Wilmington Sav. Fund Soc'y FSB v. Ayres

388 Wis.2d 256

932 N.W.2d 183 (Table)

2019 WI App 39

WILMINGTON SAVINGS FUND SOCIETY FSB, Plaintiff-Respondent,

v.Alisha B. AYRES and William R. Ayres, Jr., Defendants-Appellants.

Appeal No. 2018AP508

Court of Appeals of Wisconsin.

DATED AND FILED June 27, 2019

KLOPPENBURG, J.

¶1 This case arises from a foreclosure action filed by Wilmington Savings Fund Society FSB against Alisha and William Ayres. At issue on appeal are counterclaims asserted by the Ayreses against Wilmington, which are premised on Wilmington’s handling of the Ayreses' application for a loan modification prior to the commencement of the foreclosure action. The Ayreses assert that Wilmington’s handling of their loan modification application breached Wilmington’s contractual duty of good faith and fair dealing. In addition, the Ayreses assert that Wilmington also violated the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2601 - 17 (2012),¹ in handling the loan modification application. Both the duty of good faith and fair dealing claim and the RESPA claim were tried to a jury.

¶2 The questions presented on appeal are: (1) whether the circuit court erred by overturning the jury’s verdict awarding the Ayreses damages for Wilmington’s breach of the duty of good faith and fair dealing; (2) whether the court erred by declining to change the jury’s negative answer to a special verdict question asking whether Wilmington violated RESPA in its handling of the Ayreses' loan modification appeal; and (3) whether the court erred by allowing Wilmington’s corporate representative to testify based on notes he had prepared for trial summarizing Wilmington’s business records without also producing those records.

¶3 As to the first issue, we conclude that the circuit court properly overturned the jury’s verdict on the duty of good faith and fair dealing claim. In doing so, we explain that the Ayreses have not shown that a contract existed between them and Wilmington under which Wilmington had a duty of good faith and fair dealing with respect to the Ayreses' loan modification application. As to the second issue, we conclude that the court correctly declined to change the jury’s special verdict answer concerning the loan modification appeal because credible evidence supports the jury’s verdict. Finally, as to the third issue, we assume without deciding that the court erred by permitting Wilmington’s representative to testify based on his notes of Wilmington’s business records without producing those records, but we conclude that the error was harmless. Accordingly, we affirm.

BACKGROUND²

¶4 The Ayreses purchased a house in Sun Prairie, Wisconsin in 1999. In 2006, the Ayreses refinanced and executed a Note and Mortgage secured by the house, which were subsequently transferred to Wells Fargo Bank. In 2010, the Ayreses executed a loan modification agreement with Wells Fargo. The Note, Mortgage, and 2010 modification together have governed the Ayreses' loan at all times pertinent to this appeal, and we will refer to these items collectively as "the loan." Wells Fargo sold the loan to Wilmington on February 19, 2016, and two different servicers serviced the loan for Wilmington thereafter.³

¶5 The Ayreses stopped making the monthly payments required under the terms of the loan in June 2015. The Ayreses applied for a loan modification in 2016. In response to the Ayreses' loan modification application, Wilmington offered a "Trial Modification Plan," which provided that if the Ayreses made four specified monthly payments and complied with certain other conditions, Wilmington would consider a permanent loan modification. Shortly after receiving the Trial Modification Plan, the Ayreses sent Wilmington an appeal form stating that they could not afford the monthly payments proposed in the Trial Modification Plan. Wilmington ultimately rejected the Ayreses' loan modification application and appeal in August 2016. We review pertinent details relating to the Ayreses' loan modification application and appeal in the discussion section that follows.

¶6 Wilmington filed the present foreclosure action in October 2016. The Ayreses asserted multiple defenses to the foreclosure and multiple counterclaims. Relevant to this appeal, the Ayreses' counterclaims alleged that Wilmington’s handling of the Ayreses' loan modification application and appeal violated both RESPA and Wilmington’s contractual duty of good faith and fair dealing.

¶7 The circuit court entered a judgment of foreclosure in favor of Wilmington. The court held a jury trial on the counterclaims, and the jury returned the following special verdict:⁴

QUESTION NO. 1: Did Wilmington fail to exercise reasonable diligence in obtaining documents and information from the Ayres[es] to complete their application for loan modification in and after February 2016?

Answer: Yes

QUESTION NO. 2: Did Wilmington fail to provide prompt notice to the Ayres[es] that their application was incomplete?

