Maxwell et al v. Wells Fargo Bank, N.A.
Filing
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MEMORANDUM Opinion and Order. The court grants Defendant Wells Fargo's motion to dismiss 14 in part, dismissing Plaintiffs' negligence claim without prejudice but allowing Plaintiffs' ICFA claim to proceed. Additionally, the court f inds that only Maxwell, as trustee of the bankruptcy estate, has standing to continue pursuing these claims. Defendant shall file an answer in 21 days, by 4/21/2021. Parties' Report of Planning Meeting shall be filed by 5/5/2021. Signed by the Honorable Rebecca R. Pallmeyer on 3/31/2021. Notice mailed by judge's staff (ntf, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ANDREW J. MAXWELL, not individually,
but as Trustee for the estate of Eduardo
Garcia and Julia Escamilla, now known as
Julia Garcia; EDUARDO GARCIA;
JULIA GARCIA; and their minor children,
individually,
Plaintiffs,
v.
WELLS FARGO BANK, N.A.,
Defendant.
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No. 20 C 2402
Judge Rebecca R. Pallmeyer
MEMORANDUM OPINION AND ORDER
Plaintiffs Eduardo and Julia Garcia and their two children, B. and M., filed this lawsuit last
year, together with Andrew J. Maxwell, the trustee of the Garcias’ bankruptcy estate, to challenge
Defendant Wells Fargo Bank’s failure to refinance the Garcias’ home mortgage in 2010. In 2002,
the Garcias took out a mortgage loan with Defendant Wells Fargo to purchase a home in
LaGrange Park, Illinois. Four years later, not long before the 2008 housing crisis, the Garcias
refinanced their mortgage at a subprime adjustable rate.
In February 2008, their monthly
mortgage payment skyrocketed, and by September 2008, they could no longer afford the monthly
payments. In January 2009, Wells Fargo filed an action to foreclose on the Garcias’ property. At
that point, the Garcias began making requests that Wells Fargo grant them a loan modification
under the Family Home Affordable Modification Program (hereinafter “HAMP”). Although the
Garcias met the threshold criteria to receive a loan modification from Wells Fargo under HAMP,
a software error mistakenly concluded that the Garcias were not eligible. Wells Fargo rejected
their requests. Eventually, Wells Fargo foreclosed on the mortgage, the house sold in a judicial
sale, and the deficiency judgment on the foreclosure sale forced the Garcias into bankruptcy.
In 2019, the Garcias received a letter from Wells Fargo notifying them that Wells Fargo
had discovered the software error that resulted in the rejection of their loan modification request.
The Garcias declined the $24,500 that Wells Fargo offered in apology and instead filed this lawsuit
[1], alleging violations of the Illinois Consumer Fraud and Deceptive Business Practices Act
(“ICFA”) (Count I) and gross negligence (Count II). Now, Wells Fargo asks this court to dismiss
both counts [14] for failure to state a claim upon which relief can be granted. For the reasons
stated below, the court grants Wells Fargo’s motion as it relates to Plaintiffs’ negligence claim but
denies the motion as it relates to Plaintiffs’ ICFA claim. The court also rules that only Maxwell,
as trustee of the Garcias’ estate, has standing to continue to pursue either of these claims.
BACKGROUND
The facts as alleged in the complaint are as follows: Plaintiffs Eduardo and Julia Garcia
purchased the property at 407 Beach Avenue, LaGrange Park, IL 60526 on December 12, 2002
for $203,000. (Compl. ¶ 62.) They financed the purchase with a mortgage from Defendant Wells
Fargo. (Id. ¶ 12.) Immediately thereafter, the Garcias moved into this property (hereinafter “the
Garcia House”) along with their children, B. and M. Garcia. (Id. ¶ 62.) Both children were under
the age of ten at the time (id.), and one had a need for special education. (Id. ¶ 63.) Eduardo
and Julia specifically chose to live in LaGrange Park because its school district had a good special
education program (id. ¶ 64), and the Garcias considered themselves lucky to have found their
home at this price, as it was the only one in the area that they could afford. (Id. ¶ 66.) When the
family bought the Garcia House, it was “in desperate need of extensive repairs and updating.”
(Id.) In the nine years that the Garcias owned and lived in the house, they completely rehabilitated
it themselves, investing over $40,000 and extensive time in doing so. (Id. ¶ 67.)
On January 26, 2006, the Garcias refinanced their mortgage at a subprime adjustable
rate. (Id. ¶ 68.) In February 2008, the monthly payment was adjusted upward; the significant
increase in the amount due prompted the Garcias to attempt to refinance their mortgage again.
(Id. ¶¶ 70–71.)
Unfortunately, due to the housing market crash associated with the Great
2
Recession, the value of their home had plummeted, and they were unable to refinance a second
time. (Id. ¶ 71.) At the time, Mrs. Garcia was still working, but Mr. Garcia, who had been selfemployed, was no longer working. (Id. ¶¶ 73–74.) By September 2008, the family was unable to
make their full monthly payments. (Id. ¶ 74.) At some point before November 2008, the Garcias
began seeking a loan modification from Wells Fargo; the Garcias believed they would be able to
pay a reasonable modified mortgage payment. (Id. ¶¶ 75, 80.) According to the complaint, the
Garcias “submitted application after application, document after document, seeking a forbearance
or a modification” that would allow them to stay in the Garcia House. (Id.) On November 20,
2008, the Garcias received the first of several letters from Wells Fargo denying their request. (Id.
