Foley v. Wells Fargo Bank, N.A. ( 2014 )

United States Court of Appeals
For the First Circuit
No. 13-2527
JONATHAN FOLEY,
Plaintiff, Appellant,
v.
WELLS FARGO BANK, N.A.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. F. Dennis Saylor, IV, U.S. District Judge]
Before
Torruella, Dyk,* and Thompson,
Circuit Judges.
Valeriano Diviacchi for appellant.
David M. Bizar, with whom Seyfarth Shaw LLP was on brief, for
appellee.
November 14, 2014
*
Of the Federal Circuit, sitting by designation.
THOMPSON, Circuit Judge. Jonathan Foley sued Wells
Fargo, N.A. ("Wells Fargo") for failing to consider him for a
mortgage loan modification, which a class action settlement
agreement required the bank to do before attempting to foreclose on
Foley's home. The district court dismissed the four-count
complaint, and Foley appeals the dismissal of three counts, arising
under state common and statutory law, on various grounds.1 Wells
Fargo insists that the district court rightly dismissed the
complaint because Foley failed to state a claim for any of the
causes of action. Wells Fargo also argues that two of Foley's
claims are preempted by a federal law governing home mortgage
lending.
After a deliberate review, we find that the district
court improperly considered evidence outside of the pleadings to
resolve Wells Fargo's motion to dismiss, warranting a revival of
Foley's common law claims. Foley's statutory causes of action,
however, brought under Mass. Gen. Laws ch. 244, §§ 35A and 35B, did
fall short of stating a cognizable claim, and therefore, we affirm
their dismissal.
Accordingly, we vacate in part the judgment entered in
Wells Fargo's favor, and remand Foley's claims for breach of
contract (Count One) and breach of the implied covenant of good
1
Foley did not appeal the district court's dismissal of his
Mass. Gen. Laws ch. 93A claim (Count Three), and so we will not
discuss it.
-2-
faith and fair dealing (Count Four). We affirm the dismissal of
Count Two, violation of Mass. Gen. Laws ch. 244.
I. BACKGROUND
To set the factual stage for this case, we rely on the
allegations set forth in Foley's complaint, the documents attached
to the complaint, and relevant public records. Watterson v. Page,
987 F.2d 1, 3 (1st Cir. 1993). See also Medina-Velázquez v.
Hernández-Gregorat, No. 12-2492, 2014 WL 4628506, at *3 (1st Cir.
Sept. 17, 2014) ("[W]e construe the well-pleaded facts in the light
most favorable to the plaintiffs, . . . accepting their truth and
drawing all reasonable inferences in plaintiffs' favor.").
A. Foley's Home Loan
Foley applied for a home mortgage loan from World
Savings, FSB,2 on March 7, 2005. The bank offered Foley a
"Pick-a-Payment" loan--a monthly, adjustable-rate mortgage that
allowed the borrower to choose one of various payment arrangements,
based on a minimum payment amount determined by the borrower.
Foley accepted the $455,000 loan, and his monthly mortgage payment
was approximately $1,600.
But Foley, like so many other borrowers, was affected by
the housing crash of 2008. The value of his home dropped
2
Wells Fargo Bank, N.A. is the successor-by-merger to Wells
Fargo Bank Southwest, N.A., formerly known as Wachovia Mortgage,
FSB, formerly known as World Savings Bank, FSB. We refer to the
entities interchangeably, as do the parties, as "Wells Fargo" or
"the bank."
-3-
significantly, preventing him from refinancing with a more
favorable interest rate. He lost his job around October 2008, but
used his savings to continue making mortgage payments for two
years.
Come October 2010, Foley succumbed to his financial
hardship and stopped making timely payments in-full, but did make
some partial payments through April 2011. He sought a loan
modification from the bank, and in April 2011, Wells Fargo informed
him he might qualify for the Home Affordable Modification Program
("HAMP"), a federal program that allows qualified homeowners to
reduce their monthly mortgage payments. Foley asked to
participate, and the bank's representatives said they would send
him an application.
B. Pick-a-Payment Settlement
In the meantime, Wells Fargo settled a California class
action lawsuit in May 2011. The plaintiffs in that suit had
alleged that Pick-a-Payment loans violated the Truth-in-Lending Act
because the loan documents failed to adequately disclose to
borrowers certain loan conditions, including interest rates and
payment schedules. The class action settlement agreement specified
three categories of Pick-a-Payment borrowers, and the parties agree
that Foley is a member of "Settlement Class B."
-4-
A few of the settlement agreement's terms, as they apply
to Settlement Class B members, are relevant to Foley's case. The
agreement provides:
Settlement Class B Members . . . first shall
be considered for a HAMP modification. . . .
[Those] who do not qualify for or elect not to
accept a HAMP modification shall be considered
for a MAP2R modification.
"MAP2R" was a new proprietary modification program Wells
Fargo created specifically for the settlement, and the step-by-step
eligibility determination process for MAP2R (called the "waterfall"
process) was spelled out in the agreement. The bank was required
to apply seven specific (and rather complicated) sequential steps
until a debt-to-income ratio of 31 percent was reached for the
borrower. But if the bank followed the waterfall and could not
reach 31 percent, it was not required to offer a MAP2R
modification.
