Henning v. Mortgage

Decision Date17 September 2013
Docket NumberCivil Action No. 11–11428–WGY.
Citation969 F.Supp.2d 135
PartiesJoseph HENNING, Plaintiff, v. WACHOVIA MORTGAGE, FSB, n/k/a Wells Fargo Bank, N.A., Defendant.
CourtU.S. District Court — District of Massachusetts


Limited on Preemption Grounds

M.G.L.A. c. 93A, § 2(a); 940 CMR 8.05(2), 8.06(1, 17)

Validity Called into Doubt

12 C.F.R. §§ 545.2, 560.2

Valeriano Diviacchi, Diviacchi Law Office, Boston, MA, Frank R. Saia, Saia Law Firm, Springfield, MA, for Plaintiff.

David M. Bizar, Seyfarth Shaw, LLP, Boston, MA, for Defendant.


YOUNG, District Judge.

Because it replaces with federal regulation the vision of democratically elected state legislators as to what is best for their citizens, federal [p]reemption is strong medicine, not casually to be dispensed.” Brown v. United Airlines, Inc., 720 F.3d 60, 71 (1st Cir.2013) (quoting Grant's Dairy–Maine, LLC v. Comm'r of Me. Dept. of Agric., Food, and Rural Res., 232 F.3d 8, 18 (1st Cir.2000)). Moreover, the law of preemption is much of a muddle. See, e.g., In re Welding Fume Prods. Liab. Litig., 364 F.Supp.2d 669, 681 n. 14 (N.D.Ohio 2005); Michael P. Moreland, Preemption as Inverse Negligence Per Se, 88 Notre Dame L.Rev. 1249, 1252–77 (2013); Ashutosh Bhagwat, Wyeth v. Levine and Agency Preemption: More Muddle or Creeping to Clarity?, 45 Tulsa L.Rev. 197, 229 (2009). In some areas—e.g., ERISA—its sweep is so broad as to be overwhelmingly rejected by scholars, leaving obedient lower courts poking around the periphery and calling for change. See DiFelice v. Aetna U.S. Healthcare, 346 F.3d 442, 459–60 (3d Cir.2003) (Becker, J., concurring) (quoting Andrews–Clarke v. Travelers Ins. Co., 984 F.Supp. 49, 52–53 (D.Mass.1997)). In others—e.g., airline deregulation—the need for uniform air transit regulation works in common-sense fashion to displace contrary local initiatives. See DiFiore v. Am. Airlines, Inc., 646 F.3d 81, 88 (1st Cir.2011), cert. denied,––– U.S. ––––, 132 S.Ct. 761, 181 L.Ed.2d 483 (2011); Brown, 720 F.3d at 66. This case falls somewhere in between.


Joseph Henning (Henning) brought suit against Wells Fargo Mortgage, N.A. (Wells Fargo) 2 for claims arising from a mortgage-loan agreement. Pl.'s Opp'n Mot. Dismiss (“Pl.'s Mem. Opp'n”) 2, ECF No. 92. After amending the complaint twice, Henning alleged seven claims against Wells Fargo: (1) unjust enrichment; (2) equitable relief; (3) violation of the implied covenant of good faith and fair dealing (“implied covenant”); (4) consumer protection violation under Massachusetts General Laws chapter 93A (chapter 93A); (5) negligence based on Massachusetts statutory duties; (6) negligence based on Federal statutory duties; and (7) breach of contract. Third Am. Compl. Jury Demand (“Third Compl.”) ¶¶ 53–73, ECF No. 73. Wells Fargo moved to dismiss the case arguing that Henning has failed to state any claims upon which relief may be granted under Federal Rule of Civil Procedure 12(b)(6) (“ Rule 12(b)(6)”), and also that any state-law claims are preempted by the Home Owners' Loan Act (“HOLA”), 12 U.S.C. §§ 1461– 1470. Def.'s Mem. Supp. Mot. Dismiss (“Def.'s Mem. Supp.”) 2, ECF No. 88. Henning opposed the motion to dismiss. Pl.'s Mem. Opp'n 1.

A. Procedural Posture

On or around May 15, 2009, Henning filed the original complaint against Wachovia Mortgage Corporation (Wachovia), now Wells Fargo, in the Massachusetts Superior Court sitting in and for the County of Middlesex. Notice Removal ¶ 1, ECF No. 4–1. Wachovia removed the case to this court on June 19, 2009, id. at 5, where it was initially referred to Judge Ponsor, Elect. Notation, ECF No. 2. Wachovia answered the complaint on July 17, 2009, Answer Affirm. Defense, ECF No. 7, and moved for summary judgment on October 20, 2009, Mot. Summ. J., ECF No. 24. Henning's opposition was filed on November 1, 2009, Pl.'s Opp. Mot. Summ. J., ECF No. 33.3 Before a ruling on summary judgment was issued, Henning amended his complaint with leave of the court on March 2, 2010. Am. Compl./Class Action Compl./Jury Demand, ECF No. 51.

