Fischer et al v. Ocwen Loan Servicing, LLC et al
Filing
22
ORDER: IT IS ORDERED that Defendants' Motion for Judicial Notice(ECF 4 ) is GRANTED. FINDINGS AND RECOMMENDATIONS: IT IS RECOMMENDED that Defendant FHLMC's Motion to Dismis s (ECF 2 ) be GRANTED to the extent it seeks dismissal of Counts II through X, but DENIED to the extent that it seeks dismissal of Count I. IT IS FURTHER RECOMMENDED that Defendant Ocwen's Motion to Dismiss (ECF 2 ) Counts III through VII and Count IX be GRANTED, with leave to amend by Plaintiffs, but DENIED as to Counts I, II, VIII and X. Signed by Magistrate Judge Carolyn S Ostby on 11/25/2014. (JDH, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION
JOHN DAVID FISCHER,
JERALD DUANE FISCHER, and
ANGIE LEE FISCHER,
Plaintiffs,
vs.
CV-14-94-BLG-SPW-CSO
ORDER
and
FINDINGS AND
RECOMMENDATIONS OF
UNITED STATES
MAGISTRATE JUDGE
OCWEN LOAN SERVICING,
LLC, FEDERAL HOME LOAN
MORTGAGE CORPORATION,
RECONTRUST COMPANY, NA,
and all persons unknown claiming
any right, title, estate, lien or
interest in or to the real property
described herein, or any part
thereof, adverse to the Plaintiffs’
title,
Defendants.
I.
INTRODUCTION
This action arises out of a trustee’s sale of real property. In their
Amended Complaint, Plaintiffs John David Fischer, Jerald Duane
Fischer, and Angie Lee Fischer (the “Fischers”), assert the following
claims against Ocwen Loan Servicing, LLC (“Ocwen”), Federal Home
Loan Mortgage Corporation (“FHLMC”), and ReconTrust Company,
NA. :
Count I - Quiet Title
Count II - Montana Consumer Protection Act
Count III - Fraud
Count IV - Alternative Fraud I
Count V - Alternative Fraud II
Count VI – Constructive Fraud
Count VII - Deceit
Count VIII - Negligence/Negligent Misrepresentation
Count IX - Implied Covenant of Good Faith and Fair Dealing
Count X - Punitive Damages
See ECF 19.1 These claims are all based on state law. The Amended
Complaint is not entirely clear as to which claims are asserted against
which Defendants.
Now pending are Ocwen and FHLMC’s (referred to herein as
“Defendants”) Motion for Judicial Notice (ECF 4) and Motion to
Dismiss (ECF 2).
II.
BACKGROUND
According to documents submitted by Defendants,2 Plaintiff
Jerald Fischer borrowed $220,000 from AEGIS and, in connection with
that loan, executed a Deed of Trust on property on Rosebud Drive in
Billings, Montana. ECF 10-1. John Fischer and Angie Fischer later
1
“ECF” refers to the document as numbered in the Court’s Electronic
Case Files. See The Bluebook, A Uniform System of Citation, § 10.8.3.
2
Consideration of these documents is discussed infra at pages 8-10.
acquired interest in the property by way of quitclaim deeds. ECF 10-2,
10-3. Defendants contend that the Jerald Fischer defaulted on the loan
in January 2012, and that foreclosure proceedings were commenced.
The following facts are alleged in Plaintiffs’ Amended Complaint
and, for purposes of considering the pending motion to dismiss, are
assumed to be true.
In December 2011 or January 2012, Plaintiffs “began the
application process for a mortgage payment modification through the
Federal Government’s Home Affordable Modification Program
(hereinafter ‘HAMP’) through Bank of America.” ECF 19 at ¶ 5. As
part of that process, Bank of America informed Plaintiffs that
foreclosure processes may be initiated, but that Plaintiffs’ home “would
not be foreclosed on.” Id. at ¶ 6. In April 2012, Plaintiffs were notified
of a pending trustee’s sale scheduled for August 22, 2012, but Bank of
America again assured Plaintiffs “that this notification was part of the
HAMP modification process and . . . that their home would not be
foreclosed on.” Id. at ¶¶ 7–8.
