UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS KAREN MICHELE SALA MICHAELS, Plaintiff, Civil Action No. 3:10-cv-11471-MAP v. WELLS FARGO HOME MORTGAGE, a division of WELLS FARGO BANK, N.A., Defendant PLAINTIFF’S MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION The plaintiff, Karen Michele Sala Michaels, hereby submits her memorandum in support of her motion for preliminary injunction, and argues as follows: A. STANDARD OF REVIEW: MOTION FOR PRELIMINARY INJUNCTION The plaintiff recognizes without qualification that a party seeking a preliminary injunction must demonstrate: (1) that he is likely to succeed on the merits; (2) that he is likely to suffer irreparable harm in the absence of preliminary relief; (3) that the balance of equities tips in herfavor; and (4) that an injunction is in the public interest. Winter v. Natural Resources Defense Council, Inc., — U.S. —, 129 S.Ct. 365, 374 (2008). Injunctive relief is “an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Id. at 375-76. To obtain a preliminary injunction, the plaintiffs bear the burden of demonstrating (1) a substantial likelihood of success on the merits, (2) a significant risk of irreparable harm if the injunction is withheld, (3) a favorable balance of hardships, and (4) a fit (or lack of friction) between the injunction and the public interest. -1 Nieves-Marquez v. Puerto Rico, 353 F.3d 108, 120 (1st Cir. 2003), citing McGuire v. Reilly, 260 F.3d 36, 42 (1st Cir. 2001). 1. Likelihood of Success on the Merits – Factual Basis Defendant, Wells Fargo Home Mortgage, offered plaintiff, Karen Michele Sala Michaels a temporary loan modification plan one year ago, in November 2009. (Michaels Affidavit ¶ 15 & Ex. A) Ms. Michaels has fulfilled all of the terms of the offer, including making every one of the modified payments in full and on time. (Michaels Affidavit ¶¶ 18, 32-35 & 37) Ms. Michaels has provided to Wells Fargo Home Mortgage all requested financial information and documentation numerous times. (Michaels Affidavit ¶¶ 9, 11, 14, 18-19 & 23: Morris Affidavit ¶ 14 & Ex. I) Despite unqualified acceptance and full compliance by Ms. Michaels with the plan offered by Wells Fargo Home Mortgage, the defendant still refuses to place her mortgage in permanent modification and persists in its efforts to foreclose on her home mortgage. (Michaels Affidavit ¶ 38) The sole reason for Wells Fargo Home Mortgage’s actions is its failure to include Ms. Michaels’ self-employment income in its calculation of her gross income. (Morris Affidavit ¶ 6 & Ex. H, page 2 of 4; Michaels Affidavit ¶¶ 19-21) It is an error that reduces Ms. Michaels’ perceived gross income to a level that will not support a loan modification. This miscalculation has been acknowledged by Wells Fargo Home Mortgage in an e-mail message from one of its attorneys: My contact at Wells Fargo has . . . reviewed his notes and has confirmed that the issue appears to be that the self employment income was not factored into your client’s gross income for the purposes of HAMP calculations. (Morris Affidavit ¶ 6 & Ex. H, page 2 of 4) -2 Moreover, some element at Wells Fargo Home Mortgage is inclined to work toward a permanent loan modification, again as expressed in an e-mail message to plaintiff’s counsel sent three weeks after the Notice of Removal had been filed and two weeks following the filing of the Motion to Dismiss: I have been contacted by Wells Fargo Bank, who asked me to follow up with you regarding the status of the updated paperwork for a renewed review of your client’s [the plaintiff’s] loan modification application. (Morris Affidavit ¶ 11 & Ex. H, page 1 of 4) After communication from Wells Fargo Home Mortgage’s litigation counsel concerning the aborted loan modification process, plaintiff’s counsel, on October 19, forwarded to him Ms. Michaels’ more recent financial documentation. (Morris Affidavit ¶ 14 & Ex. I) In a telephone conversation on November 4, defendant’s litigation counsel acknowledged that he had received the financial documents sent to him on October 19, and forwarded those papers to Wells Fargo Home Mortgage. (Morris Affidavit ¶ 18) However, he was not aware either of any request for additional information or