JENNIFER A. DORSEY, District Judge.
Robert and Deanna Werbicky sue Green Tree Servicing, LLC for a handful of federal and state common-law tort claims arising from Green Tree's debt-collection activities on the Werbickys' mortgage loan. The Werbickys move for summary judgment on their Fair Debt Collection Practices Act claim and Green Tree's affirmative defense of ratification. Green Tree countermoves for summary judgment on all of the Werbickys' claims. For the reasons below, I grant summary judgment in favor of the Werbickys on Green Tree's ratification defense, grant summary judgment in favor of Green Tree on the Werbickys' FDCPA claim to the extent that it is based on violations of § 1592f and on all state-law claims, deny the remainder of the parties' motions, and refer this case to the magistrate judge for a settlement conference.
The Werbickys purchased a home on Bella Citta Street in Clark County, Nevada, in 2006. They contracted with a mortgage broker, Residential Capital Corp., and ultimately had to obtain two mortgage loans to finance the total purchase price.
On January 26, 2006, the Werbickys initialed and signed the three-page promissory note naming "Residential Capital Corp" as the lender.
First Horizon then assigned the second note and deed of trust RBS Citizens, N.A. in 2009, and RBS hired Green Tree to service the loan.
On January 26, 2011, the Werbickys entered into a Conditional Settlement Agreement with First Horizon on the first mortgage loan that contemplated a short-sale of the property.
However, Mr. Werbicky contends that around September 8, 2011, he discovered that the note had been altered.
On September 19, 2011, the Werbickys' agent contacted Green Tree and requested an extension of the settlement offer.
The Werbickys filed this lawsuit against Green Tree almost one year later, alleging violations of the Fair Debt Collection Practices Act (claim one) and state-law claims for slander of title (claim two) and intentional interference with a contractual relationship (claims three and four).
Summary judgment is appropriate when the pleadings and admissible evidence "show there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law."
If the moving party satisfies FRCP 56 by demonstrating the absence of any genuine issue of material fact, the burden shifts to the party resisting summary judgment to "set forth specific facts showing that there is a genuine issue for trial."
The FDCPA prohibits "abusive, deceptive, and unfair debt collection practices."
The Werbickys argue that they are entitled to summary judgment on their FDCPA claim because the undisputed facts show that Green Tree violated the Act by making false or misleading representations (§ 1692e) and engaging in unfair collection practices (§ 1692f), and damages are not disputed.
Green Tree's argument that the Werbickys' FDCPA claim is subject to Nevada's three-year limitations period for fraud-based claims is without merit. When Congress expressly establishes a limitations period on a federal claim, it controls.
Because the Werbickys filed their complaint on September 4, 2012, to be actionable, the complained-of violations must have occurred between September 4, 2011, and September 4, 2012. They did. The Werbickys allege the misrepresentation of the debt in the September 19, 2011, settlement offer letter and Green Tree's collection of the $22,504 on September 30, 2011. I reject Green Tree's argument that all violations relate back to 2009 when it first began servicing the loan and therefore could not trigger a new limitations period. "[N]othing in the language of the FDCPA suggests that the statute of limitations runs from the first possible violation and encompasses all later-occurring and distinct violations."
Green Tree next argues that the Werbickys cannot recover under the FDCPA because they waived their right to pursue a civil remedy under 15 U.S.C. § 1692g.
It is undisputed that the Werbickys complied with the FDCPA by disputing the debt with Green Tree within 30 days of receiving Green Tree's validation notice.
Green Tree next argues that it is entitled to summary judgment because the Werbickys "released" all issues related to the note and deed of trust when they accepted Green Tree's settlement offer by making the $22,504 payment.
The settlement offer does not contain any express release of contingent or future claims arising under the note or deed of trust. Any waiver of a benefit provided for a party's protection by a statute must be knowing or intelligent.
I also reject Green Tree's related argument that the Werbickys should be denied relief under the FDCPA based on a breach of the covenant of good faith and fair dealing. Because the Werbickys did not contract away their right to sue under the FDCPA, Green Tree can hardly be deprived of the benefit of its bargain by this suit.
