Douglas, et al v. U.S. Bank National Association, Trustee et al

Filing 10

///ORDER granting 7 Motion to Dismiss for Failure to State a Claim. 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

Willard Douglas
and Diane Douglas
v.

Civil No. 13-cv-101-LM
Opinion No. 2013 DNH 071

U.S. Bank National
Association and Wells
Fargo Home Mortgage

O R D E R
In a case that has been removed from the New Hampshire
Superior Court, Willard and Diane Douglas (“the Douglases” or
“petitioners”) petitioned the court to enjoin a foreclosure sale
that was scheduled for February 11, 2013.

Petitioners claimed

that if respondents held the sale without considering their
request for a loan modification, they would breach the implied
covenant of good faith and fair dealing.

Before the court is

respondents’ motion to dismiss for failure to state a claim upon
which relief can be granted.

Petitioners object.

For the

reasons that follow, respondents’ motion to dismiss is granted.
The Legal Standard
Ruling on a motion to dismiss for “failure to state a claim
upon which relief can be granted,” Fed. R. Civ. P. 12(b)(6),
requires the court to conduct a limited inquiry, focusing not on

“whether a plaintiff will ultimately prevail but whether the
claimant is entitled to offer evidence to support the claims.”
Scheuer v. Rhodes, 416 U.S. 232, 236 (1974).

When considering

such a motion, a trial court “accept[s] as true all well-pled
facts in the complaint and draw[s] all reasonable inferences in
favor of plaintiffs.”

Plumbers’ Union Local No. 12 Pension Fund

v. Nomura Asset Acceptance Corp., 632 F.3d 762, 771 (1st Cir.
2011) (quoting SEC v. Tambone, 597 F.3d 436, 441 (1st Cir.
2010)).

To survive a Rule 12(b)(6) motion, a complaint “must

contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’”

González-

Maldonado v. MMM Healthcare, Inc., 693 F.3d 244, 247 (1st Cir.
2012) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009);
citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
Background
The facts in this section are drawn from the petition that
initiated this case, augmented by documents appropriately
incorporated therein.

See Rivera v. Centro Médico de Turabo,

Inc., 575 F.3d 10, 15 (1st Cir. 2009) (citing Trans-Spec Truck
Serv., Inc. v. Caterpillar, Inc., 524 F.3d 315, 321 (1st Cir.
2008)); see also Banco Santander de P.R. v. Lopez-Stubbe (In re
Colonial Mortg. Bankers Corp.), 324 F.3d 12, 19 (1st Cir. 2003)
(“matters of public record are fair game in adjudicating Rule

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12(b)(6) motions, and a court’s reference to such matters does
not convert a motion to dismiss into a motion for summary
judgment”) (citing Boateng v. InterAmerican Univ., Inc., 210
F.3d 56, 60 (1st Cir. 2000)).
In 2006, the Douglases received a home loan from Mortgage
Lenders Network USA, Inc. (“MLN”).

They gave a mortgage to

secure their promise to repay the loan to Mortgage Electronic
Registration Systems, Inc. (“MERS”).

MERS assigned the mortgage

to U.S. Bank National Association (“U.S. Bank”).
Home Mortgage services the Douglases’ loan.

Wells Fargo

The parties appear

to agree that the Douglases fell behind on their payments.
At some point, the petition does not say when, U.S. Bank
scheduled a foreclosure sale of the property the Douglases
mortgaged.

In December of 2012, the Douglases applied for a

loan modification.

About a month later, one of the respondents

(the petition does not say which one), told the Douglases that
their application had been prequalified for review and asked
them to provide updated financial information.

On February 6,

2013, the Douglases provided respondent with the information it
requested.
The next day, upon learning that the foreclosure sale was
still scheduled to go on, the Douglases filed a petition in the
New Hampshire Superior Court seeking “a Preliminary, Temporary,
and Permanent Injunction preventing the sale on February 11,
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2013 to allow the Petitioner an opportunity to resolve this
issue with the Respondent in a timely manner.”
Removal, Attach. 1 (doc. no. 1-1), at 3.

