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Suazo v. U.S. Bank Trust, NA

United States District Court, D. Maryland

September 25, 2019

REYNALDO SUAZO, et al, Plaintiffs,
U.S. BANK TRUST, NA, et al, Defendants.


          Richard D. Bennett United States District Judge

         Plaintiffs Reynaldo and Eva Sua2o ("Mr. and Mrs. Sua2o"), Ronald Lewis ("Mr. Lewis"), and Catherine Martinson ("Ms. Martinson") (collectively, the "Named Plaintiffs" or "Plaintiffs"), on behalf of themselves and other similarly situated mortgage borrowers, allege that Defendants Caliber Home Loans, Inc. ("Caliber") and U.S. Bank Trust, NA, solely in its capacity as Trustee for LSF9 Master Participation Trust ("LSF9") (collectively, "Defendants"), have unjustly enriched themselves by engaging in unlawful debt collection practices. Caliber is alleged to have acted as the debt collector for LSF9, a special purpose vehicle holding title to high-risk mortgages. Through Caliber, LSF9 allegedly pursued outstanding mortgage obligations without the appropriate license under Maryland law. Additionally, Plaintiffs allege that the Defendants unlawfully charged inspection fees as part of these collection efforts.

         Currently pending before this Court is the Plaintiffs' Motion for Leave to File an Amended Complaint. (ECF No. 35.) The Amended Complaint adds new factual allegations and changes the Plaintiffs' theory of the case in an effort to comport with the recent opinion of the Maryland Court of Appeals in Blackstone v. Shama, 461 Md. 87, 191 A.3d 1188 (2018). Defendants oppose the amendment and seek dismissal of this case with prejudice. This Court has reviewed the parties' submissions and finds that no hearing is necessary. See Local Rule 105.6 (D. Md. 2018). For the reasons stated herein, Plaintiffs' Motion for Leave to File Amended Complaint (ECF No. 35) is DENIED. This Court finds that Plaintiffs have failed to state a claim under both the Original and Amended Complaints. Accordingly, this case is DISMISSED WITH PREJUDICE.


         I. Factual Background

         Plaintiffs allege that Defendants unjustly enriched themselves by engaging in mortgage debt collection practices which ran afoul of Maryland law. Defendant LSF9 is a Delaware Statutory Trust which belongs to a large family of private equity funds owned by a private equity firm called Lone Star Funds ("Lone Star"). (Am. Compl. 23.) Lone Star is organi2ed into sixteen private equity funds which are structured as closed-end, private-equity limited partnerships which include corporate and public pension funds, sovereign wealth funds, university endowments, foundations, funds of funds, and high net worth individuals. (Id.) Although U.S. Bank, N.A. is named as the trustee for LSF9, it does not manage the fund. (Id.) Hudson Advisors L.P. performs that task; it conducts due diligence, asset management, and other support services for LSF9 and the assets the trust acquires. (Id.)

         LSF9 participates in the mortgage industry's secondary market, which springs from mortgage lenders' desire to offload the mortgages that they originate. See Blackstone, 461 Md. at 136, 191 A.2d 1188 (discussing the mortgage industry's secondary market and mortgage-backed securitization). In recent years, hedge funds and private equity funds have acquired hundreds of thousands of defaulted consumer mortgage loans. (Am. Compl.¶ 30.) The funds rely on collection agencies to extract profit from their mortgage portfolios. (Id.)

         In league with this trend, Plaintiffs allege that Lone Star and LSF9 have acquired distressed and nonperforming home loans. (Id. at ¶ 23.) LSF9 has acquired these loans for an amount less than the value of the real estate secured by the debt and less than the sum due on the loan balance. (Id.) Defendant Caliber has allegedly served as LSF9's "debt collector" since July 10, 2014. (Id. at ¶ 24.) In turn, Caliber relies on law firms, including the BWW Law Group, LCC and the Law Offices of Jeffrey Nadel, to assist it with foreclosure proceedings. (Id. at ¶ 25, 106.) Consumer advocates have complained that Caliber lulls struggling borrowers into "interest-only" payment plans which quickly balloon into unaffordable payments. (Id. at ¶ 30.) Plaintiffs allege that Caliber does not expect to convert non-performing loans into performing loans, but rather uses deceptive practices to obtain a greater profit through foreclosure. (Id. at ¶ 107.) LSF9 is alleged to profit from these practices; a "substantial majority" of the properties related to each loan it acquires are expected to be liquidated. (Id. at ¶ 33.)

