HUA et al v. WELLS FARGO BANK, N.A. et al
MEMORANDUM AND/OR OPINION SETTING FORTH THE REASONS WHY THE COURT IS GRANTING DEFENDANTS' MOTION TO DISMISS (DOCKET NO. 7). AN APPROPRIATE ORDER FOLLOWS. SIGNED BY HONORABLE GENE E.K. PRATTER ON 11/21/17. 11/22/17 ENTERED AND COPIES E-MAILED.(rab, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
TRACY HUA et al.,
WELLS FARGO BANK, N.A., et al.,
NOVEMBER 21, 2017
In this case, a husband and wife defaulted on their mortgage payments and Wells Fargo
foreclosed on their property. The state-court foreclosure judgment is final, but Wells Fargo still
has not executed the judgment — meaning that the couple had time to come to federal court
armed with a bevy of consumer-protection and common-law claims. The couple’s allegations
center on two alleged misdeeds by Wells Fargo: (1) denying the couple’s applications to modify
their loan, and (2) obtaining force-placed insurance on the property without telling the couple.
Wells Fargo, along with its co-defendants, has moved to dismiss. For the reasons that
follow, the Court grants the motion to dismiss and grants Hua and Mu leave to file an amended
complaint consistent with this ruling.
In 2007, plaintiffs Tracy Hua and Chi Hung Mu executed a mortgage for an ostensibly
residential property in Philadelphia.
Initially, the lender was defendant American Home
Mortgage Acceptance (AHMA), and the next mortgagee was defendant Mortgage Electronic
Registration System (MERS). In 2011, Hua and Mu defaulted on their loan payments. In 2012,
MERS and AHMA assigned their interest in the mortgage to Wells Fargo.
In 2013, Wells Fargo started a mortgage foreclosure action in the Philadelphia Court of
Common Pleas, and in 2015, the bank prevailed at trial. The court denied Hua and Mu’s posttrial motion, and they did not appeal. In 2016, Wells Fargo secured a writ of execution to satisfy
the foreclosure judgment by selling the property.
The foreclosure sale was slated for the summer of 2017, but before it could happen, Hua
and Mu filed their complaint in this Court on May 25, 2017. In the meantime, the state court has
postponed the foreclosure sale as the parties supposedly work to resolve the debt.
Hua and Mu brought this complaint against Wells Fargo, Wells Fargo’s mortgage
servicer (Select Portfolio Servicing), and its two predecessors in interest (MERS and AHMA).
The complaint alleges that Wells Fargo: (1) obtained force-placed insurance on the property
without telling the couple and (2) denied the couple’s applications to modify their loan.
1. Force-Placed Insurance
Wells Fargo seems to have obtained force placed insurance 1 on the property in 2014 —
that is, after starting foreclosure proceedings but before prevailing at trial. Hua and Mu claim
not to have learned about the insurance until they received a letter from Wells Fargo in March of
2017. They allege that Wells Fargo did not give them a chance to prove that they already had
insurance (which the complaint alleges that they had).
Given that Hua and Mu claim not to have learned about the force-placed insurance until
2017, this issue did not come up at the 2015 state-court trial.
Force-placed insurance, also known as creditor-placed or lender-placed insurance, is an
insurance policy placed by a lender on a home when the property owner’s own insurance has
lapsed and the borrower does not secure a replacement.
2. Loan Modification Applications
Hua and Mu applied for loan modifications in February and May of 2017. Both times,
Wells Fargo rejected their application on the basis of insufficient paperwork. Hua and Mu insist
that they submitted a complete application each time.
The denials of the loan modifications form the basis for Hua and Mu’s fraud claims. As
explained below, there are two components to each fraud claim: first, the defendants
misrepresented that they had any authority to modify the loans, and second, they misrepresented
that they had any intention to seriously consider Hua and Mu’s applications.
Like the force-placed insurance, the issue of loan modifications did not arise in the statecourt proceeding, which took place long before Hua and Mu applied for a loan modification.
COUNTS IN THE COMPLAINT
The complaint contains ten counts:
1. Common-law fraud brought against Wells Fargo and Select Portfolio Servicing
2. Truth in Lending Act (TILA) violations brought against all defendants.
3. Fair Debt Collection Practices Act (FDCPA) violations brought against Wells
Fargo and SPS.
