McNees v. Ocwen Loan Servicing, LLC

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS

          WILLIAM J. MARTINEZ UNITED STATES DISTRICT JUDGE

         Plaintiff John L. McNees contends that his home was unlawfully taken from him through foreclosure. Proceeding pro se, he filed this lawsuit in May 2016. (ECF No. 1.) At that time, the only defendants were Ocwen Loan Servicing, LLC (“Ocwen”) and placeholder “Doe” defendants. There has since been motion practice, the appearance and withdrawal of an attorney for McNees, and the appearance of a new attorney on his behalf. Despite the already-lengthy proceedings, the Court granted McNees's motion, through his new attorney, to file a second amended complaint because the proposed complaint was McNees's “first professionally drafted complaint, and sets forth [his] allegations with much greater clarity than before.” (ECF No. 64.) As filed, the Second Amended Complaint drops the “Doe” defendants but adds Defendant Deutsche Bank National Trust Company (“Deutsche Bank”).

         Currently before the Court are separate motions from Ocwen and Deutsche Bank requesting partial dismissal of the Second Amended Complaint under Federal Rule of Civil Procedure 12(b)(6). (ECF Nos. 71 (Ocwen) & 74 (Deutsche Bank).) Deutsche Bank's motion incorporates all of Ocwen's by reference, and adds alternative arguments unique to Deutsche Bank. (See ECF No. 74 at 2.)

         For the reasons explained below, the Court grants the motions in part and denies them in part. The upshot is that McNees may proceed on his claims for breach of contract, breach of the implied covenant of good faith and fair dealing, third-party breach of contract, violation of the Colorado Consumer Protection Act, and civil conspiracy. He may also pursue a constructive trust as a remedy, but not as a freestanding cause of action.

         I. LEGAL STANDARD

         Under Rule 12(b)(6), a party may move to dismiss a claim in a complaint for “failure to state a claim upon which relief can be granted.” The 12(b)(6) standard requires the Court to “assume the truth of the plaintiff's well-pleaded factual allegations and view them in the light most favorable to the plaintiff.” Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007). In ruling on such a motion, the dispositive inquiry is “whether the complaint contains ‘enough facts to state a claim to relief that is plausible on its face.'” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Granting a motion to dismiss “is a harsh remedy which must be cautiously studied, not only to effectuate the spirit of the liberal rules of pleading but also to protect the interests of justice.” Dias v. City & Cnty. of Denver, 567 F.3d 1169, 1178 (10th Cir. 2009) (internal quotation marks omitted). “Thus, ‘a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.'” Id. (quoting Twombly, 550 U.S. at 556).

         II. BACKGROUND

         The Court draws the following facts from the Second Amended Complaint (ECF No. 65), which the Court will refer to simply as the “Complaint” for the remainder of this order. Per the legal standard for Rule 12(b)(6) motions, the Court recites McNees's allegations as if true, without expressing any opinion about whether McNees will ultimately be able to prove them true.

         In 1980, McNees purchased a single-family residence in Broomfield, Colorado. (Id. ¶¶ 4-5.)^[1] In 2003, McNees refinanced the property through a promissory note that “was subsequently purchased and re-packaged in a mortgage backed security managed by Deutsche Bank.” (Id. ¶¶ 6-8.) “Deutsche Bank retained various loan servicers to service the mortgage . . . .” (Id. ¶ 9.) In 2011, that servicer was American Home Mortgage Servicing, Inc. (“American Home”). (Id. ¶¶ 9, 18.)

         On February 7, 2011, American Home offered to McNees a permanent modification of the promissory note that had existed since 2003. (Id. ¶ 18.) The modification fixed the interest rate (previously it was adjustable), established a new monthly payment, and “further provided that $3, 926.97 in accrued late charges, modification fees, and other expenses would be deferred until the maturity date, ” which was November 1, 2033. (Id. ¶¶ 21-24, 81.)

         McNees accepted the modification offer in April 2011. (Id. ¶ 19.) From that month until December 2015, McNees made all payments as required under the modified loan. (Id. ¶¶ 25-26.) At some point during this timeframe, Ocwen took over from American Home as Deutsche Bank's servicer, although the Complaint is not consistent on precisely when this occurred. One paragraph of the Complaint alleges that, “on or around February 2014, Ocwen became the servicer” (id. ¶ 10), while another paragraph alleges that, “[a]t some point in early 2013, Ocwen began servicing the Note” (id. ¶ 30).

         Perhaps “February 2014” was a typographical error for “February 2013, ” because the Complaint soon goes on to allege wrongdoing on Ocwen's part “[a]t various points in 2013, 2014, and 2015.” (Id. ¶ 33.) “[A]pparently without rhyme or reason, ” Ocwen would accept McNees's mortgage payment, reject it, return it, apply it to “different, unspecified suspense accounts, ” apply “portions of [it] to principal and interest, ”^[2] or “otherwise fail[] to account for [it].” (Id. ¶¶ 36, 40, 46.) Ocwen also began to charge “inspection fees, late fees, and other unspecified charges.” (Id. ¶ 37.) As McNees inquired about what Ocwen was doing with his payments and why it was assessing fees, he received contradictory correspondence. (Id. ¶¶ 35, 38-39, 41, 52.) He also received correspondence claiming, for example, that a particular payment had been rejected, even though McNees possesses the canceled check images to show that Ocwen negotiated the check. (Id. ¶¶ 53-57.) In another example, Ocwen sent McNees an itemized statement of what McNees then owed, but the line items add up to $4, 110.06, while the “TOTAL DUE” bottom line claims $7, 419.25. (Id. ¶¶ 65-70.)

