PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 08-2353
DOUGLAS A. JONES; ANDREA M. JONES,
individually and on behalf of all those similarly situated,
Appellants
v.
ABN AMRO MORTGAGE GROUP, INC.;
CHASE HOME FINANCE, LLC; CITIMORTGAGE, INC.;
CITICORP HOME MORTGAGE SERVICES, INC.;
COUNTRYWIDE HOME LOANS, INC.;
FIFTH THIRD MORTGAGE COMPANY;
FLORIDA CAPITAL BANK, N.A.;
GMAC MORTGAGE CORPORATION;
HSBC MORTGAGE CORPORATION (USA);
*FEDERAL DEPOSIT INSURANCE CORPORATION,
as Receiver for IndyMac Bank, F.S.B;
MOREQUITY INC.; NATIONAL CITY MORTGAGE INC.;
FIRST COVENANT, f/k/a nBank, NA; PROVIDENT
FUNDING GROUP, INC.;
THE PROVIDENT BANK;
SAXON MORTGAGE SERVICES, INC.;
SOVEREIGN BANK; SUNTRUST MORTGAGE, INC;
U.S. BANK N.A.;
WACHOVIA MORTGAGE CORPORATION;
**FEDERAL DEPOSIT INSURANCE CORPORATION,
as Receiver for Washington Mutual Bank;
WELLS FARGO HOME MORTGAGE, INC.;
JOHN DOE MORTGAGE COMPANIES
*(Amended per Clerk’s Order dated 9/9/08)
**(Amended per Clerk’s Order dated 12/22/08)
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 2-07-cv-04328)
District Judge: Honorable James T. Giles
Argued February 12, 2010
Before: SLOVITER, ROTH, and TASHIMA,* Circuit Judges
(Filed: May 25, 2010)
____
Francis J. Farina
Devon, PA l9333
Timothy M. Fraser
Ellen Meriwether (Argued)
Michael J. Willner
Cafferty Faucher LLP
Philadelphia, PA l9l03
Joseph A. O’Keefe
O’Keefe & Sher, P.C.
Kutztown, PA l9530
Attorneys for Appellants
Martin C. Bryce, Jr. (Argued)
Alan S. Kaplinsky
Ballard Spahr Andrews & Ingersoll LLP
Philadelphia, PA l9l03
Thomas M. Hefferon
Joseph F. Yenouskas
*
Honorable A. Wallace Tashima, Senior Judge of the United
States Court of Appeals for the Ninth Circuit, sitting by
designation.
2
Goodwin Procter LLP
Washington, DC 20001
Mark A. Aronchick
Joseph A. Dworetzky
John S. Stapleton
Hangley, Aronchick, Segal & Pudlin
Philadelphia, PA l9l03
Daniel T. Brier
John B. Dempsey
Myers, Brier & Kelly LLP
Scranton, PA l8503
Steven J. Adams
Stevens & Lee
Reading, PA 19603
Bonnie R. Golub
Susan Verbonitz
Weir & Partners LLP
Philadelphia, PA l9l07
Robert L. Hodges
McGuire Woods
Richmond, VA 23219
Jeffrey A. Lamken
MoloLamken LLP
Washington, DC 20037
David A. Super
Kirk K. VanTine
Baker Botts
Washington, DC 20004
Amy C. Purcell
Scott L. Vernick
Fox Rothschild LLP
Philadelphia, PA 19103
3
Attorneys for Appellees
OPINION OF THE COURT
SLOVITER, Circuit Judge.
Douglas and Andrea Jones (the “Joneses”) filed suit
against, inter alia, Appellees SunTrust Mortgage, Inc.
(“SunTrust”), and Countrywide Home Loans, Inc.
(“Countrywide”), who were the “lenders” that provided
mortgage loans to the Joneses. In their Second Amended
Complaint, the Joneses asserted claims for a declaratory
judgment, negligence, and violation of the Real Estate
Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2605. At
the heart of the issue before us is a mortgage loan-servicing
Ponzi scheme. Of particular interest is whether the perpetrator
of the Ponzi scheme can be considered a loan “servicer” under
RESPA. The District Court dismissed the Joneses’ Second
Amended Complaint. We will affirm.
I.
In 2002, Wesley Snyder (“Snyder”), a mortgage broker,
spoke with the Joneses about refinancing the mortgage on their
home through one of his companies (the “Snyder Entities”).
