Farah et al v. Federal National Mortgage Association et al

Filing 13

OPINION AND ORDER granting 5 Motion to Dismiss by Defendants'. Signed by District Judge Marianne O. Battani. (BThe)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

FRANCOIS A. FARAH and
FRANCOIS A. FARAH REVOCABLE
LIVING TRUST,
Plaintiffs,
v.

Case No. 13-CV-11787

FEDERAL NATIONAL MORTGAGE
ASSOCIATION and SETERUS, INC.,

HON. MARIANNE O. BATTANI

Defendants.
_____________________________________/

OPINION AND ORDER GRANTING DEFENDANTS’
MOTION TO DISMISS UNDER FED. R. CIV. P. 12(b)(6)
Before the Court is Defendants Federal National Mortgage Association (“Fannie
Mae”) and Seterus, Inc.’s Motion to Dismiss under Fed R. Civ. P. 12(b)(6). (Doc. No.
5). The Court has reviewed all the relevant filings and finds that oral argument will not
aid in resolving this dispute. See E.D. Mich. LR 7.1(f)(2). For the reasons discussed
below, the Court GRANTS Defendants’ motion and dismisses all of Plaintiffs’ claims.
I.

STATEMENT OF FACTS
On March 1, 2002, Plaintiffs Francois A. Farah (“Farah”) and the Francois A.

Farah Revocable Living Trust purchased Farah’s home at 1909 Ramsay Blvd., Flint,
Michigan. (Doc. No. 1-1, ex. A, at 29). Plaintiffs obtained a $180,800 loan, secured by
a mortgage on the property granted to Citizens Bank. (Doc. No. 1-1, Ex. A, at 29).
Citizens Bank assigned the mortgage to Chase Mortgage Company on March 1, 2002,

an action that was not recorded until September 2002. (Doc. No. 1-1 at 5). The
mortgage was assigned to Mortgage Electronic Registration Systems, Inc. (“MERS”) in
September 2010 (Doc. No. 1-1 at Ex. C). MERS then assigned the mortgage to
Federal National Mortgage Association (“Fannie Mae”) in April 2012. (Doc. No. 1-1 at
Ex. D). Defendant Seterus, Inc. (“Seterus”) is the loan servicer.
All of Farah’s claims stem from the same allegations of improper conduct on the
part of Seterus. Farah alleges that he made several requests to Seterus for foreclosure
alternatives in early 2012, including a request for a deed in lieu of foreclosure in March
2012, a request for mediation prior to foreclosure in May 2012, a Home Affordable
Modification Program loan modification in July 2012, and a deed in lease program in
August 2012. (Doc. No. 1-1 at 7-9). Farah alleges that Seterus made a number of
misrepresentations to him about his eligibility for foreclosure alternatives. (Doc. No. 1-1
at 12-13). Farah also alleges that Seterus purposely delayed consideration of
foreclosure alternatives by repeatedly requesting documents that it had already
received as a stall tactic so that it could foreclose and keep him from redeeming the
property. (Doc. No. 1-1 at 14).
Plaintiffs defaulted on the mortgage in 2012, but the record is not clear precisely
when this happened. After sending Plaintiffs a housing counselor and foreclosure
notice as required by Michigan law, Fannie Mae began foreclosure by advertisement
proceedings in August 2012. Fannie Mae purchased the property at the foreclosure
sale, which took place on September 26, 2012. (Doc. No. 1-1, Ex. I, at 62). On March
22, 2013, Plaintiffs filed a lawsuit in Genesee County Circuit Court, alleging nine counts
against Defendants. Plaintiffs did not redeem the property before the redemption
2

period’s expiration on March 26, 2013. Defendants removed this case to federal court
on April 22, 2013.
II.

STANDARD OF REVIEW
In reviewing a motion to dismiss, the court “must construe the complaint in the

light most favorable to the plaintiff [and] accept all factual allegations as true.” In re
DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993). This standard does not
require the court to accept as true legal conclusions, conclusory statements, or
“threadbare recitals of the elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009).
To survive a motion to dismiss, the plaintiff must “state a claim for relief that is
plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).
Plausibility “requires showing more than the sheer possibility of relief but less than a
probable entitlement to relief.” Fabian v. Fuller Helmets, Inc., 628 F.3d 278, 280 (6th
Cir. 2010) (citations and internal quotation marks omitted).
Rule 12(d) provides that “[i]f, on a motion under Rule 12(b)(6) . . . matters
outside the pleadings are presented to and not excluded by the court, the motion must
be treated as one for summary judgment under Rule 56.” Fed. R. Civ. P. 12(d). A court
may consider “documents incorporated into a complaint by reference and matters of
which a court may take judicial notice” without converting the motion into one for
summary judgment. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007).
Moreover, when documents are referenced in a complaint and are central to the claims,
the court may consider them in resolving a motion to dismiss. Weiner v. Klais and Co.,
108 F.3d 86, 88 (6th Cir. 1997) (quoting Venture Assocs. Corp. v. Zenith Data Sys.
3

Corp., 987 F.2d 429, 431 (7th Cir. 1993)).
III.