4. Fraud under the Pennsylvania Unfair Trade Practices and Consumer Protection
Law (UTPCPL) brought against all defendants.
5. Breach of contract brought against all defendants.
6. Unjust enrichment brought against Wells Fargo and SPS.
7. Wire fraud brought against Wells Fargo and Select Portfolio Servicing (SPS).
8. Real Estate Settlement Practices Act (RESPA) violations brought against Wells
Fargo and SPS.
9. Fair Debt Collection Practices Act violations brought against Wells Fargo and
10. Real Estate Settlement Practices Act violations brought against Wells Fargo and
Thus, only three counts (Truth in Lending Act, Unfair Trade Practices and Consumer
Protection Law, and breach of contract) name MERS and AHMA, the two defendants who
handed off their legal interests in the mortgage back in 2012. The other seven counts are against
only Wells Fargo and SPS, who have held or serviced the mortgage since then.
STANDARD OF REVIEW
A Rule 12(b)(6) motion to dismiss tests the sufficiency of a complaint. To survive a
motion to dismiss, the plaintiff must plead “factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009). Specifically, “[f]actual allegations must be enough to raise a right to
relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The
question is not whether the claimant “will ultimately prevail . . . but whether his complaint [is]
sufficient to cross the federal court’s threshold.” Skinner v. Switzer, 562 U.S. 521, 530 (2011)
(citation and internal quotation marks omitted).
In evaluating the sufficiency of a complaint, the Court adheres to certain well-recognized
parameters. For one, the Court “must consider only those facts alleged in the complaint and
accept all of the allegations as true.” ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994).
Also, the Court must accept as true all reasonable inferences emanating from the allegations, and
view those facts and inferences in the light most favorable to the nonmoving party. See Revell v.
Port Auth., 598 F.3d 128, 134 (3d Cir. 2010).
That admonition does not demand that the Court ignore or even discount reality. “[T]he
tenet that a court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Ashcroft, 556 U.S. at 678. If a claim
“is vulnerable to 12(b)(6) dismissal, a district court must permit a curative amendment, unless an
amendment would be inequitable or futile.” Phillips v. County of Allegheny, 515 F.3d 224, 236
(3d Cir. 2008).
As explained below, the Court (1) dismisses MERS and AHMA from the case; (2)
dismisses the statutory consumer-protection claims; and (3) dismisses with leave to amend the
AHMA and MERS had no interest in the mortgage at the time of the alleged fraud.
Counts 2, 4, and 5 (alleging TILA violations, UTPCPL violations, and breach of contract)
name as defendants not only Wells Fargo and SPS, but also their predecessors AHMA and
MERS. However, AHMA and MERS’s interests in the mortgage were extinguished in March
2012, when the mortgage was transferred to Wells Fargo. Neither AHMA nor MERS are alleged
to have been involved in the mortgage after 2012. As a result, they cannot be liable for fraud in
the loan modification applications in 2017.
Accordingly, at oral argument, counsel for Hua
and Mu agreed to dismiss defendants AHMA and MERS from the case, and they are indeed
Because the property was an investment property, the consumer-protection
statutory claims are dismissed.
For Hua and Mu to access the consumer protection statutes at issue, the property and loan
must have been for personal, rather than commercial, use. Because plaintiffs admit through their
counsel that the property here was an investment property, the claims based on violations of the
TILA, the FDCPA, the UTPCPL, and the RESPA are dismissed.
All four statutes are triggered by personal, non-commercial use. The TILA applies only
to transactions “primarily [intended] for personal, family, or household purposes,” 15 U.S.C. §
1602(h), not to “transactions involving extensions of credit primarily for business, commercial,
or agricultural purposes,” id. at § 1603(1). The FDCPA applies only to debts undertaken
“primarily for personal, family, or household purposes.” 15 U.S.C. § 1692a(5). The UTPCPL
applies only to transactions entered into “primarily for personal, family, or household purposes.”
73 Pa. C.S. § 201-9.2(a); see also Balderston v. Medtronic Sofamor Danek, Inc., 152 F. Supp. 2d
772, 776 (E.D. Pa. 2001). The RESPA does not apply to extensions of credit “primarily for
business, commercial, or agricultural purposes.” 12 U.S.C. § 2606(a)(1); see also Hinchlife v.
