L’Esperance v . Mahattan Mortgage 11-cv-555-LM 9/5/12 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Linda L’Esperance

v. Civil N o . 11-cv-555-LM Opinion N o .

Manhattan Mortgage Corporation

O R D E R

Based on the court’s order of June 1 2 , 2012, document n o .

3 2 , this case now consists of Linda L’Esperance’s claims against

Manhattan Mortgage Corporation (“Manhattan”) for: (1) negligent,

fraudulent, or intentional misrepresentation (Count I X ) ; (2)

violation of New Hampshire’s Consumer Protection Act (“CPA”),

New Hampshire Revised Statutes Annotated (“RSA”) chapter 358-A

(Count X ) ; (3) negligence, breach of contract, and breach of the

obligation of good faith and fair dealing (Count X I I ) ; and (4)

negligence (Count XIII). Before the court is L’Esperance’s

motion for default judgment. The court heard oral argument on

August 1 7 , 2012. For the reasons that follow, L’Esperance’s

motion for default judgment is denied.

The Legal Standard

Default has entered. See doc. n o . 3 3 . Thus, Manhattan is

“taken to have conceded the truth of the factual allegations in the complaint as establishing the grounds for liability.”

S.E.C. v . New Futures Trading Int’l Corp., N o . 11–cv–532–JL,

, at *1 (D.N.H. Apr. 2 0 , 2012) (quoting Ortiz–

Gonzalez v . Fonovisa,

9 , 62–63 (1st Cir. 2002)). But,

while “a defaulting party admits the factual basis of the claims

asserted against i t , the defaulting party does not admit the

legal sufficiency of those claims.” 10 James Wm. Moore, Moore’s

Federal Practice § 55.32[1][b] (3d ed. 2011) (citing Quirindongo

Pacheco v . Rolon Morales,

5 , 16 (1st Cir. 1992)).

Accordingly, “[t]he claimant must state a legally valid claim

for relief,” 10 Moore’s, supra, and “[a] court may grant

judgment by default only for relief that may lawfully be granted

on the well-pleaded facts alleged by the claimant,” id.

(emphasis added). Therefore, “a district court may, after entry

of default, still conclude that a complaint fails to state a

claim.” Feliciano–Hernández v . Pereira–Castillo,

2 7 ,

537 n.5 (1st Cir. 2011) (citing Ramos–Falcón v . Autoridad de

Energía Eléctrica,

, 2 (1st Cir. 2002)).

As the court of appeals for this circuit has recently

explained, the process for determining whether a complaint

states a claim involves two steps:

Step one: isolate and ignore statements in the complaint that simply offer legal labels and conclusions or merely rehash cause-of-action elements.

2 [Ocasio-Hernández v . Fortuño-Burset,

,] 12 [(1st Cir. 2011)] (discussing, among other cases, Ashcroft v . Iqbal,

6 2 , 129 S . C t . 1937, 1949 (2009), and Bell Atl. Corp. v . Twombly,

4 4 , 555 (2007)). Step two: take the complaint’s well-pled (i.e., non-conclusory, non-speculative) facts as true, drawing all reasonable inferences in the pleader’s favor, and see if they plausibly narrate a claim for relief.

(again, discussing Iqbal and Twombly, among others); see also S.E.C. v . Tambone,

, 441–42 (1st Cir. 2010) (en banc). Plausible, of course, means something more than merely possible, and gauging a pleaded situation’s plausibility is a “context-specific” job that compels [a court] “to draw on” [its] “judicial experience and common sense.” Iqbal, 129 S . C t . at 1949, 1950. And in performing [its] review, [a court] consider[s] (a) “implications from documents” attached to or fairly “incorporated into the complaint,” (b) “facts” susceptible to “judicial notice,” and (c) “concessions” in plaintiff’s “response to the motion to dismiss.” Arturet–Vélez v . R.J. Reynolds Tobacco Co.,

0 , 13 n.2 (1st Cir. 2005); see also Haley v . City of Boston,

9 , 4 4 , 46 (1st Cir. 2011).

Schatz v . Rep. State L’ship Comm.,

0 , 55-56 (1st Cir.

