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Dan-Harry v. PNC Bank, N.A.

United States District Court, D. Rhode Island

February 26, 2018

DAWARI DAN-HARRY, on behalf of himself and all others so similarly situated, Plaintiff,
v.
PNC BANK, N.A., Defendant.

          ORDER

          WILLIAM E. SMITH, CHIEF JUDGE.

         Magistrate Judge Patricia A. Sullivan filed a Report and Recommendation (“R&R”) (ECF No. 13) recommending that Defendant's Motion To Dismiss (ECF No. 4) be granted as to Count II of Plaintiff's Complaint (ECF No. 1-1) but denied as to Count III. After carefully reviewing the R&R and the relevant papers, and having heard no objections, the Court ACCEPTS the R&R (ECF No. 13) in its entirety and adopts the recommendations and reasoning set forth therein. Therefore, Defendant's Motion To Dismiss (ECF No. 4) is GRANTED as to Count II but DENIED as to Count III.

         IT IS SO ORDERED.

         REPORT AND RECOMMENDATION

         This case is a putative class action grounded on Plaintiff Dawari Dan-Harry's challenge to the viability of the foreclosure of his mortgage; it is before the Court on the Fed.R.Civ.P. 12(b)(6) motion of the mortgagee, Defendant PNC Bank, N.A., (“PNC Bank”) to dismiss his class action complaint (“complaint”), which he brought for himself and others similarly situated. The complaint was originally filed in the Rhode Island Superior Court. In reliance on both diversity of citizenship and federal question jurisdiction arising from Plaintiff's reliance on a federal regulation, 24 C.F.R. § 203.604(b), Defendant removed it to this Court. ECF No. 1.

         Plaintiff's principal claim is that PNC Bank failed to comply with its contractual and regulatory duty as mortgagee to hold a face-to-face meeting with the mortgagor before foreclosing as required by 24 C.F.R. § 203.604(b), a regulation promulgated by the United States Department for Housing and Urban Development (“HUD regulations”). The HUD regulations are applicable to Plaintiff's mortgage because it is insured by the Federal Housing Authority (“FHA”). Plaintiff also claimed that the foreclosure was tainted both because the mortgagee lacked a power of attorney from the note holder and because of PNC Bank's alleged deceptive practices in violation of the Rhode Island Deceptive Trade Practices Act, R.I. Gen. Laws § 6- 13.1-2. Facing the headwinds of Defendant's legal challenge to the latter claims (Counts I and IV), Plaintiff dropped his sails and filed a voluntary notice of dismissal of Counts I and IV.[1]

         As to the remaining claims, I recommend that the Court dismiss Count II (“Breach of Duty of Good Faith and Reasonable Diligence”) because Rhode Island does not recognize such a stand-alone cause of action, as well as because 24 C.F.R. § 203.604(b) does not support a private right of action. By contrast, Count III is based on breach of the express contractual language in paragraph 9(d) of the mortgage, which unambiguously requires compliance with the HUD regulations, including 24 C.F.R. § 203.604(b), as a condition precedent to foreclosure. Concluding that Rhode Island would follow the case law as it has developed in Massachusetts and elsewhere regarding the incorporation of the HUD regulations into FHA insured mortgages that include paragraph 9(d), I find that Count III is sufficient to state a viable state-law claim of breach of contract. Accordingly, I recommend that the motion to dismiss Count III be denied. In addition, PNC Bank challenges the viability of Plaintiff's prayer seeking punitive damages and compensatory damages arising from emotional distress. Whether or not these remedies are legally appropriate should be addressed after the factual record is more fully developed; accordingly, I recommend that the Court deny as premature the motion to dismiss the allegations seeking these remedies.

