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Wilkins v. United States

United States District Court, E.D. Virginia, Norfolk Division

May 9, 2016




This matter comes before the Court on Defendants' Wells Fargo Bank, N.A. ("Wells Fargo") and Samuel I. White, P.C. ("White, " and collectively "Defendants")[1] Motion to Dismiss Plaintiffs' Complaint. ECF No. 3. Plaintiffs, "Jeffrey A. Wilkins a/k/a Jeffery A. Wilkins and Karen Y. Wilkins" (collectively, "Plaintiffs" or "the Wilkinses") initiated the present action against Defendants, alleging breach of contract and breach of an implied covenant of good faith and fair dealing claims related to foreclosure of their home. Plaintiffs seek rescission of the foreclosure and an award of compensatory damages. Compl., ECF No. l. Having been fully briefed, this matter is ripe for review.


The present claims arise from a mortgage loan, completed on March 8, 2006 between American Home Mortgage and the Wilkinses, for purchase of a home in Chesapeake, Virginia. Compl. ¶ 8. The loan was evidenced by a promissory note and secured by a Deed of Trust. Id. The note was later assigned to Wells Fargo, and Wells Fargo appointed White as trustee of the Wilkinses' Deed of Trust. Id. ¶¶ 10, 12. The Deed of Trust authorizes Wells Fargo to invoke the power of sale (foreclosure), after complying with certain requirements, if the Wilkinses breach the agreement. Id. ¶ 16; Id., Ex. A, Deed of Trust H 22, ECF No. 1- I [hereinafter "Deed of Trust"]. The Deed of Trust also states that such sale must comply with "applicable law"-that is, "all controlling applicable federal, state and local statutes, regulations, ordinances and administrative rules and orders (that have the effect of law) as well as all applicable final, non-appealable judicial opinions." Id. ¶ 18; Deed of Trust ¶ (J), 22.

At some point, the Wilkinses fell behind on their loan payments. Id. ¶ 11. In 2014, the Wilkinses applied to Wells Fargo for a loan modification. Id. ¶ 20. The Wilkinses allege that they did not receive any written denial of their loan modification application. Id. ¶ 26. Instead, Wells Fargo instructed White to foreclose on the Wilkinses' home without responding to the loan modification application. Id. ¶¶ 14, 21. White advertised the foreclosure sale and, on November 4, 2014, White conducted the foreclosure sale. Id. ¶¶ 25, 27. At the foreclosure sale, Wells Fargo was the highest bidder. Id. ¶ 27. Wells Fargo's purchase was backed by, and ultimately assigned to, the United States through the Secretary of Veterans Affairs ("the VA"). Id. ¶ 30. On August 27, 2015, the VA then filed an unlawful detainer action against the Wilkinses in the General District Court of the City of Chesapeake, Virginia. Id. ¶ 40. On October 30, 2015, the General District Court awarded possession of the home to the VA. Id. ¶ 41. The Wilkinses appealed such decision to the Circuit Court of the City of Chesapeake, and such appeal remains pending. Id.

Based on the foregoing, the Wilkinses filed their Complaint on December 31, 2015. ECF No. 1. In their Complaint, the Wilkinses assert a breach of contract claim, arguing that Defendants' foreclosure action violated "applicable law"-namely, a Consent Order, entered in case AA-EC-11-19, by the United States Department of the Treasury Comptroller of the Currency against Wells Fargo-because Defendants foreclosed on the Wilkinses' residence without responding in writing to the Wilkinses' loan modification application. Id. ¶ 28; Id., Ex. B, Consent Order, ECF No. 1-2 [hereinafter "Consent Order"]. The Wilkinses also assert that the foreclosure breached the covenant of good faith and fair dealing contained in the note and Deed of Trust. Id. ¶ 49. As a result of Defendants' actions, the Wilkinses allege, they sustained damages. Id. ¶¶ 38, 43, 50. The Wilkinses seek rescission of the foreclosure and return of the title to the home, compensatory damages, as well as pre- and post-judgment interest. On February 5, 2016, Defendants filed their Motion to Dismiss Plaintiffs' Complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6). ECF No. 3. On February 26, 2016, Plaintiffs filed their Opposition to Defendants' Motion to Dismiss. ECF No. 11. Finally, on March 3, 2016, Defendants filed their Rebuttal Memorandum in Support of their Motion to Dismiss. ECF No. 12.


