Opinion
FSTCV166028846S
02-17-2017
Carmine Cenatiempo v. Bank of America, N.A
UNPUBLISHED OPINION
MEMORANDUM OF DECISION re MOTION TO STRIKE (#104.00)
Kenneth B. Povodator, J.
Background
In 2003, plaintiff Carmine Cenatiempo borrowed $550, 000.00 from BNC Mortgage, Inc. (the original lender), as evidenced by a promissory note. The note was secured by a mortgage on the subject property (located in Weston, Connecticut) in favor of Mortgage Electronic Registration Systems, Inc. (" MERS"), as nominee for the Lender and the Lender's successors and assigns. (Both plaintiffs executed the mortgage deed.)
Plaintiffs began experiencing financial hardship in 2008, and fell behind on their loan repayment obligations in July 2009, and that default status continued until the defendant (in its capacity as loan servicer) offered a trial loan modification in May 2015, which later resulted in a permanent loan modification on or about July 23, 2015.
Claiming that the process was unreasonably protracted due to errors, misplaced documents, misrepresentations of the status of the process, etc., the plaintiffs commenced this proceeding alleging a violation of the Connecticut Unfair Trade Practices Act, General Statutes § 42-110a et seq. (" CUTPA"), and negligence. Both theories of liability are based on the contention that the plaintiffs should have received better, faster--and more competent--assistance in connection with their efforts to modify the loan. The plaintiffs claim entitlement to damages--the financial losses due to the delay in obtaining the modification and compensation for the emotional distress over the years.
The defendant emphasizes, and the plaintiffs do not disagree, that the defendant (or the lender on whose behalf the defendant was acting) was not contractually or otherwise-enforceably obligated to modify the plaintiffs' loan--the plaintiffs only claim that the process of getting an ultimate answer should not have been the ordeal that they claim to have endured.
In moving to strike, the defendant contends that the negligence and CUTPA claims cannot be asserted in circumstances such as this--there was no actionable duty owed to the plaintiffs and there was no conduct properly characterized as coming within the scope of CUTPA. The plaintiffs responded by claiming that negligence is the failure to act with reasonable care which they believed to be amply established by the lengthy recitation of missteps taken in the course of processing their application(s) for modification, and that the various regulatory, judicial and legislative actions taken since the mortgage crisis began almost a decade ago provide a benchmark for determining whether the defendant's conduct was actionable under either or both theories.
Discussion
The court will not repeat, in detail, the well-established standards and procedures for the evaluation of a motion to strike. Assuming that all well-pled facts are true, have the defendants asserted a viable cause of action, a claim upon which relief can be granted? No deference is to be given to conclusions or legal contentions, but the plaintiffs as non-moving parties are entitled to the benefit of all reasonable/favorable inferences from the facts as alleged.
The plaintiffs do not dispute the lack of on-point authority in Connecticut for their claims, instead pointing to cases involving lenders and/or loan servicers in other contexts where a tort remedy has been recognized as potentially available. They further analogize to other situations in which delays are actionable, such as performance of a contract or delays in medical diagnosis.
Taking the matters in reverse order: there are significant distinctions between performance of a construction or other type of contract or delays in medical diagnosis, and the situation at hand. Delays in contract performance and delays in the medical diagnosis involve relationships with already-existing clearly-defined obligations, not subject to contingencies, and it is the performance of a clearly-defined obligation that is the gravamen of a recognized delay claim in those situations. At a minimum, the current situation is one step removed--the obligation (if any) is not substantive in nature, but rather only an obligation to discuss and negotiate the possibility of a modification of an already-existing obligation.
That, in turn, leads to further distinctions. First, a case such as this--involving a loan servicer--is not purely a bilateral relationship but rather involves an additional party, the lender or its successor/assignee. In such a three-party relationship, recognition of obligations to the plaintiffs by the defendant servicer potentially (if not necessarily) would interfere with, or intrude upon, the servicer's obligations to its principal/employer.
Second, perhaps perversely, in the other situations, timely performance is something of a corollary to the primary obligation, and wholly consistent. Here, however, if the emphasis is on promptness, the absence of an objectively-determinable " correct" outcome would likely encourage negative results--it is likely to be perceived to be easier and safer to say " no" if pressed for an answer, if a delay in providing an answer might entail financial risks or costs (to the decision-maker).
