Smith et al v. Bank of America et al

Filing 69

OPINION; Order and Judgment to issue; signed by Judge Janet T. Neff (Judge Janet T. Neff, clb)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

ERIC SMITH and LEANNA SMITH,
Plaintiffs,

Case No. 1:12-cv-296

v.

HON. JANET T. NEFF

BANK OF AMERICA, N.A. et al.,
Defendants.
____________________________________/

OPINION
Plaintiffs filed this case alleging various causes of action against Defendants following the
foreclosure and sheriff’s sale of their home, alleging that Defendants wrongfully rejected Plaintiffs’
modified loan payments and wrongfully assessed escrow charges for hazard insurance on their
home. Pending before the Court is Defendants’ Motion to Dismiss the sole remaining claim, Count
I of Plaintiffs’ First Amended Complaint (FAC), for breach of contract (Dkt 62). Plaintiffs have
filed a Response (Dkt 64), and Defendants have filed a Reply (Dkt 65). Having fully considered the
parties’ briefs, accompanying exhibits, and the record, the Court concludes that oral argument is
unnecessary to resolve the pending motion. See W.D. Mich. LCivR 7.2(d). The Court grants
Defendants’ Motion to Dismiss.
I. Facts
On February 27, 2007, Plaintiffs entered into a mortgage loan transaction (the “Loan”) with
Countrywide Bank, N.A., in which Mr. Smith executed a note (the “2007 Note”) in the amount of
$177,600 (Joint Statement of Material Facts (JSMF), Dkt 66 ¶ 1). Mr. and Mrs. Smith also executed
a mortgage (the “Mortgage”) on the property at issue (the “Property”) (id.). The 2007 Note stated:

“I will make my monthly payments at P.O. Box 660604, Dallas, TX 75266-0694 or at a different
place if required by the Note Holder” (id. ¶ 2). The Mortgage provided for the payment of insurance
premiums through an escrow account (id. ¶ 4), and further provided: “If Borrower fails to maintain
any of the coverages described above, Lender may obtain insurance coverage, at Lender’s option
and Borrower’s expense” and that such amounts disbursed shall become additional debt of the
Borrower (id. ¶ 5).
In December 2007, Plaintiffs filed for Chapter 7 bankruptcy relief (JSMF ¶ 6). Mr. Smith
subsequently sought to reaffirm his home loan obligations with Defendant Bank of America, N.A.
(BANA), the successor-by-merger to the Loan’s servicer in 2009, and on August 7, 2009, Mr. Smith
signed a Loan Modification Agreement (id. ¶ 8). The Modification became effective on December
29, 2009 with the payment obligations to resume in January 2010 (id.).

Pursuant to the

Modification, Mr. Smith would pay only monthly interest on the unpaid principal balance until
August 2014, at which time he was to make monthly payments of principal and interest (id. ¶ 9).
In a Step Rate Loan Modification Addendum also signed on August 7, 2009 (the “Addendum”), the
parties agreed this initial monthly interest payment was to be $799.38 (id. ¶ 10). The Modification
Agreement provided in relevant part that the Borrower would comply with the requirements of the
Mortgage, including the payment of insurance premiums (id. ¶ 11), and all other terms and
provisions except as amended by the Modification Agreement (id. ¶ 12).
When BANA sent the Modification Agreement and Addendum to Mr. Smith on August 4,
2009, it included a cover letter, which stated:
Your new modified monthly payment will be $1,134.39, effective with your
September 1, 2009 payment. This payment is subject to change if your escrow account
is reanalyzed or if you have a step rate or adjustable rate loan type.

