Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—E.D.N.Y.: Ocwen unable to evade RICO, unfair competition claims, (Sep 29, 2014)

By Greg Hammond, J.D.

Ocwen Loan Servicing, LLC and Cross Country Home Services, Inc. were unable to dodge allegations that they violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and state unfair and deceptive practices laws. In partially denying the two companies’ motions to dismiss, the federal district court in Brooklyn determined that the consumers sufficiently pleaded their California Unfair Competition Law (UCL), New York General Business Law, and RICO claims (Delgado v. Ocwen Loan Servicing, LLC, September 23, 2014, Garaufis, N.).

Background. Ocwen is a loan servicing company that services over 600,000 residential home loans across the United States, and Cross Country provides home warranty programs to homeowners. Consumers alleged that in 2007, Cross Country sent out various mailings to Ocwen’s customers in New York, California, and other states, soliciting enrollment in the company’s various home warranty plans. The solicitations came in the form of a check for $2.50, made out to the customers, along with the pitch, “Simply cash or deposit the attached check and we’ll pay you to see for yourself the rewards and benefits of Referral Assistant 24,” and “The enclosed Check is made out in your name. It’s yours to cash so please do not throw it away. Bring it to your bank by May 31, 2013, sign the back and get your $2.50 instantly.” However, the check also contained an inconspicuous warning, stating “by cashing or depositing this check, you are purchasing the annual [home warranty plan].”

After various consumers cashed the check—allegedly believing that the checks were rebates or refunds from their loan servicer, or recognizing the solicitations were for home warranty plans but believing the benefits were greater than their actual value—they filed suit against Ocwen and Cross Country, alleging violations of the RICO, UCL, New York General Business Law, and the Consumers Legal Remedies Act (CLRA). Ocwen and Cross Country moved to dismiss the claims.

N.Y. General Business Law. Despite Ocwen’s and Cross Country’s arguments to the contrary, the court determined that the consumers adequately pleaded their New York General Business law claim. Specifically, the court determined that: (1) allegations of recurring solicitations that were directed broadly at Ocwen’s customer base, demonstrated the companies’ conduct was consumer-oriented; (2) the “net impression” and characteristics of the companies’ materials were sufficient to demonstrate that they were materially misleading, as consumers could reasonably believe that the checks were small refunds; and (3) the consumers adequately pleaded injury, as they alleged they did not knowingly contract for the purchased home warranty plans. Consequently, the motion to dismiss this claim was denied.

California claims. The consumers’ CLRA claim was dismissed by the court, as the home warranty plans were deemed analogous to insurance products, which are not considered “goods or services” under the act. Consequently, the consumers’ claim under the unlawful prong of the UCL was also dismissed, because the claim was based on the already disposed of CLRA allegation. Nevertheless, the claim under the unfair prong of the UCL was found to be sufficient, as the court could not find that the transaction was a “bargained-for exchange,” when the consumers alleged that they were misled with regard to the effect of cashing the check and did not know they were entering a contract.

RICO claims. The plaintiffs also alleged that the two companies violated the RICO, and further engaged in a RICO conspiracy. To state a valid RICO claim, the consumers were required to allege: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. In addition, the consumers needed to demonstrate injury to business or property, and that the injury was caused by the purported RICO violation.

First, the consumers sufficiently demonstrated an association-in-fact enterprise, as they explained the relationship between the two defendants; alleged that the partnership was a financial venture; identified the role each defendant took and the links between them; and pleaded that the enterprises previously existed for over two years and continue to this day. Second, a pattern of racketeering activity was also adequately alleged, as the consumers described alleged mail and wire fraud in detail and connected the allegations to each individual defendant, describing the content of the solicitations; when they were communicated; the manner in which they were misleading; the inconspicuous small print disclosures; and how the descriptions on Ocwen’s mortgage statements did not clearly indicate the source of the charges. Third, the pattern of racketeering allegation was supported by a threat of continued criminal closed-ended and open-ended continuity, and the consumers adequately alleged causation.

Lastly, the court considered whether the defendants adequately alleged a RICO conspiracy. Although the plaintiffs only specifically alleged that the defendants directed and controlled the affairs of the enterprise, were aware of the nature and scope of the enterprise’s unlawful scheme, and all agreed to participate in it, the court found that the rest of the factual allegations sufficiently described the defendants’ knowledge of the design and tactics of the conspiracy, their agreement to participate, and their different roles. Consequently, the RICO claims were adequately alleged, and the defendants’ motion to dismiss those claims was denied.

The case number is 13-CV-4427 (NGG) (RML).

Attorneys: Steven L. Wittels (Law Offices of Steven L. Wittels) for Margarita Delgado. Caroline Kathryn Eisner (BuckleySandler LLP) for Ocwen Loan Servicing, LLC. Bruce E. Alexander (Weiner Brodsky Kider PC) for Cross Country Home Services, Inc.

Companies: Ocwen Loan Servicing, LLC; Cross Country Home Services, Inc.

Cases: StateUnfairTradePractices RICO NewYorkNews