Shawna Bates v. JP Morgan Chase Bank, NA , 768 F.3d 1126 ( 2014 )


Menu:
  •                 Case: 13-15340       Date Filed: 09/30/2014       Page: 1 of 16
    [PUBLISH]
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE ELEVENTH CIRCUIT
    No. 13-15340
    D.C. Docket No. 4:12-cv-00043-CDL
    SHAWNA BATES,
    a.k.a. Shawna Smith,
    Plaintiff - Appellant,
    versus
    JPMORGAN CHASE BANK, NA,
    Defendant - Appellee.
    Appeal from the United States District Court
    for the Middle District of Georgia
    (September 30, 2014)
    Before MARTIN, Circuit Judge, and RESTANI, * Judge, and HINKLE, ** District
    Judge.
    *
    Honorable Jane A. Restani, United States Court of International Trade Judge, sitting by
    designation.
    **
    Honorable Robert L. Hinkle, United States District Judge for the Northern District of Florida,
    sitting by designation.
    Case: 13-15340     Date Filed: 09/30/2014      Page: 2 of 16
    RESTANI, Judge:
    Appellant Shawna Bates (a.k.a. Shawna Smith) appeals from the district
    court’s entry of summary judgment against her on all claims stemming from
    Appellee JPMorgan Chase Bank’s (“Chase”) actions with respect to a mortgage it
    holds on Bates’s home. The district court held that Bates failed to plead and
    support a cognizable claim for breach of contract. Additionally, the court held that
    Bates failed to offer sufficient proof to support her claims of wrongful attempted
    foreclosure, trespass, and violations of the Real Estate Settlement Procedures Act
    (“RESPA”), 
    12 U.S.C. § 2605
    (e) (2011). For the reasons below, we affirm, albeit
    on different grounds.
    BACKGROUND
    Although the facts of the present case are extensive and convoluted, we
    summarize them below to the extent they are relevant to our disposition of the
    case. Bates purchased a home in Georgia in mid-2008 that she financed by
    agreeing to a federally-insured mortgage that was later acquired by Chase. By
    April 2011, Bates was already in default on the loan, having fallen two payments
    behind. Because of these defaults, Chase sent notices of intent to foreclose in May
    and July, in addition to several other notices of default.
    The present dispute began when Bates attempted to make her June, July, and
    August payments via a personal check that she sent to Chase on September 7,
    2
    Case: 13-15340       Date Filed: 09/30/2014     Page: 3 of 16
    2011. There is some confusion as to what occurred with this payment, but
    ultimately Chase rejected it because it was paid with a personal check, providing
    Bates with a refund check that she apparently did not receive. Chase, in the
    meantime, referred the loan to outside foreclosure counsel on September 8, 2011.
    After her attempt at payment in September, Bates continued to miss monthly
    payments. Her next attempted payment was in November when she sought to pay
    for September, October, November, and December, but without paying the late
    fees. This payment was rejected because it was not made with certified funds and
    did not bring the account current within 60 days, in violation of Chase’s policy of
    honoring partial payments.1 After the payment was rejected and returned to Bates
    on November 22, Bates contacted Chase. This prompted the beginning of
    discussions with Chase representatives, the transcripts of which make clear that
    Chase employees were confused as to what had happened to the September
    payment as well as the state of Bates’s account. Bates sent in the same payment
    two more times without using certified funds, but Chase continued to reject these
    payments per its policies.
    Because Bates remained in default in Chase’s view, Chase began publishing
    notices of sale in the local newspaper on December 8, 2011, with a sale date of
    January 2012. Upon discovering the publication and receiving a notice of
    1
    Because Chase had returned the payment sent in September, there were at least six monthly
    payments, plus fees, due at this point.
    3
    Case: 13-15340       Date Filed: 09/30/2014      Page: 4 of 16
    foreclosure, Bates sent Chase a “qualified written request” (“QWR”) explaining
    that she had paid $3,495 in September, but Chase had never credited this amount.
    She also informed Chase that it had rejected her subsequent payments in
    November three times. Bates asked what was needed to stay in her home.
