Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—5th Cir.: Homeowner’s LUTPA claims against mortgage company revived, (Dec 12, 2013)

By Linda O’Brien, J.D., LL.M.

A homeowner’s claims against a mortgage investment company and mortgage loan servicer for violations of the Louisiana Unfair Trade Practices Act (LUTPA) and Federal Debt Collection Practices Act (FDCPA) involving the practice of inauthentic supporting documents in the foreclosure of his home could proceed, the U.S. Court of Appeals in New Orleans has ruled (Alphonse v. Arch Bay Holdings, LLC, December 11, 2013, Per Curiam.). The district court dismissal for lack of subject matter jurisdiction was reversed and remanded.

Glenn Alphonse obtained a mortgage loan for his home from WMC Mortgage Corporation, who later assigned the mortgage note to Arch Bay Holdings, LLC-Series 2010B (Series 2010B), an investment company that manages residential mortgages. Alphonse’s mortgage contained a confession of judgment clause that authorized summary proceedings (executory proceedings) to obtain a judgment of foreclosure. Alphonse defaulted on the mortgage in 2010 and Series 2010B filed a mortgage foreclosure action in Louisiana court through executory proceedings. The state court granted the petition and authorized the sale and seizure of the home. The home was subsequently sold at a sheriff’s auction. Alphonse did not object to the executory proceedings in state court or appeal the judgment.

Alphonse filed an action in federal court against Arch Bay Holdings, LLC, the parent company of Series 2010B, and Specialized Loan Servicing, LLC (SLS), the mortgage loan servicer, under the LUTPA and FDCPA. Specifically, he alleged that Arch Bay wrongfully seized his home through fraudulent means involving the practice of inauthentic supporting documents, called “robo-signing.” Arch Bay and SLS moved to dismiss the complaint and the district court granted the motion.

Arch Bay and SLS argued that the district court judgment should be affirmed because res judicata of the foreclosure judgment barred Alphonse’s LUTPA claims. The Louisiana res judicata statute provided that a second action would be precluded when all of the following were satisfied: (1) the judgment was valid and final; (2) the parties were the same; and (3) the cause of action arose out of the same transaction or occurrence. The parties conceded that the foreclosure judgment was valid and final, and that the pending action arose from the same transaction or occurrence.

In determining that there was insufficient evidence of the identity of the parties, the court noted that the parties need not be the same physical parties. Identity of the parties can be satisfied when a privy of one of the parties was involved. In rejecting Arch Bay’s argument was it had identical interests to, and was the virtual representative of, Series 2010B in the foreclosure suit, the court found that the concepts of control and virtual representation were to be narrowly construed and a separate judicial status between Arch Bay and Series 2010B could not be determined without further factual development. SLS’ argument that it was Series 2010B agent and share an identity of interest also failed since the SLS did not produce competent evidence to establish that an identity of interest existed.

The appellate court also determined that the district court’s conclusion that Delaware law applied and that Arch Bay was the wrong party to sue, since Series 2010B was a separate juridical entity that actually held the mortgage note, lacked sufficient evidence. The district court did not appear to consider the conflict-of-law issue of whether liability between a third-party plaintiff and a holding company LLC constituted internal or external affairs of a corporation under Louisiana law. Thus, the district court’s grant of the defendants’ motion to dismiss before discovery took place was erroneous and the dismissal was reversed and remanded for further proceedings.

The case is No. 13-30154.

Attorneys: Marc R. Michaud (Patrick Miller, LLC) for Glenn E. Alphonse, Jr. Eric J. Simonson (McGlinchey Stafford, PLLC) for Arch Bay Holdings, LLC and Specialized Loan Servicing, LLC.

Companies: Arch Bay Holdings, LLC; Specialized Loan Servicing, LLC.

Cases: StateUnfairTradePractices LouisianaNews MississippiNews TexasNews