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Conquest v. WMC Mortgage Corp.

United States District Court, E.D. Pennsylvania

March 30, 2017

JERRY A. CONQUEST, Plaintiff,
v.
WCM MORTGAGE CORP., et at. Defendants.

          OPINION

          Slomsky, J.

         Table of Contents

         I. INTRODUCTION ................................................................................................................. 1

         II. BACKGROUND .................................................................................................................... 2

         A. Conveyance of the Property and the Terms of the First Mortgage ...................................... 2

         B. The Fire Insurance Policy .................................................................................................... 5

         C. The Second Mortgage Assignment ...................................................................................... 6

         D. Fire Loss and Insurance Proceeds ........................................................................................ 7

         E. Alleged Misrepresentations About the Insurance ................................................................ 8

         F. The Instant Action ................................................................................................................ 9

         III. STANDARD OF REVIEW ................................................................................................. 10

         IV. ANALYSIS ........................................................................................................................... 12

         A. All Claims Made Against MERSCORP Holding, Inc. Will be Dismissed ........................ 12

         B. Count I - Breach of Fiduciary Duty .................................................................................. 13

         1. All Mortgage Defendants - WMC Mortgage LLC (“WMC”), Mortgage Electronic Registration Systems, Inc. (“MERS”), and Vanderbilt Mortgage and Finance (“Vanderbilt”) - did not owe Plaintiff a Fiduciary Duty ........................ 14

         a. A Fiduciary Relationship Did Not Exist ..................................................................... 14

         b. The Mortgage Defendants Were Not Trustees of the Insurance Proceeds ................. 15

         2. HomeFirst Agency, Inc. (“HomeFirst”) and Southwest Business Corporation (“SWBC”) did not owe Plaintiff a Fiduciary Duty ................................ 16

         3. American Modern Home (“AMH”) did not owe Plaintiff a Fiduciary Duty .............. 17

         i C. Count II - Civil Conspiracy ............................................................................................... 18

         1. The Mortgage Defendants did not Engage in Civil Conspiracy ................................. 19

         2. HomeFirst and SWBC did not Engage in Civil Conspiracy ....................................... 20

         3. American Modern Home did not Engage in Civil Conspiracy ................................... 21

         D. Count III - Breach of Contract .......................................................................................... 21

         1. Vanderbilt did not Breach its Contract with Plaintiff ................................................. 22

         2. WMC and MERS did not Breach a Contract with Plaintiff ....................................... 24

         3. HomeFirst and SWBC did not have a Contract with Plaintiff .................................... 25

         4. AMH did not have a Contract with Plaintiff .............................................................. 25

         E. Count IV - Breach of Duty of Good Faith and Fair Dealing ............................................. 26

         F. Count V - Negligent Misrepresentation/Fraud .................................................................. 27

         1. Vanderbilt did not Misrepresent the Terms of the Mortgage or Insurance Coverage ..................................................................................................................... 28

         2. WMC and MERS did not Misrepresent the Terms of the Mortgage .......................... 29

         G. Count VI - Unjust Enrichment .......................................................................................... 30

         1. The Mortgage Defendants were not Unjustly Enriched ............................................. 30

         2. HomeFirst and SWBC were not Unjustly Enriched ................................................... 31

         3. AMH was not Unjustly Enriched ............................................................................... 31

         H. Count VII - Trust Liability/Bailment ............................................................................... 31

         1. Constructive Trust ....................................................................................................... 31

         2. Bailment ...................................................................................................................... 33

         I. Count VIII -Diminution in Value and Waste ..................................................................... 34

         J. Count IX - Conversion, Theft, and Misappropriation ....................................................... 35

         1. The Claim of Conversion of the Insurance Proceeds by the Mortgage Defendants is Without Merit ....................................................................................... 35

         a. WMC and MERS ........................................................................................................ 35

         b. Vanderbilt .................................................................................................................... 35

         2. Plaintiff's Claim of Criminal Theft Also Fails ............................................................ 36

         3. The Claim of Misappropriation of the Insurance Proceeds is Without Merit ............. 37

         K. Count X - Consumer Law Violations ................................................................................ 37

         1. The Mortgage Defendants did not Violate the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) .............................................. 37

         2. The Pennsylvania Fair Credit Extension Uniformity Act (“PFCEUA”) Claim Will be Dismissed ............................................................................................ 38