    In its response of January 25, 2012, Chase explained that with respect to the
    September payment, the “funds were returned due to insufficient to cure the
    default.” Chase also noted that the later payments were returned “due to
    insufficient to cure default or bring account within 60 days delinquent.” The
    notice also emphasized that only certified funds would be accepted for the full
    reinstatement amount once the account was referred to foreclosure counsel. The
    notice also listed the contact information of the foreclosure attorney and the Loss
    Mitigation department so that Bates could either obtain a loan modification or
    determine a reinstatement amount. 2 Bates did not seek modification, but she did
    request a reinstatement quote, which the foreclosure attorney provided on January
    31, 2012.
    Because Bates did not make further payments, Chase continued to publish
    foreclosure notices in January and March, but the sales were postponed while
    Chase “researched,” and a sale is not currently scheduled. During the period of
    2
    The deed allowed Bates to reinstate the loan at any time, including after foreclosure
    proceedings were instituted, by tendering “in a lump sum all amounts required to bring
    Borrower’s account current including, to the extent they are obligations of Borrower . . .
    foreclosure costs and reasonable and customary attorneys’ fees and expenses properly associated
    with the foreclosure proceeding.” DE 5-2 at 6.
    4
    Case: 13-15340       Date Filed: 09/30/2014        Page: 5 of 16
    July 2011 to March 2012, Chase sent inspectors to Bates’s home to ensure that the
    property was still occupied and to value the house.
    Bates filed suit in district court, alleging violations of RESPA, conversion,
    breach of contract, wrongful attempted foreclosure, and trespass. The district court
    granted summary judgment against Bates as to all claims. Bates filed a timely
    notice of appeal.
    DISCUSSION
    I.     Breach of Contract Claims
    Bates first claims that Chase breached the mortgage deed by failing to
    comply strictly with certain regulations promulgated by the Department of
    Housing and Urban Development (“HUD”) as part of the Federal Housing
    Administration lending program. The regulations were incorporated into her deed
    as conditions precedent to the power to accelerate and the power of sale. Chase
    raises a number of objections 3 to this theory of liability, and the district court
    accepted some of them, essentially holding that it would be anomalous to allow a
    3
    In addition to arguing that HUD regulations cannot form the basis of a breach of contract
    action, Chase also argues that any breach of contract action by Bates would be barred under the
    first breach doctrine. In Georgia, according to the first breach doctrine, “[i]f the nonperformance
    of a party to a contract is caused by the conduct of the opposite party, such conduct shall excuse
    the other party from performance.” 
    Ga. Code Ann. § 13-4-23
     (2013). The non-breaching party’s
    performance, however, must have been rendered “useless or impossible” to be excused.
    Progressive Elec. Servs. Inc. v. Task Force Constr., Inc., No. A140355, 
    2014 Ga. App. LEXIS 389
    , at *13 (June 18, 2014). Nothing about Bates’s default prevented Chase from continuing to
    perform under the deed. Moreover, taken to its logical conclusion, such a rule would prohibit
    any mortgagor from ever enforcing any contract terms governing acceleration and foreclosure, as
    these terms by definition come into play following a breach. Such an interpretation appears to be
    inconsistent with Georgia’s articulation of the first breach rule.
    5
    Case: 13-15340       Date Filed: 09/30/2014       Page: 6 of 16
    suit for breach of contract based on the regulations when a direct suit for violations
    of the regulations is not permitted.
    “The elements for a breach of contract claim in Georgia are the (1) breach
    and the (2) resultant damages (3) to the party who has the right to complain about
    the contract being broken.” Norton v. Budget Rent A Car Sys., Inc., 
    705 S.E.2d 305
    , 306 (Ga. Ct. App. 2010); see 
    Ga. Code Ann. § 13-6-1
     (“Damages are given as
    compensation for the injury sustained as a result of the breach of a contract.”).
    Although we conclude that Bates has established a contractual duty owed to her by
    Chase, we hold that Bates has failed to demonstrate any cognizable “resultant
    damages,” even assuming Chase actually breached, which we do not decide.