Answer: No

QUESTION NO. 3: Did Wilmington, within 30 days of the application being complete, fail to review the Ayres[es'] application and notify them of any loss mitigation option they would be offered?

Answer: No

QUESTION NO. 4: Did Wilmington fail to process the Ayres[es'] appeal according to the applicable provisions of RESPA?

Answer: No

....

QUESTION NO. 7: Did Wilmington breach its duty of good faith and fair dealing with respect to the Ayres[es]?

Answer: Yes

The jury awarded $15,000 in damages for Wilmington’s failure to diligently obtain documents and information (Question No. 1) and awarded $75,000 in damages on the claim of breach of the duty of good faith and fair dealing (Question No. 7).

¶8 In ruling on the parties' various post-verdict motions, the circuit court overturned the jury’s verdict determining that Wilmington breached its duty of good faith and fair dealing, and left unchanged the jury’s answers to the remaining special verdict questions. The Ayreses appeal.

DISCUSSION

¶9 The Ayreses raise three issues on appeal. We address and reject each of the Ayreses' arguments in turn.

I. Breach of the Duty of Good Faith and Fair Dealing

¶10 The Ayreses argue that Wilmington breached its contractual duty of good faith and fair dealing (which we will refer to as the duty of good faith) in its handling of the Ayreses' loan modification application by: (1) making conflicting and repetitive requests regarding documentation to support their loan modification application; (2) offering unaffordable Trial Modification Plan terms in response to their application; and (3) giving the Ayreses only three days to accept the Trial Modification Plan terms.⁵ As we explain, the Ayreses' argument fails because they do not establish a prerequisite for their breach of the duty of good faith claim, namely, a contract from which that duty arises.

¶11 We first summarize the applicable legal principles and standard of review. We then explain that the Ayreses have failed to show that Wilmington had a contractual duty to exercise good faith in handling the Ayreses' loan modification application, and we conclude that the circuit court properly overturned the jury’s verdict on the Ayreses' breach of the duty of good faith claim.

A. Applicable Law and Standard of Review

¶12 The duty of good faith is not amenable to precise definition, but previous Wisconsin courts have summarized it thus:

Parties to a contract have a duty of good faith to each other.... [I]t may be said that contracts impose on the parties thereto a duty to do everything necessary to carry them out.... Moreover, there is an implied undertaking in every contract on the part of each party that he [or she] will not intentionally and purposely do anything to prevent the other party from carrying out his [or her] part of the agreement, or do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.

Metropolitan Ventures, LLC v. GEA Assocs. , 2006 WI 71, ¶35, 291 Wis. 2d 393, 717 N.W.2d 58, opinion clarified on denial of reconsideration , 2007 WI 23, 299 Wis. 2d 174, 727 N.W.2d 502 (citations and quoted source omitted).

¶13 In order to assert that Wilmington breached its contractual duty of good faith, the Ayreses must establish the existence of a contract between them and Wilmington from which Wilmington’s obligation to process the Ayreses' loan modification application in good faith arose; in other words, the contractual duty of good faith cannot be breached in the absence of a valid contract between the parties. See id. , ¶¶35-36 ("[C]ontracts impose on the parties" a duty of good faith, and "[t]he duty of good faith arises because parties to a contract, once executed, have entered into a cooperative relationship. "); see also Beidel v. Sideline Software, Inc. , 2013 WI 56, ¶27, 348 Wis. 2d 360, 842 N.W.2d 240 ("Every contract implies good faith and fair dealing between the parties to it." (quoting Chayka v. Santini , 47 Wis. 2d 102, 107 n.7, 176 N.W.2d 561 (1970) )); Hauer v. Union State Bank of Wautoma , 192 Wis. 2d 576, 596-97, 532 N.W.2d 456 (Ct. App. 1995) (statute requiring good faith "applies only to the performance or enforcement of a contract, it does not impose a duty of good faith in the negotiation and formation of contracts"). The party claiming breach of a contractual duty "must establish the existence of the contract" from which the duty arises. VanHierden v. Swelstad , 2010 WI App 16, ¶11, 323 Wis. 2d 267, 779 N.W.2d 441.

¶14 As elaborated below, the Ayreses argue that a contract existed between them and Wilmington from which Wilmington had a duty to process their loan modification application in good faith. In evaluating this argument, our standard of review is twofold. We will not overturn a jury’s answer to a special verdict question based on an error of fact if any credible evidence supports the verdict. State v. Abbott Labs. , 2012 WI 62, ¶27, 341 Wis. 2d 510, 816 N.W.2d 145. Thus, in the first part of our analysis, we...