JOSEPH C. SPERO, Chief Magistrate Judge.
Defendants Federal National Mortgage Association and Seterus, Inc. (collectively, "Seterus") move for summary judgment on all remaining claims brought by Plaintiff Lesley Kaplan, which consist of a claim under the federal Real Estate Settlement Procedures Act ("RESPA") and a claim under California's Consumer Credit Reporting Agencies Act (the "CCRAA"). The Court held a hearing on August 11, 2017. For the reasons discussed below, Seterus's motion is GRANTED as to Kaplan's RESPA claim, and Kaplan's CCRAA claim is REMANDED to the Superior Court of California for Contra Costa County.
Kaplan obtained a loan of $280,000 on September 13, 2005, secured by a deed of trust encumbering real property—Kaplan's home—at 2910 Euclid Avenue, Concord, California. See Seterus Decl. (dkt. 80-2)
Kaplan's bankruptcy plan called for her to pay back her two month delinquency through periodic payments to the bankruptcy trustee over the course of five years, ending in March of 2018. Id. ¶ 4; Pl.'s Request for Judicial Notice ("Pl.'s RJN," dkt. 81-2) Ex. K (Chapter 13 Plan) ¶ 1. Kaplan has at all relevant times stayed current with her payments to the bankruptcy trustee. Kaplan Decl. ¶ 5. The plan also called for her to make ongoing payments for amounts due after the date of her bankruptcy petition directly to the lender, as she had done before, but set at the amount of $1,589.31 per month. Id. ¶ 4; Pl.'s RJN Ex. K ¶ 4. In October of 2013, Kaplan could only afford a partial payment of $1,259.52, which was placed in suspense until she could pay the remaining portion of that month's payment. Id. ¶ 6.
In September of 2014, Kaplan's loan was assigned from Chase to the Federal National Mortgage Association ("Fannie Mae"), and Seterus became the servicer for the loan. Id. ¶ 7; see Seterus Decl. ¶ 3.
In February of 2015, Kaplan was unable to afford her monthly payment on the loan and called Seterus to ask how she should proceed. Kaplan Decl. ¶ 9. A Seterus representative "advised [Kaplan] that, because [she] was in active bankruptcy, all of [her] payments were voluntary," and declined to explain that assertion further. Id. The representative also told Kaplan that she "was missing multiple installments on the account." Id. In another call later that month, a Seterus representative told Kaplan that she had "missed payments in October 2011, April 2012, and October 2013," and that she should submit a written request to Seterus to research the issue if she believed there was an error. Id. ¶ 10. Kaplan did not make a payment for February of 2015. Id. ¶ 9.
On March 16, 2015, Kaplan called Seterus again and faxed a letter to Seterus that reads as follows:
Kaplan Decl. ¶ 11 & Ex. A; Seterus Decl. ¶ 8 & Ex. 3. Although Kaplan's letter referenced a payment purportedly missed in "April 2012," the attached proof of payment (a bank statement) highlights a payment made on March 29, 2012. Seterus Decl. Ex. 3 at FNMA-000936.
On April 10, 2015, Kaplan's bankruptcy attorney Thomas Burns sent an email to attorneys for Seterus stating that Kaplan "continues to get conflicting information about the status and payment history of her loan" and that her "position is that she remains post-petition current on this loan." Seterus Decl. ¶¶ 13-14 & Ex. 8. Burns requested "a complete accounting" of Kaplan's monthly balances since Seterus began servicing the loan (on the basis that "[i]f Seterus [sic] position is that this account is not post-petition current, then we need to know the basis for why you are showing a default") as well as for monthly statements to be mailed to Kaplan going forward. Id. Ex. 8.
Seterus initially responded on April 27, 2015 by sending a letter to Burns, although the response was apparently to Kaplan's March 16 letter rather than to Burns's April 10 email:
Seterus Decl. ¶ 10 & Ex. 5. Seterus enclosed with that letter a document showing account activity on Kaplan's loan from October 3, 2012 through the assignment of the loan on September 2, 2014. Id. Ex. 5. According to that activity log, each of Kaplan's payments from October of 2012 through October of 2013 was applied to amounts due two months before the payment, and each payment thereafter was applied to amounts due three months before the payment. Id.
Seterus responded directly to Kaplan on May 7, 2015 as follows:
Kaplan Decl. ¶ 12 & Ex. B; Seterus Decl. ¶ 11 & Ex. 6.
On May 18, 2015, Seterus sent a longer letter to Burns, the bankruptcy attorney, explaining that Kaplan's March 2012 payment was "applied to the loan to satisfy the February 1, 2012 contract installment," and her October 2013 payment was "applied to satisfy the August 1, 2013 contract installment." Kaplan Decl. Ex. C; Seterus Decl. ¶ 12 & Ex. 7. According to that letter, Seterus "cannot speak to the actions of the prior servicer in their application of funds to the loan." Kaplan Decl. Ex. C; Seterus Decl. Ex. 7. Seterus's letter attached records of Kaplan's payment history, including the same activity report that was attached to the earlier letter to Burns showing activity through September 2014, as well as records from 2015 showing payments being applied to debts due four months prior. Seterus Decl. Ex. 7. The letter indicated, in a somewhat convoluted manner, that its accounting of Kaplan's debt and payments was based on the terms of the contract, not on the terms of the bankruptcy payment plan:
Id.; Kaplan Decl. Ex. C.
