United States District Court, C.D. Illinois
December 6, 2005.
Daryl D and Amy E. Littlefield, Plaintiffs
Wells Fargo Home Mortgage, Inc., and GE Capital Mortgage Services, Inc., Defendants.
The opinion of the court was delivered by: JOHN GORMAN, Magistrate Judge
The parties have consented to have this case heard to judgment
by a United States Magistrate Judge pursuant to
28 U.S.C. § 636(c), and the District Judge has referred the case to me. Now
before the court are: Defendant Wells Fargo Home Mortgage, Inc.'s
Motion to Dismiss Counts I and II (Doc. #143) and Defendant GE
Capital Mortgage Services Inc.'s Motion to Dismiss Count III
(#141). The motions are fully briefed and I have carefully
considered the arguments of all parties. The Wells Fargo Motion
is granted in part and denied in part and the GE Capital motion
MOTIONS TO DISMISS GENERALLY
A complaint should not be dismissed unless it appears from the
pleadings that the plaintiff could prove no set of facts in
support of his claim which would entitle him to relief. Conley
v. Gibson, 355 U.S. 41 (1957); Gould v. Artisoft, Inc.,
1 F.3d 544, 548 (7th Cir. 1993). Rather, it should be construed broadly
and liberally in conformity with the mandate in Rule 8(f).
For purposes of a motion to dismiss, the complaint is construed
in the light most favorable to the plaintiff; its well-pleaded
factual allegations are taken as true, and all reasonably-drawn inferences are drawn in favor of the plaintiff.
Albright v. Oliver, 510 U.S. 266, 268 (1994); Hishon v. King &
Spalding, 467 U.S. 69 (1984); Scheuer v. Rhodes, 416 U.S. 232
(1974); Lanigan v. Village of East Hazel Crest, 110 F.3d 467
(7th Cir. 1997); MCM Partners, Inc. v. Andrews-Bartlett &
Assoc., Inc., 62 F.3d 967, 969 (7th Cir. 1995); Early v.
Bankers Life & Cas. Co., 959 F.2d 75 (7th Cir. 1992).
The Seventh Circuit has emphasized the "limited analysis
appropriate on a motion to dismiss under Rule 12(b)(6)." Cook v.
Winfrey, 141 F.3d 322 (7th Cir. 1998). General allegations of
elements of a claim, unsupported by factual allegations in
support, are sufficient to satisfy the "minimal requirements of
federal notice pleading." Id. at 328. This is true even in
pleading a state-law claim arising under Illinois law, which
requires much-more demanding fact-pleading. Id. A plaintiff may
satisfy this requirement by pleading either enough operative
facts or conclusions so that the defendant is given minimal
notice of the claim and the court can understand that gravamen of
the complaint. Kyle v. Morton High School, 144 F.3d 448, 454
(7th Cir. 1998). A motion to dismiss is not an occasion to argue
the merits of a case. Weiler v. Household Finance Corp,
101 F.3d 519, 524 n. 1 (7th Cir. 1996).
If the plaintiff's claim as plead is "without legal
consequence," dismissal is proper; Grzan v. Charter Hospital,
104 F.3d 116, 119 (7th Cir. 1997). One of the purposes of Rule
12(b)(6) is to eliminate actions that are fatally flawed in their
legal premises and are destined to fail, thus sparing litigants
the burdens of unnecessary pretrial and trial activity. Advanced
Cardiovascular Systems, Inc. v. Scimed Life, 988 F.2d 1157, 1160
(Fed. Cir. 1993). PLEADINGS AND PROCEDURAL POSTURE
This case was stayed on August 6, 2004, pending the Seventh
Circuit's decision in Parks v. Wells Fargo Home Mortage Inc.
That decision was rendered on Feb. 23, 2005. See, Parks v. Wells
Fargo Home Mortage Inc., 398 F.3d 937 (7th Cir. 2005). The stay
was lifted following the Seventh Circuit's decision, and the
Plaintiffs filed their Fourth Amended Complaint. The instant
motions to dismiss followed.
The Fourth Amended Complaint (Doc. #139) consists of four
counts. Counts I and IV allege breach of contract claims against
Wells Fargo and GE Capital Mortgage Services LLC (formerly known
as GE Capital Mortgage Services Inc.) (hereinafter referred to as
GE Capital) respectively. Counts II and III allege breach of
fiduciary duty claims against Wells Fargo and GE Capital
Wells Fargo has filed its motion to dismiss challenging both
counts against it. GE Capital's motion challenges only Count III;
an answer has been filed to Count IV.
