2012 WL 4294143 (N.D.Cal.) (Trial Motion, Memorandum and Affidavit)
United States District Court, N.D. California.
Diana ELLIS, James Schillinger, and Ronald Lazar, individually, and on behalf of other members of the general public similarly situated, Plaintiffs,
v.
J.P. MORGAN CHASE & CO., a Delaware corporation, J.P. Morgan Chase Bank, N.A., a national association, and Chase Home Finance LLC, a Delaware limited liability company, Defendants.
No. 4:12-cv-03897-YGR.
September 4, 2012.
Plaintiffs’ Opposition to Chase Defendants’ Motion to Dismiss Plaintiffs’ Complaint Pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6)
Daniel Alberstone (SBN 105275), dalberstone@baronbudd.com, Roland Tellis (SBN 186269), rtellis@baronbudd.com, Mark Pifko (SBN 228412), mpifko @baronbudd.com, Baron & Budd, P.C., 15910 Ventura Boulevard, Suite 1600, Encino, California 91436, Telephone: (818) 839-2333, Facsimile: (818)986-9698, Attorneys for Plaintiffs, Diana Ellis, James Schillinger, and Ronald Lazar, individually, and on behalf of other members of the public similarly situated.
Judge: Hon. Yvonne Gonzalez Rogers.
CLASS ACTION
[Filed Concurrently With Declaration of Roland Tellis in Support]
Date: October 9, 2012
Time: 2:00 p.m.
Location: Oakland Division
1301 Clay Street
Action Filed: July 24, 2012
Trial Date: None Set
| TABLE OF CONTENTS |
| I. NEITHER THE OCC CONSENT ORDER NOR SECTION 1818(1) OF THE NATIONAL BANK ACT BAR THIS COURT’S SUBJECT MATTER JURISDICTION |
1 |
| A. The Limited Scope of the OCC’s Consent Order |
1 |
| B. Section 1818(i) of the National Bank Act Only Prohibits a Court from Modifying or Countermanding a Federal Banking Agency Order |
4 |
| C. Plaintiffs’ Complaint Does Not Seek Any Relief that Would Affect the Issuance or Enforcement of the OCC Consent Order |
6 |
| II. NEITHER THE DOCTRINE OF PRIMARY JURISDICTION NOR EQUITABLE ABSTENTION APPLY HERE |
8 |
| III. THE NATIONAL BANK ACT DOES NOT PREEMPT PLAINTIFFS’ CLAIMS |
10 |
| IV. PLAINTIFFS HAVE STANDING TO SUE THE CHASE DEFENDANTS |
14 |
| A. Plaintiffs Indisputably Have Article III Standing to Sue |
14 |
| B. Plaintiffs Have Satisfied the Standing Requirements Under RICO and the UCL |
16 |
| V. THE CHASE DEFENDANTS’ MOTION IMPROPERLY CONFLATES STANDARDS OF PLEADING AND PROOF |
17 |
| VI. PLAINTIFFS HAVE ADEQUATELY ALLEGED THEIR RICO CLAIMS |
18 |
| A. Plaintiffs Have Adequately Alleged a Claim Under 28 U.S.C. Section 1962(c) |
18 |
| 1. RICO Enterprise |
19 |
| 2. Plaintiffs Have Adequately Alleged Mail and Wire Fraud |
21 |
| 3. Plaintiffs Have Adequately Alleged a Pattern of Racketeering |
22 |
| B. Plaintiffs Have Adequately Alleged a Claim under Section 1962(d) |
23 |
| VII. PLAINTIFFS STATE A CLAIM FOR UNJUST ENRICHMENT |
24 |
| VIII. PLAINTIFFS STATE A CLAIM FOR FRAUD |
25 |
| IX. CONCLUSION |
25 |
| TABLE OF AUTHORITIES |
| CASES |
| A.G. Becker, Inc. v. Board of Governors of Fed. Reserve Sys., 519 F. Supp, 602 (D.D.C. 1981) |
4 |
| Abercrombie v. OCC, 833 F.2d 672 (7th Cir. 1987) |
4 |
| Allen v. Wright, 468 U.S. 737(1984) |
15 |
| Allwaste Inc. v. Hecht, 65 F.3d 1523 (9th Cir. 1995) |
22 |
| American Fair Credit Ass’n v. United Credit National Bank, 132 F. Supp. 2d 1304 (D. Colo. 2001) |
5 |
| Arce v. Kaiser Found. Health Plan, Inc. 181 Cal. App. 4th 471 |
10 |
| Bakenie v. JP Morgan Chase Bank, N.A., U.S.D.C. Case No. SACV 12-60 JVS |
5 |
| Brooks v. ComUnity Lending, Inc., 2010 U.S. Dist. LEXIS 67116 (N.D. Cal. Jul. 6, 2010) |
18 |
| Brown v. MCI Worldcom Network Servs., Inc., 277 F.3d 1166 (9th Cir. 2002) |
8 |
| Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158 (2001) |
19, 20, 21 |
| Clark v. Time Warner Cable, 523 F.3d 1110 (9th Cir. 2008) |
8 |
| Clayworth v. Pfizer, Inc., 49 Cal. 4th 758 (2010) |
17 |
| Cuomo v. Clearing House Ass’n, 129 S. Ct. 2710 (2009) |
11 |
| Davel Commc’ns, Inc. v. Qwest Corp., 460 F.3d 1075 (9th Cir. 2006) |
9 |
| Desert Healthcare Dist. v. Pacificare FHP, Inc., 94 Cal. App. 4th 623 (2001) |
9, 10 |
| Diaz v. Kay-Dix Ranch, 9 Cal. App. 3d 588 (1970) |
9, 16 |
| Edwards v. The First American Corp., 610 F.3d 514 (9th Cir. 2010) |
16 |
| Eminence Capital LLC v. Aspeon, Inc., 316 F.3d 1048 (9th Cir. 2003) |
25 |
| Falk v. Gen. Motors Corp., 496 F. Supp. 2d 1088 (N.D. Cal. 2007) |
18 |
| Foman v. Davis, 371 U.S. 178(1962) |
25 |
| Gibson v. World Sav. & Loan Ass’n, 103 Cal. App. 4th 1291 (2002) |
14 |
| Gladstone Realtors v. Village of Bellwood, 441 U.S. 91 (1979) |
15 |
| Gottreich v. San Francisco Investment Corp., 552 F.2d 866 (9th Cir. 1977) |
18, 20, 25 |
| Groos Nat’l Bank v. United States, 573 F.2d 889 (5th Cir. 1978) |
4 |
| Gutierrez v. Wells Fargo Bank, N.A., 730 F. Supp. 2d 1080 (N.D. Cal. 2010) |
13 |
| H.J., Inc. v. Nw. Bell Tel. Co., 492 U.S. 229(1989) |
22 |
| Hood v. Santa Barbara Bank & Trust, 143 Cal. App. 4th 526 (2006) |
11, 14 |
| In re Chase Bank USA, N.A. “Check Loan” Contract Litigation, 2009 U.S. Dist. Lexis 108636 (N.D. Cal. 2009) |
11 |
| In re Countrywide Fin. Corp. Mortg. Mktg & Sales Prac. Litig., 601 F. Supp. 2d 1201 (S.D. Cal. 2009) |
19, 21, 24 |
| In Re JPMorgan Chase Mortgage Modification Litigation, 2012 U.S. Dist. LEXIS 104486 (July 27, 2012) |
6 |
| In re Static Random Access Memory (SRAM) Antitrust Litig, 580 F. Supp. 2d 890 (N.D. Cal. 2008) |
20, 23 |
| In re TFT-LCD Antitrust Litig., 586 F. Supp. 2d 1109 (9th Cir. 2005) |
18 |
| In re TFT-LCD Antitrust Litig., 599 F. Supp. 2d 1179 (N.D. Cal. 2009) |
20 |
| Jefferson v. Chase Home Finance, 2007 U.S. Dist. LEXIS 94652 (N.D. Cal. Dec. 14, 2007) |
13 |
| Jefferson et al v. Chase Home Finance, 2008 U.S. Dist. LEXIS 101031 (N.D. Cal. Apr. 29, 2008) |
11 |
| Kearns v. Ford Motor Co., 567 F.3d 1120 (9th Cir. 2009) |
18, 20, 25 |
| Lectrodryer v. Seoulbank, 77 Cal. App. 4th 723 (2000) |
24 |
| Martinez v. Wells Fargo Home Mortgage, Inc., 598 F.3d 549 (9th Cir. 2010) |
12, 13, 14 |
| Martinez v. Wells Fargo Home Mortgage, Inc., 598 F.3d 549 (9th Cir. 2010) |
12, 13, 14 |
| Medallion Television Enters, v. SelecTV of Cal., 833 F. 2d 1360 (9th Cir. 1987) |
22 |
| Nader v. Allegheny Airlines, 426 U.S. 290(1976) |
8 |
| Newcal Indus., Inc. v. IKON Office Solution, 513 F.3d 1038 (9th Cir. 2007) |
19 |
| Odom v. Microsoft Corp., 486 F.3d 541 (9th Cir. 2007) |
18, 19, 21, 22 |
| Oscar v. University Students Co-operative Ass’n, 965 F.2d 783 (9th Cir. 1992) |
16 |
| Payne v. United California Bank, 23 Cal. App. 3d 850 (1972) |
17 |
| People ex rel. Dept. of Transportation v. Naegele Outdoor Advertising Co., 38 Cal.3d 509 (1985) |
10 |
| Phillips v. Crocker-Citizens Nat’l Bank, 38 Cal. App. 3d 901 (1974) |
17 |
| Pom Wonderful LLC v. The Coca-Cola Company, 679 F.3d. 1170 (9th Cir. 2012) |
17 |
| Rhoades v. Casey, 196 F.3d 592 (5th Cir. 1999) |
4 |
| Rubio v. Capital One Bank 613 F.3d 1195 (9th Cir. 2010) |
17 |
| Salinas v. United States, 522 U.S. 52 (1997) |
24 |
| Shamsian v. Department of Conservation, 136 Cal. App. 4th 621 (2006) |
10 |
| SOAProjects, Inc. v. SCM Microsystems, Inc., 2010 U.S. Dist. LEXIS 133596 (N.D. Cal. Dec. 7, 2010) |
24 |
| Starnet Int’l AMC Inc. v. Kafash, 2011 U.S. Dist. LEXIS 25062 (N.D. Cal. Mar. 8, 2011) |
24 |
| State Farm Mut. Automobile Ins. Co. v. Grafman, 655 F. Supp. 2d 212 (E.D.N. Y. 2009) |
21 |
| Swartz v. KPMG LLP, 476 F. 3D 756 (2007) |
18 |
| Turner v. Cook, 362 F.3d 1219 (9th Cir. 2004) |
22 |
| United States of America et ah v. Bank of America Corp. et al., U.S.D.C. Dist. of Columbia |
7 |
| United States v. Fernandez, 388 F.3d 1199 (9th Cir. 2004) |
23 |
| United States v. Gen. Dynamics Corp., 828 F.2d 1356 (9th Cir. 1987) |
9 |
| Washington v. Baenziger, 673 F. Supp. 1478 (N.D. Cal. 1987) |
18 |
| Walters v. Wachovia Bank, N.A. 550 U.S. 1(2007) |
10 |
| Wyeth v. Levine, 555 U.S. 555, 129 S. Ct. 1187 (2009) |
11 |
| Young et al. v. Wells Fargo & Company et al., 671 F. Supp. 2d 1006 (S.D. Iowa 2009) |
11, 12, 20 |
| STATUTES |
| 12 U.S.C. § 24 |
10 |
| 12 U.S.C. § 1818(i)(1) |
4, 6 |
| 18 U.S.C. § 1961(4) |
19 |
28 U.S.C. § 1962(c) … 18, 23
I. NEITHER THE OCC CONSENT ORDER NOR SECTION 1818(I) OF THE NATIONAL BANK ACT BAR THIS COURT’S SUBJECT MATTER JURISDICTION
A. The Limited Scope of the OCC’s Consent Order
In early 2011, in the wake of revelations that certain banks were engaging in rampant “robo-signings,” federal regulators began investigating the banks’ foreclosure practices, The investigations revealed significant “errors” in the banks’ foreclosure processing, including the filing of inaccurate affidavits and the failure to effectively coordinate loan modifications and foreclosures. (See Declaration of Roland Tellis (“Tellis Decl.”), Ex. 1, Congressional Testimony of Mark Pearce, Director, Division of Depositor and Consumer Protection, F.D.I.C.) As a result, the Office of the Comptroller of Currency (“OCC”) issued enforcement orders to fourteen financial institutions designed to improve the foreclosure process. (Id.) Notably, “[h]owever, these consent orders do not fully identify and remedy past errors in mortgage-servicing operations of large institutions. In fact, the scope of the interagency review did not include a review of … the fees charged in the servicing process, Much work remains to identify and correct past errors and to ensure that the servicing process functions effectively, efficiently, and fairly going forward.” ((emphasis added); see also Compl. ¶ 12.)
In April 2011, the OCC entered into a Consent Order with JPMorgan Chase Bank, N.A., which addressed the bank’s foreclosure practices and, in broad strokes, required it to create a foreclosure compliance program and improve the administration of its foreclosure activities. With respect to its historical foreclosure practices, the Consent Order required the bank to retain an “independent” consultant to review a limited set of foreclosures that were pending between January 1, 2009 and December 31, 2010 and, with respect to those foreclosures only, to make certain findings, including whether the foreclosures were accompanied by proper documentation, whether the bank had charged fees that were predicated on a legitimate foreclosure and the propriety of the frequency of certain of those fees, including Broker Price Opinions and late fees, imposed during the foreclosure (i.e. whether the bank continually charged late fees and BPO fees even though a default was cured or a foreclosure was aborted). (See Chase Request for Judicial Notice (“RJN”) at Ex. A, Art. VII.)
The Chase Defendants seize superficially upon the Consent Order’s reference to the term “broker price opinions” in the section on foreclosure review and erroneously contend that this case is “subsumed” by the Consent Order.
As a threshold matter, the Consent Order refers to the “frequency” of the broker price opinion fees charged, not whether they were lawfully assessed, Furthermore, what the Chase Defendants conveniently ignore is that: (1) the Consent Order addresses only a narrow pool of loans serviced by JPMorgan Chase Bank that were in foreclosure proceedings pending during the period January 1, 2009 to December 31, 2010; and (2) as to those loans only, certain eligible borrowers may receive compensation if they are deemed to have suffered a “financial injury.” However, for purposes of the Consent Order, “financial injury” is defined as monetary harm directly caused by a servicer’s error” (See Chase’s RJN, Ex. E, p. 12) (“Not all errors result in financial injury.”). Here, Plaintiffs’ claims do not concern an error; they concern the Chase Defendants’ fraud, (Compl. ¶ 46.) To that end, even as to the small subset of loans that might be included in the class definition here, the Consent Order does not require or contemplate that the independent consultant investigate or compensate for the fraudulent conduct at issue here.
A clear indication of the narrow scope of the Consent Order can be found on the OCC’s website, in which the OCC provided “[a]nticipated questions and answers,” Among those, is the following:
Does requesting a review prevent me from suing the servicer? Will 1 be required to waive my rights to sue by accepting compensation?
Submitting a request for review does not preclude borrowers from pursuing other legal remedies available related to their foreclosure. Servicers may not ask a borrower to release any claims in order to receive compensation.
(See Tellis Decl., Ex. 2, p. 2.) (emphasis added)
Quite simply, this case is not “subsumed” by the Consent Order. Indeed, under the OCC’s edict, even borrowers who might receive compensation under the Consent Order nevertheless retain the right to pursue other legal remedies related to their loans.
The Chase Defendants’ argument is further undermined by the OCC’s release, just months ago, of a document entitled “Financial Remediation Framework For Use in the Independent Foreclosure Review.” (See Chase’s RJN, Ex, F (the “Framework”).) According to the OCC, in connection with the Consent Order, “independent consultants will use the Framework to recommend remediation for financial injury identified during the Independent Foreclosure Review.” (Id.) The Framework, however, clearly states that the independent consultants are not examining foreclosure files to find the fraud at issue here. Instead, a reimbursement of fees occurs when, for example, the consultant determines that a borrower was not actually in default when a foreclosure occurred. (See id., p. 2, category No. 2.) In such an instance, the consultant can recommend that the foreclosure be rescinded and to “correct servicer record for late fees, foreclosure fees, and/or any other improper amounts, and correct credit reports.” In other words, under the Framework, a “financial injury” occurs when fees were charged to a borrower in error. The Framework does not provide compensation to borrowers for the bank’s practice of “padding” third party costs, assessing such padded costs to borrowers’ accounts, and concealing the padding on borrower’s loan statements.
Additionally, and most critically, just recently, the OCC also issued an Interim Status Report addressing the status of the foreclosure review process under the Consent Order. (Chase’s RJN, Ex. E (the “June Status Report”).) Among other things, the June Status Report further elaborated on the ability of borrowers to pursue private litigation as follows:
The OCC will not permit servicers to require borrowers to sign a waiver of their ability to pursue claims against the servicer in order to receive compensation under the Independent Foreclosure Review. A court could determine, however, that the amount received under the Independent Foreclosure Review should offset any future amount the court awards to a borrower if the borrower separately pursues a claim against the servicer.
(Id. at p. 13 (emphasis added).)
Thus, even if one credited Chase’s argument, any amounts paid by the Chase Defendants to the handful of eligible borrowers under the Consent Order, who might also be in the class here, could be “offset” against any future amounts awarded in this case.1 Significantly, the OCC recognizes that the Consent Order does not divest this Court of subject matter jurisdiction simply because there may be some overlap in the subject matter. Any such overlap can be dealt with at the class certification stage; it does not provide a basis to dismiss this case. To conclude otherwise would violate the Plaintiffs’ due process rights.
In any event, as set forth below, the central inquiry for purposes of the Chase Defendants’ jurisdiction challenge is whether the relief sought by Plaintiffs here is in “direct contravention” of the Consent Order and, thus, violates Section 1818(i) of the National Bank Act (the “NBA”). It is not.
B. Section 1818(i) of the National Bank Act Only Prohibits a Court from Modifying or Countermanding a Federal Banking Agency Order
Section 1818(i) of the NBA “is a narrow statute, applying only to ‘an order issued under this section.’ ” A.G. Becker, Inc. v. Board of Governors of Fed. Reserve Sys., 519 F. Supp. 602, 607 (D.D.C. 1981). It states that “except as otherwise provided in this section,” the courts have “no jurisdiction to affect by injunction or otherwise the issuance or enforcement of any [such] order … or to review, modify, suspend, terminate, or set aside any such notice or order.” 12 U.S.C. § 1818(i)(l), The clause narrowly prohibits a court from modifying or countermanding orders issued thereunder. However, it does not cast a broad net over any matter that might remotely touch on an order – such as a class action lawsuit. To that end, an as demonstrated below, it does not preclude this Court from exercising parallel or co-extensive subject matter jurisdiction. Indeed, Plaintiffs are unaware of any case, and the Chase Defendants cite none, that has applied Section 1818(i) to bar subject matter jurisdiction over a lawsuit where, as here, no party seeks to modify or countermand a regulatory consent order.
Rather, courts have held that Section 1818(i) bars subject matter jurisdiction where the parties expressly seek to set aside or modify federal banking agency orders or to enjoin regulatory proceedings. See e.g., Groos Nat’l Bank v. United States, 573 F.2d 889, 894 (5th Cir. 1978) (no jurisdiction to hear action to invalidate an agreement with the OCC and to enjoin any action by the OCC because plaintiffs’ action sought to “circumvent” the statute); Rhoades v. Casey, 196 F.3d 592, 597 (5th Cir. 1999) (no jurisdiction to rule on the legal effect of an OTS order because “if the district court had … declared the OTS order void and therefore unenforceable, that decision would have been tantamount to the district court’s modifying or terminating the OTS order.”); Abercrombie v. OCC, 833 F.2d 672 (7th Cir. 1987) (no jurisdiction to enjoin the OCC from assessing civil penalties against a bank for violating an OCC cease and desist order). Unlike those cases, Plaintiffs here do not seek to set aside, modify or otherwise interfere with the Consent Order.
The Chase Defendants rely erroneously on American Fair Credit Ass’n v. United Credit National Bank, 132 F. Supp. 2d 1304 (D. Colo. 2001). (See Mot. at 11.) There, the defendant bank had entered into a broad consent order with the OCC that, among other things, required the bank to “cease and desist all activity and transactions relating to the products of [plaintiff], including but not limited to payment of funds for any reason to [plaintiff].” Id. at 1306-07 (emphasis added). Despite the consent order, plaintiff filed suit against the bank seeking recovery of monetary and equitable relief. The court found that seven of the plaintiff’s claims for monetary relief were in “direct contravention” of the OCC’s consent order’s prohibition on the payment of funds “for any reason” to the plaintiff. Id. at 1312. Even as to those claims, however, although the court found that they directly contradicted the OCC’s consent order, the court still examined whether Section 1818(i) violated the Due Process Clause thereby triggering the “statutory authority” exception.
