US Bank NA et al v. Pulsifer et al
Filing
43
ORDER DISMISSING CASE signed by Judge Rudolph T. Randa on 9/23/2014. 21 Plaintiffs' MOTION for Reconsideration DENIED. 19 Plaintiff's MOTION for Summary Judgment DENIED. 26 Defendants' MOTION for Summary Judgment GRANTED. Matter REMANDED to bankruptcy court for further proceedings consistent with this Order. (cc: all counsel)(cb)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
Lee H. Pulsifer and Laura L. Pulsifer,
Debtors.
Bankruptcy Case No. 12-36562-svk
LEE H. PULSIFER and LAURA L. PULSIFER,
Plaintiffs,
-vs-
Adv. Proc. No. 13-02176-svk
Case Nos. 13-C-648, 13-C-835
U.S. BANK, NATIONAL ASSOCIATION,
as Trustee for Citigroup Mortgage Pass-Through
Certificates Series 2007-AR4, and
WELLS FARGO HOME MORTGAGE,
Defendants.
MARY B. GROSSMAN, Standing Chapter 13 Trustee,
Additional Party.
DECISION AND ORDER
In two orders, the Court withdrew the reference of these matters
from the bankruptcy court; consolidated proceedings in the lowernumbered case; granted-in-part and denied-in-part the defendants‘ motion
to dismiss; and granted the plaintiffs‘ motion for leave to file an amended
complaint. October 31, 2013 Decision and Order, ECF No. 4; January 8,
2014 Decision and Order, ECF No. 10. Now before the Court are crossmotions for summary judgment. Also before the Court is the plaintiffs‘
motion to reconsider the Court‘s dismissal of their claim for breach of the
duty of good faith and fair dealing.
For
the
reasons
that
follow,
the
plaintiffs‘
motions
for
reconsideration and for summary judgment are denied, and the defendants‘
motion for summary judgment is granted. The Court will enter judgment in
favor of the defendants and remand this matter to the bankruptcy court for
further proceedings consistent with this opinion.
Background
On December 19, 2005, the plaintiffs, Lee and Laura Pulsifer,
executed a Note and Mortgage in favor of Wells Fargo Bank, N.A. in the
principal amount of $470,250.00. The Pulsifers subsequently executed a
Modification of Mortgage on October 20, 2006, pursuant to which they
agreed to increase the principal balance to $480,250.00. On December 19,
2006, they executed a Permanent Loan Addendum Amending Note, which
further increased the principal balance to $498,750.00. U.S. Bank is the
assignee of the Pulsifers‘ mortgage.
In August of 2007, Lee Pulsifer lost his job. Shortly thereafter,
Laura Pulsifer‘s income was decreased by approximately 50%. Lee Pulsifer
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found a new job in mid-2008, but his salary was approximately 30% less
than he had earned in his prior position. The Pulsifers used their savings
and 401(k) investments to sustain their monthly expenses while Lee
Pulsifer was out of work. The Pulsifers‘ savings and other available funds
were depleted by late 2008.
On June 16, 2009, Wells Fargo offered the Pulsifers a non-HAMP1
loan modification. The Pulsifers rejected this offer because they wanted a
loan modification that would have reduced their total monthly payment to
no more than $3,000 per month.
In September 2009, the Pulsifers could not continue making their
mortgage payments, which totalled $3,700 per month, including amounts
for mortgage insurance, property insurance, and property taxes. On
October 6, 2009, the Pulsifers called Wells Fargo to inquire about a loan
modification under HAMP. During that call, the Pulsifers provided Wells
Fargo with verbal information regarding their income and expenses. On
October 7, 2009, Wells Fargo mailed the Pulsifers a HAMP loan
modification application packet. The first page of the packet stated, ―You
may not qualify for this loan modification program,‖ and also, ―If you
qualify under the federal government‘s Home Affordable Modification
1
The Home Affordable Modification Program, discussed below.