         3. The Mortgage Defendants did not Violate the Fair Debt Collection Practices Act (“FDCPA”) ........................................................................................................... 38

         4. Plaintiff does not Plausibly Allege a Violation of the Federal Fair Credit Reporting Act .............................................................................................................. 39

         5. Plaintiff does not Plausibly Allege a Violation of the Real Estate Settlement Procedures Act ............................................................................................................ 40

         6. The Mortgage Defendants did not Accelerate Plaintiff's Loan under Pennsylvania Code Section 31.203(a) ........................................................................ 40

         7. The Mortgage Defendants did not violate the Pennsylvania Usury Law ................... 41

         L. Count XI - Negligence Per Se ........................................................................................... 41

         V. AMENDING THE AMENDED COMPLAINT WOULD BE FUTILE ......................... 42

         VI. CONCLUSION .................................................................................................................... 43

         I. INTRODUCTION

         Before the Court are Defendants' Motions to Dismiss Plaintiff's Amended Complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).[1] Defendants are WMC Mortgage LLC (Doc. No. 28), Mortgage Electronic Registration Systems, Inc. (“MERS”), MERSCORP Holdings, Inc. (Doc. No. 19), Vanderbilt Mortgage and Finance, Inc. (Doc. No 18), American Modern Home (Doc. No. 14), HomeFirst Agency, Inc. (Doc. No. 20), and Southwest Business Corporation (Doc. No. 17) (collectively “Defendants”).[2]

         On May 24, 2016, Plaintiff commenced this action in the Court of Common Pleas of Delaware County. In his Amended Complaint, he alleges that Defendants committed federal and state violations by misappropriating fire insurance proceeds. The fire loss occurred on April 10, 2014 and totally destroyed Plaintiff's home.[3] Plaintiff claims that Defendants withheld from him the proceeds which would have been used to restore and repair his residential home. (Doc. No. 16 at ¶¶ 10-14.) On June 30, 2016, Vanderbilt Mortgage and Finance, Inc., Mortgage Electronic Registration Systems, Inc. and MERSCORP Holdings, Inc., and HomeFirst Agency, Inc., removed this action to this Court. (Doc. No. 1.)

         On August 8, 2016, Plaintiff filed an Amended Complaint. (Doc. No. 16.) Each Defendant responded by filing a Motion to Dismiss the Amended Complaint. (Doc. Nos. 14, 17, 18, 19, 20, 28.) Plaintiff filed a response to each motion (Doc. Nos. 22, 31, 32, 33, 35), and all Defendants submitted replies. (Doc. Nos. 24, 25, 36, 37, 38, 39.) For reasons that follow, the Court will grant the Motions to Dismiss. (Doc. Nos. 14, 17, 18, 19, 20, 28.)

         II.BACKGROUND

         A. Conveyance of the Property and the Terms of the First Mortgage

         On October 31, 2006, Plaintiff's father conveyed to him the Property located at 613 Summer Street, Media, Delaware County, Pennsylvania 19063 (“Property”). (Doc. No. 16 at ¶ 10.) To accomplish this sale, Plaintiff secured a loan of $272, 000 from WMC Mortgage LLC and signed a Mortgage and Promissory Note on November 10, 2006 to cover the purchase of the Property.[4] (Id. at ¶ 12.)

         The Mortgage was executed in favor of Mortgage Electronic Registration Systems, Inc. ("MERS"), solely as nominee[5] for WMC Mortgage LLC (“WMC”), and WMC's successors and assigns.[6] (Doc. No. 16, Ex. B at 2.) The Mortgage provides in relevant part:

(B) “Borrower” is JERRY A. CONQUEST. Borrower is the mortgagor under this Security instrument.
(C) “MERS” is Mortgage Electronic Registration Systems, Inc. MERS is a separate Corporation that is acting solely as nominee for Lender and Lender's successors and assigns. MERS is the mortgagee under this Security Instrument. MERS is organized and existing under the laws of Delaware, and has an address and telephone number of P.O. Box 2026, Flint MI 48501-2026, tel. (888) 679-MERS.
(D) “Lender” is WMC MORTGAGE CORP.

(Doc. No. 19, Ex. B at 2.) On November 29, 2006, the Mortgage was recorded with the Delaware County Recorder of Deeds (“Recorder's Office”). (Id.) The Promissory Note was never recorded with the local recorder of deeds. (Id.)