Option One Mortg. Corp., No. 08-2094, 2009 WL 1708007, at *4 (E.D. Pa. June 16, 2009)
(denying a RESPA claim because the plaintiff had not shown that the loan was for personal use).
At oral argument, Hua and Mu’s counsel stated that the property at issue was an
investment property. Hua and Mu never lived there; instead, they rented it out to others and used
the property for collecting rental income. Therefore, all claims based on consumer-protection
statutes (counts 2, 3, 4, 8, 9, and 10) are dismissed.
Remaining Common-Law Claims
The remaining claims are for common-law fraud (count 1), breach of contract (count 5),
unjust enrichment (count 6), and wire fraud (count 7). The Court considers each claim in turn.
A. Common-Law Fraud (Count 1)
The gist of this count is that Wells Fargo and SPS misleadingly told Hua and Mu that
their application for a loan modification would get a fair shake. But, according to the complaint,
the defendants had neither the authority nor the intention to modify the loan.
For the analysis that follows, that distinction matters a great deal. As to the first two
arguments — Rooker-Feldman and res judicata — Hua and Mu’s claim as to the defendants’
authority is dismissed, but that the claim as to the defendants’ intention survives. However, the
third argument (that Hua and Mu did not sufficiently plead fraud in general) precludes Hua and
Mu’s claim as to the defendants’ intention.
The parties dispute the extent to which the Rooker-Feldman doctrine bars this Court from
deciding a claim that amounts to appellate review of the state-court foreclosure judgment. “The
Rooker-Feldman doctrine prevents ‘inferior’ federal courts from sitting as appellate courts for
state court judgments.” In re Knapper, 407 F.3d 573, 580 (3d Cir. 2005); see also Landce v.
Dennis, 546 U.S. 459, 463 (2006); Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923); District of
Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). The doctrine is triggered when:
(1) the plaintiff in the federal case lost in state court; (2) the plaintiff complains of injuries
caused by the state-court judgment; (3) the state-court judgment was entered before the federal
case was filed; and (4) the plaintiff seeks federal review and rejection of the state-court
judgment. Great Western Mining & Mineral Co. v. Fox Rothschild, LLP, 615 F.3d 156, 166 (3d
The first and third elements are not in dispute. As to the second element — that the
plaintiff’s injury must be caused by the state-court judgment — courts ask whether the plaintiff
“is attacking the state court judgment” or merely “challenging the defendant’s conduct in
obtaining it.” Hua v. U.S. Bank Nat. Ass’n, No. 14-6767, 2015 WL 1071606, at *2 (E.D. Pa.
Mar. 11, 2015). 2
This 2015 Hua case involved the same plaintiffs challenging a different state-court
foreclosure judgment in federal court.
As to the fourth element — whether the plaintiff seeks federal rejection of a state-court
judgment — courts ask whether the federal claim is “inextricably intertwined” with the state
adjudication. The two are inextricably intertwined when “federal relief can only be predicated
upon a conviction that the state court was wrong.” In re Madera, 586 F.3d 228, 232 (3d Cir.
2009) (quoting Knapper, 407 F.3d at 580).
In this case, Wells Fargo seeks to use the Rooker-Feldman doctrine as a shield against all
of Hua and Mu’s claims. The bank points out that the mortgage foreclosure was fully litigated in
state court, which reached a final judgment long before Hua and Mu brought this case.
Therefore, Wells Fargo argues, to grant judgment for Hua and Mu would be to determine that
state court was wrong about its foreclosure judgment.
In response, Hua and Mu place all of their eggs in one out-of-state basket, a recent district
court decision from New Jersey. See Puche v. Wells Fargo N.A., 256 F. Supp. 3d 540 (D.N.J.
2017). 3 In Puche, as in this case, Wells Fargo obtained a final judgment of foreclosure in state
court. Also as in this case, the losing mortgagees sued in federal court for RESPA and TILA
violations relating to their application for a loan modification.
Wells Fargo moved to dismiss the case on the basis of the Rooker-Feldman doctrine. The
court rejected the bank’s argument for two reasons. First, because part of the underlying state
case transpired in a confidential mediation, the court could not “infer that [the mortgagors’]
claims were already litigated in state court.” Id. at *3. Second, a ruling as to the scope of Wells
Fargo’s federal statutory obligations to review the loan modification application would have little
bearing on the state-court foreclosure judgment: “A conclusion as to statutory duty does not
Indeed, this is the only argument that Hua and Mu advance in response to the motion to
second-guess a state foreclosure judgment.” Id. at *4 (citing Nivia v. Nation Star Mortgage, 620
Fed. App’x 822, 824 (11th Cir. 2015)).