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***
A breakdown of your payment is as follows:
Interest Payment: $799.38
Escrow/Option ins: $335.01
Total Payment: $1,134.39
(JSMF ¶ 14). The cover letter was the only document in the mailed package of August 4, 2009 that
identified a dollar amount earmarked for escrow (id. ¶ 15). Paragraph 3 of the Modification
Agreement specified: “The Borrower will make such payments at 400 Countrywide Way, Simi
Valley, CA 93065 or at such other place as the Lender may require” (id. ¶ 17).
BANA subsequently foreclosed on the Property, and it was sold at a sheriff’s sale on August
24, 2011 to Defendant US Bank for $235,480.61 (JSMF ¶¶ 18-19). Plaintiffs had the right to redeem
the Property by February 24, 2012 (id. ¶ 20). On the day before the redemption period expired,
Plaintiffs filed a lawsuit in the Kent County, Michigan, Circuit Court and, that same day, the Circuit
Court issued an ex parte injunctive order stopping the foreclosure process and further disposition
of the Property (id. ¶¶ 21-22). Defendants removed the case to this Court and now seek dismissal
of the sole remaining claim for breach of contract.1
II. Legal Standard
Fed. R. Civ. P. 12(b)(6) authorizes the court to dismiss a complaint if it “fail[s] to state a
claim upon which relief can be granted[.]” In deciding a motion to dismiss for failure to state a
claim, the court must construe the complaint in the light most favorable to the plaintiff and accept
all well-pleaded factual allegations in the complaint as true. Thompson v. Bank of America, N.A.,

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Plaintiffs voluntarily dismissed Counts II through IV of their FAC.
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773 F.3d 741, 750 (6th Cir. 2014). “[D]ocuments attached to the pleadings become part of the
pleadings and may be considered on a motion to dismiss.” Commercial Money Ctr., Inc. v. Ill.
Union Ins. Co., 508 F.3d 327, 335-36 (6th Cir. 2007) (citing FED. R. CIV. P. 10(c)). The court may
also consider documents referred to in the pleadings that are integral to the claims, as well as matters
of public record, without converting a motion to dismiss into one for summary judgment. Id. at 336;
Greenberg v. Life Ins. Co. of Virginia, 177 F.3d 507, 514 (6th Cir. 1999).2
To survive a motion to dismiss, the complaint must present “enough facts to state a claim to
relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 557, 570 (2007).
“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009). This is “a context-specific task that requires the reviewing court to draw
on its judicial experience and common sense.” Id. at 679. “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.” Id. at 678 (quoting Twombly, 550 U.S. at 556).
III. Analysis
In their breach of contract claim, Plaintiffs allege that Defendants owed a contractual duty
“to abide by the terms of the [Modification Agreement], specifically, including the terms of
accepting timely loan payments” (JSMF ¶ 26, quoting FAC ¶ 28). Plaintiffs claim Defendants
breached this duty “when they failed to notify [Plaintiffs] of the location at which he [sic] was to
make those payments” (id. ¶ 27, quoting FAC ¶ 29). Plaintiffs also claim Defendants breached their

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As requested by the parties, the Court will consider the 2007 Note, Mortgage, Modification
Agreement, Addendum and Sheriff’s Deed as part of the pleadings for purposes of this Motion (see
JSMF at 1 n.1).
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contractual duties by “unilaterally changing the amount due by adding hazard insurance to the
mortgage,” asserting: “This hazard insurance amount was not mentioned in the loan modification
agreement” (id. ¶ 28, quoting FAC ¶ 29).
Defendants argue that because the terms of the 2007 Note, Mortgage, and Modification
Agreement belie Plaintiffs’ claims, Defendants are entitled to dismissal of the breach of contract
count. The Court agrees.
A. Alleged Acceptance-of-Payments Breach
As set forth in the facts above, it is undisputed that the loan documents instructed Plaintiffs
where to send payments. The Modification Agreement directed that payments be sent to 400
Countrywide Way, Simi Valley, CA 93065” (Mod. Ag. ¶ 3). Plaintiffs did not send any payments
to the Simi Valley address listed in the Modification Agreement.3 Plaintiffs instead sent payments
to the address to which they had been making payments before filing for bankruptcy and reaffirming
the obligation to BANA, i.e., the post office box in Dallas, Texas (see FAC ¶ 17, emphasis added),
which Defendants assert was an obsolete address listed in the 2007 Note. No breach of contract is
established on these facts with regard to Defendants’ alleged failure to notify Plaintiffs of the loan
payment location. Plaintiffs had express notice of the correct payment address.
Plaintiffs nonetheless assert that “‘[e]very contract imposes upon each party a duty of good
faith and fair dealing in its performance and its enforcement,’” citing Flynn v. Korneffel, 547
N.W.2d 249, 260 n.8 (Mich. 1996) (Levin, J. dissenting), quoting 2 Restatement, Contracts 2d § 205,

