Kersey v. Phh Mortgage Corp.

• Decision Date: 22 January 2010
• Docket Number: Civil Action No. 3:09cv726.
• Citation: 682 F.Supp.2d 588
• Parties: Brenda KERSEY, Plaintiff, v. PHH MORTGAGE CORPORATION, Defendant.
• Court: U.S. District Court — Eastern District of Virginia

682 F.Supp.2d 588

Brenda KERSEY, Plaintiff,

v.PHH MORTGAGE CORPORATION, Defendant.

Civil Action No. 3:09cv726.

United States District Court,

E.D. Virginia,

Richmond Division.

Decided: Jan. 22, 2010.

COPYRIGHT MATERIAL OMITTED

Henry W. McLaughlin, III, Central Virginia Legal Aid Society, Inc, Richmond, VA, for Plaintiff.

Jason Wayne McElroy, Michael Ya'Akov Kieval, Weiner Brodsky Sidman Kider PC, Washington, DC, for Defendant.

MEMORANDUM OPINION

RICHARD L. WILLIAMS, Senior District Judge.

This matter is before the Court on the Defendant's Motion to Dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Court dispenses with oral argument because it would not assist in the decisional process. For the reasons set forth herein, the Court will deny the Defendant's motion.

I. BACKGROUND

On May 3, 2002, the Plaintiff entered into a $71,397.00 mortgage loan to purchase a home located at 2911 Edgewood Avenue, Richmond, Virginia 23222. The loan, evidenced by a Note and secured by a Deed of Trust, was a Federal Housing Administration ("FHA") loan governed by FHA regulations of the federal Department of Housing and Urban Development ("HUD"). The Defendant is, and has been for some time, the holder of the Note.

Under the terms of the Deed of Trust that secured the loan, the holder of the Note can foreclose on the home in the event of arrearage on payment of the Note only if the holder has complied with FHA regulations. One such regulation incorporated into the terms of the Deed of Trust is 24 C.F.R. § 203.604 that provides in relevant part as follows: "The mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid. If default occurs in a repayment plan arranged other than during a personal interview, the mortgagee must have a face-to-face meeting with the mortgagor, or make a reasonable attempt to arrange such a meeting within 30 days after such default and at least 30 days before foreclosure is commenced...." 24 C.F.R. § 203.604(b).

The Plaintiff fell into arrears on the Note. The Defendant appointed Professional Foreclosure Corporation of Virginia ("PFC") as substitute trustee on the Deed of Trust and instructed PFC to foreclose on the Plaintiffs home. PFC then scheduled a foreclosure sale without the Defendant or any other creditor entity ever having a face-to-face meeting with the Plaintiff or attempting to arrange for such a meeting. Believing that the Defendant's failure to have, or attempt to have, a face-to-face meeting violated the conditions set forth in 24 C.F.R. § 203.604(b) as incorporated into the Deed of Trust, the Plaintiff filed her Complaint on October 14, 2009 in Richmond City Circuit Court seeking a declaratory judgment that the Defendant has not complied with the terms of the Deed of Trust sufficient to allow the Defendant to go forward with a foreclosure of the home. The Defendant properly removed the matter to this Court on November 18, 2009. On November 25, 2009, the Defendant moved to dis- miss the action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. The Plaintiff has responded, the Defendant has replied, and this matter is ripe for the Court's decision.

II. NATURE OF THE PLAINTIFF'S CLAIM

Though the Plaintiff originally brought her claim based on state law in state court, it is well-settled that federal procedure law controls the course of proceedings from the point of removal. Granny Goose Foods, Inc. v. Bhd, of Teamsters & Auto Truck Drivers Local No. 70 of Alameda County, 415 U.S. 423, 437, 94 S.Ct. 1113, 39 L.Ed.2d 435 (1974) ("[0]nce a case has been removed to federal court, it is settled that federal rather than state law governs the future course of proceedings: '). Thus, the Court will analyze the Plaintiffs claim for declaratory judgment under the Federal Declaratory Judgment Act, 28 U.S.C.A. § 2201 ¹ as the Act "is procedural only." Aetna Life Ins. Co. of Hartford, Conn, v. Haivorth, 300 U.S. 227, 240, 57 S.Ct. 461, 81 L.Ed. 617 (1937).

