In re Reyes

• Decision Date: 20 April 2021
• Docket Number: Case No. 16-22556 (SHL) (Reyes), Case No. 16-23514 (SHL) (Jackson),Adv. No. 19-08248 (SHL) (Reyes), Adv. No. 19-08249 (SHL) (Jackson)
• Citation: In re Reyes, 627 B.R. 569 (Bankr. S.D.N.Y. 2021)
• Parties: IN RE Justo REYES, In re Karen Jackson, Debtors. Justo Reyes and Karen Jackson, individually and on behalf of all others similarly situated, Plaintiffs, v. Wells Fargo Bank, N.A., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

627 B.R. 569

IN RE Justo REYES,

In re Karen Jackson, Debtors.

Justo Reyes and Karen Jackson, individually and on behalf of all others similarly situated, Plaintiffs,

v.Wells Fargo Bank, N.A., Defendant.

Case No. 16-22556 (SHL) (Reyes)

Case No. 16-23514 (SHL) (Jackson)

Adv. No. 19-08248 (SHL) (Reyes)

Adv. No. 19-08249 (SHL) (Jackson)

United States Bankruptcy Court, S.D. New York.

Signed April 20, 2021

THE DANN LAW FIRM CO. LPA., Counsel for the PlaintiffsJusto Reyes & Karen Jackson, 372 Kinderkamack Road, Suite 5, Westwood, NJ 07675, By: Javier L. MarinoMarc E. DannBrian D. Flick

TIRELLI LAW GROUP, LLC., Counsel for the PlaintiffsJusto Reyes & Karen Jackson, 50 Main Street, Suite 1265, White Plains, NY 10606, By: Linda M. Tirelli

ZIMMERMAN LAW OFFICES, P.C., Counsel for the PlaintiffsJusto Reyes & Karen Jackson, 77 West Washington Street, Suite 1220, Chicago, IL 60602, By: Thomas A. Zimmerman, Jr.Mathew C. De Re

LOCKE LORD LLP, Counsel for the DefendantWells Fargo Bank, N.A. Brookfield Place, 200 Vesey Street, 20th Floor, New York, NY 10281, By: Casey B. HowardAileen McTierman

MEMORANDUM OF DECISION GRANTING DEFENDANT'S MOTION TO DISMISS

SEAN H. LANE, UNITED STATES BANKRUPTCY JUDGE

Before the Court in the above-captioned cases are the motions to dismiss of Wells Fargo Bank, N.A.("Wells Fargo" or the "Defendant") under Federal Rule of Civil Procedure 12(b)(6), which is made applicable to these adversary proceedings by Federal Rule of Bankruptcy Procedure 7012(b).¹SeeNotice of Motion[ECF No. 19];Memorandum of Law in Support of Wells Fargo Bank, N.A.'s Motion to Dismiss Plaintiffs' First Amended Complaint [ECFNo. 19-1] (the "Motion").PlaintiffsJusto Reyes and Karen Jackson(collectively, the "Plaintiffs") oppose this motion.SeePlaintiffs' Opposition to Motion to Dismiss(the "Opposition")[ECF No. 21].As the Court finds that each of the Plaintiffs' claims are barred by the applicable statute of limitations, the Court grants the Defendant's motion.

BACKGROUND

As is the case on a motion to dismiss, the facts of the complaint are taken as true.Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929(2007).When reviewing a motion to dismiss, the Court may consider documents that are directly referenced in the complaint, attached as exhibits to the complaint, or relied upon by the plaintiff in bringing the suit.Chambers v. Time Warner, Inc. , 282 F.3d 147, 152–53(2d Cir.2002);DiFolco v. MSNBC Cable LLC , 622 F.3d 104, 111(2d Cir.2010).

A.The Loan Modification Process

In 2008, the Federal Government created several programs to provide eligible homeowners with an opportunity to modify the terms of their mortgage to make their mortgages more affordable.Amended Complaint¶ 14 [ECF No. 16].Under the applicable guidelines for these programs, mortgage servicers like Wells Fargo evaluate the eligibility of borrowers for loan modifications.Id.¶ 15.Before any final modification, a borrower may first be placed in a Trial Period Plan ("TPP").Id.¶ 16.If a borrower makes all required trial payments under a TPP and experiences no change relative to the other eligibility requirements, then the borrower should be approved for a permanent loan modification.Id.¶ 17.

In late 2010, Plaintiff Reyes applied to modify his mortgage loan with Wells Fargo.Seeid.¶ 61.Wells Fargo approved a TPP for Reyes in a letter dated November 10, 2011.Id.¶ 62; Amended Complaint, Ex. B ("Reyes TPP Letter")[ECF No. 16].The Reyes TPP Letter required Reyes to make three monthly payments in the amount of $3,467.89 starting on December 1, 2011.Amended Complaint¶ 63; Reyes TPP Letter.Despite Reyes making all three payments as required, the Defendant subsequently denied his permanent loan modification.Amended Complaint¶ 66.In the denial letter sent to Reyes on July 3, 2012, the Defendant stated that "[t]here are additional liens on your property that prevent us from completing your request for mortgage assistance."²Amended Complaint, Ex. E ("Reyes Denial Letter")[ECF No. 16].In fact, the Defendant had failed to convince the existing lienholders to subordinate their liens.Amended Complaint¶ 35.More than six years later in April 2019, the Defendant sent Reyes a letter and a check for $300.Amended Complaint, Ex. G ("2019Reyes Letter")[ECF No. 16].In this letter, the Defendant stated that "[w]e should have let you know at the time of trial approval that the [loan] modification might be denied due to title issues even if you paid the trial period payments."Id.

