Sullivan v. Decision One Mortgage et al

OCR transcription for search; preserved printed pages are authoritative

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UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS

IR LI I I I OD DD OD dO Dd PD Pd ad Pct Pd

In re
TERESE SULLIVAN, Chapter 13
Debtor Case No. 04-19022-JNF

ROR REE EE EEE EI EE EEE Ee

TERESE SULLIVAN,
Plaintiff

V. Adv. P. No. 05-1350

DECISION ONE MORTGAGE:
HOUSEHOLD FINANCE CORP. II;
COUNTRYWIDE HOME LOANS;
BANK OF AMERICA, f/k/a FLEET
NATIONAL BANK; OPTION ONE
MORTGAGE CORP.; LONG BEACH
MORTGAGE CORP.; WASHINGTON
MUTUAL BANK; NEW CENTURY
MORTGAGE CORP.; ACCREDITED
HOME LENDERS; CIT GROUP and
STANTON & DAVIS, Attorneys at Law,

Defendants

Tee ae a Aa ae dae a ae Tie a ae at a a a a a te dt at ae dt te a a dad

MEMORANDUM
I. INTRODUCTION
The matter before the Court is the “Motion of Defendarits Long Beach Mortgage

Corp. and Washington Mutual Bank for Summary Judgment.” Through their Motion,

Long Beach Mortgage Corp. (“Long Beach”) and Washington M atual Bank (“Washington

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

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Mutual”)(collectively, the “Lenders”) seek summary judgment on Counts I, IL, and III of
the Complaint filed by Terese Sullivan (the “Debtor”).’ The Debtor filed an Objection to
the Lenders’ Motion, and the Court heard the Motion and the Objection on May 11, 2006.
The Lenders submitted supplemental documentation at the hearing. Following the
hearing, the Debtor submitted the complete transcript of her deposition which took place
on February 6, 2006.

Based upon the documentary evidence, the Debtor’s deposition testimony, and the
Memoranda submitted by the parties, the Court finds that there are no genuine issues of
material fact, and the matter is ripe for summary judgment. See Fed. R. Civ. P. 56(c), made
applicable to this proceeding by Fed. R. Bankr. P. 7056. Accordingly, the Court makes the
following findings of fact and conclusions of law in accordance with Fed. R. Bankr. P. 7052.
Il. PROCEDURAL AND FACTUAL BACKGROUND

The Debtor filed a voluntary Chapter 13 petition on November 8, 2004. On Schedule
A-Real Property, she listed an ownership interest in a condominium unit located at 308
Willow Brook Drive in Wayland, Massachusetts (the “ property”). She valued the unit at
$180,000 and indicated that she was “uncertain” as to the amoutt of any secured claims.
On Schedule B-Personal Property, the Debtor identified “[p]ossible claims against
mortgagees,” adding that they were “too speculative to value.” On Schedule D-Creditors

Holding Secured Claims, the Debtor listed a disputed first mortgage on the property in the

‘ The parties have stipulated that only these three counts of the Debtor's seven-
count Complaint pertain to the Lenders.

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estimated sum of $500,000 held by Countrywide Home Loans (“Countrywide”) and a
disputed second mortgage in the estimated sum of $59,000 held by Fleet Bank (“Fleet”).
The Debtor listed no creditors on Schedule E-Creditors Holding Unsecured Priority Claims
or Schedule F-Creditors Holding Unsecured Nonpriority Claims.

On Schedules I-Current Income of Individual Debtors, the Debtor disclosed that she
was a nurse at Metrowest Medical Center with income from monthly gross wages of
$4,300 and from child support in the sum of $580. On Schedule J-Current Expenditures of
Individual Debtors, she disclosed that her monthly expenses were $1,965, excluding any
mortgage payments.

The Debtor, on February 3, 2004, nine months before filing her Chapter 13 petition,
had filed a Chapter 7 petition and received a discharge. On Schedule A in that case, she
listed her condominium unit located at 308 Willowbrook Drive in Wayland, adding the
following information:

a. Refinanced 2002 - Apraised [sic] at $600,000

b. Can only sell for 70% less of Market Value

c. Property won at lottery and valued at $95,000 in 1998
On Schedule B, the Debtor disclosed the existence of claims against Country wide and Fleet.
She valued these claims at $-0-.2, On March 5, 2004, the Trustee in the Debtor’s Chapter 7

case filed a Report of No Distribution. Approximately two months later, the Debtor

* The Debtor mistakenly listed these claims under “[c]ontingent and
noncontingent interests in estate of a decedent, death benefit plan, life insurance policy
or trust” instead of under “[o]ther contingent and unliquidated claims of every nature,
including tax refunds, counterclaims of the debtor, and rights to setoff claims.”

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received her discharge. Her Chapter 7 case was closed on May 23, 2004.°
Ill. THE DEBTOR’S COMPLAINT

The Debtor filed her Complaint against the above-named defendants on May 11,
2005, one year after receiving her discharge in her prior Chapter 7 case. Her Complaint
contains seven counts, only three of which are applicable to the Lenders. These are Count
I for Breach of Contract; Count II for Fraud, Deceit and/or Misrepresentation; and Count
III for Unconscionability. The pertinent facts alleged by the Debtor in numbered
paragraphs are as follows:

7. Sullivan acquired the property on or about June 22, 1998, by deed recorded
in the Middlesex South Registry of Deeds at book 28737 page 189.

8. The property is a condominium unit.

9. Sullivan gained the right to purchase the property through a “lottery”
conducted pursuant to an “ Affordable Housing Plan” adopted by the Town
of Wayland.

10. As a result, Sullivan was able to purchase the property for approximately
$98,000, notwithstanding that the actual fair market value was significantly
higher.’

11. The deed contains restrictive covenants which includ2 a formula which
sets the price at which Sullivan may sell the property, should she desire to
do so.

12. The covenants, however, do not restrict the price at which a mortgagee
may sell the property at or subsequent to a foreclosure auction.

13. A purchase money morlgage was given lo Stuart N. Cole as Trustee of the
County Mortgage Trust.

14. Thereafter, Sullivan was induced to enter into a series of mortgage

* The Debtor and her former spouse, Peter F. Sullivan, also filed a Chapter 7

petition on March 17, 1993. The Trustee in that case also filed a Report of No
Distribution and the debtors received their discharge on July 13, 1993.

* The Debtor paid $95,000 for the unit in 1998. See Condominium Unit Deed
attached to Plaintiff's Objection to the Lenders’ Motion for Summary Judgment.

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refinancing transactions, resulting in the following mortgzges being granted”
and, where indicated, discharged:

DATE OF MTGE LENDER AMOUNT DISCHARGED
6/22/98 County Mtge Trust (Cole) 95,00 7/9/99
4/8/99 FHB Funding 130,000 3/20/2000
12/1/99 Household Finance Corp. II 11,594.22 Not of record
2/16/2000 Long Beach Mtge 200,000 6/21/2000
3/30/2000 Option One Mtge 235,000 12/28/2000
10/23/2000 Accredited Home Lenders, Inc. 302,000 Not of record
12/01/2000 Washington Mutual Bank FA 294,000 6/7/2001
3/15/2001 New Century Mtge Corp. 337,350 2/21/2002
10/22/2001 New Century Mtge Corp. 392,000 2/8/2003
4/10/2002 CIT Group 50,000 Not of record
10/17/2002 Decision One (MERS) 480,000 Not of record
4/15/2003 Fleet National Bank 40,000 6/11/2003

15. Sullivan initially sought refinancing in order to obtain funds to pay
legitimate debts.

16. Thereafter, the increased payment amount for the new mortgage placed
more and more strain on her ability to pay the mortgage in addition to her
normal and ordinary living expenses.

17. When she contacted the lenders about her financial difficulties, they
induced her into refinancing the then existing mortgage, resulting in Sullivan
becoming liable for more and more debt.

18. In each transaction, Sullivan believes and therefore avers that the lenders
made the loans without any consideration of her ability to repay the loan.
19. She further believes and therefore avers that the lenclers or their agents
inserted information into the mortgage applications that was different from
what she told them and failed to inform her that the information had been
inserted.

20. Sullivan believes that the lenders were focused on the fact that the
amount of the loan as compared with the equity in the property (based on
the actual fair market value as opposed to what Sullivan could sell the

° As set forth below, the Debtor’s chart is inaccurate.

fe)

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property for based on the restrictive covenants) was such that when they

foreclosed, there was a near certainty that they would recover the amount

lent.

21. In addition, if the lender became the purchaser at a foreclosure auction,

there was a substantial likelihood that the lender could then sell the property

for a substantial profit.

22. For each transaction, the lenders also charged Sullivan fees that were

unjustified, unnecessary, unreasonable and illegal.

23. In 2003, Sullivan's financial difficulties became overwhelming, in large

part because Decision One Mortgage commenced foreclosure proceedings.

An Order of Notice from the Massachusetts Land Court was recorded in the

Middlesex South Registry of Deeds on December 17, 2004.

Based upon these allegations, the Debtor formulated the three counts identified
above. In Count I, she alleged that she was “induced to enter” into contracts with the
Lenders, that the Lenders actions were intended to deprive Sullivan of her home and the
equity in her home “solely for their own pecuniary gain.” She further averred that the
Lenders knew or should have known that she did not have the ability to repay the amount
lent, “but made the loan nonetheless with the intention of foreclosing and making a profit
unjustly, unfairly and inequitably.” Accordingly, she asserts that the Lenders breached the
implied covenant of good faith and fair dealing inherent in every contract.

In Count I, the Debtor alleged the Lenders and/or their agents made statements
and promises that they knew or should have known were false or deceptive. She
specifically alleged that the Lenders stated that her income was sufficient to pay the
required monthly payment. She also alleges that they “misrepresented the cost of the loan,
both in terms of the related closing costs and the total amount s'1e would have to pay.”

