Rovai v. Select Portfolio Servicing, Inc.
| Decision Date | 23 April 2019 |
| Docket Number | Case No. 14-cv-01738-BAS-MSB |
| Parties | ADRIANA ROVAI, Plaintiff, v. SELECT PORTFOLIO SERVICING, INC., Defendant. |
| Court | U.S. District Court — Southern District of California |
ORDER DENYING PLAINTIFF'S MOTION TO SUPPLEMENT THE SECOND AMENDED COMPLAINT
Plaintiff Adriana Rovai requests leave to file a "Supplemented Second Amended Complaint" pursuant to Rule 15(d). (ECF Nos. 126, 133.) Rovai seeks to supplement the SAC with factual allegations and related proposed supplemental claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and a third-party beneficiary breach of contract claim. (Id.) Defendant Select Portfolio Servicing, Inc. ("SPS") opposes Rovai's motion. (ECF No. 132.) For the reasons herein, the Court denies Rovai's motion.
Factual Background. As the Court has previously recounted, Rovai is a California homeowner who obtained an Option ARM mortgage loan in 2005 from First Magnus Financial Corporation. During the first five years of the loan's duration, Rovai's loan provided an option that allowed Rovai to make a monthly interest payment less than the full amount of interest due. Under this option, the monthly interest Rovai did not pay was added to the amount of her loan's unpaid principal with interest accruing on this added amount at the same rate as the original principal. Rovai's loan passed to various owners and servicers, with Bank of America, N.A. ("BANA") owning and servicing Rovai's loan immediately prior to SPS. When SPS began servicing Rovai's loan in December 2011, Rovai's loan balance was $9,013.02 above the original balance, an amount which Rovai alleges was charged as interest in the earlier years of her loan but which she did not pay, i.e. the amount constitutes "deferred interest." Rovai made $2,698.20 in mortgage payments to SPS in 2011. According to Rovai, SPS failed to credit any payments to retire outstanding deferred interest before applying the payments to her loan's principal amount.
Although Rovai raises various California state law claims against SPS, a federal statute is at the core of Rovai's contention that SPS was legally required to credit and report payments on deferred interest for her home mortgage. The statute, 26 U.S.C. § 6050H, requires any individual who receives interest aggregating over $600 on a home mortgage in a given year from another individual to furnish the Internal Revenue Service ("IRS") with an information return identifying the amount of interest received. 26 U.S.C. § 6050H(a); 26 U.S.C. § 6050H(b)(2)(B). The interest recipient must also furnish a statement to the individual who provided the interest, which also identifies the amount of interest received during the year. 26 U.S.C. § 6050H(d). By regulation, the interest recipient meets its statutory reporting obligations by providing the IRS and the interest provider with a Form 1098. 26 C.F.R. §§ 1.605H-2(a), (b). Rovai contends that Section 6050H reaches deferred interest and, consequently, SPS unlawfully failed to credit or properly report her payments on deferred interest in thecorresponding 2011 Form 1098 that SPS provided to the IRS and Rovai. Rovai further contends that SPS similarly failed to properly credit and report her 2012 payments on deferred interest in the 2012 Form 1098 SPS provided.
Procedural History. Rovai first brought suit against SPS in July 2014, alleging claims for breach of contract, breach of the implied covenant, violation of Section 6050H, violation of California's Unfair Competition Law ("UCL"), declaratory and injunctive relief, fraud, and negligence. (ECF No. 1 (the "Original Complaint").) In May 2015, upon SPS's Rule 12(b)(6) motion to dismiss (ECF No. 11), the Court dismissed Rovai's direct claim under Section 6050H on the ground that there is no express or implied federal private right of action under the statute. (ECF No. 16.) The Court otherwise stayed the case under the primary jurisdiction doctrine to permit the IRS to interpret Section 6050H's application to deferred interest in the first instance. (Id.) Over two years after imposing the stay, the Court dismissed the Original Complaint when Rovai conceded that she lacked Article III standing in view of the Ninth Circuit's decision in Smith v. Bank of America, N.A., 679 Fed. App'x 549 (9th Cir. 2017). (ECF Nos. 36, 38.) Rovai subsequently filed the First Amended Complaint ("FAC'), which raised the same claims as the Original Complaint. (Compare ECF No. 1 with ECF No. 39 (FAC).)
