Atkins v U.S. Bank Ntl A s s o c .

• Court: District Court, D. New Hampshire
• Decided: January 2, 2014
• Docket: 13-CV-257-PB
• Status: Published

Opinion

Atkins v U.S. Bank Ntl A s s o c . 13-CV-257-PB 1/2/14

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

G. Brandt Atkins

v. Civil No. 13-CV-257-PB Opinion No. 2 014 DNH 001 U.S. Bank National Association, et al

MEMORANDUM AND ORDER

This case arises from a loan obtained by G. Brandt Atkins

secured by a mortgage on his home in North Hampton, New

Hampshire. Atkins claims that he was forced to sell his home

for an artificially low price because his lender and several

associated entities unreasonably refused his request to modify

his loan and improperly instituted foreclosure proceedings

against him after he experienced financial difficulties.

Defendants Bank of America, N.A., Wells Fargo Bank, N.A.,

and U.S. Bank National Association as Trustee for the Holders of

the Bear Stearns Asset-Backed Securities Trust 2004-AC2 ("U.S.

Bank Trust") jointly move for dismissal pursuant to Federal Rule

of Civil Procedure 12(b)(6). For the reasons set forth below I

grant defendants' motion to dismiss. I. BACKGROUND1

On January 6, 2004, Atkins entered into a loan with

Countrywide Home Loans for $611,835. The loan was secured by a

mortgage held by Mortgage Electronic Registration Systems, Inc.

("MERS") as nominee for Countrywide and its assignees.

Countrywide later assigned the loan to the Bear Stearns Asset

Based Services Trust 2004-AC2, and U.S. National Bank

Association was named as trustee. At a point not specified in

the complaint, BAG Home Loans Servicing, a subsidiary of Bank of

America, N.A., became responsible for servicing the loan.

Atkins entered into a loan modification agreement with BAG

Home Loans on October 23, 2009. The modified loan had the same

maturity date as the original loan. The principal due on the

modified loan was listed as $467,535.72 and the loan provided

for an annual interest rate of 5.25%.

On May 17, 2010, Bank of America sent Atkins a notice of

its intention to accelerate the loan based on a missed loan

payment. Atkins does not take issue with the bank's claim that

he missed a payment and he admits that he stopped making

payments on the loan in March 2011. A few months later, Atkins

contacted Bank of America and attempted to negotiate a second

Unless otherwise specified, facts are taken from Atkins's complaint. Doc. No. 1-1.

2 loan modification. Although a bank representative told Atkins

that he met the requirements for pre-approval for a loan

modification under the Home Affordable Modification Program

("HAMP"), the bank ultimately refused to modify his loan.

Initially, the bank explained that it had denied his request

because he failed to provide sufficient supporting

documentation. Ultimately, on February 22, 2013, Atkins

received a letter from the bank stating that his loan was

ineligible for modification because the bank "services the loan

on behalf of Wells Fargo, and that said investor has not given

the contractual authority" to Bank of America to modify the

loan.2

Atkins received his first notice of foreclosure from U.S.

Bank in August 2012. The foreclosure sale was postponed at

least four times, with notices of foreclosure printed in the

local newspapers. The final foreclosure sale, scheduled for

February 13, 2013, was cancelled because Atkins had a pending

Purchase and Sale Agreement on the property. Atkins ultimately

sold the property for $699,900, which was allegedly far less

than its true value. Atkins claims that real estate brokers

told him that the property was "tainted" by public knowledge of

2 The complaint does not explain Wells Fargo's role in overseeing Atkins's loan. 3 the foreclosure proceedings.

I. STANDARD OF REVIEW

To survive a Rulfe 12(b)(6) motion to dismiss, a plaintiff

must make factual allegations sufficient to "state a claim to

relief that is plausible on its face." Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009) (quoting Bell A.tl. Corp. v. Twombly, 550

U.S. 544, 570 (2007)). A claim is facially plausible when it

pleads "factual content that allows the court to draw the

reasonable inference that the defendant is liable for the

misconduct alleged. The plausibility standard is not akin to a

'probability requirement,' but it asks for more than a sheer

possibility that a defendant has acted unlawfully." Id.