The Chase Defendants conveniently ignore that the court also found that it had parallel or co-extensive subject matter jurisdiction over the plaintiff’s eighth claim for declaratory relief. Id, That claim sought an order that the bank defendant was bound by an agreement with plaintiff involving the same general subject matter addressed in the consent order. Thus, for purposes of determining subject matter jurisdiction, the central question was whether plaintiff’s claims were in “direct contravention” of the consent order. Id. Here, of course, the Chase Defendants cannot establish that the relief sought by Plaintiffs’ claims is in “direct contravention” of the Consent Order.
The Chase Defendants also rely on an unpublished trial court opinion from the Central District of California in a case styled Bakenie v. JP Morgan Chase Bank, N.A., Case NO. SACV 12-60 JVS. That case dealt with Plaintiff’s challenges to Chase’s foreclosure practices, including the use of un-notarized foreclosure documents and the use of improper endorsements and assignments. Plaintiffs sought declaratory and injunctive relief, as well as restitution. Because such claims were squarely covered by the Consent Order, the district court found that Plaintiff’s claims “affect” enforcement of such order, The Bakenie case is obviously inapposite.
The more appropriate district court case to review is In Re JPMorgan Chase Mortgage Modification Litigation, 2012 U.S. Dist. LEXIS 104486 (July 27, 2012). There, the Massachusetts district court rejected Chase’s subject matter jurisdiction argument. That case concerned a number of homeowner lawsuits claiming that Chase had, inter alia, made false and misleading promises to homeowners about the prospects of a mortgage modification and managed the modification process with gross ineptitude. Id. at * 2. The district court took note of the scope of the Consent Order and the Framework’s Frequently Asked Questions, including that “borrowers were told that ‘[s]ubmitting a request for an Independent Foreclosure Review will not preclude borrowers from pursuing any other legal remedies available related to their foreclosure.” Id at * 19.
In finding subject matter jurisdiction, the district court noted “[t]he jurisdictional bar of § 1818(i)(l) must, however, be read in the context of the entire statute, the primary purpose of which is to prevent federal courts from usurping the OCC’s power to enforce its own consent order against parties to the orders. Congress did not intend to also prohibit non-parties from exercising their separate remedies at law.” Id. (emphasis in original). The district court noted the OCC’s FAQs which assure borrowers that their participation in the review process will not result in a waiver of their right to pursue legal remedies and concluded “[i]t follows that the jurisdictional bar is not meant to displace a non-party’s right to present its claims to a federal court, or the jurisdiction of the court to hear those claims.” Id. Finally, the district court observed “[i]t is telling that Chase can point to no case that lends support for its reading of the statute. The cases Chase does cite are readily distinguishable as they each involve a party attempting an end run around a consent order.” Id. at * 23
C. Plaintiffs’ Complaint Does Not Seek Any Relief that Would Affect the Issuance or Enforcement of the OCC Consent Order
Because the Consent Order does not address the fraudulent conduct that forms the basis of Plaintiffs’ claims, it follows that the relief sought does not modify or interfere with the terms of the Consent Orders. This case implicates, among other things, all loans serviced by Chase Home Finance LLC (before it merged into J.P. Morgan Chase Bank). It is not limited to loans serviced by J.P. Morgan Chase Bank that went into a foreclosure proceeding during the period January 1, 2009 and December 31, 2010, as the Consent Order plainly covers. Additionally, this case concerns the banks’ practice of padding fees charged for services performed by third parties, assessing those padded fees to borrowers’ accounts, and then, concealing the “profits” from borrowers. That conduct appears nowhere in the Consent Order. It is hard to understand how an independent consultant reviewing foreclosure files could have even addressed the conduct at issue in this case, Absent an admission of wrongdoing by the Chase Defendants — which is conspicuously missing from the Consent Order — the legal system, and not an independent consultant must determine if the Chase Defendants violated the law, as Plaintiffs allege.
Finally, it should be obvious to the Chase Defendants that Plaintiffs do not seek any remedies that are inconsistent with the Consent Order, and they certainly do not seek an order setting aside or modifying the Consent Order, Plaintiffs seek damages, restitution and disgorgement as a result of Defendants fraudulently marking-up and concealing default-related fees. (Compl. at Prayer.) Plaintiffs also seek to enjoin Defendants from engaging in such conduct. (Id.) The Chase Defendants have not identified a single instance of how this relief would contradict the terms of the Consent Order.
The Chase Defendants also repeatedly note that the Consent Order prohibits Chase from “taking any action that would constitute a significant deviation from, or material change to, the requirements of the Action Plan or this Order, unless and until the Bank has received a prior written determination of no supervisory objection from the Deputy Comptroller” and that the Consent Order also prohibits any person from asserting “any benefit or any legal or equitable right, remedy or claim” under the Consent Order. (Mot. at 7:15-16 citing Consent Order (Art. III, §(1) & Art. XIII, §(10)).) But, this lawsuit neither requires Chase to take any action that would constitute a significant deviation from, or change to, the Consent Order, nor does it assert any legal rights thereunder.
Tellingly, in April 2012, one-year after issuance of the OCC Consent Order, the federal government, fifty state attorneys general, and five major financial institutions, including J,P. Morgan Chase, Wells Fargo and Citigroup, entered into a National Mortgage Settlement Consent Judgment (the “NMS”) in a case styled United States of America et al. v. Bank of America Corp. et al., filed in the United States District Court for the District of Columbia, The lawsuit concerned the propriety of the banks’ foreclosure practices. The NMS required certain mortgage servicing reforms, including changes to fees charged for broker price opinions and, to that end, each bank agreed that it “shall not impose its own mark-up on [s]ervicer initiated third-party default or foreclosure-related services.” (See Tellis Decl., Ex. 3, Ex, A-37(C.5).) The NMS made absolutely clear, however, that it did not release the banks from class action claims or individual claims by individual borrowers and mortgage holders. (Id. at Ex. F at ¶ 12 & Ex. G at ¶ 19.) Notably, the Chase Defendants did not, and do not, contend that the court’s entry of the NMS in the above-described case violated Section 1818(i) of the NBA. If the Chase Defendants’ subject matter jurisdiction arguments here are extended to their logical end, Section 1818(i) of the NBA would have likewise prohibited the district court from doing so in that case. The Chase Defendants made no such argument then, and their attempt to do so now smacks of gamesmanship.
II. NEITHER THE DOCTRINE OF PRIMARY JURISDICTION NOR EQUITABLE ABSTENTION APPLY HERE
Perhaps not completely convinced by their subject matter jurisdiction challenge, the Chase Defendants also contend that “the doctrines of primary jurisdiction and equitable abstention warrant abstention from adjudicating Plaintiffs’ claims.” (Mot. at 14:18-20.) Neither applies here.
The doctrine of primary jurisdiction does not require that all claims within an agency’s purview be decided by the agency. Brown v. MCI Worldcom Network Servs., Inc., 277 F.3d 1166, 1172 (9th Cir. 2002) (refusing to refer consumer’s claims that telephone service provider violated a tariff to the FCC). And primary jurisdiction “is not designed to secure expert advice from agencies every time a court is presented with an issue conceivably within the agency’s ambit,” rather, it “is to be used only if a claim requires resolution of an issue of first impression, or of a particularly complicated issue that Congress has committed to a regulatory agency.” Clark v. Time Warner Cable, 523 F,3d 1110, 1114 (9th Cir. 2008). To that end, the “standards to be applied in an action for fraudulent misrepresentation are within the conventional competence of the courts, and the judgment of a technically expert body is not likely to be helpful in the application of these standards to the facts of this case.” Nader v. Allegheny Airlines, 426 U.S. 290, 305-06(1976).
Here, the Chase Defendants argue that the doctrine of primary jurisdiction is triggered because “the need for uniform and consistent treatment of the complex and comprehensive issues involving home loan servicing practices is paramount to the OCC’s ability to implement and enforce its orders.” (Mot. at 14:20-22.) Nowhere, however, does Chase identify the “complex and comprehensive issues” involved in this case that would impact the OCC’s ability to “implement and enforce its orders.” This is a fraud case. (See e.g., Compl. ¶ 39.) It neither seeks enforcement of the Consent Order, nor does it require this Court to interpret a complex regulatory scheme. And it does not impact the OCC’s ability to enforce its regulatory orders. In fact, the Consent Order expressly contemplates private litigation against the banks.
Chase’s cited authority Davel Commc’ns, Inc. v. Qwest Corp., 460 F.3d 1075, 1089 (9th Cir. 2006) is instructive. There, a payphone service provider sued Qwest, a telephone exchange carrier. The plaintiff claimed that, under certain FCC orders which set standards for rates and services, it was entitled to a refund for periods in which Qwest failed to implement the new FCC standards. Id. at 1080. The Ninth Circuit noted the following four-factor test under which the doctrine of primary jurisdiction applies: where there is “(1) the need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory scheme that (4) requires expertise or uniformity in administration.” Id. (citing United States v. Gen. Dynamics Corp., 828 F.2d 1356, 1363 (9th Cir. 1987)).
The Qwest court found that a threshold issue required interpretation by the FCC — specifically, whether Qwest had received a limited waiver of certain provisions of the new FCC orders and the scope of such waiver (the “Waiver Order”). Id. at 1087. Thus, the Court held that “[h]ow the Waiver Order applies here involves questions of policy best left to the FCC, the agency that adopted the Waiver Order in the first place pursuant to its regulatory authority in this arena.” Id. at 1089-90. Because the plaintiffs’ claims were based on Qwest’s alleged violation of the Waiver Order and the application of the Waiver Order was best left to the FCC, the case triggered the doctrine of primary jurisdiction.
Here, Plaintiffs’ claims are neither based on violations of the Consent Order, nor do they involve questions of policy best left to the OCC.
The Chase Defendants next urge this Court to exercise its discretion to “abstain” from this case. “The notion of abstention in the context of the UCL originally arose in cases involving the intersection of federal and state law.” Desert Healthcare Dist. v. Pacificare FHP, Inc., 94 Cal, App. 4th 623 (2001) (citing Diaz v. Kay-Dix Ranch, 9 Cal. App. 3d 588 (1970)). In Diaz, migratory farmworkers filed a class action seeking to enjoin the employment of illegal immigrants. The Court of Appeal found that the plaintiffs improperly sought the aid of the state courts of equity “because the national government ha[d] breached the commitment implied by national immigration policy.” Id. In affirming the decision to abstain, the Court found that “[i]t is more orderly, more effectual, less burdensome to the affected interests, that the national government redeem its commitment.” Id.; see also People ex rel. Dept. of Transportation v. Naegele Outdoor Advertising Co., 38 Cal.3d 509, 523 (1985) (case involving the intersection of federal and state law in the regulation of billboards on Indian lands).
The underlying rationale of these cases is that “because the remedies available under the UCL, namely injunctions and restitution, are equitable in nature, courts have the discretion to abstain from employing them. Where a UCL action would drag a court of equity into an area of complex economic policy, equitable extension is appropriate, In such cases, it is primarily a legislative and not a judicial function to determine the best economic policy.” Desert Healthcare, 91 Cal. App. 4th at 634.
Again, the Chase Defendants’ cited authority, Shamsian v. Department of Conservation, 136 Cal. App. 4th 621 (2006) is instructive. There, plaintiff filed suit against the Department of Conservation and certain of its directors claiming that they failed to provide appropriate beverage container redemption opportunities for California consumers. In approving of the trial court’s discretion to abstain, the Court of Appeal noted “[i]n this case, the complex statutory arrangement of requirements and incentives involving participants in the beverage container recycling scheme is to be administered and enforced by the department consistent with the Legislature’s goals.” Id. at 642.
In sum, this is not a case that requires the Court to “meddle in” a statutory scheme to be administered by a regulatory agency or that otherwise pulls the Court “deep into the thicket” of complex economic policy that the Court is ill-equipped to decide. Rather, it involves a straightforward act of deception and there exists no basis to abstain.
III. THE NATIONAL BANK ACT DOES NOT PREEMPT PLAINTIFFS’ CLAIMS
Determined to include the kitchen sink in its jurisdictional arguments, the Chase Defendants lastly contend that the NBA and “related OCC regulations” preempt Plaintiffs’ claims. (Mot. at 16:7.) As a threshold matter, although the argument is made collectively by Defendants J.P. Morgan Chase & Co., J.P. Morgan Chase Bank, N.A, and Chase Home Financial LLC, the NBA only regulates the affairs of a “national bank” and its “operating subsidiary.” See 12 U.S.C. § 24; Walters v. Wachovia Bank, N.A. 550 U.S. 1,18 (2007). Defendant J.P. Morgan Chase & Co. is neither a “national bank,” nor an “operating subsidiary” of a national bank. Nevertheless, the preemption arguments made by defendants J.P. Morgan Chase Bank, N.A. and Chase Home Finance LLC fare no better.2 Indeed, Chase’s efforts to challenge this Court’s subject matter jurisdiction have been previously rejected, See e.g. Jefferson et al. v. Chase Home Finance, 2008 U.S. Dist. LEXIS 101031 (N.D. Cal. Apr. 29, 2008) (Hon. Thelton E. Henderson rejected Chase’s argument that NBA and OCC regulations preempt consumer protection laws in connection with Chase’s improper application of loan prepayments); see also In re Chase Bank USA, N.A. “Check Loan” Contract Litigation, 2009 U.S. Dist. Lexis 108636 (N.D. Cal. 2009) (Hon. Maxine M. Chesney rejected Chase’s argument that plaintiffs’ state law claims concerning the bank’s practice of issuing “convenience checks” on credit card accounts was preempted by the NBA).
Notably, the Wells Fargo Defendants in the related Bias case were unsuccessful in making similar jurisdictional arguments in a case involving excessive late fees and drive-by property inspection fees pending in the Southern District of Iowa. See Young et al. v. Wells Fargo & Company et al., 671 F. Supp. 2d 1006 (S.D. Iowa 2009). There, the court held that “when Congress enacted the NBA, it created a ‘mixed state/federal regime[] in which the Federal Government exercises general oversight while leaving state substantive law in place.” Id. at 1019.3 The court found that the OCC regulations regarding preemption expressly provide that “State laws on the following subjects are not inconsistent with the real estate lending powers of national banks and apply to national banks to the extent that they only incidentally affect the exercise of national banks’ real estate lending powers: (1) Contracts; (2) Torts;,… ” Id. at 1020. Specifically, the OCC regulations expressly permit the enforcement of state laws relating to contracts, torts, and any other law that only incidentally affects or is otherwise consistent with a bank’s non-real estate lending powers. 12 C.F.R. § 7.4008(e). The court explained that, as the OCC regulations indicate, “the presumption is that a claim brought under state tort law, and by extension, under general state consumer protection statutes, will not be preempted unless the Court has reason to conclude the claim will have more than an incidental effect on the exercise of the national bank’s real estate lending powers.” Id. To that end, the court held:
Here, Plaintiffs’ claims are premised on the theory that Wells Fargo had a legal duty not to employ procedures designed to defraud borrowers by charging unreasonable fees. Numerous courts considering similar suits have concluded that claims brought under state “laws of general application, which merely require all businesses (including banks) to refrain from fraud [and] misrepresentations do not impair a bank’s ability to exercise its lending powers and only incidentally affect the exercise of a national bank’s powers,”
Id. at 1022 (citing Chase Home Finance, 2008 U.S. Dist. LEXIS 101031).
Notwithstanding the foregoing, the Chase Defendants rely erroneously on Martinez v. Wells Fargo Home Mortgage, Inc., 598 F.3d 549 (9th Cir. 2010) for the proposition that Plaintiffs’ claims are preempted. In Martinez, Plaintiffs alleged that Wells Fargo’s charging of an $800 underwriting fee for the refinancing of a loan was not reasonably related to the value of the services performed by the bank and, thus, violated California’s UCL. The Ninth Circuit held that that because plaintiffs were challenging the bank’s setting of the amount of the underwriting fee, such claims were preempted the NBA. However, the Ninth Circuit cautioned that “[t]he Act (and OCC regulations thereunder) does not ‘preempt the field’ of banking.” Id. at 555. Moreover:
State laws of general application, which merely require all business (including national banks) to refrain from fraudulent, unfair, or illegal behavior, do not necessarily impair a bank’s ability to exercise its real estate lending powers. Such laws are not designed to regulate real estate lending, nor do they have a disproportionate or other substantial effect on lending. In fact, the OCC has specifically cited the UCL in an advisory letter cautioning banks that they may be subject to such laws that prohibit unfair or deceptive acts or practices.
Id. To that end, the Ninth Circuit observed that “various district courts have held that the Act does not preempt a claim of express deception asserted under state law.” Id. (emphasis added) (citing, among other cases, Jefferson v. Chase Home Finance 2007 U.S. Dist. LEXIS 94652 (N.D. Cal. Dec. 14, 2007) (UCL claim regarding a Chase’s misrepresentations in crediting loan prepayments was not preempted)).
The Martinez court expressly distinguished between the claims at issue there (i.e. the amount of the underwriting and tax fees) and claims of fraud and deception, See also, Gutierrez v. Wells Fargo Bank, N.A., 730 F. Supp. 2d 1080, 1131 (N.D. Cal. 2010) (“there is a material difference between the bank’s authority to establish overdraft fees … versus bank practices aimed at multiplying the number of overdrafts during the posting process.”). At issue in the Martinez case was plaintiffs’ allegation that Wells Fargo’s failed to disclose the real cost of its services on a HUD-1 settlement statement. However, unlike this case, in Martinez, Wells Fargo had not made any prior disclosures to plaintiffs concerning the amount of the fees at issue. Instead, plaintiffs argued that, under the Real Estate Settlement Procedures Act, Wells Fargo was required to “conspicuously and clearly itemize all charges imposed on borrower.” However, the Martinez court held that this language means that Wells Fargo must list the amounts it is charging the plaintiffs, “not that it must list the costs it incurred in providing those services.” 598 F.3d at 557. Thus, the Court found that the plaintiffs were, in essence, complaining that the underwriting fee was too high; and they “ask the court to decide how much an appropriate fee would be.” Id. at 556.
Determined to draw a parallel between Martinez and this case, the Chase Defendants erroneously suggest that Plaintiffs’ claims mirror those asserted in the Martinez case. Not so. Here, plaintiffs do not ask this Court to determine how much an appropriate BPO or inspection fee should be, nor do they challenge the banks’ ability to charge a BPO or inspection fee. Unlike Martinez, Plaintiffs here allege that in their service agreements with borrowers, the banks disclose that, in the event of a default, the banks will pay for costs associated with protecting the property, including “protecting and/or assessing the value of the property.” (Comp. ¶ 41.) The banks further disclose they “will have the right to be paid back by [the borrower] for all of its costs and expenses in enforcing” the loan. (Id. ¶ 42.) Notwithstanding these disclosures, the banks omit and conceal the fact that they seek far more than the right to be “paid back.” Instead, using sophisticated loan servicing software programs, they uniformly, routinely and repeatedly inflate the third-party costs they incurred in connection with inspecting and valuing a property, and they assess such inflated costs to borrowers. In so doing, the banks cryptically identify such fees on borrowers’ statements so as to conceal the true nature of these “fees.” (See e.g., Compl. ¶¶ 10, 48-49.)
In sum, Plaintiffs’ claims do not have more than an “incidental affect”, if any, on the banks’ lending activities and, thus, are not preempted. 12 C.F.R, § 7.4008(e); see also Martinez, supra, 598 F,3d at 555. In this context, “incidental” does not mean de minimus. Instead, a claim has an “incidental affect” on a national bank if the law underlying the claim is not directed exclusively against the bank that is, if it is a law of general applicability which governs all persons or entities, some of whom happen to include national banks. As noted by the California Court of Appeal in Gibson v. World Sav. & Loan Ass’n, 103 Cat. App. 4th 1291, 1303-04 (2002):
The duties to comply with contracts and the laws governing them and to refrain from misrepresentation, together with the more general provisions of the UCL, are principles of general application. They are not designed to regulate lending and do not have a disproportionate or otherwise substantial effect on lending, To the contrary, they are part of the legal infrastructure that undergird all contractual and commercial transactions. Therefore, their effect is incidental and they are not preempted.
see also Hood v. Santa Barbara Bank & Trust, 143 Cal. App, 4th 526, 538-40 (2006) (rejecting banks’ argument that UCL claim was preempted by NBA or OCC regulations). Because Plaintiffs’ claims apply to all businesses, and not merely to banks, and because such claims pertain to acts of fraud and deception, such claims are incidental to the Chase Defendants’ lending functions, and are plainly not preempted,
IV. PLAINTIFFS HAVE STANDING TO SUE THE CHASE DEFENDANTS
The Chase Defendants erroneously claim that none of the plaintiffs allege that they “actually paid” the improper fees at issue here and, thus, they lack standing to sue under Article III, RICO and the UCL, The Chase Defendants omit certain of Plaintiffs’ allegations and misunderstand the applicable law. To be sure, Plaintiffs unambiguously allege that they “paid some or all of the unlawful fees assessed on [their] account[s].” (Compl, 62, 65, 68.) (emphasis added). This allegation alone is dispositive of the Chase Defendants’ “standing” arguments.