The following facts were presented to the court in an earlier
summary judgment motion and were recited by the court in its
Order on that motion. See Order dated January 13, 2004. Not all
of these facts have been specifically alleged in the Fourth
Amended Complaint but the Court considers that these facts are
part of the record and are cognizable at this stage of the
On January 31, 1995, Daryl and Amy Littlefield purchased
residential property in Peoria, Illinois. This property included
five lots, numbered 15 through 19. Ownership of lots 15 through
18 was transferred by warranty deed, lot 19 by quit claim deed.
Together, the property was commonly known as 2010 East Paris Avenue,
Peoria, Illinois. In order to acquire this property, Plaintiffs
obtained a loan from Wells Fargo Home Mortgage Inc.*fn1 The
loan was secured by a mortgage ("Mortgage") on lots 15 through
18. The mortgage documents and the deeds to both parcels of
property showed that the taxes should be sent to Wells Fargo.
The Littlefields' Mortgage was documented on a form developed
by the Federal National Mortgage Association ("Fannie Mae") and
the Federal Home Loan Mortgage Corporation ("Freddie Mac") and it
is commonly referred to as an FNMA/FHLMC Uniform Instrument. Both
the Uniform Instrument and the Plaintiffs' Mortgage require that
mortgage borrowers pay monthly amounts for taxes, and that this
monthly amount may obtain priority over the Mortgage itself. Both
the Uniform Instrument and the Plaintiffs' Mortgage also include
the following provision:
There . . . may be one or more changes of the Loan
Servicer unrelated to a sale of the Note. If there is
a change of the Loan Servicer, Borrower will be given
written notice of the change in accordance with . . .
applicable law. The notice will state the name and
address of the new Loan Servicer and the address to
which payments should be made. The notice will also
contain any other information required by applicable
Mortgage, ¶ 19 [attached to Complaint]
On June 20, 1995, Wells Fargo transferred the
servicing*fn2 of Plaintiffs' Mortgage to GE Capital Mortgage
Services Inc. (hereinafter "GE Capital"). At the end of that
calendar year, Wells Fargo purged its computer system of any record of the
transferred mortgage loan, retaining historical information on
microfiche. The Servicing Rights Purchase Agreement between Wells
Fargo and GE Capital provided that Wells Fargo would notify the
taxing authority to send all future tax notices and bills to GE
Capital and further that Wells Fargo would record an Assignment
of Mortgage. The Assignment of Mortgage prepared by Wells Fargo
was not dated until Nov. 16, 1998, and was not recorded until
January 15, 1999. There is no evidence of when or whether Wells
Fargo ever notified the taxing authority of the change.
This transfer of servicing of the Littlefield Mortgage was part
of a bulk transfer, whereby the servicing of a large number of
mortgage loans was transferred from Wells Fargo to GE Capital.
Bulk transfer procedures required Wells Fargo to forward any tax
statements or other correspondence received after the transfer to
GE Capital via overnight delivery on a daily basis.
GE Capital provided the requisite notice to the Littlefields,
and thereafter they made their mortgage payments and tax escrow
payments to GE Capital. On July 22, 1995, GE Capital sent
Plaintiffs an Initial Escrow Account Disclosure Statement,
indicating that a real estate tax payment for the second
installment of 1994 property taxes in the amount of $970.14 would
be paid from the Escrow Account in August of 1995. That payment,
however, was not made in August. In January of 1996, GE Capital
sent a payment identified as "delinquent tax payment" in the
amount of $1036.49 to Peoria County. In July 1996, that payment
was returned by Peoria County to GE Capital.
Someone at GE Capital incorrectly coded the returned payment,
identifying it as an "additional escrow payment" instead of a
returned tax payment; the payment remained on GE Capital's computer records as a payment that had been made in
1996. Compounding that error, no one in GE Capital's tax
department followed company procedures that required inquiry of
the governmental unit whenever a tax payment was refused. Had the
inquiry been made, someone at GE Capital would have learned that
the delinquent taxes for Lots 15 through 18 had already been
purchased by Realtax Developers, Ltd. and both installments of
the 1994 taxes on lot 19 had been purchased by Edward Beasley.
In February of 1996, Realtax Developers sent out a notice of
its purchase of the delinquent 1994 taxes. The notice was sent to
the Littlefields c/o Wells Fargo. No notice was sent to the
Littlefields at their home address. Notice was not sent to GE
Capital either, because Wells Fargo had not recorded GE Capital's
interest. It is not clear from the evidence presented to the
court whether Wells Fargo which had already purged its
computers of information relating to the Littlefield Mortgage
did anything in response to the notice, but it is safe to say
that if anything was done, it was neither effective nor timely.
