MEYER et al v. PHH MORTGAGE CORPORATION et al
Filing
19
OPINION FILED. Signed by Chief Judge Jerome B. Simandle on 10/11/16. (js)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
JENNIFER MEYER and JONATHAN
MEYER,
Plaintiffs,
HONORABLE JEROME B. SIMANDLE
Civil Action
No. 16-2255(JBS/JS)
v.
PHH MORTGAGE CORPORATION,
TITLE RESOURCES GROUP
SETTLEMENT SERVICES, LLC d/b/a
CONVENIENT CLOSING SERVICES,
and FEDERAL NATIONAL MORTGAGE
ASSOCIATION,
OPINION
Defendants.
APPEARANCES:
Mark Gregory Carusillo, Esq.
9 Cooper Avenue, First Floor
Marlton, NJ 08053
Attorney for Plaintiffs
Casey Gene Watkins, Esq.
Christopher Neal Tomlin, Esq.
Daniel J.T. McKenna, Esq.
Ballard Spahr, LLP
210 Lake East Drive, Suite 200
Cherry Hill, NJ 08002
Attorney for Defendants PHH Mortgage Corporation & Federal
National Mortgage Association
Elizabeth Callahan Flanagan, Esq.
Purcell, Mulcahy, O’Neill & Hawkins, LLC
One Pluckemin Way
P.O. Box 754
Bedminster, NJ 07921
Attorney for Defendant Title Resource Group Settlement
Services, LLC d/b/a Convenient Closing Services
SIMANDLE, Chief Judge:
INTRODUCTION
This action arises from a December 2007 refinancing of a
residential mortgage loan. Plaintiffs Jennifer and Jonathan
Meyer allege that they have been unable to refinance their
mortgage because Defendants PHH Mortgage Corporation and Title
Resource Group Settlement Services failed to properly
subordinate an existing mortgage with a third party before
executing their 2007 loan, and failed to disclose this fact for
nearly six years. Presently before the Court are two motions to
dismiss by Defendants PHH Mortgage Corporation, the Federal
National Mortgage Association, and Title Resource Group
Settlement Services. For the reasons set forth below, the Court
will grant Defendants’ motions.
BACKGROUND1
Plaintiffs Jennifer and Jonathan Meyer allege that they
obtained a refinance mortgage (“the Mortgage” or “the PHH
Mortgage”) from Defendant PHH Mortgage Corporation (“PHH”) on
1
The facts alleged are drawn from Plaintiffs’ Complaint [Docket
Item 1-1], exhibits attached to the Complaint, or undisputedly
authentic documents upon which Plaintiffs explicitly rely in
their Complaint. See City of Pittsburgh v. West Penn Power Co.,
147 F.3d 256, 259 (3d Cir. 1998) (“When deciding a motion to
dismiss, it is the usual practice for a court to consider only
the allegations contained in the complaint, exhibits attached to
the complaint and matters of public record.”). For purposes of
this motion, the Court must accept Plaintiffs’ factual
allegations as true.
2
their Mt. Laurel, New Jersey, home on or about December 26,
2007. (Compl. ¶ 5.) Title Resource Group Settlement Services,
LLC (“TRG”) was the closing agent for the PHH Mortgage. (Id. ¶
6.) According to Plaintiffs, a condition precedent to the
mortgage agreement was that TRG “would cause a superior Mortgage
recorded in the Public Records against the Plaintiffs’
residence, held by E*TRADE [“the E*TRADE Mortgage”] to be
subordinated of record and thereby inferior and subordinate to
the lien of the PHH Mortgage.” (Id. ¶ 7.) Both PHH and TRG
confirmed to Plaintiffs that all conditions precedent had been
met before the Mortgage was executed; PHH then funded the
Mortgage and TRG closed the mortgage transaction and disbursed
the loan funds. (Id. ¶ 8.) The PHH Mortgage was duly recorded on
January 25, 2008 “in ER Book 29, Page 97.” (Id. ¶ 5.)2 However,
it appears that the E*TRADE Mortgage was never subordinated, as
Plaintiffs contend the terms of their mortgage agreement
required. (Id. ¶ 9.)
