Acuna v. Chase Home Finance LLC et al
Filing
28
MEMORANDUM OPINION. Signed by District Judge James R. Spencer on 05/16/2011. (walk, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA
RICHMOND DIVISION
HECTOR ACUNA,
Action No. 3:10‐CV‐905
Plaintiff,
v.
CHASE HOME FINANCE, LLC,
FEDERAL NATIONAL MORTGAGE
ASSOCIATION,
Defendants.
MEMORANDUM OPINION
THIS MATTER is before the Court on Defendants’ Motion to Dismiss. (Doc. No.
3.) Defendants move the Court to dismiss the Complaint with prejudice pursuant to Rule
12(b)(6) of the Federal Rules of Civil Procedure. For the reasons stated below, the Court
GRANTS the Motion to Dismiss with respect to Counts I, II, and IV, and DENIES the Motion
to Dismiss with respect to Count III.
I.
BACKGROUND
Plaintiff Hector Acuna (“Acuna”) obtained a mortgage loan from First Horizon Home
Loans in the amount of $ 162,000.00 on December 28, 2007. The loan was evidenced by a
Note and secured by a Deed of Trust on the Richmond, Virginia, home Acuna purchased
with the loan money. Defendant Chase Home Finance, LLC (“Chase”) purchased the loan
and Defendant Federal National Mortgage Association (“Fannie Mae”) insured the loan.
On April 13, 2009, Chase and Fannie Mae, an agent for the United States, entered
into a Commitment to Purchase Financial Instrument and Servicer Participation Agreement
(“SPA”) for the Home Affordable Modification Program (“HAMP”). Under the SPA, Chase
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was required to comply with HAMP guidelines issued by the United States Department of
the Treasury (“Treasury Department”). Treasury Department Supplemental Directive 10‐
02 prohibits Chase from initiating foreclosure proceedings prior to taking certain steps.
Also in April 2009 Acuna began struggling to pay his mortgage. Acuna contacted
Chase in November and December of 2009 and January 2010 to arrange a loan
modification. A Chase representative told Acuna his modification request would receive
priority if he defaulted on the loan. Acuna subsequently withheld payments for April, May,
and June 2010 and attempted to negotiate a modification. Chase refused to provide a
modification, but offered a payment plan that spread the missed payments out over time.
Acuna could not make these payments. Chase then advised Acuna to pay any amount he
could toward his mortgage. Acuna made payments of $ 1,000 in July and August 2010.
Chase accepted the July payment, but returned the August check to Acuna.
Chase initiated foreclosure proceedings July 16, 2010, by appointing substitute
trustees under the Deed of Trust. Chase subsequently sent Acuna the HAMP modification
documents during the last week of July 2010. On August 2, 2010, the substitute trustees
notified Acuna that his home was scheduled to be sold at an August 20, 2010, foreclosure
sale. Acuna returned the HAMP documents to Chase on August 12, 2010. When Acuna
contacted Chase on August 16, 2010, a representative told him the foreclosure sale would
be put on hold. Contrary to this information, however, the substitute trustees sold the
home on August 20, 2010, and conveyed it to Fannie Mae, the highest bidder.
Chase continued to contact Acuna regarding a possible HAMP modification after the
foreclosure. Acuna was asked to vacate the home September 2, 2010. On September 7,
2010, Chase sent Acuna a letter acknowledging receipt of the HAMP modification request,
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but two days letter Chase informed Acuna his application was incomplete. Fannie Mae
subsequently issued a Summons for Unlawful Detainer to evict Acuna.
II.
LEGAL STANDARD
Rule 12(b)(6) of the Federal Rules of Civil Procedure permits a court to dismiss a
complaint for “failure to state a claim upon which relief can be granted.” A motion to
dismiss “test[s] the sufficiency of the complaint to see if it alleges a claim for which relief
can be granted.” Dolgaleva v. Va. Beach City Pub. Sch., 364 F. App’x. 820, 825 (4th Cir.
2010). A pleading states a claim if it contains “a short and plain statement of the claim
showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The plaintiff must
allege facts sufficient “[t]o raise a right to relief above the speculative level” and provide
“enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555, 570 (2007). A claim is plausible on its face if “[p]laintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).
III.