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This address apparently was also provided in monthly statements sent to Plaintiffs, which
included a coupon listing a return address.
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p. 99 (emphasis in Flynn) (Pls.’ Resp., Dkt 64 at p. ID# 345). Plaintiffs also argue a breach of good
faith by Defendants.
“Michigan does not recognize an independent tort action for an alleged breach of a contract’s
implied covenant of good faith and fair dealing.” Ulrich v. Fed. Land Bank of St. Paul, 480 N.W.2d
910, 911 (Mich. Ct. App. 1991); see also Fodale v. Waste Mgmt. of Mich., Inc., 718 N.W.2d 827,
841 (Mich. Ct. App. 2006). However, “[w]here 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,” Burkhardt v. City Nat’l Bank of Detroit, 226
N.W.2d 678, 680 (Mich. Ct. App. 1975)” (see Pls.’ Resp. at p. ID# 345-46). Plaintiffs argue that
because the payment address selection (along with the reservation of identifying another address)
rested within the sole discretion of Defendants, Defendants’ repeated refusals to accept tender at the
previous payment center translates into a breach of its contractual obligation to act in good faith.
Plaintiffs allege that they made the first payment of $1,135 in mid-September 2009 to the Texas
address, by a personal check made out to Bank of America with the loan number and identifying the
real property, and they mailed subsequent checks to the same payment center every month thereafter
through October or November 2010.4 Plaintiffs state that Defendants’ payment processing center
did not return, forward or negotiate the checks; nor did Defendants ever communicate to Plaintiffs
that payments were expected to be made to a different payment center. Plaintiffs argue that these
facts “make it plausible that Defendant[s] breached their contractual obligation” (Pls.’ Resp. at p.
ID# 348).

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The record does not establish how many checks Plaintiffs mailed to the Texas address;
regardless, that fact is immaterial to the analysis.
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First, Plaintiffs’ argument is based on a flawed premise, since the rule governing
discretionary performance is not implicated—there is nothing discretionary about the specification
of the payment address in the Loan Modification Agreement.

“Where the parties have

‘unmistakably expressed their respective rights,’ the covenant [of good faith and fair dealing] does
not apply.” Stephenson v. Allstate Ins. Co., 141 F. Supp. 2d 784, 790 (E.D. Mich. 2001) (citation
omitted).
Moreover, contrary to Plaintiffs’ argument, there are no facts showing that Defendants did
not act in good faith. Plaintiffs failed to comply with the Loan Modification’s express directive for
making payments to the Simi Valley, CA, address. Nothing establishes that Defendants received
the checks from Plaintiffs or acted in any way to hold or dispose of the checks, let alone acted in bad
faith. On a Rule 12(b)(6) motion, the Court is not bound to accept as true “unwarranted” allegations
or factual inferences in the complaint, including allegations “contradicted by public records and
other evidentiary materials of which the Court may take judicial notice.” McGee v. City of
Cincinnati Police Dep’t, No. 1:06-CV-726, 2007 WL 1169374, at *2 (S.D. Ohio Apr. 18, 2007); see
also Moon v. Harrison Piping Supply, 465 F.3d 719, 728 (6th Cir. 2006) (the court draws all
reasonable inferences in favor of the nonmoving party (emphasis added)).
Plaintiffs also argue that they have stated a breach of contract based on Defendants’ failure
to provide a meaningful way for them to make payments on the debt owed, as in Bilandzija v. Shilts,
54 N.W.2d 705, 707 (Mich. 1952), and Birznieks v. Cooper, 275 N.W.2d 221 (Mich. 1979) (Pls.’
Resp. at p. ID# 348). Plaintiffs assert that over the course of two months, Mr. Smith tried on three
separate occasions to make his mortgage payment at a Bank of America branch, and although the

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money was accepted,5 it was never credited as payments to Plaintiffs’ account. The Court finds
these cases inapposite because here, unlike in those cases, Defendants provided an express mailing
address for payments, which Plaintiffs disregarded.
Plaintiffs have failed to state a claim for breach of contract based on Defendants’ alleged
refusal to accept tender of payment and/or offer Plaintiffs the opportunity to cure any deficiency in
the mailings.
B. Alleged Hazard Insurance Breach
Plaintiffs do not dispute their $1,134.39 monthly payment included both an interest payment
and an escrowed amount of $335.01 for taxes and insurance. They contend, however, that they have
stated a claim for breach of contract based on Defendants’ unilateral increase of the monthly
installment amount for additional hazard insurance that was neither contemplated between the
parties nor necessary (Pls.’ Resp. at p. ID# 350). Plaintiffs assert that there was never a “meeting
of the minds” with respect to this added premium (id.). Thus, because this unilateral increase was
not based on the mutual assent of the parties at the time of the loan modification, it constituted a
breach of the agreement. Plaintiffs further argue that even if the cover letter is deemed to be
incorporated into the parties’ agreement, the provision tacking on an additional premium for hazard
insurance was left to Defendants’ sole discretion, and Defendants breached their duty of good faith
and fair dealing by repeatedly ignoring Plaintiffs’ demand that they be credited for payments they
were making independently for hazard insurance through State Farm insurance.

