                        NOT RECOMMENDED FOR PUBLICATION
                               File Name: 16a0057n.06

                                          No. 15-1047


                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT
                                                                                     FILED
HUSSEIN JAWAD; LILA JAWAD; JEAN                         )                      Jan 29, 2016
SAFIEDINE                                               )                  DEBORAH S. HUNT, Clerk
                                                        )
       Plaintiffs - Appellants                          )
                                                        )
                                                               ON APPEAL FROM THE
v.                                                      )
                                                               UNITED STATES DISTRICT
                                                        )
                                                               COURT FOR THE EASTERN
HUDSON CITY SAVINGS BANK; BANK OF                       )
                                                               DISTRICT OF MICHIGAN
AMERICA, N.A.                                           )
                                                        )
       Defendants - Appellees                           )




BEFORE:       BATCHELDER, MOORE, and ROGERS, Circuit Judges.

       ROGERS, Circuit Judge. Plaintiffs entered into a mortgage serviced by Bank of America

and ultimately assigned to Hudson City Savings Bank. Plaintiffs sought a loan modification, but

Bank of America failed to facilitate the submission and processing of the application. Plaintiffs

stopped making payments on the mortgage, and in response, the two banks accelerated the debt

and foreclosed on the property. The banks accelerated the debt without providing the notice

required by the mortgage contract. Plaintiffs sued and alleged, among other claims, negligence

against Bank of America and breach of contract against both banks. The district court dismissed

both claims, ruling that Bank of America had no tort duty to plaintiffs and was not the cause of

their damages, and that plaintiffs were barred from claiming breach of contract because they
No. 15-1047, Jawad et al. v. Hudson City Savings Bank et al.


breached first by failing to pay. The negligence claim was properly dismissed for want of duty,

but the contract claim was improperly dismissed on prior breach grounds.

        In 2003, plaintiffs executed a mortgage and note worth $649,000 on a property in

Bloomfield Hill, Michigan.1 The mortgage was serviced by defendant Bank of America and

ultimately assigned to defendant Hudson City Savings Bank.

        Beginning in 2012, plaintiffs sought a loan modification from Hudson City and Bank of

America. They failed to make an unspecified number of mortgage payments beginning in

January 2013, all while continuing to seek a loan modification.                     Plaintiffs qualified for a

modification that would have a six-month forbearance period, followed by an eighteen-month

period to bring the loan current. Even though plaintiffs complied with all requests from Bank of

America for information related to the loan modification application, Bank of America failed to

respond to plaintiffs’ inquiries, misinformed or failed to inform them regarding loan

modification programs, and repeatedly demanded documents that plaintiffs had already

submitted.

        Hudson City and Bank of America sent only two notices to plaintiffs indicating the

banks’ intent to foreclose. On April 29, 2014, the banks sent a letter to plaintiffs informing them

that they had thirty days to dispute the validity of the outstanding debt or otherwise foreclosure

proceedings would begin. On June 24, 2014, they sent a letter informing plaintiffs that the

mortgage was being foreclosed on and that a property sale was scheduled for July 29, 2014.

These were the only notices plaintiffs received regarding the acceleration of the loan and

foreclosure of the mortgage. The property was sold on July 29. The redemption period ended on

January 29, 2015.


1
 These are the allegations made in the complaint. For purposes of a 12(b)(6) motion to dismiss, all allegations are
accepted as true. See Keys v. Humana, Inc., 684 F.3d 605, 608 (6th Cir. 2012).

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No. 15-1047, Jawad et al. v. Hudson City Savings Bank et al.


       Plaintiffs sued both Hudson City and Bank of America in Michigan state court for breach

of contract, and for a violation of the Michigan Consumer Protection Act, Mich Comp. Laws

§ 445.901. Plaintiffs brought two additional claims against Bank of America only: negligence

and violation of an April 4, 2012 consent judgment between the United States, 49 states, the

District of Columbia, and various large mortgage servicers including Bank of America. Bank of

America removed to the Eastern District of Michigan based on diversity jurisdiction.

       The banks filed a motion to dismiss for failure to state a claim. Plaintiffs voluntarily

dismissed the Michigan Consumer Protection Act claim and the consent judgment claim.

Plaintiffs also filed a motion for preliminary injunction to stay the redemption period. The

district court dismissed all remaining claims (negligence against Bank of America and breach of

contract against both defendants) and denied the preliminary injunction.

       Regarding the negligence claim, the district court determined that plaintiffs had failed to

allege duty and causation. Plaintiffs alleged that Bank of America had a duty to deal fairly and

honestly with them, inform them of available loan modification programs, handle their loan

modification applications properly, and provide basic information regarding their loan. Plaintiffs

pointed to the consent judgment between Bank of America and various governments as the

source of the duty. The district court rejected this argument, because plaintiffs as non-parties

could not enforce the consent judgment. The court also rejected other possible sources of a duty,

such as an implied covenant of good faith and fair dealing or a fiduciary relationship between a

mortgagor and a mortgagee, because these were not recognized by Michigan law. The district

court also determined that, because Hudson City was not obligated to modify plaintiffs’ loan

even if they qualified, plaintiffs failed to establish that they would have been approved for the

loan modification but for Bank of America’s alleged negligence.



