Smith v. Bank of New York Mellon et al, No. 2:2019cv00538 - Document 38 (W.D. Wash. 2019)
Court Description: ORDER denying Defendant M&C's 21 Motion to Dismiss for Failure to State a Claim signed by U.S. District Judge John C Coughenour. (TH)
Download PDF
<![CDATA[
Smith v. Bank of New York Mellon et al Doc. 38 THE HONORABLE JOHN C. COUGHENOUR 1 2 3 4 5 6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 7 8 9 KAREN D. SMITH, 10 Plaintiff, ORDER v. 11 12 CASE NO. C19-0538-JCC BANK OF NEW YORK MELLON, et al., 13 Defendants. 14 15 This matter comes before the Court on Defendant Malcolm & Cisneros’ (“M&C”) 16 motion to dismiss (Dkt. No. 21). Having thoroughly considered the parties’ briefing and the 17 relevant record, the Court finds oral argument unnecessary and hereby DENIES the motion for 18 the reasons explained herein. 19 I. BACKGROUND 20 On February 9, 2007, Plaintiff Karen D. Smith obtained a loan from Mortgage Solutions 21 Management, Inc. and secured the loan with a deed of trust on the residence. (Dkt. No. 10 at 4.) 22 In July 2007, Plaintiff stopped making payments on the loan. (Id.) Shortly thereafter, Plaintiff 23 filed for bankruptcy and her mortgage loan was eventually discharged. (Id. at 5.) Defendant 24 Bank of New York Mellon retained an in rem interest in Plaintiff’s property after the discharge 25 and recorded a series of notices of trustee’s sales from 2009 through 2016, though none of the 26 sales occurred. (Id. at 5–6.) In November 2016, Plaintiff initiated mediation under Washington’s ORDER C19-0538-JCC PAGE – 1 Dockets.Justia.com 1 Foreclosure Fairness Act. (Id. at 6.) During mediation, Plaintiff was informed that her loan 2 modification application was denied. (Id.) Plaintiff alleges that M&C, who represented the loan 3 servicer Defendant Shellpoint, stopped participating in mediation. (Id. at 6–7.) On January 10, 4 2018, a foreclosure mediation certificate was issued stating that “[Defendant Shellpoint] failed to 5 timely participate in mediation.” (Dkt. 10-2 at 3.) 6 On April 11, 2018, M&C filed a judicial foreclosure complaint on behalf of Defendant 7 Bank of New York Mellon in King County Superior Court against Plaintiff’s property. (Dkt. No. 8 10 at 7.) After being removed to federal court, Judge Thomas S. Zilly dismissed the judicial 9 foreclosure complaint with prejudice, finding that it was time-barred. (Id.); see The Bank of New 10 York Mellon v. Karen D. Smith, Case No. C18-0764-TSZ, Dkt. No. 16 (W.D. Wash. 2018). 11 Plaintiff subsequently filed this lawsuit, alleging that M&C is a debt collector and 12 violated the Washington Consumer Protection Act (“CPA”), Revised Code of Washington § 13 19.86.020, and the Federal Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692, 14 when it filed a lawsuit to collect on a time-barred mortgage debt. (Dkt. No. 10 at 9–11, 15–16.) 15 M&C moves to dismiss all claims against it pursuant to Federal Rule of Civil Procedure 16 12(b)(6). (Dkt. No. 21.) 17 II. DISCUSSION 18 A. Federal Rule of Civil Procedure 12(b)(6) Legal Standard 19 A defendant may move to dismiss a complaint if a plaintiff “fails to state a claim upon 20 which relief can be granted.” Fed. R. Civ. P. 12(b)(6). A motion to dismiss can be based on the 21 lack of a cognizable legal theory or on a lack of sufficient facts alleged. Balistreri v. Pacifica 22 Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). “To survive a motion to dismiss, a complaint 23 must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible 24 on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the 25 plaintiff pleads factual content that allows the court to draw the reasonable inference that the 26 defendant is liable for the misconduct alleged.” Id. While detailed factual allegations are not ORDER C19-0538-JCC PAGE – 2 1 necessary, mere conclusory statements or “a formulaic recitation of the elements of a cause of 2 action” will not suffice. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007). 