UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Gregory McNutt, et al.
v. Case No. 16-cv-405-AJ Opinion No. 2017 DNH 067 Wells Fargo Bank, N.A., et al.
MEMORANDUM AND ORDER
In an amended complaint, the plaintiffs, Gregory and Sara
McNutt, allege that Wells Fargo Bank, N.A. and America’s
Servicing Company (“Wells Fargo”1) violated federal and state law
with regard to a balloon payment due on the maturity date of the
plaintiffs’ modified mortgage. Doc. no. 7. Wells Fargo moves
to dismiss under Federal Rule of Civil Procedure (“Rule”)
12(b)(6) for failure to state a claim. Doc. no. 9. The
plaintiffs object. Doc. no. 10. For the following reasons,
Wells Fargo’s motion is granted in part and denied in part.
Standard of Review
Under Rule 12(b)(6), the court must accept the factual
1 In the motion to dismiss, it is alleged that America’s Servicing Company is the trade name of Wells Fargo Home Mortgage, a division of Wells Fargo Bank, N.A., and accordingly not a separate entity. The plaintiffs do not dispute this assertion. The court will accordingly refer to the named defendants singularly as “Wells Fargo” in this order. allegations in the complaint as true, construe reasonable
inferences in the plaintiff’s favor, and “determine whether the
factual allegations . . . set forth a plausible claim upon which
relief may be granted.” Foley v. Wells Fargo Bank, N.A., 772
F.3d 63, 71 (1st Cir. 2014) (citation and quotation marks
omitted). A claim is facially plausible “when the plaintiff
pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). Analyzing plausibility is “a context-specific task” in
which the court relies on its “judicial experience and common
sense.” Id. at 679.
The scope of the court’s analysis on a Rule 12(b)(6) motion
is generally limited to “facts and documents that are part of or
incorporated into the complaint . . . .” GE Mobile Water, Inc.
v. Red Desert Reclamation, LLC, 6 F. Supp. 3d 195, 199 (D.N.H.
2014) (quoting Rivera v. Centro Medico de Turabo, Inc., 575
F.3d, 10, 15 (1st Cir. 2009)); see also Fed. R. Civ. P. 12(d).
As an exception to this rule, the First Circuit permits trial
courts to consider “documents the authenticity of which are not
disputed by the parties; official public records; documents
central to plaintiff's claim; and documents sufficiently
referred to in the complaint” without converting a motion to
2 dismiss into one for summary judgment. Id. (brackets omitted)
(quoting Rivera, 565 F.3d at 15).
Background
Accepting the factual allegations set forth in the amended
complaint as true, the relevant facts are as follows.2
On August 23, 2010, the plaintiffs entered into a loan
modification with Wells Fargo. The loan modification agreement
included the following language: “If on October 01, 2035, (the
‘Maturity Date’) Borrower still owes amounts under the Note and
Security Instrument, as amended by this Agreement, Borrower will
pay those amounts in full on the Maturity Date.” Amend. Compl.
(doc. no. 7) ¶ 16; doc. no. 1-1, at 10. The modification
agreement did not estimate or calculate what any such payment
might be. Prior to entering into the modification, Wells Fargo
confirmed to the plaintiffs by e-mail that there would be no
2 The following narrative references a 2010 loan modification agreement and letters sent by Wells Fargo to the plaintiffs in February and May of 2016. Though these documents are attached to the plaintiffs’ state-court complaint as exhibits see doc. no. 1-1, at 9–19, the plaintiffs have not reattached them to their amended complaint. As these documents remain in the record, the plaintiffs specifically reference these documents in their amended complaint, and the parties do not appear to dispute their authenticity, they may be properly considered without converting this motion to one for summary judgment. See GE Mobile Water, Inc., 6 F. Supp. 3d at 199.
3 balloon payment under the modification. Relying on this
representation, the plaintiffs entered into the modification
agreement.
On February 16, 2016, the plaintiffs received a letter from
Wells Fargo with the subject line: “Important clarification
about your mortgage account . . . .” Doc. no. 1-1, at 16. In
this letter, Wells Fargo indicated for the first time that there
would be a balloon payment in the amount of $109,439.97 due and
owing under the loan modification on the maturity date. The
letter attributed the omission of this balloon payment from the
modification agreement to a “clerical error.” Doc. no. 1-1, at
16. On May 2, 2016, the plaintiffs received a second letter
from Wells Fargo, which indicated that the balloon payment was
being added under the language in the modification agreement
quoted above.