The settlement agreement also imposed certain "servicing
commitments," created, according to the agreement, "[i]n order to
ensure that Borrowers are appropriately considered for a MAP2R
Modification in a timely manner." The agreement required, for
instance, that Wells Fargo provide class members with clear,
written explanations of modification denials, and in any
foreclosure-related communications, a notification that the
borrower was still being considered for a modification.
-5-
C. Foley's Continued Pursuit
In the midst of the class action's resolution, Foley,
presumably still unaware of the class action settlement, pressed on
with HAMP, which Wells Fargo continued to tell him through November
2011 (six months after the California class action went into
effect) was the only modification for which he might qualify.
After numerous follow-up phone calls to Wells Fargo (which Foley
started making on the heels of his April 2011 call with the bank's
representatives), Foley finally received a HAMP application from
the bank in November 2011--some seven months after they had
promised to send it--which he promptly completed and returned.
Around January 2012, Foley received a letter from Wells
Fargo stating it had not received his completed application. In
2012, Foley made many additional calls to Wells Fargo's "Home
Preservation Specialist" (and, after she left the position, her
replacement) to inquire about his application status, but his calls
were never returned. In an Orwellian turn of events, he instead
received letters explaining his "short sale" or "deed in lieu of
foreclosure" options--neither of which would actually allow Foley
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to "preserve" ownership of his home.3 Meanwhile, Wells Fargo
scheduled foreclosure.
After several months of periodic, unreturned phone calls
to the Specialist, a dissatisfied Foley spoke to the Home
Preservation supervisor, who told him his HAMP application was
either lost or never received, and that he would be sent a new
application. Foley received the application in November or
December 2012 and returned it toward the end of the year.
Almost two years after Foley first asked for a
modification, Wells Fargo sent him two letters around February
2013. One letter notified him that he was rejected from HAMP, and
the other informed him that he would not be offered "a
modification" (though the letter did not specify for which
modifications Foley was considered) because of his "excessive
financial obligations." The letters, which Foley attached to his
complaint, provided no further explanation for the modification
denials. Wells Fargo again scheduled foreclosure.
After numerous further failed attempts to discuss a loan
modification with Wells Fargo, Foley sought assistance from the
Massachusetts Attorney General's Office ("AG's Office") around
3
Both a "short sale" and "deed in lieu of foreclosure" are
alternatives to foreclosure that still require the homeowner to
forego ownership of his home. In a short sale, the lender agrees
to allow the borrower to sell the home for less than what he owes
on the mortgage. Opting for a deed in lieu of foreclosure means
the homeowner hands over his interest in the property to the bank.
-7-
April 8, 2013. The AG's Office contacted Wells Fargo and suggested
that because of a change in Foley's financial situation,4 a new
modification application might be warranted. Thereafter, the bank
postponed the impending foreclosure, and Foley reapplied for HAMP.
Around July 5, 2013, Foley received two letters dated
June 27, 2013 denying his request for a loan modification, again
due to "excessive financial obligations." These letters were
substantively identical to the denial letters he received in
February, despite the fact that Foley demonstrated "lessened
hardship" the second go-round. Foley called Wells Fargo to discuss
the letters, and the Specialist told him he would need a monthly
income of $10,000 to qualify for a modification. Foley was
"perplexed" by this explanation because he would not have needed a
loan modification were his income that high. Foley thereafter
contacted the AG's Office again, informing it that Wells Fargo had
not provided an explanation for his modification denials. A few
days later, he received another foreclosure notice from the bank.
The carousel kept spinning, and around July 15, 2013, the
AG's Office yet again contacted Wells Fargo, asking the bank to
provide a written explanation of Foley's modification denials and
the specific names of the modifications for which he had been
4
Foley alleged that he faced "lessened hardship" the second
time he applied for a modification, but it is not clear from the
complaint exactly how his financial situation changed at that point
in time.
-8-
denied. After a couple of days, Foley got a call from Justin
Forbes, of Wells Fargo's Executive Complaint Department. Forbes
explained that Foley was rejected for all loan modifications,
including HAMP and the "Mortgage Assistance Program." At some
point that is not clear from the record, Foley became aware of his
rights under the settlement agreement; armed with this knowledge,
he asked Forbes "specifically whether he was considered for
MAP2R[,] and [] Forbes responded 'no.'" Then, Forbes waffled, and
"[u]pon further questioning[,] [] stated [Foley] was also rejected
for [MAP2R]." When Foley expressed his view that he "was not
afforded the procedural process under the MAP2R program, [] Forbes
stated he will make inquiry to the Wells Fargo legal team." When
Foley asked for a "written explanation regarding the MAP2R program
rejection," Forbes gave the same response about needing to consult
the bank's lawyers.
In a follow-up call on July 30, 2013--a year and a half
after Foley first applied for a modification, and more than two
years after Foley first asked to apply--Forbes told Foley he would
receive detailed denial letters in a few days. Foley filed his
complaint on August 1, 2013 before receiving any such letter.
