IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND JOHN D. BRYAN, et al., Plaintiffs, v. Civil No. 1:17-cv-02975-CCB FAY SERVICING, LLC, Defendant. JOHN D. BRYAN AND BENITA T. BRYAN S RESPONSE TO FAY SERVICING, LLC S PARTIAL MOTION TO DISMISS Plaintiffs John D. Bryan and Benita T. Bryan respond in opposition to the Partial Motion to Dismiss (ECF No. 5) filed by Defendant Fay Servicing, LLC ( Fay Servicing ). Counts III, IV, V and VI of the Complaint state claims upon which relief may be granted. The Court should issue an order denying Fay Servicing s motion. I. Facts Fay Servicing scheduled and conducted a foreclosure sale prior to making any determination on Mr. and Mrs. Bryan s complete loss mitigation application, which was received by Fay Servicing more than 37 days before the foreclosure sale, thus constituting dual tracking. (Compl. 22-22.5.) Although the homeowners had received a prior modification agreement on June 1, 2015, it was entered into with a different servicer Green Tree Servicing LLC. (Def. s Mot. Dismiss at Ex. 1, ECF No. 5-1.) The Complaint alleges that Mr. and Mrs. Bryan suffered noneconomic damages in the form of mental anguish that has manifested physically through sleeplessness, nausea and other physical symptoms. (Compl. 24.)
II. Argument A. Legal Standard In Palermino v. Ocwen Loan Servicing, LLC, No. TDC-14-0522, 2015 WL 6531003 *2 (D. Md. Oct. 26, 2015), this Court summarized the legal standard governing a defendant s motion to dismiss under Fed. R. Civ. P. 12(b)(6): To defeat a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the complaint must allege enough facts to state a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim is plausible when the facts pleaded allow the Court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. Legal conclusions or conclusory statements do not suffice. Id. The Court must examine the complaint as a whole, consider the factual allegations in the complaint as true, and construe the factual allegations in the light most favorable to the plaintiff. Albright v. Oliver, 510 U.S. 266, 268 (1994); Lambeth v. Bd. of Comm'rs of Davidson Cnty., 407 F.3d 266, 268 (4 th Cir.2005).... Ordinarily, courts cannot consider matters outside of the pleadings on a Rule 12(b)(6) motion to dismiss without converting the motion into one for summary judgment. See Fed.R.Civ.P. 12(d). However, courts may consider documents attached to a complaint... so long as they are integral to the complaint and authentic. Philips v. Pitt Cnty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir.2009) (internal citation omitted).... Palermino's MCPA claim must satisfy Rule 9(b)'s heightened pleading standard. Spaulding v. Wells Fargo Bank, N.A., 714 F.3d 769, 781 (4th Cir.2013). Rule 9(b) requires a plaintiff to plead with particularity the circumstances constituting fraud, Fed.R.Civ.P. 9(b), including the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby, Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 84 (4th Cir.1999) (quoting 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure: Civil 1297 (2d ed.1990)). 2
B. An Initial Complete Loss Mitigation Application Received By A Transferee Servicer Is Not Duplicative If Any Prior Loss Mitigation Was Received Only Under A Prior Servicer Fay Servicing argues that Count III of the Complaint fails to state a claim upon which relief may be granted because the prohibition against dual tracking under 12 C.F.R. 1024.41(g) does not apply, as 1024.41(i) only requires a servicer to consider a single complete loss mitigation application, and the homeowners received a prior loan modification on June 1, 2015. (Def. s Mem. 4-6.) This overlooks the fact that the prior loan modification was issued under a prior loan servicer Green Tree Servicing LLC. (Def. s Mot. Dismiss at Ex. 1.) The Consumer Financial Protection Bureau s (CPFB) Official Interpretation to 41(i), available at https://www.consumerfinance.gov/eregulations/1024-41/2015-18239, the pertinent portion of which is attached as Exhibit 1, provides: A transferee servicer is required to comply with the requirements of 1024.41 regardless of whether a borrower received an evaluation of a complete loss mitigation application from a transferor servicer. At least two federal courts have recognized the CFPB s official interpretation. First, in Garmou v. Kondaur Capital Corp., No. 15-12161, 2016 WL 3549356 *3 (E.D. Mich. June 30, 2016), the court stated: While it is true that a servicer is only required to comply with the requirements of [12 C.F.R. 1024.41] for a single, complete loss mitigation application for a borrower s mortgage loan account, 12 C.F.R. 1024.41(i), the agency has interpreted this to apply to transferee servicers as well, stating that a transferee servicer is required to comply with the requirements of section 1024.41 regardless of whether a borrower received an evaluation of a complete loss mitigation application from a transferor servicer. 10 C.F.R. Pt. 1024, Supp. I. When interpreting administrative rules, courts give deference to an agency s construction of its own regulation, which is controlling unless plainly erroneous or inconsistent with the regulation. Auer v. Robbins, 519 U.S. 452, 461 (1997) (quoting Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 359 (1989)). 3