In their initial opposition to the motion to strike, the plaintiffs cite a number of cases for the proposition that a mortgage servicer can be sued, but the cases generally are materially distinguishable, in two complementary aspects--in only one case does it appear to have been a situation where the mortgagor had been substantially in default prior to the conduct at issue, and all the cases appear to have had some level of malfeasance of the lender or servicer, especially with respect to proposing and consummating modification (or new) agreements or appearing to do so (and as a corollary, it was at the instance of the lender or servicer that a modification had been proposed).
" Homeowners' allegations of mortgage servicers' CUTPA violations and deceptive acts, including loan modification activities of Bank of America in other cases, have been allowed to proceed by numerous Superior Court and even federal district court judges."
In Wahba v. JP Morgan Chase Bank, N.A., No. FSTCV136019828S, 2015 WL 5136407, at *6 (Conn.Super.Ct. July 29, 2015), there were affirmative material misrepresentations, coupled with a non-default status:
In the present case, as framed in the complaint, the plaintiff alleges that the defendant committed unfair or deceptive acts in the conduct of trade or commerce in violation of § 42-110b(a), when it enticed the plaintiff to pursue a loan modification by assuring the plaintiff that " such a modification would include a reduced interest rate and reduced mortgage payment" and that she would " qualify" for the modification if she missed three monthly payments when, in actuality, the defendant had deceived the plaintiff by identifying itself as the owner of the mortgage when it was merely the loan servicer; misrepresenting the fact that defaulting on three monthly payments was necessary but not sufficient to procuring the modification; misrepresenting the fact that she could possibly be denied the modification in which case her interest rate could increase; and misrepresenting the possibility that if the plaintiff defaulted on future, increased monthly payments, reflecting an increased interest rate, the defendant could bring an action to foreclose on the property.
In Bank of America, N.A. v. Waskowicz, No. CV136022409, 2014 WL 4494474, at *1 (Conn.Super.Ct. July 30, 2014) [58 Conn.L.Rptr. 678, ], the claim was that there was a deceptive scheme that led to the default status:
Beginning in September 2008, when the defendant's bank account had insufficient funds in it to allow for automatic payment of the mortgage installment due, as had been the established practice, the plaintiff suggested to the defendant that he apply for a mortgage modification, reducing his monthly mortgage payment and using the funds thus freed up to pay down his credit card debt, some of which was owed to the plaintiff. According to the defendant, the plaintiff first " proposed" that he immediately reduce his monthly mortgage payment from $1, 862.46 to $620.82 and later told him that he had been approved for a modification that provided for monthly payments of $1, 289.15 through April 2014, thereafter increasing to $1, 478.15. In reliance on these alleged representations by the plaintiff, the defendant claims to have reduced his mortgage payments to the suggested amounts.
. . .
In his second special defense the defendant claims that, after he reduced his mortgage payments in conformance with the plaintiff's " recommendations and proposals, " the plaintiff " repudiated said loan modification proposal." Further, the plaintiff told the defendant that the reduced mortgage payments he had made constituted a default and that it would initiate a foreclosure unless he began making monthly payments of $4, 709.03. All of the plaintiff's " statements, representations, recommendations and proposals" were " false and fraudulent" and made in the service of a " deceptive scheme" which the plaintiff " routinely employs" to inflate the fees it earns from mortgagees whose loans it services and from mortgagors like the defendant, by inducing them to engage in prolonged modification negotiations. The plaintiff had no intention of entering into a loan modification with him, the defendant claims; rather, it altered its proposals after the defendant had reduced his monthly payments in reliance on the earlier proposals, effectively forcing him into default, and laying the foundation for the foreclosure action it is now prosecuting.
In Bartold v. Wells Fargo Bank, N.A., No. 14-CV-00865 (VAB), 2015 WL 7458504, at *1-2 (D.Conn. Nov. 24, 2015), the plaintiff claims to have been induced to switch lenders, based on representations concerning lower rate, higher payments, and a prompt closing based on an appraisal performed by a different lender, and a tenure plan (payments for his life via a reverse mortgage, as long as he lived on the premises)--virtually all of which proved to be substantially misleading and inaccurate.
