L'Esperance v. HSBC Consumer Lending, Inc. et al

Filing 35

///ORDER denying 34 Motion for Default Judgment as to Manhattan Mortgage Corporation. Clerk shall enter judgment and close the case. So Ordered by Magistrate Judge Landya B. McCafferty.(gla)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE

Linda L’Esperance
v.

Civil No. 11-cv-555-LM
Opinion No. 2012 DNH 155

Manhattan Mortgage Corporation

O R D E R
Based on the court’s order of June 12, 2012, document no.
32, this case now consists of Linda L’Esperance’s claims against
Manhattan Mortgage Corporation (“Manhattan”) for: (1) negligent,
fraudulent, or intentional misrepresentation (Count IX); (2)
violation of New Hampshire’s Consumer Protection Act (“CPA”),
New Hampshire Revised Statutes Annotated (“RSA”) chapter 358-A
(Count X); (3) negligence, breach of contract, and breach of the
obligation of good faith and fair dealing (Count XII); and (4)
negligence (Count XIII).

Before the court is L’Esperance’s

motion for default judgment.
August 17, 2012.

The court heard oral argument on

For the reasons that follow, L’Esperance’s

motion for default judgment is denied.
The Legal Standard
Default has entered.

See doc. no. 33.

Thus, Manhattan is

“taken to have conceded the truth of the factual allegations in

the complaint as establishing the grounds for liability.”
S.E.C. v. New Futures Trading Int’l Corp., No. 11–cv–532–JL,
2012 WL 1378558, at *1 (D.N.H. Apr. 20, 2012) (quoting Ortiz–
Gonzalez v. Fonovisa, 277 F.3d 59, 62–63 (1st Cir. 2002)).

But,

while “a defaulting party admits the factual basis of the claims
asserted against it, the defaulting party does not admit the
legal sufficiency of those claims.”

10 James Wm. Moore, Moore’s

Federal Practice § 55.32[1][b] (3d ed. 2011) (citing Quirindongo
Pacheco v. Rolon Morales, 953 F.2d 15, 16 (1st Cir. 1992)).
Accordingly, “[t]he claimant must state a legally valid claim
for relief,” 10 Moore’s, supra, and “[a] court may grant
judgment by default only for relief that may lawfully be granted
on the well-pleaded facts alleged by the claimant,” id.
(emphasis added).

Therefore, “a district court may, after entry

of default, still conclude that a complaint fails to state a
claim.”

Feliciano–Hernández v. Pereira–Castillo, 663 F.3d 527,

537 n.5 (1st Cir. 2011) (citing Ramos–Falcón v. Autoridad de
Energía Eléctrica, 301 F.3d 1, 2 (1st Cir. 2002)).
As the court of appeals for this circuit has recently
explained, the process for determining whether a complaint
states a claim involves two steps:
Step one: isolate and ignore statements in the
complaint that simply offer legal labels and
conclusions or merely rehash cause-of-action elements.

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[Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1,] 12
[(1st Cir. 2011)] (discussing, among other cases,
Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949
(2009), and Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555 (2007)). Step two: take the complaint’s well-pled
(i.e., non-conclusory, non-speculative) facts as true,
drawing all reasonable inferences in the pleader’s
favor, and see if they plausibly narrate a claim for
relief. Id. (again, discussing Iqbal and Twombly,
among others); see also S.E.C. v. Tambone, 597 F.3d
436, 441–42 (1st Cir. 2010) (en banc). Plausible, of
course, means something more than merely possible, and
gauging a pleaded situation’s plausibility is a
“context-specific” job that compels [a court] “to draw
on” [its] “judicial experience and common sense.”
Iqbal, 129 S. Ct. at 1949, 1950. And in performing
[its] review, [a court] consider[s] (a) “implications
from documents” attached to or fairly “incorporated
into the complaint,” (b) “facts” susceptible to
“judicial notice,” and (c) “concessions” in
plaintiff’s “response to the motion to dismiss.”
Arturet–Vélez v. R.J. Reynolds Tobacco Co., 429 F.3d
10, 13 n.2 (1st Cir. 2005); see also Haley v. City of
Boston, 657 F.3d 39, 44, 46 (1st Cir. 2011).
Schatz v. Rep. State L’ship Comm., 669 F.3d 50, 55-56 (1st Cir.
2012) (footnote and parallel citation omitted).
Background
Given the court’s obligation to determine whether any of
L’Esperance’s claims would pass muster under Rule 12(b)(6) of
the Federal Rules of Civil Procedure (“Federal Rules”), the
following background is drawn from L’Esperance’s amended
complaint, document no. 20.
In the portion of her complaint that identifies the
parties, L’Esperance alleges that “Manhattan Mortgage . . .

