Pickett v. Ditech Financial, LLC et al
CORRECTED ORDER granting 32 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM filed by Bank of America Corporation and granting in part, denying in part 33 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM filed by Bank of New York Mellon Corporation, Residential Credit Solutions, Inc., Ditech Financial, LLC, the previous order contained the incorrect date - So Ordered by District Judge John J. McConnell, Jr. on 8/3/2018. (Barletta, Barbara)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
CLIFFORD PICKETT, SR.,
DITECH FINANCIAL, LLC,
SOLUTIONS, INC., BANK OF
AMERICA CORPORATION, THE
BANK OF NEW YORK MELLON
CORPORATION, AND FIREMAN'S
FUND INSURANCE COMPANY,
C.A. No. 17·467-JJM-LDA
Clifford Pickett filed suit against several financial institutions and mortgage
servicers seeking $207,241.02 in insurance proceeds he alleges he was due after an
accidental fire damaged his home in Jamestown, Rhode Island.
Ditech Financial, LLC ("Ditech"), Residential Credit Solutions, Inc. ("RCS"), Bank of
America Corporation ("BAC"), 1 and The Bank of New York Mellon Corporation
("BONY'') 2 have moved to dismiss under Federal Rules of Civil Procedure 12(b)(6).
ECF Nos. 32, 33.
Bank of America, N.A. ("BANA") responds to Mr. Pickett's claims,
assuming that he intended to name it as a defendant in light of the fact that it
formerly serviced his loan. BANA asserts that BAC, which Mr. Pickett did sue, is not
a proper defendant in this case because it is a holding company that never held an
interest in Mr. Pickett's loan.
Mr. Pickett voluntarily dismissed his claims against Fireman's Fund
Insurance Company. ECF No. 20.
On January 9, 2007, Mr. Pickett obtained a loan for $423,000 from America's
Wholesale Lender for property located in Jamestown, R.I. ("Property"). The parties
entered into a uniform Mortgage Security Instrument ("mortgage") a In compliance
with Section 5 of the mortgage, Mr. Pickett insured the Property through the
Fireman's Fund Insurance Company ("FFIC"). The Mortgage Electronic Registration
System ("MERS") assigned the mortgage on August 25, 2010 to The Bank of New
York J\IIellon as Trustee fen· the Benefit of Alternative Loan Trust 2007·7'1'2 Mortgage
Pass·Through Certificates, Series 2007·7'1'2.
On or about July 20, 2014, the Property sustained serious damage due to an
accidental fire. ECF No. 30. Mr. Pickett alleges that beginning on or about July 27,
2014, and for some time thereafter, a licensed general contractor performed
restoration and repairs to the Property. On or about September 3, 2014, Mr. Pickett
alleges that FFIC released insurance proceeds of $207,241.02 to RCS and BAC.
However, RCS and/or BAC never disbursed the monies to Mr. Pickett or his
contractor. Section 5 states, "[d]uring such repair and restoration period, Lender
shall have the right to hold such insurance proceeds until Lender has had an
opportunity to inspect such Property to ensure work has been completed to Lender's
"Courts are permitted, in some instances, to consider on a Rule 12(b)(G)
motion documents that were not attached to the complaint. We have found these
'narrow exceptions' to include 'documents the authenticity of which are not disputed
by the parties; ... documents central to plaintiffs' claim; or ... documents sufficiently
referred to in the complaint."' Foley v. Wells Fargo Bank, NA., 772 F.3d 63, 7 4 (1st
Cir. 2014) (quoting Watterson v. Page, 987 F.2d 1, 3 (1st Cir. 1993)).
satisfaction, provided that such inspection shall be undertaken promptly." ECF No.
32·3 at 6.'1 Mr. Pickett alleges that the Lender failed to inspect the Property.
Section 5 of the mortgage further states, "if the Lender acquires the Property
under Section 22 or otherwise, the Borrower hereby assigns to the Lender (a)
Borrower's rights to any insurance proceeds in an amount not to exceed the amounts
unpaid under the Note or this Security Instrument." Id. Mr. Pickett defaulted on his
After default, the mortgagee applied the Proceeds to the outstanding
principle balance and neither Mr. Pickett nor his contractor received any of the
Mr. Pickett filed a multi ·count complaint, later amended, for negligence,
breach of contract, conversion, unjust enrichment, and vicarious liability against all
Defendants, alleging that those institutions' failure to turn over the insurance
proceeds so that he could pay his contractor was in violation of the mortgage contract