DISCUSSION
a. Count I: Breach of Contract Against Chase
Acuna’s first allegation of breach of contract arises out of the SPA between Chase
and Fannie Mae. Acuna claims Chase violated the SPA and Treasury Department
Supplemental Directive 10‐02 by: (1) referring Acuna’s home to foreclosure before
soliciting his participation in HAMP; (2) failing to suspend foreclosure proceedings after
establishing “right party contact” with Acuna; (3) failing to provide proper notices and give
Acuna sufficient time to provide the initial HAMP package; (4) failing to suspend the
foreclosure after receiving the initial package seven days before the scheduled foreclosure
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sale; (5) failing to evaluate Acuna’s initial package for completeness; and (6) proceeding
with a foreclosure sale despite the fact that none of the events required by the
Supplemental Directive had taken place.
Defendants argue HAMP does not create a private right of action and, thus, Acuna
lacks standing to enforce the SPA. Enforcement of HAMP guidelines is a task Congress and
the Treasury Department assigned exclusively to Freddie Mac. Consequently, many courts
have concluded borrowers have no private right of action under HAMP. See, e.g., Marks v.
Bank of Am., N.A., No. 3:10‐CV‐08039, 2010 U.S. Dist. LEXIS 61489, at *16‐20 (D. Ariz. June
22, 2010); Shurtliff v. Wells Fargo Bank, N.A., No. 1:10‐CV‐165, 2010 U.S. Dist. LEXIS
117962, at *10 (D. Utah Nov. 5, 2010). Moreover, the SPA provides it “shall inure to the
benefit of and be binding upon the parties to the Agreement and their permitted
successors‐in‐interest.” Compl. Ex. C, ¶ 11(E). Because Acuna is neither a party to the
agreement nor a successor in interest, Defendants argue Acuna does not have standing to
enforce the agreement.
Defendants also argue Acuna does not have standing to enforce the SPA as a third‐
party beneficiary. “An agreement will be enforced in favor of a third party beneficiary when
the beneficiary establishes that the parties to the agreement clearly and definitely intended
to confer a benefit on the beneficiary.” First Sec. Fed. Sav. Bank v. McQuilken, 253 Va. 110,
114 (1997). Defendants contend the SPA did not establish Chase or Fannie Mae intended to
confer a benefit upon Acuna.
Acuna argues he is an intended third‐party beneficiary of the SPA and is therefore
entitled to enforce its provisions. Acuna contends the SPA requires Chase to perform
services described in the program guidelines and the Treasury Department’s supplemental
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directives. Because the SPA incorporates HAMP program guidelines and supplemental
directives into the agreement, Acuna believes he should be permitted to enforce the same
as a third‐party beneficiary.
Acuna relies on the Restatement (Second) of Contracts for the proposition “[a]
promise in a contract creates a duty in the promisor to any intended beneficiary to perform
the promise, and the intended beneficiary may enforce the duty.” Restatement (Second) of
Contracts § 304 (1981). Acuna states the Court should determine whether he is a third‐
party beneficiary by considering whether the contract reflects the parties’ express or
implied intent to benefit him as a third party. See Sec’y of State for Def. v. Trimble
Navigation Ltd., 484 F.3d 700, 706 (4th Cir. 2007). He further states the intent to benefit a
third party can be determined by looking at the contract itself and the circumstances
surrounding its formation. Id.
Acuna concedes third parties who benefit from government contracts are generally
considered incidental beneficiaries, absent clear intent to the contrary. Klamath Water
Users Protective Assoc. v. Patterson, 204 F.3d 1206, 1212 (9th Cir. 1999) (holding the fact
that the contracting parties had the third party in mind when entering into the contract is
not sufficient to confer third‐party beneficiary status). Acuna further concedes many
district courts have held borrowers are not intended beneficiaries of SPAs between loan
servicers and Fannie Mae, but argues all of those cases ultimately rely on reasoning
from Patterson. Although the contract at issue in Patterson benefitted the public, there was
no indication that the promisor had an obligation to perform services for third parties.
Because the SPA in the instant case imposes a duty to perform services for third parties,
Acuna argues the Court should not consider Patterson or its progeny.
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Acuna instead points to Marques v. Wells Fargo Home Mortgages, Inc., No. 09‐CV‐
1985‐L, 2010 U.S. Dist. LEXIS 81879 (S.D. Cal. Aug. 12, 2010), a HAMP case that
acknowledges the express incorporation of program documentation into the SPA. The
Southern District of California pointed to several provisions in the program guidelines
requiring the servicer to perform services directly to or for the borrower. Marques, 2010
U.S. Dist. LEXIS 81879, at *12‐14. The court ultimately held in Marques
[u]pon a fair reading of the [SPA] in its entirety and in the context of its
enabling legislation, it is difficult to discern any substantial purpose other
than to provide loan modification services to eligible borrowers. . . . The
[SPA] on its face expresses a clear intent to directly benefit the eligible
borrowers.”