A. Plaintiffs Indisputably Have Article III Standing to Sue
The Chase Plaintiffs expressly alleged that their loan statements included unlawful marked-up fees for default related services, that such statements concealed the true nature of these fees (Compl. ¶¶ 39, 48-49, 53), that they “paid some or all of the unlawful fees assessed on [their] account[s],” (id. ¶¶ 62, 65, 68), that they “have been injured in fact and suffered a loss of money or property” (id. ¶ 100), and that they “would not have paid Chase[‘s] … unlawful fees or they would have challenged the assessment of such fees on their accounts had it not been for Chase[‘s] … concealment of material facts” (id.). (emphasis added). These allegations alone satisfy Article III standing.
Conveniently omitting that the Chase Plaintiffs have, in fact, alleged that they “paid” some or all of the unlawful fees, the Chase Defendants nevertheless argue “No Plaintiff alleges that he or she made any actual payments to any Defendant related to any allegedly improper fees.” (Mot at 19:13-14). Plaintiffs can only assume that such a statement was made in error.
On a related matter, it is important to emphasize that the Chase Defendants alone possess the information necessary to determine how many of the improper fees that were assessed to the Plaintiffs’ accounts were actually paid by the Plaintiffs. And the Chase Defendants alone possess the information necessary to determine whether the banks applied the Plaintiffs’ loan payments to the improper fees first, before they were applied to loan principal balances. (See e.g., Compl. ¶¶ 62, 65, 68, “Defendants alone maintain a complete accounting of all fees assessed and paid, and the details of each and every fee assessed and paid cannot be alleged with complete precision without access to Defendants’ records.”) Conveniently, the Chase Defendants have resisted providing Plaintiffs with any meaningful discovery necessary to ascertain such facts. Nevertheless, this is the pleading stage, not summary judgment. The nature and extent of the actual payment history here does not determine Article III standing.
Article III standing addresses “whether the particular plaintiff is entitled to an adjudication of the particular claims asserted.” Allen v. Wright, 468 U.S. 737, 752 (1984). A plaintiff must show she suffered a loss or injury, or is threatened with impairment of her own interests. See Gladstone Realtors v. Village of Bellwood, 441 U.S. 91, 100 (1979) (finding that plaintiffs had standing to sue real estate firms even though they did not actually purchase homes, the court held “In order to satisfy Art. III, the plaintiff must show that he personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant.”) (emphasis added). Thus, even if the Chase Plaintiffs never actually paid any of the improper fees that were assessed to their accounts, they would still have Article III standing to sue. See Edwards v. The First American Corp., 610 F.3d 514 (9th Cir. 2010) (Ninth Circuit held that class action plaintiffs had Article III standing to sue because of the invasion of the plaintiffs’ legal rights under the statutes at issue. “Essentially, the standing question in such cases is whether the constitutional or statutory provisions on which the claims rests properly can be understood as granting persons in the plaintiff’s position a right to judicial relief.”)
Here, each of the Chase Plaintiffs alleges that they paid some or all of the improper fees that were assessed to their accounts. Nevertheless, for purposes of Article III standing, it is important only that the Chase Plaintiffs had a direct financial relationship with the Chase Defendants, grounded on the Plaintiffs’ purchase or use of Chase’s loan products, and that the Chase Defendants assessed such fees, As noted above, it is indisputable that the Chase Plaintiffs have satisfied both.
B. Plaintiffs Have Satisfied the Standing Requirements Under RICO and the UCL
The Chase Defendants also contend that Plaintiffs’ purported failure to allege “actual payment” of the improper BPO and inspection fees also bars their standing to bring a RICO and UCL claim. The Chase Defendants first argue that “[a] civil RICO plaintiff must allege ‘harm to a specific business or property interest – a categorical inquiry typically determined by reference to state law.’ ” (Mot. at 19:20-21 (quoting Diaz v. Gates, 420 F.3d 897, 900 (9th Cir. 2005)).) Then, they argue that “[b]ecause no Plaintiff has alleged any business or property injury, Plaintiffs lack standing to bring a civil RICO claim.” (Id. at 19:24-25,) Again, Plaintiffs have alleged payment of the unlawful fees at issue here (Compl. ¶¶ 62, 65, 68).
In Diaz, the Ninth Circuit noted its earlier opinion in Oscar v. University Students Co-operative Ass’n, 965 F,2d 783 (9th Cir. 1992) and held that a RICO plaintiff could also allege an injury to a property interest even in the absence of financial injury; the Court found that a “property interest” included the legal entitlement to business relations unhampered by schemes prohibited by RICO. The Diaz court noted that courts should typically look to state law to determine whether “a legal entitlement to business relations unhampered by schemes prohibited by the RICO predicate statutes” exists. Here, California law unquestionably protects the legal entitlement to business relations unhampered by fraudulent schemes and unfair business practices. See Gibson v. World Sav. & Loan Ass’n, 103 Cal. App. 4th 1291 (2002) (“The duties to refrain from misrepresentation, together with the more general provisions of the UCL, are principles of general application. They are part of the legal infrastructure that undergird all contractual and commercial transactions.”)
The Chase Defendants next claim that Plaintiff Diana Ellis failed to satisfy the revised statutory standing requirements of the UCL because she too purportedly failed to allege payment of the improper fees. (Mot. at 19-26.) Again, given the allegations of Paragraphs 62, 65 and 68 of the Complaint, the Chase Defendants must have made this argument in error. Nevertheless, it is important to emphasize that the California Supreme Court has made clear that “standing under section 17204 (the UCL standing provision) does not depend on [plaintiff’s] eligibility for restitution:” Pom Wonderful LLC v. The Coca-Cola Company, 679 F.3d. 1170, 1179 (9th Cir. 2012) (emphasis added); Clayworth v. Pfizer, Inc., 49 Cal. 4th 758 (2010). These decisions illustrate that concept of standing to sue and eligibility for restitutionary damages are distinct; the central inquiry for standing purposes is whether there exists a “transactional nexus” between the parties. See e.g. Phillips v. Crocker-Citizens Nat’l Bank, 38 Cal. App. 3d 901, 910 (1974) (“The question of standing to sue is one of the right to relief and goes to the existence of a cause of action against the defendant.”); see also Payne v. United California Bank, 23 Cal. App. 3d 850 (1972) (plaintiff must have had dealings with defendant bank). Indeed, in Clayworth, the California Supreme Court noted: “That a party may ultimately be unable to prove a right to damages (or, here, restitution) does not demonstrate that it lacks standing to argue for its entitlement to them.” Id. at 789, The Court held that plaintiffs could also seek injunctive relief without the need to show any entitlement to restitution. Id. at 790; see also Rubio v. Capital One Bank 613 F.3d 1195 (9th Cir. 2010) (Ninth Circuit found that a credit card customer, who was forced to close a credit card account or pay a higher interest rate, had UCL standing to sue even though she did not allege which choice she accepted).
V. THE CHASE DEFENDANTS’ MOTION IMPROPERLY CONFLATES STANDARDS OF PLEADING AND PROOF
The Chase Defendants’ Rule 9(b) arguments conveniently ignore that, “a plaintiff in a fraud by omission suit will not be able to specify the time, place, and specific content of an omission as precisely as would a plaintiff in a false representation claim … [Accordingly,] a fraud by omission claim can succeed without the same level of specificity required by a normal fraud claim.” Falk v. Gen. Motors Corp., 496 F. Supp. 2d 1088, 1098-99 (N.D. Cal. 2007); Washington v. Baenziger, 673 F. Supp. 1478, 1482 (N.D. Cal. 1987). As a result, courts have held that “it is generally inappropriate to resolve the fact-intensive allegations of fraudulent concealment at the motion to dismiss stage.” In re TFT-LCD Antitrust Litig., 586 F. Supp. 2d 1109, 1120 (9th Cir. 2005).
Rule 9(b) requires only that the allegations of fraud be “specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong.” Brooks v. ComUnity Lending, Inc., 2010 U.S. Dist. LEXIS 67116 at *27 (N.D. Cal. Jul. 6, 2010) (quoting Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007)). A pleading “is sufficient under Rule 9(b) if it identifies the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations.” Gottreich v. San Francisco Investment Corp., 552 F.2d 866 (9th Cir. 1977) (citations omitted). Here, Plaintiffs’ thirty-six page Complaint provides more than enough information to permit the Chase Defendants to answer the claims against them. See Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009).
VI. PLAINTIFFS HAVE ADEQUATELY ALLEGED THEIR RICO CLAIMS
A. Plaintiffs Have Adequately Alleged a Claim Under 28 U.S.C. Section 1962(c)
“To state a claim under § 1962(c), a plaintiff must allege (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Odom v. Microsoft Corp., 486 F.3d 541, 547 (9th Cir. 2007) (“we should not read the statutory terms of RICO narrowly. Rather, … RICO should be liberally construed to effectuate its remedial purpose.”)
Plaintiffs’ Complaint addresses each of these elements, alleging, with great detail, the participants in the enterprise and the nature of the fraudulent conduct. Plaintiffs also provide examples of the fraudulent concealment, explanations for what was concealed, and the reason for the concealment. In particular, Plaintiffs allege that the Chase Defendants, their property preservation vendors and the real estate brokers who provide BPOs for the Chase Defendants formed an association-in-fact enterprise (the “Chase Enterprise”), and that the Chase Defendants conducted the affairs of the Chase Enterprise through a pattern of racketeering consisting of multiple, continuing acts of wire and mail fraud, (Compl. ¶¶ 105-124.) Additionally, Plaintiffs allege that the policies and procedures established for the enterprise by “Chase’s executives include providing statements that fail to disclose the true nature of the marked-up or unnecessary fees, cryptically identifying default-related service fees as ‘Miscellaneous Fees,’ or ‘Corporate Advances,’ [and] using mortgage loan management software designed to increase the fees assessed on borrowers’ accounts.” (Id. ¶ 109) The Chase Defendants’ contention that Plaintiffs have not properly alleged their RICO claims is without merit.
1. RICO Enterprise
A RICO “ ‘enterprise’ includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” Newcal Indus., Inc. v. IKON Office Solution, 513 F.3d 1038, 1056 (9th Cir. 2007) {quoting 18 U.S.C. § 1961(4)). Notwithstanding this simple and straightforward definition, the Chase Defendants argue that Plaintiffs cannot show any RICO enterprise because Plaintiffs “fail to allege the existence of an enterprise distinct from the Defendants.” (Mot. at 20:24-25.) The Chase Defendants assert that subsidiaries and affiliates of a corporation “generally” do not constitute an association-in-fact enterprise and that there is no allegation “that any non-Chase entity” has taken action in support of the enterprise. (Id. at 20:28; 21:8.) The Chase Defendants’ position is unsupported by the facts and the law.
Plaintiffs allege that the Chase Defendants participated in the conduct of the enterprise’s affairs by establishing policies and procedures and directing the other members of the enterprise, including the non-Chase “property preservation vendors” and the real estate brokers who performed BPOs, to carry out the scheme. {See e.g., Compl. ¶ 106.) The alleged enterprise unambiguously does not consist solely of the Chase Defendants. And Plaintiffs are not required to allege any more than they have about the nature of the enterprise. The Ninth Circuit has made it clear that “an associated-in-fact enterprise under RICO does not require any particular organizational structure, separate or otherwise.” Odom, 486 F.3d at 551,
Additionally, citing Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 163 (2001), the Chase Defendants argue that RICO liability requires a showing that defendants participated in the conduct of the enterprise’s affairs, not just their own affairs. (Mot. at 21:14-16.) The Chase Defendants, however, mischaracterize the nature of the Court’s holding. See In re Countrywide Fin. Corp. Mortg. Mktg & Sales Prac. Litig, 601 F. Supp. 2d 1201, 1214 n.3 (S.D. Cal. 2009) (finding Cedric Kushner Promotions, Ltd. inappropriate for purposes of addressing parent-subsidiary distinctiveness under RICO). At bottom, Cedric Kushner Promotions, Ltd., held “simply that the need for two distinct entities is satisfied; hence the RICO provision before us applies when a corporate employee unlawfully conducts the affairs of the corporation of which he is the sole owner — whether he conducts those affairs within the scope, beyond the scope, of corporate authority.” 533 U.S. at 166. It is undeniable that RICO was intended to apply to circumstances such as those at issue here. As the Court held in Cedric Kushner Promotions, Ltd., the RICO statute is designed “to protect the public from those who would run organizations in a manner detrimental to the public interest.” Id. at 165 (internal citations omitted).
The Chase Defendants, however, cannot explain how Plaintiffs’ allegations leave them unable to “defend against the charge[s]” or “prepare an adequate answer from the allegations.” Kearns, 567 F.3d at 1124; Gottreich, 552 F.2d at 866. Accordingly, for this reason, numerous other courts in the Northern District have considered, and expressly rejected, this same argument. See In re TFT-LCD Antitrust Litig., 599 F. Supp. 2d 1179, 1184 (N.D. Cal. 2009) (court rejected defendants’ argument that “the complaints continue to ‘lump together’ the twenty-six different named defendants in general allegations referring to ‘defendants,’ or groups of defendants sorted by country or corporate family.”).
In In re Static Random Access Memory (SRAM) Antitrust Litig., 580 F. Supp. 2d 896, 904 (N.D. Cal. 2008), “[d]efendants also argue[d] even if [p]aintiffs’ overall allegations are sufficient to survive a motion to dismiss, the complaint should be dismissed because [p]laintiffs have failed to allege how each individual [d]efendant participated in the alleged conspiracy.” Denying this argument, the court held: “[d]efendants’ arguments fail because they rely upon the standard for a motion for summary judgment. Although [p]aintiffs will need to provide evidence of each [d]efendants’ participation in any conspiracy, they now only need to make allegations that plausibly suggest that each [d]efendant participated in the alleged conspiracy. Id.
The same result is appropriate here. Plaintiffs’ Complaint adequately alleges the Chase Defendants’ participation in the enterprise. In fact, other courts have found similar allegations concerning banks, their subsidiaries, and their outside real estate-related vendors to be sufficient. See e.g., Young, 617 F. Supp. 2d at 1028 (finding RICO enterprise allegations adequate where plaintiffs alleged “that Wells Fargo conducted the affairs of the enterprise by ordering the property inspections, used its association-in-fact business arrangement with the property inspection vendors to conduct its unlawful practice of imposing excessive fees on the mortgagors, and engaged in mail and wire fraud.”) (citing Cedric Kushner Promotions, Ltd., 533 U.S. at 164-65). Similarly, in In re Countrywide Fin. Corp. Mortg. Mktg & Sales Prac. Litig., 601 F. Supp. 2d at 1212, the court found plaintiffs’ allegations sufficient where the alleged enterprise was made up of (1) Countrywide, including its LandSafe loan closing services subsidiaries, and (2) Mid Atlantic Capital, One Source Mortgage, and other mortgage brokers not named as defendants who had contracts with Countrywide pursuant to which they arranged, promoted, or otherwise assisted Countrywide in directing borrowers into loans issued by Countrywide.
Plaintiffs’ Complaint sets forth, in great detail, how the Chase Defendants used the mail and wire to engage in a scheme to conceal the unlawful assessment of improperly marked-up or padded fees for default-related services. Plaintiffs allege that “[t]hrough mail and wire, the Chase Enterprise provided mortgage invoices, loan statements, payoff demands, or proofs of claims to borrowers, demanding that borrowers pay fraudulently concealed marked-up or unnecessary fees.” (Compl. ¶ 112.) “Using false pretenses, identifying the fees on mortgage invoices, loan statements, or proofs of claims only as ‘Miscellaneous Fees’ or ‘Corporate Advances’ to obtain full payments from borrowers, Defendants disguised the true nature of these fees and omitted the fact that the fees include undisclosed mark-ups or were unnecessary.” (Id. ¶ 114.) In a “civil RICO action involving multiple defendants, Rule 9(b) does not require that the temporal or geographic particulars of each mailing be stated with particularity, but only that the plaintiff delineate, with adequate particularity in the body of the complaint, the specific circumstances constituting the overall fraudulent scheme.” State Farm Mut. Automobile Ins. Co. v. Grafman, 655 F. Supp. 2d 212, 227 (E.D.N.Y. 2009). In short, the Chase Defendants demand a level of detail that is simply not required.
2. Plaintiffs Have Adequately Alleged Mail and Wire Fraud
“A wire fraud violation consists of (1) the formation of a scheme or artifice to defraud; (2) use of the United States wires or causing a use of the United States wires in furtherance of the scheme; and (3) specific intent to deceive or defraud.” Odom, 486 F.3d at 554 (internal references omitted). A defendant’s state of mind can be alleged generally, “[t]he only aspects of wire fraud that require particularized allegations are the factual circumstances of the fraud itself.” Id.
The Chase Defendants argue that Plaintiffs do not adequately allege mail or wire fraud because, “the failure to disclose an allegedly fraudulent scheme cannot serve as the basis for a civil RICO claim predicated upon mail or wire fraud ‘[a]bsent an independent duty’ … owed to the claimant by the alleged wrongdoer.” (Mot. at 22:5-6, quoting In re Countrywide Fin. Corp. Mortg. Mktg., 601 F. Supp. 2d at 1218.) This argument, however, ignores the plain and unambiguous allegations in Plaintiffs’ Complaint. Among other things, Plaintiffs allege that the mortgage contracts between lenders and borrowers “contain disclosures regarding what occurs if borrowers default on their loans.” (Compl. ¶ 41.) In particular, “the mortgage contract discloses to borrowers that the servicer will pay for default-related services when necessary, and will be reimbursed by the borrower. Nowhere is it disclosed to borrowers that the servicer may mark-up the actual cost of those services to make a profit.” (Id. ¶ 42.) “Nevertheless … using false pretenses to conceal the truth from borrowers, that is precisely what Defendants do.” (Id. ¶ 3.)
3. Plaintiffs Have Adequately Alleged a Pattern of Racketeering
To prove a “pattern of racketeering activity,” a plaintiff must show, at a minimum, two related predicate acts of racketeering, including mail or wire fraud, occurring within a ten-year period. H.J., Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989). “Continuity does not require a showing that the defendants were engaged in more than one ‘scheme.’ ” Turner v. Cook, 362 F.3d 1219, 1230 (9th Cir, 2004) (quoting Medallion Television Enters. V. SelecTV of Cal., 833 F.2d 1360, 1363 (9th Cir. 1987)). Two or more related predicated acts occurring over at least a twelve month period easily meets the duration requirement. Allwaste Inc. v. Hecht, 65 F.3d 1523, 1528 (9th Cir. 1995).
Nevertheless, the Chase Defendants argue that Plaintiffs failed to allege a pattern of racketeering with adequate specificity, because the communications giving rise to the fraud at issue in this case fall within a period that is “too close together in time to create a closed-ended pattern.” (Mot. at 23:13-14.) The Chase Defendants’ construction of the statements at issue to limit the communications to an eight month period plays fast and loose with the facts. As set forth in the Complaint, the Chase Defendants’ repeated violations of mail and wire fraud over many years easily meets RICO’s pattern requirement. With respect to the named Chase Plaintiffs, they specifically allege that Plaintiff Lazar’s account was assessed the fees at issue in 2010 (Compl, ¶ 68) and that Plaintiff Schillinger’s account was assessed such fees as recently as February 18, 2012 (id. ¶ 65), covering an approximately two-year period. Furthermore, the Chase Defendants’ argument ignores the fact that the scheme at issue here relates to a class of borrowers who had loans serviced by the Chase Defendants over many, many years. Each act using the mail and wire to conceal the assessment of marked-up and unnecessary default service fees is a violation of the mail and wire fraud statutes. The Chase Defendants fail to cite a single case that suggests a different outcome.
B. Plaintiffs Have Adequately Alleged a Claim under Section 1962(d)
The Ninth Circuit has held that a defendant can “be convicted of conspiracy under § 1962(d) for his role in the scheme even though he neither committed nor agreed to commit the predicate acts that are required for a substantive violation of § 1962(c).” United States v. Fernandez, 388 F.3d 1199, 1229-1230 (9th Cir. 2004) (“remov[ing] any requirement that the defendant [in a Section 1962(d) case] have actually conspired to operate or manage the enterprise”).