Finally, in Count II, the Debtor alleged that, because the Lenders conducted no due

diligence for the purpose of determining her ability to repay the obligation or disregarded

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the results of their due diligence, they knew or should have known that it was unlikely that
she could repay the loans.

With respect to Count III, the Debtor alleged that the conduct of the Lenders was
unconscionable and that “she is entitled to a declaration voiding the mortgage [sic] and
awarding her damages.” With respect to Count I and I, the Debtor requested “judgment
appropriate to her complaint, attorney fees [sic] and costs, and such other and different
relief as may be appropriate in the circumstances.”

At this juncture, for purposes of clarity, it is appropriate to observe what the Debtor
did not aver in her Complaint or do in her bankruptcy case. She clid not join as defendants
in this adversary proceeding, or name as defendants in any other adversary proceeding,
any mortgage brokers who may have assisted her in obtaining :nortgage loans from the
Lenders. She did not identify or allege in her Complaint that any particular mortgage
broker acted as an agent of any particular lender, or that the Lenders had agency
relationships with particular mortgage brokers, or that the Lenders compensated, directly
or indirectly, the mortgage brokers used by the Debtor. Additionally, she did not allege
that the Lenders owed her any particular duty, including a fic.uciary duty, or that the
Lenders violated any federal or state consumer protection or truth in lending laws or
regulations, including, but not limited to, the Truth in Lending Act, 15. U.S.C. § 1601 et seq.
(“TILA”), and Regulation Z, 12 C.F.R. § 226.1; the Home Ownerskip and Equity Protection
Act of 1994, (“HOEPA”) 15 U.S.C. § 1639; the Real Estate Settlement Procedures Act, 12

U.S.C. §§ 2601-17 (“RESPA”) and Regulation X, 24 C.F.R. § 3500; or the Fair Debt Collection

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Practices Act, 15 U.S.C. § 1692 (“FDCPA”).

The Lenders answered the Debtor’s Complaint. While generally representing that
they lacked knowledge or information sufficient to form a belief as to the truth of the
Debtor's factual allegations, they specifically denied the allegations set forth in numbered
paragraphs 18, 19 and 22 reproduced above with respect to the Debtor’s allegations that
they made loans to her without regard to her ability to repay the loans, that they inserted
information into the mortgage applications regarding her ability to repay the loans, and
that they charged her unjustified, unnecessary, unreasonable or illegal fees.

The Court issued a pretrial order requiring the filing of a Joint Pretrial
Memorandum. The parties failed to file the Joint Pretrial Memorandum within the time
prescribed in the order. At the May 11, 2006 hearing, the Court ordered the parties to file
the Joint Pretrial Memorandum immediately, and the parties complied. In the Joint Pretrial
Memorandum, the Debtor stated: “The plaintiff does not anticipate any witnesses other
than herself.”

IV. FACTS

In their Memorandum in support of their Motion, the Lenders supplemented and
corrected the facts set forth in the Debtor’s Complaint with respect to the amount and
timing of the loans they made. In particular, by submitting pertinent documents in
conjunction with their Motion, including HUD Settlement Statements, Truth-in-Lending
Disclosure Statements, and Notices of Right to Cancel, they corrected the amount and

sequence of the loans obtained by the Debtor from them. The Debtor did not produce

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rebuttal evidence and did not contest the facts set forth in the Lenders’ Memorandum with
respect to the amount and timing of the loans. Thus, for the purposes of the Motion for
Summary Judgment, the Court accepts the facts set forth in the exhibits presented by the
Lenders.°

The Debtor is an educated, professional, divorced mother of two college-age
children. She has been employed as a registered nurse for approximately 27 years. At the
present time, she earns approximately $33 per hour and works between 32 and 40 hours
per week. (Tr. 42). Neither she nor her children have health sroblems. (Tr. 109). The
Debtor divorced the father of her children, Peter Sullivan, in 1994. She remarried him in
2002 but recently divorced him again. (Tr. 79). She receives child support from her
husband, although the payments are not always regular.

The Debtor purchased the property on June 2, 1998 for $95,000 while she was single.
She obtained a deed for the condominium unit, which was subject to a “Rider for
Affordable Units.” The Rider contains the disclosure that the Town of Wayland issued the
grantor, Willow Brook Associates Limited Partnership, a special permit which required it
to sell, at affordable prices, certain units at the Willow Brook Condominium of which the

Debtor’s unit was one. As a result, the grantor conveyed Unit #308 to the Debtor “at a

° Although the Lenders submitted a copy of the Debtor's Complaint, HUD
Settlement Statements, Truth-in-Lending Disclosure Statements, and portions of the
Debtor's deposition transcript in support of their Motion for Summary Judgment, the
Debtor submitted only a copy of the deed to her condominium unit and the complete
transcript of her deposition.

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consideration which is 0.67 (the “Discount Rate”) below the appraised value of the
Property as determined by a fair market appraisal.” Pursuant to the Deed and Rider, the
Debtor, her heirs, successors, and assignees, agreed to be bound hy various restrictions set
forth in the Rider, including the grant of a right of first refusal tc: the Town and a promise
to remit to the Town, in the event it failed to exercise its right of first refusal, any proceeds
from the sale in excess of the Maximum Resale Price. The Maximum Resale Price is defined
in the Rider as a price “equal to the appraised fair market value . . . multiplied by the
Discount Rate assigned to the Property.”

Mortgagees, such as the Lenders, were not bound by the provisions of the Rider
except in certain circumstances:

3. Rights of Mortgagees: (a) Notwithstanding anyth:ng herein to the
contrary, but subject to the next succeeding paragraph hereof, if the holder
of record . . . of a first mortgage granted to a state or national bank, state or
federal savings and loan association, cooperative bank, mortgage company,
trust company, insurance company or other institutional lender or its
successors or assigns .. . shall acquire the Property by reason of foreclosure
or similar remedial action under provisions of such mortgage or upon
conveyance of the Property in lieu of foreclosure, and provided that the
holder of such mortgage has given the Municipality not less than (60) days
prior written notice of its intention to foreclose upon its mortgage or to
accept a conveyance of the Property in lieu of foreclosure, the rights and
restrictions contained herein shall not apply to such holder upon such
acquisition of the Property, any purchaser . . . of the Property at a foreclosure
sale conducted by such holder, or any purchaser . . . of the Property from
such holder, and such Property shall thereupon and thereafter be free from
all such rights and restrictions.

(b) In the event such holder conducts a foreclosure or other proceeding
enforcing its rights under such mortgage and the Property is sold for a price
in excess of the greater of (i) the sum of the outstanding principal balance of
the note secured by such mortgage plus all future advances, accrued interest
and all reasonable costs and expenses which the holder is entitled to recover

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pursuant to the terms of the mortgage and (ii) the Maximum Resale Price

applicable on the date of the sale, such excess shall be paid to the

Municipality in consideration of the loss of the value and benefit of the rights

and restrictions herein contained held by the Municipality and released by

the Municipality pursuant to this section in connection with such proceeding

... In order to determine the Maximum Resale Price of the Property at the

time of foreclosure or other proceeding, the Municipality may, at its own

expense, obtain an appraisal of the fair market value of the Property.

The Debtor testified that she read the Rider “ off and on” since acquiring the condominium.
(Tr. 38).

The Debtor obtained mortgage financing to acquire the property in 1998. She
testified that the interest rate associated with the acquisition financing was 14 percent. (Tr.
19). Within a year of acquiring the property, as set forth in the chart included in her
Complaint, the Debtor refinanced the property.

On July 26, 2000, the Debtor obtained a thirty-year, fixed rate mortgage in the
principal amount of $259,500 from Long Beach. She used a portion of the loan proceeds
in the sum of $241,884.87 to pay in full a mortgage granted to her by Option One, which
had a variable interest rate and an APR of 10.889 percent. (Tr. 19).” In conjunction with the
loan from Long Beach, the Debtor paid fees and charges in the total sum of $1,796.50.
These fees and charges included a “loan discount” fee in the amount of $1,297.50, a tax
service fee in the amount of $65, a document preparation fee in the amount of $200, a flood

search fee in the amount of $16, and an underwriting fee in the amount of $218. The

Debtor also paid fees to her mortgage broker, New England Merchants. These fees totaled

’ Accordingly, the sequence of refinancings set forth in paragraph 14 of the
Debtor’s Complaint was incorrect.

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$8,255 and included a loan origination fee of $7,785, a credit report fee of $75 and a
processing fee of $395. The settlement charges paid by the Debtor, including the payments
to New England Merchants, totaled $11,794.91. The Debtor obtained $5,820.32 in cash from
the transaction.

Long Beach issued a Truth-in-Lending Disclosure Statement to the Debtor, as well
as a Notice of Right to Cancel. The Disclosure Statement showed an annual percentage rate
(“ APR”) of 9.468 percent. It also revealed that the Debtor would be responsible for 360
monthly payments in the amount of $2,086.13 and that she coulc. prepay the loan without
penalty. At her deposition, the Debtor admitted that the Long Beach mortgage was a fixed
rate, 30-year mortgage with an interest rate which was approximately 1.5% lower than the
interest rate applicable to her loan from Option One. (Tr. 22).

Prior to refinancing her property and obtaining a mortgage from Washington
Mutual, the Debtor sought financing from Accredited Home Lendlers, Inc. She testified that
she rescinded that transaction. She stated that “they [the fees and charges] were even more
outrageous, and it wasn’t really helping me in the way that I thought it should be, as far
as monthly payments or assisting me in cash-out to pay legitimate debts that I had.” (Tr.
24).

On November 21, 2000, the Debtor borrowed the principal amount of $294,000 from
Washington Mutual. She used a portion of the loan proceeds, 268,847.37, to satisfy her
mortgage loan from Long Beach. Approximately three months later, on March 2, 2001, she

repaid her loan from Washington Mutual in full in the amour of $319,169 with a loan

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obtained from New Century Mortgage Corp. in the sum of $337,350.