In 2010, Plaintiffs attempted to refinance the PHH
Mortgage. (Id. ¶ 10.) Despite an initial offer to refinance the
loan, PHH denied Plaintiffs’ application for a new mortgage and
informed Plaintiffs that they should re-apply for another
refinance mortgage a few years later. (Id. ¶ 11.) Plaintiffs
2
The PHH Mortgage was assigned in December of 2015 to Fannie
Mae. (Id. ¶ 21.)
3
assumed they were denied because their “financial and/or credit
profiles had been insufficient.” (Id. ¶ 10.)
Plaintiffs attempted to refinance the PHH Mortgage in
January of 2013 for a second time. (Id. ¶ 12.) Again, PHH
allegedly agreed to refinance the Mortgage, but ultimately
failed to close the loan and for the first time advised
Plaintiffs “that the E*TRADE Mortgage had not been subordinated
in connection with the 2007 PHH Mortgage obtained by
Plaintiffs.” (Id. ¶ 13.) According to Plaintiffs, this was the
first they learned that the E*TRADE Mortgage was not
subordinated of record. (Id. ¶ 13.) Plaintiffs contend that they
have “acted diligently at all times in their business dealings
with Defendant PHH and E*Trade,” but E*TRADE has refused to
subordinate its mortgage to the 2007 PHH Mortgage and they have
been unable to refinance the PHH Mortgage at a lower interest
rate because of the existing encumbrance. (Id. ¶¶ 14-15.)
Plaintiffs filed the instant lawsuit on April 21, 2016 in
the Superior Court of New Jersey, Burlington County, which
Defendants PHH and the Federal National Mortgage Association
(“Fannie Mae”) timely removed the case to this Court. [Docket
Item 1.] Plaintiffs bring breach of contract, breach of contract
– third party beneficiary, New Jersey Consumer Fraud Act, and
4
negligence claims against PHH, Fannie Mae, and TRG.3 Defendants
PHH and Fannie Mae [Docket Item 11] and TRG [Docket Item 12] now
move to dismiss the Complaint for failure to state a claim upon
which relief may be granted. These motions are now fully briefed
and the Court will decide them without holding oral argument
pursuant to Fed. R. Civ. P. 78.
STANDARD OF REVIEW
Pursuant to Rule 8(a)(2), Fed. R. Civ. P., a complaint need
only contain “a short and plain statement of the claim showing
that the pleader is entitled to relief.” Specific facts are not
required, and “the statement need only ‘give the defendant fair
notice of what the . . . claim is and the grounds upon which it
rests.’” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citations
omitted). While a complaint is not required to contain detailed
factual allegations, the plaintiff must provide the “grounds” of
his “entitle[ment] to relief”, which requires more than mere
labels and conclusions. Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 555 (2007).
A motion to dismiss under Rule 12(b)(6), Fed. R. Civ. P.,
may be granted only if, accepting all well-pleaded allegations
3
This Court has federal question jurisdiction over Plaintiffs’
claims against FNMA as a federal chartered corporation under 12
U.S.C. § 1717(a)(2)(B) and the National Housing Act, 12 U.S.C. §
1723a(a). This Court exercises supplemental jurisdiction over
Plaintiffs’ claims against PHH and TRG, 28 U.S.C. § 1367(a).
5
in the complaint as true and viewing them in the light most
favorable to the plaintiff, a court concludes that the plaintiff
failed to set forth fair notice of what the claim is and the
grounds upon which it rests. Id. A complaint will survive a
motion to dismiss if it contains sufficient factual matter to
“state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). Although a court
must accept as true all factual allegations in a complaint, that
tenet is “inapplicable to legal conclusions,” and “[a] pleading
that offers labels and conclusions or a formulaic recitation of
the elements of a cause of action will not do.” Id. at 678.
