Reed et al v. Bank of America Home Loans et al
Filing
42
MEMORANDUM OPINION. Signed by Judge Peter J. Messitte on 6/10/2016. (kns, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
DEVRON A. REED, et al.
Plaintiffs,
v.
BANK OF AMERICA
HOME LOANS, et al.,
Defendants.
*
*
*
*
*
*
*
*
*
*
*
Civil No.
PJM 13-3265
MEMORANDUM OPINION
Plaintiffs Devron A. Reed and Marja L. Reed (“the Reeds”) 1 have sued Defendants Bank
of America Home Loans and Bank of America, N.A. (hereinafter collectively “BANA”). They
allege violations of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692, et seq.,
the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2601, et seq., the Maryland
Consumer Protection Act (MCPA), Md. Code Ann., Com. Law § 13-101, et seq., as well as
common law breach of contract and fraud. BANA has filed a Motion to Dismiss the First
Amended Complaint (ECF No. 28), which the Reeds oppose. The parties’ submissions have been
reviewed, and the Court finds that no hearing is necessary. For the following reasons, BANA’s
Motion to Dismiss the First Amended Complaint (ECF No. 28) is GRANTED IN PART and
DENIED IN PART.
1
This action originally involved a third Plaintiff, Theodore Lindsey. On October 24, 2014, BANA filed a
Suggestion of Death Upon the Record (ECF No. 29), noting the death of Plaintiff Lindsey. Federal Rule
of Civil Procedure 25(a)(2) provides: “After a party’s death, if the right sought to be enforced survives
only to or against the remaining parties, the action does not abate, but proceeds in favor of or against the
remaining parties. The death should be noted on the record.” Here, the rights to be enforced by Plaintiff
Lindsey were not extinguished on his death, but arguably passed through to the other Plaintiffs. However,
the Court deemed BANA’s Motion to Dismiss Plaintiff Theodore Lindsey (ECF No. 36) MOOT because
Plaintiff Lindsey had already been terminated from the case by the Clerk of Court. See ECF No. 41.
1
I. FACTS 2
On November 29, 2007, the Reeds obtained a loan for $380,000.00 from First Meridian
Mortgage, wherein Mortgage Electronic Registration Systems, Inc. (MERS) was designated as
nominee for the Lender (the “Loan”). The Loan was secured by a Deed of Trust relating to
property located at 15005 Leeland Road, Upper Marlboro, Maryland 20774. Defs.’ Mot. Dismiss
First Amended Complaint (Defs.’ Mot. Dismiss FAC), Ex. A, ECF No. 28-1.
At some point in 2008, the Reeds experienced a major accounting problem with their
original loan servicer, which they say was related to their escrow account. Am. Compl. ¶ 2. The
problem, they aver, was never resolved. Id.
On September 22, 2011, MERS assigned all interest in the Deed of Trust to BANA.
Defs.’ Mot. Dismiss FAC, Ex. B, ECF No. 28-2. According to the Reeds, the accounting
problem they experienced with their original loan survived the transfer. Am. Compl. ¶ 3.
Supposedly due to this accounting problem, the Reeds began to receive notices of intent to
foreclose from BANA. Id. In an effort to resolve the problems they were experiencing with the
Loan, the Reeds applied for a loan modification, and BANA approved them for a permanent loan
modification in August 2012. Id. ¶ 4. In compliance with the initial terms of the modification, the
Reeds returned two signed copies of the modification agreement to BANA by August 21, 2012
and sent certified funds in the amount of $2,111.48 to BANA before September 1, 2012. Id. ¶ 5.
On August 24, 2012, at about the time of the loan modification approval, the Reeds also
received a letter from BANA informing them that their mortgage payment was delinquent. Id.
2
The majority of the facts are as alleged in the First Amended Complaint or the exhibits attached to the
First Amended Complaint. See Fed. R. Civ. P. 10(c). However, the Court also considers facts set forth in
documents attached to BANA’s Motion to Dismiss, which are integral to the Amended Complaint and the
authenticity of which is not disputed. See Sec’y of State For Defence v. Trimble Navigation Ltd., 484 F.3d
700, 705 (4th Cir. 2007) (citing Blankenship v. Manchin, 471 F.3d 523, 526 n.1 (4th Cir. 2006)). Further,
the Court takes judicial notice of matters in the public record, such as state court proceedings. Trimble
Navigation, 484 F.3d at 705 (citing Hall v. Virginia, 385 F.3d 421, 424 (4th Cir. 2004)).
2
¶ 7. The letter stated, “We recently received your payment in the amount of $2,437.72. This was
less than the total amount needed to bring your loan up to date. . . . The total amount due after we
applied your payment is $34,297.32.” Id. Shortly thereafter, on September 3, 2012, the Reeds
received a letter from the Federal Home Loan Mortgage Corporation, or Freddie Mac, stating
that BANA had sent notice that the Reeds’ “mortgage payment has recently been delinquent.” Id.
¶ 9. Since their Loan had just been modified, these letters made no sense to the Reeds. Id. ¶ 10.
The Reeds called BANA to try to resolve the error. Id.
They spoke to several BANA
representatives, including David Everline on September 3, 2012 at 5:25 p.m., and Monique
Whitley on September 4, 2012, at 1:15 p.m., attempting to fix the problem. Id. ¶ 10.
Despite the Reeds’ efforts, the error was not resolved. On March 28, 2013, the Reeds
received yet another letter from BANA advising them that they “were not approved for, and
offered, a Freddie Mac Modification Trial Period Plan.” Id. ¶ 10. The letter also stated that the
Loan was “no longer eligible” for loan modification because, after being offered a Trial Period
Plan for modification, the Reeds had supposedly informed BANA that they did “not wish to
accept the offer.” Id. Several months later, on September 5, 2013, the Reeds received twelve
envelopes by certified mail containing twelve notices of intent to foreclose on the Property. Id.
