UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE

Martin Rouleau and Lisa Rouleau

v. Civil No. 14-cv-568-JL Opinion No.

US Bank, N.A., JP Morgan Chase Bank, N.A., and Nationstar Mortgage, LLC

MEMORANDUM ORDER

This case involves the applicability of the implied duty of

good faith and fair dealing to a residential mortgage, as well as

vicarious liability under the Real Estate Settlement Procedures

Act,

et seq. (“RESPA”). Martin and Lisa

Rouleau, having fallen behind on their mortgage payments, sought

a mortgage loan modification from JP Morgan Chase Bank, N.A.,

which both owned and serviced the loan. Before JP Morgan took

any action on the Rouleaus’ modification application, it assigned

their loan to US Bank, N.A. Nationstar Mortgage, LLC began

servicing the loan on US Bank’s behalf. The Rouleaus’ efforts to

discuss the application with Nationstar were met with silence

until, abruptly–-and without the Rouleaus having received a

decision on their application–-US Bank moved to foreclose the

mortgage. The Rouleaus filed this action against JP Morgan, US

Bank, and Nationstar, alleging that US Bank had breached the duty

of good faith and fair dealing inherent in the mortgage, and that all three defendants had violated the loss mitigation regulations

promulgated by the Consumer Financial Protection Bureau pursuant

to RESPA. By dint of the Rouleaus’ RESPA claim, this court has

jurisdiction over this matter under

(federal

question) and 1367 (supplemental jurisdiction).

US Bank has moved to dismiss the complaint.1 See Fed. R.

Civ. P. 12(b)(6). It argues that New Hampshire law does not

recognize a mortgagee’s refusal to consider, or even acknowledge,

a loan modification application as a basis for a claim for breach

of the duty of good faith and fair dealing. Nor may it be held

liable under RESPA, it argues, because the regulations allegedly

breached govern the conduct of “servicers” only–-which it is not

–-and it cannot be held vicariously liable for Nationstar’s

conduct. As fully explained below, the court agrees with US Bank

as to the first claim, but disagrees as to the second, and thus

grants the motion in part and denies it in part.

I. Applicable legal standard

To survive a motion to dismiss under Rule 12(b)(6), the

plaintiff’s complaint must allege facts sufficient to “state a

claim to relief that is plausible on its face.” Ashcroft v.

Iqbal,

(2009) (quoting Bell Atl. Corp. v.

1 Both JP Morgan and Nationstar answered the complaint rather than moving to dismiss.

2 Twombly,

(2007)). In ruling on such a motion,

the court must accept as true all well-pleaded facts set forth in

the complaint and must draw all reasonable inferences in the

plaintiff’s favor. See, e.g., Martino v. Forward Air, Inc.,

(1st Cir. 2010). The court “may consider not only the

complaint but also facts extractable from documentation annexed

to or incorporated by reference in the complaint and matters

susceptible to judicial notice.” Rederford v. U.S. Airways,

Inc.,

(1st Cir. 2009). With the facts so

construed, “questions of law [are] ripe for resolution at the

pleadings stage.” Simmons v. Galvin,

(1st Cir.

2009). The following background summary adopts that approach.

II. Background

In December 2004, the Rouleaus executed a promissory note in

the amount of $259,000, secured by a mortgage on their residence

at 34 Pease Lane in Rollinsford, New Hampshire. The named lender

and mortgagee was Chase Manhattan Mortgage Corporation. The

mortgage specified that, in the event of the Rouleaus’ default

and their failure to cure that default, Chase Manhattan “at its

option may require immediate payment in full of all sums secured

by this Security Instrument without further demand and may invoke

the STATUTORY POWER OF SALE and any other remedies permitted by

Applicable Law.”

3 Until 2011, the Rouleaus successfully made their payments on

the loan. In July of that year, however, Mrs. Rouleau

experienced a sudden onset of illness that required her to leave

her job. This blow to the Rouleaus’ household finances caused

them to fall behind on their mortgage payments. After

unsuccessfully attempting to remedy their default, the Rouleaus

contacted JP Morgan Chase Bank, NA–-which, as the successor to

Chase Manhattan, both owned and serviced their mortgage–-to seek

a loan modification.

