Torliatt v. Ocwen Loan Servicing, LLC ( 2020 )

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 LAWRENCE TORLIATT, Case No. 19-cv-04303-WHO 8 Plaintiff, ORDER REGARDING DEFENDANT'S 9 v. MOTION TO DISMISS 10 OCWEN LOAN SERVICING, LLC, Re: Dkt. No. 36 Defendant. 11 12 Plaintiff Lawrence Torliatt brings this putative class action against defendants Ocwen Loan 13 Servicing, LLC (“Ocwen”) and PHH Mortgage Corp. (collectively, “PHH”), alleging that they 14 violated the Fair Debt Collection Practices Act (“FDCPA”) and the Rosenthal Fair Debt 15 Collection Practices Act (“Rosenthal Act”) by charging “Pay to Pay” convenience fees for paying 16 his mortgage payments online or over the phone. Torliatt has adequately alleged that PHH 17 violated Section 1692f(1) of the FDCPA, but not that PHH is a debt collector under the definition 18 in the statute. However, he has alleged that PHH is a debt collector under the Rosenthal Act, 19 which is broader than the FDCPA. Accordingly, PHH’s motions to dismiss is GRANTED as to 20 Torliatt’s FDCPA claim, and DENIED with respect to his Rosenthal Act claim. Because Torliatt 21 has adequately stated a violation of the Rosenthal Act, PHH’s motion to dismiss his claims for 22 violation of California’s unfair competition law is DENIED. PHH’s motion to dismiss the breach 23 of contract claim is GRANTED. 24 BACKGROUND 25 Torliatt purchased a home on or around December 15, 2005. Dkt. No. 34, Amended 26 Complaint (“Compl.”) ¶ 28. His mortgage was serviced by Fannie Mae and sub-serviced by 27 Ocwen. Id. ¶ 29. Effective June 2019, Torliatt’s mortgage was transferred to PHH for servicing. 1 payment online. Id. ¶¶ 32, 39. This “convenience fee” or “Pay to Pay” fee is processed by 2 Western Union, and costs Ocwen and PHH $.20 to $.40 per transaction. Id. ¶ 40. Torliatt 3 contends that this fee breaches his Deed of Trust, the FDCPA, the Rosenthal Act, and California’s 4 unfair competition law (“UCL”). Id. ¶¶ 43-44, 79. 5 Torliatt filed this lawsuit against Ocwen on July 26, 2019. Dkt. No. 1. He filed another 6 action against PHH on July 30, 2019, which I consolidated with this action on September 11, 7 2019. Dkt. No. 16. Both defendants moved to dismiss on March 6, 2020. Torliatt filed an 8 opposition on March 27, and defendants filed a reply on April 8. Dkt. Nos. 43, 48. 9 LEGAL STANDARD 10 Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint 11 if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to 12 dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its 13 face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when 14 the plaintiff pleads facts that “allow[] the court to draw the reasonable inference that the defendant 15 is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). There must be 16 “more than a sheer possibility that a defendant has acted unlawfully.” Id. While courts do not 17 require “heightened fact pleading of specifics,” a plaintiff must allege facts sufficient to “raise a 18 right to relief above the speculative level.” Twombly, 550 U.S. at 555, 570. 19 In deciding whether the plaintiff has stated a claim upon which relief can be granted, the 20 Court accepts the plaintiff’s allegations as true and draws all reasonable inferences in favor of the 21 plaintiff. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court is 22 not required to 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) (citation omitted). If the court dismisses the complaint, it “should grant leave to amend 25 even if no request to amend the pleading was made, unless it determines that the pleading could 26 not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th 27 Cir. 2000) (citation omitted). In making this determination, the court should consider factors such 1 deficiencies by previous amendments, undue prejudice to the opposing party and futility of the 2 proposed amendment.” Moore v. Kayport Package Express, 885 F.2d 531, 538 (9th Cir. 1989). 