MEMORANDUM
Plaintiffs Matthew Dwoskin and Randi Dwoskin are homeowners who obtained a “no fee” fixed-rate mortgage through Bank of America, N.A. (the “Bank”). The Dwoskins allege that despite the Bank’s representations that the mortgage was “no fee,” the Bank took out lender-paid mortgage insurance on the loan and failed to tell the Dwoskins that it did so, making them unable to refinance the loan on more favorable terms at a later date. Plaintiffs allege the Bank’s conduct violated the Homeowners Protection Act of 1998, 12 U.S.C. § 4901, et seq., and the Maryland Consumer Protection Act, Md.Code Ann., Com. Law §§ 13-101 et seq. They also allege the Bank’s conduct was fraudulent or, in the alternative, that it constituted negligent misrepresentation, and that it unjustly enriched the Bank. The Dwoskins seek to sue on behalf of themselves and a similarly situated class.
Now pеnding are the Bank’s motion to dismiss (ECF No. 9) and a motion to file an additional authority in support of the motion to dismiss (ECF No. 13). For the reasons given below, the motion to file supplemental authority will be granted and the motion to dismiss will be denied.
I. BACKGROUND
Matthew and Randi Dwoskin live in a home at 9104 Belvedere Drive in Frederick, Maryland, which they purchased through a mortgage from Bank of America, N.A. (the “Bank”) (Compl. ¶ 1). The Dwoskins researched loan terms, conditions, and market rates before selecting
The Bank began marketing its No Fee loans in or around May 2007. {Id. ¶ 14). In its marketing and loan application materials, the Bank represented that the No Fee program would “waive or pay all fees for services or products required by the Bank in order to provide a ‘no fee’ fixed mortgage to qualifying buyers.” {Id.). The Bank specifically promised it would not require private mortgage insurance (“PMI”) to be placed on the property. {Id. ¶ 15). When a mortgage loan is for more than 80% of a home’s value, borrowers typically are required to obtain mortgage insurance directly through a private mortgage insurance company or indirectly through lender-paid mortgage insurance (“LPMI”). {Id. ¶ 17). If borrowers purchase PMI, they do so at closing and independently pay insurance premiums to the mortgage insurance company. {Id. ¶ 19). If a lender provides LPMI, the lender pays the cost of mortgage insurance and typically passes on that cost to the borrowers by charging a higher interest rate on the loan. {Id. ¶ 20). In its No Fee program, the Bank expressly agreed that PMI was among the fees and services it would waive or pay for borrowers in its No Fee program. {Id. ¶ 15). Indeed, the president of consumer real estate for the Bank told the Washington Post in May 2007 that No Fee loans did not include any private mortgage insurance because of the Bank’s vast reserves and stated: “We are the investor, we assume the risk.” {Id. ¶ 22). The article explained that the Bank was “self-insuring the risk and charging customers nothing for the service.” {Id.). Plaintiffs claim these statements were untrue and that the Bank hid the fees involved in the No Fee mortgages, in part by not giving borrowers the lower rates they ordinarily would have been able to receive by paying “points” up front.
The Dwoskins applied for a residential loan with the Bank and were approved on or about November 18, 2008, for a loan of $500,564 through the No Fee program. {Id. ¶¶ 24-26). This loan amount represented more than 80% of the value of the property for which they sought the mortgage, which typically would mean the Dwoskins would have to obtain either PMI or LPMI. {Id. ¶ 28). The Dwoskins claim that in accepting the Bank’s approval of their loan, they relied on the Bank’s promise that their loan was truly no fee and that no PMI would be required. {Id. ¶ 31). The Dwoskins closed on the loan on December 9, 2008, when they executed a 30-year mortgage in favor of the Bank in the amount of $500,564 at a fixed interest rate of 6.375%. {Id. ¶ 32). At settlement, the Dwoskins were presented with a statement that showed no evidence the Bank had placed LPMI on the property and the Bank provided no written disclosures of any intent to place LPMI on the property. {Id. ¶ 36). The Dwoskins claim the Bank misrepresented its intention of placing LPMI on the property by hiding or omitting the fact from the disclosures made at closing. {Id.).
