Spaulding et al v. Wells Fargo Bank, N.A., No. 1:2011cv02733 - Document 15 (D. Md. 2012)

Court Description: MEMORANDUM OPINION. Signed by Judge George Levi Russell, III on 7/23/12. (jnls, Deputy Clerk)

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND JOSEPHINE H. SPAULDING, et al., : : Plaintiff, : v. Civil Action No. GLR-11-2733 : WELLS FARGO BANK, N.A., : Defendant. : MEMORANDUM OPINION THIS MATTER is before the Court on Plaintiffs Josephine H. Spaulding and Dale E. Haylett, Jr. s ( Plaintiffs ) Motion for Leave to File Supplemental Authority (ECF No. 12) and Defendant Wells Fargo Bank, N.A. s ( Wells Fargo ) Motion to Dismiss (ECF No. 10). This case involves Wells Fargo s denial of Plaintiffs mortgage loan modification application. Plaintiffs Complaint alleges breach of implied-in-fact contract (Count I), negligence (Count II), violations of the Maryland Consumer Protection Act (Count III), negligent misrepresentation (Count IV), and common law fraud (Count V). The issues have been comprehensively briefed therefore no oral argument is required. See Local Rule 105.6 (D.Md. 2011). Despite the Opposition, the Court GRANTS Plaintiffs Motion for Leave to File Supplemental Authority and considers the arguments therein. Further, for the reasons that follow, the Court GRANTS Wells Fargo s Motion to Dismiss. I. BACKGROUND1 Plaintiffs have owned and resided in their home, located in Glenelg, Maryland, since March 1997. In January 2006, Plaintiffs refinanced their original mortgage through Fremont Investment & Loan who later assigned servicing rights to Wells Fargo. On February 24, 2010, Plaintiffs submitted an application for a loan modification under the Home Affordable Modification Program ( HAMP ).2 entry into a Specifically, Plaintiffs application sought Trial Period Plan 1 ( TPP or TPP Agreement ), Unless otherwise noted, the following facts are taken from the Complaint and are viewed in a light most favorable to Plaintiffs. 2 The HAMP Program is a product of the Emergency Economic Stabilization Act, 12 U.S.C. § 5201 et seq., and codified in 12 U.S.C. §§ 5219, 5219a, 1715z-23. HAMP delegates authority to the U.S. Department of Treasury to provide financial incentives to banks, in return for the banks agreement to help struggling homeowners circumvent foreclosure by reducing the monthly mortgage payments of eligible applicants to no more than 31% of their gross monthly income. Wells Fargo is a voluntary HAMP participant, which means it is obligated to issue a loan modification to borrowers who meet certain conditions. The HAMP application involves a two-step process. First, the mortgage servicer determines whether the borrower is eligible for HAMP and, if eligible, the borrower enters into a Trial Period Plan ( TPP ) for the duration of three months. Under the TPP, the borrower is required to make reduced monthly mortgage payments in a timely manner and satisfy any other requirements set forth in the TPP Agreement. Second, borrowers who successfully satisfy the aforementioned requirements are offered a permanent loan modification. 2 which, if accepted, would have permitted Plaintiffs to make reduced monthly mortgage payments for a trial period of three months. Plaintiffs application consisted of a financial worksheet, proof of income, and hardship explanation. Plaintiffs proof of income consisted of (1) two of Mr. Haylett s earning statements, dated February 12 and February 19 respectively, (2) Ms. Spaulding s disability letter, and (3) a lease agreement between Ms. Spaulding and her tenant. According to Plaintiffs, the application illustrated their eligibility for the HAMP program and, as a result, Wells Fargo was required to issue a TPP reducing Plaintiffs monthly mortgage payment. In a requested letter dated additional March proof 1, of 2010, income however, from Wells Fargo Plaintiffs. The letter specifically asked Plaintiffs to submit two additional earning statements for Mr. Haylett reflecting pay-dates either after February 19, before February 12, or one of each. Moreover, the letter stated that if Plaintiffs failed to provide the requested information, or request an extension, within ten days, the modification request would be considered cancelled.3 Plaintiffs submitted the additional proof of income on March 22, 3 The letter also stated, [p]lease note any collection and foreclosure action will continue uninterrupted until approval. Therefore, a timely response is essential. (Compl. Ex. 5, at 1, ECF No. 2-5). 