Opinion
HHDCV156060162S
04-19-2016
Rosamell Blanco v. Bank of America, N.A
UNPUBLISHED OPINION
Filed April 20, 2016
MEMORANDUM OF DECISION RE DEFENDANT'S MOTION TO STRIKE #106
Kevin G. Dubay, J.
The matter before the court arises out of the defendant's review and processing of the plaintiff's applications to modify his mortgage. The plaintiff, Rosamell Blanco, filed a two-count complaint against the defendant, Bank of America, N.A., alleging a CUTPA violation (count one) and a claim for common-law negligence (count two). Presently before the court is the defendant's motion to strike both counts. For the following reasons, the court grants the defendant's motion in its entirety.
I
FACTS AND PROCEDURAL HISTORY
On June 9, 2015, the plaintiff commenced this action by service of process. By way of his two-count complaint, the plaintiff alleges a CUTPA violation and common-law negligence based on the following facts, which are accepted as true for purposes of this motion. In an attempt to cure a delinquency that resulted from a dispute over whether the defendant had paid city taxes out of the plaintiff's escrow account, the plaintiff submitted his first loan modification application with the defendant on or about April 27, 2012. Between the time that the plaintiff submitted his first application and when the defendant commenced a foreclosure action against the plaintiff on February 5, 2013, the defendant requested that the plaintiff resubmit his loan modification application on at least two separate occasions, provided him with different points of contact, and also requested that the plaintiff make minor changes to documents that he had submitted in connection with his applications.
The foreclosure action is denoted Deutsche Bank National Trust Company f/k/a Bankers v. Blanco, Superior Court, judicial district of Hartford, Docket No. CV-13-6038756-S. As the plaintiff alleges, this action was eventually withdrawn on May 28, 2014.
On March 22, 2013, the date of the first foreclosure mediation session, the defendant requested that the plaintiff submit a fourth loan modification application, which the plaintiff did on April 1, 2013. On June 7, 2013, the defendant offered the plaintiff a three-month trial loan modification and, after making his first payment towards that trial period, the plaintiff was informed by a bank teller working for the defendant that he could enroll in automatic electronic payments to help facilitate his second and third trial payments. The plaintiff accepted the bank teller's offer to enroll in automatic electronic payments. During a foreclosure mediation session that took place on September 5, 2013, the defendant informed the plaintiff that he had missed his second and third trial payments and had, therefore, broken the trial modification. The plaintiff promptly made the second and third payments the next day.
During the next foreclosure mediation session on October 15, 2013, the defendant informed the plaintiff that it had received his second and third payments and requested a fifth loan modification. During the final mediation session on November 21, 2013, the defendant maintained its position that the plaintiff had broken the trial modification and was ineligible for a permanent loan modification. On January 27, 2014, the court, Vachelli, J., found that the plaintiff had been misled into believing that the defendant would make automatic withdrawals from the plaintiff's checking account and, therefore, was estopped from declaring that the plaintiff had not complied with his trial modification payments.
Subsequent to the court's January 27, 2014 order, the defendant offered the plaintiff a permanent loan modification, which the plaintiff executed and returned to the defendant on April 25, 2014. Between April 25, 2014 and May 22, 2014, the defendant requested that the plaintiff resubmit certain documents due to deficiencies with the notary acknowledgment page on the loan modification application. Finally, on May 28, 2014, the defendant confirmed that the permanent loan modification documents were complete and eventually withdrew the foreclosure action.
The essence of the plaintiff's complaint is that the defendant was negligent and unscrupulous in reviewing and processing his various loan modification applications. Specifically, as to count one, the plaintiff alleges that the defendant: failed to exercise reasonable diligence in reviewing his loan modification applications; requested duplicative and unnecessary documentation or updates during the application process; wrongfully commenced a foreclosure action while reviewing his loan modification applications; mislead him into believing that it would accept automatic withdrawals in connection with his trial modification period; and caused undue delay in offering him a permanent loan modification application. The plaintiff's allegations in count two are substantively similar to those alleged in count one.
