Miller v. Bank of N.Y. Mellon

379 P.3d 342

2016 COA 95

Judith Z. MILLER and Thomas C. Miller, Plaintiffs–Appellants,

v.BANK OF NEW YORK MELLON, as Trustee for the Certificate Holders of CWABS, Asset–Backed Certificates 2004–10, f/k/a Bank of New York; Bank of America, N.A.; and Countrywide Home Loans, Inc., Defendants–Appellees.

Court of Appeals No. 15CA0467

Colorado Court of Appeals, Div. I.

Announced June 16, 2016

Edward Dale Parrish, PC, Edward Dale Parrish, James Wade Noland, Golden, Colorado, for Plaintiffs–Appellants.

Holland & Hart LLP, Christina F. Gomez, Sean M. Hanlon, Denver, Colorado, for Defendant–Appellee Bank of New York Mellon.

Akerman LLP, Justin D. Balser, Melissa L. Cizmorris, Denver, Colorado, for Defendants–Appellees Bank of America and Countrywide Home Loans.

Opinion by JUDGE TAUBMAN

¶ 1 In this case involving dual tracking, a process where banks pursue foreclosure on a home while negotiating a loan modification, plaintiffs, Judith Z. and Thomas C. Miller (the Millers), filed claims against five financial institutions (collectively the Banks).¹ The Millers contend that the Banks improperly subjected them to dual tracking in violation of the consent judgment that resulted from the National Mortgage Settlement generally prohibiting dual tracking, as discussed below. The district court dismissed their complaint for failure to state a claim for relief, and the Millers appeal from that judgment. We affirm.

I. Background

¶ 2 We consider only facts alleged in the Millers' amended complaint, the documents they attached as exhibits or incorporated by reference, and matters proper for judicial notice. Fry v. Lee , 2013 COA 100, ¶ 19, ––– P.3d ––––. We view all facts in the light most favorable to the Millers. Id. at ¶ 17, ––– P.3d at ––––.

¶ 3 In September 2004, the Millers signed a note and deed of trust to obtain a $422,750 loan to purchase a house in Denver. The loan was a three-year adjustable rate mortgage with an initial annual interest rate of 8.075%. CHL originally gave them the loan, under the trade name of America's Wholesale Lender. A deed of trust, given to MERS as beneficiary, secured the loan.

¶ 4 The Millers began missing payments in 2007, and CHL began foreclosure proceedings on the house. In 2008, CHL transferred the loan to BNY Mellon, and BANA serviced the loan on BNY Mellon's behalf. MERS also assigned its interest in the deed of trust to BNY Mellon.²

¶ 5 The Millers separately filed for bankruptcy, and they both received discharges in 2009. Following the conclusion of both bankruptcy cases, BANA told the Millers to vacate the house. The Millers instead stayed in the house and eventually entered into negotiations with BANA regarding a loan modification.

¶ 6 In February 2012, BNY Mellon moved for an order authorizing the public trustee to proceed with a foreclosure sale in the Denver County District Court against the Millers under C.R.C.P. 120.

¶ 7 In June 2012, while the Rule 120 action was pending, the Millers filed their own complaint against the Banks in the Denver County District Court to quiet title to the house in their favor. The Millers alleged that BNY Mellon had not established an unbroken chain of title and that the Millers had not been afforded due process in the Rule 120 action because the court had not conducted a hearing.

¶ 8 In July 2012, the court in the Rule 120 action held a hearing and authorized the sale of the house. Meanwhile, the Millers continued negotiating a loan modification with BANA.

¶ 9 On December 31, 2012, BANA sent two contradictory letters to the Millers. One letter stated that their request for a loan modification had been denied, and the other stated that their request had been approved.

¶ 10 In 2013, BANA and the Millers agreed to a loan modification, although the Millers averred in their amended complaint that they accepted the modified loan under duress because of the threat of foreclosure.³ They began making payments three months before they executed the loan modification agreement in May 2013. They agreed to add all their unpaid and deferred interest, fees, charges, escrow advances, and other costs, excluding unpaid late charges, to the outstanding principal balance, for a combined balance of $630,077.16. BANA permanently forgave $220,077.16 of that balance, leaving a new principal balance of $410,000. BANA also deferred $72,321.19 of the new balance until the end of the life of the loan, with no accrued interest. BANA applied an initial 2% annual interest rate to the remainder, which would eventually increase to 3.375%.

¶ 11 BNY Mellon dismissed the Rule 120 action in September 2013, seven months after the Millers began making modified payments and four months after the execution of the modification agreement.

