Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—SDNY: Homeowners’ Second Attempt at Claims against Loan Servicers, Law Firm for Foreclosure Attempts Partially Time-Barred, (Jan 8, 2013)

By E. Darius Sturmer, J.D.

The federal district court in New York City took a knife to a broad set of state unfair trade practices claims asserted by a putative class of home mortgage loan customers against their presumed loan servicers—purported successors-in-interest to The Money Store—and a law firm that prepared and sent them default notices, or “breach letters,” after they had purportedly defaulted on their mortgage payments (Vincent v. The Money Store, January 4, 2013, Koeltl, J.). While all of the claims were expired, the court noted, the statute of limitations was tolled as to several of them by the pendency of a similar lawsuit the plaintiffs brought in 2003 was timely filed but ultimately dismissed.

According to the plaintiffs, the breach letters—sent by Moss, Codilis, Stawiarski, Morris, Schneider & Prior LLP (Moss Codilis) between 1997 and 2000—contained false and misleading statements. Further, the plaintiffs alleged that they were charged legal fees for the services of Moss Codilis when in fact those services were performed in Colorado by persons who were not authorized to practice law in that state, and that the Money Store had charged fees that they had no right to collect.

The plaintiffs, who were residents of California, New York, and Texas at the time relevant to the suit, claimed that all of the defendants were liable for unfair business practices in violation of California state law and common law fraud and unjust enrichment, that the law firm had engaged in the unauthorized practice of law in violation of Colorado law, and that the presumed loan servicers breached contracts with the customers.

The plaintiffs had asserted many of the same claims in their earlier lawsuit against The Money Store, its affiliates, and Moss Codilis. They had additionally charged violations of the Truth in Lending Act and Fair Debt Collection Practices Act. However, after dismissing the federal claims, the court hearing the matter declined to exercise supplemental jurisdiction over the state law counts. The plaintiffs then filed the instant state law suit in the same court, asserting jurisdiction under the Class Action Fairness Act (CAFA). Soon thereafter, they filed an amended complaint in which they added Wells Fargo Bank, N.A., Barclays Capital Real Estate, Inc. and Ocwen Loan Servicing, LLC on the basis that each was a successor-in-interest to The Money Store.

Only Wells Fargo, which acknowledged itself as The Money Store’s “ultimate successor by merger” was actually such a successor, the court determined. There were conflicting allegations over whether Ocwen or Barclays was actually a successor-in-interest. However, this did not preclude summary judgment in favor of both because even if they were, they were never parties to the first action. Therefore, the statute of limitations could not be tolled against them based on the pendency of that action. “[N]othing in the language of Rule 25(c) or cases interpreting the Rule authorizes the use of Rule 25(c) to add a party retroactively to a previous action for purposes of pretending that it was a defendant in that action and that the action was in fact pending against it,” the court said.

An argument by the other defendants, Wells Fargo and Moss Codilis, that the statute of limitations had expired on the state law claims against them was only partly right, the court concluded. As each of the complaining consumers’ loans had been paid off in full by June 2004, and the action was not filed until October 2011, all parties agreed that the initial limitations period had run. What they disagreed on was whether the limitations period had been tolled by one or more available mechanisms.

The defendants were correct that tolling was unavailable under 28 U.S.C. §1367(d), which ensures that a plaintiff whose supplemental state claim was dismissed has at least 30 days after dismissal to refile in state court. While the plaintiffs’ had refiled quickly enough, they had done so in federal court, rather than state court.

Equally unsuccessful was the plaintiffs’ assertion that the statute of limitations was tolled during the pendency of the first lawsuit under American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), 1974-1 Trade Cases ¶74,862. American Pipe created a rule tolling the time for absent class members to bring a claim while a class action was pending of which they were members, the court explained. However, the rule concerned tolling only under a federal statute. In evaluating the timeliness of claims all based on state law, a court had to look to the state statutes of limitations, including the state tolling rules. Thus, the plaintiffs had to look to state analogues to American Pipe rather than to American Pipe itself. Even if this were not so, the policy underlying American Pipe—which the Supreme Court recently described as “a case that provided benefits to non-parties”—made clear that it was inapplicable to named plaintiffs.

The statute of limitations could be tolled pursuant to New York’s saving statute, N.Y. C.P.L.R. § 205(a) and New York’s borrowing statute, N.Y. C.P.L.R. § 202. Both statutes applied in the case, the court found. However, whether the claims for each plaintiff were tolled depended on the residence of each under New York’s borrowing statute, which applied differently to residents and nonresidents.

For the New York resident plaintiffs, the application of Sec. 205(a) was the sole inquiry. They satisfied the statute’s requirement by asserting all of the same state law claims they timely asserted in the first suit within six months of that suit’s dismissal. An argument by the defendants that the saving statute was inapplicable to the case because the second suit could not possibly have been commenced in 2003—given that CAFA jurisdiction only came into effect in 2005—was rejected by the court. “The basis for jurisdiction in the second suit has no connection to the initial basis for jurisdiction,” the court reasoned. Thus, for the New York plaintiffs, the statute of limitations for the common law claims of unjust enrichment, breach of contract, fraud, and the claim under Colorado law was tolled.

Unfortunately for the California and Texas resident plaintiffs, though, even if Sec. 205(a) applied to their claims, Sec. 202 demanded that their claims had to be timely in the forum in which their causes of action accrued. Under the laws of those two states, the plaintiffs’ claims would not be tolled, the court explained. Rejected were arguments by the California plaintiff that under California law, the pendency of the first suit in federal court in New York would have tolled her claims either because of cross-jurisdictional California American Pipe tolling or equitable tolling. Similar arguments raised by the Texas plaintiff with respect to Texas law were likewise without merit.

The case is 11 Civ. 7685 (JGK).

Paul Stewart Grobman for Lori Jo Vincent. Daniel A. Pollack (McCarter & English, LLP) for Wells Fargo Bank, N.A. David J. Chizewer (Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd.) for Moss, Codilis, Stawiarski, Morris, Schneider & Prior LLP. Brett Lawrence Messinger (Duane Morris LLP) for Ocwen Loan Servicing LLC. David B Bergman (Arnold & Porter, LLP) for Barclay’s Capital Real Estate, Inc.

Cases: StateUnfairTradePractices CaliforniaNews