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Faiella v. Federal National Mortgage Association

United States Court of Appeals, First Circuit

June 26, 2019

RALPH FAIELLA, Plaintiff, Appellant,


          William Christopher Sheridan, with whom Sheridan Law Offices, was on brief, for appellant.

          James W. McGarry, with whom Goodwin Procter LLP was on brief, for appellee.

          Before Howard, Chief Judge, Torruella and Selya, Circuit Judges.


         The Merrill doctrine requires a showing of actual authority as a basis for holding a federal instrumentality vicariously liable for the acts of its agents. See Fed. Crop Ins. Co. v. Merrill, 332 U.S. 380, 384 (1947). It follows that such an instrumentality cannot be held vicariously liable for acts of its agents that were not actually authorized even if a private principal could be held liable in the same or similar circumstances under a theory of apparent authority. See id. The case at hand arises against this backdrop and presents a question of first impression at the federal appellate level: does the protective carapace of the Merrill doctrine extend to the Federal National Mortgage Association (Fannie Mae)? Because we answer this question in the affirmative and likewise conclude that the other arguments advanced by plaintiff-appellant Ralph Faiella lack force, we affirm the district court's entry of summary judgment in Fannie Mae's favor.

         I. BACKGROUND

         We briefly rehearse the relevant facts and travel of the case, viewing those facts in the light most flattering to the appellant (the party opposing summary judgment). See Avery v. Hughes, 661 F.3d 690, 691 (1st Cir. 2011). In 2007, the appellant took out a loan secured by a first mortgage on his principal residence in Plaistow, New Hampshire. The lender assigned the mortgage loan to Fannie Mae, which arranged for it to be serviced by Green Tree Servicing LLC, now called Ditech Financial LLC (Ditech).

         Over the next eight years, the appellant occasionally failed to make his monthly mortgage payments. On each occasion, he worked with an assigned Ditech representative to cure the default and effect late payment of the arrearage. In the summer of 2015, the appellant missed yet another payment. He thereafter received a mortgage statement indicating an arrearage of $5, 428.61, which included an exhortation that he contact his assigned representative to bring his account current. After speaking with the representative, the appellant mailed Ditech a check covering both the described arrearage and his anticipated October 2015 mortgage payment. This check, in the gross amount of $6, 167.21, was mailed to Ditech on September 17, 2015.

         Two days later, the appellant received a notice of foreclosure on his home. He immediately wrote to his Ditech representative to confirm that he had sent a check sufficient to cure the default. In the same letter, he requested that the foreclosure be halted. The appellant heard nothing for over a week. Ditech then returned his check and notified him that the amount tendered was not correct.

         The appellant promptly contacted his Ditech representative. She told him that the problem was that he had submitted a personal check, not a cashier's check. Relying on this insight, the appellant sent Ditech a cashier's check in the same amount. His efforts proved unavailing: the foreclosure sale proceeded, and Fannie Mae acquired the mortgaged property at that sale on October 16, 2015. For its part, Ditech simply returned the cashier's check to the appellant and instructed him to contact his representative concerning the amount owed. When the appellant complied, his representative informed him that she did not know the amount needed to wipe out the foreclosure and reinstate his loan.

         Notwithstanding the foreclosure, the appellant apparently retained physical possession of the premises. He went on the offensive and, in February of 2016, sued Fannie Mae and Ditech in a New Hampshire state court. The appellant's complaint prayed for a declaratory judgment regarding the invalidity of the foreclosure, asserted a wrongful foreclosure claim, and sought money damages for economic loss and emotional distress. The action was removed to the United States District Court for the District of New Hampshire. See 28 U.S.C. §§ 1332, 1441. There, the appellant filed an amended complaint seeking only a declaratory judgment with respect to the alleged invalidity of the foreclosure. On its own motion, Ditech was dropped from the case on the ground that it had not participated in the foreclosure proceeding.

         In July of 2016, Fannie Mae moved to rescind its foreclosure deed and reinstate the appellant's mortgage. The appellant opposed the motion, arguing that this unrequested equitable relief would prevent him from seeking damages. The district court denied Fannie Mae's motion and granted the appellant's oral motion to amend his complaint to reassert his damages claims.

         The appellant filed a further amended complaint, replacing his previous prayer for declaratory relief with a compendium of damages claims alleging violations of several federal and state debt collection and consumer protection laws and regulations. This further amended complaint also included common-law tort claims for deceit and negligent misrepresentation.[1]Fannie Mae successfully moved to dismiss the statutory claims on various grounds. The dismissal of these claims (which is not an issue here) left only the appellant's common-law claims alleging that Fannie Mae was vicariously liable for deceit and negligent misrepresentation committed by Ditech employees.

         In due season, Fannie Mae answered what remained of the further amended complaint. Its answer contained, inter alia, an affirmative defense asserting that, to the extent that the appellant sought to hold Fannie Mae vicariously liable for Ditech's actions, any such liability was pretermitted by the Merrill doctrine. Alternatively, Fannie Mae asserted that the appellant's claims against it were barred by the economic-loss doctrine, a common-law principle recognized in New Hampshire. See, e.g., Wyle v. Lees, 33 A.3d 1187, 1190 (N.H. 2011); Plourde Sand & Gravel v. JGI E., Inc., 917 A.2d 1250, 1253 (N.H. 2007).

         During the course of two status conferences, the parties agreed that Fannie Mae's affirmative defenses were essentially legal in nature and were potentially dispositive.[2] In line with this agreement, the court entered a bifurcated scheduling order, under which it would address the merits of Fannie Mae's Merrill doctrine and economic-loss arguments before dealing with the appellant's damages claims.

         Fannie Mae moved for summary judgment on the Merrill doctrine and economic-loss issues. The appellant opposed the motion. The district court granted summary judgment on the basis of the Merrill doctrine, holding that Fannie Mae was a federal instrumentality protected from vicarious liability for the unauthorized acts of its agents. See Faiella v. Fed. Nat'l Mortg. Ass'n, No. 16-CV-088, 2017 WL 6375600, at *6-*8 (D.N.H. Dec. 13, 2017). This timely appeal ensued.

         II. ...

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