CARMINE CENATIEMPO ET AL. v. BANK OF AMERICA, N.A.
(SC 20150)
Supreme Court of Connecticut
Argued November 9, 2018—officially released November 26, 2019
Robinson, C. J., and Palmer, McDonald, D’Auria, Mullins, Kahn and Ecker, Js.
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Syllabus
The plaintiffs, who had defaulted on a residential mortgage for which the defendant financial institution was the loan servicer, sought to recover damages for the defendant’s alleged violation of the Connecticut Unfair Trade Practices Act (CUTPA) (
- The plaintiffs’ allegations having been sufficient to support a claim under CUTPA, this court reversed the judgment of the trial court insofar as that court struck the plaintiffs’ CUTPA claim: the defendant’s conduct in connection with its loan modification activities occurred in the conduct of trade or commerce; moreover, the plaintiffs’ allegations included conduct and actions by the defendant that involved a conscious, systematic departure from known, standard business norms, and described practices that fell within the penumbra of some established concept of unfairness, as the alleged conduct was contrary to the public policies embodied in HAMP, RESPA, the consent order, the national mortgage settlement, and this state’s foreclosure mediation statutes; furthermore, the defendant’s allegedly improper practices, if proven at trial, could be found to be immoral, unethical, oppressive or unscrupulous and the cause of substantial injury to the plaintiffs, an injury that was not one that the plaintiffs or other consumers could have reasonably avoided and that was not outweighed by any countervailing benefits to loan servicers in escaping liability for such actions or to consumers or competition.
- This court concluded that the defendant did not owe a common-law duty of care to the plaintiffs, and, accordingly, the trial court properly granted the defendant’s motion to strike the plaintiffs’ negligence count of the complaint: assessing the relationship between the plaintiffs and the defendant under the totality of the circumstances, this court determined that, although the defendant should reasonably have been expected to review loan modification applications in a timely and accurate manner and to follow the loan servicing industry standards and rules regarding the loan modification process imposed by federal and state statutes, the consent order, and the national mortgage settlement, the law does not impose a duty on lenders to use reasonable care in commercial transactions with borrowers because the relationship between lenders and borrowers is contractual and loan transactions are conducted at arm’s length, and to impose a duty of care on loan servicers, such as the defendant, could inhibit participation in the loan modification process, increase litigation, and have far-reaching consequences that extend beyond anything implicated under CUTPA; moreover, the consent order and the national mortgage settlement, to which the defendant was a party, did not create a special relationship between lenders and borrowers that would give rise to a legal duty, the plaintiffs, as incidental third-party beneficiaries of that order and settlement, did not have standing to sue to protect the benefits that the order and settlement confer, loan servicers already are subject to liability for violations of RESPA’s implementing regulations and civil penalties for violations of the national mortgage settlement, making it unlikely that imposing a new duty on loan servicers would provide them with further incentive to carry out their review of loan modification applications with more due care, and numerous jurisdictions have concluded that neither the provisions of HAMP nor the relationship between a borrower and a lender or a loan servicer result in the imposition of any duty of care in the present context; furthermore, this court declined to consider the plaintiffs’ claim that their negligence count could be construed to extend to a theory of negligence per se on the basis of the allegations in their complaint that the defendant breached a duty imposed by federal regulations and state statutes and that such breach caused their injuries, the plaintiffs having failed to raise this claim distinctly before the trial court, as they did not specifically allege negligence per se in their complaint, did not identify the particular legal provisions that the defendant allegedly violated or that established the standard of care, did not seek an articulation from the trial court, and did not mention such a theory in their motion to reargue.
Procedural History
Action to recover damages for, inter alia, the defendant’s alleged violation of the Connecticut Unfair Trade Practices Act, and for other relief, brought to the Superior Court in the judicial district of Stamford-Norwalk, where the court, Povodator, J., granted the defendant’s motion to strike and rendered judgment thereon, from which the plaintiffs appealed. Reversed in part; further proceedings.
Jeffrey Gentes, with whom, on the brief, was David Lavery, for the appellants (plaintiffs).
Pierre-Yves Kolakowski, with whom was Zachary Bennett Grendi, for the appellee (defendant).
Opinion
I
The plaintiffs’ thirty-nine page complaint includes 179 paragraphs of allegations relating to the defendant’s conduct, spanning approximately five years. Because much of the alleged conduct repeats throughout this time period, we recite the plaintiffs’ factual allegations in a summary fashion and provide specific allegations where necessary as part of our analysis. We construe those facts in the manner most favorable to sustaining the legal sufficiency of the complaint. See, e.g., Bohan v. Last, 236 Conn. 670, 674, 674 A.2d 839 (1996).
In April, 2003, Carmine Cenatiempo executed a promissory note in exchange for a loan in the original principal amount of $550,000 secured by a mortgage, given by both plaintiffs, on property located in Weston. The plaintiffs began experiencing financial hardship in 2008 and, subsequently, were declared in default on their mortgage by the defendant. In October, 2009, the defendant, as the servicer3 of the loan, instituted a foreclosure action. The next two and one-half years were marked by the plaintiffs’ repeated attempts to obtain a loan modification from the defendant under a federal program, discussed in part II of this opinion, known as HAMP—Home Affordable Modification Program. In response to the plaintiffs’ efforts, the defendant failed to timely review completed applications, repeatedly requested updated and new financial information, erro-neously denied applications based on purported failures to provide that requested documentation, erroneously denied applications based on investor restrictions that did not apply, and engaged in flawed evaluations of the applications. Concurrent with this pattern of conduct, the defendant failed to engage productively in the approximately eighteen mediation sessions conducted pursuant to the state’s foreclosure mediation program.
The defendant’s treatment of one such application is emblematic of the way it handled many of the plaintiffs’ applications. In response to an April 17, 2010
Despite withdrawing the action, the defendant remained unresponsive to the plaintiffs’ continued efforts to obtain a loan modification. The defendant provided evasive or opaque answers to the plaintiffs’ inquiries about the status of their modification applications, failed to return the plaintiffs’ repeated phone calls or to follow up with the plaintiffs as promised. Moreover, when the plaintiffs were able to speak with the designated representatives, they provided inconsistent information concerning the plaintiffs’ eligibility for a “settlement” and denied their applications without explanation.
