Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—W.D. Wash: Bankruptcy court errs in finding poor customer service a deceptive act, (Apr 13, 2015)

By Jody Coultas, J.D.

A bankruptcy court erred in finding that homeowners proved Washington Consumer Protection Act (CPA) claims against Northwest Trustee Service, Inc. (NWTS), according to the federal district court in Seattle. Contrary to the bankruptcy court’s finding, the lender’s decision to fulfill only the bare minimum of its duty of good faith towards its borrowers did not constitute a deceptive act or practice (Meyer v. U.S. Bank National Association, April 9, 2015, Martinez, R.).

At some point after the homeowners defaulted on their home loan, NWTS received its first referral to foreclose the Deed of Trust in the form of a “Case Information Report” (“CIR”) pulled from the third party website “Vendorscape.” The first foreclosure proceeding was discontinued and a new proceeding initiated in 2010, following NWTS’s receipt of a second CIR from Vendorscape requesting commencement of foreclosure. Both CIRs incorrectly referenced the loan as non-adjustable and contained conflicting representations of the principal balance and interest rate.

After the homeowners agreed to give up their residential property in satisfaction of their debt, NWTS restarted the foreclosure process with issuance of an Amended Notice of Trustee’s Sale. The homeowners filed suit against NWTS for violation of the Washington Deed of Trust Act (DTA), the Washington Consumer Protection Act (CPA), and the Fair Debt Collection Practices Act (FDCPA). A bankruptcy court found in favor of the homeowners on the DTA and CPA claims. NWTS appealed.

NWTS argued that the homeowners were judicially estopped from asserting their claims against NWTS because they failed to list these claims as assets in their bankruptcy schedule. Judicial estoppel applies where a party’s later position is “clearly inconsistent” with its earlier position, the party must have succeeded in persuading a court to accept its earlier position, and the party seeking to assert a later inconsistent position must derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped. Application of judicial estoppel in this case would be inequitable because the case law underlying the homeowners’ claims against NWTS, and on which the bankruptcy judge relied, only arose two years after the bankruptcy filing.

None of the allegedly deceptive acts alleged by the homeowners constituted violations of the CPA, according to the court. NWTS allegedly failed to verify whether the servicer of the loan had the requisite authority to issue the Beneficiary Declaration, allegedly accepted the Loss Mitigation Form without evidence that the form was issued by the authorized agent, referred to itself in the Notice of Default as the authorized agent for the beneficiary when it was already the successor trustee, and included the same address for the beneficiary and service in the Notice of Default, rather than including a separate address and phone number for either the Note holder or the Note owner. Although the court did not endorse the decision by NWTS to fulfill only the bare minimum of its duty of good faith to borrowers, it could do little more than chastise NWTS for not behaving with greater affirmative care toward vulnerable borrowers.

The court could not find that NWTS allegedly deceptive acts caused the homeowners’ bankruptcy filing and other claimed damages. Although apparently precipitated by pending foreclosure proceedings, the bankruptcy filing was plainly not dependent on them, and in no event were NWTS’s alleged DTA violations the but-for cause of the Meyers’ Chapter 13 filing.

The case is No. 14-00297RSM.

Attorneys: Richard Llewelyn Jones (Kovac & Jones) for Peter J. Meyer. Heidi C. Anderson (Lane Powell PC) for U.S. Bank National Association. Heidi Buck Morrison (RCO Legal, PS) for Northwest Trustee Services Inc.

Companies: U.S. Bank National Association; Northwest Trustee Services Inc.

Cases: StateUnfairTradePractices WashingtonNews