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Rego v. Select Portfolio Servicing, Inc.

United States District Court, D. Massachusetts

February 22, 2019

ELIZABETH A. REGO and TODD W. FRATUS, SR., Plaintiffs,
v.
SELECT PORTFOLIO SERVICES, INC. Defendant.

          MEMORANDUM AND ORDER

          ALLISON D. BURROUGHS, U.S. DISTRICT JUDGE

         Plaintiffs Elizabeth Rego and Todd Fratus, Sr. bring claims for declaratory judgment (Count I), breach of contract (Count II), breach of the implied covenant of good faith and fair dealing (Count III), and violation of Massachusetts General Laws Chapter 93A (Count IV) related to Defendant Select Portfolio Services, Inc.'s (“SPS”) servicing and modification of their mortgage loan. [ECF No. 1-1 at 4-13 (“Complaint” or “Compl.”)]. SPS moves to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons explained herein, the motion is GRANTED, and the Complaint is DISMISSED with leave to amend.

         I. BACKGROUND

         The following facts are drawn from the Complaint, the well-pleaded allegations of which are taken as true for purposes of evaluating SPS's motion to dismiss. See Ruivo v. Wells Fargo Bank, N.A., 766 F.3d 87, 90 (1st Cir. 2014). Certain details are also culled from documents whose authenticity are not disputed by the parties, from official public records, and from documents attached or referred to in the Complaint. See Watterson v. Page, 987 F.2d 1, 3 (1st Cir. 1993).

         Plaintiffs are domestic partners who purchased their current residence in Pepperell, Massachusetts in October 2004 for $358, 000 using an “80/20, ” “no money down” financing that required two mortgages to be issued by First Franklin Corp. (“First Franklin”). [Compl. ¶¶ 7-9]. The first mortgage had an initial principal of $286, 400, and the second mortgage had an initial principal of $71, 600. [Id. ¶¶ 9-10]. In early 2008, Plaintiffs began experiencing problems with First Franklin, which refused to accept certain payments, returned purported overpayments that it should not have, and threatened foreclosure at times when Plaintiffs' account was current. [Id. ¶¶ 14.c-d]. In 2009, First Franklin assigned the first mortgage to Wells Fargo Bank, N.A. as trustee for a mortgage-backed securities trust. [ECF No. 9 at 19-20]. In July 2011, Wells Fargo assigned the first mortgage to PNC Bank, N.A. and SPS became the servicer for the first mortgage. [Id. ¶ 15; ECF No. 9 at 23-24].[1] Prior to SPS taking over as servicer for the first mortgage, Plaintiffs repeatedly attempted to secure a modification of both mortgages, but their attempts were delayed by First Franklin's insistence that several of their applications were incomplete. [Compl. ¶¶ 14.i-15]. First Franklin eventually offered Plaintiffs a modification that would incorporate both the first and second mortgages, but sold the mortgages before Plaintiffs could close on the modification. [Id. ¶¶ 14.n, 15].

         After servicing transferred, SPS told Plaintiffs that their outstanding modification offer was void, refused to accept mortgage payments, required Plaintiffs to reapply for a loan modification, and informed Plaintiffs that the modification would not include the second mortgage because it had not been part of SPS's purchase. [Id. ¶¶ 15-18, 21]. Plaintiffs submitted a new modification application to SPS, but found the process was disorganized and that SPS had not received the paperwork related to their prior modification applications, which caused unnecessary delays. [Id. ¶¶ 18-19]. At one point, SPS erroneously sent a check for real estate taxes on Plaintiffs' property to the Town of Pepperell, but because no real estate taxes were due, the town returned the check to SPS. [Id. ¶¶ 28-29]. SPS also charged attorneys' fees to Plaintiffs' mortgage balance. [Id. ¶¶ 19-21]. On at least one occasion when Plaintiffs' first mortgage was current, SPS scheduled and threatened to proceed with a foreclosure auction if Plaintiffs refused to make certain trial payments associated with their loan modification. [Id. ¶¶ 23, 27, 36, 38].

