Phillips et al v. Wells Fargo Bank, N.A. et al

Filing 44

OPINION. See Opinion for details. Signed by District Judge John A. Gibney, Jr. on 4/25/2018. (sbea, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Richmond Division
ANTHONY D. PHILLIPS and
REBECCA E. PHILLIPS,
Plaintiffs,

v.

Civil Action No. 3:17-cv-00519-JAG

WELLS FARGO BANK, N.A., and
U.S. BANK NATIONAL ASSOCIATION,
TRUSTEE FOR JP MORGAN MORTGAGE
ACQUISITION TRUST 2006-WFI,
Defendants.
OPINION
The plaintiffs, Anthony D. Phillips and Rebecca E. Phillips (collectively, ''the Phillips"),
obtained a mortgage loan from defendant Wells Fargo Bank, N.A. ("Wells Fargo"). They fell
behind on their payments, and Wells Fargo denied their loss mitigation application, resulting in a
foreclosure sale of their home.
In their amended complaint, the Phillips sued Wells Fargo and U.S. Bank National
Association, Trustee for JP Morgan Mortgage Acquisition Trust 2006-WFI ("U.S. Bank"), for
fraud, breach of the duty of good faith and fair dealing, and breach of the deed of trust's cure
notice requirement. The defendants moved to dismiss the fraud and cure notice counts. 1
The Phillips have adequately plead actual and constructive fraud, so the Court denies the
motion to dismiss Counts One and Two. The Phillips, however, fail to state a claim for a breach
of the deed of trust's cure notice requirement. The Court, therefore, grants the motion to dismiss
Count Four.

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The Court previously determined that the Phillips breach of the duty of good faith and fair
dealing count could proceed, as it stems from their contractual loan documents. (Dk. No. 25.)

I. BACKGROUND

In 2006, with Wells Fargo as their lender, the Phillips bought a home on Winterpock
Road in Chesterfield County. In July 2012, Rebecca Phillips reached out to Wells Fargo to ask
about loan modification or loss mitigation options, including under the Home Affordability
Modification Program ("HAMP"). A representative from Wells Fargo told Rebecca that she and
Anthony "could not be considered for a HAMP loan modification (and could not be considered
for a loan modification) unless they fell at least three months in arrears." (Dk. No. 28, at ,r 9.)
This statement contradicted HAMP guidelines, which state that borrowers in imminent danger of
default may qualify for loan modifications.

Relying on the representative's statement, the

Phillips fell behind on their payments beginning in August 2012.
The Phillips applied for a loan modification in October 2012. Wells Fargo indicated that
they should not make payments while it considered their application, so they did not pay from
November 2012 to April 2013. The deed of trust required Wells Fargo to send a cure notice
indicating the action required to cure a default before accelerating the amount owed under the
note. In April 2017, Wells Fargo provided the Phillips with a cure notice dated four years
earlier, April 5, 2013. The cure notice showed that Wells Fargo had sent the notice by certified
mail to the Phillips's address. The Phillips acknowledge that Wells Fargo sent a cure notice
specifying that they needed to pay $46,885.64 by May 10, 2013, but allege they did not receive
it. Even if they had received it, they argue that Wells Fargo's instructions not to make payments
contradicted the contents of the notice.
Wells Fargo denied the loan modification application on May 6, 2013. Wells Fargo then
notified the Phillips that it had referred their mortgage for foreclosure on May 14, 2013. On May
16, 2013, Wells Fargo conveyed its rights to U.S. Bank, making U.S. Bank the noteholder and

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Wells Fargo the servicer of the Phillips's loan. The Phillips appealed the loan modification
denial, but U.S. Bank proceeded with the foreclosure process, scheduling a sale for July 27,
2017. The Phillips attempted to enjoin the sale, but this Court denied injunctive relief. On July
27, 2017, U.S. Bank bought the home at the foreclosure sale.
After partially dismissing the original complaint and allowing their breach of the duty of
good faith and fair dealing claim to survive, the Court permitted the Phillips to amend their
complaint. They added U.S. Bank as a defendant and pied additional counts for fraud and breach
of the cure notice requirement in the deed of trust.
The defendants have moved to dismiss Count One for actual fraud against Wells Fargo;
Count Two for constructive fraud against Wells Fargo; and Count Four for breach of the cure
notice requirement. Both fraud counts concern Wells Fargo's alleged statement to Rebecca that
the bank would not consider their HAMP modification application unless they defaulted.
II. D1SCUSSION2
A. Actual and Constructive Fraud (Against Wells Fargo)

A complaint for fraud under Virginia law must plausibly allege: "( 1) a false
representation, (2) of material fact, (3) made intentionally and knowingly, (4) with intent to