The situation was the same for Plaintiff Jackson.In mid-2012, Jackson applied for a loan modification with the Defendant.Amended Complaint¶ 83.Wells Fargo approved a TPP for Jackson by letter dated July 25, 2012.Id.¶ 84; Amended Complaint, Ex.A ("Jackson TPP Letter")[ECF No. 16].The Jackson TPP Letter required Jackson to make three monthly payments in the amount of $1,889.81 starting on September 1, 2012.Amended Complaint¶ 85; Jackson TPP Letter.While Jackson made all payments as required, the Defendant denied her loan modification.Amended Complaint¶¶ 88–89.In the denial letter sent to Jackson on February 15, 2013, the Defendant stated that "[t]here are additional liens on your property that prevent us from completing your request for mortgage assistance."Amended Complaint, Ex. D ("Jackson Denial Letter")[ECF No. 16].Once again, the Defendant was unable to convince the existing lienholders to subordinate their liens.Amended Complaint¶ 35.Some six years later in March 2019, the Defendant sent Plaintiff Jackson a letter and a check for $300.Amended Complaint, Ex. J("2019Jackson Letter")[ECF No. 16].In this letter, the Defendant stated that "[w]e should have let you know at the time of trial approval that the [loan] modification might be denied due to title issues even if you paid the trial period payments."Id.

B.The Adversary Proceeding

On April 12, 2019, the Plaintiffs filed these adversary proceedings as a putative class action against the Defendant on behalf of similarly situated individuals (collectively, the "Class Members").SeeOriginal Complaint¶¶ 86–91 [ECF No. 1];see alsoAmended Complaint¶¶ 105–10.The proposed Class includes:

[a]ll loan borrowers in the United States Bankruptcy Court for the Southern District of New York who (1) filed for Chapter 13 Bankruptcy in the Southern District of New York; (2) owed amounts to Wells Fargo, as servicer and/or holder, on debt secured by real property; (3) entered into a TPP with Wells Fargo; (4) whose TPP did not contain an express provision stating that they could be refused a permanent Loan Modification in the event that a subordinate lienholder refused to subordinate its existing lien to their modified mortgage; (5) made all required payments pursuant to the terms of that TPP; and (6) were denied a permanent Loan Modification because a subordinate lienholder refused to subordinate its existing lien to his or her modified mortgage.

Amended Complaint¶ 105.

The Plaintiffs allege that the Defendant—under the guise of participating in the government-sponsored Home Affordable Modification Program ("HAMP")—misled the Plaintiffs into making additional loan payments by the promise of a permanent loan modification as offered in the TPP Letters.Id.¶¶ 28, 45; Jackson TPP Letter; Reyes TPP Letter.The Plaintiffs contend that the Defendant improperly implied in the Denial Letters that the rejection of Plaintiffs' request for permanent loan modifications resulted solely from the Plaintiffs' own actions.Amended Complaint¶¶ 38–39; Jackson Denial Letter; Reyes Denial Letter.The Plaintiffs argue that they were only alerted to Defendant's fraud relating to the denials when the Defendant sent each Plaintiff the 2019 Letters.Amended Complaint¶¶ 49, 51;2019Jackson Letter; 2019Reyes Letter.

The Plaintiffs allege the following causes of action against the Defendant: (1) fraudulent misrepresentation ("Count I"); (2) unjust enrichment ("Count II"); (3) declaratory judgment ("Count III"); and (4) violation of New York General Business Law Section 349("Count IV").See Amended Complaint.In Count I of the Amended Complaint, the Plaintiffs assert that Wells Fargo fraudulently misrepresented that they would be offered permanent loan modifications if the Plaintiffs successfully made all required TPP Payments.Seeid.¶¶ 112–21.The Plaintiffs note that the Defendant never explicitly stated that a permanent loan modification was contingent upon the Defendant obtaining agreement from third parties to subordinate any existing liens on their properties.Id.¶¶ 113–15.The Plaintiffs assert that not only did the Defendant fail to obtain an agreement to subordinate the existing liens, but also that the Defendant implied in the Denial Letters that it was the Plaintiffs' responsibility to ensure that the modified mortgage retained its priority over the existing liens.Id.¶ 37.

The Plaintiffs further allege that the Defendant's actions were part of a scheme to extract additional payments from its customers.Id.¶ 119.These payments, the Plaintiffs contend, would never have been made if the Plaintiffs were aware of the requirement that existing liens be subordinated, and that the loan modification would be denied if an agreement to subordinate existing liens could not be accomplished.Id.¶¶ 118, 120.The Plaintiffs also contend that the Defendant knew that no one seeking to preserve their home would agree to a TPP when forewarned that there was a possibility that the existing lienholders might not agree to subordinate their liens to Wells Fargo's security interest, thus scuttling the permanent loan modification.Id.¶ 114.The Plaintiffs argue that knowledge of this potential outcome was a material fact that was not disclosed and would have led Plaintiffs to not engage in the TPP process.Id.¶¶ 115–16.

In Count II of the Amended Complaint alleging unjust enrichment, the Plaintiffs assert...