Moore, et al v. Seterus, Inc., et al

Filing 24

ORDER granting 7 Motion to Dismiss for Failure to State a Claim. The motion to dismiss filed by defendants Seterus, Fannie Mae, and Bank of New York is GRANTED, and plaintiffs claims against these defendants are DISMISSED. B ecause plaintiffs claims against defendant Trustee Services are derivative of plaintiffs claims against the other defendants, plaintiffs claims against defendant Trustee Services also are DISMISSED. The clerk is DIRECTED to close this case. Signed by District Judge Louise Wood Flanagan on 8/15/2017. (Collins, S.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
EASTERN DIVISION
NO. 4:16-CV-293-FL

GWENDA G. MOORE, and R. WILTON
MOORE,
Plaintiffs,
v.
SETERUS, INC.; FEDERAL NATIONAL
MORTGAGE ASSOCIATION; THE
BANK OF NEW YORK MELLON f/k/a
THE BANK OF NEW YORK, and
TRUSTEE SERVICES OF CAROLINA,
LLC,
Defendants.

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ORDER

This matter is before the court on motion to dismiss pursuant to Federal Rule 12(b)(6) for
failure to state a claim and pursuant to Rule 8(a) for failure to provide a short, plain statement of the
claim. (DE 7). The motion has been fully briefed, and the issues presented are ripe for ruling. For
the reasons that follow, the motion is granted.
STATEMENT OF THE CASE
Plaintiffs commenced this action November 18, 2016, in the General Court of Justice,
Superior Court Division for Beaufort County, North Carolina, asserting breach of contract and
various torts against defendants Seterus, Inc. (“Seterus”), Federal National Mortgage Association
(“Fannie Mae”), and The Bank of New York Mellon (“Bank of New York”) (collectively, “the
lender defendants”). Plaintiffs’ claims arise from an offer of modification to a promissory note
secured by property located at 129 Goose Creek Drive, Washington, North Carolina (“Goose Creek

Drive Property”) and defendant Seterus’s procurement of allegedly excessive insurance policies and
inspection services pertaining to the Goose Creek Drive Property. Defendants removed the action
to this court December 19, 2016. Plaintiffs seek compensatory and punitive damages from the
lender defendants. Plaintiffs also seek declaratory judgment that documents attached to the
complaint create a binding contract requiring the lender defendants to modify the note to require
payments not in excess of $1529.55 per month and permitting plaintiffs to retain the Goose Creek
Drive Property.1 The lender defendants filed the instant motion December 20, 2016, asserting that
all claims fail as a matter of law and should be dismissed pursuant to Federal Rules of Civil
Procedure 8(a) and 12(b)(6).
STATEMENT OF THE FACTS
The facts alleged in the verified complaint may be summarized as follows. On or about
May 10, 2002, plaintiff Gwenda Moore (“Gwenda”) executed a promissory note (“the note”)
payable to the order of non-party RBC Centura Bank. Gwenda borrowed $220,000 at an interest
rate of 6.875 percent per annum. (DE1-1 at 28). To secure payment of the note, plaintiffs
concurrently signed a deed of trust conveying the Goose Creek Drive Property to non-party CB
Services Corp. as trustee under the deed of trust. (Id. at 31). The initial monthly payment under the
note was $1,445.24, exclusive of escrow fees, (id. at 28), later reduced to $1,220.49 beginning June
1, 2013, pursuant to a modification allowed by then-holder of the note, JP Morgan Chase Bank, N.C.
(Id. at 46). Following modification, Gwenda defaulted on her repayment obligations. (DE 1-1 at
4 ¶ 14).

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Plaintiffs assert no substantive claims against defendant Trustee Services of Carolina, LLC
(“Trustee Services”) and join it solely to facilitate injunctive relief where defendant Seterus hired
Trustee Services to prosecute foreclosure against the Goose Creek Drive Property.
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The lender defendants are engaged in the business of consumer lending. (Id. at 2–3 ¶¶ 2–4).
Defendant Fannie Mae underwrites consumer loans and is current holder of the note. (Id. at 2–3 ¶
3, 4 ¶ 17) Defendant Bank of New York is a banking institution and currently has custody of the
original document evidencing the note. (Id. at 3 ¶ 4). Defendant Seterus services the note on behalf
of Fannie Mae. (Id. at 1 ¶ 2, 4 ¶ 17). Seterus hired defendant Trustee Services to initiate and
prosecute foreclosure against the Goose Creek Drive Property following Gwenda’s default. (Id. at
9 ¶ 43).
On or about June 5, 2014, defendant Seterus sent to plaintiff Gwenda a document styled as
an offer for a “Trial Period Plan” (“TPP”). (Id. at 52). The TPP consists of a three-page letter
endorsed by Seterus, an accompanying three-page document titled “Fannie Mae Loan Modification
– Frequently Asked Questions[,]” a one-page document titled “Fannie Mae Loan Modification –
Important Program Information Additional Trial Period Plan Information and Legal Notices[,]” and
two additional one-page documents including a table of miscellaneous definitions and information
about avoiding credit and lending scams. (Id. at 52–60). The first page of the TPP includes the
following information:

