Giovia et al v. PHH Mortgage Corporation et al

Filing 43

MEMORANDUM OPINION Re: Motions to Dismiss. Signed by District Judge Leonie M. Brinkema on 11/13/13. (pmil, )

IN THE UNITED STATES DISTRICT COURT FOR T,
EASTERN DISTRICT OF VIRGINIA

Alexandria Division

11 I NOV I32013

JOSEPH GIOVIA, et al.,

1

Plaintiffs,

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ALEXANDRIA. VIRQl'JIA

l:13cv00577

(LMB/TCB)

PHH MORTGAGE CORPORATION, et
al.,
Defendants.
MEMORANDUM OPINION

Before the Court are defendants PHH Mortgage Corporation
and Federal National Mortgage Association's Motion to Dismiss

Plaintiffs' First Amended Complaint; Defendant Professional

Foreclosure Corporation of Virginia's Motion to Dismiss; and
Defendant Shapiro, Brown & Alt, LLP's Motion to Dismiss.

For the reasons that follow, defendants PHH Mortgage
Corporation and Federal National Mortgage Association's motion
to dismiss will be denied and defendants Professional

Foreclosure Corporation of Virginia and Shapiro, Brown & Alt,
LLP's motions to dismiss will be granted in part and denied in
part as moot.
I.

BACKGROUND

Plaintiffs Joseph and Eileen Giovia are residents of a

property in Manassas, Virginia that is the subject of this

litigation.

71

First Amended Complaint ("Amend. Compl.") f l.

Defendant PHH Mortgage Corporation ("PHH") is a New Jersey
corporation engaged in mortgage activities in Virginia;
defendant Federal National Mortgage Association ("FNMA") is a
government-sponsored enterprise chartered by the United States

to support the secondary mortgage market by purchasing
residential mortgages from private mortgage lenders and then
holding or selling those mortgages; defendant Professional

Foreclosure Corporation of Virginia ("PFC") is a Virginia
professional corporation with its principal place of business in
Virginia Beach, Virginia which regularly acts as a trustee on

deeds of trust and conducts foreclosures on properties located
in Virginia; and defendant Shapiro, Brown & Alt, LLP ("SBA") is
a professional foreclosure law firm located in Virginia whose
business is the collection of debts.

Id. at ^ 2-5.1

Plaintiffs allege that on November 18, 2004, they

refinanced their property with PHH, executing a promissory note
("the Note") in the amount of $344,000.00 and a Deed of Trust as
a security interest on the property which named PHH as the

Plaintiffs allege that PFC was "an alternate voice and alter

ego" of SBA and that "they were one and the same" for purposes
of the Amended Complaint. Amend. Compl. U 5.

lender.

Id^ at Jfl 9-11; Exs. A (Note), B (Deed of Trust).2

FNMA

purchased the loan on November 18, 2004, assigning it Fannie Mae
Loan Number 1697644 642.

Amend. Compl. U 13.

Although FNMA

purchased the loan from PHH, PHH retained responsibility for
servicing the loan in accordance with its contract with FNMA and
FNMA's Single Family Seller/Servicer Guide ("the Guide").

at f 14.

idL

PHH's responsibilities included collecting payments

from plaintiffs, communicating with plaintiffs regarding loss
mitigation alternatives, and responding to any default,

including commencing foreclosure and hiring and managing
foreclosure counsel.

Id. at 1M 14-17.

In 2011, after plaintiffs encountered financial

difficulties and fell behind on their mortgage payments, they
entered into a modification agreement with PHH on July 28, 2011,
and made modified payments on their mortgage until plaintiff

Eileen Giovia lost her job, when all payments stopped.
111 23-25.

Id_^ at

After Eileen Giovia returned to work in September or

October of 2012, plaintiffs were able to make their monthly
mortgage payments, but needed assistance in paying the arrears,

The exhibits attached to plaintiffs' original Complaint are not
attached to plaintiffs' Amended Complaint; however, the Court
will refer to them as Exhibits A, B, and C to the Amended
Complaint and cite them accordingly (e.g., "Amend. Compl. Ex.
A") .

which had arisen due to missed payments while Eileen Giovia was
unemployed.

Id. at fl 27.

Plaintiffs received a written notice from PHH in 2012 of

the existence of the Home Affordable Modification Program

("HAMP") and of FNMA's participation in that program.
H 26.

Id^ at

In reliance on that notice from PHH, plaintiffs submitted

a HAMP application which provided financial and other

information as required by PHH.

Id. at f 28.

From the fall of

2012 through January 8, 2013, plaintiffs made multiple telephone
contacts with PHH in an attempt to understand why the loan
modification process was taking so long.

Id. at f 29.

Plaintiffs allege that their application was denied but that PHH

did not properly consider the hardship of plaintiff Eileen
Giovia's job loss under the Guide.

Id. at U 30.

On October 1, 2012, while awaiting a decision on their

application, plaintiffs received a notice from SBA stating that
PHH was a "creditor" under the Fair Debt Collection Practices

Act ("FDCPA") to whom plaintiffs owed a debt.

Id^ at UK 43, 44.