Secondly, in Dent v. Inv. Corp. of Am., No. 15-cv-11268, 2015 WL 9694807 *5 (E.D. Mich. Dec. 23, 2015), the court ruled, Mortgage servicers thus may not escape their duty to address loan modification requests by simply noting that such requests were made to a prior servicer. Additionally, the revised 1024.41, the pertinent portion of which is attached as Exhibit 2, adopted last week on October 19, 2017, makes it clear that, even if the present servicer had issued the prior loan modification, a subsequent loss mitigation application would not constitute a duplicative application unless the homeowner was never current on the prior modification: (i) Duplicative requests. A servicer must comply with the requirements of this section for a borrower s loss mitigation application, unless the servicer has previously complied with the requirements of this section for a complete loss mitigation application submitted by the borrower and the borrower has been delinquent at all times since submitting the prior complete application. In the present matter, Fay Servicing does not argue that the homeowners were never current on the prior modification. Thus, Fay Servicing has failed to properly assert any defense based on a duplicative request under 1024.41(i). In any event, even if Fay Servicing were to make such an argument, it would still fail because, as argued above, the prior modification was issued under a different loan servicer. Dent, 2015 WL 9694807 *5; Garmou, 2016 WL 3549356 *3. B. Mental Anguish Damages Are Recoverable Under RESPA Fay Servicing next argues that Count III of the Complaint fails to allege damages, because noneconomic damages are not recoverable under the Real Estate Settlement Procedures Act (RESPA). (Def. s Mem. 6.) This argument fails because numerous courts have recognized that mental anguish damages may be recovered under RESPA. Geoffrion v. Nationstar Mortg. LLC, 182 F.Supp.3d 648, 665 (E.D. Tex. 2016) ( Therefore, the Court finds that RESPA is a remedial consumer protection statute, and because statutes must be construed liberally in this 4
context, the Court finds that mental anguish damages are included within RESPA s actual damages provision. ); Moore v. Mortg. Elec. Registration Sys., Inc., 848 F.Supp.2d 107, 122 (D.N.H. 2012) ( The Moores have, however, stated a plausible claim for actual damages under [RESPA].... While the Moores do not allege that they suffered any pecuniary damages resulting from OCWEN s alleged RESPA violations, they do allege that, as a result of OCWEN s entire course of conduct (and that of other defendants), they have suffered severe mental anguish and emotional distress. ); Ploog v. HomeSide Lending, Inc., 209 F.Supp.2d 863, 870 (N.D. Ill. 2002) ( RESPA is a consumer protection statute and RESPA s actual damages provision includes recovery for emotional distress. ); Johnstone v. Bank of Am., N.A., 173 F.Supp.2d 809, 816 (N.D. Ill. 2001) ( The court concludes that Johnstone s claim for mental suffering states a claim for actual damages under RESPA. ); Rawlings v. Dovenmuehle Mortg., Inc., 64 F.Supp.2d 1156, 1166 (M.D. Ala. 1999) ( Regarding the damages provision of 2605 [of RESPA], the court reads actual damages broadly so as to encompass mental anguish damages. In reaching this conclusion, the court is persuaded by findings of other courts addressing other consumer-protection statutes that are remedial in nature, wherein said other courts have found actual damages provisions to include damages for mental anguish. ). C. In Maryland, Emotional Distress Damages Are Recoverable In A Fraud Claim Fay Servicing next argues that Count IV of the Complaint fails because mental anguish damages are not recoverable in a claim for fraud. (Def. s Mem. 6-7.) Although some jurisdictions do not permit recovery of noneconomic damages in a fraud claim, Maryland follows the minority rule to the contrary: In close conformance with that view, some courts have held that emotional damages are not recoverable at all in an action for fraud. Other courts have allowed such damages on the premise that the defendant should be liable for the ordinary and proximate consequences of his/her/its 5
actions. Some courts have allowed emotional damages only when the defendant s conduct is wanton, outrageous, shows malice, or when there is accompanying physical injury. Others have allowed such damages where emotional injury was foreseeable, where the defendant should have been aware that its fraudulent conduct would cause that kind of distress. There is clearly no universal view. We see no reason to create an exception for fraud cases contrary to the carefully crafted rule enunciated in Vance and the subsequent cases. It is consistent with the more liberal approach adopted by other courts; it remains a fair balance that permits recovery of damages for emotional injury which, by reason of either an accompanying or consequential physical injury, is objectively ascertainable; and it