Ellis v. J.P. Morgan Chase & Co., Case No. 12–cv–03897–YGR.

CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
Writing for the CourtYVONNE GONZALEZ ROGERS
Citation950 F.Supp.2d 1062
PartiesDiana ELLIS, James Schillinger, and Ronald Lazar, individually and on behalf of other members of the general public similarly situated, Plaintiffs, v. J.P. MORGAN CHASE & CO., J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC, Defendants.
Docket NumberCase No. 12–cv–03897–YGR.
Decision Date13 June 2013

950 F.Supp.2d 1062

Diana ELLIS, James Schillinger, and Ronald Lazar, individually and on behalf of other members of the general public similarly situated, Plaintiffs,
v.
J.P. MORGAN CHASE & CO., J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC, Defendants.

Case No. 12–cv–03897–YGR.

United States District Court,
N.D. California.

June 13, 2013.


[950 F.Supp.2d 1066]


Mark Philip Pifko, Daniel Alberstone, Roland K. Tellis, Baron Budd, P.C., Encino, CA, for Plaintiffs.

[950 F.Supp.2d 1067]

Peter Obstler, John Anthony Polito, Zachary J. Alinder, Bingham McCutchen, LLP, San Francisco, CA, for Defendants.


Order Granting in Part and Denying in Part Defendants' Motion to Dismiss

YVONNE GONZALEZ ROGERS, District Judge.

Named Plaintiffs Diana Ellis, James Schillinger, and Ronald Lazar filed a Class Action Complaint against Defendants J.P. Morgan Chase & Co., J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC (collectively, “Chase” or “Defendants”). (Dkt. No. 1.) Plaintiffs allege Chase engaged in fraudulent practices by charging marked-up or unnecessary fees in connection with Defendants' home mortgage loan servicing businesses. This action was filed separately as to these Defendants pursuant to a previous order of the Court. ( See Bias, et al. v. Wells Fargo & Co., et al., Case No. 12–cv–00664–YGR [Dkt. No. 59].)

Defendants filed a Motion to Dismiss Plaintiffs' Complaint Pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6) on August 21, 2012, seeking dismissal of the Complaint with prejudice. (Dkt. No. 6.) On September 4, 2012, Plaintiffs filed their Opposition to the Chase Defendants' Motion to Dismiss Plaintiffs' Complaint Pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). (Dkt. No. 11.) Chase filed their Reply in Support of Motion to Dismiss Complaint on September 11, 2012. (Dkt. No. 14.) The Court held oral argument on November 6, 2012. (Dkt. No. 21.)

Having carefully considered the papers submitted and the pleadings in this action, oral argument at the hearing held on November 6, 2012, and for the reasons set forth below, Defendants' Motion to Dismiss:

• Is Denied based on a lack of subject matter jurisdiction pursuant to 12 U.S.C. section 1818(i) of the National Bank Act;

• Is Denied based on the doctrines of primary jurisdiction and equitable abstention;

• Is Denied based on preemption by the National Bank Act;

• Is Denied based on a lack of standing under Article III, the California Business and Professions Code section 17200 et seq., and the Racketeer Influenced and Corrupt Organizations Act (“RICO”);

• Is Granted as to the second and third claims for violations of RICO and conspiracy to violate RICO With Leave to Amend; and

• Is Denied as to the fourth and fifth claims for unjust enrichment and fraud, respectively.

I. Factual and Procedural Background

Plaintiffs allege that Defendants have engaged and continue to engage in fraudulent practices in connection with their home mortgage loan servicing business.1

[950 F.Supp.2d 1068]

(Compl. ¶ 2.) Defendants allegedly adopted a uniform practice designed to maximize fees assessed on delinquent borrowers' accounts. ( Id. ¶¶ 2–4.) As part of the scheme, Defendants “formed an enterprise with their respective subsidiaries, affiliates, and ‘property preservation’ vendors, ... unlawfully mark[ed] up default-related fees charged by third parties[,] and assess[ed] them against borrowers' accounts” for an undisclosed profit. ( Id. ¶ 9.) Specifically, “Defendants order[ed] default-related services from their subsidiaries and affiliated companies, who, in turn, obtain[ed] the services from third-party vendors.” ( Id. ¶ 40.) The third-party vendors charged Defendants for their services, but Defendants “assess[ed] borrowers a fee that [wa]s significantly marked-up from the third-party vendors' actual fees for the services.” ( Id.) Through the unlawful enterprise, Defendants marked-up fees charged by vendors, “often by 100% or more,” and failed to disclose the mark-ups and hidden profits to borrowers. ( Id. ¶ 4.)