Kaplan responded to Seterus by fax on November 30, 2015:
Kaplan Decl. ¶ 16 & Ex. E; Seterus Decl. ¶ 16 & Ex. 9.
Kaplan also sent a letter by mail on November 30, 2015, attaching a check for $206.72 and requesting that Seterus apply that money to make whole the previous incomplete payment October 2013 payment (erroneously referenced in Kaplan's letter as "October, 2014"). Kaplan Decl. ¶ 15 & Ex. D; Seterus Decl. ¶ 16 & Ex. 9.
Seterus's response to Kaplan's November fax, sent just one day later on December 1, 2015, was similar to its May 7 response to her first fax:
Kaplan Decl. ¶ 17 & Ex. F; Seterus Decl. ¶ 17 & Ex. 10.
Later in December of 2015, Kaplan obtained a copy of her Equifax credit report, which stated that she was past due on her loan by $6,343, or four monthly payments. Kaplan Decl. ¶ 18 & Ex. G. Kaplan "contacted Seterus"—presumably by telephone—on December 29, 2015, and was told that although Seterus received her payment in June of 2014, the payment was not necessarily applied to that month's installment. Kaplan Decl. ¶ 19. The representative also told Kaplan that at that time three months' payments were past due (October, November, and December of 2015), but said that Seterus could not update the credit reporting regarding Kaplan's loan because Seterus "could not go back in time." Id. Seterus's present declaration, however, states that Kaplan was in fact "contractually delinquent for four (4) monthly installments" in December of 2015. Seterus Decl. ¶ 19.
On February 16, 2016, Kaplan sent Seterus a check for $1,585.84 to account for her delinquency for February of 2015. Kaplan Decl. ¶ 24 & Ex. H. Her letter accompanying that check included the following passage indicating Kaplan's belief that she was up to date on her payments:
Id. Ex. H.
In March of 2016, Seterus moved the bankruptcy court for relief from the automatic bankruptcy stay so that Seterus could foreclose on Kaplan's home, stating in its motion that Kaplan was four months behind on her payments, but ultimately withdrew that motion. Kaplan Decl. ¶ 25; Pl.'s RJN Ex. L.
In December of 2016, Kaplan filed a declaration in her bankruptcy proceeding that attached a list of all payments she made on her loan from April of 2013 through March of 2016. Seterus Decl. ¶ 20 & Ex. 11. Seterus contends that the payments Kaplan listed are consistent with Seterus's records and accounting of Kaplan's loan. Id. ¶¶ 21-23 & Exs. 12, 13.
Kaplan paid the delinquent February 2015 installment in full in February of 2016, bringing her into compliance with her post-petition payments under the terms of her bankruptcy plan. Kaplan Decl. ¶ 24. Several months later, in September and October of 2016, Seterus nevertheless sent Kaplan two letters stating that it had accepted her payments for those months, but the loan was in default and subject to foreclosure, and that Kaplan therefore needed to contact Seterus. Id. Exs. I, J.
Kaplan states in her declaration that she has at times—and particularly after difficult experiences dealing with Seterus—experienced fear, anxiety, difficulty sleeping and eating, heart palpitations, and increased blood pressure. Id. ¶¶ 20, 21, 23, 27. Seterus's September 2016 letter arrived shortly before with a trip to Yosemite National Park that Kaplan had planned with a friend. Id. ¶ 27. As a result, Kaplan could not sleep or enjoy the trip, and instead worried about her house. Id.
This case began as a pro se complaint in state small claims court. See Notice of Removal (dkt. 1). Seterus removed to this Court and filed both a motion for a more definite statement and an anti-SLAPP motion to strike. See id.; Mot. for More Definite Statement (dkt. 9); Mot. to Strike (dkt. 11). Kaplan thereafter obtained counsel and stated her non-opposition to the motion for a more definite statement and her intent to file an amended complaint. See dkt. 18. The Court granted that motion and denied the motion to strike as moot. See dkt. 21.
Kaplan filed a first amended complaint (dkt. 23) on July 26, 2016, and Seterus moved to dismiss. See dkt. 37. Pursuant to a stipulation of the parties, Kaplan filed her operative second amended complaint on October 28, 2016, and Seterus withdrew its motion to dismiss. See Stipulation (dkt. 48); 2d Am. Compl. ("SAC," dkt. 49). Defendants answered that complaint, and later amended their answer by stipulation. Answer (dkt. 52); Am. Answer (dkt. 61).
