Indiana’s Seventh Circuit (federal appellate court) affirmed dismissal of a homeowner’s claims against JPMorgan Chase Bank (“Chase” or “the Bank”) finding the homeowner’s complaint failed to state a cause of action for breach of contract, promissory estoppel, fraud, and/or intentional infliction of emotional distress. Taylor v. JPMorgan Chase Bank, N.A. The homeowner, Anthony Taylor (“Taylor”), asserted these claims against Chase based on Chase’s alleged failure to “honor its loan-modification offer.”
By way of background, in August 2009, a Chase representative contacted Taylor regarding a possible modification of his loan under HAMP. After that call, Taylor received paperwork from Chase which specified the requirements for entering into the modification agreement. One requirement was that Taylor send in three monthly trial period plan (“TPP”) payments, the first of which was to be made in September 2009. The paperwork also advised Taylor that he “’may qualify’ for a TPP” and his loan would be permanently modified “…if he proved eligible and complied with the trial-period terms.” Notably, the paperwork was to be signed by Taylor and Chase and the agreement “would not take effect unless and until both Taylor and Chase sign[ed] [the agreement] and Chase provide[d] Taylor with a [signed] copy.”
Taylor signed and returned the documents and timely sent in each of the three TPP monthly payments. After December 2009, Taylor heard nothing from Chase, but in May 2010, Chase advised Taylor in writing “that he did not qualify for HAMP” due to his ratio of housing expense to income. Based on this denial, Taylor filed suit. Chase moved to dismiss and Taylor moved to amend his complaint to add allegations for fraud and intentional infliction of emotional distress.
Chase argued Taylor’s complaint failed to state a claim upon which relief could be granted because Taylor failed to attach a copy of the parties’ agreement that was signed by Chase, an explicit requirement of the TPP. Chase argued, without an enforceable contract, there could be no breach. The lower court agreed with Chase and dismissed the case finding without the signed agreement any amendment to the complaint would be futile. Taylor appealed. On appeal, the Seventh Circuit found that the TPP provision which provided “no permanent modification would result” if Chase did not provide a “fully executed copy” of the TPP and Modification Agreement constituted a condition precedent to the creation of a contract.
The Court explained that parties are free “to qualify an offer and hold an agreement in abeyance until a condition is fulfilled.” The Court elaborated that when an offer “contains a condition precedent, a contract does not form unless and until the condition is satisfied.” Here, the court explained, the “TPP unambiguously stated that the trial modification would ‘not take effect unless’” both parties signed the agreement. Since Chase never returned the signed agreement “the proposed TPP agreement never became a contract binding on the parties.”
The Court rejected Taylor’s argument that Chase waived conditions precedent “through the statements of its employees and by accepting his reduced payments.” The Court explained Taylor failed to prove alleged actions on Chase’s part which would support a reasonable inference that the Bank “intended to go through with the trial modification absent a countersignature.” The Court elaborated that the allegations Taylor asserted regarding Chase’s representations were “consistent with an intent to insist on the condition precedent” so there was no waiver. Likewise, the Court rejected Taylor’s waiver argument based on the Bank accepting the TPP payments because the “TPP stated that Chase would accept the modified and reduced payment whether or not Taylor ultimately qualified for a permanent loan modification.”
Finally, the Court rejected Taylor’s promissory estoppel and fraud claims concluding Chase never made a “definite promise to modify his loan” nor a misrepresentation regarding the status of his modification. The Court explained Chase’s offer to modify the loan was contingent on him qualifying so it demonstrated only a “provisional willingness to make a future commitment” which could not be considered a promise. Similarly, the Court found the statements made by Chase’s representatives “even if credited as entirely true” could not “be construed as Chase committing to a permanent loan modification in the future.” The Court also dismissed Taylor’s proposed claims based on intentional infliction of emotional distress concluding Chase’s alleged conduct was not “so ‘extreme and outrageous’” to support such a claim. The Court affirmedi the lower court’s dismissal of Taylor’s claim.
This decision will prove helpful in disposing of claims based on failed HAMP attempts in the early stages of litigation, but the conditional provisions used in Chase’s documents should be applied in a broader context to ensure “forced” settlements are avoided and the bank has the opportunity to provide final approval before entering into a binding contract.
i Judge Hamilton wrote a lengthy dissent wherein he argued the majority departed “from the generous standard that applies on a motion to dismiss…under Rule 12(b)(6) or Rule 12(c), denying plaintiff the benefit of favorable inferences and instead granting them to Chase on several key points.” Taylor, at 567. Judge Hamilton outlined many unanticipated challenges encountered while implementing HAMP and suggested Taylor fell victim to some of these downfalls. Judge Hamilton concluded he would have reversed dismissal on the “claims for breach of contract and promissory estoppel so that those claims could be decided on the basis of evidence rather than allegations and dueling inferences.” Taylor, at 576.