5

Despite Plaintiffs’ citation to the FAC ¶¶ 18, 28-29 for this statement, these paragraphs do
not allege that Bank of America accepted the money on these occasions. Plaintiffs’ factual
allegations are at times vague and/or inconsistent on the issues presented.
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The Court finds Plaintiffs’ reasoning flawed. Plaintiffs’ argument is based on their allegation
that:
When the payments were due on the mortgage with BOA on THE HOME following
the end of the Plaintiffs’ bankruptcy, BOA assigned to the SMITHS a hazard insurance
policy and added this policy to the monthly amount due, with commensurate increased [sic]
in the total interest charged over the life of the loan, and a higher monthly payment than
THE SMITHS had expected to pay. This amount due contradicted the specific language of
THE SMITHS’ loan modification agreement.
(FAC ¶ 49). However, as Defendants point out, the loan agreements and associated documents
expressly provided for this additional payment amount for hazard insurance on Plaintiffs’ home.
Section 5 of the Mortgage permitted Defendants to protect their interest in the Property by obtaining
hazard insurance at Plaintiffs’ expense:
Borrower shall keep the improvements now existing or hereafter erected on
the Property insured against loss by fire, hazards included within the term “extended
coverage,” and any other hazards …. This insurance shall be maintained in the
amounts … and for the periods that Lender requires. What Lender requires pursuant
to the preceding sentences can change during the term of the Loan. …
If Borrower fails to maintain any of the coverages described above, Lender
may obtain insurance coverage, at Lender’s option and Borrower’s expense. …
Such insurance expense would be charged against an escrow account that Plaintiffs were
obligated to pay, in addition to their principal and interest payment, under the terms of the Mortgage
(Mortgage § 3). Plaintiffs’ obligations for these payments continued pursuant to the Modification
Agreement:
The Borrower also will comply with all other covenants, agreements, and
requirements of the [Mortgage], including without limitation, the Borrower’s
covenants and agreements to make all payments of taxes, insurance premiums,
assessments, escrow items, impounds, and all other payments that the Borrower is
obligated to make under the [Mortgage] ....

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(Modification Agreement ¶ 5). The cover letter for the Modification Agreement recognized the
separate payment amounts for monthly interest and escrow obligations for taxes and insurance. The
letter also notified Plaintiffs that this monthly payment was subject to change: “This payment is
subject to change if your escrow account is reanalyzed ….”
Because the loan documents permitted the charge for hazard insurance obtained by
Defendants, Plaintiffs fail to state a breach of contract claim. Likewise, as discussed above with
respect to the acceptance of payments, Plaintiffs’ claim based on a breach of a duty of good faith and
fair dealing also fails because Plaintiffs’ obligations for the escrow payment were expressly set forth
in the mortgage and associated loan documents. “Where the parties have ‘unmistakably expressed
their respective rights,’ the covenant [of good faith and fair dealing] does not apply.” Stephenson,
141 F. Supp. 2d at 790 (citation omitted).
C. Alleged Wrongful Foreclosure
Plaintiffs have failed to state a breach of contract claim or otherwise allege any defects or
irregularities that would provide a basis for setting aside the foreclosure and resulting sheriff’s sale.
This case is properly dismissed.
IV. Conclusion
For the foregoing reasons, Defendants’ Motion to Dismiss (Dkt 62) is granted. The Court’s
previous order granting injunctive relief (Dkt 11) is dissolved. An Order and corresponding
Judgment will be entered consistent with this Opinion. See FED. R. CIV. P. 58.

/s/ Janet T. Neff
JANET T. NEFF
United States District Judge

Dated: January ___, 2015
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