In October, 2012, the defendant instituted a second foreclosure action. Following the plaintiffs’ election to once again participate in the state’s mediation program, the parties engaged in mediation. For the next three years, including while the parties were purportedly engaged in mediation, the defendant continued to mishandle the loan modification process in a fashion similarly characterized by delay, repeated requests for documents previously provided, opaque denials, and a general evasiveness and nonresponsiveness.
In 2015, the defendant finally provided the plaintiffs with a trial period modification plan under HAMP, which became a permanent loan modification when that period was successfully completed. The terms of the permanent modification, however, increased the principal owed by including the defendant’s attorney’s fees for mediation sessions, default fees, fees for commencing the second foreclosure action, and accrued interest in excess of what the plaintiffs would have paid if their initial loan modification application had been timely and properly evaluated.
Over the course of this five year odyssey leading to the permanent loan modification, the plaintiffs submitted at least nine separate workout applications. Several applications never resulted in decisions by the defendant, and some applications were pending before the defendant for hundreds of days—specifically, 263 days, 110 days, and 333 days. During the review process of one application, the defendant ignored thirteen of the plaintiffs’ phone calls. Two applications were denied based on erroneous claims of investor restrictions, and one was also denied based on an incorrect net
In June, 2016, the plaintiffs commenced the present action against the defendant, alleging, in count one, violations of CUTPA and, in count two, negligence. In count one, the plaintiffs alleged that the defendant committed unfair or deceptive acts in the conduct of trade or commerce by failing to exercise reasonable diligence in reviewing and processing the plaintiffs’ loan modification applications, repeatedly requesting duplicative, unnecessary updates to documentation, causing an undue delay of at least four years in offering the plaintiffs a trial and permanent loan modification, repeatedly changing the personnel responsible for communicating with the plaintiffs, repeatedly sending the plaintiffs vague, confusing and contradictory letters, misrepresenting the applicability of investor restrictions, misrepresenting its ability to proceed with conducting a foreclosure sale, misrepresenting the status of the plaintiffs’ loan modification applications, and discouraging the plaintiffs from participating in foreclosure media-tion. The plaintiffs alleged that this conduct offended the public policy reflected in HAMP, the federal Real Estate Settlement Procedures Act of 1974 (RESPA); see
The plaintiffs also alleged that the defendant’s improper conduct extended beyond their case. Specifically, they alleged that the defendant had a corporate culture of intentional conduct designed to prevent homeowners from receiving HAMP modifications. Such common conduct included requiring customers to return documents on short notice and then waiting months before reviewing such documents, training employees to falsely tell homeowners that it had not received their documents, allowing employees to remove documents from homeowners’ files in order to make the accounts appear ineligible for modification, training employees to perform a ” ‘blitz’ ” twice a month, during which the defendant would order case managers and underwriters to deny any HAMP applications in which the financial documents were more than sixty days old, and failing to adequately train and staff the departments responsible for processing HAMP modifications.5
The second count of the complaint, sounding in negligence, alleged that the defendant owed the plaintiffs a duty of care arising out of servicing standards imposed by RESPA, the 2011 federal consent order, the national mortgage settlement, and the Connecticut foreclosure mediation statutes.6 The plaintiffs further alleged that the defendant breached its duty based on the foregoing conduct, which caused the plaintiffs to suffer significant financial and emotional injury.
The defendant moved to strike both counts of the complaint. It asserted that the allegations pertaining to the manner in which a lender reviews a loan modification application are insufficient to state a cognizable CUTPA claim and that no duty of care exists between a lender and a borrower, including in processing mortgage loan modifications, to support a negligence claim. The defendant also moved to strike the complaint on the grounds that the plaintiffs lacked standing to enforce alleged violations of agreements to which they are not parties or third-party beneficiaries, and that their claims are improperly based on settlement negotiations.
The trial court granted the defendant’s motion to strike. The trial court reasoned that the conduct in question “focuses on negotiation of relief from existing contractual obligations, a situation that the plaintiffs concede does not require any specific outcome, and in which the parties are adversarial given the pendency of litigation. . . . The court does not believe it to be appropriate or productive to adopt a requirement of ‘just right’ pacing of foreclosure
The plaintiffs filed a motion to reargue and reconsider. They claimed, among other things, that there are already fixed timetables for servicer decision making, that public policy regarding loan modifications favors the plaintiffs’ cause of action, and that sanctions are imposed too rarely to be an effective remedy or deterrent. The trial court granted reconsideration but denied the plaintiffs any relief. The trial court subsequently rendered judgment for the defendant on the plaintiffs’ claims. The plaintiffs appealed from the trial court’s judgment to the Appellate Court, and, pursuant to
The essence of the plaintiffs’ argument on appeal is that the trial court improperly struck their complaint “largely because [the trial court] reached the wrong conclusions with respect to the public policy implications of allowing them to proceed.” It is the plaintiffs’ position that HAMP, RESPA, the 2011 federal consent order, the national mortgage settlement, and this state’s foreclosure mediation statutes form a comprehensive policy framework that supports the imposition of liability under CUTPA and under a negligence claim. More specifically, the plaintiffs contend that the foregoing programs and policies prescribe the defendant’s obligations, including the speed and accuracy with which mortgage servicers must evaluate customer loan workout applications. The defendant’s conduct in contravention of those obligations, the plaintiffs contend, was immoral, unethical, oppressive, and unscrupulous, and, as such, violated CUTPA. Additionally, the plaintiffs assert that the totality of the circumstances weigh in favor of allowing them to proceed on their negligence claim. Finally, the plaintiffs assert that the trial court did not consider the negligence per se aspects of their negligence claim and contend that the negligence count also should not have been stricken on the basis of that theory.
We reverse the judgment of the trial court insofar as it granted the defendant’s motion to strike the CUTPA count but affirm insofar as it struck the negligence count of the complaint.
