Dillon v. Select Portfolio, et a l . 07-CV-070-SM 01/28/08 UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Michael C. Dillon and Jennifer Kresqe, Plaintiffs

v. Civil No. 07-cv-70-SM Opinion No.

Select Portfolio Servicing; Harmon Law Offices, P.C.; PMI Group, Inc.; Merrill Lynch Mortgage Capital; Merrill Lynch Mortgage Investors; and LaSalle Bank National Association, Defendants

O R D E R

In March of 2001, Michael Dillon borrowed approximately

$100,000 from Alliance Funding. That loan was secured by a

mortgage deed to property Dillon owned in Manchester, New

Hampshire. Dillon says that approximately six months later the

promissory note evidencing his obligation to repay that loan was,

without his knowledge, transferred to an entity then known as

Fairbanks Capital Corporation. Although Dillon claims he made

timely payments to his lender (Alliance) in both September and

October of 2001, the new holder of the note (Fairbanks) declared

the note in default. Eventually, Fairbanks issued a notice of foreclosure, which

prompted Dillon to file suit in state court seeking to enjoin the

foreclosure. He prevailed. The state court enjoined Fairbanks

from proceeding with the foreclosure. Nevertheless, Dillon

claims Fairbanks (and entities which subsequently bought or took

an assignment of Dillon's promissory note) continued to harass

him and refused to comply with aspects of the state court's

order. That, in turn, prompted Dillon and his fiance, Jennifer

Kresge, to file this suit.

In their twenty-four count complaint, Dillon and Kresge

advance a wide array of both state and federal claims against six

different defendants, asserting, among other things, that they

engaged in unlawful debt collection practices, violated the

Federal Fair Credit Reporting Act, breached various contractual

obligations, and committed a number of negligent and intentional

torts. Defendants Select Portfolio Servicing, Inc., Harmon Law

Offices, P.C., Merrill Lynch Mortgage Capital, Merrill Lynch

Mortgage Investors, and LaSalle Bank National Association move to

dismiss all of plaintiffs' claims, on grounds that they are

precluded by the applicable statute of limitations, barred by the

doctrine of claim preclusion (res judicata), and/or fail to state

a viable cause of action. Those defendants also say plaintiff

2 Jennifer Kresge lacks standing to recover under any theory

advanced in the second amended complaint. The final defendant,

PMI Group, Inc., also moves to dismiss all of plaintiffs'’ claims,

asserting that none states a viable cause of action. Plaintiffs

object.

Standard of Review

A defendant seeking dismissal of some or all of a

plaintiff's claims bears a heavy burden: dismissal is appropriate

only if the defendant demonstrates that "it clearly appears,

according to the facts alleged, that the plaintiff cannot recover

on any viable theory." Lanqadinos v. American Airlines. Inc..

(1st Cir. 2000). See also Gorski v. N.H. Dep't

of Corr.,

(1st Cir. 2002) ("The issue presently

before us, however, is not what the plaintiff is required

ultimately to prove in order to prevail on her claim, but rather

what she is required to plead in order to be permitted to develop

her case for eventual adjudication on the merits.") (emphasis in

original). But, as the court of appeals has observed, although

"the threshold for stating a claim may be low, ... it is real."

Dovle v. Hasbro. Inc..

(1st Cir. 1996) (quoting

Goolev v. Mobil Oil Corp..

(1st Cir. 1988)).

Consequently, to survive a motion to dismiss, a plaintiff's

3 complaint must set forth "factual allegations, either direct or

inferential, respecting each material element necessary to

sustain recovery." Goolev.

.

When ruling on a motion to dismiss under Fed. R. Civ. P.

12(b)(6), the court reviews the plaintiff's complaint in a highly

deferential manner. It must "accept as true the well-pleaded

factual allegations of the complaint, draw all reasonable

inferences therefrom in the plaintiff's favor and determine

whether the complaint, so read, sets forth facts sufficient to

justify recovery on any cognizable theory." Martin v. Applied

Cellular Tech..

