Shedd v. Wells Fargo Home Mortg., Inc.

ORDER

This matter is before the Court on a Motion to Dismiss the Second Amended Complaint filed by defendants Wells Fargo Home Mortgage, Inc. and Monument Street Financing, II, LLC, Plaintiffs' response, and Defendants' reply. (Docs. 84, 91, & 100.) After due consideration of all issues, the Court finds the motion is due to be granted, in part, and denied, in part.

In the immortal words of the late Yogi Berra: "It's déjà vu all over again." In November 2014, the Court entered an order granting, in part, and denying, in part, the Defendants' motion to dismiss the First Amended Complaint (FAC). (Doc. 34.) Some causes of action were dismissed in their entirety (e.g., breach of the covenant of good faith and fair dealing, breach of fiduciary duty, negligence, and some RESPA claims). Others were dismissed in part (e.g., wantonness, unjust enrichment, other RESPA claims). After some discovery, the Magistrate Judge stayed this action and held a settlement conference. The case did not settle, and a new deadline for

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amending pleadings was set. Plaintiffs filed a motion for leave to file a Second Amended Complaint (SAC). (Doc. 68.) The motion for leave to amend was granted without objection. (Doc. 73.) The most recent complaint, like the previous one, is based on events related to the servicing of the Shedds' mortgage by the Defendants and contains substantially the same causes of action, including those that were dismissed.¹

The SAC provides greater factual detail than the FAC but does not alter the basic outline of events giving rise to Plaintiffs' causes of action, with one exception. The FAC alleged that both George Shedd and Pamela Shedd signed the promissory note that is the basis of this action. The SAC, however, alleges that only Pamela Shedd signed the promissory note, although both George Shedd and Pamela Shedd signed the mortgage on the family residence that secured the promissory note. Those documents were executed in 2001.

Defendant Barclays Capital Real Estate, Inc. (Barclays) initially serviced the loan and continued to do so after it was assigned to Monument Street Financing II, LLC (Monument). Loan payments fell behind, and in 2008 the Shedds filed a Chapter 11 bankruptcy petition in this district. Barclays, the loan servicer, represented to the bankruptcy court that it was the creditor and sought a relief from the automatic stay. On April 25, 2008, the bankruptcy court entered an order

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finding the parties had entered into an adequate protection agreement that required the Shedds to pay their regular mortgage payment plus an additional $306.62 monthly beginning with the April 2008 payment. Subsequently, the bankruptcy court confirmed the reorganization plan, which required the Shedds to pay the additional $306.62 for 60 months to satisfy in full a pre-petition arrearage of $16,500.

Barclays used a software package from a third party vendor that was not equipped to handle bankruptcy payments. As a result, payments made by the Shedds after April 2008 were mishandled. For example, payments that should have been applied to the arrearage were held in suspense or rejected; payments that should have been applied to current monthly loan payments were applied to past due amounts, fees and expenses. Not surprisingly, Barclays' inability to correctly apply the payments created a nightmare for the Shedds--the loan was placed in default, foreclosure proceedings were initiated, various fees were added, their mortgage interest was misreported, the Shedds credit suffered. For more than two years, the Shedds worked with Barclays to correct the problem, but it was never resolved.

On September 1, 2010, Monument transferred servicing to defendant Wells Fargo Home Mortgage, Inc. (Wells Fargo).² However, Wells Fargo used the same

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software vendor as Barclays, and the problems persisted.³ The Shedds, sometimes through their counsel, communicated repeatedly with Wells Fargo about the misapplication and rejection of payments as a result of the bankruptcy plan. In letters dated December 9, 2010 and November 21, 2011, Wells Fargo acknowledged that payments had been wrongly rejected and made promises to correct the problem. Nevertheless, the misapplication of payments continued. Wells Fargo's records do not accurately reflect the payments made by the Shedds. Wells Fargo has incorrectly reported the amount of annual mortgage interest paid by the Shedds and has made erroneous reports to credit reporting agencies regarding the status of their account. Wells Fargo improperly released the account to collections and has caused collections calls to be made to the Shedds.