II
Because the plaintiffs’ appeal rests largely on the requirements of various federal, national, and state obligations and the policies that undergird them, it is useful to begin with an overview of these obligations,
A primary federal response to the foreclosure crisis was HAMP, which was established in 2009 by the United States Department of the Treasury and was designed to encourage loan servicers to modify loans for qualified borrowers. See U.S. Dept. of the Treasury, Making Home Affordable, (last updated January 30, 2017), available at https://www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/mha/Pages/hamp.aspx (last visited November 18, 2019); see also Spaulding v. Wells Fargo Bank, N.A., 714 F.3d 769, 772 (4th Cir. 2013); U.S. Bank National Assn. v. Eichten, 184 Conn. App. 727, 733, 196 A.3d 328 (2018). “HAMP was a national home mortgage modification program aimed at helping [at risk] homeowners who were in default or at imminent risk of default by reducing monthly payments to sustainable levels through the restructuring of their mortgages without discharging any of the underlying debt. . . . It was designed to create a uniform loan modification process governed by federal standards that could be used by any loan servicer that chose to participate.” (Citation omitted.) U.S. Bank National Assn. v. Eichten, supra, 733. Because many servicing agreements between loan servicers and investors in residential mortgage backed securities predated the creation of HAMP, servicers that agreed to participate in the program were required to use reasonable efforts to get investors to waive any restrictions on HAMP loan modifications that existed in the agreements. See United States Dept. of the Treasury, HAMP Supplemental Directive 09-01: Introduction of the Home Affordable Modification Program (April 6, 2009) p. 1 (HAMP Supplemental Directive 09-01), available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd0901.pdf (last visited November 18, 2019). The defendant, through a servicer participation agreement,9 voluntarily elected to participate in HAMP. It thereby became contractually obligated to review and process HAMP applications according to a uniform process. See id., pp. 12, 13–14.
The HAMP application process consists of several components. Relevant to the present case, a borrower first completes a HAMP application to which the borrower must append certain financial documents,
As part of its eligibility determination, the servicer must conduct a net present value test, which is a “formula that determines whether it would be more profit-able for servicers and the loan’s investors to approve a modification or to foreclose on the property.” A. Sarapinian, “Fighting Foreclosure: Using Contract Law To Enforce the Home Affordable Modification Program (HAMP),” 64 Hastings L.J. 905, 918 (2013); see HAMP Supplemental Directive 09-01, supra, pp. 4–5 (describing test). If the test result favors modification, “the servicer MUST offer the modification,” provided all other requirements are met. HAMP Supplemental Directive 09-01, supra, p. 4. If the borrower meets those requirements, they are offered a trial period plan. Id., pp. 14–15. Borrowers who satisfy all of the requirements for the trial period, which is typically three months, must be offered a permanent modification. Id., pp. 17–18.
It quickly became apparent that servicers were not executing HAMP modification reviews with the “high standard of care” required by the program. See HAMP Supplemental Directive 09-08, supra, p. 1. Common problems included loss of borrower paperwork, failure to follow program standards, and unnecessary delays that harmed borrowers while financially benefiting servicers. See A. Sarapinian, supra, 64 Hastings L.J. 914. Consequently, the Office of the Comptroller of the Currency, an independent bureau of the United States Department of the Treasury, examined the mortgage foreclosure processes of numerous servicers, including the defendant. An examination of the defendant’s mortgage foreclosure processes found, among other deficiencies, that the defendant “failed to devote sufficient financial, staffing and managerial resources to ensure proper administration of its foreclosure processes” and “failed to devote to its foreclosure processes adequate oversight, internal controls, policies, and procedures, compliance risk management, internal audit, [third-party] management, and training . . . .”10 In re Bank of America, N.A., Charlotte, NC, supra, 2011 WL 6941540, *2. As a result of the Comptroller’s investigation, in April, 2011, the defendant consented to an order that obligated it to remediate what the Comptroller
Approximately one year later, in April, 2012, in a national mortgage settlement, the defendant and several other mortgage servicers entered into a consent judgment with the United States and the attorneys general of forty-nine states and the District of Columbia related to complaints alleging various foreclosure abuses. See United States v. Bank of America Corp., supra, United States District Court, Docket No. 1:12-cv-00361 (RMC); see also P. Lehman, “Executive Summary of Multistate/Federal Settlement of Foreclosure Misconduct Claims,” available at http://www.nationalmortgagesettlement.com/files/NMS_Executive_Summary-7-23-2012.pdf (last visited November 18, 2019). The national mortgage settlement was brought in part under the “[u]nfair and [d]eceptive [a]cts and [p]ractices laws of the [p]laintiff [s]tates . . . .” United States v. Bank of America Corp., supra, United States District Court, Docket No. 1:12-cv-00361 (RMC). Relevant to the present case, the national mortgage settlement, as a “comprehensive reform of mortgage servicing practices,” was intended to prevent the defendant from continuing to engage in “improper foreclosure practices” by imposing numerous controls and standards on the servicing of its loans. P. Lehman, supra, p. 3. For example, the settlement required the defendant to designate a continuing single point of contact for borrowers and provide detailed reasons for the denial of a modification. Id.
Despite these efforts, “pervasive problems with servicers’ performance of loss mitigation activity in connection with the financial crisis” continued to be of widespread concern. See Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), 78 Fed. Reg. 10,696, 10,814 (February 14, 2013), codified at
RESPA’s Regulation X requires a loan servicer to evaluate a complete loss-mitigation application within thirty days of receipt of the application. See
In addition to the federal response to the foreclosure crisis, many states took their own action to address the problem. Connecticut enacted a statutory scheme that established a court administered and supervised foreclosure mediation program. See
III
With this background in mind, we turn to the merits of the plaintiffs’ challenge to the trial court’s decision to strike their complaint. Our review of a trial court’s decision to grant a motion to strike is plenary. See, e.g., Doe v. Hartford Roman Catholic Diocesan Corp., 317 Conn. 357, 398, 119 A.3d 462 (2015). This is because a “motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court. . . . We take the facts to be those alleged in the complaint that has been stricken and we construe the complaint in the manner most favorable to sustaining its legal sufficiency. . . . Thus, [i]f facts provable in the complaint would support a cause of action, the motion to strike must be denied.” (Citations omitted; internal quotation marks omitted.) Suffield Development Associates Ltd. Partnership v. National Loan Investors, L.P., 260 Conn. 766, 771–72, 802 A.2d 44 (2002).
