RAYMOND A. JACKSON, District Judge.
Before the Court is Defendants Wells Fargo Bank, Federal Home Loan Mortgage Corporation, and Samuel White P.C.'s Motion to Dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). ECF No. 16. Plaintiff Bonnie Mayo raises five state law claims against Defendants pertaining to the refinancing of her since-foreclosed home. For the reasons stated below, Defendants' Motion to Dismiss is
Plaintiff Bonnie Mayo alleges the following relevant facts in the Amended Complaint. ECF No. 12. In December 2009, Plaintiff executed a refinancing of the mortgage on her home in Williamsburg, Virginia, which reduced the loan's interest rate by 0.5%. Am. Compl. ¶¶ 2-6; id., Ex. B. The Refinance Note required monthly payments of $1,251.96 for interest and principal, to begin in February 2010. Am.
Plaintiff twice declared bankruptcy: once before the foreclosure, and once after. Both proceedings were ultimately dismissed. Defts' Mem. in Opp. to Pltf's Req. for TRO, ECF No. 22, at 1-2. After the United States Court of Appeals for the Fourth Circuit denied Plaintiff's appeals from the second bankruptcy proceeding on October 4, 2012, Defendant FHLMC filed an unlawful detainer action in state court on November 20, 2012. Id. at 2. The York County General District Court granted possession to FHLMC on December 18, 2012, and Plaintiff appealed to the York County Circuit Court. Id. Nearly a year later, on December 11, 2013, that court also granted possession to FHLMC, and its judgment became final on January 12, 2014. Id. at 2-3.
In the meantime, Plaintiff had filed the first iteration of the instant complaint in state court. Defendants ultimately removed the case to this Court in December 6, 2013, pursuant to 12 U.S.C. § 1452(f), which allows removal to federal court "at any time before trial" in cases in which FHLMC is a party. Plaintiff filed an Amended Complaint on December 30, 2013. ECF No. 12. On January 9, 2014, Defendants filed the instant Motion to Dismiss, ECF No. 16, and accompanying Memorandum, ECF No. 17 (hereinafter "Mot. to Dismiss"). Plaintiff filed her Opposition on January 23, 2014, ECF No. 18 (hereinafter "Opp."), and Defendants filed their Reply on January 28, 2014, ECF No. 19. The matter is accordingly ripe for disposition.
This is not the first order that the Court has entered in this case. On February 3, 2014, Plaintiff was served with a notice of eviction in execution of the state court's judgment of possession. ECF No. 21, at 1-2. Arguing that the eviction should be stayed pending the outcome of her pending suit, Plaintiff requested that this Court grant a Temporary Restraining Order or a Preliminary Injunction. The Court held a hearing on February 6, 2014 and denied Plaintiff's requested TRO the following day. ECF No. 24.
Rule 12(b)(6) provides for dismissal of actions that fail to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). The United States Supreme Court has stated that in order "[t]o 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. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotations omitted)). Specifically,
In considering a Rule 12(b)(6) Motion to Dismiss, the Court cannot consider "matters outside the pleadings" without converting the motion to a summary judgment proceeding. Fed.R.Civ.P. 12(d). Nonetheless, the Court may still "consider documents attached to the complaint, see Fed. R.Civ.P. 10(c), as well as those attached to the motion to dismiss, so long as they are integral to the complaint and authentic." Sec'y of State for Defence v. Trimble Navigation Ltd., 484 F.3d 700, 705 (4th Cir. 2007). See also Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008) ("When a court is presented with a Rule 12(b)(6) motion, it may consider the Complaint and any exhibits attached thereto, public records, items appearing in the record of the case and exhibits attached to defendant's motion to dismiss so long as they are referred to in the Complaint and are central to the claims contained therein.").
The parties agree that Virginia substantive law applies to Plaintiff's claims, all of which are state common law claims. See, e.g., Opp. at 3 (relying on Virginia case law); Mot. to Dismiss at 14 (same). Nonetheless, the Court will apply federal rules that are procedural, such as the standards for a Rule 12(b)(6) motion discussed above. Rowland v. Patterson, 852 F.2d 108, 110 (4th Cir.1988).