On August 25, 1998, Carol Huff, as assignee of Realtax
Developers, filed a Petition for Tax Deed with respect to Lots 15
through 18. In September, the Littlefields were personally served
with a copy of a "Take Notice" concerning Huff's Petition.
Plaintiffs inquired of Wells Fargo, and on September 24, 1998,
Wells Fargo responded to the inquiry by letter. The letter
revealed that Wells Fargo had confirmed that the 1994 and 1995
taxes on lot 19 were delinquent and had been sold at tax sale in
December of 1996; the taxes plus redemption fee totaled $715.54.
The letter also confirmed that the 1995 taxes on lots 15 through
18 were delinquent; taxes plus redemption totaled $1892.97. The
letter then stated: These records confirm [Wells Fargo] disbursed from
your escrow account the 1994 tax for [lots 15 through
18] in the amount of $1,036.47. Since it is the
responsibility of [Wells Fargo] to have paid the 1994
tax for both parcels, we are forwarding a check to
you in the amount of $405.42 which represents the
[Lot 19] 1994 Base of $40.02 and Redemption of
[Lots 15-18] 1995 Redemption of $209.74*
* Please note, we have also elected to pay the
1995 redemption cost of $209.75 as a courtesy due to
the inconvenience this issue may have caused.
As the county informed me there are other delinquent
taxes owed for disbursements your current servicer is
responsible for, I urge you to contact GE Capital
Mortgage at your earliest convenience to confirm any
outstanding tax installments owed.
At some point in the Fall of 1998, after being served with the
Take Notice and after receiving the letter from Wells Fargo, Amy
Littlefield went to the courthouse with the Take Notice, paying
the amount the clerk told her would take care of the problem. The
amount was between $1000 and $1200, but she does not know the
There is no indication that Wells Fargo ever contacted GE
Capital. Daryl Littlefield, however, did call GE Capital. After
he received the Take Notice and the letter from Wells Fargo, he
called an 800 number for GE Capital and spoke with an employee
who, after obtaining account information, assured him that the
matter would be resolved. It appears, however, that GE Capital
did nothing, at least not in time to prevent the issuance of a
tax deed. Carol Huff filed a petition for an order issuing a tax
deed on December 15, 1998, for lots 15 through 18. The petition
was served on the Littlefields individually as well as on the
Littlefields c/o Norwest Bank; GE Capital was not served, as
their interest in the property had never been recorded. The tax
deed was issued to Huff.
On December 23, 1998, Daryl had a conversation with Doug Huff,
(Carol Huff's husband) and was informed that it was too late to
redeem the taxes but that "arrangements" could be made. On that
same date, Daryl Littlefield obtained a bank check in the amount of $250, which he used to pay Edward Beasley for
the delinquent taxes on lot 19.
Despite the issuance of the tax deed, Daryl and Amy
Littlefield*fn3 believed that the tax problems had been
cleared up. They continued to make monthly mortgage and escrow
payments to GE Capital, at least up to June 1, 2000. According to
their testimony, they heard nothing more regarding those problems
until September 2, 1999, when they received a letter from
Statewide Properties, who had purchased the property from Carol
Huff. The letter was addressed to "Occupant" and sent to the
Littlefields' address. The letter informed the reader of the tax
deed and notified the reader that the move out date was September
30, unless arrangements were made to rent the premises from
On May 24, 2001, a second letter was sent by Statewide to
"Occupant" at the Littlefield address, notifying the reader that
monthly rent would be charged and asking either that the reader
vacate the premises by July 15, 2001 or that arrangements for
rent be made. On November 1, 2001, Daryl Littlefield entered into
a lease for lots 15 through 18 with Statewide Properties.
On April 4, 2003, defendant Wells Fargo re-purchased the
Littlefields' property from the tax buyer and then conveyed the
property to the Littlefields. At the same time, Wells Fargo released the mortgage, and as of the date of this Order the
Littlefields' ownership remains free and clear of any
BREACH OF FIDUCIARY DUTY
Underlying both parties' motions is a question about the
plaintiffs' claim for breach of fiduciary duty. Plaintiff argues
that the Seventh Circuit did not rule on the fiduciary duty
claim, so they are not precluded from proceeding on that claim.
Defendants, on the other hand, argue that the Court of Appeals
opinion in Parks limits the recovery of damages to contractual
damages, thereby precluding the recovery of any additional
damages under a theory of breach of fiduciary duty.
The Seventh Circuit did not explicitly discuss whether a
fiduciary duty existed, a significant issue in this Court's
analysis. The Appellate Court did, however, acknowledge the
existence of both a fiduciary duty claim and a contract claim.