¶ 80; Denial Letters, Ex. A to Compl. [1-1] (hereinafter “Denial Letters”), at 2.) That letter also
stated, “You have failed to adhere to the agreed upon terms of the forbearance plan. Borrower
did not pay the scheduled repayment plan payment.” (Denial Letters at 2.) The complaint
provides no other context surrounding this “scheduled repayment plan payment” that the Garcias
failed to pay, though the court presumes that it refers to the monthly payments that the Garcias
failed to make in September 2008. (Compl. ¶ 74.) On January 8, 2009, Wells Fargo filed an
action to foreclose on the Garcias’ property. (Id. ¶ 76.)
Over the next two years, the Garcias continued their efforts to obtain a loan modification,
working with a housing counselor and repeatedly submitting applications and necessary
documentation. (Id. ¶ 77.) During that time, Mr. Garcia remained unable to find work. (Id. ¶ 78.)
To compensate, Mrs. Garcia began working as much overtime as possible, leaving Mr. Garcia to
attend the court dates and meet housing counselors without her. (Id. ¶¶ 78–79.) Although Mrs.
Garcia is bilingual, Mr. Garcia speaks predominantly Spanish and had to bring one of his children
to act as an interpreter. (Id. ¶ 79.) Wells Fargo denied at least four separate loan modification
requests from the Garcias, sending denial letters on November 20, 2008; November 12, 2010;
December 1, 2010; and February 7, 2011. (Id. ¶ 80; Denial Letters at 2–7.) In the February 7,
2011 letter, Wells Fargo noted that the Garcias’ monthly income was $2,759.64 while their
3
monthly expenses were $4,565.92. (Denial Letters at 7.) On February 18, 2011—eleven days
after sending the final denial letter—Wells Fargo purchased the Garcia House in the foreclosure
proceedings for $144,500. (Compl. ¶ 81.) Wells Fargo’s final judgment against the Garcias was
for $296,182.64, leaving the Garcias with a deficiency of $151,682.64 after the judicial sale. (Id.
¶ 85.)
Throughout the foreclosure process, the Garcias worried about ensuring the family could
stay in LaGrange Park so that their child could continue receiving quality special education
services from the LaGrange Park school district. (Id. ¶ 88.) When they applied for rental units,
however, the Garcias were repeatedly rejected due to their poor credit stemming from the
foreclosure. (Id. ¶ 89.) On March 29, 2011, the judicial sale was approved, and the court entered
an eviction order against the Garcias. (Id. ¶ 83.) The day before Wells Fargo forced them to
move out of the house, the Garcias “hastily signed” a lease for an apartment in Brookfield, Illinois
in order to avoid becoming homeless. (Id. ¶ 91.) The apartment was “very small” and “in poor
condition.” (Id.) The Garcias believed the apartment was in the LaGrange school district when,
in fact, it was one block outside of that district; after the Garcias “begged and pleaded,” the school
district agreed to permit their child to continue the child’s education within the district. (Id. ¶¶ 91–
92.) In order to live in this apartment, however, the Garcias had to part with their two dogs, as
the apartment did not allow pets. (Id. ¶ 93.)
On May 26, 2011, the Garcias—facing a $151,682.64 deficiency—filed for Chapter 7
Bankruptcy. (Id. ¶¶ 85–86.) They continued to search for a rental property but struggled due to
their poor credit. (Id. ¶¶ 89–90, 94.) Some people in the real estate industry in LaGrange Park
even told them they were “looking in the wrong area,” leading them to feel “severe and substantial
humiliation and embarrassment.” (Id. ¶ 90.) Eventually, the Garcias moved to Cicero, Illinois, the
only place they could find an apartment that did not require a credit check. (Id. ¶ 94.)
On or about July 26, 2019, Wells Fargo sent a letter to the Garcias (hereinafter “July 2019
letter”) with the subject line: “We made a mistake when we reviewed you for payment assistance.”
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(Id. ¶ 99; July 2019 Apology Letter, Ex. B to Compl. [1-2] (hereinafter “First Apology Letter”), at 1.)
The letter stated as follows:
We have some difficult news to share. When you were considered for a loan
modification, you weren’t approved, and now we realize that you should have
been. We based our decision on a faulty calculation, and we’re sorry. If it had
been correct, you would have been approved for a trial modification.
We want to make things right.
We realize that our decision impacted you at a time you were facing a hardship.
We’ve carefully considered what we can do for you. You’ll find a payment enclosed
to help make up for your financial loss. You may cash this check without waiving
or releasing any rights you may have, and you retain the right to pursue all other
applicable legal remedies. We’re also reaching out to the consumer reporting
agencies to ask them to remove any negative reporting.
(First Apology Letter at 1.) Along with this letter, Wells Fargo sent the Garcias a check for
$14,500. (Compl. ¶ 102.) The letter also offered to pay for the costs of mediation, should the
Garcias choose to seek to mediate disputes with Wells Fargo, and notified the Garcias that
lawyers had recently filed a class action lawsuit on behalf of borrowers subject to the loan
modification error.1 (First Apology Letter at 1.)
The “faulty calculation” in the Wells Fargo letter related to a determination of whether,
when the Garcias had applied for loan modifications in 2010 and 2011, 2 they met the threshold
requirements for a mortgage modification under the Family Home Affordable Modification
Program (hereinafter “HAMP”). (Compl. ¶¶ 23–27.) Introduced pursuant to the Emergency
Economic Stabilization Act of 2008, HAMP required mortgage servicers—such as Wells Fargo—
The class action suit in question, Hernandez v. Wells Fargo Bank, N.A., settled on
October 12, 2020. No. C 18-07354 WHA, 2020 WL 6020593, at *7 (N.D. Cal. Oct. 12, 2020).
Neither party has commented on whether the Garcias qualify as class members in that case, nor,
if so, whether the Garcias have opted out or plan to opt out of the class in question.
