Hetzel v. JPMorgan Chase Bank, NA, et al

Filing 81

ORDER GRANTING 64 TRG Settlement Services' Motion to Dismiss, and GRANTING IN PART AND DENYING IN PART 66 Chase Bank's Motino to Dismiss. TRG is now dismissed from this action. The plaintiff's negligence per se claim is dismissed against Chase. The remaining claims may proceed in their entirety. Signed by US District Judge Terrence W. Boyle on 12/17/2014. (Fisher, M.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
EASTERN DIVISION
NO. 4:13-CV-236-BO

PAUL B. HETZEL,
Plaintiff,

v.
JPMORGAN CHASE BANK, N.A., and TRG
SETTLEMENT SERVICES, LLP d/b/a CCS
CONVENIENT CLOSING SERVICES,
Defendants.

)
)
)
)
)
)
)
)
)
)
)

ORDER

This matter is before the Court on defendant TRG Settlement Services's ("TRG") motion
to dismiss [DE 64], and defendant JPMorgan Chase Bank, N.A.'s ("Chase") motion to dismiss
[DE 66]. The motions are ripe for adjudication. For the reasons stated herein, TRG's motion is
GRANTED and Chase's motion is GRANTED IN PART and DENIED IN PART.

BACKGROUND
This case arises out of what plaintiff alleges is a botched real estate transaction. 1 In 2009,
Mr. Hetzel owned three properties located at 201 Salter Path Road in Pine Knoll Shores, North
Carolina ("Salter Path Road Property"), 160 Acton Road ("Acton Road Property") in Annapolis,
Maryland, and 140 Spa Drive ("Spa Drive Property") also in Annapolis Maryland. In May 2009,
all three properties were subject to loans with Chase, with outstanding principal balances totaling
over $3 million. At that time, Mr. Hetzel had a good credit score and was current on all three
loans with Chase. He. then developed a plan to refinance all three properties with Merrill Lynch

1

For purposes of ruling on the instant motions to dismiss, the Court accepts as true all of the allegations in the
complaint. The Court notes that this background section is based on the allegations.

in order to save over $130,000 per year in interest payments? Mr. Hetzel initiated his plan to
refinance all three properties starting with the Spa Drive Property in May 2009.
Merrill Lynch enlisted the services of defendant TRG to handle the settlement and
closing of its loan. TRG communicated with Chase to get the pay-off amount for the existing Spa
Drive Property loan. TRG then instructed Mr. Hetzel to wire personal funds to its escrow
account for the purposes of the closing and instructed him to refer to the Merrill Lynch loan
number when initiating the wire. TRG then closed the transaction on or about May 5, 2009 and
disbursed the funds to Chase. During this process, Mr. Hetzel relied on TRG and Chase to
properly arrange the closing of the loans and disbursement of funds to pay Chase for the Spa
Drive Property and to initiate the Merrill Lynch loan. He followed the instructions provided by
TRG. However, the funds were misapplied and the Salter Path Road Property was paid off
instead of the Spa Drive Property.
When Mr. Hetzel learned of the misapplication of funds to the Salter Path Road Property,
he contacted Chase and TRG numerous times and attempted to reverse the process, however, no
corrective action was taken at that time by Chase. As a result of the mistake, the Deed of Trust
on the Salter Path Road Property was cancelled and the mortgage on the Spa Drive Property
continued to be in effect. As a result Mr. Hetzel found himself in a position where he was
expected to make payments towards three different loans 3 on the two properties. 4 However,
because he was under the impression it had been satisfied, Mr. Hetzel stopped paying Chase's
Spa Drive Property mortgage in May 2009. Subsequently, that loan fell into arrears and
foreclosure was set to commence as of August 2009. This happened despite Mr. Hetzel and
2

Mr. Hetzel alleges that his Chase loans were subject to over 6% interest whereas Merrill Lynch offered a very low
interest rate of about 2.125%.
3
One Chase loan on each property and the Merrill Lynch loan on the Spa Drive Property.
4
Mr. Hetzel continued to pay on the improperly satisfied Salter Path Road loan via an auto-pay feature of his bank
account which Chase advised him not to disable.

