Holton v. Bank of America, NA
OPINION AND ORDER granting in part and denying in part 9 Defendant's Motion to Dismiss. Signed by District Judge Robert H. Cleland. (LWag)
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
JAMES P. HOLTON,
Case No. 11-14198
BANK OF AMERICA, NA,
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANT’S MOTION TO DISMISS
Before the court is Defendant’s motion to dismiss Plaintiff’s complaint for failure
to state a claim under Federal Rule of Civil Procedure 12(b)(6). The motion has been
fully briefed, and the court determines that a motion hearing is not necessary. See E.D.
Mich. LR 7.1(f)(2). For the reasons described below, the court will grant in part and
deny in part Defendant’s motion.
In July or August of 2003, Plaintiff entered into a mortgage with Countrywide
Mortgage, (Compl. ¶ 9, Dkt. # 1-2), for which Defendant is a “successor corporation,”
(id. ¶ 5). The mortgage secured a $98,000 loan to Plaintiff and stated that he “has
promised to pay this debt in regular Periodic Payments and to pay the debt in full not
later than August 1, 2010.” (Mortgage 2, Compl. Ex. 1, Dkt. # 1-3, at 4-24.) Appended
to the mortgage was a balloon rider that extended Plaintiff a conditional refinance option
that would extend the loan’s maturity date to 2033. (Balloon Rider 1, Compl. Ex. 1, Dkt.
# 1-3, at 21-23.) The option was contingent on Plaintiff’s fulfillment of several
conditions, one of which required that Plaintiff send “a written request” to Defendant
asking to refinance. (Id. at 2.) The balloon rider further stated that Defendant would
notify Plaintiff of his opportunity to refinance at least sixty days prior to the loan’s
maturity date and inform him of the name, title, and address of the person he had to
contact to exercise the option. (Id.)
For seven years Plaintiff paid his mortgage with no missed or late payments.
(Compl. ¶¶ 11-13.) In April 2010, Plaintiff received notice from Defendant that he would
soon be facing a balloon payment if he did not shortly exercise the conditional refinance
option. (Id. ¶ 14.) In response, Plaintiff contacted Defendant and indicated that he
wanted to enter into the thirty-year fixed-rate mortgage allowed by the option. (Id. ¶ 15.)
Defendant told Plaintiff that it would send him the necessary paperwork, but it never did.
(Id. ¶¶ 15-16.) Plaintiff heard nothing further from Defendant until July 2010, when
Defendant sent another letter inquiring into Plaintiff’s interest in refinancing. (Id. ¶ 17.)
Plaintiff again told Defendant he would like to refinance, but Defendant again failed to
send the necessary paperwork. (Id. ¶¶ 17-18.)
The August 1, 2010 maturity date came and went without a balloon payment
from Plaintiff, but Defendant continued to withdraw Plaintiff’s monthly mortgage
payment until January or February of 2011. (Id. ¶¶ 19-20.) When Defendant stopped
collecting those payments, Plaintiff contacted Defendant and was informed that he
owed a balloon payment of $86,000 and Defendant would no longer accept monthly
payments. (Id. ¶ 22.) On April 20, 2011, Plaintiff received a “Notice of Intent to
Foreclose” for non-payment of his mortgage. (Id. ¶ 28.) Plaintiff continued his efforts to
refinance, but to no avail. (Id. ¶ 24, 27, 30-33.) Defendant did, however, reverse its
earlier stance on refusing Plaintiff’s regular mortgage payments, and it collected five
months’ worth on August 3, 2011. (Id. ¶ 29.)
On August 22, 2011, Plaintiff initiated this lawsuit in the Genesee County Circuit
Court, alleging three substantive claims under Michigan law: (1) breach of written
contract; (2) breach of implied contract; and (3) negligence. Defendant removed the
action to this court on September 23, 2011. Although the court dismissed the case
without prejudice on September 30, 2011, to give the parties an opportunity to explore a
potential settlement, these efforts were ultimately unsuccessful. The case was
reopened on March 16, 2012, and shortly thereafter Defendant filed this motion seeking
dismissal under Rule 12(b).
A complaint must contain “a short and plain statement of the claim showing that
the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), otherwise it is subject to
dismissal under Federal Rule of Civil Procedure 12(b)(6) for “fail[ing] to state a claim
upon which relief can be granted,” id. 12(b)(6). To survive a Rule 12(b)(6) motion, a
complaint must allege enough facts that, when assumed true, “raise a right to relief
above the speculative level,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), by
“stat[ing] a claim to relief that is plausible on its face,” id. at 570. A claim is facially
plausible when the plaintiff pleads facts “allow[ing] the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged,” rather than showing
only “a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556
U.S. 662, 129 S. Ct. 1937, 1949 (2009) (citing Twombly, 550 U.S. at 556).
“Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s
liability, it ‘stops short of the line between possibility and plausibility of entitlement to
relief.’” Id. (quoting Twombly, 550 U.S. at 557) (internal quotation marks omitted).
