ADAMS et al v. WELLS FARGO BANK, N.A. et al

Filing 22

MEMORANDUM/OPINION THAT PLAINTIFFS' FIRST AMENDED COMPLAINT IS LARGELY SUFFICIENT TO SURVIVE DEFENDANT WELLS FARGO'S AND DEFENDANT PHELAN'S MOTION TO DISMISS, AND THEREFORE THE MOTION WILL BE DENIED AS TO COUNTS II, III, IV AND V. HOWEVER, COUNT I, WRONGFUL USE OF CIVIL PROCEEDINGS (DRAGONETTI ACT) WILL BE DISMISSED WITH PREJUDICE. SIGNED BY HONORABLE JEFFREY L. SCHMEHL ON 4/13/17. 4/13/17 ENTERED AND COPIES E-MAILED. (ky, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
FRANK ADAMS and CHRISTIE A. ADAMS,
Ind. & as H/W,
Plaintiff,
CIVIL ACTION
NO. 16-0907

v.
WELLS FARGO BANK, N.A., and PHELAN,
HALLINAN, DIAMOND & JONES LLP,
formerly known as
PHELAN, HALLINAN & SCHMIEG, LLP,
Defendant.
MEMORANDUM
SCHMEHL, J. /s/ JLS

APRIL 13, 2017

Before this court is the Motion to Dismiss Plaintiffs’ First Amended Complaint
(“FAC”) Pursuant to Fed. R. Civ. P. 12(b)(6) filed by Defendant Wells Fargo Bank
(“Wells Fargo”), and the motion to dismiss filed by Defendant Phelan, Hallinan,
Diamond & Jones, LLP (“Phelan”) on May 2, 2016. Plaintiffs Frank and Christie A.
Adams (hereinafter “Plaintiffs”) filed opposition to both motions. Having read the
parties’ briefing, I will deny the motion of Wells Fargo (Docket No. 12) as to all claims
except the wrongful use of civil proceedings claim (Count I), and I will deny the motion
of Phelan in its entirety (Docket No. 13).
I.

STATEMENT OF FACTS
Defendant Wells Fargo extended a loan to plaintiffs in the amount of $89,000, in

which, to secure repayment of the loan, plaintiffs executed and delivered to Wells Fargo a
mortgage that granted a lien and security interest in certain real property owned by

plaintiffs at 58 Lillian Lane, Bangor, Northampton County, Pennsylvania 18013.
(Def.[’s] Mot. Dismiss 2.)
Plaintiffs missed their regular payments for April, June, and July of 2009 and
subsequently fell into arrears on the mortgage loan. (FAC, ¶ 6.) At the time of these
missed payments, the principal balance on plaintiffs’ outstanding loan amount was
approximately $66,000. (Id. at ¶ 7.) In or about August 2009, plaintiffs entered a twelve
(12) month “Special Forbearance” plan with Wells Fargo. (Id. at ¶ 8.) Plaintiffs
completed the special forbearance plan in September 2010 and resumed regular monthly
mortgage payments to Wells Fargo through December 2010. (Id. at ¶¶10-11.)
In or about December 2010, Wells Fargo sent plaintiffs an Act 91 foreclosure
notice detailing the four (4) regularly monthly payments plaintiffs missed between
September and December 2010. (Id. at ¶ 12.) Wells Fargo sent additional Act 91 notices
to Plaintiffs in January and February 2011, after having returned the previously made
payments by plaintiffs under the special forbearance plan. (Id. at ¶¶ 13-21.) Following
the Act 91 notices, Wells Fargo referred plaintiffs to its foreclosure counsel, defendant
Phelan. (Def.[’s] Mot. Dismiss 3.) At the time of the Act 91 notices, plaintiffs were no
longer in arrears. (FAC, ¶ 20.)
In or about October 2011, defendants brought a foreclosure action against
plaintiffs in the Northampton Court of Common Pleas. (Id. at ¶ 23.) In December 2015,
Wells Fargo voluntarily withdrew its complaint and discontinued the foreclosure action
without prejudice. (Def.[’s] Mot. Dismiss 4.)
Plaintiffs bring claims against both defendants for alleged violations of Wrongful
Use of Civil Proceedings (“Dragonetti Act”) (Count I), Pa. Act 6 (Count II), Unfair Trade

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Practices and Consumer Protection Law (Count III), Fair Debt Collection Practices Act
(Count IV), and Loss of Consortium (Count V).
II.

