UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Gregory McNutt, et al.

v. Case No. 16-cv-405-AJ Opinion No.

Wells Fargo Bank, N.A., et al.

MEMORANDUM AND ORDER

In an amended complaint, the plaintiffs, Gregory and Sara

McNutt, allege that Wells Fargo Bank, N.A. and America’s

Servicing Company (“Wells Fargo”1) violated federal and state law

with regard to a balloon payment due on the maturity date of the

plaintiffs’ modified mortgage. Doc. no. 7. Wells Fargo moves

to dismiss under Federal Rule of Civil Procedure (“Rule”)

12(b)(6) for failure to state a claim. Doc. no. 9. The

plaintiffs object. Doc. no. 10. For the following reasons,

Wells Fargo’s motion is granted in part and denied in part.

Standard of Review

Under Rule 12(b)(6), the court must accept the factual

1 In the motion to dismiss, it is alleged that America’s Servicing Company is the trade name of Wells Fargo Home Mortgage, a division of Wells Fargo Bank, N.A., and accordingly not a separate entity. The plaintiffs do not dispute this assertion. The court will accordingly refer to the named defendants singularly as “Wells Fargo” in this order. allegations in the complaint as true, construe reasonable

inferences in the plaintiff’s favor, and “determine whether the

factual allegations . . . set forth a plausible claim upon which

relief may be granted.” Foley v. Wells Fargo Bank, N.A.,

(1st Cir. 2014) (citation and quotation marks

omitted). A claim is facially plausible “when the plaintiff

pleads factual content that allows the court to draw the

reasonable inference that the defendant is liable for the

misconduct alleged.” Ashcroft v. Iqbal,

(2009). Analyzing plausibility is “a context-specific task” in

which the court relies on its “judicial experience and common

sense.”

.

The scope of the court’s analysis on a Rule 12(b)(6) motion

is generally limited to “facts and documents that are part of or

incorporated into the complaint . . . .” GE Mobile Water, Inc.

v. Red Desert Reclamation, LLC,

(D.N.H.

2014) (quoting Rivera v. Centro Medico de Turabo, Inc.,

(1st Cir. 2009)); see also Fed. R. Civ. P. 12(d).

As an exception to this rule, the First Circuit permits trial

courts to consider “documents the authenticity of which are not

disputed by the parties; official public records; documents

central to plaintiff's claim; and documents sufficiently

referred to in the complaint” without converting a motion to

2 dismiss into one for summary judgment.

(brackets omitted)

(quoting Rivera, 565 F.3d at 15).

Background

Accepting the factual allegations set forth in the amended

complaint as true, the relevant facts are as follows.2

On August 23, 2010, the plaintiffs entered into a loan

modification with Wells Fargo. The loan modification agreement

included the following language: “If on October 01, 2035, (the

‘Maturity Date’) Borrower still owes amounts under the Note and

Security Instrument, as amended by this Agreement, Borrower will

pay those amounts in full on the Maturity Date.” Amend. Compl.

(doc. no. 7) ¶ 16; doc. no. 1-1, at 10. The modification

agreement did not estimate or calculate what any such payment

might be. Prior to entering into the modification, Wells Fargo

confirmed to the plaintiffs by e-mail that there would be no

2 The following narrative references a 2010 loan modification agreement and letters sent by Wells Fargo to the plaintiffs in February and May of 2016. Though these documents are attached to the plaintiffs’ state-court complaint as exhibits see doc. no. 1-1, at 9–19, the plaintiffs have not reattached them to their amended complaint. As these documents remain in the record, the plaintiffs specifically reference these documents in their amended complaint, and the parties do not appear to dispute their authenticity, they may be properly considered without converting this motion to one for summary judgment. See GE Mobile Water, Inc.,

.

3 balloon payment under the modification. Relying on this

representation, the plaintiffs entered into the modification

agreement.

On February 16, 2016, the plaintiffs received a letter from

Wells Fargo with the subject line: “Important clarification

about your mortgage account . . . .” Doc. no. 1-1, at 16. In

this letter, Wells Fargo indicated for the first time that there

would be a balloon payment in the amount of $109,439.97 due and

owing under the loan modification on the maturity date. The

letter attributed the omission of this balloon payment from the

modification agreement to a “clerical error.” Doc. no. 1-1, at

16. On May 2, 2016, the plaintiffs received a second letter

from Wells Fargo, which indicated that the balloon payment was

being added under the language in the modification agreement

quoted above.

