Sprayregen v. Bank of America, N.A.

Filing 36

MEMORANDUM OPINION & ORDER granting in part and denying in part 32 Motion to Amend 1 Complaint ; granting 26 Motion for Partial Summary Judgment. Signed by Judge William K. Sessions III on 7/23/2012. (law)

UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF VERMONT

PAUL SPRAYREGEN,
Plaintiff,
v.
BANK OF AMERICA, N.A.,
Defendant.

:
:
:
: Case No. 2:11-cv-00115
:
:
:
:
:

Memorandum Opinion & Order:
Defendant’s Motion for Partial Summary Judgment and Plaintiff’s
Motion for Leave to Amend Complaint
Plaintiff Paul Sprayregen filed suit against Defendant Bank
of America, N.A. (“BOA”), seeking recovery for damages related
to breach of a lending agreement.

There are two motions before

the Court, BOA’s Motion for Partial Summary Judgment, ECF No.
26, and Sprayregen’s Motion for Leave to Amend Complaint, ECF
No. 32.
For the reasons set forth below, the Court GRANTS BOA’s
Motion for Partial Summary Judgment.

Additionally, the Court

GRANTS in part and DENIES in part Sprayregen’s Motion to Amend,
consistent with the Order below.
INTRODUCTION
Defendant BOA is a financial institution with contacts in,
among other places, Vermont and Florida.
Sprayregen is a Vermont resident.

Plaintiff Paul

In 2005, BOA extended a

mortgage loan in the amount of $2,800,000 to Sprayregen, secured
by a mortgage on Sprayregen’s Palm Beach, Florida property (the
“property”).
In connection with the mortgage loan, parties executed a
promissory note and a mortgage deed.

The promissory note

contains no choice-of-law provision, but the mortgage deed does,
stating that Florida law governs.
The mortgage deed further states that if Sprayregen fails
to provide BOA with proof of wind insurance, BOA will impose
lender-placed insurance on the property at Sprayregen’s expense.
Accordingly, because BOA determined that Sprayregen did not
secure wind insurance as required, BOA imposed lender-placed
insurance on the property.

Sprayregen alleges, however, that

BOA should not have imposed lender-placed insurance, since
Sprayregen had obtained wind insurance and provided BOA with
adequate proof of the policy.

Nevertheless, at the time

Sprayregen filed suit against BOA, BOA maintained a $43,345.33
debit on Sprayregen’s account for the cost of the lender-placed
insurance.
Sprayregen filed this diversity suit against BOA on May 4,
2011, seeking recovery in the amount of $173,380.

Sprayregen’s

Complaint raises common law claims for Breach of Contract,
Unjust Enrichment, Promissory Estoppel, and Breach of the

2

Covenant of Good Faith and Fair Dealing.

It also raises a

Consumer Fraud claim under the Vermont Consumer Fraud Act.
Sprayregen’s Complaint raised no claim of “false credit
reporting” whatsoever.

Despite this fact, BOA filed a Motion

for Partial Summary Judgment on March 30, 2012 directly
addressing the issue of false credit reporting.

It argues that

(1) Sprayregen’s state law claims related to false credit
reporting must fail, since federal law preempts them, and (2)
Sprayregen’s Consumer Fraud claim predicated on the Vermont
Consumer Fraud Act must fail, since Florida law is controlling
on all claims not preempted by federal law.

The parties had

fully briefed BOA’s Motion for Partial Summary Judgment by May
15, 2012, but nowhere did they directly address the peculiar
fact that false credit reporting was never raised in the
pleadings.
Then, on June 6, 2012, Sprayregen filed a Motion for Leave
to Amend Complaint.

According to Sprayregen’s proposed Amended

Complaint, BOA has removed the $43,345.33 debit it once
maintained on Sprayregen’s account.

Nevertheless, Sprayregen’s

proposed Amended Complaint maintains all five counts originally
alleged against BOA, only adding additional factual allegations
as well as one additional claim for relief—False Credit
Reporting with Malicious and Willful Intent to Injure.
According to Sprayregen’s new allegations, BOA wrongfully
3

charged Sprayregen late fees related to the lender-placed
insurance and wrongfully reported Sprayregen as delinquent to
credit reporting agencies, harming Sprayregen when he refinanced
the property on relatively more onerous terms.
BOA opposes Sprayregen’s Motion to Amend, arguing that
Sprayregen’s amendments would cause undue delay and prejudice to
BOA, highlighting that discovery has closed and that BOA already
filed a Motion for Partial Summary Judgment.

BOA further argues

that Sprayregen’s amendments would be futile in light of BOA’s
Motion for Partial Summary Judgment.
That BOA presents issues in its Motion for Partial Summary
Judgment that were not raised in the pleadings creates some
confusion.

