                                        COURT OF CHANCERY
                                                OF THE
                                         STATE OF DELAWARE

TAMIKA R. M ONTGOMERY-REEVES                                         Leonard L. Williams Justice Center
       VICE CHANCELLOR                                                500 N. King Street, Suite 11400
                                                                     Wilmington, Delaware 19801-3734

                               Date Submitted: September 13, 2016
                                Date Decided: November 18, 2016



      Leo John Ramunno, Esquire                       Eric J. Monzo, Esquire
      5149 W. Woodmill Drive, Suite 20                Albert J. Carroll, Esquire
      Wilmington, De 19808                            Morris James LLP
                                                      500 Delaware Avenue, Suite 1500
                                                      Wilmington, DE 19801

             RE:     Charles J. Dalton, Jr. and Melissa Dalton v. Household Finance
                     Corp. II, et al., Civil Action No. 11972-VCMR

      Dear Counsel:

             This Letter Opinion addresses LSF9‟s and Caliber‟s motion to dismiss. For

      the reasons stated below, the motion is granted.

      I.     BACKGROUND1

             On August 24, 2007, Charles Dalton, Jr. and Melissa Dalton (the “Daltons”)

      obtained a loan in the amount of $445,722.273 from Household Finance

      Corporation II (“Household Finance”), which was secured by a mortgage on their

      property.     The Daltons requested a trial period plan that was approved by

      Household Finance on or about January 14, 2015. The trial period plan required

      that the Daltons make three installments of $4,100.79 by April 12, 2015, with a

      1
             All facts are taken from the complaint for the purposes of this motion.
Dalton v. Household Finance Corp. II et al.
C.A. No. 11972-VCMR
November 18, 2016
Page 2 of 9

potential reduction of the principal as a result (“Trial Period Plan Agreement”).

The third payment, made on April 12, 2015, was not processed successfully. The

parties disagree about why this occurred. The Daltons allege that Household

Finance did not attempt a withdrawal from their bank account even though the

Daltons never cancelled the payment. Household Finance wrote a letter to the

Daltons on November 15, 2015, stating the amount was originally posted to their

account on April 13, 2015, but was returned on April 24, 2015, for insufficient

funds. That letter listed the wrong account number.

      In or around November 2015, the Daltons‟ loan was sold to LSF9 Master

Participation Trust (“LSF9”), and on or around December 7, 2015, the servicing of

the Daltons‟ loan was transferred to Caliber Home Loans, Inc. (“Caliber”). On

February 9, 2016, the Daltons filed this action. On April 15, 2016, LSF9 and

Caliber filed their motion to dismiss. LSF9 and Caliber seek dismissal of the

action for the following reasons: (1) they were not parties to the original purported

agreement between the Daltons and Household Finance; (2) they were not parties

to the consent orders between Household Finance and the United States

Department of the Treasury; (3) the Daltons fail to state a claim for unjust

enrichment; and (4) the Daltons do not show a reasonable probability of success on

the merits in order for the court to issue an injunction. The Daltons filed their
Dalton v. Household Finance Corp. II et al.
C.A. No. 11972-VCMR
November 18, 2016
Page 3 of 9

opposition on June 24, 2016. On September 13, 2016, I heard oral argument on the

motion.

II.    ANALYSIS

       In order to obtain a motion to dismiss, the defendant must prove “the

plaintiff could not recover under any reasonably conceivable set of circumstances

susceptible of proof.”2 This “reasonable conceivability” standard asks whether

there is a “possibility” of recovery.3 “A judge may consider documents outside of

the pleadings only when: (1) the document is integral to a plaintiff‟s claim and

incorporated in the complaint or (2) the document is not being relied upon to prove

the truth of its contents.”4

       A.     LSF9 and Caliber Are Not Parties Nor Successors in Interest to
              the Trial Period Plan Agreement
       The Daltons assert claims against LSF9 and Caliber for alleged breaches of

contract and breaches of the duty of good faith and fair dealing. The Daltons argue

that LSF9 and Caliber should have successor liability for any breach of the Trial