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In June 2012, Bank of America sold Plaintiffs’ Deed of Trust to
Ocwen and, as a result, Plaintiffs were asked to re-complete the HAMP
modification packet through Ocwen. Id. at ¶¶ 9, 10. Plaintiffs
completed the modification packet as requested by Ocwen. Id. at ¶ 11.
Unbeknownst to Plaintiffs, Ocwen proceeded with the trustee’s
sale on August 22, 2012. Thereafter, by letter dated September 4,
2012, Ocwen thanked Plaintiffs for submitting their application for
assistance and stated that they were “processing [Plaintiffs’] request as
quickly as possible.” ECF 19-1 at 1. In the letter, Ocwen also stated:
“While we consider your request, we will not initiate a new foreclosure
action and we will not move ahead with the foreclosure sale on an
active foreclosure as long as we have received all required documents
and you have met the eligibility requirements.” Id. at 2. The letter
also stated: “[N]o foreclosure sale will be conducted and you will
not lose your home during the HAMP evaluation.” Id. (emphasis in
original).
Ocwen recorded the Trustee’s Deed transferring the subject
property to FHLMC on January 8, 2013. Id. at ¶¶ 15–16.
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III. PARTIES’ ARGUMENTS
FHLMC argues there are no facts alleged as to FHLMC under
Counts II–X, and it should be dismissed from each Count. ECF 3 at
16–17, 21, 24, 26, 28, and 29.
Ocwen presents nine arguments for dismissal of the Amended
Complaint for failure to state a claim under Rule 12(b)(6). First,
Defendants argue that the Fischers cannot bring a quiet title action
because they are not the legal owners and the Fischers’ “interest in the
property was conveyed to FHLMC by the Trustee’s Deed.” Id. at 14.
They further argue that quiet title would be inappropriate because the
Fischers “do not allege that the debt has been satisfied, that they have
offered to pay the debt or that the debt is unenforceable.” Id. at 15.
Second, Ocwen argues that the Fischers fail to state a claim under
the Montana Consumer Protection Act (“MCPA”) because the MCPA
does “not include enforcing a security interest against a debtor,
especially when the debtor received statutorily required notices and
does not contest his default.” Id. at 18.
Third, Ocwen argues that the fraud claims do not meet the
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heightened pleading standard required by Rule 9(b). It further argues
that the Complaint fails to meet “the basic element of a
misrepresentation[,]” id. at 23, because Ocwen did not conceal any
material facts and the Fischers “do not state what was concealed and
how the alleged fact that was concealed was material.” Id. at 24.
Fourth, Ocwen argues the Fischers’ claim for constructive fraud
fails because Ocwen did not have a duty to the Fischers, nor did it
breach a duty “with an intent to create an advantage against
Plaintiffs.” Id. at 25. Ocwen further argues that the letter sent on
September 4, 2012, was automatically generated and was not sent to
“fraudulently induce Plaintiffs to act or to create an advantage over
Plaintiffs.” Id.
Fifth, Ocwen argues the deceit claim should be dismissed because
the Fischers do not allege they had ever been approved for a loan
modification or that the trustee’s sale had been canceled. Id. at 26.
Ocwen also argues that there are no facts suggesting the Fischers
changed their position based on the September 4, 2012 letter. Id.
Sixth, Ocwen argues there is no “duty to modify or negotiate a
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defaulted loan.” Id. at 27. It argues that absent some duty, the
Fischers fail to state a claim for negligence. Ocwen further argues that
nothing alleged in the Complaint suggests Ocwen “went beyond the
ordinary role of the lender.” Id.
Seventh, Ocwen argues the Fischers did not properly allege
negligent misrepresentation because the Fischers were aware of the
trustee’s sale on August 22, 2012, and knew that it “would proceed if all
of the documents were not received and if they did not qualify for the
loan modification.” Id. at 28.