Specifically, it is not clear to what extent

Sprayregen’s proposed Amended Complaint is an attempt to reflect
the issues litigated in BOA’s Motion for Partial Summary
Judgment or to what extent Sprayregen’s proposed Amended
Complaint is an attempt to put forth new issues not previously
litigated.

The Court therefore adjudicates as separate issues

BOA’s Motion for Partial Summary Judgment and Sprayregen’s
Motion to Amend.

See Fed. R. Civ. P. 15(b)(2) (stating that

parties may litigate issues not formally pled).

4

DISCUSSION
I.
`

The Court Grants BOA’s Motion for Partial Summary Judgment.
A. Standard of Review
Summary judgment is appropriate when there is no genuine

issue of material fact and the movant is entitled to judgment as
a matter of law.

See Anderson v. Liberty Lobby, Inc., 477 U.S.

242, 248-49 (1986); see also Fed. R. Civ. P. 56.

In addressing

motions for summary judgment, courts construe all inferences and
reasonable doubts in favor of the non-movant.

See id.

B. The Court Grants BOA’s Motion for Partial Summary Judgment,
Since Federal Law Preempts State Law on the Issue of False
Credit Reporting.
Enacted in 1970, the federal Fair Credit Reporting Act
(“FCRA”) regulates the furnishing of information to credit
reporting agencies.

See 15 U.S.C. §§ 1681-1681x.

In 1996,

Congress amended FCRA, creating issues of statutory
interpretation centering around a possible contradiction between
section 1681h(e) (enacted in 1970) and section 1681t(b)(1)(F)
(enacted in 1996).

See generally Macpherson v. JP Morgan Chase

Bank, N.A., 665 F.3d 45 (2d Cir. 2011) (per curiam)
(interpreting FCRA after its 1996 amendment).

Section 1681h(e)

states that consumers may not bring actions “in the nature of
defamation, invasion of privacy, or negligence . . . except as
to false information furnished with malice or willful intent to

5

injure.”

See 15 U.S.C. § 1681h(e) (emphasis added).

Section

1681t(b)(1)(F) states that “[n]o requirement or prohibition may
be imposed under the laws of any State” related to the
furnishing of credit information.
(emphasis added).

15 U.S.C. § 1681t(b)(1)(F)

The question is whether section

1681t(b)(1)(F) preempts all state law claims related to false
credit furnishing or whether it leaves open section 1681h(e)’s
‘malice or willfulness exception’ in consumer actions.

See

Macpherson, 665 F.3d at 47.
While some courts have gone the other way, see Wilson v.
Carco Grp., Inc., 518 F.3d 40, 42 n.2 (D.C. Cir. 2008), the
Second Circuit has expressly resolved FCRA’s inconsistency by
interpreting section 1681t(b)(1)(F) as creating a broad
preemption, barring all state law claims, regardless of whether
or not the state law claims are based on malice or willfulness,
see Macpherson, 665 F.3d at 47-48.

In other words, section

1681h(e) is not an exception to 1681t(b)(1)(F) under Second
Circuit law.

See id.

In Macpherson v. JP Morgan Chase Bank,

N.A., the Second Circuit reasoned as follows:
Section 1681h(e) preempts some state claims that could
arise out of reports to credit agencies; § 1681t(b)(1)(F)
simply preempts more of these claims. Put differently, the
operative language in § 1681h(e) provides only that the
provision does not preempt a certain narrow class of state
law claims; it does not prevent the later-enacted §
1681t(b)(1)(F) from accomplishing a more broadly-sweeping
preemption.

6

See id. (internal quotations omitted).
The Second Circuit’s reasoning is consistent with
Congressional intent as well as statutory interpretation norms,
as the Seventh Circuit persuasively argues:
Section 1681h(e) does not create a right to recover
for wilfully false reports; it just says that a
particular paragraph does not preempt claims of that
stripe.
Section 1681h(e) was enacted in 1970.
Twenty-six years later, in 1996, Congress added §
1681t(b)(1)(F) to the United States Code.
The same
legislation also added § 1681s-2.
The extra federal
remedy
in
§
1681s-2
was
accompanied
by
extra
preemption in § 1681t(b)(1)(F), in order to implement
the new plan under which reporting to credit agencies
would
be
supervised
by
state
and
federal
administrative agencies rather than judges.
Reading
the earlier statute, § 1681h(e), to defeat the later
enacted system in § 1681s-2 and § 1681t(b)(1)(F),
would
contradict
fundamental
norms
of
statutory
interpretation.
See Purcell v. Bank of Am., 659 F.3d 622, 625 (7th Cir. 2011).
Thus, regardless of whether BOA acted willfully or with
intent to injure, BOA is entitled to summary judgment in that
FCRA preempts state law on issues of false credit reporting,
precluding Sprayregen from asserting any such state law claim.
Sprayregen’s brief implicitly acknowledges that the Second
Circuit’s interpretation of FCRA is contrary to his position,
stating that the “issue in Mac[p]herson was the same as it is in
this action,” that the Second Circuit’s ruling in Macpherson has
“obvious problems,” and that this Court should look to “[o]ther
circuits” with “more reasonable” interpretations of FCRA.