         I. BACKGROUND[2]

         On December 7, 2005, Plaintiff purchased a house at 84 Corinth Street in Providence, Rhode Island, for $203, 000. ECF No. 1-1 ¶¶ 15, 30-31. The original mortgage and note were issued by Commonwealth United Mortgage, a division of National City Bank; the mortgage was insured by FHA. ECF No. 1-1 ¶¶ 31-32. Plaintiff's note was pooled and transferred to the Government National Mortgage Association (“Ginnie Mae”), while the mortgage was retained by the division of National City Bank. ECF No. 1-1 ¶¶ 33-34. In 2008, National City Bank was acquired by PNC Bank. ECF No. 1-1 ¶ 35. Several years later PNC Bank foreclosed on the property; on January 23, 2017, the property was sold to a third-party bidder at foreclosure sale. ECF No. ¶ 1-1 37. Plaintiff continues to occupy the property as his primary residence. ECF No. 1-1 at ¶ 41.

         As mortgagee on an FHA-insured mortgage, PNC Bank is subject to applicable HUD regulations, including 24 C.F.R. § 203.604(b). ECF No. 1-1 ¶ 24. In pertinent part, 24 C.F.R. § 203.604(b) requires that “[t]he mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid.” (emphasis supplied). This regulatory mandate is incorporated into the language of Plaintiff's mortgage in a standardized paragraph - paragraph 9(d). Paragraph 9(d) expressly requires compliance with HUD regulations (including 24 C.F.R. § 203.604(b)) as a condition precedent to foreclosure under the mortgage:

9(d) Regulations of HUD Secretary. In many circumstances regulations issued by the Secretary will limit Lender's rights, in the case of payment defaults, to require immediate payment in full, and foreclose if not paid. This Security Instrument does not authorize acceleration or foreclosure if not permitted by regulations of the Secretary.

         ECF No. 1-1 at ¶ 107. This contractual requirement is binding on PNC Bank, the successor to National City Bank, by reason of its status as mortgagee. See ECF No. 1-1 at ¶ 35.

         PNC Bank failed to comply with this requirement, thereby violating 24 C.F.R. § 203.604(b) and breaching the mortgage contract, in that it did not have a face-to-face meeting with Plaintiff before three full monthly installments due on the mortgage were unpaid, nor did it make reasonable efforts to arrange such a meeting. ECF No. 1-1 ¶ 107. Based on this omission, Plaintiff claims that he and the members of the putative class have been damaged because they have lost their homes and the equity in them; they are exposed to higher principal balances caused by the assessment of inappropriate fees and charges; they have expended money on bankruptcy proceedings, the legal defense of foreclosure and eviction, and for moving and relocation;[3] they have experienced negative impact on their credit; and they have lost the opportunity to access loss mitigation and mediation to work out the delinquency. They allege further that they have suffered extreme emotional distress and are entitled to punitive damages based on the gravity of the harm and the unfair, oppressive and contrary-to-public-policy nature of the conduct. ECF No. 1-1 ¶¶ 45-49, 93-94, 108. Pleading on information and belief, Plaintiff alleges that PNC Bank's conduct is consistent with a pattern of acting in bad faith and in breach of the duty of good faith, which PNC Bank has engaged in for its own economic benefit and to Plaintiff's detriment, in order to prevent the contractual objectives of the parties to the mortgage from being achieved. ECF No. 1-1 ¶ 110.

         For remedies based on the claim in Count II, Plaintiff seeks declaratory relief determining that the foreclosure is void, an injunction preventing the transfer of title to the property and restoring legal title to Plaintiff, as well as compensatory and punitive damages, including damages for “severe and extreme emotional and mental distress.” ECF No. 1-1 ¶¶ 93-95. In Count III, Plaintiff incorporates by reference the remedies sought in Count II and also seeks other damages arising from the breach, including the loss of his interest in the property and the collateral expenses associated with his ongoing delinquency and foreclosure. ECF No. 1-1 ¶ 108.

         II. STANDARD OF REVIEW

         In considering this Fed.R.Civ.P. 12(b)(6) motion, the Court must accept as true all plausible factual allegations in the complaint and draw all reasonable inferences in Plaintiff's favor. Aulson v. Blanchard, 83 F.3d 1, 3 (1st Cir. 1996). In so doing, the Court is guided by the now-familiar standard requiring the inclusion of facts sufficient to state a claim for relief that is plausible:

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a probability ...

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