Thorpe v. Walter Inv. Mgmt., Corp.

• Decision Date: 30 June 2015
• Docket Number: Case No. 1:14–cv–20880–UU.
• Citation: 111 F.Supp.3d 1336
• Court: U.S. District Court — Southern District of Florida
• Parties: RICHARD THORPE & DARREL WEISHEIT, Individually and on Behalf of all Others Similarly Situated, Plaintiffs, v. WALTER INVESTMENT MANAGEMENT, CORP. et al., Defendants.

111 F.Supp.3d 1336

RICHARD THORPE & DARREL WEISHEIT, Individually and on Behalf of all Others Similarly Situated,¹ Plaintiffs,

v.WALTER INVESTMENT MANAGEMENT, CORP. et al., Defendants.

Case No. 1:14–cv–20880–UU.

United States District Court, S.D. Florida.

Signed June 30, 2015.

Jeremy A. Lieberman, Murielle J. Steven, Star M. Tyner, Pomerantz, LLP, Laurence Matthew Rosen, Jonathan Stern, The Rosen Law Firm, P.A., New York, NY, Jayne Arnold Goldstein, Pomerantz Grossman Hufford Dahlstrom & Gross LLP, Weston, FL, for Plaintiffs.

Andrew D.W. Cattell, David Elbaum, Heather L. Shaffer, Peter E. Kazanoff, Simpson, Thacher & Bartlett, LLP, New York, NY, Allison Beth Kernisky, Stephen Patrick Warren, Tracy Ann Nichols, Holland & Knight LLP, Miami, FL, Gianluca Morello, Wiand Guerra King P.L., Tampa, FL, for Defendants.

OMNIBUS ORDER

URSULA UNGARO, District Judge.

THIS CAUSE is before the Court upon Defendant H. Marc Helm's Motion to Dismiss the Second Amended Class Action Complaint, D.E. 76, and Defendants Walter Investment Management, Corporation, Mark J. O'Brien, Denmar Dixon, Keith A. Anderson, Brian Corey and Charles E. Cauthen's Motion to Dismiss the Second Amended Class Action Complaint, D.E. 77. On February 29, 2015, Plaintiffs Richard Thorpe and Darrel Weisheit filed their response, D.E. 79, and on February 19, 2015, the Defendants filed their reply, D.E. 80 & 81. Thus, the Motions are ripe for disposition.

THE COURT has considered the Motions and the pertinent portions of the record, and is otherwise fully advised in the premises. For the reasons stated below, Defendant H. Marc Helm's Motion to Dismiss is GRANTED and Defendants Walter Investment Management, Corporation, Mark J. O'Brien, Denmar Dixon, Keith A. Anderson, Brian Corey and Charles E. Cauthen's Motion to Dismiss is GRANTED IN PART AND DENIED IN PART.

BACKGROUND²

This is a federal securities fraud class action brought against Walter Investment Management, Corp. ("Walter Investment" or the "Company") and several officers and board members of Walter Investment and its wholly-owned subsidiaries Green Tree Servicing LLC³ ("Green Tree") and Reverse Mortgage Solutions, Inc.⁴ ("RMS"). Plaintiffs assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b–5. Plaintiffs allege that Defendants made false or misleading statements or failed to disclose that: (1) the Company had lax and inadequate legal and regulatory compliance controls; (2) the Company's business practices repeatedly violated consumer protection laws and thereby, jeopardized the Company's revenues and profits; (3) the Company ignored repeated loan servicing errors in violation of applicable regulations; (4) the Company's internal controls over financial reporting and servicing processes and procedures were not effective; (5) RMS's financial statements were materially overstated and contained false and misleading statements; and (6) the Company overstated the value of the RMS acquisition. (Compl. ¶ 19.) Lead Plaintiff Richard Thorpe and Plaintiff Darrel Weisheit bring these claims on behalf of a putative class of persons who purchased Walter Investment securities between May 9, 2012 and August 11, 2014, both dates inclusive (the "Class Period"). (Compl. ¶ 1.)

Walter Investment is a loan servicer and loan originator focused on generating recurring, fee-based revenues from an asset-light platform, which includes less-than-prime loans, non-conforming loans and other credit challenged mortgage assets. (Compl. ¶ 2.) The six individual defendants (collectively, the "Individual Defendants") either are or were senior officers of the Company or its wholly-owned subsidiaries, Green Tree or RMS, during the Class Period. The Individual Defendants are as follows: (1) Mark J. O'Brien, the Company's Chairman of the Board of Directors and Chief Executive Officer; (2) Denmar J. Dixon, the Company's Vice Chairman and Executive Vice President, member of the Company's Audit Committee and Nominating and Corporate Governance Committee, and Chairman of the Compensation and Human Resources Committee; (3) Charles E. Cauthen, former Chief Operating Officer and Chief Financial Officer for the Company; (4) Keith A. Anderson, the Company's Chief Operating Officer since August 2013 and Green Tree's Chief Executive Officer and President since September 2011; (5) Brian Corey, Senior Vice President and Chief Compliance Officer for the Company and Senior Vice President, General Counsel and Secretary for Green Tree during the Class Period; and (6) H. Marc Helm, Co–Founder, President, Chief Operating Officer and Chief Executive Officer of RMS until December 2013. (Compl. ¶¶ 27–32.)

