Roybal v. Bank of America, N.A. et al
Filing
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ORDER granting in part and denying in part 3 Motion to Dismiss for Failure to State a Claim. Counts I, III, IV, V, VI, VII, and VIII are DISMISSED WITH PREJUDICE. Signed by Chief Judge Dana L. Christensen on 4/6/2015. (dle)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
MISSOULA DIVISION
PAUL ROYBAL,
CV 14–280–M–DLC
Plaintiff,
ORDER
vs.
BANK OF AMERICA, N.A., BAC
HOMELOANS SERVICING, LP fka
COUNTRYSIDE HOME LOANS
SERVICING, LP,
Defendants.
Before the Court is Defendants’ motion to dismiss. For the reasons
explained, the Court grants the motion in part and denies it in part.
Background
Plaintiff Paul Roybal (“Roybal”) brings this diversity action against
Defendant Bank of America, N.A. (“BANA”) alleging that BANA breached an
oral promise to Roybal to modify his home loan (“the loan”), and committed
various other torts while servicing the loan. Roybal paid off the loan in full in
February of 2011. BANA moves to dismiss the Complaint in its entirety, asserting
that Roybal’s tort claims must be dismissed for violation of the statute of
limitations, Roybal’s breach of contract claim fails to state a claim, and that all
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damages arising from alleged negative credit reporting are preempted.
In May of 2008, Roybal obtained a refinance loan from BANA for property
located in Kalispell, Montana. In 2009, he experienced financial difficulties, had
trouble making his scheduled mortgage payments, and contacted BANA seeking
assistance in modifying the loan. In February 2010, a BANA representative told
Roybal, over the telephone, that he had been approved for a loan modification.
Roybal was told to make three trial payments and then he would be approved for
the modification. Roybal made the three trial payments, but never received written
confirmation of the modification.
Over the course of the ensuing year, Roybal was subjected to a series of
frustrating, confusing, and conflicting communications with BANA
representatives regarding the promised loan modification. Following the three
trial payments, BANA did not approve the promised loan modification. Instead,
BANA repeatedly asked for more documentation and information in order to
process the loan modification request.
On October 7, 2010, Roybal received notice that his loan had been referred
for foreclosure proceedings. More confusing and conflicting communications
with BANA representatives then ensued. In February 2011, within a week of the
scheduled foreclosure sale date, Roybal managed to obtain alternate financing and
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paid off the loan in full.
Sometime in 2012, Roybal received a 1099-Int from BANA which indicated
that all of the payments he made in 2010 under his approved temporary payment
plan had been applied to his loan. Roybal then “knew that [BANA] had, in fact,
utilized the trial payments he had submitted in 2010, in accordance with their
agreement.” (Doc. at 13.) Prior to receiving the 1099-Int, “Roybal did not
definitively know if his trial payments had ever been received,” and did not know
that they “had been applied to pay the interest on the loan.” Id.
Roybal filed this action in Montana’s Eleventh Judicial District Court in
Flathead County on November 5, 2014, asserting claims for breach of contract,
breach of implied covenant, negligence, breach of the Consumer Protection Act,
breach of fiduciary duty, constructive fraud, negligent misrepresentation, fraud,
and punitive damages. BANA removed to this Court on December 5, 2014, on the
basis of diversity jurisdiction. BANA moves to dismiss pursuant to Rule 12(b)(6).
Legal Standard
Rule 12(b)(6) motions test the legal sufficiency of a pleading. Under
Federal Rule of Civil Procedure 8(a)(2), a pleading 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). “To survive a motion to dismiss, a complaint must contain sufficient
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factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A claim has facial plausibility when the
court can draw a “reasonable inference” from the facts alleged that the defendant
is liable for the misconduct alleged. Id. On a Rule 12(b)(6) motion to dismiss, the
court must accept all factual allegations in the complaint as true and construe the
pleadings in the light most favorable to the nonmoving party. Kneivel v. ESPN,
393 F.3d 1068, 1072 (9th Cir. 2005).
When a motion to dismiss is based on the running of the statute of
limitations, the motion may be granted only “if the assertions of the complaint,
read with the required liberality, would not permit the plaintiff to prove that the
statute was tolled.” Supermail Cargo, Inc. v. U.S., 68 F.3d 1204, 1206 (9th Cir.
1995)(quoting Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980).
Such a motion may be granted only when “the running of the statute is apparent on
the face of the complaint.” Jablon, 614 F.2d at 682. If the applicability of
equitable tolling depends on factual questions not clearly resolved in the
pleadings, a motion to dismiss based on the running of the statue must be denied.
