Opinion
Civil Action No. 20-20197
2022-07-28
Steven RAPOPORT v. CALIBER HOME LOANS, INC.
Javier Luis Merino, Dann Law Firm, North Brunswick, NJ, for Steven Rapoport. Gary Eisenberg, Perkins Coie LLP, New York, NY, Robert Thomas Yusko, Stein Saks, PLLC, Hackensack, NJ, for Caliber Home Loans, Inc.
Javier Luis Merino, Dann Law Firm, North Brunswick, NJ, for Steven Rapoport.
Gary Eisenberg, Perkins Coie LLP, New York, NY, Robert Thomas Yusko, Stein Saks, PLLC, Hackensack, NJ, for Caliber Home Loans, Inc.
LETTER ORDER
MADELINE COX ARLEO, United States District Judge
Dear Litigants:
Before the Court is Defendant Caliber Home Loans, Inc.’s ("Defendant") Motion to Dismiss Counts II and IV of the First Amended Complaint ("FAC"), ECF No. 17. Plaintiff Steven Rapoport ("Plaintiff") opposes the Motion. ECF No. 20. For the reasons explained below, the Motion is DENIED .
These facts are drawn from the FAC and the exhibits attached thereto.
This action arises out of Defendant's alleged failure to offer certain terms in a mortgage loan modification agreement following Plaintiff's successful completion of a trial payment plan ("TPP"). See generally FAC.
Plaintiff owns a home in Clifton, New Jersey, which he currently occupies as his primary residence (the "Home"). Id. ¶¶ 2-3. On May 25, 2005, Plaintiff executed a promissory note in the amount of $435,000 and a mortgage on the Home to secure the note (collectively, the "Loan"). Id. ¶ 4 & Ex. 1. Defendant services the Loan on behalf of nonparty U.S. Bank Trust, N.A., as Trustee for LSF10 Master Participation Trust ("U.S. Bank"). Id. ¶ 8. On December 15, 2017, U.S. Bank initiated foreclosure proceedings against Plaintiff in New Jersey Superior Court. Id. ¶ 26. Plaintiff then submitted a loss mitigation application to Defendant, in an attempt to avoid foreclosure. Id. ¶ 27.
On March 11, 2020, Defendant approved Plaintiff to enter into a "trial period plan" and generated a trial period loan modification offer. Id. ¶ 28; see also id. Ex. 2 (the "TPP"). The TPP stated that Plaintiff "would receive a permanent loan modification agreement upon successful completion of the TPP." Id. ¶ 28. The TPP further provided the following estimated terms for the first five years of a permanent loan modification following completion of the TPP:
• Proposed principal and/or interest payment: $1,397.33
• Proposed taxes and insurance payment: $1,069.66
• Proposed total monthly payment: $2,467.03
• Interest Rate (5 Year with Step): 2.50%
• Number of Loan Payments: 60 months
Id. ¶¶ 29-30; TPP at 2. The TPP explained that these terms were "estimated" and that Plaintiff would "be provided with the specific terms of the loan modification" upon completion of the TPP. TPP at 2. Defendant further stated in the TPP, "[w]e expect the monthly payment in the [modification agreement] will be similar to the trial payment, but amounts could vary." Id.
On March 25, 2020, Defendant, through counsel, sent Plaintiff's counsel an email with the following additional information regarding the proposed modification terms:
• Capitalized, modified principal balance: $735,824.23
• Principal forgiveness: $165,824.23
• Principal deferment: $146,270.02
• Modified interest bearing principal balance: $423,729.98
• Principal and interest payment: $1,397.37
• Escrow payment (including the escrow shortage): $1,069.66
Id. ¶ 33 & Ex. 3 (the "March 2020 Email"). Defendant's email explained that the proposed principal deferment of $146,270.02 "may change due to balance changes that may occur during the trial period." Id. ¶ 34.
