Thursday, February 6, 2020

FYI: 1st Cir Upholds Dismissal of Mass. 93A Claims Against Mortgagee and Servicer As Time-Barred

The U.S. Court of Appeals for the First Circuit recently affirmed the trial court's dismissal of a consumer's claims against the owner and loan servicer of her mortgage loan that their collection statements supposedly violated Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A, and the Massachusetts Fair Debt Collection Practices Act, Mass. Gen. Laws ch. 93, 49.

 

In so ruling, the First Circuit held that the mortgagor's claims were time-barred under the four-year statute of limitations, as her causes of action accrued at the inception of the loan, and the monthly statements were not independent violations that would bring rise to new claims.

 

A copy of the opinion is available at:  Link to Opinion

 

The owner of a 13-acre horse farm ("Mortgagor") fell behind on her mortgage payments, and was unable to obtain refinancing from traditional lenders.  The Mortgagor allegedly met with a mortgage broker who accepted her supposedly incomplete mortgage application with no financial documentation and falsified the Mortgagor's monthly income.  A bank approved the Debtor for an adjustable-rate loan in the amount of $825,000, secured by a mortgage to the farm. 

 

The Mortgagor fell back into default in September 2008.  The mortgage was subsequently sold and assigned to another entity ("Mortgagee") on February 24, 2009.

 

To avoid a scheduled foreclosure sale, the Debtor filed for Chapter 13 bankruptcy protection in August 2010.  However, the bankruptcy proceedings were ultimately dismissed due the Mortgagor's failure to make the plan's monthly payments.  Facing threat of another foreclosure sale, the Mortgagor filed for bankruptcy again in November 2017, and that case was also dismissed. 

 

Meanwhile, the loan's servicer ("Servicer") consistently sent the Mortgagor monthly statements allegedly demanding payment, with the exception of the time periods she was in bankruptcy proceedings. The Mortgagor was still in default.

 

On September 13, 2018 the Mortgagor filed a complaint in state court against the Mortgagee and Servicer, alleging violations of Mass. Gen. Laws Ch. 93A and Ch. 93 § 49 for unfair and deceptive practices by supposedly enforcing a "predatory mortgage loan" and attempting to collect on the mortgage loan in an allegedly unfair, deceptive, or unreasonable manner.  The Mortgagor's complaint sought further relief of an injunction against foreclosure on the Property, and reformation or rescission of the mortgage.  The Mortgagee and Servicer removed the action to federal court.

 

After the Mortgagor filed an amended complaint, the Mortgagee and Servicer moved to dismiss under Rule 12(b)(6) for failure to state a claim, arguing that (i) all of the Mortgagor's claims arising out of the origination of the mortgage loan by the Mortgagee's predecessor are barred by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), 12 U.S.C. § 1821(d); (ii) that the assignee Mortgagee and Servicer were not liable for origination claims, and; (iii) that the claims were time-barred by the applicable four-year statute of limitations, Massachusetts General Laws Chapter 260, § 5A. 

 

The trial court granted the motion to dismiss on the basis that the Mortgagor's 93A claim was time-barred, and that Ch. 93 § 49 does not provide a private right of action.  This appeal ensued.

 

First, as to the Chapter 93A claims, the Mortgagor argued that the Mortgagee and Servicer's collection "committed unfair and deceptive practices by enforcing a mortgage, the terms of which are unlawful," in violation of Chapter 93A, § 2.  As you may recall, the limitations period for claims brought under Chapter 93A is four years from the date the cause of action accrues. Mass. Gen. Laws ch. 260, § 5A.

 

Here, the Mortgagor argued that her claims were not time-barred, as she received collections statements as recent as August 2018. 

 

However, the First Circuit determined that her claims, as alleged, accrued at the inception of the loan, which "was issued in violation of established principles of fairness" and "was unaffordable to O'Brien from the outset."  Because it was apparent that the required monthly payments outpaced the Mortgagor's actual income at the time she accepted the loan's terms, the "[t]he four year period . . . began to run on the signing date when the interest began to accrue," as under Massachusetts law, "the terms of written agreements are binding whether or not their signatories actually read them"  Latson, 708 F.3d at 327. 

 

The Appellate Court further rejected the Mortgagor's Chapter 93A claims because: (i) the subsequent collection statements were not independent violations because "a party's acting according to the express terms of a contract cannot be considered a breach of the duties of good faith and fair dealing." Frappier v. Countrywide Home Loans, Inc., 750 F.3d 91, 97 (1st Cir. 2014) (internal citation omitted), and; (ii) the Mortgagor failed to demonstrate "identifiable harm" separate from that caused by the underlying unfair loan as required.  See Shaulis v. Nordstrom, Inc., 865 F.3d 1, 10 (1st Cir. 2017) ("[t]o state a viable claim [under Chapter 93A], the plaintiff must allege that she has suffered an 'identifiable harm' caused by the unfair or deceptive act that is separate from the violation itself.") (internal citation omitted).

 

As to the Mortgagor's claims under Chapter 93, Section 49, the Mortgagor claimed that the that the monthly collection attempts were "unfair, deceptive or unreasonable" because they constituted enforcement of inherently unfair and deceptive loan terms.  Mass. Gen. Laws Ch. 93 § 49.  She again pointed to an August 2018 collection statement to demonstrate that her claim was not barred by the four-year statute of limitations, and further argued that the trial court erred in determining that Chapter 93, § 49 does not provide a private right of action.

