Case 1:18-cv-00911-SM Document 18 Filed 02/14/19 Page 1 of 20
UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Robert and Debra Carideo, Plaintiffs
v. Case No. 18-cv-911-SM Opinion No. 2019 DNH 025 PennyMac Loan Services, LLC, Defendant
O R D E R
In January of 2018, defendant, PennyMac Loan Services, LLC
(“PennyMac”) foreclosed the mortgage deed to plaintiffs’ home.
Seven months later, plaintiffs, Robert and Debra Carideo,
brought this action seeking to recover for various injuries and
harms they say PennyMac inflicted upon them. PennyMac moves the
court to dismiss all claims advanced against it, asserting that
none states a viable cause of action. For the reasons given,
that motion is granted in part and denied in part.
Standard of Review
When ruling on a motion to dismiss under Fed. R. Civ. P.
12(b)(6), the court must “accept as true all well-pleaded facts
set out in the complaint and indulge all reasonable inferences
in favor of the pleader.” SEC v. Tambone, 597 F.3d 436, 441
(1st Cir. 2010). Although the complaint need only contain “a Case 1:18-cv-00911-SM Document 18 Filed 02/14/19 Page 2 of 20
short and plain statement of the claim showing that the pleader
is entitled to relief,” Fed. R. Civ. P. 8(a)(2), it must allege
each of the essential elements of a viable cause of action and
“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 (2009) (citation and internal
punctuation omitted).
In other words, “a plaintiff’s obligation to provide the
‘grounds’ of his ‘entitlement to relief’ requires more than
labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). Instead, the facts alleged
in the complaint must, if credited as true, be sufficient to
“nudge[] [plaintiff’s] claims across the line from conceivable
to plausible.” Id. at 570. If, however, the “factual
allegations in the complaint are too meager, vague, or
conclusory to remove the possibility of relief from the realm of
mere conjecture, the complaint is open to dismissal.” Tambone,
597 F.3d at 442.
Background
The pertinent facts, as stated in plaintiffs’ amended
complaint and as they appear in recorded, publicly-available
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documents, are largely undisputed. In April of 2012, plaintiffs
obtained a loan in the principal amount of $192,632. As
security for that loan, they conveyed a first mortgage deed to
Mortgage Electronic Registration Systems, Inc., as nominee for
the lender, Alpine Mortgage, LLC. That mortgage deed was duly
recorded in the Hillsborough County Registry of Deeds. Three
years later, in May of 2015, that mortgage was assigned to
PennyMac. The assignment was also duly recorded in the registry
of deeds.
After plaintiffs defaulted on the promissory note, PennyMac
instituted foreclosure proceedings. Plaintiffs did not seek to
enjoin those proceedings. See generally N.H. Rev. Stat. Ann.
(“RSA”) 479:25, II(c). On January 11, 2018, PennyMac (through a
licensed auctioneer) conducted a foreclosure sale, at which
PennyMac was the high bidder. It purchased the property for
$197,019.70 and recorded the foreclosure deed in the registry of
deeds. At the time, the town of Pelham, New Hampshire, assessed
the value of the property at $269,000. Amended Complaint at
para. 19. Thus, the sale price at the foreclosure auction was
approximately 73 percent of assessed value.1
1 Plaintiffs assert, without factual support, that they believe the property might have been worth as much as $300,000.
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Seven months after the foreclosure sale, plaintiffs
instituted this action in state court. Defendant removed the
proceeding to this forum, invoking the court’s diversity
jurisdiction. See 28 U.S.C. §§ 1441 and 1446. See also 28
U.S.C. § 1332.
The parties engaged in informal settlement discussions,
during which former counsel to PennyMac agreed that his client
would review plaintiffs’ application for a “post-foreclosure
loan modification.” Plaintiffs completed and submitted such an
application. Approximately two weeks later, however, current
counsel for PennyMac informed plaintiffs that, “we have
discussed your proposal with our client, but they are not
inclined to review the Plaintiffs for a loan mod post-
foreclosure.” After it became clear that settlement was
unlikely, plaintiffs filed an Amended Complaint. In turn,
PennyMac filed the pending motion to dismiss.