Green Tree also contends that it is entitled to summary judgment because the Werbickys should be equitably estopped from bringing any claims based on the note and deed of trust. Even if equitable estoppel applies to FDCPA claims, Green Tree has failed to establish the defense.
A party asserting equitable estoppel must show:
Green Tree argues that the Werbickys are equitably estopped from bringing their claims because they did not notify Green Tree that they were pursuing the default judgment in state court when the parties entered into the settlement agreement, and Green Tree would not have entered into the settlement agreement had it known about the state-court suit to invalidate the debt.
The Werbickys argue that there was no valid debt for Green Tree to collect because: (1) their duty under the note was discharged; and (2) the deed of trust was vitiated by forgery. Both parties agree that the claim is dependent on the legal status of these instruments: if there was no valid debt to collect on, then the Werbickys have a viable FDCPA claim; but if the debt was enforceable by Green Tree, then there is no basis for the claim. Both parties move for summary judgment on these issues.
The Werbickys contend that the changes to the first page of the note and the first page of the deed of trust are "forgery"—material alterations that vitiated both instruments. Green Tree responds that the Werbickys have not established by clear and convincing evidence that either the note or the deed of trust was forged.
Under Nevada law, an "alteration" is an unauthorized change in an instrument that modifies the obligation of a party. Only fraudulent alteration "discharges a party whose obligation is affected by the alteration unless the party assents . . . no other alteration discharges a party, and the instrument may be enforced according to its original terms."
The lender switch in the documents clearly constitutes an alteration. But the Werbickys' bare assertion that the act of changing the payee constitutes a "forgery" is insufficient to establish that the alteration was fraudulent because they have not provided any evidence of fraudulent intent. Neither party proffered any admissible evidence showing who (i.e. Chicago Title, Residential Capital Corp, First Horizon Home Loan Corporation, etc.) is responsible for altering the note, let alone why it was altered.
Whether the Werbickys assented to the alteration is also genuinely disputed. A reasonable jury could find that the Werbickys consented to the changes made to both instruments in light of the facts that they (1) reviewed and signed conflicting documents on January 26, 2006, (2) signed a new borrower's certification & authorization
However, to the extent that Green Tree asserts ratification as a defense, the Werbickys are entitled to summary judgment on it. Green Tree has offered no admissible evidence to show who changed the instruments or why they were changed, let alone any evidence to show that the alterations were made on behalf of the Werbickys. I therefore find that neither party is entitled to summary judgment on the legal status of the note or deed of trust, and Green Tree may not argue ratification as a defense at trial.
15 U.S.C. §1692e prohibits debt collectors from using "any false, deceptive or misleading representation or means in connection with the collection of any debt" and contains a non-exhaustive list of sixteen subsections illustrating conduct that violates the general prohibition.
A debt collector's liability under § 1692e is an issue of law, requiring an objective analysis that takes into account whether the "least sophisticated consumer" would be misled by the communication.
If a jury finds that the alterations were fraudulently made and that the note is thus invalid, then Green Tree violated § 1692e as a matter of law by falsely representing that the debt was valid in the settlement offer and by accepting the Werbickys' settlement payment. Either of these false representations goes to the "character, amount, or legal status," would mislead the least sophisticated consumer, and would frustrate a consumer's ability to intelligently respond. Green Tree's reliance on Donahue v. Quick Collect, Inc. to argue that any misrepresentations it made were immaterial and therefore not actionable is misplaced. The Donahue court held that a collection letter that accurately represented the total amount due, but inaccurately represented which portion was interest, contained only a "technical falsehood" because it did not frustrate the plaintiff's ability to intelligently choose her response; the total amount she owed was correctly stated.
In sum, if a jury determines that the instruments are unenforceable, Green Tree violated 15 U.S.C. § 1692e as a matter of law through falsely representing that the debt was valid by extending the settlement offer and also by accepting payment in settlement.
Both Green Tree and the Werbickys move for summary judgment on Green Tree's bona fide error defense. Because the Ninth Circuit has interpreted the FDCPA as a strict liability statute, the consumer does not have to prove intent to establish a violation.
"The bona fide error defense is an affirmative defense for which the debt collector has the burden of proof."