In Bank of America, N.A. v. Izzo, J.D. New Haven, NNHCV106009112S, (June 16, 2015), yet again the claim was that the lender had engaged in unscrupulous and deceptive conduct.
[The] plaintiff itself insisted that defendants must pursue modification of the first mortgage before being allowed to modify the second . . . Plaintiff, by its own words and conduct, thus linked together the two mortgages in a direct and concrete way. According to the counterclaims, moreover, plaintiff breached an agreement that the parties had reached regarding the first mortgage, and, by doing so, directly and predictably caused defendants to suffer losses and damages in connection with their obligations under the second mortgage as well.
In JP Morgan Chase Bank, N.A. v. Essaghof, No. FSTCV095010920S, 2012 WL 3932840, at *5 (Conn.Super.Ct. Aug. 16, 2012), the situation was described, again in terms of affirmative and misleading conduct by a lender:
In their co-affidavit, the defendants attest that in the late spring of 2008, representatives from Washington Mutual contacted them and recommended that they refinance their loan because " interest rates were about to rise sharply and that [the defendants] had better move fast to a different loan product." The defendants were told that if they did not quickly refinance their loan " would soon become unaffordable" and that " the new loan [Washington Mutual] recommended would be affordable." According to the defendants, they " had no interest at this time in refinancing or modifying our home loan. But we received many calls from representatives of Washington Mutual Bank, F.A. warning us of coming interest rate increases and the dangers of negative amortization loans, and encouraging us to refinance what we had." The defendants further attest that they believed that the person with whom they were dealing, a Mr. Fourier, had their best interests at heart and they listened to his recommendations. Accordingly, they signed the modification agreement. It is the defendants' position that had Washington Mutual " not convinced us to modify the loan terms as they did, we would never have been in default of our obligations under this [n]ote and mortgage."
And in Davis v. Hunt Leibert Jacobson, P.C., No. 3:12CV1102 JBA, 2014 WL 5798585, at *5 (D.Conn. Nov. 7, 2014), the alleged conduct (by counsel) was again affirmative and unscrupulous, going beyond conduct that might be protected by a litigation privilege:
The allegations in the pleadings of the complaint at hand stand apart from conduct protected by the litigation privilege. Plaintiff's claims do not arise simply from Defendants' litigation conduct and statements but rather more broadly allege that Defendants engaged in " unethical, unscrupulous, willful or reckless" behavior by leading Plaintiff to believe that the foreclosure action against him had been dismissed, and once he was deployed and unable to respond, reopening the action and beginning to foreclose on his home, and threatening his wife and children with ejectment even though foreclosure had not been completed.
It is only a slight oversimplification to observe that in all of these cases, the lender, or someone purporting to act on its behalf, actively created the problem at issue, and only in Davis had there been a pre-existing problem. From an alternate perspective, in each of these cases either there was a new agreement with the lender or the borrower was led to believe that there was some new agreement--in none of these cases was there solely an antecedent agreement, with or without delays in negotiating a possible new arrangement caused by (from the plaintiffs' perspective) incompetence in the handling of the file. Any claims of misrepresentation in this case were not material, unlike the situations in the cited cases. For example, there could have been no detrimental reliance on inaccurate reports as to the status of any application because the claimed harm was the continuation of the status quo ante, and there is no suggestion that the plaintiffs changed their position (or could have changed their position) in any way in reliance on such status reports.
As something of a corollary or refinement, in each of these situations, there is no difficulty in identifying the actionable conduct both in terms of the conduct itself and the date of occurrence. In this case, by contrast, the plaintiffs were well into a default situation when any claimed-objectionable conduct occurred. Further, an indeterminate amount of time presumptively is necessary for purposes of evaluating any application, and it is far from a rarity that there would be follow-up questions and/or the need for additional submissions, and all of the other " delays" that can arise in such a process.
By contrast, the plaintiffs are correct in stating that many of the cases relied upon by the defendant focused on the absence of any duty to agree to restructure or otherwise modify a loan in default--but the situations are closer than in the plaintiffs' cited cases, in that they arise in a post-default context with a focus on the relationship between the parties in default and the lender/servicer in addressing possible alternatives to foreclosure. Adapting the perspective articulated by the plaintiffs: unlike the cases relied upon by the plaintiffs, these cases implicated, at least potentially, the consent orders, statutes, and other indicia of policies relating to addressing the foreclosure crisis upon which the plaintiffs rely here. (Davis arose in a post-default context, but the conduct in question was unrelated to the policies invoked by the plaintiffs here.)