In conjunction with the Washington Mutual loan, the Debtor paid fees to
Washington Mutual in the total sum of $560. She paid additional fees to a mortgage
broker, First Horizon, and an another entity, Lereta Corp., in the sum of $7,434. She also
paid water and sewer charges and real estate taxes totaling $498.90, as well as other
miscellaneous fees for total settlement charges of $11,732.66, excluding the Long Beach
mortgage payoff and the $560 payment to Washington Mutual. In addition, the Debtor
obtained cash in the sum of $8,490.80 from the transaction and payment of two credit cards
debts in the sum of $4,269.17.

The Washington Mutual loan had an adjustable interest rae which was fixed at 8.25
percent for the first five years. That rate was more than one percent lower than the interest
rate applicable to the Debtor’s note and mortgage with Long Beach. Washington Mutual
provided the Debtor with a Notice of Right to Cancel and a Truth-in-Lending Disclosure
Statement which indicated that the APR was 8.830 percent and that the Debtor would be

responsible for 60 monthly payments in the sum of $2,208.72 before the interest rate
changed.

The Debtor appeared at a deposition on February 6, 2006 at which time she testified
about the Long Beach and Washington Mutual loans described above, as well as loans
obtained from other lenders, including New Century, Decision One, and Fleet. She
indicated that she madc it a general practice to carefully review all fees and charges that

she was going to pay at loan closings, that she was familiar with HUD Settlement

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Statements (Tr. P. 10) and that she understood the meaning of Annual Percentage Rate.
(Tr. 18). Additionally, she testified that she was truthful when she prepared mortgage
applications and that she was truthful in her statements of her income and the value of her
property. (Tr. 40). Moreover, she admitted signing “Certifications” in conjunction with
mortgage applications attesting that the information on the applications was “true and
correct.” (Tr. 53, 69). She admitted that she was aware that her property was valued at
$519,000 in conjunction with the Long Beach mortgage, that she represented her monthly
income was comprised of salary in the amount of $3,833 (Tr. 53), and child support in the
amount of $672. (Tr. 57). Additionally, in conjunction with the Washington Mutual loan
transaction, she admitted that she was aware that a value of $495,000 was ascribed to her
property (Tr. 69) and that she represented her income to be $5,00 per month. (Tr. 70).

The Debtor also admitted that, in conjunction with bcth the Long Beach and
Washington Mutual loans, she produced W-2 statements. (Tr. 40, 73). She testified that she
provided Long Beach with tax returns (Tr. 40) and that no one from Long Beach told her
to inflate her income. (Tr. 44). She also admitted that Washington Mutual required her to
address various issues relating to her 1993 bankruptcy case and various late payments. (Tr.
73). She stated:

... [T]hese documents were presented to me at the closing for what they

needed to close my loan. So I didn’t really get too picky over it. I had sent

them my taxes. I had given them all my information. | felt that when they

had their paperwork in line, that it was correct. I mean, I might not have

gone over every little thing. But my end result was that I had agreed to refi

[sic] for a certain interest rate with a certain amount of cash out to help me
with my finances and with my interest rate.

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(Tr. 70-71).

The Debtor, both in her Complaint and in her testimony, asserted that the Lenders
acquired their loan by false statements and promises. When questioned about the
purported false information, she replied that it consisted of “the original way that this was
obtained - - by appraisals, not checking into the affordable-housing rider, income that was
not verified, and just the general way that it was acquired, by the way it was presented to
me.” (Tr. 34). Later in her testimony she stated:

...I1 do feel that possibly the application, the way it was done, with my
income, the value of the condo, the appraisal, and by signing the mortgage
note itself, signing something that was way above my means but was
presented to me in a way that was going to be somethin great for me, but
in essence it was not. I mean, I feel, you know, the way it was presented to
me as a consumer, it wasn’t appropriate.

(Tr. 61-62).

The Debtor also testified about the costs of the loans znd the total amount she
would have to pay, information which she alleged in her Comp.aint was misrepresented.
In conjunction with the loan from Long Beach, she stated:

That's part of the problem. These were presented to me as being helpful to
me in attaining this mortgage, to get a lower interest rate and to help with
my financial [sic] in general. I have no idea what an origination fee is for
$7,000. All of these I think are crazy, and this is part of the problem. It was
presented to me in a professional way, similar to today, by knowledgeable
professionals. And myself, as a consumer, I’m a nurse of 25 years and a
mother. I don’t have a lot of knowledge if these are appropriate or not. It
wasn’t until after I attained these mortgages that I realized that things
weren't right.

(Tr. 23).

Near the end of her deposition, the Debtor stated: “I mean fraud is kind of a strong

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word. I would say there were some things that weren't done appropriately, and they were
obtained by very pushy mortgage brokers.” (Tr. 297).

When asked about how Long Beach and Washington Mutual breached their
respective contracts with her, the Debtor responded as follows:

I feel basically, to begin with, the mortgage brokers were very aggressive and
took advantage of my lack of knowledge about mortgages or real estate and
that they took advantage of my situation, by appealing to the fact that I could
enter into a lower mortgage rate, I could get cash out to pzy off debts. I have
two children who need things. And I feel that they presented themselves in
a way that made me feel comfortable interacting with them and proceeding
with the lower interest rate and the refinance of my home.

(Tr. 11-12). When pressed as to whether she could refer to any particular document or
contract with the Lenders that was breached, she testified:

Well, in general, I feel the whole dealings with them and the mortgage that
they gave me was a breach of contract. I feel that they - - to begin with,
appraisals were done very haphazardly, like in ten minutes. They acted
very, very quickly with their paperwork and their aggressiveness of
pursuing me and my documents that they needed. Everything was
approved very quickly for the transaction to go through.

And I don’t feel that they took into consideration some of the things, like the
appraisal wasn’t really correct, in that it was affordable housing. I don’t
think the correct research was done at the town hall to “ind out that there
was a deed rider on the property. My income was inflated in respect that
they had mentioned that I had the ability to work overt:me or do my own
private-duty nursing, which isn’t really correct. And I feel that they didn’t
take into consideration my situation with my family, as compared to being
able to pay off aloan with my income and my situation with the condo. I feel
that it was for their own means that they had to close the deal.

(Tr. 12). The Debtor also testified that “I feel the breach was previous to the note, in respect
to the way it was acquired.” (Tr. 33).

The Debtor admitted that she had reviewed the appraisals obtained for the property

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before closing the loans, but stated that she was “totally reliant on these professional
people that were helping me, and I believed that those values were true and appropriate.”
(Tr. 36). As noted about, the Debtor testified that she was truthful in submitting mortgage
loan applications, certified that her representations were true and correct, and submitted
evidence to the I_enders of her income in the form of W-2s.

The Debtor responded to questions about the mortgage brokers to whom she
directly paid origination and other fees. She admitted that mortgage brokers she used
could and did place loans with more than one lender (Tr. 26). With respect to the payment
to New England Merchants, which acted as a mortgage broker in conjunction with the
Long Beach loan, as well as other loans obtained by the Debtor (Tr. 96), she admitted that
New England Merchants originated loans with multiple lenders and was a separate entity
from Long Beach. (Tr. 25). She stated:

New England Merchants is a mortgage broker who were very aggressive

with me, came to my home, were constantly calling me. You know, again,

they were appealing to my lack of knowledge and my lack of knowing that

I could do with this piece of property. I mean, 1 madc a n:ce home and I was

happy to be a homeowner. Like I said, I took a high interest rate when I

originally closed on the property, and this - - they were enticing me to refi

[sic], from many advantages for me [sic], only to find out it was for their own

advantage.

(Tr. 24-25).° Although the Debtor admitted that she paid New England Merchants directly,

and that she could point to no document indicating that the mortgage brokers were agents

* Later in her testimony she stated: “I trusted them. But looking back, they [New
England Merchants] really weren’t good people. I mean, like I said, I don’t really have
a knowledge of real estate. It was presented to me as being very helpful to me in my
life, and in the end my life is just devastated through all of these transactions.” (Tr. 96).

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of the Lenders (Tr. 29), she testified: “But I feel they’re representing the mortgage
company.” (Tr. 25). In the same vein, the Debtor stated: “I feel that they obtain the loans
for you through a mortgage company, like Long Beach, Washington Mutual, Option One.
I feel that they are representative of them because they're the channel by which you end
up with the mortgage.” (Tr. 25-26). She also testified:

I feel that they were trying to gain access to my property for their own

benefit. Like the origination fee and like other fees, and obtaining your

mortgage maybe knowing that you’re not able to feasibly do it, it would end

up helping them or it would end up being ina foreclosure. I know, I just feel

that they take advantage - - took advantage of me and my family.

(Tr. 26-27). When questioned again about why she believed that the mortgage brokers
represented the Lenders, she stated: “Well, because I feel tha:, from what they did to
qualify me for a loan was what Long Beach would need to grant the loan. So it would seem
to me that the ultimate decision would be from Long Beach, whether their loan was
appropriate for the person.” (Tr. 44). The Debtor blamed the mortgage brokers for
presenting themselves as agents of the Lenders. (Tr. 29). She also testified that the
mortgage brokers had advised her that it was unnecessary for her to engage an attorney
to attend the closings. (Tr. 30). Nevertheless, the Debtor testified that New England
Merchants placed loans with multiple lenders and that she used it to obtain loans from
lenders other than Long Beach. (Tr. 25).

The Debtor admitted that she had probably had no contact with Long Beach after

she closed the loan with Washington Mutual (Tr. 65) and that she had no contact with

Washington Mutual after March of 2001. (Tr. 76).

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V. THE MOTION FOR SUMMARY JUDGMENT AND THE DEBTOR’S OBJECTION

The Lenders seek summary judgment with respect to Counts I through JI. With
respect to Count II of the Complaint, they seek summary judgment because the Complaint
was tiled well after the applicable three-year statute of limitations for tort claims. They
seek summary judgment with respect to the remaining counts because, in their view, “they
are nothing more than misrepresentation or tort claims inappropriately clothed as breach
of contract claims.” With respect to Count III, they add that the loans they made were
neither substantively or procedurally unconscionable when assessed under the appropriate
legal standard.