(1st Cir. 2002). Notwithstanding

this deferential standard of review, however, the court need not

accept as true a plaintiff's "bald assertions" or conclusions of

law. See Resolution Trust Corp. v. Driscoll.

(1st Cir. 1993) ("Factual allegations in a complaint are assumed

to be true when a court is passing upon a motion to dismiss, but

this tolerance does not extend to legal conclusions or to 'bald

assertions.'") (citations omitted). See also Chonqris v. Board

of Appeals.

(1st Cir. 1987).

4 Background

Viewed in the light most favorable to plaintiffs, the

relevant facts alleged in the second amended complaint, as well

as Dillon's state court petition for injunctive relief, are as

follows.1

In March of 2001, Dillon borrowed $100,300 from Alliance

Funding. That loan was evidenced by a promissory note, secured

by a mortgage deed to property Dillon owned in Manchester, New

Hampshire. In October of 2001, Dillon was informed that, going

forward, his promissory note would be serviced by Select

Portfolio (then operating as "Fairbanks Capital Corporation" -

for clarity, the court will refer to that entity as Select

1 Typically, a court must decide a motion to dismiss exclusively upon the allegations set forth in the complaint (and any documents attached to that complaint) or convert the motion into one for summary judgment. See Fed. R. Civ. P. 12(b). There is, however, an exception to that general rule:

[CJourts have made narrow exceptions for documents the authenticity of which are not disputed by the parties; for official public records; for documents central to plaintiffs' claim; or for documents sufficiently referred to in the complaint.

Watterson v. Page.

(1st Cir. 1993) (citations omitted). See also Beddall v. State Street Bank & Trust Co..

(1st Cir. 1998). Since there does not appear to be any dispute concerning the content of the state court pleadings and orders, the court may properly consider those documents without converting defendants' motions into ones for summary judgment.

5 Portfolio). According to Dillon's state court petition for

injunctive relief. Alliance assigned his mortgage (and,

presumably, the note it secured) to Merrill Lynch Mortgage

Capital, c/o Fairbanks Capital Corporation, on March 29, 2001,

and recorded that assignment in the registry of deeds two and

one-half years later, on December 19, 2003.

In November of 2001, Select Portfolio notified Dillon that

he was delinquent in making his payments and his account was in

arrears. Dillon says that because he was not properly notified

of the transfer of servicing rights to Select Portfolio, he made

his September and October payments to his original lender.

Alliance. It is unclear whether Alliance forwarded those

payments to Select Portfolio. But, according to Dillon, Select

Portfolio began imposing "illegal" late fees on Dillon's account

in late 2 0 01.

In 2002, Dillon says he made timely mortgage payments, but

Select Portfolio continued to insist that his account was in

arrears. Dillon also says his numerous requests for a statement

outlining the payments he had made, the outstanding balance on

his account, and the basis and nature of all late fees/penalties

imposed against his account were ignored. Eventually, he sought

6 and obtained the assistance of a representative of the New

Hampshire Banking Commission, who attempted to resolve the

problems involving Dillon's account. Nevertheless, in June of

2002, Dillon received notice that: (1) Select Portfolio had

unilaterally purchased hazard insurance to insure his home (i.e.,

its collateral); and (2) it intended to foreclose on its

mortgage.

Dillon, with the assistance of the New Hampshire Banking

Commission, succeeded in persuading Select Portfolio to hold off

on the foreclosure proceedings, at least for a short time. But,

in December of 2003, Select Portfolio again notified Dillon of

its intent to foreclose on the mortgage. At that point, Dillon

filed a petition for preliminary and permanent injunctions to

enjoin the foreclosure in the New Hampshire Superior Court.

