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Delgado v. Ocwen Loan Servicing, LLC

United States District Court, E.D. New York

November 8, 2017

MARGARITA DELGADO, WILLIAM SHEPPARD, GERALDINE MAHOOD, KEVIN CHOWNING, LYA CHOWNING, PAUL EMMERT, CAROLYN TOTH, BRIAN RAFACZ, JENNIFER HENDRICKS, CYNTHIA BENIWAL, KIMBERLY KAYES, JUSTIN WISNEWSKI, LAURIE CHEAMITRU, DALE ZIMMER, MICHAEL BENHAMU, MEGHAN FOX, DAN WILKINSON, KENT COLLIER, THERESA MCCULLOUGH, BEN ELLIOTT, JASON ABT, CAMIPELOZA, and TERRY OLIVER, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
v.
OCWEN LOAN SERVICING, LLC, CROSS COUNTRY HOME SERVICES, INC., SANDRA FINN, and "JOHN DOES 1-10, " Defendants.

          MEMORANDUM & ORDER

          NICHOLAS G. GARAUFIS, United States District Judge.

         Plaintiffs bring this putative class action[1] against Defendants Ocwen Loan Servicing, LLC ("Ocwen"), Cross Country Home Services, Inc. ("Cross Country"), Cross Country's President Sandra Finn ("Finn"), and John Does 1-10 (collectively, "Defendants"). (4th Am. Compl. ("FAC") (Dkt. 293).) Plaintiffs claim that Defendants engaged in a deceptive check solicitation scheme that led Plaintiffs and other consumers unknowingly to enroll in, and pay monthly fees for, Cross Country's warranty plans.

         Before the court is Defendants' motion for partial dismissal of the claims asserted in Plaintiffs' Fourth Amended Complaint (the "Motion"). (Defs. Mot. to Dismiss and Strike Class Allegations ("Mot.") (Dkt. 324).) For the reasons stated below, the Motion is GRANTED IN PART and DENIED IN PART.

         I. BACKGROUND

         While the court has previously detailed Plaintiffs' essential allegations as they appeared in prior iterations of the Complaint (see Sept. 23, 2014, Mem. & Order (Dkt. 42)), it reviews the allegations as presented in the challenged pleading. Unless otherwise indicated, the following factual allegations are drawn from the Fourth Amended Complaint (the "Complaint"). (FAC.)

         A. The Parties

         Defendant Ocwen is "the largest servicer of subprime mortgage loans in the country" and "the nation's largest non-bank mortgage servicer." (FAC ¶ 55.) In that role, Ocwen "collect[s] mortgage payments and handle[s] escrow accounts, delinquencies, loan modifications, and foreclosures" on behalf of the mortgage holders (id.), and services more than 600, 000 residential home loans Id. ¶ 44). The plaintiffs in this case are customers of Ocwen who reside in New York, California, Alabama, Arizona, Colorado, Georgia, Indiana, Maryland, Michigan, New Jersey, New Mexico, Ohio, Pennsylvania, Tennessee, Texas, Virginia, and Washington. (Id. ¶¶ 18-43.)

         Defendant Cross Country "market[s] and sell[s] appliance warranty plans, homeowner repair/referral plans, and related maintenance plans, " and purports to be one of the largest providers of such plans in the United States. (Id. ¶ 58.) At all relevant times, Finn was the president of Cross Country. (Id. ¶ 46.) Cross Country operates subsidiaries and affiliates under different names in various states. (Id. ¶¶ 48, 50.) Cross Country operates through these subsidiaries and affiliates to enroll customers in plans and policies provided by Cross Country. (Id. ¶ 47.) Plaintiffs allege that these subsidiaries and affiliate companies are controlled and directed by Cross Country and Finn.[2] (Id. ¶ 49.)

         B. The Alleged Scheme

         Plaintiffs allege that Cross Country markets its plans and policies in part through lists of customers obtained from mortgage servicing companies, including Ocwen. (Id. ¶¶ 59-60.) Cross Country approaches these companies about providing their customers with Cross Country's plans as "add-on products" for the mortgage-related services those customers are already receiving. (Id. ¶ 59.) At an unspecified point prior to the events described in the Complaint, Cross Country and Ocwen entered into such an agreement, and Ocwen provided Cross Country with a list of its customers. (Id. ¶ 60.)

         The gravamen of the Complaint is that Cross Country uses misleading and fraudulent mailings to Ocwen customers in order to trick them into enrolling in Cross Country-provided plans. According to Plaintiffs, Cross Country sends Ocwen customers mailings that are addressed to the individual customer, display the Ocwen logo, and list Ocwen as a return addressee on the outside of the envelope. (Id. ¶¶ 62, 68.) The outside of the envelope is also prominently marked with a label that says "CHECK ENCLOSED." (Id. ¶¶ 62, 66.) The envelope does not state that it contains any "solicitation" or "marketing material." (Id. ¶ 65.)