         In mid-2014, Ocwen retained a foreclosure law firm to initiate foreclosure proceedings against McNees's home. (Id. ¶ 42.)

Through the course of the foreclosure proceedings, by and through its foreclosure counsel, Ocwen and Deutsche Bank misrepresented the balance due on the note and deeds of trust and any amounts due to cure the alleged arrearage due on the Note, effectively preventing [McNees] from redeeming the Property prior to the foreclosure sale.

(Id. ¶ 49.) Someone-the Complaint does not specify who-“repeatedly presented” Ocwen, “by and through its foreclosure counsel and others, ” “with [i]ncontrovertible proof that their own account records were false, ” but “Ocwen and its foreclosure counsel refused to correct their error[s].” (Id. ¶ 62.)

Ocwen, in conjunction and coordination with Deutsche Bank, and Deutsche Bank's foreclosure counsel[, ] continued to pursue foreclosure proceedings against [McNees's home] . . . by making a series of false, misleading, and knowingly inaccurate statements to the Broomfield County District Court and the Broomfield County Public Trustee, even though they possessed proof that their figures [and] calculations were false.

(Id. ¶ 87.) In December 2015, Ocwen succeeded in foreclosing on McNees's home. (Id. ¶ 97.)

         Ocwen's conduct was not unique to McNees's account. “Ocwen systemically misprocessed, mis-applied, lost, improperly rejected, and[/]or mishandled [McNees's] monthly mortgage payments and the monthly mortgage payments of thousands of borrowers throughout Colorado and the United States whose loans they serviced.” (Id. ¶ 50.) This has led to a lawsuit filed in 2013 by the Consumer Financial Protection Bureau and several state attorneys general (including Colorado's) in the United States District Court for the District of the District of Columbia, and another lawsuit filed in 2017 by the Consumer Financial Protection Bureau in United States District Court for the Southern District of Florida. (Id. at 19-20.)

         McNees brings eleven claims for relief based on the foregoing allegations, namely:

• negligence in servicing his loan (Claim 1);

• negligent hiring and supervision, directed at Deutsche Bank for hiring Ocwen as its servicer, and at Ocwen for hiring third parties that allegedly contributed to the mishandling of the loan (Claim 2);

• breach of contract (Claim 3);

• breach of the implied covenant of good faith and fair dealing (Claim 4);

• negligent misrepresentation concerning the information Defendants gave to McNees about the amounts needed to cure his default (Claim 5);

• fraud, apparently in the statements made to McNees and in the statements made to third parties, such as Broomfield County entities (Claim 6);

• violation of the Colorado Consumer Protection Act (“CCPA”), Colo. Rev. Stat. §§ 6-1-101 et seq. (Claim 7);

• civil conspiracy between Defendants to accomplish all of the alleged wrongdoing (Claim 8);

• third-party beneficiary breach of contract, asserting that whatever contract may have existed between Deutsche Bank and Ocwen was meant, at least in part, to benefit McNees, and was breached (Claim 9);

• breach of fiduciary duty (Claim 10); and

• a request that McNees's home be placed in a constructive trust (Claim 11).

         By way of relief, McNees seeks: damages, including treble damages and attorneys' fees under the CCPA; to recover title to his home (i.e., to void Deutsche Bank's title and rescind the foreclosure sale); and an order of specific performance that Deutsche Bank comply with the terms of the promissory note as modified in 2011. (ECF No. 65 ¶¶ 167-70.)

         III. ANALYSIS

         Defendants move to dismiss all of McNees's claims save for Claim 3 (breach of contract). Their primary argument is that the bulk of McNees's claims are barred by the economic loss doctrine. (See ECF No. 71 at 4-6.) But this argument overlaps somewhat with causes of action Defendants challenge on other grounds. The Court will first discuss those other causes of action, and then address the effect of the economic loss doctrine.

         A. Breach of the Implied Covenant of Good Faith and Fair Dealing (Claim 4)

         In Colorado, “every contract contains an implied duty of good faith and fair dealing.” Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo. 1995).

The duty of good faith and fair dealing applies when one party has discretionary authority to determine certain terms of the contract, such as quantity, price, or time. The covenant may be relied upon only when the manner of performance under a specific contract term allows for discretion on the part of either party. However, it will not contradict terms or conditions for which a party has bargained.

Id. (citations omitted).

         McNees pleads a good faith/fair dealing cause of action by stating, without elaboration, that “[v]arious portions of the Deed of Trust, Note, and 2011 Modification permitted the Deutsche Bank and Ocwen to act with discretion concerning plaintiff's loan obligations” (ECF No. 65 ¶ 115) and then going on to allege various breaches, e.g., “[e]ither accepting or rejecting plaintiff's mortgage loan payments without rhyme or reason” and “[r]eturning plaintiff's monthly mortgage ...