MARK R. HORNAK, District Judge.
Before the Court are three Motions to Dismiss the Plaintiffs' Amended Complaint, one filed by each of the Defendants. ECF Nos. 35, 37, 39. The Court has reviewed the Amended Class Action Complaint filed by Plaintiffs Alexandra R. Trunzo and Anthony Hlista (collectively "Homeowners"), the Defendants' Motions
When considering a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must accept the factual allegations in the Amended Class Action Complaint ("Amended Complaint") as true and draw all reasonable inferences in Homeowners' favor. See Fowler v. UPMC Shadyside, 578 F.3d 203, 211-12 (3d Cir.2009). Therefore, for the purposes of disposition of the Defendants' various Motions to Dismiss, the essential facts are as follows.
Homeowners bring a class-action
Homeowners executed a promissory note and mortgage with their original lender, West Penn Financial ("WPF")
Homeowners also received a document from WPF entitled "Mortgagee Letter," which announced that Citi was the "new
Homeowners met their payment obligations under their note until June 2010, when they ceased payment and entered into default on their mortgage. In early August 2010, Homeowners contacted Citi to negotiate an "alternate arrangement" whereby Homeowners would be able to become current on their mortgage. Am. Compl. ¶ 11, ECF No. 34. On August 13, 2010, Homeowners received a letter dated August 6, 2010 from Citi requesting certain financial information in order to evaluate whether Homeowners would be eligible for a modified repayment schedule, forbearance plan, loan modification, or other alternate method for Homeowners to return to good standing on their mortgage. Am. Compl. Ex. I, ECF No. 34-9. Homeowners were asked to respond with the requested information by August 16, 2010, which was ten (10) days from the date of the letter.
On August 16, 2010, Homeowners attempted to remit a payment to Citi, which was refused. Citi stated that it would not accept Homeowners' payment because their mortgage had, at that point, already been referred for foreclosure. Shortly thereafter, Homeowners received a letter dated August 10, 2010 from Citi's Foreclosure Department informing them that their mortgage was still in default and claiming "[a]ll reasonable efforts afforded you to cure this default have failed."
Accordingly, Homeowners contacted PHS and inquired about avoiding foreclosure. This inquiry by Homeowners to PHS led to a litany of conflicting reinstatement figures, fees, and costs that form the primary nexus of Homeowners' Amended Complaint. This series of contradictory communications began on August 30, 2011 when Homeowners received an initial letter from PHS that contained a total reinstatement amount of $5,204.44 needed for Homeowners to become current on their mortgage. Am. Compl. Ex. K, ECF No. 34-11.
Meanwhile, Citi assigned its servicing rights to Homeowners' mortgage to Defendant Seterus on November 1, 2010. Homeowners were informed of this transfer via a letter entitled "Transfer of Servicing Notice" ("Second Servicing Notice"). Am. Compl. Ex. G, ECF No. 34-7. The Second Servicing Notice contains language
The November 9th letter was followed by (1) a December 6th letter from Seterus that included a reinstatement amount with fees, totaling $6,416.09, which was different from the reinstatement amount of the August 30th letter from PHS, and (2) a December 7th letter from PHS that included yet a third reinstatement amount with fees, totaling $5,362.59, which was different from the two prior amounts present in the November 9th and December 6th letters. Am. Compl. Ex.'s M, N, O, ECF. Nos. 34-13, 34-14, 34-15. The Court has distilled the hodgepodge of conflicting numbers provided to Homeowners by PHS and Seterus in the less than three months of communications between Homeowners and these two Defendants in Table 1.
Table 1: 2010 Communication Comparisons
DATE OF LETTER Aug. 30 Nov. 9 Dec. 6 Dec. 7
SENDER PHS Seterus Seterus PHS
Total Amount of Debt ___† $73,611.41 ___ ___
$5,204.44 ___ $6,416.09 $5,362.59
Total Reinstatement Amount Paid Dec. 10th
Past Due Principle & Interest $3,763.40 $3,814.80 $3,814.80
Interest ___ $2,988.38 ___ ___
Escrow Overdraft ___ $1061.35 $1,226.79 $1226.79
Late Fees $143.04 $0.00 $0.00 $96.00
Property Inspections $138.00 $81.00 $96.00‡ $0.00
Prothonotary Costs $160.00 ___ ___ $0.00
Sheriff Costs $75.00 ___ ___ $0.00
Foreclosure Costs $225.00 $340.00 $340.00 $0.00
Attorneys' Fees $700.00 $713.50 $713.50 $0.00
Title Services Work ___ $225.00 $225.00 $225.00
† Dashes indicate that the letter did not contain a particular charge as a separate line-item.
‡ This $96.00 charge was comprised of five (5) property inspections at $13.50 each that
occurred once a month from May to September 2010 and one (1) property inspection at an
estimated $15.00 that would occur before December 14, 2010.
While some of the apparent discrepancies between certain amounts shown in Table 1 are likely the product of accrued interest, Homeowners challenge many of the unaccountably varying fees as unauthorized by their note and/or mortgage and charged in violation of one or more state and/or federal laws. Homeowners admit that, on December 10, 2010, they remitted payment only to PHS (who allegedly collected this payment on behalf of Seterus) in the total amount indicated in the final, December 7th letter, which was $5,362.59. Homeowners did not submit a payment to Citi.
