Court Opinion

ID: 4366293
Source: CourtListenerOpinion
Date Created: 2019-02-08 22:00:34.54119+00
Date Added: 2024-06-11T11:49:39.115097
License: Public Domain

United States Court of Appeals
                       For the First Circuit

No. 18-1559

                MARK R. THOMPSON; BETH A. THOMPSON,

                      Plaintiffs, Appellants,

                                 v.

                     JPMORGAN CHASE BANK, N.A.,

                        Defendant, Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

              [Hon. Rya W. Zobel, U.S. District Judge]

                               Before

                   Thompson, Boudin, and Kayatta,
                           Circuit Judges.

     Todd S. Dion on brief for appellants.
     Juan S. Lopez, Jeffrey D. Adams, and Parker Ibrahim & Berg
LLP on brief for appellee.

                          February 8, 2019
          BOUDIN, Circuit Judge.         Mark and Beth Thompson sued

JPMorgan Chase Bank ("Chase") for breach of contract and violating

the statutory power of sale Massachusetts affords mortgagees.

Mass. Gen. Laws ch. 183, § 21.    The Thompsons alleged Chase failed

to comply with the notice requirements in their mortgage before

foreclosing on their property.    The district court granted Chase's

motion to dismiss for failure to state a claim.

          On June 13, 2006, the Thompsons granted a mortgage to

Washington Mutual Bank on their house to secure a loan in the

amount of $322,500.   The mortgage included two paragraphs, both

standard mortgage provisions in Massachusetts, relevant to this

appeal.

          First, paragraph 22 required that prior to accelerating

payment by the Thompsons, Washington Mutual had to provide the

Thompsons notice specifying:

          (a) the default; (b) the action required to
          cure the default; (c) a date, not less than 30
          days from the date the notice is given to
          Borrower, by which the default must be cured;
          and (d) that failure to cure the default on or
          before the date specified in the notice may
          result in acceleration of the sums secured by
          this Security Instrument and sale of the
          Property.

In addition, paragraph 22 required Washington Mutual to inform the

Thompsons of "the right to reinstate after acceleration and the

right to bring a court action to assert the non-existence of a

default or any other defense of Borrower to acceleration and sale."

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          Second, paragraph 19 described the Thompsons' right to

reinstate after acceleration, including the conditions and time

limitations related to that right.

          If Borrower meets certain conditions, Borrower
          shall have the right to have enforcement of
          this Security Instrument discontinued at any
          time prior to the earliest of: (a) five days
          before the sale of the Property pursuant to
          any power of sale contained in this Security
          Instrument;   (b)   such    other   period   as
          Applicable   Law   might    specify   for   the
          termination of Borrower’s right to reinstate;
          or (c) entry of judgment enforcing this
          Security Instrument.     Those conditions are
          that Borrower: (a) pays Lender all sums which
          then would be due under this Security
          Instrument and the Note as if no acceleration
          had occurred; (b) cures any default of any
          other covenants or agreements; (c) pays all
          expenses incurred in enforcing this Security
          Instrument, including, but not limited to,
          reasonable    attorneys’      fees,    property
          inspection and valuation fees, and other fees
          incurred for the purpose of protecting
          Lender’s interest in the Property and rights
          under this Security Instrument; and (d) takes
          such action as Lender may reasonably require
          to assure that Lender’s interest in the
          Property and rights under this Security
          Instrument, and Borrower’s obligation to pay
          the sums secured by this Security Instrument,
          shall continue unchanged.

          In   2008,    after   the     United   States    Office    of   Thrift

Supervision    seized   Washington      Mutual   Bank     and   placed    it   in

receivership    with    the   Federal    Deposit    Insurance       Corporation

("FDIC"), FDIC sold the banking subsidiaries to Chase, which became

the mortgagee on the Thompsons' mortgage.

                                   - 3 -
          On August 12, 2016, Chase sent default and acceleration

notices to the Thompsons.    The notices informed the Thompsons that

(1) their mortgage loan was in default; (2) tendering the past-

due amount of $200,056.60 would cure the default; (3) the default

must be cured by November 10, 2016; and (4) if the Thompsons failed

"to cure the default on or before 11/10/2016, Chase [could]

accelerate the maturity of the Loan, . . . declare all sums secured

by the Security Instrument immediately due and payable, commence

foreclosure proceedings, and sell the Property."