Notice of

They base their

petition on the following legal theory:
Because Respondent represented that Petitioner
has been pre-qualified to be reviewed for a loan
modification application, and that Respondent would in
fact review Petitioner’s loan modification
application, and because Petitioner has submitted a
complete loan modification application, Respondent has
breached the covenant of good faith and fair dealing
by not postponing or cancelling the foreclosure sale
date scheduled for Monday, February 11, 2013 so that
Petitioner’s loan modification application may be
processed and Petitioner may be given either an
acceptance or denial of his application.
Id. at 2.

The same day the Douglases filed their petition, the

Superior Court granted them a temporary injunction, see Resp’t’s
Mot. to Dismiss, Ex. 4 (doc. no. 7-4), and issued an order of
notice indicating that a hearing on the petition would be held
on March 7, 2013, see State Ct. Rec. (doc. no. 6) 9.

On March

5, 2013, respondents removed the case to this court.

The record

here includes no further information on the current status of
either the foreclosure or the Douglases’ application for a loan
modification.
Discussion
Respondents move to dismiss.

They argue that the implied

covenant of good faith and fair dealing did not require them to:
(1) modify the terms of the Douglases’ loan; or (2) consider the

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Douglases’ application for a loan modification.

Petitioners

respond by: (1) disavowing any argument that the implied
covenant required respondents to modify their loan; and (2)
contending that the covenant did require respondents to consider
their application for a loan modification.

Respondents have the

better argument.
In New Hampshire, “every agreement [includes] an implied
covenant that the parties will act in good faith and fairly with
one another.”

Birch Broad., Inc. v. Capitol Broad. Corp., 161

N.H. 192, 198 (2010) (citing Livingston v. 18 Mile Point Drive,
Ltd., 158 N.H. 619, 624 (2009)).

As the New Hampshire Supreme

Court recently observed:
there is not merely one rule of implied good-faith
duty, but a series of doctrines, each of which serves
a different function. The various implied good-faith
obligations fall into three general categories: (1)
contract formation; (2) termination of at-will
employment agreements; and (3) limitation of
discretion in contractual performance.
Birch, 161 N.H. at 198 (citations omitted).

The court went on

to describe the third category this way: “While the third
category is comparatively narrow, its broader function is to
prohibit behavior inconsistent with the parties’ agreed-upon
common purpose and justified expectations as well as ‘with
common standards of decency, fairness and reasonableness.’”
(quoting Livingston, 158 N.H. at 624).

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Id.

In its seminal case on the implied covenant of good faith
and fair dealing, the New Hampshire Supreme Court explained that
within the narrower confines of the third category of
cases . . . the obligation of good faith performance
is better understood simply as excluding behavior
inconsistent with common standards of decency,
fairness, and reasonableness, and with the parties’
agreed-upon common purposes and justified
expectations.
Centronics Corp. v. Genicom Corp., 132 N.H. 133, 140 (1989)
(citing Robert S. Summers, The General Duty of Good Faith – Its
Recognition and Conceptualization, 67 Cornell L. Rev. 810, 820,
826 (1982); Restatement (Second) of Contracts § 205 cmt. a).
After surveying a number of its own cases, the court concluded:
Despite the variety of their fact patterns, these
cases illustrate a common rule: under 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, consistent with the
parties’ purpose or purposes in contracting.
Centronics, 132 N.H. at 143.
The court then set out four questions that are raised by a
claim that a contracting party has breached the covenant of good
faith in contract performance.

See Centronics, 132 N.H. at 144.

The first question is this: “Does the agreement ostensibly allow
to or confer upon the defendant a degree of discretion in
performance tantamount to a power to deprive the plaintiff of a

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substantial proportion of the agreement’s value?”

Id.

If the

agreement does not confer such discretion, then no claim for
breach of the covenant of good faith in contract performance can
lie.

See id. at 144-45.
Since the start of 2012, three different judges of this

court have been faced with claims similar to the one petitioners
make here, and all three have dismissed those claims.