Eighth, Ocwen argues the Fischers fail to allege a contract on
which to support a claim for breach of the covenant of good faith and
fair dealing. Id. at 29.
Ninth, Defendants argue that punitive damages are a component
of recovery, not a cause of action. Id. at 30. They further argue that
because an award for punitive damages was included as a separate
claim rather than in the prayer for relief, it should be dismissed. Id.
The Fischers contend that because Ocwen already brought a Rule
12(b)(6) motion that had been ruled on in state court, it may not bring
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it a second time. ECF 20 at 3–6. Furthermore, they argue that the
motion for judicial notice is an improper attempt to litigate a summary
judgment motion and that Ocwen “cherry-picked only a few of the
relevant documents involved and did not present to the Court the full
array of documentary evidence involved in this case.” Id. at 8.
Finally, the Fischers argue that they have adequately pled each
claim and that the Court should take judicial notice of a Complaint and
Consent Judgment (“Consent Judgment”) involving Ocwen, executed in
February 2014. Id. at 10–11. Because this request for judicial notice
was not properly filed as a motion, it will not be considered. See Fed. R.
Civ. P. 7(b)(1) (“A request for a court order must be made by
motion....”).
IV.
ANALYSIS
A.
Motion for Judicial Notice
As a general rule, a district court may not consider any material
beyond the pleadings in ruling on a Rule 12(b)(6) motion without
converting the motion into one for summary judgment. Lee v. City of
Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) (citation omitted). There
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is an exception to this rule, however, where a court takes judicial notice
of matters of public record. Id. at 688-89. Taking judicial notice does
not convert a motion to dismiss into one for summary judgment. See
United States v. 14.02 Acres of Land More or Less in Fresno Cnty., 547
F.3d 943, 955 (9th Cir. 2008). For example, in Snyder v. HSBC Bank,
USA, N.A., 913 F.Supp.2d 755 (D. Ariz. 2012), the district court took
judicial notice of a publicly-filed Trustee’s Deed Upon Sale in ruling on
a 12(b)(6) motion to dismiss.
Here, Defendants present with their motion the Declaration of
Jenny M. Jourdonnais, who declares under penalty of perjury that nine
documents, which are attached to her Declaration, have all been filed in
the official records of the Yellowstone County Clerk and Recorder. ECF
10 and 10-1 through 10-9. Plaintiffs do not dispute the authenticity of
these documents and do not dispute that they have been filed in the
official records of Yellowstone County. Indeed, Plaintiffs acknowledge
that these are “a few of the relevant documents involved....” ECF 20 at
8.3 Each of the documents pertains to the course of transactions
3
Plaintiffs’ brief accuses defense counsel of “sharp practice” and
“deceptive practices.” ECF 20 at 7, 8. Unless well substantiated by facts not
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described in the Amended Complaint.
Accordingly, for the purpose of considering the pending motion to
dismiss, the Court will grant the motion for judicial notice of the
documents attached by Defendants to their motion for judicial notice.
ECF 10.
B.
Motion to Dismiss
1. Proceedings in State Court
When a case is removed from state court, it is taken “up where
the state court left it off.” Granny Goose Foods, Inc. v. Bhd. of
Teamsters and Auto Truck Drivers Loc. No. 70 of Alameda County, 415
U.S. 423, 435–436 (1974). Any orders entered in state court continue to
have force and effect after removal “until dissolved or modified by the
district court.” 28 U.S.C. § 1450. And, after removal, federal rather
than state law governs the procedural course of the case. See Richards
now apparent to this Court, such ad hominem arguments are not helpful to
the Court. See generally Standards of Professional Courtesy Among
Attorneys, Ten Commandments for Trial Lawyers, and Montana Values, 2014
Lawyers’ Deskbook & Directory at 284, 286-87. The Court will focus on the
substantive merits of the claims and defenses of the parties. The parties are
encouraged to do so as well.
