Cardoso v. Wells Fargo Bank, N.A.

Background

Edward Cardoso and Jane Cardoso alleged that Wells Fargo wrongly denied their requests to modify a residential mortgage loan and pursued foreclosure. The foreclosure proceedings began in September 2016. A default judgment was entered against the Cardosos on July 2, 2018, that judgment was upheld on appeal, and U.S. Bank later acquired the home through a foreclosure sale. Wells Fargo had assigned the mortgage loan to U.S. Bank on February 17, 2017.

In April 2021, Wells Fargo sent the Cardosos a letter stating that a faulty calculation had caused it not to offer a trial payment plan that might have resulted in a loan modification. The letter enclosed a $15,000 check and stated that cashing it would not waive the Cardosos’ rights. The Cardosos alleged that Wells Fargo had used faulty software for years and that the foreclosure caused them financial loss, emotional distress, embarrassment, and marital problems.

The Cardosos brought six causes of action against Wells Fargo: negligence, negligence per se, negligent infliction of emotional distress, equitable relief, violation of New York General Business Law § 349, and intentional infliction of emotional distress. They sought damages and transfer of the property’s deed back to them. Wells Fargo moved to dismiss under Federal Rules of Civil Procedure 12(b)(1), for lack of subject-matter jurisdiction, and 12(b)(6), for failure to state a legally sufficient claim.

Court’s Analysis

Negligence. The court held that the negligence claim failed because a typical lender-borrower relationship does not create a special duty of care under New York law. The Cardosos alleged that Wells Fargo had a duty to review their loan-modification materials accurately, but the court ruled that such a duty did not exist on the allegations presented. The court also rejected the Cardosos’ reliance on cases involving unusual lender-borrower relationships and negligent misrepresentation rather than ordinary negligence. The negligence claim was dismissed.

Negligence per se. A negligence-per-se claim requires an alleged violation of a New York statute that imposes a specific duty. The Cardosos’ complaint vaguely referred to several laws and regulations, including the Home Affordable Modification Program, the New York General Business Law, the Real Estate Settlement Procedures Act, and Federal Trade Commission statutes. In their opposition, they relied on a New York procedural statute that they acknowledged was not identified in the complaint. The court agreed that the claim was inadequately pleaded and dismissed it. A footnote states that this claim was dismissed without prejudice.

Negligent infliction of emotional distress. The court ruled that this claim failed both because the Cardosos had not alleged a duty of care and because they had not alleged conduct that endangered their physical safety or caused them to fear for it. The court acknowledged the emotional distress associated with the foreclosure but held that the alleged conduct did not meet New York’s requirements for this tort. The claim was dismissed.

Intentional infliction of emotional distress. The court ruled that the Cardosos had not alleged conduct sufficiently extreme and outrageous to support this claim. Their theory was that Wells Fargo used faulty software, knew or should have known about the problem, denied a modification, and foreclosed on the mortgage. The court held that foreclosure, even when allegedly improper, generally requires additional particularly abusive conduct to support this claim, and the Cardosos had not alleged such conduct. The claim was dismissed.

New York General Business Law § 349. This statute prohibits deceptive acts or practices in business, trade, or commerce. The court held that the Cardosos had not identified a specific deceptive statement, representation, or omission by Wells Fargo. Their allegation that Wells Fargo continued using faulty software was not enough to identify deceptive conduct. The § 349 claim was dismissed.

Equitable relief. The Cardosos sought to have the deed transferred back to them. Wells Fargo argued that this request was barred by a doctrine limiting federal review of state-court judgments and that equitable relief was not a standalone claim. The Cardosos did not respond to these arguments. The court therefore treated the claims as abandoned and dismissed them.

The court did not decide Wells Fargo’s additional arguments that the claims relied on the Home Affordable Modification Program, which Wells Fargo argued provides no private right of action, or that the Cardosos failed to adequately allege causation. The court found it unnecessary to reach those arguments because each claim was subject to dismissal for separate reasons.

Disposition

Judge Kenneth M. Karas granted Wells Fargo’s motion to dismiss. The court stated that the dismissal was without prejudice because this was the first adjudication of the Cardosos’ claims. The Cardosos could file an amended complaint within 30 days if they had a good-faith basis for doing so. The court stated that failure to meet that deadline could result in dismissal with prejudice.