Freedom Mortg. Corp. v. LoanCare, LLC
| Decision Date | 23 September 2019 |
| Docket Number | Civil No. 16-2569 (RMB/KMW) |
| Parties | FREEDOM MORTGAGE CORPORATION, Plaintiff/Counterclaim Defendant, v. LOANCARE, LLC Defendant/Counterclaim Plaintiff. |
| Court | U.S. District Court — District of New Jersey |
APPEARANCES:
LANDMAN CORSI BALLAINE & FORD, P.C.
By: Jerry A. Cuomo, Esq.; Alexander B. Imel, Esq.;
Timothy J. Collazzi, Esq.; Mark S. Landman, Esq. (pro hac vice)
One Gateway Center, 4th Floor
Newark, New Jersey 07102
Counsel for Freedom Mortgage Corp.
FRIEDMAN KAPLAN SEILER & ADELMAN LLP
By: Robert J. Lack, Esq.; Ricardo Solano Jr., Esq.
Esq. (pro hac vice); Pascual A. Oliu, Esq. (pro hac vice);
Evan Ezray, Esq. (pro hac vice)
401 East Las Olas Blvd., Suite 1200
Fort Lauderdale, Florida 33301
Counsel for LoanCare, LLC
This matter comes before the Court upon a Motion to Dismiss [Dkt. No. 101], filed by Plaintiff/Counterclaim Defendant Freedom Mortgage Corporation ("Freedom") seeking dismissal of Count One (Fraudulent Inducement), Count Two (Conversion Before Termination), Count Three (Conversion After Termination), and Count Five (Unjust Enrichment) from the Second Amended Counterclaim ("SAC")[Dkt. No. 90], filed by Defendant/Counterclaim Plaintiff LoanCare, LLC("LoanCare"). Because Virginia law governs the dispute between the parties,1 Freedom contends that LoanCare's fraudulent inducement, conversion, and unjust enrichment claims are subsumed by LoanCare's Breach of Contract claim (Count Four) under Virginia's "source of duty" rule. For the reasons stated herein, the Motion to Dismiss will be GRANTED IN PART, as to Count Two, but DENIED IN PART, as to Count One, Count Three, and Count Five.
For approximately 15 years, LoanCare, a mortgage subservicer, worked with Freedom, a full-service residentialmortgage lender, to service various mortgage loans. From February 1, 2010 through June 30, 2016, the terms of the parties' relationship were governed by the Amended and Restated Subservicing Agreement (the "Subservicing Agreement" or "Agreement"). In January 2016, Freedom advised LoanCare that it planned to terminate the Subservicing Agreement on June 30, 2016.
In anticipation of the termination date, Freedom instructed LoanCare to transfer any loans that it was servicing back to Freedom by May 3, 2016. Accordingly, in early May 2016, Freedom allegedly told LoanCare to transfer funds from shared custodial accounts back to Freedom. Based on these instructions, LoanCare scheduled various wire transfers and Automated Clearing House ("ACH") debits, totaling $111,715,004.26, to remit the funds back to Freedom from the custodial accounts. Meanwhile, unbeknownst to LoanCare, Freedom allegedly worked directly with the banks to seize and block LoanCare's access to these very same accounts. When it came time to execute the scheduled transfers, LoanCare was unable to access the custodial accounts and the banks defaulted to pulling the full $111,715,004.26 from LoanCare's own cash accounts.
LoanCare alleges that Freedom, effectively, collected the requested funds twice: once from the custodial accounts and once from LoanCare's own accounts. LoanCare states that iteventually recovered $89,021,242.09, but that Freedom continues to unlawfully withhold funds totaling $22,693,762.17. See SAC, at ¶ 66. Additionally, LoanCare contends that it was forced to borrow millions of dollars, with interest, to cover the shortfalls caused by Freedom's actions. Id. at ¶ 64.
In May 2016, Freedom commenced this suit against LoanCare, claiming, among other things, breach of contract, unjust enrichment, and other misconduct by LoanCare. On July 8, 2016, LoanCare filed an Answer and Counterclaim to Freedom's Complaint [Dkt. No. 17]. Subsequently, LoanCare filed an Amended Counterclaim on June 4, 2018 [Dkt. No. 68]. After Freedom moved for Judgment on Pleadings [Dkt. No. 56], this Court issued an Opinion and Order on November 30, 2018 [Dkt. Nos. 83, 84], dismissing LoanCare's fraud, tort, and unjust enrichment claims from the Amended Counterclaim. On December 31, 2018, LoanCare filed the SAC. Now, this matter comes before the Court upon Freedom's Motion to Dismiss [Dkt. No. 101], once again asking the Court to dismiss LoanCare's fraud, tort, and unjust enrichment claims, as repleaded in the SAC.