3 2010, eleven days in excess of the ten-day deadline established in the March 1 letter. Plaintiffs do not allege they requested an extension of the deadline prior to the cancellation. On April 5, 2010, Wells Fargo sent a notice to Plaintiffs informing them that their mortgage loan was two months delinquent beginning with the March 1 payment. Thereafter, Wells Fargo sent Plaintiffs a second HAMP introduction letter and application packet on July 2, 2010. On July 6, Wells Fargo sent Plaintiffs a second delinquency notice and thereafter, on July 18, a foreclosure notice. On August 11, 2010, Wells Fargo mailed Plaintiffs a denial of their HAMP application, citing Plaintiffs failure to provide the requested documents. According to Plaintiffs, upon receipt of the denial letter, they repeatedly applied for the HAMP modification, only to have Wells Fargo continually deny their requests. Plaintiffs received a second foreclosure notice on September 5, 2010. On July 25, 2011, Plaintiffs filed this action in the Circuit Court for Howard County, Maryland, alleging breach of implied-in-fact contract (Count I), negligence (Count II), violations of the Maryland Consumer Protection Act (Count III), negligent (Count V). misrepresentation (Count IV), and common law fraud Wells Fargo removed this action to this Court on September 22, 2011, based on diversity jurisdiction, and filed a 4 Motion to Dismiss on September 29. Plaintiffs oppose the Motion. II. STANDARD OF REVIEW A Federal Rule of Civil Procedure 12(b)(6) motion should be granted unless an adequately stated claim is supported by showing any set of facts consistent with the allegations in the complaint. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 561 (2007) (internal citations omitted); see Fed.R.Civ.P. 12(b)(6). [T]he purpose of Rule 12(b)(6) is to test the sufficiency of a complaint and not to resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses. Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006) (internal Edwards 1999)). quotation v. City of marks and Goldsboro, alterations 178 F.3d omitted)(quoting 231, 243 (4th Cir. A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Twombly, 550 U.S. at 555. A complaint is also insufficient if it relies upon naked assertions devoid of further factual enhancement. Iqbal, 556 U.S. at 678 (internal citations omitted). In order to survive a Rule 12(b)(6) motion to dismiss, a complaint must set forth a claim for relief that is plausible on its face. Id.; Twombly, 550 U.S. at 570. A claim is facially plausible when the plaintiff pleads factual content 5 that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Iqbal, 556 U.S. at 678; Twombly, 555 U.S. at 556. In considering construe the a Rule complaint 12(b)(6) in the light motion, most the Court favorable must to the plaintiff, read the complaint as a whole, and take the facts asserted therein as true. Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). court may also In addition to the complaint, the examine documents incorporated into the complaint by reference, and matters of which a court may take judicial notice. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). Conclusory allegations regarding the legal effect of the facts alleged need not be accepted. v. Havel, 43 F.3d 918, 921 (4th Cir. 1995). purpose of the complaint is to provide Labram Because the central the defendant fair notice of what the plaintiff s claim is and the grounds upon which it supported rests, by the some plaintiff s factual legal basis allegations sufficient defendant to prepare a fair response. to must allow be the Twombly, 550 U.S. at 556 n.3. III. DISCUSSION Wells Fargo moves for dismissal of Plaintiffs claims, citing Plaintiffs inability to assert a private right of action for the denial of a HAMP TPP. For the reasons that follow, the 6 Court will dismiss Plaintiffs Complaint in its entirety. A. Wells Fargo s Motion to Dismiss Wells Fargo argues, and the Court agrees, that Plaintiffs Complaint should be dismissed in its entirety because there is no private right of action for the denial of a HAMP application. (Def. s Mot. to Dismiss 4-7). Plaintiffs argue, violations of the misconduct as opposed action. however, HAMP