Frederick Smith v. Bac Home Loans Servicing, Lp

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 14a0033n.06
No. 13-5461
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FREDERICK SMITH, et al.,
Plaintiffs-Appellants,
v.
BAC HOME LOANS SERVICING, LP, et al.,
Defendants-Appellees.
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ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE MIDDLE
DISTRICT OF TENNESSEE
OPINION
BEFORE: MOORE, COOK, Circuit Judges; GWIN, District Judge *
GWIN, District Judge. Appellants Frederick and Denise Smith appeal the district court’s
dismissal of this mortgage action. For the reasons that follow, we AFFIRM.
I. BACKGROUND
On September 19, 2002, Appellants Frederick Smith and Denise Smith (collectively the
“Smiths”) entered into a loan transaction with Countrywide Home Loans, Inc. d.b.a. America’s
Wholesale Lender (“AWL”) to buy a property located in Antioch, Tennessee.1
The Smiths executed a $64,000 promissory note and a deed of trust (“mortgage”) related to
the property. 2
*The Honorable James S. Gwin, United States District Judge for the Northern District of
Ohio, sitting by designation.
1R. 120-2 (Ex. 2 to Second Am. Compl) (Page ID # 443-55).
2R. 120-1 (Ex. 1 to Second Am. Compl.) (Page ID # 440-442); R. 120-2 (Ex. 2 to Second Am. Compl) (Page
ID # 443-55).

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The Smiths signed a promissory note that states that the borrowers understood “that the
Lender may transfer this Note.” 3 Additionally the mortgage states “[t]he Note or a partial interest
in the Note (together with this Security Instrument) can be sold one or more times without prior
notice to Borrower. . . . There also might be one or more changes of the Loan Servicer unrelated to
a sale of the Note.” 4
Appellants’ promissory note was sold and securitized. A loan servicer now services the
promissory note. 5
Despite the language of the promissory note and mortgage, the Smiths say they believed they
would have a traditional lender/borrower relationship with a lender who would have an economic
interest in their loan and have the full authority to amend, modify, or alter the terms of their loan if
mutually agreeable.6 Appellants also say they did not know the servicing relationship could be with
a loan servicing company.7
On November 12, 2012, the Smiths filed their Second Amended Complaint against
Countrywide Home Loans Inc. (“Countrywide”), Bank of America, N.A. (“BANA”), Federal
National Mortgage Association (“Fannie Mae”), Mortgage Electronic Registration Systems, Inc.
(“MERS”), and Wilson and Associates, PLLC (“W&A”). 8
3R. 120-1 (Ex. 1 to Second Am. Compl.) (Page ID # 441).
4R. 120-2 (Ex. 2 to Second Am. Compl) (Page ID # 452).
5R. 120 (Second Am. Compl.) (Page ID # 397).
6Id. (Page ID # 396).
7Id.
8Id. (Page ID # 392-439).
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In their Second Amended Complaint, the Appellants made claims for (1)
rescission–mistake–void agreement/contract reformation; (2) declaratory judgment/injunction and
damages for defendants’ lack of standing; (3) breach of contract for securitization; (4) fraud for
collecting payments under false pretenses; (5) manipulation of securities and real estate markets
causing frustration of Plaintiffs’ performance; (6) quiet title; (7) breach of contract related to
foreclosure; (8) fraud in the inducement; (9) violation of Tennessee Consumer Protection Act; (10)
slander of title; (11) violation of the Fair Debt Collection Practices Act; and (12) civil conspiracy.9
On December 27, Appellees filed a joint motion to dismiss. 10 On March 18, 2013, the district
court granted the Motion to Dismiss on the grounds that the note and mortgage did not give the
Smiths a contractual right to negotiate for modification of their loan.11
On March 28, 2013, Appellants filed their Notice of Appeal.12
II. Legal Standard
This Court reviews de novo a district court’s grant of a motion to dismiss based on Federal
Rule of Civil Procedure 12(b)(6).13 “To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.’”
