United States District Court, D. Minnesota
NANCY A. MORENO and MONTI MORENO, Plaintiffs,
WELLS FARGO BANK, N.A., Defendant.
J. Wisdorf; Robert B. Bauer and William M. Topka, DOUGHERTY,
MOLENDA, SOLFEST, HILLS & BAUER P.A., for plaintiffs.
Charles F. Webber and Jessica Z. Savran, FAEGRE BAKER DANIELS
LLP, for defendant.
Patrick J. Schiltz United States District Judge
Nancy and Monti Moreno (“the Morenos”) borrowed
money to purchase real property. The loan was secured with a
mortgage on the property. The Morenos failed to repay the
loan, and defendant Wells Fargo initiated foreclosure
proceedings. Before the foreclosure sale took place, however,
the property was damaged by a hail storm and a fire. The
homeowners insurer paid $190, 515.90 for the damage, and
Wells Fargo placed those funds in an escrow account until the
repairs were completed. The repairs were never completed.
Fargo purchased the property at the foreclosure sale. The
purchase price fell well short of the amount of money owed by
the Morenos, as the value of the property had been
significantly reduced by the (unrepaired) hail and fire
damage. The Morenos redeemed the property from Wells Fargo. A
dispute then arose over whether the Morenos or Wells Fargo
was entitled to the $190, 515.90 in escrowed insurance
proceeds. The Morenos brought this action to settle that
relationship between the Morenos and Wells Fargo is
contractual, and thus their dispute must be resolved by
interpreting their contract. Instead of filing a
straightforward breach-of-contract action, however, the
Morenos have gone the kitchen- sink route, bringing not only
a breach-of-contract claim, but also add-on claims for
violation of the Minnesota Consumer Fraud Act, conversion,
civil theft, and unjust enrichment.
Fargo now moves to dismiss these add-on claims under
Fed.R.Civ.P. 12(b)(6). For the reasons that follow, the Court
grants Wells Fargo's motion.
2004, the Morenos borrowed $333, 700 from Central Bank to
purchase a lot with a house and a barn in Marine on St.
Croix, Minnesota. ECF No. 12-1 at 1; ECF No. 1-1 at ¶ 5.
The Morenos secured the loan with a mortgage on the property.
ECF No. 1-1 at ¶ 6. Central Bank subsequently assigned
the mortgage to Wells Fargo. Id.
5 of the mortgage required the Morenos to maintain insurance
on the property to protect “against loss by fire . . .
and any other hazards, including, but not limited to,
earthquakes and floods . . . .” ECF No. 12-1 at p. 5,
§ 5, ¶ 1. Section 5 also provided that if the
property was damaged, Wells Fargo had the right to hold onto
any insurance proceeds until Wells Fargo could inspect the
property and ensure that the damage had been satisfactorily
repaired. Id. at p. 5, § 5, ¶ 4. Section 5
further provided that Wells Fargo could keep the insurance
proceeds if it “acquire[d] the Property under Section
22 [of the mortgage] or otherwise.” Id. at p.
6, § 5, ¶ 5.
22 essentially gave Wells Fargo the right to foreclose on the
property if the Morenos defaulted under the promissory note
and failed to cure. Id. at p. 11, § 22. If
Wells Fargo received the right to keep the insurance proceeds
by virtue of having acquired the property under Section 22,
then, under Section 5, Wells Fargo could “use the
insurance proceeds either to repair or restore the Property
or to pay amounts unpaid under the Note or this Security
Instrument, whether or not then due.” Id. at
p. 6, § 5, ¶ 5.
unrelated events caused damage to the Morenos' property
and triggered payments from the Morenos' homeowners
insurer. First, on May 25, 2008, hail damaged the roof of the
house. ECF No. 1-1 at ¶ 16. On July 8, 2008, the
Morenos' insurer paid out $14, 515.90, which Wells Fargo
held in escrow until the Morenos repaired the roof.