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D. Foley's Lawsuit
With the threat of foreclosure looming, Foley filed a pro
se suit in Plymouth Superior Court in Massachusetts.5 The
complaint alleged breach of contract (Count One), violation of
Mass. Gen. Laws ch. 244, §§ 35A and 35B (Count Two), violation of
Mass. Gen. Laws ch. 93A (Count Three), and breach of the implied
covenant of good faith and fair dealing (Count Four) for the bank's
alleged mishandling of Foley's loan modification requests. Namely,
Foley alleged that the bank misled him about his rights under the
settlement agreement, misguided him during the modification
process, and altogether ignored his modification requests. Foley's
complaint ultimately sought specific performance of the settlement
agreement and some unspecified damages. Foley also moved for a
temporary restraining order and preliminary injunction, in an
effort to stave off the foreclosure scheduled to take place about
a week later.
Wells Fargo removed the case to federal court, where
Foley renewed his motion for preliminary injunctive relief. In
opposing the injunction motion, Wells Fargo submitted a letter
dated July 30, 2013. The letter stated that Foley was denied HAMP
relief because his monthly loan payment would amount to 58 percent
of his gross monthly income. As to MAP2R, the letter indicated:
5
Foley proceeded in both the state and federal trial courts
pro se, but obtained counsel for his appeal.
-10-
MAP2R provides guidelines to reduce a
borrower's monthly mortgage payment to 34.00%
of their gross monthly income. Under the
MAP2R guidelines, we were unable to
sufficiently adjust the terms of the loan to
achieve an affordable housing payment
reflective of 34.00% of your gross monthly
income.[6]
E. The District Court's Rulings
After a hearing on Foley's motion for injunctive relief,
the district court temporarily enjoined Wells Fargo from
foreclosing on Foley's home, pending an evidentiary hearing on the
motion. While the injunction motion was in abeyance, Wells Fargo
moved to dismiss Foley's complaint for failure to state a claim,
pursuant to Fed. R. Civ. P. 12(b)(6), to which Foley filed a
written opposition.
The case was reassigned to another trial judge, who
conducted the evidentiary hearing on the preliminary injunction.
At the close of the hearing, the judge orally denied Foley's motion
for injunctive relief, and stated that he was "not going to take
up" the pending motion to dismiss because he deemed it "appropriate
to consider that on the papers." The court later entered a written
order allowing Wells Fargo's motion to dismiss and disposing of all
of Foley's claims, without conducting a hearing.
This timely appeal followed.
6
The settlement agreement required the bank to reduce the
mortgage payment to 31 percent of the borrower's income, not 34
percent.
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II. DISCUSSION
A. Foley's Contract Claims (Counts One and Four)
We begin by addressing Foley's claims for breach of
contract and breach of the implied covenant of good faith and fair
dealing. First, we explain how the trial judge applied the
incorrect standard of review, and why this error warrants a remand
of these contract-based claims. Then, we discuss why we are also
unmoved by Wells Fargo's alternate proposed grounds for affirming
the dismissal of these claims. In so doing, we address Wells
Fargo's apparent misapprehension of Foley's pleaded grievances--an
issue raised in both parties' briefs and relevant to Wells Fargo's
assertion that certain arguments brought by Foley's counsel on
appeal are waived.
1. Improper Rule 56 Conversion
We start our analysis by laying out the appropriate
standard of review for a Rule 12(b)(6) motion to dismiss for
failure to state a claim. A court's goal in reviewing a Rule
12(b)(6) motion is to determine whether the factual allegations in
the plaintiff's complaint set forth "a plausible claim upon which
relief may be granted." Woods v. Wells Fargo Bank, N.A., 733 F.3d
349, 353 (1st Cir. 2013). The court must take all of the pleaded
factual allegations in the complaint as true. Watterson, 987 F.2d
at 3. Barring "narrow exceptions," courts tasked with this feat
usually consider only the complaint, documents attached to it, and
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documents expressly incorporated into it. Id. Thus, a primary
purpose of a Rule 12(b)(6) motion is to weed out cases that do not
warrant reaching the (oftentimes) laborious and expensive discovery
process because, based on the factual scenario on which the case
rests, the plaintiff could never win. In short, plaintiffs are not
required to submit evidence to defeat a Rule 12(b)(6) motion, but
need only sufficiently allege in their complaint a plausible claim.
Compare that to a Rule 56 motion for summary judgment,
where the court must determine whether "there is no genuine dispute
as to any material fact and the movant is entitled to judgment as
a matter of law." Fed. R. Civ. P. 56(a). Defendants typically
bring Rule 56 motions after some, if not all, of the discovery
process has concluded because to prevail on the motion, the movant
must direct the court to specific, admissible evidence in the
record in order to show that the other side could not win at trial.
See Fed. R. Civ. P. 56(c).