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(Id. at 52). The second page includes a payment schedule and section titled “modification terms[,]”
as follows:

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(Id. at 53).
The third page includes defendant Seterus’s endorsement appearing on the signature line.
(Id. at 54). The “frequently asked questions” enclosure includes information about the nature of
the trial period plan and contemplated permanent modification:

(id at 55), the purpose of the trial period:

(id.), and other guarantees about the TPP and potential permanent modification, including

(id.), and

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(Id. at 56).
After receiving the TPP, plaintiff Gwenda began making payments pursuant to its terms.
Gwenda paid the three required installments of $1,529.55 between July and September, 2014, and
in addition, paid six additional installments in the same amount through March, 2015, each of which
payments defendant Seterus accepted. (Id. at 5 ¶ 23).
Sometime between September and December 2014, defendant Seterus offered a permanent
modification with proposed monthly payments of approximately $2,000 per month. (See id. at 5 ¶
26, 8 ¶ 34). Plaintiffs rejected this offer while maintaining that the lender defendants were required
to modify, and indeed modified, the note to include monthly payments of $1529.55 for the remainder
of the note’s payment term. Based on plaintiffs’ rejection of the permanent modification offer,
Seterus informed Gwenda by letter dated December 22, 2014, that a “Fannie Mae Modification” was
denied and that the Goose Creek Drive Property remained subject to foreclosure. (Id. at 7 ¶ 34, 71).
Thereafter, Seterus engaged defendant Trustee Services to foreclose on the Goose Creek Drive
Property, which proceedings Trustee Services initiated on January 27, 2015. (Id. at 8 ¶ 43, 73).
As of November 3, 2016, plaintiff Gwenda’s debt under the note amounted to $255,232.41.
(Id. at 9 ¶ 45). Plaintiffs allege that $17,605.15 of this debt is related to a negative escrow balance
resulting from defendant Seterus’s purchase of hazard insurance policies in 2014, 2015, and 2016,

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with total premiums in excess of a combined $14,200.00. (Id. at 9 ¶ 46). Seterus also paid for
additional flood insurance, earthquake insurance, and multiple inspections of the Goose Creek Drive
Property. (Id.).
Following unsuccessful requests that defendants honor the terms of the TPP by holding
Gwenda’s payments under the note current and accepting $1529.55 per month for the remaining
term of the note, plaintiffs initiated this action.
DISCUSSION
A.

Standard of Review
A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal sufficiency

of the complaint but “does not resolve contests surrounding the facts, the merits of a claim, or the
applicability of defenses.” Republican Party v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). A
complaint states a claim if it contains “sufficient factual matter, accepted as true, to ‘state a claim
to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
Corp v. Twombly, 550 U.S. 544, 570 (2007)). “Asking for plausible grounds . . . does not impose
a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable
expectation that discovery will reveal [the] evidence” required to prove the claim. Twombly, 550
U.S. at 556.
In evaluating the complaint, “[the] court accepts all well-plead facts as true and construes
these facts in the light most favorable to the plaintiff,” but does not consider “legal conclusions,
elements of a cause of action, . . . bare assertions devoid of further factual enhancement[,] . . .
unwarranted inferences, unreasonable conclusions, or arguments.” Nemet Chevrolet Ltd. v.
Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009).

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B.

Analysis
1.