A
CUTPA
We begin with the plaintiffs’ claim that the defendant’s alleged misconduct during the course of the loan modification negotiations violated CUTPA. The basic contours of a CUTPA claim are well settled. “CUTPA is, on its face, a remedial statute that broadly prohibits unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce. . . . To give effect to its provisions, [General Statutes]
To successfully state a claim for a CUTPA violation, the plaintiffs must allege that the defendant’s acts occurred in the conduct of trade or commerce.12 See Artie’s Auto Body, Inc. v. Hartford Fire Ins. Co., 287 Conn. 208, 217, 947 A.2d 320 (2008). On the record before us, this requirement undoubtedly has been met. It is well settled that CUTPA applies to banks and banking activities. See, e.g., Normand Josef Enterprises, Inc. v. Connecticut National Bank, 230 Conn. 486, 521, 646 A.2d 1289 (1994); Smithfield Associates, LLC v. Tolland Bank, 86 Conn. App. 14, 27, 860 A.2d 738 (2004), cert. denied, 273 Conn. 901, 867 A.2d 839 (2005). Federal courts have specifically held that a bank’s “lending and loan modification activities involve the ‘conduct of any trade or commerce.’ ” Compton v. Countrywide Financial Corp., 761 F.3d 1046, 1056 (9th Cir. 2014); see Tanasi v. CitiMortgage, Inc., 257 F. Supp. 3d 232, 275 (D. Conn. 2017) (“Connecticut courts have held that CUTPA applies to unfair or deceptive conduct by mortgage companies and other holders of mortgage notes” [internal quotation marks omitted]).13
The plaintiffs also must establish that the alleged acts or practices are unfair or deceptive. “[W]e have adopted [certain] criteria set out in the cigarette rule by the [F]ederal [T]rade [C]ommission for determining when a practice is unfair: (1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise—in other words, it is within at least the penumbra of some [common-law], statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial
We are mindful that our legislature “deliberately chose not to define the scope of unfair or deceptive acts proscribed by CUTPA so that courts might develop a body of law responsive to the marketplace practices that actually generate such complaints. . . . Predictably, [therefore] CUTPA has come to embrace a much broader range of business conduct than does the [common-law] tort action. . . . Moreover, [b]ecause CUTPA is a self-avowed remedial measure . . .
The plaintiffs’ CUTPA claim is grounded in the theory that the business of loan servicing is regulated by certain industry standards imposed by statutes, regulations, and court orders that form a comprehensive policy framework. The plaintiffs contend that the defendant made a conscious decision to depart from these standards and deliberately engage in a pattern of conduct intended to prevent homeowners, like the plaintiffs, from receiving HAMP modifications, which in turn drives up borrower debt.15 Taken as a whole, and viewed in the light most favorable to sustaining the complaint’s legal sufficiency, we agree with the plaintiffs’ characterization of their complaint and conclude that these allegations describe conduct that was not merely a technical violation of these provisions or negligent or incompetent, but involved a conscious, systematic departure from known, standard business norms. The plaintiffs’ allegations describe practices that are certainly within the ” ‘penumbra of some . . . established concept of unfairness . . . .’ ” Artie’s Auto Body, Inc. v. Hartford Fire Ins. Co., supra, 317 Conn. 609 n.9.
1
Turning to the first criterion of the cigarette rule, we must consider whether the alleged practices offend public policy expressed in statutes, the common law, or elsewhere, that establishes a
HAMP was “aimed at helping 3 to 4 million [at risk] homeowners—both those who are in default and those who are at imminent risk of default—by reducing monthly payments to sustainable levels.”16 HAMP Supplemental Directive 09-01, supra, p. 1. In support of this policy, RESPA’s implementing regulation, Regulation X, establishes obligations for how a loan servicer must handle a borrower’s loss mitigation application under HAMP.17 See
With respect to the national mortgage settlement, the intent of the new servicing standards it imposed was, in part, to “increase
This state’s foreclosure mediation statutes were similarly designed to help homeowners remain in their homes by avoiding foreclosure. See 51 S. Proc., Pt. 17, 2008 Sess., p. 5061, remarks of Senator Bob Duff (“[Foreclosure mediation] . . . will help our consumers in the state very much. And I think it will also help the banks quite a bit too because . . . no bank likes to foreclose on a loan.“); id., p. 5085, remarks of Senator Robert J. Kane (“[t]he mediation process, although not perfect, is very good because it will get people to maybe stay in their homes a bit longer“). Foreclosure mediation was intended to “address all issues of foreclosure,” including modification of the loan and restructuring of the mortgage debt.
The plaintiffs have alleged conduct by the defendant that is contrary to the policies of HAMP, RESPA, the national mortgage settlement, the 2011 consent order, and this state’s foreclosure mediation statutes. They alleged that the defendant failed to timely review completed applications, erroneously issued denials based on failures to provide requested documentation that had previously been supplied, erroneously issued denials based on investor restrictions that did not exist, and conducted flawed evaluations of applications. They also alleged that, throughout the loan modification process, the defendant was often nonresponsive, failing to return the plaintiffs’ phone calls or follow up with the plaintiffs as promised. When the plaintiffs
2
Turning to the second criterion of the cigarette rule, we must consider whether the defendant’s allegedly improper practices are ” ‘immoral, unethical, oppressive, or unscrupulous . . . .’ ” Ulbrich v. Groth, supra, 310 Conn. 409. The plaintiffs allege that the defendant’s misrepresentations in violation of HAMP, RESPA, the 2011 consent order, the national mortgage settlement, and this state’s foreclosure mediation statutes satisfy this criterion. Specifically, they allege that, by “capitalizing inflated past due interest along with attorney’s fees and costs, the defendant ultimately profits from the excessive delay at the cost of the consumer through servicing fees.” It is well settled that a “trade practice that is undertaken to maximize the defendant’s profit at the expense of the plaintiff’s rights comes under the second prong of the cigarette rule.” Votto v. American Car Rental, Inc., 273 Conn. 478, 485, 871 A.2d 981 (2005); see Johnson Electric Co. v. Salce Contracting Associates, Inc., 72 Conn. App. 342, 357, 805 A.2d 735 (defendant general contractor was held liable for CUTPA violation under second prong of cigarette rule after listing plaintiff subcontractor as successful bidder but failing to honor contract), cert. denied, 262 Conn. 922, 812 A.2d 864 (2002).