ANALYSIS
Plaintiffs’ nine-count complaint has federal and state claims of both a legal and

equitable nature: (1) violation of the federal Truth in Lending Act; (2) civil conspiracy; (3)
foreclosure is barred by unclean hands; (4) breach of contract; (5) intentional fraud; (6)
constructive fraud; (7) violation of the Federal Fair Debt Collection Practices Act; (8)
violation of Michigan’s Regulation of Collection Practices Act; and (9) violation of
Michigan’s Occupational Code. Each count is addressed below.
A.

Truth in Lending Act Claim

Farah claims that Defendants violated the Truth in Lending Act, 15 U.S.C. §
1641(g)(1) (“TILA”). Specifically, Plaintiffs claim that they were not notified of the
mortgage assignment and change in creditor within 30 days, as the statute requires.
Farah seeks the maximum statutory damages permitted under the statute. Under the
statute of limitations for TILA violations, a lawsuit must be brought “within one year from
the date of the occurrence of the violation.” 15 U.S.C. § 1640(e). This means that the
statute of limitations begins when there is a cause of action and the plaintiff “can file
suit and obtain relief.” Wike v. Vertrue, Inc., 566 F.3d 590, 593 (6th Cir. 2009) (internal
quotations omitted); see also Thielen v. GMAC Mortgage Corp., 671 F. Supp. 2d 947,
953 (E.D. Mich. 2009) (quoting Wike).
According to Farah’s complaint, the Mortgage was assigned from Citizens Bank
to Chase Mortgage Company on March 1, 2002, the same day Farah obtained the
mortgage. Chase Mortgage Company then assigned the mortgage to Federal National

4

Mortgage Association (“Fannie Mae”), with Mortgage Electronic Registration Systems,
Inc. (“MERS”) as nominee in September 2010. (Doc. No. 1-1 at Ex. C). Plaintiffs allege
that Fannie Mae has owned the indebtedness since July 2010. (Doc. No. 1-1 at 6).
Plaintiffs filed their lawsuit on March 22, 2013.
Plaintiffs did not bring this claim within the one-year statute of limitations, so this
claim is barred. Moreover, Plaintiffs are also not entitled to equitable tolling of the
statute of limitations because they fail to show that there was fraudulent concealment of
the mortgage note, the transfer, or any of its terms. See Jones v. TransOhio Sav.
Ass'n, 747 F.2d 1037, 1041-43 (6th Cir.1984) (holding equitable tolling proper in a TILA
case that alleged fraudulent concealment of a variable interest rate provision and of the
mortgage note itself). see Fed. R. Civ. P. 9(b) (“In alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud or mistake”) and Frank
v. Dana Corp., 547 F.3d 564, 569-70 (6th Cir. 2008) (holding that under Rule 9(b), “[a]t
a minimum, Plaintiffs must allege the time, place and contents of the
misrepresentations upon which they relied”).
Plaintiffs allege that Defendants “hid the true creditor” from them and that
Plaintiffs were not informed of the mortgage note transfer. These allegations do not
rise to the level of specificity required of fraud allegations in order to survive a motion to
dismiss. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In addition, this allegation
cannot be reconciled with Farah’s allegation that he attempted to negotiate foreclosure
alternatives in 2012, because if he did not know who the creditor was he would not
have been able to engage in these negotiations. (See Doc. No. 1-1 at 6-7).

5

B.