The Chase Defendants argue that Plaintiffs’ claim under Section 1962(d) fails because Plaintiffs did not allege that the Chase Defendants were aware of the nature and scope of the enterprise and intended to participate in it. (Mot, at 23:28.) As discussed above, the Chase Defendants’ position is inconsistent with the law. See e.g., In re Static Random Access Memory (SRAM) Antitrust Litig., 580 F. Supp. 2d 890, 904 (N.D. Cal. 2008) (“[d]efendants’ arguments fail because they rely upon the standard for a motion for summary judgment…. [plaintiffs] now only need to make allegations that plausibly suggest that each [d]efendant participated in the alleged conspiracy.”)
Plaintiffs expressly allege that by directing and controlling the affairs of the enterprise, the Chase Defendants, “were aware of the nature and scope of the enterprise’s unlawful scheme and they agreed to participate in it.” (Compl, ¶ 128.) Furthermore, that the Chase Defendants were aware of the nature and scope and intended to participate in the enterprise is implicit in Plaintiffs’ allegation that the Chase Defendants were active participants in the enterprise’s unlawful scheme. (See e.g., Compl. ¶ 109 “J.P. Morgan Chase & Co., J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC control and direct the affairs of the Chase Enterprise.”) The Chase Defendants’ argument elevates form over substance. “One can be a conspirator by agreeing to facilitate only some of the acts leading to the substantive offense.” Salinas v. United States, 522 U.S. 52, 65 (1997).
Moreover, Plaintiffs allege, “[i]n an effort to pursue their fraudulent scheme, Defendants knowingly fraudulently concealed or omitted material information from Plaintiffs and members of the Class” and that such knowledge “is evidenced by, among other things, the fact that they did not disclose the mark-ups or unnecessary nature of the fees in their communications to borrowers.” (Compl. ¶ 119.) Plaintiffs further allege that “Defendants knowingly, affirmatively, and actively concealed the true character, quality, and nature of their assessment of marked-up fees against borrowers’ accounts.” (Id. at 1171.)
VII. PLAINTIFFS STATE A CLAIM FOR UNJUST ENRICHMENT
The Chase Defendants incorrectly argue that Plaintiffs’ claim for unjust enrichment fails because it is purportedly a quasi-contract claim for restitution and there can be no such claim when there is an existing contract that governs the relationship between the parties. (Mot. at 24:7-13.) In California, “the elements for a claim of unjust enrichment [are] receipt of a benefit and unjust retention of the benefit at the expense of another.” Monet v. Chase Home Fin. LLC, 2011 U.S. Dist. LEXIS 94362 at *17 (N.D. Cal. Aug. 23, 2011) (quoting Lectrodryer v. Seoulbank, 77 Cal. App. 4th 723, 726 (2000)); SOAProjects, Inc. v. SCM Microsystems, Inc., 2010 U.S. Dist. LEXIS 133596 at *25-26 (N.D. Cal. Dec. 7, 2010) (“[t]o make out a claim for unjust enrichment [plaintiff] must show that [defendant] received a benefit and that [defendant] unjustly retained the benefit at [plaintiff’s] expense”); Starnet Int’l AMC Inc. v. Kafash, 2011 U.S. Dist. LEXIS 25062 at *34 n. 16 (N.D. Cal. Mar. 8, 2011) (“elements for a claim of unjust enrichment are receipt of a benefit and unjust retention of the benefit at the expense of another”),
Plaintiffs allege that the Chase Defendants assessed the mortgage accounts of Plaintiffs and members of the putative class for unlawful fees using deceptive mortgage statements based on fraudulent omissions. (See e.g., Compl. ¶¶ 10, 114, 119, 136.) Plaintiffs’ claims are based on the Chase Defendants’ fraudulent concealment. The contract between the parties is of no moment. See In re Countrywide Fin. Corp. Mortg.Mktg & Sales Prac. Litig., 601 F. Supp. 2d at 1220-21 (“Although there are contracts at issue in this case, none appears to provide for the specific recovery sought by Plaintiffs’ unjust enrichment claim.”)
VIII. PLAINTIFFS STATE A CLAIM FOR FRAUD
The Chase Defendants half-heartedly challenge Plaintiff’s common law fraud claim. They first argue that Plaintiffs “have not sufficiently identified ‘the who, what, when, where, and how of the misconduct charged,’ as required when pleading fraud under Rule 9(b).” (Mot. at 24:15-16.) The Chase Defendants, however, do not, and cannot, explain how Plaintiffs’ allegations leave them unable to “defend against the charge[s]” or “prepare an adequate answer from the allegations.” Kearns, 567 F.3d at 1124; Gottreich, 552 F.2d at 866. Plaintiffs’ allegations are more than sufficient to permit the Chase Defendants to prepare an adequate answer. In satisfaction of Rule 9(b), the Complaint contains a detailed description of the Chase Defendants’ scheme to create a profit center from default-related fees generated on the backs of financially distressed borrowers, all under the guise of protecting their security.
The Chase Defendants also argue that Plaintiffs have failed to adequately allege a duty to disclose. (Mot. at 24:22-28.) This argument, however, ignores the plain and unambiguous allegations in Plaintiffs’ Complaint. Among other things, Plaintiffs allege that the mortgage contracts between lenders and borrowers “contain disclosures regarding what occurs if borrowers default on their loans.” (Compl. ¶ 41.) In particular, “the mortgage contract discloses to borrowers that the servicer will pay for default-related services when necessary, and will be reimbursed by the borrower. Nowhere is it disclosed to borrowers that the servicer may mark-up the actual cost of those services to make a profit.” (Id. ¶ 42.) “Nevertheless … using false pretenses to conceal the truth from borrowers, that is precisely what Defendants do.” (Id. ¶ 3.)
IX. CONCLUSION
For all the foregoing reasons, Plaintiffs respectfully request that the Chase Defendants’ Motion to Dismiss be denied in its entirety,4
Dated: September 4, 2012
BARON & BUDD, P.C.
Daniel Alberstone
Roland Tellis
Mark Pifko
By: <<signature>>
Roland Tellis
Attorneys for Plaintiffs
DIANA ELLIS, JAMES SCHILLINGER, and RONALD LAZAR, individually, and on behalf of the public
Footnotes
1
The Chase Defendants boast that, pursuant to the Consent Order, all of the eight participating banks mailed foreclosure review forms to more than four million borrowers. However, as of May 2012, only 193,630 forms had been completed and returned for review. (See Chase RJN, Ex. E, at p. 3) And, of those returned forms, only 11,939 file reviews have been completed. Id.
2
The party asserting preemption bears a heavy burden of demonstrating that a state claim is preempted by federal law. See Wyeth v. Levine, 555 U.S. 555, 129 S. Ct. 1187, 1194-95 (2009) (citations omitted) (“[w]e start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress,”); Hood v. Santa Barbara Bank & Trust, 143 Cal. App. 4th 526, 536-37 (2006).
3
Recent Supreme Court authority confirms that banking regulation is a “mixed state/federal regime[] in which the Federal Government exercises general oversight while leaving state substantive law in place” Cuomo v. Clearing House Ass’n, 129 S. Ct. 2710, 2718-21 (2009) (emphasis added); Walters v. Wachovia Bank, N.A., 550 U.S. 1,12 (2007) (“[s]tates are permitted to regulate the activities of national banks where doing so does not prevent or significantly interfere with the national bank’s or the national bank regulator’s exercise of its powers”).
4
If this Court is inclined to grant any portion of the Chase Defendants’ motion, Plaintiffs request leave to amend. Leave to amend should be “freely granted when justice so requires.” Fed R. Civ. P. 15(a), This policy is to be applied with “extreme liberality.” Eminence Capital LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003). Policy strongly favors determination of cases on their merits, so leave to amend is freely granted unless the opposing party can make a showing of undue prejudice, bad faith, or dilatory motive. Foman v. Davis, 371 U.S, 178, 182 (1962), No such showing can be made here.
2012 WL 4294144 (N.D.Cal.) (Trial Motion, Memorandum and Affidavit)
United States District Court, N.D. California.
Diana ELLIS, James Schillinger, and Ronald Lazar, individually, and on behalf of other members of the general public similarly situated, Plaintiffs,
v.
J.P. MORGAN CHASE & CO., a Delaware corporation, J.P. Morgan Chase Bank, N.A., a national association, and Chase Home Finance LLC, a Delaware limited liability company, Defendant.
No. 4:12-cv-03897-YGR.
September 11, 2012.
Defendants’ Reply in Support of Motion to Dismiss Complaint
Bingham McCutchen LLP, Peter Obstler (SBN 171623), peter.obstler @bingham.com, Zachary J. Alinder (SBN 209009), zachary.alinder@bingham.com, John A. Polito (SBN 253195), john.polito@bingham.com, Three Embarcadero Center, San Francisco, California 94111-4067, Telephone: 415.393.2000, Facsimile: 415.393.2286, Attorneys for Defendants JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A., on behalf of itself and as successor by merger to Chase Home Finance LLC.
| TABLE OF CONTENTS |
| I. INTRODUCTION |
1 |
| II. SECTION 1818(I) PRECLUDES SUBJECT MATTER JURISDICTION BECAUSE ADJUDICATION OF PLAINTIFFS’ PARALLEL PROCEEDING WOULD “AFFECT” THE CONSENT ORDER |
3 |
| A. The Consent Order Is Broad And Covers Plaintiffs’ Claims |
3 |
| B. Plaintiffs’ Action Need Not Directly “Countermand” A Consent Order |
3 |
| III. THE COURT SHOULD ABSTAIN OR ORDER AN EQUITABLE STAY |
8 |
| IV. PLAINTIFFS’ CLAIMS ARE PREEMPTED BY THE NATIONAL BANK ACT |
9 |
| V. PLAINTIFFS HAVE NOT SUFFICIENTLY ALLEGED INJURY HERE |
10 |
| A. Plaintiffs Fail to Plead Article III Standing For Their Actual Claims |
11 |
| B. Plaintiffs Lack Standing To Seek Restitution Under The UCL |
12 |
| C. Plaintiffs Do Not Allege “Harm To A Specific Business Or Property Interest” |
12 |
| VI. PLAINTIFFS FAIL TO SATISFY RICO’S PLEADING REQUIREMENTS |
13 |
| VII. PLAINTIFFS’ UNJUST ENRICHMENT CLAIM FAILS |
15 |
| VIII. PLAINTIFFS HAVE FAILED TO PLEAD FRAUD WITH SPECIFICITY |
15 |
| IX. JPMORGAN CHASE & CO. SHOULD BE DISMISSED |
15 |
| TABLE OF AUTHORITIES |
| CASES |
| Allen v. Wright, 468 U.S. 737 (1984) |
11 |
| Am. Fair Credit Ass’n v. United Credit Nat’l Bank, 132 F. Supp. 2d 1304 (D. Colo. 2001) |
2, 6, 7 |
| Ashcroft v. Iqbal, 556 U.S. 662 (2008) |
13 |
| Bakenie v. JPMorgan Chase Bank, N.A., slip opinion, Case No. SACV-12-60 (C.D. Cal. Aug. 6, 2012) (Selna, J.) |
2, 7 |
| Baytree Leasing Co., LLC, et al. v. Alliance Investors, LLC, et al., No. 11-cv-6619, 2012 WL 1016016 (N.D. Ill. March 21, 2012) |
2, 7 |
| Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) |
11, 12 |
| Canyon County v. Syngenta Seeds, Inc., 519 F.3d 969 (9th Cir. 2008) |
13 |
| DaimlerChrysler Corp. v. Cuno, 547 U.S. 332 (2006) |
11 |
| Davel Commc’ns, Inc., v. Qwest Corp., 460 F.3d 1075 (9th Cir. 2006) |
8 |
| Diaz v. Gates, 420 F.3d 897 (9th Cir. 2005) |
12, 13 |
| Edwards v. First Am. Corp., 610 F.3d 514 (9th Cir. 2010) |
12 |
| Gladstone Realtors v. Village of Bellwood, 441 U.S. 91 (1979) |
11 |
| In re Chase Bank USA, N.A. “Check Loan” Contract Litig., 2009 WL 4063349 (N.D. Cal. Nov. 20, 2009) |
10 |
| In re JPMorgan Chase Mortg. Modification Litig., — F. Supp. 2d —-, 2012 WL 3059377 (D. Mass. July 27, 2012) |
5 |
| Jefferson v. Chase Home Finance, 2007 U.S. Dist. LEXIS 94652 (N.D. Cal. Dec 14, 2007) |
10 |
| Jefferson v. Chase Home Finance, 2008 U.S. Dist. LEXIS 101031 (N.D. Cal. Apr. 29, 2008) |
10 |
| Kearns v. Ford Motor Co., 567 F.3d 1120 (9th Cir. 2009) |
15 |
| Martinez v. Wells Fargo Home Mortg., Inc., 598 F.3d 549 (9th Cir. 2010) |
3, 8, 9, 10 |
| Moore v. Kayport Package Express, Inc., 885 F.2d 531 (9th Cir. 1989) |
13, 14 |
| Odom v. Microsoft Corp., 486 F.3d 541 (9th Cir. 2007) |
13 |
| Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151 (9th Cir. 1996) |
15 |
| Pom Wonderful LLC v. The Coca-Cola Co., 679 F.3d 1170 (9th Cir. 2012) |
12 |
| Reves v. Ernst & Young, 507 U.S. 170 (1993) |
14 |
| Rose v. Chase Bank USA, N.A., 513 F.3d 1032 (9th Cir. 2008) |
9, 10 |
| Ruhrgas Ag v. Marathon Oil Co., 526 U.S. 574 (1999) |
3 |
| Shroyer v. New Cingular Wireless Svcs., Inc., 622 F. 3d 1035 (9th Cir. 2010) |
11 |
| Theme Promotions, Inc. v. News Am. Mktg. FSI, 546 F.3d 991 (9th Cir. 2008) |
12 |
| United States v. Fernandez, 338 F.3d 1199 (9th Cir. 2004) |
15 |
| United States v. Fiander, 547 F.3d 1036 (9th Cir. 2008) |
15 |
| Young v. Wells Fargo & Co., 671 F. Supp.2d 1006 (S.D. Iowa 2009) |
10 |
| STATUTES |
| 12 U.S.C. § 18 18(i) |
passim |
| 18 U.S.C. |
| § 1961(a) |
1 3 |
| § 1962(c) |
13, 14 |
| OTHER AUTHORITIES |
| Black’s Law Dict., 2009 ed |
6 |
| Fed. R. Civ. P. |
| 9 |
11, 13, 14, 15 |
| 56 |
15 |
Defendants JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A., on behalf of itself and as successor by merger to Chase Home Finance LLC (collectively “Chase”) respectfully submit this Reply in support of their Motion to Dismiss Plaintiffs’ Complaint.
I. INTRODUCTION
Plaintiffs make two arguments to avoid the preclusion of subject matter jurisdiction mandated by Section 1818(i) and the Consent Order: (1) the Consent Order does not cover the default-related fees that are the subject of their Complaint; and (2) Section 1818(i) allows for any “parallel” third party proceeding that does not seek to “countermand” a consent order because the jurisdictional bar on third party actions is strictly limited to cases in which a plaintiff seeks to “expressly set aside” the OCC order. Plaintiffs are wrong on both accounts.
First, regardless of whether Plaintiffs characterize the underlying conduct as “fraud,” criminal racketeering, “padding” fees, or unjust enrichment, all of their claims arise from alleged conduct that is subsumed and regulated by the OCC under its Consent Order: that Chase (and/or its vendors) “unlawfully marked up default-related fees” charged to borrowers and “conceal[ed] these fees on borrowers’ accounts…by identifying them on mortgage statements … as ‘Miscellaneous Fees’ or ‘Corporate Advances.’ ” (Compl., ¶¶ 9-10.) Plaintiffs do not dispute that Chase’s fee-related conduct is regulated by the Consent Order. Plaintiffs argue, however, that Consent Order is somehow “limited” in its regulation of Chase’s conduct because the Order only covers the “frequency” of the fees and related “servicer errors.” (See Opp’n at 1-2.)
The language of the Consent Order reveals that no such limitation exists. By entering the Consent Order with Chase, pursuant to its exclusive regulatory enforcement authority under the National Bank Act, the OCC now directly regulates default-related fee charges, ensuring they comply with applicable federal and state laws. Specifically, the Consent Order mandates the creation of comprehensive claims review procedures intended to determine and redress “whether a delinquent borrower’s account was only charged fees and/or penalties that were permissible under the terms of the borrower’s loan documents, applicable state and federal law, and were reasonable and customary.” (Chase’s Request for Judicial Notice, Dkt. 7 (“RJN”), Ex. A (Consent Order) at Art. VII, §3(e).) That claims review process covers conduct by Chase’s subsidiaries and its “Third-Party Providers.” (Id., Arts. V & XIII.)
Second, Plaintiffs’ argument that, notwithstanding the direct overlap between the conduct alleged in their Complaint and the Consent Order, Section 1818(i)’s jurisdictional bar does not apply to “parallel” third party actions as long as they do not directly “countermand” the Consent Order is wrong as a matter of law. (Opp’n at 4:16-18.) Under Section 1818(i), “a district court is precluded from making a determination which would ‘affect’ or ‘review’ the Consent Order,” including adjudicating conduct covered by that order, even where the third party does not “seek to ‘change’ or affect the Consent Order” directly. Baytree Leasing Co., LLC, et al. v. Alliance Investors, LLC, et al., No. 11-cv-6619, 2012 WL 1016016, *3-4 (N.D. Ill. March 21, 2012). Nothing in Section 1818(i), or the case law applying it, suggests that Congress intended to exempt a parallel third-party lawsuit from its jurisdictional mandate in any proceeding that does not “countermand” the provisions of the consent order. Rather, the application of Section 1818(i)’s jurisdictional bar turns entirely on whether the parallel proceeding would “affect” or require “review” of the OCC’s ongoing administration, implementation and/or enforcement of conduct subject to the Consent Order. See Bakenie v. JPMorgan Chase Bank, N.A., slip opinion, Case No. SACV-12-60 (C.D. Cal. Aug. 6, 2012) (Selna, J.) (“Bakenie slip op.”) at 5, attached to RJN as Ex. H; Am. Fair Credit Ass’n v. United Credit Nat’l Bank, 132 F. Supp. 2d 1304, 1311 (D. Colo. 2001). Were that not the case, Section 1818(i) would be rendered meaningless and courts would be required to make findings and issue decrees that would overlap, duplicate, or conflict with the administration and enforcement of an OCC order. Here, the OCC has created an on-going review and remediation process to determine whether default-related fee charges imposed on borrowers comply with all “applicable legal requirements” under “federal and state law.” Not only would parallel adjudication by this Court “affect” the Consent Order, but they would violate the Consent Order’s express prohibition that no third party shall have “any legal or equitable right, remedy or claim under” the Order. (See RJN, Ex. A, Art. XIII, (10)).
Plaintiffs’ commencement of parallel proceedings to review and redress the same loan default fee conduct now regulated by the OCC under the Consent Order also results in a variety of other substantive problems. With respect to abstention principles, adjudication of Plaintiffs’ parallel claims would bump up against an on-going administrative claims process, requiring the Court to apply and determine complex “offset” provisions to each and every borrower who receives monetary relief under claims review procedures of the Consent Order as well as the recently enacted National Mortgage Settlement (the “NMS”). Such borrower-specific fact finding cannot take place until the claims review processes provided for under the OCC and NMS Orders are allowed to run their respective courses. Plaintiffs’ parallel proceeding would also run afoul of the preemptive sphere of the National Bank Act. See Martinez v. Wells Fargo Home Mortg., Inc., 598 F.3d 549, 556-58 (9th Cir. 2010) Finally, Plaintiffs attempt to transform individual fee disputes that are the subject of an administrative review process into a series of federal and state law tort claims suffers from a number of substantive pleading defects.
II. SECTION 1818(i) PRECLUDES SUBJECT MATTER JURISDICTION BECAUSE ADJUDICATION OF PLAINTIFFS’ PARALLEL PROCEEDING WOULD “AFFECT” THE CONSENT ORDER
“The requirement that jurisdiction be established as a threshold matter is inflexible and without exception; for jurisdiction is power to declare the law, and without jurisdiction the court cannot proceed at all in any cause.” Ruhrgas Ag v. Marathon Oil Co., 526 U.S. 574, 577 (1999) (citation and internal quotations omitted). The threshold jurisdictional issue before the Court is whether the adjudication of Plaintiffs’ claims that Chase unlawfully charged marked-up default-related service fees overlaps with the conduct regulated by the Consent Order so as to “affect” the OCC and Chase’s ability to administer, comply with, and enforce the Consent Order. The answer is YES because the alleged default-related service fees are already being regulated and remediated by the OCC Consent Order. (RJN, Ex. A, Art. IV, § (l)(h), Art. VII, § (3)(e)-(h).)
