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Linda L'esperance v. Hsbc Consumer Lending

June 12, 2012


The opinion of the court was delivered by: Landya McCafferty United States Magistrate Judge

Opinion 2012 DNH 104


In her amended complaint, Linda L'Esperance asserts thirteen claims against seven defendants. Those claims all arise out of the origination and servicing of a pair of loans. Before the court are two motions to dismiss: (1) document no. 24, filed by HSBC Group; and (2) document no. 25, filed by all the defendants other than HSBC Group and Manhattan Mortgage Corporation ("Manhattan Mortgage"). Notwithstanding the pendency of two motions to dismiss, L'Esperance has filed a pleading titled "Plaintiff's Objection to Defendants' Motion to Dismiss," document no. 27, that is supported by a memorandum of law that addresses document no. 25 but does not address document no. 24. For the reasons that follow, HSBC Group's motion to dismiss is granted in part and the second motion to dismiss is granted in full, with prejudice.

The Legal Standard

A motion to dismiss for "failure to state a claim upon which relief can be granted," Fed. R. Civ. P. 12(b)(6), requires the court to conduct a limited inquiry, focusing not on "whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). To pass that test, the complaint "must contain 'enough facts to raise a reasonable expectation that discovery will reveal evidence' supporting the claims." Fantini v. Salem State Coll., 557 F.3d 22, 26 (1st Cir. 2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)).

When considering a motion to dismiss under Rule 12(b)(6), a trial court "accept[s] as true all well-pled facts in the complaint and draw[s] all reasonable inferences in favor of plaintiff[ ]." Plumbers' Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp., 632 F.3d 762, 771 (1st Cir. 2011) (quoting SEC v. Tambone, 597 F.3d 436, 441 (1st Cir. 2010)). But, "naked assertions devoid of further factual enhancement need not be accepted." Plumbers' Union, 632 F.3d at 771 (quoting Maldonado v. Fontanes, 568 F.3d 263, 266 (1st Cir. 2009)). Moreover, "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" United Auto. Workers of Am. Int'l Union v. Fortuno, 633 F.3d 37, 41 (1st Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." United Auto. Workers, 633 F.3d at 40 (citation omitted). On the other hand, a Rule 12(b)(6) motion should be granted if "the facts, evaluated in

[a] plaintiff-friendly manner, [do not] contain enough meat to support a reasonable expectation that an actionable claim may exist." Andrew Robinson Int'l, Inc. v. Hartford Fire Ins. Co., 547 F.3d 48, 51 (1st Cir. 2008) (citations omitted). That is, "[i]f the factual allegations in the complaint are too meager, vague, or conclusory to remove the possibility of relief from the realm of mere conjecture, the complaint is open to dismissal." Plumbers' Union, 632 F.3d at 771 (citation omitted).


Much of the relevant background has been set out in the court's previous order in this case, document no. 11, and is not repeated here in detail. L'Esperance's claims arise out of her dissatisfaction with the origination and servicing of: (1) a $385,699.40 loan to refinance the mortgage on her home; and (2) a personal credit-line account with a credit limit of $11,500. Both loans were extended by "Beneficial New Hampshire Inc." Defs.' Mot. to Dismiss, Ex. A (doc. no. 25-2), at 3; Ex. B. (doc. no. 25-3), at 2). To secure the refinancing loan, L'Esperance granted a mortgage on her home to "Beneficial New Hampshire Inc." Id., Ex. C (doc. no. 25-4), at 2. The personal credit-line account, which L'Esperance alleges was extended to her as a source of funds to cover her closing costs, is not secured by a mortgage. The court will introduce additional factual allegations from L'Esperance's amended complaint as they are relevant to the disposition of specific claims for relief.


A. HSBC Group's Motion to Dismiss

In document no. 24, HSBC Group moves to dismiss on grounds that L'Esperance has failed to allege sufficient facts to demonstrate that it is an entity capable of being sued. In the alternative, it joins in document no. 25. L'Esperance has not responded to HSBC Group's motion to dismiss or any of the arguments advanced therein. While L'Esperance's silence in response to document no. 24 could be taken as a concession that HSBC Group is entitled to dismissal of all the claims against it, the court will, nonetheless, address the merits of the arguments raised in document no. 24.

HSBC Group relies on Rule 17(b) of the Federal Rules of Civil Procedure ("Federal Rules"), which provides, in pertinent part:

Capacity to Sue or Be Sued. Capacity to sue or be sued is determined as follows:

(1) for an individual who is not acting in a representative capacity, by the law of the individual's domicile;

(2) for a corporation, by the law under which it was organized; and

(3) for all other parties, by the law of the state where the court is located, except that:

(A) a partnership or other unincorporated association with no such capacity under that state's law may sue or be sued in its common name to enforce a substantive right existing under the United States Constitution or laws . . .