On the same day as the amended complaint was filed, Judge Wolf consolidated Henning's case with another action stemming from mortgages “for which Wachovia was allegedly responsible.” Bettinelli v. Wells Fargo Home Mortg., Inc., No. 09–11079–MLW, 2010 WL 2998608 (D.Mass. July 23, 2010) (Wolf, J.). Judge Wolf was assigned the consolidated case. Id. In August, Henning filed a second amended complaint. Second Am. Compl./Jury Demand, ECF No. 58.

On August 19, 2010, United States Judicial Panel on Multidistrict Litigation transferred the case to the Northern District of California. Conditional Transfer Order (CTO–5), ECF No. 60. The consolidated case reached a settlement, and because Henning timely opted out of the May 17, 2011 class-action settlement in that district, Judge Fogel ordered the case transferred back to the District of Massachusetts on June 9, 2011. Order Granting Pl.'s Mot. Vacate J. Transfer Case, ECF No. 69.

Henning filed a third amended complaint in the District of Massachusetts on August 29, 2012. Third Compl. The case was assigned to this Session after Judge Wolf took senior status on January 2, 2013. Clerk's Note, ECF No. 82. This Court heard the motion to dismiss at issue on January 29, 2013. Clerk's Note, ECF. No. 94.

B. Factual Allegations

Henning alleges the following facts. Henning executed a mortgage loan with World Savings Bank (“World”) in 2006 in the amount of $215,250, and an Equity Credit Line of $43,000 in the same year. Third Compl. ¶¶ 3, 52. Wells Fargo is the successor-in-interest to this loan, having merged with Wachovia, which had previously merged with World. Id. ¶ 3; Mem. Law Supp. Mot. Summ. J. 2, ECF No. 25. The loan was a “stated income” loan,4 and World allegedly never “determin[ed] the reasonableness” of Henning's income as stated on the loan application before approving him, Third Compl. ¶ 14, rather, World considered only whether he could make the initial monthly payment, id. ¶ 45. Moreover, during the loan application process, World calculated his debt-to-income (“DTI”) ratio without deducting business expenses Henning incurred as a salesman from his income. Id. ¶¶ 4–6. This classification, Henning alleged, runs counter to generally accepted underwriting procedure and resulted in a real DTI ratio of 94.5%, which exceeds the allowable DTI ratio under customary subprime lending guidelines. Id. In 2008, Henning defaulted on his obligations, and currently faces foreclosure. Id. ¶ 10. Henning also agreed to a loan modification in 2008, allegedly under the duress of default and impending foreclosure, id. ¶ 51, with terms similar to the 2006 loan. Id. ¶ 50.

Henning further alleged that World failed to comply with certain statutory requirements during the application process. Specifically, he alleged that several forms required under the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2601–17, are absent from his loan file, including a Good Faith Estimate (“GFE”), a Servicing Disclosure Statement, and a Notice of Assignment, Sale, or Transfer of Servicing Rights. Id. ¶ 9. Henning also alleged that the Initial Truth in Lending Statement & Itemization of Amount Financed form required under the Truth in Lending Act (“TILA”), 15 U.S.C. §§ 1601 et seq., and its implementing regulations, 12 C.F.R. §§ 225.1 et seq. (“Regulation Z”), is also missing from the file. Id. Indeed, according to Henning's allegations, World was unable to comply with TILA because the “subject loans are not actually indexed.” Id. ¶ 49.

Henning's loan is of the Payment Option Arm (“POA”) variety, known at World as the “Pick–A–Payment” program. Id. ¶ 15. By “mathematical manipulation of interest rates and ... back-ending most of the principle [sic],” lenders make the initial payments on these types of loans artificially low, allowing “almost anyone” to qualify. Id. ¶ 45. The adjustable rate note at issue allegedly fails adequately to disclose the possibility of negative amortization. Id. ¶ 29. Because of this negative amortization, Henning stated that he, among many other borrowers, faced initially low payments which would later be some three to four times higher, sometimes within a few months. Id. ¶ 46. Wells Fargo, as successor in interest to World, allegedly had “unlimited discretion” as to the index which determines the adjustable interest rate under the note. Id. ¶ 31.

Unsophisticated consumers like Henning were subject to purportedly aggressive and predatory marketing of POA loans. Id. at ¶ 45. World's advertising was allegedly deceptive in that it focused on the low initial monthly payments without disclosing the risks of negative amortization and the adjustable rate. Id. ¶¶ 17–18. This purported deception was furthered by the loan documentation which used language that, according to Henning, World knew or should have known was impenetrable to consumers in order intentionally to obscure the terms and consequences of the transaction. Id. ¶¶ 29–32.

World approved Henning's loan likely knowing, Henning alleges, that he did not qualify based on information he had provided to them. Id. ¶ 14. World incentivized such approval by offering commission pay to their underwriters and loan officers. Id. ¶ 48. World, Henning alleges, must have known that Henning would likely default, but proceeded to approve the loan anyway, without considering the falling real estate market and other loan products more appropriate for him. Id. ¶ 13.

Henning alleges that as a result of World's actions, he has suffered the loss of equity, damage to his credit, and he faces impending foreclosure with resultant emotional distress. Id. ¶ 10. He further alleges that because of World's deceptive practices in advertising and the use of impenetrable language in mortgage documentation, Henning lost the opportunity to “comparison shop” for more appropriate loan alternatives, id. ¶ 33, and has incurred unlawful compound interest,...

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