On October 26, 2015, the defendant filed a motion to strike, accompanied by a memorandum of law. The plaintiff filed his objection on November 25, 2015, to which the defendant filed a reply on January 14, 2015. The matter was argued during the January 19, 2016 short calendar.
II
DISCUSSION
A
Standard of Review
The principles of law governing this court's review of the defendant's motion to strike are well established. " The purpose of a motion to strike is to contest . . . the legal sufficiency of the allegations of any complaint . . . to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003); see also Practice Book § 10-39(a)(1). " A motion to strike challenges the legal sufficiency of a pleading . . . and, consequently, requires no factual findings by the trial court . . . [The court] take[s] the facts to be those alleged in the complaint . . . and . . . construe[s] the complaint in the manner most favorable to sustaining its legal sufficiency . . . [I]f facts provable in the complaint would support a cause of action, the motion to strike must be denied . . . In doing so, moreover, [the court] read[s] the allegations broadly . . . rather than narrowly." Sturm v. Harb Development, LLC, 298 Conn. 124, 130, 2 A.3d 859 (2010). Finally, " [a] motion to strike is the proper procedural vehicle . . . to test whether Connecticut is ready to recognize some newly emerging ground of liability." (Internal quotation marks omitted.) Rich v. Foye, 51 Conn.Supp. 11, 16, 976 A.2d 819 (2007).
B
Count One--CUTPA
The defendant argues that the plaintiff's CUTPA claim is legally insufficient based on the ground that refusing to negotiate a loan modification with a borrower is not a CUTPA violation. Additionally, the defendant argues that, because the plaintiff ultimately benefitted from the loan modification process, the manner in which it negotiated with the plaintiff cannot create CUTPA liability. In response, the plaintiff argues that, in undertaking to review the plaintiff's loan modification applications, the defendant acquired a duty to review the applications with diligence, to avoid unnecessary delay, and to not commence a foreclosure action against him before responding to the application. The plaintiff argues that public policy considerations require such a result and that the allegations satisfy each prong of the cigarette rule.
The defendant also argues that the plaintiff lacks standing to bring claims based on alleged violations of the 2011 Office of the Comptroller of Currency Consent Order with Bank of America (OCC Consent Order) and the National Mortgage Settlement (NMS settlement) and that the plaintiff fails to allege how the defendant's conduct was unfair and/or deceptive. The court does not address these arguments.
In support of his public policy argument, the plaintiff relies, in part, on the OCC Consent Order, the NMS settlement, the Consumer Financial Protection Bureau's Mortgage Servicing Rules promulgated under the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq. (RESPA), and Connecticut's foreclosure mediation statute.
" The banking industry is governed by CUTPA." Smithfield Associates, LLC v. Tolland Bank, 86 Conn.App. 14, 27, 860 A.2d 738 (2004), cert. denied, 273 Conn. 901, 867 A.2d 839 (2005). CUTPA provides in pertinent part that " [n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." General Statutes § 42-110b(a). Pursuant to General Statutes § 42-110g(a), individuals are permitted to bring causes of action to challenge methods, acts, or practices prohibited by § 42-110b.
Moreover, " [i]t is well settled that in determining whether a practice violates CUTPA [Connecticut courts] have adopted the criteria set out in the cigarette rule by the [F]ederal [T]rade [C]ommission for determining when a practice is unfair: (1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise--in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other businesspersons] . . . All three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three . . . Thus a violation of CUTPA may be established by showing either an actual deceptive practice . . . or a practice amounting to a violation of public policy." (Internal quotation marks omitted.) Ulbrich v. Groth, 310 Conn. 375, 409, 78 A.3d 76 (2013).
In the present case, it is significant to highlight that the allegations contained in the plaintiff's complaint, along with the arguments contained in the respective memoranda of law, focus on the manner in which the defendant reviewed and processed his loan modification applications while also electing to commence foreclosure. Courts have held that refusing to negotiate a loan modification prior to proceeding to foreclosure does not rise to a violation of CUTPA. E.g., McClancy v. Bank of America, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV-13-6018975-S (January 28, 2016, Heller, J.); Chance v. Torrington Savings Bank Mortgage, Superior Court, judicial district of Windham, Docket No. CV-11-5005691-S (February 13, 2013, Calmar, J.); Wells Fargo Bank, N.A. v. Riverview East Windsor, LLC, Superior Court, judicial district of Hartford, Docket No. CV-09-6004927-S (December 22, 2010, Aurigemma, J.).
