Reedy v. Novad Management Consulting LLC

Filing 20

Judge F. Dennis Saylor, IV: MEMORANDUM AND ORDER entered granting 13 Motion to Dismiss for Failure to State a Claim (Halley, Taylor) Modified on 7/10/2018 (Halley, Taylor).

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
_______________________________________
)
CHARLES REEDY,
)
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Plaintiff,
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v.
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NOVAD MANAGEMENT CONSULTING, )
LLC,
)
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Defendant.
)
_______________________________________)

Civil Action No.
18-10998-FDS

MEMORANDUM AND ORDER ON DEFENDANT’S MOTION TO DISMISS
SAYLOR, J.
This is an action arising out of a lapsed insurance policy on plaintiff’s home, which was
destroyed by fire.
Plaintiff Charles Reedy entered into a reverse mortgage under which he was responsible
for maintaining hazard insurance on the property. He failed to pay the premium and the policy
lapsed. A few months later, an arsonist burned down his house. The insurance company denied
his claim. He now asserts claims for negligence, breach of contract, negligent and reckless
infliction of emotional distress, and violation of Mass. Gen. Laws ch. 93A against his current
loan servicer, defendant NOVAD Management Consulting, LLC, for allegedly failing to inform
him that the premium had not been paid.
NOVAD has filed a motion to dismiss all counts for failure to state a claim upon which
relief can be granted. For the following reasons, that motion will be granted.

I.

Background
A.

Factual Background

The following facts are set forth as alleged in the complaint.
In 2011, Charles Reedy executed a reverse mortgage on his property at 91-93 Adams
Street, New Bedford, Massachusetts. (Compl.¶¶ 3-4). Under the terms of that mortgage, Reedy
was required to maintain hazard insurance covering the property. (Id. ¶ 8). According to the
complaint, he “was informed” at the time he entered into the reverse mortgage that if he failed to
pay his insurance premium, the mortgagee would pay the premium and charge his account. (Id.
¶ 9).
In 2016, the original mortgagee assigned Reedy’s mortgage to the U.S. Department of
Housing and Urban Development (“HUD”). (Compl. ¶ 6). NOVAD Management Consulting,
LLC became the servicer of the Reedy loan at that time. (Id. ¶ 7). The complaint alleges that
NOVAD was “authorized to pay the insurance premium on the Plaintiff’s behalf and charge the
premium to the Plaintiff’s account.” (Id. ¶ 21).
As of the time of the assignment to HUD, the hazard insurance policy on the property
was active. (Id. ¶ 10). It did not automatically renew and was set to expire on May 3, 2017. (Id.
¶¶ 11-12). The complaint alleges that NOVAD sent Reedy a letter on May 3, 2017, to inquire as
to the status of the insurance policy, but that Reedy is elderly and forgetful and does not
remember receiving the letter. (Id. ¶¶ 14, 16, Ex. A). The letter informed him that his policy
was set to expire and requested “a copy of the declarations page for [his] new insurance policy.”
(Id. Ex. A). It also explains: “If you prefer us to contact your insurance agent directly for this
information, please complete the information below and sign where indicated authorizing release
of this information directly to us. A self-addressed envelope has been provided for your
convenience.” (Id.).
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Neither Reedy nor anyone else paid the premium for the insurance policy, and it lapsed
on May 3, 2017. (Compl. ¶¶ 21-22). On July 22, 2017, an arsonist set fire to the house, causing
extensive damage and rendering the property unsafe for human habitation. (Id. ¶ 23). Reedy
alleges that he discovered for the first time that the policy had lapsed when he went to his
insurance agent to file a claim. (Id. ¶ 25).
Reedy mailed NOVAD a demand letter pursuant to Mass. Gen. Laws ch. 93A, § 9 on
November 17, 2017. (Compl. ¶ 79, Ex. B). NOVAD did not respond. (Id. ¶ 81). Reedy mailed
the letter again on January 24, 2018, and NOVAD again failed to respond. (Id. ¶¶ 82-83, Ex. C).
On March 12, 2018, Reedy mailed another demand letter, including additional claims and
citations. (Id. ¶ 84, Ex. D). NOVAD did not respond to that letter either and has not made any
offer of settlement. (Id. ¶¶ 85-86).
B.

