Rego et al v. Select Portfolio Servicing, Inc.

Filing 14

Judge Allison D. Burroughs: MEMORANDUM AND ORDER entered. Accordingly, the motion to dismiss, [ECF No. 8 ], is GRANTED. The Complaint is DISMISSED without prejudice. If Plaintiffs wish to amend their Complaint, they must do so within 21 days. Any amended complaint should include a clearer chronology, including dates, and specifics about the nature of the alleged causes of action. SO ORDERED.(McDonagh, Christina)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
ELIZABETH A. REGO and TODD W.
FRATUS, SR.,
Plaintiffs,
v.
SELECT PORTFOLIO SERVICES, INC.
Defendant.

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Civil Action No. 18-cv-11300-ADB

MEMORANDUM AND ORDER
BURROUGHS, D.J.
Plaintiffs Elizabeth Rego and Todd Fratus, Sr. bring claims for declaratory judgment
(Count I), breach of contract (Count II), breach of the implied covenant of good faith and fair
dealing (Count III), and violation of Massachusetts General Laws Chapter 93A (Count IV)
related to Defendant Select Portfolio Services, Inc.’s (“SPS”) servicing and modification of their
mortgage loan. [ECF No. 1-1 at 4–13 (“Complaint” or “Compl.”)]. SPS moves to dismiss
pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons explained herein, the
motion is GRANTED, and the Complaint is DISMISSED with leave to amend.
I.

BACKGROUND
The following facts are drawn from the Complaint, the well-pleaded allegations of which

are taken as true for purposes of evaluating SPS’s motion to dismiss. See Ruivo v. Wells Fargo
Bank, N.A., 766 F.3d 87, 90 (1st Cir. 2014). Certain details are also culled from documents
whose authenticity are not disputed by the parties, from official public records, and from
documents attached or referred to in the Complaint. See Watterson v. Page, 987 F.2d 1, 3 (1st
Cir. 1993).

Plaintiffs are domestic partners who purchased their current residence in Pepperell,
Massachusetts in October 2004 for $358,000 using an “80/20,” “no money down” financing that
required two mortgages to be issued by First Franklin Corp. (“First Franklin”). [Compl. ¶¶ 7–9].
The first mortgage had an initial principal of $286,400, and the second mortgage had an initial
principal of $71,600. [Id. ¶¶ 9–10]. In early 2008, Plaintiffs began experiencing problems with
First Franklin, which refused to accept certain payments, returned purported overpayments that it
should not have, and threatened foreclosure at times when Plaintiffs’ account was current. [Id.
¶¶ 14.c–d]. In 2009, First Franklin assigned the first mortgage to Wells Fargo Bank, N.A. as
trustee for a mortgage-backed securities trust. [ECF No. 9 at 19–20]. In July 2011, Wells Fargo
assigned the first mortgage to PNC Bank, N.A. and SPS became the servicer for the first
mortgage. [Id. ¶ 15; ECF No. 9 at 23–24].1 Prior to SPS taking over as servicer for the first
mortgage, Plaintiffs repeatedly attempted to secure a modification of both mortgages, but their
attempts were delayed by First Franklin’s insistence that several of their applications were
incomplete. [Compl. ¶¶ 14.i–15]. First Franklin eventually offered Plaintiffs a modification that
would incorporate both the first and second mortgages, but sold the mortgages before Plaintiffs
could close on the modification. [Id. ¶¶ 14.n, 15].
After servicing transferred, SPS told Plaintiffs that their outstanding modification offer
was void, refused to accept mortgage payments, required Plaintiffs to reapply for a loan
modification, and informed Plaintiffs that the modification would not include the second
mortgage because it had not been part of SPS’s purchase. [Id. ¶¶ 15–18, 21]. Plaintiffs
submitted a new modification application to SPS, but found the process was disorganized and

