Horsch v. Wells Fargo Home Mortg.

• Decision Date: 24 March 2015
• Docket Number: Civil Action No. 14–2638.
• Citation: 94 F.Supp.3d 665
• Parties: Karl Peter HORSCH and Kimberly Horsch, H/W, et al., Plaintiffs, v. WELLS FARGO HOME MORTGAGE, A Division of Wells Fargo Bank, N.A.; Wells Fargo Bank, N.A.; Citimortgage, Inc. T/A Citifinancial; Greentree Servicing, LLC; JP Morgan Chase Bank; Bank of America Corporation; Bank of America N.A.; and Nationstar Mortgage, LLC, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

94 F.Supp.3d 665

Karl Peter HORSCH and Kimberly Horsch, H/W, et al., Plaintiffs

v.WELLS FARGO HOME MORTGAGE, A Division of Wells Fargo Bank, N.A.; Wells Fargo Bank, N.A.; Citimortgage, Inc. T/A Citifinancial; Greentree Servicing, LLC; JP Morgan Chase Bank; Bank of America Corporation; Bank of America N.A.; and Nationstar Mortgage, LLC, Defendants.

Civil Action No. 14–2638.

United States District Court, E.D. Pennsylvania.

Signed March 24, 2015.

Filed March 25, 2015.

Stuart A. Eisenberg, McCullough Eisenberg LLC, Warminster, PA, for Plaintiff.

Diane A. Bettino, Mark S. Melodia, Reed Smith LLP, Princeton, NJ, Kurt F. Gwynne, Reed Smith LLP, Wilmington, DE, Debra Bogo–Ernst, Kim A. Leffert, Mayer Brown LLP, Chicago, IL, John S. Stapleton, Mark A. Aronchick, Hangley Aronchick Segal and Pudlin, Philadelphia, PA, for Defendants.

MEMORANDUM

YOHN, District Judge.

This case asks how, under the Fair Credit Reporting Act, a mortgagee must account for a mortgagor who has discharged his personal debt under the Note in bankruptcy, yet who continues making payments on the Mortgage in an effort to stave off foreclosure of the mortgaged property. Speaking in broad strokes, plaintiffs—six married couples and three individuals—took out mortgages serviced by the various financial institution defendants in the usual form of a Note and Mortgage. They then went through the bankruptcy process under Chapter 7 or Chapter 13. The parties agree that the bankruptcy discharges meant that plaintiffs no longer had in personam liability for the borrowed amounts set forth in the Notes, but defendants retained the in rem right to foreclose on the Mortgage of the properties if plaintiffs failed to keep up their monthly payments.¹ In other words, upon lack of the monthly payment, defendants could foreclose on and sell plaintiffs' properties, but they could not sue plaintiffs for any shortfall between the sale proceeds and the amounts borrowed.

Plaintiffs continued to make their monthly mortgage payments on schedule, though they found that any post-bankruptcy payments were not reflected on their credit reports—rather, these reports indicated only that plaintiffs owed no money (“zero balances”) on these accounts, because defendants consider such payments to be voluntary once personal liability on the Note has been removed.

Two putative classes of plaintiffs assert that this practice constitutes either a willful or negligent violation of the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681 et seq. The first, larger class consists of those borrowers who declared bankruptcy (the “debtor” plaintiffs). The second, smaller class, consists of certain of the borrowers' spouses, who were co-debtors on the Mortgages but who did not themselves declare bankruptcy (the “co-debtor” plaintiffs). All plaintiffs claim that defendants have painted an inaccurate or incomplete picture of their credit history, which they allege has made it more expensive or impossible to apply for other credit. They further argue that, at a minimum, defendants should have flagged the relevant credit report entries as under dispute. They also allege that defendants should report the current monthly payments on the Mortgages and their payment history. Defendants respond that their reporting is accurate, as well as in compliance with instructions provided by federal regulators and rulings made by the only federal courts to have weighed in on the issue. Defendants' arguments must prevail on several grounds with respect to the debtor plaintiffs, and since it would be futile to allow further amendment and refiling, I will dismiss those claims with prejudice. But the co-debtor plaintiffs have made out a plausible claim under FCRA, so their portion of this case must be allowed to proceed.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY ²

Because this case involves fifteen plaintiffs and essentially six defendants, a full recounting of all the facts would be overly complicated. I will instead focus on one representative dispute and then discuss relevant differences between the others as necessary.