Period Plan Agreement because they were aware of the issue. Specifically, the


2
       Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536
       (Del. 2011) (footnote omitted).
3
       Id. at 537 & n.13.
4
       Allen v. Encore Energy P’rs, 72 A.3d 93, 96 n.2 (Del. 2013).
Dalton v. Household Finance Corp. II et al.
C.A. No. 11972-VCMR
November 18, 2016
Page 4 of 9

Daltons argue that LSF9 and Caliber were on notice of the loan modification

because Household Finance was communicating with the Daltons after LSF9

became the owner of the loan and shortly before Caliber became the servicer. The

Daltons further argue that LSF9 and Caliber breached the implied covenant of

good faith and fair dealing because their conduct “destroy[ed] or injure[d] the right

of another party to receive the benefits of the contract.”5 The Daltons argue that

the “trial period would have been over with after the third payment and the loan

modification would have occurred . [sic] Such a misrepresentation does impair the

rights of the Daltons to receive the benefits conferred under the Mortgage.”6 The

Daltons finally argue that LSF9‟s and Caliber‟s behavior is arbitrary and

unreasonable because they knew or should have known that an issue existed with

the mortgage. LSF9 and Caliber answer by stating that LSF9 and Caliber are not

parties to the agreement and did not become the owner or servicer until seven

months after the purported breach took place and eleven months after the Trial

Period Plan Agreement was entered into by Household Finance and the Daltons.



5
      Cent. Mortg. Co., 27 A.3d at 539 (quoting Chase Manhattan Bank, N.A. v.
      Keystone Distribs. Inc., 873 F. Supp. 808, 815 (S.D.N.Y. 1994) (applying New
      York law)).
6
      Pls.‟ Answering Br. 7.
Dalton v. Household Finance Corp. II et al.
C.A. No. 11972-VCMR
November 18, 2016
Page 5 of 9

      The Daltons‟ breach of contract claims fail. First, LSF9 and Caliber were

not parties to the Trial Period Plan Agreement, which did not modify the loan

document itself.7 Second, LSF9 and Caliber are not successors in interest. In

order to be a “„successor in interest,‟ a party must continue to retain the same

rights as [the] original owner without [a] change in ownership and there must be

change in form only and not in substance.” 8 “[A] transferee is not a „successor in

interest.‟”9 LSF9 and Caliber purchased their rights to the mortgage; there was a

“change in ownership”; and, they are not liable for the purported breach of contract

that occurred before they purchased the mortgage. To the extent that the Daltons

allege some breach of the covenant of good faith and fair dealing in relation to the

mortgage itself, the Daltons‟ statements are conclusory and have not specifically

alleged how LSF9 and Caliber impaired their rights to receive benefits under the

mortgage agreement. Therefore, Counts III and V are dismissed.




7
      Id. at 6.
8
      Patterson-Woods & Assocs., LLC v. Realty Enters., LLC, 2008 WL 2231511, at
      *14 (Del. Super. May 21, 2008) (quoting BLACK‟S LAW DICTIONARY 1431-32
      (6th ed. 1990)); see also Vituli v. Carrols Corp., 2015 WL 5157215, at *10 (Del.
      Super. May 1, 2015).
9
      Id.
Dalton v. Household Finance Corp. II et al.
C.A. No. 11972-VCMR
November 18, 2016
Page 6 of 9

      B.     LSF9 and Caliber Are Not Parties to the Consent Order
      The Daltons allege LSF9 and Caliber violated the consent orders that HSBC

Bank USA, N.A., McLean Virginia entered with the U.S. Department of Treasury,

Office of the Comptroller of the Currency, on or about June 16, 2015.10 The

Daltons assert that a mortgage company cannot avoid the consent order by selling

its interest, and LSF9 and Caliber took ownership of the note and mortgage subject

to the consent order. The Daltons do not adequately allege a violation of the

consent order. Moreover, the Daltons do not coherently articulate how LSF9 and

Caliber are signatories or successors in interest to the consent orders, or how they

are otherwise bound by the consent orders as “affiliates” of HSBC Bank USA,

N.A. Therefore, Count II is dismissed.