Fed. R. Civ. P. 17(b). Plainly, HSBC Group is not an individual, and, as it correctly points out, L'Esperance has not adequately alleged that it is a corporation. Thus, in HSBC Group's view, its capacity to be sued is governed by the law of New Hampshire, under which "[a] voluntary association, except as provided for by statute . . . has no legal existence apart from the members who compose it," Brooks v. Trs. of Dartmouth Coll., 161 N.H. 685, 691 (2011) (quoting Shortlidge v. Gutoski, 125 N.H. 510, 513 (1984)) (emphasis added by Brooks). The problem with HSBC Group's argument is that it seems not to account for Rule 17(b)(3)(A), which allows suits against unincorporated associations to enforce rights existing under federal law. Because many of L'Esperance's claims are based on federal statutes, HSBC Group's motion to dismiss is granted, but only in part. HSBC Group is entitled to dismissal of the state-law claims asserted in Counts III,*fn1 VI, VII, IX, X, XI,*fn2 and XIII.

B. The Second Motion to Dismiss

In document no. 25, HSBC Consumer Lending, Inc.; HSBC Finance Corporation; Beneficial New Hampshire ("Beneficial NH"); Beneficial Corporation; and Household International, Inc. move to dismiss. As noted, HSBC Group joins in this motion to dismiss. The moving defendants first argue that L'Esperance has again impermissibly relied on group pleading, and then they identify specific deficiencies in each of her claims.

Based on L'Esperance's failure to specifically identify any conduct by any defendant other than Beneficial NH, all the moving defendants other than Beneficial NH are entitled to dismissal of the claims against them. Beneficial NH, in turn, is entitled to dismissal of all the claims asserted against it because none of them can withstand the scrutiny demanded by Rule 12(b)(6).

1. Group Pleading

In her amended complaint, L'Esperance describes various interactions with Jennifer Halteman and/or Cathy Maranhao at an office located at 75 Congress Street, Portsmouth, New Hampshire, that resulted in the two loans at issue here. The loan agreements for both loans identify the lender as:

Beneficial New Hampshire 75 Congress Street

Portsmouth, NH 03801

Defs.' Mot. to Dismiss, Ex. A (doc. no. 25-2), at 3; Ex. B (doc. no. 25-3), at 2. With regard to the relationships among Beneficial NH and the other moving defendants, L'Esperance alleges:

In connection with the two loans at issue in this litigation, that closed on October 23, 2008, the Plaintiff presented at the Portsmouth location of Household International, Inc. to refinance the existing mortgage on her Seabrook, New Hampshire home.

While at the time the location of the branch office was identified as Household International, Inc., the nature of the loan originator was represented on documentation provided to Plaintiff as being HSBC/Beneficial.

These documents were provided to the Plaintiff by Jennifer Halteman, Assistant Vice President and Branch Sales Manager of "Beneficial, Member HSBC Group," and/or Cathy Maranhao, both of HSBC Group and Beneficial branch office location 75 Congress Street, Portsmouth, New Hampshire. Plaintiff was additionally provided with cards for these persons associated with her loan identifying them to be employees of "Beneficial, Member HSBC Group." These individuals and other individuals at this branch office were agents of Defendants HSBC Lending, HSBC Finance Corporation, HSBC Group, Household International Inc. and Beneficial Corp. Though Beneficial NH, Inc. now appears to Plaintiff to have been a separately incorporated entity and identified on the mortgage and some loan documentation, on information and belief, Beneficial NH, Inc. was a "branch office," and agent and wholly owned subsidiary of Defendants HSBC Lending, HSBC Finance Corporation, HSBC Group, Household International Inc. and Beneficial Corp.

Thus, the Plaintiff alleges that Defendants HSBC Lending, HSBC Finance Corporation, HSBC Group, Household International Inc. and Beneficial Corp. are responsible for the representations and actions of Ms. Halteman and Ms. Maranhao, are responsible for the acceptance and origination of the Plaintiff's loans, and are additionally independently responsible for the violations and causes of action set forth herein as the servicers of the Plaintiff's loans, at least from March 2009 forward.

Am. Compl. (doc. no. 20) ¶¶ 24-26.

