Thompson v. JPMorgan Chase Bank, N.A. ( 2020 )

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.
December 9, 2020
BOUDIN, Circuit Judge. Mark and Beth Thompson sued
JPMorgan Chase Bank ("Chase") for breach of contract and for
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 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. Id. at 1221.
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 the Thompsons
that they had "the right to reinstate after acceleration of the
Loan."
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The Thompsons argue that because paragraph 19 includes
conditions and time limitations on the Thompsons' post-
acceleration reinstatement right, Chase failed to comply strictly
with paragraph 22's notice requirement by failing to inform the
Thompsons of those conditions and limitations. But even if
paragraph 19's limits governed here,1 paragraph 22 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,
1 The Massachusetts Supreme Judicial Court ("SJC") tells us they
do not, to the extent they conflict with applicable state law.
Thompson v. JPMorgan Chase Bank, N.A., No. SJC-12798, 2020 WL
6931852, at *1 (Mass. Nov. 25, 2020).
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could mislead mortgagors into thinking that they could await a
lawsuit by the mortgagee before attacking the foreclosure. Id.This court, applying Pinti, held that the paragraph 22
notice the Thompsons received was potentially deceptive and the
foreclosure sale was therefore void. Thompson v. JPMorgan Chase
Bank, N.A., 915 F.3d 801, 805 (1st Cir.), opinion withdrawn, 931
F.3d 109 (1st Cir. 2019). Because the notice said the Thompsons
could "still avoid foreclosure by paying the total past-due amount
before a foreclosure sale takes place," but did not say that under
paragraph 19 of the mortgage contract they must do so no later
than five days before the scheduled sale, this court reasoned that
a mortgagor may be misled into waiting until within five days of
the sale.
In petitioning for panel rehearing, Chase and several
amici suggested for the first time that the panel's reading of
Pinti and other SJC precedents would invalidate most of the
foreclosures in Massachusetts since 2012. Chase requested as an
alternative to reconsideration on the merits that this court
certify the matter to the SJC. Noting that "[t]his court in a
diversity action cannot properly overturn governing state
precedent, but the SJC on certification is not thus limited," we
withdrew our earlier decision in this case and certified to the
SJC the following question:
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Did the statement in the August 12, 2016,
default and acceleration notice that "you can
still avoid foreclosure by paying the total
past-due amount before a foreclosure sale
takes place" render the notice inaccurate or
deceptive in a manner that renders the
subsequent foreclosure sale void under
Massachusetts law?
The SJC answered "no." It noted that paragraph 16 of
the plaintiffs' mortgage states that "[a]ll rights and obligations
contained in this Security Instrument are subject to any
requirements and limitations of Applicable Law," and that Mass.
Gen. Laws ch. 244, § 35A and its accompanying regulations give
mortgagors the right to reinstate a mortgage at any time prior to
a foreclosure sale. See 209 Code Mass. Regs. § 56.04. Therefore,
the SJC held, Mass. Gen. Laws ch. 244, § 35A "constitutes
controlling and applicable law that supersedes the conflicting
provision of the mortgage contract." Thompson v. JPMorgan Chase
Bank, N.A., No. SJC-12798, 2020 WL 6931852, at *1 (Mass. Nov. 25,
2020). The paragraph 22 notice could not have been misleading for
omitting paragraph 19's five-day deadline because, in
Massachusetts, the five-day deadline does not apply. Id. at *1,
*5-6.
The judgment of the district court is affirmed, and costs
are awarded to plaintiffs.
It is so ordered.
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