      C.     The Daltons Fail to State a Claim for Unjust Enrichment
      The Daltons assert that LSF9 and Caliber were unjustly enriched because

two payments under the Trial Period Plan Agreement were retained, but the

principal amount was not reduced. To state a claim for unjust enrichment, the

Daltons must prove “(1) an enrichment, (2) an impoverishment, (3) a relation




10
      Compl. ¶ 23 (citing consent orders of Comptroller of the Currency in Civil Action
      Number AA-EC-11-14 and 2013-130); Transmittal Aff. oF Albert J. Carroll Exs.
      C, D.
Dalton v. Household Finance Corp. II et al.
C.A. No. 11972-VCMR
November 18, 2016
Page 7 of 9

between the enrichment and impoverishment, (4) the absence of justification, and

(5) the absence of a remedy provided by law.”11

      The Daltons fail to allege an enrichment of LSF9 and Caliber because they

do not allege that the two payments were not applied to their account. Under the

Trial Period Plan Agreement, the reduction in principal would not have occurred

until after the three payments were made. At any time before that, the original

mortgage agreement governed, and the Daltons do not allege that LSF9 and

Caliber did not comply with that agreement. Additionally, the Daltons do not

attempt to demonstrate why they do not have an adequate remedy at law by suing

Household Finance for damages of the alleged $93,143.40 in principal reduction.

The Daltons do not assert any “reasonably conceivable”12 set of facts to show a

possibility of recovery under a claim for unjust enrichment from LSF9 and Caliber,

and thus, Count IV is dismissed.

      D.     The Daltons Fail to Allege a Reasonable Probability of Success on
             the Merits or Imminent Threat of Irreparable Injury
      The Daltons request that the Court issue a preliminary and permanent

injunction “enjoining LSF9 and Caliber from terminating the Plaintiff‟s [sic] loan

11
      Nemec v. Shrader, 991 A.2d 1120, 1130 (Del. 2010).
12
      Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531,
      536-37 (Del. 2011) (footnote omitted).
Dalton v. Household Finance Corp. II et al.
C.A. No. 11972-VCMR
November 18, 2016
Page 8 of 9

modification entered on January 14, 2015.”13 In order to obtain a preliminary

injunction, the Daltons must “demonstrate (1) a reasonable probability of success

on the merits at a final hearing; (2) an imminent threat of irreparable injury; and (3)

a balance of the equities that tips in favor of issuance of the requested relief.”14

Similarly, in order to obtain a permanent injunction, the Daltons must demonstrate

“(1) a reasonable probability of success on the merits; (2) that they will suffer

irreparable injury without an injunction; and (3) that their harm without an

injunction outweighs the harm to defendants that will result from the injunction.”15

      Because an injunction rests on the ability of the Daltons to bring claims

against LSF9 and Caliber, and the other claims are dismissed, the Daltons cannot

show a reasonable probability of success on the merits. Furthermore, the Daltons

have failed to show an “imminent threat of irreparable injury.” The Daltons

concede that no foreclosure action by LSF9 and Caliber has been commenced or

threatened; therefore, there currently is no threat to the Daltons‟ property, and the



13
      Compl. ¶ 21.
14
      Concord Steel, Inc. v. Wilmington Steel Processing Co., 2008 WL 902406, at *3
      (Del. Ch. Apr. 3, 2008); Nutzz.com, LLC v. Vertrue, Inc., 2005 WL 1653974, at *6
      (Del. Ch. July 6, 2005) (internal citations omitted).
15
      C&J Energy Servs., Inc. v. City of Miami Gen. Empl.’s & Sanitation Ret. Tr., 107
      A.3d 1049, 1066 (Del. 2014).
Dalton v. Household Finance Corp. II et al.
C.A. No. 11972-VCMR
November 18, 2016
Page 9 of 9

claim is unripe for judicial review.16 If this perceived threat ever materializes, to

the extent LSF9 and Caliber institute a legal action in the Delaware Superior Court,

an entire process exists for the Daltons to protect themselves against that action for

all the reasons they have given this Court.17

III.   CONCLUSION

       For the foregoing reasons, the motion to dismiss is GRANTED as to all

claims against LSF9 and Caliber.

       IT IS SO ORDERED.

                                                Sincerely,

                                                /s/Tamika Montgomery-Reeves

                                                Vice Chancellor

TMR/jp




16
       Oral Arg. Tr. 9.
17
       10 Del. C. §§ 5061-5067.