Plaintiff raises her breach of contract claim against Defendants Wells Fargo and FHLMC, whom she alleges were the lenders during the relevant time period. Specifically, Plaintiff says that the ownership of her loan changed from Wells Fargo to FHLMC at some point, but that Wells Fargo remained the agent of the subsequent lender. Am. Compl. ¶ 52. She claims that the Deed of Trust dated December 14, 2009 is the relevant contract and that it was improperly breached in six different ways:
Am. Compl. ¶¶ 50, 53-58. Defendants contend that all of these allegations fail to
Under Virginia law, a viable breach of contract claim has three elements: "(1) a legally enforceable obligation of a defendant to a plaintiff; (2) the defendant's violation or breach of that obligation; and (3) injury or damage to the plaintiff caused by the breach of obligation." Filak v. George, 267 Va. 612, 594 S.E.2d 610, 614 (2004). The relevant contract, which Defendants do not dispute is binding, is the Deed of Trust dated December 14, 2009. Am. Compl. ¶ 50.
The Court will first address Plaintiff's second contention regarding the payment of escrow, as it will be relevant to considering Plaintiff's first contention. Section 1 of the Deed of Trust states:
Am. Compl., Ex. C, at 4 (emphasis added). Section 3, in turn, provides:
Id. at 5-6 (emphasis added).
This language disposes of Plaintiff's argument that the contract was breached because she was required to pay escrow. The Deed of Trust clearly states that Plaintiff was to pay escrow to the lender. Section 1 states that Plaintiff "shall also
Plaintiff also claims she "waived" the requirement to pay escrow fees to the lender by not signing an escrow disclosure. Id. at 6. But pursuant to the Deed of Trust, only the lender may waive the requirement to pay escrow and must do so in writing. Finally, Plaintiff points to the provision in the Deed of Trust stating that in the event of a shortage in the escrow fund, the Borrower shall make up the shortage in no more than twelve monthly payments. Accordingly, Plaintiff contends, she was not properly placed in default for failure to pay escrow and should have been allowed to make up payments. But Defendants sent Plaintiff a notice of default when it claimed she was $2,072.06 behind in payments — which was not solely escrow but substantially composed of payment on the interest and principal of the loan. Am. Compl., Ex. K.
Plaintiff's first ground for breach of contract is that Wells Fargo "breached the contract by requiring Plaintiff to submit monthly payments in an amount that exceeded that which the parties agreed upon." Am. Compl. ¶ 53. It is not entirely clear what the specific basis of this claim is. To the extent that Plaintiff reiterates that she expected that she would not pay escrow, the Court has already rejected this argument for the reasons explained above. Assuming arguendo that Plaintiff means that the required initial escrow amount of $230.31 per month, Am. Compl. Ex. F, was higher than she had expected, she does not explain how this is a breach of the relevant contract. The Deed of Trust, as quoted above, does not say escrow will be a specific amount, but explains how escrow will be determined and clearly contemplates that it may fluctuate over time. The Amended Complaint does not allege that escrow was improperly calculated using expenses not listed as "Escrow Items" in the Deed of Trust. Relatedly, Plaintiff also alleges that what the exact escrow payments would be was not disclosed to her at all at the time of refinancing, Opp. at 4, but she does not point to a specific provision of the Deed of Trust that was violated by the lack of initial disclosure.