After remitting payment to PHS on December 10, 2010, Homeowners assert that their mortgage was current through, but not including, January 1, 2011. They received correspondence from Seterus on December 20, 2010 that seemingly advised Homeowners that their payment was received by PHS, because Homeowners' escrow account had been credited. However, Homeowners allege that the December 20th correspondence also included an invoice for January 2011, whereby Seterus demanded an additional, unauthorized payment of $1,053.50. Am. Compl. ¶ 23, ECF No. 34.
Then, on January 4, 2011, Homeowners received a response to a "Qualified Written Request"
Homeowners filed a class-action complaint on August 3, 2011 in the Court of Common Pleas of Allegheny County. ECF No. 1-2. They bring a total of seven (7) Counts against one or multiple Defendants; five (5) of these Counts apply to Citi, five (5) apply to PHS, and all seven (7) apply to Seterus. Seterus removed Homeowners' action to this Court on September 1, 2011, based on several of Homeowners' claims that arise under federal law. ECF No. 1. Citi and PHS timely consented to the removal. ECF Nos. 3, 4. Each of the Defendants subsequently filed an initial Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), to which Homeowners responded by filing an Amended Complaint. ECF Nos. 19, 22, 24, 34. The Amended Complaint included new allegations regarding the Defendants' alleged legal statuses as servicers and/or lenders under the note and mortgage. Defendants again moved for dismissal, and the Court heard oral argument on the Motions to Dismiss the Amended Complaint on January 17, 2012. ECF Nos. 35, 37, 39. Defendants join in one another's Motions to Dismiss on various points of argument, and the Court will therefore address the merits of the Motions in the context of each individual Count of Homeowners'
In considering a Rule 12(b)(6) motion, federal courts require notice pleading, as opposed to a heightened standard of fact pleading. See Phillips v. Cnty. Of Allegheny, 515 F.3d 224, 233 (3d Cir.2008). Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the ... claim is and the grounds on which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)) (internal quotations omitted).
Building upon the landmark United States Supreme Court decisions of Twombly and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), the United States Court of Appeals for the Third Circuit recently explained that a district court must take three steps to determine the sufficiency of a complaint:
Malleus v. George, 641 F.3d 560, 563 (3d Cir.2011) (quoting Iqbal, 129 S.Ct. at 1947, 1950) (internal citations omitted).
The third step of the sequential evaluation requires this Court to consider the specific nature of the claim(s) presented and to determine whether the facts pled to substantiate the claims are sufficient to show a "plausible claim for relief." See Iqbal, 129 S.Ct. at 1950. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. Id.; see also Fowler, 578 F.3d at 210-11.
The Court may not dismiss a complaint merely because it appears unlikely or improbable that a plaintiff can prove the alleged facts or will ultimately prevail on the merits. Twombly, 550 U.S. at 556, 127 S.Ct. 1955. Generally speaking, a complaint that provides adequate facts to establish "how, when, and where" will survive a motion to dismiss. Fowler, 578 F.3d at 212; see also Guirguis v. Movers Specialty Services, Inc., 346 Fed. Appx. 774, 776 (3d Cir.2009). In short, a motion to dismiss should not be granted if a party alleges facts which could, if established at trial, entitle him to relief. Fowler, 578 F.3d at 213.
Homeowners contend that first Citi, then Seterus, breached their contractual obligations to Homeowners under their note and mortgage by charging or collecting: (1) attorney's fees prior to acceleration of the debt as authorized by the note, (2) attorney's fees for work never performed, (3) unreasonable attorney's fees, and (4) fees in violation the Pennsylvania
However, the provisions of their note and mortgage upon which Homeowners rely are, on their face, applicable only to "note holders" and/or "lenders." Am. Compl. Ex. A ¶ 6(E), ECF No. 34-1; Ex. B ¶ 14, ECF No. 34-2. Citi and Seterus argue that they cannot be bound by these provisions, because neither company was a party to the note or mortgage, and each company only acquired, via an assignment, the servicing rights to Homeowners' debt from WPF. In essence, Citi and Seterus assert that they never assumed the status of either a "note holder" or a "lender" under the debt instruments.
"It is basic contract law that only a party to a contract can be liable for breach of that contract." Comcast Spectacor L.P. v. Chubb & Son, Inc., No. 05-1507, 2006 WL 2302686, at *19 (E.D.Pa. Aug. 8, 2006). An individual who is a party to a contract can transfer all or some of his rights and duties established by the contract to another person via an assignment. Crawford Cent. Sch. Dist. v. Commonwealth, 585 Pa. 131, 888 A.2d 616, 619 (2005).
