Antitrust Law Daily Wrap Up, RICO—N.D. Cal.: Loan servicers’ inspection, broker price opinion fee scheme was not unlawful, (Aug 25, 2016)

By E. Darius Sturmer, J.D.

Two homeowners alleging that a group of companies in the mortgage industry and an executive participated in a scheme to fraudulently overcharge them for mortgage services by assessing them certain fees and upcharges for property inspections and broker price opinions (BPOs) failed to state claims for violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act or California’s Unfair Competition Law (UCL), the federal district court in San Jose, California has decided (Giotta v. Ocwen Financial Corp., August 24, 2016, Freeman, B.).

The homeowners claimed that the defendants’ scheme involved acquiring the servicing rights to subprime mortgages, assigning a related company to service each mortgage—which hired a spun-off entity to provide broker price opinions on serviced loans and perform superfluous property inspections—and then charging homeowners for these services, including upcharges paid to the BPO provider, contrary to a schedule of fees it had sent to mortgage holders.

Notice-and-cure provision. All of the claims against the loan servicer, its executive, and the hired BPO provider by the homeowners in their second amended complaint (SAC), were barred by the homeowners’ failure to comply with the notice-and-cure provisions contained in their Deed of Trust, the court found. The SAC alleged the same claims as the first amended complaint (FAC), which had been previously dismissed by the court, but in a different sequence. The SAC cured none of the defects identified in the FAC. The claims fell squarely within the ambit of the notice-and-cure provision, as they arose from the property inspections and BPOs obtained by the servicer and charged to the homeowners pursuant to the authority granted by the Deed of Trust, the court stated.

Because the loan servicer was the only defendant alleged to have communicated or interacted with the homeowners, and those claims were subject to dismissal, so too were the claims against the servicers’ co-conspirators, the court found.

Further grounds for dismissal. The court noted that even if the notice-and-cure provision was not dispositive of the claims, other pleading defects existed that were fatal to the homeowners’ RICO and unfair competition claims.

The homeowners’ failure to allege an affirmative misrepresentation or a duty to disclose—a defect previously identified in the FAC—precluded their establishment of predicate acts of mail and wire fraud, thus leaving them unable to satisfy the requisite racketeering activity element of a substantive civil RICO claim. The complaining homeowners identified no legal basis for their assertion that the loan servicer had a duty to determine the breakdown of the BPO fee it was charged and to disclose any upcharge. Nor could the homeowners rely on a consent order issued by another jurisdiction as a basis for RICO liability. The homeowners’ failure to establish a substantive RICO violation was fatal to their separate RICO conspiracy claim, the court added.

The homeowners’ claim for violation of the UCL’s unlawful practices prong was similarly precluded by their failure to establish several other violations—the federal Fair Debt Collection Practices Act, California’s Rosenthal Fair Debt Collection Practices Act, a Consumer Financial Protection Bureau consent order, and the Dodd-Frank Wall Street Reform and Consumer Protection Act—in the court’s view. The homeowners made no factual assertions showing that the fees charged in the case were unfair, deceptive, or abusive. Nor could they meet the requirements for establishing an action under the UCL’s fraud or unfairness prongs, as they failed to allege facts showing a duty to disclose the upcharges or that the fees they were charged were unlawful or unfair.

The case is No. 15-cv-00620-BLF.

Attorneys: James Piet (Feinstein Doyle Payne & Kravis, LLC) for Victor P. Giotta. Thomas J. Cunningham (Locke Lord, LLP) for Ocwen Financial Corp. and Ocwen Loan Servicing, LLC. Andrew S. Azaria (Denton’s US LLP) for Altisource Portfolio Solutions S.A. and Altisource Solutions, Inc.

Companies: Ocwen Financial Corp.; Ocwen Loan Servicing, LLC; Altisource Portfolio Solutions S.A.; Altisource Solutions, Inc.

Cases: RICO StateUnfairTradePractices CaliforniaNews