3d at 571.
As stated previously, the parties agree that the filing date of this action is actually
October 27, 2011, when the Ridenours filed their first action against the Bank. Thus,
applying the two year limitations period, any events occurring prior to October 27, 2009,
could not be the basis for the negligent infliction claim. The Bank argues that the

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Ridenours’ claim is premised upon the Bank’s instruction to default on their loan
payments and the Bank’s repudiation of the 2009 loan modification agreement, all of
which occurred before October 27, 2009, rendering the negligent infliction claim
untimely.
This takes an overly restrictive view of the Ridenours’ claim. They allege that
Bank’s negligence continued through the second loan modification process and appeal
and included the wrongful noticing of their home for a trustee’s sale. These allegations
occurred well after October 27, 2009. Therefore, the Ridenours’ negligent infliction
claim is timely.
The Bank argues next that it owed no duty of care to the Ridenours as a lender.
Not so. As Judge Tallman recognized in his prior order, the Bank owed the Ridenours a
general duty to avoid foreseeable risks of harm. Ridenour v. Bank of Am., N.A., 23
F.Supp.3d 1201, 1206 (D. Idaho 2014). It is true that lenders are not fiduciaries of
borrowers, as the Bank argues. See Black Canyon Racquetball Club, Inc. v. Idaho First
Nat’l Bank, N.A., 804 P.2d 900, 905 (Idaho 1991). However, the duty to act in a
reasonable manner arises when a person or entity “voluntarily undertakes to perform an
act, having no prior duty to do so,” and it exists independent of any fiduciary relationship.
See Baccus v. Ameripride Services, Inc., 179 P.3d 309, 313 (Id.Sup.Ct. 2008) (internal
quotation mark omitted); see also Cumis Ins. Society, Inc. v. Massey, 318 P.3d 932, 948
(Id.Sup.Ct. 2014) (by certifying that third parties could rely on his appraisal, the appraiser
had a duty to prepare the appraisal in a non-negligent manner). Thus, when the Bank

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engaged with the Ridenours in the loan modification process, it had a duty to do so in a
non-negligent manner. See Alvarez v. BAC Home Loans Servicing, L.P., 228 Cal.App.4th
941, 948-49 (2014) (holding that once a bank voluntarily undertakes a loan modification,
it has a duty to carry out that process in a reasonably prudent manner).
ORDER
Pursuant to the Memorandum Decision set forth above,
NOW THEREFORE IT IS HEREBY ORDERED, that Defendants’ Motion to
dismiss (docket no. 23) is DENIED.
IT IS FURTHER ORDERED, that Defendants’ Motion to Take Judicial Notice
(docket no. 24) is GRANTED.
IT IS FURTHER ORDERED, that Plaintiffs’ Motion to Take Judicial Notice
(docket no. 29) and corrected motion (docket no. 33) are GRANTED.
IT IS FURTHER ORDERED, that Plaintiffs’ Motion to Substitute (docket no. 31)
is GRANTED IN PART AND DENIED IN PART. The Court will grant the Ridenours
sixty (60) days from the date this order is filed to obtain the bankruptcy trustee’s formal
abandonment of the pre-discharge claims or to amend their complaint to substitute the
trustee as plaintiff in this case.

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DATED: March 25, 2015

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

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