Court Opinion

ID: 4114979
Source: CourtListenerOpinion
Date Created: 2017-01-11 19:01:03.283672+00
Date Added: 2024-06-11T07:46:14.493546
License: Public Domain

In the

    United States Court of Appeals
                For the Seventh Circuit
                    ____________________
No. 15-2206
STEPHEN H. PERRON and
the UNITED STATES BANKRUPTCY TRUSTEE
FOR THE SOUTHERN DISTRICT OF INDIANA
on behalf of CHRISTINE M. JACKSON,
                                               Plaintiffs-Appellants,

                                v.

J.P. MORGAN CHASE BANK, N.A.,
                                                Defendant-Appellee.
                    ____________________

        Appeal from the United States District Court for the
        Southern District of Indiana, Indianapolis Division.
         No. 1:12-cv-01853 — Tanya Walton Pratt, Judge.
                    ____________________

   ARGUED JANUARY 11, 2016 — DECIDED JANUARY 11, 2017
                ____________________

   Before EASTERBROOK, WILLIAMS, and SYKES, Circuit Judges.
   SYKES, Circuit Judge. Stephen Perron and Christine
Jackson owned their home in Indianapolis subject to a note
and mortgage serviced by J.P. Morgan Chase Bank. In 2012
the couple divorced, ending their 25-year marriage. They
2                                                 No. 15-2206

blame Chase for contributing to the collapse of their mar-
riage by failing to comply with its obligations under the Real
Estate Settlement Procedures Act (“RESPA”), 12 U.S.C.
§§ 2601–2617.
    RESPA requires mortgage servicers to correct account
errors and disclose account information when a borrower
sends a written request for information. In 2011 Perron and
Jackson sent two such letters accusing Chase of erroneously
paying the wrong homeowner’s insurer using $1,422 from
their escrow account. The mistake was their own fault; they
had switched insurers without telling Chase. When the bank
learned of the change, it promptly paid the new insurer and
informed the couple that their old insurer would send a
refund check. The bank also told them to forward the refund
check in order to replenish the depleted escrow.
   They didn’t. When the refund came, they pocketed the
money instead. So the bank adjusted their monthly mort-
gage payment to make up the shortfall. When the couple
refused to pay the higher amount, the mortgage went into
default. Instead of curing, they sent Chase two letters re-
questing information under RESPA and demanding that the
bank reimburse their escrow. In response Chase sent a com-
plete account history, including a detailed escrow statement.
   The couple then sued Chase claiming that its response
was inadequate under RESPA and caused more than
$300,000 in damages—including the loss of their marriage.
They tacked on a claim for breach of the implied covenant of
good faith and fair dealing. The district judge entered sum-
mary judgment for Chase.
No. 15-2206                                                 3

    We affirm. Chase’s response almost perfectly complied
with its RESPA duties. To the extent that any requested
information was missing, Perron and Jackson suffered no
actual damages and thus have no viable claim. Nor did
Chase breach the duty of good faith and fair dealing, assum-
ing that Indiana would recognize the implied covenant in
this context.
                       I. Background
    Perron and Jackson, a married couple, owned their home
in Indianapolis subject to a 2003 note and mortgage. Chase
became their loan servicer in 2005. Perron is a retired crimi-
nal investigator for the IRS; Jackson is an attorney who
represents consumers fighting loan servicers. The dispute
arises out of complications with the couple’s mortgage. The
story begins in 2009 with their failure to give Chase notice
when they changed homeowner’s insurers.
    Like many mortgage servicers, Chase had the responsi-
bility of paying the couple’s home-insurance premiums from
their escrow account. In March 2009 Perron and Jackson
changed their home-insurance provider from Allstate to
Homesite Insurance without telling Chase. By that time,
however, the bank had already paid Allstate’s $1,422 premi-
um for that year. When the bank independently learned of
the change, it promptly paid Homesite’s premium from the
escrow account. Chase then sent the couple a letter explain-
ing the situation and instructing them to remit the refund
check from Allstate to replenish their escrow.
    Perron and Jackson received a refund check from Allstate
but ignored Chase’s instructions and deposited the money
into a non-Chase account. This created an estimated escrow
4                                                      No. 15-2206

