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Papoutsakis v. Bank of America

2011 WL 221703 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

CONSUMER FRAUD ACT — In order for a breach of contract claim to be actionable under the Consumer Fraud Act, there must be a showing of “substantial aggravating circumstances,” such as the existence of bad faith or lack of fair dealing sufficient to constitute an unconscionable business practice.

A borrower had negotiated a Loan Modification Agreement with its lender. He made six agreed payments, but his seventh payment was returned to him and he was sent a Notice of Intention to Foreclose. In response to the notice, the borrower’s attorney wrote to the lender explaining that the borrower’s employees had advised his client “that he could continue using the ‘premodification coupons but [he had to] pay the modified monthly amount.’” The borrower continued to send his modified payments and the bank cashed the next two. When he made a double payment (presumably to cover the returned payment), it was returned to him “uncashed and with canceled endorsements.” The borrower then received a notice that his home loan was delinquent and had been referred to the foreclosure department. So, while his attorney wrote to the lender again, pointing out that the lender “had yet to respond to his previous letter.”

The borrower then received two form letters from the lender. The first advised him “that he was eligible for the ‘Home Affordable Modification Program.’” The second advised him that the lender “was in the process of addressing [his] questions and concerns.” The borrower then sued in a New Jersey court alleging that the lender had violated the New Jersey Consumer Fraud Act (CFA) and sought, among other things, specific performance of the Loan Modification. When the New Jersey court ordered the lender to show cause as to why its borrower should not be granted relief, the lender removed the suit to the United States District Court and filed a motion to dismiss.

The Court acknowledged that “[t]he CFA was enacted to protect consumers against acts of deception and fraud, including those committed in good faith.” On the other hand, its analysis was that the borrower’s “sole basis for alleging a CFA violation [was] a breach of contract claim.” Under New Jersey law, “a breach of contract ‘is not per se unfair or unconscionable,’” and “such a claim alone cannot constitute an unlawful act under the CFA. ... In order for a breach of contract claim to be actionable under the CFA, there must be a showing of ‘substantial aggravating circumstances.” A substantial aggravating circumstance is “the existence of bad faith or lack of fair dealing, sufficient to constitute an unconscionable business practice.” The Court, though recognizing the difficult environmental climate at the time these events occurred, would not, however, find that the lender’s “alleged breach of contract was unconscionable.” Therefore, it dismissed the law suit.


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