The opinion
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
BLAKE MANNS, et al.,
:
Plaintiffs,
Case No. 2:22-cv-03507
v. Judge Sarah D. Morrison
Magistrate Judge Elizabeth A.
Preston Deavers
PHH MORTGAGE SERVICES,
:
Defendant.
OPINION AND ORDER
Blake and Danielle Manns filed suit against PHH Mortgage Services alleging
breach of contract, violations of the Real Estate Settlement Procedures Act
(“RESPA”) and Truth in Lending Act (“TILA”), and declaratory judgment. (Am.
Compl., ECF No. 19.) The matter is now before the Court on PHH’s Partial Motion
to Dismiss the Amended Complaint. (Mot., ECF No. 20.) The Mannses responded
(ECF No. 26) and PHH replied (ECF No. 27). For the reasons below, the Motion is
GRANTED.
I. BACKGROUND
All well-pleaded factual allegations in the Amended Complaint are
considered as true for purposes of the Motion to Dismiss. See Gavitt v. Born, 835
F.3d 623, 639–40 (6th Cir. 2016). The following summary draws from the
allegations in that Amended Complaint, as well as any documents integral to and
incorporated therein.
In December 2006, the Mannses financed a residential property located in
Russells Point, Ohio (“Property”) with a note secured by a mortgage (“Mortgage”).
(Am. Compl., ¶ 21.) The Mortgage documents provide that the instrument is
“governed by federal law.” (Id., ¶ 62; see also Open-End Mortgage, § 15, PAGEID #
198.)
Seven years later, the Mannses modified the Mortgage and entered into a
Loan Modification Agreement, which is now serviced by PHH. (Id., ¶ 22; see also
Loan Modification Agreement (Shared Appreciation), PAGEID # 216–21.) The Loan
Modification Agreement requires the Mannses “share” with PHH 25% of any future
appreciation in the Property’s value (“Shared Appreciation Amount”). (Id., PAGEID
# 218–19.) The Shared Appreciation Amount must be paid “upon the earliest of (i)
the Maturity Date, (ii) a Refinance Transaction, or (iii) a Sale Transaction.” (Id.,
PAGEID # 218.) Those terms are defined to mean:
(i) the date on which my Note matures and is due and payable in full
(the “Maturity Date”), (ii) a refinance or payoff of the entire Interest
Bearing Principal Balance (a “Refinance Transaction”), or (iii) a sale or
any transfer of the Property or a beneficial interest in the Property
without the [PHH’s] consent that may require immediate payment in
full under the terms of the Loan Documents (a “Sale Transaction”).
(Id., PAGEID # 217–18.) The Shared Appreciation Amount is “determined by
[PHH]” through a “Valuation” process consisting of either (i) an “Arm’s Length Sale
Transaction” or (ii) “a Property appraisal from an independent licensed appraiser
and, at [PHH’s] option, a third-party valuation based on such appraisal.” (Id.,
PAGEID # 218–19.)
The Mannses now want to pay the Mortgage in full. (Id., ¶ 34.) In early 2022,
they requested a payoff statement from PHH. (Id., ¶ 35.) But PHH informed the
Mannses that an accurate payoff statement could not be made available until the
Property was appraised and the Shared Appreciation Amount was determined. (Id.,
¶ 38.) Rather than allow PHH to appraise the Property, the Mannses filed this
lawsuit.
PHH now moves to dismiss Counts I (Breach of Contract), III (Violation of
TILA), and IV (Declaratory Relief), and, to the extent that it is based on 12 C.F.R.
§ 1026.35, Count II (Violation of RESPA) of the Amended Complaint. (Mot.,
generally.)
II. STANDARD OF REVIEW
Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim
with sufficient specificity to “give the defendant fair notice of what the claim is and
the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007) (internal alteration and quotations omitted). A complaint which falls short of
the Rule 8(a) standard may be dismissed if it fails to state a claim upon which relief
can be granted. Fed. R. Civ. P. 12(b)(6). The Supreme Court has explained:
To survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief that is
plausible on its face. A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged. The
plausibility standard is not akin to a probability requirement, but it asks
for more than a sheer possibility that a defendant has acted unlawfully.
Where a complaint pleads facts that are merely consistent with a
defendant’s liability, it stops short of the line between possibility and
plausibility of entitlement to relief.
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations and quotations
omitted). The complaint need not contain detailed factual allegations, but it must
include more than labels, conclusions, and formulaic recitations of the elements of a
cause of action. Id. (citing Twombly, 550 U.S. at 555.) “Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Id. In reviewing a motion to dismiss, the Court “construe[s] the complaint
in the light most favorable to the plaintiff[.]” DirecTV, Inc. v. Treesh, 487 F.3d 471,
476 (6th Cir. 2007).
