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Smith v. Select Portfolio Servicing, Inc.

United States District Court, W.D. Missouri, Central Division

September 15, 2016

JOHN W. SMITH, Plaintiff,
v.
SELECT PORTFOLIO SERVICING, INC., et. al., Defendants.

          ORDER

          NANETTE K. LAUGHREY United States District Judge.

         Plaintiff John W. Smith brings this lawsuit pro se against Select Portfolio Servicing, Inc., DLJ Mortgage Capital, and DOES 1 to 100, Inclusive. The dispute concerns Smith's mortgage loan, held by DLJ and serviced by Select Portfolio. Smith alleges claims against both defendants for breach of the implied covenant of good faith and fair dealing, wrongful foreclosure, and quiet title. Before the Court is Defendants' Motion to Dismiss Plaintiff's Complaint for Failure to State a Claim. [Doc. 3].

         Because Plaintiff did not oppose the pending motion, the Court entered an Order to Show Cause on August 9, 2016, why Defendants' motion should not be granted. [Doc. 10]. Plaintiff's response was to be filed on or before August 24, 2016. [Id.]. Plaintiff did not file a response. Therefore, the Court considers Defendants' motion to be fully briefed. For the reasons set forth below, the Motion to Dismiss is granted.

         I. Background

         The following facts from Plaintiff's complaint, [Doc. 1-6], are taken as true for the purpose of determining whether Plaintiff's complaint should be dismissed for failure to state a claim. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). When reviewing a pro se complaint, the Court construes it liberally and draws all reasonable inferences from the facts in the Plaintiff's favor. Topchian v. JP Morgan Chase Bank, N.A., 760 F.3d 843, 849 (8th Cir. 2014).

         In 1998, Plaintiff obtained a mortgage loan from HSBC, comprised of a promissory note secured by a deed of trust on Plaintiff's residence at 30757 Daffodil Drive, Warsaw, Missouri. Later, the loan was assigned to DLJ as the mortgage holder with Select Portfolio as the mortgage servicer. Around 2008, Plaintiff requested a loan modification to his mortgage, but both Select Portfolio and DLJ denied this request. In February 2015, Select Portfolio and DLJ recorded a Notice of Default in the Office of the Recorder for Benton County, Missouri against Plaintiff's residence in Warsaw, Missouri. Plaintiff continued to attempt to modify his loan, but Defendants rejected his modification proposals.

         Plaintiff's complaint alleges three counts. In Count I, Plaintiff alleges that Defendants are liable for breaching the implied covenant of good faith and fair dealing by failing to consider in good faith his proposed loan modifications. In Count II, Plaintiff alleges that Defendants are liable for wrongful foreclosure because they did not own the loan or corresponding note, but nonetheless, they conducted a non-judicial foreclosure sale. Finally, in Count III, Plaintiff brings a quiet title action by alleging his superior interest in the Warsaw, Missouri property.

         II. Discussion

         A. Count I: Breach of the Implied Covenant of Good Faith and Fair Dealing

         Count I alleges that Defendants breached the implied covenant of good faith and fair dealing by “fail[ing] to consider Plaintiffs' requests [for loan modifications] in good faith.” [Doc. 1-6, at ¶ 31]. Missouri law recognizes an implied duty of good faith and fair dealing in every contract. Arbos v. Jefferson Bank & Trust Co., Inc., 464 S.W.3d 177, 185 (Mo. 2015) (en banc). The covenant's purpose is to prevent one party from using an agreement's express terms to “deny the other party the expected benefit of the contract” or to “evade the spirit of the transaction.” Hawthorn Bank and Hawthorn Real Estate, LLC v. F.A.L. Invest, LLC, 449 S.W.3d 61, 66-67 (Mo.Ct.App. 2014) (internal quotation marks omitted). This implied covenant, however, is not “an everflowing cornucopia of wished-for legal duties; indeed, the covenant cannot give rise to obligations not otherwise contained in a contract's express terms.” Comprehensive Care Corp. v. RehabCare Corp., 98 F.3d 1063, 1066 (8th Cir. 1996) (quoting Glass v. Mancuso, 444 S.W.2d 467, 478 (Mo. 1969)).

         Plaintiff's implied covenant claim alleges that Defendants' decision to reject his mortgage modification requests was made in bad faith. Specifically, Plaintiff contends that “Defendants refused to cooperate with Plaintiff, even . . . where they were made aware of Plaintiffs' situation, ” including “the severe problems countervailing Plaintiffs' ability to pay the Mortgage Loan.” [Doc. 1-6, ¶¶ 30, 31].

         Count I, however, fails to state a claim upon which relief may be granted. First, the pleadings fail to cite any facts or specific contract terms, such as in the Deed of Trust or Promissory Note, that give rise to an obligation by Defendants to consider Plaintiff's loan modification request. Therefore, Plaintiff's alleged right to a modification is a mere “wished-for legal dut[y]” and not required by the implied covenant of good faith and fair dealing. Comprehensive Care Corp., 98 F.3d at 1066.

         Moreover, even if Defendants did have a duty to consider Plaintiff's loan modification requests, Plaintiff failed to plead factual information to support his allegation that Defendants' denials of these requests were arbitrary, capricious, or an abuse of discretion. In a contract instilling one party with the discretion to decide issues arising under the contract, “the question is not whether the party made an erroneous decision but whether the decision was made in bad faith or was arbitrary or capricious so as to amount to an abuse of discretion.” Missouri Consol. Health Care Plan v. Cmty. Health Plan, 81 S.W.3d 34, 48 (Mo.Ct.App. 2002). Further, the covenant does not require parties to exercise reasonableness in their decision making, and “show[ing] that a party invested with discretion made an erroneous decision” is not enough. BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 914 (8th Cir. 2007) (interpreting Missouri law). Therefore, even if Defendants' decision to deny Plaintiff's modification request was arguably unreasonable, Plaintiff failed to plead sufficient facts showing that Defendants acted in bad faith. Plaintiff did not offer any evidence that Defendants exercised their discretion for the purpose of evading the spirit of the mortgage agreement or denying Plaintiff the expected benefit of his bargain. Rather, Plaintiff characterizes Defendants' actions as “malicious, fraudulent and oppressive” without any factual support. Without more, such threadbare recitals of a claim's elements are not enough to state a plausible claim. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Accordingly, Plaintiff's claim for breach of the implied covenant of good faith and fair dealing is dismissed for failure to state a claim.

         B. Count II: ...


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