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Maria Lindsay and Dean Lindsay v. Bank of America

October 18, 2012


The opinion of the court was delivered by: Leslie E. Kobayashi United States District Judge


Before the Court is the Motion to Dismiss Complaint Filed on April 26, 2012 ("Motion"), filed June 11, 2012 by Defendants Bank of America, N.A. ("BANA"), BAC Home Loans Servicing, LP ("BAC"), and Bank of New York Mellon ("BONY," collectively, "Defendants"). Plaintiffs Maria Lindsay and Dean Lindsay ("Plaintiffs") filed their memorandum in opposition on September 4, 2012, and Defendants filed their reply on September 10, 2012.

This matter came on for hearing on September 24, 2012. Appearing on behalf of Defendants was Patricia McHenry, Esq., and appearing on behalf of Plaintiffs was James Fosbinder, Esq. After careful consideration of the Motion, supporting and opposing memoranda, and the arguments of counsel, Defendants' Motion is HEREBY GRANTED for the reasons set forth below.


On April 26, 2012, Plaintiffs filed their Complaint against Defendants in state court. The Complaint asserts the following claims: Claim I - Negligence; Claim II - Unfair and Deceptive Acts and Practices ("UDAP"). On May 21, 2012, Defendants removed the action to this district court based on diversity jurisdiction. [Dkt. no. 1 at ¶ 4.]

On July 26, 2005, Plaintiffs executed an Adjustable Rate Note in favor of non-party Countrywide Home Loans, Inc. ("Countrywide"), for the principal amount of $735,000 ("Note"). [Complaint at ¶ 5.] The Note was secured by a mortgage on Plaintiffs' property, located at 2760 Puu Hoolai Street, Kihei, Hawai`i 96753 ("Mortgage" and "Subject Property"). [Id. at ¶¶ 1, 5.] Eventually, Countrywide's nominee executed an Assignment of Mortgage ("Assignment") in favor of BONY, which purported to transfer to BONY, "'all of [Countrywide's] right, title and interest in and to the Mortgage.[']" [Id. at ¶ 7.]

On or about April 7, 2009, Plaintiffs hired Kucsan & McCrea to assist them with their loan modification application, which would be sent to BAC, the loan servicer. Plaintiffs provided all documents required for a BAC loan modification application. On or about May 19, 2009, Kucsan & McCrea submitted Plaintiffs' loan modification application and supporting documents to BAC for consideration. During this process, Plaintiffs continued to make payments under the Mortgage. [Id. at ¶¶ 3, 8-9.]

Shortly thereafter, BAC denied Plaintiffs' request for loan modification because Plaintiffs were current on the Mortgage. BAC informed Plaintiffs that they must be delinquent in order to be considered for loan modification. Although Plaintiffs could have continued making payments under the Mortgage, for the sole purpose of being able to qualify for a loan modification, and relying on the representation and instruction of BAC, Plaintiffs made their last payment on or about June 16, 2009. Plaintiffs continued to miss payments under the Mortgage, and on or about August 20, 2009, Plaintiffs received a Notice of Intent to Accelerate with respect to the Mortgage ("Notice of Intent"). [Id. at ¶¶ 10-13.]

On September 8, 2009, Plaintiffs received an email from Kucsan & McCrea informing them that their application for a loan modification was still under review with BAC. Plaintiffs continued to receive similar emails on September 22, 2009, October 15, 2009, November 11, 2009, and December 7, 2009. Meanwhile, Plaintiffs also received calls from BAC regarding their delinquent account. After Plaintiffs mentioned that they were under review for a loan modification, BAC agents would continue to reaffirm to Plaintiffs that they must remain delinquent on the Mortgage in order to qualify for a loan modification. [Id. at ¶¶ 14-16.]

On December 28, 2009, Plaintiffs received a proposed modification agreement from BAC, under which Plaintiffs' principal and interest payments would ultimately increase. Plaintiffs could not afford such an increase and accordingly declined the proposed modification on February 2, 2010. [Id. at ¶¶ 17-20.]