In addition, Rule 9(b), Fed. R. Civ. P., imposes a
heightened pleading standard on fraud-based claims, requiring a
party to “state the circumstances constituting fraud with
particularity.” Klein v. Gen. Nutrition Companies, Inc., 186
F.3d 338, 344 (3d Cir. 1999); see also Frederico v. Home Depot,
507 F.3d 188, 202-03 (3d Cir. 2007) (applying Fed. R. Civ. P.
9(b) to an NJCFA claim). To satisfy this standard, the plaintiff
must “plead the date, time, and place of the alleged fraud, or
otherwise inject precision into the allegations by some
alternative means.” In re Riddell Concussion Reduction Litig.,
77 F.Supp.3d 422, 433 (D.N.J. 2015). This requirement is
intended “to place the defendants on notice of the precise
misconduct with which they are charged.” Seville Indus. Mach.
6
Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir.
1984).
DISCUSSION
A. Statute of Limitations
First, Defendants seek to dismiss the Complaint because
Plaintiffs’ claims are time-barred by the applicable six-year
statute of limitations. Ordinarily, statutes of limitations
arguments are raised as affirmative defenses in the answer to a
complaint. See Fed. R. Civ. P. 8(c). However, if “the time
alleged in the statement of a claim shows that the cause of
action has not been brought within the statute of limitations,”
a statute of limitations defense may be made in the context of a
Rule 12(b)(6) motion. Schmidt v. Skolas, 770 F.3d 241, 249 (3d
Cir. 2014) (quoting Robinson v. Johnson, 313 F.3d 128, 135 (3d
Cir. 2012). A motion to dismiss under Rule 12(b)(6) on statute
of limitations grounds should be granted “where the complaint
facially shows noncompliance with the limitations period and the
affirmative defense clearly appears of the face of the
complaint.” Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d
1380, 1384 n. 1 (3d Cir. 1994). If the bar is not apparent on
the face of the complaint, then it may not afford the basis for
dismissal. Schmidt, 770 F.3d at 249.
Here, the parties agree that New Jersey’s six-year
limitations period for contract claims governs this action, see
7
N.J.S.A. 2A:14-1, but dispute when the limitations period began
to run on Plaintiffs’ claims. As a general rule, a cause of
action accrues, and the statute of limitations begins to run,
when the alleged injury occurred. The discovery rule, however,
functions to delay the beginning of the statutory limitations
period “until the plaintiff discovers or in the exercise of
reasonable diligence should have discovered the basis for her
claim against the defendant.” Cunningham v. M & T Bank Corp.,
814 F.3d 156, 162 (3d Cir. 2016). In other words, under the
discovery rule, a cause of action does not accrue so long as the
plaintiff is “reasonably unaware either that he has been
injured, or that the injury is due to the fault or neglect of an
identifiable individual or entity.” Mancuso v. Neckles, 747 A.2d
255, 256 (N.J. 2000). “The purpose of this rule is not to permit
every belated discovery to overcome the statute of limitations,
but to limit its application to parties who could not have
reasonably discovered they had a basis for an actionable claim.”
Lutzky v. Deutsche Bank Nat. Trust Co., Case No. 09-3886, 2009
WL 3584330, at *6 (D.N.J. Jan 27, 2009) (citing Burd v. New
Jersey Tl. Co., 386 A.2d 1310, 1314 (N.J. 1978).
Defendants take the position that Plaintiffs’ claims
accrued in 2007, when the PHH Mortgage was executed and the
E*TRADE Mortgage was not subordinated, and the discovery rule is
inapplicable because at that time, Plaintiffs either knew or
8
should have known that the E*TRADE Mortgage had not been
subordinated. According to Defendants, the statute of
limitations on claims arising from this incident expired in
2013. Plaintiffs, on the other hand, argue that their claims did
not accrue until 2013, when they first learned of PHH and TRG’s
alleged failure to subordinate the E*TRADE Mortgage. According
to Plaintiffs, their 2016 Complaint is timely because the
statute of limitations will continue to run on claims arising
from this incident until 2019.