STANDARD OF REVIEW
“To survive a motion to dismiss, a complaint must contain 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)). A claim satisfies the plausibility standard when the facts alleged “allow[]
the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Burtch v. Millberg Factors, Inc., 662 F.3d 212, 220-21 (3d Cir. 2011) (citing
Iqbal, 556 U.S. at 678). While the plausibility standard is not “akin to a ‘probability
requirement,’” there nevertheless must be more than a “sheer possibility that a defendant
has acted unlawfully.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). “Where
a complaint pleads facts that are ‘merely consistent with’ a defendant's liability, it ‘stops
short of the line between possibility and plausibility of entitlement to relief.’” Id. (quoting
Twombly, 550 U.S. at 557).
The Court of Appeals requires us to apply a three-step analysis under a 12(b)(6)
motion: (1) “it must ‘tak[e] note of the elements [the] plaintiff must plead to state a
claim;’” (2) “it should identify allegations that, ‘because they are no more than
conclusions, are not entitled to the assumption of truth;’” and, (3) “[w]hen there are wellpleaded factual allegations, [the] court should assume their veracity and then determine
whether they plausibly give rise to an entitlement for relief.” Connelly v. Lane
Construction Corp., 809 F.3d 780, 787 (3d Cir. 2016) (quoting Iqbal, 556 U.S. at 675,

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679); see also Burtch, 662 F.3d at 221; Malleus v. George, 641 F.3d 560, 563 (3d. Cir.
2011); Santiago v. Warminster Township, 629 F.3d 121, 130 (3d. Cir. 2010).
III.

DISCUSSION
Defendants Wells Fargo and Phelan both move to dismiss the complaint in its

entirety, with each addressing separate claims in their respective motions. For the
reasons that follow, I will deny defendants’ motions, except as to the Dragonetti claim
(Count I) against defendants.
A. MOTION TO DISMISS OF DEFENDANT WELLS FARGO
Defendant Wells Fargo sets forth numerous arguments in support of its motion to
dismiss Count I (Dragonetti Act), Count II (Pa. Act 6), Count III (UTPCPL), and Count
V (Loss of Consortium). As will be discussed below, I will deny Wells Fargo’s motion
to dismiss except as to Count I, the Dragonetti claim.
1. Wrongful Use of Civil Proceedings (“Dragonetti Act”) (Count I)
An attorney who knowingly initiates an unsupported action for malicious
purposes may be held responsible for wrongful use of civil proceedings, otherwise known
as the “Dragonetti Act.” U.S. Express Lines Ltd. v. Higgins, 281 F.3d 383, 394 (3d Cir.
2002). The Act was codified by the Pennsylvania legislature to protect against the use of
civil proceedings in a grossly negligent manner for purposes other than securing proper
discovery, joinder of parties, or adjudication of the claim. Arader v. Dimitrov, 2011 WL
4807924, at *4 (E.D. Pa. 2011). Under the Dragonetti Act, the plaintiff must allege five
elements:
(1) The defendant has procured, initiated or continued the civil
proceedings against him;
(2) The proceedings were terminated in his favor;
(3) The defendant did not have probable cause for his actions;

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(4) The primary purpose for which the proceedings were brought was not
that of securing proper discovery, joiner of parties or adjudication of
the claim on which the proceedings were based; and
(5) The plaintiff has suffered damages as set forth in 42 Pa.C.S. § 8353.
Id.
However, this Court has held that even where a plaintiff can show that the
defendant lacked probable cause for his actions, “the defendant is not liable unless the
plaintiff can demonstrate that the underlying action was filed for an improper purpose.”
Id. (emphasis added). Therefore, a heavy burden rests on the plaintiff to show the
defendant initiated civil proceedings for an improper purpose. U.S. Express Lines Ltd.,
281 F.3d at 394.
A review of the Complaint in this matter shows that plaintiffs failed to allege that
defendants initiated the foreclosure action for an improper purpose. (FAC, ¶¶ 26-31.)
Specifically, plaintiffs allege the defendants commenced the underlying foreclosure
action with malice and/or reckless indifference and lacked probable cause. (FAC, ¶¶ 2829.) Construing plaintiffs’ FAC broadly, it appears they allege the defendants improper
purpose was “to assert default where it was due to improper accounting by Wells Fargo.”
Conversely, Wells Fargo argues that it merely initiated the foreclosure action on the
mortgage that they believed to be in default. (Def.[’s] Reply Brief 4.)
Accepting plaintiffs’ allegations as true and drawing all reasonable inferences in
their favor, I find that allowing plaintiffs’ Dragonetti claim against defendants to proceed
is not appropriate. Plaintiffs have not alleged sufficient facts, if true, that would indicate
defendants lacked probable cause to initiate litigation against plaintiffs, and that the
proceedings were initiated primarily for improper purposes. Plaintiffs’ sole allegation
relating to an improper purpose – made in its response to Defendants’ motion to dismiss