of any decision with respect to a permanent loan modification. (Morris Affidavit ¶ 18) Despite its acknowledged error in calculating Ms. Michaels’ gross income, despite the overtures by a Wells Fargo Home Mortgage decision maker to move to a permanent loan modification (Morris Affidavit ¶ 6 & Ex. H, page 2 of 4), and despite the recent submission and pending review of Ms. Michaels’ financial documentation (Morris Affidavit ¶ 14 & Ex. I), Wells Fargo Home Mortgage still persists in efforts to foreclosure on Ms. Michaels’ -3 home mortgage, with the auction scheduled for Friday, November 26, the day after Thanksgiving Michaels Affidavit ¶ 38). There are facts that are not in dispute: Ms. Michaels has made each and every temporary modified loan payment from December 2009 (for January 2010) through October 2010 (for November 2010). (Michaels Affidavit ¶¶ 18, 32-35 & 37) She has repeatedly provided all of the documentation and financial information requested of her. (Michaels Affidavit ¶¶ 9, 11, 14, 18-19 & 23: Morris Affidavit ¶ 14 & Ex. I) Wells Fargo Home Mortgage has conceded that it has miscalculated Ms. Michaels’ gross income, erroneously excluding her self-employment income. (Michaels Affidavit ¶¶ 9, 11, 14, 18-19 & 23: Morris Affidavit ¶ 14 & Ex. I) Wells Fargo Home Mortgage has presented no valid reason to foreclose on Ms. Michaels’ home mortgage and take title to her home from her. 2. Likelihood of Irreparable Harm A plaintiff seeking a temporary restraining order or preliminary injunction must demonstrate that “irreparable injury is likely in the absence of an injunction.” Winter, 129 S.Ct. at 375 (emphasis in original). This requires a plaintiff to demonstrate more than the “possibility” of irreparable harm. Id. If the foreclosure sale of plaintiff’s property proceeds on November 26, 2010, as scheduled, plaintiff will lose her home. Losing one’s home through foreclosure is an irreparable injury. See Valerio v. U.S. Bank, N.A. – F.Supp.2d-, 2010 WL 2292471, at *5 (D. Mass. 2010) (“Certainly, the potential harm of losing one’s family home is great.”); Redgate v. Boston Redevelopment Authority, 311 F.Supp. 43, 47 (D. Mass 1969) -4 (“The loss of plaintiffs’ homes . . . would doubtless cause what in law is properly regarded as irreparable injury.”) “Certainly, the potential harm of losing one’s family home is great” Valerio v. U.S. Bank, N.A. – F.Supp.2d –, 2010 WL 2292471 at *5 (D. Mass. 2010). “The loss of plaintiff[‘s] home . . . would doubtless cause what in law is properly regarded as irreparable injury.” Redgate v. Boston Redevelopment Authority, 311 F.Supp. 43, 47 (D. Mass 1969). Plaintiff has thus demonstrated the likelihood of irreparable injury absent judicial intervention. 3. Public Interest A plaintiff seeking a temporary restraining order or preliminary injunction must demonstrate that an injunction is in the public interest. Winter, 129 S.Ct. at 374. “[T]he party seeking the injunction bears the burden of demonstrating each factor.” Food and Water Watch, Inc. v. U.S. Army Corps of Engineers, 570 F.Supp.2d 177, 183 (D. Mass. 2008), citing Granny Goose Foods, Inc. v. Bhd. of Teamsters and Auto Truck Drivers Local No. 70, 415 U.S. 423, 441 (1974). “[T]he adverse impact foreclosures have on households and communities, as well as the societal benefits of home ownership, demonstrate the strong public interest in preventing unlawful foreclosures.” Sharma v. Provident Funding Associates, 2010 WL 143473 at*2 (N.D. Cal. Jan. 08, 2010). “[T]he public interest still favors keeping families in their homes until they have been heard on the merits.” Horton v. California Credit Corp. Retirement Plan, 2009 WL 700223 at *6 (S.D. Cal. Mar. 16, 2009). -5 Because plaintiff has demonstrated factually a likelihood of success on the merits, plaintiff has shown that the public interest favors granting herrequest for a temporary restraining order. 