         LSF9 and Caliber are alleged to have violated Maryland law, and unjustly enriched themselves, at the expense of the Named Plaintiffs and the proposed classes. The allegations vary with respect to each Named Plaintiff, but Defendants are alleged to have engaged in the following general pattern of activity. First, LSF9 acquired each Plaintiffs mortgage loan from a prior loan servicer, such as Bank of America or Ocwen Loan Servicing, LLC, after the loans entered default. (Id. at ¶¶ 39; 56; 79.) Next, Caliber began its collection efforts and entered into standard modification/forbearance agreements with the Named Plaintiffs on behalf of LSF9. (Id. at ¶¶ 45-47, 64-65, 94.) In some cases, these collection efforts included threats of foreclosure or the initiation of foreclosure proceedings. (Id. at ¶59, 82.) Then, Caliber, acting on behalf of LSF9, collected sums claimed due for interest, fees, and costs unrelated to the principal loan balance. (Id. at ¶¶ 47, 73, 98; 135.) Ms. Martinson in particular alleges that Caliber charged her various fees in violation of Maryland law, including property inspection fees in violation of Md. Code Ann., Com. Law § 12-121 (b) and foreclosure costs and fees in violation of a court order issued by the Circuit Court for Carroll County, Maryland. (Id. at ¶ 58; 68.) Ultimately, the Named Plaintiffs either refinanced their loan or made payments under unfavorable "interest-only" modification agreements. (Id. at ¶¶ 49-51; 59-70; 93-94.)

         II. Procedural Background.

         Plaintiffs commenced this putative class action lawsuit in the Circuit Court for Montgomery County, Maryland on April 12, 2018. On May 18, 2018, Defendants removed the case to this Court, [1] citing 28 U.S.C. §§ 1331, 1332, 1367, 1441, 1446, 1453 and the Class Action Fairness Act of 2005 ("CAFA"), 28 U.S.C. § 1332(d). In their Original Class Action Complaint (ECF No. 2), Plaintiffs alleged that LSF9 had unlawfully extracted profits from mortgage borrowers without obtaining a license to pursue debt collection activities as required under the Maryland Collection Agency Licensing Act ("MCALA"), Md. Code Ann., Bus. Reg. § 7-301, et seq. (See, e.g., Compl. ¶¶ 111, 114.) On June 6, 2018, this Court stayed this case pending the resolution of a consolidated appeal of four Maryland Circuit Court cases before the Court of Appeals of Maryland, Blackstone, et al. v. Sharma, et at, Shanahan, et al. v. Marvastian, et al, Case No. 40, Sept. Term, 2017; O'Sullivan, et al. v. Altenburg, et al, Case No. 45, Sept. Term, 2017; Goldberg, et al. v. Neviaser, et al, Case No. 47, Sept. Term, 2017.

         On August 2, 2018, the Maryland Court of Appeals issued its ruling in the consolidated appeal and held that a foreign statutory trust, such as LSF9, is not required to obtain a license as a collection agency under MCALA.[2] See Blackstone v. Sharma, 461 Md. 87, 191 A.3d 1188 (2018). Following the Blackstone decision, this Court lifted the Stay; dismissed with prejudice Plaintiffs' declaratory judgment claim (Count I); dismissed without prejudice Plaintiffs' unjust enrichment claims (Counts II and III); clarified that Plaintiffs' inspection fee claim under Md. Com. Law § 12-121 (a) (1) (ii) (Count IV) remained pending; permitted Plaintiffs to file a Motion for Leave to File an Amended Complaint; and dismissed with prejudice all claims asserted against a third Defendant, Select Portfolio Servicing, Inc. (Letter Order, ECF No. 34.)

