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Vance v. Wells Fargo Bank, N.A.

United States District Court, W.D. Virginia, Abingdon Division

February 20, 2018

JERRY VANCE, elal. Plaintiffs,
WELLS FARGO BANK, N.A., Defendant.


          Hon. Michael F. Urbanski Chief United States District Judge

         Plaintiffs Jerry and Fran Vance (collectively, the "Vances") filed their complaint (the "Complaint" or "Compl."), ECF No. 1 Ex. A, against Wells Fargo Bank, N.A. ("Wells Fargo") alleging that Wells Fargo (1) violated Real Estate Settlement Procedures Act ("RESPA") regulations 12 C.F.R. §§ 1024.39 and 1024.41, and (2) breached the implied covenant of good faith and fair dealing under Virginia law. This matter is before the court on Wells Fargo's Motion to Dismiss the Complaint with prejudice pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. ECF No. 3. For the reasons discussed below, the court will DENY Wells Fargo's motion to dismiss the Vances' claim for a violation of 12 C.F.R. § 1024.39. But, the court will DISMISS the Vances' claims for violations of 12 C.F.R. § 1024.41 and breach of the duty of good faith and fair dealing without prejudice.


         Wells Fargo moves to dismiss the Complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Rule 12(b)(6) permits a dismissal when a plaintiff fails "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain sufficient "facts to state a claim to relief that is plausible on its face." Bell Ad. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level." Id., at 555.

         A court must construe factual allegations in the nonmoving party's favor and will treat them as true, but is "not so bound with respect to [a complaint's] legal conclusions." Dist. 28, United Mine Workers of Am.. Inc. v. Wellmore Coal Corp., 609 F.2d 1083, 1085 (4th Cir. 1979). Indeed, a court will accept neither "legal conclusions drawn from the facts" nor "unwarranted inferences, unreasonable conclusions, or arguments." E. Shore Mkts.. Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000). Further, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Only after a claim is stated adequately may it then "be supported by showing any set of facts consistent with the allegations in the complaint." Twombly, 550 U.S. at 563.


         RESPA is "a consumer protection statute, which Congress passed in order to reform the real estate settlement process. The statute was intended to ensure that consumers received information about settlement costs, and to protect them from high setdement fees and the potentially abusive practices of providers." Augenstein v. Coldwell Banker Real Estate LLC, No. 2;lO-CV-l9l, 2011 WL 3837096, at *2 (S.D. Ohio Aug. 30, 2011) (citing 12 U.S.C. § 2601(a)).

         The Consumer Financial Protection Bureau ("Bureau") "is authorized to prescribe such rules and regulations, to make such interpretations, and to grant such reasonable exemptions for classes of transactions, as may be necessary to achieve the purposes" of RESPA. 12 U.S.C. §2617.


         RESPA Section 1024.39 requires a service to "establish or make good faith efforts to establish live contact with a delinquent borrower not later than the 36th day of the borrower's delinquency and, promptiy after establishing live contact, inform such borrower about the availability of loss mitigation options if appropriate." 12 C.F.R. § 1024.39(a). Nothing in Section 1024.39 explicitly confers a private right of action to a borrower. See generally id. But, as the Vances state, nothing "categorically removes or denies a private right of action." PL's Mem. Law Opp. Def.'s Mot. Dismiss ("MTD Opp."), ECF No. 12, at 2. So, Section 1024.39 is silent as to whether it conveys a private right of action.

         When courts must determine whether statutes or regulations convey private rights of action, a few general principles apply. "Like substantive federal law itself, private rights of action to enforce federal law must be created by Congress." Alexander v. Sandoval, 532 U.S. 275, 286 (2001). Further, "[l]anguage in a regulation may invoke a private right of action that Congress through statutory text created, but it may not create a right that Congress has not." Id., at 291. And, "[w]hen an agency interprets its own regulation, the Court, as a general rule, defers to it 'unless that interpretation is plainly erroneous or inconsistent with the regulation.'" Decker v. Nw. Envtl. Def. Ctr., 568 U.S. 597, 613 (2013) (quoting Chase Bank USA. N. A. v. McCoy, 562 U.S. 195, 208(2011)).

         In Schmidt v. Pennymac Loan Servs., LLC, the court decided this very issue for another section of Regulation X. 106 F.Supp.3d 859, 867 (E.D. Mich. 2015). In Schmidt, the plaintiff filed a claim against the defendant alleging a violation Regulation X's Section 1024.40 promulgated by the Bureau. The court turned to Section 1024.40's regulatory history to determine whether a private right of action existed. The court learned that in the proposal to promulgate Section 1024.40, "the CFPB relied upon legislation that arguably would have channeled a statutory cause of action through regulation" by citing subsection 6(k)(1)(E) of RESPA. IcL at 870. But, the court stated, "[i]n its final ruling, the CFPB backed away from this implication and, in fact, denied that the regulation provided or channeled any private right of action." LcL Important to the court's analysis was the fact that the Bureau "dropped its reliance on RESPA section 6(k)(1)(E)." Id. at 871. After reviewing the regulatory history and the statutory authority the Bureau relied on to promulgate the final rule, the court concluded that Section 1024.40 did not "effectuate a privately enforceable statutory right." Id.

         In this case, conducting the same type of analysis as the Schmidt court leads to the opposite conclusion for Section 1024.39. The Bureau initially "proposed to implement § 1024.39 pursuant to authority under sections 6(k)(1)(E), 60(3), and 19(a) of RESPA . . . ." Mortgage Servicing Rules Under the Real Estate Settlement Act (Regulation X), 78 Fed. Reg. 10696, 10790 (Consumer Fin. Prot. Bureau Feb. 14, 2013) (to be codified at 12 C.F.R pt. 1024). The Bureau made this proposal during 12 C.F.R. § 1024's notice and comment period with the knowledge that "[violations of section 6 of RESPA are subject to a private right of action." Id. During the notice and comment period, "[i]ndustry commenters, including . . . several large bank servicers[, ] were concerned that a private right of action would result in uncertainty for servicers and could delay loss mitigation efforts and the foreclosure process . ..." Id. The "commenters requested that the Bureau issue the early intervention [that is, Section 1024.39] . . . solely in reliance on RESPA section 19(a) authority." RL Nonetheless, after considering the industry comments, the Bureau adopted "§ 1024.39 pursuant to its authorities under sections 6®(3), 6(k)(1)(E), and 19(a) of RESPA." at 10790-91.

         Congress granted the Bureau explicit authority to create regulations under any RESPA section. 12 U.S.C. § 2617. RESPA Section 6(j)(3) grants the Bureau authority to "establish any requirements necessary to carry out this section." Id. § 26O5(j)(3). And, RESPA Section 6(k)(1)(E) provides that a "servicer of a federally related mortgage shall not. . . fail to comply with any other obligation found by the Bureau ... by regulation, to be appropriate to carry out the consumer protection purposes of this Act." Id. ยง 26O5(k)(1)(E). The Bureau thoroughly considered its options when deciding which RESPA sections to rely on when promulgating Section 1024.39. In the final version of Section 1024.39, the Bureau explicitly relied on RESPA Section 6 as the legal authority for promulgating the rule. The ...

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