Both letters made reference to an April 30, 2010 telephone

conversation between Gregory McNutt and a Wells Fargo

representative. The letters suggest that this representative

indicated during this conversation that there would be an

interest-accruing balloon payment due and payable as of the

maturity date. This telephone conversation never occurred.

The plaintiffs have made every payment under the

modification agreement in full and on time. They bring this

4 action alleging violations of state and federal law.

Discussion

The plaintiffs’ amended complaint is comprised of seven

counts. Count I is captioned “Equitable Considerations.” Count

II alleges fraud in the inducement. Count III alleges breach of

the covenant of good faith and fair dealing. Counts IV and V

respectively allege state-law negligent misrepresentation and

negligence (“state tort claims”). Count VI alleges violations

of the New Hampshire Consumer Protection Act (“CPA”),

-A. Finally, Count VII alleges violations of

the Real Estate Settlement Procedure Act (“RESPA”),

(k).

Wells Fargo moves to dismiss the amended complaint in its

entirety. The plaintiffs concede that Wells Fargo is exempt

from the CPA and seek to voluntarily dismiss Count VI. This

request is granted and Count VI is dismissed with prejudice.3

3 As the conditions of Rule 41(a)(1) are not met here, voluntary dismissal can only be entered by court order. See Fed. R. Civ. P. 41(a)(2). Under such circumstances, a trial court has discretion to determine whether dismissal should occur with or without prejudice. See id.; see also Doe v. Urohealth Sys., Inc.,

, 160–61 (1st Cir. 2000). Here, the plaintiffs concede that Count VI is not viable on its merits. Thus, dismissal with prejudice is appropriate.

5 The plaintiffs otherwise object to Wells Fargo’s motion.4

I. Equitable Considerations

The court turns first to the plaintiffs’ claim for

“equitable considerations.” In their amended complaint, the

plaintiffs generally allege that Wells Fargo acted inequitably,

stating that Wells Fargo’s actions are “unconscionable” and that

the plaintiffs “should be allowed to pay their mortgage pursuant

to the document they signed.” Amend. Compl. ¶¶ 20, 26 (doc. no.

7). In their objection to the motion to dismiss, the plaintiffs

contend that this count should survive because it is “included

as a plea . . . for equitable relief even if other causes of

action plead[ed] by the Plaintiffs fail.” Doc. no. 9, at 2.

Neither of these documents identifies a specific claim in equity

that the plaintiffs wish to pursue against Wells Fargo. Indeed,

the plaintiffs have failed to identify any equity theory under

which they might be entitled to relief. The court declines to

construe the plaintiffs’ unspecified requests for “equitable

considerations” as a specific claim in equity.

4 The plaintiffs’ objection makes no mention of their negligence claim. It is thus unclear whether they object to the dismissal of this claim. As this claim is plainly barred by the economic- loss doctrine, however, the court will briefly address it on the merits below.

6 Wells Fargo’s motion to dismiss is accordingly granted as

to Count I.

II. Fraud in the Inducement

The court next considers the plaintiffs’ claim for fraud in

the inducement. Wells Fargo contends that the plaintiffs have

failed to plead this claim with particularly, as required by

Rule 9(b). The plaintiffs argue that they have adequately

pleaded fraud.

“New Hampshire law recognizes that the procuring of a

contract or conveyance by means of fraud . . . is an actionable

tort . . . .” Van Der Stok v. Van Voorhees,

(2005) (internal quotation marks omitted) (citation omitted).

“The party seeking to prove fraud must establish that the other

party made a representation with knowledge of its falsity or

with conscious indifference to its truth with the intention to

cause another to rely upon it.”

(internal quotation marks

omitted) (citation omitted). “In addition, the party seeking to

prove fraud must demonstrate justifiable reliance.”

(internal quotation marks omitted) (citation omitted).

Under Rule 9(b), a party alleging fraud “must state with

particularity the circumstances constituting fraud . . . .”

