Walkup v. Santander Bank, N.A.

Citations: 147 F. Supp. 3d 349; 2015 U.S. Dist. LEXIS 162060; 2015 WL 7770072Docket: CIVIL ACTION NO. 15-3929

Court: District Court, E.D. Pennsylvania; December 2, 2015; Federal District Court

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Plaintiffs Richard L. Walkup and Jean G. Walkup allege that Santander Bank, N.A. and PHH Mortgage Corporation engaged in deceptive practices under the federal Home Affordable Modification Program (HAMP) by encouraging them to default on their mortgage, despite knowing they would not qualify for a loan modification. This conduct led to Plaintiffs incurring late and increased interest fees while Defendants benefitted financially from processing their modification applications. The Plaintiffs assert claims for violations of the Pennsylvania Fair Credit Extension Uniformity Act (FCEUA), the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL), and breach of the covenant of good faith and fair dealing. The background details the origination of a $730,000 mortgage loan in May 2005, subsequent default, and a foreclosure action initiated by Sovereign Bank, which later merged with Santander. Plaintiffs claim they were misled by PHH regarding the modification process, leading them to refrain from making payments and to submit multiple applications. They also allege PHH contacted them directly despite their legal representation. The case, originally filed in the Pennsylvania Court of Common Pleas, was removed to federal court, where Defendants moved to dismiss the claims, asserting that the allegations do not sufficiently support the Plaintiffs’ claims. The court granted the motion to dismiss.

To survive a motion to dismiss, a complaint must present sufficient factual allegations that, if accepted as true, establish a plausible claim for relief. It is no longer adequate to state mere elements of a cause of action; instead, factual details indicative of the alleged wrongful conduct must be provided. 

Plaintiffs assert their claims arise from two primary actions by the Defendants. First, all three counts in the Amended Complaint allege that Defendants engaged in deceptive practices that led Plaintiffs to default on their loan, violating several provisions of the Fair Credit Extension Uniformity Act (FCEUA) and the Unfair Trade Practices and Consumer Protection Law (UTPCPL), as well as breaching the covenant of good faith and fair dealing. Second, Plaintiffs contend that Defendants directly contacted them while their loan was in default, knowing they were represented by counsel, which contravenes specific FCEUA provisions against such contact.

The Amended Complaint also references the Home Ownership Modification Program (HAMP), alleging that Defendants did not inform Plaintiffs of their lack of intention to modify the mortgage as required by HAMP, a federal initiative intended to assist homeowners facing foreclosure. However, both parties agree that HAMP does not allow for a private right of action, and Plaintiffs do not claim any entitlement to a loan modification. Defendants argue that Plaintiffs' claims implicitly attempt to enforce HAMP and thus should be dismissed as they are derived from a non-existent HAMP claim. The question remains whether HAMP preempts the Plaintiffs' claims under the UTPCPL, FCEUA, and the implied covenant of good faith and fair dealing, despite Plaintiffs' explicit disclaimer of pursuing a HAMP-based claim.

Federal preemption, established by the Constitution as federal law being the supreme law, manifests in three forms: express preemption, field preemption, and conflict preemption. Express preemption occurs when Congress explicitly displaces state law; field preemption arises when federal interests are so dominant that state laws on the same subject are precluded; conflict preemption exists when compliance with both federal and state laws is impossible or when state law obstructs federal objectives. 

In the context of the case at hand, the Defendants argue that Plaintiffs’ claims fail because they are allegedly precluded from raising claims based on the Home Affordable Modification Program (HAMP). However, Defendants do not provide a clear basis for how HAMP’s lack of a private cause of action preempts state consumer protection and contract laws. They fail to demonstrate that HAMP expressly displaces state law, that the federal interest in mortgage modification dominates the field to the exclusion of state laws, or that state laws conflict with HAMP. 

The only relevant case cited by Defendants involved an unreported magistrate's recommendation which did not engage in preemption analysis and lacked factual support for the Plaintiffs' claims. Additionally, courts have noted that HAMP does not afford a federal right of action but does not preempt valid state law claims either. Consequently, the argument that Plaintiffs' state law claims are merely derivative of HAMP claims is unsubstantiated. The document concludes by affirming that the absence of a private cause of action under HAMP does not justify the dismissal of state law claims.

Plaintiffs clarify that they do not claim an entitlement to loan modification, countering Defendants' HAMP preclusion argument. The Court, accepting this assertion, finds Defendants' argument insufficient. The focus shifts to whether Plaintiffs' claims in the Amended Complaint establish a viable basis for relief under Pennsylvania law. 