2

Chase being in constant communication and Chase's knowledge of the mistake that had
occurred. As a result of the mishandling of the pay-off funds and the subsequent default on the
Spa Drive mortgage, which was supposed to have been satisfied, Mr. Hetzel's strong credit score
was severely impacted, thus delaying and eventually destroying his plan to refinance all three
properties at lower interest rates which then would have allowed Mr. Hetzel to keep the
properties. Mr. Hetzel's credit score was so severely impacted that he was no longer under
consideration for any sort of refinance from any company.
On May 22, 2009, a certificate of satisfaction for the Deed of Trust of the Salter Path
Road property was recorded in the Carteret County Registry. After learning of the closing
mistake, Chase unilaterally re-recorded the Deed of Trust for the Salter Path Road Property on
June 24, 2009. Chase informed Mr. Hetzel that the Salter Path Road loan was reinstated as of
August 15, 2009, but did not record a rescission of certificate of satisfaction until March 4, 2013.
Chase indicated to Mr. Hetzel that the Spa Drive Property was paid off as of September 24,
2009. Chase attempted to have Mr. Hetzel execute documents indicating that he had initially
requested the Salter Path Road Property be paid off, but then requested that it be reinstated. Mr.
Hetzel did not sign the documents because it was not an accurate portrayal of events, because
Chase would not agree in writing to remedy the damage to Mr. Hetzel's credit, and because
Chase continued to seek foreclosure of the Spa Drive Property even though the loan was to have
been satisfied and Chase demanded that Mr. Hetzel sign the documents to stop the foreclosure.
The improper satisfaction of the Salter Path Road Property led to the nonpayment of
insurance premiums by Chase, thus causing Mr. Hetzel's preferred grandfather policy for flood
insurance to be terminated. The new policy Mr. Hetzel obtained was significantly more
expensive.

3

Mr. Hetzel asked Chase to restore his credit and to place him in the position he would
have been in but for the error in applying the loan proceeds, by modifying the two mortgages
remaining with Chase on favorable terms. The attempts to modify those loans failed and in 2012,
the Acton Road loan went into default. At that point, Mr. Hetzel requested authority to sell
individual lots at a reasonable price to reduce the indebtedness owed and to mitigate losses, but
Chase refused to allow a partial release to sell lots. As a result, Mr. Hetzel lost the property and
the value of the capital improvements made to the property. Further, the status of the Salter Path
Road Property is now in question as Mr. Hetzel has fallen behind on payments for that mortgage.
Foreclosure has been threatened, but has not yet been initiated. As a result Mr. Hetzel has not
been able to rent the property out in advance as was his practice and he has lost rental income.
On July 22, 2014, this Court entered an order allowing Mr. Hetzel to amend his
complaint and dismissing several of the defendants in this action leaving only TRG and Chase.
[DE 58]. In the second amended complaint, Mr. Hetzel brings six claims for relief: (1)
Negligence against Chase and TRG; (2) Negligence Per Se against Chase; (3) Breach of
Fiduciary Duty against Chase and TRG in the alternative to negligence; (4) Unfair and Deceptive
Trade Practices in the alternative to negligence, negligence per se, and breach of fiduciary duty;
(5) Breach of Contract against Chase in the alternative to negligence; and (6) Breach of the
Implied Covenant of Good Faith against Chase in the alternative to negligence. [DE 59].
DISCUSSION

I.

STATUTE OF LIMITATIONS.

The applicable statute of limitations for negligence and breach of fiduciary duty is three
years. N.C. Gen. Stat. § 1-52; Harold v. Dowd, 561 S.E.2d 914, 917 (N.C. App. 2002); Toomer
v. Branch Banking & Trust Co., 614 S.E.2d 328, 335 (N.C. App. 2005). The limitations period