“Rule 9(b) requires not only specifying the false statements and

by whom they were made but also identifying the basis for

7 inferring scienter.” N. Am. Catholic Educ. Programming Found.,

Inc. v. Cardinale,

(1st Cir. 2009); see also

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

(D.N.H. 2012) (citation omitted) (“[A] complaint rooted

in fraud must specify the who, what, where, and when of the

allegedly false or fraudulent representations.”). Under

established First Circuit precedent, it is inadequate to

generally aver “the defendant’s ‘knowledge’ of material falsity,

unless the complaint also sets forth specific facts that make it

reasonable to believe that defendant knew that a statement was

materially false or misleading.”

This heightened pleading

standard applies to state-law fraud claims asserted in federal

court.

(citation omitted).

Here, the plaintiffs have failed to allege fraud in the

inducement with sufficient particularity. Though they generally

allege that they received an e-mail from Wells Fargo indicating

that there would be no balloon payment under the modification,

they fail to identify exactly was stated in this e-mail and by

whom the statement was made. Moreover, they fail to identify

the basis for inferring scienter on the part of Wells Fargo.

The plaintiffs contend that scienter can be inferred by Wells

Fargo’s greater access to information and Wells Fargo’s

reference in the May 2, 2016 letter to a conversation with

8 George McNutt that the plaintiffs contend never occurred. These

facts do not support a plausible inference that Wells Fargo was

either aware that its unspecified statement in the reference e-

mail was false or consciously indifferent to the truth of this

statement. The plaintiffs’ remaining allegations of scienter

are the sort of general averments of knowledge of falsity that

the First Circuit has held to be inadequate.

Thus, the plaintiffs’ fraud in the inducement claim fails

to meet the heightened pleading standard under Rule 9(b). Wells

Fargo’s motion to dismiss is accordingly granted as to Count II.

III. Good Faith and Fair Dealing

Wells Fargo argues that the plaintiffs’ good faith and fair

dealing claim must be dismissed because the loan modification

expressly provides for a balloon payment. The plaintiffs

object, arguing that they have adequately pleaded such a claim

in their amended complaint.

“In every agreement, there is an implied covenant that the

parties will act in good faith and fairly with each other.”

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

,

(2010). The NHSC applies this covenant in

three distinct contexts: (1) contract formation; (2) termination

of at-will employment agreements; and (3) limitations of

9 discretion in contractual performance. J & M Lumber & Const.

Co. v. Smyjunas,

(2011).

The plaintiffs appear to allege two separate breaches of

good faith and fair dealing by Wells Fargo: one in the formation

of the modification agreement when Wells Fargo misrepresented

that there would be no balloon payment under that agreement, and

a second in the performance of the modification agreement when

Wells Fargo informed the plaintiffs for the first time that a

balloon payment in the amount of $109,439.97 would come due as

of the maturity date.

A. Contract Formation

In the context of contract formation, the covenant of good

faith and fair dealing is “tantamount to the traditional duties

of care to refrain from misrepresentation and to correct

subsequently discovered error, insofar as any representation is

intended to induce, and is material to, another party’s decision

to enter into a contract in justifiable reliance upon it.”

Centronics Corp. v. Genicom Corp.,

(1989).

Here, the plaintiffs allege that Wells Fargo confirmed by e-mail

that there would be no balloon payment under the loan

modification, and that the plaintiffs relied upon this

representation in entering into the modification agreement.

When assumed true, these allegations set forth a plausible claim

10 for breach of the covenant of good faith and fair dealing by

Wells Fargo in the formation of the modification agreement.

B. Discretion in Contract Performance

When it comes to discretion in contractual performance,

good faith and fair dealing claims are “comparatively narrow.”

Birch,

. The function of this third category of

claims “is to prohibit behavior inconsistent with the parties’

agreed-upon common purpose and justified expectations as well as

with common standards of decency, fairness and reasonableness.”

(internal quotations omitted) (citation omitted). Whether a

party has sufficiently alleged a breach under this category

turns on three 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,

; see also

Ahrendt v. Granite Bank,

(1999).

Wells Fargo argues that the loan modification agreement did

not grant it discretion with regards to the balloon payment. In

support of this argument, Wells Fargo points to the language in

the modification agreement stating that the plaintiffs “will pay

those amounts [owed as of the maturity date] in full on the

11 Maturity Date.” See doc. no. 1-1, at 11. This language, with

the use of the imperative “will,” does not confer discretion on

Wells Fargo to determine whether or not to require a balloon

payment in the course of performing the contract. The

modification agreement is notably silent, however, on the amount

of such a balloon payment, how that amount will be calculated,

and when and how the plaintiffs will be informed of that amount.