¶ 12. When they called BANA to inquire about the foreclosure notices and to advise the lender
that a valid loan modification was in place, they were told that there was no record of a loan
modification with respect to the Property. Id.
Between September 5, 2013 and September 20, 2013, the Reeds called BANA
approximately fifteen times in an attempt to resolve the issue, begging the managers to reinstate
the modification, but to no avail. On September 25, 2013, they received another letter from
BANA, stating: “We have reviewed your escalation of our decision that your loan is not eligible
3
for a loan modification. While we realize this decision comes at a difficult time in your life, we
regret to inform you that your loan modification escalation has been denied.” Id. ¶ 11.
Between September 1, 2012 to September 1, 2013, the Reeds made all payments required
under the terms of the modified Loan. Id. ¶ 6.
Since then the Reeds have made no payments toward the Loan. Even so, no foreclosure
action has ever been filed. 3
On the basis of the above facts, the Reeds allege that BANA has: engaged in oppressive
and abusive conduct in connection with their Loan, in violation of the FDCPA, 15 U.S.C.
§ 1692(d) (Count I); employed unfair and unconscionable means to collect on their Loan in
violation of the FDCPA, 15 U.S.C. § 1692(f) (Count II); used unfair or deceptive trade practices
in violation of the MCPA, Md. Code Ann., Com. Law § 13-301 (Counts III and IV); committed
fraud 4 (Count VII); breached the loan modification agreement with the Reeds and breached the
implied covenant of good faith and fair dealing (Count V); and failed to provide the Reeds with
certain information when rejecting their loan modification application in violation of Regulation
X, 12 C.F.R. § 1024.41(d), 5 one of the implementing regulations of RESPA (Count VI).
3
The Reeds, however, suggest that BANA has in fact initiated a foreclosure action, and they allege that
they saw their home listed on the internet as a foreclosure property in Prince George’s County, Maryland.
Am. Compl. ¶¶ 14-15. BANA insists that it has not filed an order to docket or other foreclosure complaint
regarding the Property, and asks that the Court take judicial notice of this fact, which can be confirmed by
a review of circuit court records for Prince George’s County. The Court hereby takes judicial notice that
as of the date of this Memorandum Opinion, there is no record of a foreclosure proceeding against the
Property in Prince George’s County Circuit Court. The Court instructs the parties to advise the Court as
soon as possible if state foreclosure proceedings are initiated during the pendency of this action.
4
The Reeds style this Count as “Intentional Misrepresentation.” Intentional misrepresentation is not a
cause of action in itself, but rather an element of a common law fraud claim. The Court will assume that
the Reeds intended to bring Count VII as a fraud claim.
5
The Reeds style this Count as “Violation of the Dodd-Frank Wall Street Reform and Consumer Act”
and cite § 1413 of the Dodd-Frank Act in support of their claims. This particular provision of the DoddFrank Act amends the Truth-in-Lending Act (TILA) to allow consumers to assert a defense of
recoupment in the context of loan origination where a creditor violates the TILA, 15 U.S.C. § 1639. As
asserted by BANA, Dodd Frank Act § 1413 has no apparent applicability to this case, given that the
Reeds do not bring any claims regarding their Loan’s origination. The Reeds have subsequently clarified
4
As for damages, the Reeds allege that they have been harmed because BANA has
initiated foreclosure proceedings. See Am. Compl. ¶¶ 13-15. This allegation, as will be addressed
in Part III.A, infra, is patently at odds with facts in the public record. 6 Of more substance, the
Reeds also claim that Plaintiff Marja Reed’s application for a personal loan was recently rejected
when she made application to another bank. Id. ¶ 16. She was purportedly told the reason for the
rejection was that her BANA loan was in default and delinquent by four months. Id. Finally, the
Reeds say that they have experienced stress and worry over losing their home, which has taken a
toll on the emotional, mental, and physical health of the family. Id. ¶ 17.
BANA has moved to dismiss all counts, arguing pursuant to Federal Rule of Civil
Procedure 12(b)(6) that the Reeds have failed to state a claim upon which relief may be granted.
II. STANDARDS OF LAW
Federal Rule of Civil Procedure 8(a) prescribes “liberal pleading standards,” requiring
only that a plaintiff submit a “short and plain statement of the claim showing that [he or she] is
entitled to relief.” Erickson v. Pardus, 551 U.S. 89, 93-94 (2007) (citing Fed. R. Civ. P. 8(a)(2)).
If pleadings allege fraud or mistake, “a party must state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9(b). Under the heightened pleading standard of
Rule 9(b), “[t]hese circumstances are ‘the time, place, and contents of the false representations,
as well as the identity of the person making the misrepresentation and what he obtained
thereby.’” Weidman v. Exxon Mobil Corp., 776 F.3d 214, 219 (4th Cir. 2015) (quoting Harrison
v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999)).
that, in Count V, they actually intended to make a claim for violation of Regulation X, 12 C.F.R.
§ 1024.41 (Regulation X was amended by the Dodd Frank Act). Pls.’ Opp’n to Defs.’ Mot. Dismiss
(Plfs.’ Opp’n) 14-15, ECF No. 33.
6
See text accompanying note 3, supra.
5
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a plaintiff
must plead facts sufficient to “state a claim to relief that is plausible on its face.” Bell Atl. Corp.
v. Twombly, 550 U.S. 554, 570 (2007). This standard requires “more than a sheer possibility that
a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Although a court
will accept factual allegations as true, “[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Id.
A district court has the discretion to grant a motion to dismiss with or without prejudice.
