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Burke v. Altisource Solutions, Inc.

United States District Court, D. Massachusetts

June 7, 2018

TIMOTHY BURKE, Plaintiff,
v.
ALTISOURCE SOLUTIONS, INC., OCWEN LOAN SERVICING LLC, and HSBC BANK, USA, Defendants.

          REPORT AND RECOMMENDATION RE: MOTIONS TO DISMISS VERIFIED COMPLAINT (DOCKET ENTRY ## 7, 32)

          MARIANNE B. BOWLER UNITED STATES MAGISTRATE JUDGE.

         This real estate dispute arises out of an attempted purchase of residential property in Brewster, Massachusetts through an online auction. After plaintiff Timothy Burke (“plaintiff”) entered into a purchase and sale agreement (“the P&S”) with defendant Ocwen Loan Servicing LLC (“Ocwen”), the seller, the closing did not take place. Ocwen and defendant Altisource Solutions, Inc. (“ASI”), which conducted the online bidding, move to dismiss the complaint under Fed.R.Civ.P. 12(b)(6) (“Rule 12(b)(6)”). (Docket Entry # 7). Defendant HSBC Bank, USA (“HSBC”), which purchased the property at foreclosure in June 2016, also seeks to dismiss the complaint. (Docket Entry # 32). Plaintiff opposes both motions. (Docket Entry ## 15, 37). After conducting a hearing on April 25, 2018, this court took the motions (Docket Entry ## 7, 32) under advisement.

         The verified complaint sets out claims against “the Seller, ” which it defines as Ocwen, ASI, and HSBC, for: breach of contract (Count I); breach of the implied covenant of good faith and fair dealing (Count II); specific performance (Count III); and declaratory relief (Count IV). Counts V and VI allege violations of Massachusetts General Laws chapter 93A (“chapter 93A”), section nine, against Ocwen (Count V) and ASI (Count VI). (Docket Entry # 46).

         STANDARD OF REVIEW

         To survive a Rule 12(b)(6) motion to dismiss, the complaint must contain “enough facts to state a claim to relief that is plausible on its face” even if actual proof of the facts is improbable. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 570 (2007); Miller v. Town of Wenham Massachusetts, 833 F.3d 46, 51 (1st Cir. 2016). The “standard is ‘not akin to a “probability requirement, ” but it'” requires “‘more than a sheer possibility that a defendant has acted unlawfully.'” Saldivar v. Racine, 818 F.3d 14, 18 (1st Cir. 2016); Feliciano-Hernàndez v. Pereira-Castillo, 663 F.3d 527, 533 (1st Cir. 2011). If the facts in the complaint “are ‘too meager, vague, or conclusory to remove the possibility of relief from the realm of mere conjecture, '” dismissal is appropriate. In re Montreal, Maine & Atl. Ry., Ltd., 888 F.3d 1, 6 (1st Cir. 2018). “[A]ll reasonable inferences” are drawn “in the pleader's favor.” Sanders v. Phoenix Ins. Co., 843 F.3d 37, 42 (1st Cir. 2016).

         The complaint includes 74 pages of attached exhibits. “Exhibits attached to the complaint are properly considered part of the pleading ‘for all purposes,' including Rule 12(b)(6).” Trans-Spec Truck Service, Inc. v. Caterpillar Inc., 524 F.3d 315, 321 (1st Cir. 2008). It is also appropriate to consider the “‘implications from documents attached to or fairly incorporated into the complaint.'” Barchock v. CVS Health Corp., 886 F.3d 43, 48 (1st Cir. 2018). Well-pleaded facts in a complaint must be “non-conclusory” and “non-speculative.” Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012); accord Saldivar v. Racine, 818 F.3d at 18 (“conclusory legal allegations” are not credited). The conclusory statement in the complaint that “The Buyer complied with all terms of the P&S” (Docket Entry # 46, ¶ 9) is therefore not considered. Setting aside “the complaint's conclusory averments, ” In re Curan, 855 F.3d 19, 25 (1st Cir. 2017), the non-conclusory, non-speculative facts in the complaint and attached exhibits are as follows.

         FACTUAL BACKGROUND

         In June 2016, HSBC acquired property located at 23 Essex Way in Brewster (“the property”) through a foreclosure. Ocwen executed a foreclosure deed for the property as an “attorney in fact.” (Docket Entry # 46, ¶ 5).[1] The property includes a single family residence.