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v. Harper, 864 F.2d 84, 87 (9th Cir. 1988).
The only federal case the Fischers cite in support of their
argument that Defendants are barred from filing the pending motion to
dismiss, and that the state court order “must be followed in any
subsequent proceedings” (ECF 20 at 6), is Messenger v. Anderson, 225
U.S. 436 (1912). But Messenger presented quite different facts. It was
not a removed case. Instead, the central issue was the effect of a final
ruling by the Ohio Supreme Court in a related, but separate, lawsuit.
Id. at 444. The central issue there was not “law of the case” in a
removal situation but rather res judicata. The United States Supreme
Court noted that “law of the case” is not, as the Fischers here argue, a
bar on re-examination of prior holding in the same case—it instead
“expresses the practice of courts generally to refuse to reopen what has
been decided, not a limit to their power” to do so. Id.
The state court here ruled on Ocwen’s motion to dismiss an
original complaint that presented only two claims and named only one
defendant (Ocwen). The current motion addresses a different pleading
(the Amended Complaint (ECF 19)), states seven additional claims,
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names two additional parties, and is now pending in a different court
applying different procedural rules. Plaintiffs have not persuasively
argued that this Court may not consider the arguments raised in the
pending motion to dismiss.
2. Standard of Review
“Dismissal under Rule 12(b)(6) is proper only when the complaint
either (1) lacks a cognizable legal theory or (2) fails to allege sufficient
facts to support a cognizable legal theory.” Zixiang Li v. Kerry, 710
F.3d 995, 999 (9th Cir. 2013) (quoting Mendiondo v. Centinela Hosp.
Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008)). The Court’s standard
of review under Rule 12(b)(6) is informed by Rule 8(a)(2), which
requires that a pleading contain “a short and plain statement of the
claim showing that the pleader is entitled to relief.” Ashcroft v. Iqbal,
556 U.S. 662, 677–678 (2009) (quoting Fed. R. Civ. P 8(a)).
To survive a motion to dismiss under Rule 12(b)(6), “a complaint
must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Id. at 678. “A claim has
facial plausibility when the plaintiff pleads factual content that allows
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the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id.4 A plausibility determination is
context specific, and courts must draw on judicial experience and
common sense in evaluating a complaint. Levitt v. Yelp! Inc., 2014 WL
4290615, *10 (9th Cir. 2014). When a Rule 12(b)(6) motion is granted,
leave to amend should be granted unless doing so would be futile. See,
e.g., Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000).
3. FHLMC Motion to Dismiss
FHLMC moves to dismiss all claims against it. In response,
Plaintiffs clarify that the “only claim that affects [FHLMC] is the claim
for quiet title”—Count I. ECF 20 at 4. Accordingly, it will be
recommended that FHLMC’s motion to dismiss Counts II through X be
granted.
Turning to Count I, FHLMC’s primary argument is that Plaintiffs’
quiet title claim fails because Plaintiffs are not the legal owners of the
4
Plaintiffs’ brief cites the 1957 case of Conley v. Gibson, 355 U.S. 41
(1957) for the pleading standard under Rule 12(b)(6). Conley was
substantially abrogated by the Supreme Court’s decision in Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 561-63 (2007) (holding that Conley did not
describe “the minimum standard of adequate pleading”).
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property nor do they have any interest therein. Defendants cite
Montana cases holding that a plaintiff must succeed on the strength of
his own title and not the weakness of the defendant’s title. See, e.g.,
Funk v. Robbin, 689 P.2d 1215 (Mont. 1984). The Court notes that in
Funk, however, this ruling came after a trial on the merits, not on a
Rule 12(b)(6) motion to dismiss.
Plaintiffs may assert a quiet title action against any person
claiming “any right, title, estate, or interest” in the relevant property.