Finally, at least one court has noted that claims based on the manner in which a lender reviews and processes a loan modification application prior to commencing foreclosure are legally insufficient to state a cognizable CUTPA claim. See, e.g., CitiMortgage, Inc. v. Claricoates, Superior Court, judicial district of Tolland, Docket No. CV-11-6003181-S (September 14, 2011, Baldini, J.) (motion to strike CUTPA claim appropriately granted where lender allegedly invited mortgagor to submit loan modification documents, but did not timely review them and engaged in delay tactics to review loan modification materials); cf. Normand Josef Enterprises, Inc. v. Connecticut National Bank, 230 Conn. 486, 523-24, 646 A.2d 1289 (1994) (failure to disclose only deceptive and, therefore CUTPA violation, if duty to disclose exists).
Notwithstanding the plaintiff's arguments that the defendant assumed a duty to diligently review his loan modification documentation upon receipt, refusing to negotiate a loan modification prior to proceeding to foreclosure does not rise to a violation of CUTPA. Thus, allegations pertaining to the manner in which the defendant reviewed a loan modification application while also electing to commence foreclosure are legally insufficient to state a cognizable CUTPA claim. Accordingly, the court grants the defendant's motion to strike count one.
This court also notes that exposing lenders, mortgagees, and/or loan servicers to CUTPA liability in this context could potentially deter such entities from engaging in the loan modification process.
C
Count Two--Negligence
The defendant argues that the plaintiff's common-law negligence claim is legally insufficient based on the ground that no duty of care exists between a lender and a borrower. Specifically, the defendant argues that lenders have no obligation to negotiate a modification with a borrower, let alone exercise ordinary care when negotiating a modification, and that the plaintiff seeks to impose a novel duty of care upon lenders. In response, the plaintiff argues that the defendant owed the plaintiff a duty of care under the circumstances of this case.
The defendant also argues that the plaintiff cannot show that he suffered damages due to the defendant's alleged conduct. The court does not address this argument.
In support of his argument that the defendant owed the plaintiff a duty of care, the plaintiff relies, in part, on the OCC Consent Order, the NMS settlement, the Consumer Financial Protection Bureau's Mortgage Servicing Rules promulgated under RESPA, and Connecticut's foreclosure mediation statute.
" A cause of action in negligence is comprised of four elements: duty; breach of that duty; causation; and actual injury . . . Whether a duty exists is a question of law for the court, and only if the court finds that such a duty exists does the trier of fact consider whether that duty was breached." (Citation omitted.) Ruiz v. Victory Properties, LLC, 315 Conn. 320, 328, 107 A.3d 381 (2015). " The issue of whether the defendant owed the plaintiff a duty of care is an appropriate one for a motion to strike because the question embodies a matter of law to be decided by the court." Bennett v. Connecticut Hospice, Inc., 56 Conn.App. 134, 137, 741 A.2d 349 (1999), cert. denied, 252 Conn. 938, 747 A.2d 2 (2000).
" The ultimate test for the existence of the duty to use care is found in the foreseeability that harm may result if it is not exercised . . . [T]he test for the existence of a legal duty of care entails (1) a determination of whether an ordinary person in the defendant's position, knowing what the defendant knew or should have known, would anticipate that harm of the general nature suffered was likely to result, and (2) a determination, on the basis of a public policy analysis, of whether the defendant's responsibility for its negligent conduct should extend to the particular consequences or particular plaintiff in the case." Ruiz v. Victory Properties, LLC, supra, 315 Conn. 328-29.
