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Wilkins v. Wells Fargo Bank, N.A.

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

November 15, 2016

WELLS FARGO BANK, N.A., and SAMUEL I. WHITE, P.C., Defendants.



         This 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 No. 32.


         The 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.

         In 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.[1] 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").[2] 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. ¶ 35.

         The 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.


         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 under Virginia law[3] 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.

         A. Cause of Action

         Defendants argue that Plaintiffs fail to state a claim because Plaintiffs lack standing.[4] According to Defendants, Plaintiffs have no private cause of action under Title 38 of the United States Code, which governs veterans' benefits ("VA Act").[5]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.

         A Deed 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.

         Applying 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.

         Recent 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);[6]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 ...

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