In Moore

v. Mortgage Electronic Registration Systems, Inc., 848 F. Supp.
2d 107 (D.N.H. 2012), Judge Laplante dismissed a claim for
breach of the implied covenant of good fair dealing and
explained his decision in the following way:
The Moores also suggest that the defendants
breached the covenant of good faith and fair dealing
by refusing to modify the mortgage, or to engage in
good-faith negotiations regarding modification.
Courts have generally concluded, however, that the
covenant of good faith and fair dealing in a loan
agreement cannot be used to require the lender to
modify or restructure the loan. See, e.g., FAMM
Steel, Inc. v. Sovereign Bank, 571 F.3d 93, 100–01
(1st Cir. 2009) (applying Massachusetts law); Rosemont
Gardens Funeral Chapel–Cemetary, Inc. v. Trustmark
Nat’l Bank, 330 F. Supp. 2d 801, 810–11 (S.D. Miss.
2004) (collecting cases). These decisions are
consistent with New Hampshire law that the [implied]
covenant cannot be used to rewrite a contract to avoid
harsh results. See Olbres [v. Hampton Co-op. Bank],
142 N.H. [227,] 233 [(1997)]. The court sees no
reason to believe that the New Hampshire Supreme Court
would nevertheless allow the implied covenant to be
used to require the parties here to rewrite their
contract.
Moore, 848 F. Supp. 2d at 129-30 (parallel citations omitted,
emphasis added).
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In Schaefer v. IndyMac Mortgage Services, the plaintiff
“concede[d] that the covenant of good faith and fair dealing
cannot be used to require a lender to modify or restructure a
loan,” No. 12-cv-159-JD, 2012 WL 4929094, at *6 (D.N.H. Oct. 16,
2012), but argued “that he was entitled to a full and fair
consideration of his application for a modification, and that
the defendants[’] failure to consider his application breached
the implied covenant of good faith and fair dealing,” id.

After

explaining that Moore “addressed allegations that a lender
refused to . . . engage in good-faith negotiations regarding
modification,” Schaefer, 2012 WL 4929094, at *6 (internal
quotation marks omitted), Judge DiClerico rejected the
plaintiff’s argument that he was entitled by the covenant of
good faith and fair dealing to a full pre-foreclosure
consideration of his application for a modification, see id.
Judge Barbadoro’s decision in Ruivo v. Wells Fargo Bank,
N.A., No. 11-cv-466-PB, 2012 WL 5845452 (D.N.H. Nov. 19, 2012),
is to similar effect.

Judge Barbadoro first explained that

“[t]he duty of good faith and fair dealing applies . . . only
when the agreement grants a contracting party discretion in
performing his duties under the agreement and an unreasonable
exercise of that party’s discretion causes harm to the other
contracting party.”

Id. at *3 (citing Scott v. First Am. Title

Ins. Co., No. 06-cv-286-JD, 2007 WL 135909, at *5 (D.N.H. Jan.
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17, 2007); Ahrendt v. Granite Bank, 144 N.H. 308, 312-313
(1999)).

He then noted that the plaintiff in the case before

him “appear[ed] to argue that Wells Fargo [was] liable because
it abused the discretion that a party to a contract always has
to agree to another party’s request to modify the contract.”
Ruivo, 2012 WL 5845452, at *3.

In reliance upon Moore, Judge

Barbadoro rejected that argument and dismissed the plaintiff’s
claim.

See Ruivo, 2012 WL 5845452, at *3-4.

Moore, Schaefer, and Ruivo are all on point and persuasive.
Those decisions strongly counsel in favor of dismissing the
Douglases’ petition.

Petitioners attempt to avoid Moore and its

progeny by arguing that their petition
alleges facts sufficient to state the claim that
[respondents] have breached the covenant because
[they] did not consider the [petitioners’] loan
modification application after [they] exercised their
discretion within the terms of the mortgage contract
to hold off on foreclosure for the common purpose of
deciding whether to continue the mortgage contract by
considering whether or not the [petitioner] qualified
for a loan modification.
Pet’r’s Mem. (doc. no. 9-1) 2 (emphasis in the original).
petitioners’ view,
because [respondents] exercised their discretion
within the mortgage contract to hold off on
foreclosure for the common purpose of continuing the
mortgage contract by determining whether the
[petitioners] qualified for modification, but then
proceeded to foreclose before considering said
application, [respondents’] behavior breached the
covenant because it was “inconsistent with the

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In

parties’ agreed-upon common purpose and justified
expectations.”
Id. (quoting Galvin v. EMC Mortg. Corp., No. 12-cv-320-JL, 2013
WL 1386614, at *11 (D.N.H. Apr. 4, 2013)).