The recording of a mortgage is a matter of public record.
N.J.S.A. 46:26A-2. Recording “a document affecting the title to
real property” has the effect of putting all those with an
interest in the property on notice “of the document recorded and
its contents.” N.J.S.A. 46:26A-12; see also Cox v. RKA Corp.,
753 A.2d 1112, 1117 (N.J. 2000) (holding that “parties are
generally charged with constructive notice of instruments that
are properly recorded.”). Like mortgage agreements,
subordination agreements must be recorded to have effect on
later creditors and are subject to the New Jersey statute of
frauds. See Metrobank For Sav., FSB v. National Community Bank
of New Jersey, 620 A.2d 433, 437 (N.J. App. Div. 1993).
Courts in this District have routinely found that the
discovery rule does not apply to claims arising from the terms
and execution of a mortgage, because plaintiffs could easily
9
have discovered their injury at the time the mortgage was
executed. See Lutzky v. Deutsche Bank Nat. Trust Co., Case No.
09-3886, 2009 WL 3584330, at *6-*7 (D.N.J. Jan. 27, 2009)
(finding the discovery rule inapplicable where “Plaintiffs could
have discovered there was an actual claim through reasonable
efforts during and around the time of the execution of the
mortgage”); see also Coleman v. Deutsche Bank Nat. Trust Co.,
Case No. 15-1080, 2015 WL 2226022, at *6 (D.N.J. May 12, 2015)
(same);
Patetta v. Wells Fargo Bank, NA, Case No., 2009 WL
2905450, at 6 (D.N.J. Sept. 10, 2009) (“Plaintiffs’ allegations
concern the consummation of a refinance mortgage under false
pretenses. . . . That Plaintiffs, with ordinary diligence, could
have discovered they were the unfortunate victims of a nefarious
and illegal predatory lending scheme precludes tolling under the
discovery rule.”) Because Plaintiffs’ Complaint is based on
actions (or, more aptly, inactions) allegedly taken in
connection with the execution of a mortgage agreement, all of
which were matters of public record, the Court finds that under
New Jersey law the Plaintiffs are deemed to have had
constructive notice and the discovery rule is inapplicable to
these claims.
Plaintiffs allege in the Complaint that TRG was supposed to
obtain a subordination agreement with E*TRADE and “and to have
said subordination agreement recorded in the public records”
10
back in 2007. (Compl. ¶ 23.) Had the subordination agreement
actually been consummated, it would have become a matter of
public record and Plaintiffs would have been charged with notice
thereof. The logical corollary to this is that Plaintiffs should
have been aware, in 2007, that a subordination agreement with
E*TRADE had not been recorded when no such agreement appeared in
the public records. The discovery rule only delays accrual of a
cause of action so long as the plaintiff is “reasonably unaware”
of his injury. Mancuso, 747 A.2d at 256. Here, because
Plaintiffs’ claim arises from matters of public record, they
cannot show that they were “reasonably unaware” of the fact that
the E*TRADE Mortgage was not subordinated of record as of 2007
or 2008. Accordingly, because Plaintiffs could have discovered
their injury through reasonable efforts in 2007, the discovery
rule is unavailable to them. Plaintiffs’ claims are barred by
the statute of limitations, which expired in 2013.
B. Breach of Contract
In the alternative, even if Plaintiffs claims are timely,
Defendants contend that the four counts of the Complaint must
all be dismissed for failure to state a claim.4
4
Defendants additionally argue that Fannie Mae should be
dismissed as a party to this case because the Complaint contains
no substantive allegations of wrongdoing by it. The Court
agrees. Rule 8 requires that a complaint contain “a short and
plain statement of the claim showing that the pleader is
entitled to relief” and “a demand for the relief sought.” Fed.