Dillon v. Fairbanks Capital Corp.. et a l ., Civ. No. 04-E-25

(2004). Named as defendants in that proceeding were the same

entities named in this suit (or their assigns or entities in

privity with them): Fairbanks Capital Corporation (now. Select

Portfolio), LaSalle National Bank Association, Merrill Lynch

Mortgage Capital Investors, and Harmon Law Offices. Only one

defendant in this case - the PMI Group, Inc. - was not also named

in Dillon's state court proceeding. On January 20, 2004, the

7 state court issued a temporary restraining order, preventing

Fairbanks/Select Portfolio from proceeding with the foreclosure.

According to Dillon's second amended complaint, following a

trial on the merits, the state court entered an order on August

25, 2005, in which it held that Select Portfolio's efforts to

foreclose the mortgage were illegal. The court also concluded

that Select Portfolio had breached its obligations to Dillon by

refusing to accept properly tendered monthly payments and by

unilaterally purchasing hazard insurance for the property (and

seeking to charge Dillon for it), when Dillon had presented

documentation demonstrating that he already had such insurance in

place. Later, in an order addressing Dillon's request for

attorney's fees, the court held that it:

considers the respondents in the instant action to have acted unreasonably and with bad faith, by improperly assessing Dillon and accelerating the mortgage, thereby creating a "predatory scheme of penalties" that generated the "default" at issue and deprived Dillon of the rights to which he was entitled (and which he should freely have enjoyed) under the plain terms of the mortgage agreement.

Second amended complaint at para 16 (quoting the state court's

fees order).2

2 Although Dillon's second amended complaint represents that various orders of the state court are attached as appendices Subsequently, Dillon says Select Portfolio continued to

engage in a pattern of improper and illegal actions with respect

to his note and mortgage. Accordingly, in August of 2006, he

returned to the state superior court with a motion seeking to

hold Select Portfolio in contempt. Later that month, the court

granted Dillon's motion, concluding that Select Portfolio was in

contempt of the court's original order and had, among other

things, failed to provide Dillon with an accurate billing

statement and illegally assessed late charges against him.

Dillon claims that since the state court issued its order. Select

Portfolio has complied with only some of the numerous corrective

actions the court directed it to undertake.

On December 22, 2006, Dillon filed this suit in the New

Hampshire Superior Court. Defendants removed it to this court.

Discussion

I. Non-Viable Claims.

In response to defendants' motions to dismiss, plaintiffs

acknowledge that several counts in their second amended complaint

fail to state viable causes of action. Accordingly, they concede

that it is appropriate to dismiss count three (Federal Fair

to the complaint, they are not.

9 Credit Reporting Act), count 17 (avoidance of the promissory

note), count 18 (violation of the state court consent decree),

and count 22 (agency/respondeat superior). As to those counts,

then, defendants' motions to dismiss are granted.

II. Ms. Kresqe Lacks Standing.

Plaintiffs' second amended complaint does not allege that

Kresge had an ownership interest in Dillon's home, nor does it

allege that she co-signed the promissory note, or the mortgage

deed securing that note. Rather, it simply asserts that, "[a]t

all times relevant to this matter, Ms. Kresge is and has been Mr.

Dillon's fiancee, life partner and partner in various business

and commercial enterprises." Rl. at para. 2.

Because she was not a party to any of the transactions that

form the bases of the causes of action advanced on the second

amended complaint, Kresge concedes that she lacks any type of

contractual claim against the defendants. Nevertheless, she

asserts that she was a foreseeable victim of defendants'

(allegedly) tortious conduct toward her fiance (Dillon) and,

therefore, says she does have viable common law claims against

defendants. In support of that position, Kresge asserts that

"New Hampshire law recognizes that persons in an intimate but

10 unmarried relationship may be foreseeable victims of a physical

tort, entitling them to bring an action for infliction of

emotional distress." Plaintiffs'’ memorandum (document no. 40) at

32 (citing Graves v. Estabrook.

(2003)).

To be sure. New Hampshire law does permit recovery by

bystanders who witness an accident involving a person to whom

they are "closely related." See generally. Corso v. Merrill.

