Wilkins et al v. United States of America, Through the Secretary of Veterans Affairs et al

Filing 33

OPINION AND ORDER Denying 25 Motion to Dismiss for Failure to State a Claim.. Signed by District Judge Mark S. Davis and filed on 11/15/16. Copies distributed to all parties 11/15/16. (ldab, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA

Norfolk Division

JEFFREY A.

WILKINS

a/k/a JEFFERY A. WILKINS and
KAREN Y.

WILKINS,

Plaintiffs,
Civil No.

V.

WELLS FARGO BANK, N.A.,
SAMUEL I. WHITE, P.C.,

2:15cv566

and

Defendants.

OPINION AND ORDER

This

matter

is

before

the

Court

filed by Defendants Wells Fargo Bank,
Samuel

I.

White,

P.C.

Fargo,

("White,"

"Defendants").

ECF

Wilkins and Karen Y. Wilkins
Wilkinses")

allege

breached

contract

home.

a

Plaintiffs

in

I.

25.

by

rescission

Motion

N.A.

to

with

Wells

Jeffrey

that

foreclosing

on

the

and

A.

"Plaintiffs" or "the

Complaint

of

Dismiss

("Wells Fargo")

collectively

(collectively,

improperly

a

Plaintiffs,

their Amended

seek

compensatory damages.

No.

and

on

Defendants
Plaintiffs'

foreclosure

sale

and

Am. Compl., ECF No. 32.

FACTUAL AND PROCEDURAL BACKGROUND

The instant claim arises from a mortgage loan, completed on
March 8,

2006 between American Home Mortgage and the Wilkinses,

for purchase of a home in Chesapeake, Virginia.

Am. Compl. ^ 7.

The

loan was evidenced by a

Deed of Trust.
Rider

Id.

("VA Rider")

Rider 1,

ECF No.

Fargo.

Am.

substitute

promissory note and secured by a

A VA Guaranteed Loan and Assumption Policy

was attached to the Deed of Trust.

1-1.

Compl.

trustee

The

H
of

note

9.

was

Wells

the

Deed

later assigned

Fargo

of

^ D,

ECF

No.

1-1.

The

VA

to Wells

appointed

Trust,

trustees Douglas Huston and Gary Zell.
Trust

Ex. A,

White

replacing

as

original

Id. H 13; Ex. A, Deed of

Deed of

Trust

authorized Wells

Fargo to invoke the power of sale provision (foreclosure)

in the

Deed of Trust, after complying with certain requirements,

if the

Wilkinses breached the loan repayment terms.

Am.

Compl.

f 13,

Ex. A, Deed of Trust ^ 22.

In 2014,
applied

to

after

Wells

falling

Fargo

for

behind on payments,
a

loan

the

modification.

Wilkinses

Am.

Compl.

H 18.

The Wilkinses allege that they never received a written

denial

of

Instead,

their

Wells

loan

modification

application.

Fargo proceeded with dual

track

instructing White to foreclose on the Wilkinses'

Id.

H 24.

foreclosure

home while the

Wilkinses' loan modification application was still pending.^
nil 14,

22.

November

4,

White
2014,

advertised
White

the

conducted

foreclosure
the

by

sale

foreclosure

Id.

and,

sale.

on
Id.

' Dual tracking occurs "when the servicer moves forward with foreclosure while
simultaneously working with the borrower to avoid foreclosure."
Financial

Homeowners

Protection

Facing

Bureau,

CFPB

Rules

Foreclosure

Establish

2

Strong

(Jan.

See Consumer

Protections

17,

http://files.consumerfinance.gOv/f/201301_cfpb_servicing-fact-sheet.pdf.

For

2013),

nil 23, 25.
bidder.

At the foreclosure sale, Wells Fargo was the highest
Id.

H 25.

Wells Fargo's purchase was backed by,

ultimately assigned to,

of Veterans Affairs
Wells

Fargo

Wilkinses

then

in

initiated

The Wilkinses

2015,

Law"

Provision

faith

and

fair

Defendants

Complaint

breach of

a

breach

dealing.

filed

proceedings

District

a

and

Both the VA and

Court

of

against
the

City

On May 9,

a

of

ECF

Motion

to

the
the
No.

Court on December

Deed of

Trust

implied
1.

On

Dismiss

"Applicable

covenant
February

Plaintiffs'

2016,

leave

to

file

an

amended

of
5,

good
2016,

Complaint,

this Court granted Defendants'

Dismiss without prejudice to Plaintiffs'
seeking

of

in this

pursuant to Federal Rule of Civil Procedure 12(b)(6).