         In or around January 2017, Ocwen listed the property for sale on HUBZU, “a subsidiary of ASI.” (Docket Entry # 46, ¶ 6). Ocwen, ASI, and/or HSBC also listed the property for sale on Zillow.[2] (Docket Entry # 46, ¶ 7). The Zillow listing describes the property as including a three-bedroom residence with central air conditioning and, like the HUBZU listing, pictures the front side of a roof over the structure. (Docket Entry # 46, pp. 28-29, 32-34).[3] Both listings denote the residence as occupied and state, “NO VIEWINGS of this property. Please DO NOT DISTURB the occupant. ‘As is' cash only sale with no contingencies or inspections . . . Live bidding is ACTIVE for this property, ” and the property is being “sold in ‘as is' condition” with no warranties. (Docket Entry # 46, pp. 28-29, 32-34) (Docket Entry # 46, ¶¶ 7-8).

         Plaintiff was the successful bidder and entered into the P&S dated January 27, 2017. With an effective date of February 3, 2017, the P&S includes provisions regarding: the occupancy of the property; a waiver of specific performance as a remedy; an absence of representations regarding the septic system, the roof, and the air conditioning; a return of the deposit as the sole remedy in the event the seller defaults or commits a material breach; the existence of mold; and the buyer's responsibility to remediate mold. (Docket Entry # 46, pp. 38, 41-62).

         Under the P&S, plaintiff agreed to pay a purchase price of $215, 000, additional costs in the amount of $9, 974, and a deposit credited at closing in the amount of $6, 450. (Docket Entry # 46, ¶ 9) (Docket Entry # 46, pp. 38, 43-44, ¶¶ 2.11-2.14, 4.1.1, 4.1.2, 5.1). The agreement provides that, “Subject to compliance with the terms and conditions of this Agreement, and subject to applicable law, Seller shall sell to Buyer and Buyer shall purchase from Seller the Property.” (Docket Entry # 46, p. 46, ¶ 3). Plaintiff transmitted the deposit to Ocwen's closing agent, Elite Title & Closing Services, LLC (“Elite”), which “accepted the deposit . . . as an Escrow Agent.” (Docket Entry # 46, ¶¶ 10-11) (Docket Entry # 46, p. 43, ¶¶ 2.1, 2.3). Subject to a few exceptions, the deposit was non-refundable. (Docket Entry # 46, p. 44, ¶ 5.2) (Docket Entry # 46, p. 53, ¶ 12.3). Plaintiff waived an inspection contingency. (Docket Entry # 46, p. 43, ¶ 2.19).

         In bold and capitalized letters, section 13.2 of the P&S emphasizes that the “PROPERTY IS SOLD ‘AS IS, WHERE IS'” with “NO REPRESENTATIONS OR WARRANTIES.” (Docket Entry # 46, p. 54, ¶ 13.2) (bolding omitted). The section further provides that the “SELLER MAKES NO REPRESENTATIONS OR WARRANTIES AS TO ANY OF THE ABOVE, ” a category that includes the septic system, [4] the air conditioning, and the roof. (Docket Entry # 46, p. 54, ¶ 13.2). Section 13.2 also states that the “SELLER MAKES NO REPRESENTATIONS OR WARRANTIES AS TO . . . THE CONDITION OF THE PROPERTY” or “THE PROPERTY'S SYSTEMS.” (Docket Entry # 46, p. 54, ¶ 13.2). As stated in the immediately preceding section, plaintiff acknowledged that the seller, Ocwen, acquired the property “pursuant to a foreclosure” or “similar action” and therefore “has not made any disclosures regarding the property” and is “not familiar with the condition of the property, ” except as “disclosed in any inspection reports” obtained by the seller which “should not be relied upon by buyer . . ..” (Docket Entry # 46, p. 54, ¶ 13.1) (capitalization omitted).

         The P&S set a closing date of February 20, 2017 and the parties “agreed that time is of the essence.” (Docket Entry # 46, p. 43, ¶ 2.21) (Docket Entry # 46, p. 48, ¶¶ 9, 9.1) (capitalization omitted). The agreement afforded Ocwen, as the seller (Docket Entry # 46, p. 43, ¶ 2.1) and in its “sole discretion, ” a unilateral right to extend the closing date if it was “unable to close” by “the original Closing Date” of February 20, 2017. (Docket Entry # 46, p. 49, ¶ 9.5.1). “Any further extensions must be agreed to in writing by both Buyer and Seller.” (Docket Entry # 46, p. 49, ¶ 9.5.1).