1
The complaint also lists a rejection letter from November 20, 2008, but, according
to Wells Fargo’s quarterly statements filed with the SEC, the errors in question affected loan
modification requests between April 13, 2010 and October 20, 2015. (Compl. ¶¶ 95–98.) Thus,
if the quarterly statements are accurate, only the November 12, 2010; December 1, 2010; and
February 7, 2011 denials were affected by the software error. (Id. ¶ 80; see generally Denial
Letters.)
2
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to offer loan modifications to borrowers who met certain threshold requirements. (Id. ¶ 24.)
Borrowers who met those requirements could lower their mortgage payments to a manageable
level—typically 31 percent of the borrower’s monthly income. (Id.) In order to participate in HAMP
as a mortgage servicer, Wells Fargo executed a Servicer Participation Agreement (hereinafter
“SPA”) with the Treasury Department. (April 2009 Servicer Participation Agreement, Ex. A to Pl.’s
Opp’n [17-1] (hereinafter April 2009 SPA); HAMP Directive, Ex. B to Pl.’s Opp’n [17-2] (hereinafter
“HAMP Directive”); Amended and Restated Commitment to Purchase Financial Instrument and
Servicer Participation Agreement (2010), https://www.treasury.gov/initiatives/financial-stability/
TARP-Programs/housing/mha/Documents_Contracts_Agreements/wellsfargobankna_
Redacted.pdf (last visited Mar. 29, 2021) [hereinafter “March 2010 SPA”].) Wells Fargo executed
one SPA on April 13, 2009 (April 2009 SPA at 12), and an updated SPA on March 16, 2010.
(March 2010 SPA at 14.) In return for participating in HAMP, Wells Fargo became eligible to
receive incentive payments based on the number of modified loans it provided, as well as how
successful those modified loans were at reducing monthly mortgage payments and preventing
defaults.3 (HAMP Directive at 23.)
Wells Fargo admitted in the July 2019 letter that when the Garcias applied for loan
modifications in 2010 and 2011, they met the HAMP threshold requirements for a mortgage
modification. (Compl. ¶ 26; First Apology Letter at 1.) Yet Wells Fargo failed to offer the Garcias
a loan modification based on what the July 2019 letter described as a “faulty calculation” that
erroneously stated that the Garcias did not meet those requirements. (Compl. ¶ 27; First Apology
Plaintiffs assert that the government promised to pay Wells Fargo up to $6.5 billion
in exchange for Wells Fargo’s willingness to participate in HAMP. (Pl.’s Opp’n [17] at 4.) As
explained in the March 2010 SPA, “[t]he value of the Agreement is limited to $6,406,790,000,”
labeled as the “Program Participation Cap” (March 2010 SPA at 4)—a number that appears to
include compensation payments for Wells Fargo, as well as money for investors and borrowers
that Wells Fargo is required to either remit to investors or apply to borrowers’ mortgage loan
obligations. (April 2009 SPA at 3 ¶¶ 4.B., 4.D.; HAMP Directive at 23 (“The amount of funds
available to pay servicer, borrower and investor compensation in connection with each servicer’s
modifications will be capped pursuant to each servicer’s Servicer Participation Agreement
(Program Participation Cap).”).)
3
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Letter at 1.) Wells Fargo discovered this error as early as August 3, 2018 when it disclosed in a
quarterly report to the Securities and Exchange Commission (“SEC”) that a “calculation
error . . . affected certain accounts that were in the foreclosure process between April 13, 2010,
and October 20, 2015, when the error was corrected . . . . ” (Compl. ¶¶ 95–96.) The report to the
SEC stated that, based on this error, approximately 625 customers were incorrectly denied a loan,
and “[i]n approximately 400 of these instances . . . a foreclosure was completed.” (Id.) As set
forth in the next quarterly report, a subsequent expanded review of this and related errors led
Wells Fargo to increase those numbers to 870 and 545, respectively. (Id. ¶¶ 97–98.)
As the court reads the July 2019 letter, acceptance of the $14,500 payment would not
have precluded the Garcias from pursuing other claims against Wells Fargo. The Garcias
themselves evidently did not see things this way. Believing that the $14,500 check enclosed in
the July 2019 letter was insufficient to “make things right,” and unable to trust Wells Fargo, the
Garcias chose not to cash the check and instead sought legal representation. (Id. ¶¶ 104–07.)
Wells Fargo representatives began calling in the following weeks and months to ask when the
Garcias planned to cash the check. (Id. ¶ 105.) On October 31, 2019, the Garcias informed the
Wells Fargo representative who had called them that they had retained counsel and that any
further communication should be with their attorney. (Id. ¶ 108). On November 18, 2019, Wells
Fargo sent the Garcias a second letter (hereinafter “November 2019 letter”) that included a
second check—this time for $10,000. (Id. ¶ 109.) The letter stated, “[W]e’ve further considered
how our decision may have affected you. We have decided to provide additional compensation,
which is enclosed with this letter. We take this matter seriously and are sorry that this happened.”
(November 18, 2019 Apology Letter, Ex. C to Compl. [1-3] (hereinafter “Second Apology Letter”),
at 1.) This letter again informed the Garcias about the pending class action lawsuit related to the
error that caused the Garcias’ loan denial and reminded the Garcias that cashing the enclosed
check would not amount to waiving or releasing any rights. (Id.) On November 25, 2019, Wells
Fargo sent the Garcias a third letter, reminding them that they had still not cashed the original
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$14,500 check. (November 25, 2019 Apology Letter, Ex. D to Compl. [1-4] (hereinafter “Third
Apology Letter”), at 1.)
