Foley v. Wells Fargo Bank, N.A.

• Decision Date: 14 November 2014
• Docket Number: No. 13–2527.,13–2527.
• Citation: 772 F.3d 63
• Parties: Jonathan FOLEY, Plaintiff, Appellant, v. WELLS FARGO BANK, N.A., Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

772 F.3d 63

Jonathan FOLEY, Plaintiff, Appellant,

v.WELLS FARGO BANK, N.A., Defendant, Appellee.

No. 13–2527.

United States Court of Appeals, First Circuit.

Nov. 14, 2014.

Recognized as Preempted

M.G.L.A. c. 244, § 35A

Valeriano Diviacchi for appellant.

David M. Bizar, with whom Seyfarth Shaw LLP was on brief, for appellee.

Before TORRUELLA, DYK,^* and THOMPSON, Circuit Judges.

THOMPSON, Circuit Judge.

Jonathan Foley sued Wells Fargo, N.A. (“Wells Fargo”) for failing to consider him for a mortgage loan modification, which a class action settlement agreement required the bank to do before attempting to foreclose on Foley's home. The district court dismissed the four-count complaint, and Foley appeals the dismissal of three counts, arising under state common and statutory law, on various grounds.¹ Wells Fargo insists that the district court rightly dismissed the complaint because Foley failed to state a claim for any of the causes of action. Wells Fargo also argues that two of Foley's claims are preempted by a federal law governing home mortgage lending.

After a deliberate review, we find that the district court improperly considered evidence outside of the pleadings to resolve Wells Fargo's motion to dismiss, warranting a revival of Foley's common law claims. Foley's statutory causes of action, however, brought under Mass. Gen. Laws ch. 244, §§ 35A and 35B, did fall short of stating a cognizable claim, and therefore, we affirm their dismissal.

Accordingly, we vacate in part the judgment entered in Wells Fargo's favor, and remand Foley's claims for breach of contract (Count One) and breach of the implied covenant of good faith and fair dealing(Count Four). We affirm the dismissal of Count Two, violation of Mass. Gen. Laws ch. 244.

I. BACKGROUND

To set the factual stage for this case, we rely on the allegations set forth in Foley's complaint, the documents attached to the complaint, and relevant public records. Watterson v. Page, 987 F.2d 1, 3 (1st Cir.1993). See also Medina–Velázquez v. Hernández–Gregorat, 767 F.3d 103, 108 (1st Cir.2014) ( “[W]e construe the well-pleaded facts in the light most favorable to the plaintiffs, ... accepting their truth and drawing all reasonable inferences in plaintiffs' favor.”).

A. Foley's Home Loan

Foley applied for a home mortgage loan from World Savings, FSB,² on March 7, 2005. The bank offered Foley a “Pick–a–Payment” loan—a monthly, adjustable-rate mortgage that allowed the borrower to choose one of various payment arrangements, based on a minimum payment amount determined by the borrower. Foley accepted the $455,000 loan, and his monthly mortgage payment was approximately $1,600.

But Foley, like so many other borrowers, was affected by the housing crash of 2008. The value of his home dropped significantly, preventing him from refinancing with a more favorable interest rate. He lost his job around October 2008, but used his savings to continue making mortgage payments for two years.

Come October 2010, Foley succumbed to his financial hardship and stopped making timely payments in-full, but did make some partial payments through April 2011. He sought a loan modification from the bank, and in April 2011, Wells Fargo informed him he might qualify for the Home Affordable Modification Program (“HAMP”), a federal program that allows qualified homeowners to reduce their monthly mortgage payments. Foley asked to participate, and the bank's representatives said they would send him an application.

B. Pick–a–Payment Settlement

In the meantime, Wells Fargo settled a California class action lawsuit in May 2011. The plaintiffs in that suit had alleged that Pick–a–Payment loans violated the Truth–in–Lending Act because the loan documents failed to adequately disclose to borrowers certain loan conditions, including interest rates and payment schedules. The class action settlement agreement specified three categories of Pick–a–Payment borrowers, and the parties agree that Foley is a member of “Settlement Class B.”

A few of the settlement agreement's terms, as they apply to Settlement Class B members, are relevant to Foley's case. The agreement provides:

Settlement Class B Members ... first shall be considered for a HAMP modification.... [Those] who do not qualify for or elect not to accept a HAMP modification shall be considered for a MAP2R modification.

