United States District Court, E.D. Kentucky, Central Division, Lexington
KEVIN M. BUSCH and LESLIE J. BUSCH, Plaintiffs,
WELLS FARGO HOME MORTGAGE INC. and WELLS FARGO BANK, N.A. Defendants.
MEMORANDUM OPINION AND ORDER
M. Hood Senior U.S. District Judge.
matter is before the Court upon the Motion to Dismiss [DE 9]
filed by Defendants Wells Fargo Home Mortgage Inc. and Wells
Fargo Bank, N.A (collectively, “Wells Fargo”).
Plaintiffs Kevin M. Busch and Leslie J. Busch (collectively,
“the Busches”) have filed a Response in
Opposition [DE 11] to the Motion, as well as their own Motion
for Partial Summary Judgment [DE 12] on the issues of
liability and attorney's fees. Both Motions are now fully
briefed [DE 14, 17, 18] and ripe for the Court's review.
For the reasons stated herein, Wells Fargo's Motion to
Dismiss will be GRANTED IN PART AND DENIED IN PART and the
Busches' Motion for Partial Summary Judgment will be
DENIED AS PREMATURE.
FACTUAL AND PROCEDURAL BACKGROUND
March 2014, Wells Fargo Bank loaned the Busches $40, 000 to
finance the purchase of an investment property, located at
3570 Niagara Drive in Lexington, Kentucky. [DE 9-3]. The
Busches, in return, executed a Promissory Note, secured by a
Mortgage on the property, in favor of Wells Fargo Bank. [DE
9-2, 9-3]. In the Note, the Busches promised to repay the
loan at an interest rate of 4.75% over a thirty year period
by making monthly payments of principal, interest, and
miscellaneous “other charges.” [DE 9-3]. Wells
Fargo Home Mortgage, Inc., a division of Wells Fargo Bank,
serviced the loan. [DE 1-1, p. 3, ¶ 5].
Note stated that these monthly payments, totaling $339.30,
would be due on the first day of each month. [DE 1-1 at 10,
9-3 at 1]. Wells Fargo would apply each monthly payment
“as of its scheduled date … to interest before
Principal.” If, at any time, Wells Fargo did not
receive a full monthly payment within fifteen calendar days
after the due date, it would assess a late charge against the
Busches, amounting to 5% of the overdue payment of principal
and interest. [Id. at 2]. Failure to pay the full
amount of each monthly payment on the due date would result
in default. [Id.].
event of default, Wells Fargo had the right to notify the
Busches that, if the overdue amount is not paid by a certain
date, they may have to pay immediately the full amount of the
principal that has not been paid and all interest owed on
that amount. [Id.]. However, even if Wells Fargo
decided not to take such steps upon default, it retained the
right to do so if the Busches defaulted at a later time.
addition to the payment procedures described above, the
Busches enjoyed the right to make prepayments on the
principal. Specifically, the Note provided as follows:
Borrower's Right to Prepay
I have the right to make payments of Principal at any time
before they are due. A payment of Principal only is known as
a “Prepayment.” When I make a Prepayment, I will
tell the Note Holder in writing that I am doing so. I may not
designate a payment as a Prepayment if I have not made all
the monthly payments due under the Note.
I may make a full Prepayment or partial Prepayments without
paying a Prepayment charge. The Note Holder will use my
Prepayments to reduce the amount of Principal that I owe
under this Note. However, the Note Holder may apply my
Prepayment to the accrued and unpaid interest on the
Prepayment amount, before applying my Prepayment to reduce
the Principal amount of the Note.
If I make a partial Prepayment, there will be no changes in
the due date or in the amount of my monthly payment unless
the Note Holder agrees in writing to those changes.
2015, the Busches mailed Wells Fargo separate checks to cover
monthly payments on the Note through the end of 2016. [DE
1-1, p. 3, ¶ 6]. Wells Fargo misapplied those advance
payments, and as a result, later returned them to Kevin
Busch.[Id.]. In October 2015, Plaintiffs
paid $605 for an appraisal of the investment property, hoping
to refinance the Note. [DE 1-1, p. 4, ¶ 10]. The Busches
“were unable to refinance the Note at that time due to
the misapplied payments by Wells Fargo which harmed their
credit scores.” [Id.].
same month, Kevin Busch mailed Wells Fargo a single check in
the amount of $4, 779.44. [DE 11-1]. At the bottom of this
check, he wrote “14 payments per schedule 11/2015
through 12/2016.” [Id.]. Although Wells Fargo
applied $678.60 total to the November and December 2015
payments, it applied the remaining $4, 100.84 to the
principal only, rather than twelve monthly payments of
principal, interest, and escrow. [DE 1-1, p. 3, ¶ 8].
