U.S. Bank N.A. v. Breer , No. 717-10-12 Wncv (Teachout, J., August 3, 2015)

[The text of this Vermont trial court opinion is un official. It has been reformatted from the origina l. The accuracy of the text and the accompanying data included in the Vermont trial cou rt opinion database is not guaranteed.] STATE OF VERMONT

SUPERIOR COURT CIVIL DIVISION Washington Unit Docket No. 717-10-12 Wncv

US Bank National Association, Trustee

Plaintiff

v.

Bonnie Breer et al.

Defendants

DECISION US Bank’s Motion to Reconsider (MPR #11) Ms. Breer’s Motion to Amend (MPR #15)

This case began as an ordinary residential foreclo sure action filed by Plaintiff US Bank

National Association as trustee of the securitizati on trust now holding the note on the mortgage

loan to Defendant Bonnie Breer. Ms. Breer filed a counterclaim asserting fraudulent nondisclosure, consumer fraud, and constructive fra ud. The fraud claims are based on Ms. Breer’s allegations that US Bank and its predecesso rs in interest defrauded her by failing to disclose a banking industry conspiracy to artificia lly inflate (by direct manipulation) LIBOR, the London Interbank Offered Rate, which in turn inflat ed the monthly payment on her variable rate loan and forced her into default. She also alleges that Wells Fargo Home Mortgage, Inc., which originated the loan, failed to disclose to her when buying the home that it is in a high-risk flood zone and is worth far less than the purchase price, if it has any resale value at all, and that the breach is enforceable against US Bank. She filed a n amended counterclaim reframing the

counterclaim as a class action.

US Bank then filed a Rule 12(b)(6) motion to dismi ss. It argued that there is no basis for imputing knowledge of LIBOR manipulation to Wells F argo or US Bank, that Wells Fargo had no duty to disclose that the house was in a flood z one or may be unmarketable, and that, in all events, US Bank is a holder in due course under the UCC and took the note free of any such claims or defenses. In a brief entry, the court ex plained that the Rule 12(b)(6) standard was not met because the court, after review of each count, could not “conclude that as to any count, there

are no facts or circumstances that would entitle De fendant to relief,” and denied the motion in

total.

US Bank then filed a motion to reconsider, emphasiz ing its dismissal arguments and further arguing that: (1) the amended counterclaim violates Rule 9 because allegations of fraud are not pled with particularity; (2) there is no da mages claim against US Bank because the note was assigned to US Bank after it was modified into a fixed rate loan; (3) US Bank cannot be held liable for ratifying any fraud of its predecessors; and (4) there is no allegation of an agency relationship by which a predecessor’s fraud can be attributed to US Bank.2

Ms. Breer then filed a second motion to amend the counterclaim, which US Bank opposes. The proposed second amended counterclaim retains the class LIBOR-manipulation

claim. It removes the consumer fraud claim from as serted class status and retains it as a personal

claim of Ms. Breer’s. It then adds a new class cla im. The new claim, as the court understands it, is that Wells Fargo, without disclosing the risks t o its variable-rate borrowers, overwhelmed the national financial markets with adjustable rate, su bprime loans with so low a probability of performing and in such great volume that the flood of bad debt itself drove interests rates up and caused LIBOR to skyrocket, which in turn caused uns ustainably high monthly payments for variable rate borrowers, and ensured a wave of defa ults including Ms. Breer’s.

US Bank opposes the amendment for many of the same reasons it originally sought

dismissal and now seeks reconsideration. It also a rgues that the new claim, which it characterizes as the “predatory lending” claim, is time-barred, the delay in asserting it is prejudicial, and the new claim is inadequately pled

.