While a complaint need not state “detailed factual allegations,” Twombly, 550 U.S. at
555, it must contain more than “labels and conclusions,” id., “a formulaic recitation of the
elements of a cause of action,” id., or “naked assertion[s]” unsupported by “further
factual enhancement,” id. at 557. In other words, although “a court must accept as true
all of the allegations contained in a complaint,” this tenet is “inapplicable to legal
conclusions.” Iqbal, 129 S. Ct. at 1949.
A court takes a “two-pronged approach” when considering a Rule 12(b)(6)
motion. Id. at 1950. First, the court must dismiss “pleadings that, because they are no
more than conclusions, are not entitled to the assumption of truth.” Id. Second, if a
complaint does present “well-pleaded factual allegations,” a court will “assume their
veracity” and decide “whether they plausibly give rise to an entitlement to relief.” Id.
“Determining whether a complaint states a plausible claim for relief will . . . be a
context-specific task that requires the reviewing court to draw on its judicial experience
and common sense.” Id.
In his complaint, Plaintiff avers that: Defendant breached the mortgage contract
by refusing his mortgage payments; Defendant breached an implied contract to
refinance the mortgage; and Defendant’s failure to follow through with the conditional
refinance option and refusal of his mortgage payments constituted actionable
negligence. Defendant argues that the facts pleaded in support of these claims do not
give rise to an entitlement to relief. The court largely agrees and will dismiss all of
Plaintiff’s claims, save for the allegation that Defendant breached its contractual
obligations under the balloon rider.
A. Breach of the Written Contract
Plaintiff first claims that Defendant breached the mortgage agreement when it
“wrongfully refused to take [his mortgage] payments and reported Plaintiff as delinquent
in his payments to the credit reporting agencies.” (Compl. ¶¶ 36-37.) To succeed in a
breach of contract claim, Plaintiff must prove by a preponderance of the evidence “(1)
that there was a contract, (2) that the other party breached the contract and, (3) that the
party asserting breach of contract suffered damages as a result of the breach.”
Miller-Davis Co. v. Ahrens Const., Inc., --- N.W.2d ----, 296 Mich. App. 56, 2012 WL
967840, at *7 (Mar. 22, 2012) (per curiam).
Plaintiff fails to plead facts sufficient to establish that Defendant was in violation
of the parties’ contract when it stopped taking Plaintiff’s mortgage payments and
reported him delinquent. The terms of the mortgage are straightforward: “Borrower has
promised to pay this debt in regular Periodic Payments and to pay the debt in full no
later than August 1, 2010.” (Mortgage 2.) Plaintiff concedes that he did not abide by
these terms, and nothing in the complaint indicates that Defendant’s enforcement of this
provision constitutes a breach of the written contract. Rather, Plaintiff avers that he
“was informed at the time of closing that the mortgage was a 30 year fixed rate
mortgage.” (Compl. ¶ 10.) To the extent that Plaintiff proffers this alleged statement as
extrinsic evidence of the meaning of the mortgage agreement, the court cannot use it as
a basis for altering the unambiguous terms of the written contract. See In re Smith
Trust, 745 N.W.2d 754, 758 (Mich. 2008); Burkhardt v. Bailey, 680 N.W.2d 453, 464
(Mich. Ct. App. 2004). And, as discussed below, Michigan law also forecloses any
argument that Countrywide or Defendant orally modified the written terms of the
mortgage. See infra Section III.B. Thus, Plaintiff has not stated a claim for breach of
the mortgage contract based upon Defendant’s refusal of his mortgage payments after
the August 1, 2010 maturity date.
Nevertheless, Plaintiff’s allegations are sufficient to state a claim for a breach of
the conditional refinance option contained in the balloon rider. Defendant asserts that
Plaintiff cannot demonstrate he successfully exercised the option because, while he
alleges he met some of the conditions required for the refinancing, he does not aver he
made a “written request to the note holder” in accordance with the terms of the balloon
rider. (Balloon Rider 2.) According to Plaintiff, however, he attempted to take
advantage of the option twice but was prevented both times by Defendant’s failure to
send the necessary paperwork. (Compl. ¶¶ 14-18.) Under the balloon rider, Defendant
was obligated to provide Plaintiff with payment record information and the name, title,
and address of the person Plaintiff must notify to exercise the option. (Balloon Rider 2.)
Failing to do so constitutes a breach that would prevent Plaintiff from satisfying the
conditions he needed to meet in order to exercise the option. In pleading that
Defendant failed to provide that paperwork despite Plaintiff’s multiple requests, Plaintiff
has met his burden of pleading facts sufficient to establish that Defendant breached the
written terms of the option.
B. Breach of an Implied Contract
In addition to alleging that Defendant breached the terms of the option contract,
Plaintiff claims that his communications with Defendant concerning his ability to
refinance, coupled with Defendant’s acceptance of his mortgage payments in the
months following the August 1, 2010 maturity date, gave rise to a “modified mortgage”
that Defendant breached by later claiming he had defaulted. (Compl. ¶¶ 38-39; Pl.’s
Resp. to Def.’s Mot. Dismiss 7-8, Dkt. # 11.) Michigan’s statute of frauds speaks to the
enforceability of a financial institution’s promise to modify a loan:
An action shall not be brought against a financial institution to enforce any of
the following promises or commitments of the financial institution unless the
promise or commitment is in writing and signed with an authorized signature
by the financial institution . . . .