After denying SPS's motion to dismiss the FAC for lack of standing and declining to impose another stay, the Court ordered Rovai to show cause why her claims should not be dismissed pursuant to Rule 12(b)(6). (ECF No. 53.) Rovai filed a brief and reply brief directly responding to the Court's order, (ECF Nos. 54, 70), SPS presented its dismissal arguments, (ECF No. 66), and the Court held oral argument, (ECF No. 82). After nearly four years, the legal sufficiency of Rovai's concededly novel claims was ripe for adjudication. Following the Court's decision in Pemberton v. Nationstar Mortgage LLC, 331 F. Supp. 3d 1018 (S.D. Cal. 2018), acase involving the same underlying legal issues, the Court issued an extensive order that sustained in part and dismissed in part Rovai's claims. See Rovai v. Select Portfolio Servicing, Inc., No. 14-cv-1738-BAS-WVG, 2018 WL 3140543 (S.D. Cal. June 27, 2018). The Court dismissed with prejudice Rovai's claims for breach of contract, breach of the implied covenant, a UCL claim under the UCL's unlawful and fraudulent prongs, the declaratory judgment request as pleaded in the FAC, and fraud. Rovai, 2018 WL 3140543, at *4-15, 23-24. The Court dismissed without prejudice Rovai's claim for a preliminary and permanent injunction. Id. at *24. The Court allowed Rovai's UCL unfair prong and negligence claims and permitted Rovai to file a Second Amended Complaint ("SAC") consistent with the order. Id. at *16-22.
In accordance with the Court's order, Rovai filed the SAC in July 2018, alleging claims against SPS for violation of the UCL (unfair prong), declaratory relief, and negligence based on SPS's alleged failures to report Rovai's deferred interest payments. (ECF No. 86.) SPS answered the SAC in August 2018, (ECF No. 95), and the case proceeded to discovery. Rovai filed the present Rule 15(d) motion for leave to file a "supplemented [SAC]" in December 2018.1 (ECF No. 120 () Rovai has submitted a copy of the proposed "Supplement Second Amended Complaint" ("PSSAC"), which reveals some 102 paragraphs of "supplemental" allegations for four additional claims, dwarfing the operative complaint's 60 paragraphs and three claims. (Compare SAC ¶¶ 1-60 with ECF No. 121-1 PSSAC ¶¶ 61-163.) Rovai does not offer any proposed supplementalfactual allegations to supplement the claims the Court has already allowed.
"[T]he court may, on just terms, permit a party to serve a supplemental pleading setting out any transaction, occurrence, or event that happened after the date of the pleading to be supplemented." Fed. R. Civ. P. 15(d). "Rule 15(d) provides a mechanism for parties to file additional causes of action based on facts that didn't exist when the original complaint was filed." Eid v. Alaska Airlines, Inc., 621 F.3d 858, 874 (9th Cir. 2010). New claims, parties, and allegations regarding events that occurred after the original complaint are properly raised in a Rule 15(d) motion. Griffin v. Cty. Sch. Bd., 377 U.S. 218, 226 (1964); Lyon v. United States Immigration & Customs Enforcement, 308 F.R.D. 203, 214 (N.D. Cal. 2015). Yet, "[s]ome relationship must exist between the newly alleged matters and the subject of the original action" in order for a party to rely on Rule 15(d). Keith v. Volpe, 858 F.2d 467, 473 (9th Cir. 1988).
A Rule 15(d) motion is otherwise evaluated pursuant to the same standard as a Rule 15(a) motion to amend. See Glatt v. Chicago Park Dist., 87 F.3d 190, 193 (7th Cir. 1996); Yates v. Auto City 76, 299 F.R.D. 611, 614 (N.D. Cal. 2013). A court may deny leave for: "(1) 'undue delay, bad faith or dilatory motive on part of the movant,' (2) 'repeated failure to cure deficiencies by amendments previously allowed,' (3) 'undue prejudice to the opposing party,' or (4) 'futility.'" Acosta v. Austin Elec. Servs. LLC, 325 F.R.D. 325, 330 (D. Ariz. 2018) (quoting Wash. State Republican Party v. Wash. State Grange, 676 F.3d 784, 797 (9th Cir. 2012)). A district court has broad discretion over whether to allow supplemental or amended pleadings. Volpe, 858 F.2d at 473. A court "examine[s] each case on its facts" to determine the propriety of granting leave to supplement or amend the pleadings. See SAES Getters S.p.A. v.Aeronex, Inc., 219 F. Supp. 2d 1081, 1086 (S.D. Cal. 2002) (citation omitted).
Rovai improperly relies on Rule 15(d) for many of the claims with which Rovai seeks to "supplement" the SAC. "Rule 15(d) permits the filing of a supplemental pleading which introduces a cause of action not alleged in the original complaint and not in existence when the original complaint was filed." Cabrera v. City of Huntington Park, 159 F.3d 374, 382 (9th Cir. 1998) (citation omitted). The Original Complaint asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and fraud for SPS's alleged failures to report deferred interest on Rovai's 2011 and 2012 Forms 1098. (Original Compl. ¶¶ 46-51 (breach of contract); id. ¶¶ 52-57 (); id. ¶¶ 73-81 (fraud).) Any proposed supplemental claims which seek to reintroduce these original claims are not properly raised in a Rule 15(d) motion.
A review of the underlying supplemental factual allegations also reveals that the proposed supplemental claims are based on facts that existed before the filing of the Original Complaint....
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