Susan K. Young, the plaintiff, appealed the dismissal of her claims against Wells Fargo Bank, N.A. and American Home Mortgage Servicing, Inc. regarding her attempts to modify her mortgage under the Home Affordable Modification Program (HAMP) to prevent foreclosure. Young alleged that the defendants' actions violated Massachusetts law after her efforts to secure a permanent loan modification failed. The district court granted the defendants' motion to dismiss her complaint in full, leading to Young's appeal.
The First Circuit Court affirmed the dismissal of Young's breach of contract claim (Count II), her claim for breach of the implied covenant of good faith and fair dealing, and her claims for intentional and negligent infliction of emotional distress. However, the court vacated the dismissal of her breach of contract claim (Count I), her Chapter 93A claim, and her derivative claim for equitable relief, remanding those matters for further proceedings.
The court's opinion also provided background on HAMP, which was enacted as part of the Emergency Economic Stabilization Act of 2008 to assist homeowners and reduce foreclosures. HAMP encourages mortgage servicers, like Wells Fargo, to offer modifications to eligible borrowers, aiming to make mortgage payments more sustainable without discharging underlying debt.
Servicers are required to evaluate a homeowner's eligibility for a loan modification based on Treasury Department guidelines. If eligible, the borrower is offered a Trial Period Plan (TPP), which can lead to a permanent modification if the borrower complies with the TPP's terms, including making payments and providing documentation. The servicer is incentivized financially for each permanent modification granted.
In the case of Young, she purchased a home in Yarmouth, Massachusetts, in 1997 and secured a mortgage of approximately $282,000 in 2006 with Wells Fargo as the mortgagee. The mortgage had an initial interest rate of 7.8%, adjustable after September 1, 2008. Young alleges that Wells Fargo incorrectly notified her in 2010 of an interest rate increase to 7.8%, despite her claim that her mortgage locked her rate at 2% for the first five years. This claim is undermined by the adjustable rate rider attached to her mortgage, which she has not disputed.
Young began to struggle with mortgage payments in 2008 due to personal and economic hardships. After making a $2,600 payment to bring her account current, she received a notice of delinquency despite having made the payment. Following a call to Wells Fargo, she was informed that her payment would not be processed, and foreclosure proceedings were imminent. After negotiations, Young sent a $5,628.42 check in exchange for a promised forbearance agreement, which she did not receive. A subsequent call revealed the bank had not processed her earlier payment, which would have brought her current. Eventually, she received a forbearance agreement requiring higher monthly payments than she was accustomed to, which she signed and attempted to adhere to.
In April 2009, Young ceased making mortgage payments and sought assistance from her lawyer to modify her mortgage terms to save her home. In October 2009, she received confirmation of potential eligibility for a loan modification under HAMP and was sent a Trial Payment Plan (TPP) by Wells Fargo, requiring three payments of $1,368.94 each. Young executed the TPP and made the required payments from November 2009 to January 2010. However, in January 2010, Wells Fargo denied her permanent loan modification, claiming it had not received the TPP payments on time. This denial caused Young significant emotional distress.
Wells Fargo later acknowledged the denial was an error and assured Young's counsel that a permanent modification would be forthcoming. Despite ongoing inquiries from Young, the bank delayed until June 2010, when she finally received a permanent modification agreement that increased her monthly payments by nearly $300. Young did not sign this agreement, and the foreclosure process continued against her.
She claimed the stress from these events led to emotional distress, strained relationships, and impacted her ability to earn income, contributing to her separation from her husband. Following a pre-suit demand in January 2011, Young filed a complaint in Commonwealth courts, which was later removed to federal court. The defendants moved to dismiss under Rule 12(b)(6), while Young sought to amend her complaint. The court allowed the amendment but ultimately dismissed the amended complaint and entered judgment against Young, leading to her timely appeal. The appellate court will review the dismissal de novo, considering all well-pleaded facts as true and drawing reasonable inferences in Young's favor. It may also review relevant documents attached or referenced in the complaint.
In evaluating the sufficiency of the complaint, conclusory allegations that merely restate legal standards are disregarded. The focus shifts to whether the factual allegations present a plausible assertion of defendants' liability, as established by relevant case law. The court applies Massachusetts law to Young's claims and reviews the district court's interpretation de novo. Dismissal can be affirmed on any basis in the record.
Under Massachusetts law, contract interpretation is a legal matter for the court, though ambiguous terms require factual determination at trial. Young's complaint includes two counts of breach of contract, with the first count alleging that a negotiated contract, the Trial Plan Participation (TPP), was breached by the defendants in two specific ways: (1) requiring higher payments under a permanent modification agreement compared to what was specified in the TPP; and (2) failing to provide a permanent modification agreement before the end of a three-month trial period.