To determine the contractual duties between the parties and any alleged breach of those duties in this case, the distinction between a "loan servicer" ("servicer") and a "lender" and/or "note holder" becomes important. The "servicing" of a mortgage, i.e. the right to collect payments from the mortgagor, exists as a separate right that can be transferred independently of other provisions in the mortgage or note. See In re Am. Mortg. Holdings, Inc., 637 F.3d 246, 259-50 (3d Cir.2011) (reiterating the Bankruptcy Court's explanation that mortgages can be sold on a "servicing retained" or a "servicing released" basis); Paslowski v. Standard Mortg. Corp. of Ga., 129 F.Supp.2d 793, 798 (W.D.Pa.2000) (holding that the terms of the assignment did not include the servicing rights, which were retained by the seller). The original parties to the mortgage and note, the "lender" or "note holder," can, accordingly, choose to assign only this right to collection under the debt instruments. See, e.g., Glover v. Udren, No. 08-990, 2011 WL 1204050, at *1 (W.D.Pa. Feb. 28, 2011). The Homeowners' mortgage itself contemplates this scenario by distinguishing between a "Note purchaser's" obligations and a "Loan Servicer's" obligations. Am. Compl. Ex. B. ¶ 20, ECF No. 34-2.
Homeowners' mortgage also specifically defines a "Loan Servicer" as an entity that collects the periodic payments due under the "Note, this Security Instrument, and Applicable Law." Am. Compl. Ex. B. ¶ 20, ECF No. 34-2. This language is consistent with the definition of a "loan servicer" in the federal Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 (2006), et seq., also referenced in Homeowners' mortgage at paragraph
Instead of pleading facts to support their conclusion that Citi and, subsequently, Seterus, succeeded to all obligations and duties under their note and mortgage, Homeowners contend that "discovery is ... needed to determine, from a functional or activity standpoint whether Citi and/or [Seterus] is, in fact, a lender, servicer and/ or both." Am. Compl. ¶ 45, ECF No. 34. The Court does not find that Homeowners' hope that discovery would reveal that Citi and Seterus received more than the servicing rights provides enough factual support for their breach of contract claim to survive dismissal. This is especially true considering the documents
Even when the Court reads the facts alleged in the Amended Complaint and related documents in the light most favorable to Homeowners — i.e. taking all facts Homeowners allege as true and drawing all reasonable inferences in their favor — the Court does not find Homeowners have sufficiently supported their legal conclusion that Citi, and then Seterus, assumed the obligations of a "note holder" or "lender" under Homeowners' note and mortgage.
As an alternative to their breach of contract claim, Homeowners allege that Citi was unjustly enriched when the servicer collected unauthorized fees from Homeowners and retained a percentage of these payments. To maintain a claim of unjust enrichment under Pennsylvania law, a plaintiff must allege facts that show (1) the defendant received a benefit from the plaintiff and (2) an injustice would result if the plaintiff were denied recovery of this benefit. Meehan v. Cheltenham Twp., 410 Pa. 446, 189 A.2d 593, 595 (1963).
Homeowners do not plead facts that support the first prong of their unjust enrichment claim against Citi. According to their Amended Complaint, Homeowners remitted a single payment to PHS, who collected this payment on behalf of Seterus, in the amount of $5,362.59 on December 10, 2010. Am. Compl. ¶¶ 20, 57, ECF. No. 34. This payment was made more than one month after Citi assigned its rights to Seterus on November 1, 2010. Therefore, under the factual allegations in Homeowners' own Amended Complaint, Citi retained no right to receive payments from Homeowners when the December 10th payment was made to PHS. Accordingly, Homeowners' unjust enrichment claim as to Citi is dismissed with prejudice.
The Court does not reach the same conclusion regarding Homeowners' unjust enrichment claim against Seterus. Seterus held the servicing rights at the time of Homeowners' December 10th payment, and Homeowners allege that (1) PHS collected this payment on Seterus's behalf, and (2) Seterus received a percentage of this payment. Am. Compl. ¶¶ 53-55,
Homeowners claim that PHS violated the Federal Fair Debt Collection Practices Act ("the FDCPA"), 15 U.S.C. § 1692 (2006), et seq., when the law firm made false representations about the "character, amount, or legal status" of Homeowners' debt and attempted to collect amounts under Homeowners' note and mortgage that were not "expressly authorized by the agreement creating the debt or permitted by law." Am. Compl. ¶¶ 60-61, ECF No. 34. Homeowners' allegations of fraudulent collection attempts stem from the August 30th and December 7th reinstatement letters they received from PHS. PHS actually collected the full amount due under the December 7th letter, $5,362.59, from Homeowners, including the disputed $321.00 in "Late Fees" and "Title Services Work" charges.
In response, PHS argues that it cannot be held liable under the FDCPA because the statute requires an attempt to collect a debt, and their letters were merely responses to Homeowners' requests for information, not "collection" or "dunning" letters. Mem. of Law in Supp. of Def. PHS's Mot. to Dis. Am. Compl. 9, ECF No. 36. PHS does not dispute that it, in general, meets the definition of a "debt collector" under the FDCPA, only that its actions toward Homeowners were not attempts at debt collection.