On March 30, 2020, the Garcias filed this lawsuit against Wells Fargo [1], alleging a
violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (hereinafter
“ICFA”), as well as gross negligence. (Compl. ¶¶ 121–39.) In supporting these claims, the
Garcias allege that Wells Fargo’s issues run far deeper than this simple “faulty calculation.” (Id.
¶ 29.) The complaint alleges that the government provides mortgage servicers a free software
tool for use in determining whether family homeowners meet threshold requirements. (Id. ¶ 32.)
Rather than using that free software, Plaintiffs alleges, Wells Fargo chose to develop its own
automated decision-making tool. (Id. ¶¶ 31–32.) Plaintiffs allege that, between 2010 and 2018,
Wells Fargo failed both to verify that its software was correctly calculating customers’ eligibility for
a mortgage modification and to properly audit the software for compliance with government
requirements. (Id. ¶ 31.) This led Wells Fargo to fail to detect multiple systematic errors that
would persist uncorrected for years and ultimately to deny a loan modification to the Garcias. (Id.
¶¶ 31, 36.)
In 2010, the Office of Comptroller of the Currency (hereinafter “OCC”) found numerous
deficiencies in Wells Fargo’s mortgage modification and foreclosure practices. (Id. ¶ 37.) Wells
Fargo pledged to correct these deficiencies in two 2011 consent orders in which it agreed, among
other things, to engage in ongoing testing for compliance with HAMP and to ensure the Bank’s
mortgage modification practice was regularly reviewed.
(Id. ¶¶ 39–40.)
The responsible
individuals at Wells Fargo, however, failed to fulfill these obligations over the course of several
years so that by 2015—four years after the 2011 consent orders—the OCC found Wells Fargo
was still failing to either maintain testing for compliance with HAMP or to ensure that deficiencies
in the mortgage modification practice could be identified and promptly remedied. (Id. ¶ 43.) As
a result of these shortcomings, Wells Fargo continued to fail to catch errors, leading the mortgage
servicer to “wrongly deny mortgage modifications to 184 customers between March 2013 and
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October 2014” and to wrongly deny mortgage modifications to 625 more customers based on an
error discovered in October 2015. (Id. ¶¶ 46–47.) In the three years after that, related errors
would affect 870 more customers. (Id. ¶ 51.)
In this lawsuit, the Garcias argue that these overarching behaviors lend support to their
gross negligence and ICFA claims. Now, Wells Fargo has filed a motion to dismiss both counts
[14] for failure to state a claim.4
DISCUSSION
The relevant question on a 12(b)(6) motion for failure to state a claim is whether the
complaint contains sufficient allegations to “state a claim to relief that is plausible on its face.”
Firestone Fin. Corp. v. Meyer, 796 F.3d 822, 827 (7th Cir. 2015) (quoting Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009)). The court accepts as true all well-pleaded factual allegations and draws
all reasonable inferences in favor of the plaintiff. See Hutchison v. Fitzgerald Equip. Co., Inc.,
910 F.3d 1016, 1025 (7th Cir. 2018). But the court need not similarly accept “legal conclusions
or threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements.” Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009) (internal quotations omitted). In
reaching its decision, the court can also consider “documents attached to the complaint,
documents that are critical to the complaint and referred to in it, and information that is subject to
proper judicial notice.” Henderson v. Marker, No. 13 CV 2621, 2014 WL 886833, at *1 (N.D. Ill.
Mar. 5, 2014) (quoting Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1019–20 (7th Cir.
2013)). Wells Fargo asserts that Plaintiffs have failed to adequately plead either their negligence
claim or their ICFA claim. The court will examine each argument in turn.
Plaintiffs assert that “Wells Fargo’s arguments completely ignore the claims of the
Garcia children,” and therefore, Wells Fargo concedes the viability of those claims. (Pl.’s Opp’n
at 1.) The court finds no merit in this argument. The complaint did not explain how the children’s
claims were, in any way, distinct from Mr. and Mrs. Garcia’s claims, and Plaintiffs did not highlight
any reason that Wells Fargo’s arguments would affect the Garcia parents’ claims any differently
than the Garcia children’s claims.
4
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A.
Negligence
To state a claim for negligence in Illinois, a plaintiff “must establish the existence of a duty
of care owed by the defendant.” Calles v. Scripto-Tokai Corp., 224 Ill. 2d 247, 270, 864 N.E.2d
249, 263 (2007). The mere existence of a relationship between a borrower and lender does not,
in itself, create such a duty. LaSalle Bank Nat’l Ass’n v. Paramont Props., 588 F. Supp. 2d 840,
852–53 (N.D. Ill. 2008) (“Illinois does not, and would not, recognize a general duty of care owed
by lenders to borrowers”) (collecting cases); cf. Miller v. Am. Nat’l Bank & Tr., 4 F.3d 518, 520
(7th Cir. 1993) (“Under the law of Illinois . . . a bank generally owes no fiduciary duty to its
depositors . . . The relationship consists simply of an arms-length transaction between debtor and
creditor.” (internal citations omitted)). Nor do Plaintiffs argue, or identify any caselaw suggesting,
that a lender develops such a duty by entering loan modification negotiations with a borrower.5
Instead, Plaintiff argues that Wells Fargo voluntarily entered into an SPA with the Treasury
Department, requiring it to consider consumers for loan modification under the HAMP guidelines,
and therefore, “Wells Fargo’s conduct is properly analyzed under the negligence standard for a
voluntary undertaking.” (Pl.’s Opp’n at 5.)