We are mindful that “not every technical violation of HAMP” should expose a servicer to liability under a state’s consumer protection laws. See Morris v. BAC Home Loans Servicing, L.P., supra, 775 F. Supp. 2d 263. Plaintiffs that have sufficiently alleged unfair or deceptive actions based on HAMP violations “have alleged a pattern of misrepresentations, failure to correct detrimental errors, and/or dilatory conduct on the part of the servicer and/or bank . . . .” (Internal quotation marks omitted.) Ayoub v. CitiMortgage, Inc., United States District Court, Docket No. 15-cv-13218 (ADB), 2018 WL 1318919, *4 (D. Mass. March 14, 2018); see Hanrahran v. Specialized Loan Servicing, LLC, 54 F. Supp. 3d 149, 155 (D. Mass. 2014) (“a pattern or course of conduct involving misrepresentations, delay, and evasiveness in evaluating a HAMP application” sufficiently alleges unfair conduct); Hanrahran v. Specialized Loan Servicing, LLC, supra, 155 (citing cases discussing such pattern or course of conduct). “[T]he relevant conduct is the entirety of [the defendant’s] actions, not each action viewed in isolation.” (Internal quotation marks omitted.) Hanrahran v. Specialized Loan Servicing, LLC, supra, 156.
We note that other courts have concluded that allegations of improper handling of loan modification applications are sufficient to state a claim under state consumer protection laws. See, e.g., Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 574–75 (7th Cir. 2012) (ineffectual implementation of HAMP was sufficient to state claim under Illinois consumer protection act); Tanasi v. CitiMortgage, Inc., supra, 257 F. Supp. 3d 275 (allegations that bank deceptively solicited modifi-
cation agreements and that bank’s communications were confusing and deceptive was sufficient to state CUTPA claim); Walker v. Deutsche Bank National Trust Co., United States District Court, Docket No. 3:16-cv-697 (AWT) (D. Conn. March 24, 2017) (allegations that bank repeatedly asked for documents over six year period, bad faith use of mediation program and breached modification agreements was sufficient to state CUTPA claim); Ayoub v. CitiMortgage, Inc., supra, 2018 WL 1318919, *5 (allegations of repeated ‘‘ambiguous and opaque explanations’’ for denying loan modification applications was sufficient to state Massachusetts consumer protection act claim); Kirtz v. Wells Fargo Bank, N.A., United States District Court, Docket No. 12-10690 (DJC) (D. Mass. November 29, 2012) (allegations that bank’s history of requiring borrower to resubmit same documents
In addition to their allegations that the defendant improperly had handled loan modification applications, the plaintiffs alleged that the defendant had discouraged them from participating in the state’s foreclosure mediation program by misrepresenting the program’s utility. The defendant allegedly sent the plaintiffs a letter claiming that it is a ‘‘ ‘common misconception’ ’’ that a borrower will receive a better resolution in mediation and encouraging the plaintiffs to work outside of court so as ‘‘ ‘to avoid the inconvenience of holding a hearing.’ ’’ The defendant allegedly engaged in a statewide practice of sending similar letters to borrowers in an attempt to reduce the extent of supervision the court could exercise over the defendant’s loan modification review process. Viewed in the light most favorable to the plaintiffs, this claim alleges that the defendant used an unscrupulous and deceptive practice to induce the plaintiffs, and other borrowers, into forgoing their right to elect to participate in the state’s foreclosure mediation program. See, e.g., Caldor, Inc. v. Heslin, 215 Conn. 590, 597, 577 A.2d 1009 (1990) (‘‘[A]n act or practice is deceptive if three requirements are met. ‘First, there must be a representation, omission, or other practice likely to mislead consumers. Second, the consumers must interpret the message reasonably under the circumstances. Third, the misleading representation, omission, or practice must be material—that is, likely to affect consumer decisions or conduct.’ ’’ [Footnote omitted.]), cert. denied, 498 U.S. 1088, 111 S. Ct. 966, 112 L. Ed. 2d 1053 (1991).
With regard to the effect of these violations, the plaintiffs allege that the permanent HAMP loan modification agreement provided to them by the defendant included ‘‘tens, if not hundreds, of thousands of [dollars in] new principal consisting of improper and illicit charges such as attorney’s fees . . . other default fees that should never have been [in]curred, commencing a second foreclosure action for no reason, and accrued interest . . . far [in] excess of what [the plaintiffs] would pay had [the defendant] timely and properly evaluated their initial loan modification application.’’ These allegations provide additional support for the conclusion that the defendant’s conduct was immoral, unethical, oppressive, or unscrupulous. See, e.g., Votto v. American Car Rental, Inc., supra, 273 Conn. 485; see also Monetary Funding Group, Inc. v. Pluchino, 87 Conn. App. 401, 413, 867 A.2d 841 (2005) (mortgagee’s intentional misconduct with respect to transaction in order to obtain excessive fees and costs satisfied second cigarette rule criterion).
The plaintiffs further allege that the defendant’s conduct was a result of a widespread policy that prevented borrowers from receiving HAMP modifications. This allegation is based on affidavits from employees of the defendant taken in connection with a motion for class certification in a federal action filed against the defendant. See Sheely v. Bank of America, N.A., 36 F. Supp. 3d 1364, 1372 (2014); see also In re Bank of America Home Affordable Modification Program (HAMP) Contract Litigation, Docket No. M.D.L. 10-2193 (RWZ), 2013 WL 4759649 (D. Mass. September 4, 2013). Specifically, the plaintiffs alleged that the defendant had a corporate culture of intentional and wrongful conduct. Such conduct included requiring customers to return documents on short notice but waiting months before reviewing
3
Finally, we turn to the third criterion, which requires us to consider whether the alleged conduct caused substantial injury to the plaintiffs. See Ulbrich v. Groth, supra, 310 Conn. 409. In evaluating whether the third criterion is satisfied, we have explained that ‘‘not . . . every consumer injury is legally unfair . . . . To justify a finding of unfairness the injury must satisfy three tests. It must be substantial; it must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and it must be an injury that consumers themselves could not reasonably have avoided.’’ (Internal quotation marks omitted.) McLaughlin Ford, Inc. v. Ford Motor Co., 192 Conn. 558, 569–70, 473 A.2d 1185 (1984).