Busches, believing that Wells Fargo had applied the funds to
cover twelve monthly payments, did not submit a periodic
payment for January 2016. [DE 1-1, p. 4, ¶ 9]. As a result,
Wells Fargo deemed the Busches delinquent on their Note
payments, a determination that adversely affected their
credit scores. [Id. at p. 4, ¶ 10]. In February
2016, the Busches attempted to refinance their mortgage
through People's Exchange Bank. [Id. at p. 4,
¶ 11]. On February 19, 2016, the Bank denied the
Busches' application, citing their latest credit report,
which reflected their delinquent status on the Wells Fargo
account. [Id.; DE 1-1 at 11-14].
Busches promptly retained counsel to address this issue. [DEs
1-1 at 18-21; 11-4]. On February 24, 2016, counsel notified
the three major credit reporting agencies
(“CRAs”) that the Busches' credit information
was incorrect. [DE 11-4]. She contacted Wells Fargo about the
issue that same day. [DE 1-1 at 18-21]. On March 2, 2016,
counsel received a letter from Wells Fargo, stating in
Thank you for contacting us. We're writing to let you
know that we've received the inquiry you sent on behalf
of Kevin M. Busch and Leslie J. Busch. We previously received
a similar inquiry and it's currently being reviewed.
We expect to complete our research and provide you with the
results on or before March 14, 2016. In the event additional
time is needed we will contact you.
March 17, 2016, the Busches' attorney again contacted
Wells Fargo about the issue, expressing the following
As you are aware, we had instituted an investigation with the
three major credit bureaus as to Wells Fargo Bank's
misapplication of funds to my clients' account. I
received today dispute resolutions from Equifax indicating at
page 10 of Kevin's credit report that Wells Fargo is
still reporting a delinquency from January 2016. As we
discussed on the phone, Wells Fargo is aware that this
information is incorrect. Leslie's credit report contains
like information. This is to request that Wells Fargo correct
said information consistent with my previous conversations
with you. You have indicated that Wells Fargo will correct
all information by March 30, 2016.
at 17]. Despite its assurances, Wells Fargo allegedly
“failed to correct the misapplied payment and continued
to make such inaccurate reports to the three major credit
bureaus.” [DE 1-1, p. 4, ¶ 13-14].
on May 3, 2016, Kati Negron, Executive Resolution Specialist
with Wells Fargo's Customer Care and Recovery Group, sent
counsel a letter, admitting that Wells Fargo had
“inadvertently applied [the Busches' periodic
payments] to principal and interest.” [DE 1-1 at 22].
Negron stated that Wells Fargo had “reapplied the funds
to future payments with an effective date of February 18,
2016, ” meaning that a monthly payment would not be due
until January 1, 2017. [Id.]. She also indicated that
Wells Fargo had notified the three major credit bureaus of
the situation and asked them to adjust the Busches'
credit scores accordingly. [Id.]. She cautioned the
Busches that it could take the CRAs up to 90 days to adjust
their reports. [Id.]. Negron then informed the
Busches that Wells Fargo had declined their request for
payment of $8, 905 to compensate them for the cost of the
October 2015 appraisal, attorney's fees, lost wages, and
emotional distress. [Id.].
27, 2016, the Busches filed suit against Wells Fargo in
Fayette Circuit Court, asserting the following claims: (1)
violations of the Fair Credit Reporting Act; (2) breach of
contract; (3) unjust enrichment; (4) negligence; (5)
violations of the Kentucky Consumer Protection Act; (6)
intentional and negligent infliction of emotional distress;
(7) tortious interference with a contract or prospective
business relationship; (8) punitive damages; and (9)
attorney's fees. [DE 1-1]. Wells Fargo promptly filed a
Notice of Removal, observing that this Court had federal
question jurisdiction over the claim for violations of the
Fair Credit Reporting Act and supplemental jurisdiction over
the state law claims. [DE 1]. The parties then filed the
instant Motion to Dismiss and Motion for Partial Summary
Judgment. [DE 9, 12].