Pugh v. Bank of Am.

• Decision Date: 02 July 2013
• Docket Number: No. 13-2020,13-2020
• Parties: RANDY and LISA PUGH, Plaintiffs, v. Bank of America, et al., Defendants.
• Court: U.S. District Court — Western District of Tennessee

RANDY and LISA PUGH, Plaintiffs, v. Bank of America, et al., Defendants.

No. 13-2020

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TENNESSEE WESTERN DIVISION

SO ORDERED: July 2, 2013

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO

DISMISS

Before the Court is Defendants U.S. Bank, Bank of America, and ReconTrust Company's January 16, 2013 Motion to Dismiss for Failure to State a Claim. (Motion, ECF No. 6; Defs.' Mem., ECF No. 6-1.) Plaintiffs Randy and Lisa Pugh (collectively "Plaintiffs") responded on February 15, 2013. (Pls.' Resp. in Opp. to Defs.' Mot., ECF No. 8) ("Pls.' Resp.") Defendants replied on March 5, 2013. (Defs.' Rep., ECF No. 13.) Plaintiffs bring suit for violation of the Tennessee Consumer Protection Act ("TCPA"), Tenn. Code Ann. §§ 47-18-101, et seq.; breach of contract properly characterized as breach of the covenant of good faith and fair dealing; promissory estoppel; intentional or fraudulent misrepresentation; violations of theTruth-in-Lending Act ("TILA"), 15 U.S.C. § 1601, et seq., and 12 C.F.R. § 226.39; and violation of Tennessee law governing foreclosure. For the following reasons, Defendants' Motion is GRANTED IN PART and DENIED IN PART.

I. Background ¹

Plaintiffs seek injunctive relief and damages based on a Promissory Note (the "Note"), Deed of Trust (the "Deed of Trust"), and a series of mortgage transactions affecting the real property located at 867 McCalla Road, Millington, Tennessee (the "Property"). (Compl. ¶ 9, ECF No. 1-2.)

On or about May 31, 2002, Plaintiffs purchased the Property and executed the Note, Deed of Trust, and other documents to finance the purchase. (Id.) Plaintiffs' loan from Wells Fargo was a thirty-year adjustable rate mortgage ("ARM"), which was denominated a "2 Year/6 Month ARM." (Id. ¶ 10.) Under the Note, Plaintiffs were charged an interest rate of 10% for the first two years of the loan, after which the interest rate was subject to change. (Id. ¶ 11.) The Note contemplated an interest rate that could rise to 13% as of June 2004 and could increase by as much as 1% every six months thereafter. (Id. ¶ 12.) The interest rate could go no higher than 16% over the life of the loan, but would go no lower than 10%. (Id. ¶ 13.)

Shortly after purchasing the Property, Plaintiffs struggled to make monthly payments, which they attribute to an inflated purchase price and a high-cost loan. (Id. ¶ 18.) Plaintiffs allege that the loan includes settlement charges in excess of 8% of the loan amount and a penalty for refinancing within two years of the origination of the loan. (Id. ¶ 15.) In or about 2002, because of their struggles, Plaintiffs filed a Chapter 13 bankruptcy plan. (Id. ¶ 18.) They followed that plan for three to four years and refinanced their mortgage with Wells Fargo at a fixed rate of interest. (Id. ¶ 19.)

There was no formal closing of the refinance agreement. (Id. ¶ 20.) A representative of a mortgage broker visited Plaintiffs and obtained their signatures on new loan documents, but Plaintiffs allege they were never provided copies of the documents. (Id.) Even after refinancing, Plaintiffs struggled to make their refinanced monthly mortgage payments. (Id. ¶ 21.)

At some unknown time, Bank of America took over the servicing of Plaintiffs' mortgage. (Id. ¶ 23.) Bank of America participates in the Home Affordable Mortgage Program ("HAMP"), which is administered by the United States Department of the Treasury and is designed to reduce mortgage payments and provide other relief to mortgage borrowers who are at risk of foreclosure. (Id. ¶ 25.) Mortgage payments for eligible HAMPborrowers are reduced to 31% of their monthly income through a loan modification. (Id. ¶ 27.)

Having heard about HAMP, Plaintiffs attempted to negotiate a loan modification with Bank of America. (Id. ¶ 28.) Plaintiffs employed counsel to assist in their negotiations. (Id. ¶ 29.) Soon after the loan modification process began, Plaintiffs were told to stop making mortgage payments. (Id. ¶ 31.) Although they were current on their payments through July 2011, Plaintiffs stopped making payments on the instructions of an unidentified Bank of America representative. (Id. ¶ 32.)

Plaintiffs were in the loan modification process throughout 2011. (Id. ¶ 34.) They submitted extensive paperwork and were assured that they would receive a loan modification. (Id. ¶ 35.) One demand for payments was made during the modification process: in August 2011 Plaintiffs received correspondence about a missed July payment. (Id. ¶ 36.) Bank of America never offered Plaintiffs a mortgage reduction under HAMP. (Id. ¶ 37.)