and common law. All remaining Defendants have moved to dismiss. ECF Nos. 32,
33. Mr. Pickett objected to both motions. ECF Nos. 34, 35.
In fact, RCS as sorvicer sent a letter on December 8, 2014 stating, "we
share your interest in getting the repairs completed in a timely manner" and notes
that it is the property owner's "responsibility to keep [RCS] informed as to the status
of repairs." ECF No. 34·2 at 2,
II. Standard ofReview
To survive a motion to dismiss for failure to state a claim, a complaint must
contain "sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face." Bell Atl. Corp. v. Twomb~)~ 550 U.S. 544, 570 (2007). At the
same time, the Court "must accept a plaintiffs allegations as true and construe them
in the light most favorable to them." Gargano v. Liberty Int'l Underw1iters, 572 F. 3d
45, 48 (1st Cir. 2009). "A Rule 12(b)(6) motion will be granted only if, when viewed
in this manner, the pleading shows no set of facts which could entitle plaintiff to
relief." Gooley v. Jl1obJJ Oil Corp., 851 F.2d 513, 514 (1st Cir. 1988) (citing Conley v.
Gibson, 355 U.S. 41, 45-48 (1957)).
Mr. Pickett's amended complaint contains five claims: negligence, breach of
contract, conversion, unjust enrichment, and vicarious liability.
As not all of
Mr. Pickett's claims are against every defendant and each defendant's role vis·a·vis
the mortgage and Mr. Pickett's status as homeowner differs, the Court will discuss
each of the Defendants and the claims brought against them in turn, after setting
forth the legal elements of each claim.
Under Rhode Island law, "[t)o maintain a cause of action for negligence, the
plaintiff must establish four elements: (1) a legally cognizable duty owed by defendant
to plaintiff; (2) breach of that duty; (3) that the conduct proximately caused the injury;
and (4) actual loss or damage." Jl1edeiros v. Sit1in, 984 A.2d 620, 625 (R.I. 2009).
Breach of Contract
"To succeed on a breach of contract claim under Rhode Island law, a plaintiff
must prove that (1) an agreement existed between the parties, (2) the defendant
breached the agreement, and (3) the breach caused (4) damages to the plaintiff."
Barkan v. Dunkin' Donuts, hJC., 627 F.3d 34, 39 (1st Cir. 2010).
"The gravamen of an action for conversion lies in the defendant's taking the
plaintiffs personalty without consent and exercising dominion over it inconsistent
with the plaintiffs right to possession. To maintain an action for conversion, a
plaintiff must establish that she was in possession of the personalty, or entitled to
possession of the personalty, at the time of conversion." Alex & Ani, LLC v. Elite
Level Consulting; LLC, 31 F. Supp. 3d 365, 371 (D.R.I. 2014) (internal citations
omitted). The focus of inquiry is "whether the defendant has appropriated to his own
use the chattel of another without the latter's permission and without legal right."
Tenien v. Josepl1, 53 A.2d 923, 925 (R.I. 1947).
"To recover for unjust enrichment, a plaintiff must prove (1) that a benefit was
conferred upon the defendant by the plaintiff, (2) that the defendant has an
appreciation for such benefit, and (3) that the defendant accepted the benefit in such
a way that it would be inequitable for the defendant to retain the benefit without
paying for it." Ciampi v. Zuczek, 598 F. Supp. 2d 257, 263 (D.R.I. 2009).
"Agency is the fiduciary relation which results from the manifestation of
consent by one person to another that the other shall act on behalf and subject to his
control, and consent by the other so to act. The Rhode Island Supreme Court has
outlined three elements that must be shown in order for an agency relationship to
exist: (1) the principal must manifest that the agent will act for him, (2) the agent
must accept the undertaking, and (3) the parties must agree that the principal will
be in control of the undertaking." ButleT v. A1cDonald's C01p., 110 F. Supp. 2d 62, 66
(D .R.I. 2000) (internal citations omitted).
Mr. Pickett has brought claims for negligence, breach of contract, conversion,
and unjust enrichment against BAC. He also brings claims for vicarious liability
against BAC for negligence, breach of contract and conversion for RCS's role because
he alleges that RCS was acting as BAC's agent within its scope of authority .
.Mr. Pickett alleges that BAC had a duty to "inspect the Property to determine
whether restoration or repair of the Property was economically feasible," and if so,
"apply the Proceeds to the restoration or repair of the Property." Mr. Pickett alleges
BAC breached its duty by failing to inspect, thus causing "substantial financial
damages and losses." BAC argues that it had no duty because it was neither the
mortgagee nor the servicer at the time of or after the date of the fire.
Mr. Pickett's claims fail because he does not and cannot establish that BAC
had any duty or took any action in relation to the insurance proceeds. In August
2010-several years prior to the elate ofloss-MERS assigned the mortgage to BONY
so BAC was not a mortgagee at the time of the events of this case.