(citations omitted).

In deciding a motion to dismiss, I employ a two-step

approach. See Ocasio-Hernandez v. Fortuho-Burset, 640 F.3d 1,

12 (1st Cir. 2011). First, I screen the complaint for

statements that "merely offer legal conclusions couched as fact

or threadbare recitals of the elements of a cause of action."

I d . (citations, internal quotation marks, and alterations

omitted). A claim consisting of little more than "allegations

that merely parrot the elements of the cause of action" may be

dismissed. Id. Second, I credit as true all non-conclusory

4 factual allegations and the reasonable inferences drawn from

those allegations, and then determine if the claim is plausible.

Id. The plausibility requirement "simply calls for enough fact

to raise a reasonable expectation that discovery will reveal

evidence" of illegal conduct. Twombly, 550 U.S. at 556. The

"make-or-break standard" is that those allegations and

inferences, taken as true, "must state a plausible, not a merely

conceivable, case for relief." Sepulveda-Villarini v. P e p 't of

Ed u c ., 628 F.3d 25, 29 (1st Cir. 2010); see Twombly, 550 U.S. at

555 ("Factual allegations must be enough to raise a right to

relief above the speculative level.").

II. ANALYSIS

Atkins asserts that defendants are liable for damages

because they violated New Hampshire's Consumer Protection Act,

breached the implied contractual covenant of good faith and fair

dealing, and negligently hired, trained, and supervised their

employees. I address each claim in turn.

A. New Hampshire Consumer Protection Act

Atkins alleges in counts one and two that defendants

violated New Hampshire's Consumer Protection Act ("CPA"). N.H.

Rev. Stat. Ann. § 358-A. To state a claim under the CPA, Atkins

must plead facts sufficient to show that defendants used an

5 "unfair or deceptive act or practice in the conduct of any trade

or commerce" within New Hampshire. I d . at § 358-A:2. See

Gilroy v. Kasper, 654 F.Supp.2d 44, 49 (D.N.H, 2009). The CPA

contains a nonexhaustive list of forbidden acts. Other, non-

listed conduct is assessed by the so-called "rascality test,"

which asks whether conduct " 'attaints] a level of rascality

that would raise an eyebrow of someone inured to the rough and

tumble of the world of commerce.'" Gilroy, 654 F.Supp.2d at 49

(citing State v. Sideris, 157 N.H. 258, 263, 951 A . 2d 164

(2008); Milford Lumber Co. v. RGB Realty, 147 N.H. 15, 17, 780

A . 2d 1259 (2001)). The CPA also includes statutory exemptions

for certain conduct. N.H. Rev. Stat. Ann. § 358-A:3.

Atkins claims that defendants violated the CPA by: (1)

refusing to modify his loan even though he had complied with all

requests for documents concerning the proposed modification; (2)

encouraging him to apply for a loan modification even though

they knew that the holder of his note had not authorized anyone

to negotiate a loan modification on its behalf; (3) failing to

comply with HAMP guidelines, which prohibit a covered entity

from referring a mortgage for foreclosure while a loan

modification request is pending; and (4) threatening to

foreclose on his property without a valid assignment of the

mortgage.

6 Defendants respond by invoking N.H. Rev. Stat. Ann. § 358-

A:3 I, which exempts from the CPA "trade or commerce that is

subject to the jurisdiction of the bank commissioner . . . or

federal banking or securities regulators who possess the

authority to regulate unfair or deceptive trade practices." The

bank defendants argue that as national banks, they are subject

to the comprehensive regulations of the Office of the

Comptroller of the Currency ("OCC"). Bank of America argues in

the alternative that it is subject to the jurisdiction of the

New Hampshire Bank Commissioner when it acts as a loan servicer.

N.H. Rev. Stat. Ann. § 397-B.