3.

the

Id. II 35.

filed a

alleging

H 28.

eviction

General

Chesapeake, Virginia.

31,

the United States through the Secretary

("the VA").^

the

and

ECF No.

Motion to

right to file a motion

complaint.

ECF

Plaintiffs filed an Amended Complaint on June 6,

2016,

No.

17.

alleging

a single breach of contract claim based upon language within the
VA Rider

to

Defendants

a

the Deed of

filed a

supporting

Trust.

ECF No.

second Rule 12(b)(6)

memorandum,

which

is

32.

On June

29,

Motion to Dismiss,

now before

the

Court.

2016,

with

ECF

^ On April 21, 2016, the parties filed a Joint Stipulation of Dismissal
without Prejudice with respect to Defendant United States of America, through
the Secretary of Veterans Affairs ("VA") .
ECF No. 16.
As Defendant VA has
been

dismissed

from

Defendants remaining.

this

matter.

Wells

Fargo

and

White

are

the

only

Nos.

25-26.

Plaintiff responded with a Memorandum in Opposition

on July 13,

2016,

Brief and a

Request for Hearing on July 18,

29.

ECF

No.

27,

and Defendants

filed a

2016,

Rebuttal

ECF Nos.

Having been fully briefed, this matter is ripe for review.
II.

A complaint

must

STANDARD OF

contain

REVIEW

"a short

and plain

statement

the claim showing that the pleader is entitled to relief."
R.

28-

Civ.

P.

8(a)(2).

of

Fed.

A motion to dismiss may be granted when a

complaint

fails

"to

state

a

claim

granted."

Fed. R. Civ. P. 12(b)(6).

upon

which

relief

can

be

A complaint fails to state

a claim if it does not allege "enough facts to state a claim to
relief

that

Twombly,

is

plausible

550 U.S.

be detailed,

544,

570

on

its

face."

(2007).

Bell

Atl.

Corp.

v.

Though a complaint need not

"[f]actual allegations must be enough to raise a

right to relief above the speculative level."
at 555; see Ashcroft v. Iqbal,

A motion to dismiss

556 U.S. 662,

tests

the

without resolving factual disputes,

Twombly,

678

550 U.S.

(2009).

sufficiency of

a

complaint

and a district court "'must

accept as true all of the factual allegations contained in the
complaint'

and

plaintiff.'"
Cty.,

'draw all reasonable inferences in favor of the
Kensington

684 F.3d 462,

Nemours & Co.

2011)).

v.

467

Volunteer

(4th Cir.

Kolon Indus.,

Although

the

2012)

Inc.,

truth of

Fire

the

Dep't

v.

Montgomery

(quoting E.I, du Pont de

637 F.3d 435,

facts

alleged

440

(4th Cir.

is presumed.

district
from

courts

the

are

facts"

not

and

bound by

"need

not

the

accept

inferences,

unreasonable conclusions,

Mkts.,

V.

Inc.

Assocs.

2000); s ^ Iqbal,

Ltd.

556 U.S.

P'ship,

at 678

"legal
as

conclusions
true

unwarranted

or arguments."

213

F.3d 175,

drawn

E.

180

(citing Twombly,

Shore

(4th Cir.

550 U.S.

at

555) .
III.

Defendants

assert

that

DISCUSSION

Plaintiffs

have

failed

to

plead

a

claim for breach of contract under Virginia law^ because:

(1)

Plaintiffs

(2)

do

not

have

a

legal

cause

of

action;

alternatively,

the regulation in question was not in effect on

the

the

date

that

inapplicable;
Defendants

(3)

Deed

of

Trust

was

signed

and

therefore

is

Plaintiffs failed to sufficiently allege that

violated

accepted

industry

standards;

and

(4)

Plaintiffs failed to state a claim that justifies rescission of
the

foreclosure

argue

sale

as

the

remedy.

Additionally,

that Plaintiffs are not entitled to a

Defendants

jury trial.

The

Court will address each argument in turn.
A. Cause of Action

Defendants

argue

that

Plaintiffs

fail

to

state

a

claim

^ A federal court exercising diversity jurisdiction applies the substantive
law

of

the

forum

state.

Hanna

Virginia is the forum state,
analysis.

v.

Plumer,

380

U.S.

460,

465

(1965).