Regarding increased payments, Young asserts that Wells Fargo assured her that the modification agreement would follow previous terms but then breached the contract by unilaterally increasing the monthly payment by nearly $300. However, the TPP clearly differentiates between trial period payments and the payments due under the permanent modification, stating that the trial payment is an estimate and that actual payment amounts may vary. Specific provisions of the TPP clarify that it does not constitute a modification of the loan documents unless compliance with its terms occurs. This distinction supports Wells Fargo's position against the claim of breach.
Young's argument hinges on the assertion that the TPP does not prohibit Wells Fargo from adjusting her payment amount after the trial period. The TPP explicitly permits such changes, and Young's claim that she should have received prior notice of payment alterations is unfounded, as the TPP does not impose such a requirement. In light of NECA-IBEW Health, Welfare Fund v. Goldman Sachs & Co., facts in the complaint must be accepted unless conclusory or contradicted by evidence, leading to the conclusion that Young has not established a breach of contract based solely on the increase in her monthly payments.
Regarding timeliness, Young alleges that Wells Fargo breached the TPP by not providing a permanent modification agreement by the end of the three-month trial period. The TPP defines the trial period and the modification effective date, which in Young's case was February 1, 2010, following her last trial payment in January 2010. She contends that the 'time is of the essence' clause necessitated Wells Fargo to issue a permanent modification before the trial period concluded. Young claims that the agreement was sent five months late, after Wells Fargo's erroneous rejection of her modification request.
Defendants argue that this breach theory is not preserved for appeal since it wasn't explicitly included in the initial complaint. However, the complaint details multiple errors and delays from Wells Fargo regarding the permanent modification, suggesting that Young adequately notified defendants of the alleged breach. Defendants also claim that Young waived this argument by raising it only on appeal; however, her earlier opposition to the motion to dismiss indicates she timely presented her concerns regarding the TPP's timing provisions and the need for notification, thus preserving her arguments for review.
The 'time is of the essence' provision in the TPP does not impose the significance Young attributes to it; it relates specifically to her obligation to make timely payments during the three-month trial period, rather than all performance obligations under the agreement. Other provisions indicate that Wells Fargo was to extend a permanent modification offer prior to the modification effective date, contingent upon Young's compliance. The TPP mandates that if Young complies with its terms and her representations remain true, Wells Fargo must provide her with a Home Affordable Modification Agreement. Young asserts that she fulfilled her obligations, a point not contested by the defendants, which implies that Wells Fargo was required to offer her a permanent modification.
Section 3 specifies that the permanent modification agreement should be in place as of the modification effective date and should prevent a buyer from assuming the loan under favorable terms unless legally allowed. It also states that Young's first modified payment would be due on the modification effective date, indicating that the permanent modification agreement should be executed prior to this date. Therefore, the TPP supports the interpretation that Young was entitled to a permanent modification agreement before the effective date if she continued to meet her obligations.
Defendants argue against this interpretation, citing Section 2(G), which states that the TPP does not modify the Loan Documents and that a modification will only occur if all conditions are met, a Modification Agreement is executed, and the effective date has passed. This suggests that no obligation to offer a permanent modification exists until after the modification effective date.
Defendants' interpretation of the TPP is deemed unreasonable as it allows them to unilaterally undermine the agreement, particularly by withholding a permanent modification offer indefinitely after the modification effective date, which would negate the plaintiff's compliance benefits. The court finds that while the defendants' arguments introduce ambiguity, they do not establish that their interpretation is the sole reasonable one. Since the contract can be reasonably interpreted in favor of the plaintiff, and the allegations indicate a breach due to the failure to provide a modification agreement by the effective date, the court vacates the dismissal of Count I. Although the complaint raises uncertainties regarding damages, the defendants do not contest this aspect, leaving the issue for future consideration.
Count II, while purporting to present a separate contract claim, largely duplicates Count I, with the only difference being a request for a declaration of violations under HERA and the Helping Families Save Their Homes Act. Young clarifies that Count II is based on the TPP and does not assert a direct cause of action under HAMP. Thus, Count II serves to reinforce Count I, which already addresses the breach of the TPP. Therefore, Count II is dismissed as duplicative, consistent with precedents that prohibit redundant claims.
The conclusion reached does not negate the relevance of HAMP (Home Affordable Modification Program) and its guidelines in this case. Young has successfully established a breach of contract claim, allowing the district court to consider extrinsic evidence to clarify ambiguities in the Trial Period Plan (TPP), potentially informed by HAMP and Treasury Department guidelines. Relevant case law suggests using federal regulatory frameworks to interpret ambiguous contract terms and highlights the importance of a reasonable construction of contracts in light of their purpose.
Count II, alleging a breach of the covenant of good faith and fair dealing, is dismissed as duplicative. Under Massachusetts law, every contract implies a covenant of good faith and fair dealing, which prohibits actions that would undermine the contract's benefits for either party. To succeed, a plaintiff must demonstrate a lack of good faith, which implies dishonest intent or self-serving motives. Evidence of unreasonable behavior can suggest a lack of good faith, but the primary focus is whether the conduct was aimed at gaining an unfair advantage or harming the other party's contractual rights.