Both letters made reference to an April 30, 2010 telephone
conversation between Gregory McNutt and a Wells Fargo
representative. The letters suggest that this representative
indicated during this conversation that there would be an
interest-accruing balloon payment due and payable as of the
maturity date. This telephone conversation never occurred.
The plaintiffs have made every payment under the
modification agreement in full and on time. They bring this
4 action alleging violations of state and federal law.
Discussion
The plaintiffs’ amended complaint is comprised of seven
counts. Count I is captioned “Equitable Considerations.” Count
II alleges fraud in the inducement. Count III alleges breach of
the covenant of good faith and fair dealing. Counts IV and V
respectively allege state-law negligent misrepresentation and
negligence (“state tort claims”). Count VI alleges violations
of the New Hampshire Consumer Protection Act (“CPA”), N.H. Rev.
Stat. Ann. § 358-A. Finally, Count VII alleges violations of
the Real Estate Settlement Procedure Act (“RESPA”), 12 U.S.C. §
2605(k).
Wells Fargo moves to dismiss the amended complaint in its
entirety. The plaintiffs concede that Wells Fargo is exempt
from the CPA and seek to voluntarily dismiss Count VI. This
request is granted and Count VI is dismissed with prejudice.3
3 As the conditions of Rule 41(a)(1) are not met here, voluntary dismissal can only be entered by court order. See Fed. R. Civ. P. 41(a)(2). Under such circumstances, a trial court has discretion to determine whether dismissal should occur with or without prejudice. See id.; see also Doe v. Urohealth Sys., Inc., 216 F.3d 157, 160–61 (1st Cir. 2000). Here, the plaintiffs concede that Count VI is not viable on its merits. Thus, dismissal with prejudice is appropriate.
5 The plaintiffs otherwise object to Wells Fargo’s motion.4
I. Equitable Considerations
The court turns first to the plaintiffs’ claim for
“equitable considerations.” In their amended complaint, the
plaintiffs generally allege that Wells Fargo acted inequitably,
stating that Wells Fargo’s actions are “unconscionable” and that
the plaintiffs “should be allowed to pay their mortgage pursuant
to the document they signed.” Amend. Compl. ¶¶ 20, 26 (doc. no.
7). In their objection to the motion to dismiss, the plaintiffs
contend that this count should survive because it is “included
as a plea . . . for equitable relief even if other causes of
action plead[ed] by the Plaintiffs fail.” Doc. no. 9, at 2.
Neither of these documents identifies a specific claim in equity
that the plaintiffs wish to pursue against Wells Fargo. Indeed,
the plaintiffs have failed to identify any equity theory under
which they might be entitled to relief. The court declines to
construe the plaintiffs’ unspecified requests for “equitable
considerations” as a specific claim in equity.
4 The plaintiffs’ objection makes no mention of their negligence claim. It is thus unclear whether they object to the dismissal of this claim. As this claim is plainly barred by the economic- loss doctrine, however, the court will briefly address it on the merits below.
6 Wells Fargo’s motion to dismiss is accordingly granted as
to Count I.
II. Fraud in the Inducement
The court next considers the plaintiffs’ claim for fraud in
the inducement. Wells Fargo contends that the plaintiffs have
failed to plead this claim with particularly, as required by
Rule 9(b). The plaintiffs argue that they have adequately
pleaded fraud.
“New Hampshire law recognizes that the procuring of a
contract or conveyance by means of fraud . . . is an actionable
tort . . . .” Van Der Stok v. Van Voorhees, 151 N.H. 679, 681
(2005) (internal quotation marks omitted) (citation omitted).
“The party seeking to prove fraud must establish that the other
party made a representation with knowledge of its falsity or
with conscious indifference to its truth with the intention to
cause another to rely upon it.” Id. (internal quotation marks
omitted) (citation omitted). “In addition, the party seeking to
prove fraud must demonstrate justifiable reliance.” Id.
(internal quotation marks omitted) (citation omitted).
Under Rule 9(b), a party alleging fraud “must state with
particularity the circumstances constituting fraud . . . .”