Mr. Pickett acknowledges that BAC was a former servicer who transferred servicing
responsibilities to codefendant RCS on April 16, 2014, months before the July 20,
2014 elate of loss. Mr. Pickett's own admission that BAC was not a party to the
contract after April 16, 2014 makes the claims of negligence, conversion, breach of
contract, and unjust enrichment against BAC not plausible.
Mr. Pickett brings one claim against BONY for unjust enrichment. BONY
acquirecllVIr. Pickett's Property following the foreclosure sale, after the fire damaged
the Property and Mr. Pickett allegedly made repairs to it. Mr. Pickett alleges BONY
"appreciated the benefits ofthe Proceeds, as well as the repairs and restorations made
to the Property."
Mr. Pickett alleges restoration and repairs were made to the
Property for which he was not compensated, creating a benefit that BONY
appreciated when it sold the Property to a third party.
"In Rhode Island, unjust enrichment and quasi-contractual or implied
contractual liability rests upon the 'equitable principle that one shall not be permitted
to enrich himself unjustly at the expense of another or to receive property and
benefits without making compensation therefor."' Cazabat v. Metro. Prop. & Cas.
Ins. Co., No. C.A. KC99-0544, 2000 WL 1910089, at *7 (R.I. Super. Apr. 24, 2000)
(quoting R & B. Elect. Co., Inc. v. Amco Constr. Co., Inc., 471 A.2cl 1351, 1355 (R.I.
Where there exists an express contract between the parties, equitable
doctrines such as unjust enrichment are unavailable.
v. HerbaHfe Int'J
ofAm., Inc., 415 F.3d154, 162 (1st Cir. 2005). In this case, the mortgage is an express
contract between the parties, which governed the disbursement of the insurance
proceeds; accordingly, 1\IIr. Pickett cannot state a claim for unjust enrichment against
Mr. Pickett alleges that Ditech acquired certain assets of RCS's servtcmg
platform, including his mortgage and the insurance proceeds, on or about January 29,
lVIr. Pickett does not allege that Ditech was the servicer of Mr. Pickett's
mortgage at any period relevant to this suit. In fact, Mr. Pickett alleges that RCS
was the servicer of the mortgage at all times relevant to this action. Therefore, the
Court dismisses all claims against Ditech.
Mr. Pickett makes all five claims against RCS for its role in servicing his
mortgage. RCS received the money from FFIC in September 2014 after the fire and
held it in order for it to be applied to restoration or repairs, if economically feasible.
As of December 8, 2014, RCS was still holding the funds, ultimately turning the
proceeds over to the Lender when Mr. Pickett defaulted.
Mr. Pickett alleges RCS had a duty under the mortgage contract to, "promptly
inspect the Property" and "to apply the Proceeds to the restoration and repair of the
The general rule is that a bank docs not owe a duty to a borrower. JllfacKenzie
v. Flag-star Bank, FSB, 738 F.3d 486, 495 (1st Cir. 2013). Some courts have held,
however, that servicers have a common law duty to exorcise reasonable care in
processing loan modification applications. See Clinton v. Select Portfolio Servicing;
Inc., 225 F. Supp. 3d 1168, 1174 (E.D. Cal. 2016); Alvarez v. BAG Home Loans
Servicing; L.P., 228 Cal. App. 4th 941, 48·49 (2014); but see Ross v. Fed. Nat. lo1ortg:
Ass'n, No. 13-12656, 2014 WL 3597633, at *9 (E.D. Mich. July 22, 2014) (no duty of
care in the loan modification process). In this case, Mr. Pickett does not specifically
allege what RCS's duty was vis·a·vis the insurance proceeds, but he does allege that
RCS was required by tho terms of the mortgage to inspect the repairs made on his
Property as a prerequisite to disbursement and failed to do so. The Court finds, at
this stage, that he has plausibly alleged that RCS owed him a duty. This is especially
so in light of the fact that it is not clear from the complaint or any attached documents
why RCS held the proceeds for months without inspecting the Property or paying any
proceeds to Mr. Pickett, ultimately waiting until he defaulted and applying the
proceeds to the default. As such, the Court finds that Mr. Pickett's negligence claim
against RCS survives RCS's motion to dismiss.
b. B1·each of contract
In order to plead adequately a claim for breach of contract against RCS,
!VIr. Pickett must first allege that he had an express or implied contractual agreement
with RCS. As a general principle, a mortgage servicer is not a party to a mortgage
contract. See Dill v. Am. Home li1ortg: Servicing; hJC., 935 F. Supp. 2d 299, 303 (D.