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Program and comply with the terms of the Trial Period Plan, we will
modify your mortgage. . . .‖ The second page of the application packet
requested that the Pulsifers provide a number of documents to ―see if you
qualify for a Home Affordable Modification.‖ The third page of the
application stated, ―[the Plan] is the first step. Once we are able to confirm
your income and eligibility for the program, we will finalize your modified
loan terms. . . .‖
The application packet included a document titled Loan Trial Period
Plan (―TPP‖). Section 2.F of the TPP provided that the Pulsifers‘ loan
would not be modified unless the Pulsifers were provided with a fullyexecuted copy of the TPP. The Pulsifers signed the TPP on October 26,
2009 and returned it to Wells Fargo. Wells Fargo did not execute the TPP
or provide the Pulsifers with a fully-executed copy of the document.
The TPP provided that the Pulsifers should make three payments of
$2,108 during the term of the Plan as one condition before a permanent
modification would be offered. The Pulsifers made three payments to Wells
Fargo in the amount of $2,108 in November 2009, December 2009, and
January 2010. After these payments were complete, the Pulsifers received
a letter from Wells Fargo dated January 6, 2010, which stated: ―Wells
Fargo Home Mortgage has pre-qualified you for a loan modification
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program and mailed you a package of materials including a loan
modification agreement that you need to sign.‖ The Pulsifers never
received the packet referred to in this letter.
Between February, 2010 and October, 2010, Wells Fargo repeatedly
told the Pulsifers that they were working on the loan modification
paperwork. Wells Fargo also advised the Pulsifers to keep making their
regular TPP payments, which the Pulsifers continued to make through
November, 2010.
The Pulsifers were aware that interest was continuing to accrue on
their mortgage while their loan modification application was pending. The
Pulsifers understood that if they were offered a permanent loan
modification, the monthly payment under such a modification could be
higher than $2,108. They further understood that their application for a
loan modification could be denied even if they made the payments under
the TPP. Wells Fargo never advised the Pulsifers that they were
guaranteed to be offered a permanent loan modification.
On September 22, 2010, Wells Fargo sent the Pulsifers a letter
stating that their application for a HAMP modification had been denied.
The letter explained: ―we are unable to adjust the terms of your mortgage
through the Home Affordable Modification Program because we service
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your loan on behalf of an investor or group of investors that has not given
us the contractual authority to modify your loan . . .‖ Moreover, Wells
Fargo used the HAMP decisioning tool created by the Department of the
Treasury, which showed that the Pulsifers‘ loan had a negative net present
value (―NPV‖) — ―that is, the value of the modified mortgage would be
lower than the servicer‘s expected return after foreclosure.‖ Wigod v. Wells
Fargo Bank, N.A., 673 F.3d 547, 557 (7th Cir. 2012). Because the NPV was
negative, Wells Fargo was required to submit a claim to the mortgage
insurer for the Pulsifers‘ loan before it could offer the Pulsifers a
permanent loan modification. This claim was denied.
U.S. Bank commenced foreclosure proceedings in Wisconsin state
court in February, 2011. The Pulsifers filed for bankruptcy under Chapter
13 on November 20, 2012.
Analysis
I.
Motion to reconsider
The Pulsifers move to reconsider the dismissal of their claim for
breach of the duty of good faith and fair dealing under Federal Rule of Civil
Procedure 60(b). This rule, like Rule 59(e), generally governs postjudgment motions. Jackson v. McKay-Davis Funeral Home, No. 07-C-737,
2012 WL 5423739, at *1 (E.D. Wis. Nov. 6, 2012). However, district judges
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have inherent authority to reconsider an interlocutory order because such
orders are subject to revision at any time before the entry of judgment.
Fed. R. Civ. P. 54(b); Farr v. Paikowski, No. 11-C-789, 2013 WL 1288041,
at *1 (E.D. Wis. March 25, 2013).