1

The Complaint and SPS’s brief leave unclear exactly when SPS became Plaintiffs’ mortgage
servicer. Both suggest that the servicing transfer occurred at some point prior to the end of July
2011. [Compl. ¶ 14.b; ECF No. 9 at 2].
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that SPS had not received the paperwork related to their prior modification applications, which
caused unnecessary delays. [Id. ¶¶ 18–19]. At one point, SPS erroneously sent a check for real
estate taxes on Plaintiffs’ property to the Town of Pepperell, but because no real estate taxes
were due, the town returned the check to SPS. [Id. ¶¶ 28–29]. SPS also charged attorneys’ fees
to Plaintiffs’ mortgage balance. [Id. ¶¶ 19–21]. On at least one occasion when Plaintiffs’ first
mortgage was current, SPS scheduled and threatened to proceed with a foreclosure auction if
Plaintiffs refused to make certain trial payments associated with their loan modification. [Id.
¶¶ 23, 27, 36, 38].
Plaintiffs finally secured a modification of the first mortgage on September 18, 2012, but
SPS included $107,000 in fees, including attorneys’ fees, in the principal due, which then totaled
$375,077.11. [Id. ¶¶ 21–22]. Although the modification provided Plaintiffs with several
benefits, including an initial interest rate of 2.00 percent and a “deferred principal balance” of
$153,077.11 on which interest would not accrue, the modified mortgage balance would have
been considerably lower if not for the fees caused by SPS’s delays. [Id. ¶¶ 22, 37, 39; ECF No. 9
at 27].
Plaintiffs filed for Chapter 7 bankruptcy protection in 2017 and obtained discharges later
that year. [Compl. ¶¶ 1–2]. On June 21, 2017, Plaintiffs filed an adversary proceeding against
First Franklin, Ditech Financial, LLC (“Ditech”),2 and SPS based on substantially the same

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Ditech is a loan servicer that appears to have serviced Plaintiffs’ second mortgage. Plaintiffs’
complaint in the adversary proceeding alleged that Ditech was seeking $107,793.41, which was
“exactly the same amount” as an execution that Deutsche Bank obtained from a 2013 civil
lawsuit against Plaintiff Fratus. [Complaint of Debtors ¶ 34, Rego v. Select Portfolio Servs., Inc.
(In re Rego), Adv. Pro. 17-04028 (D. Mass. Jun. 21, 2017), ECF No. 1]. Conversely, in this
case, the Court understands Plaintiffs to be alleging that SPS charged “$107,000 in attorney’s
fees to the first mortgage account of the Plaintiffs” which was later included in the September
2012 loan modification based on Plaintiffs’ assertions that “[w]hen Rego and Fratus finally
modified the mortgage, it did not include the second mortgage, but did include over $100,000.00
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allegations made here. [Id. ¶ 3; see Rego v. Select Portfolio Servs., Inc. (In re Rego), Adv. Pro.
17-04028 (D. Mass)]. Plaintiffs settled their claims against First Franklin, but their claims
against SPS were dismissed by the bankruptcy court for lack of jurisdiction on December 8,
2017. [Compl. ¶¶ 5–6; Order of Court, Rego v. Select Portfolio Servs., Inc. (In re Rego), Adv.
Pro. 17-04028 (D. Mass. Dec. 8, 2017), ECF No. 43]. On May 10, 2018, Plaintiffs filed this
action in state court seeking a declaratory judgment in the nature of an accounting and alleging
breach of contract, breach of the implied covenant of good faith and fair dealing, and a violation
of Massachusetts Chapter 93A. [ECF No. 1-1 at 2; see generally Compl.]. On June 21, 2018,
SPS removed the action to this Court. [ECF No. 1].
II.

MOTION TO DISMISS STANDARD
On a motion to dismiss for failure to state a claim, the Court accepts as true all well-

pleaded facts in the complaint and draws all reasonable inferences in the light most favorable to
the plaintiff. United States ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 383 (1st
Cir. 2011). While detailed factual allegations are not required, a complaint must set forth “more
than labels and conclusions,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), and it must
contain “factual allegations, either direct or inferential, respecting each material element
necessary to sustain recovery under some actionable legal theory.” Gagliardi v. Sullivan, 513
F.3d 301, 305 (1st Cir. 2008) (internal quotations and citations omitted). The facts alleged, taken
together, must “state a claim to relief that is plausible on its face.” A.G. ex rel. Maddox v.
Elsevier, Inc., 732 F.3d 77, 80 (1st Cir. 2013) (quoting Twombly, 550 U.S. at 570). “A claim is

in fees, that Select Portfolio would not itemize or explain.” [Compl. ¶ 39; ECF No. 13 at 4; see
also ECF No. 13 at 8 (arguing that “no consumer mortgage modification should include the
$107,000.00 in costs and attorney fees that the Defendant SPS representative said were included
in the modified mortgage”)].
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facially plausible if supported by ‘factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.’” Eldredge v. Town of
Falmouth, 662 F.3d 100, 104 (1st Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 665
(2009)).
When assessing the sufficiency of a complaint, the Court first “separate[s] the
complaint’s factual allegations (which must be accepted as true) from its conclusory legal
allegations (which need not be credited).” Maddox, 732 F.3d at 80 (quoting Morales-Cruz v.
Univ. of P.R., 676 F.3d 220, 224 (1st Cir. 2012)). Next, the Court “determine[s] whether the
remaining factual content allows a ‘reasonable inference that the defendant is liable for the
misconduct alleged.’” Id. (quoting Morales-Cruz, 676 F.3d at 224). “[T]he court may not
disregard properly pled factual allegations, ‘even if it strikes a savvy judge that actual proof of
those facts is improbable.’” Ocasio-Hernandez v. Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011)
(quoting Twombly, 550 U.S. at 556). “[W]here the well-pleaded facts do not permit the court to
infer more than the mere possibility of misconduct,” however, a claim may be dismissed. Iqbal,
556 U.S. at 679.
III.