The plaintiffs have sufficiently alleged that they suffered substantial injury from the defendant’s conduct. They alleged that the permanent HAMP loan modification agreement ‘‘called for a balance that included tens, if not hundreds, of thousands of [dollars in] new principal . . . .’’ Specifically, the plaintiffs alleged that they incurred an accumulation of interest, default fees, significant arrearages, attorney’s fees, and a much higher monthly mortgage payment, lost the opportunity to earn $5000 in borrower incentive payments under HAMP, and suffered emotional distress. Further, the plaintiffs alleged systematic defects with the defendant’s loan servicing practices, which had the potential to injure a large number of other consumers. See Stephens v. Capital One, N.A., Docket No. 15-cv-9702, 2016 WL 4697986, *6 (N.D. Ill. September 7, 2016) (‘‘[d]efendant’s expansive consumer base . . . allows the [c]ourt to reasonably infer that a large consumer base may be at risk for similar conduct that has been alleged to qualify as
There is also a sufficient basis to infer that the defendant’s practices are not outweighed by countervailing benefits to consumers or competitors, as the legal requirements prescribed under HAMP, RESPA and the other obligations have already been weighed in that balance. The defendant has identified no benefit that inures to the consumer by allowing it to provide untimely, incomplete, and inaccurate information. Insofar as the defendant asserts that requiring servicers to timely and appropriately process HAMP modification applications will deter such entities from engaging in the modification process, that might be the case if we were concluding that minor, infrequent, unintentional delays and/or errors in processing applications provide a basis for a CUTPA claim. We plainly are not.19 The defendant’s alleged practices could hardly be characterized as simply a ‘‘technical violation’’ of a statute; Normand Josef Enterprises, Inc. v. Connecticut National Bank, supra, 230 Conn. 524; an inadvertent violation of a statute; Gaynor v. Union Trust Co., 216 Conn. 458, 483, 582 A.2d 190 (1990); or an isolated incident of a good faith mistake. Jacobs v. Healey Ford-Subaru, Inc., supra, 231 Conn. 728–29.20 There continues to be a financial incentive for investors to have their loan servicers modify loans rather than undertake foreclosure in appropriate cases. See, e.g., A. Levitin, ‘‘Resolving the Foreclosure Crisis: Modification of Mortgages in Bankruptcy,’’ 2009 Wis. L. Rev. 565, 568 (2009) (‘‘lenders are estimated to lose from 40 to 50 percent of their investment in a foreclosure situation’’). Indeed, that is the purpose of HAMP’s net present value test. See J. Chiles & M. Mitchell, ‘‘HAMP: An Overview of the Program and Recent Litigation Trends,’’ 65 Consumer Fin. L. Q. Rep. 194, 196 (2011) (‘‘[net present value] test is a mathematical formula used to determine whether the mortgage investor would make more money by approving a modification or by allowing the subject property to go into foreclosure’’); A. Sarapinian, supra, 64 Hastings L.J. 918 (net present value test ‘‘is a formula that determines whether it would be more profitable for servicers and the loan’s investors to approve a modification or to foreclose on the property’’). Permitting recovery based on allegations that a servicer made continuous and systematic departures from known standards is not outweighed by any benefits to loan servicers in escaping liability for such actions.
Undoubtedly, the plaintiffs could have avoided their injuries had they not defaulted on their mortgage. But that is the case
Mindful that CUTPA is a broad remedial statute, and given the degree to which the defendant’s alleged conduct, viewed in the light most favorable to sustaining the legal sufficiency of the complaint, violates each cigarette rule criterion, we conclude that the plaintiffs have alleged a CUTPA violation sufficient to survive a motion to strike. Accordingly, we reverse the judgment of the trial court insofar as that court struck the CUTPA count of the plaintiffs’ complaint.
B
Negligence
We now turn to the plaintiffs’ claim that the defendant’s alleged misconduct during the course of the loan modification negotiations was negligent. Although it is not clear from the complaint, the plaintiffs, on appeal, contend that they have alleged two theories of negligence: (1) they were owed a common-law duty of care arising out of HAMP, RESPA, the state’s foreclosure mediation statutes, the 2011 consent order, and the national mortgage settlement; and (2) the requirements imposed by RESPA and this state’s foreclosure mediation statutes establish a duty of care, the violations of which constitute negligence per se.
We begin with the plaintiffs’ common-law theory. ‘‘The essential elements of a cause of action in negligence are well established: duty; breach of that duty; causation; and actual injury. . . . Duty is a legal conclusion about relationships between individuals, made after the fact, and [is] imperative to a negligence cause of action. . . . Thus, [t]here can be no actionable negligence . . . unless there exists a cognizable duty of care.’’ (Internal quotation marks omitted.) Mazurek v. Great American Ins. Co., 284 Conn. 16, 29, 930 A.2d 682 (2007). A duty of care ‘‘may arise from a contract, from a statute, or from circumstances under which a reasonable person, knowing what he knew or should have known, would anticipate that harm of the general nature of that suffered was likely to result from his act or failure to act.’’ Coburn v. Lenox Homes, Inc., 186 Conn. 370, 375, 441 A.2d 620 (1982). ‘‘[T]he test for the existence of a legal duty [of care] entails (1) a determination of whether an ordinary person in the defendant’s position, knowing what the defendant knew or should have known, would anticipate that harm of the general nature of that suffered was likely to result, and (2) a determination, on the basis of a public policy analysis, of whether the defendant’s responsibility for its negligent conduct should extend to the particular consequences or particular plaintiff in this case.’’ (Internal quotation marks omitted.) Ruiz v. Victory Properties, LLC, 315 Conn. 320, 328–29, 107 A.3d 381 (2015).