14 “The plausibility requirement is not a “probability requirement,” but requires “more than a sheer
9Id.
10R. 136 (Motion to Dismiss) (Page ID # 1-24).
11R. 179 (Order) (Page ID #1297).
12R. 181 (Notice of Appeal) (Page ID # 1298-99).
13Buck v. Thomas M. Cooley Law School, 597 F.3d 812, 816 (6th Cir. 2010).
14Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).
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possibility that the defendant has acted unlawfully.”15 Federal Rule of Civil Procedure 8 provides
the general standard of pleading and only requires that a complaint “contain ... a short plain
statement of the claim showing that the pleader is entitled to relief.”16 “Rule 8 marks a notable and
generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not
unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” 17 In
deciding a motion to dismiss under Rule 12(b)(6), “a court should assume the[ ] veracity” of “well-
pleaded factual allegations.”18
III. Analysis
A. Rescission/Reformation
The Smiths say that when they signed the promissory note and mortgage, they believed they
were contracting with a party who would have authority to modify their loan.19 Appellants say they
never agreed to have their loan securitized or to have a loan servicing company involved. 20 Thus,
the Smiths say there was no mutual assent or meeting of the minds and rescission of the loan or
reformation of the contract to conform to their understanding is appropriate.
In order to reform a contract, a party must establish that the contract was executed under
mutual mistake of fact or law regarding a basic assumption under the contract or a unilateral mistake
15Id.
16Fed. R. Civ. Pro. 8(a)(2).
17 Iqbal, 556 U.S. at 678–79.
18Id.
19Appellants’ Brief 19.
20Id. at 20.
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of fact or law induced by the other party’s fraudulent misrepresentation.21 Additionally, a contract
may not be rescinded for mistake “unless the mistake is innocent, mutual, and material to the
transaction and unless the complainant shows an injury.” 22 Here the Smiths do not plead that there
was mutual mistake.
Therefore, the Smiths’ only ground for contract reformation is a unilateral mistake of fact
or law induced by the other party’s fraud. Here, the Smiths say they did not understand that their
loan could be securitized or a loan servicer could become involved. However, the documents they
signed specifically say they agreed to the transfer of their loan and the role of the loan servicer. 23
“It is a bedrock principle of contract law that an individual who signs a contract is presumed to have
read the contract and is bound by its contents.” 24 Therefore, Appellants are presumed to know their
loan could be securitized and a loan servicer could be involved.
Further Appellants cannot make a showing that any fraudulent actions of the Appellees
induced Appellants to enter the loan. To show fraudulent inducement, Appellants must plead:
(1) a false statement concerning a fact material to the transaction; (2) knowledge of
the statement's falsity or utter disregard for its truth; (3) intent to induce reliance on
the statement; (4) reliance under circumstances manifesting a reasonable right to rely
on the statement; (5) an injury resulting from the reliance. 25
21Sikora v. Vanderploeg, 212 S.W.3d 277, 286 (Tenn. Ct. App. 2006).
22Pugh's Lawn Landscape Co. v. Jaycon Dev. Corp., 320 S.W.3d 252, 261 (Tenn. 2010).
23R. 120-1 (Ex. 1 to Second Am. Compl.) (Page ID # 441); R. 120-2 (Ex. 2 to Second Am. Compl) (Page ID
# 452).
2484 Lumber Co. v. Smith, 356 S.W.3d 380, 383 (Tenn. 2011).
25Lamb v. MegaFlight, Inc., 26 S.W.3d 627, 630 (Tenn. Ct. App. 2000).