Hinks v. Bd. of Educ. of Harford Cnty., CIV.A. WDQ–09–1672, 2010 WL 5087598, at *2 (D.
Md. Dec. 7, 2010). Dismissal with prejudice is proper if there is no set of facts the plaintiff could
present to support his or her claim. Id. (citing Cozzarelli v. Inspire Pharm., Inc., 549 F.3d 618,
630 (4th Cir. 2008)).
III. ANALYSIS
A. Damages
As a preliminary matter, the Court considers whether and to what extent there may be
cognizable damages in this action. While these issues have not been raised or emphasized by any
party at this stage, they obviously will have a bearing on the future course of this proceeding.
The Reeds suggest throughout the Amended Complaint that they have suffered because
of BANA’s alleged initiation of a foreclosure suit with respect to the Property. Am. Compl.
¶¶ 14, 15, 32, 49, 56. They say that they have been traumatized by seeing their home listed for
sale on the Internet and by observing persons outside their house taking photographs of the
Property. Id. ¶¶ 15, 56. These claims, however, appear to be entirely without foundation. The
Court can find no record whatsoever of a foreclosure action related to the Property. 7 As such, it
7
See text accompanying note 3, supra.
6
will not entertain a claim for any damages arising out of a nonexistent foreclosure action, to the
extent that they are raised in the Amended Complaint.
The Reeds also claim mental and emotional damages stemming from BANA’s alleged
refusal to recognize the existence of a valid modification agreement and as a result of repeated
notifications of intent to foreclose. Am. Compl. ¶¶ 14, 17, 32, 40. These claims may be viable
under the FDCPA 8 and MCPA. Dorris v. Accounts Receivable Mgmt., Inc., No. CIV.A. GLR-113453, 2013 WL 1209629, at *7 (D. Md. Mar. 22, 2013) (“Actual damages under the FDCPA
include damages for emotional distress.”); Barry v. EMC Mortgage Corp., No. CIV.A. DKC 103120, 2012 WL 3595153, at *8 (D. Md. Aug. 17, 2012) (noting that emotional damages
constitute an actual injury or loss compensable under the MCPA). Such harms, however, would
generally not be recoverable, however, under RESPA, 9 nor would they be in connection with
state law claims for breach of contract and fraud. Aghazu v. Severn Sav. Bank, No. PJM 15-1529,
2016 WL 808823, at *10 (D. Md. Mar. 2, 2016) (noting that damages under RESPA are usually
limited to “pecuniary or economic damages that flow directly” from violation of the Act);
Richter v. N. Am. Van Lines, Inc., 110 F. Supp. 2d 406, 413 (D. Md. 2000) (citing Restatement
(Second) of Contracts, § 353 (1981)) (“The general rule is that emotional disturbance is not a
damage recognized for breach of contract.”); Hoffman v. Stamper, 867 A.2d 276, 298 (Md. 2005)
(holding that a plaintiff in a fraud action seeking noneconomic damages for emotional injury
must show some objectively ascertainable consequential physical injury).
8
The Reeds must, however, eventually show evidence that their claims for emotional distress damages
under the FDCPA are “sufficiently articulated” and “not conclusory” in order to survive summary
judgment and recover under the Act. Dorris v. Accounts Receivable Mgmt., Inc., No. CIV.A. GLR-113453, 2013 WL 1209629, at *7 (D. Md. Mar. 22, 2013) (citing Doe v. Chao, 306 F.3d 170, 179-82 (4th
Cir. 2002)).
9
Even if claims for emotional distress were tenable under RESPA, the Court dismisses the Reeds’
RESPA (Regulation X) claims on other grounds, as discussed in Part III.F., infra.
7
Finally, the Reeds assert that Plaintiff Marja Reed was denied a personal bank loan as a
result of BANA’s actions. Am. Compl. ¶ 16. With respect to some Counts, the Reeds also appear
to allege that they should be able to recover what they term collection costs and late fees. Id.
¶¶ 38, 42. While, as a general proposition, pecuniary or economic damages may be cognizable
with respect to the causes of action alleged in the Amended Complaint, the Court observes that
the Reeds’ allegations of economic harm are fairly nebulous at this stage. Indeed, the Court
poses this question to all parties: Even if BANA has engaged in unlawful conduct vis-à-vis the
Reeds, what actual economic harm have the Reeds suffered, given that they still apparently
occupy the Property? As this case goes forward, the Reeds will have to demonstrate their
entitlement to recover pecuniary damages with much greater precision during discovery.
The Court now addresses BANA’s arguments to dismiss each of the Reeds’ claims.
B. Fair Debt Collection Practices Act Claims (Counts I and II)
In Count I, the Reeds claim that BANA violated the FDCPA, 15 U.S.C. § 1692d, by: (i)
falsely advising them that they would qualify for a loan modification and that this modification
would prevent foreclosure; and (ii) accepting payments from the Reeds under the guise that these
payments were being applied pursuant to the modification agreement. Am. Compl. ¶ 25. In
Count II, the Reeds allege that BANA violated the FDCPA, 15 U.S.C. § 1692f by (i) sending
twelve notices of foreclosure; (ii) advising the Reeds that there was no record of a loan
modification agreement; (iii) forcing the Reeds to repeatedly contact BANA with respect to the
loan modification agreement; and (iv) failing to complete the loan modification in a timely
fashion. Am. Compl. ¶ 30. In response to these allegations, BANA contends that Counts I and II
fail to state a claim because BANA is not a “debt collector” under the FDCPA. Defs.’ Mot.
8
Dismiss FAC 5-6, ECF No. 28. BANA argues, instead, that it is a “creditor,” and thus exempt
from liability under the FDCPA. Id.
At this stage at least, the Court declines to dismiss the Reeds’ FDCPA claims on this
ground.