The plaintiffs contend that we should recognize a common-law duty requiring a loan servicer to use reasonable care in the review and processing of a mortgagor’s loan modification applications. We decline to do so.
We agree with the plaintiffs that, based on the defendant’s extensive experience servicing defaulted mortgages, it was foreseeable that, if the defendant failed to timely and efficiently review their loan modification applications, the plaintiffs would suffer financial harm as a result.
‘‘[A] simple conclusion that the harm to the plaintiff was foreseeable . . . cannot by itself mandate a determination that a legal duty exists. Many harms are quite literally foreseeable, yet for pragmatic reasons, no recovery is allowed. . . . A further inquiry must be made, for we recognize that duty is not sacrosanct in itself . . . but is only an expression of the sum total of those considerations of policy [that] lead the law to say that the plaintiff is entitled to protection. . . . The final step in the duty inquiry, then, is to make a determination of the fundamental policy of the law, as to whether the defendant’s responsibility should extend to such results.’’ (Internal quotation marks omitted.) Munn v. Hotchkiss School, 326 Conn. 540, 549–50, 165 A.3d 1167 (2017).
‘‘[I]n considering whether public policy suggests the imposition of a duty, we . . . consider the following four factors: (1) the normal expectations of the participants in the activity under review; (2) the public policy of encouraging participation in the activity, while weighing the safety of the participants; (3) the avoidance of increased litigation; and (4) the decisions of other jurisdictions. . . . [This] totality of the circumstances rule . . . is most consistent with the public policy goals of our legal system, as well as the general tenor of our [tort] jurisprudence.’’ (Citation omitted; internal quotation marks omitted.) Ruiz v. Victory Properties, LLC, supra, 315 Conn. 337. The second and third factors are analytically related and considered together. See Lawrence v. O & G Industries, Inc., 319 Conn. 641, 658, 126 A.3d 569 (2015). ‘‘[I]n considering these two factors, [we] at times [have] employed a balancing test to determine whether, in the event that a duty of care is recognized by the court, the advantages of encouraging participation in the activity under review outweigh the disadvantages of the potential increase in litigation.’’ Bloomfield Health Care Center of Connecticut, LLC v. Doyon, supra, 185 Conn. App. 371. ‘‘We acknowledge that as in any case that involves the question of whether our public policy, as a matter of com- mon law, should recognize a new cause of action, the ultimate decision comes down to a matter of judgment in balancing the competing interests involved.’’ Mendillo v. Board of Education, 246 Conn. 456, 495, 717 A.2d 1177 (1998), overruled in part on other grounds by Campos v. Coleman, 319 Conn. 36, 37–38, 123 A.3d 854 (2015).
As a general matter, the law does not impose a duty on lenders to use reasonable care in its commercial transactions with borrowers because the relationship between lenders and borrowers is contractual and loan transactions are conducted at arm’s length. See Saint Bernard School of Montville, Inc. v. Bank of America, 312 Conn. 811, 836, 95 A.3d 1063 (2014) (‘‘[g]enerally there exists no fiduciary relationship merely by virtue of a borrower-lender relationship between a bank and its customer’’ [internal quotation marks omitted]); Southbridge Associates, LLC v. Garofalo, 53 Conn. App. 11, 19, 728 A.2d 1114 (‘‘[a] lender has the right to further its own interest in a mortgage transaction and is not under a duty to represent the customer’s interest’’), cert. denied, 249 Conn. 919, 733 A.2d 229 (1999). The question, therefore, is whether to treat a relationship between an investor’s loan servicer and a mortgagor differently in the context of the former’s review and processing of a loan modification application.
With respect to the normal expectations of the participants in the activity, the plaintiffs argue that they ‘‘reasonably expected that the defendant, a large national institution with dozens of retail banking branches in their own state, would review their loan workout applications in a timely and accurate manner’’ and that the defendant ‘‘should reasonably expect that it will need to follow the rules to which it is subject.’’ We agree. This factor, however, is just one in the totality of the circumstances assessment.
As to the second and third factors, we agree with the defendant that imposing a duty of care could inhibit participation in the loan modification process and increase litigation. Recognizing a duty of care and, consequently, a negligence cause of action, would have far reaching consequences that extend beyond anything implicated under CUTPA.21 In part III A of this opinion, we concluded that the plaintiffs’ allegations, if credited, would allow a jury to conclude that the defendant engaged in numerous, systematic abuses that prevented homeowners from receiving HAMP modifications and, as such, were sufficiently unfair and deceptive to state a claim under CUTPA. If the court were to recognize a common-law duty of care, however, it could result in loan servicer liability for isolated violations or far less consequential violations of the loan modification process, which would hinder servicer participation in the modification process. Indeed, several courts have explained that recognizing a private right of action under HAMP for mere negligence ‘‘would likely chill servicer participation based on fear of exposure to litigation.’’ Miller v. Chase Home Finance, LLC, 677 F.3d 1113, 1116 (11th Cir. 2012); see Zoher v. Chase Home Financing, Docket No. 10-14135-CIV, 2010 WL 4064708, *4 (S.D. Fla. October 15, 2010) (no implied private right of action because servicers would be discouraged ‘‘from participating in the program because they would be exposed to significant litigation expenses’’). ‘‘[B]y creating a compliance vehicle through [the Federal Home Loan Mortgage Corporation, known as] Freddie Mac and by including reporting requirements, the HAMP [g]uidelines already designated a scheme to correct . . . any mortgagee wrongdoing.’’ (Internal quotation marks omitted.) Zoher v. Chase Home Financing, supra, *4.