The present complaint includes factual allegations largely consistent with the factual record set forth above. See generally SAC. Kaplan's first claim was for violation of the automatic bankruptcy stay, but the Court dismissed that claim without prejudice to Kaplan refiling it in bankruptcy court. See SAC ¶¶ 57-67; Civ. Minute Order (dkt. 66). Kaplan's remaining claims in this Court are for violation of RESPA and the CCRAA. With respect to RESPA, Kaplan asserts that Seterus violated that statute by: (1) failing to provide a timely response to her March 16, 2015 fax, SAC ¶ 74.a; (2) failing to make corrections in response to that fax and transmit notice of such corrections, id. ¶ 74.b; (3) failing to provide information, as well as contact information for a person who could provide assistance, in response to Burns's April 10, 2015 email, id. ¶ 79; (4) failing to make corrections in response to Kaplan's November 30, 2015 fax and transmit notice of such corrections, id. ¶ 82; (5) improperly providing information to reporting agencies regarding debts related to the November 2015 fax, id. ¶ 84; and (6) various theories related to a January 2016 email from Kaplan's counsel to Seterus, id. ¶ 89. With respect to the CCRAA, Kaplan asserts that Seterus reported information that it knew or should have known to be inaccurate information to credit reporting agencies, including that Kaplan was four months delinquent on her payments in December of 2015. Id. ¶ 98. Kaplan seeks statutory and actual damages for the alleged RESPA violations and punitive and actual damages, as well as injunctive relief, for the alleged CCRAA violations. Id. at 15 (prayer for relief).
The present motion includes a number of arguments related to Kaplan's RESPA claim that Kaplan does not oppose, and that this order therefore does not address in detail: (1) that Seterus timely acknowledged Kaplan's March 16, 2015 letter, Mot. (dkt. 80) at 7; (2) that the April 10, 2015 email from Kaplan's bankruptcy attorney Burns was not a qualified written request ("QWR") as defined by RESPA, id. at 9-11; (3) that Seterus properly responded to that email even if it was a qualified written request, id. at 11-13; (4) that Seterus is entitled to summary judgment with respect to claims based on the January 2016 email from counsel, id. at 16-17; and (5) that there is no evidence that Seterus provided information to credit reporting agencies within sixty days after Kaplan sent her November 2015 fax, id. at 17-18.
Kaplan concedes that "not all of [the RESPA theories set forth in her complaint] panned out in discovery," and therefore does not oppose the arguments listed above, instead "focus[ing] on her core RESPA claims concerning [Seterus's] lack of an adequate response to her [March and November 2015 faxes]." Opp'n (dkt. 81) at 8 n.5. In light of Kaplan's explicit waiver of these arguments, the Court holds that Seterus is entitled to summary judgment on RESPA theories of recovery based on its purported failure to provide a timely response, SAC ¶ 74.a, the April 2015 email from Burns to Seterus, id. ¶ 79, the January 2016 email, id. ¶ 89, and Seterus's purported improper credit reporting after the November 2015 fax, id. ¶ 84.
Seterus seeks summary judgment on all claims. Mot. at 1. This overview of Seterus's motion omits the arguments set forth above that Kaplan does not oppose.
Seterus describes Kaplan's March 16, 2015 fax—which disputed Seterus's contention that Kaplan missed payments in April 2012 and October 2013, requested review by Seterus's research department, and asserted that Kaplan should only owe one month's payment at that time—as a "purported" or "alleged" QWR, but does not actually argue that this fax fails to meet the standard for a QWR under RESPA. See id. at 7; Seterus Decl. Ex. 3. Instead, Seterus contends that it properly responded to the March fax by sending an initial response to Kaplan's bankruptcy attorney Thomas Burns on April 27, 2015 acknowledging that an October 3, 2012 payment
Seterus contends that Kaplan's November 30, 2015 fax "is not a QWR" because it "is so scattered that it is nearly impossible to determine what the 2017information sought' may be." Id. at 14. Even if that fax is a QWR, Seterus argues that it cannot be held liable because "RESPA does not impose a never-ending cycle of liability to respond to repeated and duplicate requests about the same issues," and the November fax "merely wishes to respond to Seterus' [May 18, 2015] letter (six months after it was sent) for the purpose of rehashing prior disagreements." Id. at 14-15. Finally, Seterus argues that it properly responded to the November 2015 fax by sending its December 1, 2015 letter confirming receipt of payments in May, June, July, and August of 2014. Id. at 15.
More generally, Seterus argues that it was correct to account for Kaplan's loan based on its original terms rather than the terms of her Chapter 13 bankruptcy plan—meaning that the two delinquent payments being repaid under the plan remained delinquent, and each payment Kaplan made going forward was applied to an earlier month—and that "Seterus explained this to her, in plain English, on multiple occasions," i.e., the two letters to Kaplan's bankruptcy attorney. Id. at 15-16. Seterus also contends that Kaplan has not shown damages under RESPA because Seterus maintained accurate loan records and responded to her requests, and because Kaplan has not shown a sufficient relationship between her alleged damages and the alleged violations. Id. at 18-19.
With respect to Kaplan's CCRAA claim, Seterus argues that its report to Equifax that Kaplan was four months late in payments was accurate, and moreover that it is consistent with Kaplan's admissions that she missed two payments before filing for bankruptcy, made a partial payment in October 2013 that she did not cure until after Seterus reported information to Equifax, and missed a payment in February 2015 that she also did not cure until after Seterus reported to Equifax. Id. at 20-22.