The Debtor maintains that her misrepresentation and fraud claims are within the
three year statute of limitations. She relies on the so-called “discovery rule,” arguing that
the statute did not begin to run until she knew or should have know of her injury.
Referring to federal and state Truth-in-Lending statutes and her testimony reproduced
above, the Debtor also posits that the Lenders owed her a fiduciary duty, although she did
not plead the existence of such a duty in her Complaint. She states “[i]t cannot seriously
be disputed that mortgagees have a fiduciary duty to mortgagcrs.”

The Debtor also asserts that the loans from the Lenders were unconscionable
because they drove too hard a bargain, even if the terms of the loan were fully disclosed
and the costs were not exorbitant. She relies, in part, on this Court’s decision in In re
Maxwell, 281 B.R. 101 (Bankr. D. Mass. 2002), arguiny as follows:

In that case, the court found that the increasing principal balance of the
mortgages “significantly reduced” the plaintiff's equity in her home. The

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same is true in the present case, and is all the more egregious in the present
case because of the restrictive covenants in the deed which prevent Sullivan
from selling the property at its true market value, but do not place similar
restrictions on foreclosing mortgagees. ... In the present case, Sullivan
alleges in her complaint that the bank knew that she did not have the ability
to repay the loan or to make the regular monthly payments. The bank has
simply ignored those issues, thereby failing to show the absence of a material
triable fact as to substantive unconscionability.
The Debtor also argues that it was the Lenders’ burden to show that they gave her all
disclosures required by law and, without such a showing, this Court cannot find that the
transactions were not unconscionable as a matter of law. In short, she maintains that the
loans are socontrary to prudent lending practices that no conscientious lenders could have
made them in good faith.
VI. DISCUSSION
A. Summary Judgment Standard
The United States Court of Appeals for the First Circuit articulated the standard for

summary judgment in the often cited case of Desmond v. Varrasso (In re Varrasso), 37 F.3d

760 (1st Cir.1994). It stated:

It is apodictic that summary judgment should be bestowed only when no
genuine issue of material fact exists and the movant has successfully
demonstrated an entitlement to judgment as a matter of law. See Fed. R. Civ.
P. 56(c). As to issues on which the movant, at trial, would be obliged to carry
the burden of proof, he initially must proffer materials of evidentiary or
quasi-evidentiary quality--say, affidavits or depositions--that support his
position. See Lopez v. Corporacion Azucarera de Puerto Rico, 938 F.2d 1510,
1517 (1st Cir.1991); Bias v. Advantage Int'l, Inc., 905 F.2d 1558, 1560-61 (D.C.
Cir.), cert. denied, 498 U.S. 958, 111 S.C. 387, 112 L.Ed.2d 397 (1990); cf.
Mendez v. Bancu Popular de Puerto Rico, 900 F.2d 4, 7 (1st Cir.1990) (“The
mere fact that plaintiff failed to file a timely opposition does not mean that
defendant’s Rule 56 motion should be granted”), When the summary
judgment record is complete, all reasonable inferences from the facts must

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be drawn in the manner most favorable to the nonmovant. See, e. g., Morris
vy. Government Dev. Bank, 27 F.3d 746, 748 (1st Cir.1994); Garside, 895 F.2d
at 48; Greenburg v. Puerto Rico Maritime Shipping Auth, 835 F.2d 932, 934
(Ist Cir.1987). This means, of course, that summary judgment is
inappropriate if inferences are necessary for the judgment and those
inferences are not mandated by the record. See Blanchard v. Peerless Ins. Co.,
958 F.2d 483, 488 (Ist Cir.1992) (warning that summary judgment is
precluded “unless no reasonable trier of fact could draw any other inference
from the ‘totality of the circumstances’ revealed by the undisputed
evidence”).

37 F.3d at 763 (footnote omitted). In a footnote, the First Circuit cautioned:

As to issues on which the nonmovant [the Debtor in this case] has the
burden of proof, the movant need do no more than aver “an absence of
evidence to support the nonmoving party’s case.” Celotex Corp. v. Catrett,
477 U.S. 317, 325, 106 S.C. 2548, 2553-54, 91 L.Ed.2d 265 (1986). The burden
of production then shifts to the nonmovant, who, tc avoid summary
judgment, must establish the existence of at least one question of fact that is
both “genuine” and “material.” See Anderson v. Liberty Lobby, Inc. 477 U.S.
242, 248, 106S.C. 2505, 2510, 91 L.Ed.2d 202 (1986); Garside, 895 F.2d at 48-49.

Id. at 763.n.1. Similarly, in DiStefano v. Stern (In re JFD Enters., Inc.), 215 F.3d 1312, 2000

WL 560189 (Ist Cir. 2000), the First Circuit stated:

[Summary judgment is appropriate if the nonmovant’s evidence is “merely
colorable, or is not significantly probative.” Anderson v. Liberty Lobby, Inc.,
477 US. 242, 249-50, 106 S.C. 2505, 91 L.Ed.2d 202 (1986) (citations omitted).
“The mere existence of a scintilla of evidence in support of the plaintiff's
position will be insufficient; there must be evidence on which the jury could
reasonably find for the plaintiff.” Id. at 252. We wil: not “accept the
nonmovant's subjective characterizations of events, unless the underlying
events themselves are revealed.” Simas v. First Citizens’ Fed. Credit Union,
170 F.3d 37 (1st Cir.1999); see also Liberty Lobby, 477 U.S. at 256; Santiago v.
Canon U.S.A. Inc. 138 F.3d 1, 6 (1st Cir.1998).

215 F.3d 1312, 2000 WL 560189 at *3.
The recitation of the applicable standard is important in this proceeding for several

reasons. In defense of the Lenders’ summary judgment motion, the Debtor asserts a

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variety of defenses and arguments to substantiate the existence 0: a triable issue of material
fact. These include the existence of a fiduciary duty, not mentioned in her Complaint, to
substantiate her position that the discovery rule applies to preclude dismissal of the causes
of action against the Lenders set forth in Count II, which would otherwise be time barred.
Additionally, she points to the Lenders’ failure to produce evidence that they complied
with all required notices under unspecified consumer protection and truth-in-lending laws,
laws which the Debtor did not allege were violated, to establish unconscionability. For the
reasons set forth below, the Court finds that the Debtor had the burden of producing
evidence of the existence of a fiduciary relationship for the discovery rule to apply, and
that, in view of the undisputed facts established by the Lenders with respect to Counts I
and III, the burden shifted to the Debtor to produce evidence of a genuine issue of material
fact for her to proceed to trial with her claims. In view of her deposition testimony,
however, the Court finds that it would have to disbelieve the Debtor’s own testimony in
order to deny summary judgment. In other words, the Debtor’s deposition testimony
substantially contradicted the allegations set forth in her Complaint. The Debtor
submitted no facts which would support her claims against the Lenders, claims which are

entirely predicated upon her “subjective characterizations of events,” see Inre JFD Enters.,

Inc., 215 F.3d 1312, 2000 WL 560189 at *3, namely her feeling that the transactions with the

Lenders were not appropriate for her financial circumstances.

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B. Applicable Law

1. Fraud in the Inducement and the Statute of Lirrutations
The Debtor has asserted that the Lenders induced her to enter the loan transactions
by making false and deceptive statements. “To prove traud in the inducement under
Massachusetts law, a plaintiff must prove that the defendant made a material
misrepresentation with knowledge of its falsity, or with reckless disregard of the actual
facts, and that plaintiff was induced by and was reasorable in relying on the

misrepresentation to enter the agreement.” Shawmut-Canton LIC v. Great Spring Waters

of Am., Inc., 62 Mass. App. Ct. 330, 335 (2004).

Under Massachusetts law, a tort claim, such as the one asserted by the Debtor for
fraudulent inducement, is barred unless it is asserted within thiee years of the accrual of

the cause of action. Mass. Gen. Laws ch. 260, § 2A; Salois v. The Dime Savings Bank, 128

F.3d 20, 24 n.4 (1st Cir. 1997). “Where summary judgment is sought on the basis of a
statute of limitations, once the defendant establishes that the time period between the
plaintiff's injury and the plaintiff's complaint exceeds the limitations period set forth in the
applicable statute, the plaintiff bears the burden of alleging facts which would take his or

her claim outside the statute.” McGuinness v. Cotter, 412 Mass. 617, 620 (1992).

The Debtor invokes the discovery rule which operates to toll a limitations period
“until a prospective plaintiff learns or should have learned that he has been injured.”

Albrecht v. Clifford, 436 Mass. 706, 714 (2002). “Only if a -easonable person in the

plaintiffs position would have been able to discern the harm or the cause of the harm will

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the cause of action accrue and the limitations period begin to run.” Riley v. Presnell, 409

Mass. 239, 245 (1991). Stated another way, the Massachusetts discovery rule, like the
federal tolling doctrine, requires application of a “reasonable diligence” standard to the
facts admitted by plaintiff. Maggio v. Gerard Freezer & Ice Co., 824 F.2d 123, 130 (1st Cir.
1987).

The discovery rule “may arise in three circumstances: where a misrepresentation
concerns a fact that was ‘inherently unknowable’ to the injured party, where a wrongdoer
breached some duty of disclosure, or where a wrongdoer concealed the existence of a cause
of action through some affirmative act done with the intent to deceive.” Albrecht _v.

Clifford, 436 Mass. at 714 (citing Patsos v. First Albany Corp.. 433 Mass. 323, 328, 741

N.E.2d 841 (2001), and Protective Life Ins. Co. v. Sullivan, 425 Mass. 615, 631-632, 682

N.E.2d 624 (1997)). In Lewis v. The Dime Savings Bank of New York, FSB, No. 92-4188-F,

1996 WL 754903 at *3 (Mass. Super. December 27, 1996), the court formulated the standard
somewhat differently. It stated:

To the extent that they are not jurisdictional, the statutes may be tolled when:
(1) a fiduciary relationship existed between the parties and defendant
breached its duty of full disclosure, Puritan Medical Center, Inc. v. Cashman,
413 Mass. 167, 175 (1992); (2) the defendant concealed the cause of action
through some affirmative act performed with the intent to deceive, id.; or (3)

the action is based upon an inherently unknowable wiong, Friedman v.
Jablonski, 371 Mass. 482, 485 (1976).