In 2009, the Dwoskins attempted to refinance their mortgage under the Home Affordable Refinance Program (“HARP”) through the Bank. {Id. ¶ 39). At that time, they learned the Bank had paid for LPMI
Until the LPMI is cancelled, the Dwoskins believe they will be unable to refinance their mortgage through HARP or similar programs, depriving them of the benefits of lower interest rates. (Id. ¶ 49). They attempted to mitigate these damages by asking the Bank to either cancel the LPMI or refinance their loan to a rate commensurate with current market conditions and without any mortgage insurance. (Id. ¶ 50). The Dwoskins also have tried to refinance their mortgage with other lenders but have been unable to do so because of the LPMI on the loan. (Id.).
II. STANDARD OF REVIEW
The Bank moves to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b).
“‘[T]he purpose of Rule 12(b)(6) is to test the legal sufficiency of a complaint’ and not to ‘resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.’ ” Presley v. City of Charlottesville,
The Bank also moves to dismiss the fraud and Maryland Consumer Protection Act (“MCPA”) claims on the ground that the pleadings lack the particularity required under FRCP 9(b). That rule requires that in “alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b).
III. MOTION TO DISMISS
a. Homeowners Protection Act of 1998
The Homeowners Protection Act of 1998 (“HPA”) requires, among other things,
The Bank argues it had no duty to make disclosures to the Dwoskins under § 4905 because it contends no LPMI was required on the Dwoskin loan. (Def.’s Mot. to Dismiss at 5-7). The Bank argues “required” in § 4905 means “required as a condition of the loan.” (Def.’s Reply at 2). It contends that because the Bank did not require itself to obtain LPMI on the Dwoskin loan at origination, the disclosure requirements of the HPA do not apply. (Def.’s Reply at 2). The Bank avers that the Dwoskin loan contemplated only a potential requirement for PMI paid by the borrower. (Id. at 6). In fact, it argues the statements made by bank officers cited in the complaint make clear the Bank did not contemplate placing LPMI on the Dwoskin loan or other No Fee loans until after those loans were taken out and the Bank only did so because of “unforeseen and unprecedented market events.” (Id.). The Bank also contends the Dwoskins’ allegations that the Bank purchased LPMI without their knowledge, consent, or approval are irrelevant because LPMI was not required on their mortgage. (Def.’s Mot. to Dismiss at 7).
The Dwoskins argue that reading “required” in the narrow manner suggested by the Bank undermines the purposes of the HPA. (PL’s Opp’n at 5). They note that interpreting “required” to mean “required as a condition of the loan,” would mean that as long as banks did not require themselves to purchase LPMI at a loan’s origination, the banks could avoid the disclosure requirements of the HPA altogether by routinely purchasing LPMI after closing and concealing the LPMI’s existence from borrowers, defeating the purpose of the statute. (Id.). The Dwoskins contend that the HPA should instead be read as requiring disclosures in any residential mortgage transaction in which PMI or LPMI is placed on the property. (PL’s Opp’n at 7).
There is little case law interpreting or enforcing § 4905. Only four cases cite to the provision. See O’Connor v. Wells Fargo Home Mortg., No. 1:08-CV-0281-JEC,
In Robinson the court dismissed a claim by a pro se plaintiff brought under the HPA because the plaintiff failed to allege that he was required to obtain either LPMI or PMI. Robinson,
In O’Connor, the court directly addressed the meaning of “required” within § 4905. See O’Connor,
In this case, the Bank contends the Dwoskins failed to allege LPMI was required on their loan. (Def.’s Reply at 6).
b. Preemption by HPA of Fraud, Negligent Misrepresentation, and Maryland Consumer Protection Act claims
The Bank next argues that the Dwoskins’ claims for fraud, negligent misrepresentation, and violations of the MCPA are expressly preempted. Under the Supremacy Clause of Article VI of the U.S. Constitution, “federal statutes and regulations properly enacted and promulgated can nullify conflicting state or local actions.” Coll. Loan Corp. v. SLM Corp.,
With respect to any residential mortgage or residential mortgage transaction consummated after [July 29, 1999], and except as provided in paragraph (2), the provisions of this chapter shall supersede any provisions of the law of any State relating to requirements for obtaining or maintaining private mortgage insurance in connection with residential mortgage transactions, cancellation or automatic termination of such private mortgage insurance, any disclosure of information addressed by this chapter, and any other matter specifically addressed by this chapter.