avoids the dilemma of requiring some physical manifestation where the misrepresentation is negligent but not where it is deliberate, even though the consequences to the plaintiff may be precisely the same. The Court of Special Appeals erred in excusing the plaintiffs from having to show some physical manifestation as a condition to recovery of damages for purely emotional injury. Hoffman v. Stamper, 385 Md. 1, 37-38 (2005) (footnotes and citations omitted). In Hoffman, one of the plaintiffs was entitled to an award of emotional damages in a fraud claim because he testified at deposition that the stress caused him headaches. Id. at 33, 38. The Court also recognized that such things as depression, inability to work or perform household chores, loss of appetite, insomnia also constitute the type of physical manifestation of emotional distress that permits recovery of damages in a fraud claim. Id. at 34-35. Hoffman was decided by Maryland s highest appellate court, whereas the case cited by Fay Servicing on the issue of mental anguish damages in fraud claims Lapides v. Trabbic, 134 Md. App. 51 (2000) was decided by Maryland s intermediate appellate court. Moreover, Hoffman was decided in 2005, which was after the 2000 decision in Lapides. Lastly, Lapides made it clear that its holding was limited to the recovery of noneconomic damages for fraud in the context of child custody cases. Lapides, 134 Md. App. at 69-70 ( Without deciding whether noneconomic emotional distress damages might be available in other types of cases alleging fraud, we conclude that such damages are not available in the context of child custody cases. ). 6
In the present matter, which is not a child custody case, the Complaint alleges that Mr. and Mrs. Bryan suffered noneconomic damages in the form of mental anguish that has manifested physically through sleeplessness, nausea and other physical symptoms. (Compl. 24.) As such, under Hoffman, the Bryans have alleged proper damages for purposes of their fraud claim. D. Anti-Injunction Act With respect to the Anti-Injunction Act, 22 U.S.C. 2283, Fay Servicing relies on Tucker v. Specialized Loan Servicing, LLC, 83 F.Supp.3d 635 (D. Md. 2015). There, the plaintiffs specifically requested a declaration that their property was not subject to a foreclosure sale. Id. at 641. Accordingly, the Court ruled that any such declaration would impermissibly interfere with the jurisdiction of the State court. Mr. and Mrs. Bryan are not requesting any declaration that the State foreclosure proceedings against them are judicially impermissible. Rather than striking at the heart of the State court s jurisdiction, Mr. and Mrs. Bryan merely request this Court to issue an injunction directing Fay Servicing (not the State court) to cease taking further action in the State court pending the outcome of this case. This is necessary to protect Mr. and Mrs. Bryan s constitutional right to a jury trial. The complaint alleges that Fay Servicing has no right to pursue foreclosure proceedings. This allegation is based on the holding in Wells Fargo Home Mortg., Inc. v. Neal, 398 Md. 705, 728 (2007). There, the court held that, [U]nder principles of equity, a mortgagee s commencement of a foreclosure proceeding... without first having adhered to the mandatory HUD loss mitigation regulations, may invalidate the mortgagee s declaration of default. By seeking relief from a judge in State court, Fay Servicing may pave the way to argue that any finding of inequitable conduct by a jury in this case would constitute a direct or indirect 7
attack on such a State court judgment. Fay Servicing could attempt to argue that a judgment in this case is barred by res judicata or collateral estoppel, and thereby deprive Mr. and Mrs. Bryan of their constitutional right to a jury trial. In that vein, this Court should issue an injunction to stay State court proceedings where necessary in aid of its jurisdiction, or to protect or effectuate its judgments. 2283. Even if the requested injunction would impermissibly infringe upon the State court s jurisdiction, it would nevertheless be necessary to aid in this Court s jurisdiction, or to protect or effectuate the ability of this Court to enter a proper judgment in this case, in light of Mr. and Mrs. Bryan s jury demand. Further State foreclosure proceedings may infringe upon Mr. and Mrs. Bryan s constitutional right to a jury trial. III. Conclusion Counts III, IV, V and VI of the Complaint state claims upon which relief may be granted. Fay Servicing s Partial Motion to Dismiss (ECF No. 5) should be denied. Respectfully submitted, Dated: October 30, 2017 /s/ Jason A. Ostendorf, Esq. Jason A. Ostendorf, Esq. (Bar No. 28495) LAW OFFICE OF JASON OSTENDORF LLC One Corporate Center, Suite 400 10451 Mill Run Circle Owings Mills, Maryland 21117-5594 Telephone: 410.356.8859 Jostendorf@ostendorflaw.com Counsel for John D. Bryan & Benita T. Bryan 8
CERTIFICATE OF SERVICE I hereby certify that on October 30, 2017, a copy of the foregoing was filed in this case and served electronically via the CM/ECF system. /s/ Jason A. Ostendorf, Esq. Jason A. Ostendorf, Esq. 9