3 B. Judicial Notice 4 When ruling on a motion to dismiss for failure to state a claim, the Court may consider 5 the complaint, documents attached to the complaint, documents incorporated by reference in the 6 complaint, or matters that are subject to judicial notice. U.S. v. Ritchie, 342 F.3d 903, 907–08 7 (9th Cir. 2003). The Court may judicially notice adjudicative facts that are not in dispute. Fed. R. 8 Evid. 201(a)–(b). Adjudicative facts are those that a jury would review. See Fed. R. Evid. 201(a) 9 advisory committee’s notes to 1972 proposed rules. M&C asks the Court to take judicial notice 10 of three notices of discontinuance of trustee’s sale recorded against Plaintiff’s property and the 11 judicial foreclosure complaint filed in the prior lawsuit between the parties. (Dkt. No. 21 at 3–4, 12 12.) 13 While the facts contained in the discontinuance notices are not disputed, the Court finds 14 that judicial notice of these documents is unnecessary. M&C attaches these notices to support its 15 argument that the judicial foreclosure complaint was not time-barred. (Dkt. No. 21 at 8.) 16 However, Judge Zilly already ruled that the judicial foreclosure complaint was time-barred. See 17 The Bank of New York Mellon, Case No. C18-0764-TSZ, Dkt. No. 16. The Court agrees with 18 Plaintiff that M&C is collaterally estopped from re-litigating the statute of limitations issue in 19 this case. All of the elements of collateral estoppel apply here: (1) the issue decided in the 20 previous case is identical to the issue raised here; (2) Judge Zilly entered a final judgment on the 21 merits; (3) M&C was in privity with the plaintiffs in the previous case; and (4) application of 22 collateral estoppel does not work an injustice against M&C. See Christensen v. Grant County 23 Hosp. Dist. No. 1, 96 P.3d 957, 961 (Wash. 2004). 24 The Court also finds it unnecessary to judicially notice M&C’s previous judicial 25 foreclosure complaint. M&C attaches the complaint in support of its argument that it is not a 26 debt collector. (Dkt. No. 21 at 12.) M&C argues that the judicial foreclosure complaint only ORDER C19-0538-JCC PAGE – 3 1 sought to foreclose the deed of trust and did not seek a deficiency judgment against Plaintiff. 2 (Id.) However, both the judicial foreclosure complaint and Plaintiff’s amended complaint state 3 that M&C sought attorney fees and other expenses from Plaintiff in the prior action. (Dkt. Nos. 4 21-4 at 6, 10 at 11.) In other words, the judicial foreclosure action could have resulted in a 5 monetary judgment against Plaintiff. Thus, even if the Court were to take judicial notice of the 6 judicial foreclosure complaint, Plaintiff is not precluded from stating a claim upon which relief 7 can be granted under the FDCPA. Therefore, M&C’s request for judicial notice is DENIED. 8 C. 9 To prove a violation of the CPA, a plaintiff must demonstrate the following five 10 elements: “(1) [an] unfair or deceptive act or practice; (2) occurring in trade or commerce; (3) a 11 public interest impact; (4) [an] injury to plaintiff in his or her business or property; [and] (5) 12 causation.” Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 719 P.2d 531, 532 13 (Wash. 1986). The failure to meet any of these elements is fatal to a CPA claim. Id. at 535. The 14 first two elements may be established independently, or “by a showing that the alleged act 15 constitutes a per se unfair trade practice.” Id. “A per se unfair trade practice exists when a statute 16 which has been declared by the Legislature to constitute an unfair or deceptive act in trade or 17 commerce has been violated.” Id. M&C argues that Plaintiff has failed to plead sufficient facts to 18 support each required element of her CPA claim. (Dkt. No. 21 at 10.) 19 20 Washington Consumer Protection Act a. Per Se Unfair or Deceptive Act in Trade or Commerce Plaintiff has pled the first two elements of her CPA claim by asserting per se violations 21 of two Washington statutes. The Washington legislature has declared that it is an unfair or 22 deceptive act in trade or commerce for any person or entity to violate the duty of good faith 23 under Revised Code of Washington § 61.24.163. Wash. Rev. Code § 61.24.135(2). Pursuant to 24 that statute, a violation of the duty of good faith includes failing to “timely participate in 25 mediation without good cause.” Wash. Rev. Code § 61.24.163(10)(a). Plaintiff alleges that M&C 26 failed to timely participate in mediation by failing to appear, becoming nonresponsive, and ORDER C19-0538-JCC PAGE – 4 1 making late payments. (Dkt. No. 10 at 6, 11.) Plaintiff attached to her complaint a certification 2 signed by the mediator, which states that M&C represented the beneficiary in the mediation, and 3 that the beneficiary “failed to timely participate.” (Dkt. No. 10–2 at 2–3.) Therefore, the Court 4 finds that Plaintiff has sufficiently alleged a per se unfair or deceptive act in trade or commerce 5 under Revised Code of Washington § 61.24.135(2). 