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No. 15-1047, Jawad et al. v. Hudson City Savings Bank et al.


       Regarding the breach of contract claim, the district court determined that plaintiffs were

barred from alleging breach of contract because they breached it first by failing to pay. Citing a

Michigan state law rule that the first party to substantially breach a contract cannot recover

against the other party for a subsequent breach, the district court determined that plaintiffs’

failure to make an unspecified number of mortgage payments was a substantial breach that

barred their claim.

       The court also rejected as moot plaintiffs’ motion for a preliminary injunction and

rejected as futile plaintiffs’ request for leave to amend the complaint.

       Plaintiffs appeal, arguing that Bank of America voluntarily assumed a tort duty by

entering into the consent judgment, that Bank of America’s negligent handling of their loan

modification application was the but-for cause of their failure to receive a modification, and that

plaintiffs’ failure to make mortgage payments did not bar their contract claim.

       Plaintiffs’ negligence claim fails for lack of duty. Plaintiffs argue that Bank of America’s

duty arises from a consent judgment, but the law is clear that “a consent decree is not enforceable

directly or in collateral proceedings by those who are not parties to it even though they were

intended to be benefited by it.” Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 750

(1975); see also Aiken v. City of Memphis, 37 F.3d 1155, 1167 (6th Cir. 1994); Vogel v. City of

Cincinnati, 959 F.2d 594, 598 (6th Cir. 1992). Plaintiffs do not allege they were parties to the

consent judgment. Although this point was the reason behind the district court’s ruling, plaintiffs

do not address it in their appellate briefing. They argue that Bank of America voluntarily

assumed a duty, but they do not point to anything other than the consent judgment as evidence of

this voluntary assumption of duty. Accordingly, their negligence claim fails.




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No. 15-1047, Jawad et al. v. Hudson City Savings Bank et al.


       However, the reasons given by the district court do not warrant dismissal of plaintiffs’

contract claim. The fact that plaintiffs were behind on their mortgage payments does not bar

them from enforcing the notice provisions of the contract. The contract states that “Lender shall

give notice to Borrower prior to acceleration following Borrower’s breach of any covenant or

agreement in this Security Instrument.” Plaintiffs admit that they fell behind in their mortgage

payments but allege that the banks failed to give the required notice prior to acceleration.

By failing to give the required notice, the banks breached the contract.

       It is true that under Michigan law a party “who commits the first substantial breach of a

contract cannot maintain an action against the other contracting party for failure to perform,”

Ehlinger v. Bodi Lake Lumber Co., 36 N.W.2d 311, 316 (Mich. 1949) (quoting Jones v. Berkey,

148 N.W. 375, 378 (Mich. 1914)), but plaintiffs’ falling behind on their mortgage payments was

not a substantial breach. In the notice provision, the parties expressly contemplated breach by

plaintiffs and agreed that, if plaintiffs breached the contract, the banks would provide notice prior

to acceleration. A “substantial breach” is one “where the breach has effected such a change in

essential operative elements of the contract that further performance by the other party is thereby

rendered ineffective or impossible, such as the causing of a complete failure of consideration or

the prevention of further performance by the other party.” McCarty v. Mercury Metalcraft Co.,

127 N.W.2d 340, 343 (1964). Considered in the context of the contested provisions, plaintiffs’

missed payments did not render notice of acceleration ineffective or impossible. Indeed, notice

was required only if plaintiffs failed to pay. A breach contemplated by the language of the

contract is unlikely to render performance impossible, especially when the contract provides for

a contingency in the event of that breach.        Additionally, as noted by plaintiffs, if notice




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No. 15-1047, Jawad et al. v. Hudson City Savings Bank et al.


provisions cannot ever be enforced because of the first-breach rule, then a common contractual

provision could never be enforced.2

        The district court’s judgment is therefore affirmed in part and reversed in part, and this

case is remanded to the district court. We do not address any other possible defenses to the

contract action.




2
  Moreover, under Michigan law, “an unambiguous contractual provision is reflective of the parties’ intent,” and
“will be enforced unless it is contrary to public policy.” Quality Prods. & Concepts Co. v. Nagel Precision, Inc.,
666 N.W.2d 251, 259 (Mich. 2003). Here, the plain, unambiguous language of the contract demonstrates that the
parties intended to provide for notice in the event of a breach. Michigan courts “read contracts as a whole, giving
harmonious effect, if possible, to each word and phrase.” Wilkie v. Auto-Owners Ins. Co., 664 N.W.2d 776, 781
n.11 (Mich. 2003). Here the plaintiffs’ breach does not bar them from enforcing the unambiguous notice provision
provided for in the contract.

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