Discussion
As a preliminary matter, the court notes that Plaintiffs’
Amended Complaint contains a count captioned “Fraud, Conversion,
Theft by Deception, Civil RICO,” in which they advance claims
against several individuals and one limited liability company
(the “California Entities”). But, plaintiffs acknowledge that
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they never attempted to serve any of those individuals or the
corporation. See Suggestion of Bankruptcy (document no. 17)
(“[I]t would not make economic sense for the beleaguered
plaintiffs in this case to spend additional money attempting to
serve [the California Entities].”). Plaintiffs have also
informed the court that the California Entities have filed for
bankruptcy protection, in a proceeding currently pending in the
Central District of California. Those parties were never
properly joined as defendants in this proceeding and, should
plaintiffs wish to pursue any claims against them, plaintiffs
must, of course, first seek leave of the bankruptcy court and
obtain relief from the automatic stay in that case. Because the
California Entities were never properly served, all claims
against them are dismissed without prejudice.2
As for PennyMac, plaintiffs’ Amended Complaint (document
no. 9), advances six state common law causes of action. The
court will address each in turn.
2 Although the record is unclear, it seems that the California Entities operated some type of business purporting to assist homeowners who had defaulted on their mortgage loans. Plaintiffs apparently enlisted their services (and paid them a fairly substantial amount of money). Ultimately, however, the California Entities provided no useful assistance to plaintiffs, who now claim they were victims of a fraudulent scheme.
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I. Count 1 - “Plea of Title”
Plaintiffs’ first claim is that PennyMac lacked the legal
authority to foreclose the mortgage. Plaintiffs’ reasoning is,
however, somewhat confusing. They claim that more than three
months after the foreclosure sale occurred, they “received
paperwork [from one of the California Entities] indicating that
the Mortgage was Assigned and [the] Note was and [sic] endorsed
over to West H&A and no longer held by the Defendant PennyMac.”
Amended Complaint at para. 29. See also Exhibit C to Amended
Complaint, “Assignment of Mortgage” (document no. 9-3)
(purporting to have been executed on March 19, 2018 - well after
the foreclosure sale). Perhaps not surprisingly, however, the
Amended Complaint fails to describe how a mortgage assignment,
prepared (but never recorded) after the foreclosure sale, could
have affected PennyMac’s authority to foreclose the mortgage
deed. Moreover, plaintiffs appear to acknowledge that the
untimely mortgage assignment was prepared without lawful
authority as part of the fraud scheme to which they say they
fell victim (as discussed in their claims against the California
entities). See, e.g., Amended Complaint at para. 73 (“The
[California Entities] lied to the Carideos, took their money,
took their mortgage payments, gave them false hope, false
promises, and also, although it remains to be proved, it appears
that they also provided fraudulent mortgage and note documents
6 Case 1:18-cv-00911-SM Document 18 Filed 02/14/19 Page 7 of 20
and caused the Carideos’ home to be taken by PennyMac.”)
(emphasis supplied).
As PennyMac points out: (1) the documents of record make
clear that PennyMac was the lawful holder of the mortgage deed
to plaintiffs’ home when it conducted the foreclosure sale; and
(2) a post-foreclosure, fraudulent effort to transfer that
mortgage deed (or the promissory note it secured) to a third
party is of no legal moment in this case.