On December 18, 2012, plaintiffs received another letter from

SBA informing them that their property was scheduled for

foreclosure on January 8, 2013, and that PFC had been appointed
by PHH as the substitute trustee to perform the foreclosure
sale.

Id_;_ at fH 34, 51, 52.

Plaintiffs contacted PFC to inform

its representatives that a loan modification application was

pending with PHH and to request a reinstatement amount; however,
PFC did not answer their calls.

Id^ at ft 35, 53, 54.

On January 2, 2013, plaintiffs received a letter from PHH

stating that their loan modification application had been

received and that PHH would contact them if it needed any
information.

Id^ at H 36.

Plaintiffs claim that PHH never

requested that they supply any additional information.

Id^ at

11 37.

On January 4, 2013, plaintiffs contacted SBA and PFC

regarding their loan modification application and the scheduled

foreclosure and were told by PFC and SBA that they should
contact PHH.

Id^ at U 39, 40.

When plaintiffs contacted PHH,

they were told they would be contacted after their file was
investigated.

IcL at H 40.

The Amended Complaint further alleges that during this
time, plaintiffs had secured the funds to reinstate their loan

and only needed to know what amount was required for

reinstatement.

Id^ at K 42.

On January 7, 2013, plaintiffs

again called PFC to inform its representatives that a loan

modification was pending and that plaintiffs were prepared to
bring their loan "current" if only they were provided the exact
amount required.

Id^ at 1M 55, 56.

Plaintiffs were told that

they would be contacted before the scheduled foreclosure on
January 8, 2013; nevertheless, the foreclosure sale was held on

January 8, 2013, PHH was the highest bidder, and it assigned its

bid to FNMA.

Id^ at UU 56-58, 66.

Following the foreclosure

sale, SBA, on behalf of FNMA, sent plaintiffs a five-day notice
to vacate.

Id^ at U 73.

FNMA is now attempting to evict the

plaintiffs from their property and FNMA has had plaintiffs
served with an unlawful detainer summons seeking possession of
their home.

Id_^ at Hfl 67, 74.3

On January 28, 2013, after the foreclosure sale, plaintiffs
received a letter from PHH informing them that the "investor" -

the owner of the loan - had not authorized a loan modification.

Id- at H 71-

Plaintiffs allege that this letter confirms that

the modification review was not complete at the time of

foreclosure and that PHH was not the loan creditor, as asserted

by SBA in its October 1, 2012, letter.
II.

Id^ at 1M 71/ 72.

DISCUSSION

A. The Amended Complaint

Plaintiffs' Amended Complaint alleges in eight counts

various violations of federal and state law by defendants.
Counts I, II, and III allege violations of the Fair Debt

Collection Practices Act, 15 U.S.C. § 1692, et seq. ("FDCPA").
Specifically, Count I alleges that PFC and SBA violated

On April 12, 2013, the Fairfax County General District Court

granted possession to FNMA; plaintiffs noted their appeal to the
Circuit Court and trial is set for December 16, 2013. Amend.
Compl. U 74.

§ 1692g(a)(2) by falsely stating that PHH was the creditor on

plaintiffs' loan.

Amend Compl. UU 76-78.

Count II alleges that

PFC and SBA violated § 1692e by falsely stating that plaintiffs

owed $384,021.70 on their loan as of October 1, 2012.
UU 79-82.

Id^ at

Count III alleges that PFC and SBA violated

§ 1692f(6) because they had no right to conduct the foreclosure

sale or transfer the property given that they were not validly
appointed as substitute trustees by the noteholder in compliance
with the Deed of Trust.

Id^ at UU 83-91.

Count IV alleges that PHH (as FNMA's agent and acting on
its own or through FNMA's agents SBA and PFC) breached the Deed
of Trust by depriving plaintiffs of their rights,

misrepresenting their intention to postpone the foreclosure, and

foreclosing on the property even though plaintiffs were capable
of performance and sought to reinstate the loan.

Id^ at UU 92-

99.

Count V alleges breach of the implied covenant of good

faith and fair dealing against PHH (again as FNMA's agent and
acting on its own or through FNMA's agents SBA and PFC) for
depriving plaintiffs of their right to reinstate their loan or

cure their default, failing to provide a reinstatement amount,

failing to provide reinstatement figures, representing that the
foreclosure sale would be postponed, foreclosing on the
property, failing to rescind the sale of the property via a

credit bid to FNMA, and moving forward with the closing with
knowledge that the foreclosure was void.

id. at UU 100-07.

Count VI alleges a breach of fiduciary duty by PFC and its
agent SBA given their failure to timely provide plaintiffs with

a reinstatement amount; their proceeding with the foreclosure

sale with knowledge that plaintiffs were exercising their right
to reinstatement; and their failure to rescind the foreclosure
sale with knowledge that plaintiffs attempted to exercise their

equitable right of redemption.

Id^ at UU 108-19.

Count VII, which is asserted against all four defendants,
seeks a declaratory judgment that the foreclosure sale and

foreclosure deed are void or voidable and that plaintiffs are
entitled to the appointment of a constructive trustee with

instructions to convey title of the property to them subject to
the Deed of Trust.

Id^ at UU 120-24.4

Finally, Count VIII seeks equitable rescission of the
foreclosure on the ground that PHH appointed a substitute

trustee (PFC), accelerated the debt, and invoked the power of

sale without authorization from FNMA and without satisfying
conditions precedent to foreclosure.