         Contained within the envelopes are checks for a small amount (examples provided in the Complaint show amounts of $2.50 and $3.50). (Id. ¶ 69.) The fronts of the checks state in small print that they are from "CCHS" and provide an address similar to that of Ocwen. (Id. ¶ 70.) The checks themselves are valid and may be deposited. (Id. ¶ 71.) However, the checks state in small print that "[b]y cashing or depositing this check, you are purchasing the annual Systems MD Gold Home Warranty" or a similarly named plan. (Id. ¶¶ 69, 71.) The backs of the checks contain signature lines for the recipient, which read simply "[s]ignature of payee required for processing." (Id. ¶ 76.) Above these lines, the checks contain a statement, again in small print, one iteration of which reads:

By cashing or depositing this check, I understand that I am purchasing an annual Systems MD Gold Home Warranty Plan and understand that $44.95 per month will automatically be charged to my Ocwen Loan Servicing mortgage payment unless I cancel my Plan by calling toll free 1.800.474.4047 within 30 days from the date this check is cashed or deposited. I understand that this is an annually renewable plan and the monthly cost of $44.95 will continue to be collected along with my monthly mortgage payment until I cancel the plan.

(Id. ¶ 78.)

         Also contained within the envelopes is a "solicitation pitch" that "promote[s] the savings and benefits customers [would] supposedly receive by cashing the checks." (Id. ¶ 80.) Plaintiffs allege that these solicitations do not "disclose the hidden cost of accepting the checks, or the way to avoid the hidden costs, " and instead "proclaim[] that the checks' purpose is to 'pay you' and create 'savings' for customers." (Id.) In some cases, these solicitations are attached to the checks along a perforated line and direct the recipient by name to "Sign and Deposit the Enclosed Check." Id. ¶ 81.) In other cases, the solicitations contain language encouraging the recipient to "cash or deposit your check to get $2.50 instantly and activate the benefits of the Cross Country plan. (Id. ¶ 84.) Plaintiffs contend that these solicitations are "presented upside down, have confusing and barely legible tiny footnotes which contain or refer to various disclaimers and limitations, and are designed to be overlooked." (Id. ¶ 85.) Moreover, in some cases, the "terms, conditions, and limitations" referenced in the solicitations are not contained in the same mailing, but were promised in separate "service agreements" or "membership materials" that never in fact arrived. (Id. ¶ 86.)

         Plaintiffs allege that the nature of these mailings is such that a reasonable customer would assume that both the mailing and the check were sent by Ocwen and that they mislead Ocwen's customers "into believing that they are receiving some kind of refund or rebate from their mortgage company." Id. ¶ 70.) Instead, by signing and depositing the checks, Ocwen's customers are enrolled into a Cross Country plan that causes them to incur a recurring monthly fee. Id. ¶ 78.)

         In those cases in which check recipients cash or deposit the checks and are thereby enrolled in a Cross Country-provided plan, Plaintiffs allege that the charges were intentionally obscured to prevent detection by the "customer." (Id. ¶ 88.) Specifically, Plaintiffs contend that subsequent mortgage billing statements by Ocwen-who collects the payments for Cross Country (Id. ¶ 89)-arrive after the 30-day cancellation window and omit any mention that Ocwen splits receipts with Cross Country, that customers might be charged more than the amount listed on the initial check, or that the charges are attributable to Cross Country (Id. ¶¶ 88 (i), (ii), (iv), 91). Ocwen also allegedly "mask[s] the new charge under vague names, " including the payments as line items on mortgage and escrow statements labeled as, inter alia, "optional insurance, " "Systems MD Gold, " "Membership, " "Referral Assistant, " and "Optional Products." 041190-91.)

         The Complaint alleges that Defendants were aware that Ocwen customers enrolled in Cross Country memberships did not use those plans and, in many cases, complained about being enrolled. (Id. ¶ 95.) In support of this claim, Plaintiffs provide excerpts from consumer protection websites in which Ocwen customers described being billed by Cross Country for unwanted plans. (Id. ¶ 96.)

         According to Plaintiffs, Defendants have mailed "hundreds of thousands, if not millions, of solicitation checks in Ocwen's name." (Id. ¶ 79.) As a result of these mailings, the Complaint alleges that more than 55, 000 homeowners were "victimized by the scheme" and that they made payments totaling more than $35 million. (Id. ¶ 1.)

         In addition to their factual allegations about Defendants' practices in general, the Complaint details how, between 2011 and 2014, the named Plaintiffs entered into Cross Country plans and made payments through their Ocwen-provided mortgage billing and escrow statements. (Id. ¶¶ 98-237.) Each of these allegations follows a similar pattern: Plaintiffs received a mailing in an envelope marked "Ocwen, " deposited the enclosed check, and, several months later, realized they had been paying for a Cross Country plan of which they were previously unaware. (Id. ¶¶ 98-110.) In some instances, the Complaint also details particular Plaintiffs' efforts to extricate themselves from those plans. (See, e.g., Id. ¶¶ 107-110.)

