Jennings et al v. RoundPoint Mortgage Servicing Corporation et al

Filing 17

MEMORANDUM ORDER granting in part and denying in part 6 Motion to Dismiss for Failure to State a Claim; adopting and approving in full 14 Report and Recommendations. RoundPoint's motion to dismiss plaintiffs' claims for breach of con tract and for violation of section 1024.38 of RESPA, 12 C.F.R. § 1024.38, is GRANTED; RoundPoint's motion to dismiss plaintiffs' claim that RoundPointviolated section 1024.41 of RESPA, 12 C.F.R. § 1024.41, is DENIED. Signed by Chief District Judge Rebecca Beach Smith on 2/27/18. (bpet)

F LED
UNITED

STATES

DISTRICT

EASTERN DISTRICT

1-EB li !

COURT

OF VIRGINIA

CLERK, U.S. DISIHICI CUUHI

STERLING

L.

i

NORFOLK. VA

Norfolk Division

1

JENNINGS

and

DEIRDRE D.

JENNINGS,

Plaintiffs,

V

ACTION NO:

.

ROUNDPOINT MORTGAGE

SERVICING

2:17cv427

CORP.

and

EQUITY TRUSTEES,

LLC,

Defendants.
MEMORANDUM ORDER

This

Dismiss,

matter

is

before

filed by the

Corporation

filed

Motion

Dismiss

to

No. 11.

court

Defendant,

("RoundPoint"),

Plaintiffs

the

on

the

Partial

on August 18, 2017.

("Opposition")
filed

its

to

RoundPoint Mortgage Servicing
ECF No.

their Memorandum in Opposition

RoundPoint

Motion

on

Reply

September

in

Support

to the

6.

Partial

14, 2017.
of

its

The

ECF

Partial

Motion to Dismiss ("Reply") on September 19, 2017. ECF No. 12.
On September 21, 2017,
referred

to

United

pursuant

to

the

Federal

Rule

of

States

provisions
Civil

the

Partial

Magistrate

of

28

Procedure

including evidentiary hearings,

Motion
Judge

U.S.C.
72(b)

to

if necessary,

to

Dismiss

Robert

J.

was

Krask,

§ 636(b)(1)(B)

and

conduct

hearings,

and to

submit to

the

undersigned

applicable,
Partial

and

Motion

filed

district

proposed

recommendations
to

the

judge

Dismiss.

Report

December 22, 2017.

ECF

that RoundPoint's

for

ECF

and

the

No.

13.

of

No. 14.

fact,

disposition
The

of

if
the

Magistrate

Judge

{'"R&R")

on

Recommendation
The Magistrate

Partial Motion to

and denied in part.

findings

Judge

recommended

Dismiss be granted in part

Id. at 1.

By copy of the R&R, the parties were advised of their right

to file written objections to the findings and recommendations

made

by

the

Magistrate

December 29, 2017,

the

Judge.

Plaintiffs

Id.

filed

two

at

12-13.

objections

R&R and requested leave to amend their Complaint.
RoundPoint

responded

to

the

Plaintiffs'

On

to

the

ECF No. 15.

objections

on

January 12, 2018. ECF No. 16. The matter is now ripe for review.
I.

LEGAL STANDARDS

A. Review of Magistrate Judge's R&R

Pursuant

Procedure,

to

the

Rule

72(b)

court,

of

having

the

Federal

reviewed

Rules

the

record

of

Civil

in

its

entirety, shall make a ^

novo determination of those portions

of

plaintiff

the

Fed.

R&R to

R.

Civ.

which the
P.

particularized."
{4th Cir.

2007) .

72 (b) .

Objections

United States
The

has

v.

specifically objected.

must

Midqette,

court may accept,

be

''specific

and

478

F. 3d 616,

621

reject,

or modify,

in

whole or in part, the recommendation of the Magistrate Judge, or

recommit

§

the

matter

to

him

with

instructions.

28

U.S.C.

636(b)(1).

B. Leave to Amend Complain-t
'''It
under

is

well-established

Federal

Rule

of

that

Civil

leave

Procedure

to

amend

15(a)

should

given when justice so requires.'" Wilkins v.
N.A. ,

P.

320 F.R.D.

15(a)).

125,

127

(E.D.

Va.

2017)

182

(1962));

503,

509-10

see

Id.

also

(quoting
Johnson

Davis,

Oroweat

(4th Cir. 1986) . Accordingly,

Foods

''unless

would be prejudicial to the opposing party,

faith

on

would .

.

the
.

[be]

plaintiff's
Comm'n,
Harvey,

part

of

F.3d

Steinburg v.