In Illinois, “one who undertakes, gratuitously or for consideration, to render services to
another is subject to liability for . . . harm caused to the other by one's failure to exercise due care
in the performance of the undertaking.” Rhodes v. Ill. Cent. Gulf R.R., 172 Ill. 2d 213, 239, 665
N.E.2d 1260, 1273 (1996). In such a situation, the duty of care which arises is “limited to the
extent of the undertaking.”
Id.
“[W]hether a voluntary undertaking has been assumed is
necessarily a fact-specific inquiry.” LM ex rel. KM v. United States, 344 F.3d 695, 700 (7th Cir.
The court notes that cases cited by Wells Fargo do not address this issue in the
negligence context. Kinsella v. Cap. One, No. 17 C 05236, 2018 WL 5884520, at *5 (N.D. Ill.
Nov. 9, 2018) (in the fraud context); Bank of Am., N.A. v. 108 N. State Retail LLC, 401 Ill. App. 3d
158, 165–75, 928 N.E.2d 42, 50–58 (1st Dist. 2010) (in the context of succeeding on the merits
of the underlying foreclosure); FirstMerit Bank v. Quanstrom-Rose, 12 C 10051, 2013 WL
6577028, at *4 (N.D. Ill. Dec. 13, 2013) (unclean hands defense); N. Tr. Co. v. VIII S. Mich., 276
Ill. App. 3d 355, 368, 657 N.E.2d 1095, 1104–05 (1st Dist. 1995) (covenant of good faith and fair
dealing).
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2003). Here, Plaintiffs argue that Wells Fargo voluntarily entered into the SPA with the Treasury
Department, creating a duty of care owed by Wells Fargo to the Garcias and other consumers
who would rely on Wells Fargo to modify their loans according to the HAMP guidelines. The court
is not persuaded.
To begin, Plaintiffs have identified no case in which a court held that entering into a
contract with the federal government constitutes a voluntary undertaking to protect third-party
beneficiaries of that contract. Indeed, Plaintiffs have cited only three cases that speak to voluntary
undertaking law in Illinois at all, and in two of those cases, the relevant court did not find a duty
arising out of a voluntary undertaking. Rhodes, 172 Ill. 2d at 240, 665 N.E.2d at 1273 (rejecting
an argument that “a party voluntarily undertakes a legal duty to rescue an injured stranger by
simply calling the police”); LM ex rel. KM, 344 F.3d at 702 (noting that, although the court did not
reach the question in this case, the plaintiff was unlikely to have been able to establish any
element necessary to show a voluntary undertaking). In the third case, Rowe v. State Bank of
Lombard, 125 Ill. 2d 203, 217, 531 N.E.2d 1358,1365 (1988), the court held that a voluntary
undertaking did create a duty of care.
But that case involved a commercial landlord who
“assumed a duty to take reasonable precautions to prevent unauthorized entries by individuals
possessing [the] keys [to personal offices]” and has little relevance here. Id. at 221–22, 531
N.E.2d at 1367. The caselaw cited by Plaintiffs does not appear to support a conclusion that by
entering the SPA with the Treasury Department, Wells Fargo assumed a voluntary undertaking
to protect the rights of the Garcias and all other consumers in their position.
A number of other courts have concluded that violations of the HAMP guidelines do not
create a duty of care that could support a negligence claim on the part of borrowers. See Fed.
Nat’l Mortg. Ass’n v. Carr, No. 3:12–cv–1295, 2013 WL 5755083, at *4 (M.D. Tenn. Oct. 23, 2013)
(“As these cases demonstrate, Tennessee law does not impose any ‘special duty’ on financial
institutions acting as mortgagees, even when they review HAMP modification requests and fail to
adhere to the HAMP guidelines.”) (collecting cases); see also Brown v. U.S. Bank Nat’l Ass’n, No.
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3:19-cv-1-TCB, 2019 WL 5388000, at *2 (N.D. Ga. Aug. 19, 2019) (citing Moragon v. Ocwen Loan
Servicing, LLC, No. 6:17-cv-2028-Orl-40KRS, 2018 WL 3761036, at *7 (M.D. Fla. June 22, 2018))
(“The law is clear that HAMP cannot serve as the basis for a negligence claim.”). 6
With this in mind, and without authority for the argument that Wells Fargo voluntarily
undertook to protect the Garcias’ rights simply by executing the SPA with the Treasury
Department, the court declines to find that HAMP—or Wells Fargo’s decision to enter the SPA—
created a duty here. For that reason, the court dismisses Plaintiffs’ negligence claim without
prejudice.7
B.
ICFA violations
Next, Wells Fargo asks the court to dismiss Plaintiffs’ claim under the ICFA. The ICFA “is
a regulatory and remedial statute intended to protect consumers, borrowers, and business
persons against fraud, unfair methods of competition, and other unfair and deceptive business
In Wigod v. Wells Fargo Bank, N.A., the Seventh Circuit explained that, among the
eighty or so federal cases it had examined in which plaintiffs alleged HAMP-related claims, courts
had almost uniformly rejected two arguments: (1) that HAMP created a private right of action, and
(2) that plaintiffs might recover as third-party beneficiaries of a lender’s contract to enter an SPA.
673 F.3d 547, 559 n.4 (7th Cir. 2012). With this in mind, one might conclude that Plaintiffs’ state
law claims here are attempts to evade these federal law barriers, and to dismiss Plaintiffs’ claims
on that ground. But the Seventh Circuit in Wigod explicitly rejected a similar argument from
defendant that plaintiff’s state law claims “[we]re ‘HAMP claims in disguise’ and an ‘impermissible
end-run around the lack of a private action in . . . HAMP.’” Id. at 581. The Seventh Circuit allowed
plaintiff’s state law claims to proceed, explaining in part, “There is no general rule that where a
state common law theory provides for liability for conduct that is also violative of federal law, a
suit under the state common law is prohibited so long as the federal law does not provide for a
private right of action.” Id. at 582 (internal quotations omitted).