Id. at UU 125-32.

Plaintiffs have withdrawn Count VII as to PFC.
PFC at 14.

See Pis.' Opp,

For the reasons discussed below, Count VII will be

dismissed as to both PFC and SBA.

B. Standard of Review

The standard of review for a motion to dismiss under Fed.

R. Civ. P. 12(b)(6) requires the Court to assume the facts
alleged in the complaint are true and draw all reasonable

inferences in the plaintiff's favor.

Burbach Broadcasting Co.

of Del, v. Elkins Radio Corp., 278 F.3d 401, 406 (4th Cir.

2002).

"Judgment should be entered when the pleadings,

construing the facts in the light most favorable to the non-

moving party, fail to state any cognizable claim for relief, and
the matter can, therefore, be decided as a matter of law."

O'Ryan v. Dehler Mfg. Co.. 99 F. Supp. 2d 714, 718 (E.D. Va.
2000).

"Factual allegations must be enough to raise a right to

relief above the speculative level ... on the assumption that
all the allegations in the complaint are true."

v. Twombly, 550 U.S. 544, 555 (2007).

Bell Atl. Corp.

Accordingly, a party must

"nudge[] their claims across the line from conceivable to

plausible" to survive a Rule 12(b)(6) motion to dismiss.
570.

Id^ at

"A claim has facial plausibility when the plaintiff pleads

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).

In

addition, "where the well-pleaded facts do not permit the court
to infer more than the mere possibility of misconduct, the

complaint has alleged-but it has not 'show[n]'-»that the pleader
is entitled to relief.'"

Id^ at 679 (quoting Fed. R. Civ. P.

8(a) (2)).

C

PHH and FNMA's Motion to Dismiss

PHH and FNMA move to dismiss Counts IV, V, VII, and VIII,
which are the only counts asserted against them, for the sole
reason that plaintiffs did not give them notice of this action

as required under paragraph 20 of the Deed of Trust.5

Memorandum

of Law in Support of Defendants' Motion to Dismiss Plaintiffs'

First Amended Complaint ("FNMA and PHH's Mem.") at 2, 3-4.
FNMA and PHH rely on Niyaz v. Bank of America, No.

I:10cv00796, 2011 WL 63655, at *2 (E.D. Va. Jan. 3, 2011),
aff^d, 442 F. App'x 838 (4th Cir. 2011); see also Johnson v.

Countrywide Home Loans, Inc., No. I:10cv01018, 2010 WL 5138392,
5

Paragraph 20 of the Deed of Trust states that

[n]either Borrower nor Lender may commence, join, or
be joined to any judicial action . . . that arises
from the other party's actions pursuant to this
Security Instrument or that alleges that the other

party has breached any provision of, or any duty owed
by reason of, this Security Instrument, until such
Borrower or Lender has notified the other party

of such alleged breach and afforded the other party
hereto a reasonable period after the giving of such
notice to take corrective action. . . . The notice of
acceleration and opportunity to cure given to Borrower
pursuant

to

Section

22

.

.

. shall

be

deemed

to

satisfy the notice and opportunity to take corrective
action provisions of this Section 20.
Amend. Compl. Ex. B at U 20.

10

at *l-2 (E.D. Va. Dec. 10, 2010) (dismissing, for lack of the

requisite notice, claims involving potential violations of the

Truth in Lending Act, the Real Estate Settlement Procedure Act,
the Fair Debt Collection Practices Act, and the Fair Credit
Reporting Act).

In Niyaz, the plaintiff asserted that the

lender breached the deed of trust; however, because the

plaintiff did not provide notice in accordance with a provision
of the deed of trust identical to the one at issue here, the
court dismissed the complaint.6

Relying on paragraph 22 of the Deed of Trust,7 plaintiffs
oppose defendants' argument by claiming that defendants violated

the Deed of Trust by not providing notice of their rights to
reinstate after acceleration or to bring a court action to

assert any defenses to acceleration and sale before the January
Niyaz, while instructive in some respects, was dismissed on
defendant's motion for summary judgment and not on a motion to
dismiss under Fed. R. Civ. P. 12(b)(6).

7 Paragraph 22 of the Deed of Trust states that

Lender shall give notice to the Borrower prior to
acceleration

following

[default]

.

. . the

notice

shall specify (a) the default, (b) the action required
to cure the default,

(c) the date by which the default

must be cured, and (d) that the failure to cure .
may result in acceleration . . . [t]he notice shall

further inform the Borrower of the right to reinstate
after acceleration and the right to bring a court

action to assert the non-existence of a default or any
other defense of Borrower to acceleration and sale.
Amend. Compl. Ex. B at U 22.

11

8, 2013, foreclosure.

Plaintiffs' Opposition to Defendants'

Motion to Dismiss Plaintiffs' First Amended Complaint ("Pis.'
Opp. FNMA and PHH") at 1, 2-5.

Plaintiffs argue that after the

foreclosure, the sales contract was completed, leaving no
reasonable period of time to wait before filing a suit to

challenge the allegedly invalid sale.

Id^ at 3.