11
Count One alleges that PHH breached its mortgage agreement
with Plaintiffs “by failing to ensure that its Mortgage was
recorded in first lien position against Plaintiffs’ residence.”
(Compl. ¶ 18.) To state a claim for breach of contract under New
Jersey law, “a plaintiff must show that (1) a valid contract
existed, (2) that the defendant failed to perform under the
contract, and (3) that failure to perform caused injury to the
plaintiff.” Webster v. Dollar General, Inc., -- F. Supp. 3d --,
2016 WL 3769748, at *9 (D.N.J. 2016). Defendants argue that
Plaintiffs’ breach of contract claim must fail because there is
no contract between Plaintiffs and PHH that obligates PHH to
subordinate the E*TRADE Mortgage. The Court agrees: despite
Plaintiffs’ allegations to the contrary, it is clear that there
is no “express condition precedent to the granting of the
Mortgage” (Compl. ¶ 7) that appears in either the Mortgage
(Watkins Cert. Ex. A [Docket Item 11-3]) or the Note (Watkins
Cert. Ex. B [Docket Item 11-4]),5 the two written agreements at
issue in this case, imposing on PHH the duty to subordinate any
R. Civ. P. 8(a)(2)-(3). Because Plaintiffs have not made any
factual allegations against Fannie Mae from which the Court
could find that it plausibly is liable for any of the four
counts in the Complaint, all claims against Fannie Mae are
dismissed.
5 Because the PHH Mortgage is a document integral to the
Complaint, and a recorded matter of public record, the Court may
consider the authentic copy appended the Watkins Certification
to PHH and Fannie Mae’s motion to dismiss.
12
existing mortgage or lien on the property. Rather, the terms of
the Mortgage require the Borrower to “promptly discharge any
lien which has priority over this Security Instrument.”
(Mortgage at 7-8.) PHH cannot have failed to perform an
obligation, or breached an agreement, that does not exist.
If any such agreement did exist between Plaintiffs and PHH,
outside the terms of the Mortgage and Note, Plaintiffs have not
adequately alleged its existence in this Complaint. Under New
Jersey’s Statute of Frauds, any agreement “to transfer an
interest in real estate” –- which includes mortgages -- is
enforceable only if the agreement appears, with sufficient
detail, in writing, or if the existence and terms of the
agreement can be proved “by clear and convincing evidence.”
N.J.S.A. 25:1-13. The allegations in the Complaint regarding the
existence of any agreement regarding subordination fall
significantly short of this requirement. Accordingly,
Plaintiff’s claim for breach of contract will be dismissed.
C. Third Party Beneficiary
Count Two alleges that TRG breached an agreement between
TRG and PHH “wherein Defendant TRG had agreed and obligated
itself to obtain a written subordination of the E*TRADE Mortgage
and to have said subordination agreement recorded in the public
records.” (Compl. ¶¶ 23-24.) Plaintiffs assert a third party
beneficiary breach of contract claim on the basis of TRG’s
13
alleged failure to secure subordination of the E*TRADE Mortgage.
Defendants argue that this claim should be dismissed because
Plaintiffs have not adequately alleged either the existence of
an agreement between TRG and PHH obligating one party to
subordinate the E*TRADE Mortgage, or Plaintiffs’ third party
beneficiary status to any such agreement.
To substantiate a claim as a third party beneficiary, a
plaintiff must “show that the contract was made for the benefit
of that third party within the intent and contemplation of the
contracting parties.” Grant v. Coca-Cola Bottling Co. of New
York, Inc., 780 F. Supp. 246, 248-49 (D.N.J. 1991) (citing First
National State Bank of New Jersey v. Commonwealth Federal
Savings and Loan Assoc., 610 F.2d 164, 170 (3d Cir. 1980)). “A
third-party who merely stands to benefit from a contract is no
more than an incidental beneficiary who incurs no contractual
right to enforce the contract.” Id. (citing Restatement (Second)
of Contracts § 315 at 477 (1979)). “[T]he intention of the
parties to recognize a right of performance in the third party
is the critical factor that governs the characterization of the
beneficiary.” Berel Co. v. Sencit F/G McKinley Assoc., 710 F.
