United States District Court, D. Colorado
JOHN L. MCNEES, Plaintiff,
v.
OCWEN LOAN SERVICING, LLC, a Delaware limited liability corporation, and DEUTSCHE BANK NATIONAL TRUST COMPANY, as trustee for Ameriquest Mortgage Securities Inc. Asset-Backed Passthrough Certificates, Series 2003-11, under the pooling and servicing agreement date[d November 1, 2003, Defendants.
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 ...