Supermail Cargo, Inc., 68 F.3d at 1207.
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Discussion
I.
Breach of Contract
Roybal alleges that a BANA representative told him over the telephone that
he would be approved for a loan modification if he successfully made three trial
payments of $1540 each. He was also told that so long as he made the trial
payments his loan would not be considered in default. Roybal made the three trial
payments as required, but BANA never delivered on their oral promise to modify
his loan. The modified terms were never reduced to writing. On this basis,
Roybal asserts a breach of contract claim. BANA contends Roybal fails to state a
claim because an oral promise is enforceable only when both parties have fully
performed, and the Complaint alleges that only Roybal performed. The Court
agrees.
A promissory note is a written contract and may be modified in writing or
by an executed oral agreement. Morrow v. Bank of American, N.A., 324 P.3d
1167, 1175 (Mont. 2014); Mont. Code Ann. § 28-2-1602. “An executed oral
agreement exists where the obligations of both parties have been fully performed,
and nothing remains to be done by either party. Performance by one party is not
sufficient.” Id. (internal citations omitted.)
It is plain that Roybal has not stated a valid breach of contract claim.
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Roybal alleges breach of an oral agreement, but the Complaint makes clear that he
was the only party who performed. As such, there was no executed oral
agreement. Because the Complaint does not allege a breach of a valid contract,
Roybal’s breach of contract claim must be dismissed.
The allegations in Morrow are virtually identical to the allegations here. In
Morrow, the Montana Supreme Court affirmed summary judgment in favor of the
bank on the plaintiffs’ breach of contract claim. Roybal’s attempt to distinguish
Morrow is unpersuasive. Id. at 1176. Roybal argues that Morrow differs because
“[w]here the Morrows sued for breach of the modified loan agreement, Roybal
sues for breach of the agreement that would have resulted in the modification of
his loan had Bank of America performed.” (Doc. 8 at 23.) As BANA correctly
notes, this is a distinction without a difference. Roybal fails to state a valid claim
for breach of contract. The claim is dismissed.
III.
Negative Credit Reporting
BANA moves to dismiss all of Plaintiff’s claims to the extent that they are
based on negative credit reporting, because, it asserts, such claims are preempted
by the Fair Credit Reporting Act, 15 U.S.C. § 1681t(b)(1)(F). Roybal does not
dispute that the claims, to the extent that they are based on negative credit
reporting, must be dismissed. Instead, Roybal contends that the claims need not
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be dismissed in their entirety because negative credit reporting is only one
component of Roybal’s damages with respect to certain claims. Regardless, the
parties appear to agree that the claims, to the extent that they are based on negative
credit reporting, are preempted by the Fair Credit Reporting Act.
The Court agrees that to the extent that the claims are based on negative
credit reporting, they are preempted by the Fair Credit Reporting Act, 15 U.S.C. §
1681t(b)(1)(F), and must be dismissed. See e.g. Feller v. First Interstate
Bancsystem, Inc., 299 P.3d 338, 342 (2013); Roybal v. Equifax, 405 F.Supp.2d
1177 (E.D. Cal. 2005). Roybal specifically includes negative credit reporting as
an element of damages for his Negligence claim (Count III). He also asserts
continuing damages associated with his Breach of Fiduciary Duty claim (Count V)
and Fraud claim (Count VIII). His Breach of Contract claim (Count I) and Breach
of the Consumer Protection Act claim (Count IV) allege negative credit reporting
to credit bureaus as part of the element of breach. While the Court does not
dismiss any individual claim in its entirety because of preemption, dismissing the
claims to the extent that they are based on negative reporting clarifies and narrows
the scope of the analysis below with respect to BANA’s statute of limitations
argument.
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IV.
Statute of Limitations
Roybal’s claims for negligence, negligent misrepresentation, and breach of
fiduciary duty are subject to a three-year statute of limitations. Mont. Code Ann.
§ 27-2-204(1); Walstad v. Northwest Bank of Great Falls, 783 P.2d 1325, 1328
(Mont. 1989). His claim under Montana’s Unfair Trade Practices and Consumer
Protection Act, § 30-14-101–144, is subject to a two-year statute of limitations.
Osterman v. Sears, Roebuck & Co., 80 P.3d 435, 441 (2003). His claims for fraud,
actual and constructive, are subject to a two year statute of limitation. § 27-2-203.
The parties do not dispute these limitation periods. The only dispute about the
applicable limitations period pertains to Roybal’s claim for breach of the covenant
of good faith and fair dealing, which will be addressed in a separate section below.