The Federal Declaratory Judgment Act provides that, "[i]n a case of actual controversy within its jurisdiction," a district court "may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C.A. § 2201(a) (West 2009) (emphasis added). Thus, the authority of federal courts to entertain declaratory judgments is discretionary. Wilton v. Seven Falls Co., 515 U.S. 277, 288, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). A district court "cannot decline to entertain [a declaratory judgment] action as a matter of whim or personal disinclination," and it should grant a declaratory judgment "only as a matter of judicial discretion, exercised in the public interest." Public Affairs As-socs., Inc. v. Rickover, 369 U.S. 111, 112, 82 S.Ct. 580, 7 L.Ed.2d 604 (1962). A district court should consider whether the declaratory judgment action will both (1) "serve a useful purpose in clarifying and settling the legal relations in issue" and (2) "terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding." Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 256 (4th Cir.1996). The Federal Rules of Civil Procedure, specifically Rule 57, "govern the procedure for obtaining a declaratory judgment under 28 U.S.C. § 2201." Fed. R.Civ.P. 57. The Advisory Committee's Notes accompanying the 1937 adoption of Rule 57 of the Federal Rules of Civil Procedure explain that "[t]he controversy must necessarily be of a justiciable nature, thus excluding an advisory decree upon a hypothetical state of facts. The existence or non-existence of any right, duty, power, liability, privilege, disability, or immunity or of any fact upon which such legal relations depend, or of a status, may be declared." Fed.R.Civ.P. 57 advisory committee's note (internal quotation marks and citations omitted).

Here, there is a presently justiciable controversy as to whether the Defendant owed the Plaintiff the duty to have, or attempt to have, a face-to-face meeting with her prior to commencing foreclosure. This matter clearly presents a distinct and ripe controversy as to the relative rights and duties under the parties' relevant contract—the Deed of Trust—and the Court has the power to declare what "the rights and other legal relations" of the parties are. 22 U.S.C.A. § 2201(a) (West 2009). The fact that the Plaintiff may also arguably have a claim for breach of contract is irrelevant, as "[t]he existence of another adequate remedy does not preclude a declaratory judgment that is otherwise appropriate." Fed.R.Civ.P. 57. The Plaintiffs suit does not call for an advisory opinion, and a declaratory judgment is appropriate and in the public interest in this case, as it serves a useful purpose in clarifying and settling the legal relations in issue, and it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.

III. STANDARD OF REVIEW

Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R.Civ.P. 8(a)(2). "The purpose of a Rule 12(b)(6) motion is to test the sufficiency of a complaint[.]" Edwards v. City of Golds-boro, 178 F.3d 231, 243 (4th Cir.1999). To survive a Rule 12(b)(6) motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim for relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S.--,--, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (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." Id. Although "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations," a pleading that merely offers "labels and conclusions," or "a for mulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. Likewise, "a complaint [will not] suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancements.' " Iqbal, 556 U.S. at--, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955).

IV. ANALYSIS

The Defendant has moved to dismiss the Plaintiffs Complaint pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted. In support of its motion, the Defendant advances two arguments. First, the Defendant argues that 24 C.F.R. § 203.604 and the National Housing Act ("NHA") do not permit a private right of action, and, therefore, that the Plaintiff cannot "veil" what is actually a forbidden federal claim for violation of federal regulations as a claim brought pursuant to state contract law. Second, the Defendant argues that 24 C.F.R. § 203.604(c)(2) excepts the Defendant from having to conduct, or attempt to conduct, a face-to-face meeting with the Plaintiff prior to commencing foreclosure, and that the Defendant appropriately relied on HUD's own interpretation of 24 C.F.R. § 203.604(c)(2) that suggests that the Defendant is so excepted.

A. The absence of a private federal cause of action available under the NHA or HUD regulations does not preclude the Plaintiff from bringing a declaratory judgment action based on rights and obligations under a contract governed by state law where the parties' contract incorporates as conditions of the contract the conditions contained in 24 C.F.R. § 203.604.

The Fourth Circuit has acknowledged that the NHA does not expressly or im- plicitly create a private cause of action. See Perry v. Hons. Auth., 664 F.2d 1210, 1215-17 (4th Cir.1981); In re Miller, 124 Fed.Appx. 152, 156 (4th...