Consumer Finance Litigation

In Young v. Wells Fargo, Case No. 12-1405 (1st Cir. May 21, 2013), the First Circuit Court of Appeals reversed a district court's dismissal of plaintiff Susan Young's breach of contract claim premised on Wells Fargo's alleged failure to comply with its obligations under the Trial Period Plan ("TPP"), a temporary loan modification period during which Young applied for a permanent loan modification. Young alleged that, after falling behind on her mortgage payments, she entered into a series of discussions with Wells Fargo in an attempt to negotiate a loan modification. Eventually, Wells Fargo sent her a TPP, which required that she make three monthly payments at a certain amount in order to qualify for a permanent loan modification. Young executed and returned the TPP and made the required payments over the next three months. Subsequently, she was informed by Wells Fargo that her application for a permanent loan modification had been denied because her payments were not received by Wells Fargo on time. After contacting Wells Fargo, Young was told that the denial letter was sent in error and that she should ignore it. Six months after completing the TPP, Young received a permanent modification agreement which required increased payments. Young did not sign the permanent agreement, and Wells Fargo moved forward with foreclosure. Young then sued Wells Fargo, claiming breach of the TPP contract, breach of the implied covenant of good faith, negligent and intentional infliction of emotional distress, and a violation of Massachusetts law governing unfair debt collection practices. After Wells Fargo's motion to dismiss was granted, Young appealed to the First Circuit. On appeal, the court vacated the lower court's dismissal of the breach of contract and unfair debt collection claims. Young claimed that Wells Fargo breached the TPP by requiring her to make increased payments under the permanent modification and by failing to send her a permanent modification agreement by the end of the three-month trial period. The appellate court first found that the plain terms of the TPP expressly allowed for an increase in the mortgage payment; therefore, any claim based on the increased payment amount would fail. The court then found that the terms of the TPP could be reasonably interpreted to mean that if Young fulfilled her obligations under the TPP, then she would receive a permanent modification agreement sometime before the modification effective date. Because the court found that "the contract could plausibly be read in Young's favor, and the complaint's allegations indicate that defendants breached the contract by failing to provide a permanent modification by the modification effective date, she has done enough to survive a motion to dismiss." Accordingly, the court vacated the dismissal of the breach of contract claim. The court also noted that the lower could look to extrinsic evidence such as Home Affordable Modification Program ("HAMP") regulations "in order to resolve any ambiguities in the TPP." Next, the court affirmed the dismissal of Young's claim based on a breach of the covenant of good faith and fair dealing. While describing the bank's "dilatory and careless conduct" as "troubling," the court found that the plaintiff's allegations "paint a picture of an unthinking and sloppy institution, rather than one that acted with an improper purpose." The court also affirmed the dismissal of Young's negligent infliction of emotional distress claim due to Young's failure to allege a duty owed by the bank to Young. Likewise, Young's intentional infliction of emotional distress claim failed to show the requisite level of intent or injury. Finally, the court vacated the dismissal of Young's claim based on Massachusetts Unfair Debt Collection Practices law, finding that Young's allegations of Wells Fargo's conduct starting with her initial default "plausibly placed Young 'in a worse and [more] untenable position than [she] would have been' had defendants dealt with her appropriately." Finding that Young's allegations of loss of equity in her home and damaged credit rating were sufficient to allege the requisite injury, the court vacated the dismissal of this claim. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.