The Rooker-Feldman doctrine applies to Hua and Mu’s claim that Wells Fargo had no
authority to modify the loan, but nothing more. At bottom, any argument about the bank’s
authority to modify the loan goes to the bank’s standing to foreclose in the first place. But the
bank’s standing was litigated in the state court. See Doc. No. 12-1 ¶ 8-9; Doc No 12-1, at 16. In
other words, to hold that Wells Fargo lacked any authority to modify the loan would be to reject
the state court’s conclusion that the bank had authority to bring a foreclosure action. Cf. Note,
Improving Relief from Abusive Debt Collection Practices, 127 HARV. L. REV. 1447, 1459 (2014)
(“Consumers challenging a default judgment secured through allegedly unlawful acts in a state
court proceeding are exactly the kinds of state court losers covered by the Rooker-Feldman
The other element of the alleged fraud surrounding the loan modification — that Wells
Fargo had no intention to modify the loan — survives the bank’s Rooker-Feldman objection.
Wells Fargo’s intentions were not litigated in state court; indeed, Hua and Mu allege that Wells
Fargo did not misrepresent its intentions until two years after the final judgment in state court.
2. Res Judicata
The Rooker-Feldman doctrine is only the first of two preclusion arguments invoked by
Wells Fargo. The other is res judicata. As the Hua court explained, even if a plaintiff’s injury is
not caused by a state-court judgment (triggering Rooker-Feldman), “the federal suit . . . is,
instead, subject to state law principles of preclusion.” Hua, 2015 WL 1071606, at *3 (citing
Exxon Mobile Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 293 (2005)).
By “res judicata,” the parties seem to mean both claim preclusion and issue preclusion.
The rule for claim preclusion is that “a claim may not be asserted if . . . there has been (1) a final
judgment on the merits in a prior suit involving (2) the same parties or their privies and (3) a
subsequent suit based on the same cause of action.” Balent v. City of Wilkes-Barre, 669 A.2d
309, 313 (Pa. 1995). The rule applies “not only to claims actually litigated, but also to claims
which could have been litigated during the first proceeding if they were part of the same cause of
action.” Id.; see also O’Leary v. Liberty Mut. Ins. Co., 923 F.2d 1062, 1065 (3d Cir. 1991);
McNasby v. Crown Cork & Seal Co., 888 F.2d 270, 276 (3d Cir. 1989).
The rule for issue preclusion, on the other hand, is that “once an issue is actually and
necessarily determined by a court of competent jurisdiction, that determination is conclusive in
subsequent suits based on a difference cause of action involving a party to the prior cause of
action.” Tyler v. O’Neill, 52 F. Supp. 2d 471, 474 (E.D. Pa. 1999); see also Temple Univ. v.
White, 941 F.2d 201, 212 (3d Cir. 1991); Balent, 669 A.2d at 313.
In this case, claim preclusion is not at play. Hua and Mu’s claims arose after the statecourt judgment in 2015. 4 Issue preclusion, on the other hand, has the same preclusive effect as
under the Rooker-Feldman doctrine. As explained above, the issue of Wells Fargo’s standing to
foreclose was fully litigated in state court. See Doc. No. 12-1 ¶ 8-9; Doc No 12-1, at 16. This
precludes Hua and Mu’s argument that the bank lacked authority to modify its loan; a state court
had already determined that Wells Fargo was Hua and Mu’s creditor.
Indeed, the closest candidate for claim preclusion is not the loan modifications (the
subject of this count), but the force-placed insurance. Although Wells Fargo argues that forceplaced insurance was obtained in 2014, and therefore must have been considered in the state
court’s 2015 debt judgment, Hua and Mu have alleged that force-placed insurance was not
discovered, and therefore could not have been considered, until 2017.
