Thompson v. JPMorgan Chase Bank, N.A.

982 F.3d 809

• Court: Court of Appeals for the First Circuit
• Decided: December 9, 2020
• Docket: 18-1559P2
• Status: Published

Opinion

United States Court of Appeals For the First Circuit

No. 18-1559

MARK R. THOMPSON; BETH A. THOMPSON,

Plaintiffs, Appellants,

v.

JPMORGAN CHASE BANK, N.A.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Rya W. Zobel, U.S. District Judge]

Before

Thompson, Boudin, and Kayatta, Circuit Judges.

Todd S. Dion on brief for appellants. Juan S. Lopez, Jeffrey D. Adams, and Parker Ibrahim & Berg LLP on brief for appellee.

December 9, 2020 BOUDIN, Circuit Judge. Mark and Beth Thompson sued

JPMorgan Chase Bank ("Chase") for breach of contract and for

violating the statutory power of sale Massachusetts affords

mortgagees. Mass. Gen. Laws ch. 183, § 21. The Thompsons alleged

Chase failed to comply with the notice requirements in their

mortgage before foreclosing on their property. The district court

granted Chase's motion to dismiss for failure to state a claim.

On June 13, 2006, the Thompsons granted a mortgage to

Washington Mutual Bank on their house to secure a loan in the

amount of $322,500. The mortgage included two paragraphs, both

standard mortgage provisions in Massachusetts, relevant to this

appeal.

First, paragraph 22 required that prior to accelerating

payment by the Thompsons, Washington Mutual had to provide the

Thompsons notice specifying:

(a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument and sale of the Property.

In addition, paragraph 22 required Washington Mutual to inform the

Thompsons of "the right to reinstate after acceleration and the

right to bring a court action to assert the non-existence of a

default or any other defense of Borrower to acceleration and sale."

- 2 - Second, paragraph 19 described the Thompsons' right to

reinstate after acceleration, including conditions and time

limitations related to that right.

If Borrower meets certain conditions, Borrower shall have the right to have enforcement of this Security Instrument discontinued at any time prior to the earliest of: (a) five days before the sale of the Property pursuant to any power of sale contained in this Security Instrument; (b) such other period as Applicable Law might specify for the termination of Borrower's right to reinstate; or (c) entry of judgment enforcing this Security Instrument. Those conditions are that Borrower: (a) pays Lender all sums which then would be due under this Security Instrument and the Note as if no acceleration had occurred; (b) cures any default of any other covenants or agreements; (c) pays all expenses incurred in enforcing this Security Instrument, including, but not limited to, reasonable attorneys' fees, property inspection and valuation fees, and other fees incurred for the purpose of protecting Lender's interest in the Property and rights under this Security Instrument; and (d) takes such action as Lender may reasonably require to assure that Lender's interest in the Property and rights under this Security Instrument, and Borrower's obligation to pay the sums secured by this Security Instrument, shall continue unchanged.

In 2008, after the United States Office of Thrift

Supervision seized Washington Mutual Bank and placed it in

receivership with the Federal Deposit Insurance Corporation

("FDIC"), FDIC sold the banking subsidiaries to Chase, which became

the mortgagee on the Thompsons' mortgage.

- 3 - On August 12, 2016, Chase sent default and acceleration

notices to the Thompsons. The notices informed the Thompsons that

(1) their mortgage loan was in default; (2) tendering the past-

due amount of $200,056.60 would cure the default; (3) the default

must be cured by November 10, 2016; and (4) if the Thompsons failed

"to cure the default on or before 11/10/2016, Chase [could]

accelerate the maturity of the Loan, . . . declare all sums secured

by the Security Instrument immediately due and payable, commence

foreclosure proceedings, and sell the Property."

The notices explained to the Thompsons that they had

"the right to reinstate after acceleration of the Loan and the

right to bring a court action to assert the nonexistence of a

default, or any other defense to acceleration, foreclosure, and

sale." The notices also said the Thompsons could "still avoid

foreclosure by paying the total past-due amount before a

foreclosure sale takes place."

On November 15, 2017, after the Thompsons failed to cure

the default, Chase foreclosed on the property and conducted a

foreclosure sale. On December 15, 2017, the Thompsons filed a

complaint in Plymouth County Superior Court, alleging Chase failed

to comply with the paragraph 22 notice requirements prior to

foreclosing on their property. On January 23, 2018, Chase removed

the suit to the District Court for the District of Massachusetts.

- 4 - Chase then filed a motion to dismiss for failure to state

a claim. After opposition and reply, the district court concluded

that Chase's default and acceleration notice strictly complied

with paragraph 22, including advising the Thompsons of their post-

acceleration reinstatement right, and granted Chase's motion to

dismiss. The Thompsons now appeal. They argue that the default

letter failed to comply strictly with paragraph 22 because the

letter did not inform the Thompsons of the conditions and time

limitations included in their post-acceleration reinstatement

right as described in paragraph 19. They also claim that the

portion of the notice that specified that the Thompsons could

"still avoid foreclosure by paying the total past-due amount before

a foreclosure sale takes place" was inaccurate and misleading,

though they do not say that their conduct was in any way altered.

A district court's dismissal for failure to state a claim

is reviewed de novo, Galvin v. U.S. Bank, N.A., 852 F.3d 146, 153

(1st Cir. 2017), taking all factual assertions in a complaint as

true and drawing all reasonable inferences in the plaintiffs'

favor; but this does not include legal conclusions clothed as

factual allegations, Bell Atlantic Corp. v. Twombly, 550 U.S. 544,

555–56 (2007). To survive a motion to dismiss, the claim must be

"plausible." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

In Massachusetts, upon default in the performance of a

mortgage, a mortgagee may sell the mortgaged property using the

- 5 - statutory power of sale, so long as the mortgage itself gives the

mortgagee the statutory power by reference. Mass. Gen. Laws ch.