A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). A motion to dismiss may be granted when a complaint fails "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). A complaint fails to state a claim if it does not allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Though a complaint need not be detailed, "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555; see Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

A motion to dismiss tests the sufficiency of a complaint without resolving factual disputes, and a district court "'must accept as true all of the factual allegations contained in the complaint' and 'draw all reasonable inferences in favor of the plaintiff.'" Kensington Volunteer Fire Dep't v. Montgomery Cty., 684 F.3d 462, 467 (4th Cir. 2012) (quoting E.I, du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 440 (4th Cir. 2011)). Although the truth of the facts alleged is presumed, district courts are not bound by the "legal conclusions drawn from the facts" and "need not accept as true unwarranted inferences, unreasonable conclusions, or arguments." E. Shore Mkts., Inc. v. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000); see Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555) .


Defendants assert that Plaintiffs have failed to plead a claim for breach of contract or a claim for breach of an implied covenant of good faith and fair dealing under Virginia law.[2] First, Defendants assert that the Consent Order is not "applicable law." Thus, Defendants argue, a purported violation of the Consent Order is not a breach of the Deed of Trust. Second, Defendants assert that, even if the Consent Order is "applicable law, " Plaintiffs have failed to plead a breach of contract related to the Consent Order against Defendants. Third, Defendants assert that Plaintiffs have failed to plead a claim for breach of an implied covenant of good faith and fair dealing against Defendants. Finally, Defendants argue that Plaintiffs' request for compensatory damages should be stricken.[3]The Court will address each argument in turn.

A. Consent Order

The Consent Order at issue in this matter is the result of an examination, conducted by the Office of the Comptroller of the Currency of the United States ("the OCC"), of the residential real estate mortgage foreclosure processes at Wells Fargo. Consent Order at 1. During its examination, the OCC identified certain deficiencies in Wells Fargo's residential mortgage servicing practices. Id. After being notified of such deficiencies, Wells Fargo executed a "Stipulation and Consent to the Issuance of a Consent Order, " on April 13, 2011, in which it agreed to undertake a variety of steps, detailed in the Consent Order, to remedy the deficiencies identified by the OCC. id. at 102. One such step was the requirement to submit a plan regarding loss mitigation or loan modification and foreclosure. Id. at 19. Such plan was required to include "procedures and controls to ensure that a final decision regarding a borrower's loan modification request ... is made and communicated to the borrower in writing . . . within a reasonable period of time before any foreclosure sale occurs." Id. at 21. As noted above, Plaintiffs contend that the Deed of Trust's "applicable law" provision incorporated, as a term of the parties' agreement, such requirements within the Consent Order. In response, Defendants argue that the Consent Order is not "applicable law" because it was entered after the Deed of Trust was executed.

Plaintiffs have not sufficiently pled that the Consent Order is "applicable law." "A deed of trust is construed as a contract under Virginia law, " and such contract "'is construed as written without adding terms that were not included by the parties.'" Mathews v. PHH Mortg. Corp., 283 Va. 723, 733 (2012) (quoting Uniwest Constr., Inc. v. Amtech Elevator Servs., 280 Va. 428, 440 (2010)); see Squire v. Va. Hous. Dev. Auth., 287 Va. 507, 515 (2014) . Thus, whether the Deed of Trust incorporates the Consent Order as "applicable law" is a matter of contract interpretation. "'Most courts construe narrowly the phrase' all applicable law' (or similar language) in a contract.'" Townsend v. Fed. Nat. Mortg. Ass'n, 923 F.Supp.2d 828, 841 (W.D. Va. 2013) (quoting Condel v. Bank of America, N.A., No. 3:12cv212, 2012 WL 2673167, at *8 (E.D. Va. 2012)); see Simon v. PNC Bank, Nat. Ass'n., No. 2:14cv523, 2015 WL 1802659, at *6 (E.D. Va. Apr. 16, 2015) (same) . "The term 'applicable law' refers to the then-existing body of law that applies directly to the contract in question, " and it does not "incorporate laws which [were] not already applicable (even if otherwise relevant) to the parties of their agreement" at the time they entered into the contract. Condel, 2012 WL 2673167, at *8; accord Townsend, 923 F.Supp.2d at 841; Rehbein v. CitiMortgage, Inc., 937 F.Supp.2d 753, 764 (E.D. Va. 2013). "General precepts of contract law direct that, absent clear language to the contrary, ...

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