III. ANALYSIS
A. Count I: Breach of Contract
In Count I of their Amended Complaint, the Mannses allege breach of
contract. To state a claim for breach of contract, a plaintiff is required to plead “the
existence of a contract, performance by the plaintiff, breach by the defendant, and
damage or loss to the plaintiff.” Foster v. Health Recovery Servs., Inc., 493 F. Supp.
3d 622, 639 (S.D. Ohio 2020) (Marbley, J.) (internal quotation and citation omitted).
“A court’s primary objective in interpreting a written contract is to ascertain the
intent of the parties as expressed in the terms of the agreement.” Aero Fulfillment
Servs. Corp. v. Oracle Corp., 186 F. Supp. 3d 764, 771 (S.D. Ohio 2016) (Black, J.)
(citing Hamilton Ins. Serv., Inc. v. Nationwide Ins. Cos., 714 N.E.2d 898 (Ohio
1999)). “Generally, contracts should be construed in a manner to give effect to the
intentions of the parties.” Hamilton, 714 N.E.2d at 900. “If a contract is clear and
unambiguous, then its interpretation is a matter of law and there is no issue of fact
to be determined.” Inland Refuse Transfer Co. v. Browning-Ferris Indus. of Ohio,
Inc., 474 N.E.2d 271, 272 (Ohio 1984).
The Mannses’ claim has two parts: first, that PHH breached the Loan
Modification Agreement by refusing to provide a payoff statement without an
appraisal; and second, that PHH breached the Mortgage by violating federal laws
incorporated by reference.
1. The Mannses fail to adequately allege that PHH breached
the Loan Modification Agreement by withholding a
payoff statement.
The Mannses allege that PHH breached the Loan Modification Agreement by
withholding a payoff statement until the Property was appraised. (Am Compl.,
¶¶ 81–85.) They maintain that only three events trigger any obligation to share in
the Property’s appreciation: (i) the Mortgage Loan reaching its maturity date;
(ii) the Property being refinanced; and (iii) the Property being sold. (Id., ¶ 55.)
Because none of those events has occurred, the Mannses do not believe that the
Loan Modification Agreement requires them to calculate appreciation, or share it.
(Id., ¶ 41.)
The Mannses’ argument conflicts with the clear and unambiguous language
of the Loan Modification Agreement. The Mannses agreed to pay “all amounts due”
upon a Refinance Transaction—which is defined to include a “refinance or payoff.”
The Shared Appreciation Amount is one such “amount due.” And, by the terms of
the Loan Modification Agreement, that amount must be determined through
appraisal and valuation.
As the Loan Modification Agreement expressly provides, the Shared
Appreciation Amount becomes due upon payoff, and is to be determined through an
appraisal of the Property. PHH thus did not breach the Loan Modification
Agreement when it requested an appraisal of the Property prior to providing a
payoff statement.
2. The Mannses fail to adequately allege that PHH breached
the terms of the Mortgage by violating federal law.
The Mannses also allege that PHH breached the Mortgage’s terms by failing
to comply with federal law. (Id., ¶¶ 76–80.) In their view, Section 15 of the
Mortgage, which provides that it is “governed by federal law,” incorporates the
substantive provisions of RESPA and TILA. (Id.) Thus, by failing to comply with
RESPA and TILA, the Mannses maintain that PHH is liable for a breach. (Id.)
Under Ohio law, a document is incorporated into a contract by reference if
the contract “explicitly, or at least precisely, identif[ies] the written material being
incorporated” and “‘clearly communicate[s] that the purpose of the reference is to
incorporate the referenced material into the contract.’” Ace Am. Ins. Co. v. Gerling &
Assocs., Inc., 630 F. Supp. 3d 919, 936 (S.D. Ohio 2022) (Marbley, J.) (quoting
Volovetz v. Tremco Barrier Sols., 74 N.E.3d 743, 751 (Ohio Ct. App. 2016)) (further
citation omitted) (cleaned up). While Gerling involved incorporation of a warranty
into an HVAC installation contract, the fundamental principle applies here. Simply
put, for extrinsic material to be incorporated into a contract, the terms must be
“explicitly identified, rather than merely alluded to.” Id. at 937 (internal quotation
and citation omitted). The Mannses’ Mortgage references “federal law” briefly and
generally. It does not specifically identify any provision of federal law to be
incorporated—let alone RESPA or TILA—and fails to establish a clear intent that
any particular provision become a part of the contract. Accordingly, RESPA and
TILA cannot be read into the Mortgage, and PHH’s alleged failure to comply with
those laws cannot sustain the Mannses’ breach of contract claim. See also Tanner v.