          The notices explained to the Thompsons that they had

"the right to reinstate after acceleration of the Loan and the

right to bring a court action to assert the nonexistence of a

default, or any other defense to acceleration, foreclosure, and

sale."   The notices also said the Thompsons could "still avoid

foreclosure   by   paying   the   total   past-due   amount   before   a

foreclosure sale takes place."

          On November 15, 2017, after the Thompsons failed to cure

the default, Chase foreclosed on the property and conducted a

foreclosure sale.    On December 15, 2017, the Thompsons filed a

complaint in Plymouth County Superior Court, alleging Chase failed

to comply with the paragraph 22 notice requirements prior to

foreclosing on their property.     On January 23, 2018, Chase removed

the suit to the District Court for the District of Massachusetts.

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           Chase then filed a motion to dismiss for failure to state

a claim.   After opposition and reply, the district court concluded

that Chase's default and acceleration notice strictly complied

with paragraph 22, including advising the Thompsons of their post-

acceleration reinstatement right, and granted Chase's motion to

dismiss.   The Thompsons now appeal.      They argue that the default

letter failed to comply strictly with paragraph 22 because the

letter did not inform the Thompsons of the conditions and time

limitations   included   in   their   post-acceleration   reinstatement

right as described in paragraph 19.         They also claim that the

portion of the notice that specified that the Thompsons could

"still avoid foreclosure by paying the total past-due amount before

a foreclosure sale takes place" was inaccurate and misleading,

though they do not say that their conduct was in any way altered.

           A district court's dismissal for failure to state a claim

is reviewed de novo, Galvin v. U.S. Bank, N.A., 852 F.3d 146, 153

(1st Cir. 2017), taking all factual assertions in a complaint as

true and drawing all reasonable inferences in the plaintiffs'

favor; but this does not include legal conclusions clothed as

factual allegations.      Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 555–56 (2007).      To survive a motion to dismiss, the claim

must be "plausible."     Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

           In Massachusetts, upon default in the performance of a

mortgage, a mortgagee may sell the mortgaged property using the

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statutory power of sale, so long as the mortgage itself gives the

mortgagee the statutory power by reference.               Mass. Gen. Laws ch.

183, § 21.        Section 21 requires that, prior to conducting a

foreclosure sale, a mortgagee must "first comply[] with the terms

of the mortgage and with the statutes relating to the foreclosure

of mortgages by the exercise of a power of sale."              Id.

            Because Massachusetts does not require a mortgagee to

obtain a judicial judgment approving foreclosure of a mortgaged

property, see U.S. Bank Nat'l Ass'n v. Ibanez, 941 N.E.2d 40, 49

(Mass. 2011), Massachusetts courts require mortgagees to comply

strictly with two types of mortgage terms: (1) terms "directly

concerned with the foreclosure sale authorized by the power of

sale in the mortgage" and (2) terms "prescribing actions the

mortgagee must take in connection with the foreclosure sale--

whether before or after the sale takes place."               Pinti v. Emigrant

Mortg. Co., 33 N.E.3d 1213, 1220–21 (Mass. 2015).

            The mortgage terms for which Massachusetts courts demand

strict compliance include the provisions in paragraph 22 requiring

and prescribing the pre-foreclosure default notice.                   Pinti, 33
N.E.3d at 1221.      At first glance, Chase's acceleration and default

notice    appears    to   comply   strictly     with    paragraph    22   in   the

Thompsons' mortgage.       By its terms, paragraph 22 required Chase to

"inform    [the     Thompsons]     of    the    right   to   reinstate     after

acceleration."      Mirroring this language, the notice explained to

                                        - 6 -
the   Thompsons   that   they    had   "the   right   to   reinstate   after

acceleration of the Loan."