Based on the allegations described above, most of L'Esperance's claims are framed in the following way:

The Defendants Beneficial NH, Inc., Household International, Inc., HSBC Consumer Lending, Inc., HSBC Finance Corporation, HSBC Group a/k/a HSBC Bank, NA a/k/a HSBC North American Holdings, Inc. and Beneficial Corporation have violated and continue to violate the requirements of TILA and Regulation Z . . . Am. Compl. ¶ 47. Despite replacing the word "defendant" with a list of six specific entities, L'Esperance has not solved the group-pleading problem the court identified in its order granting HSBC Consumer Lending's motion to dismiss. To paraphrase the Court of Appeals for the First Circuit, "each defendant's role in the [loan process] must be sufficiently alleged to make [it] a plausible defendant." Ocasio-Hernandez v. Fortuno-Burset, 640 F.3d 1, 16 (1st Cir. 2011). L'Esperance does not allege specific conduct by specific defendants, but, rather, appears to base its claims on the idea that what one defendant did, all defendants did. That is not enough.

Two defendants can be liable for the same conduct if they did something jointly. If A and B intentionally hit C with a stick they are both wielding, then C may have a cause of action against A and B for battery. But here, the agreements documenting the loans at issue identify one lender and one lender only: Beneficial NH. The business cards and other ancillary paperwork L'Esperance mentions in her complaint are insufficient to transform any entity other than Beneficial NH into her lender, and there is no factual support in the complaint for L'Esperance's assertion that her loan was originated, by six different entities, "jointly and through their affiliations with each other," Am. Compl. ¶ 8.

There is, of course, the possibility of vicarious liability for Beneficial NH's conduct, which L'Esperance appears to attempt to invoke with her allegations concerning Beneficial NH's status as a "a 'branch office,' and agent and wholly owned subsidiary of Defendants HSBC Lending, HSBC Finance Corporation, HSBC Group, Household International Inc. and Beneficial Corp." Am. Compl. ¶ 26 (emphasis added). While the statuses of "branch office," "agent," and "wholly owned subsidiary" are not necessarily mutually exclusive, L'Esperance's imprecision, coupled with her suggestion that Beneficial NH filled each of those three roles, simultaneously, with respect to five separate "home offices," "principals," and "corporate parents," does little to resolve the group-pleading problem or establish a proper basis for imposing vicarious liability. Beyond that, the idea that Beneficial NH was acting as a "branch office" or as an "agent" would seem to be contradicted by the fact that L'Esperance's two loans were made by Beneficial NH, in its own corporate name, rather than in the name of some "home office" or "principal." Finally, leaving aside the rather fanciful corporate mechanics of Beneficial NH being "wholly owned" by five other entities, its status as a wholly owned subsidiary, if proven, would do nothing in terms of vicarious liability. As Judge Duffy explained in an order partially granting a motion to dismiss in a putative class action against a mortgage lender, the lender's parent corporation, and that corporation's parent:

Golden West and Wachovia cannot be held liable for World's actions simply because Golden West is World's parent, and Wachovia is Golden West's parent. See United States v. Bestfoods, 524 U.S. 51, 61 (1998) ("It is a general principle of corporate law deeply ingrained in our economic and legal systems that a parent corporation . . . is not liable for the acts of its subsidiaries."); Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331, 349 (4th Cir. 1998) (stating, in applying North Carolina law, "A corporate parent cannot be held liable for the acts of its subsidiary unless the corporate structure is a sham and the subsidiary is nothing but a mere instrumentality of the parent." (internal quotation marks omitted)); Carroll v. Smith--Henry, Inc., 313 S.E.2d 649, 651 (S.C. Ct. App. 1984) ("Stock ownership alone ordinarily does not render a parent corporation liable for the contracts of its subsidiary irrespective of whether the subsidiary is wholly owned or only partially owned . . . .").

Mincey v. World Sav. Bank, FSB, 614 F. Supp. 2d 610, 622 (D.S.C. 2008) (parallel citations omitted); see also Leeman v. Boylan, 134 N.H. 230, 235-36 (1991) (acknowledging parent corporation's potential liability based on independent duties but discounting application of vicarious liability to parent corporation based solely on its ownership of subsidiary).

In sum, based on L'Esperance's failure to cure the group-pleading problem identified in the court's previous order, HSBC Consumer Lending, Inc.; HSBC Finance Corporation; HSBC Group; Household International, Inc.; and Beneficial Corporation are each entitled to dismissal of all the claims against them.

Because the claim asserted in Count V under the Home Affordable Modification Program ("HAMP") does not list Beneficial NH as a defendant, that claim is dismissed in its entirety. With regard to the defendants actually named in Count V, L'Esperance's claim says:

Defendants Household International, Inc., HSBC Consumer Lending, Inc., HSBC Finance Corporation, HSBC Group a/k/a HSBC Bank and Beneficial Corporation, each individually or jointly with one or more of the other[s], interfaced with the Plaintiff regarding her loan modification, general loan servicing, and application under their financial hardship program as servicers.