(b) A promise or commitment to renew, extend, modify, or permit a
delay in repayment or performance of a loan, extension of credit, or
other financial accommodation.
Mich. Comp. Laws § 566.132(2). Michigan courts have interpreted section 566.132 as
an “unqualified and broad ban” barring any action to enforce a contract made with a
financial institution unless it is in writing and signed. Crown Tech. Park v. D&N Bank,
619 N.W.2d 66, 72 (Mich. Ct. App. 2000).
Plaintiff makes no claim that the “modified mortgage” he entered into with
Defendant was reduced to writing and signed. At most, Plaintiff’s claim rests on an oral
promise. Assuming it does, his claim fails to satisfy the statute of frauds. See Smith v.
Bank of Am. Corp., No. 10-14161, 2011 WL 653642, at *3 n.3 (E.D. Mich. Feb. 14,
2011; Bingham v. Bank of Am., N.A., No. 10-11917, 2010 WL 3633925, at *2-3 (E.D.
Mich. Sept. 14, 2010). Plaintiff has not pled facts sufficient to establish that it had an
enforceable, modified mortgage agreement with Defendant.
Plaintiff’s third claim is that Defendant was negligent in refusing to modify his
mortgage, as Defendant “knew or should have known” that “failing to follow through
with” the conditional refinance option would cause Plaintiff to be “eliminated from future
offers,” negatively affect his credit rating, and lead to the foreclosure of his home.
(Compl. ¶¶ 41-43.) “To establish a prima facie case of negligence, a plaintiff must show
(1) that the defendant owed a duty to the plaintiff, (2) that the defendant breached the
duty, (3) that the defendant’s breach of the duty caused the plaintiff injuries, and (4) that
the plaintiff suffered damages.” Lelito v. Monroe, 729 N.W.2d 564, 566 (Mich. Ct. App.
As Defendant points out in its motion, Plaintiff’s complaint offers no explanation
of what duty Defendant owes Plaintiff that would give rise to a negligence claim. In his
motion response, Plaintiff states that “[t]he basis of the . . . negligence claim is in the
written note.” (Pl.’s Resp. to Def.’s Mot. to Dismiss 8.) In other words, Plaintiff’s claim
is premised on the duties Defendant owed Plaintiff under the parties’ contract, and his
remedy therefore lies in contract, not in tort. See Ulrich v. Fed. Land Bank of St. Paul,
480 N.W.2d 910, 912 (Mich. Ct. App. 1991) (“It has often been stated that the
sometimes hazy distinction between contract and tort actions is made by applying the
following rule: if a relation exists that would give rise to a legal duty without enforcing the
contract promise itself, the tort action will lie, otherwise it will not.”) Since Plaintiff’s
negligence claim is subsumed by his breach of written contract claim, it is dismissed.
D. Unclean Hands
Lastly, Defendant contends that the doctrine of unclean hands forecloses Plaintiff
from receiving the equitable relief he requests, namely, rescinding the mortgage and
quieting title to the property in his favor. “‘[The clean hands maxim] is a self-imposed
ordinance that closes the doors of a court of equity to one tainted with inequitableness
or bad faith relative to the matter in which he seeks relief, however improper may have
been the behavior of the defendant.’” Stachnik v. Winkel, 230 N.W.2d 529, 532 (Mich.
1975) (alteration in original) (quoting Precision Instrument Mfg. Co. v. Auto. Maint.
Mach. Co., 324 U.S. 806, 814 (1944)). In other words, “[a] person seeking equity
should be barred from receiving equitable relief if there is any indication of overreaching
or unfairness on this person’s part.” Royce v. Duthler, 531 N.W.2d 817, 820 (Mich. Ct.
Plaintiff’s allegations, if true, do not evince bad faith that would merit dismissal of
his complaint due to his unclean hands. In fact, Plaintiff avers that he consistently and
diligently tried to exercise his contractual right to refinance the mortgage and continue
paying off his debt to Defendant. Of course, whether rescission of the mortgage or a
judgment that Plaintiff owns the property would be an appropriate remedy for
Defendant’s breach of the conditional refinance option is a different question that is not
currently before the court. At this point, it is enough to say that Plaintiff’s behavior in
regard to the mortgage agreement, as alleged in the complaint, does not suggest
overreaching or unfairness that would bar him from seeking equitable relief.
Accordingly, IT IS ORDERED that Defendants’ motion to dismiss [Dkt. # 9] is
GRANTED in part and DENIED in part. It is DENIED with respect to Plaintiff’s claim
that Defendant breached the written option agreement contained in the balloon rider to
his mortgage contract. It is GRANTED in all other respects.
s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: August 22, 2012
I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, August 22, 2012, by electronic and/or ordinary mail.
s/Lisa G. Wagner
Case Manager and Deputy Clerk
S:\Cleland\JUDGE'S DESK\C2 ORDERS\11-14198.HOLTON.Dismiss12b6Mortgage.je.set.wpd
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