The Court dismissed this claim because a TPP under HAMP is an
offer which, if accepted, could form the basis for an enforceable contract
―only if the loan servicer actually executed the TPP.‖ In re Pulsifer, 2014
WL 61230, at *2 (E.D. Wis. Jan. 8, 2014) (discussing Wigod v. Wells Fargo
Bank, N.A., 673 F.3d 547 (7th Cir. 2012)). In Wigod, Wells Fargo
―countersigned‖ the TPP and ―mailed a copy to Wigod with a letter
congratulating her on her approval for a trial modification. In so doing,
Wells Fargo communicated to Wigod that she qualified for HAMP and
would receive a permanent ‗Loan Modification Agreement‘ after the trial
period, provided she was ‗in compliance with this Loan Trial Period and
[her] representations . . . continue[d] to be true in all material respects.‘‖
Id. at *2 (quoting Wigod, 673 F.3d at 562). Unlike in Wigod, ―Wells Fargo
did not execute the Pulsifers‘ TPP. Thus, there was no ‗unilateral offer to
modify‘ the Pulsifers‘ loan ‗conditioned on [their] compliance with the
stated terms of the bargain.‘ . . . Without a valid offer, there can be no
underlying contract, and without an underlying contract, the Pulsifers‘
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claim for breach of the duty of good faith and fair dealing necessarily fails.‖
Id. at *3 (internal citations omitted).
The Pulsifers argue, again, that an unexecuted TPP can reasonably
be interpreted as an offer to modify their loan, so long as they complied
with the conditions of the TPP. This is a non-starter; Section 2.F of the
TPP states: ―If prior to the Modification Effective Date, (i) the Lender does
not provide me a fully executed copy of this Plan and the Modification
Agreement; . . . the Loan Documents will not be modified and this Plan will
terminate.‖ Wells Fargo conditioned its promise to modify the Pulsifers‘
loan on its own future action or approval; thus, ―there is no binding offer.‖
Wigod at 561.
The Pulsifers also argue that the TPP was an offer to process their
application for a loan modification, which the Pulsifers accepted by
complying with the various requirements of the TPP. The question then
becomes, as the Pulsifers argue, whether Wells Fargo breached the implied
duty of good faith and fair dealing by failing to process the Pulsifers‘
application in compliance with HAMP guidelines.
When the issue is framed as such, it becomes clear that the Pulsifers
have no cause of action. Home loan servicers, such as Wells Fargo,
undertake their HAMP obligations voluntarily via contract with the
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Department of the Treasury. Speleos v. BAC Home Loans Servicing, L.P.,
937 F. Supp. 2d 177, 182 (D. Mass. 2013) (―Pursuant to HAMP, mortgage
loan servicers enter into Servicer Participation Agreements with Fannie
Mae that require the servicer to perform loan modification and foreclosure
prevention services as specified in the HAMP Guidelines‖). As the Seventh
Circuit observed in Wigod, ―Congress did not create a private right of
action to enforce the HAMP guidelines, and since Astra [USA, Inc. v. Santa
Clara Cnty., --- U.S. ---, 131 S. Ct. 1342 (2011)], district courts have
correctly applied the Court‘s decision to foreclose claims by homeowners
seeking HAMP modifications as third-party beneficiaries of SPAs.‖ 673
F.3d at 559, n.4. Therefore, the Court must reject the Pulsifers‘ attempt to
enforce the HAMP guidelines under the guise of a claim sounding in
contract.
II.
Summary judgment
Summary judgment is proper when ―the movant shows that there is
no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.‖ Fed. R. Civ. P. 56(a). Cross-motions for
summary judgment must be analyzed by ―construing all facts, and drawing
all reasonable inferences from those facts, in favor of the non-moving
party.‖ Garofalo v. Vill. of Hazel Crest, 754 F.3d 428, 430 (7th Cir. 2014).
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These motions are directed towards the Pulsifers‘ claims for negligence and
promissory estoppel.
A.
Promissory estoppel
Promissory estoppel has three elements: (1) the promise was one for
which the promisor should reasonably expect to induce action or
forbearance of a definite and substantial character on the part of the
promisee; (2) the promise did induce such action or forbearance; and (3)
injustice can be avoided only by enforcement of the promise. Aguilar v.