The Rouleaus submitted an application for a modification to

JP Morgan in February 2014. In May, a JP Morgan employee sent a

letter to Mrs. Rouleau confirming receipt of the application, and

informing her that JP Morgan would “contact you by June 12, 2014,

to let you know the option(s) for which you’re eligible and next

steps . . . .” Having heard nothing from JP Morgan by that date,

Mr. Rouleau called JP Morgan and was informed by a JP Morgan

representative that the application was complete and that no

further information was required.

On June 30, 2014, JP Morgan assigned the Rouleaus’ mortgage

to US Bank, N.A., and Nationstar Mortgage, LLC began servicing

the loan on US Bank’s behalf the following day. Not long

thereafter, Nationstar wrote to Mrs. Rouleau, informing her that

“[i]f you are in the process of applying for or providing

4 information related to a workout (including modifications) with

[JP Morgan], we anticipate that your information will soon be

transferred to Nationstar Mortgage, but please feel free to

contact us to verify we have what we need to move forward.” Mr.

Rouleau attempted to call Nationstar to inquire about the status

of the modification application twice in August 2014, but each

time, he was put on hold for over an hour, and eventually hung up

without having spoken to a Nationstar representative. Following

guidance he received in a letter form Nationstar, Mr. Rouleau

then opened an online account with Nationstar in order to improve

communication regarding the modification application.

The Rouleaus heard nothing from either US Bank or Nationstar

until November 2014, when US Bank’s counsel sent them a notice

informing them that it had scheduled a foreclosure sale of the

mortgaged property for the following month. Roughly one week

before the sale was scheduled to take place, the Rouleaus filed

this action in Strafford County Superior Court seeking injunctive

relief under

; the Superior Court

issued a temporary restraining order enjoining the foreclosure

later that day. At about the same time, the Rouleaus submitted a

revised modification application to Nationstar. A month later,

after US Bank removed the case to this court, Nationstar informed

the Rouleaus that it had approved them for a trial modification.

5 III. Analysis

As mentioned at the outset, the Rouleaus assert two claims

against US Bank: a claim alleging that it has breached the duty

of good faith and fair dealing inherent in the mortgage, and a

claim that it is liable for Nationstar’s alleged violations of

the regulations implementing RESPA. US Bank has moved to dismiss

both claims. Although the court agrees with US Bank that the

Rouleaus’ complaint fails to state a claim that it has breached

the duty of good faith and fair dealing, it cannot reach the same

conclusion as to the Rouleaus’ RESPA claim.

A. Count 1 - Breach of duty of good faith and fair dealing

In Count 1 of their complaint, the Rouleaus advance a claim

that has become de rigueur among those challenging foreclosures

in this court. They allege that by “proceeding with a

foreclosure without first considering the Rouleaus’ application

for a loan modification,” US Bank “evade[d] the Rouleaus’

justified expectation that [it] would refrain from foreclosure

while more equitable alternatives remained under consideration,”

and thus breached the duty of good faith and fair dealing

contracting parties owe one another. Am. Compl. (document no. 7)

at ¶ 57. Given the almost universally poor success with which

such claims have met in this court, it should not surprise the

6 Rouleaus to learn that their view finds little or no support in

the applicable law.

First, some brief background: under New Hampshire law,

every contract contains “an implied covenant that the parties

will act in good faith and fairly with one another.” Birch

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

(2010). This duty of good faith and fair dealing takes several

forms, which can be grouped into three categories, “the first

dealing with conduct in contract formation; the second addressing

termination of at-will employment contracts; and the third

dealing with the limitation of discretion in contractual

performance.” Great Lakes Aircraft Co. v. City of Claremont,

(1992). The Rouleaus’ claim falls into the third

of these categories. Whether a plaintiff has sufficiently

alleged a breach of that particular duty

turns on three key questions: (1) whether the agreement allows or confers discretion on the defendant to deprive the plaintiff of a substantial portion of the benefit of the agreement; (2) whether the defendant exercised its discretion reasonably; and (3) whether the defendant’s abuse of discretion caused the damage complained of.