Id. at *15.
Similarly, Acuna argues, Supplemental Directive 10‐02 requires the servicer to
perform services directly to or for the borrower. Specifically, Supplemental Directive 10‐02
requires the servicer to solicit loan modifications from borrowers; resend the Initial
Package to the borrower if the borrower does not respond to the first Initial Package; and
satisfy certain requirements before foreclosing on a home. Compl. Ex. D, pp. 2‐5. Thus,
Acuna concludes, this Court should follow Marques and hold the SPA expressed a clear
intent to directly benefit him. Consequently, he has standing to enforce the SPA as an
intended third‐party beneficiary.
It is well‐settled that borrowers do not have a private right of action under HAMP.
See Hart v. Countrywide Home Loans, Inc., 735 F. Supp. 2d 741, 748 (E.D. Mich. 2010);
Speleos v. BAC Home Loans Servicing, L.P., No. 10‐11503‐NMG, 2010 U.S. Dist. LEXIS
132111, at *16 (D. Mass. Dec. 14, 2010) (“[t]here is no private right of action under
HAMP.”); Zeller v. Aurora Loan Servs., LLC, No. 3:10‐CV‐44, 2010 U.S. Dist. LEXIS 80449, at
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*2 (W.D. Va. Aug. 10, 2010); Hoffman v. Bank of Am., N.A., No. C 10‐2171 SI, 2010 U.S. Dist.
LEXIS 70455, at *10 (N.D. Cal. June 30, 2010) (“[i]t would be unreasonable for a qualified
borrower seeking a loan modification to rely on the HAMP servicer’s agreement as granting
him enforceable rights since the agreement does not actually require that the servicer
modify all eligible loans[.]”). Consequently, Acuna can survive the Motion to Dismiss Count
I only if he is a third‐party beneficiary to the contract between Chase and Fannie Mae.
Federal law controls the interpretation of contracts to which the United States is a
party, and courts look to general contract principles when interpreting such a contract.
United States v. Seckinger, 397 U.S. 203, 209‐10 (1970). “The appropriate test under
federal common law for third‐party beneficiary status ‘is whether the contract reflects the
express or implied intention of the parties to benefit the third party.’” Sec’y of State for Def.
v. Trimble Navigation Ltd., 484 F.3d 700, 706 (4th Cir. 2007) (quoting Schuerman v. United
States, 30 Fed. Cl. 420, 433 (1994)). A party attempting to prove his status as a third‐party
beneficiary must demonstrate that the contract reflects an intention to benefit him
“personally” or “directly.” Glass v. United States, 258 F.3d 1349, 1353‐54 (Fed. Cir.
2001). Since the government typically acts in the public interest, when a third party
benefits from a government contract, there is a presumption that the benefit recipient is an
incidental beneficiary, and, consequently, has no right to enforce the contract. S.E.C. v.
Prudential Sec., Inc., 136 F.3d 153, 158 (D.C. Cir. 1998).
District courts uniformly hold borrowers are not third‐party beneficiaries to HAMP
agreements. See, e.g., Steffens v. Am. Home Mortg. Servicing, Inc., No. 6:10‐1788, 2011 U.S.
Dist. LEXIS 26586, at *15 (D.S.C. Jan. 5, 2011); Winn v. Chase Mortg. Servs., No. 2:10‐CV‐395
(E.D. Va. Oct. 29, 2010) (Jackson, J.); Zoher v. Chase Home Fin., No. 10‐14135‐CIV, 2010 U.S.
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Dist. LEXIS 109936, at *11 (S.D. Fla. Oct. 15, 2010) (“[b]orrowers may not attempt to
enforce HAMP compliance as third‐party beneficiaries of a contract.”); Hoffman v. Bank of
Am., N.A., No. C 10‐2171 SI, 2010 U.S. Dist. LEXIS 70455, at *14 (N.D. Cal. June 30, 2010)
(“[b]orrowers are not third party beneficiaries under the HAMP servicer’s agreement.”);
Escobedo v. Countrywide Home Loans, Inc., No. 09‐CV‐1557, 2009 U.S. Dist. LEXIS 117017,
at *7 (S.D. Cal. Dec. 15, 2009) (“[q]ualified borrowers are incidental beneficiaries of the
Agreement and do not have enforceable rights under the contract.”).
