United States of America v. Bank of America Corporation
78 F. Supp. 3d 520
D.D.C.2015Background
- The United States and 49 states sued major mortgage servicers including Wells Fargo alleging widespread FHA-related origination and servicing misconduct; parties entered the National Mortgage Settlement and a Wells Fargo Consent Judgment (March 12, 2012).
- Wells Fargo agreed to pay about $5 billion and to follow 304 defined Servicing Standards; the Consent Judgment created a Monitor, Monitoring Committee, quarterly Metric testing, and an enforcement scheme (Exhibit E).
- Some Servicing Standards are measured by Metrics (33 total); when a Metric’s threshold error rate is exceeded the Monitor may declare a "Potential Violation," trigger cure/remediation procedures, and only uncured Potential Violations may be the subject of certain enforcement suits.
- NYAG moved to enforce five loan-modification timeline Standards (3-day acknowledgement; 5-day deficiency notice; 30-day notice to cure; 30-day disposition; prompt delivery of final modification), alleging noncompliance in 97 New York loans (≈0.022% of NY loans).
- The Monitor had already identified and Wells Fargo cured a Metric-based violation (Metric 19) concerning 5-day/30-day notices; many of NYAG’s claims concern Standards covered by Metrics or previously cured Potential Violations.
- The Court stayed fact discovery to decide whether NYAG may sue given the Consent Judgment’s enforcement provisions and held that (1) only the Monitor can enforce Standards covered by Metrics (unless an uncured Potential Violation exists), and (2) Parties/Monitoring Committee may sue to enforce uncured Potential Violations and Standards not covered by Metrics; the Court denied NYAG’s motion for failure to plead a breach because the alleged violations were insubstantial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether NYAG may bring an enforcement action given Exhibit E's enforcement scheme | NYAG: Parties (states) retained enforcement rights under §J(2); it may sue to enforce Servicing Standards including timeline requirements | Wells Fargo: Exhibit E restricts enforcement to (1) Monitor for Metric-covered Standards (first instance) and (2) only uncured Potential Violations give rise to party suits per §J(3) | Court: §E(6) bars party suits on cured Potential Violations; only the Monitor may enforce Metric-tested Standards in the first instance. Parties/Monitoring Committee may sue uncured Potential Violations and Standards not covered by Metrics. |
| Scope of remedies available to Parties when suing under the Consent Judgment | NYAG seeks non-monetary equitable relief to compel compliance and borrower relief | Wells Fargo: §J(3) limits remedies for enforcement actions (e.g., civil penalties only for uncured Potential Violations) and plaintiffs cannot bypass Monitor’s processes | Court: §J(3) limits relief in actions to enforce uncured Potential Violations but does not make §J(3) the exclusive enforcement mechanism; non-Metric Standards may be enforced by Parties seeking appropriate equitable relief. |
| Whether NYAG’s claims about Metric-covered Standards (5-day and 30-day notices; 30-day disposition) are actionable | NYAG: Monitor declined to act sufficiently; plaintiff may still enforce consumer rights | Wells Fargo: Those Standards are subject to Metric testing and cure procedures; Monitor identified Metric 19 and Wells Fargo timely cured it; §E(6) precludes suits on cured Potential Violations | Court: Claims based on Metric-covered Standards are barred because Monitor cited a Potential Violation which was timely cured, invoking §E(6) safe harbor. |
| Whether the alleged 52 non-Metric violations (3-day acknowledgement and prompt delivery) state a breach | NYAG: Alleged 41 violations of 3-day notice and 11 of prompt delivery justify enforcement and borrower relief | Wells Fargo: The alleged counts are de minimis relative to the universe of loans; Consent Judgment tolerates error rates and does not require perfection; such minor noncompliance is not a breach | Court: Held NYAG failed to allege a breach—the alleged violations are too few (.012% of NY loans) and insubstantial; Motion to Enforce denied. |
Key Cases Cited
- Segar v. Mukasy, 508 F.3d 16 (D.C. Cir. 2007) (consent decrees construed like contracts)
- United States v. W. Elec. Co., 894 F.2d 1387 (D.C. Cir. 1990) (meaning of decree determined within its four corners; extrinsic evidence if ambiguous)
- Mesa Air Grp., Inc. v. Dep’t of Transp., 87 F.3d 498 (D.C. Cir. 1996) (plain and unambiguous contract language controls)
- WMATA v. Mergentime Corp., 626 F.2d 959 (D.C. Cir. 1980) (contracts construed as a whole to give meaning to all provisions)
- ITT Cont’l Baking Co. v. FTC, 420 U.S. 223 (1975) (consent decrees reflect competing parties’ bargained-for compromises; court must construe text, not parties’ objectives)
- United States v. Armour & Co., 402 U.S. 673 (1971) (principles on consent decree interpretation)
- Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995) (documents should be read to give effect to all provisions)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard: claims must be plausible on their face)