Am. Compl. ¶ 84. It is difficult to imagine a more objectionable example of group pleading. See Ocasio-Hernandez, 640 F.3d at 16.

But, in any event, it is well established that there is no private right of action under HAMP. See, e.g., Miller v. Chase Home Fin., LLC, ___ F.3d ___, ___, 2012 WL 1345834, at *1-2 (11th Cir. Apr. 19, 2012); Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 559 n.4 (7th Cir. 2012) ("[S]ome homeowners [have] tried to assert rights arising under HAMP itself. Courts have uniformly rejected these claims because HAMP does not create a private federal right of action for borrowers against servicers.") (citations omitted). In its memorandum of law, Beneficial NH cites approximately a dozen cases that stand for the proposition that HAMP does not create a private right of action. In an argument unencumbered by any citations of authority, L'Esperance states that she "disagrees with Defendants' argument that the 'courts have repeatedly ruled that no private right of action exists under HAMP.'" Pl.'s Mem. of Law (doc. no. 27-1), at 5. Her argument is not persuasive

In addition, Counts VIII (asserting a claim against "[t]he Defendants" under the federal Fair and Accurate Credit Transactions Act),*fn3 and XI (asserting a claim against "all defendants" for "willful and oppressive conduct"),*fn4 are both dismissed for failure to sufficiently allege each defendant's role in the allegedly unlawful acts. See Ocasio-Hernandez, 640 F.3d at 16. Given that L'Esperance has already had two bites at this apple, the foregoing dismissals are with prejudice. Consequently, all that remains of this case are L'Esperance's claims against Beneficial NH (asserted in Counts I-IV, VI, VII, IX, X, and XIII) and Manhattan Mortgage (asserted in Counts IX, X, XII, and XIII).

1. Counts I & II: TILA & HOEPA

In Count I, L'Esperance asserts three claims, purportedly under the Truth in Lending Act ("TILA") and a portion of the Code of Federal Regulations that implements TILA, i.e., Regulation Z. Specifically, she asserts:

(1) a claim based on: (a) 15 U.S.C. § 1639(h), which, with regard to certain mortgage loans, bars creditors from "engag[ing] in a pattern or practice of extending credit to consumers . . . based on the consumers' collateral without regard to the consumers' repayment ability"; and (b) 12 C.F.R. § 226.32(e)(1), a section that does not appear to exist in the Code of Federal Regulations, see Am. Compl. ¶ 47;

(2) a claim based on 15 U.S.C. § 1639(c) and 12 C.F.R. § 226.32(d)(6), which, with regard to certain mortgage loans, generally bar prepayment penalties,*fn5 see Am. Compl. ¶ 48; and (3) a claim based on 15 U.S.C. § 1639(d) and 12 C.F.R. § 226.32(d)(4), which, with regard to certain mortgage loans, generally bar the imposition of a higher interest rate after a default than the rate that applied before default,*fn6 see Am. Compl. ¶ 49.

L'Esperance characterizes Count I as asserting claims under TILA and characterizes Count II as asserting claims under the Home Ownership and Equity Protection Act ("HOEPA").*fn7 Yet, the claims asserted in Counts I and II are substantially overlapping, and all arise out of various provisions of either 15 U.S.C. § 1639 or Regulation Z. That said, in Count II, L'Esperance asserts:

(1) a claim based on 15 U.S.C. § 1639(h) and 12 C.F.R. § 226.32(e)(1), the same authorities cited in the claim asserted in paragraph 47, see Am. Compl. ¶ 51(1);

(2) a claim based on 15 U.S.C. § 1639(c) and 12 C.F.R. § 226.32(d)(6), the same authorities cited in the claim asserted in paragraph 48, see Am. Compl. ¶ 57(2);

(3) a claim based on 12 C.F.R. § 226.32(d)(4), one of the two authorities cited in the claim asserted in paragraph 49,*fn8 see Am. Compl. ¶ 57(3);

(4) a claim based on: (a) 12 C.F.R. § 226.32(a)(1)(ii), which does not proscribe any conduct but, rather, specifies the loans to which § 226.32 applies; and/or

(b) 12 C.F.R. §§ 226.32(b)(1)(i)-(iii), which are parts of the regulatory definition of "points and fees,"*fn9 see Am. Compl. ¶ 57(4);

(5) a claim, citing no specific legal authority, that Beneficial NH "wrongfully document[ed] a closed-end, high-cost loan as an open-ended loan,"* ...

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