2012) (footnote and parallel citation omitted).

Background

Given the court’s obligation to determine whether any of

L’Esperance’s claims would pass muster under Rule 12(b)(6) of

the Federal Rules of Civil Procedure (“Federal Rules”), the

following background is drawn from L’Esperance’s amended

complaint, document n o . 2 0 .

In the portion of her complaint that identifies the

parties, L’Esperance alleges that “Manhattan Mortgage . . .

3 transacted business with [her] . . . by sending her an

application for their services to assist in acquiring a loan

modification, . . . [making] misrepresentations regarding the

quality and nature of the services they could and would deliver,

and accepting [her] fee for said service, which as alleged

below, was never delivered.” Am. Compl. ¶ 2 0 . The “General

Allegations” section of her complaint includes the following:

Defendant Manhattan Mortgage Corporation held itself out as having the willingness and ability to assist the Plaintiff in acquiring a loan modification after her efforts with her lenders had failed. Defendant Manhattan Mortgage Corporation specifically represented that i t , through its staff, employees, agents, and/or representatives had an intrinsic working knowledge of the mortgage industry, modifications, federal funding and criteria for modifications, the Plaintiff’s lender in particular, and specifically that it could successfully effectuate a modification of the Plaintiff’s loans. Based on these promises, and this agreement, the Plaintiff paid Manhattan Mortgage Corporation in the order of $2,195.00 for their represented services. However, Manhattan Mortgage failed to effectuate a modification, and failed to appeal the initial disapproval, despite their contract and express promises that they could and would carry this out on the Plaintiff’s behalf.

¶ 4 4 . That is the full extent of the complaint’s factual

allegations concerning Manhattan. However, a document titled

“Site Check Draft Authorization” (hereinafter “authorization

form”) that was executed by L’Esperance and attached to her

motion for default judgment provides as follows:

4 The services MANHATTAN MORTGAGE CORPORATION shall provide are, but may not be limited t o : preparing a loan modification package, preparing financial information, telephoning, faxing and negotiating a potential loan modification request. . . .

MANHATTEN MORTGAGE CORPORATION . . . makes no guarantees, representations, specific performance, or outcome of a loan modification request made to a lender. I understand and agree that no loan modification guarantees have been promised to m e , verbally or in writing, and that final approval of any loan modification request(s) MANHATTAN MORTGAGE CORPORATION submits on my behalf is subject to lender guidelines, acceptance and approval.

Pl.’s Mot. Default J., Ex. A (doc. n o . 3 4 - 2 ) , at 2 . Given that

L’Esperance has brought a claim for breach of contract, and the

authorization form is the agreement between L’Esperance and

Manhattan, that document is fairly incorporated into

L’Esperance’s complaint. See Bedall v . State S t . Bank & T r .

Co.,

2 , 17 (1st Cir. 1998) (“When . . . a complaint’s

factual allegations are expressly linked to – and admittedly

dependent upon – a document (the authenticity of which is not

challenged), that document effectively merges into the pleadings

and the trial court can review it in deciding a motion to

dismiss under Rule 12(b)(6).”) (citations omitted).

Discussion

Having described the relevant legal standard, and the facts

of this case, the court turns to each of the four counts in

L’Esperance’s complaint that assert claims against Manhattan.

5 A . Count IX

Count IX is L’Esperance’s misrepresentation claim. In i t ,

she asserts:

Manhattan Mortgage Corporation made statements regarding [its] abilities, knowledge, competence, and intentions of successfully accomplishing a loan modification for the Plaintiff that were made with the purpose of inducing the Plaintiff into paying for such proffered services, including but not limited to all promises as outlined in the general allegations portion of this Writ. The Defendants knew or should have known that such representations were false. The Plaintiff reasonably and justifiably relied on such statements to her detriment.

Am. Compl. ¶ 105. The “promises” outlined in the general

allegations portion of the complaint are those described in

paragraph 4 4 , which is quoted above, in full. Count IX fails to

state a misrepresentation claim against Manhattan for several

reasons.

First, at least with respect to a claim for intentional

misrepresentation, L’Esperance is obligated to “state with

particularity the circumstances constituting fraud.” Fed. R.