(1979). See also Graves.

(holding that

the fiancee of a man killed in an automobile accident had a

common law cause of action for negligent infliction of emotional

distress). Importantly, however, recovery has always been tied

to the plaintiff's ability to demonstrate that he or she actually

observed a family member or close relative experience some sort

of serious physical injury (e.g., death or injuries resulting

from an automobile accident caused by the defendant's

negligence).

Under the emerging law allowing parent recovery for emotional distress, the plaintiff must still prove that his injury was foreseeable, that the defendant was at fault, and that his injury directly resulted from the accident. Plaintiff's burden of proving causation in fact should not be minimized. The emotional injury must be directly attributable to the emotional impact of the plaintiff's observation or contemporaneous sensory perception of the accident and immediate viewing of the accident victim. Therefore, recovery will not be permitted for emotional distress when the

11 plaintiff is merely informed of the matter after the accident or for the grief that may follow from the death of the related accident victim.

Corso.

(citations omitted). In fact, the New

Hampshire Supreme Court has specifically rejected claims, like

those asserted by Kresge, in which the plaintiff was not a

bystander/witness to a serious accident.

In count IV of the amended writ, Mrs. Jarvis seeks recovery for the negligent infliction of emotional distress. She claims that the defendant's refusal to pay for home-nursing services by an L.P.A. resulted in a horrifying emotional experience for her, as she watched her husband deteriorate in helpless agitation and combativeness.

In support of this argument, she relies upon the Corso case, in which this court recently recognized the right of parents to recover damages for the emotional distress resulting from their contemporaneous perception of a serious accident in which their child was injured. We do not find sufficient similarity between the two cases to apply the Corso holding to this case. The instant case concerns an allegation of denial of insurance coverage rather than an allegation of infliction of serious physical injury upon Mr. Jarvis which Mrs. Jarvis could have contemporaneously perceived. The plaintiffs' reliance upon Corso is misplaced and, therefore, upon remand. Count IV should be dismissed.

Jarvis v. Prudential Ins. Co. of America.

(1982) .

12 Like the plaintiff in Jarvis, Ms. Kresge does not have a

viable claim for negligent (or intentional) infliction of

emotional distress arising out of defendants' allegedly wrongful

treatment of Dillon. Her claims against all defendants are

necessarily dismissed. And, since Kresge is not a proper

plaintiff in this case, Dillon lacks a viable claim for loss of

consortium allegedly caused by injuries inflicted upon her (count

21). Rather than a specific cause of action, Dillon's claim for

loss of consortium is better viewed as an item of his claimed

consequential damages.

III. Claims Against P M I .

Select Portfolio and its business partners are the primary

focus of the claims set forth in the second amended complaint.

Dillon does, however, advance several claims against the PMI

Group, Inc. ("PMI"). According to Dillon, "PMI was the majority

stock holder and parent company of [Select Portfolio] from the

inception of Mr. Dillon's relationship with [Select Portfolio],

up until August of 2005 when they sold their interest in the

company and, at various times relevant to this lawsuit, placed

and maintained its representatives on the [Select Portfolio]

Board of Directors." Amended complaint at para. 3.

13 Of the remaining claims in Dillon's amended complaint, nine

are against PMI (or, more specifically, those counts are against

all defendants; none is brought solely against P M I ) . They are as

follows:

Count 4: Negligence;

Count 7: Negligent infliction of emotional distress;

Count 8: Intentional infliction of emotional distress;

Count 11: Breach of fiduciary duty;

Count 16: Fraud;

Count 19: Deceptive trade practices, in violation of N.H. Rev. Stat. Ann. ("RSA") ch. 358-A;

Count 20: Deceptive trade practices, in violation of RSA ch. 35 8-A;

Count 23: Conspiracy; and

Count 24: Civil RICO violations.

