Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—9th Cir.: Homeowner’s deceptive trade practices claims against Bank of America reinstated, (Aug 5, 2014)

By Linda O’Brien, J.D., LL.M.

A homeowner adequately alleged that a lender used unfair and deceptive trade practices in its relationship with her during an attempted loan modification and that those practices resulted in damage to the homeowner, the U.S. Court of Appeals in San Francisco has ruled. Thus, the district court’s dismissal of her claims against the lender was reversed and remanded (Compton v. Countrywide Financial Corporation, August 4, 2014, Ikuta, S.).

In 2006, Watoshina Compton obtained a loan to refinance the mortgage on her home with Countrywide Financial, which was later acquired by Bank of America Corporation (BAC). While experiencing financial difficulties, Compton contacted BAC regarding a loan modification to lower her payments. She ceased making her mortgage payments and applied for a loan modification. From May 2009 to August 2010, Compton continuously pursued the loan modification, despite demands from BAC for additional documentation and the imposition of new requirements. Although she was assured that the bank would not commence foreclosure proceedings, Compton learned that a notice of foreclosure had been recorded against her home.

Compton filed a complaint against BAC, alleging that the bank engaged in unfair and deceptive trade practices under Hawaii law. Compton asserted that BAC purposefully delayed her efforts to negotiate a loan modification, made misrepresentations regarding eligibility for loan modifications, and made other misrepresentations. The district court granted the defendants’ motion to dismiss for failure to state a claim and Compton appealed.

The district court erred in dismissing Compton’s claim solely on the ground that she failed to allege that BAC exceeded the scope of its role as a lender and owed her an independent duty of care as a borrower, according to the appellate court. Section 480-2 of the Hawaii Revised Statutes states that “unfair or deceptive acts or practices in the conduct of any trade or commerce are unlawful.” Section 480-13 provides a right to sue for damages to any consumer who is injured by any unfair or deceptive trade act or practice. The plain language of the statute does not require a borrower to show that the lender owed her a common law duty of care in order to state a claim under Section 480-2 or 480-13. The court also did not identify any court decision interpreting those sections which imposed such a requirement. Thus, the appellate court found that a plaintiff’s complaint against a lender need only address whether the lender used unfair or deceptive acts in its relationship with the borrower, without looking to common law negligence to determine whether the lender breached a duty of care.

Additionally, it was undisputed that Compton qualified as a consumer and that BAC’s loan modification activities involved the conduct of any trade or commerce. Compton alleged that BAC misled her into believing it would modify her loan and that no foreclosure proceedings would be commenced while her application was pending. As a result of the misrepresentations, Compton engaged in prolonged negotiations, incurred transactions costs, and endured lengthy delays. In the court’s view, the complaint’s allegations sufficiently pleaded a representation, omission, or practice that was likely to deceive a reasonable consumer.

Finally, the complaint adequately alleged an injury resulting in damages. Compton’s factual allegations detailed the various transaction costs she incurred in attempting to meet BAC’s continually changing loan modification requirements and that the damages were proximately caused by the lender’s deceptive acts. Thus, the plaintiff’s allegations were sufficient to withstand a motion to dismiss, the court concluded.

The case is No. 11-17158.

Attorneys: James Harry Fosbinder (Ivey Fosbinder Fosbinder, LLC) for Watoshina Lynn Compton. Dennis Peter Maio and Rosalie Euna Kim (Reed Smith LLP) for Countrywide Financial Corporation and Bank of America Corporation.

Companies: Countrywide Financial Corporation; Bank of America Corporation

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