Lewis, 1996 WL 754903 at *3. In the Lewis case, the plaintiff, who had sued The Dime
Savings Bank (“Dime”), argued thal she had established material facts as the existence of

a fiduciary duty and the breach of a duty of full disclosure by Dime, thus permitting the

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tolling of the statutes of limitations applicable to her claims. Id. The court recognized that

Massachusetts courts have found a fiduciary relationship to exist when a
plaintiff reposes trust and confidence in a defendant, and the defendant
accepts that trust and confidence knowingly. Markell v. Sidney B. Pfeifer
Foundation, Inc., 9 Mass. App. Ct. 412, 444 (1980). Whether or not such trust
or confidence exists is a factual question, which may be found on evidence
that one person is in fact dependent upon another's judgment in business
affairs or property matters. Id.

Lewis 1996 WL 754903 at *3.

A plaintiff alone, however, cannot create a fiduciary relationship. Broomfield v.

Kosow, 349 Mass. 749 (1965). In that case, the Supreme Judicial Court explained:

[T]he plaintiff alone, by reposing trust and confidence in the defendant,
cannot thereby transform a business relationship into one which is fiduciary
in nature. The catalyst in such a change is the defendant's knowledge of the
plaintiff's reliance upon him. In redressing an abuse of trust and confidence
equity will review such factors as the relation of the parties prior to the
incidents complained of, the plaintiff's business capacity or lack of it
contrasted with that of the defendant, and the readiness of the plaintiff to
follow the defendant's guidance in complicated transactions wherein the
defendant has specialized knowledge. Equity will, in sum, weigh whether
unjust enrichment results from the relationship. Bogert, Trusts and Trustees
(2d ed.) § 481, points out that in many representative social and business
relationships there is ‘no special intimacy or great degree of trust and
confidence’ but in certain of them ‘great intimacy’ is the rule because of
knowledge by one party of the business and family affairs of another. He
adds that equity has continued to lake an ‘active interest in the fostering and
protection of these intimate relationships which it calls ‘fiduciary.” He
stresses that the exact limits of the term ‘fiduciary relation’ are difficult to
ascertain, that equity refuses to bind itself by an all inclusive definition, and
that it reserves entire freedom to declare relationships to be fiduciary upon
the particular facts of each case. He emphasizes, too, the importance of great
disparity of position. Scott, Trusts (2d ed.) § 468. Restate-nent: Restitution,
§ 166.

349 Mass. at 755-56. See also Flaherty v. Baybank Merrimack Va ley, N.S., 808 F.Supp 55,

64 (D. Mass. 1992).

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In sum, to overcome the statute of limitations set forth in Mass. Gen. Laws ch. 260,
§ 2A, the Debtor had the burden of establishing a fiduciary relationship. To meet that
burden, she was required to submit probative evidence that sucha duty existed, evidence
that there was a breach of the fiduciary duty of full disclosure or evidence of fraudulent
concealment which would require showing affirmative acts 0: concealment done with
intent to deceive by the Lenders, or evidence that the wrong was inherently unknowable.

See Puritan Medical Center v. Cashman, 413 Mass. 167, 176 (1992). The Debtor was

required to establish that, despite reasonable diligence, she was unable to discover her
causes of action against the Lenders.

The Debtor's burden is heavy because generally there is no fiduciary duty between
a bank anda borrower. According to the Court in Flaherty, “[t]raditionally, Massachusetts
courts have viewed a bank’s relationship to its customers as one of creditor and debtor, a
relationship which imposes no duty to counsel or make disclosures to the customer.” 808
F.Supp. at 64. In short, to establish the existence of a fiduciary relationship, the Lenders

would have to know of and accept the plaintiff's trust. Adams Co-Operative Bank v.

Greenberg (In re Greenberg), 212 B.R. 422, 429 (Bankr. D. Mass. 1997), aff'd, 229 B.R. 544

(B.A.P. 1st Cir. 1999).
2. Breach of the Covenant of Good Faith and Fair Dealing

In the recent case of Citizens Bank of Massachusetts v. Milligan, No. 050104, 20

Mass. L. Rptr. 559, 2006 WL 416963 (Mass. Super. 2006), the Superior Court summarized

the law applicable to claims of breach of the covenant of good saith and fair dealing. It

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stated:

In Massachusetts, every contract implies a covenant of good faith and fair
dealing by the parties. Anthony’s Pier Four, Inc. v. HBC Assocs., 411 Mass.
451,471 (1991). The implied covenant of good faith and fair dealing requires
that neither party do anything that will have the effect of destroying or
injuring the right of the other party to receive the benefits of the contract. Id.
at 471-72. The implied covenant of good faith and fair dealing may not be
“invoked to create rights and duties not otherwise provided for in the
existing contractual relationship, as the purpose of the covenant is to
guarantee that the parties remain faithful to the intended and agreed
expectations of the parties in their performance.” UNO Restaurants, Inc. v.
Boston Kenmore Realty Corp., 441 Mass. 376, 385 (2004). The purpose of the
covenant is to see that the objectives of the contract be realized. Ayash v.
Dana-Farber Cancer Inst., 443 Mass. 367, 385 (2005).

Milligan, 2006 WL 416963 at *6. Similarly in Speakman v. Allmerica Financial Life Ins., 367

F.Supp.2d 122 (D. Mass. 2005), the district court emphasized the performance aspect
associated with the covenant. It stated:

A party may breach the covenant of good faith and fair dealing implicit in
every contract without breaching any express term of that contract. Marx v.
Globe Newspaper Co., Inc., 13 Mass. L. Rep. 190, **10-11 (Mass. Super. 2001);
see Fortune v. National Cash Register Co., 373 Mass. 96, 101, 105, 364 N.E.2d
1251 (1977). Otherwise, the implied covenant would be a mere redundancy.
The essential inquiry is whether the challenged conduct conformed to the
parties’ reasonable understanding of performance obligations, as reflected
in the overall spirit of the bargain, not whether the defenclant abided by the
letter of the contract in the course of performance. Marx, 1.3 Mass. L. Rep. at
**10-11; Larson v. Larson, 37 Mass. App. Ct. 106, 110, 636 N.E.2d 1365 (1994).
The requirement of good faith performance is, however, circumscribed by
the obligations in the contract. AccuSoft Corp. v. Palo, 237 F.3d 31, 45 (1st
Cir. 2001). Thus, the covenant may not be invoked to create rights and duties
not contemplated by the provisions of the contract or the contractual
relationship. UNO Restaurants, 441 Mass. at 385-386, 805 N.E.2d 957. Nor
does the covenant apply where the defendant has exercised an express
contractual power in good faith--that is, ina manner that comports with the
parties’ reasonable expectations as to performance. Compare Dunkin’ Donuts,
Inc. v. Gav-Stra Donuts, Inc., 139 F.Supp.2d 147, 156 (LC. Mass. 2001) (no
breach of covenant where franchise agreement expressly gave defendant the

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right to terminate the contract under the circumstances, and there was no
evidence of fraud, deceit, or misrepresentation by defendant) and Chokel v.
Genzyme Corp, 17 Mass. L. Rptr. 83, at *10 (Mass. Supe. 2003) (no breach
of covenant where defendants adhered to specific contract provisions in
calculating stock transfer price, there was no evidence of bad faith, and
defendants disclosed pertinent information to plaintiffs) with Anthony’s Pier
Four, 411 Mass. at 471-473, 583 N.E.2d 806 (covenant breached where one
party used a discretionary right under the contract as pretext to extract price
concessions) and Fortune, 373 Mass. at 104-105, 364 N.E.2d 1251 (covenant
breached where employer discharged employee under an_ at-will
employment contract before employee could collect a portion of the sales
commissions owed to him).

Speakman, 367 F.Supp.2d at 132.

3. Unconscionability
This Court had occasion to review the law relating to unconscionable contracts in

Maxwell v. Fairbanks Capital Corp. (In re Maxwell), 281 B.R. 1€1 (Bankr. D. Mass. 2002).

By way of background, in Maxwell, the debtor, at the time the Court issued its decision,
was an 83-year old woman with minimal schooling and limited financial resources who
owned a home located at 49 Stockton Street in Dorchester, Massachusetts. 281 B.R. at 106.
She commenced an action against Fairbanks Capital Corp. alleging violations of various
state and federal consumer protection acts, including the FDCPA, TILA, RESPA and the
Massachusetts Consumer Credit Cost Disclosure Act, Mass. Gen. Laws Ann. Ch. 140D, §§
1-34 (“MCCCDA”). In addition, she asserted claims for breach of contract and
unconscionability.

Maxwell was induced to enter into loan transactions which ultimately involved a

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negatively amortizing note anda balloon payment.’ At the time, rer adjusted gross income

’ The Court set forth the following undisputed facts invclving Maxwell’s loan:
In the winter or early spring of 1988, Maxwell and Ranger [the debtor’s
granddaughter] were approached by a door-to-door salesman who
suggested a variety of home repairs to the Debtor’s home, including
replacement of siding and installation of new windows. The salesman
referred Maxwell and Ranger to ITT to enable them to finance the repairs
and to consolidate other outstanding loans. On April 13, 1988, Maxwell
and Ranger consolidated their existing debts, which included two
mortgages, one in the sum of $24,683.87 to Connecticut National Bank and
the other in the sum of $76,596.86 to First American Services, and funded
the home repairs by borrowing $137,611.01 from ITT. The 1988 ITT loan
was secured by a first mortgage on the Debtor's Stockton Street property.
The term of the loan was 15 years with an Annual Percentage Rate
(“APR”) of 16.78%. The monthly payment was $1,908. Additionally, the
prepaid finance charge was $12,384, almost 10% of the amount financed.
The Debtor paid additional fees for recording the mortgage ($102.50), to
an attorney ($700), to “Lenders Service” ($275), and for title insurance
($266.30).