A. The Consent Order Is Broad And Covers Plaintiffs’ Claims
Plaintiffs’ contention that default-related fee claims will not “affect” the Consent Order because that Order is purportedly “limited” to regulating only servicing “errors” in the amount of fees charged by Chase is fiction. The Consent Order provides broad review and relief for any claim by any borrower who claims to have been wronged or injured by the imposition of an excessive, default-related fee. Plaintiffs’ attempt to distinguish their claims from the conduct governed by the Consent Order by labeling the former “fraud” and the latter “errors” is semantics. Whether labeled as “errors” or “fraud,” the conduct that Plaintiffs seek to adjudicate is entirely subsumed and regulated by the Consent Order.
The Consent Order requires comprehensive action by Chase to remediate foreclosure and mortgage servicing-related problems, including the charging of improper fees. To that end, the Consent Order expressly requires that Chase hire an “independent consultant” to investigate default-related issues, including “whether a delinquent borrower’s account was only charged fees and/or penalties that were permissible under the terms of the borrower’s loan documents, applicable state and federal law, and were reasonable and customary” and “whether the frequency that fees were assessed to any delinquent borrower’s account (including broker price opinions) was excessive under the terms of the borrower’s loan documents, and applicable state and federal law” (RJN, Ex. A, at Art. VII, § (3)(e)-(f)). The engagement letter between Chase and Deloitte, the independent consultant for Chase approved by the OCC to conduct the foreclosure review required by Article VII of the Consent Order, sets forth objective “criteria for evaluating the reasonableness of fees and penalties” assessed (id. at Art. VII, § (2)(a)), including (1) determining whether “amounts charged were more that 10% over the amounts indicated in the applicable … guideline” from Fannie Mae or HUD (Request for Judicial Notice in Support of Reply (“Reply RJN”), Ex. A (Deloitte engagement letter) at 57, 59); (2) confirming that third-party invoices correspond to actual services actually rendered (id. at 56, 57); (3) comparing “internal … fee amounts to the fees permitted in the borrowers’ mortgage documents” (id. at 57); and, (4) confirming that the “amount of [each] fee is within the appropriate frequency” per Fannie Mae or HUD guidelines (id. at 59).
Fees for one hundred percent of claims submitted by individual borrowers will be reviewed for compliance with these standards. (See id. at 10.) The OCC has “reviewed and accepted” these criteria by which Deloitte is evaluating the fees that Chase charged to borrowers, (RJN, Ex. E (OCC Interim Status Report, June 2012) at 5 & nn.4-5), and Deloitte’s review is “subject to the monitoring, oversight, and direction of the OCC.” (Reply RJN, Ex. A at 4.) After Deloitte has finished its review and submitted a report to the OCC, Chase must submit a plan to the OCC “to remediate all financial injury to borrowers caused by any errors, misrepresentations, or other deficiencies” identified in Deloitte’s report, including remediation for any improper fees. (RJN, Art VII., §(5).) The Order provides borrower-specific claims review and relief for any borrower who believes he or she suffered any financial injury as a result of fees that were not “permissible … under applicable state and federal law ..” (Id., Arts. IV, §1(h) & VII, §3(e).)
In addition to claims for monetary relief, the overlap with the Consent Order includes claims seeking to enjoin Defendants “from continuing the[ir] unlawful practices” regarding excessive fees, and to “direct[] [Chase] … to identify, with Court supervision, victims of its conduct and pay them restitution and disgorgement …. [and] engage in corrective advertising.” (Compl., Prayer for Relief ¶¶ 6-7). The Consent Order also requires Chase to formulate and implement an acceptable “Action Plan” regarding such fees. Because “the OCC consent orders [have already] required comprehensive change to mortgage servicing and foreclosure processes to correct practices going forward” (RJN, Ex. E at 14), including elimination of any improper fee practices and creation of new communications regarding service fees, Plaintiffs’ requested injunctive and declaratory relief would necessarily “affect by injunction” the OCC’s “enforcement” of the Consent Order. 12 U.S.C. § 1818(i). As such, “it would be improper for this court … to award any injunctive relief that relates to prospective servicing practices that are anticipated by the OCC’s Order.” In re JPMorgan Chase Mortg. Modification Litig., — F. Supp. 2d —-, 2012 WL 3059377, at 19 n.19 (D. Mass. July 27, 2012) (emphasis omitted).
Plaintiffs’ reliance on the NMS exposes the weakness in Plaintiffs’ position. (Opp’n at 7:21-8:7.) The NMS was expressly negotiated with Chase and the OCC so as to not “affect” the OCC Consent Order. (See Reply RJN, Ex. B (NMS Consent Judgment), ¶ 1 l(m) (reserving and not releasing “any action by the [OCC] to enforce the Consent Order issued against [Chase] by the [OCC] on April 13, 2011”).) In so doing, the OCC worked directly with the Department of Justice, State Attorneys General, and Chase to ensure that the Consent Order and the NMS were “complementary.” (Reply RJN (Walsh Remarks), Ex. D at 4.) Unlike the NMS, Plaintiffs’ claims, like those dismissed in Bakenie, would obstruct the ongoing, comprehensive action plan developed by the OCC and Chase under the Consent Order. (RJN, Ex. A, Art. III, § 1.)
Further, Plaintiffs’ suggestion that the OCC has indirectly given its approval to their lawsuit through statements by the FDIC and a website containing answers to FAQs is meritless. With respect to the former, the FDIC testimony confirms in the first sentence that the FDIC is not the primary federal regulator for National Banks-the OCC is. (Tellis Decl., Ex. 1 (Dkt. 11-2) at 1.) Even if the FDIC testimony were precedential, the testimony supports Chase, confirming that the Consent Orders required a robust look-back and claims review precisely because the inter-agency review did not address all mortgage servicing and foreclosure issues. (See id.) The FDIC testimony also confirms: “If implemented effectively, these orders will put servicers on a path to having the staffing, management and operational controls necessary to work effectively with homeowners to fairly and efficiently resolve mortgage defaults.” (Id.) Similarly, Plaintiffs’ reliance on an FAQ stating that “[s]ubmitting a request for review does not preclude borrowers from pursuing other legal remedies available related to their foreclosures” (Opp’n at 2:16-22) does not address whether Section 1818(i) precludes their claims. The FAQ begs the question as to whether the default-related legal remedies that Plaintiffs seek to pursue in this action are “available” under Section 1818(i) in the first place. (Id.; Compl., ¶¶ 9-10.) Because the same conduct is subject to an ongoing comprehensive remedial process under the Consent Order, the answer is NO. An FAQ that merely preserves “available” remedies is not sufficient to overturn the express congressional mandate limiting subject matter jurisdiction here.
B. Plaintiffs’ Action Need Not Directly “Countermand” A Consent Order
Notwithstanding the direct overlap between the allegations of the Complaint and the Consent Order, Plaintiffs argue that the Court is nonetheless free to adjudicate the same fee based conduct in a “parallel” third party proceeding because Plaintiffs are not seeking to “countermand” the underlying Consent Order. (Opp’n at 4:8-6:20.) Plaintiffs are mistaken because the express language and intent of Section 1818(i) precludes lawsuits, like Plaintiffs’, that would require a piecemeal adjudication of conduct that overlaps with and would necessarily “affect” an OCC consent order. Am. Fair Credit, 132 F. Supp. 2d at 1311.
Black’s Law Dictionary defines “affect” as action that will “produce an effect on; to influence in some way.” (Black’s Law Dict., 2009 ed.) Applying the term “affect,” Judge Selna found in Bakenie that Section 1818(i) barred jurisdiction over the plaintiff’s claims because the adjudication of those claims involved subject matter that was squarely within this same Consent Order and, as a result, would require the Court to conduct legal proceedings and order relief that would “affect” the Consent Order. Bakenie slip. op. at 5-6 (citing Am. Fair Credit, 132 F. Supp. 2d at 1311). Plaintiffs’ claims are no exception.
Plaintiffs’ contention that they are not aware of any case “that has applied Section 1818(i) to bar subject matter jurisdiction over a lawsuit where, as here, no party seeks to modify or countermand a regulatory consent order” is refuted by Bakenie, Baytree, and American Fair Credit. In Bakenie, Judge Selna made clear that “Plaintiffs’ request for relief need not be in direct contravention of the Consent Order to affect the enforcement of an order.’ ” See Bakenie slip op. at 6 n.5 (internal punctuation omitted; emphasis added). Similarly, the Court in Baytree rejected jurisdiction even to adjudicate claims alleged to be consistent with the Consent Order, “rather than seeking to specifically ‘change’ or affect the Consent Order.” Baytree, 2012 WL 1016016, *3-*4. And in American Fair Credit, the Court found, despite objection of the OCC, that Congress intended to preclude jurisdiction over any third party action that fell within Section 1818(i)‘s broad jurisdictional reach because they could “affect” a consent order, even though the claims did not directly or indirectly seek to enforce that order. Am. Fair Credit, 132 F. Supp. 2d at 1311. Whether Plaintiffs seek to “countermand” the Consent Order is irrelevant, because their claims must only “affect” or require “review” of conduct governed by the Consent Order.
Conceding that this the case here, Plaintiffs contend this Court may nonetheless conduct parallel proceedings and thereby exercise concurrent jurisdiction with the OCC. (Opp’n at 4:9-6:20.) Plaintiffs’ novel contention is unsupported by any law, and is flatly contradicted by the plain language of Section 1818(i). See 12 U.S.C. § 1818(i). A parallel proceeding adjudicating the legality of the same conduct governed by the Consent Order would eviscerate both the letter and purpose behind Section 1818(i). See Bakenie slip op. at 6 n.5; Baytree, 2012 WL 1016016 at *3-*4; Am. Fair Credit, 132 F. Supp. 2d at 1311. It would also undermine the central goal of the Consent Order to provide uniform and consistent relief to similarly situated borrowers within each bank and across banks and duplicate and call into question the extensive fact-finding and claims-review processes already underway. (RJN, Ex. C at 3-16.) Allowing this Action to proceed would disrupt and delay relief for the class of borrowers Plaintiffs purport to represent.
III. THE COURT SHOULD ABSTAIN OR ORDER AN EQUITABLE STAY
No good can come from the continued prosecution of this Action, because it will only interfere with the comprehensive claims relief that is already available to borrowers under the Consent Order and the NMS. As Plaintiffs concede, the NMS seeks to remedy the very same default-related service fee claims in this Action. (Opp’n at 7:26-8:1). Plaintiffs have two separate, complementary remedial processes available to adjudicate the same conduct they allege harmed borrowers. Equitable abstention or a stay is particularly appropriate here to allow the OCC and NMS claims review processes to run their courses for borrowers without the confusion, interference, or obstruction that will result from “parallel” proceedings before this Court.
Plaintiffs’ assertion that there are no “complex and comprehensive issues involved in this case that would impact the OCC’s ability to implement and enforce its order” is both wrong and beside the point. (Opp’n at 8:27-28.) “[A] threshold issue requir[ing] interpretation by the [OCC]” exists in this case (Opp’n at 9:13 (citing Davel Commc’ns, Inc., v. Qwest Corp., 460 F.3d 1075, 1087 (9th Cir. 2006)), namely, determining whether a given fee was excessive or otherwise improper. (See RJN, Ex. A at Art. VII). “[T]he [OCC] has the primary responsibility for the surveillance of the ‘business of banking’ authorized by the Act.” See Martinez, 598 F.3d at 555. As such, review and remediation of default-related fees is an issue that the OCC has decided, under its special competence and unique expertise, is best and most effectively handled through administrative, claims-review processes. Further, Plaintiffs’ suggestion that this is a “straightforward” case about “deception” that is separate from the OCC’s statutory responsibilities (see Opp’n at 10:17-20) is nonsense. Indeed, the OCC already found that these fees were within its statutory responsibility, requiring Chase to determine whether such fees “were permissible under the terms of the borrower’s loan documents, applicable state and federal law, and were reasonable and customary.” (RJN, Ex. A at Art. VII, §3(e).)
The NMS, referred to in Plaintiffs’ Opposition, provides an additional reason for the Court to abstain from hearing this Action. Borrowers who receive payments through the NMS process “must agree that such payment shall offset and operate to reduce any other obligation [Chase] has to the borrowers to provide compensation or other payments.” (Reply RJN, Ex. C (Exhibit C to the NMS Consent Judgment) ¶ 5.) As such, Plaintiffs and every member of the putative class whose homes were foreclosed upon or sold in 2008-2011 may seek compensation through the NMS which would offset any dollars that they could recover in this action. (Id.)
In other words, the OCC and NMS proceedings provide two complementary claims processes for Plaintiffs and their putative class of borrowers to remediate alleged financial injury that resulted from any improper default-related service fees. In addition to the parallel fact finding that this Court would have to perform, the OCC process invites and NMS process requires offsets to preclude duplicative recovery. At a minimum, Plaintiffs should not be allowed to proceed before the OCC and NMS processes run their course. Only then can the Court determine (and offset) compensation for improper fees already provided to each borrower.
IV. PLAINTIFFS’ CLAIMS ARE PREEMPTED BY THE NATIONAL BANK ACT
Under Martinez, the National Bank Act expressly preempts Plaintiffs’ state law claims against Chase.1 Plaintiffs’ reliance on three district court cases, one of which Martinez expressly rejected, does not alter the preemption analysis, especially as preemption here arises from a specific enforcement and regulatory proceeding under Section 1818(b) of the National Bank Act.
Plaintiffs’ core contention that NBA preemption does not apply to state-law fraud claims is wrong as a matter of law. (Opp’n at 12:23-13:27.) National Bank Act preemption applies to claims sounding in fraud where the alleged fraud is a purported failure to make disclosures not required under federal law. See Martinez, 598 F.3d at 556-57 (preempting a claim under the UCL’s “fraudulent” prong where the “allege[d] ‘fraudulent’ conduct … [was] [a bank]’s failure to disclose the costs it incurs for services, instead of just its charges for rendering those services to borrowers.”); Rose v. Chase Bank USA, N.A., 513 F.3d 1032, 1038 (9th Cir. 2008) (preempting a claim under the UCL’s “fraudulent” prong based upon failure to comply with state disclosure requirements for “convenience checks”). In holding that even claims of express deception could be preempted under the National Bank Act, Martinez rejected Jefferson v. Chase Home Finance, 2007 U.S. Dist. LEXIS 94652 (N.D. Cal. Dec 14, 2007), mod’d upon reconsideration, 2008 U.S. Dist. LEXIS 101031 (N.D. Cal. Apr. 29, 2008), a case upon which Plaintiffs rely. See Martinez, 598 F.3d at 556 (finding preemption “notwithstanding” Jefferson).
“Regardless of the nature of the state law claim alleged .., the proper inquiry is whether the ‘legal duty that is the predicate of’ Plaintiffs’ state law claim falls within the preemptive power of the NBA or regulations promulgated thereunder.” Rose, 513 F.3d at 1038 (citation omitted). The gravamen of Plaintiffs’ claims is that Chase purportedly marked up default-related service fees and then did not disclose them properly in their bills. (See, e.g., Compl. ¶¶ 9-10.) As such, Martinez establishes that the OCC’s regulations concerning fee-setting and fee-related disclosures preempt Plaintiffs’ claims. Martinez, 598 F.3d at 556-57.
And the cases cited by Plaintiff do not suggest otherwise. First, the Ninth Circuit has rejected Jefferson. Martinez, 598 F.3d at 556; (cf. Opp’n at 12:25-27.) Next, Young v. Wells Fargo & Co., 671 F. Supp.2d 1006 (S.D. Iowa 2009) is an out-of-circuit, district court opinion decided before Martinez. Young considered whether claims regarding late fees were preempted as usury claims, an issue not relevant here. Cf. Young, 671 F. Supp. 2d at 1018-22. Last, In re Chase Bank USA, N.A. “Check Loan” Contract Litig., 2009 WL 4063349 (N.D. Cal. Nov. 20, 2009) was also decided before Martinez and is inapposite. Check Loan involved convenience check fees in the context of a claim for breach of an implied covenant of good faith and fair dealing under Delaware law, a claim not alleged in this Action. Id. at *8-*9. In any event, the controlling case involving convenience check fees is Rose, in which the Ninth Circuit confirmed that state law could not impose disclosure requirements on convenience checks beyond those required by federal law, even when such claims were pled as a “fraudulent” business practice under the UCL. Rose, 513 F.3d at 1037-38.
V. PLAINTIFFS HAVE NOT SUFFICIENTLY ALLEGED INJURY HERE
Plaintiffs fail to allege facts sufficient to support even a non-speculative inference of Article III standing, let alone to fulfill the heightened standards under the UCL and civil RICO.
A. Plaintiffs Fail to Plead Article III Standing For Their Actual Claims
Plaintiffs argue that they have met their burden to establish constitutional standing on two grounds: (1) Plaintiffs claim to have alleged payment of the allegedly unlawful fees here (Opp’n at 14:18-15:8), and (2) Plaintiffs claim that they need not show injury in fact so long as the allegedly unlawful fees were assessed and there is a relevant, “direct financial relationship” between the parties (id. at 16:5-8.). Plaintiffs are wrong on both counts.
First, Plaintiffs’ contention that they have alleged actual payment is pure fiction. Each Plaintiff alleges payment only on information and belief: “Plaintiffs are informed and believe, and on that basis allege, that [each] Plaintiff… paid some or all of the unlawful fees assessed on [his or her] account.” (Compl. ¶¶ 62, 65, 69.) Statements on information and belief do not “raise a right to relief above the speculative level” and thus should be disregarded on a motion to dismiss. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); see also Shroyer v. New Cingular Wireless Svcs., Inc., 622 F. 3d 1035, 1042 (9th Cir. 2010) (“Claims made on information and belief are not usually sufficiently particular [to satisfy Rule 9(b)], unless they accompany a statement of facts on which the belief is founded.”). Plaintiffs’ further allegations that they “would not have paid … or would have challenged” the fees at issue in this case (Compl. ¶¶ 99, 100, 116, 148) lack specific facts and thus “come[] up short” as “merely legal conclusions resting on the prior allegations.” Twombly, 550 U.S. at 564.
Second, Plaintiffs are wrong as a matter of law when they contend that “for purposes of Article III standing, it is important only that the Chase Plaintiffs had a direct financial relationship with the Chase Defendants, grounded on the purchase or use of Chase’s loan products, and that the Chase Defendants assessed such fees.” (Opp’n at 16:5-8.) Plaintiffs “must demonstrate standing for each claim [t]he[y] seek[] to press,” and the injury must be “personal” to Plaintiffs and “fairly traceable” to Plaintiffs’ actual claims. DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342, 352 (2006). The racial discrimination cases that Plaintiffs cite in fact support a finding that Plaintiffs have no standing without allegation of the “personal” injury of payment. Allen v. Wright, 468 U.S. 737, 755 (1984) (no standing for plaintiffs who had not tried to enroll children in discriminatory schools); accord Gladstone Realtors v. Village of Bellwood, 441 U.S. 91, 111-13 & n.25 (1979) (no standing for plaintiffs outside injured community).
And, unlike the plaintiffs in Edwards v. First Am. Corp., 610 F.3d 514 (9th Cir. 2010), Plaintiffs here are not suing under RESPA or any other statutory scheme where Congress specifically intended to allow for financial recovery without a showing of economic injury. See Edwards, 610 F.3d at 516-18. Each of Plaintiffs’ claims here arises from claims of marked-up fees, not violations of a statutory right. (See Compl. ¶¶ 62, 65, 68 (alleging that fees for default-related services assessed against each Plaintiff.) Therefore, if Plaintiffs have not actually paid any allegedly improper fee, Plaintiffs have no standing for their actual claims.
Plaintiffs’ contention that they could plead with more specificity if only they were allowed discovery turns the pleading burden on its head. Compare Twombly, 550 U.S. at 559 with Opp’n at 15:9-18. The “potentially enormous expense of discovery” militates against permitting RICO and RICO conspiracy claims to proceed on such thin allegations. See Twombly, 550 U.S. at 559 (discussing conspiracy allegations under the Sherman Act).
B. Plaintiffs Lack Standing To Seek Restitution Under The UCL
Plaintiffs’ insistence that they need not show eligibility for restitution to bring their UCL claim is baffling. The California Supreme Court did recognize that a “plaintiff [who] seeks only injunctive relief” need not show eligibility for restitution. Pom Wonderful LLC v. The Coca-Cola Co., 679 F.3d 1170, 1178 (9th Cir. 2012) (emphasis added). But Plaintiffs seek “restitution and disgorgement of Defendants’ revenues or profits” in addition to injunctive relief under their UCL claim, (Compl., Prayer for Relief ¶ 4), and thus must allege sufficient facts to show that they have “lost money or property.” Theme Promotions, Inc. v. News Am. Mktg. FSI, 546 F.3d 991, 1008-09 (9th Cir. 2008).