There is yet a further overlay, suggested by some of the allegations of the complaint, in that the defendant in this case is identified as the servicer, while certain of the allegations reflect involvement of an " investor" --presumably the ultimate decision-maker or owner of the debt. To the extent that a " servicer" is, presumptively, an agent or representative of the owner of the debt/mortgage, not only would there be a required consideration of the decision-making prerogatives of the owner, but conversely, plaintiffs' theory might implicate potential liability of the principal for the conduct of the servicer. These factors may well come into play here--the plaintiffs recite an initial foreclosure commenced in 2009, a withdrawal of that proceeding " without explanation" in 2012 followed by a new foreclosure action in 2012 (¶ ¶ 11, 15, and 84 of complaint).
In MERSCORP Holdings, Inc. v. Malloy, 320 Conn. 448, 131 A.3d 220 (2016), the court discussed/noted the frequency of transfers of mortgages and associated notes, in connection with the secondary market for such obligations, in turn potentially creating further layers of complexity and/or unavoidable delay, including changes in decision-making roles of lenders and servicers.
The plaintiffs disagree with the decision in Blanco v. Bank of America, N.A., J.D. Hartford, HHDCV156060162S (April 20, 2016) [62 Conn.L.Rptr. 190, ], in which Judge Dubay reached conclusions consistent with the defendant's motion, rejecting virtually identical claims to those presented by these plaintiffs. In part, the plaintiffs try to distinguish that decision by suggesting that the court did not pay sufficient attention to the policy issues they have raised. The decision clearly recognized those issues. In footnote 3, Judge Dubay stated the following: " In support of his public policy argument, the plaintiff relies, in part, on the OCC consent order, the NMS settlement, the Consumer Financial Protection Bureau's Mortgage Servicing Rules promulgated under the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq. (RESPA) and Connecticut's foreclosure mediation statute." This passage was in the context of identifying the public policy that allegedly had been violated, in turn justifying the CUTPA claim. Judge Dubay may not have discussed the policy-creating statutes and settlements in the detail plaintiffs may think would have been appropriate, but he clearly was aware of the issues and clearly was not persuaded.
In Blanco, the court refers to a decision in CitiMortgage, Inc. v. Claricoates, J.D. Tolland, TTDCV116003181S, (September 13, 2011), which also rejected a CUTPA claim based on claimed delays and claimed promises relating to the likelihood of a modification. Because it involved claimed promises relating to the likelihood of modification, Claricoates is not as " on point" as is Blanco .
In considering recognition of a cause of action, the impact on litigation is a recognized consideration. The court believes a related if indirect issue applies here. To the extent that a loan modification agreement in the context of a foreclosure may result in a lender (or assignee) requiring a release of claims against the lender, there is likely to be " new" litigation as to whether such a release inures to the benefit of a servicer, acting as the lender's agent; see, e.g., Alvarez v. New Haven Register, Inc., 249 Conn. 709, 715-16 735 A.2d 306 (1999). Conversely, if releases are not sought on a regular basis as a current practice, it is not difficult to foresee lenders (and especially servicers acting on behalf of lenders) insisting on releases, specifically addressing the modification process, as part of the modification process, thereby nullifying any perceived benefit from recognition of a potential cause of action.
" Both parties recognize that, in the absence of a specific statute, where the liability of a principal for a tort committed by his agent is predicated solely upon the doctrine of respondeat superior, a valid release of either operates to release the other."
Blanco appears to be the only Connecticut case cited by the parties that implicates the same issues as are present here (with Claricoates, mentioned in the footnote immediately above, probably properly characterized as " next-closest").