Id. Subsection 2 exempts protected state laws from preemption, except to the extent such laws are inconsistent with any provision of the HPA. Id. § 4908(a)(2). The statute defines protected state laws as those (i) regarding any requirements relating to private mortgage insurance in connection with residential mortgage transactions; (ii) enacted not later than two years after July 29, 1998; and (iii) that are the law of a state that had in effect, on or before January 2, 1998, any state law described in clause (i). Id. § 4908(c). Protected state laws are not inconsistent with the HPA if they require disclosure of information (I) that provides more information than the information required by the HPA; or (II) more often or at an earlier dаte than is required by the HPA. Id. § 4908(B)(ii). The statute also contains a savings clause that provides its preemption provision should not be construed to preclude private agreements that provide for cancellation or termination of mortgage insurance before the dates required under the HPA. Id. § 4910(b).
Only two federal courts have interpreted the HPA’s preemption provision. See Scott,
The Fellows court imported the Supreme Court’s terminology, holding the HPA “preempts all state laws that have ‘a connection with’ or ‘reference to’ requirements for, inter alia, cancellation of PMI and disсlosure of information concerning PMI cancellation.” Fellows,
In Scott, thе defendant bank argued the HPA preempted claims for both common law actual fraud and common law constructive fraud. Scott,
In this case, the Bank argues the HPA preempts both plaintiffs fraud and state law consumer protection claims. (Def.’s Mot. to Dismiss at 12-14). Neither of these claims, howеver, appear to “relate to” the “requirements for ... disclosure of information” under the HPA. See 12 U.S.C. § 4908(a)(1). The HPA sets out a detailed list of written notices that must be made to borrowers in residential mortgage transactions in which LPMI is required. 12 U.S.C. § 4905(c). These include specific information about how LPMI differs from PMI and how and when it can terminate. Id. The statute also imposes obligations on when and how a Bank must cancel PMI. See 12 U.S.C. § 4902.
Unlike the specific requirements of the HPA, claims for fraud or negligent misrepresentation impose a separate duty: the duty not to lie or misrepresent information. In this case, the Dwoskins base their fraud claim on an allegation that the Bank knew its statements that the Dwoskins’ mortgage would not be encumbered by mortgage insurance were false at the time they were made. (Compl. ¶¶ 70-78). In the alternative, they allege these misrepresentations were negligent. (Id. ¶¶ 79-84). Allowing these claims to proceed is not inconsistent with the HPA. The fraud and misrepresentation claims center on whether the Bank misrepresented a fact to the plaintiffs. Proving such a claim will not focus on the detailed disclosure provisions of the HPA, but rather on the Bank’s alleged false representation to the plaintiffs. See Scott,
Likewise, the Dwoskins’ claim under the MCPA seeks to enforce a similar genеral duty not to mislead or deceive customers. Plaintiffs claim the Bank violated several provisions of the MCPA by making false statements that borrowers in the No Fee program would not be burdened with mortgage insurance, when in fact they were. (Compl. ¶ 90). This type of claim under the MCPA is far different from the state consumer protection claim advanced in Fellows. In Fellows, the plaintiff based his state consumer protection act claim on allegations that: (1) the defendant Bank required him to continue to pay PMI even after he should have been eligible for cancellation, (2) it failed to inform him, when his mortgage was about to become two years old, of his right to cancel PMI based on the current value of the property, (3) its practices and policy prevented PMI cancellation on the seсond anniversary of the mortgage’s origination, (4) its practice of using the servicing date, rather than the origination date, for purposes of determining eligibility for PMI cancellation was “unfair, deceptive, and illegal,” and (5) the Bank deliberately undervalued the property to avoid cancelling the PMI. Fellows,
c. Economic Loss Rule
The Bank next argues that even if the fraud and negligent misrepresentation claims are not preempted, they are barred by the economic loss rule, which generally bars plaintiffs from recovering in tort for losses that are purely economic. U.S. Gypsum v. Baltimore,
d. FRCP 9(b) Pleading Requirements
The Bank also argues the fraud and MCPA claims fail because they do not meet the pleading requirements of FRCP 9(b). (Def.’s Mot. to Dismiss at 14-23). FRCP 9(b) requires that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). Because the MCPA claim sounds in fraud, it is also subject to the heightened pleading requirement of FRCP 9(b). See Haley v. Corcoran,