The SPA states it “shall inure to the benefit of and be binding upon the parties to the
Agreement and their permitted successors‐in‐interest.” Compl. Ex. C, ¶ 11(E). Thus, the
goal of the agreement between Chase and Fannie Mae is not to benefit any third‐party
homeowner. Acuna, consequently, cannot prove Fannie Mae and Chase entered into the
SPA with the intent to benefit him personally and directly. Accordingly, Acuna does not
have third‐party beneficiary standing to enforce HAMP and Count I is dismissed.
b. Count II: Equitable Estoppel Claim Against Chase and Fannie Mae
Acuna alleges equitable estoppel based on two misrepresentations. First, he alleges
a Chase representative falsely represented to him that his request for modification would
receive higher priority if he defaulted on his loan. Second, he alleges a Chase representative
falsely assured him in August 2010 the foreclosure sale would be put on hold.
Defendants contend the Court should dismiss Count II because Acuna has not
alleged misrepresentations of material fact or that he changed his position to his detriment
in reliance on misrepresentations. First, Defendants argue, Acuna claims Chase told him his
request for loan modification would receive higher priority if he defaulted. Acuna does not
allege Chase promised to modify his loan if he withheld payments. Chase did discuss a loan
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modification with Acuna. See Compl. ¶¶ 12 – 15. As such, Chase did not falsely represent a
material fact. Second, Defendants state Acuna began struggling with loan payments in April
2009, long before he actually defaulted. Thus, even if a Chase representative told him to
withhold his April, May, and June 2010 payments, Acuna has not shown he changed his
position to his detriment in reliance on this statement. Moreover, Acuna now claims he did
nothing to prevent the foreclosure in reliance on Chase’s representation. Defendants argue
Acuna cannot retroactively allege forebearance. Because there is no false representation of
a material fact and Acuna did not change his position to his detriment in reliance on such a
fact, Defendants maintain Acuna has not stated a claim for equitable estoppel.
A claim for equitable estoppel requires allegations that:
(1) A material fact was falsely represented or concealed; (2) The
representation or concealment was made with knowledge of the facts; (3)
The party to whom the representation was made was ignorant of the truth of
the matter; (4) The representation was made with the intention that the
other party should act upon it; (5) The other party was induced to act upon
it; and (6) The party claiming was estoppel was misled to his injury.
Boykins Narrow Fabrics Corp. v. Weldon Roofing & Sheet Metal, Inc., 221 Va. 81, 86 (1980).
Acuna has not adequately pled the elements of equitable estoppel for either of
Chase’s purported misrepresentations. With respect to the first misrepresentation – that
Acuna had to default on his loan to receive priority in the home modification system –
Acuna has not shown that this was a false representation. Chase agreed to discuss
modification with Defendant if he defaulted. Compl. ¶ 13. Subsequent to this conversation,
Chase discussed modification with Acuna. Compl. ¶¶ 15, 31, 36. Thus, Acuna has not
adequately pled the first element of equitable estoppel and cannot succeed on this claim.
As for the second alleged misrepresentation – that the foreclosure had been put on
hold – Acuna has not shown that he changed his position in reliance on this information, as
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he does not allege he would have taken steps to prevent the foreclosure in the absence of
this information. Moreover, Acuna does not allege the Chase representative knew the
home foreclosure had not been put on hold when he or she made the comment. Thus,
Acuna has not set forth a claim for equitable estoppel. Because Acuna’s Complaint does not
properly allege equitable estoppel, Count II is dismissed.
c. Count III: Breach of Contract Against Chase
Count III alleges Chase breached the implied covenant of good faith and fair dealing
embodied in the Note and Deed of Trust by inducing Acuna to default on his loan, falsely
assuring him of the status of his HAMP modification, falsely assuring him the foreclosure
had been put on hold, and failing to follow HAMP guidelines before foreclosing. Defendants
move the Court to dismiss Count III because Acuna does not allege Chase breached a
contractual term of the Note or Deed of Trust.
Defendants argue Virginia does not recognize an independent claim for breach of
the covenant of good faith and fair dealing. Consequently, because Acuna does not allege
Chase breached a written term of the Note or Deed of Trust, he cannot maintain a claim for
breach of the covenant of good faith and fair dealing. Acuna, on the other hand, maintains
he does not have to allege a breach of a written term of the Note or Deed of Trust to state a
claim for breach of the implied covenant of good faith and fair dealing.
An implied covenant of good faith and fair dealing exists in all valid and binding
contracts in Virginia. Ward’s Equip. v. New Holland N. Am., 254 Va. 379, 385 (1997).
“Virginia courts have held that a party’s breach of an implied duty does not give rise to an
independent tort, but gives rise to a cause of action for breach of contract only.” Legard v.