In determining whether to recognize a cause of action, courts have recognized the need for predictable line-drawing. That consideration applies often to the scope of allowable claimants, but can also apply to the nature or quality of the conduct that is to be deemed actionable. Notably, most torts are based on discrete events (e.g., negligently caused personal injury, repeated publication of defamatory statements), while a smaller number may be based on a continuous situation (e.g., private nuisance). In this situation, however, there would be a requirement to pick and choose among numerous events, each, when viewed standing alone, being of minimal consequence if not routine or expected, with a factfinder charged with the task of deciding which events were reasonable (or not too unreasonable) and then deciding whether the cumulative effect of the remaining events on an aggregate basis might be actionable. All of this would be in the context of a process whereby the putative defendant had no obligation to reach an agreement, and there is no fixed timetable for the always-unique back-and-forth of submissions and evaluations and re-submissions. This is analogous to the claim--essentially always rejected--that a series of non-reversible errors or a series of proper but consistently adverse rulings, on a cumulative basis, might form the basis for a reversal of a judgment. See, e.g. State v. Reddick, 33 Conn.App. 311, 338-39, 635 A.2d 848, 861 (1993).
It is appropriate for the court to consider the availability of other remedies. Under General Statutes § 49-31n(c)(2), the court can impose sanctions upon a party for inappropriate conduct during the course of mediation, and the availability of statutorily-authorized sanctions minimizes the need for judicially-created remedies. Much of the conduct described in the plaintiffs' complaint related to the court mediation program (see, e.g. ¶ 13); discussions relating to settlement inherently were in furtherance of the same goals. The need to recognize a new theory of liability is minimized by the existence of a statutory remedy, and one that, at least in theory, is likely to be more effective in that it can be invoked while events are unfolding, rather than waiting for the end of the process. (From an alternate prospective, the statutory remedy has the potential for a prospective impact, since it would bring to the fore concerns about allegedly improper conduct when at least some corrective action can be taken going forward, thereby mitigating if not eliminating any future adverse impact.)
" The court may impose sanctions on any party or on counsel to a party if such party or such counsel engages in intentional or a pattern or practice of conduct during the mediation process that is contrary to the objectives of the mediation program. Any sanction that is imposed shall be proportional to the conduct and consistent with the objectives of the mediation program. Available sanctions shall include . . . forbidding the mortgagee from charging the mortgagor for the mortgagee's attorneys fees, awarding attorneys fees, and imposing fines. In the case of egregious misconduct, the sanctions shall be heightened . The court shall not award attorneys fees to any mortgagee for time spent in any mediation session if the court finds that such mortgagee has failed to comply with this subdivision, unless the court finds reasonable cause for such failure." (Emphasis added.)
In their sur-reply brief (#109.00 at page 3), the plaintiffs reject the potential applicability of the economic loss doctrine in Connecticut to non-commercial parties, in turn advanced as a reason to distinguish (reject) the decisions in cases in other jurisdictions that directly or indirectly rely on that principle to reject claims similar to those of the plaintiffs:
Courts in Illinois (Wigod v. Wells Fargo Bank, N.A., supra, 673 F.3d at 568), Virginia (Pierce v. Wells Fargo Bank, N.A., 85 Va.Cir. 32 (2012)), and Indiana ( Jaffri v. JPMorgan Chase Bank, N.A., 26 N.E.3d 635, 638 (Ind.Ct.App. 2015) have all rejected homeowners' negligent servicing claims because of the economic loss doctrine, a doctrine only applicable to commercial parties in Connecticut. See Flagg Energy Dev. Corp. v. GMC, Allison Gas Turbine Div., 244 Conn. 126, 709 A.2d 1075 (1998); see also Williams Ford, Inc. v. Hartford Courant Co., 232 Conn. 559, 657 A.2d 212 (1995). The doctrine, and those opinions, have no bearing on this case because the Cenatiempos are not commercial parties.
The court need not go into great detail as to why it disagrees with the plaintiffs' characterization of the relevant holdings in Flagg and Williams --a recent Connecticut Supreme Court decision is devoted entirely to the applicability of the economic loss doctrine to claims asserted by non-commercial plaintiffs. In Lawrence v. O& G Industries, Inc., 319 Conn. 641, 126 A.3d 569 (2015), the court engaged in a comprehensive discussion as to whether the economic loss doctrine would apply to the plaintiffs in that case, all of whom were suing as individuals claiming harm as individuals (employees of a business adversely impacted by the allegedly negligent conduct of the defendant). The case makes it clear that the doctrine is not only applicable to claims asserted by commercial parties--applicability is dependent upon a range of factors, given the specific circumstances, including foreseeability, likely expansion of litigation, etc. (and the court notes that these are factors considered by the parties elsewhere in their submissions). Therefore, regardless of the persuasiveness of the cited cases, the attempt to dismiss their potential applicability based on that distinction must fail.