Plaintiffs

also argue that their Amended Complaint makes it "abundantly
clear" that defendants were the first to breach the Deed of

Trust and "[a]s the first to breach the contract, FNMA may not
enforce its terms."

Id^ at 3-4; see Bennett v. Bank of Am.,

N.A., No. 3:12cv00034, 2012 WL 1354546, at *5 (E.D. Va. Apr. 18,
2012) (stating that "[u]nder Virginia law, a party who first
materially breaches a contract cannot enforce that contract")

(citing Horton v. Horton, 487 S.E.2d 200, 203 (Va. 1997)).

In

addition, plaintiffs dispute the authenticity of the notice of
default dated May 2, 2012, that PFC purportedly sent to them.
Id.

at 5.

FNMA and PHH respond that they complied with their

obligations under the Deed of Trust because PHH did, in fact,
send a notice in accordance with Paragraph 22 - the notice
attached to PFC's motion to dismiss.

See PFC's Memorandum in

Support of Its Motion to Dismiss ("PFC's Mem.") at Ex. C.

FNMA

and PHH further argue that had plaintiffs complied with their

12

obligations under Paragraph 20, PHH could have re-sent that

notice to them and avoided this litigation.
By asserting the notice requirement, defendants are

asserting an affirmative defense which is properly considered in
a motion for summary judgment and not in a motion to dismiss.
Bennett, 2012 WL 1354546, at *5 (quoting Richmond,

Fredericksburg & Potomac R.R. v. Forst, 4 F.3d 244, 250 (4th

Cir.1993)); see also Townsend v. Fed. Nat. Mortgage Ass'n, 923
F. Supp. 2d 828, 833 (W.D. Va. 2013) (declining to dismiss where

the amended complaint did not indicate whether plaintiffs sent

written notice before commencing action as required by the deed
of trust).

Moreover, there is a factual dispute as to whether the

notice to plaintiffs complies with the requirements of paragraph
22 of the Deed of Trust.

This dispute is more properly resolved

in a motion for summary judgment.

For these reasons, and

because this is the sole basis for FNMA and PHH's motion to

dismiss, the Court will deny defendants' motion and plaintiffs'
claims under Counts IV, V, VII, and VIII will proceed.
D. PFC's Motion to Dismiss

Plaintiffs assert four counts against both PFC and SBA Counts I, II, in, and VI.

Although PFC and SBA have filed

separate motions to dismiss, SBA's motion incorporates PFC's
arguments as to Counts I, II, and III, while asserting its own

13

argument as to Count VI.

For that reason, the following

analysis of PFC's Motion to Dismiss Counts I, II, and III
applies equally to SBA's Motion to Dismiss.

1. Count I (violation of the FDCPA, 15 U.S.C. §
1692g(a)(2))

In Count I, plaintiffs allege that PFC and SBA's October 1,
2012, correspondence misidentified PHH as the "creditor" to whom

their debt was owed, thereby violating 15 U.S.C. § I692g(a)(2),
which requires that "a debt collector shall . . . send the

consumer a written notice containing . . . the name of the
creditor to whom the debt is owed."

PFC moves to dismiss this count on the ground that, as the
servicer of plaintiffs' loan, PHH was a "creditor" within the
meaning of federal law because a "creditor" under the FDCPA

includes loan servicers who acquire servicing rights before
default, as well as the loan owners.8

PFC's Mem. at 4-5, 6-9.

PFC further argues that plaintiffs have not alleged that

their loan was in default when PHH obtained its servicing rights
and have admitted that PHH was the lender when the loan

originated in November 2004 and thereafter retained its

Under 15 U.S.C. § 1692a(4), "[t]he term 'creditor' means any
person who offers or extends credit creating a debt or to whom a

debt is owed, but such term does not include any person to the
extent that he receives an assignment or transfer of a debt in

default solely for the purpose of facilitating collection of
such debt for another."

14

servicing rights when the loan was assigned to FNMA.
at 5-6.

PFC's Mem.

PFC argues that as PHH is both the original lender and

the loan servicer, PHH is empowered to receive payments and

foreclose and is, therefore, a "creditor."

PFC's Reply in

Support of Its Motion to Dismiss ("PFC's Reply") at 1-2, 9.

Plaintiffs respond that PFC misidentified the entity to
whom plaintiffs' debt was owed because FNMA was in fact the
secured creditor.

Opposition to Certain Defendant's Motion to

Dismiss ("Pis.' Opp. PFC") at 3.

Asserting that the purpose of

15 U.S.C. § 1692g is to provide borrowers with timely notice of

their rights, in part by properly identifying the lender,

plaintiffs argue that they were not notified of their rights in

a timely manner as they did not learn of the true identity of

the entity to whom the debt was owed until after the property
was sold at the foreclosure sale by PFC, who at that time

"divulged" the true identity of the lender to be FNMA.

Id^ at

3-4.

As to PFC's argument that PHH was a "creditor" within the

meaning of the FDCPA, plaintiffs argue that even if that were
true (which plaintiffs do not concede), it does not mean that as

a "creditor" PHH was also the entity "to whom the debt is owed."
Id.

at 5-6.