Breach of Contract and Unclean Hands

Farah brings a breach of contract claim based on Defendants’ violation of the
duty of good faith and fair dealing. In Michigan, breach of the implied duty of good faith
and fair dealing is a basis for a breach of contract action in Michigan, not an
independent tort action. McLiechey v. Bristol W. Ins. Co., 408 F. Supp. 2d 516, 522-23
(W.D. Mich. 2006) aff’d sub nom McLiechy v. Bristol W. Ins. Co., 474 F.3d 897 (6th Cir.
2007). The implied covenant only applies where one party to the contract has
discretion in its performance under the contract. Id., see also Ferrell v. Vic Tanny
Intern., Inc., 357 N.W.2d 669, 672 (Mich. Ct. App. 1984). For any breach of contract
claim, a plaintiff must establish three elements by a preponderance of the evidence: (1)
the existence of a contract between the parties; (2) the other party breached the
contract; and (3) the plaintiff suffered damages. Miller-Davis Co. v. Ahrens Const., Inc.
(On Remand), 817 N.W.2d 609, 619 (Mich. Ct. App. 2012) appeal granted in part, 831
N.W.2d 234 (Mich. 2013) and appeal granted, 838 N.W.2d 706 (Mich. 2013) (citations
omitted).
Farah alleges that the mortgage includes language that gives Defendants
discretion to modify Farah’s loan, and that their failure to do so was a result of bad faith
negotiations during the pre-foreclosure mitigation period and the redemption period.
Farah also seeks relief based on the doctrine of unclean hands, alleging that
defendants negotiated in bad faith as to processing Farah’s mortgage loan, request for
modification, short sale, deed in lieu of foreclosure, and deed for lease. Because both
claims rely on Defendants’ alleged bad faith in the loan modification process, they will
be analyzed together. Plaintiffs seek to have the foreclosure sale enjoined.
6

Plaintiffs base their claim on a breach of the implied duty of good faith and fair
dealing as it relates to Defendants’ discretion to modify their mortgage. But according
to the pleadings, the underlying contract giving rise to the breach of contract claim is the
mortgage itself. It does not follow that a breach of contract claim can happen based on
the implied duty of good faith and fair dealing when the discretion involved was the
discretion to modify the contract, rather than discretion as to the manner of
performance under the contract itself. See Ferrell v. Vic Tanny Int’l, Inc., 357 N.W.2d
669, 672 (Mich. Ct. App. 1984) (“Where a party to a contract makes the manner of its
performance a matter of its own discretion, the law does not hesitate to imply the
proviso that such discretion be exercised honestly and in good faith.”) (citation omitted).
The parties did not have a contract agreeing to modify the mortgage, so there can be
no breach of contract action based on an implied duty of good faith. Plaintiffs do not
allege that there was a contract independent of the mortgage. Because the implied
duty of good faith and fair dealing must relate to an actual underlying contract, rather
than negotiations to modify a contract, Plaintiffs have failed to state a breach of contract
claim based on the implied duty of good faith and fair dealing.
C.

Fraud Claims

Farah also claims that Defendants committed intentional fraud or, alternatively,
constructive fraud by means of false representations during the loan modification
process. Specifically, Farah claims that Defendants falsely represented that he was
missing documents or that they never received his applications for foreclosure
alternatives. Farah claims that this was purposeful conduct as part of a delay tactic to
essentially stall Farah into foreclosure with endless paperwork. (Doc. No. 1-1 at 16-19).
7

Under Fed. R. Civ. P. 9(b), plaintiffs are required to state with particularity the
circumstances constituting fraud. Therefore, a complaint must “(1) specify the
statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state
where and when the statements were made, and (4) explain why the statements were
fraudulent.” Frank v. Dana Corp., 574 F.3d 564, 569-70 (6th Cir. 2008) (quoting Gupta
v. Terra Nitrogen Corp., 10 F. Supp. 2d 879, 883 (N.D. Ohio 1998). This means that a
plaintiff must at minimum state where and when the misrepresentation took place and
what was said. Id. (citing Bender v. Southland Corp., 749 F.2d 1205, 1216 (6th Cir.
1984). Farah’s complaint falls short of these requirements. At no point does Farah
state when the misrepresentations took place, or who gave the misrepresentations.
Farah also does not explain in much detail what was said. Because Farah’s fraud
allegations require the Court to fill in too many blanks, the fraud claims cannot stand.
Even if Farah were able to meet the Rule 9(b) fraud pleading requirements, he
failed to redeem the property during the six-month statutory redemption period following
the sheriff’s sale. Filing a lawsuit does not toll the redemption period. Conlin v. Mortg.
Elec. Registration Sys., Inc., 714 F.3d 355, 360 (6th Cir. 2013). Under Michigan law,
legal title to a foreclosed property vests in the holder of the sheriff’s deed unless the
property is redeemed within the six-month statutory redemption period. See Mich.
Comp. Laws § 300.3236-3240. Consequently, a plaintiff must allege a clear showing of
fraud or irregularity to maintain an action for an equitable extension of the redemption
period. Conlin, 714 F.3d at 360 (citing Overton v. Mortgage Electronic Registration
Sys., Inc., No. 284950, 2009 WL 1507342, at *1 (Mich. Ct. App. May 28, 2009). It is a
“high standard” and the fraud “must relate to the foreclosure procedure itself.” Id.
8