Kaplan's primary argument is that Seterus violated both RESPA and the CCRAA by failing to account for her bankruptcy repayment plan and instead continuing to treat her loan as delinquent by the two monthly payments that she is repaying through that plan. See Opp'n at 5-7; 12-13. Kaplan cites one decision from this district holding that failure to account for a Chapter 13 plan violates the federal Fair Credit Reporting Act ("FCRA"), as well as a handful of bankruptcy court decisions, but acknowledges that many cases in this district have held to the contrary. Id. at 12-13 & n.6 (principally citing Aulbach v. Experian Info. Sols., Inc., __ F. Supp. 3d __, No. 16-cv-05617-VC, 2017 U.S. Dist. LEXIS 69004, 2017 WL 1807612 (N.D. Cal. May 4, 2017)).
According to Kaplan, both the March 2015 fax and the November 2015 fax are QWRs because "both clearly identify the account, and identify that there are accounting errors on the account." Id. at 9. Kaplan also contends that none of Seterus's responses satisfied its obligations because none indicated that any errors had been corrected, and because even if Seterus is right that it was not required to make corrections, none of the responses complied with RESPA's requirement that a response in such circumstances must state that no error occurred and that the borrower has the "2017right to request documents relied upon by the servicer in reaching its determination.'" Id. at 9-10 (quoting 12 C.F.R. § 1024.35(e)(1)(i)(B)). As for relief, Kaplan argues that her actual emotional distress damages are supported by her declaration and implicate genuine issues of fact, that she is entitled to statutory damages under RESPA because Seterus does not dispute that it has a practice of failing to account for bankruptcy repayment plans, that she is entitled to injunctive relief and emotional distress damages for the purported CCRAA violation, and that she should recover punitive damages under the CCRAA because Seterus's failure to account for the bankruptcy repayment plan is willful. Id. at 10-11, 13.
In conclusion, Kaplan requests that the Court deny the motion for summary judgment. Opp'n at 13 In the alternative, however, if the Court grants Seterus summary judgment with respect to Kaplan's RESPA claim, Kaplan requests that her CCRAA claim be remanded to state court. Id.
Seterus argues that Aulbach, on which Kaplan relies, represents a distinct minority viewpoint, and that the "Northern District has consistently held that past due balances do not simply disappear when a debtor files a petition for Chapter 13 bankruptcy." Reply (dkt. 82) at 3-4 & n.1. Based on the view of the "resounding majority of courts in the Northern District," Seterus argues that it "has no obligation under RESPA to 2017erase' [Kaplan's] past due balance while applying [her] payments to her account during the pendency of her bankruptcy." Id. at 4; see also id. at 8-9 (making the same argument in the context of Kaplan's CCRAA claim).
Seterus again contends that that it properly responded to Kaplan's March 2015 fax by reporting that the March 2012 and October 2013 payments were "posted to the loan." Id. at 5 (citing Kaplan Decl. Ex. B). With respect to the November 2015 fax, Seterus asserts that Kaplan "makes no request for a narrative concerning how her payments are applied in the bankruptcy context," but instead "presents the fact that she made payments in May, June, July, and August of 2014," which Seterus confirmed in its December 1, 2015 response. Id. at 6. In response to Kaplan's argument that Seterus's correspondence failed to comply with regulations governing information to be included when a servicer determines that no corrective action is necessary, see Opp'n at 9-10 (citing 12 C.F.R. § 1024.35(e)(1)(i)(B)), Seterus contends that this is "an entirely new claim" raised for the first time in the opposition brief, and should not be considered because it falls outside the scope of the complaint. Reply at 6.
Seterus argues that Kaplan's declaration regarding her damages should be disregarded because it did not state that it was under penalty of perjury,
Seterus's reply does not address Kaplan's request that the CCRAA claim be remanded to state court if the Court grants summary judgment on the RESPA claim. See Opp'n at 13; see generally Reply.
Summary judgment on a claim or defense is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In order to prevail, a party moving for summary judgment must show the absence of a genuine issue of material fact with respect to an essential element of the non-moving party's claim, or to a defense on which the non-moving party will bear the burden of persuasion at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Once the movant has made this showing, the burden then shifts to the party opposing summary judgment to designate "specific facts showing there is a genuine issue for trial." Id. "[T]he inquiry involved in a ruling on a motion for summary judgment . . . implicates the substantive evidentiary standard of proof that would apply at the trial on the merits." Anderson v. Liberty Lobby Inc., 477 U.S. 242, 252 (1986). The non-moving party has the burden of identifying, with reasonable particularity, the evidence that precludes summary judgment. Keenan v. Allan, 91 F.3d 1275, 1278 (9th Cir. 1996). Thus, it is not the task of the court to scour the record in search of a genuine issue of triable fact. Id. at 1229; see Carmen v. S.F. Unified Sch. Dist., 237 F.3d 1026, 1031 (9th Cir. 2001); Fed. R. Civ. P. 56(c)(3).