Plaintiff may mean that whatever the cause, her monthly payment went up when she expected it to go down because the refinancing lowered her interest rate by 0.5%, and that this amounts to a breach of contract. Am. Compl. ¶¶ 13-14. But any such assertion is so vague and unclear as to fail federal pleading standards. Exhibits attached to the Amended Complaint indicate that Plaintiff's monthly payment under her prior mortgage might have been $1,588.22, of which $230.31 was escrow, id. Ex. E, or $1,485.87, including an unspecified amount of escrow, id. Ex. A. (The Amended Complaint asserts it is the latter amount. Id. ¶ 2.) The Initial Escrow Account Disclosure for the new loan indicated that Plaintiff's new monthly payment after the refinancing would be $1,482.27, including a principal of $1,251.96 and escrow of $230.31. Because of an escrow shortage, that amount increased in March 2010 to $1,501.41. Id. Ex. F. In sum, it is unclear whether the total monthly payments reflecting principal, interest, and escrow increased
Third, Plaintiff argues that Sections 16(c) and 22 of the Deed of Trust allow only the lender to invoke the power of sale,
But Plaintiff elsewhere alleges multiple times in the Amended Complaint that Wells Fargo was acting "as agent for the true lender" and "at all times represented itself as the owner of the indebtedness." Am. Compl. ¶¶ 40, 52-54. And under Virginia law, "[t]he doctrine of principal and agent — whether disclosed or undisclosed — recognizes that privity of contract exists. The act of the agent is the act of the principal." Harris v. McKay, 138 Va. 448, 122 S.E. 137, 140 (1924). Therefore, Plaintiff has not shown how any contractual duty was breached because the agent (Wells Fargo) acted in the stead of the principal (FHLMC). Plaintiff argues that Wells Fargo was not acting as the agent when it sent the notices, Am. Compl. ¶¶ 38, 56, but this conflicts with numerous allegations elsewhere in the Amended Complaint that Wells Fargo acted as the agent of the lender. Plaintiff has therefore failed to adequately plead this claim to the extent she alleges that Wells Fargo was not acting as FHLMC's agent when it sent those notices but was acting as an agent at all other times. Additionally, to raise a viable breach of contract claim under Virginia law, Plaintiff must demonstrate that she was injured by the breach. Filak, 594 S.E.2d at 614. Plaintiff admits that she received the notices, but does not explain how she was harmed by them being sent by the wrong party. Accordingly, even if Plaintiff had shown that Wells Fargo was not acting as FHLMC's agent when it sent the notices, her claim fails because she has not adequately pled any injury as a result.
A final component of Plaintiff's fourth breach of contract claim is that she received a notice of default (on June 13, 2010) when she was not yet in default. Am Compl. ¶ 23, 56. She avers this is so because Wells Fargo was demanding unwarranted sums from her. But as the Court has already held, requiring escrow was not in violation of the Deed of Trust, and Plaintiff herself acknowledges that she never paid escrow. Am. Compl. ¶¶ 5, 15
Fifth, Plaintiff alleges that one of the notices she received was substantively inadequate. Specifically, she contends that she "was not informed that she had a right to bring a cause of action to dispute the default or assert defenses to acceleration." Am. Compl. ¶ 57. She states that such notices were required by Section 22 of the Deed of Trust. Portions of that Section are illegible, but as best the Court can discern, the relevant part of that Section provides:
Am. Compl., Ex. C (emphasis added). But as the Amended Complaint itself acknowledges, Wells Fargo sent Plaintiff a letter dated June 13, 2010, informing her that she was in default and giving her 30 days to cure it. Am. Compl. ¶ 23 (citing Ex. K). It further informed her that if she did not pay the $2,072.06 that was owed, Wells Fargo would proceed with acceleration and could proceed to foreclosure. It also noted, "[i]f foreclosure is initiated, you have the right to argue that you did keep your promises and agreements under the Mortgage Note and Mortgage, and to present any other defenses that you may have." Further, it told her of the right to reinstatement: "You have the right to reinstate your Mortgage Note and Mortgage or Deed of Trust after acceleration, and to have enforcement of the Mortgage discontinued and to have the Mortgage Note and Mortgage remain fully effective as if acceleration had never been required." Am. Compl., Ex. K.
While the letter informed Plaintiff that she could make certain arguments and raise defenses if the Lender initiated a foreclosure, that is different from informing her that she herself could initiate a court action to prevent acceleration or foreclosure before those processes even occurred. This is particularly so when the lender chooses to utilize nonjudicial foreclosure proceedings, as Wells Fargo did here. Am. Compl. ¶ 96. The Court recognizes that another case in this District has reached the opposite conclusion based on identical language in both the Deed of Trust and the notice letter, reasoning that the letter was the "functional equivalent" of what the Deed of Trust required See Matanic v. Wells Fargo Bank, N.A., No. 3:12cv472, 2012 WL 4321634 (E.D.Va. Sept. 19, 2012). Nonetheless, the Court disagrees with the basis for that conclusion. The court in Matanic reasoned that
The Amended Complaint's sixth and final breach of contract claim is that it was a breach of contract to sell Plaintiff's home at foreclosure, as there was no legitimate default existing at the time. The last payment that Plaintiff claims she made was in May, 2010. Am. Compl. ¶ 22. Even prior to then, she states that she was not paying escrow. Id. ¶ 15. The foreclosure sale did not occur until over a year later. It is abundantly clear that Plaintiff was in default because she did not make the required payments. Therefore, the Court concludes that Plaintiff has failed to plead a standalone claim that foreclosure was inappropriate because there was no default. This conclusion does not, however, necessarily impact her potential remedies for other viable claims.