In the court’s view, this silence creates an ambiguity as to

whether the modification agreement bestowed discretion on Wells

Fargo with respect to these matters. As the parties have not

briefed this issue, and no discovery has taken place, the court

finds that this is a question more appropriately addressed on

summary judgment. The court will accordingly assume for the

purposes of this order that Wells Fargo was conferred discretion

under the modification agreement with respect to these aspects

of the balloon payment.

The court next considers whether Wells Fargo unreasonably

exercised its discretion. The plaintiffs allege that Wells

Fargo first informed the plaintiffs of a balloon payment in the

amount of $109,439.97 five-and-a-half years after the parties

entered into the modification and, in doing so, made reference

to a telephone call between George McNutt and a Wells Fargo

representative that never occurred. These facts, when assumed

12 true, support a plausible conclusion that Wells Fargo acted

unreasonably, and that this caused the damage complained of by

the plaintiffs. Thus, the court concludes that the plaintiffs

have stated a plausible claim under the third category of good

faith and fair dealing.

In sum, the court concludes that the plaintiffs have stated

plausible claims for breach of the covenant of good faith and

fair dealing both with regard to the formation of the

modification agreement and with regard to Wells Fargo’s

discretion in the performance of that agreement. Wells Fargo’s

motion to dismiss is accordingly denied as to Count III.

IV. State-Tort Claims

With regard to the plaintiffs’ state-court claims, Wells

Fargo argues that the plaintiffs’ claims for negligent

misrepresentation and negligence are both barred by the

economic-loss doctrine. Wells Fargo also argues that the

negligence claim fails because Wells Fargo did not owe the

plaintiffs a duty of care. The plaintiffs contend that their

negligent misrepresentation claim falls within a recognized

exception to the economic-loss doctrine. They further no

argument whatsoever with respect to their negligence claim.

Under the economic-loss doctrine, a borrower generally

cannot pursue tort recovery for purely economic damages arising

13 in the context of a contractual relationship with a lender. See

Schaefer v. Indymac Mortg. Servs.,

(1st Cir.

2013) (citing Plourde Sand & Gravel Co. v. JGI E., Inc.,

(2007)). There are numerous decisions from this

district applying this doctrine to negligence and/or negligent

misrepresentation claims brought by mortgagors against loan

services/lenders related to a mortgage.5 Still, there are

certain limited exceptions to the economic-loss doctrine

recognized under New Hampshire law. See, e.g., Moore, 848 F.

Supp. at 133 (D.N.H. 2012) (citing Wyle v. Lees,

,

409–10 (2011)); Plourde, 154 N.H. at 795–96.

The plaintiffs do not plausibly allege in their amended

complaint that one or more of these exceptions applies to their

negligence claim. Moreover, they fail to address their

negligence claim at all in their objection to the motion to

dismiss. As such, the court concludes that this claim is barred

by the economic-loss doctrine.

5 See, for example, Mader v. Wells Fargo Bank, N.A., No. 16-cv- 309-LM,

, at *3 (D.N.H. Jan. 17, 2017); Gasparik v. Federal National Mortgage Association, No. 16-cv-147-AJ,

, at *4 (D.N.H. Dec. 1, 2016); Riggieri v. Caliber Home Loans, Inc., No. 16-cv-20-LM,

, at *4-5 (D.N.H. Aug. 3, 2016); Bowser v. MTGLQ Investors, LP, No. 15-cv- 154-LM,

, at *2, 5 (D.N.H. Aug. 11, 2015).

14 The plaintiffs do invoke a recognized exception to the

economic-loss doctrine with respect to their negligent

misrepresentation claim: the aptly named “negligent

misrepresentation” exception. In order to recover under this

exception, the plaintiffs must prove: (1) that Wells Fargo was a

“supplier of information”; (2) that Wells Fargo “supplie[d]

false information for the guidance of others in their business

transactions”; (3) that in supplying this false information,

Wells Fargo “fail[ed] to exercise reasonable care or

competence”; (4) that the plaintiffs justifiably relied on the

false information; and (5) that this justifiable reliance

resulted in pecuniary harm to the plaintiffs. See Plourde, at

799 (quoting Restatement (Second) of Torts § 552(1)); see also

Schaefer, 731 F.3d at 108–109. This exception “is narrower than

the traditional tort claim” for negligent misrepresentation.

