Clark v. Lender Processing Servs., 13-3799

• Decision Date: 14 April 2014
• Docket Number: No. 13-3799,13-3799
• Parties: LINDA CLARK; JOHN W. WHITEMAN; MICHAEL C. RYSH; DOROTHY L. RYSH, Plaintiffs-Appellants, and LAURA YEAGER; MICHAEL YEAGER Plaintiffs, v. LENDER PROCESSING SERVICES; LPS DEFAULT SOLUTIONS; DOCX, LLC; LERNER, SAMPSON & ROTHFUSS; MANLEY, DEAS KOCHALSKI, LLC, Defendants-Appellees, and REIMER, ARNOVITZ, CHERNEK & JEFFREY CO., Defendant.
• Court: U.S. Court of Appeals — Sixth Circuit

LINDA CLARK; JOHN W. WHITEMAN;

MICHAEL C. RYSH; DOROTHY L. RYSH, Plaintiffs-Appellants,and LAURA YEAGER; MICHAEL YEAGER Plaintiffs, v. LENDER PROCESSING SERVICES; LPS DEFAULT SOLUTIONS;

DOCX, LLC; LERNER, SAMPSON & ROTHFUSS; MANLEY,

DEAS KOCHALSKI, LLC, Defendants-Appellees,

and REIMER, ARNOVITZ, CHERNEK & JEFFREY CO., Defendant.

No. 13-3799

UNITED STATES COURTS OF APPEALS FOR THE SIXTH CIRCUIT

FILED: April 14, 2014

NOT RECOMMENDED FOR PUBLICATION

File Name: 14a0276n.06

ON APPEAL FROM THE

UNITED STATES DISTRICT

COURT FOR THE

NORTHERN DISTRICT OF

OHIO

BEFORE: COLE and ROGERS, Circuit Judges; HOOD, District Judge.^*

ROGERS, Circuit Judge. The plaintiffs are Ohio homeowners who were defendants in foreclosure suits filed during the financial crisis. Their underlying challenge is to the effectiveness of the series of assignments of mortgage documents, which plaintiffs say led toviolations of federal and state law. However, statements made by the defendants in this case that they had a right to foreclose under Ohio law were not materially misleading so as to violate federal fair debt collection law (at least as to the two appellants in this case who brought such federal law claims), because the foreclosing parties did have standing to foreclose, despite any irregularities in the assignments. The plaintiffs' state law claims moreover cannot succeed because the defendants—a vendor that provides services to mortgage servicers and lenders, its subsidiaries, and two law firms—are not suppliers involved in consumer transactions for purposes of the Ohio Consumer Sales Practices Act. For these reasons, the district court properly granted summary judgment to the defendants.

The background, facts, and procedural history of this suit are well set out by the district court as follows:

[T]he named Plaintiffs are individuals whose homes were foreclosed in cases where it appears beyond dispute that the mortgage assignments, affidavits, and transfers were fabricated by one or more of the loan processing Defendants, and the financial institutions bringing the foreclosure actions were represented by one of the law firm Defendants. Plaintiffs bring a putative class action claiming that Defendants violated the FDCPA and OCSPA by filing state court foreclosure lawsuits on behalf of trustees of securitized trusts. Plaintiffs' theory of the case is that the foreclosing trusts lacked standing to bring foreclosure actions against Plaintiffs because (1) the transfer of their mortgages to non-party securitized trusts did not comply with the alleged deadlines in the applicable Pooling and Servicing Agreements ("PSAs"), and (2) Defendants conspired to create the appearance of standing, after the trusts had lost standing, by using allonges to notes, mortgage assignments, and other mortgage documents that were defectively executed, thereby breaking the chain of title. Plaintiffs bring this action on behalf of a proposed class consisting of:

All Ohio homeowners who were (a) defendants in judicial foreclosure actions on first lien mortgages that were purportedly held by securitization trusts, and that were knowingly initiated and prosecuted by Defendants on behalf of parties that lacked legal standing to do so, and (b) who were damaged by Defendants' abusive debt collection practices, including: (i) preparing, executing, and notarizing fraudulent court documents and assignments of mortgages and other property records that wereused to initiate and prosecute such foreclosures, and (ii) imposing inflated, unfair, unreasonable and/or fabricated fees for "default management services" (the "Class").

[Compl. ¶ 1].