C. Plaintiffs Do Not Allege “Harm To A Specific Business Or Property Interest”
With respect to the civil RICO requirement that Plaintiffs show “harm to a specific business or property interest,” Plaintiffs do not carry their burden. See Diaz v. Gates, 420 F.3d 897, 900 (9th Cir. 2005) (en banc; per curiam). Plaintiffs’ Complaint concerns alleged fees arising from Chase’s “home mortgage loan servicing business[].” (Compl. ¶ 2.) Plaintiffs have alleged no facts to suggest that Plaintiffs have a business interest in their residential mortgages. Therefore, as a matter of law, they must allege “concrete financial harm” to a specific property interest. Canyon County v. Syngenta Seeds, Inc., 519 F.3d 969, 975 (9th Cir. 2008).
Plaintiffs propose that this Court deem “legal entitlement to business relations unhampered by fraudulent schemes and unfair business practices” (Opp’n at 15:23-28) to be such a property interest, and suggest that they have pled injury to this hypothesized interest. This is wrong for three reasons. First, this is a generalized allegation, not a “concrete” one. Canyon County, 519 F.3d at 9753 Second, Diaz held that “legal entitlement to business relations unhampered by schemes prohibited by the RICO predicate statutes” was a property interest under California law; neither common-law fraud nor unfair business practices are in the statutory list of RICO predicates. See Diaz, 420 F.3d at 899 (emphasis added); 18 U.S.C. § 1961(a) (listing the RICO predicate statutes). Third, the “business relations” in the Diaz test are “current and prospective contractual relations,” and Plaintiffs have not identified any such relations with which Chase’s conduct has allegedly interfered. Diaz, 420 F.3d at 900.
VI. PLAINTIFFS FAIL TO SATISFY RICO’S PLEADING REQUIREMENTS
Plaintiffs’ RICO claims suffer from additional substantive pleading defects. In their opposition, Plaintiffs assert in conclusory fashion that they have alleged a claim under § 1962(c) “with great detail.” (Opp’n at 18:18-19:3 (paraphrasing Compl. ¶¶ 105-124).) Not so. Plaintiffs’ RICO allegations may be chock full of “naked assertions devoid of further factual enhancement,” but they lack “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2008). In particular, Plaintiffs fail to plead mail and wire fraud with the specificity required under Rule 9(b), fail to show a pattern of racketeering, do not allege that any Defendant conducted the affairs of the alleged enterprise, and do not make out a conspiracy claim.
First, even if “the only aspects of [mail or] wire fraud that require [] particularized allegations are the factual circumstances of the fraud itself” (Opp’n at 21:24-26 (quoting Odom v. Microsoft Corp., 486 F.3d 541, 554 (9th Cir. 2007)), Plaintiffs’ allegations still fail: they must identify “the time, place and specific content of the false representations as well as the identities of the parties to the misrepresentation.” Moore v. Kayport Package Express, Inc., 885 F.2d 531, 541 (9th Cir. 1989). Plaintiffs protest that fraudulent concealment claims need not satisfy Rule 9(b) at the pleading stage. (See Opp’n at 17:22-18:2.) But Plaintiffs do not allege that no communications occurred; they allege that Chase charged allegedly unlawful fees to Plaintiffs, and did not include certain disclosures to that effect on their bills. (Compl. ¶¶ 49-50.) Plaintiffs therefore need to identify, per Plaintiff, the fees that they challenge, the specific bills at issue, and the Defendant that sent those bills. Moore, 885 F.2d at 541.
Second, also under Rule 9(b), Plaintiffs cannot claim to have shown a two-year pattern of racketeering where their alleged endpoints are a “Miscellaneous Fee” on a mortgage statement sent to Plaintiff Lazar “in 2010” with no specified month, day, or amount (Compl. ¶ 68); and, a fee with no specified description or amount on a mortgage statement sent to Plaintiff Schillinger on February 18, 2012 (id. ¶ 65.) Plaintiffs suggest, repeatedly, that Defendants “cannot explain how Plaintiffs’ allegations leave them unable to ‘defend against the charge[s]’ or ‘prepare an adequate answer from the allegations.’ ” (See, e.g., Opp’n at 20:7-9 (citation omitted).) The answer is simple: Without knowing which specific fees are alleged to be improper or insufficiently disclosed, Chase cannot investigate and rebut Plaintiffs’ charges.
Third, Plaintiffs fail to allege that any Defendant conducted the business of the enterprise, rather than its own business. Plaintiffs claim that Defendants, “non-Chase ‘property preservation vendors’ and the real estate brokers who performed BPOs” comprise a RICO enterprise. (Opp’n at 19:14-17.) Under 18 U.S.C. § 1962(c), “liability depends on showing that the defendants conducted or participated in the conduct of the ‘enterprise’s affairs,’ not just their own affairs.” Reves v. Ernst & Young, 507 U.S. 170, 185 (1993) (emphasis in original). Here, JPMorgan Chase & Co. is a non-operating holding company, which cannot have performed (and thus cannot be liable for) the alleged enterprise’s affairs. (See Mot. at 25:2-14.) And JPMorgan Chase Bank, N.A., and its predecessor, Chase Home Loan Finance, LLC, directed the actions of the non-Chase vendors no more and no less than any outsourcer of default-related services.
Fourth, Plaintiffs fail to plead a RICO conspiracy because they “have failed to plead a cognizable RICO enterprise.” (Mot. at 23:26-24:3.) As such, they necessarily have failed to allege that Chase was aware of such an enterprise or intended to participate in one (id. (citing United States v. Fiander, 547 F.3d 1036, 1042 (9th Cir. 2008)), and have failed to allege that Chase “knowingly agreed to facilitate a scheme which includes the operation or management of” the (insufficiently alleged) enterprise. United States v. Fernandez, 338 F.3d 1199, 1230 (9th Cir. 2004) (cited in Opp’n at 23:9-13). Under either test, Plaintiffs’ RICO conspiracy claim fails.
VII. PLAINTIFFS’ UNJUST ENRICHMENT CLAIM FAILS
Plaintiffs unjust enrichment claim fails, for among other reasons, because there is a loan contract governing the relationship between the Parties. Plaintiffs’ argument that “[t]he contract between the parties is of no moment” is unpersuasive for two reasons. (See Opp’n at 24:24-28.) First, the alleged contract at issue permits charges for default-related services, and thus disallows Plaintiffs’ requested recovery. (See Compl. ¶ 41.) Second, Plaintiffs’ unjust enrichment claim is based upon the contract. (See id. at ¶¶ 132-33.) Accordingly, Plaintiffs cannot plead a quasi-contractual claim for unjust enrichment claim where a written contract already controls. See Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1167 (9th Cir. 1996).
VIII. PLAINTIFFS HAVE FAILED TO PLEAD FRAUD WITH SPECIFICITY
Contrary to Plaintiffs’ suggestion, Rule 9 of the Federal Rules of Civil Procedure is a stand-alone pleading rule, not a summary judgment rule that operates as part of Rule 56 procedures. See Fed. R. Civ. P. 9; Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009). Because, as discussed in Section VI, above, Plaintiffs have failed to plead with specificity as to the time, date, and amount of allegedly improper fees charged to the named Plaintiffs, and have alleged no facts sufficient to show payment of any allegedly improper fees by the named Plaintiffs, Plaintiffs’ Complaint, which is Plaintiffs’ third bite at the apple, should be dismissed under Rule 9(b). See id. at 1125-27 (dismissing claims sounding in fraud, including nondisclosure, for failure to “state with particularity” the facts giving rise to plaintiff’s claims).
IX. JPMORGAN CHASE & CO. SHOULD BE DISMISSED
Finally, Plaintiffs fail to dispute that JPMorgan Chase & Co. is a non-operating holding corporation that could not conceivably have taken any action ascribed to “Chase” or the “Chase Enterprise.” In failing to oppose this portion of Chase’s motion, Plaintiffs concede that dismissal of JPMorgan Chase & Co. is appropriate here.
DATED: September 11, 2012
Bingham McCutchen LLP
By: /s/ Peter Obstler
Peter Obstler
Attorneys for Defendants JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A., on behalf of itself and as successor by merger to Chase Home Finance LLC
Footnotes
1
Plaintiffs argues that National Bank Act preemption does not apply to JPMorgan Chase & Co. This argument is irrelevant. Plaintiffs did not oppose dismissal of JPMorgan Chase & Co., a non-operating holding company that could not have been involved in any purported conduct here. See Section IX, below.
2012 WL 3065393 (N.D.Cal.) (Trial Pleading)
United States District Court, N.D. California.
Diana ELLIS, James Schillinger, and Ronald Lazar individually, and on behalf of other members of the public similarly situated, Plaintiffs,
v.
J.P. Morgan CHASE & Co., a Delaware corporation, J.P. Morgan Chase Bank, N.A., a national association, for itself and as successor by merger to Chase Home Finance, LLC, and Chase Home Finance LLC, a Delaware limited liability company, Defendants.
No. CV 12 3897.
July 24, 2012.
Jury Trial Demanded
Class Action Complaint For: (1) Violations of California’s Unfair Competition Law (Cal. Bus. & Prof. Code §§ 17200 et seq.); (2) Violations of the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. § 1962(c)); (3) violations of the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. § 1962(d)); (4) Unjust Enrichment; and (5) Fraud
Daniel Alberstone (SBN 105275), dalberstone@baronbadd.com, Roland Tellis(SBN 186269), rtellis@baronbudd.com, Mark Pifko(SBN 228412), mpifko @baronbudd.com, Baron & Budd, P.C., 15910 Ventura Boulevard, Suite 1600, Encino, California 91436, Telephone: (818)839-2333, Facsimile: (818)986-9698, Attorneys for Plaintiffs, Diana Ellis, James Schillinger, and Ronald Lazar, individually, and on, behalf of other members of the public, similarly situated.
For their complaint against J.P. Morgan Chase & Co., LP. Morgan Chase Bank, N.A., and Chase Home Finance LLC (collectively “Defendants”), Plaintiffs Diana Ellis, James Schillinger, and Ronald Lazar (“Plaintiffs”), individually, and on behalf of all other members of the public similarly situated, based on information and belief, allege as follows:
NATURE OF THE ACTION
1. Plaintiffs’ claims against Defendants in this action were originally brought as part of the action captioned as Bias et al., v. Wells Fargo & Company et al., case no. 4:12-cv-00664-YGR (N.D. Cal., filed Feb. 10, 2012). However, by Order dated July 13, 2012, this Court, the Honorable Yvonne Gonzalez Rogers presiding, found, on the Court’s own motion, that the claims with respect to the Defendants in this action were not properly joined in a single action with the claims against the other defendants in the Bias action. As a result, the Court ordered Plaintiffs “to re-file their claims against [Defendants as an] additional, separate action.”1 Accordingly, consistent with the Court’s order, Plaintiffs hereby bring this separate action against J.P. Morgan Chase & Co., J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC.
2. This case concerns fraudulent practices committed by Defendants in connection with their home mortgage loan servicing businesses. Taking advantage of economic downturn and the increasing number of loans in default, Defendants seivice these loans according to uniform practices designed to maximize fees assessed on borrowers’ accounts when they are behind on their payments. Consistent with these practices, Defendants use automated mortgage loan management systems, made up of an enterprise of subsidiaries, inter-company departments, divisions, and third-party “property preservation” vendors, to engage in a scheme to conceal the unlawful assessment of improperly marked-up or unnecessary third party fees for default-related services, cheating borrowers who can least afford it.
3. More specifically, when home mortgage borrowers get behind on their payments and go into “default,” Defendants assess fees on borrowers’ accounts for various default-related services, typically performed by third parties, purportedly designed to protect the lender’s interest in the property. However, Defendants are not permitted to mark-up the fees for such services to earn a profit. Nor are Defendants permitted to assess borrowers’ accounts for default-related service fees that are unnecessary. Nevertheless, as discussed in detail below, using false pretenses to conceal the truth from borrowers, that is precisely what Defendants do.
4. In effect, to generate hefty profits, the lending industry has substituted inflated interest rates with inflated fees. Defendants formed enterprises, associations of subsidiaries, affiliated companies, and “property preservation” vendors, and designed schemes to disguise hidden, marked-up, or unnecessary fees so that they could earn additional, undisclosed profits. Through these unlawful enterprises, Defendants mark-up the fees charged by vendors, often by 100% or more, and then, without disclosing the mark-up, assess borrowers’ accounts for the hidden profits. Furthermore, in connection with their schemes, Defendants also have a practice of routinely assessing fees for default-related services, even when they are unnecessary. Employing this strategy, Defendants are able to quietly profit from assessing borrowers’ accounts for third party default-related service fees at the expense of struggling consumers.
5. Many borrowers reasonably believe the lender from whom they obtained their mortgage will hold and service their loan until it is paid off. Instead, however, through relatively recent mortgage industry practices, such as securitization and the sale of mortgage backed securities, that is often not the case. In today’s market, loans and the rights to service them are bought and sold at will, multiple times over.
6. A borrower’s relationship is typically with the mortgage servicer rather than the lender who originated the loan. Defendants Chase Home Finance LLC, and now its successor, J.P. Morgan Chase Bank, N.A., are some of the largest mortgage servicers in the United States. As mortgage servicers, Defendants J.P. Morgan Chase Bank, N.A. and Chase Home Finance LLC are responsible for the day-to-day management of loan accounts, including handling customer inquiries, collecting and crediting loan payments, sending default notices to delinquent borrowers, negotiating loan modifications, and directing foreclosure activities, including engaging the services of foreclosure counsel, even if the foreclosure is brought in the name of the owner of the loan, rather than the servicer.
7. Borrowers depend on their mortgage servicers to handle servicing-related tasks accurately and with skill. Because financial institutions like Defendants who generate loan servicing revenue through operating subsidiaries like Chase Home Finance LLC, and subsidiaries like J.P. Morgan Chase Bank, N. A., do not profit directly from interest payments made by borrowers, rather than ensuring that borrowers stay current on their loans, Defendants are more concerned with generating revenue from fees assessed against the mortgage accounts they service. According to one member of the Board of Governors of the Federal Reserve System, “a foreclosure almost always costs the investor [who owns the loan] money, but [it] may actually earn money for the servicer in the form of fees.”2
8. Financial institutions like Defendants see opportunity where investors see failure because borrowers are captives to companies who service their loans. Accordingly, when borrowers go into default and Defendants unilaterally decide to instruct third parties to perform default-related services, borrowers have no option but to accept Defendants’ choice of providers.
9. Taking advantage of these circumstances, the Defendants formed an enterprise with their respective subsidiaries, affiliates, and “property preservation” vendors, and then, developed a uniform practice of unlawfully marking up default-related fees charged by third parties and assessing them against borrowers’ accounts so that Defendants can earn undisclosed profits in connection with these services.
10. Defendants are aware that it is improper to mark-up the fees assessed on borrowers’ accounts for default-related services. Therefore, Defendants fraudulently conceal these fees on borrowers’ accounts, omitting any information about Defendants’ additional profits, by identifying them on mortgage statements with cryptic descriptions, such as “Miscellaneous Fees” or “Corporate Advances.”
11. Indeed, Defendants’ practices are designed to avoid detection even when examined in bankruptcy proceedings. As one court has explained, “[1]enders have apparently been operating under the assumption that the fees and costs in their proofs of claim are invulnerable to challenge because debtors lack the sophistication, the debtors’ bar lacks the financial motivation, and bankruptcy courts lack the time.”3 “[T]he Court believes that certain members of the mortgage industry are intentionally attempting to game the system by requesting undocumented and potentially excessive fees.”4
12. The rampant abuses by mortgage servicers have led federal regulators to enter into numerous Consent Orders, but according to Mark Pearce, Director, Division of Depositor and Consumer Protection, Federal Deposit Insurance Corporation, “these consent orders do not fully identify and remedy past errors in mortgage-servicing operations of large institutions; in fact, the scope of the interagency review did not include a review of…the fees charged in the servicing process. Much work remains to identify and correct past errors and to ensure that the servicing process functions effectively, efficiently, and fairly going forward.”5 Moreover, the Consent Orders do not reach the type of conduct at issue here.
13. Plaintiffs bring this action, seeking injunctive relief and damages on behalf of themselves and the thousands of borrowers who have been victimized by the Defendants’ uniform schemes.
JURISDICTION AND VENUE
14. Jurisdiction is proper in this Court under 28 U.S.C. § 1332(d)(2). The matter in controversy, exclusive of interest and costs, exceeds the sum or value of $5,000,000 and is a class action in which members of the class of plaintiffs are citizens of states different from Defendants. Further, greater than two-thirds of the members of the Class reside in states other than the states in which Defendants are a citizens.
15. This Court also has jurisdiction over this matter under 28 U.S.C. §§ 1331, 1961, 1962 and 1964. This Court has personal jurisdiction over Defendants under 18 U.S.C. §1965. In addition, under 28 U.S.C. § 1367, this Court may exercise supplemental jurisdiction over the state law claims because all of the claims are derived from a common nucleus of operative facts and are such that Plaintiffs ordinarily would expect to try them in one judicial proceeding.
16. Venue lies within this judicial district under 28 U.S.C. § 1391(b)(1) and (c)(2) because Defendants’ contacts are sufficient to subject them to personal jurisdiction in this District, and therefore, Defendants reside in this District for purposes of venue, or under 28 U.S.C. § 1391(b)(2) because certain acts giving rise to the claims at issue in this Complaint occurred, among other places, in this District.
Intradistrict Assignment
17. Consistent with Northern District of California Civil Local Rule 3-5(b), assignment to the San Francisco or Oakland Division is appropriate under Civil Local Rules 3-2(c) and 3-2(d), because acts giving rise to the claims at issue in this Complaint occurred, among other places, in this District, in San Francisco and Oakland.
PARTIES
18. Plaintiff Diana Ellis is an individual and a citizen of California.
19. Plaintiff James Schillinger is an individual and a citizen of Tennessee.
20. Plaintiff Ronald Lazar is an individual and a citizen of Oregon.
21. Defendant J.P. Morgan Chase & Co. is a corporation organized under the laws of Delaware, with its principal place of business in New York, New York.
22. Defendant J.P. Morgan Chase Bank, N.A. is a subsidiary of J.P. Morgan Chase & Co., is a successor by merger to Chase Home Finance LLC, and is a national bank organized and existing as a national association under the National Bank Act, 12 U.S.C. §§ 21 et seq., with its principal place of business in Columbus, Ohio.
23. Defendant Chase Home Finance LLC, was, during relevant times at issue in this Complaint, a subsidiary of J.P. Morgan Chase & Co. and J.P. Morgan Chase Bank, N.A., and a Delaware limited liability company, with its principal place of business in Iselin, New Jersey.
24. Whenever, in this Complaint, reference is made to any act, deed, or conduct of Defendants committed in connection with the enterprise, the allegation means that Defendants engaged in the act, deed, or conduct by or through one or more of their officers, directors, agents, employees or representatives, each of whom was actively engaged in the management, direction, control or transaction of the ordinary business and affairs of Defendants and the enterprise.
25. Plaintiffs are informed and believe, and based thereon, allege that, at all material times herein, each Chase defendant, J.P. Morgan Chase & Co., J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC (collectively, “Chase”), was the agent, servant, or employee of the other Chase defendants, and acted within the purpose, scope, and course of said agency, service, or employment, and with the express or implied knowledge, permission, and consent of the other Chase defendants, and ratified and approved the acts of the other Chase defendants.
26. J.P. Morgan Chase & Co. exercised, and exercises, specific and financial control over the operations of J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC, and it dictates, and dictated, the policies and practices of J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC. J.P. Morgan Chase & Co. also exercises power and control over the specific activities at issue in this lawsuit, and it is the ultimate recipient of the ill-gotten gains described herein. The fraudulent scheme at issue in this case was organized by executives working at the highest levels of J.P. Morgan Chase & Co. and J.P. Morgan Chase Bank, N.A., and carried out by both executives and subordinate employees working for J.P. Morgan Chase & Co., J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC.
FACTUAL BACKGROUND
27. America’s lending industry is in turmoil, and the lending community has divorced itself from the borrowers it once served. Traditionally, when people wanted to borrow money, they went to a bank or a “savings and loan.” Banks loaned money and borrowers promised to repay the bank, with interest, over a specific period of time. The originating bank kept the loan on its balance sheet, and serviced the loan — processing payments, and sending out applicable notices and other information — until the loan was repaid. The originating bank had a financial interest in ensuring that the borrower was able to repay the loan.
28. Today, however, the process has changed. Mortgages are now packaged, bundled, and sold to investors on Wall Street through what is referred to in the financial industry as mortgage backed securities or MBS. This process is called securitization. Securitization of mortgage loans provides financial institutions like Defendants with the benefit of immediately being able to recover the amounts loaned. Securitization essentially eliminates the financial institution’s risk from potential default. But, by eliminating the risk of default, mortgage backed securities have disassociated the lending community from borrowers. Numerous unexpected consequences have resulted from the divide between lenders and borrowers.