6
Wells Fargo also argued here that the economic loss doctrine bars Plaintiff’s
negligence claim. “The economic loss doctrine, also known as the Moorman doctrine in Illinois,
bars recovery in tort for purely economic losses arising out of a failure to perform contractual
obligations.” Gray Ins. Co. v. Zosky, No. 13 CV 3593, 2014 WL 3881546, at *5 (N.D. Ill. Aug. 6,
2014) (citing Moorman Mfg. Co. v. Nat’l Tank Co., 91 Ill. 2d 69, 81–82, 435 N.E.2d 443, 448–49
(1982)). See also Wigod, 673 F.3d at 567 (economic loss doctrine barred recovery for negligent
servicing of plaintiff’s mortgage loan). It is not clear whether the economic loss rule would apply
here given that Plaintiffs alleged non-economic damages along with associated physical ailments,
such as fibromyalgia, migraines, and stomach and gastro-intestinal problems brought on by the
stress and anxiety caused by these incidents. (Compl. ¶ 115.) The court need not decide the
issue today but will do so if it is raised in response to an amended complaint alleging negligence.
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practices.” Siegel v. Shell Oil, 612 F.3d 932, 934 (7th Cir. 2010) (quoting Robinson v. Toyota
Motor Credit Corp., 201 Ill. 2d 403, 416–17, 775 N.E.2d 951, 960 (2002)). To state a claim under
the ICFA, a plaintiff must allege “(1) a deceptive or unfair act or practice by the defendant; (2) the
defendant's intent that the plaintiff rely on the deceptive or unfair practice; and (3) the unfair or
deceptive practice occurred during a course of conduct involving trade or commerce.” Id. In
addition, “a plaintiff must demonstrate that the defendant's conduct is the proximate cause of the
injury.” Siegel, 612 F.3d at 935 (citing Oliveira v. Amoco Oil Co., 201 Ill. 2d 134, 149, 776 N.E.2d
151, 160 (2002)). Plaintiffs in this case allege that Wells Fargo’s actions were unfair. (Compl.
¶ 125.); see Robinson, 201 Ill. 2d at 417, 775 N.E.2d at 961 (“Recovery may be had for unfair as
well as deceptive conduct.”). Wells Fargo argues that the court should dismiss Plaintiffs’ claims
because Plaintiffs have failed to identify an unfair act or practice and because Plaintiffs have failed
to allege that the identified act or practice caused Plaintiffs’ injuries. The court rejects both
arguments.
1.
Unfair practice
In determining whether a given act or course of conduct is unfair, Illinois courts look to
three factors: “(1) whether the practice offends public policy; (2) whether it is immoral, unethical,
oppressive, or unscrupulous; [and] (3) whether it causes substantial injury to consumers.”
Robinson, 201 Ill. 2d at 417–18, 775 N.E.2d at 960–61. “All three criteria do not need to be
satisfied to support a finding of unfairness. A practice may be unfair because of the degree to
which it meets one of the criteria or because to a lesser extent it meets all three.” Saccameno v.
Ocwen Loan Servicing, LLC, 372 F. Supp. 3d 609, 630 (N.D. Ill. 2019) (quoting Rickher v. Home
Depot, Inc., 535 F.3d 661, 665 (7th Cir. 2008)). On balance, the complaint here contains sufficient
allegations of unfair practices under these criteria.
First, “[a] practice offends public policy under ICFA where it violates statutory or
administrative rules establishing a certain standard of conduct.” Saccameno, 372 F. Supp. 3d at
630; see also Newman v. Metro. Life Ins. Co., 885 F.3d 992, 1002 (7th Cir. 2018) (holding conduct
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was unfair based on a violation of a state statute and a state administrative rule). In fact, “a
plaintiff may predicate an ICFA unfairness claim on violations of other statutes or
regulations . . . that themselves do not allow for private enforcement.” Lowry v. Wells Fargo Bank,
N.A., No. 15 C 4433, 2016 WL 4593815, at *6 (N.D. Ill. Sept. 2, 2016) (quoting Boyd v. U.S. Bank,
N.A., 787 F. Supp. 2d 747, 753 (N.D. Ill. 2011)). The Garcias have alleged that Wells Fargo’s
“deficient auditing and compliance procedures . . . repeatedly violated HAMP and other legal
regulatory requirements . . . . ” (Compl. ¶¶ 33, 37–44.) Courts in this district have repeatedly held
that “a plaintiff may predicate an ICFA unfairness claim on violations of . . . HAMP . . . . ” Boyd,
787 F. Supp. 2d at 752; accord Lowry, 2016 WL 4593815, at *7 (“Failure to honestly and
effectually implement HAMP guidelines constitutes an unfair business practice under the ICFA.”).
This factor thus favors a finding of unfairness.8
Second, Plaintiffs may also argue that Wells Fargo’s conduct was “immoral, unethical,
oppressive, or unscrupulous.” Under the ICFA, a practice meets that standard “if it imposes a
lack of meaningful choice or an unreasonable burden on the consumer.” Saccameno, 372 F.
Supp. 3d at 631 (internal quotations omitted). In support of this factor, Plaintiffs cite Saccameno,
In support of their allegations of unfairness, Plaintiffs also note that Wells Fargo’s
behavior violated the two consent decrees that it signed in 2011. (Compl. ¶¶ 39–45.) Courts in
this district have found violations of consent decrees to be acts that offend public policy.