At the loan closing, Vinyl Distributors was paid $22,602.08 for the repairs
to the Debtor’s home, although Ranger, in an affidavit, iridicated that the
payment to Vinyl Distributors was made before the work was completed.
Moreover, although it had been paid from the loan proceeds, Vinyl
Distributors, according to Ranger, never finished the repairs.

On February 12, 1991, ITT refinanced the 1988 loan with a second loan in
the principal amount of $149,150.50. The Mortgage executed by Maxwell
and Ranger sets forth that amount, as well as a five year :erm and a 16%
APR. In her Complaint, the Debtor alleged, upon information and belief,
the following: 1) that the second ITT loan required a regular monthly
mortgage payment of approximately $2,005.00; 2) that the second ITT loan
was negatively amortized, “meaning that the monthly peyment of
$2,005.00 was insufficient to pay the interest accruing on the account;” 3)
that she would have been required to make a final balloon payment at the
end of the term of the Ioan in a sum greater than the original amount of
the loan; 4) that, at the time the loan was consummated, ITT did not
provide her with the required TILA and MCCCDA disclosures; 5) that she
was not informed that a balluon payment was required; 6) that, at the time
of the second ITT loan, her annual income was approximately $4,000 and
Ranger’s annual income was approximately $22,000; 7) that the annual
mortgage payments under the loan would almost equal her income

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($5,671) and that of her co-obligor ($18,756) totaled $24,427. The annual payments due to
the lender totaled $24,068.52, an amount equal to 98.5% of the total annual income of the

debtor and her co-obligor. Id. at 108.

In Maxwell, the Court summarized Massachusetts law regarding unconscionable

contracts, stating:

In Waters v. Min Ltd., 412 Mass. 64, 587 N.E.2d 231 (1992), the Supreme

Judicial Court described the doctrine as follows:
[It]... has long been recognized by common law courts in this
country and in England. “Historically, a [contract] was
considered unconscionable if it was ‘such as no man in his
senses and not under delusion would make on the one hand,
and as no honest and fair man would accept on the other.’
Later, a contract was determined unenforceable because
unconscionable when ‘the sum total of its provisions drives too
hard a bargain for a court of conscience to assist.”

Id. at 66, 587 N.E.2d 231 (citations omitted). The court added:

The defendants assumed no risk and the plaintiff gained no
advantage. Gross disparity in the values exchanged is an important
factor to be considered in determining whether a contract is
unconscionable.” [Clourts [may] avoid enforcement of a
bargain that is shown to be unconscionable by reason of gross
inadequacy of consideration accompanied by other relevant factors.”
... We are satisfied that the disparity of interests in this
contract is “so gross that the court cannot resist the inference

combined with Ranger’s income; 8) that in 1993 she and ITT agreed to
reduce the payments under the note to $800.00 per month; 9) that ITT did
not inform her that the reduced payment would result in further negative
amortization and increase the amount of the balloon payment; 10) that ITT
assigned the Note and Mortgage to Transamerica Financial Services
(“Transamerica”); 11) that after the loan matured, Transamerica did not
renew or extend the note pursuant to Mass. Gen. Laws Ch. 183, § 60,
although it continued to accept payments in amounts ranging from
$200.00 to $3,062.55; and 12) that all payments made by Transamerica
were not credited to the Debtor’s account.

281 B.R. at 106-107.

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that it was improperly obtained and is unconscionable.”
Id. at 69, 587 N.E.2d 231.

Maxwell, 281 B.R. at 127 (emphasis supplied).

Desc Main

In Maxwell the Court also discussed United Companies Lending Corp. v. Sargeant,

20 F.Supp.2d 192 (D. Mass. 1998), a case in which the district court considered predatory

lending" in the context of the relationship between Sargeant, the owner of a triple-decker

in Dorchester, Massachusetts, and the United Companies Lending Corp., which made,

sold, and serviced loans used for refinancing, made first lien residential mortgage loans

” According to the Court in Maxwell

The [district] court described the “unscrupulous behavior of unregulated

mortgage brokers and lenders who engaged in predatory lending

practices that included offering high-rate and high-fee loans to borrowers

who lacked access to mainstream banks because of redliring practices,

had marginal credit histories, and had limited financial sophistication.” Id.

It stated the following:
The targets of predatory lenders are usually people who
have substantial equity in their homes due to rising real
estate values or due to the reduction of purchase raoney
debt, but who are short on cash because of their low or fixed
incomes. They may need money to make home repairs or
improvements, to pay for necessities such as medical care, or
to consolidate household debts. These homeowners
generally do not obtain home equity loans primarily for
their tax advantages but because borrowing against their
homes is the only way that they can obtain the credit they
need to make home repairs or to survive periods cf
economic distress. Those most often affected are minorities,
the elderly, and the inner-city and rural poor.

Id. at 202 (citing Julia Patterson Forrester, Mortgaging the American

Dream: A Critical Evaluation of the Federal Government's Promotion of

Home Equity Financing, 69 Tul. L.Rev. 373, 387-89 (1994).
281 B.R. at 128.

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used primarily for debt consolidation, home improvements or major household purchases,
and specialized in subprime loans to consumers with higher credit risks than borrowers

in the prime market. Maxwell, 281 B.R. at 127 (citing Sargeant, 20 F.Supp.2d at 196). In

Sargeant, the court determined:

Unconscionability is a question of law to be assessed at the tiie the contract was
executed by the parties. See Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 291, 408
N.E.2d 1370 (1980). It is a case-specific assessment. “Because there is no
clear, all-purpose definition of ‘unconscionable’ nor could there be,
unconscionability must be determined on a case by <ase basis, giving
particular attention to whether, at the time of the execution of the agreement,
the contract provision could result in unfair surprise and was oppressive to
the allegedly disadvantaged party.” Id. 381 Mass. at 292-63, 408 N.E.2d 1370
(internal citations omitted). ...

Under Massachusetts law, the doctrine of unconscionability recognizes
procedural and substantive unconscionability. See Zapatha, 381 Mass. at
292-93, 294 n. 13, 408 N.E.2d 1370. Procedural unconscionability evaluates
the circumstances under which the contract was executed to determine if it
is the product of unfair surprise. Substantive unconscionability evaluates the
actual terms of the contract to determine if they are substantively unfair. “If
the sum total of the provisions of a contract drive too harcl a bargain, a court
of conscience will not assist its enforcement.” Waters, 412 Mass. at 68, 587
N.E.2d 231 (citing Campbell Soup Co. v. Wentz, 172 F.2d 80, 84 [3d
Cir.1948])....

KKKEKE

The fact that this conduct constitutes an unfair or cleceptive practice,
however, dves not mean that this conduct was unconscionable.

Sargeant, 20 F.Supp. 2d at 206-07 (emphasis supplied).'' The district court considered the

" According to this Court in Maxwell the plaintiff in Sargeant argued:
that the origination fee was above the industry standard, the fees paid at
the closing were grossly disproportionate to the value received, the loan
violated the lender debt-to-income parameters for a “C” borrower, as her
debt to income ratio was 51%, the lender’s method of determining
compensation for its loan originators encouraged the originator to act in
an unconscionable manner and the lender's disclosures i:: the mortgage

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disparity between the fees and the value of the transaction to Sargeant, as well as the
violation of debt-to-income parameters in evaluating substantive unconscionability; it
considered the compensation method of the loan originators and the failure to follow
disclosure requirements in evaluating procedural unconscionability. 20 F.Supp. 2d at 210.

In a recent case involving allegations of predatory lending and violations of the
TILA, HOEPA, Regulation Z, RESPA and the Massachusetts Consumer Protection Act,
Mass. Gen. Laws ch. 93A, and the MCCCDA, the United States District Court for the
District of Massachusetts emphasized that “[t]o prove that the terms of a contract are
unconscionable, a plaintiff must show both substantive unconscionability (that the terms
are oppressive to one party) and procedural unconscionability (that the circumstances
surrounding the formation of the contract show that the aggrieved party had no

meaningful choice and was subject to unfair surprise).” Storie v. Household Intern., Inc.

No. 03-40268-FDS, 2005 WL 3728718 (D. Mass. September 22, 2005), at *9 (citing Zapatha

v. Diary Mart, Inc., 381 Mass. 284, 294 & n. 13; United Companies Lending Corp. v.

Sargeant, 20 F.Supp.2d 192, 206 (D. Mass.1998)). The Storie court stated that “[t]he test is
a conjunctive one; that is, a plaintiff must prove both substantive and procedural
unconscionability to prevail on this theory.” Id. (citing Zapatha, 381 Mass. at 293 (“This

two-part test for unconscionability involves determining whether there was an absence of

transaction did not comply with its policy and state disclosure
requirements.
Maxwell, 281 B.R. at 128 (citing Sargeant, 20 F. Supp.2d at 105).

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meaningful choice on the part of one of the parties, together with contract terms which are
unreasonably favorable to the other party.”).

C. Analysis

The Debtor’s Complaint and the relief she requests are predicated upon several
assumptions and beliefs. The Debtor, in the course of her deposition testimony, repeatedly
stated these assumptions. In the first place, the Debtor assumed that the Lenders had a
duty to protect her equity in the property and were precluded from relying upon the fair
market value of the property in extending loans to her. She cited no legal authority for this
proposition. The second assumption, a corollary to the first, is that the Lenders had a duty
to utilize the Maximum Resale Price, namely the discounted value of the property from the
Debtor’s perspective, in underwriting their loans, even though the Debtor applied for loans
and promised to repay loans in excess of the property’s value to her. The Debtor cited no
legal authority to support this assumption The Debtor also assumed that the Lenders had
an obligation to verify her income despite what she represented her income to be in
mortgage loan applications, although she contradicted this assumption through her
testimony that she was truthful in reporting her income and supplied the Lenders with W-
2s and, in the case of Washington Mutual, tax returns. The Debtor also assumed that the
Lenders are liable for alleged wrongdoing on the part of various mortgage brokers,
although she neither alleged nor provided any evidentiary support for any agency
relationships between any mortgage brokers and the Lenders, and the only evidence in the

record is that she was responsible for origination fees which were paid directly to the

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mortgage brokers involved in the transactions at issue.