Moore v. Mortg. Elec. Reg. Sys., Inc.,

(D.N.H. 2012) (internal quotation marks and citation omitted).

The Rouleaus’ claim founders at the very first inquiry. As

another judge of this court has previously explained, New

7 Hampshire Supreme Court case law makes clear “that contractual

discretion can be exercised in a way that violates the duty of

good faith and fair dealing only if a promise is subject to such

a degree of discretion that its practical benefit could seemingly

be withheld.” Milford-Bennington R. Co., Inc. v. Pan Am Rys.,

Inc.,

(Barbadoro, J.) (quoting Centronics

Corp. v. Genicom Corp.,

(1989)) (internal

quotation marks and alterations omitted), aff’d,

(1st Cir. 2012). That degree of discretion

arises whenever a legal directive or contract term is indeterminate because it fails to identify a single specific action that is legally permitted, prohibited, or required under the circumstances. When expressly agreed contract terms leave a party with discretion, one party might act in performance of the contract, believing the act to be allowed while the other believes that act to be disallowed. In the ensuing dispute, no resolution may be possible based solely on the agreed contract terms.

(quoting Steven J. Burton & Eric G. Andersen, Contractual

Good Faith, § 2.3.2.1 at 45 (1995)). So, for example, in

Griswold v. Heat Inc.,

(1967)--the “seminal case on

the implied obligation of good faith performance,” Centronics,

--the New Hampshire Supreme Court held that a

contract to pay $200 per month for “such services as [the

counterparty], in his sole discretion, may render,” should,

consistent with the duty of good faith, be read to require the

counterparty to provide some services. Griswold,

8 123-24. Even though the contract “expressly conferred discretion

to do nothing at all” on the counterparty, the duty of good faith

denied it “the right to frustrate the other party’s expectation

of receiving some reasonable level of performance.” Centronics,

.

The reverse implication of all this is that “the duty of

good faith and fair dealing ordinarily does not come into play in

disputes” where “the underlying contract plainly spells out both

the rights and duties of the parties and the consequences that

will follow from a breach of a specified right.” Milford-

Bennington R. Co.,

. That effectively sounds

the death knell for the Rouleaus’ claim. In arguing that the

mortgage gives US Bank the discretion to withhold its “practical

benefit,” the Rouleaus point to Paragraph 22, which states that

if the Rouleaus default on their payment obligations and fail to

cure that default, US Bank “at its option may require immediate

payment in full of all sums secured by this Security Instrument

without further demand and may invoke the STATUTORY POWER OF SALE

and any other remedies permitted by Applicable Law” (emphasis

added). The Rouleaus zero in on the emphasized language,

contending that this language permits US Bank to choose whether

it proceeds with foreclosure (which, they say, would deprive them

9 of the benefit of their contract2) or takes an alternative tack.

Yet in their myopic focus on this language, the Rouleaus lose

sight of the larger picture: Paragraph 22 does set out “a single

specific action that is legally permitted.” It unambiguously

permits US Bank to foreclose after they default. There can be no

disagreement or confusion as to whether the mortgage allows or

disallows that action. So, while Paragraph 22 does confer some

discretion on US Bank in deciding whether or not to proceed with

foreclosure, it is not so lacking in clarity as to provide the

fodder for a successful claim for breach of the implied duty of

good faith and fair dealing.