    As Bates concedes, there is no express or implied statutory private right of
    action for HUD violations. See, e.g., Roberts v. Cameron-Brown Co., 
    556 F.2d 356
    , 360 (5th Cir. 1977)4 (“[T]he National Housing Act and the regulations
    promulgated thereunder deal only with the relations between the mortgagee and the
    government, and give the mortgagor no claim to duty owed nor remedy for failure
    to follow.”); Cornelius v. Bank of Am., N.A., No. 1:12-cv-0585-JEC, 
    2012 U.S. Dist. LEXIS 139713
    , at *16 (N.D. Ga. Sept. 27, 2012); Krell v. Nat’l Mortg. Corp.,
    
    448 S.E.2d 248
    , 249 (Ga. Ct. App. 1994) (holding violation of HUD regulations
    4
    The Eleventh Circuit adopted as binding precedent all decisions of the Fifth Circuit issued prior
    to the close of business on September 30, 1981. Bonner v. City of Prichard, Ala., 
    661 F.2d 1206
    ,
    1209 (11th Cir. 1981) (en banc).
    6
    Case: 13-15340     Date Filed: 09/30/2014    Page: 7 of 16
    did not support a private cause of action). Georgia courts and courts in the
    Eleventh Circuit, however, have not addressed directly the question of whether a
    mortgagor has a cause of action under state law for breach of contract where the
    contract expressly conditions non-judicial foreclosure on compliance with HUD
    regulations.
    Courts are split on this question, with some courts refusing to recognize such
    claims, citing either to the fact that no private right of action exists to enforce the
    regulations or to other principles of contract law, such as the pre-existing duty rule.
    See Dixon v. Wells Fargo Bank, N.A., No. 12–10174, 2012 U.S. Dist. LEXIS, at
    *21–26 (E.D. Mich. Sept. 25, 2012) (rejecting a breach of contract claim based on
    HUD regulations incorporated into the contract because Michigan law does not
    permit breach of contract to lie where there is an independent statutory duty to
    comply with the regulations); Mitchell v. Chase Home Fin. LLC, No. 06-cv-2099,
    
    2008 U.S. Dist. LEXIS 17040
    , at *8–11 (N.D. Tex. March 4, 2008); Wells Fargo
    Home Mortg., Inc. v. Neal, 
    922 A.2d 538
    , 543–47 (Md. 2007) (holding that
    mortgagor could not assert breach of contract claim in view of fact that deed was a
    form contract not drafted by lender and HUD regulations do not create a private
    right of action).
    Other courts have recognized breach of contract claims based on a failure to
    comply with HUD regulations where the mortgage instrument expressly conditions
    7
    Case: 13-15340     Date Filed: 09/30/2014    Page: 8 of 16
    the mortgagee’s right to accelerate or sell the property on compliance with HUD
    regulations. See In re Silveira, No. 11-44812-MSH, 
    2013 Bankr. LEXIS 1904
    , at
    *45 (Bankr. Mass. May 3, 2013) (“While these [HUD] regulations do not provide a
    mortgagor with a private right of action … if they are incorporated into the various
    loan documents . . . they become enforceable by the parties to the loan
    documents.”); BAC Home Loans Servicing, LP v. Taylor, 
    986 N.E.2d 1028
    , 1033–
    34 (Ohio Ct. App. 2013); Squire v. Va. Hous. Dev. Auth., 
    758 S.E.2d 55
    , 59–61
    (Va. 2014); Mathews v. PHH Mortg. Corp, 
    724 S.E.2d 196
    , 202 (Va. 2012); see
    also Coll. Loan Corp. v. SLM Corp., 
    396 F.3d 588
    , 599 n.9 (4th Cir. 2005) (“[W]e
    have specifically recognized that, absent preemption, an injured plaintiff may sue
    under state law seeking redress for a violation of a federal regulation.”).