377,

438 F.3d 404,

"Whether

moving

390

426

(4th

R.

Civ.

^this mandate
371 U.S.

178,

Co.,

F.2d

785

'the amendment

there has been bad

party,

or

the

amendment

amendment

the

nature

by

Laber,

438

F.3d at

reason

to

426.

Chesterfield Cnty.
Cir.

(4th Cir.

an

determined

is

of

2008)

Furthermore,

"[a]n

amendment

"Delay alone

merely

an

amendment

additional

is

(quoting

prejudicial

the

not

theory

Planning
Laber

v.

2006)).

...

deny the plaintiff's motion

adds

Fargo Bank;

futile,'" the court should generally grant the

request.

527

the

^freely

(quoting Fed.

Foman v.

v.

complaint
be

Wells

^'The Supreme Court has emphasized that

is to be heeded.'"

a

to

will

and

its

be

timing."

is an insufficient

amend."

prejudicial

of

often

recovery

Id.
.

to

.

at
.

the

427.
if

it

facts

already pled and is offered before any discovery has occurred."

Id.

An amendment is ''futile if it is apparent that the proposed

amendments

320

could

F.R.D.

at

not

withstand

(internal

127

a

motion

to

quotation

dismiss."

marks

Wilkins,

and

citations

be

dismissed

omitted).
C.

Pursuant

to

Rule

Motion to Dismiss

12(b)(6),

a

complaint

must

when a plaintiff s allegations fail to state a claim upon which
relief can be granted. Fed. R. Civ. P.

12(b)(6). A Rule 12(b)(6)

motion to dismiss tests only the sufficiency of a complaint; it
does not resolve contests regarding the facts of the case,
merits

of

a

claim,

or

the

applicability

of

the

any

defense.

Republican Party of N.C. v. Martin, 980 F.2d 943, 952

(4th Cir.

1992) . "To survive a motion to dismiss, a complaint must contain
sufficient factual matter,

accepted as true,

to

^state a claim

to relief that is plausible on its face.'" Ashcroft v.
556 U.S.
550 U.S.

662,
544,

678
570

(2009)

(quoting Bell Atl.

Corp.

v.

Iqbal,

Twombly,

(2007)).

Facial plausibility means that a ''plaintiff pleads factual
content

that

the

that

allows

defendant

(citing Twombly,
for

a

Id.

or

is

court

liable

to draw

the

for

misconduct

the

reasonable

inference

alleged."

Id.

550 U.S. at 556). It is, therefore, not enough

plaintiff

possibility"

the

to

"mere[]

allege

facts

consist[ency]"

(citing Twombly, 550 U.S. at 557).
4

demonstrating

with

unlawful

a

"sheer

conduct.

The

Supreme Court,

in Twombly and

Iqbal,

offered guidance

to courts evaluating a motion to dismiss:

In keeping with these principles a court considering a
motion to dismiss can choose to begin by identifying
pleadings
that,
because
they
are
no
more
than
conclusions, are not entitled to the assumption of
truth.
While
legal
conclusions
can
provide
the
framework of a complaint, they must be supported by
factual
allegations.
When
there
are
well-pleaded
factual allegations,
a court should assume their
veracity and then determine whether they plausibly
give rise to an entitlement to relief.

Iqbal, 556 U.S. at 679. That is, the court accepts facts alleged

in the complaint as true and views those facts in the light most
favorable to the plaintiff.

Inc. ,

417

F.3d 418,

420

See,

e.g.,

(4th Cir.

Venkatraman v.

2005).

REI Sys.,

After doing so,

the

court should not grant the defendant's motion if the plaintiff
"demonstrate [s]
defendant

has

more

than

violated

^a

his

sheer

rights,

possibility'"
by

that

"articulat[ing]

the

facts,

when accepted as true, that ^show' that the plaintiff has stated
a

claim entitling him to

F.3d

186,

193

(4th

relief."

Cir.

2009)

Francis v.
(quoting

Giacomelli,
Iqbal,

556

588
U.S.

at 677-78).
II.

The

Plaintiffs

recommendation

of

contract

Relying

that

and

object

this

court

violations

on Mathews

v.

ANJ^YSIS

of

to

the

dismiss

12

PHH Mortg.

Magistrate

their

C.F.R.

Corp.,

§

claims

1024.38.

724

Judge's
for

breach

Obj .

S.E.2d

196

at

1.

(Va.

2012),

the Plaintiffs argue that ''federal regulations governing

the foreclosure process," including § 1024.38,

''are part of the

mortgage

provision

contract

Deed of Trust,"

under

the

(''Deed").

^Applicable

Id.

at

2.