Accordingly, other than his breach of the covenant claim, Roybal’s tort
claims are subject to, at most, a three-year statute of limitation period. Because
Roybal filed his Complaint on November 5, 2014, his claims are subject to
dismissal if (1) the claims accrued before November 5, 2011, and (2) it is beyond
doubt that equitable tolling is inapplicable. Mont. Code Ann. § 27-2-102, -201, 203; Supermail Cargo, Inc., 68 F.3d at 1206-07.
Roybal alleges that he first contacted BANA about a loan modification in
August of 2009. In February 2010, he was told on the phone that he would be
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approved for a loan modification if he made three monthly trial payments. The
alleged tortious conduct by BANA then began, as BANA engaged Roybal in a
series of confusing and conflicting communications about modifying his loan.
This allegedly tortious behavior continued, until “[a]t the last minute, within a
week of the scheduled foreclosure, Roybal was able to pay off the [BANA] loan
by borrowing funds from his mother.” (Doc. 7 at 9.) Roybal “paid the loan in full
in February of 2011,” and his course of dealings with BANA ended at that time.
Id. at 10.
It is clear from the face of the Complaint that all of BANA’s alleged tortious
behavior occurred on or before February 2011. Roybal paid the loan in full in
February 2011, and he alleges no other relationship with BANA.
Roybal attempts to escape the statute of limitations by alleging that “[i]n
2012, [BANA] sent Roybal a 1099-Int showing $18,277.29 in interest payments
received in 2011.” (Doc. 7 at 10.) According to the Complaint “[t]his was the
first notification to Roybal that [BANA] had sent all of the payments he had made
in 2010 under his approved ‘temporary payment plan’ and applied them to interest
on the loan.” Id. Roybal argues that not until he received the 1099-Int, did the
facts giving rise to his claims exist. Roybal does not contend that equitable tolling
is applicable and does not allege in his Complaint, or contend in his response
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brief, that the doctrine of fraudulent concealment, see Textana, Inc. v. Klabzuba
Oil &Gas, 222 P.3d 580, 587 (Mont. 2009), should serve to toll the statute of
limitations.
Montana statute provides that generally a period of limitation on a claim
“begins when the claim or cause of action accrues.” Mont. Code Ann. § 27-2 102(2). “A claim or cause of action accrues when all elements of the claim or
cause exist or have occurred, the right to maintain an action on the claim or cause
is complete, and a court or other agency is authorized to accept jurisdiction of the
action.” Id. at -102(a); Estate of Watkins v. Hedman, Hileman & Lacosta, 91 P.3d
1264, 1269 (Mont. 2004)(“the statute of limitations begins when all elements of a
claim, including damages, have occurred”). “Lack of knowledge of the claim or
cause of action, or of its accrual, by the party to whom it has accrued does not
postpone the beginning of the period of limitation.” Id. It is also not “necessary
to know the total extent of damages that an act causes to begin the running of the
statute of limitations.” E.W. v. D.C.H., 754 P.2d 817, 820 (Mont. 1988)
superseded by statute on other grounds. An action is commenced when a
complaint is filed. Id. at -102(b).
“The discovery rule provides that a limitations period does not begin until
the party discovers, or in the exercise of reasonable diligence, would have
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discovered, the facts constituting the claim.” Draggin Y Cattle Co., Inc. v. Addink,
312 P.3d 451, 456 (Mont. 2013); Mont. Code Ann. § 27-2-102(3). “However, this
rule only applies when the facts constituting the claim are concealed, self
concealing, or when the defendant has acted to prevent the injured party from
discovering the injury or cause.” Id.
Roybal contends that his claims did not accrue until he received notice
sometime in 2012 that BANA had applied his trial payments to his account. But
accrual of a claim does not depend on a party’s awareness of all the facts relevant
to a claim; it depends only on the facts’ existence or occurrence. Even according
to the allegations in the Complaint, BANA had applied Roybal’s trial payments to
his account before he paid of the loan in 2011. Montana law expressly provides
that “[l]ack of knowledge of the claim or cause of action, or of its accrual, . . . does
not postpone the beginning of the period of limitation.” Mont. Code Ann. § 27-2 102(2). Nor is it “necessary to know the total extent of damages that an act causes
to begin the running of the statute of limitations.” E.W. v. D.C.H., 754 P.2d at
820.
Roybal’s receipt of the 1099-Int is not an element of any of his causes of
action. Roybal essentially concedes as much. In response to the motion to
dismiss, Roybal seeks only to justify his “delay in understanding [BANA]’s breach
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of its duty.” (Doc. 8 at 10.) Roybal does not allege that sending a 1099-Int is
actionable in itself, or a breach of any duty. Indeed, the information allegedly
provided to Roybal in the 1099-Int did not even cause any further damages to
Roybal, or notify Roybal of any additional damages that he had incurred as a result
of BANA’s actions in 2010 or 2011. By February 2011, when Roybal paid off his
loan in full, BANA had acted tortiously, and caused known injuries to Roybal.