As

the Court applies Virginia contract law in its

because

Plaintiffs

lack

standing/

According

to

Defendants,

Plaintiffs have no private cause of action under Title 38 of the

United States Code, which governs veterans' benefits ("VA Act").®
Plaintiffs maintain that,

while they may not directly assert a

cause of action because no private cause of action exists within
the statute,

they do have a breach of contract claim because the

Deed of Trust incorporated the VA Act
the

contract

between

Bank of Am.,

N.A. ,

{S.D.W.

Mar.

Va.

Plaintiffs

No.

14,

and

regulations as

Defendants.

CIV.A.

3:12-5616,

2013)

("An

2013

action

See

terms of
Ranson

WL 1077093,

based

on

a

at

v.

*4

contract

involves a much different legal theory than one based solely on

enforcement of a

regulation apart

Defendants argue that Plaintiffs'

from a

contractual duty.").

claim for breach of contract

based upon the incorporation of the VA Act regulations into the

contract is merely Plaintiffs' "attempt to disguise their claim"
under

the VA Act.

Court

understands

Defs.'

Mem.

Defendants

to

in Supp.

6,

argue

ECF

that

No.

26.

parties

The

may

not

while Defendants style their first argument as a standing argument, a closer
evaluation of the argument reveals that it is really an argument that
Plaintiffs have not appropriately pled a legal cause of action.
This cause
of action question precedes even an evaluation of standing.
Nat'l R. R.
Passenger Corp. v. Nat'l Ass'n of R. R.

The

issues of

standing and

action e x i s t s .

Id.

at

Passengers,

jurisdiction become

414 U.S. 453,

immaterial

if

456

no

(1974) .

cause

of

471 n . l 3 .

® Both parties agree that Plaintiffs do not have a private cause of action
under the VA Act.
of

action

under

Only Congress, not the courts, may create a private cause
a

federal

law.

Alexander

v.

Sandoval,

532

U.S.

275,

286

(2001) (citing Touche Ross & Co. v. Redington, 442 U.S. 560, 578 (1979)).
The VA Act did not create a private cause of action under federal law to help
a

veteran borrower avoid

foreclosure.

(9th Cir. 1982); Simpson v. Cleland,

See Ran)c v.

Nimmo,

677

F.2d 692,

640 F.2d 1354, 1358 (D.C. Cir. 1981).

697

incorporate
when

the

duties

statute

imposed by statute
does

not

provide

a

into a

private contract

private

cause

of

action.

Defendants' position is inconsistent with Virginia contract law.
A Deed of Trust is a

283 Va.

allows

that

723,

724

contracting

contain

contract,

457

733,

S.E.2d

High

and

to

(2012),

incorporate

(1995)

v.

as

Douglas,

(holding

Corp.,

and Virginia law

external

responsibilities,

Knob Assocs.

354

200

PHH Mortg.

documents,

terms

249

Va.

of

their

478,

488,

that

incorporation

of

outside documents may be valid even without

specific words

of

incorporation).

parties may agree

to a

349,

Mathews v.

S.E.2d 196,

parties

rights

see

contract,

Under Virginia contract law,

wide array of

rights and responsibilities as between the

parties, and courts must "enforce the contract . . . as written,
.

.

.

unless the contract is repugnant to some rule of law or

public policy."
131,

V.

135,

McClain,

452 S.E.2d 659,

First All.

2010)

D.C.

Title,

Inc.

662

Inc.,

v.

(1995);

718

F.

Arlington Cty.,
First Am.

Supp.

674

Co.

(E.D.

Va.

("The law regards the sanctity of contracts and requires

Cottrell

Cir.

Title Ins.

2d 669,

the parties to do what they have agreed to do."
H.

249 Va.

& Son v.

1906))).

clause

in

reasonable

the

In

Smokeless

construing

contract

meaning

can

will

be

Fuel

Co.,

contract
be

treated

given

to

148

(quoting Samuel

F.

terms,
as

it,

594,

" [n]o

597

word

meaningless

and

(4th

there

if

is

or
a

a

presumption that the parties have not used words needlessly."
D.C. McClain,

249 Va. at 135-36, 452 S.E.2d at 662.

Applying

principles

of

contract

interpretation,

Virginia

has long recognized that rights and responsibilities embodied in
a

regulation may be

incorporated and made

trust by reference.

For example,

terms

of

the parties referenced

"Code,

sec.

5167"

trust.

182

686,

687

869,

default
trust.

After a

871,

30

S.E.2d

the

land

was

sold

occurred,

pursuant

deed of

(1944) .

the

v.