DISCUSSION
SPS argues (1) that the Complaint fails to state claims for breach of contract or breach of

the implied covenant of good faith and fair dealing, (2) that the Complaint fails to state a Chapter
93A claim, (3) that declaratory relief is barred as a matter of law, and (4) that the loan
modification bars this action. [ECF No. 9 at 5–16].3 The Court will address the first three
arguments in turn, and finds it unnecessary to address the fourth.

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The Court has reordered SPS’s arguments to conform with the order in which they are
addressed herein.
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A.

Plaintiffs Fail to State a Breach of Contract or the Implied Covenant of Good
Faith and Fair Dealing

Plaintiffs claim that SPS breached an unspecified contract (Count II) and the
corresponding implied covenant of good faith and fair dealing (Count III) through its dilatory
tactics and by levying impermissible fees prior to the September 2012 loan modification.4 “To
demonstrate a breach of contract, ‘[Plaintiffs] must prove that a valid, binding contract existed,
the defendant breached the terms of the contract, and the plaintiff sustained damages as a result
of the breach.’” Young v. Wells Fargo Bank, N.A. (Young II), 828 F.3d 26, 32 (1st Cir. 2016)
(quoting Young v. Wells Fargo Bank, N.A. (Young I), 717 F.3d 224, 232 (1st Cir. 2013)). The
implied covenant of good faith and fair dealing is implied in every contract under Massachusetts
law. Shaulis v. Nordstrom, Inc., 865 F.3d 1, 16 n.7 (1st Cir. 2017). This implied covenant
provides that “neither party shall do anything that will have the effect of destroying or injuring
the right of the other party to the fruits of the contract.” Young I, 717 F.3d at 237 (quoting T.W.
Nickerson, Inc. v. Fleet Nat’l Bank, 924 N.E.2d 696, 703–04 (Mass. 2010)). “The concept of
good faith ‘is shaped by the nature of the contractual relationship from which the implied
covenant derives,’ and the ‘scope of the covenant is only as broad as the contract that governs the
particular relationship.’” Id. at 238 (quoting Ayash v. Dana-Farber Cancer Inst., 822 N.E.2d
667, 684 (Mass. 2005)). “As a consequence, the implied covenant cannot ‘create rights and

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Although the Complaint references two mortgage loans to which SPS was not initially a party,
numerous attempts at modification sought from First Franklin, and an eventual mortgage
modification entered into with SPS, the entirety of Plaintiffs’ claim for breach of contract (Count
II) states, “The Plaintiffs Elizabeth A. Rego and Todd W. Fratus, Sr. restate paragraphs 1 through
36 and incorporate each herein by reference. Wherefore, the Plaintiffs Elizabeth A. Rego and
Todd W. Fratus, Sr. request that judgment enter against the Defendant Select Portfolio Servicing,
Inc. for Breach of Contract with money damages, interest, costs and attorney’s fees.” Compl. ¶
44. Plaintiffs’ claim for breach of the implied covenant of good faith and fair dealing (Count III)
is similarly abbreviated and does not specify the contract giving rise to the obligations that are
supposedly at issue. Id. ¶¶ 45–46.
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duties not otherwise provided for in the existing contractual relationship.’” Id. (internal citation
omitted). “[T]he implied covenant of good faith and fair dealing governs conduct of parties after
they have entered into a contract; without a contract, there is no covenant to be breached.” Mass.
Eye & Ear Infirmary v. QLT Phototherapeutics, Inc., 412 F.3d 215, 230 (1st Cir. 2005).
Plaintiffs argue that SPS breached (1) the mortgage contract by charging excessive fees
and subsequently including those fees in the modified mortgage balance and (2) the implied
covenant of good faith and fair dealing by making last minute demands for payment on the eve
of a foreclosure auction that deprived them of the peaceful use of their home. [ECF No. 13 at 4–
5]. Plaintiffs have not pled that those actions occurred after the September 18, 2012 loan
modification, and they do not allege a contractual relationship with SPS prior to that date.
Plaintiffs therefore fail to state a claim for breach of contract or breach of the implied covenant
of good faith and fair dealing and Counts II and III will therefore be dismissed with leave to
amend.
B.

