IN RE: Charles Street African Methodist Episcopal Church of Boston et al

Filing 29

Judge Richard G. Stearns: ORDER entered. MEMORANDUM AND ORDER ON APPEAL FROM THE BANKRUPTCY COURT'S RULING ON OBJECTION TO PROOF OF CLAIM. The Church's motion to certify questions to the Massachusetts Supreme Judicial Court (Dkt #17) is D ENIED. The Bankruptcy Court's order overruling the Church's objection to OneUnited's proof of claim is VACATED IN PART, and the case is REMANDED for further proceedings consistent with this opinion.Associated Cases: 1:16-cv-12313-RGS, 1:16-cv-12314-RGS(RGS, law1)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CIVIL ACTIONS NOS. 16-cv-12313-RGS, 16-cv-12314-RGS
IN RE CHARLES STREET AFRICAN METHODIST
EPISCOPAL CHURCH OF BOSTON
CHARLES STREET AFRICAN METHODIST
EPISCOPAL CHURCH OF BOSTON
v.
ONEUNITED BANK
MEMORANDUM AND ORDER ON
APPEAL FROM THE BANKRUPTCY COURT’S
RULING ON OBJECTION TO PROOF OF CLAIM
May 19, 2017
STEARNS, D.J.
This bankruptcy appeal arises from the failed effort of a venerable
Boston church, the Charles Street African Methodist Episcopal Church, to
develop a multi-service community center in Roxbury. In the bankruptcy
proceeding, the Church objected to a claim by its lender for the project,
OneUnited Bank, asserting that OneUnited had wrongfully originated the
loan to the Church under the Massachusetts Consumer Protection Statute
(Chapter 93A). The Bankruptcy Court overruled the objection after an
extended bench trial, and the Church appeals. In light of an ambiguity in the

Bankruptcy Court’s order, and deferring to that Court’s factfinding capacity,
the case will be remanded for further consideration.
BACKGROUND
Neither party contests the extensive factual findings made by the
Bankruptcy Court, so the court will simply summarize them here. See
Charles St. African Methodist Episcopal Church of Bos. v. OneUnited Bank
(In re Charles St. African Methodist Episcopal Church of Bos.), 2016 WL
7167910 (Bankr. D. Mass. Nov. 2, 2016).
The Church is a Boston institution. It traces its origins to the early
1800s, when a small group of free African-Americans began to worship
communally in a private home on Beacon Hill. The congregation grew,
eventually acquiring a full-time pastor and membership in the African
Methodist Episcopal (A.M.E.) Church, as well as articles of incorporation
from the Massachusetts Legislature. In 1939, the congregation relocated
from its namesake sanctuary on Charles Street to the Grove Hall
neighborhood of Roxbury.

The Church is an active presence in the

community and is one of the largest congregations in the First Episcopal
District of the A.M.E. Church, the governing body for some 330 A.M.E.
churches in the northeast United States.

2

In the late 1990s, the Church undertook to expand its community
outreach by establishing the “Roxbury Renaissance Center” (RRC) to provide
services for local residents. In April of 1999, the Church acquired a building
near its sanctuary to carry out the plan. It financed the purchase with its own
funds and with the proceeds of a loan from the First Episcopal District
Economic Expansion and Development Group (FEDEEDG). The Church
gave the FEDEEDG a mortgage on the newly acquired property.
The Church then launched a fundraising campaign to raise the money
to pay for renovations to the building, collecting approximately $1.5 million
as of 2005. Some of the funds raised went to preconstruction projects,
including the commissioning of architectural plans and engineering studies.
Based on this preliminary work, the Church projected a budget of roughly
$4.7 million to fully renovate the RRC. In early 2005, the Church sought a
$5 million loan to underwrite the budget, but was unsuccessful in locating
an interested lender.
After these initial efforts failed, the Rev. Gregory Groover, the Church’s
pastor, met with an official from the City of Boston Department of
Neighborhood Development, who suggested that the Church approach
OneUnited Bank for a loan. OneUnited is the largest black-owned bank in
the United States and has a long history of making loans to churches and
3

