Thompson v. JPMorgan Chase Bank, N.A. , 915 F.3d 801 ( 2019 )

United States Court of Appeals
For the First Circuit
No. 18-1559
MARK R. THOMPSON; BETH A. THOMPSON,
Plaintiffs, Appellants,
v.
JPMORGAN CHASE BANK, N.A.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
Before
Thompson, Boudin, and Kayatta,
Circuit Judges.
Todd S. Dion on brief for appellants.
Juan S. Lopez, Jeffrey D. Adams, and Parker Ibrahim & Berg
LLP on brief for appellee.
February 8, 2019
BOUDIN, Circuit Judge. Mark and Beth Thompson sued
JPMorgan Chase Bank ("Chase") for breach of contract and violating
the statutory power of sale Massachusetts affords mortgagees.
Mass. Gen. Laws ch. 183, § 21. The Thompsons alleged Chase failed
to comply with the notice requirements in their mortgage before
foreclosing on their property. The district court granted Chase's
motion to dismiss for failure to state a claim.
On June 13, 2006, the Thompsons granted a mortgage to
Washington Mutual Bank on their house to secure a loan in the
amount of $322,500. The mortgage included two paragraphs, both
standard mortgage provisions in Massachusetts, relevant to this
appeal.
First, paragraph 22 required that prior to accelerating
payment by the Thompsons, Washington Mutual had to provide the
Thompsons notice specifying:
(a) the default; (b) the action required to
cure the default; (c) a date, not less than 30
days from the date the notice is given to
Borrower, by which the default must be cured;
and (d) that failure to cure the default on or
before the date specified in the notice may
result in acceleration of the sums secured by
this Security Instrument and sale of the
Property.
In addition, paragraph 22 required Washington Mutual to inform the
Thompsons of "the right to reinstate after acceleration and the
right to bring a court action to assert the non-existence of a
default or any other defense of Borrower to acceleration and sale."
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Second, paragraph 19 described the Thompsons' right to
reinstate after acceleration, including the conditions and time
limitations related to that right.
If Borrower meets certain conditions, Borrower
shall have the right to have enforcement of
this Security Instrument discontinued at any
time prior to the earliest of: (a) five days
before the sale of the Property pursuant to
any power of sale contained in this Security
Instrument; (b) such other period as
Applicable Law might specify for the
termination of Borrower’s right to reinstate;
or (c) entry of judgment enforcing this
Security Instrument. Those conditions are
that Borrower: (a) pays Lender all sums which
then would be due under this Security
Instrument and the Note as if no acceleration
had occurred; (b) cures any default of any
other covenants or agreements; (c) pays all
expenses incurred in enforcing this Security
Instrument, including, but not limited to,
reasonable attorneys’ fees, property
inspection and valuation fees, and other fees
incurred for the purpose of protecting
Lender’s interest in the Property and rights
under this Security Instrument; and (d) takes
such action as Lender may reasonably require
to assure that Lender’s interest in the
Property and rights under this Security
Instrument, and Borrower’s obligation to pay
the sums secured by this Security Instrument,
shall continue unchanged.
In 2008, after the United States Office of Thrift
Supervision seized Washington Mutual Bank and placed it in
receivership with the Federal Deposit Insurance Corporation
("FDIC"), FDIC sold the banking subsidiaries to Chase, which became
the mortgagee on the Thompsons' mortgage.
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On August 12, 2016, Chase sent default and acceleration
notices to the Thompsons. The notices informed the Thompsons that
(1) their mortgage loan was in default; (2) tendering the past-
due amount of $200,056.60 would cure the default; (3) the default
must be cured by November 10, 2016; and (4) if the Thompsons failed
"to cure the default on or before 11/10/2016, Chase [could]
accelerate the maturity of the Loan, . . . declare all sums secured
by the Security Instrument immediately due and payable, commence
foreclosure proceedings, and sell the Property."
The notices explained to the Thompsons that they had
"the right to reinstate after acceleration of the Loan and the
right to bring a court action to assert the nonexistence of a
default, or any other defense to acceleration, foreclosure, and
sale." The notices also said the Thompsons could "still avoid
foreclosure by paying the total past-due amount before a
foreclosure sale takes place."
On November 15, 2017, after the Thompsons failed to cure
the default, Chase foreclosed on the property and conducted a
foreclosure sale. On December 15, 2017, the Thompsons filed a
complaint in Plymouth County Superior Court, alleging Chase failed
to comply with the paragraph 22 notice requirements prior to
foreclosing on their property. On January 23, 2018, Chase removed
the suit to the District Court for the District of Massachusetts.
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Chase then filed a motion to dismiss for failure to state
a claim. After opposition and reply, the district court concluded
that Chase's default and acceleration notice strictly complied
with paragraph 22, including advising the Thompsons of their post-
acceleration reinstatement right, and granted Chase's motion to
dismiss. The Thompsons now appeal. They argue that the default
letter failed to comply strictly with paragraph 22 because the
letter did not inform the Thompsons of the conditions and time
limitations included in their post-acceleration reinstatement
right as described in paragraph 19. They also claim that the
portion of the notice that specified that the Thompsons could
"still avoid foreclosure by paying the total past-due amount before
a foreclosure sale takes place" was inaccurate and misleading,
though they do not say that their conduct was in any way altered.
A district court's dismissal for failure to state a claim
is reviewed de novo, Galvin v. U.S. Bank, N.A., 852 F.3d 146, 153
(1st Cir. 2017), taking all factual assertions in a complaint as
true and drawing all reasonable inferences in the plaintiffs'
favor; but this does not include legal conclusions clothed as
factual allegations. Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 555–56 (2007). To survive a motion to dismiss, the claim
must be "plausible." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).