Snyder offered the Joneses an integrated “Equity Slide Down
Mortgage” product. In order to refinance with the “Equity Slide
Down Mortgage” product, the Joneses signed two sets of
documents at two different closings. The first set of documents
consisted of a mortgage and note between the Joneses and
SunTrust (the “SunTrust Mortgage”), a traditional mortgage
lender. The SunTrust Mortgage was legitimate and provided the
requisite funds for the mortgage. There was no reference in the
documents relating to the SunTrust Mortgage to Snyder’s
product, the Equity Slide Down Mortgage.
Six days after the Joneses completed the transaction with
SunTrust, Snyder presented the Joneses with the second set of
4
documents which consisted of a purported “mortgage” and
“note” between the Joneses and the Snyder Entities. This
transaction purported to “convert” the terms of the SunTrust
Mortgage to a lower interest rate and lower monthly payments.
The Snyder Entities offered the lower interest rate if the Joneses
“pre-paid a large portion of the principal balance” to the Snyder
Entities. App. at 8. SunTrust, however, was not a party to this
transaction and signed none of the documents.
The Joneses made the large cash prepayment that Snyder
requested. As a result, the interest rate and monthly payments on
the “Equity Slide Down Mortgage” product were lower than
those required under the SunTrust Mortgage. The Joneses’
obligations to SunTrust, however, remained unchanged. See
App. at 1351. Indeed, the document the Joneses signed with
SunTrust provides “If I make a partial Prepayment, there will be
no changes in . . . the amount of my monthly payment unless
[SunTrust] agrees in writing to those changes.” App. at 839.
However, the documents the Joneses signed with the Synder
Entities did make changes. Significantly, as the complaint
states, the Snyder Entities “dictate[d] that all monthly payments
were to be remitted to them,” App. at 422, and, at the Snyder
Entities’ request, the Joneses signed a change-of-address form
instructing SunTrust to direct all future correspondence to the
Snyder Entities. This effectively forestalled communication
between the Joneses and SunTrust.
Meanwhile, the Snyder Entities remitted to SunTrust the
full monthly payments due on the Joneses’ SunTrust Mortgage.
According to the Joneses’ counsel, the Snyder Entities did so by
using the funds accumulated by the large prepayments to make
up for the shortfall in what the Joneses were paying monthly
under the “Equity Slide Down Mortgage” product. In 2005, the
Joneses completed a similar transaction with the Snyder Entities
on another property, the financing for which was provided by
nBank. The related mortgage was later assigned to
Countrywide.
Unbeknown to the Joneses, the “Equity Slide Down
Mortgage” product was “bogus”; the Snyder Entities created the
5
product as a deception. App. at 505 ¶ 142. The only mortgage
loans were with SunTrust and Countrywide. In 2007, the
scheme collapsed and the Snyder Entities declared bankruptcy,
at which time the Joneses learned that SunTrust and
Countrywide held their mortgages. Once the Snyder Entities
stopped making payments on the Joneses’ mortgages to SunTrust
and Countrywide, those banks demanded from the Joneses the
monthly payments due on their mortgages. As noted above, the
Snyder Entities had been making those payments by using, in
part, the large prepayments of principal from the Joneses and
other victims that Snyder had “pocket[ed].” App. at 1270.
Snyder was indicted and ultimately pled guilty to mail fraud in
connection with the scheme, which affected hundreds of
mortgage loans. He was sentenced to 146 months in prison.
In September 2007, the Joneses filed a putative class
action against SunTrust, Countrywide, and other lenders
(collectively, the “Lenders”) alleging negligence and fraudulent
misrepresentation. The Joneses then filed an Amended
Complaint that abandoned the fraudulent misrepresentation
claim and asserted negligence and violations of RESPA, and
sought a declaratory judgment, on the theory that the Snyder
Entities were the Lenders’ loan “servicer.” The Joneses filed a
Second Amended Complaint adding a defendant and
“provid[ing] related clarifications.” App. at 482. SunTrust and
Countrywide, along with other named Lenders, moved to dismiss
for failure to state a claim. See Fed. R. Civ. P. 12(b)(6).
The District Court granted the Lenders’ motion to dismiss
and denied the Joneses’ request for leave to amend, finding that
further amendment would be “futile and inequitable” because
there is “no indication that repleading would correct the defects
in their claims.” App. at 23. The putative class was never
certified. The Joneses brought this appeal.1
1
The District Court had jurisdiction under 28 U.S.C. §§
1331 and 1332(d)(2). We have jurisdiction under 28 U.S.C. §
1291.
6
II.
We exercise plenary review of the District Court’s order
granting a motion to dismiss for failure to state a claim. Gelman
v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190 (3d Cir.