 

The First Circuit determined that it need not reach the trial court's determination that no private right of action exists under Ch. 93 § 49, because the claim again relies on the alleged unfairness of the loan at origination, and no alleged action that occurred after September 13, 2014 (four years prior to filing the compliant) that gave rise to a new claim. 

 

This rationale was supported by the Mortgagor's own allegations that "the imposition of terms that were unfair at the outset continue[d] every month" through the collection statements and that "[t]he enforcement of the loan terms ha[d] been consistent throughout the life of the loan."  As such, the enforcement that the Mortgagor identified began in 2005, continued through the loan's assignment to the Mortgagor in February 2009, and thus accrued more than four years before filing suit in September 2018. See Mass. Gen. Laws Ch. 260, § 5A.

 

As the First Circuit determined that the Mortgagor's claims under both Ch. 93A and Ch. 93 § 49 were time-barred, the trial court's dismissal under Rule 12(b)(6) was affirmed.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Sunday, February 2, 2020

FYI: 7th Cir Reverses FDCPA Dismissal Based on "Claim Splitting" But Provides Roadmap for Defendants

The U.S. Court of Appeals for the Seventh Circuit recently reversed the dismissal of a consumer's second lawsuit against a debt collector for failure to notify a credit reporting agency that the debt was disputed.

 

In so ruling, the Court held that because the debts were owed to different creditors, they were two distinct transactions giving rise to separate claims because "[e]ach failure to notify could have caused an additional harm to credit score or peace of mind." 

 

A copy of the opinion is available at:  Link to Opinion

 

A debt collection company sent a dunning letter to the debtor seeking to collect a medical debt. The debtor sued for injury to his credit rating and mental distress, alleging that the debt collector violated section 1692e(8) of the federal Fair Debt Collection Practices Act ("FDCPA") by notifying a credit reporting agency of the debt, but not that it was disputed.

 

The same debtor had just settled a similar lawsuit against the same debt collector for sending him a letter attempting to collect a debt owed to a different creditor, but failing to notify the credit reporting agency the debt was disputed.

 

The debt collector moved to dismiss the second lawsuit, arguing that plaintiff was "gaming the system by seeking multiple recoveries for a single kind of wrong." The trial granted the motion and dismissed the second case, ruling that the debtor's second case "split his claims impermissibly."  This appeal followed.

 

On appeal, the Seventh Circuit explained that "[t]he doctrine of bar forecloses repeated suits on the same claim, even if a plaintiff advances a new legal theory or a different kind of injury." In addition, "[f]ederal law—which applies here because the first judgment was entered by a federal court, ...—defines a 'claim' by looking for a single transaction."

 

The Court reasoned that there was no need to seek a more precise definition of "claim" because plaintiff "has alleged two transactions on any understanding." The debts were owed to different creditors, and although "[t]hey involve the same statutory rule and the same debt collector[,] … the wrongs differ—[the debt collector] could have given proper notice for one debt but not the other—and the injury differs. Each failure to notify could have caused an additional harm to credit score or peace of mind."

 

By way of analogy, the Seventh Circuit explained that just as the Supreme Court of the United States held in National Railroad Passenger Corp. v. Morgan, an employment discrimination case involving the statute of limitations, that "the each discrete discriminatory act produces one claim[,]" "[d]iscrete and independently wrongful acts produce different claims, even if the same wrongdoer commits both offenses and the second wrong is similar to the first. Likewise with discrete violations of § 1692e(8). Each time a debt collector fails to give a credit agency the required notice for a debt is a stand-alone wrong. Disputes that have an independent existence may be litigated separately. Joinder in federal practice is permissive, … not mandatory[,]" except for compulsory counterclaims, which did not apply to the case at bar.

 

The Court rejected the debt collector's argument that "allowing sequential litigation is inequitable because 15 U.S.C. § 1692k(a)(2)(A) sets a maximum of $1,000 in statutory damages per case[,]" reasoning that while it's true that "[m]ultiplying the number of cases multiplies the maximum award[,]" "[j]udges aren't authorized to turn per-case caps into per-defendant caps; that choice is legislative."

 

Accordingly, the Seventh Circuit reversed the dismissal, and remanded the case to the trial court for further proceedings consistent with its ruling.

 

In so ruling, the Court explained that debt collectors are not defenseless.

 

First, a release can be drafted to cover "all disputes between the same parties, not just the dispute already in court."

 

Second, the Seventh Circuit noted that debt collectors can argue that § 1692k(a)(2)(A) gives the court discretion to award up to $1,000 in statutory damages, and that "a debtor who has already collected $1,000 in statutory damages should not receive more from the same defendant for the same sort of wrong. … Debt collectors are also free to contend, and judges to find, that the second suit entails the same 'actual damage' (§ 1692k(a)(1)) as the first, so that an additional award on that front is inappropriate. If a bill collector's first failure to notify a credit bureau damages a debtor's credit score and causes emotional distress, a second suit based on a second failure to notify the same credit bureau allows the debtor to collect only the marginal loss caused by the second wrong."

 

Finally, "a defendant who persuades a court that a sequential suit was brought to harass not only avoids an award of attorneys' fees but also becomes eligible to collect its own attorneys' fees from the debtor" pursuant to 15 U.S.C. § 1692(a)(3). The statute thus provides debt collectors with tools to discourage abusive litigation." 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


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