3. Insufficient Fraud Pleading
Wells Fargo argues that the complaint fails to sufficiently plead fraud. In Pennsylvania,
the elements of fraud are (1) a material representation by the defendant, (2) made with
knowledge or recklessness as to its falsity, (3) stated with the intent to mislead, (4) upon which
the plaintiff justifiably relies, (5) proximately causing an injury. Weissberger v. Myers, 90 A.3d
730, 735 (Pa. Super. 2014). 5
Federal law imposes heightened pleading standards for fraud. “[A] plaintiff alleging
fraud must state the circumstances of the alleged fraud with sufficient particularity to place the
defendant on notice of the ‘precise misconduct with which [it is] charged.’” Frederico v. Home
Depot, 507 F.3d 188, 200 (3d Cir. 2007) (quoting Lum v. Bank of America, 361 F.3d 217, 223–
224 (3d Cir.2004)); see also Fed. R. Civ. P. 9(b) (“In all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be stated with particularity.”). “To satisfy this
standard, the plaintiff must plead or allege the date, time and place of the alleged fraud or
otherwise inject precision or some measure of substantiation into a fraud allegation.” Frederico,
507 F.3d at 200.
In this case, Hua and Mu allege that they sought to negotiate a loan modification but that
Wells Fargo never responded. The complaint lacks allegations of any intent to mislead or of any
injury due to justifiable reliance. Indeed, at oral argument, Hua and Mu’s counsel conceded (1)
that the complaint never alleged justifiable reliance and (2) that, even had Hua and Mu justifiably
relied on the bank’s representations about the loan modification applications, they had no
The complaint alternatively states that Pennsylvania and New Jersey law governs this
case. The mortgage states that it will be governed by federal law and by the law of the state
where the property is located. Because the property in question is in Philadelphia, Pennsylvania
absolute right to a loan modification. Thus, count 1 for common-law fraud is dismissed as
B. Breach of Contract (Count 5)
Hua and Mu’s fifth count is for breach of contract. Although this claim is apparently
related to the loan modification applications, the complaint does not specify which contract was
breached — let alone a specific term in a contract. But a claim for breach of contract must plead
the breach of a specific duty imposed by a contract. Guerra v. Redevelopment Auth. of City of
Phila., 27 A.3d 1284, 1289 (Pa. Super. 2011) (quoting Gorski v. Smith, 812 A.2d 683, 692 (Pa.
Super. 2002)). Therefore, this count is dismissed as insufficiently pleaded thus far.
C. Unjust Enrichment (Count 6)
Hua and Mu’s sixth count alleges that the defendants were unjustly enriched when they
fraudulently denied the loan modification applications. To the extent that this claim is yoked to
the fraud claims, it faces the same uphill battles on Rooker-Feldman and res judicata.
addition, a party may only bring an unjust enrichment claim in the absence of a contract. See
Mitchell v. Moore, 729 A.2d 1200, 1203 (Pa. Super. 1999). Given that the parties entered into a
mortgage contract, this claim is dismissed.
D. Wire Fraud (Count 7)
In addition to common-law fraud, Hua and Mu bring a claim for wire fraud under 18
U.S.C. § 1343. As an initial matter, it is unclear whether § 1343, a criminal statute, provides
Hua and Mu with a private cause of action. They have cited no case to that effect, and at oral
argument their counsel stated that the criminal provision did not give rise to a private cause of
Even if Hua and Mu have a cause of action for wire fraud, this claim fails for the same
reasons as the claim for common-law fraud. First, fraud as to Wells Fargo’s authority to modify
the loan is precluded by the Rooker-Feldman doctrine and by res judicata. Second, as explained
above, Hua and Mu’s entire fraud claim (that Wells Fargo had neither authority nor intent to
modify the loan) fails as insufficiently pleaded. The complaint lacks allegations of any intent to
mislead or of any injury due to justifiable reliance. It does not allege a specific date or place of
the alleged fraud, and it fails to separate out allegations as to each defendant. The Court is
entirely disinclined to reach so deeply into the bag of unprecedented rulings to turn a violation of
a criminal statute into a civil damages opportunity as this one would have to be. Therefore, Hua
and Mu’s claim for wire fraud is dismissed.
For the foregoing reasons, the motion to dismiss is granted and the plaintiffs are granted
leave to file an amended complaint.
An appropriate order follows.
BY THE COURT:
S/Gene E.K. Pratter
GENE E.K. PRATTER
UNITED STATES DISTRICT JUDGE
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