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– is that Defendants initiated the foreclosure action “primarily for an improper purpose,
to assert default where it was due to improper accounting by Wells Fargo and plaintiffs
had otherwise paid in arrears.” (Pls.[’] Resp. in Opp. 6.) Aside from this conclusory
allegation, plaintiffs’ have not alleged any facts to support a finding of improper purpose
on the part of the defendants. Accordingly, we will dismiss plaintiffs’ Dragonetti Act
claim (Count I) with prejudice.
2. Violation of Pa. Act 6 (Count II)
Act 6, also known as the Loan Interest and Protection Law, provides protection to
homeowners and mandates strict notice be given prior to instituting mortgage foreclosure
proceedings. 41 P.S. § 403. “Any person affected by a violation of the act shall have the
substantive right to bring an action on behalf of himself individually for damages by
reason of such conduct or violation[.]” 41 P.S. § 504. Thus, under Act 6, attorneys’ fees
are statutorily governed by Section 503 of the Act. 41 P.S. § 503(a). Section 503
provides:
If a borrower or debtor, including but not limited to a residential mortgage debtor,
prevails in an action arising under this act, he shall recover the aggregate amount
of costs and expenses incurred on his behalf in connection with the prosecution of
such action, together with a reasonable amount for attorney’s fee.
41 P.S. § 503(a).
Plaintiffs argue they are entitled to reasonable attorneys’ fees from the underlying
action because Wells Fargo provided improper and inaccurate pre-foreclosure notice
causing them to unnecessarily defend the action. (FAC, ¶¶ 36-39.) Additionally,
plaintiff argues that it was the prevailing party in the underlying foreclosure action and is
entitled to attorneys’ fees under the Act. (Id.)

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Defendants counter that plaintiffs are not entitled to attorneys’ fees under Act 6
because a “mortgage foreclosure does not arise under Act 6.” (Def.[’s] Mot. Dismiss 8.)
Defendants rely on Nguyen, a 2016 Pennsylvania Superior Court decision precluding
attorneys’ fees for a residential mortgagor that successfully defended a mortgage
foreclosure action. Generation Mortg. Co. v. Nguyen, 138 A.3d 646 (Pa. Super. Ct.
2016). Further, defendants argue that plaintiffs are not entitled to attorneys’ fees because
they were not the prevailing parties in the foreclosure action as it was voluntarily
dismissed without prejudice by Defendant Wells Fargo. (Def.[’s] Mot. Dismiss 9-10.)
A review of the Complaint in this matter shows that plaintiffs have adequately
pled with sufficient specificity Wells Fargo’s violation of Act 6 requiring proper notice
and entitling Plaintiffs to an award of Attorneys’ fees. Furthermore, I find that
defendants’ argument can be reasserted at a later time as a motion for summary judgment
as more evidence is developed. Therefore, the motion is denied at this time as to Count
II, violation of Pa. Act 6.
3. Violations of the Pennsylvania Unfair Trade Practices and
Consumer Protection Law (UTPCPL) (Count III)
In order to establish a prima facie case under the UTPCPL, plaintiff must
establish “an ascertainable loss of money or property, real or personal, ‘as a result’ of the
defendant’s prohibited conduct under the statute.” Kaymark v. Bank of America, N.A.,
783 F.3d 168, 180 (3d Cir. 2015); see also Yocca v. Pittsburgh Steelers Sports, Inc., 854
A.2d 425, 438 (2004) (concluding that a plaintiff alleging UTPCPL must show justifiable
reliance on defendant’s wrongful conduct, and that the plaintiff suffered harm as a result
of that reliance). This Court has stated, “because the loss must occur ‘as a result’ of
unlawful conduct under the UTPCPL, ‘a private plaintiff pursuing a claim under the