Procedural Background

Reedy filed this claim in Bristol Superior Court on April 17, 2018. NOVAD removed
this action to federal court pursuant to 28 U.S.C. §§ 1332(a) and 1441(a), on the ground that
Reedy is a citizen of Massachusetts, NOVAD is a citizen of Maryland, and the amount in
controversy is about $600,000.1
The complaint contains 5 counts: (1) negligence; (2) breach of contract; (3) negligent
infliction of emotional distress; (4) reckless infliction of emotional distress; and (5) violation of
Mass. Gen. Laws ch. 93A.
NOVAD has moved to dismiss the complaint under Fed. R. Civ. P. 12(b)(6) for failure to
state a claim upon which relief can be granted.

1

As represented in the notice of removal, NOVAD is a Maryland limited liability company with its
principal place of business in Maryland. It has one member, E. Davon Kelly, who is a citizen of Maryland. (Notice
of Removal ¶ 6).

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II.

Standard of Review
On a motion to dismiss, the court “must assume the truth of all well-plead[ed] facts and

give . . . plaintiff the benefit of all reasonable inferences therefrom.” Ruiz v. Bally Total Fitness
Holding Corp., 496 F.3d 1, 5 (1st Cir. 2007) (citing Rogan v. Menino, 175 F.3d 75, 77 (1st Cir.
1999)). To survive a motion to dismiss, the complaint must state a claim that is plausible on its
face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). That is, “[f]actual allegations must
be enough to raise a right to relief above the speculative level, on the assumption that all the
allegations in the complaint are true (even if doubtful in fact).” Id. at 555 (citations and footnote
omitted). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for
more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Twombly, 550 U.S. at 556). Dismissal is appropriate if the facts as
alleged do not “possess enough heft to sho[w] that [plaintiff is] entitled to relief.” Ruiz Rivera v.
Pfizer Pharm., LLC, 521 F.3d 76, 84 (1st Cir.2008) (alterations in original) (quoting Clark v.
Boscher, 514 F.3d 107, 112 (1st Cir. 2008)) (internal quotation marks omitted).
III.

Analysis
A.

Count 1: Negligence

Count 1 alleges that defendant breached its duty of reasonable care to “service the
Plaintiff’s reverse mortgage in a way that complied with the FHA Single Family Housing Policy
Handbook.” (Compl. ¶¶ 28-29, 47). It alleges that plaintiff’s loan was in “non-monetary default”
30 days after the insurance policy lapsed, and that the Handbook requires the servicer to make
certain efforts to reach the borrower in that event, including telephoning the borrower twice a
week, sending the borrower information, performing an occupancy inspection, and conducting a

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face-to-face interview with the borrower. (Id. ¶¶ 31-38).2 It alleges that defendant’s failure to
follow those procedures caused the property to be uninsured. (Id. ¶ 48).
To state a claim for negligence, plaintiff must allege that defendant owed plaintiff a duty
of reasonable care, that defendant breached that duty, and that the breach caused plaintiff
damages. Speleos v. BAC Home Loans Serv., L.P., 755 F. Supp. 2d 304, 310 (D. Mass. 2010).
Defendant argues that the negligence claim must be dismissed because it had no duty to
make sure that plaintiff paid his insurance premium. The Handbook sections plaintiff relies on
are contained within Section III.A, titled “Servicing and Loss Mitigation”: “Title II Insured
Housing Programs Forward Mortgages.” (Handbook § III.A, at 551 (emphasis added); see
Compl. ¶¶ 34-38 (citing Handbook § III.A.2.h)). That section, however, explicitly does not
apply to reverse mortgages. “This section provides the standards and procedures applicable to
the servicing of all Single Family (one to four units) Mortgages insured under Title II of the
National Housing Act, except for Home Equity Conversion Mortgages (HECM).” (Handbook
§ III.A, at 551 (emphasis added)); see 12 U.S.C. § 1715z-20 (providing for home equity
conversion mortgages for elderly homeowners within Subchapter II (“Mortgage Insurance”) of
Chapter 13 (“National Housing”). Therefore, nothing in that section of the Handbook obligates
servicers to do anything with respect to reverse mortgages, and the Handbook thus cannot be the
source of any duty owed plaintiff by defendant.3