“MAP2R” was a new proprietary modification program Wells Fargo created specifically for the settlement, and the step-by-step eligibility determination process for MAP2R (called the “waterfall” process) was spelled out in the agreement. The bank was required to apply seven specific (and rather complicated) sequential steps until a debt-to-income ratio of 31 percent was reached for the borrower. But if the bank followed the waterfall and could not reach 31 percent, it was not required to offer a MAP2R modification.

The settlement agreement also imposed certain “servicing commitments,” created, according to the agreement, “[i]n order to ensure that Borrowers are appropriately considered for a MAP2R Modification in a timely manner.” The agreement required, for instance, that Wells Fargo provide class members with clear, written explanations of modification denials, and in any foreclosure-related communications, a notification that the borrower was still being considered for a modification.

C. Foley's Continued Pursuit

In the midst of the class action's resolution, Foley, presumably still unaware of the class action settlement, pressed on with HAMP, which Wells Fargo continued to tell him through November 2011 (six months after the California class action went into effect) was the only modification for which he might qualify. After numerous follow-up phone calls to Wells Fargo (which Foley started making on the heels of his April 2011 call with the bank's representatives), Foley finally received a HAMP application from the bank in November 2011–some seven months after they had promised to send it-which he promptly completed and returned.

Around January 2012, Foley received a letter from Wells Fargo stating it had not received his completed application. In 2012, Foley made many additional calls to Wells Fargo's “Home Preservation Specialist” (and, after she left the position, her replacement) to inquire about his application status, but his calls were never returned. In an Orwellian turn of events, he instead received letters explaining his “short sale” or “deed in lieu of foreclosure” options—neither of which would actually allow Foley to “preserve” ownership of his home.³ Meanwhile, Wells Fargo scheduled foreclosure.

After several months of periodic, unreturned phone calls to the Specialist, a dissatisfied Foley spoke to the Home Preservation supervisor, who told him his HAMP application was either lost or never received, and that he would be sent a new application. Foley received the application in November or December 2012 and returned it toward the end of the year.

Almost two years after Foley first asked for a modification, Wells Fargo sent him two letters around February 2013. One letter notified him that he was rejected from HAMP, and the other informed him that he would not be offered “a modification” (though the letter did not specify for which modifications Foley was considered) because of his “excessive financial obligations.” The letters, which Foley attached to his complaint, provided no further explanation for the modification denials. Wells Fargo again scheduled foreclosure.

After numerous further failed attempts to discuss a loan modification with Wells Fargo, Foley sought assistance from the Massachusetts Attorney General's Office (“AG's Office”) around April 8, 2013. The AG's Office contacted Wells Fargo and suggested that because of a change in Foley's financial situation,⁴ a new modification application might be warranted. Thereafter, the bank postponed the impending foreclosure, and Foley reapplied for HAMP.

Around July 5, 2013, Foley received two letters dated June 27, 2013 denying his request for a loan modification, again due to “excessive financial obligations.” These letters were substantively identical to the denial letters he received in February, despite the fact that Foley demonstrated “lessened hardship” the second go-round. Foley called Wells Fargo to discuss the letters, and the Specialist told him he would need a monthly income of $10,000 to qualify for a modification. Foley was “perplexed” by this explanation because he would not have needed a loan modification were his income that high. Foley thereafter contacted the AG's Office again, informing it that Wells Fargo had not provided an explanation for his modification denials. A few days later, he received another foreclosure notice from the bank.

The carousel kept spinning, and around July 15, 2013, the AG's Office yet again contacted Wells Fargo, asking the bank to provide a written explanation of Foley's modification denials and the specific names of the modifications for which he had been denied. After a couple of days, Foley got a call from Justin Forbes, of Wells Fargo's Executive Complaint Department. Forbes explained that Foley was rejected for all loan modifications, including HAMP and the “Mortgage Assistance Program.” At some point that is not clear from the record, Foley became aware of his rights under the settlement agreement; armed with this knowledge, he asked Forbes “specifically whether he was considered for MAP2R [,] and [ ] Forbes responded ‘no.’ ” Then, Forbes waffled, and “[u]pon further questioning[,] [ ] stated [Foley] was also rejected for [MAP2R].” When Foley expressed his view that he “was not afforded the procedural process under the MAP2R program, [ ] Forbes stated he will make inquiry to the Wells Fargo legal team.” When Foley asked for a “written explanation regarding the MAP2R program rejection,” Forbes gave the same response about needing to consult the bank's lawyers.

In a follow-up call on July 30, 2013—a year...