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statute must prove justifiable reliance’ on the unlawful conduct, not merely that the
wrongful conduct caused plaintiff’s injuries.” Seldon v. Home Loan Services, Inc., 647
F.Supp.2d 451, 465 (E.D. Pa. 2009) (emphasis added).
Plaintiffs argue defendants engaged in unfair or deceptive acts by failing to state
material facts, or otherwise misstated, misrepresented, or omitted true facts relating to the
status of the mortgage loan. (FAC, ¶¶ 43.) Specifically, plaintiffs allege defendants
inaccurately represented the status of the loan due to an accounting error which lead to
the underlying action, and therefore, forced plaintiffs to retain counsel to defend against
the foreclosure action. (FAC, ¶¶ 43-45.) Moreover, plaintiffs’ claim had it not been for
Wells Fargo’s material misrepresentations on the status of the loan, plaintiffs would not
have suffered any damages or losses. (FAC, ¶¶ 46-47.) Plaintiffs’ claim defendants were
aware the representations and/or omissions relating to the loan were false when made,
and made with the intent to deceive or defraud plaintiffs “into selling their home.” (Id.)
However, defendants argue there was no justifiable reliance on the part of the
plaintiffs as a result of their conduct. (Def.[’s] Mot. Dismiss 11-12.) Defendants claim
that plaintiffs’ hiring of counsel to defend the foreclosure action was not reliance on
Wells Fargo’s actions and does not amount to an ascertainable loss. (Id.) The Supreme
Court of Pennsylvania recently concluded that retaining counsel did not amount to an
ascertainable loss. Grimes v. Enterprise Leasing Co., LLC, 105 A.3d 1188, 1193-94
(Pa.2014). However, the court in Grimes was concerned with the potential abuse under a
private action UTPCPL claim where a Plaintiff could potentially retain counsel in order
to satisfy the “ascertainable loss” requirement. Id. However, I need not determine at this
early stage whether Plaintiff in fact suffered ascertainable loss.

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Therefore, accepting plaintiffs’ allegations as true and drawing all reasonable
inferences in their favor, plaintiffs have alleged sufficient facts that, if true, would
indicate plaintiffs justifiably relied on defendants’ material misstatements and
misrepresentations thereby causing plaintiffs’ injuries. Accordingly, defendants’ motion
is denied as to Count III, and Plaintiffs’ UTPCPL claim will be allowed to proceed.
4. Loss of Consortium (Count V)
Under Pennsylvania law, loss of consortium is defined as the “loss of the
company, society, cooperation, affection and aid of a spouse in every conjugal relation.”
Pahle v. Colebrookdale Tp., 227 F.Supp.2d 361, 374-75 (E.D. Pa. 2002). Loss of
consortium does not require that the plaintiff wife or husband sustain physical injury,
rather it requires damaged marital expectations as a result of the injury to the opposite
spouse. Therefore, loss of consortium is derivative of the underlying claims asserted by
the opposite spouse. This Court concluded that a plaintiff wife’s loss of consortium
claim that she was deprived of her husband’s companionship, comfort, support, and
assistance, was sufficient to state a claim for loss of consortium. Fanelle v. LoJack
Corp., 79 F.Supp.2d 558, 564 (E.D. Pa. 2000).
Here, the plaintiffs allege that defendants’ wrongful acts caused them to suffer
loss of consortium, society, affection, assistance, and conjugal fellowship, to the
detriment of their marriage. (FAC, ¶¶ 56-58.) Plaintiffs have pled personal injuries, in
addition to pecuniary injury, and have satisfied their loss of consortium claim which is
derivative of the remaining claims for violations of Act 6 and the UTPCPL against Wells
Fargo. Meanwhile, Wells Fargo argues that because plaintiffs’ loss of consortium claim
is derivative of the remaining claims in the FAC, the loss of consortium claim should be

