HILLS et al v. BANK OF AMERICA
OPINION & ORDER granting in part and denying in part 16 Motion to Dismiss. Signed by Judge Esther Salas on 3/17/15. (sr, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
PRESTON AND PAMELA HILLS,
BANK OF AMERICA,
Civil Action No. 13-4960 (ES) (MAH)
OPINION AND ORDER
SALAS, DISTRICT JUDGE
Before the Court is Defendant Bank of America’s Motion to Dismiss the Amended
Complaint. (D.E. No. 16). The Court has considered the relevant submissions accompanying
the instant motion and decides the motion without oral argument pursuant to Federal Rule of
Civil Procedure 78. For the reasons below, Defendant’s motion is GRANTED in part and
DENIED in part.
FACTUAL AND PROCEDURAL BACKGROUND
The Court reviewed the facts of this matter in its July 30, 2014 Opinion dismissing
Plaintiffs’ original Complaint, (D.E. No. 11 (“Op.”) at 1-3), but it briefly reviews them again
here for convenience.
On March 31, 2012, Plaintiffs Preston and Pamela Hills’ (Plaintiffs) house was destroyed
in a fire. (D.E. No. 13 (“Am. Compl.”) ¶ 5). Plaintiffs’ insurance company, Homesite Home
Insurance (“Homesite”), determined that the Replacement Cost Value of the house was
$490,282.48. (Id. ¶ 10). Accordingly, Homesite mailed a check for $367,211.86 to Plaintiffs
(Id. ¶ 11). 1 The check was made jointly payable to Plaintiffs and Defendant Bank of America, as
required by the insurance policy. (Id.). Plaintiffs’ attorney mailed a check for $367,211.86 to
Defendant and, on July 17, 2012, Defendant cashed the check. (Id. ¶¶ 13–14).
On July 25, 2012, Defendant sent Plaintiffs a letter setting forth obligations for the
disbursement of insurance funds. (Id. ¶ 29). That same day, Defendant sent Plaintiffs another
letter requesting (1) a valid W-9 signed by the contractor and (2) a copy of the contractor’s
estimate. (Id.). Plaintiffs asked their attorney to contact Defendant and inquire about the
requirements needed for disbursement of insurance funds. (Id. ¶ 38). Defendant did not respond
to communications from Plaintiffs’ attorney. (Id. ¶ 44). Ms. Hills began calling Defendant and,
between October 2012 and February 2013, she spoke with seventeen different representatives for
Defendant and faxed documents multiple times to complete their request for disbursement of
insurance funds. (Id. ¶¶ 48–88).
As of July 29, 2014, the date Plaintiffs filed their Amended Complaint, Plaintiffs had
received initial funds from Defendant to pay for the first phase of construction, design, and
foundation. (Id. ¶ ¶ 91–92). On April 17, 2013, Defendant’s inspector examined the house and
determined that twenty-five percent of the job had been completed. (Id. ¶ ¶ 94–95). Though
Plaintiff’s contractor has requested a second check for $123,401.00 to erect the framing and roof
of the house, (id. ¶ 93), Defendant has refused to release more funds because Plaintiffs have only
completed twenty-five percent of the project. (Id. ¶ 96). Plaintiffs do not contest that, in total,
Defendant and its successor loan service, Nationstar Mortgage, LLC, have disbursed a total of
$337,651.13 to Plaintiffs in insurance funds since April 2013. (See D.E. No. 16-1, Brief in
Support of Motion to Dismiss (“Def. Mov. Br.”) at 3 n.3).
Homesite withheld $122,570.62 as recoverable depreciation that could be disbursed at a later
date, provided that Plaintiffs’ home was fully rebuilt within 180 days. (Am. Compl. ¶ 12).
On May 16, 2013, Plaintiffs filed this action in the Superior Court of New Jersey, Law
Division, Sussex County. (D.E. No. 1, Notice of Removal at 2). On August 16, 2013, the case
was removed to this Court. (Id. at 1). On November 6, 2013, Defendant moved to dismiss all
six counts of Plaintiffs’ Complaint. (D.E. No. 7). The Court granted the motion in its Opinion
and Order dated July 30, 2014, and gave Plaintiffs 30 days to file an amended Complaint. (Op.
at 17; D.E. No. 12 (“Order”)). Plaintiffs filed their Amended Complaint on July 29, 2014,
alleging only two causes of action: (1) breach of contract, and (2) violation of the covenants of
good faith and fair dealing. (Am. Compl.). Defendant moved to dismiss the Amended
Complaint on August 26, 2014, (Def. Mov. Br.), and Plaintiff opposed on September 22, 2014
(“D.E. No. 21, Brief in Opposition to Motion to Dismiss (“Pl. Opp. Br.”)). Defendant did not
file a reply, and its motion is now ripe for resolution.