Dillon appears to ground his claims against PMI on a theory of

vicarious liability, based upon P M I 's status as the majority

stockholder of Select Portfolio, as well as the presence of three

PMI employees on Select Portfolio's eight-member board of

directors. Dillon's theory, it would seem, is that PMI must have

known of the allegedly unlawful conduct in which Select Portfolio

was engaged and, despite both a duty and the ability to do so,

failed to stop it.

14 The second amended complaint, however, contains few factual

allegations concerning PMI. Dillon concedes as much. See

Plaintiffs' memorandum (document no. 39) at 2 ("On review, it is

apparent that the [second amended] complaint pays more attention

to the relationship among [Select Portfolio] and the other

Defendants through the so-called REMIC in which Mr. Dillon's loan

ha[d] been placed than to the actions of PMI."). But, having

acknowledged the pleading deficiencies in the second amended

complaint, Dillon has taken a somewhat unusual approach in an

effort to cure those deficiencies. Rather than seek leave to

file a third amended complaint, he has offered to "augment" his

existing complaint with additional factual allegations: "The

simple fact is that Plaintiff's case is based on ongoing

research, as a result of which Plaintiff is prepared to offer a

more definitive statement definitively establishing P M I 's place

as a defendant in this law suit. If called upon to do so.

Plaintiff would be prepared to adduce the following, drawn

primarily from public records." Plaintiff's memorandum (document

no. 39) at 3 (emphasis supplied).

Dillon's proposed negotiation with the court, in which he

offers to produce additional material in response to the pending

motions if the court deems it necessary or helpful, falls outside

15 the process described by the Federal Rules of Civil Procedure.

Dillon has not been "called upon" to do anything other than

respond (if he so chooses) to P M I 's motion to dismiss. And, of

course, that response must comply with the Rules of Civil

Procedure and this court's local rules. Dillon's proposed

proffer of additional factual allegations complies with neither,

and cannot be a factor in resolving the pending motion. See

generally Fed. R. Civ. P. 15; Local Rule 15.1.

Even if credited as being entirely true, the few allegations

set forth in the second amended complaint related to PMI are

insufficient to impose vicarious liability for the (allegedly)

unlawful conduct of Select Portfolio. Nor are those allegations

sufficient to justify piercing Select Portfolio's corporate veil

to impose liability on PMI as one of Select Portfolio's

shareholders. PMI is, then, entitled to dismissal of all claims

advanced against it in Dillon's second amended complaint.

IV. The Remaining Defendants.

Defendants Select Portfolio, Harmon Law Offices, P.C.,

Merrill Lynch Mortgage Capital ("MLMC"), Merrill Lynch Mortgage

Investors ("MLMI"), and LaSalle Bank National Association

(collectively, the "Select Portfolio Defendants") move to dismiss

16 all claims advanced in the second amended complaint on grounds

that they are barred by the doctrine of res judicata, precluded

by the applicable statutes of limitations, and/or fail to state

viable causes of action. Dillon objects.

A. Res Judicata.

As to defendants' assertion that Dillon's claims could have

(and, in fact, should have) been raised in the context of his

earlier state court litigation and, therefore, are barred by the

doctrine of res judicata, such an affirmative defense is better

resolved in the context of a motion for summary judgment. That

is particularly true in this case, given the fact that, although

numerous, Dillon's causes of action against various defendants

are not well-defined. It is impossible to determine whether some

of Dillon's claims had accrued when he initiated the state court

litigation. Accordingly, the Select Portfolio Defendants' motion

to dismiss Dillon's second amended complaint on grounds of res

judicata is denied, but without prejudice to refiling in the

context of a well-supported motion for summary judgment.3

3 The court notes that the Select Portfolio Defendants have already filed such a motion for summary judgment (document no. 58). But, that motion is not yet ripe for review since Dillon has not filed an objection and the time within which he may do so has not yet expired.