2009). We must accept all factual allegations as true, construe
the Second Amended Complaint in the light most favorable to
the Joneses, and determine whether, under any reasonable
reading of the Second Amended Complaint, the Joneses may be
entitled to relief. See id. “At this stage, ‘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.’” Id. (quoting Ashcroft v.
Iqbal, 129 S.Ct. 1937, 1949 (2009) (internal quotations
omitted)). We review the District Court’s decision not to grant
leave to amend for abuse of discretion. See Winer Family Trust
v. Queen, 503 F.3d 319, 325 (3d Cir. 2007).
III.
The Joneses allege that under Pennsylvania law, the
Lenders “had the continuing duty to take reasonable steps to
supervise the Snyder Entities to ensure that all payments and pre-
payments of principal and interest were properly credited against
the mortgage loans . . . .” App. at 504 ¶ 136. The Joneses assert
that the Lenders breached that duty, styling it as a negligence
claim. The District Court dismissed the claim under the “gist of
the action” doctrine. Under Pennsylvania law, the “gist of the
action” doctrine “precludes plaintiffs from recasting ordinary
breach of contract claims into tort claims.” Erie Ins. Exch. v.
Abbott Furnace Co., 972 A.2d 1232, 1238 (Pa. Super. Ct. 2009)
(citations omitted). “The critical conceptual distinction between
a breach of contract claim and a tort claim is that the former
arises out of ‘breaches of duties imposed by mutual consensus
agreements between particular individuals,’ while the latter
arises out of ‘breaches of duties imposed by law as a matter of
social policy.’” Id. (quoting Reardon v. Allegheny Coll., 926
A.2d 477, 486-87 (Pa. Super. Ct. 2007)).
7
Here, the Joneses’ negligence claim is based on the
Snyder Entities’ failure to properly credit the Joneses’ payments
against the mortgages. This duty to properly credit the Joneses’
payments was a contractual duty arising from the Joneses’
contracts with the Snyder Entities, SunTrust, and Countrywide.
Under these contracts, the Joneses had a contractual duty to
make payments under the mortgages. In turn, the Snyder
Entities, SunTrust, and Countrywide had the duty to properly
credit those payments. Any purported “duty to monitor and
supervise the Snyder Entities,” Appellants’ Br. at 44, as the
alleged servicing agents for SunTrust and Countrywide, cannot
be divorced from these contractual duties to credit payments
under the mortgage. See, e.g., Strausser v. PRAMCO, III, 944
A.2d 761, 768 (Pa. Super. Ct. 2008) (affirming dismissal of tort
claims under “gist of the action” doctrine where torts claims
were “directly related to the underlying contractual rights . . . of
the parties as defined by the loan agreements and mortgages
between them . . . .”). Because the duty here was imposed by
contract rather than “by law as a matter of social policy,”
Reardon, 926 A.2d at 487 (citations and quotations omitted), the
Joneses’ negligence claim was properly dismissed.
The Joneses next allege that the Lenders failed properly
to credit the payments the Joneses made to the Snyder Entities
and, in doing so, violated the notice and reporting requirements
of loan “servicers” under RESPA, a consumer protection statute
that regulates the real estate settlement process. 12 U.S.C. §
2605. The District Court held that the Joneses failed to state a
claim under RESPA because the underlying loan documents
demonstrate that the Snyder Entities were not loan “servicers.”
The Joneses challenge the District Court’s reliance on the loan
documents and its conclusion that the Snyder Entities were not
loan “servicers.”
A loan “servicer” under RESPA is “the person
responsible for servicing of a loan . . . .” 12 U.S.C. § 2605(i)(2).
The term “servicing” is defined to mean “receiving any
scheduled periodic payments from a borrower pursuant to the
terms of any loan . . . and making the payments of principal and
interest and such other payments with respect to the amounts
8
received from the borrower as may be required pursuant to the
terms of the loan.” 12 U.S.C. § 2605(i)(3) (emphasis added).
The Joneses argue that because RESPA refers to servicing “in
the practical sense of receiving payments from the borrower and
making payments of principal and interest,” Appellants’ Br. at
37, the Snyder Entities were servicers because they received
payments from the Joneses and made payments to SunTrust and
Countrywide. This argument neglects significant language from
the statute that defines servicing in terms of receipt of scheduled
periodic payments from the borrower “pursuant to the terms of
any loan” and of making those payments “as may be required
pursuant to the terms of the loan.” See 12 U.S.C. § 2605(i)(3).
