Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Vt. Sup. Ct.: Mortgage holders unable to state private Vermont CFA claim against U.S. Bank, (Oct 21, 2013)

By Jody Coultas, J.D.

A trial court did not err in dismissing Vermont Consumer Fraud Act (CFA) claims brought by mortgage holders against U.S. Bank National Association for failure to state a claim, the Vermont Supreme Court has held (Dernier v. Mortgage Network, Inc., October 18, 2013, Dooley, J.).

After the mortgage holders fell behind on their mortgage, they brought suit against Mortgage Network, Inc., which was in the chain of title for both the note and the mortgage, and MERS, which was in the chain of title for the mortgage as a “nominee” for MNI. U.S. Bank was later added as a defendant to the case. The mortgage holders alleged irregularities and fraud related to the transfer both of the note and the mortgage. The mortgage holders requested a declaration that U.S. Bank violated the CFA by stating that it believed it has the right to enforce the mortgage and note and requested payment of their attorney’s fees and costs.

A trial court held that the mortgage holders failed to show how the representation “could have been material or deceptive as it pertained to them” and that because the mortgage holders could not enforce the pooling and servicing agreement (PSA), they could not make a CFA claim based on a breach of the PSA, and noted the federal cases that have so held.

The mortgage holders could assert their claims based on violations of the PSA only if those violations rendered the assignment to U.S. Bank absolutely invalid for breach of the PSA provisions, according to the court. U.S. Bank argued that the mortgage holders lacked standing to challenge assignments in contravention of that agreement because they were neither parties to nor third-party beneficiaries of the PSA. This was a question of first impression.

Because the mortgage holders failed to meet the requirements to bring a private action under the CFA, the court dismissed the claim. The section of the CFA that provides a private right of action requires a “consumer” to show either (1) reliance on a deceptive act in contracting for goods or services or (2) damages or injury from an unfair or deceptive act. The mortgage holders could not show that U.S. Bank’s statement regarding its belief that it had the right to enforce the mortgage and note was indeed deceptive because it was sent long after the issuance of the mortgage. Therefore, the mortgage holders could not show damages or injury. Making a false representation regarding a debt might be interpreted to constitute an invasion of a legally protected interest, but that invasion must place the plaintiff in a “worse and untenable position than they would have been” in if the invasion had not occurred. The mortgage holders did not allege that violations occurred because of U.S. Bank’s collection activities or its agent’s declaration of default or of how much was owed on the note.

The case is No. 2012-226.

Attorneys: Kimberly B. Cheney (Cheney Saudek & Grayck PC) for Peter Dernier. Andre D. Bouffard (Downs Rachlin Martin PLLC) for Mortgage Network, Inc.

Companies: Mortgage Network, Inc.; Mortgage Electronic Registration Systems, Inc.; U.S. Bank National Association

Cases: StateUnfairTradePractices VermontNews