Schaefer v. IndyMac Mortgage Services

Citations: 731 F.3d 98; 2013 WL 5452987; 2013 U.S. App. LEXIS 20143Docket: 12-2388

Court: Court of Appeals for the First Circuit; October 2, 2013; Federal Appellate Court

Original Court Document: View Document

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Mark E. Schaefer appeals the dismissal of his lawsuit against IndyMac Mortgage Services, OneWest Bank, the Federal National Mortgage Association (Fannie Mae), and Harmon Law Offices, P.C. The suit requested an injunction against his eviction, nullification of a March 2012 foreclosure sale, permission to modify or reinstate his mortgage, and monetary damages. The United States District Court for the District of New Hampshire dismissed the case, ruling that Schaefer's claims were barred by the economic loss doctrine and failed to state a viable claim.

Schaefer's complaint, accepted as true for the dismissal motion, outlines that he refinanced his mortgage in November 2007 with IndyMac Bank, which allowed foreclosure if he defaulted but also permitted reinstatement before foreclosure upon payment of overdue amounts. Schaefer alleges that IndyMac or its successors assumed additional duties to provide him with a reinstatement amount and to process a loan modification application prior to foreclosure. Following his default in 2009, OneWest Bank, which acquired IndyMac Bank, agreed to modify the loan. By late 2011, Schaefer fell behind again, receiving a letter on January 19, 2012, indicating he was six payments overdue. The mortgage document, central to Schaefer's claims, was not included in the complaint but was considered by the court due to its relevance and undisputed authenticity. The decision to affirm the dismissal was made by Circuit Judges Dyk, Torruella, and Kayatta.

A letter indicated a total amount due of $12,519.25, which would increase to $12,572.46 after February 16 due to a fee assessment. The letter did not designate these amounts as a 'reinstatement amount' and lacked detailed line items for interest, costs, attorney’s fees, or other charges typically included in an arrearage for reinstatement. Schaefer downloaded a mortgage modification application and subsequently received a letter from OneWest’s attorney, Harmon, stating that Schaefer was in breach of loan conditions and that the loan had been accelerated, making the total due $246,992.57. Although the letter noted the possibility of reinstatement, it did not provide a reinstatement amount but directed Schaefer to request this information via the firm’s website. Schaefer made two requests for the reinstatement amount on February 6 and 16, receiving an automated response each time but no actual follow-up from Harmon or OneWest. On February 14, Schaefer was notified of a scheduled foreclosure sale on March 12, with Fannie Mae identified as the mortgage holder. Schaefer faxed a completed loan modification application to OneWest and was subsequently instructed to resend part of his application. On February 23, he was contacted for additional information regarding his partner’s financial details. Schaefer also received a letter from Elizabeth Milian of OneWest, indicating that she and her team would be his points of contact during the loan review process and providing her contact information to ensure effective communication.

On February 28, Schaefer faxed his financial information to OneWest based on the Milian letter, mistakenly using the '435 fax number' instead of the '235 fax number.' After being contacted by OneWest regarding this submission, he was instructed to resend the documents to the correct number, which he did on March 9. Following this, Schaefer received no response, and a foreclosure sale occurred on March 12, with Fannie Mae purchasing the property. Subsequently, Harmon served Schaefer with an eviction notice.

In early April 2012, Schaefer filed a lawsuit against OneWest, Fannie Mae, and Harmon in New Hampshire state court, alleging negligence for not providing a reinstatement amount and mishandling his modification application, along with a claim of negligent misrepresentation concerning the Milian letter. He sought an injunction against eviction, nullification of the foreclosure sale, permission to modify or reinstate his mortgage, and compensatory damages for losing his home.

The defendants removed the case to the U.S. District Court for New Hampshire, asserting diversity jurisdiction. They filed motions to dismiss under Rule 12(b)(6), arguing that Schaefer's tort claims were barred by the economic loss doctrine and that no breach of duty occurred. The court granted the motions, stating that the economic loss doctrine applied to Schaefer’s claims regardless of the relief sought, as the alleged harm was economic. It dismissed the negligence claim, finding that Schaefer did not establish that OneWest assumed duties based on the letters, and ruled that the negligent misrepresentation claim was also barred by the doctrine because it related to the mortgage debt collection efforts. Schaefer then appealed, and jurisdiction was confirmed under 28 U.S.C. 1291, with a de novo review of the dismissal order. The economic loss doctrine prohibits tort recovery for purely economic losses tied to contractual relationships, aiming to maintain the integrity of contract law.