    Under Georgia law, a condition precedent to a right or obligation set out in a
    contract must be satisfied in order for the right to accrue. See Brogdon v. Nat’l
    Healthcare Corp., 
    103 F. Supp. 2d 1322
    , 1355 (N.D. Ga. 2000). In determining
    whether a contract contains a condition precedent, Georgia courts look at the
    language of the agreement itself. Conditions precedent, although “not favored in
    interpreting contracts, are created by language such as ‘on condition that,’ ‘if,’ and
    ‘provided,’ or by explicit statements that certain events are to be construed as
    conditions precedent.” Massih v. Jim Moran & Assocs., Inc., 
    542 F. Supp. 2d 1324
    , 1330 ( M.D. Ga. 2008); see Munson v. Strategis Asset Valuation & Mgmt.,
    8
    Case: 13-15340       Date Filed: 09/30/2014       Page: 9 of 16
    Inc., 
    363 F. Supp. 2d 1377
    , 1382 (N.D. Ga. 2005). Additionally, to the extent that
    a regulation is incorporated by reference into a contract, including as a condition
    precedent, it must be referenced in a way that establishes a “reasonably clear and
    ascertainable meaning.” Bowman v. Walnut Mountain Prop. Owners Ass’n, Inc.,
    
    553 S.E.2d 389
    , 393 (Ga. Ct. App. 2001); see Goldman v. Vinson, 
    535 S.E.2d 305
    ,
    307 (Ga. Ct. App. 2000).
    In view of Georgia’s general rule that powers of sale in deeds are to be
    construed strictly, see 
    Ga. Code Ann. § 23-2-114
    , we believe Georgia courts would
    hold that HUD regulations clearly referenced in a deed as conditions precedent to
    the power to accelerate and the power of sale could form the basis of a breach of
    contract action. The deed at issue here provides: “This [deed] does not authorize
    acceleration or foreclosure if not permitted by regulations of the Secretary.” DE 5-
    2 at 6. Taken in context, this language clearly makes compliance with HUD
    regulations a condition precedent to the bank’s right to accelerate the debt or
    exercise the power of sale. Accordingly, we believe that Georgia courts would
    enforce the terms of the contract as written and decide that Bates has asserted a
    duty that Chased owed her. 5
    5
    Chase’s argument that it did not bargain for such a condition because it did not draft the form
    HUD deed used here is unavailing. The parties chose to enter into this agreement as part of a
    HUD program, and in doing so, they agreed to use the standard note and deed at issue, including
    the language relevant here. Prohibiting a breach of contract cause of action in these
    circumstances under this theory would render meaningless essentially the entire agreement that
    Chase voluntarily signed, a result that is to be avoided in contract interpretation. See Mathews,
    9
    Case: 13-15340    Date Filed: 09/30/2014    Page: 10 of 16
    Contrary to Chase’s argument, Bates’s breach of contract claim is not barred
    by the preexisting duty rule. Although promising to do something one is already
    obligated to do will not provide sufficient consideration for a promise under
    Georgia law, a promise to perform a preexisting duty owed to a third person, not a
    party to the contract is sufficient consideration and can give rise to an enforceable
    obligation. See Restatement (Second) of Contracts § 73 cmt. d. (1979) (“[T]he
    tendency of the law has been simply to hold that performance of contractual duty
    can be consideration if the duty is not owed to the promisor.”). Georgia courts
    have not dealt directly with situations in which the preexisting duty is owed to the
    government or the public at large; rather, most cases address preexisting duties
    already owed to the promisor. See, e.g., Glisson v. Global Sec. Servs., LLC, 
    653 S.E.2d 85
    , 87 (Ga. Ct. App. 2007) (“[A] promise to perform a preexisting
    contractual obligation does not constitute consideration for a new agreement.”).
    We believe the facts here do not implicate the rationale of the pre-existing
    duty rule because additional consideration was provided by both parties, and Chase
    did not previously owe a duty to Bates that Bates could enforce. As Chase has
    argued, its preexisting duty to comply with HUD regulations was owed to the
    government, not Bates, and Bates had no right to enforce this promise outside of
    724 S.E.2d at 200.
    10
    Case: 13-15340        Date Filed: 09/30/2014       Page: 11 of 16
    the contract. Thus, a contractual obligation to comply with the regulations
    existed. 6
    The issue remains as to what type of relief is possible. Bates acknowledges
    that a violation of a condition precedent to the power to accelerate and power of
    sale cannot, in and of itself, create contractual liability. Instead, for a mortgagor
    like Bates to succeed, she must show that the premature or improper exercise of
    some power under the deed (acceleration or sale) resulted in damages that would
    not have occurred but for the breach. 7
    In cases such as this, where there was no actual exercise of the power of
    sale, 8 the only possible harm must be traced back to the allegedly unauthorized
    acceleration of the note. Perhaps this might give rise to damages in some
    circumstances; here, any such claim is negated by the generous reinstatement
    6
    Because we do not reach the question of whether Chase actually breached the duty owed to
    Bates, we need not decide whether strict compliance with the regulations is required.