Plourde, 153 N.H. at 799.

The plaintiffs allege that prior to entering into the

modification agreement, Wells Fargo confirmed by e-mail that

there would be no balloon payment under the loan modification.

The plaintiffs allege that they entered into the modification

agreement relying on this representation. The plaintiffs

further allege that Wells Fargo informed them for the first time

five-and-a-half years later that a balloon of $109,439.97 would

15 be due and owing as of the maturity date. When assumed true,

these allegations arguably satisfy the second, third, fourth,

and fifth elements of the negligent misrepresentation exception.

It is less clear whether Wells Fargo is a “supplier of

information” as contemplated by this exception. The NHSC has

never explicitly determined what constitutes a “supplier of

information,” and courts from other jurisdictions are split on

whether this exception applies solely to “professional suppliers

of information” (such as accountants, appraisers, and investment

brokers) or more broadly to “parties who profit by supplying

information.” Schaefer,

(internal quotations

and citations omitted) (discussing this split in authority).6

For its part, the First Circuit has expressed skepticism as to

whether this exception extends to representations made by

mortgage lenders or servicers. See

at 108–09. And at least

two opinions from this district have explicitly held that loan

servicers are not “suppliers of information” such that this

exception applies. Mader,

, at *3; Riggieri,

, at *5.

6 Though the New Hampshire Supreme Court has applied the negligent misrepresentation exception to defendants who were not strictly professional suppliers of information, it has only done so in limited circumstances and never in the present context. See Schaefer,

(citing Wyle, 162 N.H. at 408–12).

16 In the absence of any NHSC authority to the contrary, these

federal decisions have significant persuasive value which the

court is inclined to follow. Nevertheless, the court declines

to rule now, as a matter of law, that Wells Fargo is not a

“supplier of information.” Instead, the court will allow the

parties to brief this issue at the summary judgment stage.

Wells Fargo’s motion is accordingly denied as to the plaintiffs’

negligent misrepresentation claim without prejudice to Wells

Fargo re-raising the economic-loss doctrine as a defense in a

motion for summary judgment.

In sum, Wells Fargo’s motion to dismiss is denied without

prejudice as to Count IV and granted as to Count V.

V. RESPA

Finally, the court considers the plaintiffs’ claim under

RESPA,

(k). Wells Fargo contends that this

claim fails because the plaintiffs have not adequately alleged

that they made any requests to correct errors to their account.

The plaintiffs object, arguing that they have pleaded “that they

e-mailed [Wells Fargo] to confirm there was no balloon payment”

and that Wells Fargo “failed to remedy this error in response to

this request . . . .” Doc. no. 10, at 6. Wells Fargo has

replied to this specific objection, contending that even

assuming this e-mail was sent, there are no allegations that

17 this e-mail contained a “notice of error” as required by RESPA.

Doc. no. 14.

Under RESPA, the servicer of a mortgage “shall not fail to

take timely action to respond to a borrower’s requests to

correct errors relating to . . . avoiding foreclosure . . . .”

(k)(1)(C); see also

(a) (“A

servicer shall comply with the requirements of this section for

any written notice from the borrower that asserts an

error . . . .”) (emphasis added). Here, the plaintiffs allege

that Wells Fargo confirmed to them by e-mail that there would be

no balloon payment under the modification agreement. The

plaintiffs have not alleged that this was in response to any

request to correct an error made by the plaintiffs. Nor is

there any independent allegation in the complaint that the

plaintiffs ever made such a request. Thus, the plaintiffs have

not stated a claim under § 2605(k)(1)(C).

Accordingly, Wells Fargo’s motion to dismiss is granted as

to Count VII.

Conclusion

Wells Fargo’s motion to dismiss (doc. no. 9) is granted as

to Counts I, II, V, and VII. It is denied as to Counts III and

18 IV. Count VI is voluntarily dismissed with prejudice.

SO ORDERED.

__________________________ Andrea K. Johnstone United States Magistrate Judge

April 5, 2017

cc: Keith A. Mathews, Esq. Christopher J. Valente, Esq.

19