The plaintiff's argument that the Court did not deal with the
issue, therefore, simply cannot be correct.
Implicit in the Parks opinion is the Appellate Court's
underlying assumption that, if a fiduciary duty existed, it arose
from the contract between the parties and not, as this Court had
found, from the statute. The Court then equated the remedies that
exist at law for these two claims, applying the law of contract
remedies to both claims. In other words, the existence of a
fiduciary duty does nothing with respect to creating additional
remedies, over and above standard contractual remedies. Damages
were measured by the law of contract only, limiting the possible
damages to actual pecuniary loss. The law articulated in Parks is the law of this case as well.
Therefore, I find that the plaintiffs are limited in the damages
they may recover to contractual damages, that is, compensatory
damages. They may recover neither punitive damages nor damages
for emotional distress. To the extent that the parties' motions
attack the punitive damages and emotional distress damages, they
Wells Fargo also asserts that any compensatory damages incurred
by the plaintiffs would be completely set off by the bank's
release of the Littlefield mortgage. Illinois' longstanding law
of setoff was summarized in Bank of Chicago-Garfield Ridge v.
Park Nat. Bank, 606 N.E.2d 72,75-76, (Ill.App. 1992), where the
Setoff most commonly appears as a counter-demand
interposed by a defendant against a plaintiff in a
lawsuit, arising out of a transaction extrinsic to
plaintiff's cause of action. See, e.g., Studley v.
Boylston (1913), 229 U.S. 523, 528 Peterson v. Iris
Theater Co., 218 Ill.App. 416, 420 (1920); Luther
v. Mathis, 211 Ill.App. 596, 601 (1918); Black's
Law Dictionary 1230 (5th ed. 1979). Deriving
sanction under statute, and in certain circumstances,
at equity (see Scott v. Armstrong (1892),
146 U.S. 499; Messick v. Rardin, 6 F.Supp. 200 (E.D.Ill.
1934)), setoff normally must be pleaded, except in
certain limited circumstances. See e.g., Luther,
211 Ill.App. at 601; see also Lane v. Volunteer
Cooperative Bank, 30 N.E.2d 821 (Mass. 1940). There
is no inherent right in equity to set off one demand
against another; rather, equitable setoff was
conceived as a limited remedy, and is available only
where the debts are mutual, mature, and "of such a
certain and ascertainable character as to be capable
of being applied in compensation of each other,"
Smith v. Billings, 62 Ill.App. 77, 85 (1896)
without the intervention of the court to estimate
them. Faber, Coe & Gregg, Inc. v. First National
Bank, 246 N.E.2d 96 (Ill.App. 1969).
See also, Citizens Bank of Md. v. Strumpf, 516 U.S. 16, 18
(1995) (the right of setoff allows parties that owe each other
money "to apply their mutual debts against each other, thereby
avoiding `the absurdity of making A pay B when B owes A."),
quoting Studley, 229 U.S. at 528); In re Murphy,
203 B.R. 972, 975 (Bankr.S.D.Ill. 1997) (citation omitted) ("[T]he right
of setoff allows parties that owe mutual debts to each other to
assert the amounts owed on these debts, subtract one from the
other, and then pay only the balance."); In re Clark Retail Enterprises, Inc. 308 B.R. 869, *895
(Bankr.N.D.Ill.,2004); In re Martin, 130 B.R. 930, 938
None of the legal questions related to setoff are addressed in
Defendant's motion, which simply assumes that the generic concept
of setoff equates to the legal doctrine of setoff and that it
applies in this case. The defendant makes no argument as to
intent or the other legal elements of setoff, and there is no
application of those legal principles to the facts. The court
will not make arguments for the defendant, and the motion is
denied on those grounds. It may be re-raised at summary judgment
or trial, as an affirmative defense. The Defendant may move to
amend the pleadings as a separate count or as an affirmative
defense depending on its view of the law and facts.
GE CAPITAL'S MOTION TO DISMISS
In GE's motion to dismiss, the Defendant challenges Plaintiffs'
claim for breach of fiduciary duty. Defendant states that the
Seventh Circuit's decision in Parks found that the "duty owed
by the mortgage servicer under the circumstances was contractual
only." As discussed above, that is a correct statement of the
Parks decision. The motion is allowed.
For each of these reasons, Wells Fargo's Motion to Dismiss is
granted in part and denied in part. GE Capital's motion is
granted. Counts II and III are dismissed. Wells Fargo is directed
to file an answer to Count I within 14 days of the date of this
Order. This case is set for a scheduling conference on Friday,
January 6, 2006, at 10:30 a.m. via phone; the court will set up
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