MCA § 70–28–101. As the state court previously noted, the Fischers
allege that they were in the process of applying for a mortgage payment
modification and had been assured that no foreclosure would occur
pending its resolution. ECF 19 at ¶¶ 5, 6, 8, 12, 13, 14. For a trustee’s
sale of property to be valid, a trustee must give proper notice of the
pending trustee’s sale. MCA §§ 71–1–315(1)(a)(I); Terry L. Bell
Generations Trust v. Flathead Bank of Bigfork, 302 P.3d 390, 394
(Mont. 2013).
The Fischers have said enough to state a quiet title claim against
FHLMC. FHLMC purchased the property at the trustee’s sale and
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claims an interest in the property. ECF 19 at ¶ 16; ECF 6-9 (Trustee’s
Deed). Therefore, it will be recommended that FHLMC’s motion to
dismiss Count I be denied.
4. Ocwen Motion to Dismiss
a.
Count I—Quiet Title
Plaintiffs’ Amended Complaint alleges that the “Defendants claim
or may claim some right, title, or interest in or to the subject property.”
ECF 19 at 2. For the same reasons stated above with respect to
FHLMC, Plaintiffs have said enough, at this stage of the proceedings,
to state a quiet title claim against Ocwen.
b.
Count II—Consumer Protection Act
For the same reasons articulated by the state court (see ECF 15 at
7-8), this Court concludes that Plaintiffs’ Amended Complaint alleges
sufficient facts to state a claim against Ocwen under the Montana
Consumer Protection Act.
c.
Counts III- VII—Fraud, Alternative Fraud I,
Alternative Fraud II, Constructive Fraud,
Deceit
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In Montana, a fraud claim contains the following nine elements
that plaintiffs must plead with particularity:
(1)
a representation;
(2)
the falsity of that representation;
(3)
the materiality of that representation;
(4)
the speaker’s knowledge of the representations falsity or
ignorance of its truth;
(5)
the speaker’s intent that the representation should be acted
upon by the person and in the manner reasonably
contemplated;
(6)
the hearer’s ignorance of the representation’s falsity;
(7)
the hearer’s reliance upon the truth of the representation;
(8)
the hearer’s right to rely upon the representation; and
(9)
the hearer’s consequent and proximate injury or damages
caused by their reliance on the representation.
In re Estate of Kindsfather, 108 P.3d 487, 490 (¶ 17) (Mont. 2005).
“While a claim of constructive fraud requires similar proof, a plaintiff
‘need not prove the fifth element relating to intent to deceive or
dishonesty of purpose.’” Town of Geraldine v. Montana Mun. Ins.
Authority, 198 P.3d 796, 801 (Mont. 2008).
Under Montana law, constructive fraud is defined as:
(1) any breach of duty that, without an actually fraudulent
intent, gains an advantage to the person in fault or anyone
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claiming under the person in fault by misleading another
person to that person's prejudice or to the prejudice of
anyone claiming under that person; or (2) any act or
omission that the law especially declares to be fraudulent,
without respect to actual fraud.
MCA § 28–2–406. A “legal duty is an essential element of a claim for
constructive fraud.” Harris v. St. Vincent Healthcare, 305 P.3d 852, 858
(Mont. 2013) (citing Mattingly v. First Bank of Lincoln, 947 P.2d 66, 71
(Mont. 1997)). A duty “may exist where one party has acted to mislead
the other in some way.” Mattingly, 947 P.2d at 72. Additionally, a
lender owes “a duty to a borrower not to make material
misrepresentations about the status of an application for a loan
modification.” Morrow v. Bank of America, N.A., 324 P.3d 1167, 1184
(Mont. 2014) (citing Lueras v. BAC Home Loans Servicing, LP, 163 Cal.
Rptr. 3d 804 (Cal. App. 4th Dist. 2013)).
Deceit under Montana law states that, “[o]ne who willfully
deceives another with intent to induce that person to alter the person's
position to the person's injury or risk is liable for any damage that the
person suffers.” MCA § 27–1–712. Deceit includes:
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(a) the suggestion as a fact of that which is not true by one
who does not believe it to be true;
(b) the assertion as a fact of that which is not true by one
who has no reasonable ground for believing it to be true;
(c) the suppression of a fact by one who is bound to disclose
it or who gives information of other facts that are likely to
mislead for want of communication of that fact; or
(d) a promise made without any intention of performing it.
