United States District Court, S.D. New York
GEORGE DUMONT, JONATHAN GRIMES, YVONNE WILLIAMS and KUJTIM ADILI, On Behalf of Themselves And All Others Similarly Situated, Plaintiffs,
LITTON LOAN SERVICING, LP, OCWEN LOAN SERVICING, LLC, OCWEN FINANCIAL CORPORATION, and GOLDMAN SACHS GROUP, INC., Defendants.
OPINION AND ORDER
EDGARDO RAMOS, District Judge.
This case arises out of allegedly abusive practices employed by mortgage loan servicers in the wake of the recent housing crisis. Plaintiffs George DuMont, Jonathan Grimes (together, the "DuMonts"), Yvonne Williams ("Williams") and Kujtim Adili ("Adili") (collectively, "Plaintiffs") bring suit against Defendants Litton Loan Servicing, LP ("Litton"), Ocwen Loan Servicing, LLC ("OLS"), Ocwen Financial Corporation ("OFC") (together with OLS, "Ocwen") and Goldman Sachs Group, Inc. ("Goldman") (collectively, "Defendants"). Third Amended Class Action Complaint ("TAC"), Doc. 51. Litton and OLS are mortgage servicers, and OFC and Goldman were their corporate parents: OFC owned OLS during the entire time period at issue, while Goldman owned Litton at the start of that period before subsequently selling the company to OFC.
The TAC alleges causes of action for breach of contract and the implied covenant of good faith and fair dealing, promissory estoppel, violations of the New York General Business Law, violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, violations of the New Jersey Consumer Fraud Act, and violations of the federal Fair Debt Collection Practices Act ("FDCPA"). Id. Plaintiffs seek certification of the case as a class action. Id. Pending before the Court are three motions to dismiss the TAC pursuant to Federal Rule of Civil Procedure 12(b)(6): one filed by Litton and OLS (Doc. 66), one filed by OFC (Doc. 68) and one filed by Goldman (Doc. 70). In addition to the arguments specifically raised in support of their individual motions, both OFC and Goldman join in the arguments raised by Litton and OLS. See OFC's Mem. of Law in Supp. at 1; Goldman's Mem. of Law in Supp. at 1.
For the reasons discussed below, Litton and OLS's motion to dismiss is GRANTED IN PART and DENIED IN PART, Goldman's motion to dismiss is GRANTED, and OFC's motion to dismiss is GRANTED. Absent repleading, the only remaining plaintiffs will be the DuMonts and Williams, and the only remaining defendant will be OLS.
I. Factual Background
The following facts are based on the allegations in the TAC, which the Court accepts as true for purposes of the instant motions. Famous Horse Inc. v. 5th Ave. Photo Inc., 624 F.3d 106, 108 (2d Cir. 2010). Additional facts will be discussed, as necessary, in subsequent sections of this Opinion.
A. The Home Affordable Modification Program
In early 2009, as part of an effort to mitigate the housing crisis and keep borrowers out of foreclosure, the federal government established the Home Affordable Modification Program ("HAMP"). See TAC ¶ 27. In very general terms, HAMP is designed to lower the monthly mortgage payments of participating borrowers to an affordable level. See id. Participating mortgage servicers offer modifications to qualifying homeowners via temporary agreements known as trial period plans ("TPPs") that set forth various conditions that must be met in order for the borrower to obtain a permanent loan modification. See id. ¶¶ 47, 52. Foreclosure proceedings are suspended during the evaluation and trial periods. Id. ¶ 54. Borrowers who do not qualify for HAMP must be considered for alternative foreclosure prevention options. Id. ¶ 57.
B. The DuMont Loan
The DuMonts are residents of Pennsylvania. Id. ¶ 9. In July 2010, they submitted a HAMP application to Litton, who was servicing their mortgage. Id. ¶ 72. In June 2011, Litton denied the application on the grounds that the DuMonts had not provided all of the required documents. Id. ¶ 73. The DuMonts responded with a letter informing Litton that they had received multiple requests for the same materials and that, each time they had called Litton, they had been told to disregard the request. Id. ¶ 74.