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transacted business with [her] . . . by sending her an
application for their services to assist in acquiring a loan
modification, . . . [making] misrepresentations regarding the
quality and nature of the services they could and would deliver,
and accepting [her] fee for said service, which as alleged
below, was never delivered.”

Am. Compl. ¶ 20.

The “General

Allegations” section of her complaint includes the following:
Defendant Manhattan Mortgage Corporation held
itself out as having the willingness and ability to
assist the Plaintiff in acquiring a loan modification
after her efforts with her lenders had failed.
Defendant Manhattan Mortgage Corporation specifically
represented that it, through its staff, employees,
agents, and/or representatives had an intrinsic
working knowledge of the mortgage industry,
modifications, federal funding and criteria for
modifications, the Plaintiff’s lender in particular,
and specifically that it could successfully effectuate
a modification of the Plaintiff’s loans. Based on
these promises, and this agreement, the Plaintiff paid
Manhattan Mortgage Corporation in the order of
$2,195.00 for their represented services. However,
Manhattan Mortgage failed to effectuate a
modification, and failed to appeal the initial
disapproval, despite their contract and express
promises that they could and would carry this out on
the Plaintiff’s behalf.
Id. ¶ 44.

That is the full extent of the complaint’s factual

allegations concerning Manhattan.

However, a document titled

“Site Check Draft Authorization” (hereinafter “authorization
form”) that was executed by L’Esperance and attached to her
motion for default judgment provides as follows:

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The services MANHATTAN MORTGAGE CORPORATION shall
provide are, but may not be limited to: preparing a
loan modification package, preparing financial
information, telephoning, faxing and negotiating a
potential loan modification request. . . .
MANHATTEN MORTGAGE CORPORATION . . . makes no
guarantees, representations, specific performance, or
outcome of a loan modification request made to a
lender. I understand and agree that no loan
modification guarantees have been promised to me,
verbally or in writing, and that final approval of any
loan modification request(s) MANHATTAN MORTGAGE
CORPORATION submits on my behalf is subject to lender
guidelines, acceptance and approval.
Pl.’s Mot. Default J., Ex. A (doc. no. 34-2), at 2.

Given that

L’Esperance has brought a claim for breach of contract, and the
authorization form is the agreement between L’Esperance and
Manhattan, that document is fairly incorporated into
L’Esperance’s complaint.

See Bedall v. State St. Bank & Tr.

Co., 137 F.3d 12, 17 (1st Cir. 1998) (“When . . . a complaint’s
factual allegations are expressly linked to – and admittedly
dependent upon – a document (the authenticity of which is not
challenged), that document effectively merges into the pleadings
and the trial court can review it in deciding a motion to
dismiss under Rule 12(b)(6).”) (citations omitted).
Discussion
Having described the relevant legal standard, and the facts
of this case, the court turns to each of the four counts in
L’Esperance’s complaint that assert claims against Manhattan.
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A. Count IX
Count IX is L’Esperance’s misrepresentation claim.

In it,

she asserts:
Manhattan Mortgage Corporation made statements
regarding [its] abilities, knowledge, competence, and
intentions of successfully accomplishing a loan
modification for the Plaintiff that were made with the
purpose of inducing the Plaintiff into paying for such
proffered services, including but not limited to all
promises as outlined in the general allegations
portion of this Writ. The Defendants knew or should
have known that such representations were false. The
Plaintiff reasonably and justifiably relied on such
statements to her detriment.
Am. Compl. ¶ 105.

The “promises” outlined in the general

allegations portion of the complaint are those described in
paragraph 44, which is quoted above, in full.

Count IX fails to

state a misrepresentation claim against Manhattan for several
reasons.
First, at least with respect to a claim for intentional
misrepresentation, L’Esperance is obligated to “state with
particularity the circumstances constituting fraud.”

Fed. R.