In Massachusetts, upon default in the performance of a
mortgage, a mortgagee may sell the mortgaged property using the
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statutory power of sale, so long as the mortgage itself gives the
mortgagee the statutory power by reference. Mass. Gen. Laws ch.
183, § 21. Section 21 requires that, prior to conducting a
foreclosure sale, a mortgagee must "first comply[] with the terms
of the mortgage and with the statutes relating to the foreclosure
of mortgages by the exercise of a power of sale." Id.
Because Massachusetts does not require a mortgagee to
obtain a judicial judgment approving foreclosure of a mortgaged
property, see U.S. Bank Nat'l Ass'n v. Ibanez, 941 N.E.2d 40, 49
(Mass. 2011), Massachusetts courts require mortgagees to comply
strictly with two types of mortgage terms: (1) terms "directly
concerned with the foreclosure sale authorized by the power of
sale in the mortgage" and (2) terms "prescribing actions the
mortgagee must take in connection with the foreclosure sale--
whether before or after the sale takes place." Pinti v. Emigrant
Mortg. Co., 33 N.E.3d 1213, 1220–21 (Mass. 2015).
The mortgage terms for which Massachusetts courts demand
strict compliance include the provisions in paragraph 22 requiring
and prescribing the pre-foreclosure default notice. Pinti, 33
N.E.3d at 1221. At first glance, Chase's acceleration and default
notice appears to comply strictly with paragraph 22 in the
Thompsons' mortgage. By its terms, paragraph 22 required Chase to
"inform [the Thompsons] of the right to reinstate after
acceleration." Mirroring this language, the notice explained to
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the Thompsons that they had "the right to reinstate after
acceleration of the Loan."
Because paragraph 19, which defines the Thompsons' post-
acceleration reinstatement right, imposes conditions and time
limitations on that right, the Thompsons argue that Chase failed
to comply strictly with paragraph 22's notice requirement by
failing to inform the Thompsons of the conditions and limitations
on the reinstatement right. Paragraph 22, however, instructs that
Chase inform the Thompsons of their substantive right to reinstate;
it does not require that Chase describe in detail the procedure
that the Thompsons must follow to exercise the right or the
deadlines associated with the right. And paragraph 19 does not,
on its own, impose any notice requirements on Chase.
However, Massachusetts law requires that the paragraph
22 notice given to the mortgagor be accurate and not deceptive--
note the possible difference between the two concepts--and the
Supreme Judicial Court has made clear that inaccuracy or deceptive
character can be fatal. In Pinti, the mortgagee's notice said
that the mortgagors "have the right to assert in any lawsuit for
foreclosure and sale the nonexistence of a default." Pinti, 33
N.E.3d at 1222 (emphasis omitted). This, the Pinti court reasoned,
could mislead mortgagors into thinking that they could await a
lawsuit by the mortgagee before attacking the foreclosure. Id.
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Here, the notice's additional language--"you can still
avoid foreclosure by paying the total past-due amount before a
foreclosure sale takes place"--could mislead the Thompsons into
thinking that they could wait until a few days before the sale to
tender the required payment. Suppose the Thompsons had showed up
with the payment three days before the sale believing that their
tender was timely since the notice said that the tender may be
made before the sale. The bank would properly have pointed out
that under paragraph 19 a tender must be made at least five days
before the sale.
The Thompsons do not claim to have been prejudicially
misled, and they certainly did not tender the payment at any time
before the sale. The mind of the common-law lawyer is steeped in
the proposition that a mistake must ordinarily have had an adverse
impact on the plaintiff or a court will disregard it: no harm, no
foul. See, e.g., Shaulis v. Nordstrom, Inc., 865 F.3d 1, 15 (1st
Cir. 2017) (concluding that fraudulent-misrepresentation claim
fails because plaintiff did not allege an actionable injury caused
by defendant's false statement). But Pinti frees the mortgagor of
any need to prove that the inaccuracy or deception caused harm:
"The defendants' assertion that the plaintiffs in this case were
not prejudiced by any failure to comply with the provisions of
paragraph 22 misses the point. Paragraph 22 demands strict
compliance, regardless of the existence, or not, of prejudice to
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a particular mortgagor." Pinti, 33 N.E.3d at 1223 n.20 (citing
Foster, Hall & Adams Co. v. Sayles, 100 N.E. 644, 646 (Mass.
1913)).
After all, the bank is the one writing the notice and
has ample opportunity and expertise to make it entirely accurate.
It may take some imagination to consider every possible way it
could be misleading; but the foreclosure procedure allowed to the
bank is itself favorable to the bank. In exchange, both accuracy
and avoidance of potential deception are conditions of the validity
of the foreclosure, lifting from the Thompsons the need to show
prejudice. The state-court reading of Massachusetts law binds a
federal court sitting in diversity. N. Am. Specialty Ins. Co. v.
Lapalme, 258 F.3d 35, 38 (1st Cir. 2001).
In sum, the bank had no obligation under paragraph 19 to
lay out its procedures, but it did have an obligation under
paragraph 22 to provide notice and, under Pinti, to make anything
it did say accurate and avoid potential deception. Words are
usually elastic, but it does not matter that the purist could well
think that the notice in this case was potentially deceptive rather
than literally inaccurate (for the Thompsons could defeat
foreclosure by payment before the foreclosure date). Omitting the
qualification (that the payment must be tendered at least five
days before the foreclosure date) in our view rendered the notice
potentially deceptive.
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The Thompson brief squarely raised the objection; the
bank offered no response to it. Despite the absence of a claim of
actual prejudice, the strict-compliance requirement, supported by
both the Pinti holding and the rationale supplied for the holding,
invalidates the foreclosure. The judgment must be reversed, and
the case remanded for further proceedings consistent with this
opinion.
It is so ordered.
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