Although the precise issue has apparently not been

addressed by the Fourth Circuit, the overwhelming weight of

15

persuasive authority from the other circuit courts as well as

district courts in this Circuit compel the conclusion that the
terms "creditor" and "debt collector" under the FDCPA are

mutually exclusive.

See, e.g., Bridge v. Ocwen Fed. Bank, FSB,

681 F.3d 355, 359 (6th Cir. 2012); F.T.C. v. Check Investors,

Inc., 502 F.3d 159, 173 (3d Cir. 2007) (stating that "as to a
specific debt, one cannot be both a 'creditor' and a 'debt
collector,' as defined in the FDCPA, because those terms are

mutually exclusive"); Schlosser v. Fairbanks Capital Corp., 323

F.3d 534, 536 (7th Cir. 2003) (stating that "[i]f the one who

acquired the debt continues to service it, it is acting much
like the original creditor that created the debt. On the other

hand, if it simply acquires the debt for collection, it is

acting more like a debt collector"); Bradford v. HSBC Mortgage
Corp., 829 F. Supp. 2d 34 0, 348 (E.D. Va. 2011) (concluding that
"[b]ecause Ally has only ever been a person 'to whom a debt is
owed' with respect to the Note . . .Ally cannot be a debt
collector with respect to the Note").

In all of these cases, determining which of the two
definitions applies depends on the status of the debt at the

time it was acquired, which is governed by 15 U.S.C.
§ 1692a(6)(F)(iii).

Under that provision, the term "debt

collector" does not include "any person collecting or attempting
to collect any debt owed or due or asserted to be owed or due

16

another to the extent such activity . . . concerns a debt which

was not in default at the time it was obtained by such person."
Here, plaintiffs affirmatively allege that PHH was the

originator of the loan and that PHH retained its servicing
rights after FNMA's purchase of the loan in November 2004.

Amend. Compl. UU 10-18, Exs. A, B.

See

Because it acquired its

servicing rights before plaintiffs' default, PHH is, therefore,
a "creditor" under the plain language of the statute and, as a
matter of law, as a "creditor" it cannot also be a "debt

collector."

Consequently, PFC's notice to plaintiffs

identifying PHH (rather than FNMA) as the "creditor" to whom

plaintiffs owed a debt did not misidentify the party to whom the

debt was owed and, therefore, does not give rise to a plausible
claim to relief against either PFC or SBA under 15 U.S.C.
§ 1692g(a)(2).

For these reasons, Count I will be dismissed as

to both defendants.

2. Count II (violation of the FDCPA, 15 U.S.C. § 1692e)
Count II alleges that PFC and SBA violated 15 U.S.C.

§ 1692e by stating in their October 1, 2012 correspondence that
the amount plaintiffs owed on the debt was $384,021.70.

Under 15 U.S.C. § 1692e(2), "[a] debt collector may not use
any false, deceptive, or misleading representation or means in

connection with the collection of any debt . . . [including t]he

17

false representation of . . . the character, amount, or legal
status of any debt."

PFC argues that plaintiffs merely "speculate" or "surmise"

that the debt was misstated and do not satisfy their burden to
assert a material misrepresentation.

PFC's Reply at 6-7.

PFC

also points out that plaintiffs do not allege that they were
current with their mortgage payments.

PFC's Mem. at 17-19.

To

the contrary, the Amended Complaint concedes that plaintiffs
were in default.

See Amend. Compl. UU 23, 25, 27.

Plaintiffs respond that the facts alleged in the Amended

Complaint (UU 9, 11, 24, 80-81) support the allegation that
PFC's October 1, 2012, correspondence misstated the amounts

owed, and that although defendants may be able to show how the

amount stated was calculated, that evidence is not properly
before the Court in their motions to dismiss.

PFC's Mem. at 6.

To determine if a violation of 15 U.S.C. § 1692e has

occurred the Fourth Circuit applies the "least sophisticated
consumer" standard.

Lembach v. Bierman, No. 12-1723, 2013 WL

2501752, at *4 (4th Cir. June 12, 2013) (citing United States v.

Nat'l Fin. Servs., Inc., 98 F.3d 131, 135-36 (4th Cir. 1996)).
Under this standard, a false statement that would not mislead

the "least sophisticated consumer" is not actionable; further,
"to plead a claim of false representation under the FDCPA, the
party must show that the representations are material."

18

Id.;

see also Warren v. Sessoms & Rogers, P.A., 676 F.3d 365, 374

(4th Cir. 2012), as amended (Feb. 1, 2012).

Consequently, the

mere allegation that a statement is false is insufficient to
state a claim for false representation under the FDCPA.

Here, plaintiffs allege only that PFC and SBA "falsely
statfed] that Plaintiffs owed $384,021.70 in its [sic] October

1, 2012 correspondence."

Amend. Compl. U 80.

Although the

allegedly false statement is connected to the debt at issue,

plaintiffs fail to allege how they were misled by that
statement, if at all.

Nor can any favorable inferences be drawn

from the facts alleged (and taken as true) that plaintiffs were

misled or deprived of information that would have helped them
"intelligently" choose a course of action with respect to the
debt.

See Hahn v. Triumph P'ships LLC, 557 F.3d 755, 757-58

(7th Cir. 2009) (reasoning that the FDCPA "is designed to
provide information that helps consumers to choose

intelligently").