When

deed

of

legal action was brought challenging the sale,

was expressly referred to,

made a part of the deed of trust.
a

in a

to

the Supreme Court of Virginia held that "Code,

existed in 1926,

deed of

in Gloucester Realty Corp.

Guthrie,

Va.

a

material portion of

the

sec.

5167,

as it

incorporated in and

Its provisions thereby became

contract between the parties."

Id.

The court recognized that parties may incorporate statutes into
contracts,

explaining that the parties agreed to a contract term

"by adopting in the deed the
Id.

at 875,

Recent
parties

may

[code]

. . . as it stood in 1926."

30 S.E.2d at 689.

Virginia

cases

incorporate

have

the

continued

rights

to

recognize

and responsibilities

that

stated

in a regulatory provision as terms in a deed of trust,

even when

the

cause

regulation

action.

758

Squire

S.E.2d

55,

itself

does

v.

Hous.

60

Va.

(2014)

not
Dev.

provide
Auth. ,

(holding

that

a
287

private
Va.

"the

507,

deed

of

of

516-17,

tirust

incorporated certain regulations of the United States Department
of

Housing

and

foreclosure

Urban

was

regulations"

not

Development

permitted

despite

the

("HUD"),

where

it

regulation

private cause of action); Mathews,

and

mandated

violated

itself

not

283 Va. at 736,

that

such

HUD

providing

a

724 S.E.2d at

202

(holding that HUD regulations were incorporated into a deed

of

trust

"as

foreclosure,"

conditions

thereby

borrower could not

sue

precedent

rejecting

to

acceleration

defendant's

to enforce a

and

argument

that

HUD regulation because

conferred no private right of action); see also Parrish v.
Nat'l

Mortgage

(accepting
plaintiffs'

Ass'n,

for

the

292

Va.

44,

purpose

787

of

S.E.2d 116,

determining

123

it

Fed.

(2016)

jurisdiction

allegation that their deed of trust incorporated a

regulation as a condition precedent to foreclosure)cf. Lubitz
V. Wells Farqo Bank,

Beach)

(holding

N.A.,

that

85 Va. Cir.

the

phrase

379,

379

(2012)

"Applicable

Law"

(Virginia

did

not

incorporate specific statutory regulations into a deed of trust

because the phrase was too general to create a cause of action
and because the statute sued upon was not enacted at the
that

the

deed

of

trust

was

signed) .

Thus,

time

through

® Defendants argue that Parrish is inapplicable because it was a challenge
based upon Regulation X, 12 C.F.R. § 1024.41(g), which provides a private
cause of action for borrowers,

12 C.F.R.

§ 1024.41(a).

Defs.'

Rebuttal Mem.

in Supp. 3, EOF No. 28.
However, the fact that the statute provides a
private cause of action does not prevent parties from also incorporating the
regulation as a term of the contract.
Parrish, 292 Va. at 44, 787 S.E.2d at
119 ("The Parrishes responded by alleging that the foreclosure was invalid
because their deed of trust incorporated 12 C.F.R.

§ 1024.41(g)").

incorporation, a plaintiff may enforce a regulation's rights and
responsibilities

against

the

other party

when the regulation does not create a

758 S.E.2d at 64

in part and dissenting

in part)

the

enforcement

minority
of

federal

the

contract

even

private cause of action.

Squire, 287 Va. at 524,

adopted

to

(Kinser, J.,

concurring

(explaining that Virginia has

approach

which

regulations

allows

through

for

private

incorporation

into

contracts even when the statute does not provide a private cause
of action).

Here,

the

indicates the

VA Rider

attached

intention of

to

the

Deed of

Trust

clearly

the parties to incorporate Title 38

and associated regulatory provisions into the contract:
Title

38,

issued

United States

thereunder

and

Code,

in

shall govern the rights,
Borrower and Lender. . . .

of

any

sum

in

.

.

effect

.

on

and
the

Regulations
date

hereof

duties and liabilities of
[T]he provision for payment

connection

with

prepayment

of

the

secured indebtedness and the provision that the lender

may accelerate payment of the secured indebtedness
pursuant to Covenant 18 of the Security Instrument,
are hereby amended or negated to the extent necessary
to

conform

such

instruments

to

said

Title

or

Regulations.