that guidelines to as advocating the Complaint evidence for a of cites to actionable private right of (Pls. Resp. to Def. s Mot. to Dismiss 2-3). The Court disagrees. Plaintiffs entire Complaint arises out of an a TPP alleged failure to follow the HAMP guidelines. The applicable case law is clear that, absent Agreement, a suit that seeks the general enforcement of the HAMP guidelines must fail. See, e.g., Ramos v. Bank of Am., N.A., No. DKC-11-3022, 2012 WL 1999867, at *3 (D.Md. June 4, 2012)( By disregarding the allegation that a TPP exists and seeking a preliminary loan modification, these claims attempting to enforce the HAMP guidelines. are, in effect, They must therefore be dismissed because there is no private right of action to enforce HAMP. ); Coulibaly v. J.P. Morgan Chase Bank, N.A., No. DKC-10-3517, 2011 WL 3476994, at *15 (D.Md. Aug. 8, 2011)( Nor can Plaintiffs recast their claim as a breach of contract claim based on a third-party beneficiary theory . . . In Astra, the 7 Court emphasized that breach of contract actions should not be used to create constructive private rights of action where none otherwise exist. )(citing Astra USA, Inc. v. Santa Clara Cnty., Cal., 131 S.Ct. 1342, 1348 (2011)); Allen v. CitiMortgage, Inc., No. CCB-10-2740, 2011 WL 3425665, at *4 (D.Md. Aug. 4, 2011) ( Numerous express courts or have held implied that private borrowers right of do not have action an under HAMP. )(citation omitted). Conversely, the enforcement of a standing TPP Agreement may give rise to a private right of action because the agreement establishes privity of contract between the parties. See, e.g., Ramos, 2012 WL 1999867, at *3 ( Courts in this district have held, however, that separate and apart from HAMP, enforcement of the TPP, if one exists, may give rise to a private right of action. ); Allen, 2011 WL 3425665, at *5 ( [E]ven if a private right of action does not exist under HAMP, the [plaintiffs] may be permitted to assert a breach of contract claim stemming from the TPP Agreement as long as they have stated a proper claim in their amended complaint. ). Here, the foundation of Plaintiffs claims is Wells Fargo s denial of their HAMP application. Plaintiffs do not allege that a TPP Agreement was in place or even that it was offered. The Complaint, rather, merely alleges Plaintiffs were potentially entitled to a TPP because they were eligible under the HAMP 8 guidelines. Plaintiffs motion to dismiss. claims, therefore, cannot survive a Moreover, the TPP eligibility conditions were not met as a result of Plaintiffs undisputed failure to submit the requested cancellation additional deadline. information Nonetheless, this prior Court will to the address each of Plaintiffs counts below. 1. Breach of Implied-In-Fact Contract (Count I) Plaintiffs allege Wells Fargo s denial of their TPP application constitutes breach of an implied-in-fact contract. Specifically, existed Plaintiffs between them allege and an Wells implied-in-fact Fargo by contract virtue of the Plaintiffs, as eligible borrowers, completing a HAMP application that Wells Fargo determine. received (Pls. Resp. and to purported Def. s Mot. to to process Dismiss and 6-7). Plaintiffs cite Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012) and Allen, 2011 WL 3425665, to support their assertion that claims arising from a bank s HAMP violations may serve as a viable cause of action. File Supplemental Specifically, supportive Authority Plaintiffs because the [ Pls. argue Court (Pls. Mot. for Leave to that Mot. ] the allowed Allen claims ¶¶ 2-3). decision for breach is of contract, promissory estoppel, and violations of the Maryland Consumer Protection Act to proceed, even though they arose from the mortgage servicer s HAMP violations. 