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Spaulding v. Wells Fargo Bank, N.A., No. 12-1973

Decided:  April 19, 2013

The Fourth Circuit affirmed the decision of the district court to dismiss the Appellants’ lawsuit for failure to state a claim upon which relief could be granted.  Appellants asserted five separate claims against Wells Fargo Bank (“Wells Fargo”) after Wells Fargo denied the Appellants’ application for a mortgage modification under the Home Affordable Modification Program (“HAMP”).

The Appellants, after falling on difficult financial times and failing to keep up with their mortgage payments, submitted a “hardship letter” to Wells Fargo explaining their financial difficulties.  The Appellants included two weekly pay stubs with their mortgage modification application.  After receiving the letter, Wells Fargo responded and requested additional proof of income, specifically requesting two additional weekly pay stubs.  The letter from Wells Fargo stated that if the information requested was not received within ten days, the modification request would be considered cancelled.  The Appellants submitted the additional proof of income eleven days past the deadline.  Wells Fargo subsequently sent a delinquency notice.  Three months later, Wells Fargo sent a second HAMP introduction letter and application packet and additional delinquency notices along with a “Notice of Intent to Foreclose.”  Later, Wells Fargo sent Appellants a denial of their HAMP application, citing failure to provide requested documentation within the specified time period.  Appellants continued to apply for a mortgage modification and were denied each time.  Approximately a year after the initial denial, Appellants filed suit against Wells Fargo alleging five counts:  breach of an implied-in-fact contract, negligence, violations of the Maryland Consumer Protection Act (“MPCA”), negligent misrepresentation, and common law fraud.  Wells Fargo subsequently removed the action to federal court.   The district court dismissed the complaint in its entirety citing the absence of a Trial Period Plan (“TPP”) agreement.  Without such an agreement, there was no privity of contract and the suit seeking enforcement of the HAMP guidelines would have to fail without such an agreement.  The TPP agreement is implemented after the bank determines a borrower is eligible for mortgage modification.

The Fourth Circuit affirmed the district court’s decision.  With regards to the breach of an implied-in-fact contract claim, the Appellants asserted there was sufficient consideration given on their side by submitting an application to give rise to an implied-in-fact contract.  Moreover, the Appellants argued that Wells Fargo “bound itself to comply with the applicable ‘standard of care’” for the following reasons: Wells Fargo entered into an agreement with the U.S. Treasury to participate in HAMP and consented to being publicly listed as a HAMP participant, Wells Fargo promise in the foreclosure notice that if the Appellants were eligible for HAMP then Wells Fargo would look into the Appellants’ financial situation and determine an affordable payment plan, and finally, Wells Fargo regularly sent “HAMP Starter Kits” that stated if Appellants provided the required documentation, then Wells Fargo would determine if they qualified for the TPP.  The Fourth Circuit held that none of this conduct was “sufficient to constitute a ‘meeting of the minds’” to create an implied-in-fact contract.  More specifically, the court asserted that Wells Fargo’s offer “to process an application under HAMP” only required to Wells Fargo to process the application, which they actually did, and required them to do nothing more.  With respect to the negligence claim, the Fourth Circuit held that the evidence showed that Wells Fargo owed no duty to the Appellants.  Without “special circumstances,” that did not exist here, “banks typically do not have a fiduciary duty to their customers.”  Because no contractual privity between the parties had been pled or otherwise proven, then no duty existed.  For the MPCA claim, Appellants alleged that Wells Fargo made a misrepresentation when it requested more proof of income information and cited the failure to provide the required information as a reason for rejecting their HAMP application.  According to the Appellants, Wells Fargo had enough information when the original two pay stubs were sent with their “hardship letter.”  The court rejected this claim because the MPCA claim “sounds in fraud” and is therefore subject to heightened pleading standards and Appellants failed to show that Wells Fargo’s statements were made with the “purpose of defrauding” the Appellants.  Moreover, Appellants could not prove that Wells Fargo actually made any false statements.  Regarding the negligent misrepresentation claim, the court held that Appellants had failed to establish that any of the statements made by Wells Fargo were false and that Appellants “took action in reliance on the alleged false statements.”  Finally, the court held Appellants failed to satisfy any of the elements of their common law fraud claim for many of the reasons stated before.  Specifically, the court asserted that Appellants could not show that Wells Fargo actually made any false representations nor did Appellants satisfy the heighted pleading standards associated with a common law fraud claim.

Full Opinion

– John G. Tamasitis