Supp. 530, 537 (D.N.J. 1989).
Even assuming for the sake of argument that the Complaint
adequately alleged the existence of an agreement between TRG and
PHH requiring the subordination of the E*TRADE Mortgage,
14
Plaintiffs have not shown that any such agreement was made
explicitly for their benefit such that they have standing to
enforce it. Subordination agreements are agreements between
creditors adjusting the priority order of liens on real
property, and permitting a later lien to hold a position of
priority over an earlier one. See Metrobank, 620 A.2d at 437;
N.J.S.A. 12A:9-339. A subordination agreement has the effect of
allowing a later creditor to be paid before an earlier one, in
contrast to the ordinary priority rules established at N.J.S.A.
12A:9-322. As Defendants persuasively point out, it would
plainly be in PHH’s interest to have its security interest in
Plaintiffs’ home ranked above an existing mortgage lien, should
Plaintiffs default on any obligations under the Note and
Mortgage. While Plaintiffs have alleged an incidental benefit
that might have accrued to them had the E*TRADE Mortgage been
subordinated – they allege that they otherwise would have been
eligible to refinance the PHH Mortgage at a lower interest rate
– they have set forth no circumstances suggesting that PHH and
TRG intended to subordinate the E*TRADE Mortgage primarily for
Plaintiffs’ benefit, rather than PHH’s. Absent any allegations
regarding PHH and TRG’s intent to benefit Plaintiffs in agreeing
to seek subordination of the E*TRADE Mortgage, the Court will
not set aside the ordinary rules of contract law and presume
that Plaintiffs, a non-party to any agreement between PHH and
15
TRG, have a right to seek damages under the contract.
Accordingly, Plaintiffs’ third party beneficiary claim will be
dismissed.
D. Consumer Fraud Act
Count Three asserts that PHH and TRG’s failure to disclose
to Plaintiffs that the E*TRADE Mortgage was not subordinated in
December 2007 and PHH’s assignment of the mortgage to Fannie Mae
constitute unconscionable commercial practices under the New
Jersey Consumer Fraud Act (“NJCFA”), N.J.S.A. 56:8-1 et seq.
The NJCFA makes unlawful “any unconscionable commercial
practice, deception, fraud, false promise, misrepresentation, or
the knowing concealment, suppression, or omission of any
material fact with intent that others rely upon such
concealment, suppression or omission” in connection with the
sale of “any objects, wares, goods, commodities, services, or
anything offered, directly or indirectly to the public for
sale.” N.J.S.A. §§ 56:8-1 & 2. To state a claim under the NJCFA,
“a plaintiff must allege three elements: (1) unlawful conduct;
(2) an ascertainable loss; and (3) a causal connection between
the defendants’ unlawful conduct and the plaintiffs’
ascertainable loss.” Int’l Union of Operating Eng’rs Local No.
68 Welfare Fund v. Merck & Co., 929 A.2d 1076, 1086 (N.J. 2007).
Actionable unlawful conduct includes employing a
misrepresentation, intentionally omitting a material fact, or
16
committing a regulatory violation. Menkes v. Prudential Ins. Co.
of America, 762 F.3d 285 (3d Cir. 2014). The NJCFA is to be
liberally construed in favor of consumers. Gennari v. Weichert
Co. Realtors, 672 A.2d 1190, 1205 (N.J. 1996). Nonetheless, the
NJCFA “is not intended to cover every transaction that occurs in
the marketplace, but, rather, its applicability is limited to
consumer transactions which are defined both by the status of
the parties and the nature of the transaction itself.” Cetel v.