Moreover, because plaintiffs failed to exercise their
statutory right to seek to enjoin the foreclosure sale before it
occurred, they are now barred from challenging PennyMac’s legal
authority to conduct that foreclosure. See RSA 479:25, II
(failure to institute a pre-foreclosure petition to enjoin the
foreclosure sale “shall thereafter bar any action or right of
action of the mortgagor based on the validity of the
foreclosure.”). See also Bank of N.Y. Mellon v. Dowgiert, 169
N.H. 200, 205 (2016) (failure of mortgagor to seek pre-
foreclosure injunction under RSA 479:25, II bars subsequent
challenge to mortgagee’s authority to foreclose the mortgage
deed); Brown v. Wells Fargo Home Mortg., 2016 DNH 102, 2016 WL
3440591, at *3 (D.N.H. June 20, 2016) (“Because the Browns did
not petition to enjoin the foreclosure sale before it occurred,
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to the extent that any of their claims challenge the
foreclosure’s validity and that they seek to have the sale
undone, the Browns are barred from doing so.”) (footnote
omitted).
Count 1 of plaintiffs’ amended complaint fails to state a
viable cause of action and must, therefore, be dismissed.
II. Count 2 - “Promissory or Equitable Estoppel”
The claim advanced in count two of plaintiffs’ amended
complaint is somewhat atypical. In it, plaintiffs assert that
during settlement negotiations aimed at resolving this
litigation, PennyMac’s legal counsel represented that PennyMac
was “willing to review” plaintiffs’ application for a loan
modification. Amended Complaint at para. 36. See also Exhibit
B to Amended Complaint (document no. 9-2), E-mail from
PennyMac’s former counsel, dated September 18, 2018.
Approximately ten days later, however, PennyMac’s counsel
informed plaintiffs that “We discussed your proposal with our
client, but they are not inclined to review the Plaintiffs for a
loan mod post-foreclosure.” E-mail dated October 8, 2018
(document no. 12-6). Shortly thereafter, settlement
negotiations broke down and plaintiffs amended their complaint
to include this claim based upon PennyMac’s representation that
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it was “willing to review” plaintiffs’ settlement proposal -
that is, that the parties modify the underlying loan on which
plaintiffs had defaulted.3
Despite the caption to count two - “Promissory or Equitable
Estoppel” - plaintiffs advance only a claim for the former.
Apparently recognizing that the facts of this case do not
support a claim for “equitable estoppel,” they no longer press
that claim and do not object to its dismissal. See generally
Great Lakes Aircraft Co. v. City of Claremont, 135 N.H. 270,
290, 608 A.2d 840, 853 (1992) (discussing the distinction
between equitable estoppel and promissory estoppel).
In support of their promissory estoppel claim, plaintiffs
assert that they detrimentally relied upon PennyMac’s
representation that, in an effort to settle this litigation, it
was “willing to review” their proposal (and application) to
modify their loan post-foreclosure. As evidence of their
3 At this preliminary stage of the litigation, the record is, not surprisingly, sparse. But, the amount PennyMac paid at the foreclosure sale - $197,019.70 - suggests that it bid the entire amount then outstanding on plaintiffs’ loan. Indeed, plaintiffs themselves refer to that amount as the “alleged deficiency” on the loan. Amended Complaint at para. 19. It is, therefore, unclear what a “post-foreclosure loan modification” would involve, since the foreclosure sale appears to have extinguished plaintiffs’ loan obligations and there is no deficiency amount still owed.
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detrimental reliance, plaintiffs say they “maintained this
lawsuit [which they initiated], and incurred significant
expense, as well as delayed or forewent other actions, in
reliance on that promise.” Amended Complaint at para. 38. They
assert that “PennyMac must be estopped from breaching that
promise, or representation, and should review the Carideos for
loan modification as they say they would.” Id. at para. 42.
In their opposition to PennyMac’s motion to dismiss,
plaintiffs expound upon that claim, and the factual claims
supporting it, as follows:
Plaintiff’s claim for Promissory Estoppel has merit. PennyMac’s lawyer represented that they “are willing to review” the Carideo’s for modification. Then, [legal counsel] apparently convinced their client otherwise, and breached that promise. It is not only impolite and unreasonable, but also illegal under the law - a promise was made, and relied upon by the Carideos who have now been severely harmed by this ongoing litigation maintained by PennyMac’s successor counsel depriving all parties from any reasonable resolution. Thus, they should be estopped and directed to review the Carideos for modification in good faith on financial terms which appear to leave them qualified.