:Mass. 2013); MDdge v. Bank ofAm., NA., Civil No. 13-cv-'121, 2015 WL 1387476, at
*5 (D.N.H. Mar. 25, 2015); Ayoub v. Citil"Vlortgage, Inc., Civil Action No. 15-CV13218-ADB, 2018 WL 1318919, at *7 (D. Mass. Mar. 14, 2018); James v. G.MAC
ll1ortg. LLC, 772 F. Supp. 2d 307, 315 (D. Me. 2011); see also JI!Ioore v. Jlilortg. Elec.
Reg: Sys., Inc., 848 F. Supp. 2d 107, 127 (D.N.H. 2012); Chanthavong v. John Doe
Co1'}J., No. CA 10-2118, 2012 WL 6840496, at *3 (D.R.I. Nov. 19, 2012) (collecting
cases); J11azzei v. The Jllfoney Store, 308 F.R.D. 92, 110 (S.D.N.Y. 2015) ("A significant
majority of courts have concluded that loan servicers are not in privity of contract.
with mortgagors where the servicers did not sign a contract with the mortgagors or
expressly assume liability.").
The operative and governing agreement in Mr. Pickett's complaint is the
mortgage contract. The mortgage agreement referenced in Mr. Pickett's complaint is
between him as "Borrower" and America's vVholesale Lender as the "Lender," and
!VIERS as "Mortgagee." Mr. Pickett does not allege that he had a contract with RCS,
but skips right to tho allegation that RCS breached the Mortgage by failing to pay
him tho proceeds to cover the repairs to his Property. Accordingly, Ivir. Pickett's
breach of contract claim against RCS fails to state a claim for relief.
Mr. Pickett alleges that RCS knew he had a Property interest in the proceeds,
it "had no superior right to any portion of the Proceeds as it was only a holder of the
funds and required to make disbursements pursuant to terms of the Mortgage."
Mr. Pickett further alleges that RCS "intending to permanently deprive [him] and
intending to appropriate the Proceeds to itself, did in fact deprive and appropriate
the Proceeds to itself to the detriment of the Plaintiff." That is not enough to state a
claim for conversion. He does not allege that he was "entitled to possession of the
personalty, at the time of conversion." Alex & Ani, LLC, 31 F. Supp. 3d at 371. While
it may be true that Mr. Pickett had an interest in the proceeds, the mortgage contract
gives him a conditional interest, not an absolute right to them. In fact, RCS did not
appropriate the proceeds to itself, but applied them to the outstanding principle
balance on the Note at the time of the foreclosure, in accordance with Section 22 of
the mortgage. Therefore, Mr. Pickett's conversion claim against RCS fails.
d. Unjust emichment
Mr. Pickett alleges that RCS knew Mr. Pickett had an interest in the proceeds
and, as the mere holder of funds, did not have a superior right to the proceeds, and
was required to make disbursements pursuant to the Mortgage. He alleges that RCS
appreciated the benefits of the proceeds as well as the repairs he made to the
Property, and that retention was inequitable. These bare allegations, without any
factual support are not sufficient to state a claim. There is no doubt that RCS did not
have a right to keep the proceeds, but was required to disburse them in accordance
with the terms of the mortgage. However, as the servicer, RCS did not retain any
benefits in the form of the proceeds, which it paid to the Lender, or the value of the
allegedly improved Property because it had no interest in the Property itself. As such,
Mr. Pickett's unjust emichment claim against RCS fails.
e. Vicarious liability
Mr. Pickett levels vicarious liability claims against BAC on his negligence,
breach of contract, and conversion claims against RCS.
Mr. Pickett's vicarious
liability claims fail in light of the Court's previous determination that he cannot
establish that BAC had any duty or took any action in relation to the insurance
proceeds. RCS was the loan service platform for BONY between the relevant period
of July 20, 2014 until December 8, 2014; BAC was never the Lender on the mortgage
so could not be vicariously liable for· any of that mortgage servicer's alleged actions.
As such, all claims of vicarious liability between RCS and BAC fail.
Based on the foregoing reasons, Mr. Pickett's negligence claim against RCS
survives. All remaining claims and Defendants are dismissed. The Court GRANTS
BANA's motion to dismiss. ECF No. 32. The Court GRANTS RCS, DITECH, and
BONY's motion to dismiss (ECF No. 33) on Counts 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, & 12,
and DENIES RCS's motion to dismiss on Count 1 (negligence against RCS).
-..._.__ I S s r ; : r ,RED
John J. McConnell, Jr.
United States District Judge
August 3, 2018
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