In general, the FDCPA prohibits abusive, deceptive, or unfair debt collection practices.
See 15 U.S.C. § 1692. Fifteen U.S.C. § 1692d bars a debt collector from engaging in any conduct
“to harass, oppress, or abuse any person in connection with the collection of a debt.” Fifteen
U.S.C. § 1692f provides that a “debt collector may not use unfair or unconscionable means to
collect or attempt to collect any debt.” A consumer with debt may bring a private action to
enforce these provisions under 15 U.S.C. § 1692k. To state a claim under the FDCPA, the
consumer must allege that: (1) the defendant is a “debt collector” under the FDCPA, (2) the
consumer is the “object of a collection activity arising from consumer debt,” and (3) the
defendant engaged in a “debt collection activity” prohibited by the FDCPA. Ademiluyi v.
PennyMac Mortg. Inv. Trust Holdings I, LLC, 929 F. Supp. 2d 502, 524 (D. Md. 2013) (quoting
Stewart v. Bierman, 859 F. Supp. 2d 754, 759 (D. Md. 2012)) (internal quotations omitted).
With respect to the first prong, the FDCPA defines a “debt collector,” in part, as a person
who “regularly collects or attempts to collect, directly or indirectly, debts owed or due or
asserted to be owed or due another.” 15 U.S.C. § 1692a(6). A “creditor,” on the other hand, is
“any person who offers or extends credit creating a debt or to whom a debt is owed,” 15 U.S.C.
§ 1692a(4). 10 Debt collector and creditor are “mutually exclusive” categories under the FDCPA,
10
Accordingly, the FDCPA does not apply to any person collecting on a debt that the person itself
originated. See 15 U.S.C. § 1692a(6)(F)(ii).
9
Schlosser v. Fairbanks Capital Corp., 323 F.3d 534, 536 (7th Cir. 2003), and the FDCPA applies
only to the collection activity of debt collectors, see 15 U.S.C. § 1692a(6). 11
In the debt purchaser context, such as obtains in the case at bar, a person is classified as a
debt collector or a creditor depending on that person’s aim or intention when acquiring the
consumer debt. Under the FDCPA, a creditor does not include “any person to the extent that he
receives an assignment or transfer of a debt in default solely for the purpose of facilitating
collection of such debt for another.” 15 U.S.C. § 1692a(4). Courts in this jurisdiction have thus
concluded that “the assignee or transferee of a debt in default is a debt collector [and not a
creditor] where it purchases the debt ‘solely for the purpose of collection.’” Ademiluyi, 929 F.
Supp. 2d at 525 (D. Md. 2013) (emphasis added); see also Allen v. Bank of Am. Corp., No. CIV.
CCB-11-33, 2011 WL 3654451, at *7 n.9 (D. Md. Aug. 18, 2011) (“[W]here a servicer believes
a loan to be in default at the time it commences servicing, courts have found it is not exempt
from the FDCPA’s definition of ‘debt collector.’”). Accordingly, a person that acquires a loan
exclusively for the purpose of collecting on a debt should be considered a “debt collector,” while
a person that purchases a loan for the purpose of servicing it may qualify as a “creditor.” See
Ademiluyi, 929 F. Supp. 2d at 525-26.
Applying these principles to this case, the key question is whether BANA, as assignee of
the Loan, qualifies as either a creditor or a debt collector under the FDCPA. The Reeds do not
expressly allege that their Loan was in default at the time of the Loan’s transfer to BANA. See
Defs.’ Mot. Dismiss FAC 6; see also Am. Compl. ¶¶ 2-3 (alleging a “major accounting problem”
11
Congress exempted creditors from liability under the FDCPA “because, unlike debt collectors, they
‘generally are restrained by the desire to protect their good will when collecting past due accounts.’”
Ademiluyi, 929 F. Supp. 2d at 525 (quoting S. Rep. No. 95-382, at 2 (1977)). Debt collectors, on the other
hand, “might lack such self-restraint because they would have ‘no future contact with the consumer and
often are unconcerned with the consumer’s opinion of them.’” Ademiluyi, 929 F. Supp. 2d at 525 (quoting
S. Rep. No. 95-382, at 2 (1977)).
10
at the time of the Loan’s transfer to BANA). But, contrary to BANA’s suggestion, this omission
does not foreclose a viable FDCPA claim. The Reeds do state that “[s]hortly after” BANA’s
acquisition of the Loan, they “began to get notices of intent to foreclose [sic].” Am. Compl. ¶ 3.
This allegation, in the Court’s preliminary view, provides a plausible basis for concluding that
BANA may have purchased the Loan believing it to be in default. As such, BANA could very
well have acquired the Loan simply to collect on the underlying debt. See Allen, 2011 WL
3654451, at *7 n.9; see also Galante v. Ocwen Loan Servicing LLC, No. CIV.A. ELH-13-1939,
2014 WL 3616354, at *30 (D. Md. July 18, 2014) (“In my view, defendant’s central argument in
support of dismissal—that because plaintiffs have alleged that they were not, in fact, in default,
they effectively conceded that Ocwen is not a debt collector—is too clever by a half. It is
noteworthy that, approximately two weeks after acquiring its interest in the mortgage, Ocwen
allegedly sent plaintiffs a Notice of Intent to Foreclose. Here, as in Allen, the servicer’s alleged
treatment of the loan as being in default at the time of the acquisition of its interest is sufficient
to qualify Ocwen as a ‘debt collector.’”).