Roybal does not allege that BANA performed any other tortious acts after he paid
the loan off in full in February of 2011. Thus, all of Roybal’s tort claims had fully
accrued by February 2011, because all of the elements of all of his claims had
occurred or existed as of that date.
Nor was there any mystery about the facts constituting Roybal’s claims, the
source of Roybal’s injuries, or their existence that would suggest that the
discovery doctrine is applicable to toll the statue of limitations. The discovery
rule “only applies when the facts constituting the claim are concealed, self
concealing, or when the defendant has acted to prevent the injured party from
discovering the injury or cause.” Draggin-Y Cattle Co., Inc., 312 P.3d at 456.
The basic facts constituting the Roybal’s various causes of action are that BANA
promised a loan modification, reneged on that promise, and then proceeded to
provide Roybal with “a series of confusing and contradictory representations in
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2010 and early 2011 regarding the status of Roybal’s account, modification, and
payment status, despite various attempts at clarification by Roybal.” (Doc. 8 at
10.) While it may have been difficult for Roybal to understand why BANA was
acting the way it did, and while it may have been unclear if BANA would ever
formally grant a loan modification as it had promised to do, the facts constituting
Roybal’s claims were not concealed or self-concealing. Roybal was privy to all of
the facts constituting his claims while they were occurring. The fact that BANA
was applying Roybal’s payments to his loan as he sent them in is not an element of
any of his causes of action. His discovery of this fact, therefore, did not reveal any
of the “facts constituting the claim.” Draggin-Y Cattle Co., Inc., 312 P.3d at 456.
Likewise, Roybal’s injuries were not concealed or self-concealing. The
Complaint alleges that Roybal experienced panic attacks and other emotional
distress damages on November 24, 2010, as a result of BANA’s tortious behavior.
The Complaint also alleges that Roybal had to obtain alternate financing to avoid
foreclosure as a result of BANA’s tortious behavior. Thus, from the face of the
Complaint, Roybal clearly knew the essential facts constituting his cause of action,
knew that he had been injured as a result of BANA’s tortious behavior, and knew
the nature of those injuries. Accordingly, the discovery doctrine is inapplicable.
At most, there was some uncertainty about the extent of Roybal’s damages.
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Roybal did not know whether his trial payments had been applied to his loan, and
the 1099-Int clarified that, in fact, the payments had been applied to his loan.
Ironically, the upshot of Roybal’s receipt of the 1099-Int is that Roybal learned at
that time that his damages were not as extensive as perhaps he may have feared.
Because “[f]ew are the injuries that could not someday develop additional
consequences,” E.W., 754 P.2d at 821, Roybal’s lack of clarity about the extent of
his damages is insufficient to toll the statute of limitations, and does not suggest
that equitable tolling is applicable. Nor is there any suggestion anywhere in the
Complaint or in Roybal’s response brief that BANA fraudulently concealed from
Roybal his injuries. Nor could there be. The Complaint makes clear that Roybal’s
injuries were well-known to him throughout 2010 and early 2011.
Ultimately, this case is similar to another Montana case involving a plaintiff
suing a bank for the bank’s allegedly fraudulent and tortious dealings with
borrowers. In Shiplet v. First Security Bank of Livingston, Inc., 762 P.2d 242
(1988), the plaintiffs alleged that the bank had committed fraud by representing
that it would loan them money at a particular rate, and then did not do so. The
Court found that the statute of limitations had run and tolling was inapplicable
because when the plaintiffs later signed loan papers which did not contain the
previously promised terms, the plaintiffs “had at that point certainly discovered
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facts sufficient to constitute fraud.” Shiplet, 762 P.2d at 247. Thus, the Court held
that the discovery rule was inapplicable and the existence of a confidential
relationship between the parties did not affect this determination. Id.
Similarly, Roybal alleges that BANA represented that Roybal would be
approved for a loan modification. When Roybal paid off the loan in full under the
original terms of the loan, he knew that he would not be receiving the promised
loan modification. At that point, Roybal had discovered facts sufficient to
constitute all of his claims.