I. The Alleged Misrepresentations

The alleged misrepresentations fall into two categories: (i) those that concern the Company's financial statements, compliance with state and federal laws, internal controls over loan servicing protocols and procedures, and internal controls over loan operations; and (ii) those that concern the RMS acquisition and RMS's financial condition.

A. Allegations Concerning the Company's Financial Statements, Compliance & Internal Controls

With respect to the Company's financial statements, compliance and internal controls, Plaintiffs allege that Defendants misrepresented and/or failed to disclose the following: (i) the Company had lax and inadequate legal and regulatory compliance controls; (ii) the Company was not in compliance with applicable legal and regulatory requirements; (iii) the Company's business practices repeatedly violated consumer protection laws thereby jeopardizing the Company's revenues and profits; (iv) the Company ignored repeated servicing errors in violation of applicable regulations; and (v) the Company had inadequate internal controls over financial reporting and loan servicing operations which led to the Company's issuance of materially false and misleading financial statements. (Compl. ¶¶ 76–78, 87, 100 & 112.) According to Plaintiffs, Defendants made the following misrepresentations about the Company's financial statements, compliance, and internal controls:

• On May 9, 2012, August 9, 2012 and May 10, 2013, the Company filed Form 10–Q with the SEC, which reported the Company's cash and cash equivalents as well as contained the dollar amounts of the Company's residential loan assets, loan receivables, revenue, expenses and net income. Form 10–Q also included signed certifications, pursuant to the Sarbanes–Oxley Act of 2002, by Defendants O'Brien and Cauthen, stating that the financial information contained in Form 10–Q was accurate and disclosed any material changes to the Company's internal control over financial reporting. (Compl. ¶¶ 79, 82 & 107.)

• On May 9, 2012, Walter Investment issued its First Quarter 2012 Earnings Presentation to investors, which touted its "servicer rating affirmed or upgraded" and "culture of compliance—strong independent controls and processes for monitoring and managing compliance." (Compl. ¶ 80.)

• On June 5, 2012, the Company issued its presentation at the Keefe, Bruyette & Woods Mortgage Finance Conference to investors, which touted the Company's "active portfolio management—to improve servicing, regulatory compliance and credit performance," "grounded in the long-term value proposition we offer clients for improved credit performance and regulatory compliance," and "proven track record as a high-quality manager of whole loans." (Compl. ¶ 81.)

• On August 9, 2012, Walter Investment issued its Second Quarter 2012 Earnings Presentation to investors, which touted the Company's "differentiated servicing model: platform continues to deliver results that exceed clients' expectations" and "culture of compliance: regulatory compliance capabilities remain at the 'top of the list' in terms of ability to win new business." (Compl. ¶ 83.)

• In an earnings call held on August 9, 2012, Defendant O'Brien stated: "We have a solid platform with distinct advantages that afford our shareholders a great vehicle for which to participate and a significant growth opportunity within the mortgage servicing sector. We continue to execute for our clients by delivering strong portfolio performance in a regulatory-compliant matter." (Compl. ¶ 84.)

• During the same earnings call, Defendant Cauthen stated, in relevant part: "[W]e're very comfortable and confident that our business practices meet all the requirements out there. You can go through the [Consumer Financial Protection Bureau's] examination manual or any of the other information you might read publicly about what best practices are in this business and we follow those very, very stridently." (Compl. ¶ 85.)

• On August 9, 2012, Walter Investment issued a press release which quoted Defendant O'Brien as stating: "We continue to exceed our clients' expectations for performance on serviced portfolios and are seeing operational improvements in our Loans & Residuals segment and our ARM business. Based on our continued track record of performance, as well as the significant amount of new business opportunity in the market and in our pipeline, we expect to see continued strong performance and results in the second half of this year." (Compl. ¶ 86.)

• On September 11, 2012, Defendants presented at the 2012 Investor and Financial Analyst Day and the presentation included remarks by Defendants O'Brien, Dixon, Corey and Anderson. (Compl. ¶ 95.)

• During the presentation, Defendant Anderson made statements such as: (i) "[W]e put so much emphasis on our day-to-day activities of compliance;" (ii) "Things like charging fees to customers and handling customer complaints. We don't take any of those things lightly. We always want to be well inside the boundaries. We don't want to push any of the boundaries on any of those activities;" and (iii) "So where there's opportunities to make another $0.05 or $0.10 and some fee opportunities and we don't see that it's well-defined within state regulatory requirements, we're going to pass on that.

...