Ultimately, a “fact-intensive inquiry” is necessary to determine whether the Reeds are
correct that defendants purchased the Loan “solely” for the purpose of collection, or whether, as
BANA suggests, the Loan was purchased only for servicing. See Ademiluyi, 929 F. Supp. 2d at
526. Since such an inquiry is not appropriate for resolution prior to discovery, BANA’s Motion
to Dismiss Counts I and II is DENIED WITHOUT PREJUDICE. BANA, of course, may raise
the argument that it is not a “debt collector” on summary judgment, if appropriate.
C. Maryland Consumer Protection Act Claims (Counts III and IV)
In Counts III and IV, the Reeds allege that BANA violated the MCPA, Md. Code Ann.,
Com. § 13-301(9) by falsely representing to the Reeds that it would enter a loan modification
11
agreement so that the Reeds would not lose their home, among other claims. Am. Compl. ¶¶ 3738, 41-42. In its Motion to Dismiss the First Amended Complaint, BANA argues that the Court
should dismiss the Reeds’ “laundry list” of MCPA claims because the Reeds have failed to
satisfy the heightened pleading standards under Federal Rule of Civil Procedure 9(b). Defs.’
Mot. Dismiss FAC 6-7.
The Court disagrees with BANA.
The Maryland Consumer Protection Act (“MCPA”) prohibits “unfair or deceptive trade
practices.” Md. Code Ann., Com. § 13-301. In general, the MCPA proscribes fifteen broad
categories of unfair or deceptive trade practices. Subsection 13-301(9), the provision at issue
here, counts among these practices:
Deception, fraud, false pretense, false premise, misrepresentation, or knowing
concealment, suppression, or omission of any material fact with intent that the consumer
rely on the same in connection with:
(i)
The promotion or sale of any consumer goods, consumer realty, or consumer
service;
(ii)
A contract or other agreement for the evaluation, perfection, marketing, brokering
or promotion of an invention; or
(iii) The subsequent performance of a merchant with respect to an agreement of sale,
lease, or rental.
Md. Code Ann., Com. § 13-301(9). 12
To bring an MCPA claim, a plaintiff must allege: “(1) an unfair or deceptive practice or
misrepresentation that is (2) relied upon, and (3) causes them actual injury.” Kaswell v. Wells
Fargo Bank, N.A., No. CIV.A. RDB-13-2315, 2014 WL 3889183, at *5 (D. Md. Aug. 6, 2014)
(quoting Galante, 2014 WL 3616354, at *25) (internal quotations omitted). In alleging a
violation of § 13-301(9), as the Reeds do here, a plaintiff must also allege scienter – i.e., a
knowing or intentional misrepresentation or omission on behalf of the Defendants. See Luskin’s,
12
The Court observes that an issue not raised by either party is whether some other component or
subsection of the statute may apply to BANA’s alleged conduct in this case.
12
Inc. v. Consumer Protection Division, 726 A.2d 702, 717 (Md. 1999). 13 In addition, a plaintiff
must satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) if his
or her MCPA claim sounds in fraud. See Allen, 2011 WL 3425665, at *9; see also Johnson v.
Wheeler, 492 F. Supp. 2d 492, 509 (D. Md. 2007).
In Counts III and IV, the Reeds assert in essence that BANA made various false
statements with respect to their prospects for loan modification. The Court thus agrees with
BANA that BANA’s alleged violations of the MCPA sound in fraud, and that Rule 9(b) is the
appropriate metric for evaluating the sufficiency of the Reeds’ allegations, see id. The Court does
not agree with BANA, however, that the MCPA claims have not been made with sufficient
particularity.
To begin, the Reeds have alleged a number of specific facts to support their claim that
BANA made false statements or misrepresentations within purview of § 13-301(9). They have
pled the dates and contents of apparently numerous contradictory letters and statements made by
BANA and its employees with respect to the loan modification agreement. Further, according to
the Amended Complaint, BANA represented to the Reeds that the loan modification terms were
in effect as of August 24, 2012, and the Reeds say that they complied with the modification
terms by returning two signed copies of the modification agreement by August 21, 2012 and
remitting certified funds in the amount of $2,111.48 to BANA before September 1, 2012. Am.
Compl. ¶¶ 4-5. The Reeds also allege that they timely made all payments in compliance with the
modification agreement from September 1, 2012 to September 1, 2013 (and they say that they
have receipts to verify the payments). Id. ¶¶ 6, 48. Yet, despite apparently entering into a loan
modification agreement with BANA, the Reeds contend that they received a letter from BANA
13
Not all of the proscribed categories of conduct under § 13-301 require scienter. Subsections 13-301(1)
and (3), for example, do not. See Luskin’s, 726 A.2d at 718.
13
on August 24, 2012, informing them that they were in default, and another letter from BANA on
March 28, 2013, stating that they were denied a loan modification because that they did not wish
to accept the offer of a modification agreement. Id. ¶¶ 7, 10.
The Reeds specifically identify the names of two BANA representatives to whom they
spoke over the phone in an effort to resolve the problems they were experiencing with their loan
modification, including the dates and times of the phone calls. Id. Notwithstanding their efforts
to resolve the issues with the processing of their loan modification application, the Reeds allege
that they thereafter received twelve notices of foreclosure on September 5, 2013. Id. ¶ 12. They
also state that they received a letter from BANA on September 25, 2013 informing them that
their Loan was not eligible for modification. Id. ¶ 11.
Beyond this, the Reeds adequately allege reliance and damages in connection with these
misrepresentations. They state that they remitted certified funds to BANA in August 2012,
relying on the fact that they would receive the loan modification if they complied with the terms
of the contract they signed. Id. ¶ 5. They say they continued to make payments pursuant to the
loan modification agreement between September 1, 2012 to September 1, 2013, based on their
understanding that this agreement would be honored by Defendants. Id. ¶ 6. They allege that they
were harmed by BANA’s alleged misrepresentations, citing actual and emotional damages: that
they lost the money they paid to BANA under the terms of the modification agreement, and that
they suffered emotional harm from the threat of losing their home. 14 Id. ¶ 40.