9 (Pls. Mot. ¶ 6). Wells Fargo argues that Plaintiffs breach of implied-infact contract claim must fail because it is merely a re- characterization of a HAMP-based claim, which has been summarily rejected by the courts. (Def. s Mot. to Dismiss 7-8). above, this Court has made it clear that, As stated absent a TPP Agreement, a suit that seeks the general enforcement of the HAMP guidelines must be dismissed. See, e.g., Ramos, 2012 WL 1999867, at *3; Coulibaly, 2011 WL 3476994, at *15; Allen, 2011 WL 3425665, at *4. In the preceding district court cases and Wigod, the plaintiffs claims were able to proceed on the basis of a previously established TPP Agreement. See, e.g., Wigod, 673 F.3d at 558-59; Allen, 2011 WL 3425665, at *2. In the case sub judice, Plaintiffs contend that because Wells Fargo agreed to participate in HAMP, it made an implied in fact offer to plaintiffs . . . to provide a TPP . . . in return for plaintiffs . . . taking the time to submit a HAMP application. (Compl. ¶ 45). Plaintiffs further contend their submission of the HAMP application constituted an acceptance of Wells Fargo s offer, thereby forming a valid and enforceable implied in fact contract supported by consideration that was separate from contract. Fargo the consideration (Compl. ¶¶ 46-47). breached provide a TPP. this for the underlying mortgage According to Plaintiffs, Wells implied-in-fact (Compl. ¶ 48). 10 contract by failing to The Court finds that no contract, either implied, exists between Plaintiffs and Wells Fargo. express or Plaintiffs participation in the TPP was only possible if certain conditions were met. Plaintiff did not meet those conditions, which resulted in the cancellation of the offer to be considered. Accordingly, Wells Fargo s Motion to Dismiss is granted as to Count I. 2. Negligence and Negligent Misrepresentation (Counts II & IV) Counts II (negligence) and IV (negligent misrepresentation) of Plaintiffs Complaint must fail because Wells Fargo did not owe Plaintiffs a tort duty. on negligence or In Maryland, causes of action based negligent misrepresentation plaintiff to prove a duty owed to them. require the Jacques v. First Nat l Bank of Maryland, 515 A.2d 756, 758 (Md. 1986). Plaintiffs cannot, therefore, allege actionable claims of negligence and negligent misrepresentation without Fargo owed them a duty in tort. first demonstrating Wells Id. ( Absent a duty of care there can be no liability in negligence. )(citations omitted); Parker v. Columbia Bank, 604 A.2d 521, 531 (Md.Ct.Spec.App. 1992)( In order to state a cause of action as to . . . negligent misrepresentation, [and] negligence . . . the [plaintiffs] must demonstrate a duty owed to them by [the defendants]. )(citations omitted). 11 It is well established in Maryland that the relationship between the bank and borrower is contractual, not fiduciary, in nature. Yousef v. Trustbank Sav., F.S.B., 568 A.2d 1134, 1138 (Md.Ct.Spec.App. 1990). of a contract, Moreover, [t]he mere negligent breach absent a duty or obligation imposed by law independent of that arising out of the contract itself, is not enough to sustain an action sounding in tort. A.2d at 759. of tort In cases involving economic loss, the imposition liability parties that equivalent. court is Jacques, 515 is requires an satisfied by Id. at 759-60. reluctant to intimate nexus contractual between privity or the its Absent special circumstances, the transform an ordinary contractual relationship between a bank and its customer into a fiduciary relationship or to impose any duties on the bank not found in the loan agreement. Parker, 604 A.2d at 532 (citations omitted). For both the negligence and negligent misrepresentation claims, Plaintiffs allege Wells Fargo owed them a tort duty that arose through shared mortgage contract. created parties. the privity by virtue of their Plaintiffs contend this contractual privity legally (Compl. contractual ¶¶ requisite 52, 67). intimate nexus Moreover, on between the the negligence claim, Plaintiffs allege that a breach of the tort duty occurred when Wells Fargo denied their HAMP application and lost their 12 paperwork. (Compl. ¶ 54). Relying upon the seminal case of Jacques, Plantiffs argue that Wells Fargo owed them a duty of reasonable care in the processing and determination of their HAMP application. (Pls. Resp. to Def. s Mot. to Dismiss 3, 8- 9). Wells Fargo argues that, assuming Plaintiffs allegations are legally and factually true, the Plaintiffs failed to identify a duty arising from the mortgage contract that was negligently breached by Wells Fargo. 