4

for a claim for unfair and deceptive trade practices under North Carolina law is four years. N.C.
Gen. Stat. § 75-16.2. The statute of limitations for plaintiffs breach of the implied covenant of
good faith is also three years. Mebane v. Phoenix Cos., 2003 U.S. Dist. LEXIS 16830 at *4
(M.D.N.C. Sept. 16, 2003); Rolfes v. Decision One Mortg. Co., 2011 U.S. Dist. LEXIS 57457 at
*3 (E.D.N.C. May 27, 2011). The limitations period for a breach of contract claim is normally
three years. N.C. Gen. Stat. § 1-52(1). Although N.C. Gen. Stat. § 1-47(2) allows for a ten year
statute of limitations, it applies only to claims made "against the principal" to a sealed
instrument. Harrington v. Gerald, 2008 N.C. App. LEXIS 635 at * 5-6 (N.C. App. April 1,
2008). Where, as here, the plaintiff is signatory and therefore principal of a promissory note and
security agreement, a suit against defendants cannot be "against the principals" and therefore the
ten year statute of limitations does not apply. !d. Therefore, plaintiffs claim breach of contract
claim in this case is governed by the three year limitations period.
A.

Plaintiffs Claims Are Barred by the Statute of Limitations.

The statute of limitations begins to run when the plaintiffs right to maintain an action
accrues. RPR & Assocs. V. O'Brien/Atkins Assocs., P.A., 24 F. Supp. 2d 515, 523 (M.D.N.C.
1998) (citing Thurston Motor Lines, Inc. v. Gen. Motors Corp., 128 S.E.2d 413 (1962)). Under
North Carolina law, "[a] cause of action based on negligence accrues when the wrong giving rise
to the right to bring suit is committed, even though ... the injuries cannot be discovered until a
later date." Scott & Jones, Inc. v. Carlton Ins. Agency, Inc., 677 S.E.2d 848, 853 (N.C. App.
2009) (quoting Harold, 561 S.E.2d at 918). Similarly, a cause of action for unfair and deceptive
trade practices accrues when the violation occurs. Hinson v. United Fin. Servs., Inc., 473 S.E.2d
382, 387 (N.C. App. 1996) (citing United States v. Ward, 618 F. Supp. 884, 902 (E.D.N.C.
1985)). A cause of action for breach of fiduciary duty accrues when "the claimant 'knew or, by

5

due diligence, should have known' of the facts constituting the basis for the claim." Pittman v.
Barker, 452 S.E.2d 326, 332 (N.C. App. 1995). A cause of action for breach of contract accrues

"at the time of the breach which gives rise to the right of action." United States Leasing Corp. v.
Everett, 363 S.E.2d 665, 669 (N.C. App. 1988). Under each of these standards, plaintiffs claims,

filed on October 10,2013, are barred by the applicable statute of limitations.
1.

Negligence.

Taking plaintiffs allegations as true, any error, omission, negligence, or other
misconduct on the part of TRG and Chase must have occurred on the closing date of May 5,
2009. Plaintiff discovered the alleged negligence on May 15, 2009 when he received a letter
from Chase informing him that the mortgage corresponding to 201 Salter Path Road had been
paid off. Plaintiff further alleges that damages to his credit, potential foreclosures, and the ability
to follow through with refinancing were rather immediate and realized by September 2009.
Therefore, at the very latest, plaintiffs causes of action for negligence accrued in September,
2009. Accordingly, the statute of limitations plaintiffs claim for negligence against TRG expired
in September, 2012, well before plaintiff filed this action. Accordingly plaintiffs negligence
action is time-barred.
2.

Negligence per se.

For the reasons stated supra Part I.A.l, plaintiffs negligence per se claim is also timebarred.
3.

Breach of fiduciary duty.

Plaintiff alleges that Chase failed to correctly pay escrowed insurance funds in 2007,
2008, 2009, and 2010. Plaintiff alleges that he knew about the missed payments each time they
occurred, so there is no issue over discovery here. Chase concedes that the missed 2010 payment

6

may not be time-barred depending on whether it occurred before or after October 10, 2010, but
the remaining claims regarding breach of fiduciary duty are clearly time-barred.
4. Unfair and deceptive trade practices.
Plaintiffs proposed unfair and deceptive trade practices claim is based on the May 2009
pay off application - including the resulting damages. As discussed supra Part I.A.1, the latest
date this claim could have accrued was September 2009. With the four year statute of limitations,
plaintiffs suit filed in October 2013 is time-barred.
5.

