United States District Court, S.D. New York
LAMAR BIGSBY, JR., KARLA FREELAND, MARIA BRANDT, KATHLEEN MURRY, and HERMAN GRIMES, on behalf of themselves and all others similarly situated, Plaintiffs,
BARCLAYS CAPITAL REAL ESTATE, INC., doing business as HOMEQ SERVICING, Defendant.
OPINION & ORDER
G. KOELTL, DISTRICT JUDGE.
Bigsby, Jr., and Karla Freeland first filed this putative
class action against Barclays Capital Real Estate, Inc., in
its capacity as successor to a mortgage-servicing company
known as HomEq Servicing Corp., over four years ago. Dkt. No.
2; see Dkt. No. 22. Bigsby and Freeland alleged that
Barclays and HomEq defrauded mortgagors in the assessment of
foreclosure-related fees, giving rise to claims under the
Racketeer Influenced and Corrupt Organizations Act
("RICO") and related common law claims. Barclays
previously filed a motion to dismiss the complaint by Bigsby
and Freeland pursuant to Rule 12(b)(6) of the Federal Rules
of Civil Procedure. The Court granted that motion in part,
resulting in the dismissal of the RICO claims by Bigsby and
Freeland. Bigsby v. Barclays Capital Real Estate,
Inc., 170 F.Supp.3d 568, 572 (S.D.N.Y. 2016).
and Freeland, now joined by Maria Brandt, Kathleen Murry, and
Herman Grimes (the "California plaintiffs, " and
together with Bigsby and Freeland, the
"plaintiffs"), then filed a Second Amended
Complaint, with leave of the Court. Dkt. No. 104 (the
"SAC"). The Second Amended Complaint renews the
plaintiffs' civil RICO claims predicated on mail fraud
and wire fraud, 18 U.S.C. §§ 1341, 1343, 1962,
1964, and common law claims of breach of contract,
conversion, fraud, unjust enrichment, constructive trust, and
accounting. The Second Amended Complaint also adds statutory
claims under California's unfair competition law, Cal.
Bus. & Prof. Code § 17200 (the "California UCL
claims"), and the California Fair Debt Collection
Practices Act, Cal. Civ. Code § 1788 et seg.
(the "California fair debt collection claims").
before the Court is a second motion by Barclays to dismiss
the plaintiffs' RICO claims, California UCL claims,
California fair debt collection claims, common law claims of
fraud, conversion, and unjust enrichment, and the California
plaintiffs' breach of contract claims. The motion is
granted in part and denied in
deciding a motion to dismiss pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure, the allegations in the
complaint are accepted as true, and all reasonable inferences
must be drawn in the plaintiffs' favor. McCarthy v.
Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.
2007). A court's function on a motion to dismiss is
"not to weigh the evidence that might be presented at a
trial but merely to determine whether the complaint itself is
legally sufficient." Goldman v. Belden, 754
F.2d 1059, 1067 (2d Cir. 1985). A court should not dismiss
the complaint if the plaintiff has stated "enough facts
to state a claim to relief that is plausible on its
face." Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007). "A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged." Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009). While a court should construe the
factual allegations in the light most favorable to the
plaintiff, "the tenet that a court must accept as true
all of the allegations contained in the complaint is
inapplicable to legal conclusions." Id. When
presented with a motion to dismiss pursuant to Rule 12(b)(6),
a court may consider documents that are referenced in the
complaint, documents that the plaintiff relied on in bringing
suit and that are either in the plaintiff s possession or
that the plaintiff knew of when bringing suit, or matters of
which judicial notice may be taken. See Chambers v. Time
Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); see
also Bigsby, 170 F.Supp.3d at 572. A court may
consider a document referenced in the complaint only if there
is no dispute as to its authenticity and there are no
"material disputed issues of fact regarding the
relevance of the document." Nicosia v. Amazon,
Inc., 834 F.3d 220, 231 (2d Cir. 2016).
Court accepts as true the following factual allegations from
the Second Amended Complaint.
plaintiffs in this matter, Lamar Bigsby, Jr., Karla D.