In view of the above considerations, the issues before the Court are 1) whether the
Lenders established that no genuine issues of material fact exist with respect to the Debtor’s
claims; 2) whether the Debtor sustained her burden of demonstrating that the discovery
rule applies to the claims set forth in Count II by producing competent evidence from
which this Court could find the existence of a fiduciary relationship; and 3) when the
burden shifted to her following the submission of HUD Settlement Statements, Truth-in-
Lending Disclosure Statements and Notices of the Right to Cancel, whether the Debtor
produced any competent evidence which would create an issue of material fact as to
procedural and substantive unconscionablilty, particularly in view of her own testimony.

For the reasons set forth below, the Court finds that Debtor failed to submit a
scintilla of evidence to support her claims, and her assumptions have no validity. In view
of the Debtor’s own testimony, this Court could not deny summary judgment or
reasonably enter judgment in her favor without rejecting her deposition testimony. To do
so, the Court would have accept the Debtor’s subjective characterization of events for

which she submitted no evidentiary support.” See In re JFD Enters. Inc., 215 F.3d 1312,

2000 WL 560189 at *3.

” For example, the Debtor repeatedly testified that she felt the Lenders were
responsible for the conduct of the mortgage brokers but submitted no evidentiary
support for that belief. She felt the Lenders inflated her income, although she testified
that she was truthful in executing loan applications and provided the Lenders with W-
2s and tax returns.

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1. Count I] and the Statute of Limitations
The Court shall begin with Count II of the Debtor’s Complaint. As noted by the

court in McGuinness v. Cotter, 412 Mass. 617, 621-22 (1992), the Debtor has the burden of

alleging facts which would take her claim outside the applicable three-year statute ot
limitations. Thus, the Debtor had the burden of establishing, with competent evidence, that
the Lenders, in the first instance, owed her a fiduciary duty. The Court finds that the
Debtor did not present any evidence whatsoever that would allow this Court to find that

the Lenders owed her a fiduciary duty. See Inre Greenberg, 212 B.R. at 429. In particular,

“

she submitted no evidence that her claims were “‘inherently unknowable,” that the
Lenders breached any duties of disclosure, or that the Lenders the existence of the claims

through any affirmative acts done with the intent to deceive. See Albrecht v. Clifford, 436

Mass. at 714.

The Debtor testified that she “felt” that the Lenders owed her a fiduciary duty
because they made loans to her through overly aggressive mortgage brokers, such as New
England Merchants. She submitted no evidence that either Long Beach or Washington
Mutual engaged in any conduct which would suggest that they knowingly accepted her
trust and confidence or even exerted any pressure on her to close the loans. She submitted
no evidence that either Long Beach or Washington Mutual breached their duties of full
disclosure or concealed pertinent terms of the loans with an intent to deceive her or

foreclose on her property. The only evidence in the record is that the Lenders requesled

information from the Debtor about her income and provided her with HUD Settlement

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Statements, Truth-in-Lending Disclosure Statements and notices of her right to cancel the
loans, the accuracy of which was unchallenged by the Debtor. Additionally, the Debtor
submitted no evidence of an agency relationship between Long Beach and New England
Merchants or between Washington Mutual and First Horizon.“

The Court rejects the Debtor’s argument that her testimony created a genuine issue
of material fact as to the existence of a fiduciary relationship. Her testimony when
examined in context reveals that she had very limited contact with the Lenders’
representatives, and substantial contact with mortgage brokers who assisted her in
attaining mortgages at ever lower interest rates and cash from the transactions. She
complained about “just the general way that [the mortgage] was acquired, by the way it
was presented to me,” but she did not establish any misconduct on the part of the Lenders.
The Lenders submitted evidence that they complied with disclosure requirements. They
submitted HUD Settlement Statements and Truth-in-Lending Disclosure Statements. The
Debtor was required to come forward with evidence of nondisclosure or evidence of
improper concealment giving rise to a fiduciary relationship to satisfy her burden that the
statute of limitations should be tolled. She produced no evidence whatsoever that she was

not given the requisite disclosures.

© Tn view of the HUD Settlement Statements which showed payments directly to
loan brokers, the Debtor had the burden of showing that the loan brokers were agents
of the Lenders to support her theory that a fiduciary duty existed between the Debtor
and the Lenders. The Court could possibly infer that a fiduciary relationship may have
existed between the Debtor and New England Merchants, but the Debtor did not
commence an action against it, and no agency relationship was shown between it and
the Lenders.

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The Truth-in-Lending Disclosure Statements set forth the monthly mortgage
payments the Debtor was required to make. At the time she executed the loan documents
with the Lenders, the Debtor had been regularly employed as a registered nurse for over
twenty years. Although she had ditficulty remembering her exact salary in 2UUU, she
certainly knew how much money she made when she applied for the loans with the
Lenders, and she testified that she answered questions about her income on mortgage
applications truthfully. Thus, at the time the Debtor executed tle notes and mortgages to
the Lenders, she had sufficient information in her possession to weigh the costs and benefits
of the loans she received from them. Additionally, she had in her possession the deed to her
condominium unit and the Rider attached to it. The Rider is explicit: the Debtor could not
sell the property and obtain more than the Maximum Resale Price, defined as the appraised
value multiplied by the Discount Rate of 0.67 percent. It did not prevent her from
mortgaging the property at its appraised value or for a sum in excess of what she could
realize froma private sale. The Lenders did not conceal this information from her. Indeed,
she testified that she read the Rider from time to time. If she did not understand it, then,
in the exercise of reasonable diligence, she could have and should have consulted an
attorney. The Lenders, however, did not conceal the information from her and had no
duty, fiduciary or otherwise, to explain it to her. Thus, at the time the Debtor executed the
loan documents with the Lenders, she had sufficient facts, in er possession, to ascertain

whether she had a cause of action against them. See Salois v. The Dime Sat. Bank of N.Y.,

128 F.3d 20, 27 (1st Cir. 1997); Lynch v. Signal Fin. Co., 367 Mass. 503, 507-08 (1975). She

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did not exercise reasonable diligence in ascertaining whether refinancing her property was
advisable.

The Debtor's assertion that her income was misrepresented by the Lenders is
without evidentiary support, and, even if she permitted mortgage brokers to inflate her
income, she submitted no evidence as to the extent of the inflation, or of an agency
relationship between any mortgage brokers or the Lenders, or collusion among the
mortgage brokers and the Lenders. To repeat, the Debtor had all the information she
needed to ascertain whether she could or could not afford to make monthly payments to
the Lenders, and whether the Lenders were precluded in fact or in law from lending her
money in excess of the Maximum Resale Price. If the Lenders failed to provide her with
pertinent or required information about her loans or about her ability to repay the loans
she promised to repay, it was her burden, not the Lenders burden, to come forward with
some additional evidence to support her position, particularly in view of her failure to

allege any violations of TILA or RESPA. See Salois, 128 F.3d at 27 (citing Maggie v. Gerard

Freezer & Ice Co., 824 F.2d 123, 131(1st Cir. 1987)(“[a] plaintiff must be able to show not

only that crucial facls were withheld by defendants owing a duty of full disclosure, but also
that he lacked means to uncover these facts.”). As the court noted in Lynch, “[e]ven in
cases of fraud, in the absence of a fiduciary relation, there is no concealment by mere failure
to disclose if the aggrieved party has full means of detecting the fraud.” 367 Mass. at 507.

The Debtor complained in her deposition testimony that the Lenders closed the

loans quickly, that information was presented to her in a professional manner, and that

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somehow she was harmed by that conduct. The Debtor did not explain why if she had
more time to consider refinancing with the Lenders her circumstances would be different.
This is particularly true because the Debtor demonstratecl familiarity with HUD
Settlements Statements and Truth-in-Lending Disclosure Staternents.

The Court finds that the Debtor’s “feelings” about the conduct of the Lenders are

insufficient to prevent summary judgment on Court II. In re [FD Enters., Inc., 215 F.3d

1312, 2000 WL 560189 at *3. When examined closely, even in the light most favorable to
her, her feelings merely reflect her disappointment with the mortgage brokers she dealt
with on a regular basis and her dismay at her present financial situation. Her testimony
was devoid of substance to satisfy her burden that the causes of actions she now asserts
against the Lenders for fraud and deceit were the result of a breach of fiduciary duty or
were inherently unknowable or the result of the intentional and fraudulent concealment
of information. The Debtor had the means to uncover the relevant facts in 2000, indeed,
she had them in her possession, and failed to commence an action within the statute of
limitations applicable to tort claims. The Debtor failed to submit competent evidence for
this Court to find that the discovery rule applies. The Court shall enter an order dismissing
Count II.
2. Count III: Unconscionability

With respect to Count III of the Complaint, the Lenders argued that the Debtor’s

claims are mislabeled tort claims or, in the alternative, that the terms of the loans were fully

disclosed before the closing and the fees paid to them were modest. The Debtor responded

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to these arguments by suggesting that there was a gross disparitv in the value she received
for the mortgage loans because her equity was circumscribed by the deed restrictions set
forth in the Rider. She did not submit any evidence to support this theory, relying instead
on the assumption that the Lenders had a duty not to lend her more than the Maximum
Resale Price. With respect to procedural unconscionability, the Debtor maintained that
because the Lenders did not show that they gave all required notices, the Court cannot find
that the transactions were not unconscionable.