A party need not present evidence to support or oppose a motion for summary judgment in a form that would be admissible at trial, but the contents of the parties' evidence must be amenable to presentation in an admissible form. See Fraser v. Goodale, 342 F.3d 1032, 1036-37 (9th Cir. 2003). Neither conclusory, speculative testimony in affidavits nor arguments in moving papers are sufficient to raise genuine issues of fact and defeat summary judgment. Thornhill Publ'g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979). On summary judgment, the court draws all reasonable factual inferences in favor of the non-movant, Scott v. Harris, 550 U.S. 372, 378 (2007), but where a rational trier of fact could not find for the non-moving party based on the record as a whole, there is no "genuine issue for trial" and summary judgment is appropriate. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986).
RESPA provides guidelines for loan servicers to follow when receiving a QWR for information relating to the servicing of a loan from a borrower, or from a borrower's agent. See 12 U.S.C. § 2605(e). A QWR is a written correspondence that "(i) includes, or otherwise enables the servicer to identify, the name and account of the borrower, and (ii) includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower." 12 U.S.C. §§ 2605(e)(1)(B)(i), (ii). Upon receiving a QWR, the servicer must provide a written response acknowledging receipt of the correspondence within five days, and provide a substantive response to the inquiry within thirty days (excluding weekends and holidays). Id. §§ 2605(e)(1)(A), (e)(2). The substantive response can take one of three forms: making appropriate corrections and transmitting a notice of those corrections to the borrower, id. § 2605(e)(2)(A), conducting an investigation and providing the borrower with a written explanation of why the servicer believes the borrower's account is correct, id. § 2605(e)(2)(B), or conducting an investigation and either providing information that the borrower requested or explaining why that information is not available, id. § 2605(e)(2)(C). The servicer can extend the thirty-day deadline for a substantive response by an additional fifteen days if it notifies the borrower of the reasons for delay within the initial deadline. Id. § 2605(e)(4).
Actual damages are available to compensate individual claims under RESPA, but "[a]lleging a breach of RESPA duties alone is not enough. A plaintiff must, at a minimum, allege that the breach resulted in actual damages." Banh v. Aurora Loan Servs., LLC, CV 11-06365 PSG, 2012 WL 2202982, at *3 (N.D. Cal. June 14, 2012) (citations omitted). "[U]ncertainty and impending harm, as opposed to actual harm, is insufficient to state a claim for damages under RESPA. . . ." Id. (citations omitted). The parties here do not dispute that emotional distress damages are available under RESPA so long as a plaintiff establishes that her emotional distress was caused by a violation of the statute. See Mot. at 19 (citing, e.g., Lawther v. Onewest Bank, No. C 10-0054 RS, 2010 WL 4936797, at *7 (N.D. Cal. Nov. 30, 2010); Opp'n at 10. A court may award additional statutory damages of no more than $2,000 if the defendant has engaged in "a pattern or practice of noncompliance" with RESPA's requirements. 12 U.S.C. § 2605(f)(1)(B).
As for the bankruptcy procedures at issue, the Supreme Court has briefly described the Chapter 13 process as follows:
Harris v. Viegelahn, 135 S.Ct. 1829 (2015). The Ninth Circuit provides a more detailed explanation in In re Blendhein, including a discussion of the discretionary tools that debtor can use in crafting a repayment plan to modify terms of debts during repayment and discharge debts following the completion of the plan. 803 F.3d 477, 485-87 (9th Cir. 2015). Repayment plans confirmed by a bankruptcy court are binding on creditors, and upon confirmation, creditors lose any claim to the debtor's property as except as provided in the plan. 11 U.S.C. § 1327.
As a starting point, the Court agrees with Seterus that Kaplan's assertion in her opposition that Seterus's responses failed to comply with 12 C.F.R. § 1024.35(e)(1)(i)(B)—which defines the notification a servicer must provide when it determines that no error occurred—falls outside the scope of the claims stated in her complaint. Setting aside claims disposed of by the arguments that Kaplan declined to oppose in her opposition brief, see Opp'n at 8 n.5, Kaplan's operative complaint includes two theories of liability under RESPA: (1) that Seterus "fail[ed] to make appropriate correction's to [Kaplan's] account in response to the [March 2015] qualified written request, including the crediting of any late charges or penalties, and fail[ed] to transmit written notice of such corrections to [Kaplan] no later than 30 days after receipt of [Kaplan's] qualified written request, in violation of 12 U.S.C. § 2605(e)(2)(A)," SAC ¶ 74.b; and (2) that Seterus similarly failed to make corrections and provide notice of such corrections in response to the November 2015 fax, id. ¶ 82. The complaint does not put Seterus on notice of a theory that its responses did not meet the regulatory requirements for a response stating that Seterus determined no error occurred.
The Ninth Circuit has addressed in the context of the Age Discrimination in Employment Act ("ADEA") the question of whether a plaintiff can invoke a theory not stated in the complaint to survive a motion for summary judgment:
Coleman v. Quaker Oats Co., 232 F.3d 1271, 1292-93 (9th Cir. 2000). The Ninth Circuit went on to hold that plaintiffs cannot proceed on a disparate impact theory in an ADEA case unless either: (1) the theory is pleaded in the complaint; or (2) the plaintiffs "make known during discovery their intention to pursue recovery on the disparate impact theory omitted from their complaints." Id. at 1294.