Young's claim regarding the implied covenant is based on her breach of contract allegations, centering on the mishandling of her loan modification process. Specifically, Wells Fargo erroneously notified Young in January 2010 that she was ineligible for a permanent modification due to missed trial payments, instead of offering a permanent modification as expected at the end of her trial period. The essence of the implied covenant claim is whether the actions taken aligned with the reasonable expectations of the contractual agreement, rather than strict adherence to its terms.
Wells Fargo admitted its error only after Young's counsel intervened, leading to a five-month delay before she received a permanent modification agreement in June 2010. The bank's lack of diligence in monitoring Young's case raised concerns, particularly as she needed legal assistance to obtain clear information about her loan modification. However, the allegations indicated that Wells Fargo eventually rectified its mistakes, suggesting a lack of proper procedure rather than malicious intent. Young ultimately received a permanent modification agreement that could prevent foreclosure and reduce her mortgage payments, despite her objections to increased payments compared to the trial payment plan (TPP), which allowed such increases. Young's claims of breach of contract were not supported by evidence that the bank's actions deprived her of the contract benefits.
The court noted that unreasonable delays could constitute a breach of the implied covenant under Massachusetts law, but the specifics of Young's case did not demonstrate bad faith or unfair advantage taken by the bank. Additionally, Young's claims for negligent infliction of emotional distress (NIED) and intentional infliction of emotional distress (IIED) were based on her interactions with Wells Fargo and issues prior to entering the TPP. The dismissal of her NIED claim was based on the absence of a tort duty, and her failure to adequately address the duty issue in her opening brief led to its affirmation.
To establish an Intentional Infliction of Emotional Distress (IIED) claim under Massachusetts law, Young must prove that Wells Fargo intended to cause emotional distress through extreme and outrageous conduct, resulting in severe emotional distress. The district court, referencing prior discussions on the duty of care, dismissed Young's Emotional Distress Count, noting that a lender does not owe a borrower a duty of care as per Corcoran v. Saxon Mortg. Servs. Inc. Young's allegations of being "emotionally devastated," experiencing anxiety and sleep loss, and suffering strained family relationships do not demonstrate the requisite intent or the level of distress necessary to support her claim, leading to the affirmation of the district court’s ruling on her emotional distress claims.
Additionally, Young's claim under Massachusetts General Laws Chapter 93A addresses unfair or deceptive practices. This law allows for claims based on unfairness defined as immoral, unethical, oppressive, or causing substantial injury, and does not require a statutory violation or a contractual breach to establish liability. Young's Chapter 93A claim encompasses the entire handling of her case by the defendants, from the forbearance agreement negotiations to her attempts at securing a permanent loan modification.
Defendants, on appeal, do not dispute that their actions constituted unfair trade practices; the sole issue is whether Young sufficiently alleged damages due to defendants' violations. Recent Massachusetts Supreme Judicial Court rulings indicate that "injury" under Chapter 93A is primarily understood as economic injury. However, exceptions from older precedents may still exist. Defendants argue that Young's appeal regarding Wells Fargo's status as a trustee was inadequately presented, suggesting it was waived. Young's focus on this issue arose because it was part of defendants' argument for dismissal, which the district court did not adopt. Therefore, Young should not be penalized for not addressing an issue that was not part of the lower court's ruling. Her opening brief adequately discusses the legal sufficiency of her Chapter 93A claims, meeting her burden under Rule 12(b)(6). Young's complaint specifically claims economic damages, asserting that she suffered financial losses due to defendants' actions, including potential loss of home equity, damage to her credit rating, and increased interest rates on loans. Defendants contend that these claims are speculative, but the court notes that Young's allegations relate to a pattern of unfair conduct dating back to 2008, which includes misleading information about her mortgage obligations, culminating in the mishandling of her loan modification process.
Young alleges that Wells Fargo's repeated errors during the forbearance and loan modification processes resulted in a loss of home equity and damage to her credit ratings. These actions allegedly placed her in a worse position than if the defendants had acted appropriately, leading to ongoing economic damages. She claims injuries due to the defendants' misleading statements regarding her HAMP eligibility, which caused increased debt interest, negative credit history impacts, and loss of other economic benefits from the loan modification, sufficient to support a claim under Chapter 93A. The court notes that Young's claims of severe emotional distress, while acknowledged, were not fully addressed as her economic injury claims already met the threshold for Chapter 93A.
At this procedural stage, Young has provided enough factual allegations to survive dismissal. Her request for equitable relief includes a permanent injunction against eviction, which is dependent on her other claims. The district court's dismissal of her equitable relief claim was based on the dismissal of her other claims, which the court has now vacated regarding her breach of contract and Chapter 93A claims. The court affirms the dismissal of her breach of contract claim under Count II, breach of the implied covenant claim under Count III, and claims of negligent and intentional infliction of emotional distress under Count IV, while vacating the dismissal of her breach of contract claim under Count I, Chapter 93A claim under Count V, and equitable relief claim under Count VI, remanding for further proceedings. Each party will bear its own costs.