Business activities of national banks and their operating

subsidiaries are controlled by the National Bank Act ("NBA") and

OCC regulations. Watters v. Wachovia Bank, N.A., 550 U.S. 1, 6,

21 (2007) (citing 12 U.S.C. § 1 et se q .). These business

activities include real estate lending. 12 U.S.C. § 371.

National banks can make real estate loans "without regard to

state law limitations concerning," among other things, the terms

of a loan, including "the circumstances under which a loan may

be called due and payable," and the "processing, origination,

servicing, sale or purchase of, or investment or participation

in, mortgages." 12 C.F.R. § 34.4 (a) (4, 10) .

7 Here, all three defendants are registered with the OCC as

national banks.^ The OCC's power to regulate national banks is

comprehensive, and the OCC "plainly has the authority to protect

consumers from the same kinds of fraudulent, deceptive, and

unfair practices that are targeted by the Consumer Protection

Act." Aubertin v. Fairbanks Capital Corp., 2 0 05 DNH 021, 6

(citing OCC Advisory Letter 2002-3 at 3 (March 22, 2002)).4

Defendants invoked the OCC's power in their motion to dismiss,

and cited relevant law to support their exemption argument.

They need do no more.

B. Duty of Good Faith and Fair Dealing

Count three alleges that defendants violated the implied

covenant of good faith and fair dealing by accelerating payments

under the note and proceeding with foreclosure while Atkins's

request for a loan modification was pending. Doc. No. 1-1.

"In every agreement, there is an implied covenant that the

parties will act in good faith and fairly with one another."

: U.S. Department of the Treasury, Office of the Comptroller of the Currency, National Banks Active as of 11/30/2013, ht t p ://www.o c c .gov/topics/licensing/national-bank- lists/national-by-name-pdf.pdf (listing Bank of America, Wells Fargo, and U.S. Bank as national banks).

4 Because each defendant is exempt as a national bank, I need not decide the applicability of exemptions pursuant to the jurisdiction of the state bank commissioner. Birch Broad, Inc. v. Capitol Broad. Corp., Inc., 161 N.H. 192,

198, 13 A . 3d 224 (2010). New Hampshire applies the covenant to

contract formation issues, terminations of at-will employment

agreements, and limitations on discretion in contractual

performance. Id. Atkins bases his claim on a contention that

defendants abused discretion granted to them under the note

agreement when they accelerated his loan and instituted

foreclosure proceedings. The New Hampshire Supreme Court has

described this aspect of the covenant as "comparatively narrow,

[with a] broader function [ ] to prohibit behavior inconsistent

with the parties' agreed-upon common purpose and justified

expectations as well as with common standards of decency,

fairness and reasonableness." I_d (citations omitted) .

Assuming that Atkins has adequately pleaded the existence

of a contractual relationship, his good faith and fair dealing

claim "turns on three key questions: (1) whether the agreement

allows or confers discretion on the defendant to deprive the

plaintiff of a substantial portion of the benefit of the

agreement; (2) whether the defendant exercised its discretion

reasonably; and (3) whether the defendant's abuse of discretion

caused the damage complained of." Moore v. Mortgage Elec.

Registration Sys., Inc., 848 F.Supp.2d 107, 129 (2012)(citations

omitted).

9 Atkins's promissory note0 contains an acceleration clause,

stating that a "default" occurs if Atkins does not "pay the full

amount of each monthly payment on the date it is due." Doc. No.

6-2. If Atkins defaults, the note holder has the right to send

him a written warning that a failure to pay the overdue amount

by a certain date - at least thirty days after the notice was

mailed - allows the note holder to require immediate payment of

the full amount of principal and all accrued interest. The

contract states that this right is not waived should the note

holder choose not to exercise it.