The requirements of FRCP 9(b) have four purposes: (1) to ensure the defendant has enough information to form a defense; (2) to protect defendants from frivolous suits; (3) to eliminate fraud actions in which all facts are learned after discovery, and (4) to protect defendants from harm to their goodwill and reputation. Id. (citing U.S. ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Blue Cross Blue Shield of Georgia, Inc.,
The Dwoskins have satisfied FRCP 9(b). The complaint identifies two specific representations made by the Bank to the Dwoskins in the November 18, 2008 approval letter, which the Dwoskins allege the Bank knew were false. (Compl. ¶ 71). The first is the representation that the Bank would waive or pay all fees for services or products required by the Bank for the mortgage, and the second is the omission of any indication the Bank was purchasing LPMI on the loan. (Id.). The Dwoskins allege the Bank knew or should have known these statements were false and that they were made with intent to deceive the Dwoskins and other similarly situated borrowers. (Id. ¶¶ 73-75). The complaint also cites specific statements by bank officers that plaintiffs aver were false. (Id. ¶¶ 21-22). The Dwoskins similarly identify the specific statements they claim violated the MCPA. (Id. ¶ 90). Such allegations are sufficient to put the Bank on notice of the allegations against it and allow it to prepare a defense.
The claims also do not suffer from a failure to plead damages. (See Def.’s Mot. to Dismiss at 21-23). Under Maryland law, to state a claim for fraud a plaintiff must have relied on a false misrepresentation and had the right to rely on it, and must have suffered compensable injury resulting from the misrepresentation. Gourdine,
Finally, the Bank’s reliance on Stolba v. Wells Fargo & Co., filed separately as supplemental authority, fails to support dismissal of this claim. (ECF No. 13); See Stolba v. Wells Fargo & Co., 10-cv-6014,
The defendant’s motion to dismiss the fraud and MCPA claims will therefore be denied.
e. Negligent Misrepresentation
Negligent misrepresentation has five elements under Maryland law. They are: “(1) the defendant, owing a duty of care to the plaintiff, negligently asserts a false statement; (2) the defendant intends that his statement will be acted upon by the plaintiff; (3) the defendant has knowledge that the plaintiff will probably rely on the statement, which, if erroneous, will cause loss or injury; (4) the plaintiff, justifiably, takes action in reliance on the statement; and (5) the plaintiff suffers damage proximately caused by the defendant’s negligence.” Griesi v. Atl. Gen. Hosp. Corp.,
The Bank argues the Dwoskins have no claim for negligent misrepresentation because the Bank owed no duty of care to them. (Def.’s Mot. to Dismiss at 27). When dealing with claims of economic loss due to negligent misrepresentation, a plaintiff must prove the defendant owed a duty of care by demonstrating an intimate nexus between them. Griesi
Courts have long found that liability can arise when, there is á duty “to give the correct information.” Id. at 14,
In considering the existence of a duty to give correct information, courts have recognized that “[a]n inquiry made of a stranger is one thing; of a person with whom the inquirer has entered, or is about to enter, into a contract concerning the goods which are, or are to be, its subject, is another.” Griesi
The Bank relies primarily on Biggs v. Eaglewood Mortg., LLC,
Taken in the light most favorable to the Dwoskins, the complaint alleges the couple sought a loan without LPMI and that the Bank represented to them the No Fee loan would not contain either PMI or LPMI. In this context, the Bank can fairly be said to have a duty to give correct information, as it had knowledge the information was desired for a serious purpose, that potential borrowers would rely on it, and that if the information was false these borrowers would be injured. See Griesi,
f. Unjust Enrichment
In Maryland, a claim of unjust enrichment has three elements. Hill v. Cross Country Settlements, LLC,
The Dwoskins argue the Bank was unjustly enriched by “charging higher interest rates to No Fee customers than werе charged to other Bank customers.” (Compl. ¶ 86). In addition, the Dwoskins claim the Bank was unjustly enriched because it benefitted from the “higher interest rates of clients who were unable to refinance mortgages because of the hidden Lender Paid PMI on their homes.” {Id. ¶ 87). They argue that by unknowingly paying for LPMI through “deceptive inclusion” of LPMI on their No Fee loan, they