Kirwan Fin. Group, Inc., 460 F.3d 494, 514 (3d Cir. 2006)
(citing Arc Networks, Inc. v. Gold Phone Card Co., Inc., 756
A.2d 636, 638 (N.J. Super. 2000)).
Plaintiffs have failed to adequately allege unlawful
conduct by PHH or TRG to sustain a claim under the NJCFA. Here,
Plaintiffs’ NJCFA claim hinges on allegations that PHH and TRG
knowingly omitted a material fact in the course of the PHH
Mortgage transaction by failing to disclose that the E*TRADE
Mortgage had not been subordinated.6 This claim fails as a matter
6
Plaintiffs additionally allege that PHH violated the NJCFA by
assigning their mortgage to Fannie Mae, but this claim fails as
a matter of law. New Jersey law permits PHH to make such an
assignment; N.J.S.A. 46:9-9 provides that “All mortgages on real
estate in this State, and all covenants and stipulations therein
contained, shall be assignable at law by writing.” Plaintiffs do
not allege that this assignment violated their own rights in any
way, and without any allegations concerning how they were harmed
by PHH’s assignment to Fannie Mae, the Court will not presume
that such a lawful assignment constitutes an unconscionable
trade practice. To the extent that Plaintiffs attempt to claim
17
of law because PHH and TRG had no duty to disclose this fact to
Plaintiffs. “Implicit in the showing of an omission is the
underlying duty on the part of the defendant to disclose what he
concealed to induce the purchase.” Arcand v. Brother Intern.
Corp., 673 F. Supp. 2d 282, 298 (D.N.J. 2009). In New Jersey, a
duty to disclose arises only: “(1) when there is a fiduciary
relationship between the parties; (2) when one party expressly
reposes trust in another party, or else from the circumstances,
such trust is necessarily implied; and (3) when the relationship
involving the transaction is so intrinsically fiduciary that a
degree of trust and confidence is required to protect the
parties.” Argabright v. Rheem Mfg. Co., -- F. Supp. 3d --, 2016
WL 4402819, at *15 (D.N.J. Aug. 16, 2016) (citing Lightning
Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1185 (3d Cir. 1993)).
Plaintiffs’ relationship with PHH and TRG fails to satisfy any
of those circumstances. “The virtually unanimous rule is that
creditor-debtor relationship rarely give rise to a fiduciary
duty” requiring disclosure, United Jersey Bank v. Kensey, 704
A.2d 38, 44 (N.J. App. Div. 1997) (collecting cases), and
Plaintiffs have not described circumstances from which this
Court could infer a special level of trust between the parties.
that this assignment was unconscionable as to Fannie Mae,
Plaintiffs do not have standing to do so.
18
Accordingly, Plaintiffs’ consumer fraud claim fails as a matter
of law.
Moreover, even if PHH and TRG had a duty to disclose this
information to Plaintiffs and failed to do so, Plaintiffs have
insufficiently alleged that this conduct constitutes a violation
of the NJCFA.
Like all fraud-based claims, claims under the
NJCFA must satisfy Rule 9(b)’s heightened pleading standard. To
satisfy this, the plaintiff must “plead the date, time, and
place of the alleged fraud, or otherwise inject precision into
the allegations by some alternative means.” In re Riddell
Concussion Reduction Litig., 77 F.Supp.3d at 433. There is
nothing “precise” about Plaintiffs’ allegations here: Plaintiffs
aver only that “it was an express condition precedent” to the
PHH Mortgage deal that TRG would cause the E*TRADE Mortgage to
be subordinated of record, that both PHH and TRG represented to
Plaintiffs “that all conditions precedent to the granting of the
Mortgage had been met,” and that the E*TRADE Mortgage was
ultimately not subordinated. (Compl. ¶¶ 7-9.) The Complaint
deprives the Defendants of notice as to who at their respective
companies allegedly knew of the promise to subordinate the
E*TRADE Mortgage; who knew, and when, that the E*TRADE Mortgage
was not subordinated; what, and when, Plaintiffs were told about
the subordination agreement and any other alleged conditions
precedent to the granting of the PHH Mortgage; and when
19
Plaintiffs attempted to refinance their loan, with whom at PHH
they dealt, and what they were told when their two attempts were
denied. For these reasons, Plaintiffs’ NJCFA claim will be
dismissed.
