Traut et al v. Homeward Residential, Inc. et al

Filing 172

Judge Nathaniel M. Gorton: ORDER entered MEMORANDUM AND ORDER. For the foregoing reasons, Quantum's motion for summary judgment (Docket No. 119 ) is DENIED and Rushmore and the Trust's motion for summary judgment (Docket No. 124 ) is ALLOWED.So ordered. (Franklin, Yvonne)

United States District Court
District of Massachusetts

CONRAD S. TRAUT and
CELINA M. TRAUT,
Plaintiffs
v.
QUANTUM SERVICING CORPORATION,
RUSHMORE LOAN MANAGEMENT
SERVICES LLC, ELIZON MASTER
PARTICIPATION TRUST I and
US BANK TRUST N.A.,
Defendants.

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Civil Action No.
15-13401-NMG

MEMORANDUM & ORDER
Gorton, J.
In September, 2015, Conrad and Celina Traut (collectively,
“plaintiffs” or “the Trauts”) brought this action against
Quantum Servicing Corporation (“Quantum”), Residential Credit
Solutions, Inc. (“RCS”), Rushmore Loan Management Services LLC
(“Rushmore”) and Elizon Master Participation Trust I, U.S. Bank
Trust National Association as Owner/Trustee (“Elizon” or “the
Trust”) (collectively, “defendants”) seeking injunctive relief
and civil damages for defendants’ alleged conduct with respect
to plaintiffs’ residential mortgage.

Pending before the Court

are Quantum’s motion for summary judgment (Docket No. 119) and
Elizon and Rushmore’s motion for summary judgment (Docket No.

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124).

For the reasons that follow, Quantum’s motion will be

denied and Elizon and Rushmore’s motion will be allowed.
I.

Background and Procedural History
Plaintiffs own a residence in Sharon, Massachusetts.

In

2007, plaintiffs executed a note and 30-year mortgage with
American Home Mortgage (“AHM”) to secure a loan in the amount of
$415,200.

Shortly thereafter, AHM transferred the note and

mortgage to Societe Generale S.A. which retained Quantum to
service the loan.

The terms of the mortgage included a low

introductory interest rate, an initial monthly payment of less
than full interest and a subsequent rate increase set only to
repay accrued interest.
In July, 2010, plaintiffs made a late payment due to
financial hardship.

Quantum, as the loan servicer, marked the

loan delinquent and threatened foreclosure.

Plaintiffs state

that they attempted to make subsequent payments but that such
efforts were rejected by Quantum.

They attempted to obtain a

modification of their loan throughout 2011.

In December, 2011,

those efforts resulted in receipt of a forbearance agreement
(“the forbearance agreement”) and letter indicating that
plaintiffs’ loan would be modified “upon completion of the 6
month trial plan agreement”.

The forbearance agreement called

for an additional down payment and six monthly installment

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payments.

Plaintiffs executed the document to prevent an

imminent foreclosure sale.
In August, 2012, RCS succeeded Quantum as the loan
servicer.

Quantum declined a permanent modification of the loan

prior to transferring the servicing to RCS.

The forbearance

plan was extended for two months and plaintiffs made two final
payments in July, 2012 and August, 2012.

RCS did not

permanently modify the loan and rejected three applications for
a loan modification submitted by the Trauts.
In December, 2014, the Trauts received a letter informing
them that, effective January 1, 2015, Rushmore would assume loan
servicing.

Rushmore notified plaintiffs in February, 2015 that

the loan was in foreclosure.

Throughout the spring of 2015,

Rushmore was in contact with plaintiffs.

In May, 2015,

plaintiffs’ counsel sent Rushmore a cease and desist letter
advising Rushmore that all further communications should be made
through plaintiffs’ counsel.

They also sent a demand letter to

Quantum, RCS and Rushmore in May, 2015 pursuant to M.G.L. C. 93A.
In September, 2015, plaintiffs initiated this action by
filing a complaint against defendants alleging 1) breach of
contract by Quantum, RCS, Rushmore and Elizon, 2) promissory
estoppel against Quantum, RCS, Rushmore and Elizon, 3) negligent
misrepresentation by Quantum, 4) violations of the Fair Debt
Collection Practices Act (“FDCPA”) by Quantum, RCS and Rushmore
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and 5) violations of M.G.L. c. 93A (“Chapter 93A”) by Quantum,
RCS, Rushmore and Elizon.

In January, 2016, plaintiffs and

Quantum filed a stipulation of partial dismissal as to Counts
III and IV and as to Count V, with respect to claims regarding
the alleged improper origination of the loan.