For these reasons, Count II against PFC and

SBA will be dismissed as to both defendants.

3. Count III (violation of the FDCPA, 15 U.S.C. § 1692f(6))
In Count III, plaintiffs allege that PFC and SBA violated

15 U.S.C. § 1692f(6) because PFC was not a validly appointed

substitute trustee; therefore, neither PFC nor SBA had a right
to conduct the foreclosure sale and transfer plaintiffs'

property.

Section 1692f(6) states that "[a] debt collector may

19

not use unfair or unconscionable means to collect or attempt to
collect any debt . . . [including t]aking or threatening to take
any nonjudicial action to effect dispossession or disablement of

property if . . . there is no present right to possession of the

property claimed as collateral through an enforceable security
interest."

Defendants move to dismiss Count III under Virginia law,

which provides that a foreclosure may be prosecuted by any
beneficiary under a deed of trust, including the lender, a
nominee of the lender, the promissory noteholder, the
noteholder's agent, the loan servicer, or a non-holder in

possession with the rights of a holder.
PFC's Reply at 5.

PFC's Mem. at 9-11;

The only lender identified in the loan

documents at issue is PHH, which, as the servicer of plaintiffs'
loan, had the right to proceed with foreclosure.

Id. at 12; 5

(citing Amend. Compl. Exs. A, B).

Plaintiffs respond by arguing that under the express terms
of the Deed of Trust, only the lender may invoke the power of
sale and appoint a substitute trustee.

Pis.' Opp. PFC at 6-8.

As the loan servicer, PHH was limited to collecting periodic
payments and performing other servicing obligations under the

Note, the Deed of Trust, and applicable law - obligations that

are "radically different from the right to invoke the power of
sale."

Id^ at 8-9.

Simply put, plaintiffs argue that to invoke

20

the power of sale or appoint substitute trustees, the appointer
must be the "lender" and PHH is not the "lender" here.

Thus, a

condition precedent to the foreclosure was not satisfied and
PHH's actions in appointing PFC are void, as are its actions in

foreclosing on plaintiffs' property.

Id. at 9.9

Plaintiffs' claim under Count III is premised on the notion
that under the plain language of the Deed of Trust, PHH as the
loan servicer could not appoint substitute trustee PFC or invoke

the power of sale.
argument.

The Deed of Trust does not support that

The Deed of Trust states in Paragraph 16 that it

"shall be governed by federal law and the law of the

jurisdiction in which the Property is located."

The Deed of

Trust also states that the Note may be sold and that such sale

may result in a change of the loan servicer, the entity who
collects payments due under the Note and performs other loan
servicing obligations (Paragraph 20); that if the Note is sold

Plaintiffs allege in Count III that the loan was never

accelerated under the Deed of Trust and the power of sale was
not invoked because only FNMA had the power to accelerate the
loan and invoke the power of sale. Amend. Compl. UU 87-88.

Plaintiffs also allege that PHH failed to comply with the Guide
and that FNMA and PHH failed to comply with the notice
provisions of the Deed of Trust; therefore, PHH was not
authorized to accelerate the loan and invoke the power of sale
on behalf of FNMA. Id. at U 88. Because these are allegations
asserted against FNMA and PHH that are both independent of the
allegations asserted against PFC and SBA under Count III and

duplicative of allegations asserted against FNMA and PHH under
Counts IV, V, VII, and VIII, they need not be addressed here.

21

and the purchaser and loan servicer are different entities, the

purchaser must expressly assume any loan servicing obligations

(Paragraph 20); that after notice of default and an opportunity
to cure, the lender may require immediate payment and invoke the
power of sale (Paragraph 22); and that the lender may remove and
appoint successor trustees (Paragraph 24).
Under Va. Code. § 55-59(9), "[t]he party secured by the

deed of trust . . . shall have the right and power to appoint a
substitute trustee or trustees for any reason."

Although this

language neither explicitly permits nor prohibits the agent of
the secured party from appointing a substitute trustee, "courts

have not read this language to mean that only the secured party
or noteholder itself may appoint a substitute trustee, and have

instead upheld the right of loan servicing entities, acting as
agents, to do so."

Sheppard v. BAC Home Loans Servicing, LP,

NO. 3:llcv00062, 2012 WL 204288, at *8 n.9 (W.D. Va. Jan. 24,

2012) (emphasis in original) (citing Larota-Florez v. Goldman

Sachs Mortgage Co., 719 F. Supp. 2d 636, 641 (E.D. Va. 2010),
affjd, 441 F. App'x 202 (4th Cir. 2011) (finding that because a
loan servicer "has the right to collect payments on behalf of
the holder and the right to foreclose upon default" its
appointment of a substitute trustee under the deed of trust "was

authorized as a matter of contract and agency law")).

22

Plaintiffs ask the Court to interpret the word "Lender" in

the Deed of Trust narrowly.

This request is unjustified, given

both the authority cited above and the language in the Deed of
Trust contemplating an agency relationship between the secured

party and loan servicer (or servicers) who retains the mortgage
loan servicing obligations.

It is uncontested that PHH was both the originator of the
loan (the original "Lender" under the Deed of Trust) and the

original loan servicer.