Federal Rule of Civil Procedure 8(a)(2) requires a complaint to set forth “a short and plain
statement of the claim showing that a pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The
pleading standard announced by Rule 8 does not require detailed factual allegations; however, it
does demand “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citations omitted). In addition, the plaintiff’s short
and plain statement of the claim must “give the defendants fair notice of what the . . . claim is and
the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal
For a complaint to survive dismissal, it “must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678 (citing Twombly,
550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id. (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a
‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted
In evaluating the sufficiency of a complaint, a court must accept all well-pleaded factual
allegations contained in the complaint as true and draw all reasonable inferences in favor of the
non-moving party. See Phillips v. Cnty. Of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008). But, “the
tenet that a court must accept as true all of the allegations contained in a complaint 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.’” Iqbal, 556 U.S. at 678 (quoting
Twombly, 550 U.S. at 555).
Furthermore, “if a complaint is subject to a Rule 12(b)(6) dismissal, a district court must
permit a curative amendment unless such an amendment would be inequitable or futile.”
Phillips, 515 F.3d at 245 (citation omitted).
a. Breach of Contract
Under New Jersey law, a plaintiff must allege four elements to state a cause of action for
breach of contract: (1) a valid contract; (2) breach of that contract; (3) damages resulting from
that breach, and (4) the party stating the claim performed its own contractual obligations. Tredo
v. Ocwen Loan Servicing, LLC, No. 14-3013, 2014 WL 5092741, at *6 (D.N.J. Oct. 10, 2014)
(citing Frederico v. Home Depot, 507 F.3d 188, 203 (3d Cir. 2007)). The parties do not dispute
that the mortgage agreement constitutes a valid contract between the parties. Rather, the dispute
centers on whether Bank of America breached that valid contract. Plaintiffs’ allege that
Defendant breached provisions of the Mortgage Agreement requiring Defendant’s “prompt
inspection” of the Hills’ property and “reasonable” disbursement of funds. (Am. Compl. ¶ 2225, 108-12; see also D.E. No. 16-4 (“Mortgage Agr.”) ¶¶ 3, 5, 6, 7).
Under the Mortgage Agreement, “[l]ender shall have the right to hold such insurance
proceeds until Lender has had an opportunity to inspect such Property to ensure the work has
been completed to Lender’s satisfaction, provided that such inspection shall be undertaken
promptly.” (Mortgage Agr. ¶ 5). Defendant argues that Plaintiffs have not pled facts supporting
any breach of the agreement, and, to the contrary, Plaintiffs’ allegations “show that BANA
complied with the terms of the Mortgage in disbursing the insurance funds.” (Def. Mov. Br. at
5) (emphasis in original).
The Court agrees with Defendant. Plaintiffs have not pled facts demonstrating breach of
contract due to Defendant’s failure to promptly inspect Plaintiffs’ property or disburse funds.
Plaintiffs provided Defendant with documentation required for disbursement (namely, the
complete and accurate W-9 form for Plaintiffs’ contractor) on December 24, 2012. (Def. Mov.
Br. at 3; Pl. Opp. Br. at 5; Am. Compl. ¶ 62). Defendant approved the first disbursement of
funds within weeks of receiving that documentation. (Def. Mov. Br. at 3; Am. Compl. ¶ 65).
Defendant inspected Plaintiff’s property on April 17, 2013. (Def. Mov. Br. at 3; Am. Compl. ¶
94). Thus, it appears that Defendant began to disburse funds even before it inspected the
property, even though the Mortgage Agreement permits Defendant to wait until after a prompt
inspection occurs. In addition, Plaintiffs have not established that a four-month lapse between
Plaintiffs’ submission of paperwork and Defendant’s property inspection constitutes a failure to
“promptly” inspect. Plaintiffs have therefore failed to allege facts demonstrating that Defendant
breached the Mortgage Agreement, and their breach of contract claim cannot survive.
b. Implied Covenant of Good Faith and Fair Dealing
Plaintiffs’ second cause of action is breach of the implied covenant of good faith and fair
dealing. “All contracts, under New Jersey law, include an implied covenant that the parties to
the contract will act in good faith.” Tredo, 2014 WL 5092741, at *6 (citing Sons of Thunder,
Inc. v. Borden, Inc., 148 N.J. 396, 420 (1997)). The implied covenant of good faith and fair
dealing “mandates that neither party shall do anything which will have the effect of destroying or
injuring the right of the other party to receive the fruits of the contract.” Id. (quoting Seidenberg
v. Summit Bank, 348 N.J. Super. 243, 254 (N.J. Super. Ct. App. Div. 2002)).