Law'

As

such,

of

the

"when RoundPoint

failed to comply with applicable law in the form of regulations
under

RESPA,"

the

Plaintiffs

allege,

RoundPoint

Deed.

Id. Though the Plaintiffs raised this argument before the

Magistrate Judge in their Opposition,

breached

they did not plead it in

their Complaint. Opp'n at 3-4. The Magistrate Judge,
declined

to

address

the

issue.

R&R

the

at

7.

The

therefore,

Plaintiffs

now

request leave of court to amend their Complaint to allege this
theory of relief.

Though

RoundPoint

fails

to

address

specifically

whether

leave to amend is appropriate, it argues that § 1024.38 does not

provide for private enforcement,
on

Mathews

"applicable

is

misplaced,

law"

is

and

too

that the Plaintiffs'
that

broad

to

the

Deed's

satisfy

reliance

reference

the

to

necessary

conditions for incorporation into the contract. Resp. at 2-3. If
RoundPoint's
leave

to

claims

amend

are

would

be

correct,
futile,

then
and

granting
no

such

the
relief

Plaintiffs
would

be

warranted. The court, therefore, turns to whether the Plaintiffs
have stated a claim for which relief may be granted to determine
whether leave to amend is appropriate.

deed of trust is construed as a
law."

No.

Combs

v.

U.S.

l:17-cv-545,

regulation

action,"

No. 2:15cv566,

724

does

(quoting

Ass^n

at *4

S.E.2d at

itself

id.

Nat^l

2017 WL 2805494,

(quoting Mathews,

the

Bank

200).

not

for

(E.D.

v.

Va.

a

Wells

at *3

JP

ALT

Farqo

2017)

''even when

private

(E.D. Va.

2006-SI,

June 28,

Consequently,

provide

Wilkins

2016 WL 6775692,

contract under Virginia

cause

Bank,

Nov.

of

N.A.,

15, 2016)),

the parties are free to ''incorporate regulatory provisions into
a

deed of trust,"

regulation

provision

into

of

id.

a

contract

^the

specific" and (2)

Nevertheless,

incorporation of a

requires

applicable

law'

that

...

Mathews,

"the

be

relevant

sufficiently

the federal regulation to have been in effect

at the time of the contract's formation.

In

(1)

federal

the

"regulations of the

Virginia

[HUD's]

Supreme

Id.

Court

found

that

the

Secretary" were incorporated into a

deed where the deed contained the following language:

(d)

Regulations

Secretary.
issued
Secretary will limit [the l]ender's
in the case of payment defaults, to

circumstances

of

immediate payment
not paid.
authorize

This

HUD

in

by

full

and

foreclose

Security Instrument

acceleration

permitted

In many
by
the
rights,
require

regulations

the

or

if

does not

foreclosure

regulations

if

of

not

the

Secretary.

724 S.E.2d at 201.

In so holding,

language "express[ed]
of

acceleration

and

the court reasoned that such

the intent of the parties that the rights
foreclosure

do

not

accrue

under

the

[d]eed

of

[tjrust unless permitted by the HUD's regulations." Id.;

also Wilkins,

2016 WL 6775692,

at *3

Mathews,

S.E.2d

to

724

incorporated

Title

at

38

201,

of

the

(relying,

find

U.S.

that

Code

inter alia,
a

deed

and

its

of

Code,

.

.

.

and

Regulations

issued

associated

thereunder

effect on the date hereof shall govern the rights,

upon
trust

regulatory provisions where it provided that ''Title 38,
States

see

United
and

duties[,]

in
and

liabilities of Borrower and Lender.").

In contrast,
85 Va.

Cir.

379

however,
(2012),

a

in Lubitz v.

Wells Farqo Bank,

circuit court

N.A.,

in Virginia held that

the contract's reference to ''Applicable Law" was insufficiently

precise to become incorporated as a contract term.

Id. at 37 9.

In reaching this conclusion, the court stated that such language
was

"not

"[t]he

similar

language

enough

in

to"

Mathews

the

language

expressly

in

Mathews

incorporate[d]

because

the

HUD

regulations," whereas the language at issue in that case "only
incorporate[d] all applicable law." Id. The court explained that
this

distinction

regulations

^controlling'
[p]laintiff

are

or
with

was

not

important

applicable

'applicable'"
a

for

private

as

right

two

law

they
of

reasons:

because

did

(1)

they

"not

action";

"the

HUD

are

not

provide
and

(2)

the
the

regulation on which the plaintiff relied "was not in existence
at the time that the contract was made." Id.

other

courts

have

held

that

language

providing,

i.e.,

'"[a] 11 rights and obligations" are ''subject to any requirements
and

that

limitations

governs

violation

JPMorqan
2015);

of

the

parties'

any

of

such

Chase
see,

No. 14-5013,

Applicable

Bank,
e.g.,

2016

Law"

agreement

law

is

N.A.,

a

F.

v.