         On June 22, 2011, MERS, as the nominee for WMC, executed an Assignment of Mortgage (“First Assignment”) to Vanderbilt Mortgage and Finance, Inc. (Doc. No. 19, Ex. C at 2.)[7] On July 19, 2011, the First Assignment was recorded with the Delaware County Recorder's Office. (Id.) Pursuant to the First Assignment, MERS, on behalf of WMC, assigned to Vanderbilt all its right, title, and interest in and to the Mortgage.[8] (Id.)

         The Mortgage required that Plaintiff maintain hazard insurance on the Property. It contained the following provision:

Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire, hazards included within the term “extended coverage, ” and any other hazards including, but not limited to, earthquakes and floods, for which Lender requires insurance.
If Borrower fails to maintain any of the coverages described above, Lender may obtain insurance coverage, at Lender's option and Borrower's expense. Lender is under no obligation to purchase any particular type or amount of coverage. Therefore, such coverage shall cover Lender, but might or might not protect Borrower, Borrower's equity in the Property, or the contents of the Property, against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect. Borrower acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of insurance that Borrower could have obtained. Any amounts disbursed by Lender under this Section 5 shall become additional debt of Borrower secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment.
In the event of loss, Borrower shall give prompt notice to insurance carrier and Lender. Lender may make proof of loss if not made promptly by Borrower. Unless Lender and Borrower otherwise agree in writing, any insurance proceeds, whether or not the underlying insurance was required by Lender, shall be applied to restoration or repair of the Property, if the restoration or repair is economically feasible and Lender's security is not lessened . . . If the restoration or repair is not economically feasible or Lender's security would be lessened, the insurance proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with the excess, if any, paid to Borrower . . .

(Doc. No. 19, Ex. B at 6-7.)

         B. The Fire Insurance Policy

         On April 18, 2012, Vanderbilt notified Plaintiff that it had obtained a lender-placed hazard insurance policy (“Policy”) covering the Property.[9] (Doc. No. 16 at ¶¶ 39-40.) American Modern Home insurance company (“AMH”) issued the Policy to Vanderbilt. (Doc. No. 19, Ex. D at 4.) The Notice of Placement stated that Vanderbilt purchased the Policy because Plaintiff failed to provide adequate proof of hazard insurance covering the Property. (Doc. No. 16, Ex. F.) Vanderbilt obtained the Policy from AMH through two insurance brokers, Southwest Business Corporation (SWBC) and HomeFirst Agency, Inc. (Id. at ¶ 40.) The Notice of Placement contained the insurance certificate for Plaintiff to review. (Id.) The certificate stated that the named insured under the Policy was “Vanderbilt Mortgage and Finance Inc., ” the yearly Policy Premium was $1, 614, and the insured value of the Property was $161, 420.[10] (Doc. No. 19, Ex. D at 4.) Additionally, the Notice of Placement stated that if Plaintiff provided proof of acceptable hazard insurance, the Policy would be canceled.[11] Plaintiff never provided his own hazard insurance policy. The Policy was renewed twice, first in April 2013 and then in April 2014. (Doc. No. 16 at ¶ 44.)

         C. The Second Mortgage Assignment

         On December 3, 2012, MERS, again as the nominee for WMC, executed a second Assignment of [the] Mortgage to Vanderbilt (“Second Assignment”). (Doc. No. 16, Ex. D at 1.) The Second Assignment was recorded with the local Recorder's Office on December 19, 2012. (Id.) Pursuant to the Second Assignment, MERS, on behalf of WMC, assigned to Vanderbilt all its right, title, and interest in and to the Mortgage.[12] (Id.)

         D. Fire Loss and Insurance Proceeds

         On April 10, 2014, the Property was destroyed by an electrical fire. (Doc. No. 16 at ¶ 51.) The fire resulted in a total loss of Plaintiff's home. (Id. at ¶ 75.) Thereafter, Plaintiff claims he contacted AMH and/or one of the other Insurance Defendants. (Id. at ¶ 54.) One or more of the Insurance Defendants advised Plaintiff that the insurance proceeds would be paid to Vanderbilt because it was the named insured on the Policy.[13] (Id. at ¶ 55.) On May 8, 2014, policy proceeds in the amount of $161, 420 were disbursed to the named insured, Vanderbilt. (Doc. No. 14 at Ex. F.) Vanderbilt used the insurance proceeds to reduce the Mortgage balance. (Doc. No. 16 at ¶ 55.) Although the proceeds were insufficient to satisfy the full balance of the Mortgage, Vanderbilt wrote off the remaining balance, and docketed a satisfaction of mortgage form with the Recorder's Office on July 15, 2014. (Id. at ¶ 68.) At this point, Plaintiff was no longer liable for mortgage payments on the Property.