nonprofits in the black community. Fortuitously, when contacted by the
Church, OneUnited had plans to open a retail branch in Grove Hall.
In April of 2005, OneUnited sent Rev. Groover a letter of interest. The
letter included three pages of proposed terms, including requirements that
the loan not exceed $3.2 million; that the Church contribute $800,000
toward a total budget of $4 million; that the First District fully and
unconditionally guarantee the loan; and that OneUnited be granted a first
and exclusive mortgage on the RRC property. Over the next year and a half,
negotiations stayed more or less within the parameters set by OneUnited,
although both sides understood that the anticipated loan would not pay for
the full cost of the renovations.
The underwriting documents were signed by OneUnited on May 22,
2006, and the loan closed in October. The loan allocated $3.2 million for
construction costs, $165,000 to address construction overages (subject to
OneUnited’s approval), and $187,000 to fund interest payments. The term
of the loan was eighteen months, although the Church had the option of
exercising two 90-day extensions should it encounter construction delays.
The loan carried an initial 7.25% interest rate that over time floated with the
prime rate (capped at 13.25%). The First District guaranteed the loan, which
was also secured by mortgages on the RRC property and another church4

owned property in Roxbury. The loan also required either a voluntary
subordination of the FEDEEDG’s mortgage to OneUnited’s, or a reduction in
the construction budget sufficient for the Church to pay off the FEDEEDG
mortgage. OneUnited promised to provide a take-out loan to pay off the
construction loan and to amortize the debt over a longer term once the RRC
received a certificate of occupancy.
The Bankruptcy Court found, and the parties do not contest, that
OneUnited’s decision to underwrite the loan on these terms was based on a
review process that underappreciated weaknesses in the structure and
premises of the loan.
OneUnited’s underwriters at the outset accurately noted that the
Church lacked the cash flow to service the loan at the qualifying or start rate.
OneUnited’s benchmark debt service coverage (DSC) ratio — the amount by
which the debtor’s net income could be expected to exceed the annual cost of
servicing the debt — was 1.20, but an early draft of the underwriting
documents pegged the DSC ratio for the Church at well below that mark at
both the qualifying and start rates.1 The shortfall, however, was larvated in

Specifically, the March 7 draft of the underwriting memorandum
examined the Church’s finances for 2003, 2004, and 2005, and concluded
that the DSC ratio for each year was .52, .82, and .74 at the qualifying rate
and .65, 1.03, and .93 at the start rate, respectively.
1

5

later drafts by the exclusion of continuing payments that the Church was
obligated to make on a separate outstanding loan, despite the fact that the
Church would continue to service that loan together with the construction
loan.

The exclusion improved the DSC ratios substantially, but

misleadingly.2
OneUnited also relied on the anticipated cash flow that would be
generated by the RRC once it opened for business. The projections the
Church provided to OneUnited, however, showed no rental income until the
second year of occupancy, a fact that went unmentioned in OneUnited’s
underwriting documents. The impact of this oversight was compounded by
the fact that rents were contingent on the Church’s ability to raise a minimum
of $1.3 million in the new phase of its fundraising campaign in order to
complete the RRC renovations. OneUnited was aware of the symbiosis
between fundraising and the eventual success of the RRC; it repeatedly
emphasized the importance of the fundraising campaign in its discussions
with the Church, and one of its underwriters observed that the long-term
success of the loan depended “on the receipt of unprecedented lease and

2 The May 1 draft of the underwriting memorandum calculated the DSC

ratios as .93, 1.30, and 1.42 at the start rate for each year, and as .74, 1.03,
and 1.13 for the qualifying rate. The final draft recalculated the start rate DSC
ratios as .90, 1.25, and 1.37 for each year, in light of a shift in the start rate
from 7% to 7.25%.
6

rental income, gifts, grants and campaign contribution[s].” Charles St., 2016
WL 7167910, at *21. Despite this fact, “[n]o one at [OneUnited] inquired into
the soundness of the [fundraising] projections.” Id. These projections also
distorted OneUnited’s assessment of the Church’s liquidity: OneUnited
simply compared the Church’s liquid assets with the monthly debt service on
the proposed loan, without factoring in the Church’s need to raise additional
funds to finish the project.
Two other badges of success that OneUnited relied on also rested on
shaky foundations.

First, the underwriting documents emphasized the

Church’s deposit of an $850,000 “reserve” with OneUnited.