    7
    Although Bates correctly cites to Roylston v. Bank of Am., N.A., 
    660 S.E.2d 412
    , 417 (Ga. Ct.
    App. 2008), for the proposition that “the debtor may either seek to set aside the foreclosure or
    sue for damages for the tort of wrongful foreclosure,” this discussion is not in the context of a
    breach of contract claim, and it does not obviate the need for the mortgagor to prove all elements
    of a breach of contract claim. Even in Roylston, the court limited recovery to “the full difference
    between the fair market value of the property at the time of the sale and the indebtedness to the
    seller if the fair market value exceeded the amount of the indebtedness.” 
    Id.
    8
    Chase never foreclosed on the property or executed its power of sale under the deed. Bates has
    not set forth any contractual damages that could have been caused by the mere threat of
    exercising the power of sale. Instead, it appears such alleged damages fall under Bates’s claim in
    tort for attempted wrongful foreclosure. Additionally, it is important to note that Bates’s
    complaint does not seek injunctive relief against any future foreclosure.
    11
    Case: 13-15340       Date Filed: 09/30/2014       Page: 12 of 16
    provision contained in the deed. Pursuant to section 10 of the deed:
    Borrower has a right to be reinstated if Lender has required immediate
    payment in full because of Borrower’s failure to pay an amount due
    under the Note or this Security Instrument. This right applies even
    after foreclosure proceedings are instituted. To reinstate the Security
    Instrument, Borrower shall tender in a lump sum all amounts required
    to bring Borrower’s account current including, to the extent they are
    obligations of Borrower under this Security Instrument, foreclosure
    costs and reasonable and customary attorneys’ fees and expenses
    properly associated with the foreclosure proceeding.              Upon
    reinstatement by Borrower, this Security Instrument and the
    obligations that it secures shall remain in effect as if Lender had not
    required immediate payment in full.
    DE 5-2 at 6.
    Because all Bates must do, even now, is simply pay all of the outstanding
    monthly payments and associated fees admittedly owed, Chase’s exercise of the
    power to accelerate the note could not have caused her harm, and therefore, she has
    failed to substantiate two important elements of her claim for breach of contract:
    causation and damages. 9 To reiterate, although we recognize that HUD regulations
    are enforceable terms of the contract, because Bates has failed to put forward any
    evidence of damages caused by the purported breach of these contract terms or
    seek any cognizable relief, we conclude that summary judgment properly was
    9
    To the extent Bates premises her breach of contract action on Chase’s refusal to accept her
    payments because they were not paid with certified funds, we find the contract to be silent on the
    issue, and Georgia law makes clear that a promise to pay, in the form of a personal check, need
    not be accepted as payment, absent waiver. See Holland v. Mut. Fertilizer Co., 
    70 S.E. 151
     (Ga.
    Ct. App. 1911), disapproved on other grounds by White v. Turbidy, 
    183 S.E.2d 363
     (Ga. Ct.
    App. 1971). Likewise, once foreclosure was pending and the note had been accelerated, neither
    the deed nor the HUD regulations required acceptance of partial payments. See 
    24 C.F.R. § 203.556
    .
    12
    Case: 13-15340       Date Filed: 09/30/2014       Page: 13 of 16
    granted against Bates on her breach of contract claims.
    II.       Trespass
    As explained above, Bates conceded that she was in default at all relevant
    points in time, even if Chase had properly credited her account with her attempted
    payments. 10 Georgia law recognizes that “[t]he common law right to the exclusive
    use and possession of property may be modified by agreement, in which the
    landowner grants permission to enter his property under certain circumstances.”
    Tacon v. Equity One, Inc., 
    633 S.E.2d 599
    , 604 (Ga. Ct. App. 2006). Under the
    deed here, “Lender may inspect the Property if the Property is vacant or abandoned
    or the loan is in default.” Because Bates was admittedly in default, any visits by
    Chase’s agents to the property were permitted by contract and no action for
    trespass may lie.