For the reasons stated above, Defendants' Motion to Dismiss Count I, the breach of contract claim, is
Plaintiff's second claim is for breach of fiduciary duty against Defendant Samuel I. White, P.C. ("the White firm"). The Deed of Trust lists the White firm as the trustee, Plaintiff as the trustor, and Wells Fargo as the beneficiary. Am. Compl., Ex. C. Plaintiff contends that the White firm breached its fiduciary duty because it: 1) failed to perform its duties with reasonable care because it sent foreclosure notices when Plaintiff was not in default, Am. Compl. ¶ 62; 2) proceeded to the foreclosure sale even though the Note was lost, in violation of Va.Code § 55-59.1, Am. Compl. ¶¶ 63-64; 3) failed to disclose to Plaintiff the true identity of the Lender, Am. Compl. ¶¶ 65-71; 4) failed to investigate Plaintiff's claims of error, Am. Compl. ¶¶ 72-73; and 5) failed to act impartially, placing its own interests before Plaintiff's, Am. Compl. ¶ 74.
Defendants contend that under Virginia law, the duties of a trustee are limited to those in the Deed of Trust, and that none of the above violations are grounded in that document. Plaintiff's respond that a trustee has common law duties outside of the deed of trust. This dispute reflects somewhat conflicting statements in Virginia case law. Virginia courts have frequently noted that the duties of a trustee are limited and defined by the deed of trust. E.g., Warner v. Clementson, 254 Va. 356, 492 S.E.2d 655, 657 (1997) ("The
However, Virginia courts have also repeatedly noted that a trustee named in a deed of trust is a fiduciary for both the debtor and the creditor. Whitlow v. Mountain Trust Bank, 215 Va. 149, 207 S.E.2d 837, 840 (1974). And a traditional fiduciary is subject to numerous common-law duties, many of which would likely not be enumerated in a typical deed of trust. See, e.g., Restatement (Third) of Trusts §§ 76-84. To reconcile these conflicting principles, the Court will not incorporate all of the common law duties of a traditional fiduciary, but will only impose on the trustee those limited duties that Virginia law has specifically recognized in the context of a deed of trust. This approach accords with relevant treatises. For example, the Restatement (Third) of Trusts notes that "mortgages, deeds of trusts, pledges, liens, and other security arrangements" are not trusts at all. § 5 (2003). Another treatise explains that "a fiduciary relationship does not exist between a trust or and trustee under a deed of trust. Instead, under a deed of trust, the relationship is analogous to that of a mortgagor and mortgagee and is characterized as a business relationship, rather than a fiduciary relationship." Amy Hess et al., Bogert's Trusts and Trustees, The Law of Trusts and Trustees § 29 (2013). See Int'l Fid. Ins. Co. v. W.Va. Water Auth, 7:11-CV-00441, 2012 WL 2357368 (W.D.Va. June 20, 2012) (noting that the fiduciary duties associated with escrow arrangements are "much narrower in scope than [the duties in] other fiduciary relationships such as attorney and client" (quotations omitted)).