         Separately, section 12.3 of the P&S gave Ocwen the ability to cancel the agreement if it was “unable to perform” or the property was “no longer available for sale for any reason, ” provided Ocwen gave plaintiff written notice. (Docket Entry # 46, p. 53, ¶ 12.3). In the event Ocwen exercised this right, plaintiff was “entitled to the return of the Deposit” as his “sole and exclusive remedy.” (Docket Entry # 46, p. 53, ¶ 12.3). In the event of a “default or material breach” by Ocwen, the P&S likewise limited plaintiff's recovery to a return of the deposit. (Docket Entry # 46, p. 53, ¶ 12.4). Plaintiff waived the right to maintain an action for specific performance and agreed to the return of the deposit as adequate and fair compensation.[5] (Docket Entry # 46, p. 53, ¶ 12.4). Plaintiff also agreed that Ocwen was not liable “for any special, consequential or punitive damages . . . in contract . . . arising from or related to this agreement or a breach of this agreement.” (Docket Entry # 46, p. 53, ¶ 12.5) (capitalization omitted). Moreover, “In the event [of] a legal proceeding, ” the P&S dictated an award of attorneys' fees and costs to the prevailing party. (Docket Entry # 46, p. 60, ¶ 16.15).

         Prior to the closing, the P&S required Ocwen and plaintiff to deliver “[a]n executed Settlement Statement” to the other party. (Docket Entry # 46, pp. 49-50, ¶¶ 9.8.1, 9.8.2). On February 14, 2017, “the Seller requested that its counsel prepare the HUD-1 (Settlement Statement) for review.” (Docket Entry # 46, ¶ 13). Specifically, on February 14, 2017, Ramya A. Shetty, a closing coordinator at ASI, emailed a legal assistant at Elite asking, “Please advise us on HUD for seller's review.” (Docket Entry # 46, pp. 67, 83). Ocwen's “counsel never prepared the HUD-1” settlement statement for Ocwen or plaintiff. (Docket Entry # 46, ¶ 23) (Docket Entry # 46, p. 50, ¶¶ 9.8.1, 9.8.2). As stated in the P&S, the failure to perform this condition precedent to closing “shall not, in and of itself, relieve any Party of its obligations set forth elsewhere in this Agreement.” (Docket Entry # 46, p. 49, ¶ 9.6).

         In February, plaintiff and Elite discussed “the vacancy of the Property.” (Docket Entry # 46, ¶ 12). The P&S denotes the property as “[o]ccupied” at the time of the listing. (Docket Entry # 46, p. 43, ¶ 2.22). In a February 14, 2017 email to plaintiff, Elite stated that the “property is vacant.” (Docket Entry # 46, p. 67). On February 15, 2017, plaintiff forwarded the town's requirements for securing the final water bill to Elite. (Docket Entry # 46, ¶ 14) (Docket Entry # 46, p. 70). By email, he acknowledged his responsibility to obtain the final water bill. (Docket Entry # 46, p. 72). In a February 16, 2017 email regarding the final water bill, plaintiff informed Elite that the town needed to access the property. (Docket Entry # 46, p. 69) (Docket Entry # 46, ¶ 22).

         During this time period, the parties agreed to a February 21, 2017 inspection. (Docket Entry # 46, ¶ 15) (Docket Entry # 46, p. 75). A February 21, 2017 email late in the afternoon from Elite asked plaintiff if he had gone to the property and states, “we are waiting on final bills in order to schedule the closing.” (Docket Entry # 46, p. 64). During the inspection to the property on or about February 21, 2017, plaintiff discovered the property did not have central air conditioning. (Docket Entry # 46, ¶ 16). In a February 22, 2017 email plaintiff sent to Elite and a number of other individuals, plaintiff complained there was no central air conditioning and the property was “infested with black mold.” (Docket Entry # 46, p. 64). As stated in the email, plaintiff deemed the failure to provide a warning about the mold “unacceptable.” (Docket Entry # 46, p. 64). The email notes that Ocwen had the property winterized and therefore “knew of the problem” but did not inform him about the condition. (Docket Entry # 46, p. 64) (Docket Entry # 46, ¶ 21). Section 13.3.6 of the P&S states that, “Seller further advises buyer that as a consequence of possible water damage and/or excessive moisture, the Property may be or has been irrevocably contaminated with mildew, mold, and/or other microscopic organisms” and that “exposure to certain species of mold may pose serious health risks . . ..” (Docket Entry # 46, p. 55, ¶ 13.3.6). Plaintiff experienced respiratory issues for two days after the inspection. (Docket Entry # 46, ¶ 21).