The promise was both definite and certain - they are willing to review - and the Carideos foreseeably and reasonabl[y] relied on that as any beleaguered homeowner would.
To the extent that there is any question as to those facts, they must be resolved in favor of the Plaintiffs at this nascent Motion to Dismiss stage.
10 Case 1:18-cv-00911-SM Document 18 Filed 02/14/19 Page 11 of 20
Objection to Motion to Dismiss (document no. 13) at 3-4
(emphasis supplied). In short, plaintiffs seem to allege that
PennyMac broke its promise - on which they justifiably relied to
their detriment - that it would (or was willing to) consider
plaintiffs’ proposed settlement offer.
New Hampshire common law provides that, under the doctrine
of promissory estoppel, “a promise reasonably understood as
intended to induce action is enforceable by one who relies upon
it to his detriment or to the benefit of the promisor.” Panto
v. Moore Bus. Forms, Inc., 130 N.H. 730, 738 (1988) (citing
Restatement (Second) of Contracts § 90 (1981)). See also Great
Lakes Aircraft, 135 N.H. at 290 (noting that, in the absence of
an express agreement, the doctrine of promissory estoppel
“serves to impute contractual stature based upon an underlying
promise, and to provide a remedy to the party who detrimentally
relies on the promise.”).
Count 2 of plaintiffs’ amended complaint fails to set forth
the elements of a plausible and viable claim for promissory
estoppel. Among other things, it fails to allege that
plaintiffs reasonably relied to their detriment in any
meaningful way upon the settlement proposal that PennyMac
offered: to consider plaintiffs for a post-foreclosure loan
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modification. See generally Bowser v. MTGLQ Inv'rs, LP, 2015
DNH 149, 2015 WL 4771337, at *3 (D.N.H. Aug. 11, 2015) (“The
court cannot reasonably infer that the [plaintiffs] could have
avoided foreclosure or would have “been better off in any way,
but for their reliance on [their loan servicer’s] supposed
promise to consider them for a loan modification.”) (quoting
MacKenzie v. Flagstar Bank, FSB, 738 F.3d 486, 497 (1st Cri.
2013) (applying Massachusetts law)). See also Ruivo v. Wells
Fargo Bank, N.A., 2012 DNH 191, 2012 WL 5845452, at *5 (D.N.H.
Nov. 19, 2012).
Moreover, the record suggests that PennyMac did “consider,”
but rejected, plaintiffs’ settlement proposal that PennyMac re-
work the loan on terms plaintiffs could afford. See E-mail from
PennyMac’s Legal Counsel dated October 8, 2018 (document no. 12-
6) (noting that counsel discussed plaintiffs’ settlement
proposal with PennyMac, but PennyMac determined that it was not
willing to re-work the terms of plaintiffs’ loan). And, of
course, PennyMac was under no legal obligation to settle this
litigation simply because plaintiffs believed they had offered a
resolution that was fair, just, and equitable. See Plaintiffs’
Memorandum in Opposition (document no. 13) at 1 (despite knowing
that plaintiffs had been “defrauded by a sophisticated
nationwide mortgage scheme . . . and with the knowledge that
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their own agent had authorized a resolution which could have
made everyone whole by way of modification - successor counsel
instead presses forward with this defense blindly pursuing what
may be his legal prerogative, but to their client’s detriment,
to the homeowners’ detriment, to the Investors on the
Note/Mortgage’s detriment.”).
Count 2 of plaintiffs’ amended complaint fails to state a
viable claim for either equitable estoppel or promissory
estoppel and must be dismissed.
III. Breach of Fiduciary Duty
Next, plaintiffs assert that PennyMac breached the
fiduciary duty of due diligence it owed to plaintiffs by
conducting a commercially unreasonable foreclosure sale, at
which it obtained an unreasonably low purchase price.