On June 24, 2011, the DuMonts received a letter from Litton, offering them a three-month trial payment plan under an "alternative, non-HAMP modification program." Id. ¶ 75. They were required to make three monthly trial payments in order to accept the offer and qualify for a permanent modification. Id. The DuMonts made their trial payments in July, September and October. Id. ¶¶ 76, 80. In August, they were informed that the servicing rights to their loan had been transferred to OLS. Id. ¶ 79. They received the non-HAMP modification agreement from OLS on November 11 and returned an executed copy the same day. Id. ¶ 84.
The following month, OLS sent the DuMonts a letter stating that OLS could not offer the DuMonts a modification because they failed to submit the agreement or the required payment on time. Id. ¶ 86. A series of follow-up calls yielded conflicting messages: one OLS representative told the DuMonts that OLS needed another signed copy of the agreement, one requested proof of the trial payment arrangement, one said that the requisite documents had been received and were under review, and one said that the DuMonts were delinquent. Id. ¶¶ 87-90. Then followed a series of letters, received over a period of months, returning the DuMonts' payments on the basis that they were insufficient to cure the purported default. Id. ¶¶ 91, 94, 101, 106. Other letters urged the DuMonts to contact OLS "immediately" to resolve issues related to their "severely delinquent mortgage loan." Id. ¶¶ 95, 111. At one point, an OLS representative indicated that the payments were being rejected because there was a "payment refusal" hold on their account. Id. ¶ 98.
During a March 2012 call, the DuMonts were told that their non-HAMP modification application had expired and that they had to reapply for a HAMP modification. Id. ¶ 103. The following month, a representative told them that, if they wanted to reinstate the non-HAMP modification, they needed to pay $31, 000. Id. ¶ 104. During the same call, they were told that OLS's notes indicated that the DuMonts had requested a short sale of their property. Id. Later in April, a different representative informed the DuMonts that they owed $7, 000 under a "forbearance plan." Id. ¶ 107. The DuMonts received a notice of intent to terminate forbearance a few days later. Id. ¶ 108.
A May 4 letter said that the loan modification had not been finalized because OLS did not receive the agreed-upon payments. Id. ¶ 109. The letter indicated that OLS would process the modification if the DuMonts submitted the unpaid amount of $8, 758.61. Id. The DuMonts and OLS subsequently agreed to a reduced amount of $7, 507.38, which the DuMonts paid on May 21, 2012. Id. ¶ 110. The last of the "severe delinquency" notices arrived a month later. Id. ¶ 111.
The DuMonts allege that OLS damaged their credit by reporting the purported delinquencies to credit agencies. Id. ¶ 112. They further allege that they have been improperly charged various fees, along with increased principal and interest amounts. Id. ¶¶ 113-14.
C. The Williams Loan
Williams resides in Brooklyn, New York. Id. ¶ 10. She was in default on her mortgage loan when it was transferred to OLS in April 2010. Id. ¶ 120. That summer, she put her home up for sale and received a short sale offer in the fall. Id. ¶ 121. However, OLS informed Williams's real estate broker that the loan was being handled by OLS's bankruptcy department and that, as a result, the property was not eligible for a short sale. Id. ¶ 122. Toward the end of 2010, Williams was informed that the house would be put up for auction in February 2011. Id. ¶ 124.
Around December 7, 2010, Williams received an offer for a non-HAMP loan modification. Id. ¶ 125. Williams was given until December 10, 2010 to accept the offer and make the initial payment, and she did so prior to the deadline. Id. ¶¶ 125-26. However, her December 31, 2010 statement showed a principal balance that was approximately $4, 000 higher than the agreed-upon amount. Id. ¶ 127. Beginning in January 2011, OLS increased the monthly payment amounts in order to include escrow payments that were not required under the modified terms of the loan. Id. ¶¶ 130, 134, 138, 142. When Williams called to ask about the additional amounts, OLS representatives initially told her to disregard them. Id. ¶¶ 131, 134. In April 2011, however, a representative told her she needed to pay an additional $950.26 and that the payment amounts would return to their previous levels once she did. Id. ¶¶ 139-40. Williams made the payment, but her next account statement nevertheless included escrow and late charges. Id. ¶¶ 139, 142. Around June 1, 2011, she received notice that her loan was 31 days in default and that she was at risk of losing her home. Id. ¶ 146. Approximately one week later, an OLS representative indicated over the phone that Williams's account had been corrected to show that she was current on her payments and that escrow payments were not required. Id. ¶ 150.