shortfall of $802.28 for the upcoming year. 1 To make up the
deficiency, Chase notified the couple that their monthly
mortgage payment would rise from $1,432.15 to $1,499.01—
an increase of $66.86 per month. The couple ignored this as
well. From February 2010 to November 2010, they paid
Chase only $1,469.20 each month. (The amount is puzzling.
It’s lower than the 2010 required monthly payment yet
higher than the 2009 monthly payments. Perron and Jackson
haven’t explained why they paid this sum.)
   In November 2010 Perron and Jackson reviewed their ac-
count information and decided that Chase had miscalculated
their 2010 mortgage payments because of the “erroneous”
escrow payment to Allstate in 2009—apparently forgetting
that they had received and pocketed the refund check from
Allstate despite Chase’s instructions. To correct this “error,”
they called Chase and said they would remit $1,399.23 for
their December 2010 mortgage payment—about $100 less
than the required payment.
   Chase received the partial payment and held it “in sus-
pense”—that is, the bank held the payment without credit-
ing it toward the couple’s payment for that month. This put
the mortgage into default, which in turn automatically
withdrew the couple from Chase’s electronic-payment

1 Because escrow accounts are used to pay variable obligations, like
home-insurance premiums or property taxes, the amount needed in an
escrow account for a given year is estimated. See generally 12 C.F.R.
§ 1024.17 (2014) (regulations governing escrow accounts).
No. 15-2206                                                5

system. Perron and Jackson apparently didn’t notice the
default until their January 2011 payment was also past due.
   As an aside, in late December 2010 and in the ordinary
course, Chase sent the couple an escrow disclosure state-
ment—an accounting of the money flowing into and out of
their escrow and a calculation of any shortfall or surplus.
The disclosure statement was accompanied by an escrow
refund of $250.05. The refund was owed because the cou-
ple’s property-tax liability was $418.02 less than estimated.
This meant that even though the couple underpaid their
mortgage by about $30 each month from February through
November 2010, there was no actual shortfall in their escrow
account for that year.
    Back to the story of the default. In January 2011 Chase
sent the couple a default notice and told them to remit a
payment of $2,998.02—the full monthly payments for
December 2010 and January 2011 plus a late fee. The notice
also stated that the December 2010 partial payment currently
held in suspense would be credited toward the amount
needed to cure. Accordingly, the amount needed to bring the
mortgage current was $1,659.72.
   Instead of curing, the couple sent Chase a letter dated
January 10, 2011, and labeled a “qualified written request”
under RESPA. The letter accused Chase of improperly
paying the $1,422 from their escrow in 2009. It also demand-
ed that Chase return the money, undo the “improper”
default, send account information, and identify the “entity”
that received the $1,422 escrow payment. The letter also
demanded information about the December 2010 partial
payment that was held in suspense. Chase received the letter
on January 25.
6                                                         No. 15-2206

    The bank responded by letter dated February 25 and in-
cluded two attachments: a detailed accounting of the loan’s
payment history and an escrow analysis from 2007 through
2010. The letter stated that “[a]ny information or document
requested but not included with this package is unavailable
or considered proprietary[] and will not be provided.” In the
meantime, the deadline for the couple’s February mortgage
payment came and went; they did not pay.
    Dissatisfied with Chase’s response, the couple sent Chase
a second letter dated April 27, also labeled a “qualified
written request” under RESPA. This letter accused Chase of
failing to adequately respond to the first inquiry and reiter-
ated many of the demands they had made in the earlier
letter. It also demanded payment of $330,000 in damages.
Chase treated this request as a duplicate of the first and did
not respond.
    This suit followed. Perron and Jackson allege that Chase
violated RESPA and the common-law duty of good faith and
fair dealing. 2 The district judge entered summary judgment
for Chase, concluding that no evidence showed that the bank
violated either its statutory or common-law duties.
                             II. Analysis
   We review the judge’s summary-judgment order de no-
vo. Kuttner v. Zaruba, 819 F.3d 970, 975 (7th Cir. 2016). Sum-