Breach of contract.

Plaintiff alleges that the breach occurred as far back as 2007 on the insurance
payments and in May 2009 when Chase failed to properly satisfy the involved mortgage. Thus
the three year statute of limitations ran in 2012.
6.

Implied covenant of good faith.

This claim derives out of contract and the statute of limitations is the same, so like
plaintiffs breach of contract claim supra Part I.A.5, this claim is barred by the statute of
limitations.
B.

Equitable Estoppel Saves the Claims Against Chase but not TRG.

Plaintiff argues that equitable estoppel should operate here to overcome his problem with
the statutes of limitations discussed supra Part I. A. North Carolina Courts recognize the general
principle that "time frames may be tolled where equitable considerations justify their
suspension." Aikens v. Ingram, 652 F.3d 496,517 (4th Cir. 2011) (citations omitted). Equitable
estoppel can be applied to prevent the defendant from asserting the statute of limitations as a
defense where his or her own conduct prevented the plaintiff from otherwise timely filing the
complaint. Lekas v. United Airlines, Inc., 282 F.3d 296, 301 (4th Cir. 2002) (citation omitted).

7

Equitable estoppel applies where "the defendant engages in intentional misconduct to cause the
plaintiff to miss the filing deadline, even though the plaintiff knows that it exists." !d. (quotation
omitted). This equitable doctrine typically applies in cases in which some misleading act or
statement on the part of the defendant justifiably induces the plaintiff to defer timely prosecution
of the claim. Aikens, 652 F.3d at 517. Neither fraud, intentional or unintentional, bad faith, nor
an intent to deceive are necessary to invoke the doctrine of equitable estoppel to prevent a
defendant from relying on the statute of limitations. Miller v. Talton, 435 S.E.2d 793, 797 (N.C.
App. 1993) (citations omitted).
The elements of equitable estoppel in North Carolina are:
(1) conduct amounting to a false representation, concealment of material facts, or
that which is reasonably calculated to convey the impression that facts are other
than what the estopped party afterwards attempts to assert; (2) intent or
expectation that the conduct should be acted upon by the other party, or conduct
which at least is calculated to induce a reasonably prudent person to believe such
conduct was intended or expected to be relied and acted upon; and (3) knowledge,
actual or constructive, of the real facts on the part of the defendant.

Ussery v. Branch Banking & Trust Co., 743 S.E.2d 650, 654-55 (N.C. 2013). Plaintiff has
alleged that equitable estoppel applies against both Chase and TRG. Plaintiff alleges the
following facts in support of his argument.
Following the misapplication of the loan funds, defendant Chase made numerous
representations to Mr. Hetzel from May 2009 through September 2012. By letter dated October
7, 2009, Chase indicated that it would take steps to ensure that any negative impact on Mr.
Hetzel's credit would be reversed or abated. [DE 59

at~

64]. Chase assured Mr. Hetzel that his

credit history would be restored and that he would have the opportunity to refinance or modify
the other two Chase loans on similar terms to that of the Merrill Lynch loan. [DE 59

at~

69].

Chase told Hetzel throughout 201 0 that it would "make things right" and that he would be put

8

into a mortgage product featuring a similar interest rate, or at least as low as 2.5%. [DE 59

at~

72].

Mr. Hetzel, Chase, and TRG participated in a conference call to discuss how to fix the
issues arising out of the misapplication of the loan funds, and both defendants promised to
restore him to the position he would have enjoyed, but for the mistake. [DE 59

at~

69]. Plaintiff

alleges that these communications with Chase and TRG lasted several months during 2009 and
that those with Chase extended through 2012, and that they created a reasonable expectation on
the part of Mr. Hetzel that both defendants were working together to reverse the transaction,
properly apply the loan funds, fix any issues related to his credit, and restore his position. [DE 59
at

~

99]. Mr. Hetzel alleges that while these communications were ongoing, Chase was

attempting to insulate itself from liability. Chase attempted to have Mr. Hetzel sign a letter
making it appear as though the Salter Path Road property had been properly satisfied and that
Hetzel was requesting reinstatement which Chase was going to honor. [DE 59

at~

53]. Chase

told Mr. Hetzel that such documents were necessary to reverse the transaction and stop the
foreclosure on the Spa Drive property. [DE 59

at~

53-59].