Plaintiff fully performed his obligations under the TPP, during which time the balance on the Loan increased by $2,779.12. Id. ¶¶ 35, 40. Defendant then generated a permanent modification agreement, dated June 10, 2020, which contained terms that differed from the estimates and proposed terms listed in the TPP and Defendant's March 2020 email. Id. ¶¶ 35-39; see also id. Ex. 4 (the "Modification"). Specifically, the Modification provided for a principal deferment of only $95,000.00, resulting in a $51,270.02 increase in interest bearing principal balance, and a corresponding $169.12 increase in Plaintiff's monthly principal and interest payment. Id. ¶ 38. Plaintiff alleges that these changes could not have arisen from "balance changes" during the trial period but are instead attributed to Defendant's unilateral and unexplained decision to reduce the principal deferment. Id. ¶¶ 40, 98.
On June 26, 2020 and September 25, 2020, Plaintiff sent Defendant notices of error ("NOEs") asserting that the Modification failed to implement the terms promised by the TPP, which Defendant did not respond to. Id. ¶¶ 41-48. During this period, on July 7, 2020, Plaintiff executed the Modification. Id. ¶ 43.
Plaintiff initiated this action on December 23, 2020 by filing a Complaint against Defendant asserting breach of the express terms of the TPP, breach of the covenant of good faith and fair dealing implied in the TPP, and violations of the Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601, et seq. ("RESPA"), the New Jersey Consumer Fraud Act, N.J.S.A. § 56:8-2 ("NJCFA"), and the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692, et seq. ("FDCPA"). See Compl., ECF No. 1. On September 29, 2021, the Court partially granted Defendant's motion to dismiss the initial complaint, dismissing Plaintiff's breach of express contract claim with prejudice, dismissing Plaintiff's NJCFA claim and FDCPA claim without prejudice, and partially dismissing Plaintiff's RESPA claim without prejudice. ECF No. 11 (the "September 2021 Order").
On November 19, 2021, Plaintiff filed the First Amended Complaint, which asserts four claims: (1) violations of RESPA arising from Defendant's failure to respond to the NOEs, FAC ¶¶ 53-84 ("Count I"); (2) a violation of the NJCFA arising from Defendant's allegedly misleading presentation of terms in the TPP and March 2020 Email, id. ¶¶ 85-104 ("Count II"); (3) breach of the covenant of good faith and fair dealing implied in the TPP, id. ¶¶ 105-112 ("Count III"); and (4) violations of the FDCPA, id. ¶¶ 113-120 ("Count IV"). Defendant now moves to dismiss Counts II and IV. ECF No. 17.
II. LEGAL STANDARD
In considering a Rule 12(b)(6) motion to dismiss, the Court accepts as true all of the facts in the complaint and draws all reasonable inferences in favor of the plaintiff. Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008). Dismissal is inappropriate simply because "it appears unlikely that the plaintiff can prove those facts or will ultimately prevail on the merits." Id. The facts alleged, however, must be "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The allegations in the complaint "must be enough to raise a right to relief above the speculative level." Id. Accordingly, a complaint will survive a motion to dismiss if it provides a sufficient factual basis such that it states a facially plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).
III. ANALYSIS
A. NJCFA (Count II)
Defendant argues that Plaintiff has failed to plausibly allege the unlawful conduct, ascertainable loss, or causal nexus necessary to support an NJCFA claim. The Court disagrees.
The NJCFA prohibits, among other things, misrepresentations or "unconscionable commercial practice[s]" in connection with the sale of real estate or its "subsequent performance." N.J.S.A. § 56:8-2. "A CFA claim may arise from the collection, enforcement, or modification of a loan." Heyman v. Citimortgage, Inc., No. 14-1680, 2019 WL 2642655, at *34 (D.N.J. June 27, 2019) (collecting cases). To state a claim under the NJCFA, a plaintiff must allege "(1) unlawful conduct; (2) an ascertainable loss; and (3) a causal relationship between the defendants’ unlawful conduct and the plaintiff's ascertainable loss." Int'l Union of Operating Eng'rs Loc. No. 68 Welfare Fund v. Merck & Co., 192 N.J. 372, 389, 929 A.2d 1076 (2007).
The Court dismissed the previous iteration of Plaintiff's NJCFA claim after concluding that Plaintiff had not alleged that Defendant made a false statement of fact or otherwise engaged in conduct with a "capacity to mislead." See Sept. 2021 Order, at 8-9. The FAC now alleges that by providing estimated loan terms in the TPP and the March 2020 Email, and then suggesting that those terms would shift only based on "balance changes ... during the trial period," Defendant engaged in conduct with the capacity to mislead. See FAC ¶¶ 96-99. As explained below, such allegations are sufficient to proceed with an NJCFA claim.