Coleman provides an appropriate framework for analyzing Seterus's argument. The distinction between the different RESPA claims stated in Kaplan's complaint and raised for the first time in her opposition brief is comparable to the distinction between a disparate treatment and disparate impact claim under the ADEA, and courts have applied Coleman in other contexts as well. See, e.g., Patel v. City of Long Beach, 564 F. App'x 881, 882 (9th Cir. 2014) (citing Coleman to affirm summary judgment where a plaintiff asserted a claim for denial of access to courts, but raised a claim for retaliation in violation of the First Amendment for the first time in opposition to summary judgment). As noted above, Kaplan's complaint does not put Seterus on notice of a RESPA claim for failure to include required information with a statement that Seterus found no violation. And while the rule of Coleman would also allow this sort of related but not-explicitly-pleaded claim to proceed if Seterus had notice of it during discovery, there is no indication in the record that Kaplan gave Seterus notice of such a theory during discovery, or otherwise, before filing her opposition brief.
One district court has described the Coleman analysis as "focused on prejudice to the defendant." Pena v. Taylor Farms Pac., Inc., No. 2:13-CV-01282-KJM-AC, 2014 WL 1330754, at *4 (E.D. Cal. Mar. 28, 2014). The Court assumes for the sake of argument that Seterus was not significantly prejudiced in its ability to contest whether its responses violated the regulation, since whether such a violation occurred would seem to depend solely on the responses themselves and thus not require further discovery. Prejudice is apparent, however, when it comes to damages, because without knowledge that Kaplan intended to pursue a claim based on Seterus's failure to comply with 12 C.F.R. § 1024.35(e)(1)(i)(B), Seterus had no reason to probe what damages Kaplan suffered as a result of such noncompliance. Given that fact discovery closed on July 3, 2017—four days before Kaplan filed her opposition brief and first raised the regulatory compliance issue therein—Seterus was prejudiced by not having a reason and opportunity to investigate that aspect of damages while discovery was open. The Court therefore holds that Kaplan cannot pursue liability based on the theory that Seterus failed to comply with the requirements set forth in 12 C.F.R. § 1024.35(e)(1)(i)(B) for a statement that a loan servicer found no error in response to a QWR.
To the extent that the opposition brief could be construed as raising other theories besides failure to correct an error and provide notice of correction, or to the extent that other deficiencies not raised in the briefs are apparent from the record (i.e., the fact that Seterus's April 27, 2015 letter in response to Kaplan's March 2015 fax failed to address in any way the October 2013 payment at issue in the fax, and instead discussed a payment Kaplan made a year earlier in October 2012), the same reasoning requires limiting Kaplan's RESPA claim to the theories set forth in her complaint and not waived by footnote five of her opposition: that Seterus failed to correct errors identified in Kaplan's March 2015 and November 2015 faxes.
Kaplan's complaint and opposition characterize her March 16, 2015 fax as identifying an error or errors related to her loan, but do not clearly specify the nature of the error. See Compl. ¶ 72; Opp'n at 2, 9. Based on the fax itself, it is apparent that although it describes perceived errors, they are not the purported error at the heart of Kaplan's present argument—that Seterus accounted for her loan based on the terms of the contract rather than the bankruptcy plan, and continued to apply payments to older months based on the Kaplan's pre-petition delinquency.
Instead, the March fax asserts that Seterus erred by informing Kaplan that she "missed a payment" in April of 2012 and October of 2013, the latter as a result of the partial payment having been returned. Kaplan Decl. Ex. A; Seterus Decl. Ex. 3. Kaplan asserts in the fax that she in fact made payments those months, and although she did not pay the full amount in October of 2013, her partial payment was held in a suspense account rather than returned.
Seterus's April 27, 2015 letter to Kaplan's bankruptcy counsel was largely a non sequitur, confirming the prior servicer's receipt of Kaplan's October 3, 2012 payment without addressing the October 2013 payment that Kaplan actually asked about,
Because the March 2015 fax only identified errors as to purportedly missed or returned payments, it did not give Seterus notice that Kaplan believed Seterus's overall method of accounting for her pre-petition delinquency to be an error, and the Court need not resolve the propriety of that accounting method in order to resolve this theory of liability.
Kaplan's November 30, 2015 fax more directly implicates Seterus's accounting method. Although Seterus contends that this fax is too "scattershot" to be a valid QWR and merely rehashes the issues raised in Kaplan's March 2015 fax, Mot. at 14-15, the issues raised are relatively straightforward, and the only purported error identified is distinct from those discussed in the earlier fax.
The November fax begins with three bullet points identifying "outstanding items" that, according to Kaplan, Seterus raised in its May 18, 2015 to her bankruptcy lawyer: (1) that Kaplan owed her full February 2015 payment; (2) that a partial payment of slightly more than $1,300 was being held in suspense;
Id. The fax concludes with Kaplan stating that she expects Seterus "to make this right and correct this outstanding delinquent amount and reflect this on my credit report as well." Id.