Chapter 93A

Plaintiffs claim that SPS violated Chapter 93A (Count IV) by engaging in “unfair and
deceptive consumer practices that caused the Plaintiffs financial damages and severe emotional
distress.” [Compl. ¶ 48]. To prevail on a Chapter 93A claim, Plaintiffs must prove (1) “that a
person who is engaged in trade or business committed an unfair or deceptive trade practice,” and
(2) “that [they] suffered a loss of money or property as a result.” Morris v. BAC Home Loans
Servicing, L.P., 775 F. Supp. 2d 255, 259 (D. Mass. 2011) (quoting Brandon Assocs. v. FailSafe
Air Safety Sys. Corp., 384 F. Supp. 2d 442, 446 (D. Mass. 2005)). Although there is no precise
test for determining whether conduct is unfair or deceptive, “Massachusetts courts have laid out
a number of helpful guideposts.” Hanrahran v. Specialized Loan Servicing, LLC, 54 F. Supp. 3d

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149, 154 (D. Mass. 2014). “Under Chapter 93A, an act or practice is deceptive ‘if it possesses a
tendency to deceive’ and ‘if it could reasonably be found to have caused a person to act
differently from the way he [or she] otherwise would have acted.’” Walsh v. TelTech Sys., Inc.,
821 F.3d 155, 160 (1st Cir. 2016) (quoting Aspinall v. Philip Morris Cos., 813 N.E.2d 476, 486–
87 (Mass. 2004)). “[A]n act or practice is unfair if it falls ‘within at least the penumbra of some
common-law, statutory, or other established concept of unfairness;’ ‘is immoral, unethical,
oppressive, or unscrupulous;’ and ‘causes substantial injury to consumers,’” and the “conduct
must generally be of an egregious, non-negligent nature.” Id. (quoting PMP Assocs. v. Globe
Newspaper Co., 321 N.E.2d 915, 917 (Mass. 1975)). “Both [Defendant’s and Plaintiffs’]
conduct, knowledge, and what they should have reasonably known may be factors in
determining whether an act or practice is unfair.” Hanrahran, 54 F. Supp. 3d at 154 (citing Jasty
v. Wright Med. Tech., Inc., 528 F.3d 28, 38 (1st Cir. 2008)).
Here, Plaintiffs argue that SPS violated Chapter 93A by causing their real estate escrow
balance to be inaccurate, mailing an erroneous refund, delaying their mortgage modification
process, and adding grossly inflated fees to Plaintiffs’ mortgage balance. [See ECF No. 13 at 7–
8]. Plaintiffs’ argument that SPS caused their real estate escrow balance to be inaccurate is
contrary to the allegations in the Complaint, which places blame for that issue on First Franklin.
[See Compl. ¶¶ 14.c–l]. The erroneous refund, a check for $10,000 that SPS allegedly sent to the
Town of Pepperell, is also insufficient to establish a claim under Chapter 93A since, according to
the Complaint, the town returned the check to SPS and Plaintiffs have made no plausible
allegation that this error caused them a loss of money or property. [See id. ¶ 28–29].
With respect to the claim that SPS delayed Plaintiffs’ mortgage modification and charged
inflated fees, the allegation that the modification process was slow and expensive is insufficient

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to state a violation of Chapter 93A. “It is well-settled that a bank has no obligation under a note
or mortgage to modify a loan.” Cabrera v. Sovereign Bank, No. 1:13-CV-10335-RGS, 2014 WL
1803311, at *3 (D. Mass. May 7, 2014). Further, Plaintiffs have not made out a plausible claim
that they were the victims of unfair or deceptive conduct. Although Plaintiffs allege that they
were charged more than $100,000 in fees that are now included in the principal balance of their
mortgage as a result of the loan modification, they have not explained how those fees were
inconsistent with any applicable law or contractual obligation, nor have they identified any false
or deceptive conduct related to those fees.
Even assuming, arguendo, that SPS committed unfair and deceptive trade practices in
the time period between becoming Plaintiffs’ mortgage servicer in July 2011 and agreeing to a
loan modification with Plaintiffs in September 2012, a Chapter 93A claim would be barred by
the four-year statute of limitations. See Mass. Gen. Laws ch. 260 § 5A; Azevedo v. U.S. Bank
N.A., 167 F. Supp. 3d 166, 170 (D. Mass. 2016) (dismissing predatory lending claim brought
under Chapter 93A as time barred). The statute of limitations for a violation of Chapter 93A
“involving an issuance of a loan begins to accrue from the moment the parties entered into the
loan.” Da Silva v. U.S. Bank, N.A., 885 F. Supp. 2d 500, 504 (D. Mass. 2012). Although the
statute of limitations is subject to a narrow “discovery rule” exception that “delays accrual
beyond the time of injury if the plaintiff does not know and could not reasonably know that he or
she may have been harmed by the conduct of another,” Maldonado v. AMS Servicing LLC, Nos.
11-40044-FDS, 11-40219-FDS, 2012 WL 220249, at *5 (D. Mass Jan. 24, 2012) (citing Prescott
v. Morton Intern., Inc., 769 F. Supp. 404, 408 (D. Mass. 1990)) (internal quotations omitted),
Plaintiffs have not shown that that exception applies here, where the amount they agreed to pay
under their loan modification was clear at the time that contract was entered into. [Compl.