1. Unlawful Conduct
Unconscionability for purposes of the NJCFA is "an amorphous concept obviously designed to establish a broad business ethic." Cox v. Sears Roebuck & Co., 138 N.J. 2, 17-18, 647 A.2d 454 (1994). To be "unconscionable," conduct must at a minimum imply a "lack of ‘good faith, honesty in fact and observance of fair dealing’ and have ‘the capacity to mislead.’ " Ciser v. Nestle Waters N. Am., Inc., 596 F. App'x 157, 160 (3d Cir. 2015) (citing Cox, 138 N.J. at 17, 647 A.2d 454 ). Where, as here, an NJCFA claim arises from conduct in the performance of a contract, the plaintiff "must allege a ‘substantial aggravating circumstance,’ demonstrating that the defendant's behavior ‘stands outside the norm of reasonable business practice in that it will victimize the average consumer.’ " Coda v. Constellation Energy Power Choice, LLC, 409 F. Supp. 3d 296, 301-02 (D.N.J. 2019) (quoting Suber v. Chrysler Corp., 104 F.3d 578, 587 (3d Cir. 1997) ). Ultimately, a jury must typically determine whether the challenged conduct falls outside a "reasonable business practice." Heyman, 2019 WL 2642655, at *34 (citing Hassler v. Sovereign Bank, 644 F. Supp. 2d 509, 514 (D.N.J. 2009) ).
The Court previously held that the TPP was a unilateral contract to offer a permanent loan modification, and that Plaintiff plausibly alleged that Defendant breached an implied duty to supply modification terms in good faith and without subverting the parties’ expectations. Sept. 2021 Order, at 7, 9-10.
Drawing all inferences in Plaintiff's favor, the FAC now sufficiently alleges that Defendant engaged in commercial conduct that fell outside reasonable business practices and had a capacity to mislead. While Plaintiff has not identified any statement made by Defendant that is demonstrably false, a reasonable jury could conclude that the TPP's offer of estimated loan terms, combined with Defendant's subsequent explanation that those terms "may change due to balance changes" would give the average consumer a false impression that the estimates would not be significantly altered for reasons other than "balance changes." Plaintiff has therefore plausibly alleged conduct proscribed by the NJCFA.
Though neither party has cited authority directly on point, there is some support suggesting that a defendant who provides final contract terms that differ significantly from a previous estimate can violate the NJCFA, particularly when coupled with later statements suggesting the estimate would be honored. In Hyland v. Zuback, the court held that a contractor violated the NJCFA by quoting a consumer an estimated $100 and four hours of work to complete a job, making statements that misled the consumer into thinking the job was progressing as planned, and then presenting a final bill of $467, representing 29 hours of work. 146 N.J. Super. 407, 409, 370 A.2d 20 (App. Div. 1976) ; see also Turf Lawnmower Repair, Inc. v. Bergen Rec. Corp., 139 N.J. 392, 414-15, 655 A.2d 417 (1995) (citing Hyland as an "instructive example of consumer fraud").
2. Ascertainable Loss and Causation
Defendant next argues that Plaintiff has failed to allege an ascertainable loss caused by Defendant's conduct. "In cases involving breach of contract or misrepresentation, either out-of-pocket loss or a demonstration of loss in value will suffice" to establish ascertainable loss. Thiedemann v. Mercedes-Benz USA, LLC, 183 N.J. 234, 248, 872 A.2d 783 (2005). An alleged "loss in value" can be established through allegations that the plaintiff did not receive the full value of that which he bargained for, so long as the lost "benefit of the bargain" is "quantifiable or measurable," as opposed to "hypothetical or illusory." Id. at 248, 252, 872 A.2d 783 n.8 ; see also Smajlaj v. Campbell Soup Co., 782 F. Supp. 2d 84, 99 (D.N.J. 2011) ("An ascertainable loss occurs when a consumer receives less than what was promised.") (citation omitted).