In contrast, as to the scienter element of the Reeds’ § 13-301(9) claims, the Court notes
that the Reeds do not provide as many detailed facts in support. They broadly allege that
BANA’s conduct with respect to the misrepresentations was intentional or willful, see id. ¶¶ 25,
27, 42, 53, but these allegations are, at best, conclusory. Even so, various other facts alleged
14
Again, emotional damages may be recoverable under the MCPA. See Part III.A, supra.
14
provide a plausible basis for the Court to infer that BANA acted with knowledge. The Amended
Complaint, for example, makes clear that the Reeds contacted BANA about their loan
modification agreement on multiple occasions, that BANA accepted the payments made pursuant
to the loan modification agreement, and that BANA nevertheless refused to acknowledge that
such an agreement was in place. Id. ¶¶ 6, 8, 10, 12, 14. Given this course of action, the Court
finds that it is plausible that BANA’s conduct with respect to the various alleged
misrepresentations was knowing. Although barely, the Reeds’ allegations of scienter here do
pass muster.
The Court concludes that the Reeds have pled their MCPA claims with sufficient
particularity. For this reason, BANA’s motion to dismiss Counts III and IV is DENIED
WITHOUT PREJUDICE.
D. Fraud Claim (Count VII)
In Count VII, the Reeds allege that BANA is liable for “intentional misrepresentation”
for failing to provide a loan modification and for sending notices of intent to foreclose after the
Reeds made the required payments and complied with the terms of the agreement. Am. Compl.
¶¶ 53-56. BANA argues in response that “intentional misrepresentation” is not a cause of action
in itself, but rather an element of a fraud claim. Defs.’ Mot. Dismiss FAC 11. BANA contends
that, even if the Court were to treat Count VII as a fraud claim, the Reeds failed to allege
sufficient facts with particularity to support a claim for fraud. Id. 11-12.
The Court agrees that Count VII should properly be styled as a fraud claim. 15 But for the
reasons discussed in relation to the Reeds’ MCPA claims, the Court again declines to dismiss the
allegations.
15
The Court will treat Count VII as a fraud claim, despite the fact that it was mislabeled. Plaintiff’s
counsel is instructed to properly refer to this claim as one in fraud in the future.
15
To allege common law fraud in Maryland, a plaintiff must plead (1) that the defendant
made a false representation to the plaintiff, (2) that its falsity was either known to the defendant
or that the representation was made with reckless indifference as to its truth, (3) that the
misrepresentation was made for the purpose of defrauding the plaintiff, (4) that the plaintiff
relied on the misrepresentation and had the right to rely on it, and (5) that the plaintiff suffered
compensable injury resulting from the misrepresentation. Moscarillo v. Prof’l Risk Mgmt. Servs.,
921 A.2d 245, 254 (Md. 2007). Allegations of fraud implicate the heightened pleading standard
under Fed. R. Civ. P. 9(b). Harrison, 176 F.3d at 784.
Claims involving misrepresentations or false statements to consumers which are
actionable under the MCPA may not necessarily constitute common law fraud. 16 The MCPA
bars a much broader range of “unfair or deceptive trade practices,” see § 13-301, 17 many MCPA
claims do not require scienter on the part of the defendant, Luskin’s, 726 A.2d at 718, 18 and the
MCPA permits recovery for emotional damages, which are generally not recoverable in common
law fraud actions, Hoffman, 867 A.2d at 298. Here, however, the requisite elements for pleading
common law fraud overlap significantly with the elements of the MCPA claim alleged by the
Reeds, Md. Code Ann., Comm. § 13-301(9). Both causes of action require that the Reeds allege
that (i) BANA made misrepresentations or false statements, (2) with knowledge, and that (3) the
16
Indeed, the MCPA was designed to make claims involving deceptive practices easier to pursue. As
stated in the text of the Act itself, the Maryland legislature found that existing laws and causes of action
(such as common law fraud) were “inadequate,” “poorly coordinated,” and “not widely known” enough to
provide protection to consumers against “the increase of deceptive practices in connection with sales of
merchandise, real property, and services and the extension of credit.” Md. Code Ann., Com. Law § 13102.
17
The MCPA “defines unfair or deceptive trade practices with a nonexclusive enumeration of [fifteen]
practices” listed in the “substantive core” of the Act, § 13-301. Comment, Maryland’s Consumer
Protection Act: a Private Cause of Action for Unfair or Deceptive Trade Practices, 38 Md. L. Rev. 733,
740 (1979). These practices are generally of three different types: prohibited (1) representations or
statements, (2) telephone solicitation practices, and (3) other miscellaneous acts. Id. at 740-41.
18
See text accompanying note 13, infra. See also 38 Md. L. Rev. at 742 (noting that only three of the
categories of proscribed conduct under § 13-301 require proof of scienter).
16
Reeds relied upon these misrepresentations and (4) suffered damages as a result. Compare
Moscarillo 921 A.2d at 254 (listing the elements of a common law fraud claim), with Kaswell,
2014 WL 3889183, at *5 (listing the elements of an MCPA claim), and Luskin’s, Inc. v.
Consumer Protection Division, 726 A.2d at 717 (holding that § 13-301(9) MCPA claims require
proof of scienter).