However, breach of the implied covenant of good faith and fair dealing does not create an
independent cause of action when it is based on the same underlying conduct as the breach of
contract claim. Id. (citing Wade v. Kessler Inst., 343 N.J. Super. 338 (N.J. Super. Ct. App. Div.
2001), aff’d as modified, 172 N.J. 327 (2002)). Rather, breach of the implied covenant of good
faith and fair dealing may be an independent cause of action only under three limited
“(1) to allow the inclusion of additional terms and conditions not expressly set forth in
the contract, but consistent with the parties’ contractual expectations; (2) to allow redress
for a contracting party’s bad-faith performance of an agreement, when it is a pretext for
the exercise of a contractual right to terminate, even where the defendant has not
breached any express term; and (3) to rectify a party’s unfair exercise of discretion
regarding its contract performance.”
Kumon N. Am., Inc. v. Timban, No. 13-4809, 2014 WL 2812122, at *7-8 (D.N.J. June 23, 2014)
(quoting Barrows v. Chase Manhattan Mortg. Corp., 456 F. Supp. 2d 347, 365 (D.N.J. 2006)).
“Under New Jersey law, a claim for breach of the duty of good faith and fair dealing requires a
showing of ‘bad motive or intention” . . . though at the pleading stage all that is required is an
allegation of bad faith.” Alin v. Am. Honda Motor Co., Inc., No. 08-4825, 2010 WL 1372308, at
*12 (D.N.J. Mar. 31, 2010) (citing Wilson v. Amerada Hess Corp., 168 N.J. at 236, 236 (2001);
Seidenberg v. Summit Bank, 348 N.J. Super. 243, 257 (App. Div. 2002)).
Here, Plaintiffs have not pled facts showing circumstances (1) or (2)—they have not
alleged that the parties had contractual expectations not explicitly included in the contract, nor
have they alleged that Defendant engaged in bad faith as a pretext to terminate. However,
Plaintiffs have pled facts giving rise to the possibility that—even if Defendant did not breach the
Mortgage Agreement—it exercised unfair discretion regarding its contract performance to the
“effect of destroying or injuring the right of the other party to receive the fruits of the contract.”
See Seidenberg, 348 N.J. Super. at 254. To start, Plaintiffs have specifically alleged that
Defendant’s actions constitute “failures to act in good faith and in the absence of fair dealing.”
(Am. Compl. ¶ 121). In addition, Plaintiffs include various allegations that Defendant unfairly
exercised its discretion with respect to disbursing funds to Plaintiff. For example, Plaintiff
alleges that Bank of America unfairly exercised its discretion regarding its contractual
obligations by: failing to provide Plaintiffs with information about their disbursement requests
and status, (Id. ¶¶ 48-89); “refus[ing] to release any more funds, citing the fact that the Hills have
completed 25% of the project,” (Id. ¶ 97); “routinely demand[ing] information already in its
files, thus delaying and thwarting the disbursement process,” (Id. ¶ 119); and “routinely and
intentionally [allowing information] to languish in its files without action so as to render such
information ‘stale’ and useless according to their own procedures . . . so as to justify continued
inaction on the insurance disbursement process,” (Id. ¶ 119). Plaintiffs further allege
Defendant’s action has resulted in harm to Plaintiffs and the deprivation of their right to receive
the fruits of the contract, i.e., disbursement funds. (Id. ¶¶ 119-121). The Court is guided by the
liberal pleading standards of Fed. R. Civ. P. 8, and therefore it is inclined to give Plaintiffs the
benefit of the doubt and allow this claim to proceed to discovery. See Alin, 2010 WL 1372308,
at *12 (finding Plaintiff stated claim for breach of good faith and fair dealing due to “unfair
exercise of discretion” where plaintiff alleged that defendant, inter alia, refused to cover certain
repairs under a warranty). At the same time, Plaintiff is on notice that the evidence must clearly
show actual bad faith on Defendant’s part. Otherwise, the Court invites Defendant to revisit this
motion at the close of discovery.
For the reasons above, the Court GRANTS Defendant’s motion to dismiss Count I of the
Second Amended Complaint and DENIES Defendant’s motion to dismiss Count II of the Second
Accordingly, it is on this 17th day of March 2015,
ORDERED that Defendant’s motion to dismiss the Second Amended Complaint, (D.E.
No. 16), is granted with prejudice as to Count I; and it is further
ORDERED that Defendant’s motion to dismiss the Second Amended Complaint is
denied in all other respects.
/s Esther Salas_______________
Esther Salas, U.S.D.J.
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