Ex. A,

VA Rider 1

Rider

specifically

under

Title

parties,

38

(emphasis added).
dictates

govern

thereby

the

The language used in the VA

that

the

regulations

rights

and

responsibilities

incorporating

the

Title

promulgated

38

of

the

regulatory

provisions into the contract between Plaintiffs and Defendants.
Moreover,

the

VA Rider

states

that
10

any part

of

the

agreement

that

is

not

regulations
the

in

is

parties'

thereunder

accordance

"amended
intent

are

or

only

Title

38

and

negated,"

and

associated

unequivocally

Title

that

not

with

38

incorporated

indicating

regulations

into

the

actually control interpretation of the contract.

issued

contract

but

As the parties

agreed to incorporate a regulation into their contract as a term
of

the

contract,

Plaintiffs
Guthrie,
Va.

at

have

787

as

legal

a

182 Va.
44,

just

cause

at 875,
S.E.2d

S.E.2d at 60; Mathews,

the

parties

of

did

123;

283 Va.

Guthrie,

action accruing

30 S.E.2d at 689;
at

in

Squire,

at 734,

the

in contract.

see also Parrish,

287

Va.

at

516-17,

292
758

724 S.E.2d at 201.

B. Regulation Effective on Deed of Trust Date

Next,

Defendants

argue

that

the

regulation

upon

which

Plaintiffs rest their argument did not exist at the time that
the

Deed

of

incorporates
were

"in

Trust
Title

effect

was
38

on

signed.
and

the

By

its

regulations
date

hereof."

terms,
issued
VA

the

VA Rider

thereunder
Rider

1.

that
The

Plaintiffs' Amended Complaint references 38 C.F.R 36.3450,'' with
the alleged regulatory text as:

(a)
Establishment
of
loan
servicing
program:
The
holder
of
a
loan
guaranteed
or
insured by
the
Secretary shall develop and maintain a loan servicing
program which follows accepted industry standards for
servicing of similar type conventional loans.

' Plaintiffs cite to "Title 39" in their Amended Complaint at paragraph 10.
This is assumed to be a typographical error, as the VA Rider refers to Title
38.

11

Am. Compl. H 11.
did

not

exist

Defendants correctly state that this provision

under

this

numeric

reference

in

2006.

However,

regulatory language identical to that claimed by Plaintiffs was

in

effect

when

§ 36.4346

the

Deed

(2005).

typographical

Trust

Despite

error

Amended Complaint,

of

when

was

signed

Plaintiffs'

citing

the

in

having

regulation

according

language was
contract.

C.F.R.
made

number

in

a
the

Plaintiffs specifically allege the applicable

regulatory language requiring establishment of a
program

38

to

industry

in effect

Therefore,

at

the

standards
time

Plaintiffs

that

have

and

loan servicing
such

regulatory

Defendants

signed the

sufficiently alleged

the

regulatory language incorporated into the contract.
C. Accepted Industry Practice
Defendants

argue

incorporated

the

program

that

accordance

in

regulatory

even

if

the

requirement

with

Deed

of

accepted

a

of

loan

industry

servicing
standards,

Plaintiffs do

not sufficiently allege how Defendants'

breached

requirement.

this

Defendants'

Further,

Defendants

Trust

actions

argue

alleged actions were accepted industry practice,

thus did not breach the contract.

Defs.' Mem.

that
and

in Supp. 7.

To state a claim for breach of contract under Virginia law,

a

plaintiff

must

obligation of

a

plausibly allege:
defendant

to

a

"(1)

plaintiff;

violation or breach of that obligation;
12

a

and

legally

enforceable

(2)

defendant's

(3)

the

injury or damage

to the plaintiff caused by the breach of obligation."
George,

267

Va.

Amended

Complaint,

Defendants had a

to create a

industry

612,

619,

594

S.E.2d

610,

Plaintiffs

allege

the

following:

In the

(1)

that

loan servicing program in accordance with accepted

standards.

H 19,

(2004).

legal obligation pursuant to the Deed of Trust

Am.

Compl.

HH

industry standards prevented dual

id.

614

Filak v.

(3)

that

Defendants

foreclosing on Plaintiffs'
was pending, id.

10-11,

(2)

track home

engaged

that

accepted

loan foreclosure,

in

dual

tracking

by

home while a home loan modification

18, 20,

25, and (4)

that Plaintiffs suffered

harm by losing legal title to their home as well as suffering
financial costs associated with the foreclosure,
Defendants

contest

industry

standard,"

found

the

in

§ 2605,

Real

Plaintiffs'

asserting
Estate

at Regulation X,

Supp.

7-8.

prove

a

state a

Defendants

Settlement

12 C.F.R.
further

violation under
claim.

that

However,

id. H 36.

definition

the

of

industry

Procedures

that

Regulation X,

and

possible

allegations.'"