The purpose of the FDCPA is to prevent consumers from being subjected to "abusive, deceptive, and unfair debt collection practices" by debt collectors. See § 1692(a), (b). In general, the statute authorizes consumers to recover actual and statutory damages from debt collectors who engage in certain prohibited collection practices. § 1692k. The specific provisions of the FDCPA that Homeowners rely upon are sections 1692f(1) and 1692e(2)(A). Am. Comp. ¶¶ 60-61, ECF No. 34. Section 1692f(1) allows a debt collector to collect only those debts that are "expressly authorized by the agreement creating the debt or permitted by law." When pursuing such authorized debts, section 1692e(2)(A) provides that the collector may not use any "false, deceptive, or misleading representations ... in connection with the collection of any debt," nor misrepresent the "character, amount, or legal status of any debt ...." Accordingly, for a FDCPA claim to survive a motion to dismiss, the aggrieved party must plead that a debt collector utilized one of the aforementioned prohibited practices in an attempt to collect a debt. See Pollice v. National Tax Funding, L.P., 225 F.3d 379, 400 (3d Cir.2000).
Moreover, as a threshold matter, the FDCPA requires the existence of a communication in furtherance of the collection of a debt to trigger the statute's protections. See § 1692f; Piper v. Portnoff Law Associates, Ltd., 396 F.3d 227, 233 (3d Cir.2005). Some courts draw a distinction between a communication initiated by a debt collector, and a communication sent in response to a consumer inquiry. See, e.g.,
In each case cited above, the court focused on whether the debt collector was "attempting to collect a debt" on the theory that a debt collector who merely provides an answer to a consumer inquiry cannot be said to be engaged in the process of debt collection. Gorham-Dimaggio, 2005 WL 2098068, at *2; accord Grambart, 2011 WL 124230, at *2; Boyd, 2010 WL 5772892 at *13. For example, in Grambart, the plaintiff requested a statement of account from the defendant debt collector, Global Check Recovery Services ("Global"). 2011 WL 124230, at *1. Global responded via two letters, both of which provided on their face that the letters' signatory, the "Recovery Coordinator," was "writing with respect to your request for a statement of your account." Id. The Court, focusing on the informational character of the letters, held that these responses to the plaintiffs request were not an attempt to collect a debt and, therefore, not actionable under the FDCPA. Id. at *2; see also Gorham-Dimaggio, 2005 WL 2098068, at *2. "Such communication, initiated by the debtor, is not covered by the FDCPA." 2011 WL 124230, at *2.
However, this Court does not find that the aforementioned cases stand for the proposition that any and all responses to a consumer-initiated communication automatically fall outside of the reach of the FDCPA. Responsive communications from debt collectors can easily be both informational and attempts to collect a debt. Homeowners' case as pled amply illustrates this point. According to the Amended Complaint, Homeowners were told by Citi in August 2010 that foreclosure had begun, and referred them to PHS, the law firm handling the foreclosure proceedings. Pursuant to Citi's instructions, Homeowners then immediately contacted PHS to inquire about how to avoid foreclosure. PHS's response letter, received by Homeowners on August 30th, was far more than informational. Though the letter does contain the language "in accordance with your recent request ...," it also provides the following disclaimer: "Please be advised that this firm is a debt collector attempting to collect a debt. Any information received will be used for that purpose." Notably, the FDCPA mandates just such a disclaimer when a debt collector is in the process of collecting a debt. See § 1692e(11) (providing that a "failure to disclose in the initial written communication with the consumer ... that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose" is a violation of § 1692e). PHS's use of this disclosure language demonstrates
The Court also notes that this exchange with PHS would not have occurred but for Homeowners following Citi's instructions. Citi expressly directed Homeowners to contact PHS when Homeowners inquired about the foreclosure notice they received from Citi. The fact that Homeowners took the bait and reached out to PHS does not transform the purpose of Citi's and PHS's actions — the collection of a delinquent mortgage debt — into a benign exchange of helpful information. For the foregoing reasons, the Court finds that Homeowners can challenge the legality of PHS's August 30th communication under the FDCPA.
PHS's second communication to Homeowners on the December 7th is also actionable. This letter contains the same disclosure language as the August 30th communication, demonstrating that at least one function of the December letter was to collect upon Homeowners' debt, bringing the communication within the FDCPA's purview. In addition, the December letter is over three months removed from Homeowners' initial inquiry to PHS. Even if the Court found that the first response letter to Homeowners' inquiry fell within the Gorham-Dimaggio line of reasoning, this case and the others cited by PHS do not support the law firm's proposition that the existence of a consumer-initiated request immunizes all further communications between debt collector and consumer. The creation of such a large safe harbor for debt collectors under the FDCPA would seemingly cut against the purpose of the statute, which is to protect consumers and provide a remedy for those individuals "who have been subjected to abusive, deceptive, or unfair debt collection practices by debt collectors." § 1692(a), (b); Pollice, 225 F.3d at 400.