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Rule 9 of the Federal Rules of Civil Procedure further requires that the party state “with particularity
the circumstances constituting fraud or mistake.” 26
Here the Smiths do not identify any false statements made by the Appellees. Appellants
merely state that the loan documents “led them to believe they would always have a traditional
lender/borrower relationship” and they did not know that they could end up with a loan servicer.27
However, neither the promissory note nor the mortgage mentioned there would be a traditional
lender/borrower relationship, and the possible use of a loan servicer was disclosed to the
Appellants.28
Consequently, it seems Appellants really try to plead fraudulent non-disclosure. A duty of
disclosure exists in Tennessee:
where there is a previous definite fiduciary relationship between the parties; where
it appears one or each of the parties to the contract expressly reposes a trust and
confidence in the other; or where the contract or transaction is intrinsically fiduciary
and calls for perfect good faith such as a contract of insurance which is an example
of this last class. 29
None of these relationships or circumstances exist here. Appellants plead no previous confidential
relationship; the contract was not one where trust or confidence was expressly reposed; and there
was nothing intrinsically fiduciary in the contract.30 Appellees were not obligated to explain loans
or loan servicing to Appellants, and rescission or reformation is not warranted.
26Fed. R. Civ. P. 9(b).
27R. 120 (Second Am. Compl.) (Page ID # 396).
28R. 120-1 (Ex. 1 to Second Am. Compl.) (Page ID # 440-442); R. 120-2 (Ex. 2 to Second Am. Compl) (Page
ID # 443-55).
29Homestead Grp., LLC v. Bank of Tenn., 307 S.W.3d 746, 752 (Tenn. Ct. App. 2009).
30See Wright v. C & S Family Credit, Inc., 01A01-9709-CH-00470, 1998 WL 195954 (Tenn. Ct. App. Apr. 24,
1998) (stating that “the debtor/creditor relationship does not constitute a fiduciary relationship).
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B. Breach of Contract
For two reasons, the Smiths say Appellees breached their contract. First, they say the
transfer of the loan to a loan servicer amounted to a breach of contract because it “erased” their
enforceable contractual right to the possibility of loan modification.31 Second, they say the
securitization amounted to a breach of contract because it left them with no entity with which to
negotiate a loan modification, involved insurance arrangements without an insurable interest, and
left them at risk of multiple collection actions on the Note. 32
In order to state a claim for breach of contract, Appellants must show “(1) the existence of
an enforceable contract, (2) nonperformance amounting to a breach of the contract, and (3) damages
caused by the breach of the contract.” 33
1. Contractual Right to Loan Modification
The Smiths’ first basis for their breach of contract fails because neither the promissory note
nor the mortgage gave them an enforceable, contractual right to negotiate a loan modification.
Appellants do not identify any promissory note provision or mortgage provision that arguably shows
the contrary. In fact, the word modification appears only twice in the mortgage. First, it appears
to clarify that the lender is entitled to “repayment of the Loan, and all renewals, extensions and
modifications of the Note.”34 Second, the mortgage explains that “[e]xtension of the time for
31Appellants’ Brief at 16-18.
32Id. at 36-37.
33ARC LifeMed, Inc. v. AMC-Tenn., Inc., 183 S.W.3d 1, 26 (Tenn. Ct. App. 2005).
34R. 120-2 (Ex. 2 to Second Am. Compl.) (Page ID # 445).
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payment or modification of amortization of the sums secured by this Security Instrument” does not
effect the lender’s or its successors’ right to continue to enforce the mortgage against the
borrowers. 35 Neither provision has anything to do with granting the Appellants a contractual right
to modification, and therefore, Appellants cannot show any breach of contract on this basis.
2. Securitization of the Loan
The Smiths’ breach of contract claim also fails because they cannot show the loan or
mortgage prohibited the securitization of the loan. Appellants fail to identify any provision of the
contract that prohibits securitization or the involvement of a loan servicer.36 Rather, the contract
specifically states that the loan could be transferred and that a loan servicer could become
involved. 37 Thus the securitization of the loan did not breach the contract.
C. Fraudulent Modification
The Smiths say that Appellees have a fraudulent modification program whereby they pretend
to offer the possibility of loan modification while they simultaneously pursue or threaten to foreclose
against homeowners.38 Specifically, the Smiths say they were encouraged to go into default and then
BANA denied their loan application and attempted to foreclose upon the Property.39 They also say
they tried to obtain a payoff statement but were unable to do so.40
35Id. (Page ID # 451).