3 DISCUSSION 4 I. FDCPA CLAIM 5 The FDCPA provides that “[a] debt collector may not use unfair or unconscionable means 6 to collect or attempt to collect any debt.” 15 U.S.C.A. § 1692f. Section 1692f(1) specifically 7 prohibits “[t]he collection of any amount (including any interest, fee, charge, or expense incidental 8 to the principal obligation) unless such amount is expressly authorized by the agreement creating 9 the debt or permitted by law.” Id. Courts are required to liberally interpret the FDCPA in 10 accordance with its remedial nature. Clark v. Capital Credit & Collection Servs., Inc., 460 F.3d 11 1162, 1176 (9th Cir. 2006). 12 The FDCPA defines “debt” as “any obligation or alleged obligation of a consumer to pay 13 money arising out of a transaction in which the money, property, insurance, or services which are 14 the subject of the transaction are primarily for personal, family, or household purposes, whether or 15 not such obligation has been reduced to judgment.” 15 U.S.C.A. § 1692a(5). The FDCPA defines 16 “debt collector” as “any person who uses any instrumentality of interstate commerce or the mails 17 in any business the principal purpose of which is the collection of any debts, or who regularly 18 collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or 19 due another.” 15 U.S.C.A. § 1692a(6). Excluded from the term “debt collector” is “any person 20 collecting or attempting to collect any debt owed or due or asserted to be owed or due another to 21 the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow 22 arrangement; (ii) concerns a debt which was originated by such person; (iii) concerns a debt which 23 was not in default at the time it was obtained by such person; or (iv) concerns a debt obtained by 24 such person as a secured party in a commercial credit transaction involving the creditor.” Id. 25 A. Whether assessment of convenience fees violates the FDCPA 26 PHH asserts that the FDCPA does not prohibit its Pay to Pay fees because they were 27 optional and because payment of the fee constituted a separate agreement that is permissible 1 under the FDCPA, nor was it incidental to the debt. Id. at 10. 2 PHH’s arguments have been rejected by the majority of courts in this circuit that have 3 addressed this question. Courts have noted that “[w]hile the Ninth Circuit has yet to determine 4 whether an optional convenience fee is permissible under the FDCPA, the majority of district 5 courts in the Ninth Circuit have held that similar fees violate the FDCPA.” Simmet v. Collection 6 Consultants of California, No. CV1602273BROPLAX, 2016 WL 11002359, at *5 (C.D. Cal. July 7 7, 2016) (collecting cases and rejecting arguments that convenience fee does not FDCPA because 8 it was optional, constituted a separate agreement, and was not incidental to the debt). While one 9 case in this circuit has found otherwise, see Flores v. Collection Consultants of California, No. 10 SACV140771DOCRNBX, 2015 WL 4254032, at *10 (C.D. Cal. Mar. 20, 2015), most courts have 11 rejected this reasoning and found that similar convenience fees violate the FDCPA, at least as a 12 matter of pleading. See Simmet, 2016 WL 11002359, at *5; Lindblom v. Santander Consumer 13 USA, Inc., No. 1:15-CV-990-LJO-BAM, 2016 WL 2841495, at *6 (E.D. Cal. May 9, 2016); 14 Wittman v. CB1, Inc., No. CV15105BLGSPWCSO, 2016 WL 1411348, at *5 (D. Mont. Apr. 8, 15 2016), report and recommendation adopted, No. CV 15-105-BLG-BMM, 2016 WL 3093427 (D. 16 Mont. June 1, 2016). I will follow the majority of cases in this circuit that have held that 17 convenience fees may violate the FDCPA. 18 PHH also argues that the convenience fees are permitted by both federal and state law 19 because they are not prohibited by any law. Dkt. No. 36 at 13-14. It points to the FTC’s 20 commentary to Section 1692f, which states that “[a] debt collector may establish an ‘agreement’ 21 without a written contract. For example, he may collect a service charge on a dishonored check 22 based on a posted sign on the merchant’s premises allowing such a charge, if he can demonstrate 23 that the consumer knew of the charge.” Statements of General Policy or Interpretation Staff 24 Commentary On the Fair Debt Collection Practices Act, 53 FR 50097-02. But as discussed above, 25 courts in this circuit have rejected this argument and found that, as a matter of pleading, such 26 claims are sufficient to survive a motion to dismiss. 