29. Among other things, securitization has created an industry of companies in the lending industry like Defendants, who no longer make money primarily from interest on the loans they originate. Thus, lenders no longer have the financial interest in the repayment of loans that they once did. Instead, financial institutions like Defendants, through their network of subsidiaries, operating entities and divisions, service or administer mortgages for hedge funds and investment houses who own the loans. Rather than earn income from the interest on these loans, financial institutions like Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A. are paid a fee for their loan administration services.
30. Additionally, under agreements with investors (pooling and service agreements), loan servicers like Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A. assess fees on borrowers’ accounts for default-related services in connection with their administration of borrowers’ loans. These fees include Broker’s Price Opinion fees and appraisal fees. Defendants’ collection of these fees, however, exemplifies how America’s lending industry has run off the rails.
31. As one Member of the Board of Governors of the Federal Reserve System has explained, “[w]hile an investor’s financial interests are tied more or less directly to the performance of a loan, the interests of a third-party servicer are tied to it only indirectly, at best. The servicer makes money, to oversimplify it a bit, by maximizing fees earned and minimizing expenses while performing the actions spelled out in its contract with the investor…. The broad grant of delegated authority that servicers enjoy under pooling consumers, creates an environment ripe for abuse.”6
32. For financial institutions like Defendants, who are determined to maximize the money they earn from loans serviced by Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A., the right to charge third party fees has opened the door to a world of exploitation. As a result of the disassociation between loan servicers and the monies generated from the interest borrowers pay on their loans, Defendants have been incentivized to find other ways to grow their profits.
33. Defendants, with their subsidiaries, affiliated companies, intercompany divisions, and third-party “property preservation” vendors, each formed an unlawful enterprise and decided to game the system, under the guise of collecting default-related service fees purportedly incurred by third parties, and then, they sought to increase mortgage servicing revenues by fraudulently concealing marked-up or unnecessary fees assessed on borrowers’ accounts.
34. In short, as explained by Adam J. Levitin, Associate Professor of Law at the Georgetown University Law Center, in testimony to the United States House Financial Services Committee, Subcommittee on Housing and Community Opportunity, “Servicers’ business model also encourages them to cut costs wherever possible, even if this involves cutting corners on legal requirements, and to lard (sic) on junk fees and in-sourced expenses at inflated prices.”7
DEFENDANTS’ AUTOMATED LOAN SERVICING PRACTICES
35. To maximize profits, Defendants assign the complex task of administering the millions of loans serviced by Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A. to computer software programs. The software programs are designed to manage borrowers’ accounts and assess fees, according to protocols and policies designed by the executives at J.P. Morgan & Company and J.P. Morgan Chase Bank, N.A.
36. Defendants automate Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A.’s loan servicing businesses through a computer software program provided by Fidelity National Information Services, Inc., which is called Mortgage Servicing Package (“Fidelity MSP”). Fidelity MSP is a sophisticated home loan management program, and is one of the most widely used such programs in the United States.
37. When a loan is originated, guidelines for managing the loan are imported into Fidelity MSP. Loans serviced by Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A. are then automatically managed by the software according to those guidelines. For example, among other things, if a loan in the system is past due, the guidelines instruct the computer when to impose default-related fees. Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A. also assess other charges and fees against borrowers’ accounts by using “wrap around” software packages that work with the Fidelity MSP system. Based on parameters inputted into these programs, Defendants’ computer systems automatically implement decisions about how to manage borrowers’ accounts based on internal software logic. Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A. assess fees for default-related services on borrowers’ accounts through these systems.
38. The Fidelity MSP software used by Defendants also has a platform called Bankruptcy Work Station (“BWS”) that is purportedly infused with computer logic designed to manage a loans during a pending bankruptcy. Additionally, to manage loans in default, Defendants also use a software program called “FORTRACS.” “FORTRACS automates default management processing, decisioning and documentation of a loan. With fully integrated modules and synchronization of activities, it supports the lender’s credit and collateral risk management through loss mitigation, foreclosure processing, bankruptcy monitoring, claims processing and REO management.”8
MARKED-UP AND UNNECESSARY FEES FOR DEFAULT-RELATED SERVICES
39. In their loan servicing operations, Defendants follow a strategy to generate fraudulently concealed default-related fee income. Rather than simply obtain default-related services directly from independent third-party vendors, and charge borrowers for the actual cost of these services, Defendants assess borrowers’ accounts for services that are unnecessary and they unlawfully add additional, undisclosed profits on to the third party charges before they are assessed on borrowers’ accounts.
40. Defendants’ scheme works as follows. Defendants order default-related services from their subsidiaries and affiliated companies, who, in turn, obtain the services from third-party vendors. The third-party vendors charge Defendants for their services. Defendants, in turn, assess borrowers a fee that is significantly marked-up from the third-party vendors’ actual fees for the services. As a result, even though the mortgage market has collapsed, and more and more borrowers are falling into delinquency, Defendants continue to earn substantial profits by assessing undisclosed, marked-up fees for default-related services on borrowers’ accounts.
41. The mortgage contract between a lender and a borrower generally consists of two documents: the promissory note (“Note”) and the mortgage or deed of trust (“Security Instrument”). The mortgage contacts serviced by Defendants are substantially similar because they conform to the standard Fannie Mae/Freddie Mac form contract. These contracts contain disclosures regarding what occurs if borrowers default on their loans. The Security Instrument discloses to borrowers that, in the event of default, the loan servicer will:
pay for whatever is reasonable or appropriate to protect the note holder’s interest in the property and rights under the security instrument, including protecting and/or assessing the value of the property, and securing and/or repairing the property.
42. The Security Instrument further discloses that any such amounts disbursed by the servicer shall become additional debt of the borrower secured by the Security Instrument and shall bear interest at the Note rate from the date of disbursement. The Note further discloses that the note holder:
will have the right to be paid back by [the borrower] for all of its costs and expenses in enforcing this Note to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys’ fees.
Thus, the mortgage contract discloses to borrowers that the servicer will pay for default-related services when necessary, and will be reimbursed by the borrower. Nowhere is it disclosed to borrowers that the servicer may mark-up the actual cost of those services to make a profit, nor does it permit such fees to be assessed on borrowers’ accounts when they are unnecessary.
43. Broker’s Price Opinions (“BPOs”) are a significant category of default-related service fees that, in furtherance of Defendants’ unlawful enterprises, are assessed on borrowers’ accounts with substantial, undisclosed mark-ups, fraudulently generating revenue in the loan servicing business.
44. As discussed above, by charging marked-up fees for BPOs, Defendants violate the disclosures made to borrowers. Furthermore, the wrongful nature of the marked-up fees is demonstrated by the fact that Defendants conceal the marked-up profits assessed on borrowers’ accounts.
45. Although Defendants assess fees for BPOs on borrowers’ accounts in amounts ranging from approximately $95 to $125, as of December 2010, under Fannie Mae guidelines, the maximum reimbursable rate for an exterior BPO is $80,9 and in practice, the actual cost is much less. According to the National Association of BPO Professionals, the actual cost of a BPO may be as little as $30.10
46. Defendant J.P. Morgan Chase & Co., its subsidiaries, defendant J.P. Morgan Chase Bank, N.A., and defendant Chase Home Finance LLC, their “property preservation” vendors, and the real estate brokers who provide BPOs for Chase, formed an enterprise and devised a scheme to defraud borrowers and obtain money from them by means of false pretenses. Chase Home Finance LLC, and now, its successor, J.P. Morgan Chase Bank, N.A., service approximately 9 million mortgage loans, which is about 12% of the loans in the United States.11
47. According to defendant J.P. Morgan Chase & Co.’s 2010 Annual Report, “[w]hen it becomes likely that a borrower is either unable or unwilling to pay, the Firm obtains a broker’s price opinion of the home based on an exterior-only valuation.”12
48. Plaintiffs are informed and believe, and on that basis, allege that using the enterprise and Defendants’ computerized automated mortgage loan management system, Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A. unlawfully charged and continue to charge marked-up or unnecessary fees for default-related services. Furthermore, to fraudulently conceal their actions and mislead borrowers about the true nature of its actions, Defendants employs a corporate practice that omits true nature of the fees that are being assessed on borrowers’ accounts.
49. Plaintiffs are informed and believe, and on that basis, allege that Defendants conceal these marked-up fees for default-related services on borrowers accounts, by identifying the charges only as “Miscellaneous Fees,” “Corporate Advances,” “Other Fees,” or “Advances” on borrowers’ statements. Under the these categories, Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A. assess fees for BPOs on borrowers’ accounts, charging from $95 to $125, when in fact, on information and belief, the actual cost of each BPO is approximately $50 or less. Plaintiffs are informed and believe, and on that basis, allege that a significant number of these BPOs are ordered by Chase’s Bankruptcy Processing team and Collection Department in San Diego, California.
50. Plaintiffs are informed and believe, and on that basis, allege that under the “Miscellaneous Fees,” “Corporate Advances,” “Other Fees,” or “Advances” categories on borrowers’ statements, Chase also assesses unnecessary fees for property inspections. In order to generate profits from these fees, Chase’s automated loan management system is set up to order property inspections and assess fees against borrowers when they are a certain number of days late on their mortgage, regardless of whether the assessment of such fees is necessary. Although such inspections purportedly are conducted to guard against property loss, Defendants’ practices are designed to ensure that these fees are charged to as many accounts as possible, even if the inspections are unnecessary.
51. When a loan is delinquent, Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A. repeatedly contacts borrowers by telephone and by letter. In these communications, Chase determines whether the property is occupied. Nevertheless, Plaintiffs are informed and believe, and on that basis, allege that guidelines inputted into Chase’s loan management software system automatically trigger property inspections if a loan is past due by a certain number of days. After a borrower’s account is past due by a set number of days, as inputted into the software, Chase’s computer automatically generates a work order for a property inspection without human intervention. Moreover, so long as a borrower’s account is past due by the requisite number of days inputted into the loan management software, Chase’s system automatically continues to order inspections, regardless of whether they are necessary.
52. Plaintiffs are informed and believe, and on that basis, allege that even if the property inspections were properly performed and actually reviewed by someone at the bank, Chase’s continuous assessment of fees for these inspections on borrowers accounts is still improper because of the frequency with which they are performed. If the first inspection report shows that the property is occupied and in good condition, it is unnecessary and inappropriate for Chase’s system to automatically continue to order monthly inspections. Nothing in the reports justifies continued monitoring.
53. In order to further lull borrowers into a sense of trust, conceal Chase’s unlawful fees, and dissuade borrowers from challenging Chase’s unlawful fee assessments, Chase falsely represents on statements provided to borrowers that “Other Fees” and “Advances,” which are charges for BPOs and property inspections, include “amounts allowed by [borrowers’] Note and Security Instrument.”
54. As a result of Chase’s unlawful enterprise, hundreds of thousands of unsuspecting borrowers are cheated out of millions of dollars.
BORROWERS SUFFER HARM AS A RESULT OF DEFENDANTS’ PRACTICES
55. In addition to the direct monetary damages caused to borrowers, in the form of the difference between the actual cost of the services provided and the marked-up fees assessed on borrowers’ accounts, borrowers suffer other, less obvious injuries as a result of the practices described herein.
56. The assessment of these marked-up fees can make it impossible for borrowers to become current on their loan. Charges for default-related services can add hundreds or thousands of dollars to borrowers’ loans over time, driving them further into default.
57. When borrowers get behind on their mortgage, and fees for these default-related services are stacked on to the past-due principal and interest payments, Defendants’ practices make it increasingly difficult for borrowers to ever bring their loan current. Even if borrowers pay the delinquent principal and interest payments, the marked-up fees for default-related services ensure that borrowers stay in default. After paying delinquent principal and interest, although the next payment comes in on time, often through automatic payment deductions from borrowers’ bank accounts, part of the payment is applied to the fees first, so there is not enough to cover the entire monthly payment. This makes that payment late, creating a cascade of more fees, and more arrears, that keeps borrowers in delinquency. By the time borrowers are aware, Defendants are threatening to foreclose unless a huge payment is made, and the weight of these unnecessary fees drops borrowers into a financial abyss.
58. As a result of Defendants’ practices, which force borrowers to move deeper into default, borrowers suffer damage to their credit score. Defendants provide information about borrowers’ payment history to credit reporting companies, including whether they have been late with a payment or missed any payments. By keeping borrowers in default with these practices, Defendants affect whether borrowers can get a loan in the future — and what borrowers’ interest rate will be on such loans.
59. Additionally, as a result of Defendants’ practices, which force borrowers to move deeper into default, borrowers are driven into foreclosure.
PLAINTIFFS’ CLAIMS AGAINST CHASE
60. Plaintiff Ellis is a resident of Los Angeles County, California.
61. Plaintiff Ellis has a mortgage serviced by Chase.
62. A “Mortgage Loan Statement,” dated July 1, 2011, issued to Plaintiff Ellis by defendant Chase included an assessment of $154.24 for “Miscellaneous Fees.” Plaintiff is informed and believes, and on that basis, alleges that these fees included unlawful marked-up and unnecessary fees for default-related services, and that over the history of her loan, her account was assessed numerous other unlawful and unnecessary fees for default-related services. Defendants alone maintain a complete accounting of all fees assessed and paid, and the details of each and every fee assessed and paid cannot be alleged with complete precision without access to Defendants’ records. Nevertheless, Plaintiffs are informed and believe, and on that basis allege, that Plaintiff Ellis paid some or all of the unlawful fees assessed on her account.
63. Plaintiff Schillinger is a resident of Shelby County, Tennessee.
64. Plaintiff Schillinger has a mortgage serviced by Chase.
65. Chase continually assessed fees for default-related services, including property inspections, on the mortgage account of Plaintiff Schillinger, including on October 18, 2011, October 28, 2011, and February 18, 2012. Defendants alone maintain a complete accounting of all fees assessed and paid, and the details of each and every fee assessed and paid cannot be alleged with complete precision without access to Defendants’ records. Nevertheless, Plaintiffs are informed and believe, and on that basis allege, that Plaintiff Schillinger paid some or all of the unlawful fees assessed on his account.
66. Plaintiff Lazar is a resident of Coos County, Oregon.
67. Plaintiff Lazar has a mortgage serviced by Chase.
68. Chase continually assessed fees for default-related services, including property inspections, on the mortgage account of Plaintiff Lazar. On mortgage statements provided to Plaintiff Lazar in 2010 and 2011, these assessments were identified as “Miscellaneous Fees.” Chase sent Plaintiff Lazar an “Acceleration Warning” letter dated June 2, 2011, demanding that Plaintiff Lazar pay Chase $86.80 for “Other Fees,” and $28.00 for “Advances.” The June 2, 2011 letter further stated, “Other Fees and Advances include those amounts allowed by your Note and Security Instrument.”
69. Defendants alone maintain a complete accounting of all fees assessed and paid, and the details of each and every fee assessed and paid cannot be alleged with complete precision without access to Defendants’ records. Nevertheless, Plaintiffs are informed and believe, and on that basis allege, that Plaintiff Lazar paid some or all of the unlawful fees assessed on his account.
STATUTE OF LIMITATIONS
70. Any applicable statutes of limitations have been tolled by Defendants’ knowing and active concealment, denial, and misleading actions, as alleged herein. Plaintiffs and members of the Class, as defined below, were kept ignorant of critical information required for the prosecution of their claims, without any fault or lack of diligence on their part. Plaintiffs and members of the Class could not reasonably have discovered the true nature of the Defendants’ marked-up fee scheme.
71. Defendants are under a continuous duty to disclose to Plaintiffs and members of the classes the true character, quality, and nature of the fees they assess on borrowers’ accounts. Defendants knowingly, affirmatively, and actively concealed the true character, quality, and nature of their assessment of marked-up fees against borrowers’ accounts. Plaintiffs and members of the Class reasonably relied upon Defendants’ knowing, affirmative, and active concealment. Based on the foregoing, Defendants are estopped from relying on any statutes of limitation as a defense in this action.
72. The causes of action alleged herein did or will only accrue upon discovery of the true nature of the charges assessed against borrowers’ accounts, as a result of Defendants’ fraudulent concealment of material facts. Plaintiffs and members of the Class did not discover, and could not have discovered, through the exercise of reasonable diligence, the true nature of the unlawful fees assessed against their accounts.
73. Legal scholars have explained that, as a result of these deceptive practices, it is impossible for borrowers to determine that they are victims of these violations, because “without a true itemization that identifies the nature of each fee, parties cannot verify that a mortgage claim is correctly calculated … the servicer could be overreaching and charging fees that are not permitted by law or by the terms of the contract…. By obscuring the information needed to determine the alleged basis for the charges, servicers thwart effective review of mortgage claims. The system can only function as intended if complete and appropriate disclosures are made.”13
74. Additionally, judges examining similar conduct have found that, “[a]t the heart of the problem is [the loan servicer’s] failure to disclose to its borrowers/debtors, the trustee, or the Court, the nature or amount of fees and charges assessed … [l]ack of disclosure facilitates the injury. Naive borrowers/debtors, trustees and creditors rightly assume that [the loan servicer] is complying with the plain meaning of its notes, mortgages, court orders and confirmed plans. Why would anyone assume otherwise? … How are they to challenge a practice or demand correction of an error they do not know exists.”14
CLASS ACTION ALLEGATIONS
75. Plaintiffs bring this action, on behalf of themselves and all others similarly situated, as a class action under Rule 23 of the Federal Rules of Civil Procedure.
76. The classes Plaintiffs seek to represent (collectively, the “Class”) are defined as follows:
All residents of the United States of America who had a loan serviced by Chase Home Finance LLC at any time, or a loan serviced by J.P. Morgan Chase Bank, N.A. from May 1, 2011 continuing through the date of final disposition of this action, and whose accounts were assessed fees for default-related services, including Broker’s Price Opinions, and inspection fees, at any time, continuing through the date of final disposition of this action (the “Nationwide Subclass”).
All residents of the State of California who had a loan serviced by Chase Home Finance LLC at any time, or a loan serviced by J.P. Morgan Chase Bank, N.A. from May 1, 2011 continuing through the date of final disposition of this action, and whose accounts were assessed fees for default-related services, including Broker’s Price Opinions, and inspection fees, at any time, continuing through the date of final disposition of this action (the “California Subclass”).
77. Plaintiffs reserve the right to amend the Class definitions if discovery and further investigation reveals that the Class should be expanded or otherwise modified.
78. Plaintiffs reserve the right to establish sub-classes as appropriate.
79. This action is brought and properly may be maintained as a class action under the provisions of Federal Rules of Civil Procedure 23(a)(l)-(4) and 23(b)(1), (b)(2) or (b)(3), and satisfies the requirements thereof. As used herein, the term “Class Members” shall mean and refer to the members of the Class.
80. Community of Interest, There is a well-defined community of interest among members of the Class, and the disposition of the claims of these members of the Class in a single action will provide substantial benefits to all parties and to the Court.
81. Numerosity, While the exact number of members of the Class is unknown to Plaintiffs at this time and can only be determined by appropriate discovery, membership in the Class is ascertainable based upon the records maintained by Defendants. At this time, Plaintiffs are informed and believe that the Class includes hundreds of thousands of members. Therefore, the Class is sufficiently numerous that joinder of all members of the Class in a single action is impracticable under Federal Rule of Civil Procedure Rule 23(a)(1), and the resolution of their claims through the procedure of a class action will be of benefit to the parties and the Court.
82. Ascertainablity, Names and addresses of members of the Class are available from Defendants’ records. Notice can be provided to the members of the Class through direct mailing, publication, or otherwise using techniques and a form of notice similar to those customarily used in consumer class actions arising under California state law and federal law.
83. Typicality, Plaintiffs’ claims are typical of the claims of the other members of the Class which they seek to represent under Federal Rule of Civil Procedure 23(a)(3) because each Plaintiff and each member of the Class has been subjected to the same deceptive and improper practices and has been damaged in the same manner thereby.
84. Adequacy, Plaintiffs will fairly and adequately represent and protect the interests of the Class as required by Federal Rule of Civil Procedure Rule 23(a)(4). Plaintiffs are adequate representatives of the Class, because they have no interests which are adverse to the interests of the members of the Class. Plaintiffs are committed to the vigorous prosecution of this action and, to that end, Plaintiffs have retained counsel who are competent and experienced in handling class action litigation on behalf of consumers.
85. Superiority, A class action is superior to all other available methods of the fair and efficient adjudication of the claims asserted in this action under Federal Rule of Civil Procedure 23(b)(3) because:
(a) The expense and burden of individual litigation make it economically unfeasible for members of the Class to seek to redress their claims other than through the procedure of a class action.