         Plaintiffs finally secured a modification of the first mortgage on September 18, 2012, but SPS included $107, 000 in fees, including attorneys' fees, in the principal due, which then totaled $375, 077.11. [Id. ¶¶ 21-22]. Although the modification provided Plaintiffs with several benefits, including an initial interest rate of 2.00 percent and a “deferred principal balance” of $153, 077.11 on which interest would not accrue, the modified mortgage balance would have been considerably lower if not for the fees caused by SPS's delays. [Id. ¶¶ 22, 37, 39; ECF No. 9 at 27].

         Plaintiffs filed for Chapter 7 bankruptcy protection in 2017 and obtained discharges later that year. [Compl. ¶¶ 1-2]. On June 21, 2017, Plaintiffs filed an adversary proceeding against First Franklin, Ditech Financial, LLC (“Ditech”), [2] and SPS based on substantially the same allegations made here. [Id. ¶ 3; see Rego v. Select Portfolio Servs., Inc. (In re Rego), Adv. Pro. 17-04028 (D. Mass)]. Plaintiffs settled their claims against First Franklin, but their claims against SPS were dismissed by the bankruptcy court for lack of jurisdiction on December 8, 2017. [Compl. ¶¶ 5-6; Order of Court, Rego v. Select Portfolio Servs., Inc. (In re Rego), Adv. Pro. 17-04028 (D. Mass. Dec. 8, 2017), ECF No. 43]. On May 10, 2018, Plaintiffs filed this action in state court seeking a declaratory judgment in the nature of an accounting and alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and a violation of Massachusetts Chapter 93A. [ECF No. 1-1 at 2; see generally Compl.]. On June 21, 2018, SPS removed the action to this Court. [ECF No. 1].

         II. MOTION TO DISMISS STANDARD

         On a motion to dismiss for failure to state a claim, the Court accepts as true all well-pleaded facts in the complaint and draws all reasonable inferences in the light most favorable to the plaintiff. United States ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 383 (1st Cir. 2011). While detailed factual allegations are not required, a complaint must set forth “more than labels and conclusions, ” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), and it must contain “factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory.” Gagliardi v. Sullivan, 513 F.3d 301, 305 (1st Cir. 2008) (internal quotations and citations omitted). The facts alleged, taken together, must “state a claim to relief that is plausible on its face.” A.G. ex rel. Maddox v. Elsevier, Inc., 732 F.3d 77, 80 (1st Cir. 2013) (quoting Twombly, 550 U.S. at 570). “A claim is facially plausible if supported by ‘factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'” Eldredge v. Town of Falmouth, 662 F.3d 100, 104 (1st Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 665 (2009)).

         When assessing the sufficiency of a complaint, the Court first “separate[s] the complaint's factual allegations (which must be accepted as true) from its conclusory legal allegations (which need not be credited).” Maddox, 732 F.3d at 80 (quoting Morales-Cruz v. Univ. of P.R., 676 F.3d 220, 224 (1st Cir. 2012)). Next, the Court “determine[s] whether the remaining factual content allows a ‘reasonable inference that the defendant is liable for the misconduct alleged.'” Id. (quoting Morales-Cruz, 676 F.3d at 224). “[T]he court may not disregard properly pled factual allegations, ‘even if it strikes a savvy judge that actual proof of those facts is improbable.'” Ocasio-Hernandez v. Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011) (quoting Twombly, 550 U.S. at 556). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, ” however, a claim may be dismissed. Iqbal, 556 U.S. at 679.

         III. DISCUSSION

         SPS argues (1) that the Complaint fails to state claims for breach of contract or breach of the implied covenant of good faith and fair dealing, (2) that the Complaint fails to state a Chapter 93A claim, (3) that declaratory relief is barred as a matter of law, and (4) that the loan modification bars this action. [ECF No. 9 at 5-16].[3] The Court will address the first three arguments in turn, and finds it unnecessary to address the fourth.

         A. Plaintiffs Fail to State a Breach of Contract or the Implied ...


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