Seterus argues that Homeowners cannot prevail on their FDCPA claim against it, because Homeowners rely upon violations of the Pennsylvania Loan Interest and Protection Act (also known as "Act 6") as the foundation for their FDCPA claim. 41 Pa. Stat. Ann. § 403 (West 1999), et seq. Seterus asserts that since its actions in attempting to collect upon Homeowners' debt do not run afoul of Act 6, Seterus cannot be found liable for Homeowners' derivative FDCPA claim. However, the validity of Homeowners' Act 6 allegations, which the Court addresses next, is not the sole determining factor as to whether Homeowners' FDCPA claim survives dismissal because Homeowners do not rely only on Seterus's supposed Act 6 violations to support their FDCPA claim. To the contrary, Homeowners specifically contend that Seterus is a debt collector that made false representations regarding their debt and collected charges unauthorized by Homeowners' note and mortgage in contravention of FDCPA sections 1692e(2)(A) and 1692f(1). See, e.g., Am. Compl. ¶¶ 20, 27, 60-61, ECF No. 34. These allegations stand apart from Homeowners' Act 6 assertions and provide an independent basis for Seterus's potential liability under the
Homeowners contend that Citi's, Seterus's, and PHS's debt collection efforts violated Pennsylvania's Fair Credit Extension Uniformity Act (the "FCEUA"), specifically 73 Pa. Stat. Arm. § 2270.4(a) (West 2008). Section 2270.4(a) adopts the provisions of the FDCPA by providing that "[i]t shall constitute an unfair or deceptive debt collection act or practice under this act if a debt collector violates any of the provisions of the Fair Debt Collection Practices Act." Accordingly, if a particular collection practice constitutes a violation of federal law under the FDCPA, it also amounts to a violation of Pennsylvania state law under the FCEUA.
Citi, Seterus, and PHS move to dismiss Homeowner's FCEUA claims by asserting an exception to the statute found in section 2270.3. Similar to the FDCPA, the FCEUA protections are triggered when a debt collector attempts to collect a "debt." See § 2270.2. However, unlike the FDCPA, the FCEUA exempts a particular type of debt instrument, the "purchase money mortgage," from its definition of "debt." "[M]oney which is owed or alleged to be owed as a result of a loan secured by a purchase money mortgage on real estate shall not be included within the definition of debt...." Id. (emphasis added).
Unfortunately, the FCEUA does not define the phrase "purchase money mortgage." See generally, § 2270.1, et seq. Homeowners assert that the Court should rely upon the common law definition, where a "purchase money mortgage" was defined as a mortgage extended by the seller of a property to the buyer of that same property to satisfy all or part of the purchase price for the property. See, e.g., Appeal of Campbell, 36 Pa. 247, 255 (1860); Albright v. Lafayette Bldg. & Sav. Ass'n., 102 Pa. 411 (1883). All Defendants respond that the Court should follow the reasoning of Glover v. Udren, No. 08-990, 2010 WL 5829248 (W.D.Pa. Oct. 21, 2010) where this same argument was previously advanced by Homeowners' counsel and rejected by Judge Mitchell of this Court. Judge Mitchell's decision in Glover stemmed from an analysis of FCEUA section 2270.3 and the application of Pennsylvania's standard rules of statutory construction, codified in 1 Pa. Con. Stat. Ann. § 1921 (West 2008), et seq. The Court finds no cause to deviate from the sound reasoning in Glover.
When a statute does not define a necessary phrase, a court may look to other statutes on similar subjects to determine the phrase's meaning. Id. "[T]echnical" phrases are to be "construed according to such peculiar and appropriate meaning or definition," unlike phrases within the common vernacular that are ascribed their "common and approved usage." Id. § 1903(a). The phrase "purchase money mortgage" is a technical one, not found "within the common parlance," and so a court must determine if the Pennsylvania legislature has given the phrase a "peculiar and appropriate meaning." Id.; Glover, 2010 WL 5829248, at *6.
Indeed, as noted by the Glover court, the legislature has, in another statute, defined the parameters of a "purchase money mortgage." Glover, 2010 WL 5829248, at *6. Pennsylvania's Lien Priority Law includes the common law definition of a "purchase money mortgage" and also expands the definition to encompass mortgages provided by persons other than the seller, or in other words, by a third party.
§ 8141(1)(ii) (emphasis added).
Homeowners' debt falls within the above definition. Their mortgage was provided by a third party, WPF, and was taken to finance their purchase of the two parcels of property in Bethel Park, Pennsylvania. The mortgage itself also declares that it is a purchase money mortgage when it is used to acquire title to a property. Am. Compl. Ex. B ¶ 26, ECF No. 34-2. Homeowners' debt is, therefore, a "purchase money mortgage" as defined under Pennsylvania law and excluded from the reach of the FCEUA. All of Homeowner's claims against Citi, Seterus, and PHS that rely upon the FCEUA are dismissed with prejudice.
Homeowners allege that Citi, Seterus, and PHS violated Pennsylvania's Loan Interest and Protection Act (also known as "Act 6"), 41 Pa. Stat. Ann. § 101 (West 1999 & Supp.2012), et seq. Act 6 is a "comprehensive interest and usury law with numerous functions" that offers homeowners with residential mortgages protection from "overly zealous residential mortgage lenders." Beckett v. Laux, 395 Pa.Super. 563, 577 A.2d 1341, 1343 (1990) (internal quotations omitted). The statute defines a "residential mortgage lender" as any person who lends money ... and obtains a residential mortgage to assure payment of the debt .... § 101.