27 More to the point, the FTC commentary cited by PHH provides that “[a] debt collector 1 charge is otherwise expressly permitted by state law.” Id. (emphasis added). Courts have found 2 that, in the context of Section 1692f(1), a defendant must point to a provision of state law that 3 permits such fees. See Lindblom, 2016 WL 2841495, at *6-7; Lindblom v. Santander Consumer 4 USA Inc., No. 1:15-CV-0990-BAM, 2018 WL 500347, at *5-6 (E.D. Cal. Jan. 22, 2018); 5 McWhorter v. Ocwen Loan Servicing, LLC, No. 2:15-CV-01831-MHH, 2017 WL 3315375, at *7 6 (N.D. Ala. Aug. 3, 2017). PHH has not done so, nor does it argue that the loan contract expressly 7 permits the fees. Accordingly, Torliatt has adequately alleged a violation of Section 1692f(1). 8 B. Whether PHH is a debt collector 9 PHH contends that Torliatt’s FDCPA claim fails for the additional reason that it is not a 10 debt collector under the definition set forth in the statute. I agree. 11 The Complaint alleges that PHH is a debt collector because it regularly attempts to collect 12 and does collect amounts owed or asserted to be owed or due another, and that the defendants 13 “service mortgages throughout the United States.” Compl. ¶¶ 3, 71. However, Torliatt’s claims 14 fail to state that PHH (or Ocwen) is a debt collector under the FDCPA because courts in this 15 circuit widely consider mortgage servicers to be creditors and not “debt collectors” under Section 16 1692a(6)(F)(iii). Mohanna v. Carrington Mortg. Servs. LLC, No. 18-CV-02563-WHO, 2018 WL 17 3730419, at *5 (N.D. Cal. Aug. 6, 2018) (“trustees . . . and mortgage servicers . . . do not generally 18 engage in debt collection covered by the FDCPA when they take steps to enforce a security 19 interest, including demands to make a loan current to avoid foreclosure.”); Jara v. Aurora Loan 20 Servs., 852 F. Supp. 2d 1204, 1211 (N.D. Cal. 2012), aff'd sub nom. Jara v. Aurora Loan Servs., 21 LLC, 633 F. App’x 651 (9th Cir. 2016) (“The legislative history of section 1692a(6) indicates 22 conclusively that a debt collector does not include the consumer’s creditors, a mortgage servicing 23 company, or an assignee of a debt, as long as the debt was not in default at the time it was 24 assigned.”) (citations omitted); Distor v. U.S. Bank NA, No. C 09-02086 SI, 2009 WL 3429700, at 25 *5 (N.D. Cal. Oct. 22, 2009) (disagreed with on other grounds) (originator of loan that is 26 attempting to collect its own debt is not debt collector, nor is loan servicer); Villegas v. Wells 27 Fargo Bank, N.A., No. 18-CV-00813-PJH, 2018 WL 2387856, at *3 (N.D. Cal. May 25, 2018) 1 the FDCPA if they either originated the loan or began servicing the loan before it went into 2 default.”). 3 In addition, I am not persuaded that Torliatt properly alleged that PHH “regularly collects 4 or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due 5 another.” See Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718, 1724 (2017) (“under the 6 definition at issue before us you have to attempt to collect debts owed another before you can ever 7 qualify as a debt collector”); Villegas, 2018 WL 2387856, at *5 (“even if Wells Fargo does not fall 8 within one of the safe harbors because it acquired the debt after default, plaintiff still must allege it 9 is a debt collector under one of the statute’s affirmative definitions of the term.”). The Complaint 10 does not allege that the loans are owed to another entity other than PHH or Ocwen, and states only 11 that Owen acquired PHH and transferred servicing its loan portfolio to PHH. Compl. ¶ 4. 12 Moreover, the allegation that PHH is a debt collector is merely a recitation of the FDCPA 13 definition of debt collector. Id. ¶ 71. This is not sufficient to establish that Torliatt’s debt is owed 14 to “another” within the FDCPA. 