7

As

this Court is bound by Second Circuit precedent, it grants
partial summary judgment to BOA on any state law false credit
reporting claim.
C. The Court Grants BOA’s Motion for Partial Summary Judgment,
Since Florida Law Governs All Claims Not Preempted by
Federal Law.
Sprayregen predicates his Consumer Fraud claim on the
Vermont Consumer Fraud Act.
2481w.

See Vt. Stat. Ann. tit. 9, §§ 2451-

BOA’s Motion for Partial Summary Judgment argues that

Sprayregen’s Consumer Fraud claim must fail, since Florida law
governs all claims not preempted by federal law.
This Court applies Vermont’s conflict-of-law jurisprudence
to state law claims.

See Klaxon Co. v. Stentor Electric Mfg.

Co., 313 U.S. 487, 496 (1941).

When determining conflict-of-law

questions related to contractual disputes, the Vermont Supreme
Court looks to a variety of factors aimed at determining the
intent of the parties as well as the contract’s “center of
gravity,” including: (1) whether the parties agreed to a choiceof-law provision; (2) where the parties reside; (3) “the
location of the subject matter of the contract”; and (4) which
jurisdiction is “predominantly or most intimately concerned”
with the matter at hand.

See Stamp Tech, Inc. v. Lydall/Thermal

Acoustical, Inc., 2009 VT 91, ¶¶ 19-24, 987 A.2d 292, 298-99;
Pioneer Credit Corp. v. Carden, 245 A.2d 891, 894 (Vt. 1968);

8

General Acceptance Corp. v. Lyons, 215 A.2d 513, 515-16 (Vt.
1965).
In connection with the mortgage loan, the parties executed
a promissory note and a mortgage deed.

The mortgage deed

contains a choice-of-law provision, stating that Florida law
governs.

While the promissory note contains no choice-of-law

provision, the mortgage deed speaks substantially to the intent
of the parties.

Moreover, “the location of the subject matter

of the contract” is Florida.

Florida is also the jurisdiction

“predominantly or most intimately concerned” with the mortgage
loan, as the mortgaged property is located within its territory.
It is true that Sprayregen resides in Vermont, not Florida.
This factor, however, is not sufficient to impact the choice-oflaw question.

The Court finds that based upon all

considerations discussed above, Florida law is to be applied in
this case and therefore grants BOA partial summary judgment on
the Vermont Consumer Fraud Act claim.
II.

The Court Partially Denies and Partially Grants
Sprayregen’s Motion for Leave to Amend Complaint.
The Court has discretion to deny motions to amend where

undue delay, bad faith, or undue prejudice to the opposing party
is present.

See Tokio Marine & Fire Ins. Co. v. Emp’r Ins. of

Wausau, 786 F.2d 101, 103 (2d Cir. 1986).

Similarly, leave to

amend a complaint should be denied if the proposed amendments
9

would be futile.

See Lucente v. Int’l Bus. Machs. Corp., 310

F.3d 243, 258 (2d Cir. 2002).
The Court denies in part and grants in part Sprayregen’s
Motion to Amend.

The Court denies the motion insofar as it

moves to add an additional cause of action—False Credit
Reporting with Malicious and Willful Intent to Injure.

Adding

this state law claim to Sprayregen’s Complaint is futile because
federal law would preempt it, as the Court already discussed.
However, the Court grants Sprayregen’s Motion to Amend in
all other regards, since aside from proposing the additional
cause of action, Sprayregen’s proposed amendments are
appropriate.

Sprayregen’s proposed amendments reflect that BOA

has removed its $43,345.33 debit from Sprayregen’s account.

The

proposed amendments further reflect that BOA charged Sprayregen
late fees associated with the lender-placed insurance and that
BOA declared Sprayregen delinquent on his mortgage.

These

amendments include facts known by both parties and, as a result,
do not prejudice BOA or require reopening discovery.
CONCLUSION
For the aforementioned reasons, the Court hereby GRANTS
BOA’s Motion for Partial Summary Judgment and the Court hereby
partially DENIES and partially GRANTS Sprayregen’s Motion for
Leave to Amend Complaint.

Accordingly, the Court strikes

Sprayregen’s Consumer Fraud claim as well as Sprayregen’s
10

proposed additional count, False Credit Reporting with Malicious
and Willful Intent to Injure.

The Court also rules that Florida

law governs all issues not preempted by federal law.
SO ORDERED.
Dated at Burlington, in the District of Vermont, this 23rd
day of July, 2012.
/s/William K. Sessions III
William K. Sessions III
U.S. District Court Judge

11