Accordingly, even when reading Roybal’s Complaint with the required
liberality, it is clear from the face of the Complaint that all of Roybal’s tort claims,
except for the breach of the implied covenant claim, were untimely filed and
Roybal cannot prove that the statute of limitations was tolled. Therefore,
Roybal’s Counts III, IV, V, VI, VII, and VIII must be dismissed for failure to
comply with the statute of limitations. Supermail Cargo, Inc., 68 F.3d at 1206-07.
II.
Breach of the Implied Covenant of Good Faith and Fair Dealing
Montana law regarding the statute of limitations for breach of the implied
covenant of good faith and fair dealing is not especially well-settled. In Kitchen
Krafters, Inc. v. Eastside Bank of Montana, the Court squarely held that “[t]he
allegations of breach of the implied covenant of good faith and fair dealing and the
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duty of disclosure are both general tort claims which are subject to a three year
limitation.” 789 P.2d 567, 570 (Mont. 1990). In Story v. City of Bozeman,
decided approximately one month later, the Court held broadly that “[a] breach of
the covenant is a breach of the contract.” 791 P.2d 767, 775 (Mont. 1990).
Several months later, the Court in State ex rel Egeland v. City Council of Cut
Bank, Mont., held again that “[t]he statute of limitations for . . . ‘breach of the
covenant of good faith and fair dealing’ is the three-year statute applicable to
torts.” 803 P.2d 609, 611 (Mont. 1990). However, the Montana Supreme Court’s
most recent pronouncement on this issue appears to be in Lutey Construction-The
Craftsman v. State, 851 P.2d 1037, 1040 (Mont. 1993). In Lutey, the Court citing
Story, and without reference to Kitchen Krafters, Inc. or Egeland, held that the
plaintiff’s claim breach of the implied covenant was “governed by the statute of
limitations for . . . contract actions.” See also First Sec. Bank of Missoula v.
Ranch Recovery Ltd. Liability Co., 976 P.2d 956, 961 (Mont. 1999). Despite the
contradictory pronouncements on this issue, this Court will look to and rely on the
Montana Supreme Court’s most recent pronouncement of the law. Accordingly,
the Court will apply the statute of limitation applicable to contract actions, which
is eight years for a contract based upon a written instrument. Mont. Code Ann.
§27-2-202.
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Roybal’s claim for breach of the implied covenant of good faith and fair
dealing is still subject to dismissal if it is inextricably linked to his failed claim for
breach of contract because a claim for breach of the implied covenant must be
based on a valid contract. Morrow, 324 P.3d at 1176-77. Accordingly, the Court
must examine whether Roybal’s claim for breach of the implied covenant is based
on something other than the unenforceable oral promise that is the subject of his
failed breach of contract claim.
Implied in every contract is a covenant of good faith and fair dealing, which
requires “honesty in fact and the observance of reasonable commercial standards
of fair dealing in the trade.” Id. (citing § 28-1-211.) The existence of an
enforceable contract is a prerequisite to a claim for tortious breach of the
covenant. Id.; Cate v. First Bank (N.A.) Billings, 865 P.2d 277, 279 (Mont. 1993).
“The nature and extent of an implied covenant of good faith and fair dealing is
measured in a particular contract by the justifiable expectations of the parties.”
Cate, 865 P.2d at 279 (emphasis in original). The covenant “must attach to a
party’s actions within the confines of its duties under a contract.” Id. at 280. In
Morrow, the Montana Supreme Court affirmed summary judgment in favor of the
bank when the plaintiff’s claim for breach of the implied covenant was not based
on the underlying, enforceable written loan agreement, “but on the breach of the
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alleged oral contract to modify [the] loan.” Morrow, 324 P.3d at 1177.
Here, Roybal asserts that BANA “acted dishonestly while handling the
foreclosure of his underlying mortgage” and that BANA’s “actions in 2010 and
2011 form the basis for a breach of good faith between the parties with respect to
the underlying mortgage agreement and Roybal’s legitimate expectations.” (Doc.
8 at 16.) While these allegations are not pled with the utmost specificity in the
Complaint, the Court agrees with Roybal that, reading the Complaint with the
required liberality, he has alleged facts sufficient to infer that his claim for breach
of the implied covenant is based at least in part on the underlying mortgage
agreement. Thus, the claim is not inextricably linked to the unenforceable oral
promise. Applying the eight year statute of limitations, the claim is timely pled
and BANA’s motion to dismiss this claim is denied.
Because Roybal maintains a cause of action in tort, his claim for punitive
damages also survives.
IT IS ORDERED that the motion to dismiss (Doc. 3) is GRANTED IN
PART AND DENIED IN PART. Counts I, III, IV, V, VI, VII, and VIII are
DISMISSED WITH PREJUDICE.
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Dated this 6th day of April 2015.
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