36 R. 120-1 (Ex. 1 to Second Am. Compl.) (Page ID # 440-442); R. 120-2 (Ex. 2 to Second Am. Compl) (Page
ID # 443-55).
37Id.
38Appellants’ Brief at 32.
39Id. at 32.
40Id.
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The elements of fraud or misrepresentation in Tennessee are: (1) an intentional
misrepresentation of a material fact, (2) knowledge of the representation's falsity, and (3) an injury
caused by reasonable reliance on the representation; and (4) the requirement that the
misrepresentation involve a past or existing fact.41 Rule 9 of the Federal Rules of Civil Procedure
additionally requires that the party state “with particularity the circumstances constituting fraud or
mistake.” 42
The Smiths do not state a plausible claim of fraud or misrepresentation. Appellants merely
say that Appellees had a “fraudulent modification program” without stating any actual
misrepresentation made to them.43 Moreover, the Appellants fail to plead fraud with particularity
as required by Rule 9. They do not state who made the misrepresentation or the time, place, and
content of the misrepresentation.44 For these reasons, Appellants’ claim for fraud based on a
fraudulent modification program fails.
D. Declaratory Judgment Based on Lack of Authority to Foreclose
The Smiths say that the promissory note and mortgage were never properly assigned to
BANA to entitle it to foreclose because MERS had no authority to assign the promissory note or
41Dobbs v. Guenther, 846 S.W.2d 270, 274 (Tenn. Ct. App. 1992).
42Fed. R. Civ. P. 9(b).
43Appellants’ Brief at 31-33.
44See Indiana State Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., 719
F.3d 498, 503 (6th Cir. 2013).
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mortgage.45 Appellants also say that BANA has produced no documentation demonstrating its
authority to foreclose upon the property.46
Assuming that Appellants had standing to challenge the assignment under Tennessee law,
MERS has authority under the mortgage to assign it to BANA. The mortgage specifically states that
MERS is “[t]he beneficiary of this Security Instrument” and the “nominee for Lender and Lender’s
successors and assigns.” 47 This language grants MERS the power to act as the agent of the note
holder and assign the mortgage.48 Therefore, because MERS had authority to assign the mortgage
to BANA, BANA as owner of the mortgage had authority to foreclose.
E. Remaining Claims
In their brief, Appellants simply state they plead several other causes of action in their
Complaint, including fraud for collecting mortgage payments under false pretenses (Count 4),
manipulating securities and real estate markets causing frustration of performance (Count 5), quiet
title (Count 6), breach of contract related to foreclosure (Count 7), fraud in the inducement (Count
8), violation of Tennessee Consumer Protection Act (Count 9), slander of title (Count 10), violation
of the FDCPA (Count 11), and civil conspiracy (Count 12).49 Because they offer no argument as
to how those causes of action succeed, Appellants have abandoned their appeal as to those claims.50
45Appellants’ Brief at 24-31.
46Id. at 31, 33-34.
47R. 120-2 (Ex. 2 to Second Am. Compl.) (Page ID # 443-455).
48See Hutchens v. Bank of Am. N.A., 3:11-CV-624, 2012 WL 1618316 (E.D. Tenn. May 9, 2012); Samples v.
Bank of Am., N.A., 3:12-CV-44, 2012 WL 1309135 (E.D. Tenn. Apr. 16, 2012).
49Appellants’ Brief 37-38.
50See Post v. Bradshaw, 621 F.3d 406, 413 (6th Cir. 2010) (holding Appellant “failed to brief claim [], thus
abandoning it”); United States v. Johnson, 440 F.3d 832, 845-46 (6th Cir. 2006) (holding an “appellant abandons all
issues not raised and argued in its initial brief on appeal); Kirk v. Simpson, 977 F.2d 581 (6th Cir. 1992) (stating that
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IV. Conclusion
For the foregoing reasons, we AFFIRM.
Appellant abandoned claim because no argument on that claim was included in his appellate brief).
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