2
Because plaintiff refers to, quotes, relies on, and attaches portions of the FHA Handbook in its complaint,
the Court may consider it in ruling on the motion to dismiss. See Giragosian v. Ryan, 547 F.3d 59, 65 (1st Cir.
2008). The full text of the regulations is available at https://www.hud.gov/sites/documents/40001HSGH.pdf.
(Compl. ¶ 29, Ex. D).
3
The entire text of section III.B, titled “Servicing and Loss Mitigation”: “Title II Insured Housing
Programs Reverse Mortgages” reads:

“This section is reserved for future use, and until such time, FHA-approved Mortgagees
must continue to comply with all applicable law and existing Handbooks, Mortgagee Letters,
Notices and outstanding guidance applicable to a Mortgagee’s participation in FHA programs.”

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Plaintiff also argues that defendant owed a common-law duty to him as a servicer of his
loan. (Compl. ¶ 27; Pl. Opp. at 3). While a servicer may have various contractual duties, the
mere existence of a relationship between a servicer and a borrower does not appear to create any
additional obligations. Plaintiff has cited no cases to support such a duty, and the Court can find
no evidence of one. See MacKenzie v. Flagstar Bank, FSB, 738 F.3d 486, 495 (1st Cir. 2013)
(“The relationship between a borrower and lender does not give rise to a duty of care under
Massachusetts law.”).
Finally, plaintiff argues that defendant had an affirmative duty under 209 C.M.R. § 18.21
not to misrepresent the terms and conditions of NOVAD’s servicing responsibilities and Reedy’s
obligations under the loan. (Pl. Opp. at 3). Whatever the applicability of that regulation, a duty
not to make misrepresentations cannot be breached by failing to take particular steps to notify
plaintiff that his hazard insurance was expired.
Therefore, Count 1 fails to state a claim for negligence.
B.

Count 2: Breach of Contract

Count 2 alleges that defendant breached its contract with HUD by failing to exercise
reasonable care and to comply with the requirements of the FHA Handbook, as required by the
terms of that contract. (Compl. ¶ 50, 53).
This claim is based entirely on the theory that the FHA Handbook requires defendant to
contact plaintiff by telephone, perform an occupancy inspection, and conduct a face-to-face
interview within a certain time after the hazard insurance policy on his reverse-mortgaged
property expired. Because the Handbook contains no such requirement, the claim must be

(Handbook § III.B, at 820).

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dismissed for the same reasons as Count 1.4
C.

Counts 3: Negligent Infliction of Emotional Distress

Count 3 alleges that defendant “was negligent in servicing the Plaintiff’s reverse
mortgage” and “[a]s a direct and proximate result of the Defendant’s negligence, the Plaintiff
suffered severe emotional distress.” (Compl. ¶¶ 56-57).
“To prevail on a claim of negligent infliction of emotional distress, a plaintiff must
establish: (1) negligence; (2) emotional distress; (3) causation; (4) physical harm; and (5) that a
reasonable person would have suffered emotional distress under the circumstances.” Alicea v.
Commonwealth, 466 Mass. 228, 234 n.9 (2013). Because the complaint fails to allege a claim
for negligence, Count 3 must be dismissed.
D.

Count 4: Reckless Infliction of Emotional Distress

Count 4 alleges that “Defendant’s conduct in servicing the Plaintiff’s reverse
mortgage”—including its “failure to contact the Plaintiff by telephone even once,” “failure to
attempt an occupancy inspection,” “failure to even attempt a face-to-face interview,” and “failure
to take any steps whatsoever after May 3, 2017, to ensure that the Subject Property was covered
by hazard insurance”—“was extreme and outrageous.” (Compl. ¶¶ 64-68). It further alleges that
defendant “knew or should have known that its failure to establish contact with the Plaintiff
and/or its failure to exercise reasonable care to ensure that hazard insurance remained in effect
on the Subject Property would likely result in emotional distress if a fire were to occur at the

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Defendant also argues that plaintiff cannot assert a breach-of-contract claim against it because he is not a
third-party beneficiary of the contract between defendant and HUD. “It is a well-established principle that
‘[g]overnment contracts often benefit the public, but individual members of the public are treated as incidental
beneficiaries [who may not enforce a contract] unless a different intention is manifested.’” MacKenzie v. Flagstar
Bank, FSB, 738 F.3d 486, 491 (1st Cir. 2013) (alterations in original) (quoting Restatement (Second) of Contracts
§ 313 cmt. a (1981)). Plaintiff has alleged that he was a third-party beneficiary of the contract. (Compl. ¶ 51).
Because neither side has produced the relevant contract, the Court cannot determine whether “a different intention
[was] manifested.”