Saccameno, 372 F. Supp. 3d at 630 (citing Lowry, 2016 WL 4593815, at *9) (“A practice offends
public policy under ICFA where it violates . . . standards of conduct imposed by consent decrees
and settlement agreements.”). Although Plaintiffs have not alleged precisely when the first of
these two consent decrees was signed (Compl. ¶ 39), it appears likely, based on the OCC
website, that it was signed in April 2011. Enforcement Actions Search Tool “Wells Fargo,” Office
of the Comptroller of the Currency, https://apps.occ.gov/EASearch/Search/Table? Search=wells
%20fargo&CurrentPageIndex=3&Category=&Sort=StartDate&ItemsPerPage=100&AutoComplet
eSelection= (last visited Mar. 30, 2021). In this case, the final letter denying a loan modification
request from the Garcias was dated February 7, 2011 (Denial Letters at 7), and the judicial sale
became final on March 29, 2011. (Compl. ¶ 83.) The relevant consent decrees thus appear to
have been entered into after the Garcias received their final rejection. It was likely, however, that
those decrees were the product of negotiation over several weeks or months, and the court takes
note of Plaintiffs’ allegations that Wells Fargo was in violation of those decrees as late as June
2015. (Id. ¶ 44.) Finally, in April 2018, the OCC stated, “Since at least 2011, the Bank has failed
to implement and maintain a compliance risk management program commensurate with the
Bank’s size, complexity and risk profile,” which has “caused the Bank to engage in reckless unsafe
or unsound practices and violations of law.” (Id. ¶ 53.)
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where Judge Gottschall upheld a jury verdict in favor of Plaintiffs’ ICFA claim against defendant
mortgage servicer, Ocwen, after Ocwen mistakenly marked her mortgage loan as delinquent and
continued to treat it as such despite plaintiff’s providing evidence to the contrary. Id. at 620–23,
632. The Saccameno court held that “a jury could reasonably have concluded that Ocwen's
conduct left Saccameno with a lack of meaningful choice” because “Saccameno had no choice in
selecting Ocwen as her loan servicer and she had no ability to get rid of Ocwen after it began
mishandling her account.” Id. at 631. This case arguably differs in that although Plaintiffs were
seeking a loan modification from their original lender (Wells Fargo), they presumably could have
sought refinancing from another lender as well. And this court in Rodriguez v. Chase Home Fin.,
LLC found that a plaintiff challenging a lender’s conduct surrounding plaintiff’s request to modify
a mortgage fails to allege that defendant’s conduct deprived her of any “meaningful choice” where
“it was the original (unchallenged) mortgage . . . that put [plaintiff in the financial bind of trying to
lower her payments.” No. 10 C 05876CH, 2011 WL 5076346, at *4 (N.D. Ill. Oct. 25, 2011).
Still, Wells Fargo’s behavior in this case might nevertheless be understood as oppressive
or unscrupulous. Although Wells Fargo suggests otherwise, Plaintiffs have alleged that Wells
Fargo’s behavior ran far deeper than a simple “faulty calculation.” Rather, in 2010, the Office of
Comptroller of the Currency found numerous deficiencies in Wells Fargo’s mortgage modification
and foreclosure practices (id. ¶ 37), including that Wells Fargo “failed to devote adequate
oversight to its foreclosure processes, failed to ensure compliance with applicable laws, and failed
to adequately audit its foreclosure procedures.” (Id. ¶ 38.) Wells Fargo also repeatedly failed to
identify and correct these problems despite repeated pledges to do so, albeit on dates well after
the bank had denied the Garcias’ loan requests. (Id. ¶¶ 37–61.) For these reasons, the court
finds that this second factor also suggests Plaintiffs have adequately alleged unfairness.
Third, “[a] practice causes substantial injury to consumers if it causes significant harm to
the plaintiff and has the potential to cause injury to a large number of consumers.” Saccameno,
372 F. Supp. 3d at 631 (quoting Stonecrafters, Inc. v. Foxfire Printing & Packaging, Inc., 633 F.
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Supp. 2d 610, 617 (N.D. Ill. 2009)). If Plaintiffs are able to establish a causal link between Wells
Fargo’s actions and their injuries, there is no doubt that the harms they suffered were substantial.
The Garcias lost their home, were forced to file for bankruptcy, had their creditworthiness
destroyed, lost substantial equity in their home, and suffered a host of emotional damages.
(Compl. ¶ 115.) Moreover, Wells Fargo’s August 3, 2018 and November 6, 2018 quarterly
updates to the SEC reveal that this episode was likely not isolated.
(Id. ¶¶ 95–98.)
See
Saccameno, 372 F. Supp. 3d at 631–32 (upholding jury finding of “substantial injury” for purposes
of the ICFA where loan servicer’s conduct caused plaintiff significant emotional distress and “had
the potential to injure a large number of other consumers”).
Plaintiffs have sufficiently alleged that Wells Fargo’s conduct was unfair under the ICFA.
2.
Causation
Next, Wells Fargo argues that Plaintiffs have failed to sufficiently plead that the damages
they sustained were causally related to the “faulty calculation” that led Wells Fargo to erroneously
deny the Garcias a loan modification. In particular, Wells Fargo asserts that, even if Wells Fargo
had approved the request for a loan modification, Plaintiffs fail to allege “whether and how they
could have made the required payments.” (MTD [15] at 9.) In support of this argument, Wells
Fargo cites the fact that Mr. Garcia remained unemployed at the time of the requested loan
modification (id. ¶¶ 73, 78), and that (at least as stated in letters from Wells Fargo itself), by
February 2011, the time of their final request for a loan modification from Wells Fargo, their
monthly income was $2,759 while their monthly expenses were $4,565. (Denial Letters at 7.) As
Wells Fargo points out in its Notice of Supplemental Authority [20], some courts have dismissed
consumer fraud claims on this basis at the pleading stage. Duncan v. Wells Fargo Bank, N.A.,
No. 319CV00172BRMTJB, 2021 WL 22086, at *5 (D.N.J. Jan. 4, 2021) (“Because Wells Fargo's
error solely pertained to a trial modification, not a permanent one, Plaintiff pleads no facts
indicating she would have qualified for a permanent modification or made all of the necessary
payments to under [sic] a permanent modification until the mortgage was paid off.”); Van Brunt v.