Although the November fax addresses multiple issues, it identifies only one purported error: that Seterus described the loan as having been delinquent for the June 2014 installment as of the time Seterus took over as servicer in September 2014. Id. The distinction between this purported error and the errors identified in the March 2015 fax discussed above, while perhaps subtle, is significant. In the earlier fax, the purported errors were a Seterus representative's assertion that Kaplan missed specific payments. See id. Ex. A. As discussed above, Seterus could remedy such an error in full by correcting its records to show that the payments at issue were made, or could show that there was no such error by showing that its records did not in fact reflect missed payments. In the November fax, however, the purported error was a record of a delinquent amount due on the loan. See id. Ex. E.
At this point, the parties agree and the record reflects that the purported delinquency at issue arose from Kaplan's failure to pay all of her monthly installments before she filed for bankruptcy, and from Seterus's accounting practice of continuing to treat Kaplan's pre-petition missed payments as "contractually delinquent" after her Chapter 13 repayment plan was in place, despite the fact that she was repaying her arrearage for those missed payments through the plan. The question, then, is whether there is evidence and authority to support Kaplan's position that Seterus's accounting practice was an error in need of correction.
A handful of bankruptcy court decisions from other districts have held or suggested that a creditor or servicer violates the Bankruptcy Code or a bankruptcy court's orders by failing to account for a Chapter 13 repayment plan. See In re Luedtke, No. 02-35082-svk, 2008 WL 2952530, at *4 (Bankr. E.D. Wis. July 31, 2008) (holding that "[a]llowing creditors . . . to report the original amount of the loan and that the plan payments are excessively late based on the original loan terms . . . is contrary to the spirit and purpose of Chapter 13" and violated the court's order confirming the debtor's repayment plan); In re Payne, 387 B.R. 614, 632-33 (Bankr. D. Kan. 2008); In re Jones, 366 B.R. 584, 590 (Bankr. E.D. La. 2007) ("As for the postpetition debt, the confirmation of a plan recalibrates the amounts owed by Debtor as of the petition date. Because the prepetition arrearage is paid by the Trustee under the plan, Debtor's account gets a fresh start, free of all past due sums."). Generally, however, those decisions have focused on adverse effects of such accounting that Kaplan does not claim are present here, such as "late charges, fees, and other expenses assessed to a debtor's loan as a result of postpetition accounting mistakes made by lenders." In re Jones, 366 B.R. at 590-91 (stating that the lender's practices in that case "resulted in such a tangled mess that neither Debtor, who is a certified public accountant, nor [the lender's] own representative could fully understand or explain the accounting offered"); see also In re Payne, 387 B.R. at 632-33 (concluding that the servicer's failure to properly account for a Chapter 13 repayment plan kept the "Debtors' principal balance artificially high and accruing more interest than it should," and that the servicer wrongfully rejected payments because it erroneously considered the debtors to be in default).
The other category of cases on which the parties rely is recent decisions from this district addressing FCRA claims based on continued reporting—to or by credit reporting agencies—of debtors' full contractual delinquencies without regard for the confirmation of a Chapter 13 repayment plan.
Decisions by at least fourteen other judges of this district have reached the opposite conclusion, granting motions to the dismiss on the basis that allegations of reporting pre-confirmation dates during the pendency of a Chapter 13 repayment plan did not state a claim for violation of the FCRA.
The near-uniformity of FCRA cases granting motions to dismiss conceals a nuance that many of those decisions recognized: the potential relevance of whether a credit report references a debtor's pending Chapter 13 bankruptcy. E.g., Smith v. Experian Info. Sols., Inc., No. 16-cv-04651-BLF, 2017 WL 1489689, at *6 (N.D. Cal. Apr. 26, 2017) ("It is this Court's view that it may well be possible for a plaintiff to allege facts showing that the reporting of a pre-confirmation debt or delinquency is materially misleading absent any reference to a pending Chapter 13 bankruptcy in the report, at least where a confirmed plan governs the timing and amounts of post-confirmation payments on the debt."); Mensah v. Experian Info. Sols., Inc., Nos. 16-cv-05689-WHO et al., 2017 WL 1246892 (N.D. Cal. Apr. 5, 2017); Devincenzi v. Experian Info. Sols., Inc., No. 16-CV-04628-LHK, 2017 WL 86131, at *7 (N.D. Cal. Jan. 10, 2017). The possibility that agencies might be required to report at least the existence of a repayment plan potentially diminishes the divide between the majority of these cases and the Aulbach decision, which did not hold that reporting agencies should list only the post-confirmation status of the debt under the repayment plan, but instead that agencies might be required to reflect both its pre-confirmation status before the plan and its post-confirmation status under the plan. Aulbach, ___ F. Supp. 3d at ___, 2017 WL 1807612, at *5.
Kaplan's RESPA claim here does not necessarily turn on precisely the same questions as the FCRA cases. On both sides of the divide, Aulbach and several of the majority decisions cite the expectations and needs of potential lenders viewing a credit report in support of their conclusions. See id. at *4 ("A prospective lender may well want to be informed of the difference between these two types of debts."); Jugoz v. Experian Info. Sols., 2017 WL 2720184, at n.7 ("[A] plan confirmation 2017 . . . does not change the fact of a debt's delinquency, and . . . new creditors are undoubtedly interested in defaults on prior accounts when determining an applicant's creditworthiness.'" (citation omitted; second ellipsis in original)). The question of what would be inaccurate or misleading to a potential lender reviewing a credit report, however, is not necessarily equivalent to what would be erroneous as an accounting practice for a current loan servicer seeking to collect a debt. Some of the considerations identified in both Aulbach and decisions reaching the opposite outcome are nevertheless informative here. Consistent with the majority view of the FCRA cases, a Chapter 13 plan does not erase the fact that Kaplan missed payments before filing for bankruptcy, her debts remain legally valid until discharge, and there remains a possibility of her obligations reverting to their pre-petition status if the bankruptcy case is dismissed. Consistent with Aulbach, while the Chapter 13 plan is in place, it has a real and significant legal effect on Kaplan's obligations and on the steps that Seterus can and cannot take to collect from her.