15 But even if Torliatt properly alleged that PHH regularly collects debts owed to another, he 16 has not adequately demonstrated that PHH and/or Ocwen would not fall within the “safe harbor” 17 exception of the statute, which excludes those that collect debts owed another that are not in 18 default pursuant to Section 1692a(6)(F)(iii). Torliatt argues that at the time Ocwen transferred the 19 mortgage to PHH, he was in default. Compl. ¶¶ 34-35, 71; Dkt. No. 43 at 7-8. That may well be 20 immaterial: some recent authority indicates that mortgage servicers cannot qualify as debt 21 collectors under the FDCPA regardless of when the debt went into default. Curten v. Quality 22 Loan Serv. Corp., No. CV1407934MMMPJWX, 2015 WL 12696215, at *5 (C.D. Cal. Mar. 16, 23 2015) (“Neither mortgage servicers nor trustees under a deed of trust are debt collectors under the 24 FDCPA, even where – as Curten alleges – they took an assignment of the debt after it was in 25 default”); Ditech Fin., LLC v. Starfire Condo. Owners’ Ass’n, No. 216CV02758JADCWH, 2018 26 WL 4409370, at *3 (D. Nev. Sept. 17, 2018); Patterson v. Select Portfolio Servicing, No. 27 17CV01049PSGPLA, 2017 WL 10591753, at *2 (C.D. Cal. Nov. 13, 2017); but see Babadjanian 1 Nov. 12, 2010) (“If a lender or loan servicer acquires an interest in a debt after it is in default, 2 however, it is considered a “debt collector” under the statute”). 3 Even if I ignored that authority, this cause of action fails for a separate reason: the 4 Complaint and the documents that it cites do not support Torliatt’s assertion that he was in default 5 when PHH began servicing the loan. On this issue, both parties point to the notice sent to Torliatt 6 on April 16, 2019, which stated that PHH was the new servicer and provided the amounts of 7 unpaid balance. Dkt. No. 24-1 at 27-39; Dkt. No. 36 at 18-19.1 This letter did not state that 8 Torliatt was in default. Id. 9 Torliatt asserts that because amounts were owing, including amounts for late fees and other 10 charges, he was in default. Dkt. No. 43 at 14. He cites no case law for this position. Having 11 amounts owing on a balance does not amount to being in default. See Amelina v. Manufacturers 12 & Traders Tr. Co., No. 14CV1906 WQH (NLS), 2015 WL 7272224, at *7 (S.D. Cal. Nov. 17, 13 2015) (“Courts have held that ‘a debt that is merely outstanding’ is not a ‘debt that is in 14 default.’”). “Because the FDCPA does not define “default,” district courts employ the definition 15 set forth in the parties’ contract, at least where the contractual definition is unambiguous, to 16 determine whether the debt at issue was in default when assigned.” Moen v. Merrick Bank Corp., 17 No. C 07-0574 MMC, 2007 WL 1381411, at *1 (N.D. Cal. May 7, 2007). The Deed of Trust 18 similarly does not define “default,” but it does require the lender to provide formal notice of 19 default, as well as the action required to cure it and the borrower’s rights. Dkt. No. 24-1 at 23. 20 Torliatt has not alleged that he ever received such a notice or otherwise was considered in default 21 as defined by the terms of the note. Accordingly, he has not established that PHH would fall 22 within the exception to the term debt collector. See Jara, 852 F. Supp. 2d at 1211 (mortgagee did 23 not default on loan until he received notice of default). 24 To plead that PHH is a debt collector under the FDCPA, Torliatt must allege both that it 25 satisfies the affirmative definition of “debt collector” and that it does not fall within the exclusion 26 or safe harbor of Section 1692a(5)(F)(iii). Because he has done neither, his FDCPA claim fails. 27 II. ROSENTHAL ACT AND UCL CLAIMS 1 The Rosenthal Act’s definition of “debt collector” is broader than that of the FDCPA, and 2 courts have found that mortgage servicers are debt collectors that undertake debt collection under 3 this statute. O’Connor v. Wells Fargo, N.A., No. C-14-00211 DMR, 2014 WL 4802994, at *7 4 (N.D. Cal. Sept. 26, 2014) (“a mortgage servicer may be a ‘debt collector’ under the Rosenthal 5 Act even if it is the original lender, whereas, such an entity would be excluded from the definition 6 of debt collector under the federal act.”); Sudhir v. PHH Mortg. Corp., No. C 16-06088 WHA, 7 2017 WL 219681, at *2 (N.D. Cal. Jan. 19, 2017) (PHH and other mortgage servicing companies 8 may be a debt collector under the Rosenthal Act, even if not under the FDCPA); Sanders v. 9 LoanCare LLC, No. 18-CV-09376, 2019 WL 441964, at *4 (C.D. Cal. Feb. 1, 2019) (“a mortgage 10 servicer who engages in ‘the act or practice of collecting money, property or their equivalent’ in 11 an attempt to obtain repayment of mortgage debt may be considered a “debt collector” under the 12 Rosenthal Act.”); Patera v. Citibank, N.A., 79 F. Supp. 3d 1074, 1090 (N.D. Cal. 2015). 