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Wells Fargo Bank, N.A., No. 319CV00170BRMTJB, 2020 WL 7868153, at *5 (D.N.J. Dec. 31,
2020) (same); see Stanford West v. Wells Fargo Bank, N.A., No. 5:19-CV-286-JMH-MAS, 2020
WL 6706351, at *3 (E.D. Ky. Nov. 12, 2020) (“[E]ven if the Wests were granted the trial
modification they were erroneously denied, there was no guarantee Wells Fargo would have
subsequently given them a permanent loan modification because Wells Fargo was under no
obligation to do so.”).9
But the court here is not prepared to make findings of fact on this issue. The complaint
alleges that the Garcias “believed they could pay a reasonable modified mortgage payment” when
they requested a loan modification. (Compl. ¶ 75.) Notably, Wells Fargo’s own letter to the
Garcias acknowledged that, “When you were considered for a loan modification, you weren’t
approved, and now we realize that you should have been.” If, at the summary judgment or trial
stage, the Plaintiffs are unable to establish that they would have been able to keep up with monthly
mortgage payments under any new HAMP-style refinancing that they should have been eligible
for, then the Plaintiffs may not be able to establish their claim at that point. At this stage, however,
the court concludes Plaintiffs have plausibly alleged that they would have pursued and done what
was necessary to keep up with a refinanced loan had Wells Fargo offered it.
Overall, Plaintiffs have successfully alleged that an unfair practice under the ICFA caused
the Garcias’ bankruptcy and the damages that followed. For that reason, the court denies Wells
Fargo’s motion to dismiss Plaintiffs’ ICFA claim.
C.
Standing
Wells Fargo argues that the Garcias themselves lack standing to press their claims here.
“In liquidation proceedings, only the trustee [of a bankrupt estate] has standing to prosecute or
Wells Fargo cites the Stanford West case in support of its defense to Plaintiffs’
negligence claim as well. In Stanford West, the Eastern District of Kentucky acknowledged that
“[a]s a general matter, a mortgagee has no duty to reach an agreement on a loan modification
with a mortgagor in default,” but the court ultimately dismissed the negligence claim on grounds
of causation rather than duty. Stanford West, 2020 WL 6706351, at *3.
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defend a claim belonging to the estate.” Lightspeed Media Corp. v. Smith, 830 F.3d 500, 505
(7th Cir. 2016) (emphasis in original) (internal quotations omitted). This remains true so long as
“all of the elements of the cause of action had occurred as of the time the bankruptcy case was
commenced, so that the claim is sufficiently rooted in the debtor's prebankruptcy past.” Putzier
v. Ace Hardware, 50 F. Supp. 3d 964, 982 (N.D. Ill. 2014) (internal quotations omitted); Kleven v.
Walgreen Co., 373 F. App’x 608, 610 (7th Cir. 2010) (“[I]f the event giving rise to the claim
occurred before the debtor filed, the claim belongs to the trustee, who has exclusive power to
prosecute it.”). Here, given that the Plaintiffs argue that the “faulty calculation” and Wells Fargo’s
failure to detect and correct it led to the Garcias’ bankruptcy, there is no question that the elements
giving rise to the Garcias’ claims arose before the bankruptcy case was commenced. The final
letter from Wells Fargo denying a loan modification to the Garcias was dated February 7, 2011
(Denial Letters at 7), while the Garcias filed for bankruptcy in May 2011. (Compl. ¶ 86.)
Plaintiffs do not contest the underlying law on this issue. Instead, they cite the bankruptcy
case In re Sharif for the premise that once all of the creditors’ claims are paid, the Garcias have
the right to receive all remaining estate funds. 446 B.R. 870, 884–85 (Bankr. N.D. Ill. 2011).
Plaintiffs argue that the net impact of the claims against the bankrupt estate and this claim for the
bankrupt estate is likely to yield profits for the estate. Therefore, Plaintiffs argue, they ought to
have standing to pursue this claim in the interest of the net recovery that might be returned to
them after creditors have all been paid. But the court in In re Sharif did not suggest that the
potential for such recovery restores standing to the original owners of the bankrupt estate. 446
B.R. at 884–85. Nor do Plaintiffs identify any other case that does so. Among the cases the
parties have identified on this issue, the court has found no suggestion of the sort of exception
that Plaintiffs suggest. The court concludes that the Garcias do not have standing to pursue these
claims moving forward, and all further filings in this case must be filed in the name of Andrew J.
Maxwell, the trustee of the Garcias’ estate.
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CONCLUSION
For the above-stated reasons, the court grants Defendant Wells Fargo’s motion to dismiss
[14] in part, dismissing Plaintiffs’ negligence claim without prejudice but allowing Plaintiffs’ ICFA
claim to proceed. Additionally, the court finds that only Maxwell, as trustee of the bankruptcy
estate, has standing to continue pursuing these claims.
ENTER:
Dated: March 31, 2021
_________________________________________
REBECCA R. PALLMEYER
United States District Judge
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