The economic loss doctrine in New Hampshire prevents plaintiffs from recovering damages for purely economic losses in negligence claims unless a specific duty exists. This principle asserts that, absent a particular duty, there is no general obligation to avoid causing economic loss. The New Hampshire Supreme Court has confirmed that while individuals must avoid causing personal injury and property damage to others, there is no similar tort duty regarding economic losses. However, exceptions exist, particularly when a defendant voluntarily assumes an extracontractual duty. Schaefer argues that the defendants assumed such a duty by providing him with a reinstatement amount and considering his mortgage modification application after default. Although the New Hampshire Supreme Court adheres to the Restatement of Torts, which does not explicitly address economic loss liability from an assumed duty, it does allow for liability for physical harm resulting from a failure to exercise reasonable care in rendering services. While some jurisdictions exclude economic losses under the Restatement's provisions, others permit recovery under certain circumstances. New Hampshire's stance remains somewhat ambiguous, with past cases like Brunelle and Seymour suggesting potential liability for economic losses in specific contexts. Nevertheless, the conclusion drawn is that Schaefer has not adequately established a negligence claim that warrants relief.

Schaefer was contractually obligated to make monthly payments under the mortgage agreement, with OneWest and Fannie Mae having the right to accelerate the loan and foreclose if he defaulted. Schaefer admitted he did not make the required payments but contended that OneWest had additional duties: to provide a reinstatement amount upon request and to process a mortgage modification application prior to foreclosure. However, the court found that New Hampshire's economic loss doctrine prevents Schaefer from recovering in tort for these claims. 

While OneWest's agreement to allow reinstatement implied a duty to provide a reinstatement amount, such a duty is considered contractual. Therefore, Schaefer's tort claims were barred since the economic loss doctrine restricts parties to contractual remedies for economic losses related to their agreements. Additionally, Schaefer abandoned his breach of contract claim on appeal. 

The alleged duty to process the mortgage modification application was deemed contradictory to the mortgage terms, which specifically allowed OneWest to foreclose if Schaefer defaulted. The court noted that no cases have successfully enforced a tort duty that contradicts contractual terms, and recognized that modifying the rights and duties of a contract without consideration would undermine contract law principles. Thus, the court affirmed that the economic loss doctrine precluded Schaefer’s negligence claim.

New Hampshire law, as cited in N.H. Rev. Stat. Ann. 479:18, allows mortgagees to redeem their mortgages by paying off the full debt before foreclosure, but it does not recognize a right to reinstate a mortgage by paying only the delinquent amount. Schaefer's negligence claims against Harmon stem from duties Harmon allegedly assumed as an agent for OneWest and Fannie Mae, which implies that any liability for Harmon would alter the contractual terms between Schaefer and these entities. Schaefer's assertion that Harmon owed him duties as a debt collector is not addressed, as he did not adequately argue this point. 

Additionally, Schaefer's claim for negligent misrepresentation related to a letter from Milian, which contained alleged misrepresentations about Milian’s assistance and communication methods, is dismissed. While New Hampshire recognizes an exception to the economic loss doctrine for negligent misrepresentation, Schaefer's case does not fall under this exception since he does not allege any defendants are professional information suppliers, a category that includes accountants and appraisers. The court's decision in Wyle indicates that negligent misrepresentation claims are limited to those made by professional suppliers or those that induce a contract, rather than those concerning contract performance. Thus, Schaefer's claims do not meet these criteria for negligent misrepresentation.

Schaefer's claims are not barred by the Wyle precedent, but the court disagrees with this position. The court interprets Wyle as stating that the negligent misrepresentation exception applies only to representations made before contract formation or unrelated to the contract's subject. In contrast, representations made during contract performance that pertain to the contract's subject matter fall under the economic loss doctrine and are not actionable. In this case, the representations in question were made while the contract was being performed and directly related to it, specifically regarding the lenders' decision-making process on whether to exercise their right to foreclose. Schaefer's allegations essentially claim that the lenders misrepresented the conditions for waiving this right, which the court views as concerning the contract's performance and thus barred by the economic loss doctrine. Consequently, the district court's dismissal of Schaefer’s negligent misrepresentation claim is affirmed, with costs awarded to the appellees.