The

underwriters viewed the deposit as alleviating concerns about the Church’s
liquidity and ability to service the debt. In addition, the underwriters used
the deposit to tamp down the “loan-to-value ratio” derived by dividing the
loan amount by the appraised value of the collateral securing the loan.
OneUnited’s internal policy contemplated a maximum loan-to-value ratio of
75%, while the loan to the Church had a ratio of almost 96%. As an
avoidance, the underwriters treated the $850,000 deposit as reserved
collateral. This “reserve,” however, consisted entirely of restricted funds that
could not be used to cover obligations related to the loan or the RRC.
OneUnited knew this to be true, both because Rev. Groover told it so, Charles
7

St., 2016 WL 7167910, at *12, and because the terms of the deposit allowed it
to be withdrawn by the Church in March of 2007, at least a year prior to the
first payment on the loan. Thus, even were it not for the restriction, “the
pledge of this deposit . . . served no true collateral purpose because it would
disappear before [OneUnited] might need to have recourse to it.” Id. at *22.
Second, OneUnited seriously misjudged the strength of the First
District’s guaranty.

OneUnited reviewed two First District financial

statements setting out its financial picture, which included its subsidiaries
(like the FEDEEDG) and its 330 member churches. These statements looked
robust: a consolidated net worth of $409 million and a $3.6 million excess
cash flow as of late February of 2005. The statements also asserted that the
Bishop of the First District had the “authority to transfer funds at his
discretion between organizations and member churches.” Id. at *23.
With this rosy scenario in mind, the underwriters relied on the First
District’s guaranty to ameliorate concerns about the DSC and loan-to-value
ratios, as well as the Church’s liquidity. “On the basis of the guaranty,
[OneUnited] approved a loan that, but for the guaranty, it would not have
approved.” Id. OneUnited, however, never verified the First District’s
financial statements or took into account the District’s responsibility for
some 330 other member churches. Nor did OneUnited inquire about the
8

true extent of the Bishop’s authority, including whether he had ever exercised
his plenary power over the funds of member churches.
The Bankruptcy Court also found two additional factors that drove the
decision to underwrite the loan. First, OneUnited believed that the RRC
project was good for the community and that funding it “was consistent with
[OneUnited]’s mission of economic and community development in Grove
Hall and Roxbury.” Id. at *25. Second, OneUnited felt “that the loan would
establish a high-profile relationship that would create good will and thereby
help [OneUnited] in its effort to open a branch in Grove Hall and to develop
deposits and loans in the area.” Id. The Court concluded that “[t]hese two
factors gave [OneUnited] motivation to work with the Church to find a way
to approve the Construction Loan if at all possible.” Id.
In the end, the project failed. Construction proceeded much more
slowly than expected and costs quickly rose, attributable in part to the need
to repair structural flaws in the building. Although these had been identified
by the preconstruction engineering surveys the Church had, the cost of
correcting these flaws had been inexplicably omitted from the construction
budget submitted by the Church to OneUnited. The Church’s fundraising
campaign proved unable to keep pace with the additional budgetary
demands, much less the need to fund the necessary finishing work after
9

completion of the first phase of the project. The Church, as might be
expected, exercised both of the 90-day extensions permitted under the loan,
and then sought and received three loan modifications from OneUnited.
These proved unavailing, and the loan went into default in December of
2009. The Church’s contractor stopped work because of nonpayment, and
the work never resumed. The First District did not step in to save the project.
Although negotiations between the Church and OneUnited continued,
the relationship eventually soured.

OneUnited brought suit in the

Massachusetts Superior Court in September of 2010 against the Church and
the First District, seeking repayment of the loan. The Church filed an answer
and counterclaims, including a claim under Chapter 93A alleging that
OneUnited had wrongfully originated the loan.

The Superior Court

dismissed that claim, but after an interlocutory appeal, a single justice of the
Massachusetts Appeals Court reversed the dismissal and remanded the claim
to the Superior Court.
Shortly thereafter, to stave off a foreclosure auction by OneUnited of
Church properties securing a loan not at issue in this appeal, the Church filed
for bankruptcy under Chapter 11. OneUnited filed a proof of claim in the
bankruptcy action, asserting an outstanding balance due and owing on the
loan of just over $3.8 million. The Church filed an objection to the proof of
10