Sometimes, though, waiting until after discovery is over
to dispose of a claim on summary judgment is an asinine exercise,
if defendants possess some document that could help a court do so
earlier on in the life of the case. Promoting judicial efficiency,
the Rules account for circumstances like these and allow district
courts the leeway to consider documents outside the complaint (as
well as the "narrow exceptions" we identified above) by converting
a defendant's Rule 12(b)(6) motion into a Rule 56 motion. Fed. R.
-13-
Civ. P. 12(d). This conversion need not be express, but the court
must give both sides "a reasonable opportunity to present all the
material that is pertinent to the motion." Id.; Bartlett v. Dep't
of the Treasury (I.R.S.), 749 F.3d 1, 12 (1st Cir. 2014).
Given that procedural framework, we discuss why, in our
view, the district court in the instant case converted Wells
Fargo's motion to dismiss Foley's contract-based claims into a
motion for summary judgment--though not expressly--and did so
improperly, warranting a remand of those claims.7
The motion to dismiss proceedings before the district
court provide the backdrop for our analysis.
The class action settlement agreement required that Wells
Fargo "consider" Foley for a HAMP and MAP2R modification. As far
as we can tell, neither party has disputed that fact throughout the
life of this case.
7
Foley does not cite Rule 12(d) in his briefing. We,
however, consider the issue of the district court's improper
conversion of the motion to dismiss sufficiently raised. Foley
asserts that the district court misapplied the standard of review
for a motion to dismiss in reaching its ultimate conclusion that
Wells Fargo "performed its obligation under the settlement
agreement to consider Plaintiff for MAP2R." He argues that the
district court's "conclusion that Wells Fargo actually met its
obligation to consider Mr. Foley for MAP2R is wholly unsupported by
the available evidence, which raises unresolved factual questions
about how and when Mr. Foley was considered for a loan
modification." Foley's counsel crystalized these contentions at
oral argument, comparing the district court's treatment of the case
to a summary judgment hearing, and noting that it remained a
disputed issue of fact whether Foley was considered for a
modification, despite the contents of the July 30 letter.
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But the parties diverge on whether Foley, in drafting his
pro se complaint, understood the extent of Wells Fargo's
obligations under the settlement agreement. As Wells Fargo
explained in its motion to dismiss, it interpreted Foley's
allegations to amount to a "grievance [] that he was not approved
for a loan modification." But, Wells Fargo urged, "nothing in the
Settlement Agreement required Wells Fargo to approve him." In
response, Foley argued to the district court in his written
opposition to the motion to dismiss that Wells Fargo misunderstood
the nature of his allegations, and that in fact, he pleaded that
Wells Fargo did not consider him for a modification, as required by
the settlement agreement, and did not comply with the agreement's
other procedural mandates.
In its order, the district court agreed with Foley and
held that "defendant reads the complaint too narrowly. In fact,
plaintiff asserts not only that defendant failed to provide him a
MAP2R modification, but also that it failed to even consider him
for one." Similarly, as to the claim for breach of the implied
covenant of good faith and fair dealing, the court found that
Foley's "allegations that defendant's inability to communicate
effectively about MAP2R prevented plaintiff from being considered
for such a modification could state a claim for breach of the
implied covenant of good faith and fair dealing."
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And so it seems the district court concluded that Foley
successfully pleaded both a breach of the settlement agreement and
a breach of the implied covenant of good faith and fair dealing.
Thus, on a Rule 12(b)(6) motion, the district court's inquiry
should have ended.
Unfortunately, the district court's inquiry did not start
and end with the pleadings. Recall that Wells Fargo submitted
during the injunction proceedings a letter dated July 30, 2013. In
that letter, Wells Fargo explained that Foley was denied HAMP and
MAP2R because he did not fit within the income guidelines for those
programs.
Relying on that letter, the district court dismissed
Foley's breach of contract claim because "it appears that defendant
performed its obligation under the settlement agreement to consider
plaintiff for MAP2R." The court also dismissed the good faith and
fair dealing claim on the theory that "defendant did consider
plaintiff for MAP2R, and its poor communication does not appear to
have ultimately and substantially interfered with plaintiff's
rights under the contract." Thus, despite identifying the correct
standard of review for a Rule 12(b)(6) motion (and its requirement
that the court be limited to considering the complaint and its
attachments), the district court side-stepped the standard, relied
on a document extraneous to the pleadings, and decided Foley's
claims on the merits. That series of events, in our estimation,
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equates to converting a motion to dismiss into a motion for summary
judgment.
Still, Rule 12(d) says the district court would have been
permitted to make this conversion if it had given the parties a
reasonable opportunity to present materials pertinent to the
motion. Fed. R. Civ. P. 12(d). Alas, the court did not.
Discovery never started in this case, and, as Foley noted during
the injunction hearing, Wells Fargo possessed the information he
would need to determine whether the bank fairly reviewed his
eligibility for a modification. When discovery has not "begun and
the nonmovant has had no reasonable opportunity to obtain and
submit additional evidentiary materials to counter the movant's
[evidence], conversion of a Rule 12 motion to a Rule 56 motion is
inappropriate." Whiting v. Maiolini, 921 F.2d 5, 7 (1st Cir.