Plaintiff argues that he lost the benefit of his bargain to complete the TPP in exchange for a permanent loan modification with terms "substantially similar" to those estimated in the TPP. Pl. Opp. at 17. Defendant contends that such "benefit of the bargain" claims are available only when a plaintiff purchases a "product" and that the loan modification at issue here does not qualify as such. While it is true that the overwhelming majority of "benefit of the bargain" claims occur in the context of the sale of goods or services, the Court discerns no reason why this theory would be unavailable in the context of loan modifications.
In this regard, Defendant's reliance on Mehnert v. U.S. Bank National Association for the proposition that "[c]ourts have found that a mortgagor who is not required to pay more than her legal obligation has not sustained any ascertainable loss," is misplaced. No. 17-4985, 2018 WL 1942523, at *8 (D.N.J. Apr. 23, 2018). In Mehnert, the plaintiff generally alleged that a mortgage loan servicer committed consumer fraud in connection with a foreclosure on her home but did "not specifically identify any of Defendant's conduct that is proscribed by the NJCFA." Id. With respect to ascertainable loss, the court held only that a foreclosure on the plaintiff's home did not constitute an additional "loss" in excess of the plaintiff's legal obligations under the mortgage. Id. The case that Mehnert relied on for Defendant's cited proposition is similarly inapposite. In Barows v. Chase Manhattan Mortgage Corp., the plaintiff alleged that she suffered losses "in excess of her legal obligation" on a mortgage loan based on "a possibility she would have to pay attorneys’ fees and costs in order to resolve [a] foreclosure action." 465 F. Supp. 2d 347, 361-62 (D.N.J. 2006). Because the foreclosure court ultimately did not assess any fees or costs against the plaintiff, the court held that she had not suffered any ascertainable loss. Id.
Neither Mehnert nor Barows confronted circumstances similar to the bargained-for loan modification present here. Cf. Mehnert, 2018 WL 1942523, at *8 ("The Complaint is devoid of any allegations regarding particular discussions between Plaintiff and Defendant regarding a loan modification."). The narrow holdings in those cases certainly do not suggest that the NJCFA prohibits all benefit-of-the-bargain claims arising from proposed loan modifications.
Here, Plaintiff has alleged that as a result of Defendant's failure to offer loan terms consistent with the parties’ mutual bargain, he suffered a quantifiable loss in the form of a loan modification that is less favorable than the estimated terms provided in the TPP, resulting in thousands of dollars in additional interest payments over the life of the loan. Such allegations suffice to plead an ascertainable loss caused by Defendant's unlawful conduct.
Consequently, the Court denies the Motion as to Count II.
B. FDCPA (Count IV)
To state an FDCPA claim, a plaintiff must allege that "(1) she is a consumer, (2) the defendant is a debt collector, (3) the defendant's challenged practice involves an attempt to collect a ‘debt’ as the [FDCPA] defines it, and (4) the defendant has violated a provision of the FDCPA in attempting to collect the debt." Barbato v. Greystone All., LLC, 916 F.3d 260, 265 (3d Cir. 2019). Defendant challenges only the fourth element of Plaintiff's claim, arguing that the FAC fails to cure the deficiencies identified in the September 2021 Order.
Section 1692e of the FDCPA prohibits the use of "any false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. § 1692e. A debt collector's statement is deceptive or misleading, in violation of Section 1692e, if the statement is (a) susceptible to two different meanings, one of which is inaccurate, when viewed from the perspective of the "least sophisticated debtor;" and (b) "material," in that it "has the potential to affect the decision-making process of the least sophisticated debtor." Jensen v. Pressler & Pressler, 791 F.3d 413, 421 (3d Cir. 2015).
The Court is satisfied that the FAC now plausibly alleges a violation of the FDCPA. For substantially the same reasons discussed above with respect to Plaintiff's NJCFA claim, a reasonable jury could conclude that Defendant's representation that the principal deferment estimate provided in the TPP "may change due to balance changes" during the trial period was materially misleading.
The Court therefore denies the Motion as to Count IV.
IV. CONCLUSION
For the reasons stated above, Defendant's Motion to Dismiss Counts II and IV, ECF No. 17, is DENIED .