Civ. P. 9 ( b ) ; see also Tessier v . Rockefeller,

2 4 , 332

(2011) (“In order to withstand a motion to dismiss, the

plaintiff must specify the essential details of the fraud, and

specifically allege the facts of the defendant’s fraudulent

actions.”) (quoting Jay Edwards, Inc. v . Baker,

1 , 46-

47 (1987)) (emphasis in Jay Edwards). “To satisfy [the]

6 particularity requirement [under the Federal Rules], the pleader

must set out the ‘time, place, and content of the alleged

misrepresentation with specificity.’” Tambone,

(quoting Greebel v . FTP Software, Inc.,

(1st

Cir. 1999)). L’Esperance’s allegations of who said what to whom

fall far short of the specificity necessary to state a claim for

intentional misrepresentation under the Rule 9(b) pleading

standard. And, those allegations are probably inadequate to

state a claim for negligent misrepresentation under the Rule

8(a)(2) pleading standard. Moreover, to the extent that

L’Esperance’s misrepresentation claim is based on a supposed

statement by Manhattan “that it could successfully effectuate a

modification of [her] loans,” Am. Compl. ¶ 4 4 , that allegation

cannot stand in the face of the authorization form, in which

L’Esperance acknowledged that Manhattan had made no guarantees

concerning the outcome of its attempt to secure a modification

of her mortgage loan. See Schatz,

n.3 (“the

documents [fairly incorporated into a complaint] may trump the

complaint’s allegations if a conflict exists”) (citing Clorox

C o . P.R. v . Proctor & Gamble Commercial Co.,

4 , 32

(1st Cir. 2000)).

Beyond that, it is not at all clear that L’Esperance has

adequately alleged that any of the statements on which she

7 relies are false statements, which is a necessary element of a

claim for either intentional or negligent misrepresentation.

Based upon paragraph 44 of her amended complaint, L’Esperance

appears to allege that Manhattan made false statements when it

said that: (1) it had the willingness and ability to assist her

in acquiring a loan modification; (2) it had an intrinsic

knowledge of the mortgage industry and the modification process;

and (3) it could successfully effectuate a modification of her

mortgage. But, she does not allege any facts which, if proven,

would render any of those statements false at the time they were

made. That i s , she alleges no facts concerning Manhattan’s

actual willingness and ability to assist her in getting a loan

modification, and no facts concerning Manhattan’s actual

knowledge of the mortgage industry and the modification process.

Regarding the alleged promise of a successful outcome,

L’Esperance alleges no facts that, if proven, would demonstrate

that when Manhattan made that promise, it had no intention of

keeping i t , which is a necessary element of a misrepresentation

claim based on a promise. See Thompson v . H.W.G. Grp., Inc.,

9 8 , 701 (1995) (“A promise . . . will only give rise

to a claim of misrepresentation i f , at the time it was made, the

defendant had no intention to fulfill the promise.”) (citation

omitted).

8 Instead of making the requisite factual allegations,

L’Esperance appears to rely exclusively on Manhattan’s lack of

success in securing a modification of her mortgage, and its

failure to appeal the initial disapproval of her request for a

modification, as proof of the falsity of Manhattan’s statements.

That is not enough, especially in light of L’Esperance’s express

acknowledgment, in the authorization form, that Manhattan made

no promises about the outcome of its attempt to secure a

modification.1

Finally, the complaint falls short with regard to alleging

the requisite state(s) of mind of the speaker(s) responsible for

the alleged misrepresentations. As explained in the court’s

order dismissing the claims against the other defendants,

allegations of scienter are necessary to state a claim for

intentional misrepresentation. See L’Esperance v . HSBC Consumer

Lending, Inc., N o . 11-cv-555-LM,

, at *13 (D.N.H.

June 1 2 , 2012). As with L’Esperance’s allegations against those

1 With respect to Manhattan’s alleged failure to appeal, the court notes that appealing an initial adverse decision is not one of the services Manhattan promised to perform in the authorization form, and L’Esperance makes no specific allegation that Manhattan ever promised to file an appeal. Moreover, by analogy to the elements of a claim for legal malpractice, it would seem that a failure to appeal would only cause injury if the appeal was likely to have succeeded, and L’Esperance makes no allegations concerning the merits of her modification request or the chances of a successful appeal of the initial denial.