Specifically, they allege that PennyMac: failed to adequately
establish a pre-foreclosure reserve or “strike” price (it is
unclear whether PennyMac had an appraisal of the property);
neglected to adequately advertise the foreclosure auction and/or
the fact that the initial auction was postponed; conducted a
“deficient” auction; and, finally, sold their home at auction
for an unreasonably low price which deprived them of (what they
claim was) approximately $100,000 of equity in the home.
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Crediting those allegations as true - as the court must at this
stage - they are sufficient (if barely) to state a viable claim
that PennyMac failed to conduct the foreclosure auction in
accordance with its fiduciary obligation to act with due
diligence. See generally Murphy v. Financial Dev. Corp., 126
N.H. 536, 540 (1985) (“[A] mortgagee executing a power of sale
is bound both by the statutory procedural requirements and by a
duty to protect the interests of the mortgagor through the
exercise of good faith and due diligence.”).4
Parenthetically, the court notes that plaintiffs do not
advance any claim that PennyMac breached its fiduciary duty of
good faith. And, it probably bears noting (just so all parties
are clear on the precise contours of what is being alleged) that
the factual allegations of the amended complaint would not
support a claim that PennyMac breached its duty of good faith.
See generally People’s United Bank v. Mountain Home Developers,
858 F. Supp. 2d 162 (D.N.H. 2012) (concluding that while
4 PennyMac disputes plaintiffs’ assertions and says the auction was conducted in strict compliance with the terms of the mortgage and all relevant New Hampshire laws governing foreclosure sales, including the obligations borne by foreclosing entities when a previously scheduled foreclosure is postponed. It also disputes plaintiffs’ assertion that the property had a fair market value of at least $300,000. Those, however, are issues more appropriately resolved on summary judgment.
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plaintiffs stated a viable claim for breach of the duty of due
diligence, they failed to state a claim for breach of the duty
of good faith). See also Murphy, 126 N.H. at 541-42 (“We first
note that the duties of good faith and due diligence are
distinct. One may be observed and not the other, and any
inquiry as to their breach calls for a separate consideration of
each. In order to constitute bad faith there must be an
intentional disregard of duty or a purpose to injure.”)
(citation and internal punctuation omitted).
IV. Count 4 - Unjust Enrichment
Next, plaintiffs assert that PennyMac has been unjustly
enriched by failing to obtain an adequate sale price for
plaintiffs’ home, acquiring title for itself at the foreclosure
sale, and (at least potentially) retaining the ability to sell
the home to a third party at a “significant profit.” Amended
Complaint at para. 57. As the New Hampshire Supreme Court has
observed,
Unjust enrichment is an equitable remedy that is available when an individual receives a benefit which would be unconscionable for him to retain. It is not a boundless doctrine, but is, instead, narrower, more predictable, and more objectively determined than the implications of the words unjust enrichment. One general limitation is that unjust enrichment may not supplant the terms of an agreement. It is a well- established principle that the court cannot allow recovery under a theory of unjust enrichment when
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there is a valid, express contract covering the subject matter at hand. This is so because restitution is subordinate to contract as an organizing principle of private relationships, and the terms of an enforceable agreement normally displace any claim of unjust enrichment within their reach.
Axenics, Inc. v. Turner Constr. Co., 164 N.H. 659, 669–70 (2013)
(citations and internal punctuation omitted) (emphasis in
original).
To the extent plaintiffs have any viable claim for unjust
enrichment, it is entirely derivative of their breach of
fiduciary duty claim. That is, plaintiffs can only prevail if
they first demonstrate that PennyMac violated the fiduciary
duties imposed upon mortgagees by the New Hampshire Supreme
Court in Murphy. Nevertheless, at this preliminary stage of the
litigation, the court is inclined to allow plaintiffs to proceed
with their unjust enrichment claim. See generally Riggieri v.