Counts I and II relate to statutory claims under the Fair Credit Extension Uniformity Act (FCEUA) and the Unfair Trade Practices and Consumer Protection Law (UTPCPL). Individual plaintiffs cannot pursue private actions under the FCEUA; thus, they must rely on the UTPCPL, which allows for a private right of action only if the plaintiff suffers an ascertainable loss due to violations. The Pennsylvania Supreme Court mandates that such a loss must be tied to the defendant's prohibited conduct and that reliance on this conduct must be justifiable.

Plaintiffs claim injuries including late charges, increased mortgage interest, shame, embarrassment, emotional distress, and damage to credit scores. However, personal injuries like shame and emotional distress are not actionable under the UTPCPL. Damage to credit scores is seen as reputational injury rather than a monetary loss. The only potentially cognizable injuries are late fees and increased interest, which can support a UTPCPL claim if they resulted from justifiable reliance on Defendants' actions.

To assess justifiable reliance, the Court will analyze the factual assertions in the Amended Complaint favorably toward the Plaintiffs, alongside any integral documents, to determine if they establish plausible grounds for legal relief.

Plaintiffs allege violations of the Fair Credit Extension Uniformity Act (FCEUA) concerning direct communications from creditors while they were represented by counsel. However, for these violations to lead to a private action, Plaintiffs must demonstrate that such communications influenced their decision to remain in default on their loan. The court finds no evidence that the allegedly harassing communications caused or extended the Plaintiffs' default, as the Amended Complaint lacks specific claims that Plaintiffs relied on these communications when deciding to stay in default. Any inference drawn to suggest that Plaintiffs relied on these communications would be unreasonable, thereby failing to support a plausible claim for relief under the FCEUA.

Regarding deceptive conduct claims under both the FCEUA and the Unfair Trade Practices and Consumer Protection Law (UTPCPL), Plaintiffs cite multiple violations of deceptive conduct provisions in the FCEUA. For the UTPCPL claim, Defendants argue that Plaintiffs must meet the common law fraud pleading requirements. While this was true prior to 1996, the UTPCPL was amended in that year to include a prohibition on deceptive conduct, allowing claims without the necessity of proving fraud elements. The Pennsylvania Supreme Court has not addressed this amendment, but interpretations by intermediate appellate courts, particularly the 2012 Superior Court decision, indicate that the amendment provides an alternative pathway for recovery under the UTPCPL's catch-all provision. This interpretation aligns with the plain language of the amended law, which now prohibits both fraudulent and deceptive conduct that creates confusion or misunderstanding.

In Pennsylvania, statutory interpretation requires that every word and provision of a statute be given meaning, avoiding surplusage. When a later statute uses different language than a prior one on the same subject, it is presumed to indicate a different intent. The Court anticipates that the Pennsylvania Supreme Court would align with intermediate appellate court interpretations, concluding that the 1996 amendment to the Unfair Trade Practices and Consumer Protection Law (UTPCPL) broadened liability to cover deceptive conduct not amounting to fraud. Consequently, Plaintiffs are not required to plead common law fraud elements or the heightened specificity mandated by Rule 9(b) for fraud claims. Instead, the Court will apply the general plausibility standard from Twombly and Iqbal to the Plaintiffs’ deceptive conduct claims under both the Fair Credit Extension Uniformity Act (FCEUA) and the catch-all provision of the UTPCPL, necessitating factual specificity to support plausibility.

While the Amended Complaint contains mostly generalized, conclusory allegations, three specific factual claims are identified: (1) Plaintiffs assert they defaulted after PHH advised them that modifications were contingent upon being behind on payments; (2) Plaintiffs were instructed to refrain from making mortgage payments to maintain modification eligibility during multiple applications; and (3) Defendants repeatedly requested redundant documentation for processing modifications. However, these claims contradict the timeline provided in the Amended Complaint, which indicates the initial default occurred in 2013, followed by a foreclosure action filed on April 11, 2013. Even if the default was moved to July 2012, it would only allow nine months for the extensive modification requests claimed by Plaintiffs, lacking a factually plausible narrative of reliance on Defendants’ conduct. Therefore, the Court concludes that the FCEUA and UTPCPL claims must be dismissed.

Plaintiffs lack justifiable reliance on Defendants' conduct, as their claim hinges on PHH’s accurate statement that loan payments must be in default to apply for modification, without any implication that default would lead to a modification. No allegations support that PHH encouraged default or indicated a modification was likely. The claim includes two requests by Defendants after the Plaintiffs defaulted, but these do not constitute deceptive conduct as they do not promise modification. Plaintiffs entered into a mortgage agreement with a clear obligation to pay monthly, with stipulated consequences for default, undermining any claim of justifiable reliance. Consequently, the court grants Defendants' motion to dismiss the FCEUA and UTPCPL claims. Regarding the breach of the implied covenant of good faith and fair dealing, Pennsylvania law treats this as a breach of contract claim, necessitating the existence of a contract, a breach, and resultant damages. Plaintiffs have established a contract with First Financial, which Defendants acknowledge as successors, but the claim based on tort theory cannot succeed under existing Pennsylvania law.