“Rule 9(b) requires not only specifying the false statements and
by whom they were made but also identifying the basis for
7 inferring scienter.” N. Am. Catholic Educ. Programming Found.,
Inc. v. Cardinale, 567 F.3d 8, 13 (1st Cir. 2009); see also
Moore v. Mortg. Elec. Registration Sys., Inc., 848 F. Supp. 2d
107, 130 (D.N.H. 2012) (citation omitted) (“[A] complaint rooted
in fraud must specify the who, what, where, and when of the
allegedly false or fraudulent representations.”). Under
established First Circuit precedent, it is inadequate to
generally aver “the defendant’s ‘knowledge’ of material falsity,
unless the complaint also sets forth specific facts that make it
reasonable to believe that defendant knew that a statement was
materially false or misleading.” Id. This heightened pleading
standard applies to state-law fraud claims asserted in federal
court. Id. (citation omitted).
Here, the plaintiffs have failed to allege fraud in the
inducement with sufficient particularity. Though they generally
allege that they received an e-mail from Wells Fargo indicating
that there would be no balloon payment under the modification,
they fail to identify exactly was stated in this e-mail and by
whom the statement was made. Moreover, they fail to identify
the basis for inferring scienter on the part of Wells Fargo.
The plaintiffs contend that scienter can be inferred by Wells
Fargo’s greater access to information and Wells Fargo’s
reference in the May 2, 2016 letter to a conversation with
8 George McNutt that the plaintiffs contend never occurred. These
facts do not support a plausible inference that Wells Fargo was
either aware that its unspecified statement in the reference e-
mail was false or consciously indifferent to the truth of this
statement. The plaintiffs’ remaining allegations of scienter
are the sort of general averments of knowledge of falsity that
the First Circuit has held to be inadequate.
Thus, the plaintiffs’ fraud in the inducement claim fails
to meet the heightened pleading standard under Rule 9(b). Wells
Fargo’s motion to dismiss is accordingly granted as to Count II.
III. Good Faith and Fair Dealing
Wells Fargo argues that the plaintiffs’ good faith and fair
dealing claim must be dismissed because the loan modification
expressly provides for a balloon payment. The plaintiffs
object, arguing that they have adequately pleaded such a claim
in their amended complaint.
“In every agreement, there is an implied covenant that the
parties will act in good faith and fairly with each other.”
Birch Broad, Inc. v. Capitol Broad. Corp., Inc., 161 N.H. 192,
198, 13 A.3d 224 (2010). The NHSC applies this covenant in
three distinct contexts: (1) contract formation; (2) termination
of at-will employment agreements; and (3) limitations of
9 discretion in contractual performance. J & M Lumber & Const.
Co. v. Smyjunas, 161 N.H. 714, 724 (2011).
The plaintiffs appear to allege two separate breaches of
good faith and fair dealing by Wells Fargo: one in the formation
of the modification agreement when Wells Fargo misrepresented
that there would be no balloon payment under that agreement, and
a second in the performance of the modification agreement when
Wells Fargo informed the plaintiffs for the first time that a
balloon payment in the amount of $109,439.97 would come due as
of the maturity date.
A. Contract Formation
In the context of contract formation, the covenant of good
faith and fair dealing is “tantamount to the traditional duties
of care to refrain from misrepresentation and to correct
subsequently discovered error, insofar as any representation is
intended to induce, and is material to, another party’s decision
to enter into a contract in justifiable reliance upon it.”
Centronics Corp. v. Genicom Corp., 132 N.H. 133, 139 (1989).
Here, the plaintiffs allege that Wells Fargo confirmed by e-mail
that there would be no balloon payment under the loan
modification, and that the plaintiffs relied upon this
representation in entering into the modification agreement.
When assumed true, these allegations set forth a plausible claim
10 for breach of the covenant of good faith and fair dealing by
Wells Fargo in the formation of the modification agreement.
B. Discretion in Contract Performance
When it comes to discretion in contractual performance,
good faith and fair dealing claims are “comparatively narrow.”
Birch, 161 N.H. at 198. The function of this third category of
claims “is 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.”
Id. (internal quotations omitted) (citation omitted). Whether a
party has sufficiently alleged a breach under this category
turns on three 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, 848 F. Supp. 2d at 129; see also
Ahrendt v. Granite Bank, 144 N.H. 308, 313 (1999).
Wells Fargo argues that the loan modification agreement did
not grant it discretion with regards to the balloon payment. In
support of this argument, Wells Fargo points to the language in
the modification agreement stating that the plaintiffs “will pay
those amounts [owed as of the maturity date] in full on the
11 Maturity Date.” See doc. no. 1-1, at 11. This language, with
the use of the imperative “will,” does not confer discretion on
Wells Fargo to determine whether or not to require a balloon
payment in the course of performing the contract. The
modification agreement is notably silent, however, on the amount
of such a balloon payment, how that amount will be calculated,
and when and how the plaintiffs will be informed of that amount.
