Razuki v. Nationstar Mortgage, LLC ( 2020 )

1 UNITED STATES DISTRICT COURT 2 NORTHERN DISTRICT OF CALIFORNIA 3 4 SALAM RAZUKI, et al., Case No. 18-cv-03343-JD 5 Plaintiffs, ORDER RE MOTION TO DISMISS v. 6 Re: Dkt. No. 53 7 NATIONSTAR MORTGAGE, LLC, Defendant. 8 9 10 Plaintiffs Salam Razuki and Kenton Miller filed a First Amended Complaint as a putative 11 class action against defendant Nationstar Mortgage, LLC d/b/a Mr. Cooper (“Nationstar”). Dkt. 12 No. 48. The complaint alleges that Nationstar failed to pay interest as required by California state 13 law on escrow accounts holding property tax and insurance funds for mortgage customers. Id. 14 Nationstar moved to dismiss the complaint under Rule 12(b)(6) on the grounds that it has no legal 15 duty to pay interest. Dkt. No. 53. It also challenges personal jurisdiction under Rule 12(b)(1). Id. 16 The amended complaint is dismissed with leave to amend. 17 BACKGROUND 18 As alleged in the amended complaint, Nationstar is a residential mortgage lender that has 19 financed mortgages on properties in California and other states. Dkt. No. 48 ¶ 24. Some 20 borrowers were required to prepay property taxes and insurances premiums into escrow accounts, 21 which Nationstar used to directly pay those obligations. Id. ¶¶ 2, 24. Plaintiffs allege that 22 California law required Nationstar to pay those borrowers 2% interest on the accounts. Id. ¶ 2. 23 They cite California Civil Code Section 2954.8(a) for that proposition. Id. Nationstar made some 24 interest payments in 2017, but “stated it will not pay interests on escrow funds for 2018, 2019, or 25 any time in the future.” Id. ¶ 14; see also id. ¶¶ 12-15. 26 Named plaintiffs Razuki and Miller are California residents with mortgages from 27 Nationstar on their California residences. Id. ¶¶ 21-22. They did not receive “all interest owed on 1 claims against Nationstar: (1) a violation of the California Unfair Competition Law, Cal. Bus. & 2 Prof. Code § 17200 (“UCL”); (2) breach of contract; and (3) “unjust enrichment/quasi-contract.” 3 Although Razuki and Miller are California residents, they seek to act as representatives for a 4 putative multi-state class that includes Nationstar customers in Connecticut, Iowa, Maine, 5 Maryland, Massachusetts, Minnesota, New Hampshire, New York, Oregon, Rhoda Island, Utah, 6 Vermont, “and/or” Wisconsin. Id. ¶ 25. They also allege a “subclass” consisting only of 7 California residents. Id. ¶ 26. 8 DISCUSSION 9 I. LEGAL STANDARDS 10 The standards governing Nationstar’s 12(b)(6) motion to dismiss are well-established. 11 Rule 8(a)(2) of the Federal Rules of Civil Procedure requires that a complaint must make “a short 12 and plain statement of the claim showing that the pleader is entitled to relief.” To meet that rule 13 and survive a Rule 12(b)(6) motion to dismiss, a plaintiff must allege “enough facts to state a 14 claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 15 “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to 16 draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. 17 Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). Determining whether a 18 complaint states a plausible claim for relief is a “context-specific task that requires the reviewing 19 court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679. 20 The Court treats the plaintiffs’ factual allegations as true and draws all reasonable 21 inferences in plaintiffs’ favor. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). 22 But it will not “accept as true allegations that are merely conclusory, unwarranted deductions of 23 fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 24 2008) (quotation omitted). If the complaint is dismissed, an opportunity to amend will be 25 provided unless the Court determines that no cure is possible by new allegations of fact. Lopez v. 26 Smith, 203 F.3d 1122, 1130-31 (9th Cir. 2000). 27 II. JURISDICTION 1 statement in the amended complaint. Dkt. No. 53-1 at 11. Nationstar does not contend that the 2 Court lacks subject matter jurisdiction over plaintiffs’ claims; it says only that plaintiffs did not 3 satisfy Civil Local Rule 3-5(a), which requires in every complaint a separate “Jurisdiction” 4 paragraph that states the statutory or other basis for federal jurisdiction, “and the facts supporting 5 such jurisdiction.” 6 To a degree, this is an instance of the pot criticizing the kettle in that Nationstar did not 7 include a proper jurisdiction paragraph in its own Counterclaim. See Dkt. No. 43 at 7. Although 8 plaintiffs did not satisfy the letter of the local rule, the amended complaint alleges enough facts to 9 establish jurisdiction under the Class Action Fairness Act, 28 U.S.C. § 1332(d). Diversity of 10 citizenship is adequately alleged. Plaintiffs are citizens of California. Dkt. No. 48 ¶¶ 21-22. 11 Nationstar is a citizen of Delaware and Texas. Id. ¶ 24; see also Dkt. No. 43 (Nationstar’s Answer 12 and Counterclaim) at 7 (“Nationstar is a citizen of Delaware and Texas.”). The aggregate amount 13 in controversy is alleged to exceed the CAFA threshold. See 28 U.S.C. §§ 1332(d)(2) and (6) 14 (claims of individual class members are aggregated to determine whether amount in controversy 15 exceeds $5,000,000 requirement under CAFA); Dkt. No. 48 ¶ 24 (“The amounts withheld in 16 interest are, therefore, substantial, totaling at least $7 million per year in California alone.”). And 17 the amended complaint alleges a putative class numbering “in the hundreds of thousands,” which 18 satisfies the CAFA numerosity requirement. See 28 U.S.C. § 1332(d)(5)(B); Dkt. No. 48 ¶ 29. 