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dismissed as a result of the dismissal of all other claims in the FAC. (Def.[’s] Mot.
Dismiss 12-13.) Since some claims remain, so should the loss of consortium claim, for
now. Furthermore, reviewing plaintiffs FAC, I find that plaintiffs have sufficiently pled a
loss of consortium claim derivative of all other claims in the FAC. Therefore, Wells
Fargo’s motion to dismiss the loss of consortium claim (Count V) is denied.
B. MOTION TO DISMISS OF DEFENDANT PHELAN
Defendant Phelan moves to dismiss the complaint in its entirety and addresses
Count IV of the FAC, violation of the Fair Debt Collection Practices Act (“FDCPA”).
Defendant Phelan argues that only “material” claims are actionable under the FDCPA.
As will be discussed below, I will deny Defendant Phelan’s motion to dismiss in its
entirety.
1. Violation of the Fair Debt Collection Practices Act
(FDCPA)(Count IV)
The purpose of the FDCPA is to protect against and eliminate abusive practices
by debt collectors. Brown v. Card Service Center, 464 F.3d 450, 453 (3d Cir. 2006). The
Act provides consumers with a private cause of action against debt collectors who fail to
comply with the Act. Id. The Third Circuit, reading the Act broadly, finds that it should
be analyzed from the perspective of the “least sophisticated debtor.” Id. However, the
Act also prevents “liability for bizarre or idiosyncratic interpretations of collection
notices by preserving a quotient of reasonableness and presuming a basic level of
understanding and willingness to read with care.” Id.
A review of the Complaint in this matter shows that plaintiff alleges Phelan,
Wells Fargo’s debt collecting firm, violated the Act by misstating the amount due on the
loan and falsely represented the character, amount, or legal status of the debt. (FAC, ¶¶

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53-54.) Plaintiffs’ FAC further alleges Phelan improperly filed the foreclosure complaint
and motion pleadings when “no mortgage arrears were due other than the default
artificially created by Wells Fargo’s faulty accounting.” (FAC, ¶¶ 54-55.)
Phelan argues that debtors such as the plaintiffs could not have been misled or
deceived absent material information. (Def.[’s] Mot. Dismiss 3.) Phelan relies on the
Ninth Circuit decision in Donohue, which held “false but non-material representations are
not likely to mislead the least sophisticated debtor[.]” Donohue v. Quick Collect, Inc.,
592 F.3d 1027, 1033 (9th Cir. 2010). Phelan further relies on Third Circuit jurisprudence
in Jensen, which concluded that a statement “is only actionable under the FDCPA if it
has the potential to affect the decision making process of the least sophisticated debtor[.]”
Jensen v. Pressler & Pressler, 791 F.3d 413, 415 (3d Cir. 2015). However, the court
stated that the “relevant decision-making body” in these cases is the least sophisticated
debtor, and therefore a statement is only material if it objectively influences the decision
of the debtor. Id. at 421.
The Third Circuit found that a debt collection letter is deceptive where “it can
reasonably be read to have two or more different meanings, one of which is inaccurate.”
Brown, 464 F.3d at 455. Moreover, the court stated that where a debt collector “has
reason to know there are facts that make the action unlikely in the particular case, a
statement that the action was possible would be misleading.” Id. Plaintiffs argue that
Phelan knew or had reason to know that the foreclosure information was false or
misleading.
Therefore, accepting Plaintiffs’ allegations as true and drawing all reasonable
inferences in their favor, I find that dismissing Count IV, violation of the FDCPA, would

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not be appropriate at this stage of the proceedings. Plaintiffs have alleged sufficient facts
that, if true, would indicate Phelan made false representations and mislead plaintiffs as
unsophisticated debtors. Accordingly, Phelan’s motion is denied, and Plaintiffs’ FDCPA
claim will be allowed to proceed.
IV.

CONCLUSION
It is not the province of this Court to pass judgment on the ultimate strength of

plaintiffs’ case on a motion to dismiss, and thus the result of a motion to dismiss is not an
indication of plaintiffs’ likelihood of success on the merits. That said, plaintiffs’ First
Amended Complaint is largely sufficient to survive Defendant Wells Fargo’s and
Defendant Phelan’s motion to dismiss, and therefore the motion will be denied as to
Counts II, III, IV and V. However, Count I, Wrongful Use of Civil Proceedings
(Dragonetti Act), will be dismissed with prejudice.

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