Plaintiffs
therefore

Williams,
about

490 U.S.

what

319,

constitutes

is

U.S.C.

Mem.

in

cannot
fail

to

this Court is required to analyze the

"'disbelief

Iqbal,

12

Defs.'

pending motion without resolving factual disputes,

any

standard

Act,

§ 1024.41.

argue

"accepted

of

[the]

556

U.S.

327

(1989)).

the

at

complaint's

696

(quoting

factual

Neitzke

v.

There is a factual dispute

"accepted
13

regardless of

industry

standard,"

and

therefore such determination cannot be made by the Court when
ruling on a Rule 12(b)(6) motion.

the

sufficiency of

contests

a

surrounding

complaint;
the

facts,

applicability of defenses."
214

(4th

Cir.

Plaintiffs'

2016)

factual

"A Rule 12(b)(6) motion tests

it does

the merits

King v.

(internal
statements

are

684 F.3d at 467,

of

a

marks

presumed

to

resolve

claim,
825

or

F.3d 206,

omitted).
be

the

true

at

As
the

Kensington Volunteer Fire

Plaintiffs have stated a plausible claim

by alleging specific facts
of a

however,

Rubenstein,

quotation

motion to dismiss stage of the case,
Pep't,

not,

that,

if true,

satisfy each element

breach of contract claim.

D. Remedy of Rescission

Finally,

Defendants allege that Plaintiffs fail to state a

claim that justifies the equitable remedy of rescission of the
foreclosure sale.

The default remedy for breach of contract is

an award of damages.
839,

885

(1996) .

United States v.

Winstar Corp.,

A borrower may bring an action

518 U.S.

"for damages

after the fact of the improper sale or to bar the improper sale
in

equity

before

S.E.2d at 199.®

'

it

occurs."

Mathews,

In limited circumstances,

283

Va.

at

731,

724

Virginia law allows

Prior to the Virginia Supreme Court's recent clarification,

some courts,

primarily relying on this earlier statement by the Virginia Supreme Court,
found that Virginia law does not allow rescission of a foreclosure sale.
Wegner

v.

Manufacturers

& Traders

Trust

Co.,

No.

3:14-CV-851-JAG,

2015

WL

9200478, at *4 (E.D. Va. Dec. 16, 2015) ("Since damages are available to
compensate a plaintiff for an improperly-conducted foreclosure sale, the
Court finds rescission unavailable to [plaintiff].");
Foster v. Wells Fargo
14

courts to equitably set aside a
facts

of

the

case,

such

as

foreclosure sale based upon the

when

the

sale

to

the

foreclosure

purchaser is in material breach of the deed of trust between the
original purchaser and the note holder.
787

S.E.2d at 122

S.E.

916,

grantor

921
in

(1918))

trust

unauthorized act

conveyance

(quoting Smith v.

upon

Woodward,

court of

be

the

of

trustee,

and will

trustee

has

the

him,

.

.

deprived

.

292 Va. at 44,

122 Va.

of

his

property

set

aside

exceeded

especially

356,

94

equity will not permit a

to

where

conferred

("[A]

Parrish,

where

the

the

an

sale

a

by

and

authority

purchaser

has

notice.")•

However,
after

the

equitable relief through rescission of a

foreclosure

drastic exercise of

sale

"calls

the power of a

for

the

highest

111 Va.

is granted,

Bank,

N.A. ,

595,

595,

69 S.E. 978,

and

most

court of chancery—to annul

and set at naught the solemn contracts of parties."
Camp,

contract

979

Bonsai v.

( 1 9 1 1 ) " I f rescission

the contract is terminated for all purposes, and the

No.

3:14-CV-00017,

2014

WL 3965059,

at

*6-7

(W.D.

Va.

Aug.

13,

2014) (same).
However, the Virginia Supreme Court in Mathews did not state
that equitable relief was unavailable post-sale, only that damages were
available. See Mayo v. Wells Fargo Bank, N.A., 30 F. Supp. 3d 485, 4 98 (E.D.
Va.

2014),

(4th Cir.

aff'd

2015)

for

the reasons

stated by the Dist.

Ct..

622

F.

App'x

250

("In light of the Virginia precedents allowing the setting

aside of foreclosure sales in equity, the Court cannot conclude that the
statement in Mathews was meant to set aside that precedent without explicit
mention.").
In 2016, the Virginia Supreme Court seemed to clarify the state

of the law on this issue, noting that courts may grant equitable relief even
after a

foreclosure sale.