claim, offering the Chapter 93A claim as a setoff reducing or eliminating the
debt to OneUnited. After a bench trial, the Bankruptcy Court overruled the
Church’s objection.3 This timely appeal followed. Alongside its brief on
appeal, the Church filed a motion to certify two potentially dispositive
questions of law to the Massachusetts Supreme Judicial Court. See Dkt #17.
DISCUSSION
The Church bases its objection on Chapter 93A. Chapter 93A forbids
“unfair or deceptive acts or practices in the conduct of any trade or
commerce.” Mass. Gen. Laws ch. 93A, § 2(a). This prohibition has different
dimensions depending on the identity of the parties to a transaction. In the
consumer context, a person may sue to vindicate a harm caused by an unfair
or deceptive act under Section 9 of Chapter 93A. If, however, both parties
are “engage[d] in the conduct of any trade or commerce,” id. § 11, then a
stricter standard of liability applies, see Giuffrida v. High Country Inv’r,
Inc., 73 Mass. App. Ct. 225, 238 (2008).

Nonprofit status does not

automatically mean that a party is outside the scope of Section 11; instead,
the court must examine the behavior of the parties and the nature of the

The Church also filed, and the Bankruptcy Court also overruled, an
objection and counterclaim alleging a Chapter 93A violation by OneUnited
for unfair or deceptive use of the foreclosure process. The Church has not
appealed that aspect of the Bankruptcy Court’s decision.
11
3

transaction as a whole. See Linkage Corp. v. Trs. of Bos. Univ., 425 Mass. 1,
23-24 (1997).
The Church contends that a contextual examination demonstrates that
its claim should be judged under the more forgiving standard of Section 9.
The Church relies on recent Massachusetts cases applying Section 9 to
residential mortgage lending practices. These cases trace their roots to
Commonwealth v. Fremont Investment & Loan, 452 Mass. 733 (2008),
where the Supreme Judicial Court found actionable Section 9 unfairness in
“the origination of a home mortgage loan that the lender should recognize at
the outset the borrower is not likely to be able to repay.” Id. at 749. The
Court also identified four factors that make such loans presumptively unfair.
Id. at 739.4 Subsequent decisions applying and interpreting Fremont have
made clear that its holding is not bounded by any particular set of loan terms.

Specifically, the Court upheld a preliminary injunction bringing to a
temporary halt foreclosures on mortgage loans with these characteristics:
“(1) the loans were [adjustable rate mortgage] loans with an introductory rate
period of three years or less; (2) they featured an introductory rate for the
initial period that was at least three per cent below the fully indexed rate; (3)
they were made to borrowers for whom the debt-to-income ratio would have
exceeded fifty percent had Fremont measured the borrower’s debt by the
monthly payments that would be due at the fully indexed rate rather than
under the introductory rate; and (4) the loan-to-value ratio was one hundred
per cent, or the loan featured a substantial prepayment penalty . . . or a
prepayment penalty that extended beyond the introductory rate period.”
Fremont, 452 Mass. at 739.
4

12

See Frappier v. Countrywide Home Loans, Inc., 645 F.3d 51, 56 (1st Cir.
2011); Drakopoulos v. U.S. Bank Nat’l Ass’n, 465 Mass. 775, 786 (2013).
The Bankruptcy Court did not decide whether Section 9 or Section 11
of Chapter 93A applied, nor did it discuss Fremont, Drakopoulos, or
Frappier. Instead, the Bankruptcy Court assumed that Section 9 governed,
and that the Supreme Judicial Court would, in an appropriate case, extend
Fremont to lending transactions outside the home mortgage context. This
court will likewise proceed on these assumptions. Although neither is selfevident under Massachusetts law, each assumption is a necessary predicate
to the Church’s case, as the Church has made no argument for Section 11
liability, nor has it identified a basis for a Section 9 unfairness claim other
than Fremont and its progeny.5
On appeal, the Church argues that the Bankruptcy Court applied the
wrong standard in evaluating its wrongful underwriting claim. This is a
question of law that this court reviews de novo. See In re Puffer, 494 B.R. 1,
4 (D. Mass. 2013).