6 Additionally, the Washington legislature has declared that violations of the Washington 7 Collection Agency Act (“WCAA”), Revised Code of Washington § 19.16.250, are per se 8 violations of the CPA. Wash. Rev. Code § 19.16.440. Under the WCAA, “no licensee or 9 employee of a licensee shall . . . bring an action or initiate an arbitration proceeding on a claim 10 when the licensee knows, or reasonably should know, that such suit or arbitration is barred by the 11 applicable statute of limitations.” Wash. Rev. Code § 19.16.250(23). A “licensee” is defined as 12 any person licensed under the WCAA. Wash. Rev. Code § 19.16.100. 13 The complaint alleges that M&C is a “collection agency” under the WCAA. (Dkt. No. 10 14 at 3.) Plaintiff alleges that M&C “regularly engages in soliciting claims for collection or 15 collecting or attempting to collect claims owed or due or asserted to be owed or due another 16 person as defined by RCW 19.16.100.” (Id.) Plaintiff further alleges that M&C knew or should 17 have known that the judicial foreclosure complaint was time-barred before M&C filed it. (Id. at 18 7.) Therefore, Plaintiff has sufficiently alleged a per se unfair act in trade or commerce under 19 Revised Code of Washington §19.16.440. 20 b. Public Interest Impact 21 A plaintiff can establish the public interest impact element by proving that the 22 defendant’s conduct: “(1) violates a statute that incorporates [Wash. Rev. Code § 19.86]; (2) 23 violates a statute that contains a specific legislative declaration of public interest impact; or (3)(a) 24 injured other persons; (b) had the capacity to injure other persons; or (c) has the capacity to 25 injure other persons.” Wash. Rev. Code § 19.86.093. 26 Plaintiff alleges that M&C’s conduct has the capacity to injure others. In a private ORDER C19-0538-JCC PAGE – 5 1 transaction, it is “the likelihood that additional plaintiffs have been or will be injured in exactly 2 the same fashion that changes a factual pattern from a private dispute to one that affects the 3 public interest.” Hangman Ridge, 719 P.2d at 538. The Court looks to several factors, including: 4 (1) whether the alleged acts were committed in the course of the defendant’s business; (2) 5 whether the defendant advertised to the public in general; (3) whether the defendant actively 6 solicited this particular plaintiff, indicating potential solicitation of others; and (4) whether the 7 plaintiff and the defendant occupy unequal bargaining positions. Id. No factor is dispositive; they 8 are merely indicia from which a trier of fact could reasonably find a public interest impact exists. 9 Id. Whether the public interest impact element is met is a question of fact. Id. 10 Plaintiff alleges that she was “powerless to affect [sic] any progress toward mitigation or 11 resolution while defendants simply refused to communicate in defiance of the foreclosure 12 mediator, and refused to address the issues of foreclosure in good faith.” (Dkt. No. 10 at 12.) In 13 support of this claim, Plaintiff alleges that she defaulted on her mortgage loan and was facing 14 foreclosure of her home. (Dkt. No. 10 at 4–6.) Plaintiff requested mediation, seeking a loan 15 modification in an attempt to avoid foreclosure. (Id. at 6.) During mediation, M&C, who 16 represented the loan servicer, informed Plaintiff that the loan modification was not approved, but 17 that a renewed application would be reviewed. (Id.) Thereafter, M&C became nonresponsive and 18 ceased to participate in mediation. (Id.) Accepting the facts alleged as true, it is reasonable to 19 infer that M&C and Plaintiff occupied unequal bargaining positions during mediation. 