1990). Foley was given no opportunity, let alone a reasonable one,
to collect and present evidence that would contradict Wells
Fargo's. Foley had no way to even challenge whatever numbers the
bank used to make its calculations. Thus, Foley was provided no
reasonable opportunity to gather or present actual evidence
pertinent to his claims.
We recognize that we have extended leniency toward a
district court's failure to provide express notice of its intention
to convert a motion to dismiss when such failure was harmless. See
Boateng v. InterAmerican Univ., Inc., 210 F.3d 56, 60-61 (1st Cir.
-17-
2000). But "we treat[] any error in failing to give express notice
as harmless when the opponent has . . . had an opportunity to
respond to [the relied-upon evidence]." Bartlett, 749 F.3d at 12
(quoting Boateng, 210 F.3d at 60). And, as we discussed above, it
appears from the court's decision that Foley's claims would have
survived, had the court applied the correct standard of review.
Strikingly here, the judge also specifically told the parties at
the injunction hearing that he was not hearing them on the motion
to dismiss and rather, would resolve that motion "on the papers."
Based on this representation, Foley had no reason to know the court
would be considering documents filed by Wells Fargo in opposition
to the injunction motion to resolve the motion to dismiss. In its
written decision, the court also explicitly penalized Foley because
he "offered no evidence" to refute the representations Wells Fargo
made in the July 30 letter. If Foley had some notice of the
court's thinking, he may have attempted to provide such evidence
(keeping in mind the practical limitations Foley faced even
accessing relevant information without discovery). This record
makes abundantly clear that the district court's conversion to a
summary judgment motion was premature, and that the failure to
expressly convert the motion to dismiss was not harmless.
We must also address another wrinkle in this procedurally
complicated matter. Both Wells Fargo and the district court have
suggested that the July 30 letter was proper to consider on a Rule
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12(b)(6) motion because, even though it was not attached to the
complaint, it was a part of the pleadings.
Courts are permitted, in some instances, to consider on
a Rule 12(b)(6) motion documents that were not attached to the
complaint. We have found these "narrow exceptions" to include
"documents the authenticity of which are not disputed by the
parties; . . . documents central to plaintiffs' claim; or . . .
documents sufficiently referred to in the complaint." Watterson,
987 F.2d at 3.
In its decision, the district court relied on the
theories that Foley "did not contest the authenticity of the
letter" and that he referred to the letter in his complaint. Wells
Fargo further asserts that the letter was "integral" to Foley's
pleading.
But we are not so convinced. Concerning the first
category (documents of undisputed authenticity), we reiterate that
Foley had no opportunity to challenge the document in question.
What's more, Foley made clear on the record during the preliminary
injunction hearing that he was suspicious of the document. The
July 30 letter was an exhibit to an affidavit submitted in
opposition to the injunction motion, and the affiant, Wells Fargo
Operations Analyst Michael Dolan, attested that the letter was a
"true and accurate copy." Foley told the court during the
evidentiary hearing that Dolan was "not trustworthy and not
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believable," based on, according to Foley, findings by a judge in
another matter that Dolan's statements were "unreliable." Foley,
in fact, labeled the affidavit itself "faulty." It follows that
Foley called into question the integrity of the attached documents,
the authenticity of which Dolan attested to.
As to the second category (documents central to the
claims), we do not see how the letter is integral to any of Foley's
claims. Most especially, the surviving contract claims revolve
around Wells Fargo's alleged failure to fairly consider Foley's
modification eligibility over the course of the year and a half
prior to the letter's existence.
Finally, as to the third category (documents sufficiently
referred to in the complaint), the district court recognized in its
order that Foley had not yet received the letter when he filed his
complaint.8 The closest the complaint comes to referencing the
letter is in relaying Forbes's July 30, 2013 statement that Foley
"would be receiving detailed modification letters in a few days."
Foley could not have sufficiently referred to a document he had yet
seen, or the existence of which he had yet learned. Thus, the July
30 letter was not a part of Foley's pleadings.
8
While the order states that the letter was "something that
defendant had not yet seen" (emphasis added), given the context of
the discussion, we assume this was a stenographic error and the
court intended to say that plaintiff had not seen the letter.
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Given all of these considerations, we conclude that the
district court erroneously converted Wells Fargo's motion to
dismiss into a motion for summary judgment without providing Foley
a reasonable opportunity to present material pertinent to the
motion.
2. Other Grounds for Dismissal
Wells Fargo also argues that regardless of the July 30
letter, dismissal of the contract claims was proper on two other
grounds: (1) the breach of the implied covenant claim is preempted
by the federal Home Owners Loan Act ("HOLA"), and (2) neither
contract claim was sufficiently pleaded in the complaint.
We quickly dispense of the first argument. The district
court did not address this potential alternative ground for
dismissal, and we also decline to delve into it. See Town of
Amherst, N.H. v. Omnipoint Commc'ns Enters., Inc., 173 F.3d 9, 16
(1st Cir. 1999) (declining to affirm dismissal on an alternative
ground not addressed by the district court); Pilgrim Badge & Label
Corp. v. Barrios, 857 F.2d 1, 4 (1st Cir. 1988) (same); see also
Clifford v. M/V Islander, 751 F.2d 1, 9 n.4 (1st Cir. 1984)
("Without the benefit of any district court . . . legal discussion
concerning these matters, it would be idle for us to comment
further about them.").