Freeland, Maria R. Brandt, Kathleen Murry, and Herman Grimes,
were mortgagors. Bigsby was a resident of Georgia; Freeland
was a resident of Massachusetts; and Brandt, Murry, and
Grimes were residents of California. SAC ¶¶ 9-13.
plaintiffs have sued Barclays, a Delaware corporation with
its principal place of business in New York, in its capacity
as successor to HomEq. Barclays acquired HomEq, a
mortgage-servicing company, in 2006. HomEq collected on home
loans on behalf of mortgage-note holders, who were typically
trustees and beneficiaries of securitized loans. SAC
¶¶ 2, 14, 17, 26. After acquiring HomEq, Barclays
continued to operate HomEq using the same employees,
guidelines, and business strategies. SAC ¶ 27. HomEq and
Barclays serviced note holders' loans pursuant to a
Pooling and Servicing Agreement (a "PSA"). SAC
¶¶ 16, 26, 122. Under a PSA, a note holder assigned
to HomEq and Barclays certain ownership rights of the note,
including the right to foreclose on delinquent mortgages.
See SAC ¶¶ 28, 57, 59, 123.
plaintiff obtained at least one mortgage serviced by HomEq
and Barclays. SAC ¶¶ 48-49, 53, 148, 153, 206-08,
225-27, 243-45. All of the plaintiffs went into default on
their mortgage obligations, and Barclays instituted
foreclosure proceedings against them. This case deals with
Barclays's conduct during those foreclosure proceedings.
claims and factual allegations in the Second Amended
Complaint are organized around three allegedly fraudulent
schemes perpetrated by Barclays in foreclosure proceedings -
a "fraudulent foreclosure scheme, " a "fee
shifting scheme, " and an "inflated fees
scheme." The plaintiffs allege that these schemes caused
them "to pay the illegal amounts sought by Barclays, and
. . . incur legal and other expenses associated with the
illegal activity." SAC ¶ 298.
Freeland, Brandt, and Grimes allege that Barclays and others
engaged in a "fraudulent foreclosure scheme." SAC
plaintiffs assert that this scheme involved Barclays and
others identifying an entity as the assignee of the security
instrument that bore the beneficial ownership interest in the
mortgage note "at the time of the commencement of
foreclosure, when the Deed of Trust or Mortgage [was] not
assigned until after the [foreclosure] action was
initiated." SAC ¶ 276. This scheme allegedly
permitted Barclays to assert standing in foreclosure actions
on behalf of its note-holder clients before those clients had
in fact acquired standing through the recording of the
assignment of the ownership interest in the note.
plaintiffs also allege that Barclays and others engaged in a
fraudulent "fee shifting scheme." SAC ¶¶
used an "outsourcing" model to hire counsel for all
of the foreclosure and bankruptcy proceedings at issue in
this case. SAC ¶¶ 28-30. Under this model, Barclays
entered into a Master Servicing Agreement with a non-legal
entity - often Fidelity National Foreclosure Solutions -
which provided that Fidelity would serve as Barclays's
representative in dealings with local foreclosure and
bankruptcy counsel. SAC ¶¶ 2, 29-31, 33. Fidelity
agreed to be "solely responsible . . . for local
counsel's performance" in the bankruptcy and
foreclosure actions. SAC ¶ 34. In exchange, the Master
Servicing Agreement provided that Barclays would pay Fidelity
a fee for each bankruptcy and foreclosure Fidelity arranged
and monitored, as well as a continuing fee for each
foreclosure (assessed every six months) so long as the
mortgagor was "reasonably performing" on a payment
plan. SAC ¶ 39. Fidelity also entered into retainer
agreements with bankruptcy and foreclosure counsel, which
provided that counsel would pay fees to Fidelity for each
mortgage referred to counsel out of funds counsel received
from the client. SAC ¶¶ 40-41.
loan documents for the plaintiffs' mortgages were
standard forms issued by Fannie Mae and Freddie Mac. These
forms permitted Barclays to assess various fees associated
with foreclosure costs against mortgagors in default. See SAC
¶¶ 51, 150. Some of the foreclosure-related fees
Barclays assessed against the plaintiffs that were listed as
"attorney's fees" or "legal fees, "
were ostensibly designed to pass only the cost of foreclosure
and bankruptcy counsel onto defaulting mortgagors. SAC
¶¶ 43-44, 163, 172, 178, 191, 216-17, 233, 235,
253. The plaintiffs allege that Barclays surreptitiously used
these "attorney's fees" or "legal
fees" not just to pass onto mortgagors the cost of
counsel but also to pass on the cost of hiring Fidelity to
serve as an intermediary with counsel on Barclay's
behalf. SAC ¶¶ 269-70.