         C. Class Allegations

         Based on the claims described above, Plaintiffs bring class actions for both a nationwide class and classes corresponding to each of the named Plaintiffs' states of residence.[3] (Id. ¶¶ 239-241.) Plaintiffs allege that the conduct of which they complain was part of a "uniform and standardized" course of conduct by Defendants that "did not meaningfully differentiate among individual Class members." (Id. ¶ 238.)

         With respect to the putative nationwide class, Plaintiffs define the class as consisting of all Ocwen customers who (1) enrolled in a Cross Country plan through a check solicitation during the statutory period; (2) paid a plan premium; and (3) never placed a claim under the plan. (Id. ¶ 240.) Plaintiffs define the putative state classes in much the same way, adding in the additional limitation that the class extends only to Ocwen customers in each of the states represented in this action.[4] (Id. ¶ 241.)

         Plaintiffs argue that "[q]uestions of law and fact are common to the Class and predominate over any questions affecting only individual class members, " specifically pointing to the following questions:

a. Whether Defendants participated in and pursued the common Check Solicitation Scheme;
b. Whether Defendants' scheme is likely to mislead Ocwen's customers;
c. Whether Defendants used the mails and/or wires through interstate commerce in a Racketeering Enterprise to accomplish their Check Solicitation Scheme;
d. Whether Defendants' conduct constitutes unfair, unlawful and/or fraudulent practices prohibited by the laws of New York and California;
e. Whether Defendant Ocwen breached its fiduciary duty to Plaintiffs and the Class;
f. Whether Defendants were unjustly enriched as a result of their conduct;
g. Whether, and to what extent, Defendants are liable to Plaintiffs and the Class for damages; and
h. Whether, and to what extent, equitable relief should be imposed on Defendants to prevent such conduct in the future.

(Id. ¶ 247.)

         D. Procedural History

         Plaintiffs filed their initial complaint in this court on August 6, 2013. (Compl. (Dkt. 1).) The operative complaint is the Fourth Amended Complaint, filed on April 14, 2017. (FAC.) From the foregoing allegations, Plaintiffs bring putative class claims against all Defendants for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, based on predicate acts of mail and wire fraud, 18 U.S.C. §§ 1341 and 1343, and RICO conspiracy in violation of 18 U.S.C. § 1962. (Id. ¶¶ 251-81.) Plaintiffs also bring the following state-law-based claims against all Defendants:

• Unjust enrichment under the laws of New York, Alabama, Arizona, Colorado, Georgia, Indiana, Maryland, Michigan, New Mexico, Ohio, Pennsylvania, Tennessee, Texas, Virginia, and Washington.[5] (Id. ¶¶ 282-91).
• Breach of fiduciary duty under the laws of Alabama, Arizona, California, Georgia, Indiana, Michigan, New Jersey, New Mexico, Ohio, Virginia, and Washington. (Id. ¶¶ 292-300.)
• Violation of New York General Business Law § 349. (Id. ¶¶ 301-09.)
• Violation of the California Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200 et seq. (Id. ¶¶ 310-20.)
• Violation of the Alabama Deceptive Trade Practices Act, Ala. Code §§ 8-19-1 et seq. (Id. ¶¶ 321-31.)
• Violation of the Arizona Consumer Fraud Act, Ariz. Rev. Stat. Ann. § § 44-1521 et seq. (Id. ¶¶332-41.)
• Violation of the Colorado Consumer Protection Act, Colo. Rev. Stat. Ann. §§ 6-1-101 et seq. (Id. ¶¶ 342-51.)
• Violation of the Georgia Fair Business Practices Act, Ga. Code Ann. §§ 101-1-390 et seq. Id. ¶¶ 352-60.)
• Violation of the Georgia Uniform Deceptive Trade Practices Act, Ga. Code Ann. §§10-1-370 et seq. (Id. ¶¶361-67.)
• Violation of the Indiana Deceptive Consumer Sales Act, Ind. Code Ann. §§ 24-5-0.5 et seq. (Id. ¶¶379-89.)
• Violation of the Maryland Consumer Protection Act, Md. Code Com. Law §§ 13-101 et seq. (Id. ¶¶ 390-97.)
• Violation of the Michigan Consumer Protection Act, Mich. Comp. Laws Ann. §§ 445.901 et seq. (Id. ¶¶398-407.)
• Violation of the New Jersey Consumer Fraud Act, N.J. Stat. Ann. §§ 56:8-1 et seq. (Id. ¶¶408-18.)
• Violation of the New Jersey Truth-In Consumer Contract, Warranty, and Notice Act, NJ. Stat. Ann. §§ 56:12-14 et seq. ...

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