The general rule is that no quasi-eontractual claim can arise when a contract exists between the parties concerning the same subject matter as the quasi-contractual claim. Cnty. Comm’rs of Caroline Cnty. v. J. Roland Dashiell & Sons, Inc.,
In this case, the Dwoskins contend them contract with the Bank does not include the subject of LPMI and therefore the unjust enrichment claim is not barred because it is beyond the subject matter of the contract. (Pl.’s Opp’n at 22). I need not determine the precise subject matters of the Dwoskins’ contractual relationship with the bank, however, because there is an exception to the general rule barring their recovery in quasi-contract. In Maryland, courts may allow an unjust enrichmеnt claim even where there is a contract if there is evidence of fraud or bad faith in the formation of the contract that would otherwise govern. See Dashiell,
The Bank next argues that the Dwoskins have not established the Bank was unjustly enriched. (Def.’s Mot. to Dismiss at 30-31). But read in the light most favorable to the Dwoskins, their complaint alleges they paid a higher interest rate for the No Fee loan than they would have for a loan without LPMI. (Compl. ¶ 86). They argue the higher premium unjustly enriched the Bank, in part because clients could not refinance their No Fee loans by taking them to other banks if those loans were encumbered with LPMI. (Id. at ¶ 87). This states a plausible claim for unjust enrichment and the defendant’s motion to dismiss this count will be denied.
g. Injunction
The Dwoskins also seek an injunction requiring the Bank to cancel any LPMI placed on the Dwoskins’ property. (Def.’s Mot. to Dismiss at 31-32). A plaintiff seeking a permanent injunction must demonstrate: (1) it has suffered an irreparable injury; (2) monetary damages are inadequate to compensate for that injury; (3) considering the balance of the hardships to the parties, an equitable remedy is “warranted,” and (4) “the public interest would not be disserved by a permanent injunction.” eBay Inc. v. MercExchange, LLC,
The Bank moves to dismiss the Dwoskins’ request for an injunction because injunctive relief is a remedy and not a cause of action and it is improper to frame a request for an injunction as a separate cause of action, as the complaint does in this case. (Def.’s Mot. to Dismiss at 31-32). Although that is true, the Dwoskins have adequately pled five causes of action in this ease, leaving them causes of action on which they can seek the requested injunction. See Fare Deals, Ltd. v. World Choice Travel.Com, Inc., 180 F.Supp.2d
The Bank also argues that even if the Dwoskins prove one or more of their causes of action, no injunction should issue in this case because monetary damages are adequate. (Def.’s Mot. to Dismiss at 31-32). Although this will certainly be an issue in the case going forward, I cannot say with legal certainty at this stage of the litigation that monetary damages will be adequate. Accordingly, the Dwoskins’ rеquest for an injunction will not be dismissed at this time. The motion to dismiss the claim to injunctive relief will be denied without prejudice, preserving the Bank’s opportunity to argue the merits of such a remedy at a later stage of the litigation.
IV. CONCLUSION
For the foregoing reasons, the defendant’s motion to dismiss will be denied. A separate Order follows.
ORDER
For the reasons stated in the accompanying Memorandum, it is, this 26th day of March 2012,
ORDERED that:
1. Defendant’s motion to dismiss (ECF No. 9) is denied;
2. Defendant’s motion to file additional authority in support of the motion to dismiss (ECF No. 13) is granted; and
3. Counsel will be contacted to set a schedule.
Notes
. A "point” is one percent of the face value of a loan, especially a mortgage loan, paid up front to the lender as a service charge or placement fee. See Black’s Law Dictionary (9th ed. 2009). A borrower will often pay a point to the lender in order to obtain a lower interest rate on the loan.
. The precise date LPMI was placed on the loan is not stated in the complaint.
. Unpublished opinions are cited not as precedent but only for the relevance of their reasoning.
. LTV is the ratio of the amount of a borrower’s mortgage to the value of the property secured by that mortgage. See Black’s Law Dictionary (9th ed. 2009). It is often expressed as a percent. For example, an $80,000 mortgage on a $100,000 property results in an LTV of 80%.
. The other elements of fraud are: (1) that the defendant made a false representation to the plaintiff, (2) that the falsity was either known to the defendant or that the representation was made with reckless indifference as to its truth, (3) that the misrepresentation was made for the purpose of defrauding the plaintiff. Gourdine,