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The defendants have moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). A
Rule l 2(b)(6) motion gauges the sufficiency of a complaint without resolving any factual
discrepancies or testing the merits of the claims. Republican Party of N.C. v. Martin, 980 F.2d
943, 952 (4th Cir. 1992). In considering the motion, a court must accept all allegations in the
complaint as true and must draw all reasonable inferences in favor of the plaintiff. Nemet
Chevrolet, Ltd v. Consumeraffairs.com, Inc., 591 F.3d 250,253 (4th Cir. 2009) (citing Edwards
v. City of Goldsboro, 178 F.3d 231,244 (4th Cir. 1999)). The principle that a court must accept
all allegations as true, however, does not apply to legal conclusions. Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009). To survive a Rule 12(b)(6) motion to dismiss, a complaint must state facts that,
when accepted as true, state a claim to relief that is plausible on its face. Id. "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." Id. (citing Bell At/. Corp. v.
Twombly, 550 U.S. 544, 556 (2007)).
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mislead, (5) reliance by the party misled, and (6) resulting damage to the party misled."

Evaluation Research Corp. v. Alqequin, 439 S.E.2d 387, 390 (Va. 1994) (citations omitted). A
claim for constructive fraud contains the same elements except that "the misrepresentation of
material fact is not made with the intent to mislead, but is made innocently or negligently." Id
These elements must meet the pleading requirements of Federal Rule of Civil Procedure 9(b),
which requires a plaintiff to "state with particularity the circumstances constituting fraud." Fed.
R. Civ. P. 9(b).

These circumstances include "the time, place, and contents of the false

representations, as well as the identity of the person making the misrepresentation and what he
obtained thereby." Baker v. Elam, 883 F. Supp. 2d 576, 580 (E.D. Va. 2012) (quoting Harrison

v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999)).
Wells Fargo first argues that the statute of limitations bars the fraud claims. In Virginia,
plaintiffs must bring fraud claims two years from the date the fraud "is discovered or by the
exercise of due diligence reasonably should have been discovered." Va. Code Ann. §§ 8.0l243(A); 8.01-249(1). The plaintiff bears the burden of showing that he acted with due diligence
but failed to discover the fraud within the statutory period. Hughes v. Foley, 128 S.E.2d 261,
263 (Va. 1962). When the Court confronts a statute of limitations argument in a l 2(b)(6) motion
to dismiss, all facts necessary for the Court to conclude that the statute bars the claims must
appear on the face of the complaint. Healey v. Abadie, 143 F. Supp. 3d 397, 403 (E.D. Va.
2015).
At this stage, the Court cannot conclude that the statute of limitations bars the fraud
claims. The amended complaint does not indicate when the Phillips should have discovered the
fraud, and thus does not conclusively show that the action is time barred. Healey, 143 F. Supp.
3d at 403; see also Smith v. Flagstar Bank, F.S.B., No. 3:14-cv-741, 2015 WL 1221270, at *4

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(allowing fraud claims under similar facts to survive a motion to dismiss on statute of limitation
grounds). On the spare record before it, the Court cannot resolve the issue of when the Phillips
discovered or should have discovered the alleged fraud. See Carlucci v. Han, 886 F. Supp. 2d
497,516 (E.D. Va. 2012); see also Jones v. Shooshan, 855 F. Supp. 2d 594,604 (E.D. Va. 2012)
(deeming the plaintiffs' access to public records a factual question). After discovery, and on a
more complete evidentiary record, Wells Fargo may raise this issue again. For now, however,
the Court denies the motion to dismiss the fraud claims on statute of limitations grounds.
Wells Fargo further argues that it made a statement of law regarding HAMP, meaning the
Phillips have not pleaded the material fact element for their fraud claims. A misrepresentation of
law does not qualify as a misrepresentation of a material fact. Hicks v. Wynn, 119 S.E. 133, 13637 (Va. Ct. App. 1923). Two state court decisions have found that Wells Fargo's statements that
borrowers must fall behind on their payments to qualify for HAMP constituted misstatements of
law, not fact. (Dk. No. 34, Exhs. D, E.) The amended complaint, however, alleges that Wells
Fargo told Rebecca that they "could not be considered for a HAMP loan modification (and could
not be considered for a loan modification) unless they fell at least three months in arrears." (Dk.
No. 28, at ,r 9 (emphasis added).) Wells Fargo thus made a factual statement "about when [Wells
Fargo] would consider [the Phillips] for a loan modification," rather than a legal statement
"about how [the Phillips] could legally qualify for a loan modification under HAMP." Smith,
2015 WL 1221270, at *5. Viewing the facts in the light most favorable to the Phillips, they have
pleaded a material fact for their fraud claims.
Next, Wells Fargo mentions that the facts underlying the fraud claims concern
contractual obligations and therefore cannot support fraud causes of action.