In addition to marked-up fees, Defendants had a “practice of routinely assessing fees ... even when they [we]re unnecessary.” (Compl. ¶ 4.) Plaintiffs allege that: “even if the property inspections were properly performed and actually reviewed by someone at the bank, Chase's continuous assessment of fees for these inspections on borrowers accounts [ sic ] [wa]s still improper because of the frequency with which they [we]re performed. If the first inspection report show[ed] that the property [wa]s occupied and in good condition, it [would be] unnecessary and inappropriate for Chase's system to automatically continue to order monthly inspections. Nothing in the reports justifie[d] continued monitoring.” ( Id. ¶ 52.)

Plaintiffs allege that their mortgage contracts disclosed that Defendants will pay for default-related services when necessary, which would be reimbursed by borrowers, but “[n]owhere [wa]s it disclosed to borrowers that the servicer may mark-up the actual cost of those services to make a profit, nor d[id] it permit such fees to be assessed on borrowers' accounts when they [we]re unnecessary.” (Compl. ¶ 42.) Defendants identified the marked-up fees as “Miscellaneous Fees,” “Corporate Advances,” “Other Fees,” or “Advances” on mortgage statements. ( Id. ¶¶ 10, 49 & 50.) Plaintiffs allege that the marked-up fees included Broker's Price Opinion fees (“BPOs”), appraisal fees, and inspection fees. ( Id. ¶¶ 30, 43–45, 49–50 & 52.) A “significant number” of BPOs were “ordered by Chase's Bankruptcy Processing team and Collection Department in San Diego, California.” ( Id. ¶ 49.)

Plaintiffs also allege that Defendants used a sophisticated home loan management program provided by Fidelity National Information System, Inc. called Mortgage Servicing Package (the “Program”). (Compl. ¶¶ 36.) The Program “automatically implement[ed] decisions about how to manage borrowers' accounts based on internal software logic” and imposed the default-related fees when a loan was past due. ( Id. ¶ 37.) The parameters and guidelines for the Program were inputted by Defendants and “designed by the executives” at J.P. Morgan Chase & Company and J.P. Morgan Chase Bank, N.A. ( Id. ¶¶ 35–37.) “Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A. assess[ed] fees for default-related services on borrowers accounts through these systems.” ( Id. ¶ 37.) In addition, Plaintiffs allege that Defendants use a “Bankruptcy Work Station” platform “infused

[950 F.Supp.2d 1069]

with computer logic to manage a loans [ sic ] during pending bankruptcy” and a program called “FORTRACS” which “automate[d] default management processing, decisionmaking and documentation of a loan.” ( Id. ¶ 38.)

The Complaint alleges “Chase” serviced the mortgages. (Compl. ¶¶ 61, 64 & 67.) As to Plaintiff Diana Ellis, Chase assessed $154.24 for “Miscellaneous Fees” on a July 1, 2011 Mortgage Loan Statement. ( Id. ¶ 62.) Plaintiff Ellis alleges this fee was marked-up and unnecessary, and that “over the history of her loan, her account was assessed numerous other unlawful and unnecessary fees for default-related services.” ( Id.) Plaintiff Ellis alleges on information and belief that she “paid some or all of the unlawful fees assessed on her account.” ( Id.) As to Plaintiff James Schillinger, Chase continually assessed fees for default-related services, including property inspections, on his account. ( Id. ¶ 65.) He alleges such fees were charged on dates including October 18, 2011, October 28, 2011, and February 18, 2012. Plaintiff Schillinger alleges that he “paid some or all of the unlawful fees assessed on his account.” ( Id.) As to Plaintiff Ronald Lazar, Chase continually assessed fees, including fees for property inspections, on his account in 2010 and 2011. ( Id. ¶ 68.) The fees were identified as “Miscellaneous Fees.” ( Id.) In addition, Chase sent Plaintiff Lazar an “Acceleration Warning” dated June 2, 2011, in which it demanded he pay $86.80 in “Other Fees” and $28.00 in “Advances.” The Acceleration Warning letter stated that “Other Fees and Advances include those amounts allowed by your Note and Security Instrument.” ( Id.) Plaintiff Lazar alleges that he “paid some or all of the unlawful fees assessed on his account. ( Id. ¶ 69.) As to each Plaintiff, they allege they cannot provide details of each and every fee assessed because Defendants maintain the complete accounting. ( Id. ¶¶ 62, 65 & 69.)

Plaintiffs allege that “Defendants are under a continuous duty to disclose to [them and class members] the true character, quality, and nature of the fees they assess on borrowers' accounts.” (Compl. ¶ 71.) Chase “actively concealed the true character ... of the[ ] assessment of marked-up fees against borrowers' accounts” and borrowers “reasonably relied upon Defendants' knowing, affirmative, and active concealment.” ( Id.) In addition, Chase “falsely represent[ed] on statements provided to borrowers that ‘Other Fees' and ‘Advances,’ which are charges for BPOs and property inspections, include ‘amounts allowed by [borrowers'] Note and Security Instrument.’ ” ( Id. ¶ 53 (first alteration supplied).)