Plaintiffs' claims arising from these events are set forth on the following chart:

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Wells Fargo and Monument have moved to dismiss each cause of action against them for failure to state a claim upon which relief can be granted.⁴ In addition, these Defendants allege that Plaintiff George Shedd lacks standing to assert a claim for breach of contract or a claim under RESPA, TILA, or FDCPA. Defendants also move to dismiss fictitious parties from this action. Below, the Court addresses fictitious parties and the standing issue before tackling Defendants' arguments with respect to each cause of action.

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A. Fictitious Parties

"As a general matter, fictitious-party pleading is not permitted in federal court." Richardson v. Johnson, 598 F.3d 734, 738 (11th Cir. 2010). Plaintiffs do not dispute this proposition. Fictitious parties shall be dismissed.

B. George Shedd's Standing

Defendants argue that George Shedd does not have standing to pursue a state law claim for breach of contract or federal claims under RESPA, TILA, or FDCPA because he did not sign, and therefore was not obligated to repay, the promissory note. In response, Plaintiffs argue that George Shedd was a party to the Chapter 11 Plan that "created a new contract between George and the Defendants related to the mortgage." (Pls.' Rsp. 8, Doc. 91, emphasis added.) Alternatively, at least with respect to the breach of contract claim, Plaintiffs argue that George Shedd was a third-party beneficiary of the Chapter 11 Plan because the Plan allowed him to stay in the family home as long as the payments were made as required. Neither of these theories, if proven, demonstrates standing.

To establish standing to sue under either federal or state law, a plaintiff must prove that he himself has suffered an actual or threatened injury to a legally protected right. Warth v. Seldin, 422 U.S. 490, 498-99 (1975); Bernals, Inc. v. Kessler-Greystone, LLC, 70 So.3d 315, 319 (Ala. 2011). Plaintiffs assert that "George has suffered injuries as mortgagor by Wells Fargo Defendants adding unnecessary costs; withholding escrow; suspending and refusing to make timely payments to reduce the mortgage debt; interfering with his ability to refinance at a much lower interest rate; not providing the proper Form 1098 mortgage interest deductions for

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the taxes he files each year; and other [unspecified] damages." (Pls.' Rsp. at 8.) Each of these injuries relates to and arises from the obligation of the borrower to pay principal, interest, and fees under the promissory note.

George Shedd is not a borrower under the note, and the Chapter 11 Plan did not change that fact. First, George Shedd's designation as "Borrower" under the mortgage does not make him a borrower under the promissory note. The mortgage itself specifically precludes that possibility:

Any borrower who co-signs this Security Instrument but does not execute the Note (a) is co-signing this Security Instrument only to mortgage, grant and convey that Borrower's interest in the Property under the terms of this Security Instrument; (b) is not personally obligated to pay the sums secured by this Security Instrument; and (c) agrees that Lender and any other Borrower may agree to extend modify, forbear or make any accommodations with regard to the terms of this Security Instrument or the Note without the Borrower's consent.

(Ex. A., Wells Fargo Defs.' Mot. to Dismiss FAC, Doc 15-1, emphasis added.) The Chapter 11 Plan could not and did not modify George Shedd's obligations under the Note because he had none.⁵

Plaintiffs argue that George Shedd became a "borrower" as a result of the proceedings in the bankruptcy court. Specifically, Plaintiffs state that George Shedd "was an obligated Chapter 11 debtor under the April 2008 Agreed Order and the July 2008 confirmed Chapter 11 Plan," which required the "debtors" to pay $306.62

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per month to cure the arrearage. (Pl.'s Resp. 9, Doc. 91.) But that arrearage was related to the note, which was solely the debt of Pamela Shedd. Even though a husband and wife file a joint bankruptcy petition, their estates remain separate. In re Olien, 256 B.R. 280, 283 (Bankr. E.D. Tenn. 2000); 11 U.S.C. § 302. Unless the bankruptcy court ordered the estates consolidated (and there is no...