The Werbickys argue that Green Tree should be precluded from raising the bona fide error defense because Green Tree had "actual notice" of the FDCPA violation and because Green Tree committed "legal errors" that are not protected by the defense. I find that Green Tree is not precluded from raising the bona fide error defense, but it is not entitled to summary judgment on it either.
The Werbickys rely on the district court opinion in McCollough v. Johnson, Rodenberg & Lauinger to argue that Green Tree should be precluded from asserting the bona fide error defense because it is not available when the debt collector had actual notice of the FDCPA violation and the violation continues.
I disagree. The "actual notice" rule has been applied by courts in limited cases, and only when debt collectors maintained lawsuits after they received clear proof that the lawsuits were no longer maintainable. In McCollough, the court held that the debt collector could not assert the bona fide error defense because it continued to maintain a debt-collection suit despite having actual notice that the suit was time-barred, via information from its creditor-client, and the debt collector did not have procedures reasonably adapted to avoid maintaining a time-barred suit. Unlike in McCollough, Green Tree received information from the consumer that contradicted the representations of its creditor-client, RBS Citizens, as well as the information contained in the collateral loan file provided by the previous loan servicer, including the note with an original endorsement and a copy of the recorded deed of trust.
Citing the Supreme Court's opinion in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, the Werbickys argue that Green Tree committed "legal" errors not encompassed by the bona fide error defense.
The Werbickys characterize Green Tree's mistake as a "legal error" not encompassed by the bona fide error defense because Green Tree misinterpreted the "existence, character and status" of the debt. To the extent the Werbickys argue that Green Tree misinterpreted the requirements of the FDCPA itself, I find there is no evidence to show that Green Tree believed it could operate within the bounds of the FDCPA by sending a settlement letter that falsely represented the "existence, character and status" of the debt.
To the extent the Werbickys argue that Green Tree misinterpreted the requirements of state law, I find that any determinations Green Tree made with respect to the "existence, character and status" of the debt were factual errors, and not mistakes of law.
To establish the bona fide error defense the debt collector must prove: "(1) it violated the FDCPA unintentionally; (2) the violation resulted from a bona fide error; and (3) it maintained procedures reasonably adapted to avoid the violation."
Green Tree conflates all three prongs of the test by arguing that it did not violate the FDCPA intentionally and that any violation was a bona fide error because it followed its policies and procedures. Under the procedures prong of the test, the debt collector must show it (1) actually employed or implemented procedures to avoid errors, and (2) the procedures were reasonably adapted to avoid the specific error at issue.
The Werbickys argue that Green Tree lacks evidence to show that it had procedures designed to detect the errors at issue here. I disagree. To the extent the Werbickys argue Green Tree did not conduct an appropriate investigation before it started to service their mortgage loan, the FDCPA does not impose on debt collectors a duty to independently authenticate instruments that comprise a mortgage loan.
Section 1692f of the FDCPA prohibits debt collectors from using "unfair or unconscionable means to collect or attempt to collect any debt" and contains a non-exhaustive list of eight subsections illustrating conduct that violates this general prohibition.
The Werbickys allege that Green Tree violated § 1692f(1), which prohibits a debt collector from using "unfair or unconscionable means to collect a debt," including collecting any amount not expressly authorized by the agreement creating the debt or permitted by law, and f(6), which prohibits taking or threatening to take nonjudicial action to effect dispossession or disablement of property.
The record does not support the Werbickys' recovery under § 1692f. The focus of § 1692f is the "means [the debt collector uses] to collect or attempt to collect a debt."
Under the FDCPA, "any debt collector who fails to comply with any provision . . . with respect to any person is liable to such person in an amount equal to the sum of . . . (1) any actual damage sustained by such person as a result of the failure[.]"
I decline to grant the Werbickys summary judgment on the damages issue because whether Green Tree's alleged FDCPA violations caused Mrs. Werbicky to cash out her life-insurance policy is genuinely disputed. The Werbickys have not shown that Mrs. Werbicky would not have surrendered her life-insurance policy but for Green Tree's failure to comply with § 1692e—that is, the false or misleading representations contained in Green Tree's settlement offer and Green Tree's acceptance of payment—on which the Werbickys' FDCPA claim is based.
