United States District Court, E.D. Virginia, Norfolk Division
JEFFREY A. WILKINS a/k/a JEFFERY A. WILKINS and KAREN Y. WILKINS, Plaintiffs,
WELLS FARGO BANK, N.A., and SAMUEL I. WHITE, P.C., Defendants.
OPINION AND ORDER
S. DAVIS UNITED STATES DISTRICT JUDGE
matter is before the Court on a Motion to Dismiss filed by
Defendants Wells Fargo Bank, N.A. ("Wells Fargo")
and Samuel I. White, P.C. ("White, " and
collectively with Wells Fargo, "Defendants"). ECF
No. 25. Plaintiffs, Jeffrey A. Wilkins and Karen Y. Wilkins
(collectively, "Plaintiffs" or "the
Wilkinses") allege in their Amended Complaint that
Defendants breached a contract by improperly foreclosing on
Plaintiffs' home. Plaintiffs seek rescission of the
foreclosure sale and compensatory damages. Am. Compl., ECF
FACTUAL AND PROCEDURAL BACKGROUND
instant claim arises from a mortgage loan, completed on March
8, 2006 between American Home Mortgage and the Wilkinses, for
purchase of a home in Chesapeake, Virginia. Am. Compl. ¶
7. The loan was evidenced by a promissory note and secured by
a Deed of Trust. Id. A VA Guaranteed Loan and
Assumption Policy Rider ("VA Rider") was attached
to the Deed of Trust. Ex. A, VA Rider 1, ECF No. 1-1. The
note was later assigned to Wells Fargo. Am. Compl. ¶ 9.
Wells Fargo appointed White as substitute trustee of the Deed
of Trust, replacing original trustees Douglas Huston and Gary
Zell. Id. ¶ 13; Ex. A, Deed of Trust ¶ D,
ECF No. 1-1. The Deed of Trust authorized Wells Fargo to
invoke the power of sale provision (foreclosure) in the Deed
of Trust, after complying with certain requirements, if the
Wilkinses breached the loan repayment terms. Am. Compl.
¶ 13, Ex. A, Deed of Trust ¶ 22.
2014, after falling behind on payments, the Wilkinses applied
to Wells Fargo for a loan modification. Am. Compl. ¶ 18.
The Wilkinses allege that they never received a written
denial of their loan modification application. Id.
¶ 24. Instead, Wells Fargo proceeded with dual track
foreclosure by instructing White to foreclose on the
Wilkinses' home while the Wilkinses' loan
modification application was still pending. Id.
¶¶ 14, 22. White advertised the foreclosure sale
and, on November 4, 2014, White conducted the foreclosure
sale. Id. ¶¶ 23, 25. At the foreclosure
sale, Wells Fargo was the highest bidder. Id. ¶
25. Wells Fargo's purchase was backed by, and ultimately
assigned to, the United States through the Secretary of
Veterans Affairs ("the VA"). Id; ¶ 28.
Both the VA and Wells Fargo then initiated eviction
proceedings against the Wilkinses in the General District
Court of the City of Chesapeake, Virginia. Id.
Wilkinses filed a Complaint in this Court on December 31,
2015, alleging a breach of the Deed of Trust "Applicable
Law" Provision and a breach of the implied covenant of
good faith and fair dealing. ECF No. 1. On February 5, 2016,
Defendants filed a Motion to Dismiss Plaintiffs'
Complaint, pursuant to Federal Rule of Civil Procedure
12(b)(6). ECF No. 3. On May 9, 2016, this Court granted
Defendants' Motion to Dismiss without prejudice to
Plaintiffs' right to file a motion seeking leave to file
an amended complaint. ECF No. 17. Plaintiffs filed an Amended
Complaint on June 6, 2016, alleging a single breach of
contract claim based upon language within the VA Rider to the
Deed of Trust. ECF No. 32. On June 29, 2016, Defendants filed
a second Rule 12(b)(6) Motion to Dismiss, with a supporting
memorandum, which is now before the Court. ECF Nos. 25-26.
Plaintiff responded with a Memorandum in Opposition on July
13, 2016, ECF No. 27, and Defendants filed a Rebuttal Brief
and a Request for Hearing on July 18, 2016, ECF Nos. 28-29.
Having been fully briefed, this matter is ripe for review.
STANDARD OF REVIEW
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).
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) .
assert that Plaintiffs have failed to plead a claim for
breach of contract under Virginia law because: (1) Plaintiffs do
not have a legal cause of action; (2) alternatively, the
regulation in question was not in effect on the date that the
Deed of Trust was signed and therefore is inapplicable; (3)
Plaintiffs failed to sufficiently allege that Defendants
violated accepted industry standards; and (4) Plaintiffs
failed to state a claim that justifies rescission of the
foreclosure sale as the remedy. Additionally, Defendants
argue that Plaintiffs are not entitled to a jury trial. The
Court will address each argument in turn.