In September 2011, Williams was denied a personal loan because her credit report showed a late mortgage payment from May of that year. Id. ¶ 154. Williams contacted OLS, and she was told that the information provided to the credit reporting agencies was wrong and would be corrected. Id. Despite multiple conversations to this effect, Williams's credit report was not corrected as of December 9, 2011. Id. ¶ ¶154-56. After continued efforts on Williams's part, including correspondence with the New York State Banking Department, OLS conceded in February 2012 that Williams made her May 2011 payment on time and indicated that it submitted a correction to the major credit agencies. Id. ¶¶ 157-162.
D. Adili Loan
Adili resides in Passaic, New Jersey. Id. ¶ 11. At the beginning of 2009, Adili became unable to make his full mortgage payments, so he contacted Litton to seek a HAMP modification. Id. ¶ 166. He submitted a modification package the following month. Id. ¶ 167. In June 2009, Litton served him with foreclosure documents. Id. ¶ 169. Upon inquiry, he was told that the HAMP modification request had been denied. Id. Adili alleges, upon information and belief, that the denial was part of "one of Litton's and Goldman Sachs' mass denial sweeps." Id. ¶ 170. Adili submitted three subsequent HAMP modification packages, all of which were denied. Id. ¶¶ 176-82, 187. The last of these denials came from OLS, to whom Litton had transferred the loan servicing rights. Id. ¶¶ 182, 187.
Adili submitted a fifth modification package around April 2012, and this one was approved. Id. ¶¶ 189-90. He made trial payments in October, November and December of that year. Id. ¶ 191. In January 2013, a letter from OLS informed him that OLS "was in receipt of his signed HAMP modification package." Id. ¶ 195. However, he was not allowed to make his February 2013 payment because his account was frozen. Id. ¶ 196. He was then told that the signed loan modification had not been received prior to the deadline and that, as a result, he did not qualify for a HAMP modification. Id. ¶¶ 197-199. He was given the option of applying for a non-HAMP modification or facing foreclosure. Id. ¶ 199.
II. Procedural Background
This case was originally filed April 6, 2012 under the caption Cavaciuti et al. v. Litton Loan Servicing, LP et al. Doc. 1. The only plaintiffs named in the original complaint were Rosie and Andrew Cavaciuti, and Litton and OLS were the only named defendants. Id. The first amended complaint (the "FAC") was filed October 24, 2012, adding the DuMonts as additional plaintiffs and OFC as a third defendant. Doc. 16. A second amended complaint ("SAC"), filed February 25, 2013, dropped the Cavaciutis as plaintiffs and added Williams and Adili. Doc. 47. The TAC was filed March 7, 2013. Doc. 51. Although Goldman was identified as a defendant in the SAC, see SAC ¶ 20, it was not officially added as a party to the action until the filing of the TAC. See ECF Docket Entries for March 7, 2013 (noting that a summons was issued as to Goldman on that date). All four Defendants now move to dismiss.
III. Rule 12(b)(6) Motions to Dismiss: General Legal Standard
When ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Famous Horse Inc., 624 F.3d at 108. However, the Court is not required to credit "mere conclusory statements" or "threadbare recitals of the elements of a cause of action." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)); see also id. at 681 (citing Twombly, 550 U.S. at 551). "To survive a motion to dismiss, a complaint must contain sufficient factual matter... to state a claim to relief that is plausible on its face.'" Id. at 678 (quoting Twombly, 550 U.S. at 570). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). More specifically, the plaintiff must allege sufficient facts to show "more than a sheer possibility that a defendant has acted unlawfully." Id. Federal Rule of Civil Procedure 8 "marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Id. at 678-79. If the plaintiff has not "nudged [his] claims across the line from conceivable to plausible, [the] complaint must be dismissed." Twombly, 550 U.S. at 570.
IV. Defendants Litton and OLS's Motion to Dismiss
A. Breach of Contract
The parties have briefed the breach of contract claims under the assumption that each named Plaintiff's cause of action arises under the law of that Plaintiff's state of residence. Given the parties' apparent agreement on this point, and since the pleadings do not include the full text of the contracts themselves, the Court will adopt the same assumption for purposes of the instant motions.