In late February 2010, Plaintiffs retained The Law Firm of Carlos Negrete ("Negrete") to assist them with a second loan modification application. Plaintiffs sent Negrete all the required documents, and on March 11, 2010, Negrete informed Plaintiffs that their second application was ready for submission. Negrete also informed Plaintiffs that, pursuant to Negrete's conversation with a BAC Home Retention Department employee, Plaintiffs would need to cancel their original loan modification in order to apply for the new loan modification. [Id. at ¶¶ 21-23.]

On October 12, 2010, pursuant to Negrete's conversation with another BAC employee, Negrete instructed Plaintiffs to submit updated financial information to BAC in order to continue the processing of their loan modification application. In late October 2010, BAC sent Plaintiffs a letter indicating that their home loan was referred to the Foreclosure Review Committee. The letter also stated that Plaintiffs may be eligible to participate in several different programs, including loan modification. [Id. at ¶¶ 24-25.]

On November 11, 2010, Negrete informed Plaintiffs that they received an email from Rodrigo Valdez at BAC, requesting more information, some of which Plaintiffs had already submitted. One week later, Negrete informed Plaintiffs that a BAC employee confirmed that all requisite documents had been received and the checklist for final approval of Plaintiffs' loan modification review was complete. The BAC employee also stated that the Subject Property was in foreclosure with no sale date, and that the Notice of Intent had expired on September 16, 2010. [Id. at ¶¶ 26-27.]

In late November 2010, Negrete informed Plaintiffs that Mr. Valdez had verbally advised that Plaintiffs' request for loan modification was denied on the basis that "'the investor said no.'" [Id. at ¶ 28.] Plaintiffs assert that they never received written communication of this denial from BAC. In February 2011, Negrete again informed Plaintiffs that the Mortgage on the Subject Property was in foreclosure, although no foreclosure sale date had been set. The Complaint alleges that BAC's representations that Plaintiffs had to remain delinquent on the Mortgage in order to qualify for loan modification caused significant damage to Plaintiffs' credit scores. [Id. at ¶¶ 28- 30.]

In Claim I, Plaintiffs contend that BAC acted beyond its role as a money lender and actively engaged in loan modification negotiations, thereby creating a duty of care owed to Plaintiffs. [Id. at ¶¶ 33-34.] Plaintiffs allege that BAC initially told Plaintiffs it would take three to six months to process their loan modification application and, by failing to adequately process Plaintiffs' loan modification application after two years of review, BAC breached the duty of care it owes to borrowers such as Plaintiffs. Plaintiffs further contend that, because BAC was in full control of the loan modification application review process, it was reasonably foreseeable that Plaintiffs would rely on BAC's direction that they had to remain delinquent on the Mortgage before they would qualify for a loan modification. Plaintiffs assert that BAC reported their delinquencies to credit reporting agencies, resulting in significant damage to their credit scores. [Id. at ¶¶ 48-50.]

Under Claim II, Plaintiffs allege that BAC committed unfair and deceptive acts or practices in violation of Haw. Rev. Stat. § 480-2. [Id. at ¶¶ 51-74.] Plaintiffs contend that BAC never intended to provide Plaintiffs with a loan modification, but merely made such representations in order to "maximize its fees and the payments it [could] extract from Plaintiffs." [Id. at ¶ 67.] Plaintiffs allege that BAC was deceptive in making the representation that Plaintiffs would only qualify for loan modification if they remained delinquent on the Mortgage, and in reporting these delinquencies to credit reporting agencies. Plaintiffs contend that, because BAC has unilateral control over the modification process, Plaintiffs had no choice but to meet its demands for financial documents in hopes of receiving a loan modification. Although BAC allegedly made express or implied representations that Plaintiffs were eligible for a loan modification, Plaintiffs assert that BAC does not in fact possess the authority to modify Plaintiffs' Mortgage, making BAC's representations deceptive acts. [Id. at ¶¶ 62-64, 70-73.]