E. Negligence
Finally, Count Four of the Complaint alleges that TRG owed,
and breached, a duty to Plaintiffs “to act with reasonable care
in securing the subordination of the E*TRADE loan.” (Compl. ¶¶
42-43.) Plaintiffs’ negligence claim is barred by New Jersey’s
economic loss doctrine. This rule “bars a plaintiff from
recovering purely economic losses suffered as a result of a
defendant’s negligent or otherwise tortious behavior, absent
proof that the defendant’s conduct caused actual physical harm
to a plaintiff or his property.” Ayala v. Assured Lending Corp.,
804 F. Supp. 2d 273, 284 (D.N.J. 2011) (quoting Public Service
Enter. Group, Inc. v. Philadelphia Electric Co., 722 F. Supp.
184, 193 (D.N.J. 1989)). Moreover, the doctrine “prohibits
plaintiffs from recovering in tort economic losses to which
their entitlement only flows from contract.” RNC Systems, Inc.
v. Modern Technology Group, Inc., 861 F. Supp. 2d 436, 451
(D.N.J. 2012).
Here, Plaintiffs’ losses are plainly only economic damages:
the only allegations of harm in the Complaint pertain to
Plaintiffs’ inability to refinance the PHH Mortgage at a lower
20
interest rate. Additionally, TRG owed Plaintiffs no legal duty,
outside of any alleged contract between PHH and TRG, to ensure
that the E*TRADE Mortgage was subordinated to the PHH Mortgage.
“Under New Jersey law, a tort remedy does not arise from a
contractual relationship unless the breaching party owes an
independent duty imposed by law” and “generally speaking, there
is no general duty to exercise reasonable care to avoid
intangible economic loss or losses to others that do not arise
from tangible harm to persons and tangible things.” Saltiel v.
GSI Consultants, Inc., 788 A.2d 268, 278 (N.J. 2002); see also
Rivera v. Washington Mut. Bank, 637 F. Supp. 2d 256, 269 (D.N.J.
2009) (“Mere failure to fulfill obligations encompassed by the
parties’ contract . . . is not actionable in tort.”). Plaintiffs
have not pointed to any cases imposing on a financial services
company an independent legal duty to subordinate an existing
lien held by a third-party as part of a mortgage deal, and the
Court has found none. After all, a borrower has no right to a
subordination agreement among its creditors, and the New Jersey
Legislature has made clear that subordination agreements may
only be made “by a person entitled to priority.” N.J.S.A. 12A:9339. Because Plaintiffs’ negligence claim is duplicative of its
breach of contract claims, and because they claim to have
suffered only economic losses, New Jersey law does not recognize
their cause of action, and the Court will dismiss this claim.
21
F. Leave to Amend
The dismissal of the Complaint in its entirety will operate
with prejudice. A court may deny leave to amend a complaint
where it is apparent that “(1) the moving party has demonstrated
undue delay, bad faith or dilatory motives, (2) the amendment
would be futile, or (3) the amendment would prejudice the other
party.” U.S. ex rel. Schumann v. Astrazeneca Pharma. L.P., 769
F.3d 837, 849 (3d Cir. 2014). In this case, because Plaintiffs’
claims are legally insufficient, and not merely factually
insufficient, any amendment would be futile. Accordingly,
dismissal will be with prejudice.
CONCLUSION
An accompanying Order will be entered.
October 11, 2016
Date
s/ Jerome B. Simandle
JEROME B. SIMANDLE
Chief U.S. District Judge
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