Breach of Contract

Plaintiffs assert that defendants breached the terms of the TPP by offering permanent
modification with monthly payments greater than $1529.55.
Under North Carolina law, the “elements of a claim for breach of contract are (1) existence
of a valid contract and (2) breach of the terms of that contract.” Crosby v. City of Gastonia, 635 F.3d
634, 645 (4th Cir. 2011) (quotations omitted). To constitute a valid contract, “the parties must
assent to the same thing in the same sense, and their minds must meet as to all the terms.” Boyce v.
McMahan, 285 N.C. 730, 734 (1974) (quotations omitted); see Horton v. Humble Oil & Refining
Co., 255 N.C. 675, 679 (1961) (“[I]t is necessary that the minds of the parties meet upon a definite
proposition. There is no contract unless the parties thereto assent, and they must assent to the same
thing, in the same sense.”).
“Interpreting a contract requires the court to examine the language of the contract itself for
indications of the parties’ intent at the moment of execution.” State v. Phillip Morris USA Inc., 363
N.C. 623, 631 (2009) (internal citation and quotation omitted). “It is the general law of contracts that
the purport of a written instrument is to be gathered from its four corners, and the four corners are
to be ascertained from the language used in the instrument.” Carolina Power & Light Co. v.
Bowman, 229 N.C. 682, 693–94 (1949). “Where the terms of the contract are not ambiguous, the
express language of the contract controls in determining its meaning and not what either party
thought the agreement to be.” Crockett v. First Fed. Sav. & Loan Ass’n, 289 N.C. 620, 631 (1976).
Here, the TPP includes multiple offers. First, defendant Seterus offered to refrain from
initiating foreclosure proceedings during the three-month trial period upon receipt of timely

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payments pursuant to the proposed schedule. (DE 1-1 at 58 (“If you accept this offer, we will not
proceed to a foreclosure sale during the trial period as long as you comply with the terms of the Trial
Period Plan.”). Seterus further offered, upon receipt of two additional timely payments of $1,529.55,
to tender a further good-faith offer of permanent modification to the note. (Id. at 53 (“If you
successfully complete the Trial Period Plan by making the required payments, you will receive a
loan modification . . .”)). The TPP is silent as to the size of monthly payment that would be due
under permanent modification. (Id. at 56 (“Once you make all of your trial period payments on time,
we will send you a Modification Agreement detailing the terms of the modified loan.”)). Therefore,
where a party to a contract is bound only by those terms contained in the contract, Seterus was not
obligated by the TPP to modify the monthly payment term on the note to any particular amount. See
Carson v. Imperial “400" National, Inc., 267 N.C. 229, 233 (1966) (“If the parties had intended to
limit [a party’s] right . . . it would have been easy to have used words limiting [that] right.”).
Based on the foregoing, when plaintiff Gwenda submitted the first payment of $1,529.55 on
September 1, 2014, defendants became obligated to refrain from initiating foreclosure during that
month. When Gwenda timely submitted the following two payments, defendants’ right to foreclose
remained in abeyance through September 2014, pursuant to the TPP. Where defendant Trustee
services initiated foreclosure no earlier than January 27, 2015, defendants performed their obligation
to refrain from initiating foreclosure during pendency of the trial period plan.
Plaintiff Gwenda’s submission of the third and final payment under the TPP triggered
defendants’ obligation to “send [plaintiff Gwenda] a [m]odification [a]greement detailing the terms
of the modified loan.” (DE 1-1 at 56). Where the complaint indicates that defendant Seterus indeed
sent Gwenda an offer of permanent modification, (Id. at 5–6 ¶ 26, 8 ¶ 34), defendants performed this

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obligation as well. Where the TPP requires no additional conduct on the part of defendants in issue
here, plaintiffs’ claims of breach of contract based upon the TPP must fail. See Crosby, 635 F.3d
at 645.
Plaintiffs argue that the TPP either constitutes an offer permanent modification with
$1529.55 monthly payments, or, even if it merely contemplates a subsequent permanent offer, the
TPP constitutes Seterus’s representation that the subsequent offer of permanent modification would
include monthly payments of $1,529.55. Both arguments fail to account for the text of the TPP.
First, as held above, the TPP contains no representations pertaining to the terms of any subsequent
modification. Second, in numerous places, the TPP distinguishes itself from the contemplated
permanent modification. (See e.g., DE 1-1 at 52 (“If you successfully complete the Trial Period
Plan, and remain eligible for the program, we will send you a permanent loan modification
agreement”), 53 (“If you successfully complete the Trial Period Plan by making the required
payments, you will receive a loan modification. . .”), 55 (“we may be able to offer you a HAMP
modification with a lower monthly principal and interest payment than we estimate you would
receive for the proposed modification described above”), 56 (“Once you make all of your trial period
payments on time, we will send you a Modification Agreement detailing the terms of the modified
loan. The Modification Agreement will become effective once all borrowers and Seterus have
signed it.”)). Based on the foregoing, where the TTP neither constitutes an offer of permanent
modification nor makes any representation as to the size of monthly payment under a permanent
modification, plaintiffs’ arguments on these grounds are unavailing.
2.

