Case Law Newsletter

Noonan and Lieberman keeps you current on litigation news with its regular Case Law Update focusing on important and emerging trends in federal and state case law. Case Law Update is edited by attorney James V. Noonan.

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March 2011

MORTGAGOR’S REMEDY FOR SERVICER’S “ROBO-SIGNING” IS LIMITED TO THE REMEDIES AVAILABLE IN THE FORECLOSURE NOT AN INDEPENDENT CLAIM AGAINST THE SERVICER

The U.S. District Court in Maine dismissed claims from homeowners seeking damages against a servicer for improper foreclosure. In Bradbury v. GMAC Mortg., LLC, CIV. 10-458-P-H (D. Me. Feb. 16, 2011) the mortgagor filed a class action suit against the servicer after reports that the serivicer’s employees were found to be signing foreclosure affidavits without reviewing documentation as required by law. The District Court dismissed three of the four claims. With regards to the abuse of process claims – arising from the false certifications and affidavits – the court ruled that according to Maine law, even if the documents were false, does not give the plaintiff a claim for abuse of process but merely to seek to reverse the previous judgment in the foreclosure case. Their use in the state court proceedings not satisfy the “improper” use requirement of Maine law on abuse of process. Rather, “they were used to win the foreclosure lawsuits, and that is a proper use of such documents.” The court observed that “[a] contrary ruling would mean that the outcome of every lawsuit could produce a later lawsuit by the unhappy loser, seeking damages on account of the outcome of the former lawsuit and claiming that it resulted from false testimony or false affidavits.” The court also dismissed the claims for breach of good faith and fair dealing and alleged fraud upon the court. The court said that fraud on the court may be grounds for other sanctions such as, again, obtaining relief from the original judgment in the foreclosure case but not to recover damages by a party in a later lawsuit.

CLAIM UNDER WEST VIRGINIA CONSUMER PROTECTION ACT BEGINS TO RUN THE DATE THE LOAN IS ACCELERATED NOT THE DATE THE LOAN MATURES

The mortgagors and a West Virginia class in Delebreau v. Bayview Loan Servicing, LLC, 6:09-CV-00245 (S.D.W. Va. Jan. 18, 2011) brought an action against their mortgage loan servicer following the servicer’s commencement of a foreclosure alleging the servicer assessed illegal late fees and default fees in violation of the West Virginia Consumer Credit and Protection Act (W. Va.Code §§ 46A-2-128©-(d), 46A-3-113 and 46A-2-127(d)). Because the violation arose in connection with a non-revolving consumer loan it is subject to a one year statute of limitations commencing on the ‘due date of the last scheduled payment of the agreement.’ The servicer moved for summary judgment contending that the mortgagor’s claim was time-barred because the ‘last scheduled payment of the agreement’ was the date when the entire balance of the loan became due under the acceleration clause in the loan agreement. When it accelerated the loan it became due immediately. The plaintiffs asserted that the limitation period does not begin to run until the maturity date of the loan, some thirty years later. The court agreed with the servicer concluding that the statutes’ inclusive definition of the term ‘agreement’ encompasses the entire bargain, including the acceleration clause in the loan agreement. This reading was further supported by another section of the statute which provided that there ‘shall be no acceleration of the maturity of all or part of any amount owing in such a consumer credit sale, consumer lease or consumer loan, except where nonperformance specified in the agreement as constituting default has occurred.’ W. Va.Code § 46A-2-106. From this the court deduced that the West Virginia legislature clearly contemplated acceleration of loans as part of the regular course of business in consumer loan transactions. Finally, the court observed that under the plaintiff’s reading an action against a creditor could be brought as many as fifty years after a violation of the Act occurred-even if the plaintiff paid the entire balance of the loan on the first payment-provided that the loan’s maturity date, and thus the “last scheduled payment,” was fifty years in the future. The court “sincerely doubt[ed]” that the West Virginia legislature meant to allow plaintiffs a half-century in which to bring claims under the Act.

STATE LAW LITIGATION PRIVILEGE DOES NOT ABSOLVE DEBT COLLECTOR FROM LIABILITY UNDER THE FDCPA

In Ogbin v. Fein, Such, Kahn & Shepard, P.C., No. 09-2829, (3rd Cir. Feb. 22, 2011 unpublished), the Third Circuit vacated in part and remanded a District Courts’ dismissal of a class action complaint asserting a violation of 15 U.S.C. § 1692(f)(1) of the Fair Debt Collection Practices Act (FDCPA). In Ogbin, mortgagors claimed that the law firm violated § 1692(f)(1) of the FDCPA on the ground that payoff letters sent to the mortgagor’s attorney, at mortgagor attorney’s request during the pendency of the foreclosure proceedings, contained charges in excess of what was actually owed. The complaint also asserted claims of negligence and intentional misrepresentation. The District Court granted the servicer’s law firm’s motion to dismiss the FDCPA, intentional misrepresentation and negligence claims as barred under New Jersey’s litigation privilege and the mortgagors appealed. In reversing the dismissal of the FDCPA claim, the Appellate Court relied on its decision in Allen ex rel. Martin v. LaSalle Bank, N.A., 629 F.3d 364 (3d Cir. 2011), where the it held that New Jersey’s common law litigation privilege does not absolve a debt collector from liability under the FDCPA and refused to find that the FDCPA implied a common law privilege. And so in Ogbin, the court held that the FDCPA does not contain an exemption from liability for common law privileges and common law immunities can not trump the FDCPA’s clear application to the litigating activities of attorneys. Accordingly, communications sent to a debtor’s attorney attempting to collect an amount not expressly authorized by the agreement creating the debt or permitted by law are actionable under § 1692f(1) of the FDCPA. The court did, however, affirm the dismissal of the mortgagor’s common law negligence and intentional misrepresentation claims as precluded by litigation privilege.

LAWYER REPRESENTING A DEBTOR IS NOT A “CONSUMER” UNDER THE FDCPA

In Tinsley v. Integrity Financial Partners, Inc., No. 10-2045 (7th Cir., Feb 11, 2011), the Seventh Circuit affirmed a grant of summary judgment in favor of a debt collector finding that a lawyer is not “the consumer” for the purpose of 15 U.S.C. § 1692c of the FDCPA. In Tinsley, the debtor was dunned by a debt collector prompting him to hire an attorney. The attorney wrote the debt collector that the debtor refused to pay and lacked assets that the creditor could seize. The letter requested that the collector cease all collection activities and to direct any further communication to debtor’s attorney. The debt collector stopped calling or writing the debtor, but it did call the debtor’s attorney with a request for payment. Debtor filed a suit under § 1692c© of the FDCPA contending that the debt collector violated the FDCPA by asking debtor’s attorney for payment. Debtor argued that the FDCPA prohibits any further communication once a “consumer” maintains that he refuses to pay the debt. Debtor claimed that the additional communications sent to his attorney after the refusal to pay the debt were a direct violation of § 1692c because the attorney should be treated as a “consumer” for purposes of FDCPA. In affirming the District Court, the Appellate Court observed that the term “consumer” was specifically defined in § 1692c(d) and that definition excluded lawyers. The Appellate Court then proceeded to evaluate the debtor’s argument that a consumer and his attorney should be treated the same, and found that such an interplay between the subsections of the § 1692c will render it “gibberish”. It further observed that prohibiting a debt collector from approaching debtor’s counsel with a settlement proposal would hinder pre-litigation discussions between lawyers. The Appellate Court therefore concluded that § 1692c as a whole permits debt collector to communicate freely with consumer’s lawyers.