9 other defendants, she has not adequately alleged scienter with

respect to Manhattan. Similarly, allegations concerning a

failure to exercise reasonable care before making a statement

are necessary to state a claim for negligent misrepresentation.

See

at * 1 4 . Here, too, L’Esperance’ complaint misses the

mark.

Because L’Esperance has not alleged misrepresentation with

adequate specificity, because she has not actually alleged a

false statement of fact, and because her complaint does not

contain adequate allegations regarding the state(s) of mind of

the relevant speaker(s), who remain unidentified, she has failed

to state a claim for misrepresentation. As a consequence, she

is not entitled to default judgment on the misrepresentation

claim she asserts in Count IX.

B . Count X

Count X is L’Esperance’s claim under the CPA, that

Manhattan “held its services out to be of a standard and

quality, based on expertise and unique knowledge, when such

services were not of said standard or quality.” Am. Compl. ¶

108(f). The CPA does, indeed, make it unlawful for a person to

“[r]epresent that . . . services are of a particular standard,

quality, or grade . . . if they are of another,” RSA 358-A:2,

VII. L’Esperance, however, makes no factual allegations

10 concerning: (1) what Manhattan said about its expertise and

unique knowledge; or (2) the actual level of Manhattan’s

expertise and knowledge. Without allegations about what

Manhattan said, or the actual state of Manhattan’s expertise and

knowledge, L’Esperance has not alleged a false representation

concerning the standard and quality of the services Manhattan

provided to L’Esperance. L’Esperance is not entitled to default

judgment on the claim she asserts in Count X because she does

little more than recite the elements of her cause of action, and

“a formulaic recitation of the elements of a cause of action

will not do” to state a claim on which relief can be granted.

United Auto. Workers of Am. Int’l Union v . Fortuño,

7 ,

41 (1st Cir. 2011) (quoting Iqbal,

7 8 ) ; see also

Schatz,

(explaining that when ruling on Rule

12(b)(6) motions, courts should “isolate and ignore statements

in the complaint that . . . merely rehash cause-of-action

elements”).

C . Count XII

In Count X I I , L’Esperance asserts a claim under three

separate legal theories. Specifically, she claims that

Manhattan’s

failure to acquire the modification as required under the contract was in breach of contract, in breach of the Defendant’s obligations to deal fairly and in good

11 faith with the Plaintiff, and/or was the result of the Defendant’s direct or vicarious liability of its agents/employees/representative’s negligence within the scope of employment and in connection with the rendering of the contracted services and in failing to take a timely appeal.

Am. Compl. ¶ 117. L’Esperance has failed to state a claim for

breach of contract because the contract on which she is suing

expressly disclaims any guarantee concerning the outcome of

Manhattan’s attempt to secure a modification of L’Esperance’s

mortgage. That i s , the contract did not require Manhattan to

acquire a modification. L’Esperance has failed to state a claim

for negligence because the only duties she alleges Manhattan

breached are those it assumed under its agreement with her, and

in New Hampshire, “[a] breach of contract standing alone does

not give rise to a tort action.” Bennett v . ITT Hartford Grp.,

Inc.,

(2004) (citing Lawton v . Great Sw. Fire

Ins. Co.,

0 7 , 613 (1978)).

L’Esperance’s claim for breach of the obligation of good

faith and fair dealing is also fatally flawed. According to the

New Hampshire Supreme Court:

In every agreement, there is an implied covenant that the parties will act in good faith and fairly with one another. Livingston v . 18 Mile Point Drive,

(2009). In New Hampshire, there is not merely one rule of implied good-faith duty, but a series of doctrines, each of which serves a different function.

The various implied good-faith obligations fall into three general categories: (1)

12 contract formation; (2) termination of at-will employment agreements; and (3) limitation of discretion in contractual performance.