In the court’s view, this silence creates an ambiguity as to
whether the modification agreement bestowed discretion on Wells
Fargo with respect to these matters. As the parties have not
briefed this issue, and no discovery has taken place, the court
finds that this is a question more appropriately addressed on
summary judgment. The court will accordingly assume for the
purposes of this order that Wells Fargo was conferred discretion
under the modification agreement with respect to these aspects
of the balloon payment.
The court next considers whether Wells Fargo unreasonably
exercised its discretion. The plaintiffs allege that Wells
Fargo first informed the plaintiffs of a balloon payment in the
amount of $109,439.97 five-and-a-half years after the parties
entered into the modification and, in doing so, made reference
to a telephone call between George McNutt and a Wells Fargo
representative that never occurred. These facts, when assumed
12 true, support a plausible conclusion that Wells Fargo acted
unreasonably, and that this caused the damage complained of by
the plaintiffs. Thus, the court concludes that the plaintiffs
have stated a plausible claim under the third category of good
faith and fair dealing.
In sum, the court concludes that the plaintiffs have stated
plausible claims for breach of the covenant of good faith and
fair dealing both with regard to the formation of the
modification agreement and with regard to Wells Fargo’s
discretion in the performance of that agreement. Wells Fargo’s
motion to dismiss is accordingly denied as to Count III.
IV. State-Tort Claims
With regard to the plaintiffs’ state-court claims, Wells
Fargo argues that the plaintiffs’ claims for negligent
misrepresentation and negligence are both barred by the
economic-loss doctrine. Wells Fargo also argues that the
negligence claim fails because Wells Fargo did not owe the
plaintiffs a duty of care. The plaintiffs contend that their
negligent misrepresentation claim falls within a recognized
exception to the economic-loss doctrine. They further no
argument whatsoever with respect to their negligence claim.
Under the economic-loss doctrine, a borrower generally
cannot pursue tort recovery for purely economic damages arising
13 in the context of a contractual relationship with a lender. See
Schaefer v. Indymac Mortg. Servs., 731 F.3d 98, 103 (1st Cir.
2013) (citing Plourde Sand & Gravel Co. v. JGI E., Inc., 154
N.H. 791, 794 (2007)). There are numerous decisions from this
district applying this doctrine to negligence and/or negligent
misrepresentation claims brought by mortgagors against loan
services/lenders related to a mortgage.5 Still, there are
certain limited exceptions to the economic-loss doctrine
recognized under New Hampshire law. See, e.g., Moore, 848 F.
Supp. at 133 (D.N.H. 2012) (citing Wyle v. Lees, 162 N.H. 406,
409–10 (2011)); Plourde, 154 N.H. at 795–96.
The plaintiffs do not plausibly allege in their amended
complaint that one or more of these exceptions applies to their
negligence claim. Moreover, they fail to address their
negligence claim at all in their objection to the motion to
dismiss. As such, the court concludes that this claim is barred
by the economic-loss doctrine.
5 See, for example, Mader v. Wells Fargo Bank, N.A., No. 16-cv- 309-LM, 2017 WL 177619, at *3 (D.N.H. Jan. 17, 2017); Gasparik v. Federal National Mortgage Association, No. 16-cv-147-AJ, 2016 WL 7015672, at *4 (D.N.H. Dec. 1, 2016); Riggieri v. Caliber Home Loans, Inc., No. 16-cv-20-LM, 2016 WL 4133513, at *4-5 (D.N.H. Aug. 3, 2016); Bowser v. MTGLQ Investors, LP, No. 15-cv- 154-LM, 2015 WL 4771337, at *2, 5 (D.N.H. Aug. 11, 2015).
14 The plaintiffs do invoke a recognized exception to the
economic-loss doctrine with respect to their negligent
misrepresentation claim: the aptly named “negligent
misrepresentation” exception. In order to recover under this
exception, the plaintiffs must prove: (1) that Wells Fargo was a
“supplier of information”; (2) that Wells Fargo “supplie[d]
false information for the guidance of others in their business
transactions”; (3) that in supplying this false information,
Wells Fargo “fail[ed] to exercise reasonable care or
competence”; (4) that the plaintiffs justifiably relied on the
false information; and (5) that this justifiable reliance
resulted in pecuniary harm to the plaintiffs. See Plourde, at
799 (quoting Restatement (Second) of Torts § 552(1)); see also
Schaefer, 731 F.3d at 108–109. This exception “is narrower than
the traditional tort claim” for negligent misrepresentation.