That same day,

plaintiffs and Rushmore filed a stipulation of partial dismissal
of Count V insofar as it alleged improper origination and
enforcement of the loan.
In November, 2015, the parties filed a stipulation with
respect to the mortgage payments that would become due during
the pendency of the litigation.

The agreement provided that

plaintiffs would continue making monthly payments, to be held in
escrow, and defendants agreed to forbear all foreclosure
activity.

In September, 2017, Elizon filed a motion to amend

its answer and assert a counterclaim, stating that plaintiffs
had violated the terms of the stipulation.

That motion was

allowed and Elizon filed its counterclaim in October, 2017,
alleging breach of contract by and the unjust enrichment of
Conrad Traut.
In August, 2017, plaintiffs and RCS filed a stipulation of
dismissal as to defendant RCS only.

In October, 2017, on the

eve of trial, the parties jointly moved to continue the pretrial
conference and the scheduled trial date.

This Court allowed

that motion and, in January, 2018, Quantum, Rushmore and Elizon
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moved for summary judgment on all claims.

The motions for

summary judgment are the subject of this memorandum.
II.

Motions for Summary Judgment
A.

Legal Standard

The role of summary judgment is “to pierce the pleadings
and to assess the proof in order to see whether there is a
genuine need for trial.” Mesnick v. Gen. Elec. Co., 950 F.2d
816, 822 (1st Cir. 1991).

The burden is on the moving party to

show, through the pleadings, discovery and affidavits, “that
there is no genuine dispute as to any material fact and that the
movant is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56(a).

A fact is material if it “might affect the outcome of

the suit under the governing law.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986).

A genuine issue of material

fact exists where the evidence with respect to the material fact
in dispute “is such that a reasonable jury could return a
verdict for the nonmoving party.” Id.
If the moving party has satisfied its burden, the burden
shifts to the non-moving party to set forth specific facts
showing that there is a genuine, triable issue. Celotex Corp. v.
Catrett, 477 U.S. 317, 324 (1986).

The Court must view the

entire record in the light most favorable to the non-moving
party and indulge all reasonable inferences in that party’s
favor. O’Connor v. Steeves, 994 F.2d 905, 907 (1st Cir. 1993).
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Summary judgment is appropriate if, after viewing the record in
the non-moving party’s favor, the Court determines that no
genuine issue of material fact exists and that the moving party
is entitled to judgment as a matter of law.
B.

Quantum’s Motion for Summary Judgment
1.

Breach of Contract (Count I)

Quantum avers that plaintiffs’ breach of contract claim
fails as a matter of law because the forbearance agreement
contains an integration clause and represents the only agreement
between the Trauts and Quantum.

Quantum contends that because

it is undisputed that two of the six monthly installment
payments were made late, the Trauts were in breach of the
contract.

Plaintiffs rejoin that the forbearance agreement

contained a cover letter that was part of the agreement which
explicitly promised a modification and some forgiveness of the
arrearage if the payments were made.

Plaintiffs submit that

they were not late on at least one of the payments in question.
Under the Massachusetts parol evidence rule, extrinsic
evidence cannot be admitted to alter the terms of an integrated
and complete written contract where there is no ambiguity.
Cambridgeport Sav. Bank v. Boersner, 413 Mass. 432, 440 (1992).
The parol evidence rule does not, however, bar introduction of
extrinsic evidence that “elucidates the meaning of an ambiguous

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contract”. Wincheester Gables, Inc. v. Host Marriott Corp., 70
Mass. App. Ct. 585, 591 (2007).
The purported cover letter to the forbearance agreement
(which Quantum failed to mention in its memorandum) explicitly
provides that, if the trial plan payments are made, the loan
“will be modified” and modification documents “will be
generated”.

While Quantum avers that the cover letter must be

excluded as extrinsic evidence because the letter contradicts
the terms of the forbearance agreement, plaintiffs have
proffered evidence that the cover letter accompanied the
agreement, creating a genuine issue of material fact as to
whether it formed part of the agreement.

In addition to the

cover letter, plaintiffs proffer an email suggesting that
Quantum approved a proposal to forgive a portion of the accrued
interest due to the negative amortization of the original loan.
Quantum contends that the Trauts breached the forbearance
agreement by making two late payments, in February and May,
2012.

The terms of the forbearance agreement contained a “no

grace period” clause, requiring that each payment be made on or
before the 20th of each month and providing that any late
payment would allow the servicer to cancel the agreement without
notice to the mortgagor.