Wells Fargo Bank, N.A., 1:20-cv-01104, 2020 WL 7263292, at *5 (N.D. Ohio Dec. 10,
2020) (declining to read a mortgage loan’s “casual reference” to HUD regulations as
incorporating their substance into the loan documents).
PHH’s Partial Motion to Dismiss is GRANTED as to Count I.
B. Count II: Violation of RESPA
In Count II, the Mannses allege that PHH violated RESPA. Count II cites,
inter alia, 12 C.F.R. § 1026.35(c)(3). (Am. Compl., ¶¶ 104–05.) That regulation
“prohibits a creditor from extending a higher-priced mortgage without providing
written appraisal of the property from a certified or licensed appraiser.” 12 C.F.R.
§ 1026.35(c)(3)(i). The Amended Complaint contains no factual allegations
supporting the conclusion that PHH is creditor, or that the Mortgage is a higher-
priced mortgage. In fact, the allegations are so far removed from the substance of
the regulation that the Court wonders if § 1026.35 was referenced in error. In any
event, the Amended Complaint fails to state a claim under that provision.
PHH’s Partial Motion to Dismiss is GRANTED to the extent that Count II
relies on 12 C.F.R. § 1026.35.
C. Count III: Violation of TILA
In Count III of the Amended Complaint, the Mannses allege that PHH
violated TILA by failing to timely provide a payoff statement. PHH makes multiple
arguments in favor of dismissing Count III—including that the Amended Complaint
fails to establish an avenue for recovery against it. (Mot., PAGEID # 236.) That
argument is well-taken and dispositive. Count III of the Amended Complaint seeks
recovery under 12 U.S.C. § 2605 and 15 U.S.C § 1640. The former applies only to
violations of RESPA. The latter (which does apply to TILA) provides that “only
‘creditors’ are subject to the Act’s civil penalties.” Redic v. Gary H. Watts Realty Co.,
762 F.2d 1181, 1185 (4th Cir. 1985) (quoting 15 U.S.C. § 1640(a)). The Mannses’
only response is that “[t]hey also alleged [PHH] is a creditor of a consumer
obligation for purposes of TILA.” (Mot., PAGEID # 280.) The referenced allegation
states simply:
Defendant was and is a creditor of a consumer obligation within the
meaning of TILA at 15 U.S.C. § 1602(g) at all times relevant to this
transaction.
(Am. Compl., ¶ 18.) The Mannses do not identify factual allegations supporting that
legal conclusion, nor does the Court find any. The Court is not bound to accept legal
conclusions, even when couched as fact. Iqbal, 556 U.S. at 678 (2009) (citing
Twombly, 550 U.S. at 555). Without more, Count III must fail.
PHH’s Partial Motion to Dismiss is GRANTED as to Count III.
D. Count IV: Declaratory Relief
Finally, in Count IV of the Amended Complaint, the Mannses allege that
they are entitled to declaratory relief. The Mannses request that this Court declare
that they are entitled to a payoff statement, that PHH has no right to appraise the
Property, and that PHH cannot use the appraisal value to increase the payoff
amount. (Am. Compl., ¶¶ 128–32.) PHH argues that the Mannses fail to state a
claim for declaratory relief. (Mot., PAGEID # 236–41.) The Court agrees. Each
declaration sought hinges on the success of their breach of contract claim. Indeed,
as in Count I, the requests require the Court to evaluate the parties’ rights and
obligations under the Mortgage and Loan Modification Agreement related to payoff
statements and calculating the Shared Appreciation Amount. To survive a motion
to dismiss, a request for declaratory judgment that arises from a breach of contract
claim must properly plead the elements of breach of contract. Student Res. Ctr.,
LLC v. E. Gateway Comm. Coll., No. 2:22-cv-2653, 2023 WL 6213678, at *10 (S.D.
Ohio Sept. 25, 2023) (Marbley, J.). This Court has already concluded that the
Amended Complaint fails to do so.
PHH’s Partial Motion to Dismiss is GRANTED as to Count IV.
IV. CONCLUSION
For these reasons, PHH’s Partial Motion to Dismiss the Amended Complaint
(ECF No. 20) is GRANTED.
IT IS SO ORDERED.
/s/ Sarah D. Morrison
SARAH D. MORRISON
UNITED STATES DISTRICT JUDGE