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¶¶ 21–22; ECF No. 9 at 26–31]. Because the fees at issue were incurred on or before September
18, 2012 when the loan was modified, and Plaintiffs did not bring a related claim for nearly five
years, the statute of limitations bars the Chapter 93A claim. Count IV will therefore be
dismissed with leave to amend.
C.

Declaratory Relief Is Not Appropriate

Under the Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202, the Court has
“substantial discretion in deciding whether to declare the rights of litigants.” MedImmune, Inc.
v. Genentech, Inc., 549 U.S. 118, 136 (2007); see also El Dia, Inc. v. Hernandez Colon, 963 F.2d
488, 493 (1st Cir. 1992). Plaintiffs seek “declaratory relief” that would amount to an accounting
of their modified mortgage debt and a “declaration of the damages suffered by Plaintiffs” as a
result of SPS’s overcharging or misstating the amount due. [Compl. ¶ 43]. The Complaint does
not clearly assert whether Plaintiffs are seeking a modification based on fees that were charged
before or after the modification agreement. SPS argues that Plaintiffs are attempting to plead
their way around the three-year statute of limitations that applies to any allegedly tortious
conduct that occurred before the parties agreed to the mortgage modification. [ECF No. 9 at 5–
11; see Masingill v. EMC Corp., 870 N.E.2d 81, 89 (Mass. 2007) (quoting Starr v. Fordham, 648
N.E.2d 1261, 1268 (Mass. 1995))].5 To the extent that Plaintiffs’ claim is for a modification of
their mortgage debt based on fees that were included in the principal when the modification was

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“Under Massachusetts law, a tort claim, such as the one asserted . . . for fraudulent inducement,
is barred unless it is asserted within three years of the accrual of the cause of action.” In re
Sullivan, 346 B.R. 4, 19 (Bankr. D. Mass. 2006); see also Mass. Gen. Laws ch. 260, § 2A; Dep’t
of Revenue of Com. v. Mailhouse, Inc., 7 Mass. L. Rptr. 326, 1997 WL 573212, at *3 (Mass.
Super. Aug. 5, 1997) (holding that where the essential nature of the action is for fraudulent
misrepresentation, . . . the applicable statute of limitations is three years). Although a borrower
may overcome the three-year statute of limitations by demonstrating a fiduciary relationship, that
“burden is heavy because generally there is no fiduciary duty between a [lender] and a
borrower.” In re Sullivan, 346 B.R. at 21.
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signed, the Court agrees. See Brown v. Rhode Island, 511 F. App’x 4, 6 (1st Cir. 2013) (noting
that declaratory judgment should not be used “simply to proclaim liability for a past act”). To
the extent Plaintiffs seek an accounting, the Complaint does not plausibly assert that SPS is
seeking to recover amounts in excess of payments that are clearly required by the mortgage
modification, and it is therefore unclear why an accounting is appropriate or why a customer
would have to resort to a lawsuit to obtain such an accounting. Count I will therefore be
dismissed with leave to amend. Given that Plaintiffs are granted leave to amend, the Court
expects that SPS will, if it has not already, provide Plaintiffs with a complete accounting related
to the modified mortgage.
IV.

CONCLUSION
Accordingly, the motion to dismiss, [ECF No. 8], is GRANTED. The Complaint is

DISMISSED without prejudice. If Plaintiffs wish to amend their Complaint, they must do so
within 21 days. Any amended complaint should include a clearer chronology, including dates,
and specifics about the nature of the alleged causes of action.
SO ORDERED.
February 22, 2019

/s/ Allison D. Burroughs
ALLISON D. BURROUGHS
U.S. DISTRICT JUDGE

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