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Mark B. Galvin and Jenny Galvin v. Emc Mortgage Corporation et al.

April 2, 2013

MARK B. GALVIN AND JENNY GALVIN
v.
EMC MORTGAGE CORPORATION ET AL.



The opinion of the court was delivered by: Joseph N. Laplante United States District Judge

Opinion No. 2013 DNH 053

MEMORANDUM ORDER

In 2005, plaintiff Mark Galvin took out a $2.9 million mortgage loan. Four years later, he defaulted. Galvin alleges that although he entered a repayment plan with loan servicer EMC Mortgage Corporation in order to cure this default, EMC began foreclosure proceedings not long after.

Galvin and his wife have now brought a 15-count complaint against EMC and several other entities involved in the servicing and foreclosure of the loan. The Galvins allege a variety of malfeasance, including failing to properly apply their payments and proceeding with foreclosure despite ongoing negotiations to modify the loan. This court has diversity jurisdiction over this matter between the Galvins, who are New Hampshire citizens, and defendants, various out-of-state entities, under 28 U.S.C. § 1332 (diversity) because the amount in controversy exceeds $75,000. The court also has jurisdiction under 28 U.S.C. § 1331 (federal question) and 1367 (supplemental jurisdiction) by dint of the Galvins' claim under the Truth in Lending Act, 15 U.S.C. § 1601 et seq.

The defendants have moved to dismiss the complaint, arguing that the Galvins have not stated a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). After hearing oral argument, the court grants the motion as to all but one of the Galvins' claims---that for breach of the implied covenant of good faith and fair dealing in Count 6. Before explaining the reasons for doing so, however, a brief detour is necessary.

In their opposition memoranda, the Galvins coyly suggest that, should the court dismiss certain counts of their complaint, they will seek leave to amend in order to plead new allegations in support of those counts.*fn1 They referred to several of those unpleaded allegations at oral argument, where they also advanced a number of legal arguments and theories of recovery that were similarly absent from both their complaint and memoranda. This type of conduct betrays a lack of respect for opposing counsel and the court, who have expended significant resources attempting to litigate and resolve the present motion, due in no small part to the numerous (and largely meritless, as will be discussed in due course) theories actually included in the Galvins' complaint. The defendants and the court should not be "required to shoot at a moving target," Gierbolini-Rosa v. Banco Popular de Puerto Rico, 121 F.3d 695 (1st Cir. 1997) (table), but that is what the Galvins have invited the court to do by relying upon facts and theories not identified in their complaint or memoranda. That invitation is declined. Any facts or theories not pleaded in the complaint, and arguments absent from the Galvins' memoranda, are disregarded in the remainder of this order. See Order of Feb. 12, 2013 ("No new arguments or claims outside the briefs and pleadings will be entertained."); see also Iverson v. City of Boston, 452 F.3d 94, 103 (1st Cir. 2006) (under "raise-or-waive rule," represented parties must "incorporate all relevant arguments in the papers that directly address a pending motion" or waive them); In re Tyco Int'l, Ltd. Multidistrict Litig., 2004 DNH 047, 3-4 (court cannot take into account facts or allegations found outside complaint when ruling on motion to dismiss).

At oral argument, the Galvins also withdrew over half the counts pleaded in their complaint, disclaiming any intent to pursue Counts 1, 3-5, 7-8, 10, and 12-13. While the court appreciates the Galvins' attempt to narrow the issues truly in dispute, it would have been more beneficial (and respectful) to both the court and opposing counsel for the Galvins to make this intent clear in their opposition memoranda, so as to avoid unnecessary expenditures of time and effort. Because the parties' arguments regarding those counts have been fully briefed and considered by the court, this order examines each of those counts, notwithstanding the Galvins' withdrawal of them.

Turning now to the merits of the action:

* Counts 1 and 15, which are premised upon EMC's alleged breach of the repayment plan agreement, are dismissed because the repayment plan does not contain the promises that the Galvins say were breached.

* Count 2, which advances a variety of theories as to why the defendants lack "standing" to foreclose, is dismissed, as none of these theories states a plausible claim for relief.

* Counts 3-5, which sound in negligence, are dismissed because the allegations set forth in the complaint do not plausibly support the conclusion that the defendants owed the Galvins a duty outside the terms of their contracts.

* Count 6, which seeks to recover for an alleged breach of the implied covenant of good faith and fair dealing, is not dismissed because the Galvins have alleged facts that, if proven, could entitle them to relief on that claim.

* Count 7, which rests on the premise that the Galvins are intended third-party beneficiaries of a contract between EMC and the federal government, is dismissed because that premise is incorrect as a matter of law.

* Counts 8 and 10, which seek to recover from EMC for fraud in the inducement and negligent misrepresentation, are dismissed because the Galvins have not pleaded those claims with the specificity required by Federal Rule of Civil Procedure 9(b).

* Counts 9 and 11, which are premised upon supposedly false statements made in an assignment of the Galvins' mortgage, are dismissed because the Galvins have identified no such statements on the face of the assignment.

* Counts 12 and 13, both of which are titled "avoidance of mortgage," are dismissed because the theories pleaded in those counts do not entitle the Galvins to relief.

* Finally, Count 14, a claim against EMC for violation of the Truth in Lending Act, is dismissed because it is barred by the applicable statute of limitations.