" [A] simple conclusion that the harm to the plaintiff was foreseeable . . . cannot by itself mandate a determination that a legal duty exists. Many harms are quite literally foreseeable, yet for pragmatic reasons, no recovery is allowed . . . The final step in the duty inquiry, then, is to make a determination of the fundamental policy of the law, as to whether the defendant's responsibility should extend to such results . . . [I]n considering whether public policy suggests the imposition of a duty, [courts] . . . consider the following four factors: (1) the normal expectations of the participants in the activity under review; (2) the public policy of encouraging participation in the activity, while weighing the safety of the participants; (3) the avoidance of increased litigation; and (4) the decisions of other jurisdictions . . . [This] totality of the circumstances rule . . . is most consistent with the public policy goals of our legal system, as well as the general tenor of our [tort] jurisprudence." (Citations omitted; internal quotation marks omitted.) Ruiz v. Victory Properties, LLC, supra, 315 Conn. 336-37; accord Monk v. Temple George Associates, LLC, 273 Conn. 108, 118, 869 A.2d 179 (2005); Murillo v. Seymour Ambulance Ass'n., Inc., 264 Conn. 474, 480, 823 A.2d 1202 (2003).
Finally, courts have recognized that " one who gratuitously undertakes an act will be liable for performing it negligently . . . [and that] [o]ne who gratuitously undertakes a service that he has no duty to perform must act with reasonable care in completing the task assumed." (Citation omitted.) Coville v. Liberty Mutual Ins. Co., 57 Conn.App. 275, 281-82, 748 A.2d 875, cert. granted on other grounds, 253 Conn. 919, 755 A.2d 213 (2000) (appeal withdrawn March 30, 2001); accord Grenier v. Commissioner of Transportation, 306 Conn. 523, 547, 51 A.3d 367 (2012); Zatkin v. Katz, 126 Conn. 445, 450, 11 A.2d 843 (1940).
As an initial matter, the defendant relies on numerous cases in its memorandum of law which stand for the proposition that the defendant did not owe the plaintiff a fiduciary duty. Although " [g]enerally there exists no fiduciary relationship merely by virtue of a borrower-lender relationship between a bank and its customer"; Southbridge Associates, LLC v. Garofalo, 53 Conn.App. 11, 19, 728 A.2d 1114, cert. denied, 249 Conn. 919, 733 A.2d 229 (1999); the plaintiff's negligence claim in this case is premised on common-law duty of care, not a duty arising from a fiduciary relationship. These are not interchangeable duties. See, e.g., Sherwood v. Danbury Hospital, 278 Conn. 163, 196, 896 A.2d 777 (2006) (" Professional negligence implicates a duty of care, while breach of a fiduciary duty implicates a duty of loyalty and honesty." [Internal quotation marks omitted.]); Birdseye Development Co., LLC v. TD BankNorth, N.A., Superior Court, judicial district of Fairfield, Docket No. CV-09-5028582-S (April 14, 2011, Dooley, J.) (51 Conn. L. Rptr. 735, 737) (" While negligence implicates a duty of care, fiduciary duty implicates a duty of loyalty and honesty"). Accordingly, this court applies the duty framework that our Supreme Court detailed in Ruiz v. Victory Properties, LLC, supra, 315 Conn. 320.
As to the foreseeability prong, the injuries allegedly sustained by the plaintiff due to the defendant's conduct are (1) a significant financial injury in the form of thousands of dollars in foreclosure fees and other default-related fees and costs and (2) a progression of his Parkinson's disease. This court assumes that, under the specific circumstances of this case, the additional fees incurred by the plaintiff were a reasonably foreseeable consequence of the defendant's conduct.
Although questions exist as to whether it was reasonably foreseeable that the defendant's conduct would cause the plaintiff's Parkinson's disease to progress, an entity in the defendant's position, familiar with the loan modification and foreclosure processes, would likely anticipate that the plaintiff would incur added expenses to defend against a foreclosure action that may have been avoided if the plaintiff received a loan modification.
Regarding the public policy prong, pragmatic reasons dictate that recovery is not permitted under these circumstances. As to the first factor, the activity at issue in this case is ultimately a lender's or a loan servicer's review and processing of a loan modification application filed by a mortgagor. The plaintiff argues that, upon submitting a loan modification to the defendant, it is reasonable for the mortgagor to expect that the lender or loan servicer will carefully process and review the application in a timely manner. The defendant does not provide any argument to the contrary regarding this first prong. Although the plaintiff's position might be reasonable, this is but one factor in the totality of the circumstances assessment.