Civ. P. 9(b); see also Tessier v. Rockefeller, 162 N.H. 324, 332
(2011) (“In order to withstand a motion to dismiss, the
plaintiff must specify the essential details of the fraud, and
specifically allege the facts of the defendant’s fraudulent
actions.”) (quoting Jay Edwards, Inc. v. Baker, 130 N.H. 41, 4647 (1987)) (emphasis in Jay Edwards).

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“To satisfy [the]

particularity requirement [under the Federal Rules], the pleader
must set out the ‘time, place, and content of the alleged
misrepresentation with specificity.’”

Tambone, 597 F.3d at 442

(quoting Greebel v. FTP Software, Inc., 194 F.3d 185, 193 (1st
Cir. 1999)).

L’Esperance’s allegations of who said what to whom

fall far short of the specificity necessary to state a claim for
intentional misrepresentation under the Rule 9(b) pleading
standard.

And, those allegations are probably inadequate to

state a claim for negligent misrepresentation under the Rule
8(a)(2) pleading standard.

Moreover, to the extent that

L’Esperance’s misrepresentation claim is based on a supposed
statement by Manhattan “that it could successfully effectuate a
modification of [her] loans,” Am. Compl. ¶ 44, that allegation
cannot stand in the face of the authorization form, in which
L’Esperance acknowledged that Manhattan had made no guarantees
concerning the outcome of its attempt to secure a modification
of her mortgage loan.

See Schatz, 669 F.3d at 56 n.3 (“the

documents [fairly incorporated into a complaint] may trump the
complaint’s allegations if a conflict exists”) (citing Clorox
Co. P.R. v. Proctor & Gamble Commercial Co., 228 F.3d 24, 32
(1st Cir. 2000)).
Beyond that, it is not at all clear that L’Esperance has
adequately alleged that any of the statements on which she

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relies are false statements, which is a necessary element of a
claim for either intentional or negligent misrepresentation.
Based upon paragraph 44 of her amended complaint, L’Esperance
appears to allege that Manhattan made false statements when it
said that: (1) it had the willingness and ability to assist her
in acquiring a loan modification; (2) it had an intrinsic
knowledge of the mortgage industry and the modification process;
and (3) it could successfully effectuate a modification of her
mortgage.

But, she does not allege any facts which, if proven,

would render any of those statements false at the time they were
made.

That is, she alleges no facts concerning Manhattan’s

actual willingness and ability to assist her in getting a loan
modification, and no facts concerning Manhattan’s actual
knowledge of the mortgage industry and the modification process.
Regarding the alleged promise of a successful outcome,
L’Esperance alleges no facts that, if proven, would demonstrate
that when Manhattan made that promise, it had no intention of
keeping it, which is a necessary element of a misrepresentation
claim based on a promise.

See Thompson v. H.W.G. Grp., Inc.,

139 N.H. 698, 701 (1995) (“A promise . . . will only give rise
to a claim of misrepresentation if, at the time it was made, the
defendant had no intention to fulfill the promise.”) (citation
omitted).

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Instead of making the requisite factual allegations,
L’Esperance appears to rely exclusively on Manhattan’s lack of
success in securing a modification of her mortgage, and its
failure to appeal the initial disapproval of her request for a
modification, as proof of the falsity of Manhattan’s statements.
That is not enough, especially in light of L’Esperance’s express
acknowledgment, in the authorization form, that Manhattan made
no promises about the outcome of its attempt to secure a
modification.1
Finally, the complaint falls short with regard to alleging
the requisite state(s) of mind of the speaker(s) responsible for
the alleged misrepresentations.

As explained in the court’s

order dismissing the claims against the other defendants,
allegations of scienter are necessary to state a claim for
intentional misrepresentation.

See L’Esperance v. HSBC Consumer

Lending, Inc., No. 11-cv-555-LM, 2012 WL 2122164, at *13 (D.N.H.
June 12, 2012).

As with L’Esperance’s allegations against those

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With respect to Manhattan’s alleged failure to appeal, the
court notes that appealing an initial adverse decision is not
one of the services Manhattan promised to perform in the
authorization form, and L’Esperance makes no specific allegation
that Manhattan ever promised to file an appeal. Moreover, by
analogy to the elements of a claim for legal malpractice, it
would seem that a failure to appeal would only cause injury if
the appeal was likely to have succeeded, and L’Esperance makes
no allegations concerning the merits of her modification request
or the chances of a successful appeal of the initial denial.
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other defendants, she has not adequately alleged scienter with
respect to Manhattan.