Homeowners rely upon multiple provisions of Act 6 in support of their contention that all three Defendants incurred liability under this statute in some manner by collecting illegal foreclosure-related attorney's fees and other foreclosure costs. These provisions include sections 404, 406, 501, and 502. Section 404 provides a residential mortgage debtor with the right to cure a mortgage default and mandates the manner in which this right to cure can be
To that end, section 404 specifically incorporates sections 403 and 406 of Act 6. However, section 403, which creates certain notice requirements for foreclosures, and section 406, which relates to the collection of attorney's fees, apply only to "residential mortgage lenders." Neither Citi nor Seterus, in their capacities as servicers of Homeowners' mortgage, fit the definition of a "residential mortgage lender" in section 101, because, as explained in the Court's analysis of Counts I and II, Homeowners' Amended Complaint does not provide a sufficient factual basis for their proposition that Citi or Seterus received, by assignment, more rights than those relating to the servicing of Homeowner's mortgage. See Glover, 2010 WL 5829248, at *8 (holding loan servicer did not fall within Act 6's definition of a "residential mortgage lender"). PHS, the law firm representing Citi's, then Seterus's interests, is not a "residential mortgage lender," and, in any case, Homeowners do not allege in their Amended Complaint that the law firm took on that status. Therefore, the claims under sections 404 and 406 against Citi, Seterus, and PHS are dismissed with prejudice.
The other two provisions of Act 6 upon which Homeowners rely are sections 501 and 502. These sections constitute Pennsylvania's usury law and provide a remedy to a debtor who, among other things, made interest payments to a creditor in excess of the interest rate under Pennsylvania law. §§ 501, 502; Gilbert v. Otterson, 379 Pa.Super. 481, 550 A.2d 550, 553 (1988). However, based on Homeowners' factual allegations, section 501 is simply inapplicable to their suit because this portion of the statute only applies to interest rates.
§ 501.
Homeowners do not allege that they remitted any such statutorily excessive interest payments; rather, they claim to have paid charges for "unreasonable serial inspections" and unauthorized "title services work" to PHS, who collected these payments on behalf of Seterus, Am. Compl. ¶ 20, ECF No. 34. Neither of these fees implicates in any way an interest rate in excess of the statutory maximum. Regarding the remaining Defendant Citi, Homeowners themselves allege that the company transferred its servicing right to their note and mortgage well prior to Homeowners remitting any of the contested payments. Accordingly, Homeowners' claim under section 501 against Citi is dismissed with prejudice. This claim is dismissed without prejudice as to Seterus and PHS.
Section 502 provides that a person who has paid charges in violation of Act 6 or otherwise by law can recover against "the person who has collected such excess interest or charges." § 502 (emphasis added). As noted by the Glover court, the Pennsylvania legislature's use of the term "person" in section 502 as opposed to the phrase "residential mortgage lender" in sections 404 and 406 is significant. Glover, 2010 WL 5829248, at *7. Act 6 defines the term "person" broadly, providing that it includes, but is not limited to, "residential mortgage lenders" and encompasses individuals, corporations, business trusts, estate trusts, partnerships, and all other legal entities. § 101. Therefore, all three Defendants fall within this definition and are subject to section 502's prohibitions.
However, for a person to be held liable under section 502 they must have collected some illegal charges. See § 502 (applying only when a person "has paid" a statutorily-excessive rate of interest or charges prohibited by law). Citi did not receive any contested payment because, as previously noted, Homeowners only allege that they remitted a payment to PHS after Citi had transferred its servicing rights to Seterus. Homeowners' claim under Act 6 section 502 against Citi is therefore dismissed with prejudice. As Homeowners' allege that PHS collected charges in violation of Act 6 on behalf of Seterus, these two Defendants' Motions to Dismiss as to claims arising under section 502 are denied.
The Unfair Trade Practices and Consumer Protection Law ("UTPCPL") is Pennsylvania's consumer protection law. Bennett v. A.T. Masterpiece Homes at Broadsprings, LLC, 40 A.3d 145, 151 (Pa.Super.Ct.2012). Its purpose is to prevent "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce," as defined by the act. Id.; 73 Pa. Stat. Ann. § 201-3 (West 2008). The Pennsylvania Supreme Court has stated that the UTPCPL should be liberally construed in order to effect its legislative goal of consumer protection. Bennett, 40 A.3d at 151 (citing Pennsylvania ex rel. Creamer v. Monumental Properties, Inc., 459 Pa. 450, 329 A.2d 812, 814 (1974)).
The second UTPCPL provision upon which Homeowners rely is the "catchall provision" of section 201-2(4)(xxi). This section is expansive in that it encompasses a wide range of circumstances because a defendant need only engage in "any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding" for liability to attach. Id. PHS argues that a heightened level of pleading akin to an allegation of common law fraud is required to bring an action pursuant to the "catch-all" provision, and Homeowners fail to meet this heightened threshold. See, e.g., Ross v. Foremost Ins. Co., 998 A.2d 648, 654 (Pa.Super.Ct.2010) ("In order to establish a violation of the [UTPCPL's] catchall provision, a plaintiff must prove all of the elements of common-law fraud." (internal quotations omitted)). Similarly, Citi and Seterus argue, among other things, that Homeowners do not show that they relied upon any statements from either company. Justifiable reliance on a misrepresentation is an element of common law fraud, along with scienter, intention by the defendant to induce action, and damages to the plaintiff. Id.