EQT Prod. Co., No. 1:10‐CV‐00041, 2011 U.S. Dist. LEXIS 2943, at *34‐35 (W.D. Va. Jan. 11,
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2011) (citing Charles E. Brauer Co. v. NationsBank of Va., N.A., 251 Va. 28, 33 (1996)).
Because Acuna alleges Chase breached the implied covenant of good faith and fair dealing
by: (1) inducing him to default by telling him his chances of receiving a loan modification
would increase if he did so; (2) falsely assuring Acuna about the status of his modification;
(3) falsely assuring Acuna the home would not be sold at the foreclosure sale; and (4)
failing to follow HAMP guidelines, he has stated a claim for breach of contract based on
breach of the implied covenant of good faith and fair dealing. Accordingly the Motion to
Dismiss is denied with respect to Count III.
d. Count IV: Constructive Fraud Claim Against Chase
Acuna’s constructive fraud claim alleges Chase wanted him to rely on
misrepresentations of material fact and Chase knew or should have known the
representations were false. Acuna further alleges he reasonably relied on Chase’s
misrepresentations to his detriment, as evidenced by the loss of his home in the foreclosure
sale. Defendants move the Court to dismiss Count IV because Acuna does not allege a
misrepresentation of a material fact and the misrepresentations alleged relate to duties
arising from the parties’ contract.
To state a claim for constructive fraud, a plaintiff must show
[b]y clear and convincing evidence that a false representation of a material
fact was made innocently or negligently, and the injured party was damaged
as a result of his reliance upon the misrepresentation. Additionally, ‘[a]
finding of . . . constructive fraud requires clear and convincing evidence that
one has represented as true what is really false, in such a way as to induce a
reasonable person to believe it, with the intent that the person will act upon
this representation.’
Mortarino v. Consultant Eng’g Servs., 251 Va. 289, 295 (1996) (quoting Evaluation
Research Corp. v. Alequin, 247 Va. 143, 148 (1994)).
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Defendants contend Acuna has not alleged a misrepresentation of a material fact
because the Complaint does not allege Chase misrepresented material facts prior to the
foreclosure. Defendants also contend the purported misrepresentations are not actionable
as fraud because Defendants’ duties arise solely from the existence of a contract between
the parties. Virginia law prohibits Acuna from suing in tort for breach of duties that arise
solely by contract. See Richmond Metro. Auth. v. McDevitt St. Bovis, Inc., 256 Va. 553, 559
(1998). Thus, Acuna has failed to state a claim for constructive fraud.
Acuna contends he has adequately pled constructive fraud because a Chase
representative falsely represented to him that his request for loan modification would be
considered sooner if he defaulted. Acuna argues this was a material misstatement of fact
upon which he relied and after which he materially changed his position to his detriment.
Acuna further states Chase told him in August 2010 that the foreclosure sale had been put
on hold, which was a misrepresentation of material fact, as evidenced by the fact that the
home was sold as scheduled. Acuna states he refrained from taking action to prevent the
sale in reliance on this representation.
“‘Virginia law recognizes the separate tort of fraud, even where the parties have
agreed to a contract,’ . . . and a plaintiff may recover damages for both fraud and breach of
contract.” Hitachi Credit Am. Corp. v. Signet Bank, 166 F.3d 614, 628 (4th Cir. 1999)
(quoting City of Richmond v. Madison Mgmt. Group, Inc., 918 F.2d 438, 446‐47 (4th Cir.
1990)). While a party may “show both a breach of contract and a tortious breach of duty . . .
‘the duty tortiously or negligently breached must be a common law duty, not one existing
between the parties solely by virtue of the contract.’” Richmond Metro. Auth., 256 Va. at
558 (quoting Foreign Mission Bd. v. Wade, 242 Va. 234, 241 (1991)). The
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misrepresentations cited by Acuna all arise out of the parties’ contractual duties, as they
pertain to the parties’ obligations under the Note and Deed of Trust, including loan
payments, the foreclosure, or the modification process. Thus, Chase has not breached a
common law duty owed Acuna. Accordingly, Acuna may not bring a tort claim and Count IV
is dismissed.
IV.
CONCLUSION
For the reasons stated above, the Court GRANTS the Motion to Dismiss with respect
to Counts I, II, and IV, and DENIES the Motion to Dismiss with respect to Count III.
Let the Clerk send a copy of this Memorandum Opinion to all counsel of record.
An appropriate Order shall issue.
ENTERED this 16th day of May 2011
__________________/s/_________________
James R. Spencer
Chief United States District Judge
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