The Court holds that a loan servicer's practice of accounting for a loan based on the terms of the contract, despite the existence of a confirmed Chapter 13 repayment plan limiting the servicer's ability to collect on those terms, is not in itself an "error" requiring correction under RESPA—so long as the servicer is able to maintain its account in such a way as to ensure that debtor pays no more than is required under the plan and is not subject to improper fees, rejected payments, foreclosure, or other such adverse effects. Cf. In re Jones, 366 B.R. at 590; In re Payne, 387 B.R. at 632-33. The fact that a servicer accounts for the loan based on its original terms is not inherently erroneous, both because—as recognized by many decisions in this district in the context of the FCRA—the original debt remains legally valid, if not presently collectable, until discharge, and also because a servicer may for legitimate reasons wish to remain prepared for the possibility that the Chapter 13 petition might at some point be dismissed or converted to a Chapter 7 proceeding due to noncompliance and the loan might revert to its original terms. See, e.g., Doster, 2017 WL 264401, at *5.
Kaplan does not identify any evidence in this case that Seterus's accounting based on the original terms of the loan led to the sort of concrete errors discussed in Jones and Payne. Moreover, the May 18, 2015 correspondence that Kaplan's November 30, 2015 fax cites as containing an erroneous reference to a June 2014 delinquency describes the loan as "contractually delinquent" at that time, and goes on to explain, albeit with imperfect clarity, the distinction that Seterus draws in which a loan can be current "according to the terms of the Bankruptcy plan" and yet not at "a contractually current status." Kaplan Decl. Ex. C. Because there is uncontroverted evidence that Seterus recognized a distinction between the loan's status under the original contract terms and under Kaplan's bankruptcy plan, and no evidence that Seterus's accounting practices led to concrete adverse effects such as improper charges, the Court holds that a rational finder of fact could not find on this record that Kaplan's November 30, 2015 fax identified an error requiring correction under RESPA, and therefore could not find that Seterus's failure to correct such an error violated 28 U.S.C. § 2605(e)(2)(A). Seterus is entitled to summary judgment on Kaplan's RESPA claim. The Court does not reach the parties' arguments regarding damages.
Kaplan's opposition requests that if the Court grants summary judgment as to her RESPA claim, the Court remand her CCRAA claim to state court. Opp'n at 13. Seterus does not address that request in its reply. At the hearing, counsel for Seterus agreed that remanding the CCRAA would probably be appropriate if the RESPA claim did not go forward, although counsel noted that the CCRAA is similar to, and often interpreted in a manner consistent with, the federal FCRA.
On removal, the stated basis for this Court's jurisdiction over Kaplan's state-law CCRAA claim was 28 U.S.C. § 1367(a), which provides for supplemental jurisdiction over claims related to another claim falling within a district court's jurisdiction—here, Kaplan's federal RESPA claim. "The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a)," however, where "the district court has dismissed all claims over which it has original jurisdiction." 28 U.S.C. § 1367(c)(3). "2017[I]n the usual case in which all federal-law claims are eliminated before trial, the balance of factors to be considered under the pendent jurisdiction doctrine—judicial economy, convenience, fairness, and comity—will point toward declining to exercise jurisdiction over the remaining state-law claims.'" Sanford v. MemberWorks, Inc., 625 F.3d 550, 561 (9th Cir. 2010) (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n. 7 (1988)) (alteration in Sanford). As far as this Court is aware, no California state court has yet considered the question of whether or when reporting pre-petition delinquencies on a loan that is subject to a Chapter 13 repayment plan violates the CCRAA, further supporting the conclusion that principles of comity weigh in favor of allowing state courts to address this novel issue of state law, and providing a separate and sufficient statutory basis for declining to exercise jurisdiction. See 28 U.S.C. § 1367(c)(1) (providing that a court may decline to exercise supplemental jurisdiction where a "claim raises a novel or complex issue of State law"). And although defense counsel is correct that the CCRAA is generally held to be consistent with the FCRA, Aulbach demonstrates that interpretation of the federal statute is not entirely settled; even if it were, the California courts have not yet spoken as to whether they will apply FCRA precedent as to this issue to claims under the CCRAA.
The Court therefore REMANDS this remaining claim to state court without reaching the parties' arguments as to its merits.
For the reasons discussed above, Seterus's motion for summary judgment is GRANTED except as to Kaplan's claim under the CCRAA, which is REMANDED to the Superior Court of California for Contra Costa County. The Clerk is instructed to enter judgment consistent with this order and to close the file.