17 B. Statute of Limitations.

The same is true with regard to defendants' arguments that

Dillon's claims are barred by the applicable statutes of

limitations. Given the limited record before the court, it seems

prudent to resolve that affirmative defense after the record is

more fully developed. As noted, the general, non-specific nature

of Dillon's complaint makes it difficult to determine exactly

which (allegedly) wrongful conduct forms the basis of his claims.

Accordingly, it is impossible to know with any degree of

certainty when most of Dillon's causes of action actually

accrued. The Select Portfolio Defendants' defense, based on the

pertinent statutes of limitations is, then, best addressed in the

context of summary judgment. Their motion to dismiss all counts

in Dillon's second amended complaint on grounds that each is

barred by the applicable statute of limitations is denied, but

without prejudice.

C. Failure to State a Claim.

As noted above, the court may properly dismiss one or more

of Dillon's causes of action for failure to state a claim only if

the second amended complaint fails to set forth "factual

allegations, either direct or inferential, respecting each

material element necessary to sustain recovery," Goolev.

, and/or "it clearly appears, according to the facts

alleged, that the plaintiff cannot recover on any viable theory,"

Lanqadinos,

. Given the highly deferential nature

of the applicable standard of review, most of Dillon's claims

must necessarily survive defendants' efforts to dismiss them.

There are, however, exceptions.

For example, in count 12 of the second amended complaint,

Dillon bases his defamation claim, at least in part, on

allegations that Select Portfolio "disseminated and published

derogatory statements regarding [him] to national credit

reporting agencies." Rl. at para. 101. But, 15 U.S.C. §

1681h(e) specifically provides that "no consumer may bring any

action or proceeding in the nature of defamation, invasion of

privacy, or negligence with respect to the reporting of

information against . . . any person who furnishes information to

a consumer reporting agency" unless the wrongful disclosure was

made with malice or the willful intent to injure the consumer.

Because the second amended complaint does not allege that Select

Portfolio or Harmon acted with malice or the intent to injure,

those defendants are entitled to the dismissal of that aspect of

count 12 .

19 As to Dillon's claims under the New Hampshire Consumer

Protection Act (counts 19 and 20), he concedes that the Select

Portfolio Defendants, with the exception of MLMI and MLMC, are

exempt from the provisions of that statute. Those defendants

are, then, entitled to dismissal of counts 19 and 20. Whether

MLMI and/or MLMC are exempt from the provisions of that statute

(as entities subject to the jurisdiction of the New Hampshire

Banking Commissioner) can be resolved in the context of summary

judgment.

Conclusion

For the foregoing reasons, as well as those set forth in PMI

Group's legal memoranda (documents no. 33-2 and 45), PMI Group's

motion to dismiss (document no. 33) is granted.

Select Portfolio's motion to dismiss (document no. 35) is

granted in part and denied in part, as follows: All of the

claims advanced by Jennifer Kresge are dismissed for failure to

state a claim. Because plaintiffs concede that the following

counts fail to state a viable cause of action, they, too, are

dismissed: count three (Federal Fair Credit Reporting Act), count

17 (avoidance of the promissory note), count 18 (violation of the

state court consent decree), and count 22 (agency/respondeat

20 superior). Count 21 (loss of consortium), which is more properly

pled as an item of Dillon's damages, rather than a common law

cause of action, is also dismissed for failure to state a claim.

Finally, the Select Portfolio Defendants, with the exception

of the Merrill Lynch entities, are entitled to dismissal of

counts 19 and 20 (deceptive trade practices in violation of the

Consumer Protection A c t ) . And, as to count 12 (defamation),

defendants Select Portfolio and Harmon are entitled to dismissal

of that portion of the count that alleges Dillon was defamed as a

result of defendants' statements to credit reporting agencies.

SO ORDERED.

Sheven J./McAuliffe ichief Judge

January 28, 2008

cc: Walter L. Maroney, Esq. Dorothy A. Davis, Esq. William P. Breen, Esq. Edmund J. Boutin, Esq. Steven A. Clark, Esq.

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