In addition, the Church disclaimed before the Bankruptcy Court any
theory that OneUnited’s conduct was deceptive. It has not attempted to
revive that theory here.
5

13

The Church asserts that Fremont-based wrongful underwriting claims
are governed by an objective standard. This standard asks whether, from the
perspective of a reasonable lender, OneUnited “should have recognized at
the outset that the [Church was] unlikely to be able to repay the loan.”
Drakopoulos, 465 Mass. at 786. In this regard, the Church criticizes the
Bankruptcy Court’s findings about the subjective state of mind of
OneUnited’s decisionmakers. The Court, for example, found credible the
testimony of OneUnited executives that “they believed the loan would
succeed.” Charles St., 2016 WL 7167910, at *24. The Bankruptcy Court also
concluded that although OneUnited “ignored its own standards” by failing to
examine the First District’s finances more closely, id., it nonetheless “did
truly believe that the [First] District was so financially strong and committed
as to warrant the considerable faith that [OneUnited] placed in it,” id. at *2425. In the same vein, the Bankruptcy Court found that “when it approved the
Construction Loan, [OneUnited] did not believe the loan would fail or was
likely to fail.” Id. at *25.
The Church’s criticism of the Bankruptcy Court in this regard is both
misplaced and unwarranted. The Bankruptcy Court made its findings about
subjective state of mind because the Church’s presentation at trial demanded
it. The Church pursued two legal theories before the Bankruptcy Court. It
14

first argued that OneUnited was liable under Section 9 because it “made the
Construction Loan with knowledge that the Church could not complete the
Project and repay the loan and would inevitably default.” Charles St., 2016
WL 7167910, at *53; see, e.g., App. Vol. I, Ex. 3 at 95 (requesting liability
findings that “there were two intertwined strands of knowing and willful
imprudent underwriting” and that OneUnited’s CEO engaged in “intentional
and knowing” conduct); id. at 98 (requesting a finding that “[t]he evidence
that [OneUnited] knew that the Church could not repay the Construction
Loan . . . is overwhelming”); id. at 99 (requesting a finding that the
OneUnited “knew or recklessly disregarded” facts showing that the loan
would fail). This argument drew on language from the Fremont line of cases,
which occasionally employ a “knew or should have known” formulation of
the wrongful origination test. Fremont, 452 Mass. at 743; accord Frappier,
645 F.3d at 57. On appeal, the Church has abandoned that argument,
preserving only its second theory of “reckless disregard.”6

At oral argument, the Church suggested that the Bankruptcy Court’s
findings on subjective knowledge reflected a mistaken evaluation of potential
enhanced damages under Chapter 93A’s “willful or knowing” standard at the
liability stage. At best, this demonstrates that the inquiry into “knowing”
conduct warranting enhanced damages may overlap with the inquiry into
whether a lender makes a loan with knowledge that it will fail. It does not
change the fact that the Church tried the case on both the knowledge and
reckless disregard theories, and its own requested findings of fact at trial did
15
6

The Church is on more solid footing in noting that the Bankruptcy
Court was less than fulsome in explaining how its factual findings interacted
with the reckless disregard standard. The Court acknowledged at one point
the Church’s argument that “if [OneUnited] did not know that the loan was
so doomed to fail, this fact was evident and [OneUnited] recklessly
disregarded it.” Charles St., 2016 WL 7167910, at *53. Yet it adverted to the
objective reasonableness of OneUnited’s actions only twice in passing. First,
it found that OneUnited was negligent — that it “did not exercise the
diligence that a reasonable person would have exercised in investigating the
guarantor and its role in the Project (among other things)” — but then found
that OneUnited “was not unreasonable” in believing that the loan would
succeed. Id. at *25. Second, the Court held that “[w]hen it made the loan,
[OneUnited] did not know the loan would fail, nor was it evident that the
loan would fail.” Id. at *54.
The Church argues on appeal that the Bankruptcy Court’s factual
findings compel the conclusion that it prevailed at trial under Fremont on a
reckless disregard theory, and requests that this court enter judgment in its
favor. The court declines to do so without first giving the Bankruptcy Court

not make the distinction between liability and enhanced damages it offered
here at oral argument.
16

the opportunity to explain its view of the relationship between its factual
findings and the Fremont reckless disregard standard. Cases reviewing posttrial Fremont claims are extremely rare, and the standard remains relatively
undeveloped.7 The court offers the following observations to assist the
Bankruptcy Court on remand.
Under Massachusetts law, “[a] ruling that conduct violates [Chapter]
93A is a legal, not a factual, determination.” Klairmont v. Gainsboro Rest.,
Inc., 465 Mass. 165, 171 (2013), quoting Casavant v. Norwegian Cruise Line
Ltd., 460 Mass. 500, 503 (2011). Fremont and its successor cases establish
that Chapter 93A prohibits “the origination of a home mortgage loan that the
lender should recognize at the outset that the borrower is not likely to be able
to repay.” Drakopoulos, 465 Mass. at 786, quoting Fremont, 452 Mass. at
749. Loans of this sort fall within the penumbra of the concept of unfairness
established in the Massachusetts Predatory Home Loan Practices Act
because of their fundamentally predatory nature. See Fremont, 452 Mass. at
748-749.