2 Jackson has since filed for bankruptcy, so the United States Bankruptcy
Trustee for the Southern District of Indiana is pursuing the suit in her
stead.
No. 15-2206                                                                7

mary judgment is appropriate when there is no genuine
issue of material fact and the moving party is entitled to
judgment as a matter of law. 3 FED. R. CIV. P. 54(a). We’ll take
the common-law claim first because it’s quite straightfor-
ward; the RESPA claim requires a bit more explanation.
A. Duty of Good Faith and Fair Dealing
    Indiana does not recognize an implied duty of good faith
and fair dealing in every contractual setting; instead, the state
courts have recognized an implied covenant of good faith in
the context of employment contracts, insurance contracts,
and certain other limited circumstances—for example, when
one counterparty stands in a fiduciary, superior, or special
relationship to the other. See Old Nat’l Bank v. Kelly,
31 N.E.3d 522, 531 (Ind. Ct. App. 2015); Paul v. Home Bank
SB, 953 N.E.2d 497, 504–05 (Ind. Ct. App. 2011); Allison v.
Union Hosp., Inc., 883 N.E.2d 113, 123 (Ind. Ct. App. 2008).
Here, the judge assumed without deciding that the good-
faith duty exists in the mortgage-servicing context. We’ll
proceed on the same assumption.

3 The district judge held that the material facts are undisputed because
Perron and Jackson failed to include a section labeled “Statement of
Material Facts in Dispute” in their brief as required by local rule. See S.D.
IND. L. R. 56-1(b). Perron and Jackson challenge that holding, but the
judge has broad discretion to enforce the local rules, see Waldridge v. Am.
Hoechst Corp., 24 F.3d 918, 923 (7th Cir. 1994), and we see no abuse of
discretion here.
8                                                  No. 15-2206

   A party violates the implied duty of good faith and fair
dealing when, though not breaching the express terms of the
contract, he nonetheless behaves unreasonably or unfairly.
Old Nat’l Bank, 31 N.E.3d at 531. Perron and Jackson argue
that Chase breached the duty by holding their December
2010 partial payment in suspense.
    This argument rests on the couple’s contention that
Chase agreed to accept the reduced payment in full satisfac-
tion of their December 2010 payment. Nothing supports that
assertion. To the contrary, the mortgage contract contains
standard language permitting the bank to accept a partial
payment without waiving its right to enforce the terms of
the loan: “Lender may accept any … partial payment insuffi-
cient to bring the Loan current, without waiver of any
rights … .”
   As a fallback argument, Perron and Jackson argue that
Chase breached the duty of good faith by failing to apply
their 2010 escrow refund toward their December 2010 mort-
gage payment. They’re being disingenuous here: The ac-
count was already past due by the time the escrow refund
was calculated, so even if Chase had applied those funds to
the account, the late fees would already have accrued. And
Perron and Jackson could themselves have used the escrow
refund to pay the remaining balance owed on their Decem-
ber 2010 payment. They did not do so. Chase had no duty to
do so for them.
B. Real Estate Settlement Procedures Act
    RESPA imposes certain duties on servicers of federally
related mortgage loans. 12 U.S.C. § 2605(e); see generally id.
§ 2601. As relevant here, the statute requires loan servicers to
No. 15-2206                                                  9

promptly respond to a “qualified written request” from a
borrower seeking “information related to the servicing” of
his loan or alleging that his account is in error.
§ 2605(e)(1)(A)–(B). The Act gives borrowers a cause of
action against a servicer for actual damages suffered “as a
result of” a servicer’s failure to comply with these duties.
§ 2605(f)(1)(A); see also Catalan v. GMAC Mort. Corp., 629 F.3d
676, 681 (7th Cir. 2011). Statutory damages of up to $2,000
are available if the borrower proves that the servicer en-
gaged in a “pattern or practice of noncompliance” with its
RESPA duties. § 2605(f)(1)(B). Successful plaintiffs may also
recover costs and attorney’s fees. § 2605(f)(3).
    “[T]he statutory duty to respond does not arise with re-
spect to all inquiries or complaints from borrowers to ser-
vicers.” Medrano v. Flagstar Bank, FSB, 704 F.3d 661, 666 (9th
Cir. 2012). Rather, the statute covers only written requests
alleging an account error or seeking information relating to
loan servicing. “Servicing” is a defined term, which limits
the scope of the loan servicer’s duty to respond. “Servicing”
means “receiving any periodic payments from a borrower
pursuant to the terms of any loan, including amounts for
escrow accounts … , and making the payments of principal
and interest and such other payments with respect to the
amounts received from the borrower as may be required” by
the terms of the loan. § 2605(i)(3). So a qualified written
request can’t be used to collect information about, or allege
an error in, the underlying mortgage loan. Medrano, 704 F.3d
at 666–67; see also Poindexter v. Mercedes-Benz Credit Corp.,
792 F.3d 406, 413–14 (4th Cir. 2015).
   If a loan servicer receives a valid qualified written re-
quest, RESPA requires it to take the following actions, but
10                                                   No. 15-2206