Caliber Home Loans, Inc., 2016 DNH 128, 2016 WL 4133513, at *9
(D.N.H. Aug. 3, 2016) (suggesting that under limited
circumstances “a claim for unjust enrichment may be viable,
despite the mortgage agreement, if the defendant obtained title
to the property based on impropriety or misconduct in the
foreclosure proceeding.”). Whether PennyMac engaged in
impropriety or misconduct in the foreclosure proceeding can
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likely be resolved on a more complete record, at summary
judgment.
V. Remaining Claims.
Plaintiffs two remaining claims - negligence (count 5) and
breach of the covenant of good faith and fair dealing (count 6)
- require little discussion. Neither states a viable claim for
relief.
Plaintiffs negligence claim is based upon their assertion
that PennyMac was “negligent” insofar as it failed to give
adequate public notice of its decision to postpone the
originally-scheduled foreclosure sale and failed to sell the
property at a commercially reasonable price. Those duties are
imposed by the New Hampshire Supreme Court’s opinion in Murphy,
New Hampshire statutory law governing foreclosure sales, and,
perhaps, the terms of the mortgage deed itself. See Murphy, 126
N.H. at 540. Plaintiffs have properly pled a breach of
fiduciary duty claim. They do not, however, have an independent
common law claim that, by violating those statutory and/or
fiduciary duties, PennyMac was also negligent.
But, say plaintiffs, PennyMac also breached a duty to
“detect and alert the Carideos to the apparent mortgage fraud of
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[the California Entities].” Amended Complaint at para. 61.
Simply stated, PennyMac had no such duty - whether at common
law, under New Hampshire statutory law, the terms of the
mortgage, or the holding in Murphy. Under the circumstances
pled, plaintiffs have no negligence claim against PennyMac and,
therefore, that count must be dismissed.
Finally, plaintiffs assert that PennyMac violated the
covenant of good faith and fair dealing that is implicit in all
New Hampshire contracts. Specifically, they assert that
PennyMac’s “actions have been patently inconsistent with
fairness, decency and reasonableness.” Amended Complaint at
para. 66. Moreover, say plaintiffs, PennyMac violated that
covenant “by their failure to work with the Plaintiffs and to
obtain an adequate price at auction.” Id. at para. 67. This
court has previously addressed, and rejected, such claims under
similar circumstances. See, e.g., People’s United Bank, 858 F.
Supp. 2d at 169 (discussing conduct that qualifies as a
violation of the duty of good faith). See generally McCarthy v.
WPB Partners, LLC, 2017 DNH 222, 2017 WL 4675742, at *7 (D.N.H.
Oct. 16, 2017); Sharp v. Deutsche Bank Nat. Tr. Co., 2015 DNH
155, 2015 WL 4771291, at *8 (D.N.H. Aug. 11, 2015); Ruivo, 2012
WL 5845452, at *3–4.
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Plaintiffs’ claim that PennyMac violated the covenant of
good faith and fair dealing fails to state a viable claim for
relief and must be dismissed.
Conclusion
For the foregoing reasons, as well as those set forth in
defendant’s legal memoranda, defendant’s motion to dismiss
(document no. 12) is granted in part and denied in part.
Plaintiffs’ claims of “Plea of Title” (count 1),
“Promissory or Equitable Estoppel” (count 2), Negligence (count
5), and Breach of the Covenant of Good Faith and Fair Dealing
(count 6) are all dismissed for failure to state a viable claim
for relief. And, because the California Entities were never
properly served and joined as defendants in this proceeding,
plaintiffs’ claim of “Fraud, Conversion, Theft by Deception,
Civil RICO” (erroneously captioned as count 8) is dismissed
without prejudice.
What remain, then, are plaintiffs’ claims of Breach of the
Fiduciary Duty of Due Diligence (count 3) and, at least
tentatively, Unjust Enrichment (count 4).
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SO ORDERED.
____________________________ Steven J. McAuliffe United States District Judge
February 14, 2019
cc: John F. Skinner, III, Esq. Michael Joseph Reed, Esq. Kevin P. Polansky, Esq.