Parrish,

292 Va.

at 44,

787 S.E.2d at 122.

' The drastic nature of this action is most starkly brought into focus when a
good faith purchaser of the foreclosed property is involved.
15

parties are restored to the status quo ante."
242

Va.

51,

54,

405

McLeskey v. Ocean

Park Inv'rs>

Ltd.,

S.E.2d 846,

847

(1991).

If the facts

justify this drastic remedy and the court is able

to substantially "restore the parties to the position which they

occupied before they entered into the contract," rescission may
be granted.
Buki,

in

Bonsai,

289 Va.

162, 173,

restoring

"immaterial"

only

the

111 Va.

parties
if

at 595,

69 S.E. at 979; Devine v.

767 S.E.2d 459,

to

their

465

(2015)

pre-contract

(holding that

positions

it

is

the status quo cannot be literally restored as

ability

to

substantially

restore

the

parties

is

required).

This

"drastic

exercise"

of

the

Court's

power

requires

assertion of equitable grounds for relief or an assertion that
the sale was

See

Ramos,

conducted in material breach of

289

Va.

at

equitable rationales
the

purchaser,

inadequacy'
Squire,

287

and

that it
Va.

at

324

for
a

n*,

770

*shock [s]
519,

S.E.2d at

rescission as

foreclosure

758

the deed of

sale

"fraud,
price

the conscience'
S.E.2d

at

61

494

n*

trust.

(listing

collusion with
of

of

such

'gross

the court");

(listing

equitable

rationales as an inadequacy of price "so gross as to shock the
conscience" or "additional circumstances against its fairness");
Runion v.

Helvestine,

256 Va.

1,

10,

501 S.E.2d 411,

416

(1998)

(listing equitable rationales for rescission as "fraud, mistake,
illegality, disability,

concealment,
16

[or] undue influence").

To

sufficiently allege

facts

that

justify rescission,

a

plaintiff

must:

(1)

identify with specificity the precise requirements

in the deed of

trust

that

he or she asserts constitute

conditions precedent to foreclosure, (2) allege facts
indicating that the trustee failed to substantially
comply with them so that the power to foreclose did
not
accrue,
and
(3)
allege
that
the
foreclosure
purchaser knew or should have known of the defect.

Parrish,

292

scpjire,

287

Va.

at

Va.

at

44

n.5,

515-18,

787

758

S.E.2d

S.E.2d

at

at

131

60-61).

n.5

"A general

allegation that the trustee breached the deed of trust

the note holder and the original purchaser]

(citing

[between

is not sufficient"

to justify the "drastic exercise" of a court's power to rescind
a

sale

between

Parrish,
Va.

the

292 Va.

at 595,

foreclosure

at 44 n.5,

69 S.E.

Plaintiffs

purchaser and

the

787 S.E.2d at 131 n.5;

note

holder.

Bonsai,

111

at 979.

allege

that

Defendants

sold

Plaintiffs'

home

without legal authority because the sale was in breach of the
Deed

of

Trust,

an

allegation

that,

if

true,

constitutes

an

equitable rationale for setting aside a

home foreclosure sale.

Runion,

at

256

specifically
Trust

that

Va.

at

10,

identify

the

was

implementation of

accepted
Plaintiffs

industry
allege

a

a

501

S.E.2d

precise

condition

requirement

precedent

to

loan servicing program

standards.
that

the

Am.

Compl.

trustee.

White,

17

416.

Plaintiffs

of

the

Deed

of

foreclosure:

the

in accordance

with

HI

10-12.

acting as

Next,
an agent

for Wells Fargo,
trust

failed to substantially comply with the deed of

terms when Wells

Fargo engaged in dual

track

in violation of accepted industry standards,
to foreclose did not accrue."

Id.

44

n.5

n.5,

787

foreclose

S.E.2d

may

substantially
Finally,

at

131

not

accrue

comply

with

Plaintiffs

when

the

allege

"so that the power

13-20;

(noting

a

Parrish,

that

trustee

terras

of

that the

foreclosure

292 Va.

power

to

the

has

the

at

deed

failed

of

to

trust) .

foreclosure purchaser knew

of the defect because Defendant Wells Fargo made the high bid at
the

foreclosure

auction,

purchasing

than

the

home

value

actual

the

of

for

the

"an

amount

significantly

less

home."

Am.

Compl. 1 25.