Quantum relies on Young v. Wells Fargo

Bank, N.A., 109 F. Supp. 3d 387, 392 (D. Mass. 2015) in its
contention that the late payments constituted a material breach.
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In Young, the Court found that a payment made one day late under
a trial payment plan constituted a material breach
insofar as HAMP [Home Affordable Modification Program]
program requirements mandated strict compliance with
payment receipt deadlines.
Id.

The court made clear that the HAMP requirements were a

“decisive consideration”. Id.

Because the trial payment plan

agreement between the parties was a prerequisite to eligibility
for HAMP modification and the HAMP modification requirements
were not met, the late payment constituted a material breach.
Id. at 392-93.
Quantum and the Trauts did not execute the forbearance
agreement pursuant to the HAMP program and, therefore, the
consideration the Young court found “decisive” is not present
here.

Furthermore, the Trauts raise a genuine issue of material

fact as to whether at least one of the payments was timely,
pointing to a discrepancy in the records produced by Quantum and
the bank records reflecting the Trauts’ account.

Accordingly,

the Trauts have raised a genuine issue of material fact as to
whether the contract was breached and Quantum is not entitled to
summary judgment as a matter of law on Count I.
2.

Promissory Estoppel (Count II)

Quantum contends that the Trauts’ promissory estoppel
claim, as an alternative to the breach of contract claim, must
fail for the same reason as the breach of contract claim: the
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Trauts could not reasonably rely on any assurances made outside
the four corners of the forbearance agreement.
To prevail on a claim of promissory estoppel under
Massachusetts law, a plaintiff must demonstrate that it
“reasonably relied on the alleged promise to his detriment”.
Hall v. Horizon House Microwave, 24 Mass. App. Ct. 84, 94
(1987).

Where a written contract or agreement conflicts with a

prior oral representation, reliance on the oral representation
is generally held to be unreasonable. Coll v. PB Diagnostic
Sys., Inc., 50 F.3d 1115, 1124 (1st Cir. 1995) (internal
citation omitted).
Quantum avers that the alleged reliance of the Trauts on
the cover letter to the forbearance agreement was unreasonable
because the forbearance agreement contradicted the terms of the
letter.

The Trauts do not purport to rely on prior oral

representations made during a negotiation process, however,
instead choosing to rely on a cover letter that they contend was
sent with the written agreement.

For the reasons set forth

above, Quantum is not entitled to summary judgment on Count II.
3.

Chapter 93A Claim (Count V)

Quantum asserts that it is entitled to summary judgment on
the Trauts’ M.G.L. c. 93A claims because the Trauts’ demand
letter was insufficient and the plaintiffs admitted in a

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deposition that the dispute surrounding insurance payments on
the residence had been resolved.
Prior to bringing suit under Chapter 93A under
Massachusetts law, a plaintiff must send the defendant
a written demand for relief, identifying the claimant and
reasonably describing the unfair or deceptive act or
practice relied upon and the injury suffered.
M.G.L. c. 93A, § 9(3).

“The statutory notice requirement is not

merely a procedural nicety, but rather, a prerequisite to suit”.
Rodi v. S. New Eng. Sch. of Law, 389 F.3d 5, 19 (1st Cir. 2004)
(internal citation omitted).

The purpose of the demand letter

is to put the defendant on notice and to encourage negotiation
and settlement. Spring v. Geriatric Auth. of Holyoke, 394 Mass.
274, 288 (1985).
Quanutm’s contention that the demand letter was
insufficient as a matter of law to maintain a claim under
Chapter 93A is without merit.

The Trauts identify the amount

that they claim was not properly credited under the forbearance
agreement ($36,000) and Quantum, as the prior loan servicer, had
information about the value of the home that would put it on
notice with respect to the damages the Trauts could reasonably
expect to recover. See e.g., Brandt v. Olympic Constr. Inc., 16
Mass. App. 913, 915 (1983) (holding that a demand letter was
sufficient where the compensation recoverable as a result of the
injury complained of was apparent from the facts alleged).
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The

demand letter here was sufficient to achieve the dual purposes
of the notice requirement, encouraging negotiation through
notification to prospective defendants and limiting the amount
of damages in a meaningful way. See Spring v. Geriatric Auth. of
Holyoke, 394 Mass. 274, 288 (1985).
Quantum notes that plaintiffs have not met their burden to
show that Quantum violated Chapter 93A by causing the Trauts
emotional distress.

See e.g., Young, 109 F. Supp. 3d at 396

(citing Rule v. Fort Dodge Animal Health, Inc., 607 F.3d 250,
255 (1st Cir. 2010)) (noting that under Massachusetts law, a
plaintiff must prove all of the elements of intentional
infliction of emotional distress in order to prevail on a
Chapter 93A claim for emotional damages).