20 Moreover, Plaintiff alleges that M&C is a law firm engaged in the business of collecting 21 debts on behalf of others, and that M&C started soliciting payment from Plaintiff and collecting 22 on her mortgage loan after it was in default. (Id. at 3.) Plaintiff further alleges that M&C is 23 compensated for its debt collection services. (Id. at 4.) It is reasonable to infer from these facts 24 that M&C committed the alleged acts in the course of its business. Therefore, the Court finds that 25 Plaintiff has sufficiently pled the public interest element of her CPA claim. 26 // ORDER C19-0538-JCC PAGE – 6 1 c. Injury to Plaintiff 2 To plead and prove a CPA claim, “the injury involved need not be great, but it must be 3 established.” Hangman Ridge, 719 P.2d at 539. Quantifiable monetary loss is not required, but 4 personal injuries such as mental distress, embarrassment, and inconvenience, as well as their 5 financial consequences, do not satisfy the injury requirement. Frias v. Asset Foreclosure 6 Services, Inc., 334 P.3d 529, 538 (Wash. 2009). “The injury element will be met if the 7 consumer’s property interest or money is diminished because of the unlawful conduct even if the 8 expenses caused by the statutory violation are minimal.” Mason v. Mortgage America, Inc., 792 9 P.2d 142, 148 (Wash. 1990). 10 Plaintiff alleges that M&C’s failure to participate in mediation in good faith caused her to 11 suffer an “income reduction” because the “prolonged status in foreclosure disqualified her from 12 eligibility to receive appraisal assignments as an appraiser on the FHA Appraisal Roster.” (Dkt. 13 No. 10 at 12–13.) Additionally, Plaintiff alleges that M&C’s failure to mediate in good faith 14 injured Plaintiff by leaving her “credit profile in flux,” causing her to incur “arrears, additional 15 costs and expenses,” and by “artificially inflat[ing] the cost of [her] mortgage loan with the 16 accumulation of over a decade in arrears.” (Id. at 12.) Accepting these facts as true, the Court can 17 reasonably infer that M&C’s failure to mediate in good faith caused an injury to Plaintiff’s 18 property interest or money. Therefore, Plaintiff has sufficiently pled the injury element of her 19 CPA claim. 20 21 d. Causation “To establish the causation element in a CPA claim, a plaintiff must show that, but for the 22 defendant’s unfair or deceptive practice, the plaintiff would not have suffered an injury.” Carlile 23 v. Harbour Homes, Inc., 194 P.3d 280, 290 (Wash. Ct. App. 2008). Plaintiff alleges that the 24 injuries she suffered would not have occurred but for the “needlessly prolonged foreclosure 25 status” caused by M&C’s failure to timely participate in mediation. (Dkt. No. 10 at 13.) Plaintiff 26 has pled sufficient facts to allow the Court to reasonably infer that M&C caused the alleged ORDER C19-0538-JCC PAGE – 7 1 injury by failing to timely participate in mediation. Thus, Plaintiff has sufficiently pled the 2 causation element of her CPA claim. 3 In sum, Plaintiff has stated a plausible CPA claim and M&C’s motion to dismiss the 4 claim is DENIED. 5 D. 6 The FDCPA “prohibits collection agencies from misrepresenting the legal status of a Fair Debt Collection Practices Act 7 debt, falsely threatening legal action, and making other false representations to debtors.” Panag 8 v. Farmers Ins. Co. of Washington, 204 P.3d 885, 897 (Wash. 2009). To establish a violation of 9 the FDCPA, a plaintiff must demonstrate the following elements: (1) the plaintiff is a consumer; 10 (2) the debt arises out of a transaction entered into for personal purposes; (3) the defendant is a 11 debt collector; and (4) the defendant violated one of the provisions of the FDCPA. Heejon Chung 12 v. U.S. Bank, N.A., 250 F.Supp.3d 658, 680 (D. Haw. 2017). The plaintiff “need not even have 13 actually been misled or deceived by the debt collector’s representation; instead, liability depends 14 on whether the hypothetical ‘least sophisticated debtor’ likely would be misled.” Tourgeman v. 15 Collins Financial Services, Inc., 755 F.3d 1109, 1117–18 (9th Cir. 2014). M&C argues that 16 Plaintiff’s FDCPA claim should be dismissed because M&C is not a debt collector under the 17 FDCPA and M&C did not violate any of the FDCPA’s provisions. (Dkt. No. 21 at 10–12.) 