4. Balance of Hardships In order to obtain injunctive relief, a plaintiff must establish that “the balance of equities tips in his favor.” Winter, 129 S.Ct. at 374. The district court “must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief.” Id. at 376 (quoting Amoco Production Co. v. Village of Gambell, Alaska, 480 U.S. 531, 542 (1987). “In exercising their sound discretion, courts of equity should pay particular regard for the public consequences in employing the extraordinary remedy of injunction.” Winter, 129 S.Ct. at 376-77 (quoting Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982)). The balance of hardships weighs in plaintiff’s favor. If the sale of plaintiff’s property proceeds as scheduled, plaintiff will lose her home. Even if it was ultimately to prevail, an injunction will only work to maintain the status quo, as it has been for more than a year, and delay the sale of the property by a matter of weeks. B. STANDARD OF REVIEW: FACTUAL SPECIFICITY AND THE ASHCROFT V. IQBAL STANDARD The plaintiff recognizes that the standard of review applicable to the defendant’s motion and the plaintiff’s opposition has been set by compelling authority. Ashcroft v. Iqbal, 129 S. Ct. 1937, (2009). In short, the plaintiff must plead a case and state a claim to relief that is plausible on its face.” Id. at 1949. The plaintiff has met and exceeded that standard. The defendant, in its memorandum in support of its motion to dismiss, summarizes the plaintiff’s factual averments. Ms. Michaels entered into a home mortgage loan. Due to -6 circumstances beyond her control, Ms. Michaels’ income fell. She applied for a loan modification under HAMP. The defendant extended to her a temporary loan modification. Ms. Michaels made her modified monthly mortgage payments under those terms, and has continued to do so1, from January through November, 2010. The defendant has denied Ms. Michaels a permanent loan modification. The plaintiff has averred that the defendant based its denial of a permanent loan modification on a substantial miscalculation of Ms. Michaels’ gross monthly income. Complaint ¶¶ 23 & 24. The defendant, at page 4 of its memorandum, recites the substance of these averments, and at page 2 of its memorandum “accepted as true” the plaintiff’s well- pleaded facts. The plaintiff has averred in her complaint “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face,’ [Bell Atlantic Corp. v. Twombly, 550 U.S. 544], at 570.” Ashcroft v. Iqbal, supra, at 1949. The plaintiff averred detailed facts, establishing far more than the plausibility that the defendant was wrong in its denial of Ms. Michaels’ application for a permanent loan modification. The plaintiff’s averments are: 23. The Wells Fargo Home Mortgage representative informed Ms. Michaels that her file indicated a gross monthly income of approximately two thousand two hundred forty-three dollars ($2,243.00). That figure represents only about fifty-five percent (55%) of Ms. Michaels’ true current gross monthly income. 24. That was the first time that a Wells Fargo Home Mortgage representative had informed Ms. Michaels that Wells Fargo Home Mortgage considered her gross monthly income to be only $2,243.00. During that conversation, and each and every later time that a Wells Fargo Home Mortgage representative expressed that 1 On August 11, 2010, in the Superior Court, at the hearing on the plaintiff’s motion for a preliminary injunction, it was agreed that Ms. Michaels would send her monthly modified mortgage payments to Western Massachusetts Legal Services, which would hold those payments in escrow. Ms. Michaels has done so, and Western Massachusetts Legal Services currently holds those funds. -7 erroneous information to her, she protested that the information was incorrect, that Wells Fargo Home Mortgage must correct the information, and that Wells Fargo Home Mortgage must base its evaluation of her mortgage loan modification application on her correct gross monthly income, which is approximately four thousand dollars ($4,000.00) per month. Such specificity, in these paragraphs in particular and throughout the complaint in general, constitutes “factual content that allows the court to draw the reasonable inference” that Ms. Michaels “has a plausible ‘entitlement to relief.’ [Bell Atlantic Corp. v. Twombly], supra, at 557.” Ashcroft v. Iqbal, supra, at 1949. Moreover, the plaintiff has attached to her complaint and incorporated within it ample documentation to supplement her averments of fact. As the defendant has recognized, those documents are to be considered part of the pleadings and not extraneous material. See Maram v. Kobric Offshore Fund, Ltd., 442 Mass. 43, 45 n. 4 (2004); Shaw v. Digital Equip Corp., 82 F.3d 1194, 1220 (1st Cir. 1996). C. DEFENDANT’S HAMP MODIFICATION OBLIGATIONS The defendant next argues that Ms. Michaels is not entitled to relief under the HAMP protocol because federal law does not compel any lender to modify a loan. The defendant’s argument traces a winding path through a sequence of federal statutes and quotes pronouncements found in the Congressional Record. That line of argument is misguided. It fails to acknowledge properly that HAMP benefits do exist, and they exist under United States Treasury Supplemental Directives issued beginning in March 2009. The defendant, in its memorandum at pages 7-8, recognizes that HAMP provides for a voluntary participation by lenders in the program. The defendant explains in broad outlines that if a lender elects to participate, then it signs a “Participation Agreement.” The defendant references the Participation Agreement, which is attached to the complaint as -8 Exhibit J and to the defendant’s memorandum as Exhibit B, yet it fails to focus on the material languages in that Participation Agreement. Principal among the provisions are: I. Services. A. Subject to Section 10.C., Servicer [Wells Fargo Bank, N.A.] shall perform loan modification and other foreclosure prevention services (collectively, the “Services”) described in (i) the Financial Instrument attached hereto as Exhibit A (the “Financial Instrument”) Servicer Participation Agreement, page 2, [Exhibit B to defendant’s memorandum]. (Emphasis added.) The Financial Instrument provides greater specificity of the duties and obligations undertaken by the defendant through the Servicer Participation Agreement: 5. Representations, Warranties and Covenants. Servicer [Wells Fargo Bank, N.A.] makes the following representations, warranties and covenants to Fannie Mae, Freddie Mac and the Treasury, the truth and accuracy of which are continuing obligations of Servicer. Financial Instrument, page 2, which is Exhibit A to Servicer Participation Agreement, [Exhibit B to defendant’s Memorandum in Support of Its Motion to Dismiss] (Emphasis added.) The Financial Instrument, under that section 5, further recites, in expansive terms, the scope of the Servicer’s obligations: (b) Servicer is in compliance with, and covenants that all Services will be performed in compliance with, all applicable Federal, state and local laws, regulations, regulatory guidance, statutes, ordinances, codes and requirements . . . Financial Instrument, page 2, which is Exhibit A to Servicer Participation Agreement, [Exhibit B to defendant’s Memorandum in Support of Its Motion to Dismiss] (Emphasis -9 added.). It cannot be disputed that the contractual duties to which the defendant bound itself to perform are not limited to Federal law, but encompass all statutory and regulatory requirements applicable to the mortgage loans being serviced. The contract which the defendant signed further imposes on it the requirements: (c) Servicer covenants that . . . (ii) all mortgage modifications and all trial period modifications will be offered to borrowers, fully documented and serviced in accordance with the Program Documentation. Financial Instrument, page 3, which is Exhibit A to Servicer Participation Agreement, [Exhibit B to defendant’s Memorandum in Support of Its Motion to Dismiss] (Emphasis added.). D. PLAINTIFF’S RIGHT TO BRING CLAIMS The defendant argues that Ms. Michaels has no right to bring a claim because there does not exist a private right of action under the Troubled Asset Relief Act, the National Housing Act, or the HAMP protocol. However, the plaintiff has not asserted her claims under those federal statutes or even directly under the HAMP provisions. The plaintiff seeks a declaration that she is entitled to the benefit of the Servicer Participation Agreement and its incorporated Financial Instrument. She rests her claims on her status as a mortgagor and the obligations undertaken by the defendant when it signed the Service Participation Agreement. Ms. Michaels is an intended beneficiary of that agreement. The