Cause of Action
argue that Plaintiffs fail to state a claim because
Plaintiffs lack standing. According to Defendants, Plaintiffs
have no private cause of action under Title 38 of the United
States Code, which governs veterans' benefits ("VA
Act").Plaintiffs maintain that, while they may
not directly assert a cause of action because no
private cause of action exists within the statute, they do
have a breach of contract claim because the Deed of Trust
incorporated the VA Act regulations as terms of the
contract between Plaintiffs and Defendants. See Ranson v.
Bank of Am., N.A., No. CIV.A. 3:12-5616, 2013 WL
1077093, at *4 (S.D. W.Va. Mar. 14, 2013) ("An action
based on a contract involves a much different legal theory
than one based solely on enforcement of a regulation apart
from a contractual duty."). Defendants argue that
Plaintiffs' claim for breach of contract based upon the
incorporation of the VA Act regulations into the contract is
merely Plaintiffs' "attempt to disguise their
claim" under the VA Act. Defs.' Mem. in Supp. 6, ECF
No. 26. The Court understands Defendants to argue that
parties may not incorporate duties imposed by statute into a
private contract when the statute does not provide a private
cause of action. Defendants' position is inconsistent
with Virginia contract law.
of Trust is a contract, Mathews v. PHH Mortg. Corp.,
283 Va. 723, 733, 724 S.E.2d 196, 200 (2012), and Virginia
law allows contracting parties to incorporate external
documents, that contain rights and responsibilities, as terms
of their contract, see High Knob Assocs. v. Douglas,
249 Va. 478, 488, 457 S.E.2d 349, 354 (1995) (holding that
incorporation of outside documents may be valid even without
specific words of incorporation). Under Virginia contract
law, parties may agree to a wide array of rights and
responsibilities as between the parties, and courts must
"enforce the contract ... as written, . . . unless the
contract is repugnant to some rule of law or public
policy." D.C. McClain, Inc. v. Arlington Cty.,
249 Va. 131, 135, 452 S.E.2d 659, 662 (1995); First Am.
Title Ins. Co. v. First All. Title, Inc., 718 F.Supp.2d
669, 674 (E.D. Va. 2010) ("The law regards the sanctity
of contracts and requires the parties to do what they have
agreed to do." (quoting Samuel H. Cottrell & Son v.
Smokeless Fuel Co., 148 F. 594, 597 (4th Cir. 1906))).
In construing contract terms, " [n]o word or clause in
the contract will be treated as meaningless if a reasonable
meaning can be given to it, and there is a presumption that
the parties have not used words needlessly." D.C.
McClain, 249 Va. at 135-36, 452 S.E.2d at 662.
principles of contract interpretation, Virginia has long
recognized that rights and responsibilities embodied in a
regulation may be incorporated and made terms of a deed of
trust by reference. For example, in Gloucester Realty
Corp. v. Guthrie, the parties referenced "Code,
sec. 5167" in a deed of trust. 182 Va. 869, 871, 30
S.E.2d 686, 687 (1944) . When default occurred, the land was
sold pursuant to the deed of trust. After a legal action was
brought challenging the sale, the Supreme Court of Virginia
held that "Code, sec. 5167, as it existed in 1926, was
expressly referred to, incorporated in and made a part of the
deed of trust. Its provisions thereby became a material
portion of the contract between the parties."
Id. The court recognized that parties may
incorporate statutes into contracts, explaining that the
parties agreed to a contract term "by adopting in the
deed the [code] ... as it stood in 1926." Id.
at 875, 30 S.E.2d at 689.
Virginia cases have continued to recognize that parties may
incorporate the rights and responsibilities stated in a
regulatory provision as terms in a deed of trust, even when
the regulation itself does not provide a private cause of
action. Squire v. Va. Hous. Dev. Auth., 287 Va. 507,
516-17, 758 S.E.2d 55, 60 (2014) (holding that "the deed
of trust incorporated certain regulations of the United
States Department of Housing and Urban Development
("HUD"), and mandated that foreclosure was not
permitted where it violated such HUD regulations"
despite the regulation itself not providing a private cause
of action); Mathews, 283 Va. at 736, 724 S.E.2d at
202 (holding that HUD regulations were incorporated into a
deed of trust "as conditions precedent to acceleration
and foreclosure, " thereby rejecting defendant's
argument that borrower could not sue to enforce a HUD
regulation because it conferred no private right of action);
see also Parrish v. Fed. Nat'l Mortgage
Ass'n, 292 Va. 44, 787 S.E.2d 116, 123 (2016)
(accepting for the purpose of determining jurisdiction
plaintiffs' allegation that their deed of trust
incorporated a regulation as a condition precedent to
foreclosure);cf. Lubitz v. Wells Fargo Bank,
N.A., 85 Va. Cir. 379, 379 (2012) (Virginia Beach)
(holding that the phrase "Applicable Law" did not
incorporate specific statutory regulations into a deed of
trust because the phrase was too general to create a cause of
action and because the statute sued upon was not enacted at
the time that the deed of trust was signed) . Thus, through
incorporation, a plaintiff may enforce a regulation's
rights and responsibilities against the other party to ...