Plaintiffs have not

produced any affirmative evidence of an intentional infliction
of emotional distress nor do they contest Quantum’s denial
thereof.

To defeat a motion for summary judgment, the non-

moving party must “establish the existence of a factual
controversy that is both genuine and material”. Lohnes v. Level
3 Communs., Inc., 272 F.3d 49, 52 (1st Cir. 2001).

To the

extent that plaintiffs are seeking damages for emotional
distress related to the foreclosure of their home, they have not
met that burden and Quantum’s motion will be allowed but
plaintiffs may pursue their Chapter 93A claim for economic
injury.
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4.

Negligent Misrepresentation and Fair Debt
Collection Practices Act (Counts III or IV)

In its opposition memorandum, plaintiffs state that Quantum
has not moved for summary judgment on Counts III or IV and that,
therefore, Quantum is not entitled to summary judgment on those
claims.

The Court notes that the parties stipulated in January,

2016 to dismiss Counts III and IV as to Quantum and that,
therefore, those claims are no longer pending.
C.

Rushmore and the Trust’s Motion for Summary Judgment
1.

Contract Claims (Counts I and II)

Rushmore and the Trust move for summary judgment on Counts
I and II on the grounds that neither defendant was a party to
the forbearance agreement and successors and assigns were not
bound by the agreement.

In their opposition memorandum, the

Trauts stipulate that Rushmore and the Trust are not successors
to the forbearance agreement and plaintiffs do not oppose
summary judgment on Counts I and II.

Accordingly, the motion

for summary judgment is allowed as to Counts I and II.
2.

Fair Debt Collection Practices Act (Count IV)

Rushmore contends that the Trauts cannot make out a claim
under the FDCPA because they have not produced evidence that
Rushmore falsely stated that the loan was delinquent or that
Rushmore misstated the amount due.

Plaintiffs respond by

stating that Rushmore attempted to collect on an incorrect

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outstanding balance because the previous servicer, Quantum,
failed to honor the agreement to forgive accrued arrearages and
enter into a loan modification.
The FDCPA prohibits a debt collector from “using any false,
deceptive, or misleading representation of means” in connection
with the collection of an outstanding debt. Schaefer v. ARM
Receivable Mgmt., No. 09-11666, 2011 WL 2847768, at *3 (D. Mass.
July 19, 2011) (citing 15 U.S.C. § 1692e).

To recover under the

FDCPA, a plaintiff must show that he has
(1) been the object of collection activity arising from
consumer debt, (2) the defendant is a debt collector as
defined by the FDCPA and (3) the defendant has engaged in
an act or omission prohibited by the FDCPA.
Nath v. Select Portfolio Serv., Inc., No. 15-cv-8183, 2017 WL
782914, at *11 (S.D.N.Y. Feb. 28, 2017).

Rushmore has produced

evidence that it contacted the Trauts regarding the total amount
of debt reflected in its records that it had obtained from the
prior servicer.

Rushmore’s attempt to collect the Trauts’ debt

was permissible under the FDCPA.

The Trauts’ claim that

Rushmore violated the FDCPA relies on the alleged conduct of a
separate defendant, Quantum, and its alleged failure to honor
the terms of the forbearance agreement.

The Trauts have not

produced affirmative evidence sufficient to suggest that
Rushmore engaged in deceptive or misleading debt collection

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practices and, accordingly, Rushmore is entitled to summary
judgment on Count IV.
3.

Chapter 93A

Rushmore and the Trust contend that the Trauts have not
made out a Chapter 93A claim because (1) they were not
successors to the purported agreement between Quantum and the
Trauts and (2) they did not engage in unfair or deceptive
practices in their attempt to collect the outstanding debt.

As

discussed above, plaintiffs do not dispute that Rushmore and the
Trust are not liable under the contract claims.

As discussed in

reference to plaintiffs’ FDCPA claim, the Trauts have not
produced evidence suggesting that Rushmore or the Trust engaged
in deceptive or unfair trade practices but instead attempt to
attribute the alleged misconduct of Quantum to the successor
servicers.

Accordingly, the motion for summary judgment is

allowed as to Count V.
ORDER
For the foregoing reasons, Quantum’s motion for summary
judgment (Docket No. 119) is DENIED and Rushmore and the Trust’s
motion for summary judgment (Docket No. 124) is ALLOWED.
So ordered.
/s/ Nathaniel M. Gorton_____
Nathaniel M. Gorton
United States District Judge
Dated March 7, 2018
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