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Jennings v. Roundpoint Mortgage Servicing Corp.

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

December 22, 2017

STERLING L. JENNINGS, et al., Plaintiffs,



         Sterling L. Jennings and Deirdre D. Jennings brought this action alleging several claims arising from defendant RoundPoint Mortgage Servicing Corporation's ("RoundPoint") initiation of foreclosure proceedings and the foreclosure sale of plaintiffs' home. RoundPoint filed a motion to dismiss plaintiffs' claims for breach of contract and for violations of Regulation X of the Real Estate Settlement Procedures Act, 12 C.F.R. Part 1024, asserting these portions of plaintiffs' complaint fail to state a claim for which relief may be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). ECF No. 6.

         An order of reference assigned this motion to the undersigned. ECF No. 13. Pursuant to the provisions of 28 U.S.C. § 636(b)(1)(B) and (C), Rule 72(b) of the Federal Rules of Civil Procedure, and Local Civil Rule 72, it is hereby recommended that RoundPoint's partial motion to dismiss be GRANTED in part and DENIED in part.


         Sterling L. Jennings and Deirdre D. Jennings ("plaintiffs") brought this action after their home was foreclosed upon. Compl., ECF No. 1-1 at 9. Plaintiffs seek rescission of the foreclosure sale, a declaratory judgment stating that the foreclosure sale is void and invalid, compensatory damages against RoundPoint in the amount of $50, 000.00, and a stay of any unlawful detainer proceedings until the claims in this complaint are resolved. Id.

         In June 2015, plaintiffs entered into a mortgage loan contract, consisting of a note and a deed of trust, by which RoundPoint financed plaintiffs' purchase of real property located at 408 Quaker Ridge Court, Suffolk, Virginia 23435. Compl. ¶¶ 1, 4-5; see also Note, ECF No. 7-1, Deed of Trust, ECF No. 7-2. Plaintiffs fell behind on their payments in September 2016, as a result of an increase in the monthly payment in early 2016, coupled with an injury that caused a reduction in plaintiffs' income. Compl. ¶¶ 6, 8. Plaintiffs "began sending in paperwork to participate in a loan modification review" in February 2017. Id. ¶ 10. On February 6, 2017, plaintiffs received a letter from RoundPoint requesting additional information, and the additional documentation was faxed to RoundPoint on March 2, 2017. Id. ¶¶ 11-12. On March 6, 2017, plaintiffs received another letter from RoundPoint requesting a subset of the information requested in the February letter, and the documentation was faxed again on April 3, 2017. Id. ¶¶ 13-14.

         In mid-April, plaintiffs received notice that a foreclosure sale would take place on May 2, 2017. Id. ¶ 15. On April 20, 2017, RoundPoint sent plaintiffs a letter acknowledging that they had a complete loan modification package on file. Id. ¶ 16. During a telephone conversation on May 1, 2017, RoundPoint explained "that the loan modification review was denied because it was 'too close' to the scheduled foreclosure sale." Id. ¶ 18. The substitute trustee, defendant Equity Trustees, LLC, foreclosed on the plaintiffs' property on May 2, 2017. Id. ¶¶ 3, 19.

         Plaintiffs filed a complaint against defendants RoundPoint and Equity Trustees, LLC, in the Circuit Court for the City of Suffolk on July 11, 2017. ECF No. 1 at 1. RoundPoint removed the case to this Court on August 11, 2017. Id. On August 18, 2017, Equity Trustees, LLC, filed an answer and RoundPoint filed a partial motion to dismiss. ECF Nos. 5, 6. Plaintiffs filed an opposition to the partial motion to dismiss on September 14, 2017, and RoundPoint filed a reply on September 19, 2017. ECF Nos. 10, 12.


         Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss complaints, or claims within complaints, upon which no relief can be granted. Fed.R.Civ.P. 12(b)(6); Sonnier v. Diamond Healthcare Corp., 114 F.Supp.3d 349, 354 (E.D. Va. 2015). In order to survive a motion to dismiss, the 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). This pleading standard requires that the complaint state a claim for relief that is "plausible on its face." Bell Art. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In essence, "[a] claim has facial plausibility 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, 556 U.S. 662, 678 (2009). Ascertaining whether a complaint states a plausible claim for relief is a "context-specific task" that requires the court to "draw on its judicial experience and common sense." Id. at 679.

         A motion to dismiss pursuant to Rule 12(b)(6) challenges "the sufficiency of a complaint; it does not resolve disputes over factual issues, the merits of a claim, or the applicability of a defense." SunTrust Mortg., Inc. v. Simmons First Nat'l Bank, 861 F.Supp.2d 733, 735 (E.D. Va. 2012) (citing Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992)). Therefore, "[i]n ruling on a 12(b)(6) motion, a 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, Inc. v. Montgomery Cty., Md., 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)). The factual allegations, however, "cannot be mere speculation, and must amount to more than 'a sheer possibility that a defendant has acted unlawfully.'" Brack v. Conflict Kinetics Corp., 221 F.Supp.3d 743, 747 (E.D. Va. 2016) (quoting Iqbal, 556 U.S. at 678). In addition, "legal conclusions, elements of a cause of action, and bare assertions devoid of further factual enhancement fail to constitute well-pled facts for Rule 12(b)(6) purposes." Nemet Chevrolet, Ltd. v., Inc., 591 F.3d 250, 255 (4th Cir. 2009) (citing Iqbal, 556 U.S. at 678).

         III. ANALYSIS

         In the partial motion to dismiss, RoundPoint seeks a dismissal of plaintiffs' claims for breach of contract, and plaintiffs' claims that RoundPoint violated Regulation X, 12 C.F.R. Part 1024, promulgated under the Real Estate Settlement Procedures Act ("RESPA"). ECF No. 7. RoundPoint argues that each of these claims fails as a matter of law. Id.

         A. Breach of Contract - Duty of Good Faith and Fair Dealing

         In plaintiffs' breach of contract claim, plaintiffs allege RoundPoint "breached their duty of good faith and fair dealing on the Promissory Note." Compl. at 7. Plaintiffs claim the duty of good faith and fair dealing is implicit in every contract, including the note and deed of trust. Id. ¶¶ 39-40. Plaintiffs assert RoundPoint failed to acknowledge that plaintiffs' "completed their loan modification application on March 3, 2017, " requested duplicate information from plaintiffs, and then waited seven weeks to declare that the application was complete. Id. ¶ 37. Plaintiffs allege this "failure to act in good faith gives rise to a cause of action for breach of contract." Id. ¶ 38. Plaintiffs further claim RoundPoint "breached the duty of good faith by dual tracking the loan for foreclosure and loss mitigation and by failing to acknowledge that documentation was received timely." Id. ¶ 42.

         Under Virginia law, to establish a breach of contract, plaintiffs must demonstrate: (1) a legally enforceable obligation of RoundPoint to plaintiffs; (2) RoundPoint's violation or breach of that obligation; and (3) injury or damage to plaintiffs caused by RoundPoint's breach of the obligation. Sunrise Continuing Care, LLC v. Wright,671 S.E.2d 132, 135 (Va. 2009) (citing Filak v. George,594 S.E.2d 610, 614 (Va. 2004)). Moreover, contracts governed by Virginia law contain an implied covenant of good faith and fair dealing. Va. Vermiculite, Ltd. v. W.R. Grace & Co.,156 F.3d 535, 541-42 (4th Cir. 1998). This implied duty exists regardless of whether the contracts fall under the Uniform Commercial Code. See SunTrust Mortg., Inc. v. United Guar. Residential Ins. Co. of N.C,806 F.Supp.2d 872, 893-95 (E.D. Va. 2011), vacated on other grounds,508 Fed.Appx. 243 (4th Cir. 2013). This duty prohibits the "exercise [of] contractual discretion in bad faith, " but "does not prevent a party from ...

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