With respect to damages, borrowers allege harm resulting from: (i) charges for default-related services accumulated over time such that borrowers were driven further into default and/or ensured to stay in default; (ii) damage to credit scores; (iii) the inability to obtain favorable interest rates on future loans because of their default; and (iv) in some cases, foreclosure. (Compl. ¶¶ 55–59.)

On the basis of the allegations summarized above, Plaintiffs bring this action on behalf of two sub-classes. The first sub-class is a nationwide class consisting of:

All residents of the United States of America who had a loan serviced by Chase Home Finance LLC at any time, or a loan serviced by J.P. Morgan Chase Bank, N.A. from May 1, 2011 continuing through the date of final disposition of this action, and whose accounts were assessed fees...

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26 practice notes
  • Comm. to Protect Our Agric. Water v. Occidental Oil & Gas Corp., No. 1:15–cv–01323–DAD–JLT
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
    • January 20, 2017
    ..., 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981) ; Eclectic , 751 F.3d at 997 ; Ellis v. J.P. Morgan Chase & Co. , 950 F.Supp.2d 1062, 1089 (N.D. Cal. 2013) ; see also Odom , 486 F.3d at 551 (noting that "an associated-in-fact enterprise under RICO does not require any pa......
  • U.S. Capital Funding VI, Ltd v. Patterson Bankshares, Inc., CV 514–93
    • United States
    • United States District Courts. 11th Circuit. United States District Court (Southern District of Georgia)
    • September 30, 2015
    ...nor inconsistent with the consent order, but rather is separately provided at law. See , e.g. , Ellis v. J.P. Morgan Chase & Co. , 950 F.Supp.2d 1062, 1078–79 (N.D.Cal.2013) (jurisdiction to hear fraud claims premised on defendant's improper action where consent order was silent as to r......
  • Carmax Auto Superstores Cal. LLC v. Hernandez, CASE NO. CV 14–08743 MMM JEMx
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • April 30, 2015
    ...quoting Association of Am. Medical Colleges v. United States, 217 F.3d 770, 778 (9th Cir.2000) ); Ellis v. J.P. Morgan Chase & Co., 950 F.Supp.2d 1062, 1072–73 (N.D.Cal.2013) (taking judicial notice of various documents in deciding defendant's Rule 12(b)(1) motion to dismiss); Smith v. ......
  • A Woman's Friend Pregnancy Resource Clinic v. Harris, No. 2:15–cv–02122–KJM–AC
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
    • December 18, 2015
    ...generally at http://leginfo.ca.gov. See also Fed. R. Evid. 201 (governing judicial notice); Ellis v. J.P. Morgan Chase & Co. , 950 F.Supp.2d 1062, 1080 n. 17 (N.D.Cal.2013) (publicly available documents published on a government website may be subject to judicial notice); In re Charles ......
  • Request a trial to view additional results
26 cases
  • Comm. to Protect Our Agric. Water v. Occidental Oil & Gas Corp., No. 1:15–cv–01323–DAD–JLT
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
    • January 20, 2017
    ..., 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981) ; Eclectic , 751 F.3d at 997 ; Ellis v. J.P. Morgan Chase & Co. , 950 F.Supp.2d 1062, 1089 (N.D. Cal. 2013) ; see also Odom , 486 F.3d at 551 (noting that "an associated-in-fact enterprise under RICO does not require any pa......
  • U.S. Capital Funding VI, Ltd v. Patterson Bankshares, Inc., CV 514–93
    • United States
    • United States District Courts. 11th Circuit. United States District Court (Southern District of Georgia)
    • September 30, 2015
    ...nor inconsistent with the consent order, but rather is separately provided at law. See , e.g. , Ellis v. J.P. Morgan Chase & Co. , 950 F.Supp.2d 1062, 1078–79 (N.D.Cal.2013) (jurisdiction to hear fraud claims premised on defendant's improper action where consent order was silent as to r......
  • Carmax Auto Superstores Cal. LLC v. Hernandez, CASE NO. CV 14–08743 MMM JEMx
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • April 30, 2015
    ...quoting Association of Am. Medical Colleges v. United States, 217 F.3d 770, 778 (9th Cir.2000) ); Ellis v. J.P. Morgan Chase & Co., 950 F.Supp.2d 1062, 1072–73 (N.D.Cal.2013) (taking judicial notice of various documents in deciding defendant's Rule 12(b)(1) motion to dismiss); Smith v. ......
  • A Woman's Friend Pregnancy Resource Clinic v. Harris, No. 2:15–cv–02122–KJM–AC
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
    • December 18, 2015
    ...generally at http://leginfo.ca.gov. See also Fed. R. Evid. 201 (governing judicial notice); Ellis v. J.P. Morgan Chase & Co. , 950 F.Supp.2d 1062, 1080 n. 17 (N.D.Cal.2013) (publicly available documents published on a government website may be subject to judicial notice); In re Charles ......
  • Request a trial to view additional results

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