Cox v. Mortgage Electronic Registration Systems, Inc., 2012 U.S. App. LEXIS 14245

Background

Homeowners obtained a $472,500 mortgage in 2004 to purchase their home.
In 2009 they sought a HAMP modification due to hardship and began a trial payment plan of $2,779.38 per month.
In December 2009 they were advised to discontinue trial payments after being told they qualified for a modification; they relied on this to pause payments.
In February–March 2010 the lender denied modification due to high loan-to-value, but indicated potential eligibility and a thirty-day review; foreclosure notice followed in March 2010.
Foreclosure sale occurred October 4, 2010; homeowners filed suit November 4, 2010 in Minnesota state court, later removed to federal court; district court dismissed for failure to state a claim under Rule 12(b)(6) and because HAMP provides no private right of action; argument on Twombly/Iqbal standards was central.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether HAMP preempts state-law claims.	Cox contends HAMP does not preempt state claims.	Lender argues HAMP preemption defeats private state-law claims related to modification procedures.	Affirmed; HAMP preemption not reached as the complaint fails under pleading standards.
Count I – whether accounting is appropriate relief.	Homeowners seek detailed accounting of lender’s modification efforts.	Accounting is an extraordinary remedy unavailable where discovery suffices.	Count I properly dismissed; discovery provides remedy, no need for accounting.
Count II – whether Section 580.11 imposes a duty beyond the fairness of the sale.	Lender breached 580.11 by unfair conduct during foreclosure.	580.11 duty limited to fairness of the sale itself; no breach shown.	Count II dismissed; no conduct affecting sale fairness alleged.
Count III – whether there is an independent claim for breach of the implied covenant of good faith and fair dealing.	Covenant implied in mortgage contracts extends beyond express breach.	Any implied covenant claim requires underlying breach and plausible causation.	Count III dismissed for failure to plead plausible causal connection between actions and damages.
Counts IV–V – misrepresentation claims require pleading with particularity.	Lender misrepresented trial modification prospects and status.	Claims lack specific, particularized reliance and causal connection.	Counts IV–V dismissed for failure to plead misrepresentation with specificity under Rule 9(b).

Key Cases Cited

Sprague National Bank v. Dotty, 415 N.W.2d 725 (Minn. App. 1987) (section 580.11 governs fair dealing when purchasing at foreclosure sale)
Beardsley v. Garcia, 753 N.W.2d 735 (Minn. 2008) (plain-language interpretation of statute; no broader duties)
Sprague Nat'l Bank v. Dotty, 415 N.W.2d 725 (Minn. App. 1987) (see above)
I qbal v. Ashcroft, 556 U.S. 662 (U.S. 2009) (pleading standard; plausibility required)
Twombly v. Bell Atlantic Corp., 550 U.S. 544 (U.S. 2007) (facial plausibility required in pleading)
Border State Bank, N.A. v. AgCountry Farm Credit Servs., FLCA, 535 F.3d 779 (8th Cir. 2008) (discovery as remedy; accounting not warranted)
LaSociete Generale Immobiliere v. Minneapolis Cmty. Dev. Agency, 44 F.3d 629 (8th Cir. 1994) (causal link required for breach of implied covenant)
Zobel & Dahl Constr. v. Crotty, 356 N.W.2d 42 (Minn. 1984) (law on breach when performance hindered)
Hennepin County Recycling Bond Litig., 540 N.W.2d 494 (Minn. 1995) (implied covenant limitations in contract performance)
Nodland v. Chirpich, 240 N.W.2d 513 (Minn. 1976) (guidance on use of implied covenants)
Juster Steel v. Carlson Co., 366 N.W.2d 616 (Minn. Ct. App. 1985) (pleading requirements for misrepresentation)