and Freeland alleged RICO claims premised on a similar
"fee shifting scheme" in their first amended
complaint. Dkt. No. 22 ¶¶ 173-7 9. The Court
dismissed those RICO claims on Barclays's prior motion to
dismiss primarily because Bigsby and Freeland failed to
allege claims of fraud and scienter. Bigsby, 170
F.Supp.3d at 573-74, 576-77, 578-79. The "fee shifting
scheme" alleged in the operative Second Amended
Complaint is exactly the same as the "fee shifting
scheme" the Court dismissed previously with one
addition: The plaintiffs now allege that Barclays and
Fidelity entered into an indemnity agreement dated April 9,
2009, as part of the scheme. SAC ¶ 268; see SAC
¶¶ 33-47, 265-72. This agreement provided that
Fidelity will hold Barclays harmless for "[a]ny
allegations that the business model employed by [Fidelity] .
. . constitutes an impermissible 'fee splitting' or
'referral fee' arrangement." SAC ¶ Ex. C;
see SAC ¶ 268.
the plaintiffs allege that Barclays and others engaged in a
fraudulent "inflated fees scheme." SAC ¶¶
Master Servicing Agreement between Barclays and Fidelity
contained a schedule of maximum fees that Fidelity was
authorized to charge in the event of a bankruptcy. SAC
¶¶ 37-38, 273. Fidelity and foreclosure counsel
also entered into retainer agreements that contained
schedules for the foreclosure-related fees counsel was
permitted to charge Barclays. SAC ¶¶ 40-41, 273.
The plaintiffs allege that Fidelity and foreclosure counsel
knowingly charged Barclays fees in excess of the maximum
limits set by the Master Servicing Agreement and the retainer
agreements, and that Barclays passed these inflated fees onto
the defaulting mortgagors. SAC ¶ 274; see SAC
¶¶ 58, 64, 74, 80, 89, 93-94, 99-100, 133, 163,
169, 178-79, 183, 186, 191-92, 212-17, 237, 258. The
plaintiffs allege that Barclays benefitted from this scheme
"by not having to have a department of employees
analyzing legal bills to make sure they were in conformity
with the maximum allowable fees." SAC ¶ 275.
plaintiffs allege that they were victims of all three
2005, Bigsby obtained two mortgages, secured by his home in
Stockbridge, Georgia, from Freemont Investment and Loan Co.,
with Mortgage Electronic Registration Systems
("MERS") serving as nominee. SAC ¶¶
48-49. Bigsby went into default on his mortgages in or about
the latter part of 2006. SAC ¶ 54. Barclays initiated
foreclosure proceedings against Bigsby on November 8, 2006,
on behalf of "U.S. Bank National Association, as
Trustee." SAC ¶ 55. U.S. Bank National Association
had not been assigned the note or Deed of Trust for
Bigsby's property when the Bigsby foreclosure was
initiated. SAC ¶ 57. The document assigning the Note and
Security Deed for Bigsby's property from MERS to U.S.
Bank National Association was prepared and executed on
December 14, 2006. SAC ¶ 62. All of the correspondence
between Barclays, foreclosure counsel, and Bigsby through
October of 2009 related to the foreclosure listed MERS as
Barclays's client and creditor on Bigsby's loan. SAC
¶¶ 86, 91, 96, 102, 106, 109-12, 115. Barclays
first stated that U.S. Bank National Association was the
creditor for Bigsby's loan on October 22, 2009. SAC
¶ 117. Barclays sold Bigsby's house in foreclosure
to U.S. Bank National Association on May 4, 2010. SAC ¶
132. Bigsby alleges that Barclays charged him fraudulent fees
associated with foreclosure costs on multiple occasions
between November 29, 2006, and October 22, 2009. SAC
¶¶ 56, 63, 71, 77, 88, 92, 97, 116, 127.