Husco Int’l, Inc., 851 N.W. 2d 802, 810 (Wis. Ct. App. 2014). Such a claim is
an ―alternative basis to breach of contract for seeking damages from the
breakdown of a relation. If there is a promise of a kind likely to induce a
costly change in position by the promisee in reliance on the promise being
carried out, and it does induce such a change, he can enforce the promise
even though there was no contract.‖ Cosgrove v. Bartolotta, 150 F.3d 729,
732 (7th Cir. 1998) (applying Wisconsin law); see also, Wigod at 566
(promissory estoppel is ―an alternative means of obtaining contractual
relief under Illinois law‖).
The Pulsifers do not argue that Wells Fargo promised them a loan
modification. Instead, the Pulsifers argue that Wells Fargo promised to
follow the HAMP guidelines when processing their application. This strikes
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the Court, once again, as an attempt to work-around the lack of a private
cause of action to enforce the HAMP guidelines. Put simply, the Pulsifers
cannot enforce Wells Fargo‘s promise to follow the HAMP guidelines; this
promise was made by Wells Fargo to the federal government. Wells Fargo
never promised the Pulsifers that it would abide by the HAMP guidelines.
Moreover, it is difficult to imagine how the Pulsifers could have
relied, to their detriment, on such a promise, express or implied. The
Pulsifers admit that they ―did not know exactly what Wells Fargo was
doing, what it was supposed to do or what steps or calculations Wells Fargo
needed to do to process the loan modification at that time, . . .‖ Affidavit of
Lee Pulsifer, ¶ 23. Instead, Lee Pulsifer states that he is ―now aware that
the Department of the Treasury had issued directives that Wells Fargo was
supposed to follow when processing the loan modification.‖ Id. (emphasis
added). Therefore, the Pulsifers were not acting under the assumption that
Wells Fargo would do anything in particular in evaluating their request for
a loan modification. At best, Wells Fargo promised the Pulsifers that it
would process their application. Thus, they were ―investing for a chance,
rather than relying on a firm promise that a reasonable person would
expect to be carried out, . . .‖ Bartolotta, 150 F.3d at 733.
Finally, even if Wells Fargo made an actionable promise to follow
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the HAMP guidelines while processing the Pulsifers‘ complaint, enforcing
such a promise would not remedy any sort of injustice. The Pulsifers offer
no evidence to suggest that they are actually entitled to a HAMP
modification, and their renewed application was already denied. Lee
Pulsifer Aff., ¶ 29. The Court will not order Wells Fargo to engage in
playacting. See Baures v. North Shore Fire Dep’t, 664 N.W. 2d 113, 125
(Wis. Ct. App. 2003) (―whatever injustice Lt. Baures has suffered would not
be remedied by ordering the Department to engage in a new selection
process that, reaching the same result, would seem to be little more than a
charade‖).
B.
Negligence
The Pulsifers argue that Wells Fargo‘s failure to adhere to the
HAMP guidelines amounts to ordinary negligence. For many of the reasons
already stated, courts have held that HAMP guidelines do not impose a
state tort law duty of care. Mackenzie v. Flagstar Bank, FSB, 738 F.3d 486,
496 (1st Cir. 2013); Spaulding v. Wells Fargo Bank, N.A., 714 F. 3d 769,
780 (4th Cir. 2013); Ahmad v. Wells Fargo Bank, N.A., 861 F. Supp. 2d 818
(E.D. Mich. 2012) (―because of the overwhelming case law finding that
plaintiffs do not have a private right of action to sue for a violation of
HAMP . . . courts should be reluctant to allow plaintiffs to recast these
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claims — involving alleged failures to conform to the provisions of HAMP –
as tort violations‖).