Virginia law

prevents plaintiffs from recovering in tort when a contract creates the only duty the defendant

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owes to the plaintiff. Augusta Mut. Ins. Co. v. Mason, 645 S.E.2d 290, 293 (Va. 2007). In this
case, the Court cannot say that "no cause of action would exist but for the violation of
contractual duties." Bennett v. Bank of Am., N.A., No. 3:12-cv-34, 2012 WL 1354546, at *9
(E.D. Va. Apr. 18, 2012). The loan documents do not address loss mitigation, and do not contain
provisions governing the lender's representations to borrowers concerning loan modification
applications.

See id

Because the Phillips have alleged that Wells Fargo violated "the

independent duty not to commit fraud," their fraud claims may proceed. Hazaimeh v. U.S. Bank
Nat'/ Ass'n, 94 F. Supp. 3d 741, 748 (E.D. Va. 2015).
Finally, Wells Fargo claims that the amended complaint does not satisfy Rule 9(b)
because the Phillips do not specify the exact date of the false statement, the individual who made
the statement, or facts to show they would not have defaulted without the statement. But they
identify a "Wells Fargo representative" with whom Rebecca spoke, (Dk. No. 28, at if 9), and this
satisfies the identity requirement for Rule 9(b). See, e.g., Smith, 2015 WL 1221270, at *3.
Similarly, the Phillips allege Wells Fargo made the statement in July 2012, which sufficiently
places Wells Fargo on notice of the "circumstances for which it will have to prepare a defense."
Evanston Ins. Co. v. Gayatree, Inc., No. 2:13-cv-134, 2014 WL 12527693, at* 4 (E.D. Va. Jan.
8, 2014). In terms of damages, the Phillips say that they stopped making payments in August,
the month after Wells Fargo made the statement, and allege they would not have stopped making
payments if not for the statement.

The Court finds the Phillips' s "skeletal allegation of

damages ... sufficient to survive a motion to dismiss." Malanie v. Wells Fargo Bank, N.A., 3:12cv-472, 2012 WL 4321634, at *6 (E.D. Va. Sept. 19, 2012).

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For these reasons, Counts One and Two will proceed against Wells Fargo. 3
B. Breach of Cure Notice Requirement (Against Both Defendants)

To state a cause of action for breach of contract under Virginia law, a plaintiff must
allege (1) the defendant owed the plaintiff a legally enforceable obligation; (2) the defendant
violated or breached that obligation; and (3) the breach caused injury or damage to the plaintiff.
Filakv. George, 267 Va. 612,619,594 S.E.2d 610,614 (2004).

Under the mortgage documents, the defendants had a legally enforceable obligation to
provide the Phillips at least thirty days' notice of default and notice of the action required to cure
the default before accelerating and foreclosing on their property. The Phillips say that they did
not receive the requisite cure notice, in breach of the defendants' obligation. The deed of trust,
however, deems notices given to the borrowers "when mailed by first class mail or when actually
delivered." (Dk. No. 34, Exh. B., at

,r

15 (emphasis added).) The Phillips concede in the

amended complaint and in their opposition brief that "the lender sent a cure notice." (Dk. No.
35, at 3; see also Dk. No. 28, at ,r 49 (indicating they did not receive the cure notice "as sent").)
Because the deed of trust deems notices effective upon mailing, and the Phillips admit that the
bank sent the cure notice, they have not alleged a breach.
The Phillips also contend that Wells Fargo's statements advising them not to make
payments contradict the cure notice and thus constitute a breach, but this argument finds no

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The defendants also argue that the Court should dismiss any claims for punitive damages and
attorney's fees. While these arguments may have merit, the Court declines to determine which
categories of damages the Phillips may prove at this stage of litigation, especially since the Court
denies the defendants' motion to dismiss the fraud claims.
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support in the law. 4 The Court will therefore dismiss Count Four because the Phillips fail to
plead a breach.

III. CONCLUSION
The Phillips sufficiently plead actual fraud and constructive fraud, but they fail to allege a
breach of the deed of trust's cure notice requirement in their amended complaint. Thus, the
Court denies the defendants' motion to dismiss as to Counts One and Two, but grants the motion
as to Count Four.
The Court will enter an appropriate order.
Let the Clerk send a copy of this Opinion to all counsel of record.

Date:

~

Richmond, VAJ

2 5 , 2018

/s/
John A. Gibney, Jr.

United States District J dge

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Additionally, the Phillips may not add a claim for a breach of the duty of good faith and fair
dealing based on Wells Fargo's alleged instructions not to make payments by attempting to plead
these facts in their opposition brief. See Katz v. Odin, Feldman & Pittleman, P.C., 332 F. Supp.
2d 909, 917 n. 9 (E.D. Va. 2004) (noting that a plaintiff may not amend a complaint through an
opposition to a motion to dismiss).

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