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Andrade v. Ocwen Loan Servicing, LLC

United States District Court, D. Rhode Island

July 31, 2019

ARTUR and JULIA ANDRADE, on behalf of themselves and all others so similarly situated
v.
OCWEN LOAN SERVICING, LLC, et al.

          REPORT AND RECOMMENDATION

          LINCOLN D. ALMOND, UNITED STATES MAGISTRATE JUDGE

         Pending before me for a report and recommendation (28 U.S.C. § 636(b)(1)(B)) are Defendants' Motion to Dismiss Plaintiffs' Class Action Complaint (ECF Doc. No. 7) and Plaintiffs' Motion for Leave to File an Amended Class Action Complaint (ECF Doc. No. 13). A hearing was held on July 22, 2019.

         At the hearing, Plaintiffs' counsel indicated that he was no longer pursuing Count I (a Declaratory Judgment claim) and focused his request to amend and opposition to Defendants' dismissal arguments on Count II of the proposed Amended Class Action Complaint (a Breach of Contract claim). Accordingly, the Court will consider Plaintiffs' Motion to Amend (ECF Doc. No. 13) solely as to Count II and whether or not such amendment would be futile (applying the Rule 12(b)(6) standard) as argued by Defendants. Such treatment moots Defendants' pending Motion to Dismiss (ECF Doc. No. 7) as to the original Class Action Complaint.

         Background

          This is a putative class action challenging the validity of mortgage foreclosures occurring between July 1, 2015 and September 28, 2017. The representative Plaintiffs identified in the Amended Class Action Complaint (the Andrades and Dubois) were the subject of residential mortgage foreclosures on June 1, 2017 and September 26, 2017, respectively. The representative Plaintiffs sue Ocwen Loan Servicing, LLC (“Ocwen”) as the third-party mortgage loan servicer for their respective mortgagees, HSBC Bank USA, NA as Trustee for Option One Mortgage Loan Trust 2007 - HL1 (“HSBC”), and Deutsche Bank Savings Fund Society, FSB as Trustee for Argent Securities, Inc. Asset Backed Pass-through Certificates 2006-M2 (“Deutsche Bank”).

         In Count II, Plaintiffs allege that Defendants failed to foreclose and sell in a manner prescribed by “applicable law” in breach of the applicable mortgage contracts. In particular, they allege that Ocwen was not a licensed, third-party servicer in Rhode Island at the time of the foreclosures in violation of R.I. Gen. Laws § 19-14.11-1 and an April 20, 2017 Emergency Cease and Desist Order issued by the Rhode Island Department of Business Regulation (“RIDBR”) and directed at Ocwen.

         Standard of Review

         Because Defendants oppose Plaintiffs' Motion to Amend on futility grounds, the Court will review Count II of the proposed Amended Class Action Complaint in accordance with the Rule 12(b)(6), Fed. R. Civ. P., standard. In considering a Rule 12(b)(6) motion, the Court must accept as true all plausible factual allegations in the Complaint and draw all reasonable inferences in Plaintiffs' favor. Aulson v. Blanchard, 83 F.3d 1, 3 (1st Cir. 1996). In so doing, the Court is guided by the now-familiar standard requiring the inclusion of facts sufficient to state a plausible claim for relief:

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. 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. The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully.

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations and quotations omitted). Put differently, for a complaint to survive a motion to dismiss, its “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Consistent with Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), federal courts must apply the Twombly/Iqbal standard even in cases where state law controls the substantive claims. This includes cases like this one that were removed from state court. Reilly v. Cox Enters., Inc., C.A. No. 13-785S, 2014 WL 4473772, at *3 (D.R.I. Apr. 16, 2014).

         Discussion

         Count II is a state law breach of contract claim. The representative Plaintiffs allege that their mortgage contracts (consistent with all standard mortgage contracts) provide that “any foreclosure and sale be conducted in a manner prescribed by applicable law.”[1] (ECF Doc. No. 13-1 at ¶ 96). They describe Count II as “a straightforward state law contract theory, alleging that the Defendants failed to foreclose in the manner prescribed by applicable law by foreclosing and conducting mortgagee sales when not licensed to do so [in Rhode Island] and when under an order by [the RIDBR] to cease and desist such activity.” (ECF Doc. No. 19 at p. 3).

         Effective July 1, 2015, Rhode Island law required all third-party loan servicers for a loan to a Rhode Island borrower to obtain a license from the RIDBR. See R.I. Gen. Laws § 19-14.11-1. On April 20, 2017, the RIDBR issued an Emergency Order to Ocwen pursuant to R.I. Gen. Laws § 42-35-14(c). The RIDBR Order required Ocwen, inter alia, to “immediately cease and desist from any and all unlicensed activity in [Rhode Island], including, without limitation, acting as a third party loan servicer.” (ECF Doc. No. 1-3 at p. 28). On April 25, 2017, Ocwen sought Judicial Review and a stay of the Emergency Order in the Providence County Superior Court (PC-2017-1862). Id. The RIDBR regulatory action was resolved by a Consent Order dated September 28, 2017. (ECF Doc. No. 1-3 at pp. 23-36). The Consent Order provided, in part, that “[s]ubject to the condition precedent of the Respondents fulfilling any outstanding application requirements and subject to the continuing condition of the Respondents' compliance with the ‘Global Minimum Settlement Terms'…the [RIDBR] will vacate the denial of, reinstate and grant the Third Party Servicer Applications.” Id. at p. 28, ¶ 27. It also provided that it was “entered into for the purpose of resolving the issues raised in the Emergency Order without any admissions or denials” and “supersedes the prior Emergency Order in its entirety and any and all understandings associated therewith.” Id. at p. 29, ¶¶ 31-32. Defendants contend that the Consent Order “retroactively abated” any prior “violations, concerns and questions.” (ECF Doc. No. 8 at p. 10). Plaintiffs dispute Defendants' “retroactive abatement” argument as legally unsupported and argue that, in any event, the operative issue presented in Count II is compliance with applicable law “at the time of the subject foreclosure and sale.” (ECF Doc. No. 19 at p. 10).

         Defendants first argue that Count II is precluded as a matter of law by the Rhode Island Supreme Court's holding in Citizens for Pres. of Waterman Lake v. Davis, 420 A.2d 53 (R.I. 1980). Defendants contend that Davis holds that where a statute does not afford a party with a personal remedy (as is the case with R.I. Gen. Laws ยง19-14.11-1), a court may not ...


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