19 Nationstar also agrees that the class alleged in the original complaint, which is the California 20 subclass in the amended complaint, “includes more than 100 members.” Dkt. No. 43 at 7. 21 After raising this challenge, Nationstar acknowledged the presence of subject matter 22 jurisdiction in a footnote in its reply brief. Dkt. No. 64 at 10 n.3. Consequently, the case is 23 properly before the Court. 24 Nationstar also objects to plaintiffs’ ability to sue on behalf of customers outside of 25 California. Dkt. No. 53-1 at 13-14. It relies mainly on an argument about specific personal 26 jurisdiction under Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017), and related 27 cases. Id. 1 Razuki and Miller cannot serve as named representatives for individuals outside of California. 2 This is a threshold issue of standing under Article III, which should be decided now and not 3 deferred to Rule 23 proceedings. In re Capacitors Antitrust Litigation, 154 F. Supp. 3d 918, 924 4 (N.D. Cal. 2015). 5 The detailed analysis in In re Capacitors fully applies here. See id. at 923-27. In 6 summary, Article III standing must be measured claim by claim. Id. at 924 (citing 7 DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352 (2006)). When measuring standing claim by 8 claim, a named plaintiff must possess the requisite standing; it is not sufficient that a putative class 9 member may have standing to press one of the claims. Id. at 925 (citing Lewis v. Casey, 518 U.S. 10 343, 357-58 (1996)). Consequently, at least one named plaintiff must have Article III standing to 11 bring a claim under the laws of each state included in the alleged multi-state class. Id. at 926-27; 12 see also Van Mourik v. Big Heart Pet Brands, Inc., No. 17-cv-03889-JD, 2018 WL 1116715, at 13 *1-2 (N.D. Cal. Mar. 1, 2018). 14 This forecloses claims on behalf of a multi-state class at this time. Razuki and Miller are 15 California residents and property owners. There is no allegation that they were injured by 16 Nationstar’s alleged conduct in any state other than California. Plaintiffs do not suggest that 17 California law applies to all putative class members. See Dkt. No. 61 at 14-15. Consequently, the 18 amended complaint does not establish that Razuki or Miller may sue on behalf of Nationstar 19 customers outside California. 20 If plaintiffs amend on this point, they should identify the state laws on which they bring 21 their claims. The amended complaint currently mentions only California law, and the basis of any 22 out-of-state claims is not apparent. 23 III. PLAUSIBILITY OF CLAIMS 24 The sufficiency of the amended complaint, and the individual UCL, breach of contract, and 25 unjust enrichment claims, turns on one question: Did plaintiffs plausibly allege that Nationstar 26 was required to pay at least 2% interest on the escrow accounts? The answer is no. 27 The parties put considerable emphasis on disputing the interpretation of various California 1 legal brief, complete with citations to cases. See, e.g., Dkt. No. 48 ff] 2-7. But there is a more 2 || fundamental issue at stake. The statute on which the amended complaint is based, California Civil 3 Code Section 2954.8, expressly states that the obligation to pay interest does not apply to 4 || “[m]oneys which are required by a state or federal regulatory authority to be placed by a financial 5 || institution other than a bank in a non-interest-bearing demand trust fund account of a bank.” Cal. 6 Civ. Code § 2954.8(d)(2). In other words, interest is due only for accounts outside this exception. 7 The problem with the amended complaint is that it does not allege any facts about the type 8 || of accounts Nationstar used for plaintiffs’ escrow funds. There are no facts to indicate that 9 || plaintiffs’ accounts were of the type for which Nationstar had an obligation to pay interest. The 10 || amended complaint says only that each plaintiff deposited funds into “an escrow account” and that 11 || Nationstar was required to pay interest “if applicable laws so require.” Dkt. No. 48 {J 8, 9. 12 Consequently, as the allegations currently stand, it is just as likely that Nationstar handled 13 the escrow accounts in a manner consistent with Section 2954.8 as in violation of it. Plaintiffs 14 || have not alleged enough facts to tip their claims from the possible and speculative to the plausible. 3 15 That will not do under Rule 8. See Twombly, 550 U.S. at 557, 570. a 16 CONCLUSION 3 17 The amended complaint is dismissed with leave to amend by April 20, 2020, in a manner 18 consistent with this order. New claims or defendants may be added only with express leave of 19 Court. If the current public health situation makes that deadline unrealistic, plaintiffs may request 20 || adifferent date. Failure to meet the deadline will result in a dismissal of the case under Rule 21 A1(b). 22 IT IS SO ORDERED. 23 Dated: March 26, 2020 24 25 JAMES JPONATO 26 United ftates District Judge 27 28