(quoting El-Seblani v. IndyMac Mortg. Servs., 510 F. App’x 425, 429-30, No. 12-1046,
2013 WL 69226, at *4 (6th Cir. Jan. 7, 2013). Further, defects in the foreclosure
proceeding merely render the foreclosure voidable, rather than void ab initio. Kim v.
JPMorgan Chase Bank, N.A., 825 N.W.2d 329 (Mich. 2012). In addition to a clear
showing of fraud or irregularity in the foreclosure process, a plaintiff must demonstrate
prejudice resulting from the defect. Id. at 337. To do this, a plaintiff must show their
position would have been better “to preserve their interest in the property.” Id.
Farah alleges fraud during the loan modification process, rather than the actual
foreclosure process. Even if his allegations were generously construed to allege fraud
in the foreclosure process, these allegations still fall short of Rule 9(b) pleading
requirements for fraud. Because his allegations fall far short of both the “clear showing”
standard to warrant equitable extension of the redemption period, and the Rule 9(b)
pleading requirements for fraud, this claim must be dismissed.
D.

Federal and State Statutory Violations

In Counts 7, 8, and 9, Farah claims that Seterus violated the Federal Fair Debt
Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692, Michigan’s Regulation of
Collection Practices Act (“RCPA”), Mich. Comp. Laws § 445.251 et seq., and
alternatively, the Michigan Occupational Code, Mich. Comp. Laws § 339.901 et seq. In
each of these claims, Plaintiffs’ allegations are limited to a recital of provisions of each
of these laws that Defendants allegedly violated, without a factual basis to support
these claims. Plaintiffs do not state any facts in either the common allegations or the
allegations under each of these counts that could even generously be construed as
violations of any of the above statutes. Plaintiffs do not state that they were subjected
9

to harassment in an attempt to collect a debt, or that they were injured in any way by a
violation of these laws. Because Plaintiffs’ allegations are limited to “threadbare
recitals” of the statutory provisions, Plaintiffs have not stated a claim for relief. Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009).
E.

Civil Conspiracy

Farah claims that Defendants conspired with one another to commit fraud and to
violate federal and state debt collection laws, in order to force Farah to foreclose. The
foreclosure would allow Fannie Mae and Seterus to reap some benefits, such as private
mortgage insurance money and federal bailout funds. (Doc. No. 1-1 at 13).
Specifically, Farah claims that Seterus employed a stall tactic of conflicting
communications and asking him to submit the same documents over and over so that
foreclosure would take place sooner. (Doc. No. 1-1 at 14).
In Michigan, civil conspiracy is defined as “a combination of two or more
persons, by some concerted action, to accomplish a criminal or unlawful purpose, or to
accomplish a lawful purpose by criminal or unlawful means.” Urbain v. Beierling, 835
N.W.2d 455, 463 (Mich. Ct. App. 2013) (quoting Advocacy Org. for Patients & Providers
v. Auto Club Ins. Ass'n, 670 N.W.2d 569, 580 (Mich. Ct. App. 2003), aff'd, 693 N.W.2d
358 (Mich. 2005)). Establishing concerted action requires a plaintiff to prove “‘that all
defendants acted tortiously pursuant to a common design’ that caused harm to the
plaintiff.” Id. (quoting Abel v. Eli Lilly & Co., 343 N.W.2d 164 (Mich. 1984)). Civil
conspiracy is not actionable as a standalone claim; it requires an underlying tort. See,
e.g., Cousineau v. Ford Motor Co., 363 N.W.2d 721, 730 (Mich. App. 1985) (citations
omitted).
10

In this case, Farah has alleged a variety of underlying torts that were already
discussed; fraud, constructive fraud, violation of the Federal Fair Debt Collection
Practices Act, and violation of Michigan’s Regulation of Collection Practices Act. (Doc.
No. 1-1 at 13). Farah alleges that Defendants “conspired with one another,” intending
to commit these torts. (Doc. No. 1-1 at 13). Defendant argues that Farah’s allegations
are not sufficient to infer an agreement between Fannie Mae and Seterus to do
anything wrongful. Farah’s allegations are sufficient to at least state a civil conspiracy
claim, because Farah alleges that Seterus stalled Farah’s paperwork for his foreclosure
alternative applications so that Fannie Mae could foreclose and gain a profit from his
property. (Doc. No. 1-1 at 13-14). But Farah’s civil conspiracy claim must fail, because
all of the claimed underlying torts are dismissed, thus removing the support required for
this claim to stand.
IV.

CONCLUSION
For the reasons stated, the Court GRANTS Defendant’s Motion to Dismiss on all

counts.
IT IS SO ORDERED.

s/Marianne O. Battani
MARIANNE O. BATTANI
UNITED STATES DISTRICT JUDGE
DATE: March 31, 2014

11

CERTIFICATE OF SERVICE
Copies of this Order were mailed and/or e-filed to Plaintiff and counsel of record
on this date.
s/Bernadette M. Thebolt
Case Manager

12