Similarly, allegations concerning a

failure to exercise reasonable care before making a statement
are necessary to state a claim for negligent misrepresentation.
See id. at *14.

Here, too, L’Esperance’ complaint misses the

mark.
Because L’Esperance has not alleged misrepresentation with
adequate specificity, because she has not actually alleged a
false statement of fact, and because her complaint does not
contain adequate allegations regarding the state(s) of mind of
the relevant speaker(s), who remain unidentified, she has failed
to state a claim for misrepresentation.

As a consequence, she

is not entitled to default judgment on the misrepresentation
claim she asserts in Count IX.
B. Count X
Count X is L’Esperance’s claim under the CPA, that
Manhattan “held its services out to be of a standard and
quality, based on expertise and unique knowledge, when such
services were not of said standard or quality.”
108(f).

Am. Compl. ¶

The CPA does, indeed, make it unlawful for a person to

“[r]epresent that . . . services are of a particular standard,
quality, or grade . . . if they are of another,” RSA 358-A:2,
VII.

L’Esperance, however, makes no factual allegations
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concerning: (1) what Manhattan said about its expertise and
unique knowledge; or (2) the actual level of Manhattan’s
expertise and knowledge.

Without allegations about what

Manhattan said, or the actual state of Manhattan’s expertise and
knowledge, L’Esperance has not alleged a false representation
concerning the standard and quality of the services Manhattan
provided to L’Esperance.

L’Esperance is not entitled to default

judgment on the claim she asserts in Count X because she does
little more than recite the elements of her cause of action, and
“a formulaic recitation of the elements of a cause of action
will not do” to state a claim on which relief can be granted.
United Auto. Workers of Am. Int’l Union v. Fortuño, 633 F.3d 37,
41 (1st Cir. 2011) (quoting Iqbal, 556 U.S. at 678); see also
Schatz, 669 F.3d at 55 (explaining that when ruling on Rule
12(b)(6) motions, courts should “isolate and ignore statements
in the complaint that . . . merely rehash cause-of-action
elements”).
C. Count XII
In Count XII, L’Esperance asserts a claim under three
separate legal theories.

Specifically, she claims that

Manhattan’s
failure to acquire the modification as required under
the contract was in breach of contract, in breach of
the Defendant’s obligations to deal fairly and in good
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faith with the Plaintiff, and/or was the result of the
Defendant’s direct or vicarious liability of its
agents/employees/representative’s negligence within
the scope of employment and in connection with the
rendering of the contracted services and in failing to
take a timely appeal.
Am. Compl. ¶ 117.

L’Esperance has failed to state a claim for

breach of contract because the contract on which she is suing
expressly disclaims any guarantee concerning the outcome of
Manhattan’s attempt to secure a modification of L’Esperance’s
mortgage.

That is, the contract did not require Manhattan to

acquire a modification.

L’Esperance has failed to state a claim

for negligence because the only duties she alleges Manhattan
breached are those it assumed under its agreement with her, and
in New Hampshire, “[a] breach of contract standing alone does
not give rise to a tort action.”

Bennett v. ITT Hartford Grp.,

Inc., 150 N.H. 753, 757 (2004) (citing Lawton v. Great Sw. Fire
Ins. Co., 118 N.H. 607, 613 (1978)).
L’Esperance’s claim for breach of the obligation of good
faith and fair dealing is also fatally flawed.

According to the

New Hampshire Supreme Court:
In every agreement, there is an implied covenant that
the parties will act in good faith and fairly with one
another. Livingston v. 18 Mile Point Drive, 158 N.H.
619, 624 (2009). In New Hampshire, there is not
merely one rule of implied good-faith duty, but a
series of doctrines, each of which serves a different
function. Id. The various implied good-faith
obligations fall into three general categories: (1)

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contract formation; (2) termination of at-will
employment agreements; and (3) limitation of
discretion in contractual performance. Id.
Birch Broad., Inc. v. Capitol Broad. Corp., 161 N.H. 192, 198
(2010) (parallel citation omitted).