As previously discussed at length, the Reeds have alleged with sufficient particularity
that BANA made various misrepresentations or false statements about the loan modification, that
the Reeds relied on these misrepresentations, and that BANA made the representations and
statements with knowledge of their falsity (or reckless disregard for the truth, as permitted to
state a common law fraud claim). While the Reeds may not recover for emotional damages with
respect to their common law fraud claim, they also allege actual harm in the amount of the sums
paid to BANA pursuant to the loan modification agreement, which would be recoverable in a
common law fraud claim. For these reasons, then, the Court will permit the Reeds’ claim of
common law fraud to proceed, and BANA’s Motion to Dismiss this Count is DENIED
WITHOUT PREJUDICE. 19
E. Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair
Dealing Claims (Count V)
In Count V, the Reeds contend that BANA breached the loan modification agreement of
August 2012 when it terminated the modification terms without notice. Am. Compl. ¶¶ 43-44.20
The Reeds also appear to bring a claim for breach of the implied covenant of good faith and fair
19
This is not to say that, should the matter go to trial, the Reeds would be entitled to a double recovery –
one under the MCPA count and one under the common law fraud count.
20
The Reeds also suggest that BANA breached the modification agreement by initiating foreclosure
proceedings. But as earlier stated, BANA has not actually filed any foreclosure action against the Reeds.
To the extent, therefore, that Count V is premised upon a factual assertion that BANA breached its
agreement with the Reeds by foreclosing upon them, BANA’s motion to dismiss this claim is
GRANTED.
17
dealing. In response, BANA asserts the Reeds have failed to provide sufficient facts to support a
breach of contract claim. Defs.’ Mot. Dismiss FAC 8. BANA also argues that the breach of
implied covenant of good faith and fair dealing claim should be dismissed as a matter of law,
because Maryland law does not recognize such a claim separate from a breach of contract claim.
Id. 8-9.
With respect to BANA’s first argument, the Court disagrees and finds that the Reeds
have alleged facts sufficient to support their breach of contract claim.
Under Maryland law, the elements of a breach of contract claim are (1) a contractual
obligation, and (2) a material breach of that obligation. Cowan Sys., LLC v. Choctaw Transp.,
Inc., No. WDQ–11–CV–0367, 2011 WL 2791248, at *2 (D. Md. July 14, 2011). In support of
their breach of contract claim, the Reeds assert that they entered into a loan modification
agreement in August 2012. Am. Compl. ¶ 43. They claim that this agreement included the
following provision:
If my representation and covenants in Section 1 continue to be true in all material
respects and all preconditions to the modification set forth in Section 2 have been met,
the Loan Documents will automatically become modified on September 1, 2012 (the
“Modification Effective Date”) and all unpaid late charges that remain unpaid will be
waived.
Id. ¶ 45. The Reeds then say that, despite their compliance with the language of the agreement
and BANA’s acceptance of their payments, id. ¶ 46, the loan modification never went into effect,
and that BANA effectively terminated the agreement in March 2013, id. ¶ 10. In light of these
allegations, the Court concludes that the Reeds have sufficiently pled (1) that BANA owed them
a contractual obligation under the terms of the loan modification agreement, and (2) that BANA
breached that obligation.
18
Concerning the Reeds’ breach of implied covenant of good faith and fair dealing claim,
however, the Court agrees with BANA. “Maryland does not recognize a separate cause of action
for breach of the implied covenant of good faith and fair dealing; the allegations making up such
a claim should be pursued under a plaintiff’s breach of contract claim.” Magnetti v. Univ. of
Maryland, 909 A.2d 1101, 1105 n.3 (2006), aff’d, 937 A.2d 219 (2007). Thus, the Court will
dismiss any separate claim made by the Reeds against BANA for breach of the implied covenant
of good faith and fair dealing.
For these reasons, BANA’s motion to dismiss Count V is DENIED WITHOUT
PREJUDICE in so far as BANA seeks to dismiss the Reeds’ breach of contract claim, but
BANA’s motion is GRANTED with respect to any separately alleged breach of the implied
covenant of good faith and fair dealing claim.
F. Regulation X (RESPA) Claim (Count VI)
In Count VI, the Reeds claim that BANA violated Regulation X, 12 C.F.R. § 1024.41, 21
when BANA failed to provide the Reeds with the reasons for denying their loan modification
application, and when BANA did not provide the Reeds with the results of any calculation used
to deny the application. Am. Compl. ¶ 48. In moving to dismiss this Count, BANA argues,
among other things, that this Count should be dismissed with prejudice because the conduct at
issue occurred in 2013 – a date before the effective date of the applicable regulation. Defs.’ Mot.
Dismiss FAC 9, 11.
The Court agrees with BANA.
21
As noted above, the Reeds cite an inappropriate provision of the Dodd-Frank Act in support of their
claims in Count VI. See text accompanying note 5, supra. They have subsequently clarified that they
intended to bring their claims under 12 C.F.R. § 1024.41. Rather than require the Reeds to re-plead this
Count, the Court will assume that it was properly pled for purposes of the motion to dismiss.
19
Twelve C.F.R. § 1024.41 is a Consumer Financial Protection Bureau (CFPB) regulation
promulgated pursuant to § 1022(b) of the Dodd-Frank Act, 12 U.S.C. 5512(b), and the Real
Estate Settlement Procedures Act, 12 U.S.C. § 2601, et seq. Among other things, it bars a loan
servicer from foreclosing on a property in certain circumstances if the borrower has submitted a
complete loan modification application. Twelve C.F.R. 1024.41(d), the specific provision at
issue in this case, requires loan servicers to provide certain information to borrowers if their loss
mitigation applications are denied.