9). to (Def. s Mot. to Dismiss 8- Moreover, Wells Fargo avers that Jacques cannot be extended this case exchanged between application. In because the was no parties promise regarding or consideration Plaintiffs the sales plaintiff contract that borrowers required entered them to $112,000 bank loan at a specified interest rate. 756-57. HAMP (Def. s Resp. to Pls. Mot. 3-4). Jacques, residential there into a secure a 515 A.2d at The borrowers then submitted their sales contract, $144 processing fee, and application to the bank. Id. at 757. The bank advised the borrowers that a loan rate of 11 7/8% would be locked-in for ninety days from the date of the application. Id. Less than a month later, the bank informed the borrowers they only qualified for $74,000 and subsequently qualified amount to $41,400 due to a banking error. reduced Id. the After failing to secure new financing from another institution, the 13 borrowers proceeded to settlement with the bank s $41,400 loan, supplementing the deficit with loans personal short term loan from the bank. from Id. relatives and a The borrowers sued the bank, alleging, inter alia, negligent processing of their loan application. Id. at 757-58. The Court of Appeals of Maryland ( Maryland Court ) took painstaking care to carve out a narrow exception to the general rule that Maryland does not recognize negligence actions contractual relationship. that arise solely out of a Jacques, 515 A.2d at 756, 758 ( We granted certiorari to determine whether a bank does owe a duty to its customer under the circumstances presented by this case[] and holding under the particular facts of this case the bank is properly charged with a tort duty)(emphasis added). The United States Court of Appeals for the Fourth Circuit has interpreted this exception to apply only to vulnerable parties. See Lawyers Title Ins. Corp. v. Rex Title Corp., 282 F.3d 292, 293-94 (4th Cir. 2002). In its analysis, the Maryland Court engaged in a three-step process to create the aforementioned exception. First, the court found that a contract existed between the parties because the bank made application at and least two lock-in express a promises specific to process the rate in interest consideration for the borrowers $144 processing fee. 761. Id. at As a result, the bank obtained a business advantage and 14 potential benefits sufficient (citations omitted). to support its promise. Id. Second, the court found that the contract between the parties contained an implicit agreement to process the application things, the with reasonable expressly [b]ank care because, undertook to among other process the application, advised its customer of the probable time required for processing, guaranteed a specified rate of interest for a period of ninety days for any loan for which the Jacques might qualify, and entered upon performance. Id. at 762. Third, the court found that, under those circumstances, a tort duty should be recognized because the bank had knowledge of the legal obligation the Jacques held under the sales contract when it agreed to vulnerable care. process and the application, dependent Id. at 762-63. upon the which left [b]ank s the borrowers exercise of due Additionally, the court imputed a tort duty because the banking business is affected with the public interest. Id. at 762-64. Applying the principles and holding of Jacques, the Court finds the exception articulated to be inapplicable because, unlike in Jacques, the Plaintiffs and Wells Fargo did not enter into any implied or express contract. could arise as a matter of law. No tort duty, therefore, As a result, Plaintiffs fail to state a claim upon which relief may be granted. Accordingly, Wells Fargo s Motion to Dismiss is granted as 15 to Counts II and IV. 3. Violations of the Maryland Consumer Protection Act and Common Law Fraud (Counts III & V) Wells Fargo moves to dismiss Counts III (violations of the Maryland Consumer Protection Act) and V (common law fraud) of Plaintiffs Complaint on the ground that Plaintiffs exhibits belie their alleged misrepresentations.4 (Def. s Mot. to Dismiss 10-13). contends Specifically, Wells Fargo they never misrepresented that they had not received proof of income, but rather requested additional information by a certain deadline, as illustrated in Plaintiffs Exhibit 5. Plaintiffs respond by arguing (Id.). Wells Fargo s request for additional information constituted a misrepresentation in and of itself. (Pls. Resp. to Def. s Mot. to Dimiss 10-11). Plaintiffs also allege in their Complaint that Wells Fargo made a misrepresentation of material fact when it represented to the world it would comply with its HAMP obligations when it signed its HAMP contract with the U.S. Treasury. (Compl. ¶ 62.4). The Maryland Consumer Protection Act ( MCPA ) prohibits the commission of unfair or deceptive trade practices, which include making a false . . . or misleading oral or written statement . . . or other representation 4 of any kind which has the Wells Fargo also moves to dismiss Count IV (negligent misrepresentation) on this ground, but the Court addressed this count in section A2 supra. 