         As indicated, the closing did not take place on February 20, 2017. The P&S provides for an automatic extension of the “original Closing Date” for 30 days at Ocwen's “sole discretion” if Ocwen is “unable to close the transaction.” (Docket Entry # 46, p. 49, ¶ 9.5.1). The day after plaintiff's February 22, 2017 email regarding the black mold and lack of air conditioning, plaintiff sent Ocwen a chapter 93A demand letter alleging fraud and deceit on the part of Ocwen for engaging in half-truths and material misrepresentations about the black mold, the lack of air conditioning, and the failure to inspect the septic system within six months of the June 2016 foreclosure sale. (Docket Entry # 46, pp. 15-22). Seeking $50, 000, the letter advised Ocwen that plaintiff would file a lawsuit seeking damages absent a reasonable settlement offer within 30 days. (Docket Entry # 46, p. 22).

         In an email dated April 11, 2017, the closing coordinator at ASI informed plaintiff and a number of other individuals “that the Seller ha[d] exercised its automatic and unilateral right to extend the Closing Date” under section 9.5.1 of the P&S to April 25, 2017. (Docket Entry # 46, p. 83) (Docket Entry # 46, ¶ 23). By email dated April 19, 2017, Ocwen “voided and canceled the P&S.” (Docket Entry # 46, ¶ 24) (Docket Entry # 46, p. 85).

         By letter dated June 12, 2017, Ocwen's counsel wrote to plaintiff. The letter states that, as set forth in an “enclosed Seller Termination of Purchase and Sale Agreement, ” the agreement “has been terminated as the closing was unable to occur by the Closing Date” and, “pursuant to Section 12.3, ” the deposit held by Elite “will be returned to you . . ..” (Docket Entry # 46, ¶ 25) (Docket Entry # 46, p. 87). The attached Seller Termination of Purchase and Sale Agreement dated April 19, 2017 with an executed signature by the “Seller” dated April 18, 2017 instructs that the deposit of $6, 450 “shall be” returned to plaintiff. (Docket Entry # 46, ¶ 25) (Docket Entry # 46, p. 88). It further states that the closing was “unable to occur” by the closing date. (Docket Entry # 46, ¶ 25) (Docket Entry # 46, p. 88).

         DISCUSSION

         I. Breach of Contract (Count I)

         Ocwen, ASI, and HSBC (“defendants”) initially move to dismiss the contract claim against ASI and HSBC because they are not parties to the P&S. (Docket Entry ## 8, 32). They also maintain that the indemnification provision bars all of the claims or counts in the complaint, including the breach of contract count. (Docket Entry ## 8, 32). As to Ocwen, they submit that: (1) plaintiff was not ready, willing, and able to perform the contract; (2) Ocwen did not breach the P&S; and (3) Ocwen canceled the P&S under section 12.3 and returned the deposit such that plaintiff did not suffer any damages. (Docket Entry ## 8, 32). Plaintiff submits that “the Sellers, ” which he defines as Ocwen and ASI, are the parties that breached the P&S because they refused to comply with environmental laws in the following manner: (1) they did not undertake to complete an inspection of the septic system as required under chapter 310 of Massachusetts Code of Regulations, section 15.301 (“regulation 15.301”), and a Brewster “Real Estate Transfer Regulation” (Docket Entry # 46, pp. 77-81); and (2) they “acted to avoid the entry” of town employees seeking to secure a final water meter reading.[6] (Docket Entry ## 15, 37). Plaintiff argues that these breaches were material which thereby excused plaintiff from further performance.

         A breach of contract under Massachusetts law “requires the plaintiff to show that (1) a valid contract between the parties existed, (2) the plaintiff was ready, willing, and able to perform, (3) the defendant was in breach of the contract, and (4) the plaintiff sustained damages as a result.” Bose Corp. v. Ejaz, 732 F.3d 17, 21 (1st Cir. 2013). In short, the plaintiff must show that a valid “‘contract existed, the defendant breached the terms of the contract, and the plaintiff sustained damages as a result of the breach.'” Young v. Wells Fargo Bank, N.A., 717 F.3d 224, 232 (1st Cir. 2013) (internal brackets omitted).

         Regulation 15.301 requires inspection of a septic system “at or within two years prior to the time of transfer of title . . ..”[7] 310 Mass. Code Regs. 15.301. The owner or operator of the septic system is “responsible for the inspection and maintenance of, and any necessary upgrades to, the system.” 310 Mass. Code Regs. 15.300(4). “A copy of the complete inspection report shall be submitted to the buyer . . ..” 310 Mass. Code Regs. 15.301. An owner's failure “to have the system inspected” constitutes a violation of 310 Mass. Code Regs. 15.000. 310 Mass. Code Regs. 15.301(11). Subject to certain exceptions, the Brewster “Real Estate Transfer Regulation” requires the owner to have an inspection of the septic system no less than 30 days before a transfer of property. (Docket Entry # 46, pp. 77, 80). In the event an inspection uncovers a failed ...


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