Although the Joneses made payments to the Snyder Entities
“pursuant to the terms of” the Equity Slide Down Mortgage
products, those payments were, by definition, not made
“pursuant to the terms of” the Mortgages with SunTrust or
Countrywide. Id. It is undisputed that the Joneses’ Equity Slide
Down Mortgage products had their own loan documents and
closings independent of the mortgages with the Lenders. The
Joneses were making lesser payments pursuant to the “bogus”
Equity Slide Down Mortgage products, not pursuant to the terms
of the legitimate mortgages with SunTrust and Countrywide.
The payments made by the Snyder Entities to SunTrust and
Countrywide included funds that they had accumulated from the
prepayments of principal, thereby perpetuating the criminal
Ponzi scheme. It follows that the conduct of the Snyder Entities
in collecting payments on the Equity Slide Down Mortgage
products did not render the Snyder Entities “servicers” of the
Lenders’ mortgage loans.
Moreover, the Snyder Entities were not “servicers”
because they were not “responsible for . . . making the payments
of principal and interest” received from the Joneses “as may be
required pursuant to the terms of the [Lenders’] loan.” 12
U.S.C. § 2605(i)(2)-(3). The actual loan documents with
SunTrust and Countrywide explicitly state that payments were to
9
be made to SunTrust and Countrywide.2 Although the Snyder
Entities remitted the monthly amounts due from the Joneses to
SunTrust and Countrywide, the District Court stated that the
Joneses did not attach any amended loan documents that
reassigned that responsibility to the Snyder Entities. Under the
circumstances, the allegation that the Snyder Entities were
“servicers” under RESPA of the Lenders’ loans is not
persuasive.
The Joneses also argue, in the alternative, that SunTrust
and Countrywide are liable under common law agency
principles, but they point to no action by those Lenders
suggesting any such relationship with the Snyder Entities. We
therefore find the Joneses alternative argument unavailing.3 We
2
It was not error for the District Court to consider the loan
documents. The documents were attached to the Lenders’ motion
to dismiss, and the Joneses referenced them in the Second
Amended Complaint. Their authenticity was undisputed. See
Miller v. Clinton County, 544 F.3d 542, 550 (3d Cir. 2008) (noting
that a “court may consider an undisputedly authentic document that
a defendant attaches as an exhibit to a motion to dismiss if the
plaintiffs [sic] claims are based on the document”) (citation and
internal quotation omitted).
3
In support of their agency contentions, the Joneses directed
us at oral argument to a form letter in which SunTrust makes
lending disclosures and refers to the Snyder Entities as “a potential
lender.” App. at 1359. We note that the letter is addressed to Jerry
Getz, Jr., and Tamara Fisher, not the Joneses. The Joneses’
counsel stated at a hearing in the District Court that they “can’t find
[any similar letter] in [the Joneses’] file.” App. at 1292. Assuming
the Joneses received such a letter, it does not state that the Snyder
Entities were agents of SunTrust. Moreover, there is no dispute
that “this kind of letter preceded the closing on the [SunTrust]
mortgage.” App. at 1292. The documents associated with the
SunTrust Mortgage (and signed by the Joneses) make no mention
of the Snyder Entities and state that the Joneses were to make
payments to SunTrust. The Joneses could not have reasonably
inferred an agency relationship from SunTrust’s earlier form letter.
10
hold that the language of RESPA defining a servicer is
controlling,4 and agree with the District Court’s similar
interpretation of the language.
The only remaining issue is whether the District Court
abused its discretion in denying the Joneses’ request for leave to
amend the complaint. The Joneses did not submit a proposed
Third Amended Complaint and did not otherwise explain to the
District Court how they would plead any differently. The
District Court held that additional amendment would be “both
futile and inequitable” because there was “no indication” that
repleading would correct the defects. App. at 23. It was not an
abuse of discretion to deny the generalized request given the
District Court’s reasoned examination of the Joneses’ claims,
which demonstrates their futility.5 See Travelers Indem. Co. v.
Dammann & Co., 594 F.3d 238, 256 n.14 (3d Cir. 2010).
IV.
For the above-stated reasons, we will affirm the judgment
of the District Court.
4
We do not suggest that there may not be an instance in
which the actions of the original lender clothe another with
apparent authority as a “servicer.” This is not such a case.
5
Because the District Court properly dismissed the Joneses’
substantive claims, the claim for a declaratory judgment was also
properly dismissed. We need not reach the District Court’s denial
of the Joneses’ motion to transfer the case to the Bankruptcy Court.
11