¶ 12 In October 2014, the Millers amended their complaint, asserting claims for breach of the implied duty of good faith and fair dealing, intentional infliction of emotional distress, fraud, and negligence. The Banks moved to dismiss the Millers' amended complaint.

¶ 13 The court granted the motion. It ruled that the Millers' tort claims were barred by the economic loss rule because the Millers had not identified any duty independent of the parties' contractual obligations. The court also dismissed the Millers' contract claim for breach of the implied duty of good faith and fair dealing because it concluded that the Millers did not have a reasonable expectation that their original loan would be modified or that the Banks would not engage in dual tracking.

¶ 14 The Millers raise two contentions on appeal: (1) the district court erred in determining that the economic loss rule barred their tort claims and (2) the court erred in dismissing their contract claim because they had a reasonable expectation that the Banks would not engage in dual tracking and would modify their loan. We disagree.

II. Motion to Dismiss Standard of Review

¶ 15 We review de novo a district court's grant of a motion to dismiss. Fry , ¶ 17, ––– P.3d at ––––.

¶ 16 A motion to dismiss tests the formal sufficiency of a complaint. Town of Alma v. AZCO Constr., Inc. , 10 P.3d 1256, 1259 (Colo. 000). It is looked upon with disfavor, and a complaint should not be dismissed unless it appears beyond a doubt that a claimant can prove no set of facts in support of his or her claim which would entitle him or her to relief. Pub. Serv. Co. of Colo. v. Van Wyk , 27 P.3d 377, 385–86 (Colo.2001). Motions to dismiss should only be granted when the plaintiff's allegations cannot support a claim as a matter of law. Wagner v. Grange Ins. Ass'n , 166 P.3d 304, 307 (Colo.App.2007).

III. Tort Claims

¶ 17 The Millers first contend that the district court erred in determining that the economic loss rule barred their claims for intentional infliction of emotional distress, fraud, and negligence. We disagree.

A. Applicable Law

¶ 18 Under the economic loss rule, “a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law.” Town of Alma , 10 P.3d at 1264.

¶ 19 “Contract obligations arise from promises the parties have made to each other, while tort obligations generally arise from duties imposed by law to protect citizens from risk of physical harm or damage to their personal property.” A.C. Excavating v. Yacht Club II Homeowners Ass'n , 114 P.3d 862, 865–66 (Colo.2005).

¶ 20 The existence and scope of any duty in tort are questions of law to be determined by the court. Id. at 866. The source of a tort duty may originate from a judicial decision or a legislative enactment. United Blood Servs. v. Quintana , 827 P.2d 509, 518 (Colo.1992).

¶ 21 A special relationship automatically triggers an independent duty of care that supports a tort action even when the parties have entered into a contractual relationship. A Good Time Rental, LLC v. First Am. Title Agency, Inc. , 259 P.3d 534, 540 (Colo.App.2011). The few special relationships recognized in Colorado share the same characteristic: each implicates a risk of damages to interests that contract law is not well suited to protect. Id.

B. Analysis

¶ 22 We conclude that the district court properly dismissed the Millers' tort claims because a consent judgment in a federal case challenging dual tracking, discussed below, did not create a private cause of action for third parties, and, therefore, the Millers did not have standing to bring their tort claims. Further, we conclude that no special relationship existed between the parties to establish an independent duty.

1. Private Cause of Action

¶ 23 In April 2012, BANA, four other mortgage servicers, the United States, forty-nine states, and the District of Columbia reached a National Mortgage Settlement that resulted in the consent judgment at issue here. The consent judgment settled complaints brought by the Department of Justice and state attorneys general alleging various foreclosure abuses, including dual tracking. Chaves v. Bank of Am., N.A. , No. 3:13–CV–498, 2014 WL 3052491, at *1 (E.D. Tenn. July 3, 2014). The settlement agreement “was intended to provide relief to homeowners whose loans were improperly serviced, resulting in numerous foreclosures that otherwise may have been prevented.” Id. The consent judgment prohibited most dual tracking, and the Colorado General Assembly subsequently passed a statute that also largely prohibited the practice.⁴ § 38–38–103.2, C.R.S. 2015.

¶ 24 The Millers argue that the consent judgment created an independent duty because the Banks agreed to comply with certain servicing standards, including no longer engaging in dual tracking.⁵ The Millers also contend that the Banks signed the consent judgment prior to initiating their Rule 120 action and that the consent judgment did not require the Millers to release or waive any right or legal claim as a condition of receiving payments pursuant to it.⁶ However, we need not address these arguments because we conclude that the Millers lack...