Plaintiffs allege that "[t]wo categories of defendants acted in concert and conspired in furtherance of the fraudulent scheme to generate enormous profits from default servicing fees by knowingly initiating foreclosure actions on behalf of entities that lacked standing to bring such actions." [Compl. ¶ 2]. The first category of Defendants is the loan processing Defendants, [Lender Processing Services]. Plaintiffs allege that the loan processing defendants are "vendors or sub-servicers to the vast majority of national mortgage services to manage all default servicing for those servicers." (Id.) The second category of Defendants is an alleged network of law firms, here [Manley, Deas Kochalski, LLC] and [Lerner, Sampson & Rothfuss]. Plaintiffs allege that law firm Defendants "specialize in prosecuting a high volume of foreclosure cases, and are commonly known as 'foreclosure mills.'" (Id.) Plaintiffs allege that the law firm Defendants entered into a "Network Agreement" with [Lender Processing] which "requires these law firms to pay quid pro quo consideration to [Lender Processing] for referrals of foreclosure cases and other default related matters . . ." (Id.) Plaintiffs further allege that law firm Defendants "were not only retained by defendant [Lender Processing], they were also supervised and directed by [Lender Processing], and knowingly used forged and fabricated documents created by or at the direction of [Lender Processing] and/or its subsidiaries." (Id.)

The [complaint] describes the national housing collapse, the mortgage foreclosure crisis, and the role of the [Lender Processing] Defendants who allegedly fabricated mortgage assignments, fraudulently endorsed affidavits, backdated mortgage transfers and did whatever was necessary to support standing for its clients (i.e., the financial institutions bringing foreclosure actions against defaulting mortgagors). The [complaint] also describes the role of the law firm Defendants who allegedly paid the [Lender Processing] Defendants for foreclosure referrals and allegedly knew or should have known these standing-supporting documents were fabricated and their clients lacked standing. The crux of Plaintiffs' allegations is as follows:

The Defendants have engaged in a widespread conspiracy to deceive the Ohio courts and borrowers by engaging in unfair and deceptive debt collection practices, including fabricating thousands of mortgage assignments and affidavits. These fraudulent documents purported to establish the required intervening note endorsement and transfers of the mortgages to the trusts, thereby giving the illusion of "standing". If these transfers had actually occurred on the dates the documents were fabricated, they would have been void inasmuch as they were notmade pursuant to the terms of the governing documents and the Trustees were not permitted to accept late and out of time assignments.

In furtherance of this deceptive scheme, from at least 2006 until the present, Defendants have knowingly and intentionally prepared and filed or caused to be filed these fabricated mortgage assignments and other mortgage documents with courts and county recorder of deed's office across the country, including in Ohio, and have produced them to borrowers across the nation, including in Ohio.

From at least 2006 to the present, [Lender Processing] and its network of law firms have used these fabricated note indorsements, mortgage assignments and affidavits to conceal the fact that the trusts, which purport to hold the notes and mortgages, are missing critical documents, namely, properly endorsed notes and valid mortgage assignments that were supposed to have been delivered to the trusts within 90 days of the closing of the trust.

These note endorsements and mortgage assignments were materially false and misrepresented that Defendants' clients had standing to foreclose when they did not. Defendants knew or should have known of the falsity of the representations in these documents, yet Defendants used these fabricated documents to foreclose on Ohio homeowners, with the intent to deceive borrowers and the courts who justifiably believed that these fabricated and forged documents were valid.

[Compl. ¶¶ 11-14] (emphasis in original, footnote omitted).

Plaintiffs allege that many of the Ohio homeowners who comprise the Class were unaware that the documents were forged and that the foreclosing parties lacked standing. Plaintiffs allege that, as a result, homeowners have lost their homes in foreclosures initiated and prosecuted by Defendants. Further, Plaintiffs allege that "thousands of Ohio homeowners have been wrongfully required to defend frivolous foreclosure actions and have incurred substantial legal fees and inflated and/or fabricated foreclosure-related fees charged by Defendants when the plaintiff lacked the standing to institute the foreclosure proceedings against them in the first instance." [Compl. ¶¶ 15-16]. In sum, Plaintiffs claim that the above-described "unfair and deceptive debt collection practices violate the FDCPA and the OCSPA and have been perpetrated on an institutionalized basis through the knowing participation and coordination of each Defendant." [Compl. ¶ 17].

Clark v. Lender Processing Servs., Inc., 949 F. Supp. 2d 763, 767-69 (N.D. Ohio 2013).

The plaintiffs originally filed this lawsuit as a putative class action in Ohio state court. Their complaint asserted a claim under the Ohio Consumer Sales Practices Act (OCSPA) and other state law causes of action. The defendants removed to federal court under the Class Action Fairness Act, 28 U.S.C. § 1332(d). The plaintiffs then amended their complaint to add a claim under the federal Fair Debt Collection Practices Act (FDCPA). After the plaintiffs voluntarily dismissed certain claims against some of the defendants, the Ryshes had claims under the FDCPA, and all of the present plaintiff-appellants had claims under the OCSPA. The district court granted the defendants' motion to dismiss these claims based on several alternative arguments. The district court first reasoned that the plaintiffs did not have standing to challenge the transfer of the mortgages to the trusts. This holding was based on the rule that a person that is not a party to an assignment may not challenge that transfer. By way of example, the final transfer involving Clark's mortgage was...