         On November 9, 2018, Plaintiffs filed a Motion for Leave to File an Amended Complaint (ECF No. 35.) The proposed Amended Complaint (ECF No. 35-3) makes sweeping changes to the Original Complaint. In light of the Blackstone decision, Plaintiffs withdraw their allegation that Defendants violated MCALA, and now asserts that Defendant LSF9 violated the Maryland Mortgage Lender Law ("MMLL"), Md. Code, Fin. Inst. § 11-501, et seq. by operating as an unlicensed mortgage lender. (See, e.g., Am. Compl. ¶¶ 2-3, 5-12.) The Amended Complaint also adds new factual allegations to support its inspection fee claim (Compl. ¶¶ 13-19, 54-76), and introduces a new claim pursuant to the Maryland Consumer Protection Act, Com. Law § 13-101, et seq. and the Maryland Consumer Debt Collection Act, Com. Law § 14-201, et seq. The Amended Complaint now seeks to certify two classes (as opposed to three classes sought in the Original Complaint) comprised of consumers who allegedly suffered harm because of Defendants' practices: the "Caliber Class" and the "Inspection Fee Class." (Am. Compl. ¶ 1.)

         In sum, the Amended Complaint asserts the following three counts: an unjust enrichment claim on behalf of the Named Plaintiffs and the Caliber Class against LSF9 and Caliber (Count I); a claim arising from alleged violations of the Maryland Consumer Debt Collection Act ("MCDCA"), Md. Code, Com. Law § 14-201, et seq. and the Maryland Consumer Protection Act ("MCPA"), Md. Code, Com. Law § 13-101, et seq., brought by the Named Plaintiffs and the Caliber Class against all Defendants (Count II); and an inspection fee claim based on violations of Md. Code, Com. Law § 12-121 (a)(1) (it) on behalf of Ms. Martinson and the Inspection Class against LSF9 and Caliber (Count III). In a single filing, Defendants oppose the Amendment and seeks dismissal of all of Plaintiffs' claims with prejudice. (Defs.' Brief in Opposition, ECF No. 36.)


         I. Motion for Leave to File an Amended Complaint.

         Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to file an amended complaint "shall be freely given when justice so requires." This "liberal rule" reinforces the "federal policy in favor of resolving cases on their merits instead of disposing them on technicalities." Laber v. Harvey, 438 F.3d 404, 426 (4th Cir. 2006). As noted by the United States Court of Appeals for the Fourth Circuit, Rule 15(a) ensures that the "plaintiff [is] given every opportunity to cure a formal defect in his pleading." Ostrzenski v. Seigel, 177 F.3d 245, 252-53 (4th Cir.1999) (quoting 5A Charles Allen Wright & Arthur R. Miller, Federal Practice & Procedure § 1357 (2d ed.1990)).

         The "liberal rule" of Rule 15(a) is not absolute. A court may deny leave to file an amended complaint when the amendment "would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would be futile." Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir.1986) (citing Foman v. Dams, 371 U.S. 178, 182 (1962)). An amendment is futile if its claims cannot survive a motion to dismiss. Perkins v. United States, 55 F.3d 910, 917 (4th Cir. 1995). Prejudice is analy2ed with reference to the "nature of the amendment and its timing, " as the "further the case progressefs] before judgment [is] entered, the more likely it is that the amendment will prejudice the defendant or that a court will find bad faith on the plaintiffs part." Faber, 438 F.3d at 427.

         II. Motion to Dismiss for Failure to State a Claim.

         Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P 8(a)(2). Rule 12(b)(6) of the Federal Rules of Civil Procedure authorizes the dismissal of a complaint if it fails to state a claim upon which relief can be granted. The purpose of Rule 12(b)(6) is "to test the sufficiency of a complaint and not to resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006).

         The Supreme Court's opinions in Hell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), "require that complaints in civil actions be alleged with greater specificity than previously was required." Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012) (citation omitted). In Twombly, the Supreme Court articulated "[t]wo working principles" that courts must employ when ruling on Rule 12(b)(6) motions to dismiss. Iqbal, 556 U.S. at 678. First, while a Court must accept as true all the factual allegations contained in the complaint, legal conclusions drawn from those facts are not afforded such deference. Id. (stating that "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice" to plead a claim). Second, a Complaint must be dismissed if it does not allege a "plausible" claim for relief. Id. at 678-79 ("A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct allege.").


         Plaintiffs seek to amend their Complaint and bring it within the ambit of the Maryland Court of Appeals' decision in Blackstone. This effort fails. Defendants petition this Court to reject Plaintiffs' proposed Amended Complaint and move this Court to dismiss Plaintiffs' claims with prejudice. Plaintiffs' Motion for Leave to File an Amended Complaint (ECF No. 35) is DENIED. The Amended Complaint is futile because it fails to state a claim under Counts I, II, and III in light of the Blackstone decision. Accordingly, the Original Complaint remains operative. The only remaining claim in the Original ...

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