I. Applicable legal standard

To survive a motion to dismiss under Rule 12(b)(6), a complaint must make factual allegations sufficient to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In ruling on such a motion, the court must accept as true all well-pleaded facts set forth in the complaint and must draw all reasonable inferences in the plaintiff's favor. See, e.g., Martino v. Forward Air, Inc., 609 F.3d 1, 2 (1st Cir. 2010). The court "may consider not only the complaint but also "facts extractable from documentation annexed to or incorporated by reference in the complaint and matters susceptible to judicial notice." Rederford v. U.S. Airways, Inc., 589 F.3d 30, 35 (1st Cir. 2009). With the facts so construed, "questions of law [are] ripe for resolution at the pleadings stage." Simmons v. Galvin, 575 F.3d 24, 30 (1st Cir. 2009). The following background summary is consistent with that approach.

II. Background

In 2005, Mark Galvin executed a promissory note in the amount of $2,900,000, payable to Metrocities Mortgage, LLC. The note was secured by a mortgage on property in Rye, New Hampshire, belonging to Galvin and his wife. Both Galvins executed the mortgage, which identifies Mortgage Electronic Registration Systems, Inc. ("MERS"), as the mortgagee in its capacity "as nominee for [Metrocities and its] successors and assigns." Mortg. (document no. 10-2) at 2. The mortgage was subsequently recorded in the Rockingham County Registry of Deeds.*fn2

In 2009, Galvin failed to make the loan payments due for the months of June, July, and August, leaving him over $40,000 in arrears. To cure this default, Galvin entered into a written repayment agreement with his loan servicer, EMC. The agreement, which Galvin executed on September 27, 2009, called for him to make six monthly payments of $9,900, with the last of the payments due in February 2010. Although the repayment agreement makes no mention whatsoever of modification, refinancing, or foreclosure, the Galvins allege that "Mr. Galvin understood [that] successful satisfaction of his obligations under the [agreement] would result in a permanent loan modification or refinancing, and stop foreclosure proceedings." Compl. ¶ 36 (emphasis in original).

The Galvins allege that they made all six payments required by the repayment agreement, and that EMC failed to credit their account for those payments. The Galvins concede, however, that they did not make the regular monthly payments due under their Note during this same time.*fn3 On March 1, 2010, EMC sent them an acceleration warning, asserting that Mr. Galvin had "failed to pay the required monthly installments commencing with the payment due" for October 2009, leaving him over $80,000 in arrears. Acceleration Warning (document no. 10-3) at 2.

Upon receiving this notice, Mr. Galvin immediately called EMC, which told him that he could apply for a loan modification through the federal government's Home Affordable Modification Program, or "HAMP." Following EMC's instructions, Mr. Galvin submitted application materials to EMC. Over the next several months, EMC repeatedly told him that it was working to help him avoid foreclosure, and Mr. Galvin believed that "all collection efforts, including foreclosure, would be suspended" while his modification application was pending. Compl. ¶ 44.

Notwithstanding Mr. Galvin's belief, in late April 2010, Harmon Law Offices informed the Galvins that EMC had retained it to foreclose on their mortgage. Over the next several months, the foreclosure and modification processes proceeded on parallel tracks. EMC sent the Galvins a series of letters confirming that it was reviewing their modification application, while Harmon scheduled a foreclosure sale for the middle of June 2010. At around the same time (and presumably in anticipation of the foreclosure), MERS assigned the Galvins' mortgage to The Bank of New York Mellon ("Mellon"), in its capacity as trustee for a securitized mortgage trust.*fn4 Harmon ultimately cancelled that sale at EMC's direction while EMC continued to review Mr. Galvin's application materials. This was not before some damage had already been done, the Galvins allege, as they had listed their property for sale but the public notices of foreclosure sale had impaired their ability to sell to "prospective buyers [who] were willing to wait to see if they could purchase the property at a lower price at an auction." Compl. ¶ 85.

According to the complaint, the application process was also frustrating for the Galvins. EMC repeatedly asked the Galvins to send it information they had already submitted. It also asked them to submit information that did not exist: on one occasion, it requested a divorce decree (although the Galvins were not divorced) and on another, requested a profit and loss statement for Mr. Galvin's self-employment (although Mr. Galvin was not self-employed). Although the Galvins believed they had submitted everything EMC required, in October 2010, EMC notified them that their application for a HAMP modification was denied for failure to provide requested documents. In the same letter, EMC informed the Galvins that they might be eligible for other programs. The Galvins took no further action, and heard nothing from EMC until March 2011, when it sent a letter informing them that the servicing of their loan would be transferred from EMC to JPMorgan Chase Bank, N.A., which would "use the 'brand name' EMC Mortgage when servicing the loan." Compl. ¶ 74.

In June 2012, Harmon, acting on Mellon's behalf, sent the Galvins a Notice of Mortgage Foreclosure Sale informing them that it had scheduled a foreclosure sale for August 1, 2012. That prompted the Galvins to file this action in Rockingham County Superior Court on July 23, 2012, seeking to enjoin the sale. See N.H. Rev. Stat. Ann. § 479:25, II. In addition to the facts just related, the Galvins' complaint alleges that beginning in April 2009, EMC "began making unexplained and questionable debits and accountings to the loan." Compl. ¶ 91. The defendants removed the action to this court. See 28 U.S.C. § 1441.

III. Analysis

A. Counts 1 and 15 - Breach of contract and promissory estoppel

The first and last counts of the Galvins' complaint---for breach of contract and promissory estoppel, respectively--both seek to recover for EMC's alleged breach of the promises it allegedly made in the September 27, 2009 repayment agreement. Specifically, the Galvins claim that EMC violated that agreement by (1) "commencing a foreclosure of the Galvins' home immediately after the Galvins satisfied their end of the deal" and (2) "failing to act in good faith to modify the terms of the Note." Compl. ΒΆΒΆ 100-01, 189. Defendants argue that both counts must be dismissed because the repayment ...


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