Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—DHaw: Home Loan Borrowers Failed to State Unfair and Deceptive Practices Claims Against Bank of America, (Apr 29, 2013)

By Peter Reap, J.D., LL.M.

James and Kathryn S.F. Cablay, borrowers who entered into two mortgages secured by a property in Hawaii, failed to state valid claims against Bank of America, N.A., the current owner and servicer of those mortgages, for unfair and deceptive practices in violation of the Hawaii Unfair and Deceptive Business Practice Act (UDAP), the federal district court in Honolulu has decided (Cablay v. Bank of America, N.A., April 26, 2013, Seabright, J.). Therefore, the Cablays’ claims under UDAP were dismissed. Specifically, their claim in connection with loan servicing was dismissed with leave to amend, and their claim related to loan origination was dismissed without leave to amend.

On February 25, 2008, the Cablays entered into two loan agreements secured by the subject property. The first loan, for $625,000, was recorded in the Hawaii Bureau of Conveyances on February 29, 2008 as Document Number 2008-031109. The second loan was a $160,750 home equity line of credit, recorded as Document Number 2008-031110. Both Mortgages identify the Cablays as the borrowers and Countrywide Bank, F.S.B. as the lender.

The Cablays’ pleadings implied that they defaulted on the Mortgages and foreclosure on the subject property has occurred, the court noted. The Cablays filed suit against Bank of America, contending that its conduct in connection with the origination and servicing of the Mortgages was unfair and deceptive and violated an implied covenant of good faith and fair dealing.

The Cablays alleged that Bank of America’s allegedly unfair and deceptive practices "caused [Plaintiffs] to enter into an unaffordable mortgage loan that led to increased threat of foreclosure."

The Cablays based both of their claims under UDAP on the same allegations of wrongdoing including: (1) "failing to timely and accurately apply payments . . . and maintain accurate account statements;" (2) "charging excessive or improper fees;" (3) "failing to properly oversee third party vendors involved in servicing activities on behalf of the Banks;" (4) imposing force-placed insurance without notif[ication]; (5) providing . . . false or misleading information; and (6) "failing to maintain appropriate staffing, training, and quality control systems."

In addition, the Cablays alleged that "[i]n the course of their origination of [Plaintiffs’] mortgage loans . . . [Defendant] has engaged in a pattern and practice of unfair and deceptive practices . . . [that] caused [Plaintiffs] to enter into an unaffordable mortgage loan[.]"

Sufficiency of factual allegations. The Cablays failed to allege specific facts sufficient to state a plausible claim, the court determined. None of the allegations provided anything more than vague, conclusory statements.

The Cablays failed to include any facts connecting specific acts or omissions by Bank of America to the origination or servicing of the Cablays’ first or second mortgage. Rather, the Cablays’ allegations of wrongdoing appeared to be general complaints against the banking industry on behalf of multiple borrowers.

For example, the Cablays failed to allege: (1) that Plaintiffs made payments of certain amounts on specific dates that Defendant did not apply in a timely and accurate manner to either the First or Second Mortgage, or what specific fees were charged in servicing these specific Mortgages, according to the court. In short, the Cablays’ allegations did not meet the requirements of Federal Rule of Civil Procedure 8 that a complaint include a "short and plain statement of the claim." The absence of specific factual allegations left only "naked assertions" that were no more than "the-defendant-unlawfully-harmed-me accusation[s]" that "will not do" to state a claim upon which relief can be granted.

Elements of a claim under UDAP. Even if the Cablays’ Complaint contained sufficient factual allegations to survive Rule 8 scrutiny, their allegations failed to state a plausible UDAP claim. Both claims alleged violations of UDAP, which makes it unlawful to engage in "unfair or deceptive acts or practices in the conduct of any trade or commerce."

Under Hawaii law, a deceptive act or practice is (1) a representation, omission, or practice that (2) is likely to mislead consumers acting reasonably under circumstances where (3) the representation, omission, or practice is material. A successful UDAP claim must establish four essential elements: (1) a violation of chapter 480; (2) injury to plaintiff’s business or property resulting from such violation; (3) proof of the amount of damages; and (4) a showing that the action is in the public interest or that the defendant is a merchant, the court observed.

The Cablays utterly failed to allege facts establishing some of the essential elements of a UDAP claim, the court held. For example, without allegations of a specific, material representation, omission, or practice "that is likely to mislead," the Cablays could not establish the first prong, a violation of Chapter 480.

Generally, a financial institution does not owe a duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money. Nothing in the Cablays’ Complaint indicated that Bank of America exceeded the scope of a conventional role as a mere lender of money. The Cablays’ UDAP claims failed on that basis alone.

Relationship to Countrywide Bank, F.S.B. The Cablays allege that Bank of America’s unfair and deceptive conduct "caused [them] to enter into an unaffordable mortgage loan," the court noted.

Chapter 480 provides for a cause of action against a person, firm, company, association or corporation that actually committed an unfair and deceptive trade practice. The Cablays acknowledged that Countrywide Bank, F.S.B., not Bank of America, was the originating lender of the first and second Mortgages. Thus, Bank of America could not be liable for unfair or deceptive acts that may have occurred when the loan was consummated, the court decided.

Moreover, Bank of America could not be liable as an assignee because § 480-2 liability did not attach merely because one was an assignee.

Statute of limitations. Even if Bank of America could be liable for a UDAP claim in connection with the origination of the Cablays’ mortgages, the claim related to mortgage origination was barred by the applicable four-year statute of limitations, the court held. The Cablays’ cause of action accrued on February 25, 2008, when the mortgage transactions were consummated. The Cablays’ UDAP claim was filed on December 4, 2012, more than nine months after the end of the four year statute of limitation.

Because the court could not conclude that an amendment to the Cablays’ claim in connection with the servicing of their mortgages would be futile, it would allow them to amend that claim to state a claim. However, the claim related to the origination of their loans was dismissed without leave to amend.

The case is Civil No. 12-00648 JMS-KSC.

Attorneys: Stuart E. Ragan (Stuart E. Ragan, Attorney at Law) for James Cablay. Andrew James Lautenbach (Starn O'Toole Marcus & Fisher) for Bank of America, N.A.

Companies: Bank of America, N.A.; Countrywide Bank, F.S.B.

Cases: StateUnfairTradePractices ConsumerProtection HawaiiNews