While L’Esperance broadly

alleges that Manhattan breached its obligation to deal with her
fairly and in good faith, she elaborates no further, and does
not indicate which good faith obligation(s) Manhattan failed to
fulfill.
Plainly, this case does not involve the second category of
good faith and fair dealing, which pertains to discharge from
at-will employment.

To the extent that L’Esperance asserts a

claim based on the first category, any such claim fails as a
result of her failure to allege scienter.
WL 2122164, at *18-19.

See L’Esperance, 2012

That leaves the third category.

In its landmark opinion on the implied covenant of good
faith and fair dealing, the New Hampshire Supreme Court
described the rule underlying the limitation of discretion in
contract performance:
[U]nder an agreement that appears by word or silence
to invest one party with a degree of discretion in
performance sufficient to deprive another party of a
substantial proportion of the agreement’s value, the
parties’ intent to be bound by an enforceable contract
raises an implied obligation of good faith to observe
reasonable limits in exercising that discretion,

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consistent with the parties’ purpose or purposes in
contracting.
Centronics Corp. v. Genicom Corp., 132 N.H. 133, 143 (1989).
As a preliminary matter, the court is far from certain that
the agreement on which L’Esperance bases her claim “allow[ed] or
confer[ed] upon [Manhattan] a degree of discretion in
performance tantamount to a power to deprive [L’Esperance] of a
substantial proportion of the agreement’s value.”
132 N.H. at 144.

Centronics,

To the contrary, in the authorization form,

Manhattan represented that it would prepare a loan modification
package and financial information.
Ex. A (doc. no. 34-2), at 2.

Pl.’s Mot. for Default J.,

If the agreement had given

Manhattan the power to do nothing at all, or next to nothing, at
its own discretion, and if L’Esperance had alleged that
Manhattan had done nothing, then perhaps L’Esperance would have
stated a claim.

But, the agreement itself demonstrates that

Manhattan did not have the degree of discretion described in
Centronics, and L’Esperance does not allege that Manhattan did
nothing.

Rather, she only alleges that despite Manhattan’s

efforts, she did not receive a loan modification and that
Manhattan did not appeal the lender’s denial of a loan
modification.

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L’Esperance may believe that she was deprived of a
substantial proportion of the agreement’s value because she did
not get a loan modification.

But, the authorization form made

it abundantly clear that the agreement’s value was the effort
made by Manhattan, not the success of those efforts, which was
beyond Manhattan’s control, as was also stated in the
authorization form.

And, with regard to Manhattan’s decision

not to appeal the initial denial of L’Esperance’s application
for a modification, L’Esperance has alleged no facts tending to
show that there even was an appeal process or that Manhattan’s
decision not to appeal was not reasonable under the
circumstances.

It could hardly be said that Manhattan did not

reasonably exercise its discretion in contract performance by
deciding not to file an appeal if such an appeal was unlikely to
succeed, and L’Esperance makes no factual allegations concerning
the relative strength of the appeal it says Manhattan should
have pursued.

In sum, L’Esperance has not stated a claim for

the third kind of breach of the implied covenant of good faith
and fair dealing.
Having failed to state a claim for breach of contract,
negligence, or breach of the implied covenant of good faith and
fair dealing, L’Esperance is not entitled to a default judgment
on Count XII.

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D. Count XIII
Count XIII is L’Esperance’s claim that Manhattan is liable
to her in negligence because it “breached its duty of reasonable
care to [her] in failing to deliver the services for which it
was hired.”

Am. Compl. ¶ 123.

Count XIII does not state a

claim because, as the court has already noted, “[a] breach of
contract standing alone does not give rise to a tort action.”
Bennett, 150 N.H. at 757 (citation omitted).

Because

L’Esperance has failed to state a claim for negligence, she is
not entitled to a default judgment on Count XIII.

Conclusion
For the reasons described above, L’Esperance’s motion for
default judgment, document no. 34, is denied.

The clerk of the

court shall enter judgment in accordance with this order and
close the case.
SO ORDERED.

__________________________
Landya McCafferty
United States Magistrate Judge
September 5, 2012
cc:
Jason D. Gregoire, Esq.
Michael R. Stanley, Esq.
Shenanne Ruth Tucker, Esq.
John-Mark Turner, Esq.

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