2004, Freeland obtained a mortgage secured by her home in
Plymouth, Massachusetts, from Aames Funding Corp. SAC ¶
148. Freeland went into default on her mortgage in or about
the first half of 2006. SAC ¶¶ 154, 158. Barclays
initiated foreclosure proceedings against Freeland on July
14, 2006, on behalf of "Deutsche Bank National Trust
Co[.3, as Trustee." SAC ¶ 158. Deutsche Bank
National Trust Co. did not hold the note or mortgage to
Freeland's property when the Freeland foreclosure was
initiated. SAC ¶¶ 159, 174. On March 12, 2007,
Barclays, through counsel, recorded an Assignment of Mortgage
transferring the beneficial interest in Freeland's
mortgage to Deutsche Bank National Trust Co. SAC ¶ 176.
The assignment document was dated January 31, 2004, and
listed a notarization date of February 6, 2004. Id.
Freeland paid off all amounts due on her mortgage and related
fees as of May 15, 2013. SAC ¶¶ 194-96. Freeland
alleges that Barclays charged her fraudulent fees associated
with foreclosure costs on multiple occasions between October
10, 2006, and January 21, 2009. SAC ¶¶ 163, 167,
169, 178-79, 182-83, 185-87, 191-92.
2005, Brandt obtained a mortgage from First NLC Financial
Services, with MERS serving as nominee. SAC ¶ 207.
Brandt went into default on her mortgage at some point before
October 2007. SAC ¶¶ 207, 210. Barclays initiated
foreclosure proceedings against Brandt on October 16, 2007,
naming "Quality Loan Service Corp." as the
"original trustee, the duly appointed substituted
trustee, or acting as agent for the trustee or
beneficiary." SAC ¶ 210. Barclays knew that Quality
Loan Service Corp. was not the "original trustee, the
duly appointed substituted trustee, or acting as agent for
the trustee or beneficiary" when the foreclosure began.
Id. On February 7, 2008, Barclays filed an
assignment of Deed of Trust transferring the interest in
Brandt's mortgage to Deutsche Bank National Trust Co. SAC
¶ 212. The assignment document stated that it was signed
by a Barclays employee on January 29, 2008, but it was
"backdated to October 14, 2007." IxL Brandt's
house was eventually sold by Quality Loan. SAC ¶ 213.
Brandt alleges that she paid over $5, 000 in allegedly
fraudulent fees associated with foreclosure costs as of
October, 2016. SAC ¶¶ 216-19.
1990s, Murry obtained a mortgage serviced by HomEg. SAC
¶ 226. Murry was notified that she was in default on her
mortgage on or about September 15, 2008, and at some point
thereafter foreclosure proceedings were initiated against
her. SAC ¶ 228. The Second Amended Complaint does not
state which company initially owned Murry's mortgage note
or on which company's behalf Barclays initiated the Murry
foreclosure. Murry paid off her mortgage loan in full as of
September 23, 2009, but Barclays charged her a fee associated
with the foreclosure proceedings after that date. SAC ¶
233. Murry alleges that Barclays charged her fraudulent fees
associated with foreclosure costs on multiple occasions
between December 23, 2008, and November 24, 2009. SAC
¶¶ 230-33, 235-37.
2003, Grimes obtained a mortgage from New Century Mortgage
Corporation, with Southland Title serving as trustee. SAC
¶ 244. Grimes defaulted on his mortgage in or around the
summer of 2009. SAC ¶ 246. Barclays initiated
foreclosure proceedings against Grimes on September 1, 2009,
on behalf of "Old Republic, " which Barclays listed
as "agent for the beneficiary." SAC ¶ 24 8;
see SAC ¶ 244. When the Grimes foreclosure began, Old
Republic did not have the authority to commence the
foreclosure and New Century was not the holder of the Deed of
Trust. SAC ¶ 248. Barclays executed an assignment of
Deed of Trust from New Century to Deutsche Bank National
Trust Co., and a Substitution of Trustee substituting Old
Republic for Southland Title as trustee on September 2, 2009.
SAC ¶ 249. Grimes paid his mortgage in full as of
December 18, 2009, but Barclays continued to charge him fees
associated with the foreclosure proceedings after that date.
SAC ¶¶ 253-56. Grimes alleges that Barclays charged
him fraudulent fees associated with foreclosure costs on
multiple occasions between December 18, 2009, and February
22, 2010. SAC ¶¶ 253, 255-58.
moves to dismiss the plaintiffs' RICO claims predicated