Plourde, 153 N.H. at 799.
The plaintiffs allege that prior to entering into the
modification agreement, Wells Fargo confirmed by e-mail that
there would be no balloon payment under the loan modification.
The plaintiffs allege that they entered into the modification
agreement relying on this representation. The plaintiffs
further allege that Wells Fargo informed them for the first time
five-and-a-half years later that a balloon of $109,439.97 would
15 be due and owing as of the maturity date. When assumed true,
these allegations arguably satisfy the second, third, fourth,
and fifth elements of the negligent misrepresentation exception.
It is less clear whether Wells Fargo is a “supplier of
information” as contemplated by this exception. The NHSC has
never explicitly determined what constitutes a “supplier of
information,” and courts from other jurisdictions are split on
whether this exception applies solely to “professional suppliers
of information” (such as accountants, appraisers, and investment
brokers) or more broadly to “parties who profit by supplying
information.” Schaefer, 731 F.3d at 108 (internal quotations
and citations omitted) (discussing this split in authority).6
For its part, the First Circuit has expressed skepticism as to
whether this exception extends to representations made by
mortgage lenders or servicers. See id. at 108–09. And at least
two opinions from this district have explicitly held that loan
servicers are not “suppliers of information” such that this
exception applies. Mader, 2017 WL 177619, at *3; Riggieri, 2016
WL 4133513, at *5.
6 Though the New Hampshire Supreme Court has applied the negligent misrepresentation exception to defendants who were not strictly professional suppliers of information, it has only done so in limited circumstances and never in the present context. See Schaefer, 731 F.3d at 108 (citing Wyle, 162 N.H. at 408–12).
16 In the absence of any NHSC authority to the contrary, these
federal decisions have significant persuasive value which the
court is inclined to follow. Nevertheless, the court declines
to rule now, as a matter of law, that Wells Fargo is not a
“supplier of information.” Instead, the court will allow the
parties to brief this issue at the summary judgment stage.
Wells Fargo’s motion is accordingly denied as to the plaintiffs’
negligent misrepresentation claim without prejudice to Wells
Fargo re-raising the economic-loss doctrine as a defense in a
motion for summary judgment.
In sum, Wells Fargo’s motion to dismiss is denied without
prejudice as to Count IV and granted as to Count V.
V. RESPA
Finally, the court considers the plaintiffs’ claim under
RESPA, 12 U.S.C. § 2605(k). Wells Fargo contends that this
claim fails because the plaintiffs have not adequately alleged
that they made any requests to correct errors to their account.
The plaintiffs object, arguing that they have pleaded “that they
e-mailed [Wells Fargo] to confirm there was no balloon payment”
and that Wells Fargo “failed to remedy this error in response to
this request . . . .” Doc. no. 10, at 6. Wells Fargo has
replied to this specific objection, contending that even
assuming this e-mail was sent, there are no allegations that
17 this e-mail contained a “notice of error” as required by RESPA.
Doc. no. 14.
Under RESPA, the servicer of a mortgage “shall not fail to
take timely action to respond to a borrower’s requests to
correct errors relating to . . . avoiding foreclosure . . . .”
12 U.S.C. § 2605(k)(1)(C); see also 12 C.F.R. § 1024.35(a) (“A
servicer shall comply with the requirements of this section for
any written notice from the borrower that asserts an
error . . . .”) (emphasis added). Here, the plaintiffs allege
that Wells Fargo confirmed to them by e-mail that there would be
no balloon payment under the modification agreement. The
plaintiffs have not alleged that this was in response to any
request to correct an error made by the plaintiffs. Nor is
there any independent allegation in the complaint that the
plaintiffs ever made such a request. Thus, the plaintiffs have
not stated a claim under § 2605(k)(1)(C).
Accordingly, Wells Fargo’s motion to dismiss is granted as
to Count VII.
Conclusion
Wells Fargo’s motion to dismiss (doc. no. 9) is granted as
to Counts I, II, V, and VII. It is denied as to Counts III and
18 IV. Count VI is voluntarily dismissed with prejudice.
SO ORDERED.
__________________________ Andrea K. Johnstone United States Magistrate Judge
April 5, 2017
cc: Keith A. Mathews, Esq. Christopher J. Valente, Esq.