The Court finds that the only common law duty consistently recognized by the Virginia Supreme Court with respect to the trustee for a Deed of Trust security real property is a duty of impartiality. Specifically, in Whitlow, the court concluded that when the named trustee in the deed of trust owned a substantial amount of stock in the corporation which purchased the home at the foreclosure, the foreclosure sale must be set aside because the trustee did not "refrain from placing himself in a position where his personal interest conflicts with the interests of those for whom he acts as a fiduciary." 207 S.E.2d at 840; id. ("The general rule concerning the position of a trustee under a deed of trust is that the trustee is a fiduciary for both the debtor and creditor and must act impartially between them."). The Amended Complaint does allege that the White firm violated a common law duty of impartiality. However, that allegation is conclusory and fails to meet the requisite pleading standards. By the time her home was foreclosed, Plaintiff had long stopped making payments on the loan and
Plaintiff's remaining fiduciary claim against the White firm is that it proceeded to foreclose without providing an affidavit of a lost note pursuant to Va.Code § 55-59.1. That provision says that if a note secured by a deed of trust is lost and the trustee is made aware of that loss by an affidavit sent by the beneficiary, the trustee may nonetheless proceed to sale as long as they have given proper notice to the debtor. Plaintiff alleges in the Amended Complaint that she did indeed receive notice of the lost note, Am. Compl. ¶ 26. Her claim is only that the trustee did not receive an affidavit to that effect, even though the letter the White firm sent her stated that Wells Fargo had requested it to send her the notice. Id. Ex. M. Even assuming that the statute gives rise to a fiduciary duty, Plaintiff has failed to plead how she was injured by that breach given that she received notice. See Sun Hotel, Inc. v. SummitBridge Credit Investments III, LLC, 86 Va.Cir. 189, 2013 WL 8019584 (2013) (listing the elements of a breach of fiduciary duty claim as duty, breach, and resulting injury to the plaintiff). Under the statute, "the fact that the instrument is lost or cannot be produced shall not affect the authority of the trustee to sell or the validity of the sale." Va. Code § 55-59.1. See Goodrow v. Friedman & MacFadyen, P.A., No. 3:11cv20, 2013 WL 3894842, at *15 (E.D.Va. July 26, 2013) (dismissing a breach of fiduciary duty claim). Therefore, Plaintiff's remaining claim of a breach of fiduciary duty is also
For the reasons just discussed, Defendants' Motion to Dismiss Count II is
In her Opposition, Plaintiff stated that she was withdrawing this claim. Accordingly, Defendants' Motion to Dismiss Count III is
Plaintiff's fourth claim is entitled, "Equitable Action to Rescind Foreclosure." As a basis for "rescission," Plaintiff recites the wrongs alleged in the breach of contract and breach of fiduciary claim: requiring more than was due per the parties' contract, an inadequate notification of Plaintiff's light to cure, an undisclosed change in lenders, notices sent from the incorrect party, and the lost note issue. The Court has already dismissed all of these underlying claims except for the breach of contract claim stemming from inadequate notification of Plaintiff's right to cure. For this reason, the question is whether the foreclosure may be set aside as an equitable remedy for that condition precedent to the sale not being satisfied.
Defendants contend that Virginia courts do not recognize the remedy of equitable rescission of foreclosure. But Virginia courts have, in equity, recognized claims to aside foreclosure sales after they occur because of some problem with the sale.
It may very well be that equity would not support setting aside the foreclosure sale for the allegedly faulty notice in these circumstances. E.g., In re Tr.'s Sale of Prop, of Brown, 67 Va.Cir. 204, 2005 WL 1474042 (2005) ("[N]ot all defects in a foreclosure sale render the sale void. A sale under a deed of trust will only be set aside for weighty reasons; it will not be declared a nullity on mere technical grounds."). But very little argument has been made on this issue at this juncture. And of course, if the notice claim is eventually dismissed, then this claim will fail as well. See Pierce v. Wells Fargo Bank, 85 Va.Cir. 32, 2012 WL 9735354 (2012). The Court concludes that further facts and arguments relevant to the breach of contract claim will be highly relevant and helpful in the disposition of this claim. Defendants' Motion to Dismiss Count IV is
Plaintiff's final claim is for abuse of process against Wells Fargo for utilizing nonjudicial foreclosure for an improper purpose. Under Virginia law, "abuse of process lies for the improper use of process after it has been issued." Donohoe Constr. Co., Inc. v. Mount Vernon Assocs., 235 Va. 531, 369 S.E.2d 857, 862 (1988) (quotations omitted). To prevail, a plaintiff must prove "(1) the existence of an ulterior purpose; and (2) an act in the use of the process not proper in the regular prosecution of the proceedings." Id. "The distinctive nature of malicious abuse of process lies in the perversion of regularly-issued process to accomplish some purpose for which the procedure was not intended."
Defendants also allege that the Court should strike Plaintiff's request for compensatory damages because she fails to offer any factual or legal support for her demands for damages and fails to demand a specific amount of damages. In light of the remaining breach of contract claim which may entitle Plaintiff to damages if successful, and because there is no requirement that Plaintiff specifically allege an amount of compensatory damages at this stage, the Court declines to grant Defendants' request.
For the reasons stated above, Defendants' Motion to Dismiss is
The Court