defendant argues that Restatement (Second) of Contracts § 313 bars the plaintiff’s claims because the Participating Service Agreement is a government contract. -10 Such reasoning is wholly misguided. Section 313 limitations are applicable to government contracts for public works projects such as schools, highways, and such undertakings. In those cases, individual citizens are incidental beneficiaries, and so are not entitled to sue on the contract. In this instance, the contract explicitly states that “the Program includes loan modification and other foreclosure prevention services.” Financial Instrument, page 1, which is Exhibit A to Servicer Participation Agreement, [Exhibit B to defendant’s memorandum]. The First Circuit, in employing Massachusetts law, has long recognized the status and rights of third party beneficiaries Public Service Co. of New Hampshire v. Hudson Light and Power Dept., 938 F.2d 338 (1ST Cir. 1991). In that decision, the Court of Appeals analyzed the Restatement (Second) of Contracts and held: Under subsection 302(1)(b), the promise and its circumstantial setting must evince an intent on the part of the promisee to confer the benefit of the promised performance on the would-be beneficiary. “In such cases, if the beneficiary would be reasonable in relying on the promise as manifesting an intention to confer a right on him [to enforce the promise], he is an intended beneficiary.” Restatement (Second) of Contracts Sec. 302 comment d (emphasis added) (quoted in Rae [v. Air-Speed, Inc., 386 Mass. 187, 196 n.3] 435 N.E.2d at 633 n. 3). It is clear from the focus of the section 302(1) inquiry that the requisite manifestation of the parties' intent may be evinced in the context, as well as the text, of the contract. See Choate, Hall & Stewart v. SCA Serv., Inc., 378 Mass. 535, 392 N.E.2d 1045, 1051 (1979) (“We search for indicia of intention against the background of the transaction.”) (citing preliminary draft of Restatement (Second) of Contracts Sec. 302). Id. at 342. -11 Applying this standard to the Servicer Participation Agreement and its incorporated Financial Instrument, it could not be any more certain that the intention of the contracting parties was to benefit mortgagors. The express terms of the Service Participation Agreement impose on the Servicer [Wells Fargo bank, N.A.] the obligation to “(ii) complete all Services that were initiated by the Servicer, including but not limited to, mortgage modifications . . .” Servicer Participation Agreement, page 5, ¶5.B., [Exhibit B to defendant’s memorandum]. Both the text of the contract and context of its execution compel the conclusion that Ms. Michaels, as a member of the class of mortgagors intended to be benefited by the Servicer Participation Agreement, has a right to assert contract claims against the defendant. Moreover, the Service Participation Agreement contemplates claims by mortgagors against the Servicer [Wells Fargo bank, N.A.], as it expresses an indemnification agreement, by which the Servicer will indemnify, defend and hold Fannie Mae, the Treasury, and Freddie Mac harmless from any claims brought against the Servicer for its “failure to perform its obligations under the Agreement.” Financial Instrument, page 6, ¶ 10, which is Exhibit A to Servicer Participation Agreement, [Exhibit B to defendant’s Memorandum in Support of Its Motion to Dismiss]. E. BREACH OF COVENANT OF GOOD FAITH AND FAIR DEALING Despite its contractual obligations to document fully its modification steps Financial Instrument, page 3, which is Exhibit A to Servicer Participation Agreement, [Exhibit B to defendant’s memorandum], the defendant has never sent to plaintiff a written denial of her application for a permanent mortgage loan modification. The only notification that the defendant provided to Ms. Michaels was by telephone, Complaint -12 ¶23, and that denial was based on an erroneous calculation of her gross monthly income. Entirely inconsistent with that telephone notification, the defendant requested financial information from Ms. Michaels. Complaint ¶ 27-30. At the same time, the defendant proceeded toward a mortgage foreclosure auction. The failure to comply with the Servicer Participation