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Subject Property and no compensation was available to the Plaintiff.” (Id. ¶ 62).
“The elements of a cause of action for reckless infliction of emotional distress are the
same as those for intentional infliction of emotional distress.” Bowman v. Heller, 420 Mass. 517,
519 n.2 (1995). “To sustain a claim of intentional infliction of emotional distress, a plaintiff
must show (1) that the defendant intended to cause, or should have known that his conduct
would cause, emotional distress; (2) that the defendant’s conduct was extreme and outrageous;
(3) that the defendant’s conduct caused the plaintiff’s distress; and (4) that the plaintiff suffered
severe distress.” Roman v. Trs. of Tufts College, 461 Mass. 707, 717-18 (2012) (quoting Sena v.
Commonwealth, 417 Mass. 250, 263-64 (1994)). The conduct must be “so outrageous in
character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be
regarded as atrocious, and utterly intolerable in a civilized community.” Id. (quoting Foley v.
Polaroid Corp., 400 Mass. 82, 99 (1987)) (internal quotation mark omitted).
The conclusory allegations that defendant’s conduct was “extreme and outrageous” are
plainly insufficient to satisfy this standard. Even if defendant had been obligated to contact
plaintiff about the lapse in his hazard insurance—which it was not—its silence can hardly be
regarded as “atrocious” and “utterly intolerable in a civilized community.” It is simply not
plausible that a failure to notify even an elderly homeowner that his insurance had expired is
tantamount to “set[ting] [him] up for disaster” if a fire should happen to occur. (See Pl. Opp. at
11). Count 4 will therefore be dismissed.
E.

Count 5: Chapter 93A

Finally, Count 5 alleges that defendant’s “abject failure to contact the Plaintiff once his
account became delinquent was unfair and deceptive” and that it was “unfair and deceptive for
the Defendant to take no steps to ensure that the Subject Property was covered by the necessary
insurance.” (Compl. ¶¶ 72-73). It also alleges that the FHA Handbook was a regulation meant
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for the public’s health, safety, or welfare as contemplated by Mass. Gen. Laws ch. 93A, § 2. (Id.
¶¶ 74-76).
An act or practice is unfair or deceptive if it falls “within at least the penumbra of some
common-law, statutory, or other established concept of fairness; is immoral, unethical,
oppressive, or unscrupulous; and causes substantial injury to consumers.” Young v. Wells Fargo
Bank, N.A., 828 F.3d 26, 33-34 (1st Cir. 2016) (quoting Walsh v. TelTech Sys., Inc., 821 F.3d
155, 159-60 (1st Cir. 2016)) (internal quotation marks omitted).
Because defendant had no duty to make sure that plaintiff paid his insurance premiums,
there is nothing unfair about its failure to take extraordinary steps to contact him. Furthermore,
plaintiff acknowledges that defendant did contact him, even attaching the letter to his complaint.
(Compl. ¶¶ 14, 16, Ex. A). Defendant was not required to anticipate that plaintiff might be old
and forgetful and that an arsonist might shortly set fire to his house. Although the situation is, of
course, unfortunate, it is not “unfair” within the meaning of Chapter 93A.
Nor can the Court discern anything “deceptive” about defendant’s behavior. Although
the complaint does allege that plaintiff was “informed” that the servicer would pay the hazard
insurance for him if he failed to do so, it does not allege that such a service was actually part of
his reverse-mortgage agreement. (Compl. ¶ 9). And it does not allege that defendant made that
representation; rather, it alleges that he was so informed by an unidentified person “[a]t the time
he obtained the reverse mortgage,” five years before defendant became his servicer. (Id.). Count
6 will therefore also be dismissed.
IV.

Conclusion
For the foregoing reasons, the motion of defendant NOVAD Management Consulting,

LLC to dismiss for failure to state a claim upon which relief can be granted is GRANTED.

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So Ordered.
/s/ F. Dennis Saylor
F. Dennis Saylor, IV
United States District Judge

Dated: July 9, 2018

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