Tort Claims

Plaintiffs assert claims of negligence, fraud, negligent misrepresentation, breach of fiduciary

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duty/constructive fraud, and violation of the North Carolina Unfair and Deceptive Trade Practices
Act (“UDTPA”). The lender defendants seek dismissal of plaintiffs’ tort claims on the ground that
those claims are not distinct from breach of contract. Where the court agrees that plaintiffs’ tort
claims sound in the law of contract, the court need not reach the additional grounds for dismissal
raised by the lender defendants.
Where a cause of action presumes the “existence of an agreement, the terms contained in an
agreement, and the interpretation of an agreement,” the issues raised must be relegated to the arena
of contract law, and are not appropriate for resolution under tort principles. Broussard v. Meineke
Disc. Muffler Shops, Inc., 155 F.3d 331, 347 (4th Cir. 1998). Under North Carolina law, the court
must “limit plaintiffs’ tort claims to only those claims which are ‘identifiable’ and distinct from the
primary breach of contract claim.” Id. at 346 (quoting Newton v. Standard Fire Ins. Co., 291 N.C.
105, 111 (1976)). Furthermore, it is “unlikely that an independent tort could arise in the course of
contractual performance, since those sorts of claims are most appropriately addressed by asking
simply whether a party adequately fulfilled its contractual obligations.” Strum v. Exxon Co.,
U.S.A., 15 F.3d 327, 333 (4th Cir. 1994); see N. Carolina State Ports Auth. v. Lloyd A. Fry Roofing
Co., 294 N.C. 73, 83 (1978) (“[O]ur research has brought to our attention no case in which this
Court has held a tort action lies against a promisor for his simple failure to perform his contract,
even though such failure was due to negligence or lack of skill.”); Taylor v. United States, 89 F.
Supp. 3d 766, 773 (E.D.N.C. 2014) (“[A] defendant’s conduct in exercising perceived rights and
remedies under a contractual agreement with another party, even if allegedly contrary to the . . .
terms of the agreement, does not form the basis for a UDTPA claim.”).
Here, plaintiffs’ claims of negligence, fraud, negligent representation, and UDTPA violations

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are based upon defendants’ alleged refusal to offer permanent modification on the terms plaintiffs
understand to be required by the TPP. Each of the foregoing claims is premised upon the terms of
the TPP and interpretation of those terms. Therefore, whether or not the TPP permitted defendants
to propose permanent modification on the terms actually provided to plaintiffs is a matter of
interpretation of the terms of the TPP, which must be “relegat[ed] . . . to the arena of contract law.”
Broussard, 155 F.3d at 347. Accordingly, these tort claims are dismissed. Where plaintiffs plead
the foregoing tort claims, in the alternative, as breach of the TPP, the claims may be dismissed in
their entirety where, as held in the preceding section, defendants did not breach the terms of the TPP.
Plaintiffs’ claim of breach of fiduciary duty is grounded in defendant Seterus’s purchase of
allegedly unreasonably expensive insurance and inspection services pertaining to the Goose Creek
Drive Property. Seterus’s right to purchase insurance and inspection services is governed by the
deed of trust. (See DE 1-1 at 36 (permitting lender to purchase earthquake and flood insurance if
borrower fails to do so and setting forth borrower’s acknowledgment that insurance procured by
lender may be significantly more expensive than insurance borrower might obtain), 37 (“Lender may
charge Borrower fees for services performed in connection with Borrower’s default . . . including
. . . property inspection and valuation fees. . .”)). Therefore, determining whether fees for insurance
and inspection are reasonable turns on interpretation of the deed of trust; thus, this issue too must
be “relegat[ed] to the arena of contract law.” Broussard, 155 F.3d at 347. Where plaintiffs do not
plead their claim based upon Seterus’s purchases of insurance and inspection services in the
alternative as breach of contract, this claim must dismissed.
In sum, each of plaintiffs’ tort claims constitutes an attempt to cast as torts alleged breaches
of the TPP. Where North Carolina law does not permits plaintiffs to recharacterize claims in this

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manner, plaintiffs’ tort claims must be dismissed as a matter of law. See id.
CONCLUSION
For the foregoing reasons, the motion to dismiss filed by defendants Seterus, Fannie Mae,
and Bank of New York is GRANTED, and plaintiffs claims against these defendants are
DISMISSED. Because plaintiffs’ claims against defendant Trustee Services are derivative of
plaintiffs’ claims against the other defendants, plaintiffs’ claims against defendant Trustee Services
also are DISMISSED. The clerk is DIRECTED to close this case.
SO ORDERED, this the 15th day of August, 2017.

_____________________________
LOUISE W. FLANAGAN
United States District Judge

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