Even if Wells Fargo did owe the Pulsifers a duty of care pursuant to
the HAMP guidelines, the Pulsifers cannot prove a causal connection
between Wells Fargo‘s breach and their failure to obtain a loan
modification. Strasser v. Transtech Mobile Fleet Service, Inc., 613 N.W. 2d
142, 150 (Wis. 2000) (listing elements for ordinary negligence). For
example, the Pulsifers complain that Wells Fargo failed to notify them of a
negative NPV calculation, arguing that they were deprived of an
opportunity to contest the calculation. To succeed on such a claim, the
Pulsifers must prove that they could have successfully contested the
calculation, that the modified calculation would have been positive, and
that the investor for the loan would have approved the modification.
Indeed, investor approval is required, and even a positive NPV value does
not guarantee a modification. Thus, at bottom, the Pulsifers must somehow
demonstrate that the investor for their loan would have approved a
modification if the HAMP guidelines had been precisely followed. This they
cannot do.
Finally, the Pulsifers bring a claim for negligent misrepresentation.
The elements for such a claim are: (1) the defendant made a representation
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of fact; (2) the representation was untrue; (3) the defendant was negligent
in making the representation; and (4) the plaintiff believed that the
representation was true and relied on it. Malzewski v. Rapkin, 723 N.W. 2d
156, 163 (Wis. Ct. App. 2006). The Pulsifers complain that Wells Fargo told
them that it would accept and then process their application, but this
representation was completely true. It is undisputed that Wells Fargo
spent months processing the Pulsifers‘ application. Even if the Pulsifers
could identify a factual misrepresentation, creditors do not owe a duty of
care to debtors, and for the reasons stated above, such a duty cannot be
imported from the HAMP guidelines. See, e.g., Durante Bros. & Sons, Inc.
v. Flushing Nat’l Bank, 755 F.2d 239, 252 (2d Cir. 1985) (a plaintiff ―may
not recover for negligent misrepresentation unless ‗the author is bound by
some relation of duty, arising out of contract or otherwise, to act with care
if he acts at all. . . .‘ An ordinary creditor-debtor relationship between bank
and customer does not create such a duty of care‖); see also Thompson v.
Bank of Am., N.A., No. 3:13-CV-2120-B, --- F. Supp. 2d ----, 2014 WL
1373505, at *12 (N.D. Tex. Apr. 7, 2014) (―Not only does no special
relationship exist between a mortgagor and a mortgagee, but courts have
held that there is no duty of care between them that would give rise to a
negligence claim‖).
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III.
Further proceedings
The Pulsifers‘ remaining claims relate to standing. As the Court
wrote on January 10,
this is not the proper forum to adjudicate the Pulsifers‘ claims
with respect to U.S. Bank‘s alleged lack of standing or interest
in the underlying Chapter 13 proceedings. Standing is
typically a threshold issue, but the focal point of the Pulsifers‘
adversary complaint is Wells Fargo‘s alleged actions or
inactions as the loan servicer. Despite the assignment to U.S.
Bank, the parties appear to agree that Wells Fargo was the
loan servicer at all relevant times. . . . Once the Pulsifers‘
claims are resolved, the bankruptcy court can make a ruling
on U.S. Bank‘s standing, if necessary.
ECF No. 10, at 8. Therefore, the Court will remand this matter to the
bankruptcy court for further proceedings.
NOW, THEREFORE, BASED ON THE FOREGOING, IT IS
HEREBY ORDERED THAT:
1.
Plaintiffs‘ motion for reconsideration [ECF No. 21] is
DENIED;
2.
Plaintiffs‘ motion for summary judgment [ECF No. 19] is
DENIED;
3.
Defendants‘ motion for summary judgment [ECF No. 26] is
GRANTED;
4.
The Clerk of Court is directed to enter judgment in favor of the
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defendants on the plaintiffs‘ claims for breach of the duty of good faith and
fair dealing, promissory estoppel and negligence; and
5.
This matter is REMANDED to the bankruptcy court for
further proceedings consistent with the foregoing opinion.
Dated at Milwaukee, Wisconsin, this 23rd day of September, 2014.
BY THE COURT:
__________________________
HON. RUDOLPH T. RANDA
U.S. District Judge
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