The court is aware of no published Massachusetts opinion reviewing
a Fremont-based Chapter 93A claim post-trial. See Forbes v. Countrywide
Home Loans, Inc., 87 Mass. App. Ct. 1122, 2015 WL 2365497 (May 19, 2015)
(unpublished table decision); Costello v. Sovereign Bank, FSB, 83 Mass.
App. Ct. 1116, 2013 WL 791447 (Mar. 5, 2013) (unpublished table decision).
7

17

The question of what it means for a lender to make a loan which it
“should recognize at the outset” is likely to fail is answered by reference to
background principles of Chapter 93A law. “Chapter 93A usually requires a
level of fault going beyond mere negligence.”8 Frappier, 645 F.3d at 59; see,
e.g., Darviris v. Petros, 442 Mass. 274, 278 (2004) (“[A] violation of Ch. 93A
requires, at the very least, more than a finding of mere negligence . . . .”).
Fremont and Drakopoulos evince no departure from this background
principle, and the Church adopted it at trial. See App. Vol. I, Ex. 3 at 99
(requesting a finding that “the Construction Loan was doomed to fail [and]
the Bank knew or recklessly disregarded that fact.”); accord id. at 119.
Although the Massachusetts courts have not defined recklessness in the
Chapter 93A context, it suffices for these purposes to emphasize that reckless
conduct embodies a “substantially greater” degree of culpability than mere
negligence. Boyd v. Nat’l R.R. Passenger Corp., 446 Mass. 540, 546 (2006),
quoting Restatement (Second) of Torts, § 500.
Although Fremont and its progeny establish that reckless conduct can,
as a matter of law, violate Chapter 93A, “whether a particular set of acts, in
their factual setting, is unfair or deceptive is a question of fact.” Klairmont,

The chief exception to this principle is cases involving
misrepresentations. See, e.g., DeWolfe v. Hingham Centre Ltd., 464 Mass.
795, 799 n.9 (2013).
18
8

465 Mass. at 171, quoting Casavant, 460 Mass. at 503. Even receiving a loan
with the four “presumptively unfair” characteristics present in Fremont does
not relieve a borrower of the obligation to prove that the loan was unfair or
deceptive in the specific circumstances in which it was made. Fremont, 452
Mass. 740-741, 752.

Similarly, Drakopoulos emphasized that “a

determination whether the lender acted unfairly . . . when originating the
plaintiff[’s] loan is properly left to the finder of fact.” 465 Mass. at 787;
accord Moronta v. Nationstar Mortg., LLC, 88 Mass. App. Ct. 621, 629-630
(2015). This factual inquiry is made with reference to “the circumstances of
each case.” Klairmont, 465 Mass. at 174, quoting Kattar v. Demoulas, 433
Mass. 1, 14 (2000).
The importance of these principles is underscored by the Church’s
assertion on appeal that the Bankruptcy Court erroneously relied on its
finding that, at the time the loan was made, the Church knew more about the
struggles of its fundraising campaign than OneUnited did. Charles St., 2016
WL 7167910, at *50. The Church argues that consideration of this factor —
that, in the Church’s words, “the borrower knew its income better than the
bank,” Mem. at 20 — is forbidden under the Fremont line of cases. In
Frappier, for example, the First Circuit reversed a grant of summary
judgment to a lender where the plaintiff had signed loan documents attesting
19