    III.      Wrongful Attempted Foreclosure
    Bates contends the district court erred in granting judgment against her on
    her attempted wrongful foreclosure claim. Under Georgia law, to “recover
    damages for a wrongful attempted foreclosure[, the plaintiff must prove] a
    knowing and intentional publication of untrue and derogatory information
    concerning the debtor’s financial condition, and that damages were sustained as a
    direct result of this publication.” Aetna Fin. Co. v. Culpepper, 
    320 S.E.2d 228
    ,
    10
    Even when Bates submitted her late payments, she failed to include the associated late fees.
    13
    Case: 13-15340      Date Filed: 09/30/2014    Page: 14 of 16
    232 (Ga. Ct. App. 1984).
    Here, the only published information about Bates’s financial condition was
    that she failed “to pay the indebtedness as and when due and in the manner
    provided in the Note and Deed to Secure Debt.” The publication also mentions
    that “the debt remains in default.” Bates admits that she failed to pay her debts
    when due, as all of her attempted payments were late. Additionally, Bates never
    even attempted to pay the entire amount owed, including late fees, and therefore,
    she admittedly was in default.
    Bates appears to argue that the mention of an allegedly invalid foreclosure
    sale is sufficient to give rise to liability. This information about Chase’s intent to
    sell the property, however, is not a statement of the debtor’s financial condition,
    but rather a statement of Chase’s future actions. At any rate, Chase believed it was
    entitled to foreclose on the property at the time, and Bates in her deposition
    attributed the problems with Chase only to Chase’s inability to fully keep track of
    her payments and communicate her payment status to her. This negates any
    evidence of knowing falsity of the statement.
    IV.   RESPA
    Bates also contends that the district court erred by granting summary
    judgment against her on her RESPA claim because at a minimum, a factual dispute
    exists as to whether Chase’s response was sufficient. Under RESPA, 12 U.S.C.
    14
    Case: 13-15340     Date Filed: 09/30/2014    Page: 15 of 16
    § 2605(e)(2) (2010), a lender must respond to a qualified written request from a
    borrower within 60 days of receipt. In responding, the lender must “after
    conducting an investigation, provide the borrower with a written explanation or
    clarification that includes—(i) to the extent applicable, a statement of the reasons
    for which the servicer believes the account of the borrower is correct as determined
    by the servicer; and (ii) the name and telephone number of an individual employed
    by, or the office or department of, the servicer who can provide assistance to the
    borrower.” Id. § 2605(e)(2)(B).
    In its response, Chase explained that it had returned the funds from Bates’s
    September and November payments because they were not certified funds and
    were inadequate to cure the default. This explanation, based on the research by
    Chase, “provide[d] the borrower with a written explanation . . . of the reasons for
    which the servicer believes the account of the borrower is correct.” 
    12 U.S.C. § 2605
    (e)(2)(B)(i) (emphasis added). Although Bates was confused and/or
    unsatisfied with this answer, the information provided an explanation to Bates as to
    what happened to her September payment and provided her with contact
    information for further support. This transparency and facilitation of
    communication is the goal of RESPA, and the breakdown in communication
    between Bates and Chase as to the details of the September payment’s return,
    albeit in part due to the fault of both parties, did not cause Bates damages.
    15
    Case: 13-15340         Date Filed: 09/30/2014        Page: 16 of 16
    To the extent Bates contends she raised a new question, warranting a
    new response, in her second request, this claim fails both because the prior
    response was adequate and because again there were no damages as a matter
    of law stemming from an inadequate response. The prior response from
    Chase clearly explained that the funds had been returned, although it did not
    explain how. This outstanding question was answered by receipt of the
    March replacement check, refunding the September payment. Additionally,
    Bates’s purported confusion as to why she received the replacement check
    did not cause her any demonstrable harm, and she has not explained why her
    lack of knowing why she received the check in March somehow caused her
    additional damages or prevented her from taking some important action.11
    Because all of Bates’s claims fail as a matter of law, the district
    court’s grant of summary judgment in favor of Chase on all claims is
    AFFIRMED.
    11
    Notably, the parties were already in the midst litigation at this point in time.
    16