2 This court is not unsympathetic to the plight of borrowers living in mortgaged homes under threat of foreclosure. But the court harbors serious doubt about whether a lender that proceeds with foreclosure in the face of the borrowers’ default can truly be said to have deprived the borrowers of the benefit of their contract. As another judge of this court recently explained, the benefit borrowers receive from a mortgage loan agreement is the loaned funds, and where, as here, the borrowers receive the loan, that “means, necessarily, that they received the full value of their agreement.” Douglas v. U.S. Bank Nat. Ass’n,

(McCafferty, J.). “That the [borrowers] later found themselves unable to repay their loan, and may have benefitted from a loan modification, does nothing to undermine the fact that, in the first instance, they received the loan they bargained for, which was the full value of their agreement.” Id. at 12-13; cf. also Pruden v. CitiMortgage, Inc.,

(under a note and mortgage, the lender’s “only promised performance was to lend [the borrower] a sum of money”; where the borrower had received that money, she could not maintain a claim for breach of the implied duty because the lender was no longer “in a position to deprive [the borrower] of any of the agreement’s value, much less a substantial portion of it”). It is not necessary, however, to reach that issue here.

10 Put simply, Paragraph 22 plainly spells out US Bank’s right

to accelerate the loan and proceed with foreclosure in the event

of the Rouleaus’ failure to hold up their end of their bargain.

As this court has held time and again, a party does not breach

the duty of good faith and fair dealing simply by “invok[ing] a

specific, limited right that is expressly granted by an

enforceable contract.” Milford-Bennington R. Co.,

; see also, e.g., Moore,

(“[P]arties

generally are bound by the terms of an agreement freely and

openly entered into, and the implied covenant does not preclude a

contracting party from insisting on enforcement of a contract by

its terms, even when enforcement might operate harshly or

inequitably.”) (quoting Olbres v. Hampton Co-op. Bank,

(1997); internal quotation marks omitted). That is to

be expected, for one of the functions of the duty of good faith

and fair dealing “is to prohibit behavior inconsistent with the

parties’ agreed-upon common purpose and justified expectations,”

Birch Broad.,

, and where, as here, a contract

expressly grants a party the right to respond in a particular way

to the counterparty’s breach, any expectation that the party will

not respond in that way can only be characterized as unjustified.

Indeed, if this court were to conclude that the implied duty

of good faith and fair dealing operates in the manner the

11 Rouleaus urge, it would actually frustrate the parties’ agreed-

upon purposes and their justified expectations--or, at the very

least, those of US Bank. As the Rouleaus themselves recognize, a

lender’s purpose in entering a loan agreement is “to obtain a

rate of return on the money lent.” Pls.’ Memo. (document no. 14-

1) at 15. More specifically, in entering such an agreement, the

lender’s purpose and expectation is to earn a return consistent

with the interest rate set forth in the loan documents, on the

schedule set forth in those documents.

Yet if, as the Rouleaus argue, a lender must consider a

borrower’s request for a modification before it may foreclose

(even in the absence of any requirement to that effect in the

text of the mortgage itself), a borrower who is disinclined to

honor the payment schedule and interest rate to which he or she

agreed, or simply incapable of keeping up with them, can cease

making payments and deny the lender the right to recoup its

losses through foreclosure of the security until it has

considered the borrower’s request for a lower interest rate, a

different payment schedule, or even–-as is the case with some

modifications–-a reduction in the principal amount. In so doing,

the borrower, who will have already received the benefit of the

lender’s performance under the contract (i.e., the loan itself,

see n.2 supra), can attempt to renegotiate the terms of his or

12 her own performance under the contract. In short, the Rouleaus’

desired result would permit them, and other borrowers in

comparable situations, to deprive their counterparty of “a

substantial portion of the benefit of the agreement”–-the very

harm the implied duty of good faith and fair dealing is intended

to combat.

Nothing in the mortgage or in the Rouleaus’ memorandum

persuades the court that New Hampshire law countenances such a

result. Indeed, in support of their broad conception of the duty

of good faith and fair dealing, the Rouleaus cite only a single,

twenty-year-old case from this court. See Crowley v. F.D.I.C.,

(D.N.H. 1994). While Crowley admittedly can be

read to support the Rouleaus’ position, the holding of that case

is not entirely clear from the court’s opinion--nor is it, in any

event, binding on this court.3 For the reasons set forth above,

Count 1 is dismissed.