Given, however, that the district court's decision did at
least to some extent speak to Foley's pleadings, we will address
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Wells Fargo's sufficiency argument.9 In sum, we conclude that
Foley did state a claim for both of his contract-based causes of
action.
i. Standard of Review
In analyzing whether a complaint has stated a claim
sufficient to satisfy Rule 12(b)(6), we "[s]et[] aside any
statements that are merely conclusory," and, as we touched on
above, look at the factual allegations to "determine if there
exists a plausible claim upon which relief may be granted." Woods,
733 F.3d at 353. We make reasonable inferences, drawn from the
alleged facts, in the pleader's favor. Ocasio-Hernández v.
Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011). And we construe
pro se complaints, like Foley's, liberally. Erickson v. Pardus,
551 U.S. 89, 94 (2007) (per curiam).
ii. Breach of Contract
Neither party disputes that the settlement agreement
itself dictates our use of California law. Thus, Foley need have
pleaded: "(1) existence of a contract; (2) [his] performance or
excuse for non-performance; (3) [Wells Fargo's] breach; and (4)
resulting damages to [him]." Bellevue v. Prudential Ins. Co. of
Am., 23 F. App'x 809, 810-11 (9th Cir. 2001) (citing Careau & Co.
9
In so doing, we only address the portions of Wells Fargo's
arguments that do not turn on the July 30 letter, which, as we
discussed above, is not proper to consider on the Rule 12(b)(6)
motion.
-22-
v. Sec. Pac. Bus. Credit, Inc., 272 Cal. Rptr. 387, 395 (Cal. Ct.
App. 1990)). Wells Fargo argues that Foley failed to adequately
plead both a breach of the settlement agreement and damages. We
first tackle the breach.
Wells Fargo contends that the only argument Foley raised
below (and thus, preserved for appeal) was that "Wells Fargo should
have afforded him the right to apply for MAP2R separately from
HAMP, and should have known that he was doing so." Wells Fargo
asserts that these grievances do not state a cognizable breach of
the settlement agreement because there is "no provision in the
settlement agreement that obligates Wells Fargo to obtain two
different applications from borrowers to consider them for HAMP and
MAP2R," and "no term of the agreement obligates Wells Fargo to
notify borrowers that it is considering both programs under a
single application, or to provide a denial letter specifically
referencing 'MAP2R.'" Foley, on the other hand, counters that
Wells Fargo misinterprets his beef with the bank--in addition to
failing to fairly consider him for MAP2R, the bank shirked its
obligation to timely inform him of the reasons for the modification
denial.
We agree that Wells Fargo underestimates the extent of
its obligations under the settlement agreement. The agreement
required the bank to:
Provide Settlement Class Members who do not
qualify for HAMP or MAP2R Modifications,
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within thirty [] calendar days of the
Defendants' receipt of all required
documentation from the Settlement Class
Member, with a written explanation, which
shall be copied to Lead Class Counsel, which
clearly explains the reasons that the
modification was denied.
Thus, Wells Fargo is correct that the settlement
agreement did not per se require the bank to "provide a denial
letter specifically referencing 'MAP2R'." But--assuming the bank
reviewed Foley's MAP2R eligibility, as it claimed--the agreement
did require Wells Fargo to clearly communicate to Foley, in writing
and within thirty days, why he was denied for MAP2R. Foley pleaded
that neither the February nor June 2013 denial letters he received
even mentioned MAP2R. The AG's Office called the bank on Foley's
behalf and requested a written explanation of the denials,
including the specific names of the modifications Foley had been
considered for. When Foley thereafter spoke to Forbes in July and
asked whether he had been considered for the program, he could not
get a straight answer. In fact, Forbes, an agent of the bank,
initially told Foley outright that he had not been considered for
MAP2R. Given these facts, Foley has sufficiently alleged, at the
least, that the bank breached the settlement agreement through (as
Foley specifically alleged in his complaint) "non-disclosure of
reasons for rejection of modification." Thus, despite Wells
Fargo's contentions, the "allegedly confusing conversation with a
bank representative" is, in fact, material to Foley's claims.
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Whether or not the explanations Wells Fargo provided in the denial
letters were clear (as was also required by the contract) is a
factual dispute that cannot be resolved on a Rule 12(b)(6) motion.
Thus, Foley has adequately pleaded a breach of the settlement
agreement.
iii. Breach of the Implied Covenant
Under California law, the implied covenant of good faith
and fair dealing requires that parties "invested with discretionary
power affecting the rights of another" exercise such power in good
faith, "to assure that the promises of the contract are effective
and in accordance with the parties' legitimate expectations."
Ellsworth v. U.S. Bank, N.A., 908 F. Supp. 2d 1063, 1086 (N.D. Cal.