Birch Broad., Inc. v . Capitol Broad. Corp.,

9 2 , 198

(2010) (parallel citation omitted). While L’Esperance broadly

alleges that Manhattan breached its obligation to deal with her

fairly and in good faith, she elaborates no further, and does

not indicate which good faith obligation(s) Manhattan failed to

fulfill.

Plainly, this case does not involve the second category of

good faith and fair dealing, which pertains to discharge from

at-will employment. To the extent that L’Esperance asserts a

claim based on the first category, any such claim fails as a

result of her failure to allege scienter. See L’Esperance,

, at *18-19. That leaves the third category.

In its landmark opinion on the implied covenant of good

faith and fair dealing, the New Hampshire Supreme Court

described the rule underlying the limitation of discretion in

contract performance:

[U]nder an agreement that appears by word or silence to invest one party with a degree of discretion in performance sufficient to deprive another party of a substantial proportion of the agreement’s value, the parties’ intent to be bound by an enforceable contract raises an implied obligation of good faith to observe reasonable limits in exercising that discretion,

13 consistent with the parties’ purpose or purposes in contracting.

Centronics Corp. v . Genicom Corp.,

(1989).

As a preliminary matter, the court is far from certain that

the agreement on which L’Esperance bases her claim “allow[ed] or

confer[ed] upon [Manhattan] a degree of discretion in

performance tantamount to a power to deprive [L’Esperance] of a

substantial proportion of the agreement’s value.” Centronics,

. To the contrary, in the authorization form,

Manhattan represented that it would prepare a loan modification

package and financial information. Pl.’s Mot. for Default J.,

Ex. A (doc. n o . 3 4 - 2 ) , at 2 . If the agreement had given

Manhattan the power to do nothing at all, or next to nothing, at

its own discretion, and if L’Esperance had alleged that

Manhattan had done nothing, then perhaps L’Esperance would have

stated a claim. But, the agreement itself demonstrates that

Manhattan did not have the degree of discretion described in

Centronics, and L’Esperance does not allege that Manhattan did

nothing. Rather, she only alleges that despite Manhattan’s

efforts, she did not receive a loan modification and that

Manhattan did not appeal the lender’s denial of a loan

modification.

14 L’Esperance may believe that she was deprived of a

substantial proportion of the agreement’s value because she did

not get a loan modification. But, the authorization form made

it abundantly clear that the agreement’s value was the effort

made by Manhattan, not the success of those efforts, which was

beyond Manhattan’s control, as was also stated in the

authorization form. And, with regard to Manhattan’s decision

not to appeal the initial denial of L’Esperance’s application

for a modification, L’Esperance has alleged no facts tending to

show that there even was an appeal process or that Manhattan’s

decision not to appeal was not reasonable under the

circumstances. It could hardly be said that Manhattan did not

reasonably exercise its discretion in contract performance by

deciding not to file an appeal if such an appeal was unlikely to

succeed, and L’Esperance makes no factual allegations concerning

the relative strength of the appeal it says Manhattan should

have pursued. In sum, L’Esperance has not stated a claim for

the third kind of breach of the implied covenant of good faith

and fair dealing.

Having failed to state a claim for breach of contract,

negligence, or breach of the implied covenant of good faith and

fair dealing, L’Esperance is not entitled to a default judgment

on Count XII.

15 D. Count XIII

Count XIII is L’Esperance’s claim that Manhattan is liable

to her in negligence because it “breached its duty of reasonable

care to [her] in failing to deliver the services for which it

was hired.” Am. Compl. ¶ 123. Count XIII does not state a

claim because, as the court has already noted, “[a] breach of

contract standing alone does not give rise to a tort action.”

Bennett,

(citation omitted). Because

L’Esperance has failed to state a claim for negligence, she is

not entitled to a default judgment on Count XIII.

Conclusion

For the reasons described above, L’Esperance’s motion for

default judgment, document no. 34, is denied. The clerk of the

court shall enter judgment in accordance with this order and

close the case.

SO ORDERED.

(^f /y J _ Landya l^eCa^terty United StatWMagistrate Judge September 5, 2012 cc: Jason D. Gregoire, Esq. Michael R. Stanley, Esq. Shenanne Ruth Tucker, Esq. John-Mark Turner, Esq.

16