13 Similarly, a mortgage is a “consumer debt” and the mortgagee is a debtor. Castillo v. Nationstar 14 Mortg. LLC, No. 15-CV-01743-BLF, 2016 WL 6873526, at *5 (N.D. Cal. Nov. 22, 2016) (“A 15 mortgage on a single family home, which is at issue in this case, is a consumer debt, and the 16 Castillos are debtors on that mortgage”).2 Torliatt’s allegations that PHH was a debt collector 17 under the Rosenthal Act, while thin, suffice to state a claim under the Rosenthal Act. 18 In addition, courts have found that adequately-alleged violations of Section 1692f(1) are 19 sufficient to plead violations of the Rosenthal Act. Simmet, 2016 WL 11002359, at *7; Lindblom, 20 2016 WL 2841495, at *7. Indeed, many courts have found that the convenience fees as alleged 21 here adequately state causes of action under the Rosenthal Act where they state claims under the 22 FDCPA. Id. Those cases are on point because while PHH is not a debt collector for purposes of 23 the FDCPA claim, it is one under the Rosenthal Act. 24 As PHH admits, Torliatt’s UCL claims rise and fall with his Rosenthal Act claim. Dkt. 25 No. 36 at 22. Therefore, he has also adequately stated a cause of action pursuant to the UCL. 26 27 III. BREACH OF CONTRACT CLAIM 1 PHH argues that Torliatt has not adequately alleged a breach of contract claim because 2 nothing in the Deed of Trust prohibits the use of convenience fees. Dkt. No. 36 at 23. Torliatt 3 contends that PHH breached paragraph 14 of the Deed of Trust, which states that “Lender may not 4 charge fees that are expressly prohibited by this Security Instrument or by Applicable Law.” Dkt. 5 No. 43 at 19. The Deed of Trust defines “Applicable Law” as “all controlling applicable federal, 6 state, and local statutes, regulations, ordinances and administrative rules and orders (that have the 7 effect of law) as well as all applicable final, non-appealable judicial opinions.” Dkt. No. 34-1 at 3. 8 Torliatt has not adequately alleged that PHH has violated a provision expressly prohibited 9 by “Applicable Law” such that it is in breach of the Deed of Trust. He takes the position that, if 10 he can adequately allege that PHH violated any law, he may allege a breach of contract. Dkt. No. 11 43 at 19. But the Deed of Trust describes only fees that are “expressly prohibited.” As discussed 12 above, it is not entirely settled whether convenience fees violate the FDCPA or the Rosenthal Act. 13 At a minimum, Torliatt has not shown that the convenience fees are “expressly prohibited” by 14 these statutes.3 Accordingly, his breach of contract claim is dismissed. 15 IV. PERSONAL JURISDICTION 16 PHH argues that I should dismiss the claims of non-resident class members for lack of 17 personal jurisdiction pursuant to Bristol-Myers Squibb Co. v. Superior Court of California, San 18 Francisco Cty., 137 S. Ct. 1773 (2017). Dkt. No. 36 at 24-25. But as it acknowledges, I have 19 rejected the applicability of Bristol-Myers Squibb to class actions. Allen v. ConAgra Foods, Inc., 20 No. 3:13-cv-01279-WHO, 2018 WL 6460451, at *4 (N.D. Cal. Dec. 10, 2018), on 21 reconsideration, No. 3:13-cv-01279-WHO, 2019 WL 5191009 (N.D. Cal. Oct. 15, 2019). I 22 decline to reconsider this analysis. 23 24 25 3 In its reply, PHH argues for the first time that PHH and Ocwen were not parties to the Deed of 26 Trust and therefore cannot be held liable for a breach of that agreement. Dkt. No. 48 at 14. This argument is improperly raised for the first time on reply. However, I note that other than a bare 27 bones allegation that PHH became a party to the contract by assignment, Torliatt has not pointed 1 CONCLUSION 2 For the above reasons, PHH’s motion to dismiss is GRANTED IN PART AND DENIED 3 IN PART. Torliatt’s FDCPA and breach of contract claims are DISMISSED WITHOUT 4 || PREJUDICE. Torliatt shall file an amended complaint by May 1, 2020. 5 IT IS SO ORDERED. 6 Dated: April 17, 2020 7 iam H. Orrick 9 United States District Judge 10 11 a 12 41 «44 15 16 = 17 Zz 18 19 20 21 22 23 24 25 26 27 28