2012) (quoting McNeary-Calloway v. JP Morgan Chase Bank, N.A., 863
F. Supp. 2d 928, 957 (N.D. Cal. 2012) (applying California law)).
Wells Fargo argues that Foley failed to adequately allege a claim
for breach of the implied covenant because any "alleged failure to
communicate does not negate the fact that Wells Fargo considered
Foley for HAMP and MAP2R modifications." Similarly, the bank
argues that the implied covenant claim fails because Foley "must
identify a specific contractual obligation that the defendant
breached."
As we discussed above, neither of these contentions hold
water. As Foley has asserted all along, he believes the bank
failed to provide him his due procedural rights under the contract.
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The obligation to properly consider Foley for a modification lies
separate and apart from the bank's further responsibility--under
the express terms of the settlement agreement--to explain a denial
to a borrower.
iv. Damages
Even though Foley sufficiently pleaded a breach of the
contract, we recognize that he also need have adequately pleaded
damages. Wells Fargo argues that Foley did not do so because he
"repeatedly pleads that the only harm he has suffered is the
possibility of foreclosure."
But Wells Fargo misconstrues the nature of Foley's
alleged basis of damages. Any harm Foley felt as a result of the
bank's breach of the settlement agreement would lie independent of
any foreclosure, or the threat of one. We concede that Foley did
not necessarily explicitly plead his damages in detail, but he
needn't have. Given the allegations in the complaint, Foley's
damages are obvious--Wells Fargo's failure to consider him for
refinancing (or to adequately and timely explain why he was not
eligible for it, thus preventing him from attempting to become
eligible) would result in, for instance, his loan falling further
into the depths of default, additional interest accrued and
penalties on the loan, and negative effects on his credit. The
alleged harm could be remedied with the equitable relief of
specific performance Foley seeks, or with direct or consequential
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damages, or with nominal damages, which plaintiffs are permitted to
recover for breach of contract actions under California law. See
Ericson v. Playgirl, Inc., 140 Cal. Rptr. 921, 927 (Cal. Ct. App.
1977) ("Plaintiff . . . is entitled to recover nominal damages for
breach of contract."); Capell Assocs., Inc. v. Cent. Valley Sec.
Co., 67 Cal. Rptr. 463, 471 (Cal. Ct. App. 1968) ("There was a
breach of contract, therefore [plaintiff] is entitled to nominal
damages."). Therefore, we do not agree that Foley has failed to
allege damages, at least not on the instant ground, which is the
only one Wells Fargo has raised.
Given these findings, we decline to sustain the district
court's dismissal of the contract claims, as Foley has adequately
alleged them. We, therefore, vacate the dismissal of the contract
claims, Counts One and Four, and remand these counts to the
district court.
B. State Statutory Claims (Count Two)
Finally, we address Foley's objections to the district
court's dismissal of Count Two, where he alleged that Wells Fargo
violated Mass. Gen. Laws ch. 244, §§ 35A and 35B. While the
district court held that these state statutes are preempted by the
federal Home Owners Loan Act, we affirm the dismissal of this count
on the other ground Wells Fargo raises--that Foley has failed to
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state a claim under either statute.10 See Ruiz v. Bally Total
Fitness Holding Corp., 496 F.3d 1, 5 (1st Cir. 2007) ("[W]e are not
bound by the district court's decisional calculus but rather, may
affirm the decision below on any ground made manifest by the
record.").
Mass. Gen. Laws ch. 244, § 35A(g) prohibits a lender from
accelerating a mortgage because of a default "until at least 150
days after the date a written notice is given by the [lender] to
the [borrower]." The next subsection, (h), provides for no fewer
than ten elements that must be included in the notice,11 ranging
10
We acknowledge that in addition to the district court, at
least one other court has held that (at least) § 35A is preempted
by HOLA. See Sovereign Bank v. Sturgis, 863 F. Supp. 2d 75, 103
(D. Mass. 2012). We have not answered the question of whether §§
35A and 35B are preempted, and we are not aware of any other
circuits that have. In any event, we need not decide that legal
issue to resolve the instant appeal.
11
The requirements that must be included are:
(1) the nature of the default claimed on such mortgage of
residential real property and of the mortgagor's right to
cure the default by paying the sum of money required to
cure the default;(2) the date by which the mortgagor
shall cure the default to avoid acceleration . . .;(3)
that, if the mortgagor does not cure the default by the
date specified, the mortgagee, or anyone holding
thereunder, may take steps to terminate the mortgagor's
ownership in the property by a foreclosure proceeding or
other action to seize the home; (4) the name and address
of the mortgagee . . . and the telephone number of a
representative of the mortgagee . . .; (5) the name of
any current and former mortgage broker or mortgage loan
originator for such mortgage or note securing the
residential property; (6) that the mortgagor may be
eligible for assistance from the Homeownership
Preservation Foundation or other foreclosure counseling
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from information about the lender to notification about the
possibility of a foreclosure sale. Mass. Gen. Laws ch. 244, §
35A(h).