Regarding the second and third public policy considerations, this court agrees with the defendant that imposing a duty on a lender or loan servicer in this context would ultimately frustrate the loan modification process and would likely lead to increased litigation. Entities in the defendant's position would be less inclined to even entertain loan modification applications, which principally benefit mortgagors, if there was a chance that such entities could be exposed to civil liability. Moreover, as evinced by the parties' memoranda of law and conceded during oral argument, no appellate authority is directly on point, and the plaintiff is effectively asking this court to create a duty of care where one has not previously existed; creating a novel duty that breaks new ground in the lender-borrower context may lead to a significant increase in litigation. See Ruiz v. Victory Properties, LLC, supra, 315 Conn. 340 (significant increase in litigation " might occur if [the court was] recognizing a new cause of action or otherwise breaking new ground in the area of premises liability"). Although it is seemingly inevitable that imposing a duty that establishes a potential ground for recovery will lead to increased litigation; Monk v. Temple George Associates, LLC, supra, 273 Conn. 120; increased litigation in this particular context would significantly frustrate, if not potentially eliminate, the loan modification process.
Indeed, Connecticut courts have been hesitant to impose a duty of care in circumstances similar to those at issue in this case. See, e.g., Frigon v. Enfield Savings & Loan Ass'n. 195 Conn. 82, 87, 486 A.2d 630 (1985) (" The fact that a bank is indebted to its account holders for the amount of the funds that they have deposited . . . imposes no special duty of care for the safekeeping of the funds on deposit"); Dubinsky v. Citicorp Mortgage, Inc., 48 Conn.App. 52, 58-60, 708 A.2d 226, cert. denied, 244 Conn. 926, 714 A.2d 9 (1998) (lender under no duty to provide mortgagor with accurate appraisal in loan application, absent contractual language to contrary, where overvaluation of property led to larger mortgage); DCR Mortgage III Sub I, LLC v. Sullivan, Superior Court, judicial district of New Britain, Docket No. CV-09-5013787-S (August 16, 2010, Vacchelli, J.) (granting summary judgment for negligence counterclaim in foreclosure action where " [n]othing in the note or mortgage or other records in the case creates or imposes on the plaintiff a duty of care owed to the defendants").
As to the fourth and final factor, decisions from other jurisdictions are not particularly helpful. In his memorandum of law, the plaintiff initially draws this court's attention to Morrow v. Bank of America, N.A., 375 Mont. 38, 49, 324 P.3d 1167 (2014). Contrary to the plaintiff's suggestion, however, this case is inapposite to the present case and does not support the plaintiff's argument. See id. (loan servicer owed plaintiff's fiduciary duty to manage loan modification process competently after loan servicer gave advice, inter alia, to default on loan and ignore notices of impending foreclosure, which was not common in usual arms-length debtor/creditor relationship).
The plaintiff also cites authority from California in support of his position that California courts have imposed a duty on lenders, mortgagees, or loan servicers to review or process loan modification applications in a non-negligent manner. As recently recognized by a federal district court, the decisions from California are, at best, conflicting on this particular issue. Carbalal v. Wells Fargo Bank, N.A., United States District Court, Docket No. CV14-7851 (PSG) (C.D.Cal. April 10, 2015) (noting that California Courts of Appeal and federal district courts in California have reached conflicting conclusions).