Recent developments in Pennsylvania law convince this Court that meeting a heightened "fraud pleading" standard is not required to maintain a cause of action under the "catch-all" section of the UTPCPL. In Bennett v. A.T. Masterpiece Homes at Broadsprings, LLC, 40 A.3d 145 (Pa.Super.Ct.2012), the Pennsylvania Superior Court analyzed two conflicting lines of cases on this issue of the appropriate pleading standard. One line of cases relied upon the pre-1996 language of section 201-2(4)(xxi) to conclude that litigants must allege enough facts to satisfy the elevated pleading standard necessary for common law fraud. Id. at 152. However, the Bennett court noted that these cases
Regarding the alleged deceptive conduct here, Homeowners have asserted sufficient facts at this stage in the proceedings to show that confusion or misunderstanding could reasonably arise from PHS's, Citi's, and Seterus's actions and that Homeowners were indeed misled by those actions. Homeowners allege that Citi referred Homeowners' mortgage to foreclosure while, at the same time, the company was representing to Homeowners that there was the possibility of an alternate payment arrangement. The purpose of this arrangement was to allow Homeowners to avoid the very foreclosure proceedings Citi initiated. PHS and Seterus then sent Homeowners multiple conflicting reinstatement letters, which Homeowners allege contain misrepresentations as to the amount of their debt. Homeowners further claim that they were damaged when they remitted a payment that included intentionally mislabeled fees. These allegations allow Homeowners to maintain a cause of action against all three Defendants under the UTPCPL's "catch-all" section.
Citi and Seterus also advance another argument in support of their Motions to Dismiss regarding the UTPCPL. They claim that Homeowners lack standing to sue them under the UTPCPL, because neither Citi nor Seterus were original signatories to the note and mortgage, meaning that Homeowners cannot allege that they purchased any goods or services from either Citi or Seterus. However, the UTPCPL's reach is expansive, and, to that end, the Third Circuit in In re Smith, 866 F.2d 576 (3d Cir.1989) emphasized that a district court should not limit the UTPCPL's application to only those circumstances where the unfair or deceptive conduct induced the consumer to make the initial purchase. Id. at 583. Such a reading of the statute "would insulate all kinds of practices from the [UTPCPL], such as debt collection, which occur after entering an agreement and which were not a basis for the original agreement." Id. (emphasis added). Similarly, liability can be imposed upon a mortgage assignee under the UTPCPL providing the plaintiff advances specific allegations of wrongdoing against the assignee, not simply against the original lender. See Murphy v. F.D.I.C., 408 Fed.Appx. 609, 611 (3d Cir.2010) (emphasizing the UTPCPL does not impose liability on a loan assignee absent claims of an assignee's wrongdoing). Homeowners assert
Homeowners' Amended Complaint, purportedly on behalf of a class of similarly-situated homeowners, has its genesis in a daisy-chain of facially inconsistent debt collection communications. For the reasons set forth above, the remedial reach of federal and Pennsylvania law is not as expansive as Homeowners allege, but not as cabined as Defendants suggest.
The Court dismisses with prejudice Homeowners' claims of: (1) breach of contract (Count I) against Citi and Seterus because these Defendants were not parties to Homeowners' mortgage and note nor were they assigned the duties, obligations, or responsibilities of a "lender" or "note-holder" from WPF or Fannie-Mae; (2) unjust enrichment (Count II) against Citi because the servicer did not receive the benefit of any disputed payment; (3) violations of the FCEUA against all Defendants (Counts IV and V) due to the statutory exemption regarding purchase money mortgages; (4) violations of Act 6 sections 404 and 406 (Count VI) against all Defendants due to these sections' applicability to residential mortgage lenders only; (5) violations of Act 6 sections 501 and 502 (Count VI) against Citi because the servicer did not collect any contested payment; and (6) violations of UTPCPL section 201-2(4)(v) (Count VII) against all Defendants due to a lack of deceptive representations regarding the benefits of Homeowners' note and mortgage. Homeowners' claims against Seterus and PHS arising under Act 6 section 501 (Count VI) are dismissed without prejudice.
An appropriate order will enter.
Motions for reconsideration play an important role in the adjudication of claims and defenses when they present a court with a compelling argument that its initial decision was erroneous because the Court did not consider controlling precedent, or mischaracterized or misapprehended the factual record. The quest to "get it right" is central to sound judicial decision making, and such motions can add to that effort. However, because the motion now before the Court (ECF No. 77) essentially restates, with added vigor, the arguments made previously, and does not satisfy the substantial standard for reconsideration,
In its Motion for Reconsideration, Defendant Phelan, Hallinan, and Schmieg, LLP ("PHS") first contends that this
The facts, as alleged, are that the Plaintiffs contacted PHS, not out of an effort to catch PHS in a simple calculation error and thereby generate the foundation for a baseless class action case
Further, the Amended Complaint and its attachments do not reveal this to be the type of case that PHS contends should drive the Court's consideration here, e.g., one stemming from a servicer's receipt of an unsolicited letter from a consumer who was poised to take pre-planned legal action when the lender's response contained an unintentional math error. Such a case, when and if it is filed, will be addressed in due course on its own merits.
