Khan v. Ocwen Loan Servicing
| Decision Date | 30 March 2021 |
| Docket Number | No. 20 CV 5833,20 CV 5833 |
| Parties | MURTUZA KHAN, Plaintiff, v. OCWEN LOAN SERVICING, LLC, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER
In 2013, Murtuza Khan purchased a property in Des Plaines, Illinois. Three years later, Ocwen Loan Servicing, LLC—the company that negotiated the sale to Khan on behalf of the previous owner but had no remaining interest in the property—filed two documents with the county recorder's office. The first purported to release a mortgage on the property that predated Khan's purchase; the second filing sought to correct the first and stated that the mortgage remained outstanding and in full effect. That statement was false (a 2012 foreclosure extinguished the mortgage at issue). When Khan tried to sell the property in 2018, he discovered Ocwen's 2016 filings, which placed a cloud on his title and delayed the sale, resulting in extra costs and missed opportunities for Khan. He sued Ocwen (now PHH Mortgage Corporation by merger), bringing claims under slander of title, gross negligence, and the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. Ocwen moves to dismiss the ICFA claim under Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, the motion is denied.
A complaint must contain a short and plain statement that plausibly suggests a right to relief. Fed. R. Civ. P. 8(a)(2); Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009). To survive a motion to dismiss, a plaintiff must allege facts sufficient "to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). The court accepts the complaint's factual allegations as true and draws all reasonable inferences in plaintiff's favor, but it need not do the same for legal conclusions or "threadbare recitals" supported by only "conclusory statements." Iqbal, 556 U.S. at 678.
Murtuza Khan is a real estate developer who buys, rehabs, and sells properties in and around Chicago. [1-1] ¶ 1.1 This case is about one of those properties, located in Des Plaines, Illinois. Id. ¶ 5. Ocwen Loan Servicing, LLC, serviced a prior loan on the property until 2012, when a bank foreclosed on the mortgage and took title. Id. ¶¶ 5-7. The next year, Khan agreed to purchase the property from the bank. Ocwen, now acting as the bank's attorney-in-fact, negotiated the sale contract, prepared and executed a special warranty deed passing title to Khan, and recorded the deed with the Cook County Recorder of Deeds. Id. ¶¶ 9-10.
Three years later, Ocwen (now acting on behalf of Mortgage Electronic Registration Systems) recorded a release of the extinguished mortgage it had serviced until 2012. Id. ¶ 11. In November 2016, Ocwen reversed course and recorded another document titled "Incorrect Release of Mortgage." Id. ¶ 12. The filing stated that the previous release had been recorded in error and falsely claimed that the extinguished mortgage "remain[ed] outstanding and in full force and effect." Id.
By May 2018, Khan was ready to sell the property. He entered into a contract with a cash buyer, and anticipated closing one week later. Id. ¶ 13. Khan first learned of Ocwen's filings when his attorney pulled the title records in connection to the deal. Id. ¶ 14. Khan spent weeks trying to get Ocwen to remove the cloud from his title. Id. ¶¶ 16-17. Ocwen corrected the record in early July, more than six weeks after Khan notified the company of its error. Id. ¶ 18. Khan's sale of the property closed a few weeks later, more than two months later than originally planned. Id. ¶ 19. During that time, Khan had to pay additional real estate taxes, insurance, landscaping, utilities, and attorney's fees. Id. ¶ 20. Khan also claims he lost profits and opportunity costs; for example, he says that he missed out on purchasing a Chicago property because he needed the proceeds from closing to make an offer. Id. ¶¶ 21-26.
Khan sued Ocwen in the Circuit Court of Cook County. PHH, successor by merger to Ocwen, timely removed to federal court. See [1] at 1-4.2 Khan brings claims under Illinois law for slander of title (Count I), gross negligence (Count II), and consumer fraud (Count III). PHH moves to dismiss Count III.3
The Illinois Consumer Fraud and Deceptive Business Practices Act prohibits "[u]nfair methods of competition and unfair or deceptive acts or practices ... in the conduct of any trade or commerce." 815 ILCS 505/2. The Act aims "to protect consumers, borrowers, and business persons against fraud, unfair methods of competition, and other unfair and deceptive business practices." McIntosh v. Walgreens Boots Alliance, Inc., 2019 IL 123626, ¶ 20. To state an ICFA claim, a plaintiff must plead "that the defendant committed a deceptive or unfair act with the intent that others rely on the deception, that the act occurred in the course of trade or commerce, and that it caused actual damages." Vanzant v. Hill's Pet Nutrition, Inc., 934 F.3d 730, 736 (7th Cir. 2019).