Mr. Werbicky testified that he had already contemplated surrendering Mrs. Werbicky's policy in August 2011, and that he factored in the cash-out value during settlement negotiations with Green Tree.
The fact that the Werbickys contributed the $12,246.80 from Mrs. Werbicky's life-insurance policy towards the $22,504 payment to settle the debt does not alter my analysis.
In sum, the Werbickys have not established a "but for" link between Green Tree's failure to comply with § 1692e and the surrender of Mrs. Werbicky's life-insurance policy. Nothing in the FDCPA suggests that a debt collector is liable for decisions a consumer makes in anticipation of debt collection activities that result in a FDCPA violation, which is exactly what occurred here.
Under the FDCPA, any debt collector who fails to comply with any provision is liable to the consumer for "additional damages as the court may allow, but not exceeding $1,000[.]"
The Werbickys claim that they are entitled to additional damages of an unspecified amount because "[t]he facts of this case are not in serious question."
The Werbickys base their slander-of-title claim on Green Tree's false "claims" that a junior lien existed on the property. To succeed on a slander-of-title claim in Nevada, a plaintiff must show that (1) the defendant made a false and malicious communication that was disparaging to plaintiff's title in land and (2) the plaintiff sustained special damage as a result of this communication.
The Werbickys offer no evidence to show that Green Tree provided any information about the deed of trust to anyone besides the Werbickys or their agents. The Werbickys' communication of the information to third parties does not constitute publication.
In claim three, the Werbickys allege that Green Tree intentionally interfered with the Werbickys' contract with First Horizon (the holder of the first mortgage loan). The Werbickys theorize that Green Tree's refusal to release the deed of trust caused their performance of the conditional settlement agreement with First Horizon to be more "burdensome, difficult or of less value" because they had difficultly finding a title company and title insurance, and they were forced to pay $22,504 on the note to remove the lien from the property to effectuate the short sale.
To prevail on a claim for intentional interference with contractual relations in Nevada, a plaintiff must establish: (1) a valid and existing contract; (2) the defendant's knowledge of the contract; (3) intentional acts intended or designed to disrupt the contractual relationship; (4) actual disruption of the contract; and (5) resulting damage.
The Werbickys argue that because Green Tree knew about the conditional settlement agreement and the allegations that the note was altered, that is sufficient to establish Green Tree intended to disrupt the Werbickys' performance under the agreement. But that is not enough to show that Green Tree's actions were intended or designed to disrupt the Werbicky-First Horizon relationship. As the Nevada Supreme Court has explained, specific intent is required:
The record does not support that Green Tree had an improper intent to interfere with the Werbickys' performance of the conditional settlement agreement. A debt collector sending an offer to settle a mortgage loan, at the consumer's request, is not improper in and of itself. There is also no evidence that Green Tree was motivated by a desire to interfere with the contractual relations. Rather, the evidence shows that Green Tree wanted to "settle" the disputed account and recover whatever funds it could to complete its servicing duties.
In claim four, the Werbickys allege that Green Tree intentionally interfered with the contractual relationship between themselves and the short-sale buyer. This claim is not supported by the record. For one thing, it is unclear how Green Tree could have improperly interfered with the Werbickys' contractual relationship with the buyer when First Horizon ultimately had to approve the short sale. Thus there is no evidence that Green Tree actually interfered with this relationship, and there is zero evidence that, even if it did, that was Green Tree's motive in acting. I therefore grant Green Tree's motion for summary judgment on claim four.
Accordingly, it is HEREBY ORDERED, ADJUDGED, and DECREED that
IT IS FURTHER ORDERED that
IT IS FURTHER ORDERED that this case is referred to a magistrate judge for a settlement conference.
In support of its "continuing" violation theory, Green Tree cites to non-binding district court cases holding that "new communications from an old claim do not start a new period of limitations." But these cases involve fact patterns in which the "violations" within the one-year period constituted repeated misrepresentations in court filings or to a credit-reporting agency, rather than repeated communications from the debt collector directly to the consumer attempting to collect a debt.