3 It bears noting, moreover, that in a recent unpublished opinion, the New Hampshire Supreme Court itself cast doubt on the proposition that the duty of good faith and fair dealing requires a lender to consider a borrower’s modification applications. See Sovereign Bank, N.A. v. Bosse, No. 2014-0398 (N.H. Dec. 5, 2014) (slip op.).

13 B. Count 3 - RESPA

RESPA regulates the conduct of “servicers” of federally

related mortgage loans. A “servicer,” the statute explains, is

“the person responsible for servicing of a loan (including the

person who makes or holds a loan if such person also services the

loan),”

(i)(2); “servicing,” in turn, is defined

as “receiving any scheduled periodic payments from a borrower

pursuant to the terms of any loan . . . and making the payments

of principal and interest and such other payments with respect to

the amounts received from the borrower as may be required

pursuant to the terms of the loan,”

§ 2605(i)(3). Servicers

must, in addition to adhering to certain other requirements,

comply with the regulations promulgated by the Consumer Financial

Protection Bureau. Id. § 2605(k)(1)(E).

Those regulations mandate, among other things, that a

servicer promptly review any loss mitigation application it

receives 45 days or more prior to a foreclosure sale, and notify

the borrower within five days of receipt whether the application

is complete or incomplete and, if incomplete, what information is

necessary to complete it.

(b)(2). Within

thirty days of receiving a complete application, the servicer

must evaluate the borrower for any loss mitigation options and

notify the borrower of what options, if any, are available.

14 § 1024.41(c)(1). While the servicer is reviewing the borrower

for a modification, it may not (with some exceptions) initiate or

conduct a foreclosure sale. Id. §§ 1024.41(f)(2), (g). A

servicer to whom servicing of a mortgage loan is transferred

while a loss mitigation application is pending must maintain

policies and procedures “reasonably designed to ensure that the

servicer can . . . identify necessary documents or information

that may not have been transferred by a transferor servicer and

obtain such documents from the transferor servicer.” Id.

§ 1024.38(b)(4). RESPA provides that “[w]hoever fails to comply

with” these requirements may be held liable to the borrower.

(f); see also

(a).

The Rouleaus claim that Nationstar, as their servicer,

violated some or all of these requirements. They further assert

that US Bank, as Nationstar’s principal, may be held vicariously

liable for Nationstar’s transgressions. In moving to dismiss, US

Bank notes that it is not itself a servicer (which the Rouleaus

concede) and challenges the proposition that RESPA recognizes

vicarious liability of mortgagees for the acts of servicers in

their employ. That proposition, however, finds ample support in

the law, so US Bank’s argument cannot carry the day.

As a statute that provides a remedy for a defendant’s breach

of a duty created by and defined in the statute, RESPA creates “a

15 species of tort liability.” City of Monterey v. Del Monte Dunes

at Monterey, Ltd.,

(1999) (holding that because

“provides for relief for invasions of rights

protected under federal law,” claims under that statute “sound in

tort”); see also Curtis v. Loether,

(1974)

(where a statute “defines a new legal duty, and authorizes the

courts to compensate a plaintiff for the injury caused by the

defendant’s wrongful breach,” an action under the statute “sounds

basically in tort”). The United States Supreme Court has long

assumed that “when Congress creates a tort action, it legislates

against a legal background of ordinary tort-related vicarious

liability rules,” and consequently, that its statutorily-created

torts “incorporate those rules.” Meyer v. Holley,

(2003). And “[i]t is well established that traditional

vicarious liability rules ordinarily make principals or employers

vicariously liable for acts of their agents or employees in the

scope of their authority or employment.”

It follows that

unless Congress has “expressed a contrary intent” in RESPA, this

court must infer that “ordinary rules [] apply” to that statute.

; see also Astoria Fed. Sav. & Loan Ass’n v. Solimino,

(1991) (“[W]here a common-law principle is

well-established, . . . the courts may take it as given that

Congress has legislated with an expectation that the principle

16 will apply except when a statutory purpose to the contrary is

evident.”).