Notably, 12 C.F.R. § 1024.41 became effective on January 10, 2014. The conduct at issue
in this Count, however, occurred in March 2013 (when BANA sent the Reeds a letter notifying
them that their loan was no longer eligible for a modification) and again in September 2013
(when BANA sent the Reeds another letter informing them that their loan modification
escalation was denied) – dates that occurred decidedly before 12 C.F.R. § 1024.41 went into
effect. See Am. Compl. ¶¶ 10, 11. The key question that the Court must address, then, is whether
12 C.F.R. § 1024.41 is retroactive, such that it may apply to BANA’s 2013 conduct.
In general, “[r]etroactivity is not favored in the law.” Bowen v. Georgetown Univ. Hosp.,
488 U.S. 204, 208 (1988). As the Fourth Circuit has stated, “[t]his maxim is reflected in a
presumption against statutory retroactivity that is ‘deeply rooted in our jurisprudence, and
embodies a legal doctrine centuries older than our Republic.’” Gordon v. Pete’s Auto Serv. of
Denbigh, Inc., 637 F.3d 454, 458 (4th Cir. 2011) (quoting Landgraf v. USI Film Products, 511
U.S. 244, 265 (1994)). Indeed, courts should generally not construe laws to have retroactive
effect “unless their language requires this result.” Bowen, 488 U.S. at 208. In Fernandez-Vargas
v. Gonzales, the Supreme Court adopted the following test for determining whether a statute or
regulation should retroactively apply to conduct which preceded the law’s enactment:
20
We first look to whether Congress has expressly prescribed the statute’s proper reach,
and in the absence of language as helpful as that we try to draw a comparably firm
conclusion about the temporal reach specifically intended by applying our normal rules of
construction. If that effort fails, we ask whether applying the statute to the person
objecting would have a retroactive consequence in the disfavored sense of affecting
substantive rights, liabilities, or duties [on the basis of] conduct arising before [its]
enactment. If the answer is yes, we then apply the presumption against retroactivity by
construing the statute as inapplicable to the event or act in question owing to the absen[ce
of] a clear indication from Congress that it intended such a result.
548 U.S. 30, 37–38 (2006) (internal citations and quotations omitted).
Courts in this jurisdiction have not expressly addressed the issue of whether 12 C.F.R.
§ 1024.41 should apply retroactively. However, in Campbell v. Nationstar Mortgage, 611 F.
App’x 288, 296-97 (6th Cir. 2015), cert. denied, 136 S. Ct. 272 (2015), the Sixth Circuit applied
the Supreme Court’s Fernandez-Vargas analysis to the regulation, and concluded that the
regulation should not apply retroactively. Addressing the first prong of the Fernandez-Vargas
test, the court reasoned that the regulation’s January 10, 2014 effective date reflected an intent
that the provision not apply to conduct occurring prior to that date. Id. at 297. The court also
emphasized that the effective date was the product of an important compromise between the
interests of consumer groups and industry. Id. Citing the history of the regulation, the Sixth
Circuit noted that the CFPB received comments both from consumer groups (which generally
advocated for earlier effective dates) and from industry (which generally urged a later effective
date to allow time to comply with the new rules), and that it “struck a balance” among those
competing interests by selecting the January 10, 2014 effective date. Id. (citing Mortgage
Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), 78 FR 10696–
01 (February 14, 2013) (codified at 12 C.F.R. pt. 1024)). The court also highlighted that the
January 10, 2014 effective date brought the amended Regulation X’s effective date “in line with
the effective dates of other regulations that the CFPB issued to implement provisions of the
21
Dodd Frank Act,” in an effort to facilitate compliance. Campbell, 611 Fed. App’x at 297 (citing
Amendments to the 2013 Mortgage Rules Under the Equal Credit Opportunity Act (Regulation
B), Real Estate Settlement Procedures Act (Regulation X), and the Truth in Lending Act
(Regulation Z), 78 Fed. Reg. 60382–01, 60384 (October 1, 2013)).
Given the absence of clear language in the regulation mandating retroactive application,
and given the regulation’s legislative history, the Court agrees with the Sixth Circuit’s analysis
and concludes, for the reasons highlighted by the court in Campbell, that 12 C.F.R. § 1024.41
should not apply retroactively. 22 See Campbell, 611 Fed. App’x 297-98; see also Lage v. Ocwen
Loan Servicing LLC, No. 14-CV-81522, 2015 WL 7294854, at *8-10 (S.D. Fla. Nov. 19, 2015)
(“[I]n order for a borrower to avail himself or herself of Regulation X’s protections, the
borrower’s application must be received by the servicer after the Effective Date. . . . By imposing
an effective date of January 10, 2014, the CFPB intended to institute a clear starting point with
respect to when a servicer’s obligations would be triggered.”).
Accordingly, BANA’s motion to dismiss Count VI is GRANTED, and the Reeds’
Regulation X claim is DISMISSED WITH PREJUDICE.
22
The Court need not address the second inquiry in the Fernandez-Vargas test – namely, whether
applying the regulation to the party objecting (in this case, BANA) would affect that party’s rights. Put
simply, the Court finds that applying normal rules of construction to the regulation is sufficient to satisfy
the Court that 12 C.F.R. § 1024.41, with a clearly proscribed “effective date,” is not retroactive.
Fernandez-Vargas, 548 U.S. at 37-38 (stating that a court need only look to the consequences of
retroactive application in a particular case if the effort to draw “a comparably firm conclusion about [a
statute’s] temporal reach” “fails”). Even if the Court were to address the second inquiry in the FernandezVargas analysis, however, the Court finds that the retroactive application of the regulation would clearly
affect BANA’s substantive rights, as it would impose many new duties on BANA and expose it to
liability under RESPA for failing to comply with the extensive requirements of the new regulation.
22
IV. CONCLUSION
For the foregoing reasons, BANA’s Motion to Dismiss the First Amended Complaint
(ECF No. 28) is GRANTED IN PART and DENIED IN PART, as set forth in the
accompanying Order.
/s/
_
PETER J. MESSITTE
UNITED STATES DISTRICT JUDGE
June 10, 2016
23
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?