         In May 2014, Vanderbilt reported to Experian Credit agency that the Mortgage had been “charged off.”[14] (Doc. No. 16, Ex. O at 3.) An Experian report, prepared in 2015 in response to a dispute Plaintiff asserted, states:

Status: Account charged off. $0 written off. This account is scheduled to continue on record until Mar 2020.
Comment: Account information disputed by consumer (Meets requirement of the Fair Credit Reporting Act). This item was updated from our processing of your dispute Nov 2015.

(Id.) Additionally, the Experian report noted that Plaintiff's mortgage payments were “30 days past due” from May 2013 to the date of the “charge off” in May 2014. (Id.)

         E. Alleged Misrepresentations About the Insurance

         In order to compel the payment of the insurance proceeds to him, Plaintiff filed a consumer complaint against Vanderbilt. With the help of the Consumer Financial Protection Bureau (“CFPB”) and the aid of an United States Congressman, Plaintiff filed a Complaint with the CFPB alleging that he did not receive these funds to rebuild his home after a fire loss.[15] (Doc. No. 16 at ¶ 60; Doc. No. 16, Ex. N.) On August 13, 2014, in response to Plaintiff's consumer complaint, Vanderbilt sent him a letter explaining the actions that it had taken following the fire. Vanderbilt's letter states as follows:

According to VMF's records the insurance in force at the time of loss was a force-placed insurance policy. This type of policy is put in place when the owner fails to provide proof of insurance coverage for the Property. Please find enclosed a copy of the Mortgage for your review, as well as copies of notices sent to you regarding the force-placed insurance policy. You should have received a copy of the policy directly from the insurer. The Mortgage states:
[T]he Lender may, but is not obligated to, obtain and pay insurance coverage on behalf of the customer in order to protect their security interest in the Property when sufficient insurance coverage has not been maintained or proof of such coverage has not been provided to the Lender. This coverage may or may not protect the Borrower, their equity in the Property, or contents of said Property, and the cost of this insurance may exceed the cost of similar insurance coverage the Borrower could obtain on their own. Furthermore, the amounts disbursed by Lender would be considered as additional debt of the Borrower and secured by the Mortgage.
VMF was not required to obtain insurance coverage at all, much less insurance that would have protected your interest in the Property. The force-placed policy that VMF procured was a lender interest policy. Accordingly, the insurer paid the insurance proceeds directly to VMF and VMF applied them to the principal balance.

(Doc. No. 16, Ex. N at 2.) No further action was taken against Vanderbilt by the Consumer Financial Protection Bureau or the unnamed United States Congressman regarding the consumer complaint. (Doc. No. 15 at ¶ 103.)

         F. The Instant Action

         Plaintiff alleges here that Vanderbilt and the other “Mortgage Defendants, ” including MERS and MERSCORP Holdings, Inc., should have given him the insurance proceeds for restoration or repair of the Property. Plaintiff argues, they “misappropriated the insurance proceeds in violation of the terms of the Mortgage.” (Doc. No. 16 at ¶¶ 57-59.) Plaintiff further alleges that Vanderbilt subsequently made misrepresentations about the terms of the Mortgage and the hazard policy. Plaintiff claims these misrepresentations were made in response to the consumer complaint lodged by him, as justification for Vanderbilt retaining the insurance proceeds. (Id. at ¶¶ 60-67.) Plaintiff alleges that Vanderbilt, by writing off the remaining balance of the loan and reporting a “charge-off” to credit agencies, negatively affected his credit score and his ability to borrow money from other lenders. (Id. at ¶¶ 69-74.)

         In separate counts in his Amended Complaint, Plaintiff asserts eleven claims against various Defendants. They are: (1) Breach of Fiduciary Duty; (2) Civil Conspiracy; (3) Breach of Contract; (4) Breach of the Duty of Good Faith and Fair Dealing; (5) Negligent Misrepresentation/Fraud; (6) Unjust Enrichment; (7) Bailment Liability/Trust Liability; (8) Dimuition [sic] in Value & Waste; (9) Conversion, ...


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