The Amended Complaint lacks a viable theory of damages for breach of contract, rendering any analysis of a covenant of good faith and fair dealing unnecessary. Damages must either naturally result from the breach or be reasonably foreseeable at the contract's inception, and emotional distress damages are typically not permitted without a physical injury, which is not alleged here. The allegations do not support a plausible expectation that Defendants would foresee Plaintiffs’ deliberate default or the resulting late fees. Consequently, the claim for breach of the implied covenant of good faith and fair dealing is subject to dismissal due to insufficient pleading of contract damages. 

The Amended Complaint fails to adequately support claims under the Fair Credit Extension Uniformity Act (FCEUA), the Unfair Trade Practices and Consumer Protection Law (UTPCPL), or the implied covenant of good faith and fair dealing, leading to the granting of Defendants’ motion to dismiss. A specific date of default is not indicated in the Amended Complaint, although a state court pleading suggests one; the court may acknowledge court proceedings but not the truth of their contents. Assertions in opposition briefs cannot factor into dismissal motions. The Amended Complaint mentions the assignment of the loan to Santander on March 7, 2013, but it relates to Sovereign, indicating a mischaracterization. Additionally, the Amended Complaint was filed after the deadline for amending without leave, per Federal Rule of Civil Procedure 15(a)(1), and Plaintiffs did not seek the necessary leave to amend as required by Rule 15(a)(2). Nevertheless, Defendants have not shown any prejudice due to this procedural misstep.

Leave to amend a complaint under Rule 15(a)(2) is granted liberally when justice requires, thus the Court will treat the Amended Complaint as the authoritative statement of the Plaintiffs' claims, assessing the Defendants’ motion to dismiss based on its contents. The Defendants contend that Plaintiff Jean G. Walkup lacks standing for UTPCPL claims since she was not a signatory on the original loan Note. However, the mortgage deeds in the Amended Complaint name her as a mortgagor alongside Richard L. Walkup, which supports the claim that she received mortgage services from the Defendants, rendering the standing argument invalid. 

The excerpt references multiple cases emphasizing that HAMP does not provide a private right of action, including Sinclair v. Citi Mortg. Inc. and others, which affirm the dismissal of claims related to loan modifications based on HAMP. It notes that all Plaintiffs' claims arise from the Defendants' denial of their loan modification request and alleged noncompliance with HAMP and the SPA. The Court highlights that a plaintiff cannot argue for modification rights under HAMP while simultaneously claiming that her action stands independently of HAMP. Additionally, it cites cases where HAMP-related fraud claims were dismissed for lack of specificity and failure to demonstrate reasonable reliance. 

The Court also notes that no constitutionally protected property interest in loan modifications exists, impacting the likelihood of success on any due process claims. Furthermore, Defendants' argument against being classified as engaged in debt collection activities under the FCEUA is acknowledged, but the Court determines it need not address this issue since the communications did not result in ascertainable loss for UTPCPL purposes.

Defendants reference the Third Circuit's ruling in Hunt v. U.S. Tobacco Co. to support their argument that the 1996 amendment did not eliminate the reasonable reliance requirement of the Unfair Trade Practices and Consumer Protection Law (UTPCPL). However, the court's conclusion in Hunt is not applicable to interpreting the catch-all provision, as the ruling addressed the overall standing requirement of the UTPCPL post-amendment, asserting that any justifiable reliance requirement arises from the standing provision rather than the amended catch-all. In their Opposition to the motion to dismiss, Plaintiffs claim their first default occurred in July 2012, contradicting their Amended Complaint which stated the default followed discussions with PHH in 2013. Since Plaintiffs did not amend their pleading, the allegations in the Amended Complaint remain the relevant claims. The absence of the Note in the Amended Complaint does not preclude it from being considered, as it is integral to establishing Plaintiffs’ loan obligations. Defendants argue for the dismissal of Plaintiffs' claims under the Fair Credit Extension Uniformity Act (FCEUA) and UTPCPL based on the economic loss doctrine and the gist of the action doctrine; however, the court determines that Plaintiffs have not sufficiently pleaded these claims, rendering additional dismissal arguments unnecessary. Defendants' argument regarding Mrs. Walkup's lack of standing is confined to the UTPCPL claim.