In addition, a relatively significant portion of the briefing on the breach of contract claims focuses on the level of specificity with which the Plaintiffs are required to plead the various state law elements (and sub-elements) in order to survive the 12(b)(6) motion. At this stage, two related points of general applicability should be borne in mind: (1) although state law governs the substantive elements of the contract claims, the pleading requirements in federal court are governed solely by the Federal Rules of Civil Procedure; and (2) while Third Circuit opinions are instructive with respect to the federal pleading standard as applied to New Jersey and Pennsylvania law, such cases are not binding on courts within this District.
i. The DuMonts
"To state a breach of contract claim under Pennsylvania law, Plaintiffs must plead (1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract and (3) resultant damages.'" Mickel Drilling Partners ex rel. Mickel v. Cabot Oil & Gas Corp., No. 3:CV-11-0061, 2012 WL 4953081, at *8 (M.D. Pa. Oct. 16, 2012) (quoting CoreStates Bank, N.A. v. Cutillo, 723 A.2d 1053, 1058 (Pa. Super.1999)).
There are two alleged contracts at issue with respect to the DuMont loan. The first is a purported contract between the DuMonts and Litton, pursuant to which Litton promised to modify the DuMonts' loan if the specified trial payments were made on time. TAC ¶ 75. Litton transferred the servicing rights to OLS during the course of performance of this contract, and the TAC alleges (in multiple paragraphs) that OLS and the DuMonts did, in fact, execute a non-HAMP modification agreement. Id. ¶¶ 79, 84, 103, 114. Given that the TAC itself indicates that OLS performed under the initial contract, and since the Court must assume that these statements are true for purposes of the instant motions, there is no colorable breach of contract claim with respect to that alleged contract.
Moreover, because Litton's role was confined to that preliminary contract (and because there are no allegations that Litton breached any of its contractual obligations prior to the transfer to OLS), there is no basis on which Litton can be held liable. The DuMonts' cause of action for breach of contract, to the extent it is directed at Litton, is therefore dismissed.
The second alleged contract is a permanent non-HAMP modification agreement that the DuMonts claim they executed and returned to OLS on November 11, 2011. Id. ¶ 84. The DuMonts have stated a viable claim for breach of this alleged contract. Although Defendants observe that the only material terms alleged are the amount of and due date for the DuMonts' first monthly payment, it bears noting that even this very first payment under the modified loan was rejected, allegedly in contravention of the contract's terms. See Litton's Reply Mem. in Supp. at 2; TAC ¶¶ 84, 91-92. Subsequent attempts to make payments were similarly rejected, the DuMonts were held in default, and at least some of the correspondence suggests that OLS was refusing to honor the alleged modification at all. See TAC ¶¶ 93-98, 101, 103, 106, 109. Defendants observe that the TAC fails to "identify, or even suggest, the other essential terms of the alleged agreement such as the principal amount of the modified loan, the monthly payment amounts, the applicable interest rate (whether fixed, step-up, or adjustable), the existence and amounts of escrow payments, or the duration of the modified loan." Litton's Reply Mem. in Supp. at 2. In light of the expansive nature of the purported breach, however, it does not seem that the additional information Defendants seek would move the scales in terms of the claim's overall plausibility. While the DuMonts will presumably need to set forth the contract's "essential terms" in greater detail in order to prevail on the merits, the Court is of the view that requiring them to provide more at this early stage would be to impose a pleading standard that exceeds the Rule 8 requirements. See generally Travelers Cas. & Sur. Co. of Am. v. A.G. Cullen Const., Inc., No. CIV. A. 07-0765, 2008 WL 4816477, at *10 (W.D. Pa. Nov. 4, 2008) (noting that "Rule 8 does not require a plaintiff to identify a specific contract provision at issue").
The TAC further alleges that, due to the breaches discussed above, the DuMonts incurred improper late fees and other charges, along with damage to their credit. TAC ¶¶ 108, 112-13. Viewed as a whole and read in a light most favorable to Plaintiffs, the DuMonts' breach of contract allegations against OLS are sufficient to survive Defendants' 12(b)(6) motion.
Plaintiffs must allege the following four elements in order to state a claim for breach of contract based on New York law: "(1) the existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3) breach of contract by the defendant, and (4) damages." Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996).
As a preliminary matter, the Court notes that none of the allegations specific to Williams's loan describes events that occurred prior to OLS's acquisition of the servicing rights. See TAC ¶¶ 116-165. Litton is not alleged to have had any role in the events on which Williams's causes of action rest. The breach of contract ...