PHS further contends that the Court improperly reasoned that it was a "debt collector" engaged in "debt collection" because PHS included language in every one of its letters to Plaintiffs which stated that the purpose of each such letter was "debt collection" and that PHS is a "debt collector." PHS now advises the Court that it puts that language in every letter it sends out because it would be "foolhardy" not to do so. PHS Memo. 9, At first blush, this approach would seem to run wholly counter to the intent of the FDCPA that recipients of such letters be put on notice when a communication is actively aimed at debt collection. PHS would instead be necessarily arguing here that consumers, such as Plaintiffs, should not always believe that debt collection warning in its letters, since that language may be false, and, according to PHS, was not accurate in this case.
PHS also argues that because it was hired to foreclose on the Plaintiffs' residential mortgage, such activity is not "debt collection" by a "debt collector" for FDCPA purposes as a matter of law. PHS posited in a footnote to its Memorandum in Support of its Motion to Dismiss (ECF No. 20) that it was not a "debt collector" engaged in "debt collection" since law firms engaged to foreclose on residential mortgages are outside of the definition of either term. (ECF No. 20, at 8 n. 1). PHS concedes that courts considering this argument are not unanimous in their positions on this issue. Compare Warren v. Countrywide Home Loans, Inc., 342 Fed.Appx. 458, 460 (11th Cir.2009) with Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 378 (4th Cir.2006).
On this point, the Court finds Chief Judge Traxler's opinion in Wilson persuasive. Wilson held that excluding all foreclosures from the definition of "debt collections" creates an "enormous" and unintended "loophole" in the FDCPA and that attorneys standing in the shoes of PHS are not definitionally exempt from the FDCPA's "debt collector" provisions. 443 F.3d at 376-78. See also Reese, 678 F.3d at 1217-1219 (recognizing the necessity for a factual analysis of law firm's specific activity and communications as alleged and declining to adopt such bright-line exclusions from FDCPA coverage). In Wilson, the defendant law firm's first letter to the plaintiffs stated that it was for the purpose of debt collection. Its second letter included a "validation notice," but also said that it was not a debt collector and was not engaged in debt collection, 443 F.3d at 374-75. The Wilson court rejected the argument that because the foreclosure of a residence was akin to an in rem proceeding rather than the collection of a debt created by personal obligation, the law firm's activities were therefore exempt from FDCPA scrutiny. Id. at 376-77. The court concluded that attorneys engaged in the foreclosure process, particularly those involved in the process of consumers "reinstating" accounts (as was PHS in this case), are not excluded from the definition of "debt collectors." Id. at 377-79.
As to the Court's ruling regarding the state law Loan Interest and Protection Act ("LIPA") claims against PHS, PHS argues that this Court seemingly concluded, erroneously, that Judge Mitchell's opinion denying a Motion to Dismiss in Glover v. Udren, No. 08-990, 2010 WL 5829248 (W.D.Pa. Oct. 21, 2010) was binding precedent as to this claim. PHS argues that Judge Mitchell's decision was "vacated" as a result of the voluntary dismissal of those
The Court's Opinion in this case fully considered the reasoning of both Judge Mitchell and Judge Wettick, and while having a deep level of respect for Judge Wettiek's judicial craftsmanship, the Court concluded, then and now, that the reasoning applied by Judge Mitchell in his Glover opinion is persuasive. The Court reached its conclusion not because either Judge Mitchell's or Judge Wettick's opinion was binding on this Court, but because of the Court's considered analysis of those opinions. The fact that the claims in Glover that were the subject of Judge Mitchell's opinion were later voluntarily dismissed by the parties does not, either as a matter of law or of logic, erase its reasoning.
Finally, PHS urges the Court to now put the brakes on this case and certify it for immediate appellate disposition of the FDCPA and LIPA claims against it to our Court of Appeals. 28 U.S.C. § 1292(b). In support of its request, PHS contends that there is a substantial risk of what would essentially be a discovery nightmare (PHS Memo. 14) if the FDCPA/LIPA claims against it remain in the case, and PHS is sufficiently certain of the error of this Court's reasoning to urge a pause in the proceedings while they seek immediate review. The Court is mindful that such an early decision on important legal issues could affect pretrial proceedings, but that is true in every civil action. At least at this point, the Court concludes that if the principal reason for an early appeal is a fear of unreasonable or disproportionate discovery, that is a matter this Court can deal with by regulating discovery, rather than stalling the case in its entirety while the 28 U.S.C. § 1292(b) petition process plays out. As noted in this Opinion, and the Court's initial Opinion, it is the application of legal principles to the actual facts pled here that guides the Court's decision at the Motion to Dismiss stage. In the Court's judgment, resolution of the FDCPA claims against PHS relates as much to a consideration of the facts alleged in the Amended Complaint as it does to the broader legal pronouncements PHS advances. Further, as to the LIPA claims, they involve issues of state law and are
An appropriate order will issue.