As Plaintiffs' Amended Complaint alleges a ground

for equitable remedy {illegality of sale) and meets the Parrish
three-part test.
of

the

Plaintiffs have alleged a claim for rescission

foreclosure

sale.

E. Request for a Jury Trial

Finally,

Plaintiffs

Virginia Code § 55-153,

request

a

jury

trial,

which provides that a

citing

to

jury may try any

issue of fact in an equitable action to remove a cloud on title
to

real

estate

that

to be tried by
that

this

Plaintiffs

Compl.

H

jury.

code
are

40;

"but

for

Va.

section

not

out

Defs.'

of

Mem.

this

Code
does

section"

§ 55-153.
not

possession

in

Supp.
18

would have

Both parties agree

directly
of

11.

been able

the

apply

because

property.

Plaintiffs

Am.

argue,

however,

that

the

rationale

of

the

statute

should apply here,

allowing Plaintiffs the opportunity to try their case to a jury.

Am. Compl.
entitled
remedy,

H 40,

to
and

a

42.

jury

Defendants argue that Plaintiffs are not
trial

therefore

ask

because
the

rescission

Court

to

is

strike

an

the

request for rescission of the foreclosure sale.

equitable

Plaintiffs'

Defs,'

Mem.

in

Supp. 11.

Federal

procedural

rules,

not

control whether Plaintiffs have a

Rules

Enabling

Act

authorizes

Virginia

right

"general

procedural

to a

rules,

jury trial.

rules

of

The

practice

and

procedure" for cases in Federal courts, as long as such rules do
"not

abridge,

U.S.C.

enlarge

§ 2072.

applicable
addresses

modify

any

substantive

right."

28

The "general rule[]

of practice and procedure"

is

here
the

or

Civil

Federal Rule

right

Federal courts.

of

the

of

parties

It provides that:

to

Procedure 38,

trial

by

jury

which
in

the

"The right of trial by jury

as declared by the Seventh Amendment to the Constitution-or as

provided

by

inviolate."

to a
VII,

a

federal

statute—is

Fed. R. Civ. P. 38(a).

jury trial

"in Suits at

includes a right to a

There

is

Ross

no right

v.
to a

to

the

parties

The Seventh Amendment right

common law,"

U.S.

Const,

jury on all legal claims,

of whether those claims are

single case.

preserved

amend.

regardless

joined with equitable claims

Bernhard,

396

U.S.

jury on claims
19

531,

that

537-38

in a

(1970).

historically were

tried in courts of equity.
Safety

& Health

Review

Atlas Roofing Co.

Comm'n,

430

U.S.

v.

442,

Occupational

459

(1977) .

At

common law, breach of contract and damages were decided by jury,

while

equitable

remedies,

such

decided by courts of equity.
ctr.

Ltd.

("[If]

p'ship,

711

F.

as

Id.;

Supp.

specific

performance,

see Plant v.
2d

576,

597

were

Merrifield Town
(E.D.

plaintiffs only seek equitable rescission,

Va.

2010)

they are not

entitled to a jury trial.").

Plaintiffs
the

they

request

foreclosure

have

sale

suffered

foreclosure

sale.

equitable

and

as
As

relief

compensatory

a

result

Plaintiffs

through rescission of

damages

of

the

may

join

legal requests for relief in a single case.
and

the

requests

Norfollc & W. Ry.

for
Co.,

relief

for

the

allegedly
both

losses

wrongful

equitable

Fed. R.

Civ.

are

not

duplicative,

204 F.3d 141,

143

(4th Cir.

and

P.

2,

Artis

v.

2000)

(noting

that a plaintiff may not receive a double recovery for a single
injury),

Plaintiffs

have

alleged

sufficient

trial on the legal issue of damages,

396 U.S.

Therefore,

sufficiently

pled

Motion to Dismiss

for

a

jury

with the equitable remedy

of contract rescission being properly a
See Ross,

facts

judgment for the Court.

at 537-38.

for

the

a

breach

above

of

reasons.

contract

i s DENIED.

20

claim

Plaintiffs

and

have

Defendants'

IV.

For

the

reasons

set

CONCLUSION

forth

above,

the

Court

DENIES

Defendants' Motion to Dismiss Plaintiffs' Complaint.

The Clerk is REQUESTED to send a

copy of this Opinion and

Order to a l l counsel of record.
IT

IS

SO ORDERED.

/s
Mark S.

Davis

UNITED STATES DISTRICT JUDGE

Norfolk, Virginia

November 15' , 2016

21