Plaintiffs allege that, although they were eligible for relief under HAMP and provided all the necessary documentation, they did not receive a mortgage reduction. (Id. ¶¶ 38-40.) Regular communication with their counsel was unhelpful; they were advised on multiple occasions to resend documentation they had previously submitted. (Id. ¶ 41.) Plaintiffs were unableto get a definitive answer about their loan modification request from their counsel. (Id. ¶¶ 40.)

On May 18, 2012, an agent of Bank of America sent Plaintiffs a letter stating that "[u]nfortunately, your home loan is not eligible for modification assistance." (Id.); (see also Ex. A, ECF No. 1-2) ("We are unable to offer you a modification because your current monthly housing expense . . . [is] considered to be affordable under this program."). After receiving that letter, Plaintiffs allege that Defendants engaged in a "very confusing series of correspondence." (Compl. ¶ 49.) A September 6, 2012 letter from a Customer Relations Manager for Bank of America advised Plaintiffs that the Property "has been referred to foreclosure." (Id. ¶ 50.) A letter dated September 13, 2012, from the same Customer Relations Manager, represented that Bank of America had "several programs designed to help homeowners who are having trouble making their monthly mortgage payment, and it's possible that one could help you." (Id. ¶ 51) (see also Ex. B, ECF No. 1-2.) A third letter, also dated September 13, 2012, stated that, "[e]ven though your home is now in foreclosure, it's not too late to get help." (Compl. ¶ 52.)

On September 14, 2012, Plaintiffs received a letter from ReconTrust Company entitled "Notice of Acceleration and Foreclosure." (Id. ¶ 53) (see also Ex. C, ECF No. 1-2.) The letter stated that ReconTrust had been appointed trustee by U.S. Bank to begin foreclosure proceedings. (Compl. ¶ 53.) The letter identified U.S. Bank as "the creditor to whom the above-referenced debt is owed." (Id.) Plaintiffs never received notice that U.S. Bank acted as trustee for a mortgage-backed security pool that owned the Note. (Id.)

Also on September 14, 2012, Plaintiffs received a document entitled "Important Legal Notice." (Id. ¶ 55.) The Important Legal Notice stated: "name of the Creditor to whom the debt is owed: Bank of America." (Id.) A Notice of the Right to Foreclose, received by Plaintiffs on September 14, 2012, described Bank of America as the loan servicer/lender. (Id. ¶ 56.)

On September 28, 2012, Plaintiffs received an unsigned letter stating that "[w]e have not received your past due payments, so we have referred your home loan to our Foreclosure Review Committee for review." (Id. ¶ 57) (see also Ex. E, ECF No. 1-2.) The letter continued, "[t]his does not necessarily mean you will lose your home to foreclosure. We want to work with you and are here to help." (Compl. ¶ 58.)

On an unknown date, Plaintiffs received an undated "NOTICE OF SUBSTITUTE TRUSTEE'S SALE," which stated that the "beneficial interest of said Deed of Trust was last transferred to U.S. Bank, . . . who is now the owner of said debt. . . ." (Id. ¶ 59.) The Notice stated that "said Substitute Trustee will, onDecember 5, 2012, 10:00 A.M. at the Shelby County, where the foreclosure sales are customarily held at the Comfort Inn Downtown, 100 N. Front Street, Memphis, TN 38103 proceed to sell at public outcry to the highest and best bidder for cash, . . . [the Property] situated in Shelby County, Tennessee. . . ." (Id. ¶ 60.)

Plaintiffs allege that, because of Defendants' actions, they have suffered and are threatened with future substantial financial injury and emotional trauma. (Id. ¶ 61.)

II. Jurisdiction and Choice of Law

The Court has subject matter jurisdiction under 28 U.S.C. § 1331 because Plaintiffs' Complaint raises a federal question under the TILA and 12 C.F.R. § 226.39. The Court has supplemental jurisdiction over Plaintiffs' state-law claims because they derive from the same "common nucleus of operative fact" as Plaintiffs' federal claims. See 28 U.S.C. § 1367(c); United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966).

"A federal court exercising supplemental jurisdiction over state law claims is bound to apply the law of the forum state to the same extent as if it were exercising its diversity jurisdiction." Super Sulky, Inc. v. U.S. Trotting Ass'n, 174 F. 3d 733, 741 (6th Cir. 1999) (citing Menuskin v. Williams, 145 F.3d 755, 761 (6th Cir. 1998)).

For contract claims, Tennessee follows the rule of lex loci contractus, which provides that "a contract is presumed to be governed by the law of the jurisdiction in which it was executed absent a contrary intent." Vantage Tech., LLC v. Cross, 17 S.W.3d 637, 650 (Tenn. Ct. App. 1999) (citing Ohio Cas. Ins. Co. v. Travelers Indem. Co., 493 S.W.2d 465, 467 (Tenn. 1973)); see also Southeast Tex. Inns, Inc. v. Prime Hospitality Corp., 462 F.3d 666, 672 n.8 (6th Cir. 2006) (observing that "Tennessee adheres to the rule of lex loci contractus."). "If the parties manifest an intent to instead apply the laws of another jurisdiction, then that intent will be honored provided certain requirements are met": (1) the choice of law provision must be executed in good faith, (2) the chosen jurisdiction must bear a material connection to the transaction, (3) the basis for the choice of law must be reasonable, and (...