The Act defines "trade" and "commerce" as "the advertising, offering for sale, sale, or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value wherever situated, and ... directly or indirectly affecting the people of this State." 815 ILCS 505/1(f). An ICFA cause of action is available to "[a]ny person who suffers actual damage as a result of a violation." 815 ILCS 505/10a(a). But a claim must be brought within three years after the cause of action accrues. 815 ILCS 505/10a(e).
PHH argues that Khan's ICFA claim should be dismissed for three reasons: (1) Ocwen's acts of recording the release documents did not occur in trade or commerce; (2) Khan's allegations fail to implicate broader consumer-protection concerns; and (3) the claim is barred under the statute of limitations.
Because Ocwen's false attempt to record a mortgage was not an advertisement, offer for sale, or sale of any service or property, the issue is whether its 2016 filing falls within the "distribution of any" of its services. 815 ILCS 505/1(f). "This broad language evidences an intent that the Act have correspondingly broad applicability." Scott v. Ass'n for Childbirth at Home, Int'l, 88 Ill.2d 279, 284 (1981) (citing 815 ILCS 505/1(f)); see also Connick v. Suzuki Motor Co., 174 Ill.2d 482, 503 (1996) (). Yet ICFA's reach is not limitless, and the mere fact that an entity does business in Illinois does not convert its every act into conduct in trade or commerce. See Roppo v. Travelers Commercial Ins. Co., 869 F.3d 568, 595-96 (7th Cir. 2017) (); G & G Closed Circuit Events, LLC v. Castillo, 327 F.Supp.3d 1119, 1133-34 (N.D. Ill. 2018) (); Falk v. Perez, 973 F.Supp.2d 850, 868 (N.D. Ill. 2013) ().
The complaint alleges that Ocwen engaged in trade or commerce when it recorded title documents with the county recorder. [1-1] ¶ 38. PHH counters that Ocwen's interest in the property ceased with the sale to Khan in 2013, so the 2016 filings fell outside the realm of trade or commerce. Further, it says, the filings were not part of an attempt to advertise, offer to sell, sell, or distribute any of its services or property.
I disagree. Ocwen recorded the loan release and false correction within the regular distribution of its services as a mortgage servicer, and therefore, in the course of trade or commerce. Specifically, the 2016 recorded documents were part of Ocwen's services on behalf its client, mortgage-holder MERS. See [1-1] at 26, 30. Public records show that, in 2016, Ocwen recorded releases for hundreds of loans in Cook County alone.4 A reasonable chain of inferences follows: Ocwen's services on behalf of clients like MERS included recording releases and related documents; the act of recording documents was part of its distribution of this service; it directly or indirectly affected the people of Illinois, namely Khan and other title holders, and it therefore amounted to the conduct of trade or commerce under ICFA. See People ex rel. Daley v. Datacom Systems Corp., 146 Ill.2d 1, 30 (1991) ( ).
That Ocwen erroneously recorded the document when it had no actual interest in the property does not alter the fact that its wrongful filing was part of the routine distribution of its services. See Datacom Systems, 146 Ill.2d at 29-30 . Accordingly, the filings fall within the broad scope of trade or commerce under the ICFA.
PHH principally relies on G & G Closed Circuit Events, LLC v. Castillo, 327 F.Supp.3d 1119 (N.D. Ill. 2018), but that case is distinguishable. There, the ICFA claim focused on a company's litigation tactics—not its underlying business—which was too attenuated from the company's trade or commerce. See id. at 1133-34. Khan's ICFA claim, on the other hand, directly implicates Ocwen's trade or commerce: its mortgage servicing business that involves recording loan releases. Ocwen's wrongful...
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