See Amend. Compl. UU 10, 12.

Plaintiffs do not allege that when the loan was sold to FNMA,
FNMA acquired anything other than the Note.

In fact, plaintiffs

allege that after the sale to FNMA,

PHH was given the responsibility of performing certain
functions (commonly known in the mortgage industry as
"servicing")

related to Plaintiffs loan in accordance

with
its
contract
with
FNMA.
Among
its
responsibilities as the servicer, PHH was responsible
for collecting payments from Plaintiffs, communicating
with
Plaintiffs
regarding
loss
mitigation
alternatives, and responding to any default by
Plaintiffs,
including
by
hiring
and
managing
foreclosure counsel.

Id- at U 14.

Plaintiffs also allege that the Guide "gave PHH,

on behalf of FNMA, the authority to commence foreclosure on

Plaintiffs' home in case of their default on their obligations
under the Deed of Trust."

Id^ at U 16.

Moreover, plaintiffs

proffer no authority to support their position that PHH's loan

servicing obligations did not include the right to appoint a

23

substitute trustee to act in its capacity as an agent of the
noteholder, FNMA.

Because PHH, as the servicer of the loan, was

empowered to initiate foreclosure proceedings, it had the

authority to appoint PFC to conduct the foreclosure; therefore,
Count III will be dismissed.10

4. Count VI (Breach of Fiduciary Duty)

Count VI alleges that PFC breached the fiduciary duty owed

to plaintiffs under the Deed of Trust, a duty that plaintiffs

allege includes attendant duties of impartiality, good faith,
and the duty to invoke the aid and direction of a court of

equity in the execution of a trust.

PFC first argues that its duties as a trustee are narrowly
defined by the Deed of Trust and that under Virginia law, its
duties could not include those alleged by plaintiffs.

PFC's

Whether plaintiffs attempt to assert a claim under the FDCPA

against PHH in Count III is unclear. See Amend. Compl. U 88
("PHH was not authorized to accelerate and invoke the power of
sale on behalf of FNMA until all notices required by the Deed of
Trust were sent and all options as designated in the Guide were
pursued and exhausted") (emphasis in original). As discussed
above, PHH is a "creditor" and not a "debt collector" and is
therefore not subject to liability under the FDCPA. Nor can

PHH, as a "creditor," be held vicariously liable for any FDCPA
violations committed by PFC or SBA. See Bradford v. HSBC
Mortgage Corp., 829 F. Supp. 2d 340, 348 (E.D. Va. 2011)

(concluding that "a creditor cannot incur vicarious liability
for FDCPA violations by an independent debt collector that acts
on the creditor's behalf"); Washington v. CitiMortgage, Inc.,

No. 3:10CV00887, 2011 WL 1871228, at *13 (E.D. Va. May 16, 2011)

(holding that a "creditor is not liable under a respondeat
superior theory for violations of the FDCPA by independent debt
collectors hired by the creditor.").

24

Mem. at 19-20.

Under Paragraph 22 of the Deed of Trust, PFC's

duties are only those related to the procedure of the sale and

do not address PHH's entitlement to foreclose.
PFC's Reply at 7-8.

Id^ at 20-21;

Further, PFC argues that plaintiffs cannot

impose on it the responsibility for rights such as reinstatement

within five days of the sale or the setting aside of the sale
itself, because plaintiffs could not invoke these rights under
the Deed of Trust against a substitute trustee.

PFC's Mem. at

21.

Although they cannot point to explicit language in the Deed
of Trust, plaintiffs argue that PFC had a duty to take measures
assuring that it did not proceed with a foreclosure until the

remedy of foreclosure accrued, and breached this duty when it
proceeded with the foreclosure sale fully aware of the loan
modification process and the plaintiffs' desire to reinstate the
loan.

Pis.' Opp. PFC at 12-13.

Plaintiffs assert that PFC

breached its obligations under the Deed of Trust out of a desire
for pecuniary gain, placing its interests before those of the

plaintiffs, and failed to turn to the courts to dispel any cloud
on the property's title before proceeding with the foreclosure
sale.

Id.

Although a deed of trust gives rise to certain fiduciary
duties, Goodrow v. Friedman & MacFadyen, P.A., No. 3:llcv00020,
2012 WL 6725617, at *6 (E.D. Va. Dec. 27, 2012); Carter v.

25

Countrywide Home Loans, Inc., No. 3:07cv00651, 2008 WL 4167931,
at *11 (E.D. Va. Sept. 3, 2008), it is "treated under the same

principles as [a] contract[], and the trustee only owes those
duties that are listed in the deed of trust itself."
2008 WL 4167931, at *11.

due diligence duty.

Carter,

A trustee under a deed of trust has no

Horvath v. Bank of New York, N.A., No.

I:09cv01129, 2010 WL 538039, at *1 (E.D. Va. Jan. 29, 2010)

(dismissing breach of trustee's fiduciary duty claim and finding
that plaintiff did not allege any such duties existed in the

deed of trust or facts establishing a duty of impartiality).
Further, there is no common law duty of impartiality incumbent
on a trustee.