Analysis

The Vermont Supreme Court has been clear that the pleading standard in Vermont is exceptionally minimal. See Bock v. Gold , 2008 VT 81, ¶ 4, 184 Vt. 575 (“the threshold a plaintiff must cross in order to meet our notice-pl eading standard is ‘exceedingly low’”); Colby v. Umbrella, Inc. , 2008 VT 20, ¶ 13, 184 Vt. 1 (“The complaint is a bare bones statement that merely provides the defendant with notice of the cl aims against it.”). Most of US Bank’s dismissal arguments attempt to point out perceived “missing” allegations or establish that the allegations that exist cannot as a matter of law su pport the purported claim. In a case with straightforward facts and conventional claims, such arguments might properly lead to dismissal even under Vermont’s Rule 12(b)(6). The countercla im in this case, on the other hand, is based on a complex set of factual circumstances and the c laim is novel. Such claims are better “explored in the light of facts as developed by the evidence.” Alger v. Dep’t of Labor & Indus.

, 2006 VT 115, ¶ 12, 181 Vt. 309. Whatever merit the counterclaim may prove to have once those facts are developed, dismissal is inappropriate at the notice pleading stage.

This is so despite the assertions of fraud and the higher pleading standard of Rule 9(b). While US Bank objects that Ms. Breer has not pled f raud with adequate particularity, the rule itself contains no standard by which particularity is measured. As Ms. Breer points out, allegations of nondisclosure inevitably will be mor e opaque than allegations of affirmative misrepresentation. The most commonly asserted rati onale for the higher pleading standard in Rule 9(b) is that it “is necessary to safeguard pot ential defendants from lightly made claims charging the commission of acts that involve some d egree of moral turpitude,” the idea being that it “encourages a greater degree of pre-institu tion investigation” by the plaintiff. Wright & Miller, 5A Fed. Prac. & Proc. Civ. § 1296 (3d ed.) (WL updated April 2015). The allegations of fraud in this case, even if novel, do not on their face appear to be the product of abusive speculation as opposed to the good-faith investigat ions of her counsel.

Finally, the court notes that US Bank in fact seek s dismissal due to the perceived lack of particularity. Rule 9(b), however, is a pleading s tandard—it is not a rule of dismissal. “Courts infrequently dismiss with prejudice for a failure t o plead with sufficient particularity, at least not3

without providing an opportunity to replead. To im pose such a drastic sanction for a pleading defect arguably is at odds with the liberal approac h the federal rules as a whole take to the pleading phase of litigation and could lead to inju stice.” Id . (footnotes omitted). The court is not persuaded that US Bank’s Rule 9(b) arguments suppor t dismissal in this case.

Vermont’s amendment standard also is liberal. “[A ]mendments to the pleadings are freely allowed where there is no prejudice to the p arties and when the proposed amendment is not obviously frivolous or dilatory.” Desrochers v. Perreault , 148 Vt. 491, 493 (1987). US Bank argues that the amendment should be denied bec ause: (1) the claims it contains are futile; (2) the newly pleaded claim should have been pled l ong ago; (3) the newly pleaded claim expands the scope of needed discovery; and (4) the newly pleaded claim will further delay the resolution of this case and thus prejudice US Bank.

For the reasons the amended counterclaim is not su bject to dismissal, the court rejects the futility argument. Otherwise, though US Bank filed this case in October 2012, it is a complex case that remains in its early stages; the issues a re being joined, refined, and clarified. The amendment does not come so late as to warrant rejec ting it merely due to lateness and there is no showing that any expansion in the scope of discover y will cause prejudice. The amendments proposed are not based on new facts or law but rath er are reasonably related to the claims originally asserted.

US Bank also argues that any delay amounts to preju dice because Ms. Breer is using this litigation as a foil to live in the mortgaged premi ses for “free.” If Ms. Breer has ceased making payments, doing so merely increases the deficiency owed to US Bank when or if it eventually recovers. To the extent that some or all of any su ch deficiency is uncollectible, it is an ordinary incident of foreclosure litigation. There is no co lorable argument that the amendment is an abuse of process designed to forestall an inevitable fore closure.

ORDER

For the foregoing reasons, US Bank’s motion to rec onsider is denied and Ms. Breer’s

motion to amend is granted

.

Dated at Montpelier, Vermont this 3rd day of Augus t 2015.

_____________________________ Mary Miles Teachout Superior Judge