           Because paragraph 19, which defines the Thompsons' post-

acceleration reinstatement right, imposes conditions and time

limitations on that right, the Thompsons argue that Chase failed

to comply strictly with paragraph 22's notice requirement by

failing to inform the Thompsons of the conditions and limitations

on the reinstatement right.      Paragraph 22, however, instructs that

Chase inform the Thompsons of their substantive right to reinstate;

it does not require that Chase describe in detail the procedure

that the Thompsons must follow to exercise the right or the

deadlines associated with the right.          And paragraph 19 does not,

on its own, impose any notice requirements on Chase.

           However, Massachusetts law requires that the paragraph

22 notice given to the mortgagor be accurate and not deceptive--

note the possible difference between the two concepts--and the

Supreme Judicial Court has made clear that inaccuracy or deceptive

character can be fatal.         In Pinti, the mortgagee's notice said

that the mortgagors "have the right to assert in any lawsuit for

foreclosure and sale the nonexistence of a default."             Pinti, 33
N.E.3d at 1222 (emphasis omitted). This, the Pinti court reasoned,

could mislead mortgagors into thinking that they could await a

lawsuit by the mortgagee before attacking the foreclosure.             Id.

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            Here, the notice's additional language--"you can still

avoid foreclosure by paying the total past-due amount before a

foreclosure sale takes place"--could mislead the Thompsons into

thinking that they could wait until a few days before the sale to

tender the required payment.      Suppose the Thompsons had showed up

with the payment three days before the sale believing that their

tender was timely since the notice said that the tender may be

made before the sale.      The bank would properly have pointed out

that under paragraph 19 a tender must be made at least five days

before the sale.

            The Thompsons do not claim to have been prejudicially

misled, and they certainly did not tender the payment at any time

before the sale.    The mind of the common-law lawyer is steeped in

the proposition that a mistake must ordinarily have had an adverse

impact on the plaintiff or a court will disregard it: no harm, no

foul.   See, e.g., Shaulis v. Nordstrom, Inc., 865 F.3d 1, 15 (1st

Cir. 2017) (concluding that fraudulent-misrepresentation claim

fails because plaintiff did not allege an actionable injury caused

by defendant's false statement).     But Pinti frees the mortgagor of

any need to prove that the inaccuracy or deception caused harm:

"The defendants' assertion that the plaintiffs in this case were

not prejudiced by any failure to comply with the provisions of

paragraph   22   misses   the   point.    Paragraph   22   demands   strict

compliance, regardless of the existence, or not, of prejudice to

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a particular mortgagor."    Pinti, 33 N.E.3d at 1223 n.20 (citing

Foster, Hall & Adams Co. v. Sayles, 100 N.E. 644, 646 (Mass.

1913)).

          After all, the bank is the one writing the notice and

has ample opportunity and expertise to make it entirely accurate.

It may take some imagination to consider every possible way it

could be misleading; but the foreclosure procedure allowed to the

bank is itself favorable to the bank.         In exchange, both accuracy

and avoidance of potential deception are conditions of the validity

of the foreclosure, lifting from the Thompsons the need to show

prejudice.   The state-court reading of Massachusetts law binds a

federal court sitting in diversity.      N. Am. Specialty Ins. Co. v.

Lapalme, 258 F.3d 35, 38 (1st Cir. 2001).

          In sum, the bank had no obligation under paragraph 19 to

lay out its procedures, but it did have an obligation under

paragraph 22 to provide notice and, under Pinti, to make anything

it did say accurate and avoid potential deception.            Words are

usually elastic, but it does not matter that the purist could well

think that the notice in this case was potentially deceptive rather

than   literally   inaccurate   (for    the    Thompsons   could   defeat

foreclosure by payment before the foreclosure date).        Omitting the

qualification (that the payment must be tendered at least five

days before the foreclosure date) in our view rendered the notice

potentially deceptive.

                                - 9 -
           The Thompson brief squarely raised the objection; the

bank offered no response to it.   Despite the absence of a claim of

actual prejudice, the strict-compliance requirement, supported by

both the Pinti holding and the rationale supplied for the holding,

invalidates the foreclosure.   The judgment must be reversed, and

the case remanded for further proceedings consistent with this

opinion.

           It is so ordered.

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