To withstand a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to reliefthat is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 662. "[A]n unadorned, the defendant-unlawfully-harmed-me accusation" does not suffice to survive a motion to dismiss. Id. at 678. "[A] plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)).
In reviewing the non-moving party's allegations, the district court "must accept as true all well-pled factual allegations as well as all reasonable inferences that can be drawn from them, and construe those allegations in the light most favorable to the plaintiff." Bistrian v. Levi, 696 F.3d 352, 358 n.1 (3d Cir. 2012). When undertaking this review, courts are limited to the allegations found in the complaint, exhibits attached to the complaint, matters of public record, and undisputedly authentic documents that form the basis of a claim. See In re Burlington Coat Factory Sec. Litig., 114 F.3d1410, 1426 (3d Cir. 1997); Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).
In its Motion to Dismiss, Freedom argues that LoanCare's fraud, tort, and unjust enrichment claims are barred by Virginia's "source of duty" rule. "To avoid turning every breach of contract into a tort" claim, the source of duty rule bars tort claims that implicate a duty owed solely through contract. See Augusta Mut. Ins. Co. v. Mason, 645 S.E.2d 290, 293 (Va. 2007)(citing Spence v. Norfolk & W. R.R. Co., 22 S.E. 815, 818 (Va. 1895) and Richmond Metro. Auth. v. McDevitt St. Bovis, Inc., 507 S.E.2d 344, 345 (Va. 1998)). As applied to this case, Freedom argues that LoanCare's fraud, tort, and unjust enrichment claims must be dismissed because they are grounded in duties arising under the Subservicing Agreement, rather than any independent common law duties.
In Count One of the SAC, LoanCare alleges that Freedom has wrongfully taken $22,693,762.17 through "deceptive and fraudulent conduct intended to mislead LoanCare." See SAC, at ¶ 80. Meanwhile, LoanCare also alleges, in Count Four, thatFreedom breached the Subservicing Agreement by failing to account for and return the same $22,693,762.17 to LoanCare.
Freedom argues that Virginia's source of duty rule precludes LoanCare from pleading both claims, for the same damages, simultaneously. Under the source of duty rule, "[w]here the duty that gives rise to the alleged misrepresentation is one that is required by contract, there can be no recovery in tort." Frank Brunckhorst CO., L.L.C. v. Coastal Atl., Inc., 542 F. Supp. 2d 452, 460-61 (E.D. Va. 2008). To simultaneously pursue a fraud and breach of contract claim, a party must allege that the other "committed an act of fraud independent of the contractual relationship." Dunn Const. Co. v. Cloney, 682 S.E.2d 943, 946 (Va. 2009)(emphasis added). However, false or misleading statements to induce payments already due under a contract, do not take the fraud out of the context of the contractual relationship. Id. at 947 ().
This Court previously dismissed a prior iteration of the LoanCare's fraud claim, holding that the claim was "tied directly to LoanCare's expectations under the Subservicing Agreement." Dkt. No. 84, at 6. In the SAC, LoanCare attempts tocure this deficiency by portraying the fraud claim as "independent" from the breach of contract claim. Although the Agreement created an obligation to turn the custodial funds over to Freedom upon termination, see Subservicing Agreement at § 5.5, LoanCare alleges that "[t]he timing and manner of transferring these funds were not governed by the Subservicing Agreement." LoanCare describes the wire transfers requested by Freedom as "special accommodation[s]" that were "not required under the Subservicing Agreement," because the "Subservicing Agreement does not state how funds are transferred upon termination of the agreement." SAC, at ¶¶ 81, 85.
In alleging fraudulent inducement, LoanCare contends that Freedom's "misrepresentations and omissions" resulted in financial harm to LoanCare. Specifically, LoanCare states that Freedom's "request to move funds, without disclosing that Freedom would block the movement of funds, was deceptive and fraudulent conduct intended to mislead LoanCare." See SAC, at ¶80. Additionally, LoanCare asserts that "Freedom actively concealed the fact that it worked with the banks to block LoanCare's access to the custodial accounts" and that "Freedom knew that if LoanCare was made aware of Freedom's actions, LoanCare would not have made wire transfers to Freedom for the funds requested." Id.,...
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