Vilma Collier, a resident of Vineland, New Jersey, took out a mortgage serviced by Green Tree Servicing LLC.³ Subsequently, on December 21, 2011, Collier filed for bankruptcy under Chapter 7 in the U.S. Bankruptcy Court for the District of New Jersey, and she received a discharge on March 30, 2012.⁴ Collier continued to make her monthly mortgage payments to Green Tree after the bankruptcy, which caused Green Tree not to foreclose on the property, but she discovered that these payments were not reflected on her credit report—rather, the account status was reported as “Discharged through Bankruptcy Chapter 7 / Never Late” and the balance was reported as $0 (a so-called “zero balance”).⁵ Collier disputed this record with the consumer reporting agencies, which then notified Green Tree. By letter on June 12, 2014, Green Tree explained its actions as follows:

Our records indicate that you filed Chapter 7 bankruptcy .... The bankruptcy was discharged without reaffirmation of the loan. When you filed bankruptcy and did not reaffirm the loan, you discharged your obligation to the loan. Without a reaffirmation of debt, we are prohibited from reporting a loan balance and payment history. Your credit report will continue to indicate this loan as a bankruptcy account. When the loan has been paid in full we will file a[ ] ... form stating the loan was paid as agreed and is closed.⁶

Here, “reaffirmation” means the procedure of re-establishing personal liability on a Note after such liability has been discharged in bankruptcy—a move that courts disfavor, according to plaintiffs.⁷ Collier did not reaffirm the loan, and she asserts that her creditworthiness has since continued to suffer as a result of Green Tree's reporting policy, which has led to her either being refused credit outright or being forced to take on credit only at a higher interest rate.

The other debtor plaintiffs' accounts differ in small but important ways from Collier's. When plaintiffs Karl Peter Horsch and Kimberly Ann Horsch disputed the zero balance on their credit report, their mortgage servicer—defendant Wells Fargo—agreed to remove any mention of the account from future credit reports. Likewise, defendant Nationstar Mortgage agreed to delete the allegedly incorrect zero balance from the credit report of plaintiffs Brad Saltzman and Rebecca Saltzman, as did defendants Bank of America and CitiMortgage when a dispute was raised by plaintiffs Thomas Kennedy and Sarah Kennedy. By contrast, when plaintiff Rhiannon Lindmar disputed her zero balance with Wells Fargo, the record was deleted from the records of one credit reporting agency (Transunion), but not another (Equifax). It is unclear from the pleadings what if anything resulted when Paula Milbourne filed her dispute with JPMorgan Chase Bank.

The fact pattern is further complicated by the second putative class of plaintiffs, represented by co-debtors Eileen Jackson and Paul Duffin.⁸ These plaintiffs took out mortgages with their spouses, but only those spouses declared bankruptcy. Yet Eileen Jacksons' credit report indicates that she herself had gone through bankruptcy,⁹ and Paul Duffins' credit report (from Equifax) shows a zero balance. The co-debtors therefore claim that their credit reports contain inaccurate or incomplete information through no fault of their own, likewise leading to difficulty finding credit, or being able to take out only more expensive credit.

The procedural history of this case adds yet another wrinkle. On September 3, 2013, the Horschs, Jacksons, Duffins, and Lindmar filed suit against Wells Fargo and CitiMortgage in Civil Action No. 13–5138, alleging essentially the same facts and bringing a claim under FCRA—specifically, 15 U.S.C. § 1681s–2(a), which imposes a duty to provide accurate credit information.¹⁰ Plaintiffs also sought civil contempt sanctions, as they claimed that the mortgage servicers' credit reporting violated their bankruptcy discharge injunctions. Defendants moved to dismiss on the grounds that, inter alia, § 1681s–2(a) does not create a private right of action. On November 25, 2013, plaintiffs filed an amended complaint, this time bringing a claim under § 1681s–2(b), which imposes a duty to investigate credit reporting disputes, as well as raising violations of the bankruptcy discharge injunction and various state statutory and common law causes of action. Defendants again moved to dismiss, and on January 28, 2014, plaintiffs voluntarily dismissed their claims.

On May 8, 2014, the full, current set of plaintiffs filed their original complaint in this case, again claiming violations of § 1681s–2(b), the bankruptcy discharge injunctions, the “automatic stay” provisions of the bankruptcy code, and several common law causes of action. Defendants moved to dismiss, and on September 2, 2014, plaintiffs filed an amended complaint, which brings a claim under § 1681s–2(b) alone. Defendants moved to dismiss the amended complaint under Fed.R.Civ.P. 12(b)(6), plaintiffs opposed, and defendants replied. On January 7, 2015, I ordered supplemental briefing from the parties on how the Third Circuit's decision in Seamans v. Temple University, 744 F.3d 853 (3d Cir.2014), may apply to plaintiffs' claims. Those briefs having been filed and considered, the motions are now ready for review.

II. STANDARD OF REVIEW

In evaluating a motion to dismiss under Rule 12(b)(6), courts must “accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.” Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir.2008) (internal quotation marks and citation omitted). The pleading standard of Rule 8 “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868...