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Kelly v. Wells Fargo Bank, N.A.

United States District Court, M.D. Pennsylvania

March 25, 2015

DAVID W. KELLY and JOAN L. KELLY, Plaintiffs,
v.
WELLS FARGO BANK, N.A., Defendant.

MEMORANDUM

CHRISTOPHER C. CONNER, Chief District Judge.

Presently before the court in the above-captioned action is the report (Doc. 40) of Magistrate Judge Susan E. Schwab, recommending the court grant in part and deny in part a motion (Doc. 30) to dismiss filed by Wells Fargo Bank, N.A. ("Wells Fargo"). Judge Schwab recommends the court grant Wells Fargo's motion as to plaintiffs' negligence claim and two components of their breach of contract claim, but deny the balance of the motion given the parties' mutual failure to fully address Wells Fargo's collateral estoppel defense. Wells Fargo objects to the report to the extent Judge Schwab deemed its collateral estoppel argument to be unfit for judicial review. For the reasons that follow, the court will sustain Wells Fargo's objection.

I. Background

A. Factual Background[1]

On October 21, 2004, plaintiff David W. Kelly secured a mortgage in the amount of $92, 000 on property located in Marysville, Pennsylvania. (See Doc. 27 ¶¶ 4, 8-9). The mortgage identifies the lender as Washington Savings Bank, FSB, ("WSB") and WSB's nominee as Mortgage Electronic Registration Systems, Inc. ("MERS"). (Id. ¶¶ 8, 10). The mortgage was assigned to Washington Mutual Bank, and thereafter to defendant Wells Fargo Bank, N.A. ("Wells Fargo"). (Id. ¶¶ 10-13). David W. Kelly later executed a deed transferring ownership of the subject property to himself and his wife, plaintiff Joan L. Kelly (collectively, the "Kellys"). (Id. ¶ 7, Ex. B). The mortgage contains an escrow provision, requiring the borrower to pay into an escrow account maintained by the lender amounts to cover taxes, insurance, and other regular property assessments. (See id., Ex. C at 5). The mortgage also permits waiver of the escrow requirement and mandates that any such waiver by the lender be noticed in writing to the borrower. (Id.) According to the Kellys, WSB executed an escrow waiver at closing, and the Kellys' monthly payment of $589.09 consisted of principal and interest only. (Id. ¶¶ 21, 24-25, 27, 29).

The Kellys allege that they consistently satisfied the required monthly mortgage payments. (Id. ¶ 50). From August of 2007 until December of 2009, the Kellys made monthly mortgage payments of $589.09 by electronic means. (Id. ¶ 51). According to the Kellys, beginning in July of 2009, Wells Fargo would accept the electronic payment but subsequently refund the payment by check. (Id. ¶¶ 52-54). The Kellys did not cash any of the refund checks issued by Wells Fargo. (Id. ¶ 55). The Kellys also allege that, as early as February of 2007, Wells Fargo and its predecessors began to escrow approximately $70.00 of their monthly mortgage payment. (Id. ¶ 72). According to plaintiffs, as a result of Wells Fargo's erroneous diversion of $70.00 per month from principal and interest payments to the escrow account, plaintiffs "were falling behind on the mortgage each month by that same amount of money." (Id. ¶ 75).

In May of 2008, Wells Fargo initiated a foreclosure action against the Kellys in the Court of Common Pleas of Perry County, Pennsylvania. (Id. ¶¶ 58-62). In its complaint, Wells Fargo alleged that the Kellys were in default of their mortgage by failing to make full monthly payments due in December of 2007 and thereafter. (Id. ¶ 62). When the state court denied Wells Fargo's motion for summary judgment, Wells Fargo withdrew its initial complaint. (Id. ¶¶ 64-65). Plaintiffs aver that, on July 25, 2008, Wells Fargo's agent, an entity identified as "LPS, " entered their property in order to inspect it without authority to do so and without providing written notice to plaintiffs. (See id. ¶¶ 143-154). The Kellys allege that, during the course of their inspection, LPS employees damaged personal property, including a nineteenth century oil painting, window sashes, and a door frame. (Id. ¶ 159).

On February 24, 2012, Wells Fargo initiated a second foreclosure action, again alleging that the Kellys were in default of their mortgage obligations by failing to make monthly payments due in December of 2007 and thereafter. (Id. ¶¶ 66-67). In pertinent part, Wells Fargo alleged:

5. The mortgage is in default because monthly payments of principal and interest upon said mortgage due 12/01/2007 and each month thereafter are due and unpaid, and by the terms of said mortgage, upon failure of mortgagor to make such payments after a date specified by written notice sent to Mortgagor, the entire principal balance and all interest due thereon are collectible forthwith.
6. The following amounts are due on the mortgage as of 11/10/2011:

Principal Balance $88, 776.93 Interest $23, 670.78 11/01/07 through 11/10/11 Late Charges $176.70 Property Inspections $435.00 Escrow Deficit $7, 386.97 TOTAL $120, 446.38

(Doc. 31, Ex. 2 ¶¶ 5-6). The Kellys filed an answer on March 22, 2012, denying the above-quoted paragraphs as "conclusions of law to which no response is required." (Doc. 31, Ex. 3 ¶¶ 5-6). The Kellys further responded that they had requested from Wells Fargo "a detailed summary of all transactions relating to the mortgage, " but that Wells Fargo failed to produce any summary. (Id. ¶ 6).

In April of 2013, Wells Fargo again moved for summary judgment, arguing that the Kellys had admitted all relevant allegations in the foreclosure complaint. (Doc. 31, Ex. 5 at 157). Specifically, Wells Fargo asserted that the Kellys' purported denials of paragraphs 5 and 6 were general denials which, under Pennsylvania law, are insufficient to raise a genuine issue of material fact and must be considered admissions. (See id. at 157-59). The Kellys responded that genuine issues of fact existed with respect to whether their mortgage was in default and that the denials of paragraphs 5 and 6 were permissible responses to improper conclusions of law in Wells Fargo's complaint. (See Doc. 31, Ex. 6 at 5-7). On August 30, 2013, the Court of Common Pleas for Perry County granted ...


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