The Court finds that in view of the submission of the HUD Settlement Statements
and Truth-in-Lending Disclosure Statements, as well as the Debtor’s testimony reproduced
above, that the burden shifted to the Debtor to produce evidence establishing an issue of
material fact as to the existence of both procedural (unfair surprise) and substantive
(oppressive terms) unconscionability. The Debtor failed to satisfy this burden and her own
testimony fatally undermined any conceivable causes of action she may have had.

The Debtor is a an educated professional, although she testified that she lacks
knowledge about real estate in general. Unlike the plaintiffs in Maxwell and Sargeant,
however, who were victimized by predatory lending, she testified that she read the loan
documents presented to her'* and that she was familiar with, and had experience
reviewing, HUD Settlement Statements. She also understood the significance of APR, as

well as the difference between adjustable rate mortgages and fixed rate mortgages.

“In response to a question, “Was it your general practice to review carefully all
the fees and charges that you were going to pay when you were closing a mortgage
loan?” the Debtor answered, “yes.” (Tr. 10).

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Moreover, she understood that she had the right to rescind mortgage loan contracts within
certain time frames and availed herself of that option before refinancing with Washington
Mutual. Under these circumstances, the Court finds that the Debtor failed to establish any
procedural unconscionability at the time she executed loan documents with the Lenders.
She did not allege, and could not have alleged, that she was unfairly surprised by the
Lenders’ use of the amount of income which she reported to them or the amount of loan
payments she would be required to make as set forth in Truth-in-Lending Disclosure
Statements. Even if there was a disparity in the amount of income she reported on the loan
applications, she knew what she actually made and had the Truth-in-Lending Disclosure
Statements setting forth the amount of her monthly mortgage payments and the Notices
of Right to Cancel in her possession. She could not have been unfairly surprised.

With respect to substantive unconscionability, the Court finds that there was no
gross disparity in the values exchanged and that the Debtor gained certain advantages from

the loan transactions. See Maxwell, 281 B.R. at 127; Waters v. Min, Ltd., 412 Mass. at 69.

The Debtor asserts that the transactions drove “too hard a bargain” and were “such that
no man in his senses and not under delusion would make.” This argument is devoid of
merit and is belied by the loan terms. The Long Beach loan was secured by a 30-year fixed
rate mortgage, which had an APR approximately 1.5% lower than the preceding mortgage,
while the Washington Mutual loan was secured by an adjustable rate mortgage with a
fixed interest rate for five years, which also had a lower interest rate than the preceding

loan from Long Beach. Moreover, based upon her gross monthly income of approximately

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$5,000 which the Debtor reported on the mortgage loan applications, the Debtor could have
afforded to make the payments which were $2,086.13 in the case of Long Beach and
$2,208.72 in the case of Washington Mutual.

The Court finds based upon the evidence submitted, including the Debtor's
deposition testimony, that the loans were not substantively uncenscionable. See Waters v.

Min Ltd., 412 Mass. at 66. The Court further finds that the Debtor, in fact, obtained

benefits from obtaining cash from the refinancing of her property. She obtained cash in the
amount of $5,820 trom the Long Beach transaction and cash in the amount of $8,490.80
from the Washington Mutual transaction plus payment of approximately $4,500 in credit
card bills. Because the Debtor could not sell her condominium unit for more than the
Maximum Resale Price, she could use the growing equity in the property resulting from
its appreciation in the value measured by the appraised fair market value to obtain cash
from the property, something she probably could not have done if her mortgage loans
were limited to a percentage of the Maximum Retail Price. Although, with the benefit of
hindsight, the Debtor now recognizes the risk inherent in repeated refinancings, the loans
at issue were not substantively unconscionable, especially compared to the high interest
rate, negatively amortizing loans and balloon payments characteristic of the loans at issue

in Maxwell and Sargeant. Thus, Court finds the Debtor’s reliance on the decisions in

Maxwell and Sargeant is without foundation. As noted above, where the Debtor had the

information in her possession to ascertain her rights, and where she look advantage of the

loans to obtain cash from the property, the Court, as a matter of law, cannot find that the

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loans drove too hard a bargain. Absent some binding legal authority, which the Debtor
had an opportunity to submit, that the Lenders were precluded “rom using the appraised
value of the property in underwriting their loans, the Debtor failed to produce evidence

of gross disparity in the values exchanged. See Waters v. Min Ltd., 412 Mass. at 69.

3. Count I: Breach of Contract

The Court finds, as a matter of law, that there were no breaches of contract and that
the breach of contract claims are mislabeled fraud and misrepresentations claims against
the Lenders. During her deposition testimony, the Debtor was as<ed repeatedly to identify
how Long Beach and Washington Mutual breached contracts with her. She was never able
to articulate any facts which would support a comprehensible theory of breach of contract
or breach of the covenant of good faith and fair dealing. She testified, for example, that the
Lenders’ breach was the result of “the whole dealings with them and the mortgage that
they gave me was a breach of contract.” (Tr. 12). She asserted that the appraisal “wasn't
really correct, in that it was affordable housing.” She added:

I don’t think the correct research was done at the town Fall to find out that

there was a deed rider on the property. My income was inflated in respect

that they had mentioned that I had the ability to work overtime or do my

own private-duty nursing, which isn’t really correct. And I feel that they

didn’t take into consideration my situation with my fam:ly, as compared to

being able to pay off a loan with my income and my situation with the

condo. I feel it was for their own means that they had to close the deal.
(Tr. 12-13). Finally, she admitted: “I feel the breach was previous to the note, in respect to the

way it was acquired.” (T.33)(emphasis supplied). In short, the Debtor’s breach of contract

claim is predicated upon an assumption, unsubstantiated in law or fact, that the Lenders

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had a duty not to erode her equity in the property by making mortgage loans based on the
appraised value of the property, a 30-year fixed rate loan, which had an APR
approximately 1.5% lower than the preceding in the case of Long Beach, and an adjustable
rate loan with a fixed interest rate for five years, which had a lower interest rate than the
preceding loan from I.ong Beach, in the case of Washington Mutual. The Debtor's claim
for breach of contract also appears to be predicated upon a duty on the part of the Lenders
to advise her that her income was overstated or that she could not afford to make
payments. The Debtor cited no cases in support of this position. These unsubstantiated
claims do not implicate the covenant of good faith and fair dealing, particularly as the
Debtor appears to invoke the covenant merely to “create rights and duties not
contemplated by the provisions of the contract or the contractual relationship.” See UNO

Restaurants, Inc. v. Boston Kenmore Realthy Corp., 441 Mass. 376, 385-86 ( 2004).

1D. Judicial Estoppel

In Paragraph 24 of the her Complaint, the Debtor's states that she commenced a
Chapter 7 case in February of 2004, and, in Paragraph 26, she states that she received a
discharge in May 2004. This Court is empowered to take judicial notice of its own records,

sSee Xytest Corp. v. Mitchell (In re Mitchell), 255 B.R. 97, 104 (Bankr. D. Mass. 2000)(citing

In re Nail, 195 B.R. 922, 924 n. 3 (Bankr. N.D. Ala.1996); In re Beltway Products, Inc, 151

B.R. 530, 540 (Bankr. E.D. Cal. 1998), aff'd, 165 B.R. 339 (B.A.P. 9th Cir. 1994)), and has done
so. In reviewing the Debtor's prior Chapter 7 case, the Court has determined that the

Debtor failed to list causes of action against the Lenders on Schedule B.

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In Payless Wholesale Distributors, Inc. v. Alberto Culver (P.R.), Inc., 989 F.2d 570

(Ist Cir. 1993), cert. denied, 510 U.S. 931 (1998), the Plaintiff/Chapter 11 debtor failed to list
causes of action against Alberto Culver (P.R.), Inc. and others bozh in its schedules and in
its disclosure statement. After exiting bankruptcy, it sued Alberto Culver and others for
substantial monctary damages. The United States Court of Appeals for the First Circuit
expressed its outrage at Payless’s conduct and dismissed its suit against the defendants.
The court stated:

The basic principle of bankruptcy is to obtain a discharge from one’s
creditors in return for all one’s assets, except those exempt, as a result of
which creditors release their own claims and the bankrupt can start fresh.
Assuming there is validity in Payless’s present suit, it has a better plan.
Conceal your claims; get rid of your creditors on the cheap, and start over
with a bundle of rights. This is a palpable fraud that the court will not
tolerate, even passively. See, e.g., Inre H.R.P. Auto Center, Inc., 130 B.R. 247,
253-54 (Bankr. N.D. Ohio 1991) (collecting cases). Payless, having obtained
judicial relief on the representation that no claims existed, can not now
resurrect them and obtain relief on the opposite basis. This may not be
strictly equitable estoppel, as the court observed. Indeed, defendants may
havea windfall. However, it is an unacceptable abuse of judicial proceedings.

989 F.2d at 571. See ulsu Jeffrey v. Desmond, 70 F.3d 183 (1st Cir. 1995); Leary v. Miller (In

re Leary), 241 B.R. 266, 272-73 (Bankr. D. Mass. 1999).

In view of the principles set forth in Payless, the Court finds a separate and
independent ground for granting the Lenders’ Motion for Summary Judgment. Assuming
arguendu that the Debtor could have withstood the Lenders’ Motion for Summary
Judgment, the Court concludes that she is barred from asserting the claims against them

because of her failure to list them in her prior bankruptcy case.

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VII. CONCLUSION

The Lenders’ Motion for Summary Judgment has served its purpose, revealing that
the Debtor’s claims are without merit. For the reasons set forth above, the Court shall enter
an order granting the Lenders’ Motion for Summary Judgment with respect to the first

three counts of the Debtor’s Complaint.

By the Court,

AG

Joan N. Feeney Z
United States Benkruptcy Judge

—_—

(abn YI os ae

i | Age
Dated: eal 2 ( ) (i

cc: David) G. Baker, Esq., J. Patrick Kennedy, Esq., Amy Lipmar-White, Esq., Chapter 13
Trustee

47