MCA § 27–1–712(2).
Fraud and deceit must be pled with particularity under Fed. R.
Civ. P. 9(b), which provides that “a party must state with particularity
the circumstances constituting fraud[.]” Although not announcing the
rule in a published decision, the Ninth Circuit Court of Appeals has
enforced the “particularity” requirement of federal Rule 9(b), applying
it both to state-law fraud claims, Vess v. Ciba-Geigy Corp. USA, 317
F.3d 1097, 1102-03 (9th Cir. 2003), and constructive fraud claims.
Guerrero v. Greenpoint Mortgage Funding, Inc., 2010 WL 4117102 * 1
(9th Cir. 2010) (unpublished); Azadpour v. Sun Microsystems, Inc., 2008
WL 2705645 (9th Cir. 2008) (affirming dismissal of constructive fraud
claim under Rules 9(b) and 12(b)(6)) (unpublished). See also Morse v.
Espeland, 696 P.2d 428, 430 (Mont. 1985).
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The degree of particularity required to properly state a claim for
constructive fraud depends upon the amount of access a plaintiff has to
specific facts. See, e.g., Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993,
999 (9th Cir. 2010) (requirements can be relaxed where evidence is
exclusively within defendant’s possession). But the allegations “must
be specific enough to give defendants notice of the particular
misconduct . . . so that they can defend against the charge and not just
deny that they have done anything wrong.” Kearns v. Ford Motor Co.,
567 F.3d 1120, 1124 (9th Cir. 2009). Thus, plaintiffs must supply a
higher degree of notice by pleading the “who, what, where, when, and
how” of the alleged wrongdoing. See Ebeid, 616 F.3d at 998 (citing
Vess, 317 F.3d at 1106); Kearns, 567 F.3d at 1124.
Rule 9(b) serves to provide defendants with adequate notice to
allow them to defend the charge. Kearns, 567 F.3d at 1125 (internal
quotations omitted). But despite the higher degree of notice it requires,
Rule 9 does not abrogate the Rule 8 notice pleading standard—the two
rules must be read together. See U.S. ex rel. Grubbs v. Kanneganti, 565
F.3d 180, 185-86 (5th Cir. 2009). And under Rule 12(b)(6), a defendant
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retains the burden of proving that plaintiff has failed to state a claim.
Anderson v. Fishback, 2009 WL 2423327, * 2 (E.D. Cal. 2009).
Under these standards, the Court concludes that the Fischers do
not plead their fraud and deceit claims with sufficient particularity.
Several of their allegations lack the required specificity. They do not
allege that, prior to the trustee’s sale, Ocwen represented that it would
not proceed with the foreclosure. They do allege that Bank of America
made such representations (ECF 19 at 2), but Bank of America is not a
defendant, and Plaintiffs do not allege that Ocwen can be held
responsible for Bank of America’s representations.
They allege that they “were asked to recomplete the HAMP
modification packet through Defendant Ocwen” (ECF 19 at ¶ 10), but
they do not allege the required “who, when, where and how” of such
request, and do not allege that Ocwen then informed them that their
home would not be foreclosed on. They allege that, subsequent to
completing the Trustee’s sale, Ocwen “continued to represent to
Plaintiffs that their property would not be foreclosed on.” Id. at ¶ 14.
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But they again they do not allege the required “who, when, where, and
how” of such representations.
The only Ocwen representation that the Fischers allege with
specificity is the letter dated September 4, 2012. ECF 19 at ¶ 12. At
least some of the statements in the letter were apparently false, and
the Fischers allege that they were unaware of the truth that the
foreclosure sale had occurred. But this letter was received after the
foreclosure sale. The Fischers allege only in a conclusory fashion that
they relied on the letter to their detriment. Under Montana law,
simply reciting the bare elements of a fraud claim is not sufficient. See
Fossen v. Fossen, 311 P.3d 743 (Mont. 2013). For the same reasons, the
Court concludes that the Fischers have failed to state a claim for deceit.