Goodrow, 2012 WL 6725617, at *8 (citing Sheppard

v. BAC Home Loans Servicing, LP, No. 3:llcv00062, 2012 WL

204288, at *7 (W.D. Va. Jan. 24, 2012) (refusing to find a

common law fiduciary duty of impartiality owed to borrowers by
trustees)).

Plaintiffs do not rebut defendant PFC's contention that its

duties as fiduciary are defined solely by the Deed of Trust, and

point to no part of the Deed of Trust expressly supporting its

allegations that PFC breached those duties other than Paragraph
19, which speaks only to acceleration, cancellation of
acceleration, and the like with regard to the "borrower" and the

"lender."

See Amend. Compl. Ex. B at fl 19.

Indeed, it appears

that PFC's only affirmative duty under the Deed of Trust with

26

respect to plaintiffs was its duty to give them

;iotice of the

foreclosure sale - notice that plaintiffs admit

hey received,

See Amend. Compl. U 34 ("Plaintiff [sic] receive^

a

December 18, 2012, from Defendant SB&A as counse

for PFC

letter dated

informing Plaintiff [sic] that the Property was Scheduled for

foreclosure on January 8, 2013.").

Because plaintiffs have not

alleged a breach of any duty arising out of the Ipeed of Trust
and no duty of impartiality is recognized at

comnon law,

Count

VI will be dismissed as to PFC.
E. SBA's Motion to Dismiss Count VI

SBA raises several arguments to support disn^issal of Count
VI.

First, it argues that plaintiffs' breach of fiduciary claim

fails because as a law firm, SBA is not a trustee

, and therefore

has no independent fiduciary duty to plaintiffs <
even assuming

that one is alleged in the Amended Complaint)

£BA 's Memorandum

in Support of Its Motion to Dismiss ("SBA's Mem." ) at 1, 2-3.

Next, SBA maintains that under Virginia law, it

cannot be held

liable under a "derivative duty" theory because wjhere there is
no privity, there can be no breach,

id. at 2-3

Similarly,

because the scope of duties asserted by plainti.ffb

arises out of

the Deed of Trust, which is a contract, SBA canno|t

be held

liable for any breach of the Deed of Trust by PFC

as previously explained, are limited only to thos^
out in the Deed of Trust itself.

Id. at 3-4.

27

whose duties,
expressly set

Third, SBA argues that to the extent it is alleged to be
the agent of PFC, because PFC is a disclosed principal , SBA

cannot incur any contract liability under the
Id- at 4.

Dei 3d of Trust.

Finally, SBA argues that plaintiffs'

breach sound in contract rather than in tort;

claims for

therefore,

plaintiffs may not recover tort damages, inc luding punitive
damages.

Id. at 4-5.

In response, plaintiffs argue that their c liiim

for breach

of fiduciary duty against SBA involves loss of property, a loss

to which the common law privity rule is inapplicable
Opposition to Certain Defendant's Motion to Dism;. ss ("Pis.' Opp.

SBA") at 1-2.

Plaintiffs further argue that notvrithstanding

the

lack of a contractual relationship between PFC,

SBA,

plaintiffs, a "de facto" fiduciary relationship

between them

exists based on PFC's assumption of its role as

substitute

trustee (however improperly appointed), and PFC

and SBA stand on

and

the same footing regarding their breach of the cqmmon law duties

arising from that fiduciary relationship.

Id. at

3-5.

In addition, plaintiffs argue that PFC and SjBA have

breached common law duties that are independent
that may be imposed under the Deed of Trust

from the duties

These common law

duties included the obligation to act impartially

and to seek

the assistance of a court of equity to aid in the just execution

28

of their trust, particularly where, as here, there were doubts
as to plaintiffs' debt.

Id.

at 5-7.

SBA's arguments here are well taken.

SBA ik not a party to

the Deed of Trust, much less a trustee, and plaiitiffs allege no

facts plausibly supporting any claim for breach of a fiduciary
duty arising out of the Deed of Trust for the reasons stated
above regarding PFC's motion to dismiss Count VI

Because there is no privity between plaintiffs and SBA

there can be no claim for any breach of any duty (fiduciary or
otherwise) in contract.

SBA is not the lender, Uhe noteholder,

the loan servicer, the trustee, or the substitute trustee, and
no attorney-client relationship existed between ;.t and

plaintiffs.

Indeed, not even PFC, SBA's principjil, is a party

to the contract.

Accordingly, there is no basis upon which

plaintiffs may allege the breach of any duty against PFC's
agent, SBA.

For these reasons, Count VI will be dismissed as to

SBA.

Ill.

CONCLUSION

For the reasons stated above, defendants

FNNA and PHH's

Motion to Dismiss will be DENIED as to Counts IV,

V,

VII,

and

VIII; defendant PFC's Motion to Dismiss will be GiRANTED as to
Counts I, II, in, and VI, and DENIED AS MOOT as to Count VII;

and defendant SBA's Motion to Dismiss will be

GRANTED a s

Counts I, II, III, and VI, and DENIED AS MOOT as

29

to

t o Count VII.

An appropriate Order shall issue with this

Memorandum

Opinion,

Entered this /J day of November, 2013.
Alexandria, Virginia

/s/
Leonie M Biinkema
United Stdtes District Judge

30