183, § 21. Section 21 requires that, prior to conducting a

foreclosure sale, a mortgagee must "first comply[] with the terms

of the mortgage and with the statutes relating to the foreclosure

of mortgages by the exercise of a power of sale." Id.

Because Massachusetts does not require a mortgagee to

obtain a judicial judgment approving foreclosure of a mortgaged

property, see U.S. Bank Nat'l Ass'n v. Ibanez, 941 N.E.2d 40, 49

(Mass. 2011), Massachusetts courts require mortgagees to comply

strictly with two types of mortgage terms: (1) terms "directly

concerned with the foreclosure sale authorized by the power of

sale in the mortgage" and (2) terms "prescribing actions the

mortgagee must take in connection with the foreclosure sale--

whether before or after the sale takes place," Pinti v. Emigrant

Mortg. Co., 33 N.E.3d 1213, 1220–21 (Mass. 2015).

The mortgage terms for which Massachusetts courts demand

strict compliance include the provisions in paragraph 22 requiring

and prescribing the pre-foreclosure default notice. Id. at 1221.

By its terms, paragraph 22 required Chase to "inform [the

Thompsons] of the right to reinstate after acceleration."

Mirroring this language, the notice explained to the Thompsons

that they had "the right to reinstate after acceleration of the

Loan."

- 6 - The Thompsons argue that because paragraph 19 includes

conditions and time limitations on the Thompsons' post-

acceleration reinstatement right, Chase failed to comply strictly

with paragraph 22's notice requirement by failing to inform the

Thompsons of those conditions and limitations. But even if

paragraph 19's limits governed here,1 paragraph 22 instructs that

Chase inform the Thompsons of their substantive right to reinstate;

it does not require that Chase describe in detail the procedure

that the Thompsons must follow to exercise the right or the

deadlines associated with the right. And paragraph 19 does not,

on its own, impose any notice requirements on Chase.

However, Massachusetts law requires that the paragraph

22 notice given to the mortgagor be accurate and not deceptive--

note the possible difference between the two concepts--and the

Supreme Judicial Court has made clear that inaccuracy or deceptive

character can be fatal. In Pinti, the mortgagee's notice said

that the mortgagors "have the right to assert in any lawsuit for

foreclosure and sale the nonexistence of a default." Pinti, 33

N.E.3d at 1222 (emphasis omitted). This, the Pinti court reasoned,

1 The Massachusetts Supreme Judicial Court ("SJC") tells us they do not, to the extent they conflict with applicable state law. Thompson v. JPMorgan Chase Bank, N.A., No. SJC-12798, 2020 WL 6931852, at *1 (Mass. Nov. 25, 2020).

- 7 - could mislead mortgagors into thinking that they could await a

lawsuit by the mortgagee before attacking the foreclosure. Id.

This court, applying Pinti, held that the paragraph 22

notice the Thompsons received was potentially deceptive and the

foreclosure sale was therefore void. Thompson v. JPMorgan Chase

Bank, N.A., 915 F.3d 801, 805 (1st Cir.), opinion withdrawn, 931

F.3d 109 (1st Cir. 2019). Because the notice said the Thompsons

could "still avoid foreclosure by paying the total past-due amount

before a foreclosure sale takes place," but did not say that under

paragraph 19 of the mortgage contract they must do so no later

than five days before the scheduled sale, this court reasoned that

a mortgagor may be misled into waiting until within five days of

the sale.

In petitioning for panel rehearing, Chase and several

amici suggested for the first time that the panel's reading of

Pinti and other SJC precedents would invalidate most of the

foreclosures in Massachusetts since 2012. Chase requested as an

alternative to reconsideration on the merits that this court

certify the matter to the SJC. Noting that "[t]his court in a

diversity action cannot properly overturn governing state

precedent, but the SJC on certification is not thus limited," we

withdrew our earlier decision in this case and certified to the

SJC the following question:

- 8 - Did the statement in the August 12, 2016, default and acceleration notice that "you can still avoid foreclosure by paying the total past-due amount before a foreclosure sale takes place" render the notice inaccurate or deceptive in a manner that renders the subsequent foreclosure sale void under Massachusetts law?

The SJC answered "no." It noted that paragraph 16 of

the plaintiffs' mortgage states that "[a]ll rights and obligations

contained in this Security Instrument are subject to any

requirements and limitations of Applicable Law," and that Mass.

Gen. Laws ch. 244, § 35A and its accompanying regulations give

mortgagors the right to reinstate a mortgage at any time prior to

a foreclosure sale. See 209 Code Mass. Regs. § 56.04. Therefore,

the SJC held, Mass. Gen. Laws ch. 244, § 35A "constitutes

controlling and applicable law that supersedes the conflicting

provision of the mortgage contract." Thompson v. JPMorgan Chase

Bank, N.A., No. SJC-12798, 2020 WL 6931852, at *1 (Mass. Nov. 25,

2020). The paragraph 22 notice could not have been misleading for

omitting paragraph 19's five-day deadline because, in

Massachusetts, the five-day deadline does not apply. Id. at *1,

*5-6.

The judgment of the district court is affirmed, and costs

are awarded to plaintiffs.

It is so ordered.

- 9 -