The Complaint prays for the following relief: an order enjoining BONY from foreclosing upon the Subject Property; statutory damages; punitive damages; treble damages pursuant to Claim II; attorney's fees; compensatory damages; and other appropriate relief. [Id. at pg. 18.]

I. Defendants' Motion

Defendants filed their Motion pursuant to Federal Rule of Civil Procedure 12(b)(6), and assert that each claim of the Complaint fails to state a claim upon which relief can be granted. Defendants also allege that Plaintiffs failed to plead sufficient facts to support their claims, as required by Fed. R. Civ. P. 8 and 9(b). [Motion at 1.]

A. Claim I - Negligence

1. As Against BONY

Defendants assert that the Court should dismiss Claim I as against BONY because Claim I does not contain any allegations against BONY. [Mem. in Supp. of Motion at 6.] Defendants argue that Plaintiffs only name BONY as a defendant "in hopes of enjoining BONY from evoking its properly-assigned power of sale on the [Subject] Property, even though BONY played no role in the loan modification process, and even though Plaintiffs admit that they intentionally defaulted on the [Mortgage]." [Id. at 6-7 (emphasis in Mem. in Supp. of Motion) (citing Complaint at ¶ 11).] Accordingly, Defendants urge the Court to dismiss Claim I as against BONY with prejudice. [Id. at 7.]

2. As Against Remaining Defendants

Defendants also urge this Court to dismiss Claim I as against BANA and BAC (collectively, "BANA Defendants"*fn1 ) because the BANA Defendants owed no duty to modify the Mortgage, and even assuming, arguendo, that they had a duty of care, Plaintiffs are unable to establish breach, causation, or damages. [Id.] Defendants urge this Court to dismiss Claim I as against the BANA Defendants with prejudice because it "consists of nothing more than vague and conclusory 'naked assertions' devoid of 'further factual enhancement.'" [Id. at 9 (some citations and quotation marks omitted) (quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)).] Furthermore, Defendants argue that Claim I should be dismissed with prejudice because Plaintiffs cannot establish causation or damages. [Id. at 14-15.]

a. Duty of Care

Defendants point to Plaintiffs' concession that, in terms of originating mortgage loans, lenders generally owe no duty of care to borrowers. [Id. at 8 (some citations omitted) (citing Complaint at ¶ 34).] Defendants further contend that loan servicers also do not owe such a duty. According to Defendants, the BANA Defendants acted within their roles as loan servicers to analyze Plaintiffs' multiple loan modification applications, and no special circumstances existed that would give rise to a common law duty owed to Plaintiffs. [Id. at 8-10.]

b. Breach of Duty

Defendants also assert that, even if the BANA Defendants owed Plaintiffs a duty of care as to their loan modification applications, Plaintiffs are unable to establish a breach of the BANA Defendants' alleged duty. Defendants argue that, despite Plaintiffs' failure "to supply any facts or law in support of their allegations that a loan modification is 'adequately processed' within three (3) to six (6) months," each of Plaintiffs' multiple modification applications was indeed adequately processed according to Plaintiffs' own alleged standard. [Id. at 10-11 (quoting Complaint at ¶¶ 48-49).]

c. Causation

Defendants argue that, because Plaintiffs decided to intentionally default on the Mortgage and have not made a payment on the Mortgage since June 2009, Plaintiffs are unable to establish causation. [Id. at 14 (citing Complaint at ¶ 11).]

d. Damages

Defendants further assert that Plaintiffs have failed to allege damages. Defendants argue that Plaintiffs have not alleged facts to demonstrate that Plaintiffs' default on the Mortgage alone was negatively affecting their credit scores. Defendants contend that any damage to Plaintiffs' credit scores is a "direct result of their own decision to intentionally default" on the Mortgage. [Id. at 15 (emphasis in original).] Accordingly, Defendants urge the Court ...

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