only “if applicable”: (A) “make appropriate corrections in
the account of the borrower”; (B) after investigating the
account, “provide the borrower with a written explanation
or clarification” explaining why the account is correct; or
(C) “provide the borrower with … [the] information request-
ed by the borrower” or explain why it is “unavailable.”
§ 2605(e)(2)(A), (B) & (C); see also Catalan, 629 F.3d at 680. The
statute also requires the servicer to provide the contact
information of an employee who can provide further assis-
tance. § 2605(e)(2)(C).
    The couple’s first letter to Chase requested information
about their payments to their account; Chase’s application of
those payments to principle, interest, and escrow; and the
recipients of escrow funds. This was enough to trigger
Chase’s response duties under RESPA. Chase’s response
almost perfectly complied with its duties under § 2605(e)(2).
The bank provided a complete account history showing all
of the couple’s monthly payments; the application of those
payments to principal, interest, and escrow; escrow pay-
ments; and a complete escrow accounting. What’s missing is
the identity of the insurance company that received the
$1,422 escrow payment in 2009 (Allstate) and a statement of
reasons why the December 2010 payment was properly held
in suspense.
    But of course Perron and Jackson already knew that in-
formation; the bank had supplied it in earlier correspond-
ence. So even if Chase’s response fell slightly short of full
compliance as a technical matter, the couple cannot show
that they suffered any actual damages “as a result of” any
failure to comply with RESPA response duties.
§ 2605(f)(1)(A).
No. 15-2206                                                11

   RESPA requires servicers to correct account errors and
give requested information to borrowers. Perron and Jack-
son were not harmed by an uncorrected account error
because there wasn’t an error in the first place. Nor were
they harmed by an information blackout. They knew that
Chase had paid the $1,422 from the escrow account to
Allstate and why. They also knew why the December 2010
payment was held in suspense. Their second letter merely
duplicated the first, and to the extent that it requested an
updated accounting, there was nothing new to send (the
couple hadn’t made any further payments). Simply put,
Perron and Jackson weren’t harmed by being in the dark
because the lights were on the whole time.
    A few additional words are in order regarding the cou-
ple’s allegation that Chase’s RESPA violation contributed to
the dissolution of their marriage. Emotional-distress damag-
es are recoverable under RESPA, Catalan, 629 F.3d at 696, but
the breakdown of a marriage is not the type of harm that
faithful performance of RESPA duties avoids. This kind of
claimed harm is far too attenuated from the alleged violation
to cross the proximate-cause threshold. See RESTATEMENT
(SECOND) OF TORTS § 281 cmt. f (1965) (“Where the harm
which in fact results is caused by the intervention of factors
or forces which form no part of the recognizable risk in-
volved in the actor’s conduct, the actor is ordinarily not
liable.”).
   Accordingly, to the extent that Chase’s response was
technically incomplete, no reasonable fact finder could
conclude that Perron and Jackson suffered any actual dam-
ages as a result of that shortcoming.
12                                              No. 15-2206

    Finally, Perron and Jackson have failed to produce evi-
dence showing a pattern or practice of RESPA noncompli-
ance, so they have no viable claim for statutory damages.
The best they can muster is a pair of district-court cases
holding Chase liable for RESPA violations. See Marais v.
Chase Home Fin., LLC, 24 F. Supp. 3d 712, 731 (S.D. Ohio
2014); Walton v. Chase Home Fin. LLC, No. 1:11-cv-00417-JMS-
MJD, 2012 WL 6596879 (S.D. Ind. Dec. 18, 2012). Two exam-
ples of similar behavior—in different states, separated by a
handful of years, and with no evidence of coordination—
isn’t enough to support recovery of statutory damages.
                                                 AFFIRMED.