In his complaint, Foley pleads that Wells Fargo "did not
follow the strict compliance and performed in accordance with the
statute's requirements." He also pleads that he "did not receive
any notices from Defendant regarding compliance requirements under
M.G.L. 244, section 35A and B." The complaint does not identify
whether Foley believes subsection (g) or (h) was violated, and,
while this is not necessarily a fatal omission, we also cannot
readily discern from the pleadings which violation Foley intended
to allege. Foley's briefing does not shed any light, as it does
not address the sufficiency of his pleadings in this regard.
agency, and the local or toll free telephone numbers the
mortgagor may call to request this assistance; (7) that
the mortgagor may sell the property prior to the
foreclosure sale and use the proceeds to pay off the
mortgage; (8) that the mortgagor may redeem the property
by paying the total amount due, prior to the foreclosure
sale; (9) that the mortgagor may be evicted from the home
after a foreclosure sale; and (10) the mortgagor may have
the following additional rights, depending on the terms
of the residential mortgage: (i) to refinance the
obligation by obtaining a loan which would fully repay
the residential mortgage debtor; and (ii) to voluntarily
grant a deed to the residential mortgage lender in lieu
of foreclosure. The notice shall also include a
declaration, in the language the creditor has regularly
used in its communication with the borrower, appearing on
the first page of the notice stating: "This is an
important notice concerning your right to live in your
home. Have it translated at once."
Mass. Gen. Laws ch. 244, § 35A(h).
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In his opposition to the motion to dismiss, however,
Foley clarified that he intended to aver only that the content of
Wells Fargo's default notice was non-compliant, falling under
subsection (h). Even taking that representation as true,
problematic is that unlike his identification of documents in the
contract counts, Foley does not specify in the complaint which
piece of correspondence from the bank he believes violated Section
35A(h). In our review of the more than 100 pages appended to the
complaint, we have identified a letter dated January 12, 2012 that
appears to be a notice of default. Assuming this is the document
Foley complains of, he still does not help us by identifying in his
complaint, opposition to the motion to dismiss, or any of his
briefing to us which of Section 35A(h)'s multitude of requirements
he believes were not included in the written default notice. And
we will not guess. Thus, even construing Foley's pro se complaint
liberally, we cannot conclude that Foley's Section 35A claim was
well-pleaded, and we affirm its dismissal.
We encounter the same problems with Foley's Section 35B
claim. Again, Foley does not specify in his complaint or briefing
which subsection he believes was violated, but in opposing the
motion to dismiss, he asserted that "Section 35(B)(c) applies as a
matter of law." That subsection requires that "for certain
mortgage loans, the creditor shall send notice, concurrently with
the notice required by subsection (g) of section 35A, of the
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borrower's rights to pursue a modified mortgage loan." The statute
lays out a follow-up process the lender must comply with after
sending the notice and receiving a response from the borrower
indicating his intent to pursue a modification:
Not more than 30 days following receipt of the
borrower's notification that the borrower
intends to pursue a modified mortgage loan, a
creditor shall provide the borrower with its
assessment, in writing, under subsection (b).
The assessment shall include, but not be
limited to: (i) a written statement of the
borrower's income, debts and obligations as
determined by the creditor; (ii) the
creditor's net present value analysis of the
mortgage loan; (iii) the creditor's
anticipated net recovery at foreclosure; (iv)
a statement of the interests of the creditor;
and (v) a modified mortgage loan offer under
the requirements of this section or notice
that no modified mortgage loan will be
offered.
Mass. Gen. Laws ch. 244, § 35B(c). Foley does not identify which
notices he believes were non-compliant, whether he believes the
notices were never sent at all, or whether one of the other
requirements in the statute was violated. This lies in stark
contrast to the common law contract claims, where, as discussed
above, Foley points to specific portions of the settlement
agreement that were allegedly breached by Wells Fargo's specific
actions and/or specific actors. As we have previously warned in
the summary judgment context (and as is equally applicable to our
Rule 12(b)(6) inquiry), we are not "'pigs[] hunting for truffles'
in the record." Rodríguez-Machado v. Shinseki, 700 F.3d 48, 50
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(1st Cir. 2012) (per curiam) (quoting United States v. Dunkel, 927
F.2d 955, 956 (7th Cir. 1991) (per curiam)). While we are
certainly sympathetic to the challenges pro se plaintiffs may face
in filing a lawsuit on their own, it is not our job, in an effort
to ferret out the adequacy of a plaintiff's pleaded allegations, to
haphazardly mine documents appended to a complaint. Foley's
Section 35B claim was not well-pleaded, and its dismissal is
affirmed.
III. CONCLUSION
For all of these reasons, we conclude that the district
court did not provide Foley with sufficient notice prior to
converting Wells Fargo's motion to dismiss into a motion for
summary judgment on the two contract-based claims. The dismissal
of these claims is not warranted on sufficiency grounds.
Therefore, we remand Counts One and Four to the district court for
further proceedings, consistent with this opinion. We affirm the
dismissal of Foley's statutory claim arising under Mass. Gen. Laws
ch. 244, §§ 35A and 35B, given that those causes of action were not
adequately pleaded. We also award Foley his costs of appeal.
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