Petitioners conclude

by arguing:
[T]he [petitioners’] ex parte injunction does
articulate how the [respondents’] discretion was
unreasonably exercised. The ex parte in[j]unction
implies that [respondents] unjustly exercised the
discretion conferred by the mortgage when [respondent]
offered [petitioners] the option to pursue a loan
modification, and then neglected to follow through
with the offer. . . . The [petition] references the
loan modification, the common purpose of which is to
allow the borrowers to continue to pay the bank money
owed, potentially at a lower interest rate and over a
longer period of time than the original terms of the
agreement, so that the bank can get its return on its
investment and so that the borrowers can stay in their
home. Because the lender offered a loan modification
to the [petitioners], [petitioners] had a justified
expectation, not to necessarily be granted a loan
modification, but to be reviewed for one based on
whether it made financial sense for the bank and for
the borrower. If the [petitioners] had been reviewed
and accepted for a loan modification, the foreclosure
would not have proceeded.
Pet’r’s Mem. (doc. no. 9-1) 5 (citation to the record omitted,
emphasis in the original).
Petitioners appear to be arguing that once a respondent
broached the possibility of a loan modification with them, and
they applied for a modification, the respondent was precluded by
the covenant of good-faith contract performance from foreclosing
until after it fully considered the application.

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But, Judge

DiClerico has rejected a substantially similar argument in
Schaefer.

As he explained,

because the defendants were not required to consider
Schaefer’s loan modification application, they
similarly cannot be held liable for preparing to
foreclose on Schaefer’s home while simultaneously
considering his loan modification application.
2012 WL 4929094, at *6.

Judge DiClerico’s reasoning applies

with equal force to the argument petitioners appear to be making
in this case.
In addition, petitioners’ argument focuses on the common
purpose of a loan modification and the expectations they
developed as a result of respondents’ alleged representations
concerning such relief, but there is no allegation that the
parties ever agreed to a loan modification.

Thus, the only

agreement in this case is the one under which MLN promised to
loan the Douglases $234,000 and the Douglases promised to repay
that loan and to secure that promise by giving a mortgage on the
property they purchased with the money they were loaned.

The

common purposes of that agreement were to: (1) provide the
Douglases with the money they needed to buy a house; and (2)
provide for MLN’s repayment.

The Douglases’ justified

expectation was that MLN would loan them $234,000, which it did.
MLN’s justified expectations, and U.S. Bank’s, were that: (1)
the Douglases would repay their loan, which they have not; and
(2) if the Douglases defaulted, the mortgagee would be able to
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recover what it was owed by foreclosing on the mortgage securing
the Douglases’ promise to repay the loan.
Perhaps most importantly, this is not a case involving an
agreement that gave respondents discretion in performance such
that they could deprive the Douglases of a substantial
proportion of the agreement’s value.

Like the borrower in

Moore, petitioners “do not identify any particular grant of
discretion in the mortgage that they believe was exercised
unreasonably.”

848 F. Supp. 2d at 129; see also Ruivo, 2012 WL

5845452, at *3 (noting that borrower did “not point to any
specific provision in the agreement to support her claim”).
Rather, their reference to respondents’ “discretion within the
mortgage contract to hold off on foreclosure,” Pet’r’s Mem.
(doc. no. 9-1) 2, makes their claim identical to the one Judge
Barbadoro dismissed in Ruivo.

See 2012 WL 5845452, at *3

(describing borrower’s argument that lender was “liable because
it abused the discretion that a party to a contract always has
to agree to another party’s request to modify the contract”).
Beyond that, it is undisputed that the Douglases got their loan,
which means, necessarily, that they received the full value of
their agreement.

That the Douglases later found themselves

unable to repay their loan, and may have benefitted from a loan
modification, does nothing to undermine the fact that, in the

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first instance, they received the loan they bargained for, which
was the full value of their agreement.
In sum, the contract in this case did not confer upon
respondents a level of discretion that allowed them to deprive
the Douglases of a substantial portion of the agreement’s value.
Thus, petitioners have failed to state a claim for breach of the
implied covenant of good faith and fair dealing.
Centronics, 132 N.H. at 144-45.

See

Accordingly, respondents are

entitled to dismissal of the Douglases’ petition.
Conclusion
For the reasons detailed above, respondents’ motion to
dismiss, document no. 7, is granted.

The clerk of the court

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

__________________________
Landya McCafferty
United States Magistrate Judge

May 6, 2013
cc:

Samuel J. Donlon, Esq.
Jeremy A. Miller, Esq.
Michael R. Stanley, Esq.

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