Id. at ¶¶ 18-19. Years passed, but the
Morenos did not repair the roof, so the insurance proceeds
sat in the escrow account. Then, on January 28, 2015, a fire
destroyed the barn. Id. at ¶ 20. On April 8,
2016, the Morenos' insurer paid out $176, 000, which
Wells Fargo also held in escrow. Id. at ¶¶
2007-prior to either the 2008 hail storm or the 2015
fire-Wells Fargo commenced foreclosure proceedings on the
Morenos' property after the Morenos failed to make the
promised repayments on their loan. ECF No. 1-1 at ¶ 10.
For some reason, Wells Fargo did not obtain a judgment of
foreclosure until August 2015. ECF No. 12-1 at 20. It appears
that at least part of the long delay may have been caused by
the fact that the Morenos retained attorney William B. Butler
to represent them. ECF No. 12-1 at 13. Until he was
indefinitely suspended from practicing law, see In re
Disciplinary Action Against Butler, 868 N.W.2d 243
(Minn. 2015), Butler made “a cottage industry”
out of filing frivolous lawsuits on behalf of homeowners who
had defaulted on their loans, Welk v. GMAC Mortg.,
LLC, 850 F.Supp.2d 976, 981 (D. Minn. 2012). Clients
would pay Butler “not for bringing legitimate claims,
but simply for each month that he delay[ed] foreclosure by
tying up mortgagees in frivolous court proceedings.”
Id. at 1004.
Minnesota court that entered the judgment of foreclosure
against the Morenos found that, as of July 10, 2015, the
Morenos owed Wells Fargo $521, 842.75 in unpaid principal,
interest, costs, and fees. ECF No. 12-1 at p. 14, ¶ 7.
On November 10, 2015, Wells Fargo purchased the property at
the sheriff's sale for $187, 910. ECF No. 1-1 at
¶¶ 11-12. The amount that Wells Fargo paid for the
property at the sheriff's sale was significantly less
than the amount that the Morenos had paid for the property
when they purchased it in 2004, no doubt reflecting the fact
that the barn had been destroyed by fire and the roof of the
house had been damaged by hail. In December 2016, the Morenos
came up with $208, 263.62 to redeem the property from Wells
Fargo. ECF No. 1-1 at ¶ 14.
point, the Morenos had suffered no financial loss as a result
of their breach of the promissory note, the protracted legal
proceedings, the hail storm, and the fire. They owned a piece
of property worth roughly $200, 000 for which they had paid
roughly $200, 000, their considerable remaining debt to Wells
Fargo was erased by the fact that Wells Fargo did not seek a
deficiency judgment against them, and they had (presumably)
enjoyed years of rent-free living in their house. At the same
time, Wells Fargo had taken a financial bath, as the amount
that Wells Fargo recovered from the Morenos was over $300,
000 less than the Morenos owed.
satisfied with their good fortune, the Morenos then insisted
that Wells Fargo also pay them the $190, 515.90 in insurance
proceeds that had been escrowed, even though it had been
Wells Fargo, and not the Morenos, that ultimately suffered
financial loss on account of the hail storm and fire. ECF No.
1-1 at ¶¶ 18, 22, 25. Wells Fargo refused,
contending that Section 5 of the mortgage gave it the right
to retain the insurance proceeds because it had
“acquire[d] the Property” under Section 22 of the
mortgage. ECF No. 11 at 6-7, 9-12. The Morenos disagreed,
contending that, because they redeemed the property after the
sheriff's sale, Wells Fargo never “acquired”
the property, and thus Wells Fargo had no right to the
insurance proceeds. ECF No. 17 at 6- 8.
Morenos filed this lawsuit to recover the insurance proceeds,
arguing that Wells Fargo's failure to release the
insurance proceeds to them was not only a breach of the
mortgage contract, but also (1) a violation of the Minnesota
Consumer Fraud Act, (2) conversion, (3) civil theft, and (4)
unjust enrichment. ECF No. 1-1. Wells Fargo moves to ...