to a higher income than he actually earned, 645 F.3d at 57, while in
Drakopoulos, the plaintiffs staved off summary judgment despite the fact
that they had signed loan documents listing an income roughly three times
higher than their actual monthly income, 465 Mass. at 778.
The Church’s argument ignores the post-trial posture of this case. All
the prior reported cases applying the Fremont standard ask whether there
are grounds for a preliminary injunction (as in Fremont itself) or reverse a
grant of summary judgment to a lending institution (as in Frappier,
Drakopoulos, and Moronta). These cases thus recognize that whether the
lender’s conduct was unfair under the circumstances is a question of fact.
Here, where a trial has taken place, the factfinder is permitted to take into
account the borrower’s representations to the lender as part of the mosaic of
facts in determining whether this particular loan was unfair. See Klairmont,
465 Mass. at 174. In the specific context of fundraising, the Bankruptcy
Court

may

consider

the

Church’s

one-sided

knowledge

of

its

underperforming but crucial fundraising campaign, created in part by the
incomplete answer it gave when OneUnited inquired about the progress of

20

that campaign, Charles St., 2016 WL 7167910, at *21 — just as it may consider
OneUnited’s failure to further delve into the details.9
Finally, this court is well aware that the Bankruptcy Court has been
handling the Church’s bankruptcy proceeding for over five years, and this
adversary proceeding for nearly three. The court therefore emphasizes the
limited nature of the task on remand. The Church has not appealed the
Bankruptcy Court’s decision on the wrongful foreclosure claim, nor has it
contested any of the factual findings. It has also chosen not to contest the
Bankruptcy Court’s rejection of the theory that OneUnited made the loan

This approach accords with decisions by the current Chief Justice of
the Supreme Judicial Court in the residential mortgage context. While
serving as a Justice of the Superior Court, he rejected the suggestion that
“stated income” loans are inherently unfair, as they “are no more prone to
foreclosure than full documentation loans if the statements in the application
are accurate.” Commonwealth v. Fremont Inv. & Loan, 2008 WL 517279, at
*11 (Mass. Super. Ct. Feb. 26, 2008) (Gants, J.); see Commonwealth v. H&R
Block, Inc., 2008 Mass. Super. LEXIS 427, at *27-29 (Nov. 28, 2008) (Gants,
J.); see also Forbes, 87 Mass. App. Ct. 1122, 2015 WL 2365497, at *2 (holding
that “the judge reasonably concluded that, because ‘Forbes chose to state,
and to continually verify his [false] income information, [ ] Countrywide was
entitled to rely on it [in determining the debt-to-income ratio and
otherwise]’”); id. at *1 & n.5 (observing that the plaintiff inflated his income
based on an unreasonable projection of possible rental income). Notably,
now-Chief Justice Gants viewed the facts and circumstances relevant to a
finding of unfairness as focused on the lender, holding that “the issuance of
[a loan which will likely not be repaid] is deemed to be unfair under Chapter
93A even if the lender provides fair and complete disclosure of the terms of
the loan and the borrower is fully informed of the risks he faces in accepting
the loan.” Fremont, 2008 WL 517279, at *9.
9

21

with knowledge that it would fail. Thus, on remand, the Bankruptcy Court
need only apply the standard articulated above to determine whether
OneUnited acted unfairly by making this loan with reckless disregard for
facts which made it likely that the loan would fail. It can do so, in part, by
clarifying the relationship between its detailed historical findings and the
reckless disregard standard. As its methodical findings in the initial order
demonstrate, the Bankruptcy Court is also fully equipped to make any
additional factual findings it deems necessary.10 Cf. Evans v. Lorillard
Tobacco Co., 465 Mass. 411, 467-468 (2013) (remanding where ambiguity
existed in trial court’s analysis in a Chapter 93A case). This court expresses
no view on the merits of the Church’s claim.
ORDER
For the foregoing reasons, the Church’s motion to certify questions to
the Massachusetts Supreme Judicial Court (Dkt #17) is DENIED. The
Bankruptcy Court’s order overruling the Church’s objection to OneUnited’s

If the Bankruptcy Court concludes that the Church has made out a
claim under the reckless disregard theory, it may also need to make
additional factual findings in addressing the first of the assumptions on
which this appeal rests: that the Church was acting under Section 9, rather
than Section 11, when it took out the loan. The Bankruptcy Court would also
no longer be able to assume, without deciding, that the Supreme Judicial
Court would extend the rule of Fremont beyond the residential mortgage
context.
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proof of claim is VACATED IN PART, and the case is REMANDED for further
proceedings consistent with this opinion.
SO ORDERED.
/s/ Richard G. Stearns
__________________________
UNITED STATES DISTRICT JUDGE

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