Further, Mr. Hetzel alleges that Chase charged him late fees on the loan that was to have
been satisfied and which he had no choice but to pay as a condition of reinstating the loan on the
Salter Path Road property. [DE 59

at~

46]. Mr. Hetzel then received a letter dated August 5,

2009 in which he received notice of acceleration and intent to foreclose from Chase as to the Spa
Drive property, a loan which was to have been paid off. [DE 59

at~

50]. Chase continued to tell

Mr. Hetzel that the problems would be fixed, and specifically told him "not to worry" about the
foreclosure notice, as it would put him back in the position he enjoyed prior to the failed loan
closing. [DE 59

at~

51].

9

Mr. Hetzel alleges that, as a result of the numerous assurances given and representations
made by Chase, acting in concert with TRG, that he, in good faith, submitted to a modification
process as directed by Chase, continuing to believe that Chase was going to take action to correct
the fallout from the misapplication of the loan payoff. [DE 59 at ,-r,-r 74-81, 94-1 00]. Mr. Hetzel
estimates that he was in telephone contact with Chase in excess of 50 times between February
2010 and September 2012 concerning his efforts to modify the loans on both the Acton Road
property and the Salter Path Road property. [DE 59 at ,-r 95]. Mr. Hetzel states that he realized
that Chase had no intention of honoring its promises and assurances when it issued a final denial
of a modification for the loan on the Acton Road property in September 2012. [DE 59 at ,-r 100].
1.

Chase.

The conduct listed above on the part of Chase gives rise to an equitable estoppel to its
affirmative defense of the statute of limitations. Chase took the position that it would fix all
issues stemming from the loan closing, which included restoring the plaintiffs financial position
and correcting any negative credit reporting. However, it appears that at the same time, Chase
was actively working to insulate itself from potential liability associated with the loan closing
and continued to give the appearance of working with Mr. Hetzel up until the time it believed
itself to be free of the three year statute of limitations. As a result of the promises and assurances
given by Chase, Mr. Hetzel was clearly justified in believing that Chase was continuing to
attempt to resolve his issues. By refraining from suit and relying on Chase's representations and
participating in alternative methods to correct the wrong, Mr. Hetzel was lulled into a false sense
of security and slept on his rights. Chase's change in position from its assurances of working
with Mr. Hetzel to restore him to his prior position to its perfunctory denial of the modification
of the Acton Road property amounts to a misrepresentation by Chase. Because Mr. Hetzel has

10

sufficiently pled facts supporting his theory of equitable estoppel against Chase, the Court will
not dismiss his claims against Chase as time-barred.
2.

TRG.

However, the facts pled against TRG do not give rise to equitable estoppel. At most, Mr.
Hetzel's allegations show only that TRG attempted to work with Chase to resolve the matter of
the mishandled closing. Mr. Hetzel has not pled sufficient facts to show that TRG made any sort
of misrepresentation to him implied or otherwise. TRG was involved with the loan closing that
was mishandled, and TRG informed Mr. Hetzel that it was working with Chase to resolve the
problem. That is all Mr. Hetzel alleges against TRG. Further, Mr. Hetzel's allegations
acknowledge that his contact with TRG stopped in September 2009. Although Mr. Hetzel alleges
further communications with Chase which clearly rise to the level of equitable estoppel, there is
simply nothing that supports a finding that Mr. Hetzel has adequately alleged equitable estoppel
against TRG. Accordingly, Mr. Hetzel's claims against TRG are time-barred as discussed supra
Part I.A. and TRG is dismissed from this suit.
II.

CHASE'S 12(b)(6) MOTION TO DISMISS.