The acceleration clause clearly affords the note holder

discretion, yet in no way can Bank of America's notice of intent

to accelerate the loan be viewed as an unreasonable exercise of

that discretion. Atkins alleges that on May 17, 2010, Bank of

America sent him a notice of intent to accelerate due to a

missed payment on April 1, 2010. He also admits that he stopped

making payments on the loan in March 2011, well before the

foreclosure occurred. A lender does not violate the duty of

good faith and fair dealing merely by invoking a right to relief

5 Although the note was not attached the complaint, I can consider it at this stage due to its centrality to the plaintiff's claim and because it is a document sufficiently referred to in the complaint. Worrall v. Fed. Nat'1 Mortg. A s s 'n , 2013 DNH 158, 3 (quoting Rivera v. Centro Medico de Turabo, Inc., 575 F.3d 10, 15 (1st Cir. 2009)). 10 in the event of a default that is expressly authorized in the

contract. See Moore, 848 F.Supp.2d at 129, 130 (reasoning that

the duty of good faith and fair dealing cannot be used to

require a lender to modify or restructure a loan).

Atkins also claims that defendants violated the duty of

good faith and fair dealing by proceeding with foreclosure while

Atkins's loan modification application was pending. "Courts

have generally concluded, however, that the covenant of good

faith and fair dealing in a loan agreement cannot be used to

require the lender to modify or restructure the loan." Moore,

84 8 F.Supp.2d 107, 130; see also Gikas v. JPMorgan Chase Bank,

N .A . , 2 013 DNH 057, 8; Ruivo v. Wells Fargo Bank, N.A., No. 11-

cv-466-PB, 2012 WL 5845452, at *3 (D.N.H. Nov. 19, 2012). This

is so because "[p]arties are bound by the agreements they enter

into and the court will not use the implied covenant of good

faith and fair dealing to force a party to rewrite a contract so

as to avoid a harsh or inequitable result." Ruivo, 2012 WL

5845452 at *4 (citing, among other cases, Moore, 848 F.Supp.2d

at 130; Olbres v. Hampton Co-op. Bank, 142 N.H. 227, 233

(1997) ) .

Atkins does not allege that any of the defendants misled

him by promising to refrain from foreclosing on his home while

his request for a loan modification was pending. Instead, he

11 merely argues that it is a breach of the duty of good faith and

fair dealing to proceed with a foreclosure while a request to

modify a loan is pending. I find no support in the case law for

this proposition. Accordingly, I agree with the defendants that

Atkins has failed to state a viable good faith and fair dealing

claim.

C. Negligent Hiring, Training, and Supervision

Atkins's final claim sounds in negligence, alleging that

the defendants had a duty to train and supervise their agents

and to implement sufficient controls to safeguard customers;

that they breached their duty; and that as a result Atkins was

harmed when he "received faulty mortgage servicing." The

damages he seeks stem from economic losses he suffered as a

result of alleged negligence by Bank of America.!

As a general rule, a plaintiff may not recover in tort for

economic losses associated with a contractual relationship.

Schaefer v. Indymac Mortg. Serv., 731 F.3d 98, 103 (1st Cir.

2013). Although New Hampshire recognizes exceptions to the

general rule, none apply here. In certain circumstances, a

Atkins stakes his negligence claim only on various representations made by Bank of America's representatives throughout the loan modification process. Thus, his claim must be dismissed against Wells Fargo and U.S. Bank Trust, as none of their actions could conceivably be tied to a negligent hiring, training, and supervision claim.

12 lender may expose itself to tort liability for economic losses

by voluntarily assuming certain duties to a borrower. "The

burden [,however,] is on the borrower, seeking to impose

liability, to prove the lender's voluntary assumption of

activities beyond those traditionally associated with the normal

role of a money lender." Moore, 848 F.Supp.2d at 133 (quoting

Seymour v. N.H. Sav. Bank, 131 N.H. 753, 759, 561 A . 2d 1053

(1989) ) .

All of the actions on which Atkins could conceivably rest

his claim involve Bank of America's actions relating to the loan

modification process - duties and actions traditionally

associated with the normal role of a money lender. As such, the

negligent hiring, supervision, and training claim must be

dismissed against all parties.

IV. CONCLUSION

For the reasons set forth above, I grant defendants' motion to

dismiss Doc. No. 6.

SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge

January 2, 2014 cc: G. Brandt Atkins Thomas J. Pappas, Esq.