Although this court's own independent research reveals that some jurisdictions have imposed a duty of care on entities in the defendant's position, it is apparent that no clear consensus exists. Compare Steinberger v. McVey ex rel. County of Maricopa, 234 Ariz. 125, 136-38, 318 P.3d 419 (2014) (noting that Arizona recognizes cause of action for negligent performance of an undertaking and that plaintiff alleged sufficient claim under that " Good Samaritan Doctrine" where lender allegedly induced borrower's default to secure loan modification, borrower defaulted, lender thereafter negligently processed or failed to process loan modification, and lender commenced foreclosure), and Jacques v. First National Bank of Maryland, 307 Md. 527, 543, 515 A.2d 756 (1986) (recognizing that bank had tort duty to use reasonable care when processing loan application), with MacKenzie v. Flagstar Bank, FSB, 738 F.3d 486, 495-96 (1st Cir. 2013) (under Massachusetts law, relationship between borrower and lender does not give rise to duty of care and failure to abide by service participation agreement or Home Affordable Mortgage Program when processing loan modification does not give rise to negligence claim absent independent duty of care), and Thomas v. JPMorgan Chase & Co., 811 F.Supp.2d 781, 800 (S.D.N.Y. July 29, 2011) (service participation agreement and Home Affordable Mortgage Program did not impose duty on financial institutions with respect to borrowers and banks do not owe duty of care to borrowers).
Accordingly, upon this court's consideration of the relevant factors, pragmatic reasons grounded in public policy dictate that recovery is not permitted in this context. Finally, this court deems it advisable to address a body of law that has not been specifically argued by the parties. As previously stated, " one who gratuitously undertakes an act will be liable for performing it negligently . . . [and that] [o]ne who gratuitously undertakes a service that he has no duty to perform must act with reasonable care in completing the task assumed." (Citation omitted.) Coville v. Liberty Mutual Ins. Co., supra, 57 Conn.App. 282; accord Grenier v. Commissioner of Transportation, supra, 306 Conn. 547; Zatkin v. Katz, 126 Conn. 450. When read in the light most favorable to the plaintiff, as this court must, the plaintiff alleges facts which reasonably could be read as imposing a duty on the defendant based on its decision to review the plaintiff's loan modification applications. Those appellate cases which have imposed a duty on a party based on its gratuitous undertaking have applied this doctrine to factually distinct and legally inapposite circumstances. See, e.g., Grenier v. Commissioner of Transportation, supra, 306 Conn. 551 (fraternity chapter voluntarily assumed duty of care regarding safe transportation of pledges); Zatkin v. Katz, supra, 126 Conn. 449-50 (employees voluntarily assumed duty after assisting in loading steel onto truck where steel caused truck to sway, allegedly causing accident); Coville v. Liberty Mutual Ins. Co., supra, 57 Conn.App. 282-83 (boyfriend who took physical custody of drunk plaintiff against her will, placed her inside truck, and repeatedly closed her door to prevent her from leaving truck may have assumed " duty to protect" drunken plaintiff).
In paragraph 73 of the plaintiff's complaint, he notes that the defendant assumed a duty to diligently review his loan modification application.
This court is aware that at least one jurisdiction has imposed such a duty on a lender based on such an undertaking. See Steinberger v. McVey ex rel. County of Maricopa, 234 Ariz. 125, 136-38, 318 P.3d 419 (2014) (Arizona recognizes cause of action for negligent performance of an undertaking and that plaintiff alleged sufficient claim under that " Good Samaritan Doctrine" where lender allegedly induced borrower's default to secure loan modification, borrower defaulted, lender thereafter negligently processed or failed to process loan modification, and lender commenced foreclosure).
Moreover, courts in this state have declined to extend the gratuitous undertaking doctrine to scenarios where the allegedly negligent party assumed a duty of care based upon rendering professional services. See Schlierf v. Abercrombie & Kent, Inc., Superior Court, judicial district of Waterbury, Complex Litigation Docket, Docket No. X02-CV-05-5003467 (May 19, 2011, Shaban, J.) (declining to extend gratuitous undertaking doctrine to defendant who provided plaintiff's family with luxury travel package). As a matter of law, the gratuitous undertaking doctrine does not apply to the alleged facts of this case and, therefore, the plaintiff cannot seek to impose a duty of care on the defendant based on its decision to review and process the plaintiff's loan modification applications.
Accordingly, the defendant's motion to strike count two is hereby granted.
III
CONCLUSION
For the foregoing reasons, the defendant's motion to strike based on the ground that the plaintiff's complaint fails to state a claim upon which relief can be granted is granted in its entirety.