Having addressed the statute of limitations problem and plaintiffs equitable estoppel
arguments, the Court now turns to the other grounds which Chase, the sole remaining defendant
in this action, raises in support of its motion to dismiss.
A Rule 12(b)(6) motion challenges the legal sufficiency of a plaintiffs complaint.
Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009). When ruling on the motion, the Court

"must accept as true all of the factual allegations contained in the complaint." Erickson v.
Pardus, 551 U.S. 89, 93-94 (2007) (citing Bell At!. Corp. v. Twombly, 550 U.S. 544, 555-56

(2007)). Although complete and detailed factual allegations are not required, "a plaintiffs

11

obligation to provide the 'grounds' of his 'entitle[ment] to relief requires more than labels and
conclusions." Twombly, 550 U.S. at 555 (citations omitted). "Threadbare recitals of the elements
of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555). Similarly, a court need not accept
as true a plaintiffs "unwarranted inferences, unreasonable conclusions, or arguments." Eastern
Shore Mkts. v. J.D. Assocs. Ltd., 213 F.3d 175, 180 (4th Cir. 2000). A trial court is "not bound to
accept as true a legal conclusion couched as a factual allegation." Twombly, 550 U.S. at 555.
A.

Negligence Claim.

Chase argues that the economic loss doctrine bars plaintiffs negligence claim against it.
This Court disagrees. Chase argues that plaintiffs negligence claim arises out of Chase's
"handling, disburs[ing], and/or appl[ying] ... the Merrill Lynch loan funds" and "modifying the
loans on 201 Salter Path Road and 160 Acton Road" and therefore "any duty Chase could
possibly owe relating to handling loan funds or modifying existing loans could only arise out of a
contractual arrangement between Chase and plaintiff." [DE 67 at 12]. However, the Court finds
that Chase owed a general duty of due care in its relationship with Mr. Hetzel. The wrong that
occurred (the misapplication of the loan payoff funds) is much less a breach of contract than it is
a simple negligence claim. Mr. Hetzel alleges that he informed Chase that he wanted to pay off
one of the loans he held with them and then undertook the steps necessary to do so. While
handling his funds, Chase misapplied them which clearly harmed Mr. Hetzel. This is not a failure
of adhering to the terms of the loan contract as much as it is a failure to exercise due care when
handling Mr. Hetzel's funds and being negligent in their handling and application. Therefore, the
Court finds that the economic loss doctrine does not bar Mr. Hetzel's negligence claim.

12

B.

Negligence Per Se Claim.

Under North Carolina law, "a statute allows for a private cause of action only where the
legislature has expressly provided a private cause of action within the statute." Lea v. Grier, 577
S.E.2d 411, 415 (N.C. App. 2003). The statute under which plaintiff's alleged negligence per se
claim arises does not offer any explicitly stated mechanism for private rights of action. N.C.
Gen. Stat. § 53-244 ("SAFE Act"). Accordingly, plaintiff's claim for negligence per se fails and
must be dismissed. However, per plaintiff's request, the allegations contained within the claim
are allowed to stand for inclusion within plaintiff's claim for breach of the implied covenant of
good faith and fair dealing under the loan agreement.
C.

Breach of Fiduciary Duty.

Because Chase's only argument as to this claim is based upon the statute of limitations
and plaintiff has sufficiently pled equitable estoppel, the claim survives.
D.

Unfair and Deceptive Trade Practices.

Because Chase's only argument as to this claim is based upon the statute of limitations
and plaintiff has sufficiently pled equitable estoppel, the claim survives.
E.

Breach of Contract.

Because Chase's only argument as to this claim is based upon the statute of limitations
and plaintiff has sufficiently pled equitable estoppel, the claim survives.
F.

Breach ofthe Implied Covenant of Good Faith.

The Court finds that plaintiff has sufficiently pled his claim for breach of the implied
covenant of good faith. The allegations as a whole within the complaint are sufficient to allow
plaintiff's claim forward at this stage of the proceedings.

13

CONCLUSION

For the foregoing reasons, defendant TRG's motion to dismiss is GRANTED and TRG is
DISMISSED from this action. Chase's motion to dismiss is GRANTED IN PART and DENIED
IN PART. Mr. Hetzel's negligence per se claim against Chase is DISMISSED. The remaining
claims may proceed in their entirety.

SO ORDERED.
This the

f l day of December, 2014.
T
NCE W. BOYLE
UNITED STATES DISTRICT

14