1 18 a. Debt Collector 19 Under the FDCPA, a “debt collector” is defined as “any person who uses any 20 instrumentality of interstate commerce or the mails in any business the principal purpose of 21 which is the collection of any debts, or who regularly collects or attempts to collect, directly or 22 indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C. § 1692a(6). The 23 term “debt collector” refers to “someone hired by a creditor to collect an outstanding debt,” and 24 not to “a debt owner seeking to collect debts for itself.” Hensen v. Santander Consumer USA 25 1 26 M&C does not challenge any other elements of Plaintiff’s FDCPA claim, which the Court assumes are sufficiently pled. ORDER C19-0538-JCC PAGE – 8 1 Inc., 137 S.Ct. 1718, 1721 (2017). In determining whether a defendant is a debt collector, “all 2 that matters is whether the target of the lawsuit regularly seeks to collect debts for its own 3 account or does so for ‘another.’” Id. Furthermore, a loan servicer will become a debt collector 4 under the FDCPA if the debt was in default when it was acquired. Walker v. Quality Loan 5 Service Corp., 308 P.3d 716, 725 (Wash. Ct. App. 2013). 6 Plaintiff alleges that M&C is a debt collector under the FDCPA because M&C “regularly 7 uses the mails and/or telephone in their business, the principle purpose of which is to collect, or 8 attempt to collect, directly or indirectly, delinquent consumer debts.” (Dkt. No. 10 at 15–16.) 9 Plaintiff further alleges that M&C “collects the Plaintiff’s loan on behalf of [Defendant Bank of 10 New York] who was assigned this debt after it went delinquent.” (Id. at 15.) Additionally, 11 Plaintiff alleges that M&C provides debt collection services but has no direct stake in the 12 ownership or a security interest in the debt collected. (Id. at 4.) 13 M&C argues that it is not a debt collector under the FDCPA because it is engaged only in 14 security-interest enforcement. (Dkt. No. 21 at 11–12.) However, the cases that M&C cites to 15 support this argument are unpersuasive because they deal with nonjudicial security-interest 16 enforcement actions and distinguish such actions from judicial foreclosure. See Obduskey v. 17 McCarthy & Holthus, LLP, 139 S.Ct. 1029, 1039 (2019) (declining to consider whether those 18 who judicially enforce mortgages are debt collectors under the FDCPA) (emphasis added); 19 McNair v. Maxwell & Morgan PC, 893 F.3d 680, 682 (9th Cir. 2018) (holding that law firm 20 defendant who attempted to collect homeowner association fees through judicial foreclosure 21 acted as “debt collector” under FDCPA) (emphasis added). Here, Plaintiff alleges that M&C 22 used unfair practices to collect debt by filing a time-barred judicial foreclosure complaint. Thus, 23 the Court finds that Plaintiff has sufficiently pled that M&C was acting as a debt collector under 24 the FDCPA. 25 26 b. Violation of a Provision of the FDCPA Plaintiff alleges that M&C’s filing of a time-barred action violated 15 U.S.C. §§ 1692e, ORDER C19-0538-JCC PAGE – 9 1 1692f, and other provisions of the FDCPA. (Dkt. No. 10 at 16.) As previously mentioned, Judge 2 Zilly dismissed M&C’s action against Plaintiff because it was time-barred. (Id. at 7.) Under the 3 circumstances, the Court finds that filing a time-barred complaint could be both a misleading 4 representation and an unfair and unconscionable means of collecting a debt under 15 U.S.C. 5 §§ 1692e and 1692f. Indeed, several courts have found that litigation or the threat of litigation in 6 an attempt to collect on time-barred debt is a violation of the FDCPA. See, e.g., Kimber v. Fed. 7 Fin. Corp., 668 F.Supp. 1480, 1487 (M.D. Ala. 1987) (holding that a debt collector filing a 8 lawsuit on a time-barred debt is an unfair and unconscionable means of collecting debt in 9 violation of section 1692(f) of the FDCPA); Goins v. JBC & Assoc., P.C., 352 F.Supp.2d 262, 10 272 (D. Conn. 2005) (holding that using threat of suit to collect on time-barred debt was a 11 misleading representation in violation of § 1692(e) of the FDCPA). Therefore, the Court finds 12 that Plaintiff has sufficiently pled a violation of the FDCPA. 13 III. 14 15 16 CONCLUSION For the foregoing reasons, Defendant M&C’s motion to dismiss (Dkt. No. 21) is DENIED. DATED this 9th day of July 2019. 19 A 20 John C. Coughenour UNITED STATES DISTRICT JUDGE 17 18 21 22 23 24 25 26 ORDER C19-0538-JCC PAGE – 10
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