755615,

but

at

''identifies

does

breach

605

Anderson

WL

merely

of

212,

Wells

275

Fargo

(D.

provide

contract."

App'x

*4

not

Minn.

the

Feb.

that

Page

(5th

Home

law

v.

Cir.

Mortg.,

25,

2016)

("Plaintiffs cannot simply recast statutory claims as breach of
contract

causes

governing

law

No. 13-5010,

of

action

based

provision.");

2014

WL

on

the

Uzodinma

4055367,

at *3

mortgage's

general

JPMorqan

Chase,

v.

(N.D.

Tex.

Aug.

14,

2014)

(holding that similar language in a contract did "not imply that

if a party to the contract violates a state or federal law, it
also

breaches

Ass'n,

similar

923

F.

the

contract");

Supp.

language

in

2d 828,

a

Townsend

841

deed of

v.

(W.D. Va.

trust

Fed.

2013)

did not

Nat'1

Mortg.

(holding that

incorporate

the

requirements of the Federal Debt Collection Practices Act under
traditional principles of contract law because doing so would be
adding terms that were not included by the parties).
Here,

the Deed provides:

14. Governing Law; SeveraODility

This Security Instrument shall be governed
by
Federal
law
and
the
law
of
the
jurisdiction
in
which
the
Property
is
located.

In the event

that

any provision or

clause of this Security Instrument or the
Note
conflicts with applicable
law,
such
conflict shall not affect other provisions
of this
Security Instrument or the Note
which
can
be
given
effect
without
the

conflicting provision.
To
this
end,
provisions of this Security Instrument
the Note are

Ex. B Mem.

declared to be

Supp. Mot.

the
and

severable.

Dismiss at 6, ECF No.

7-2.

This language is materially different than the language in
Mathews.

The

''shall

.

.

at

issue

here

merely

prescribes

. govern []" the Security Instrument.

by contrast,

limiting

Deed

the

the

language

Id.

referenced the HUD's

circumstances

under

which

laws

that

In Mathews,

regulations

"acceleration

as

or

foreclosure" was ''authorize [d] ." 724 S.E.2d at 201. Accordingly,

Mathews not only encompassed a more specific range of laws, but

also,

and more importantly,

specified those laws as limits upon

the lender's "authori[ty]" to "accelerat[e] or foreclos[e]." Id.
For these reasons,
Anderson,

this court,

Uzodinma,

and

like the courts in Lubitz,

Townsend,

concludes

that

the

reference to "applicable law" merely "identifies the

Page,
Deed's

law that

governs the parties' agreement" and does not establish that the
"violation of

605

F.

.

App'x at

.

.

such law[s]

275.

As such,

is a breach of contract." Page,

both the

Plaintiffs'

breach of

contract and accompanying § 1024.38 claims fail.^ Because the

^

Both

theories

of

relief

fail

because

the

contract
claim
requires
establishing
that
§
incorporated as a contract term, which the court
10

breach

of

1024.38
was
concluded it

Plaintiffs

have

no

viable

claim under

either

theory,

the

court

CONCLUDES that granting them leave to amend would be futile and,
therefore, OVERRULES the Plaintiffs' objections.
III.

This

court,

having

Magistrate Judge's R&R,

CONCLUSION

examined

the

objections

and having made ^

respect thereto, OVERRULES the Plaintiffs'
hereby

ADOPT

recommendations

AND
set

APPROVE
forth

IN

in

Magistrate Judge filed on

R&R

December 22,

the

novo findings

with

objections,

FULL

the

to

the
of

findings

the

2017.

and does

United

and
States

Accordingly,

the

court GRANTS in part and DENIES in part the Partial Motion to
Dismiss.

The

Clerk

is

DIRECTED

to

forward

a

copy

of

this

Memorandum Order to counsel for all parties.

/S/
IT

IS

SO ORDERED

Rebecca Beach Smith

Chief Judge
REBECCA BEACH SMITH
CHIEF JUDGE

si

February JN , 2018

was not. As such, no breach of contract could have occurred from
the alleged violation of that provision. Furthermore, as the

Magistrate Judge explained,

a claim arising out of § 1024.38,

independent of its incorporation into the contract, also cannot
proceed because § 1024.38 is not privately enforceable. See R&R
at 8. Therefore, the Plaintiffs have stated a claim for neither
a

breach of contract nor a

violation of § 1024.38.
11