Suggesting that it is the nature of the relationship between the parties rather than status as a commercial party that is the distinguishing factor--effectively creating an exception for consumer-type transactions and relationships analogous to the statutory category set up in General Statutes § 42-150aa and the similar category recognized by General Statutes § 37-9--does not help. Many of the situations encompassed by the economic loss doctrine do not involve any direct relationship between the parties, with Lawrence being a prime example.
Accordingly, based on the available authorities and policy considerations, the court can only conclude that, however sympathetic the plaintiffs' situation may be, it cannot support the negligence and CUTPA claims articulated in the plaintiffs' operative complaint. The court agrees with Judge Dubay in concluding that such claims are legally insufficient.
Conclusion
The court recognizes that the pendency of a foreclosure is likely to be traumatic for any family wanting to retain the family home, and the specific facts as alleged by the plaintiffs, concerning their circumstance, are especially sympathetic. The plaintiffs correctly identify the various legislative and regulatory steps that have been taken to deal with the foreclosure crisis, trying to minimize the disruption while recognizing that in general, modification on a consensual basis can be a reasonable accommodation of the needs and interests of both sides. The plaintiffs seek to insert a coercive quality into the process, at least with respect to timeliness of the process, beyond the scope of any remedy statutorily available (e.g. § 49-31n(c)(2)).
The plaintiffs correctly acknowledge that none of the indicia of policy upon which they rely, specifically allows (and they generally forbid) explicit reliance on consent orders, etc. by individuals such as the plaintiffs. In effect, the plaintiffs seek to circumvent those prohibitions, arguing that instead of claiming that they have directly-enforceable rights under those authorities, they claim they can sue under a negligence or CUTPA theory, thereby indirectly accomplishing what they cannot accomplish directly. An indirect approach is not necessarily improper, but in this situation, the countervailing considerations outweigh any benefit that might accrue from allowing such an approach.
As already noted, there is no Connecticut authority supporting the plaintiffs' assertions, and there is at least one trial court decision directly to the contrary. There are numerous reasons to be hesitant about recognizing such a right. As already noted, potential liability for a servicer potentially means potential liability for the lender (or assignee/successor). Is speed of the decision-making process to be given priority, at the cost of allowing time to negotiate, re-submit, reconsider, etc., in addition to delays that are likely to arise in a process involving large numbers of claimants clamoring for attention?
The court cannot lose sight of the ultimate effect of the plaintiffs' claims--transferring their contractually-incurred liability to the servicer, seeking to hold the servicer responsible for not assisting them in convincing the servicer's client/principal to modify their loan (and thereby reduce their contractual obligation). To whom is the servicer primarily responsible? Courts have recognized a duty between adversarial parties in limited, and generally extreme, circumstances, e.g., bad faith settlement by an insurer, vexatious suit or abuse of process by an attorney or the client, etc. The cases relied upon by the plaintiffs, and discussed above, with one exception, did not involve a post-default and in-foreclosure context, where the conduct being challenged related to attempting to reach a resolution of the adversarial proceeding (foreclosure).
In Davis, the facts as quoted/alleged above, easily satisfy a bad faith standard (if not a " non-legal" vernacular standard of reprehensible).
The court has particular difficulty in fitting this situation into CUTPA. Although the plaintiffs use the proper words--unfair and deceptive--the actual conduct does not seem to come within the intended scope of the statute. The conduct in question does not implicate formation of contracts or other business relationships; it does not implicate substantive performance of express or implied contractual obligations; and in general, it does not implicate any distortion of the marketplace. It focuses on negotiation of relief from existing contractual obligations, a situation that the plaintiffs concede does not require any specific outcome, and in which the parties are adversarial given the pendency of litigation. Figuratively putting a timer on settlement processes does not truly advance the policies upon which the plaintiffs rely, when " no" is an ever-present (if arguably unproductive) means of avoiding liability. The court does not believe it to be appropriate or productive to adopt a requirement of " just right" pacing of foreclosure mediation and negotiations, where too fast or too slow (including inefficiency and perhaps some level of incompetence) might result in negligence or CUTPA-based liability.
For all of these reasons, the court grants the motion to strike both counts of the plaintiffs' complaint.