These deficiencies may be curable by amendment and Plaintiffs
should be given the opportunity to amend. Therefore it will be
recommended that the motion to dismiss Counts III - VII be granted,
with leave to amend.
d.
Count VIII—Negligent Misrepresentation
and Negligence
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Count VIII contains combined allegations of negligence and
negligent misrepresentation. Because the elements of these causes of
action differ, the Court will address them each in turn.
Considering first the claim for negligent misrepresentation, the
Court is guided by the Montana Supreme Court’s recent definition of
this tort. In Morrow, the court held that a claim of negligent
misrepresentation against a financial institution is governed by the
Restatement (Second) of Torts § 552:
One who, in the course of his business, profession or
employment, or in any other transaction in which he has a
pecuniary interest, supplies false information for the
guidance of others in their business transactions, is subject
to liability for pecuniary loss caused to them by their
justifiable reliance upon the information, if he fails to
exercise reasonable care or competence in obtaining or
communicating the information.
Morrow, 324 P.3d at 1180.
The Fischers’ claim of negligent misrepresentation is based on the
same factual allegations as the claims of fraud. In this case, Ocwen
was operating as a financial institution by servicing the Fischers’
mortgage. As previously discussed, the Fischers allege they received
false and contradicting communications from Ocwen. ECF 19 at ¶¶
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8–14. Ocwen contends that no false information was conveyed to the
Fischers because their letter accurately stated the trustee’s sale “would
proceed if all of the documents were not received and if they did not
qualify for the loan modification.” ECF 3 at 28. But this statement was
made in a letter intended to guide the Fischers through their mortgage
modification process, yet was made after the trustee’s sale had already
occurred. ECF 19 at ¶¶ 12–14. The Fischers allege that they were
unaware the trustee’s sale had occurred, and further allege that they
relied on this statement. Id. at ¶ 13. Although, as noted above, the
Fischers have not specifically alleged how Ocwen misrepresented their
intentions prior to the sale, and have not specifically alleged how they
relied on Ocwen’s representations to their detriment, they have said
enough to state a claim for negligent misrepresentation. Ocwen has
not argued that this claim must be pled with particularity.
As to the negligence claim, the Plaintiffs must allege four
elements: “(1) duty; (2) breach of duty; (3) causation; and (4) damages.”
Hatch v. State Dept. of Highways, 887 P.2d 729, 732 (Mont. 1994). “The
existence of a legal duty is a question of law to be determined by the
court.” Fisher v. Swift Transp. Co., Inc., 181 P.3d 601, 607 (Mont.
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2008). Generally, a bank has no duty to modify or renegotiate a
defaulted loan. If the borrower has not been advised by the bank or has
not relied on that advice, no fiduciary relationship exists. Morrow, 324
P.3d at 1177. But a mortgage servicer “that actively engag[es] with a
borrower, particularly in the modification context, stands in a different
relation to the borrower than does a traditional ‘silent lender.’” Id. at
1178. Thus such special circumstances, if proven, could support a
fiduciary duty where a defendant went beyond its conventional role as
a loan servicer by, for example, soliciting a plaintiff to apply for a loan
modification and by engaging with them for several months or longer.
If a mortgage servicer is actively engaged with a borrower, particularly
in the modification context, it may give rise to a fiduciary duty. Id. at
1178.