16 capacity, tendency, consumers. that sound or effect of deceiving or misleading Md. Code Ann., Com. Law § 13-301(1). in fraud are subject to the MCPA claims heightened standards of Federal Rule of Civil Procedure 9(b). pleading Haley v. Corcoran, 659 F.Supp.2d 714, 724 n.10 (D.Md. 2009). In order to bring a common law fraud claim, a party must show: (1) that the defendant made a false representation; (2) that its falsity was either known to the defendant, or the misrepresentation was made with such reckless indifference to the truth as to be equivalent to actual knowledge; (3) that it was made for the purpose of defrauding the person claiming to be injured thereby; (4) that such person not only relied upon the misrepresentation, but had a right to rely upon it in the full belief to its truth, and would not have done the thing from which the injury had resulted had not such misrepresentation been made; and (5) that such person actually suffered damage directly resulting from such fraudulent misrepresentation. Parker, 604 A.2d at 527. Plaintiffs fail to satisfy, inter alia, the first element of their common law fraud claim. The crux of Plaintiffs MCPA and common law fraud claims is that Wells Fargo misrepresented its failure to receive Plaintiffs proof of income and its right to foreclose because Plaintiffs submitted the requisite them to a HAMP modification. however, show that Wells paperwork, which (Compl. ¶¶ 62-63). Fargo acknowledged entitled The pleadings, receipt of Plaintiffs paperwork. Specifically, Plaintiffs exhibits illustrate Wells Fargo s 17 receipt of Plaintiffs proof of income, a time sensitive request for additional information, requested information. and a late submission (See Compl. Exs. 5-6). of the Moreover, Wells Fargo s request for additional information in particular clearly warns [i]f ALL of this information or a request for an extension is not received within ten (10) days, we will consider this request cancelled. Please note any collection and foreclosure action will continue uninterrupted until approval. Therefore, a timely response is essential. 1). (Compl. Ex. 5, at The clarity of this document does not support Plaintiffs allegations of the misrepresentations needed to support claims of MCPA violations and common law fraud. Assuming, arguendo, Plaintiffs claims could proceed, they would fail to meet the heightened pleading standards of Federal Rule of Civil Procedure 9(b), which requires Plaintiffs to plead with particularity Fed.R.Civ.P. 9(b). the circumstances constituting fraud. The circumstances include the time, place, and contents of . . . false representations, as well as the identity of the person making the representation and what he obtained thereby. Allen, 2011 WL 3425665, at *9. The plaintiffs in Allen satisfied the heightened pleading standards of Rule 9(b) by pleading the dates and contents of numerous contradictory letters sent by [the lender] that they allege were both misleading and false. 18 Id. Plaintiffs in the case sub judice, however, failed to illustrate any contradiction amongst Wells unsubstantiated Fargo s claim correspondence that Wells receipt of Plaintiffs paperwork. Fargo beyond Plaintiffs misrepresented (See Compl. ¶ 62). its Contrary to Plaintiffs allegations, Wells Fargo acknowledged receipt of Plaintiffs original proof of income. (See Compl. Ex. 5, at 1). There is, therefore, no misrepresentation to support Plaintiffs fraud claims. Accordingly, Wells Fargo s Motion to Dismiss is granted as to Counts III and V. IV. For the foregoing CONCLUSION reasons, the Court will, by separate Order, GRANT Plaintiffs Motion for Leave to File Supplemental Authority (ECF No. 12) and Defendant Wells Fargo s Motion to Dismiss (ECF No. 10). Entered this 23rd day of July, 2012 /s/ ___________________________ George L. Russell, III United States District Judge 19

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