US Bank has identified no statutory language that would

support a conclusion that the “ordinary rules” of vicarious

liability do not apply to RESPA, nor has it cited a single case

supporting such a conclusion.4 The bulk of its argument is

instead devoted to advancing the undisputed assertion that it is

not a “servicer” under RESPA’s definition of that term. Whether

or not US Bank qualifies as a servicer is, however, irrelevant,

because (as already mentioned) RESPA does not limit liability to

servicers, but provides that “[w]hoever” violates a statutory

requirement may be held civilly liable. Cf. Wadlington v. Credit

Acceptance Corp.,

(6th Cir. 1996) (principal

could not be held vicariously liable under Fair Debt Collection

Practices Act, as that statute imposes liability only on a “debt

collector”).

4 In fairness, this court has been unable to locate a single case that directly addresses the issue and takes a position one way or the other. Most courts faced with claims seeking to hold a mortgagee vicariously liable under RESPA for a servicer’s acts in contravention of the statute have disposed of those claims on grounds other than the unavailability of vicarious liability. See, e.g., Nogle v. Sand Canyon Corp., No. 12-cv-23-S,

, at *7 (D. Wyo. Oct. 11, 2012); Fullmer v. JPMorgan Chase Bank, NA, No. 09-cv-1037,

, at *5-6 (E.D. Cal. Jan. 6, 2010); Consumer Solutions REO, LLC v. Hillery,

(N.D. Cal. 2009).

17 Although US Bank purports to find some support for its

position in the definition of “servicer” as “including the person

who makes or holds a loan if such person also services the loan,”

(i)(2), the court fails to see the significance

of that definition. All this language accomplishes is to make

clear that a mortgagee or noteholder that services its own loan

is bound by the same statutory and regulatory requirements that

apply to servicers acting on behalf of other entities. It does

not shed any light on whether a mortgagee or noteholder that does

not service its own loan can be held liable where the servicer

acting on its behalf fails to abide by those requirements.

So the record before the court fails to reveal any

statutory, regulatory, or judicial indication that RESPA does not

incorporate traditional tort rules of vicarious liability.5 On

5 In their memorandum opposing US Bank’s motion, the Rouleaus suggest that a bulletin issued by the Consumer Financial Protection Bureau affirmatively shows that RESPA incorporates the concept of vicarious liability, in that it contains the following cautionary language: [T]he mere fact that a supervised bank or nonbank enters into a business relationship with a service provider does not absolve the supervised bank or nonbank of responsibility for complying with Federal consumer financial law to avoid consumer harm. . . . Depending on the circumstances, legal responsibility may lie with the supervised bank or nonbank as well as with the supervised service provider. CFPB Bulletin No. 2012-03 (C.F.P.B. April 13, 2012), available at http://files.consumerfinance.gov/f/201204_cfpg_bulletin_service- providers.pdf. Given the guarded language the Bulletin employs,

18 this record, applying the standard discussed above, the court

must conclude that RESPA does, in fact, incorporate those rules

(although it is open to revisiting that conclusion in a different

procedural context if US Bank is able to identify some evidence

in the statutory language evincing a Congressional intent to the

contrary). As US Bank does not dispute that Nationstar was its

agent with respect to the servicing of the Rouleaus’ mortgage, or

that the complaint’s allegations are sufficient to state a claim

that Nationstar violated RESPA, the court denies its motion to

dismiss Count 3.

IV. Conclusion

For the reasons set forth above, US Bank’s motion to

dismiss6 is GRANTED IN PART and DENIED IN PART. Count 1 is

dismissed. All other counts remain pending against the

defendants at whom they are directed.

SO ORDERED.

Joseph N. Laplante United States District Judge Dated: April 17, 2015

however–-stating that, “depending on the circumstances,” legal responsibility for an agent’s conduct “may lie” with a bank–-and the absence of any specific mention of RESPA anywhere in the Bulletin, this passage is of no use in determining whether vicarious liability is available under that statue. 6 Document no. 10.

19 cc: Stephanie Anne Bray, Esq. John S. McNicholas, Esq.

20