In Morrow, the Montana Supreme Court found that to determine
whether this special relationship exists, a court may be required to
make a fact-intensive inquiry. Id. at 1178, n.1. The Court cannot make
such an inquiry in connection with a motion to dismiss. Thus, the
Court finds that the Amended Complaint says enough to state a claim
for negligence. The Amended Complaint alleges that Ocwen engaged
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with the Fischers by asking them to “re-complete the HAMP
modification packet.” ECF 19 at ¶¶ 9–10. It further alleges that
Ocwen represented that the property foreclosure would not proceed
during the HAMP evaluation process. The communications between
these parties may, or may not, give rise to a fiduciary duty for Ocwen in
managing the loan modification process. The Court cannot make this
determination based on the Amended Complaint. It does, however,
satisfy Rule 8(a)(2)’s requirement of a short and plain statement
showing that Plaintiffs are entitled to relief. Accordingly, the Fischers
have stated a claim for negligence and the Court will recommend denial
of the motion to dismiss this claim.
e.
Count IX—Implied Covenant of Good Faith
and Fair Dealing
The implied covenant of good faith and fair dealing requires
“honesty in fact and the observance of reasonable commercial standards
of fair dealing in the trade.” MCA 28-1-211. While every contract
involves an implied covenant of good faith and fair dealing, an existing
contract “is a prerequisite to a claim for tortious breach of the
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covenant.” Morrow, 324 P.3d at 1176 (citing Knucklehead Land Co. v.
Accutitle, Inc., 172 P.3d 116, 121 (Mont. 2007)).
Ocwen contends that this claim fails because (1) the Amended
Complaint fails to allege any contract between the Fischers and Ocwen,
and (2) even if there were a contract, there is no discretionary provision
which is allegedly the basis for the implied covenant claim. ECF 3 at
29-30. The Fischers’ short response does not directly answer either
contention. ECF 20 at 17. It does not refer to any specific contract, but
only states that “Ocwen was to have been providing loan servicing to
the Fischers.” Id. As the Montana Supreme Court found in Morrow,
the borrowers’ claim is not based on the original loan contracts, but on
subsequent unexecuted oral communications they contend to be
contractual. This cannot support a claim for breach of an implied
contractual covenant. Morrow, 324 P.3d 1176-77 (citing MCA 28-21602). Accordingly, the Court will recommend that the motion to
dismiss this claim be granted.
f.
Count X—Punitive Damages
Under Montana law, “a judge or jury may award, in addition to
compensatory damages, punitive damages for the sake of example and
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for the purpose of punishing a defendant.” MCA § 27–1–220. Punitive
damages are merely a component of recovery in some types of civil
actions. See Finstad v. W.R. Grace & Co., 8 P.3d 778, 782 (Mont. 2000).
In this case, the claim for punitive damages is contained in both a
separate cause of action under Count X, as well as in the prayer for
relief. ECF 19 at ¶ 50 and page 9. Several of the underlying claims
could support an award of punitive damages. It certainly would not be
inappropriate for Plaintiffs to include the claim for punitive damages
only in their prayer for relief, as Ocwen argues they should have done.
But neither is it inappropriate, or in any way confusing, for Plaintiffs to
include their claim for punitive damages in a separate count. The
motion to dismiss Count X should be denied.
V. CONCLUSION
ORDER
IT IS ORDERED that Defendants’ Motion for Judicial Notice
(ECF 4) is GRANTED.
RECOMMENDATIONS
IT IS RECOMMENDED that Defendant FHLMC’s Motion to
Dismiss (ECF 2) be GRANTED to the extent it seeks dismissal of
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Counts II through X, but DENIED to the extent that it seeks dismissal
of Count I.
IT IS FURTHER RECOMMENDED that Defendant Ocwen’s
Motion to Dismiss (ECF 2) Counts III through VII and Count IX be
GRANTED, with leave to amend by Plaintiffs, but DENIED as to
Counts I, II, VIII and X.
NOW, THEREFORE, IT IS ORDERED that the Clerk shall serve
a copy of the Findings and Recommendations of United States
Magistrate Judge upon the parties. The parties are advised that
pursuant to 28 U.S.C. § 636, any objections to the findings and
recommendations must be filed with the Clerk of Court and copies
served on opposing counsel within fourteen (14) days after entry hereof,
or objection is waived.
DATED this 25th day of November, 2014.
/s/ Carolyn S. Ostby
United States Magistrate Judge
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