With respect to the national mortgage settlement and the 2011 consent order, although the defendant agreed to comply with the more stringent servicing standards when it entered into these settlements, they do not create a special relationship
Moreover, loan servicers are already exposed to liability for violations of RESPA’s implementing regulation, Regulation X; see
Finally, the plaintiffs concede that the fourth factor, the decisions of other jurisdictions, does not cut in either party’s favor. See Blanco v. Bank of America, N.A., Superior Court, judicial district of Hartford, Docket No. CV-15-6060162-S (April 20, 2016) (‘‘[a]lthough this court’s own independent research reveals that some jurisdictions have imposed a duty of care on entities in the defendant’s position, it is apparent that no clear consensus exists’’). We note, however, that numerous courts have concluded that neither HAMP nor the relationship between a borrower and servicer/lender imposes any duty of care owed by lending banks and servicers to borrowers. See, e.g., MacKenzie v. Flagstar Bank, FSB, 738 F.3d 486, 495–96 (1st Cir. 2013) (relationship between borrower and lender does not give rise to duty of care, and failure to abide by servicer participation agreement or HAMP when processing loan modifications does not give rise to negligence claim); Legore v. OneWest Bank, FSB, 898 F. Supp. 2d 912, 918 (D. Md. 2012) (plaintiff could not rely on alleged violation of HAMP guidelines as sole basis for negligence claim because Congress did not intend to create private right of action); Thomas v. JPMorgan Chase & Co., 811 F. Supp. 2d 781, 800 (S.D.N.Y. 2011) (servicer participation agreement and HAMP did not impose duty on financial institutions with respect to borrowers, and banks do not owe duty of care to borrowers); Brown v. Bank of America Corp., United States District Court, Docket No. 10-11085 (D. Mass. March 31, 2011) (HAMP guidelines do not create duty of care); U.S. Bank, N.A. v. Phillips, 318 Ga. App. 819, 826, 734 S.E.2d 799 (2012) (‘‘[t]he provisions of HAMP do not plainly impose a legal duty intended to benefit homeowners, so as to authorize a private negligence cause of action’’); Santos v. U.S. Bank National Assn., 89 Mass. App. 687, 699, 54 N.E.3d 548 (2016) (‘‘[i]t is now [well established] that, as a matter of law, HAMP does not create a duty of care owed by mortgagees to mortgagors’’), review denied, 476 Mass. 1103, 63 N.E.3d 387 (2016).
As we have observed, ‘‘[c]ourts operating in the quintessential common-law context—that is, when they are asked to recognize a new common-law cause of action—function best, and command the most respect, when their decisions can be defended on grounds of reason and principle.’’ Mendillo v. Board of Education, supra, 246 Conn. 486. Thus, we ‘‘should demand a very strong showing of policy reasons before doing so.’’ Id., 487. In our view, on balance, that showing does not exist here. Thus, because we conclude that the defendant did not owe a common-law duty of care to the plaintiffs, the trial court properly struck the plaintiffs’ common-law negligence count.22
The plaintiffs contend, however, that their negligence count also may be construed to extend to a theory of negligence per se. The defendant contends that this claim is not properly before us. It points out that the plaintiffs did not allege negligence per se in their complaint and did not allege the violation of any specific statute by the defendant that would support a negligence per se claim. The plaintiffs also did not raise the issue of negligence per se in their motion to reargue, seek an articulation from the trial court on this purported
In response, the plaintiffs contend that they adequately pleaded negligence per se in paragraph 174 of their complaint, wherein they alleged that the defendant ‘‘breached a duty imposed by federal regulations and state statutes,’’ and in paragraph 177 of their complaint, wherein they alleged that ‘‘such breach caused their injury.’’ The plaintiffs also contend that they defended their negligence per se claim in their opposition to the defendant’s motion to strike.
To state a claim of negligence per se, the plaintiffs must satisfy a two-pronged test: (1) they are within the class of persons intended to be protected by the statute; and (2) their injury is the type of harm that the statute was intended to prevent. See, e.g., Gore v. People’s Savings Bank, 235 Conn. 360, 375–76, 665 A.2d 1341 (1995). ‘‘The doctrine of negligence per se serves to superimpose a legislatively prescribed standard of care on the general standard of care.’’ Staudinger v. Barrett, 208 Conn. 94, 101, 544 A.2d 164 (1988).
Nowhere in the complaint do the plaintiffs specifically allege negligence per se. Nor do they identify particular legal provisions that the defendant violated. Even in their opposition to the defendant’s motion to strike, on which the plaintiffs rely, they did not identify which statutory provisions established the standard of care that the defendant violated.23 The plaintiffs were required to plead their claim of negligence per se with greater specificity. See, e.g., White v. Mazda Motor of America, Inc., 313 Conn. 610, 631, 99 A.3d 1079 (2014) (‘‘an issue must be ‘distinctly raised’ before the trial court, not just ‘briefly suggested’ ’’). As the plaintiffs acknowledge in their brief, the violation of a statute may constitute negligence per se, or create a presumption of negligence, or make out a prima facie case of negligence, or constitute evidence of negligence. See, e.g., Ward v. Greene, 267 Conn. 539, 548, 839 A.2d 1259 (2004); see also Vermont Mutual Ins. Co. v. Fern, 165 Conn. App. 665, 672 n.7, 140 A.3d 278 (2016). The plaintiffs’ simple assertion in their opposition to the defendant’s motion to strike that the defendant violated RESPA and this state’s foreclosure mediation statutes was not sufficient to put the defendant and the trial court on notice that they were advancing a theory of negligence per se. This lack of notice is reflected in the trial court’s failure to address negligence per se in its decision granting the motion to strike. The plaintiffs could have but failed to seek an articulation and made no mention of negligence per se in their motion to reargue. We conclude that the plaintiffs did not raise this claim distinctly before the trial court. ‘‘The requirement that [a] claim be raised distinctly [before the trial court] means that it must be so stated as to bring to the attention of the court the precise matter on which its decision is being asked.’’ (Emphasis in original; internal quotation marks omitted.) Remillard v. Remillard, 297 Conn. 345, 351, 999 A.2d 713 (2010). Accordingly, it would not be appropriate for this court to consider this claim as a basis to reverse the trial
The judgment is reversed with respect to the claim alleging violations of CUTPA and the case is remanded with direction to deny the defendant’s motion to strike that claim and for further proceedings according to law; the judgment is affirmed in all other respects.
In this opinion the other justices concurred.