Agreement covenants, and the inconsistent requests for yet more financial information and documentation, while all the while moving inexorably toward a foreclosure auction, are unquestionably hallmarks of bad faith and unfair dealing. The First Circuit has recognized that “Massachusetts law implies a covenant of good faith and fair dealing in every contract. Starr v. Fordham, 420 Mass. 178, 184 648 N.E.2d 1261, 1266 (1995).” Nadherny v. Roseland Property Company, Inc., 390 F.3d 44, 52 (1st Cir. 2004). The Participating Servicer Agreement expressly includes state laws. Financial Instrument, page 2, which is Exhibit A to Servicer Participation Agreement, [Exhibit B to defendant’s memorandum]. Therefore, the plaintiff’s right to invoke that protection afforded her under Massachusetts law cannot be questioned. The defendant’s temporary loan modification offer must be viewed in the light of the overarching obligation of the parties to proceed in good faith and fairness. It also must be examined in the context of the Participating Servicer Agreement, which imposes on the Servicer [Wells Fargo Bank, N.A.] a set of requirements. Among the terms of that agreement is the provision that “all mortgage modifications and all trial period modifications will be offered to borrowers, fully documented and serviced in accordance with the Program Documentation.” Financial Instrument, page 3, which is Exhibit A to -13 Servicer Participation Agreement, [Exhibit B to defendant’s memorandum]. The “Program Documentation” is an integral part of all mortgage modifications. The defendant’s argument that the temporary loan modification letter did not contain sufficient terms to be enforceable reinforces the claims that the defendant breached its obligations under the Servicer Participation Agreement. The defendant argues that the modification offered to this borrower was not “fully documented,” that is, it did not contain all of the necessary terms. Therefore, the defendant concludes it is not enforceable. To make an offer, under the Servicer Participation Agreement, to Ms. Michaels which the defendant says is not enforceable by Ms. Michaels is the apex of bad faith and unfair dealing. To make a partially documented offer, when the defendant had a contractual obligation to provide all of the terms, to fully document its “trial period modifications” is an acknowledgment of a breach of its contractual obligations. Conclusion For the foregoing reasons, the plaintiff, Karen Michele Sala Michaels, hereby requests that this Court grant her Motion for a Preliminary Injunction and order the following: 1. Enter a Preliminary Injunction prohibiting the defendant, Wells Fargo Home Mortgage, or any of its agents, servants, attorneys, independent contractors, auctioneers, or any person action on their behalf from conducting a mortgage foreclosure auction seeking to terminate the plaintiff’s right, title, and interest in her property known and identified as 240 South Silver Lane, Sunderland, Franklin County, Massachusetts, until the judgment enters in this action; 2. After a trial, enter a Permanent Injunction and final judgment prohibiting the defendant, Wells Fargo Home Mortgage, or any of its agents, servants, attorneys, independent contractors, auctioneers, or any person action on their behalf from -14 conducting a mortgage foreclosure auction seeking to terminate the plaintiff’s right, title, and interest in her property known and identified as 240 South Silver Lane, Sunderland, Franklin County, Massachusetts. 3. Order such other and further relief as this court may deem just and equitable. Respectfully Submitted KAREN MICHELE SALA Michaels, Plaintiff, By her attorney, /s/ Francis K. Morris Francis K. Morris (BBO# 355660) fmorris@wmls.org Western Massachusetts Legal Services Suite 400 One Monarch Place Springfield, Massachusetts 01144 413-781-7814 CERTIFICATE OF SERVICE I, Francis K. Morris, hereby certify that this document filed through the ECF system will be sent electronically to the registered participants as identified on the Notice of Electronic Filing (NEF) and papers copies will be sent to those indicated as non-registered participants on this date. November 10, 2010 /s/ Francis K. Morris -15