(b) If separate actions were brought by individual members of the Class, the resulting duplicity of lawsuits would cause members to seek to redress their claims other than through the procedure of a class action; and
(c) Absent a class action, Defendants likely would retain the benefits of their wrongdoing, and there would be a failure of justice.
86. Common questions of law and fact exist as to the members of the Class, as required by Federal Rule of Civil Procedure 23(a)(2), and predominate over any questions which affect individual members of the Class within the meaning of Federal Rule of Civil Procedure 23(b)(3).
87. The common questions of fact include, but are not limited to, the following:
(a) Whether Defendants engaged in unlawful, unfair, misleading, or deceptive business acts or practices in violation of California Business & Professions Code sections 17200 et seq.;
(b) Whether Defendants’ practice of charging marked-up fees to borrowers, as alleged herein, is illegal;
(c) Whether Defendants were members of, or participants in the conspiracy alleged herein;
(d) Whether Defendants engaged in a pattern or practice of racketeering, as alleged herein;
(e) Whether documents and statements provided to Plaintiffs and members of the Class omitted material facts;
(f) Whether Plaintiffs and members of the class sustained damages, and if so, the appropriate measure of damages; and
(g) Whether Plaintiffs and members of the Class are entitled to an award of reasonable attorneys’ fees, pre-judgment interest, and costs of this suit.
88. In the alternative, this action is certifiable under the provisions of Federal Rule of Civil Procedure 23(b)(1) and/or 23(b)(2) because:
(a) The prosecution of separate actions by individual members of the Class would create a risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for Defendants;
(b) The prosecution of separate actions by individual members of the Class would create a risk of adjudications as to them which would, as a practical matter, be dispositive of the interests of the other members of the Class not parties to the adjudications, or substantially impair or impede their ability to protect their interests; and
(c) Defendants have acted or refused to act on grounds generally applicable to the Class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the Class as a whole and necessitating that any such relief be extended to members of the Class on a mandatory, class-wide basis.
89. Plaintiffs are not aware of any difficulty which will be encountered in the management of this litigation which should preclude its maintenance as a class action
FIRST CAUSE OF ACTION BROUGHT ON BEHALF OF THE CALIFORNIA SUBCLASS
Violation of Unfair Business Practices Act (California Business & Professions Code §§ 17200 et seq.)
90. Plaintiffs incorporate by reference in this cause of action each and every allegation of the preceding paragraphs, with the same force and effect as though fully set forth herein.
91. Plaintiff Ellis brings this cause of action on behalf of herself and the members of the California Subclasses.
92. California Business and Professions Code section 17200 prohibits “any unlawful, unfair or fraudulent business act or practice.” For the reasons described above, Defendants have engaged in unfair, or fraudulent business acts or practices in violation of California Business and Professions Code sections 17200 et seq.
93. In the course and conduct of their loan servicing and collection, Defendants omit a true itemization that identifies the nature of each fee, and they fail to disclose the nature of the charges and fees assessed. Defendants conceal the fact the category identified as “Miscellaneous Fees” reflects marked-up and/or unnecessary fees that were never incurred by Defendants. Relying on Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A., Plaintiff Ellis, and members of the California Subclass believe they are obligated to pay the amounts specified in Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A.’s communications.
94. In truth and in fact, borrowers are not obligated to pay the amounts that have been specified in Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A.’s communications concerning default-related services, such as BPOs. Defendants omit the fact that the amounts they represent as being owed have been marked-up beyond the actual cost of the services, or they are unnecessary, in violation of disclosures in the mortgage contract. Contrary to Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A.’s communications, Defendants are not legally authorized to assess and collect these fees.
95. Defendants’ omissions of material facts, as set forth herein, constitutes an unlawful practice because they violate Title 18 United States Code sections 1341, 1343, and 1962, as well as California Civil Code sections 1572, 1573, 1709, 1710, and 1711, among others, and the common law.
96. Defendants’ omissions of material facts, as set forth herein, also constitute “unfair” business acts and practices within the meaning of California Business and Professions Code sections 17200 et seq., in that Defendants’ conduct was injurious to consumers, offended public policy, and was unethical and unscrupulous. Plaintiff Ellis also asserts a violation of public policy by withholding material facts from consumers. Defendants’ violation of California’s consumer protection and unfair competition laws in California resulted in harm to consumers.
97. There were reasonable alternatives available to Defendants to further Defendants’ legitimate business interests, other than the conduct described herein.
98. California Business and Professions Code section 17200 also prohibits any “fraudulent business act or practice.” Defendants’ concealment of material facts, as set forth above, was false, misleading, or likely to deceive the public within the meaning of California Business and Professions Code section 17200. Defendants’ concealment was made with knowledge of its effect, and was done to induce Plaintiff Ellis and members of the California Subclass to pay the marked-up and/or unnecessary fees for default-related services.
99. Plaintiff Ellis and members of the California Subclass relied on their reasonable expectation that Defendants would comply with the disclosures set forth in the mortgage agreement, Notes, and Security Instruments, and as a result, Plaintiff Ellis and members of the California Subclass relied on Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A.’s disclosures about the fees on their statements, reasonably believing the “Miscellaneous Fees” or “Corporate Advances” to be valid charges that were not unlawfully marked-up and/or unnecessary. Indeed, to lull borrowers into a sense of trust and dissuade them from challenging Defendants’ unlawful fee assessments, Defendants further conceal their scheme by telling borrowers, in statements and other documents from Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A., that such fees are “allowed by [borrowers’] Note and Security Instrument.” Had the true nature of the fees been disclosed to Plaintiff Ellis and the members of the California Subclass, they would have been aware of the mark-ups, or unnecessary nature of the fees, and Plaintiff Ellis and the members of the California Subclass would have disputed the charges and not paid them.
100. Plaintiff Ellis and the members of the California Subclass have been injured in fact and suffered a loss of money or property as a result of Defendants’ fraudulent, unlawful, and unfair business practices. Plaintiff Ellis and the members of the California Subclass would not have paid Defendants’ unlawful fees or they would have challenged the assessment of such fees on their accounts had it not been for Defendants’ concealment of material facts.
101. Defendants have thus engaged in unlawful, unfair, and fraudulent business acts entitling Plaintiff Ellis and the members of the California Subclass to judgment and equitable relief against Defendants, as set forth in the Prayer for Relief.
102. Additionally, under Business and Professions Code section 17203, Plaintiff Ellis and members of the California Subclass seek an order requiring Defendants to immediately cease such acts of unlawful, unfair, and fraudulent business practices, and requiring Defendants to correct their actions.
SECOND CAUSE OF ACTION
Violations of the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C.§ 1962(c))
103. Plaintiffs incorporate by reference in this cause of action each and every allegation of the preceding paragraphs, with the same force and effect as though fully set forth herein.
104. Plaintiffs bring this cause of action on behalf of themselves and the members of the Nationwide Subclass.
THE ENTERPRISE
105. Defendants J.P. Morgan Chase & Co., J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC are each persons within the meaning of Title 18 United States Code section 1961(3).
106. At all relevant times, in violation of Title 18 United States Code section 1962(c), J.P. Morgan Chase & Co., J.P. Morgan Chase Bank, N.A., Chase Home Finance LLC, including their directors, employees, and agents, along with their “property preservation” vendors — including Safeguard Real Estate Properties, LLC d/b/a of Safeguard Properties, LLC, Mortgage Contracting Seivices, LLC, and LPS Field Services, Inc. — and the real estate brokers who provide BPOs for Chase conducted the affairs of an association-in-fact enterprise, as that term is defined in Title 18 United States Code section 1961(4) (the “Chase Enterprise”). The affairs of the Chase Enterprise affected interstate commerce through a pattern of racketeering activity.
107. The Chase Enterprise is an ongoing, continuing group or unit of persons and entities associated together for the common purpose of limiting costs and maximizing profits by fraudulently concealing assessments for unlawfully marked-up and/or unnecessary fees for default-related services on borrowers’ accounts.
108. While the members of the Chase Enterprise participate in and are part of the enterprise, they also have an existence separate and distinct from the enterprise. The Chase Enterprise has a systematic linkage because there are contractual relationships, agreements, financial ties, and coordination of activities between Defendants, the real estate brokers who perform BPOs, and the vendors that perform property inspections.
109. Operating the Chase Enterprise according to policies and procedures developed and established by their executives, J.P. Morgan Chase & Co., and J.P. Morgan Chase Bank, N.A. control and direct the affairs of the Chase Enterprise and use the other members of the Chase Enterprise as instrumentalities to carry out Chase’s fraudulent scheme. These policies and procedures established by Chase’s executives include providing statements that fail to disclose the true nature of the marked-up or unnecessary fees, cryptically identifying default-related service fees as “Miscellaneous Fees,” or “Corporate Advances,” using mortgage loan management software designed to increase the fees assessed on borrowers’ accounts, without consideration for whether the assessment of such fees is necessary, failing to provide borrowers with documentation to support assessments of fees for BPOs, and directing property preservation vendors to conduct services without consideration for whether they are necessary.
THE PREDICATE ACTS
110. Defendants’ systematic schemes to fraudulently conceal assessments of unlawfully marked-up or unnecessary third party fees on the accounts of borrowers who have mortgage loans administered Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A., as described above, was facilitated by the use of the United States Mail and wire. Defendants’ schemes constitute “racketeering activity” within the meaning of Title 18 United States Code section 1961(1), as acts of mail and wire fraud, under Title 18 United States Code sections 1341 and 1343.
111. In violation of Title 18 United States Code sections 1341 and 1343, Defenants utilized the mail and wire in furtherance of their scheme to defraud borrowers whose loans are serviced by Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A. by obtaining money from borrowers using false or fraudulent pretenses.
112. Through the mail and wire, the Chase Enterprise provided mortgage invoices, loan statements, payoff demands, or proofs of claims to borrowers, demanding that borrowers pay fraudulently concealed marked-up or unnecessary fees for default-related services, such as BPOs or property inspections. Defendants also accepted payments and engaged in other correspondence in furtherance of their scheme through the mail and wire.
113. Defendants fraudulently and unlawfully marked-up fees in violation of borrowers’ mortgage agreements because the fees exceed the actual cost of the services, and therefore, they violate the disclosures made to borrowers.
114. The mortgage invoices, loan statements, or proofs of claims provided to borrowers fraudulently concealed the true nature of assessments made on borrowers’ accounts. Using false pretenses, identifying the fees on mortgage invoices, loan statements, or proofs of claims only as “Miscellaneous Fees” or “Corporate Advances” to obtain full payments from borrowers, Defendants disguised the true nature of these fees and omitted the fact that the fees include undisclosed mark-ups or were unnecessary. By omitting and fraudulently concealing the true nature of amounts purportedly owed in communications to borrowers, Defendants made false statements using the Internet, telephone, facsimile, United States mail, and other interstate commercial carriers.
115. Furthermore, to lull borrowers into a sense of trust, conceal Defendants’ unlawful fees, and dissuade borrowers from challenging Defendants’ unlawful fee assessments, Defendants further conceal their scheme from borrowers by telling them, in statements and other documents, that such fees are “allowed by [borrowers’] Note and Security Instrument.”
116. Defendants’ omissions were material to Plaintiffs and the members of the Class. Had Defendants disclosed the true marked-up or unnecessary nature of the fees for default-related services, Plaintiffs would have been aware and would have challenged Defendants’ unlawful fee assessments or they would not have paid them.
117. Each of these acts constituted an act of mail fraud for puiposes of Title 18 United States Code section 1341.
118. Additionally, using the Internet, telephone, and facsimile transmissions to fraudulently communicate false information about these fees to borrowers, to pursue and achieve their fraudulent scheme, Defendants engaged in repeated acts of wire fraud in violation of Title 18 United States Code section 1343.
119. In an effort to pursue their fraudulent scheme, Defendants knowingly fraudulently concealed or omitted material information from Plaintiffs and members of the Class. Defendants’ knowledge that their activities were fraudulent and unlawful is evidenced by, among other things, the fact that they did not disclose the mark-ups or unnecessary nature of the fees in their communications to borrowers.
120. The predicate acts specified above constitute a “pattern of racketeering activity” within the meaning of Title 18 United States Code section 1961(5) in which Defendants have engaged under Title 18 United States Code section 1962(c).
121. All of the predicate acts of racketeering activity described herein are part of the nexus of the affairs and functions of the Chase Enterprise racketeering enterprise. The racketeering acts committed by the Chase Enterprise employed a similar method, were related, with a similar purpose, and they involved similar participants, with a similar impact on the members of the Class. Because this case is brought on behalf of a class of similarly situated borrowers and there are numerous acts of mail and wire fraud that were used to carry out the scheme, it would be impracticable for Plaintiffs to plead all of the details of the scheme with particularity. Plaintiffs cannot plead the precise dates of all of Defendants’ uses of the mail and wire because this information cannot be alleged without access to Defendants’ records.
122. The pattern of racketeering activity is currently ongoing and open-ended, and threatens to continue indefinitely unless this Court enjoins the racketeering activity.
123. Numerous schemes have been completed involving repeated unlawful conduct that by its nature, projects into the future with a threat of repetition.
124. As a direct and proximate result of these violations of Title 18 United States Code sections 1962(c) and (d), Plaintiffs and members of the class have suffered substantial damages. Defendants are liable to Plaintiffs and members of the Class for treble damages, together with all costs of this action, plus reasonable attorney’s fees, as provided under Title 18 United States Code section 1964(c).
THIRD CAUSE OF ACTION
Violation of the Racketeer Influenced and Corrupt Organizations Act, Conspiracy to Violate Title 18 United States Code section 1962(c) (18 U.S.C.§ 1962(d))
125. Plaintiffs incorporate by reference in this cause of action each and every allegation of the preceding paragraphs, with the same force and effect as though fully set forth herein.
126. Plaintiffs bring this cause of action on behalf of themselves and the members of the Nationwide Class.
127. As set forth above, in violation of Title 18 United States Code section 1962(d), defendants J.P. Morgan Chase & Co., J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC conspired to violate the provisions of Title 18 United States Code section 1962(c).
128. As set forth above, J.P. Morgan Chase & Co. and J.P. Morgan Chase Bank, N.A., having directed and controlled the affairs of the Citi Enterprise, were aware of the nature and scope of the enterprise’s unlawful scheme, and they agreed to participate in it.
129. As a direct and proximate result, Plaintiffs and the members of the Nationwide Subclasses have been injured in their business or property by the predicate acts which make up Defendants’ patterns of racketeering activity in that unlawfully marked-up and/or unnecessary fees for default-related services were assessed on their mortgage accounts.
FOURTH CAUSE OF ACTION
Unjust Enrichment
130. Plaintiffs incorporate by reference in this cause of action each and every allegation of the preceding paragraphs, with the same force and effect as though fully set forth herein.
131. Plaintiffs bring this cause of action on behalf of themselves and the members of the Nationwide Subclass.
132. By their wrongful acts and omissions of material facts, Defendants were unjustly enriched at the expense of Plaintiffs and members of the Class.
133. The mortgage contract with borrowers like Plaintiffs and the members of the Class discloses that Defendants will pay for default-related services when necessary, and they will be reimbursed by the borrower. Nowhere in the mortgage contract is it disclosed that Defendants may mark-up the actual cost of those services to make a profit, or that Defendants may incur unnecessary third party fees.
134. Nevertheless, Defendants mark-up the prices charged by vendors, often by 100% or more, and then, without disclosing the mark-up, assess borrowers’ accounts for the higher, marked-up fee so that Defendants can earn a profit. Additionally, Defendants assess such fees on borrowers’ accounts without adequate concern for whether they are necessary.
135. Thus, Plaintiffs and members of the Class were unjustly deprived.
136. Defendants are aware that it is improper to mark-up or assess unnecessary third party fees on borrowers’ accounts for default-related services. Therefore, Defendants fraudulently conceal these fees on borrowers’ accounts, omitting any information about Defendants’ additional profits, by identifying them on mortgage statements only as “Miscellaneous Fees” or “Corporate Advances.”
137. Furthermore, to lull borrowers into a sense of trust, conceal Defendants’ unlawful fees, and dissuade borrowers from challenging Defendants’ unlawful fee assessments, Defendants further conceal their scheme from borrowers by telling them, in statements and other documents, that such fees are “allowed by [borrowers’] Note and Security Instrument.”
138. It would be inequitable and unconscionable for Defendants to retain the profit, benefit and other compensation they obtained from their fraudulent, deceptive, and misleading conduct alleged herein.
139. Plaintiffs and members of the Class seek restitution from Defendants, and seek an order of this Court disgorging all profits, benefits, and other compensation obtained by Defendants from their wrongful conduct.
FIFTH CAUSE OF ACTION
Fraud
140. Plaintiffs incorporate by reference in this cause of action each and every allegation of the preceding paragraphs, with the same force and effect as though fully set forth herein.
141. Plaintiffs bring this cause of action on behalf of themselves and the members of the Nationwide Class.
142. Defendants concealed and suppressed material facts, namely, the fact that Defendants mark-up the prices charged by vendors, often by 100% or more, and then, without disclosing the mark-up, assess borrowers’ accounts for the higher, marked-up fee so that Defendants can earn a profit. In truth and in fact, borrowers are not obligated to pay the amounts that have been specified in Defendants’ communications for default-related services, such as BPOs. Contrary to Defendants’ communications, Defendants are not legally authorized to assess and collect these fees.
143. Defendants omit a true itemization that identifies the nature of each fee, and they fail to disclose the nature of the charges and fees assessed. Defendants conceal the fact the category identified as “Corporate Advances” or “Miscellaneous Fees” reflects marked-up and/or unnecessary fees that were never incurred by Defendants.
144. Plaintiffs relied their reasonable expectation that Defendants comply with the disclosures set forth in the mortgage agreement, Notes, Security Instruments, and as a result, Plaintiffs relied on Defendants’ disclosures about the fees on their statements, reasonably believing the “Corporate Advances” or “Miscellaneous Fees” to be valid charges that were not unlawfully marked-up or unnecessary
145. Indeed, to lull borrowers into a sense of trust and dissuade them from challenging Defendants’ unlawful fee assessments, Defendants further conceal their scheme by telling borrowers, in statements and other documents, that such fees are “allowed by [borrowers’] Note and Security Instrument.”
146. Had the true nature of the fees been disclosed to Plaintiffs and members of the Class, they would have been aware of the mark-ups, or unnecessary nature of the fees, and Plaintiffs would have disputed the charges and not paid them.
147. Defendants knew their concealment and suppression of materials facts was false, misleading, and in violation of the disclosures made to borrowers because the fees exceed the actual cost of the services.
148. As a result of Defendants’ fraudulent omissions and failures to disclose, Plaintiffs and members of the Class have been injured in fact and suffered a loss of money or property. Plaintiffs and members of the Nationwide Class would not have paid Defendants’ fraudulently marked-up fees or they would have challenged the assessment of such fees on their accounts had it not been for Defendants’ concealment of material facts.
149. Defendants omitted and concealed material facts, as discussed above ,with knowledge of the effect of concealing of these material facts. Defendants knew that by misleading consumers, they would generate higher profits.
150. Plaintiffs and members of the Nationwide Class justifiably relied upon Defendants’ knowing, affirmative, and active concealment. By concealing material information about their scheme to assess undisclosed marked-up fees on borrowers’ accounts, Defendants intended to induce Plaintiffs and members of the Nationwide Class into believing that they owed Defendants money that Defendants were not actually entitled.
151. Defendants acted with malice, oppression, or fraud.
152. As a direct and proximate result of Defendants’ omissions and active concealment of material facts, Plaintiffs and each member of the Nationwide Class has been damaged in an amount according to proof at trial.
PRAYER FOR RELIEF
Plaintiffs, and on behalf of themselves and all others similarly situated, request the Court to enter judgment against Defendants, as follows:
1. Certifying the Class, as requested herein, certifying Plaintiffs as the representatives of the Class, and appointing Plaintiffs’ counsel as counsel for the Class;
2. Ordering that Defendants are financially responsible for notifying all members of the Class of the alleged omissions discussed herein;
3. Awarding Plaintiffs and the members of the Class compensatory damages in an amount according to proof at trial;
4. Awarding restitution and disgorgement of Defendants’ revenues or profits to Plaintiffs and members of the Class;
5. Awarding Plaintiffs and the members of the Class treble damages in an amount according to proof at trial;
6. Awarding declaratory and injunctive relief as permitted by law or equity, including: enjoining Defendants from continuing the unlawful practices as set forth herein, and directing Defendants to identify, with Court supervision, victims of its conduct and pay them restitution and disgorgement of all monies acquired by Defendants by means of any act or practice declared by this Court to be wrongful;
7. Ordering Defendants to engage in corrective advertising;
8. Awarding interest on the monies wrongfully obtained from the date of collection through the date of entry of judgment in this action;
9. Awarding attorneys’ fees, expenses, and recoverable costs reasonably incurred in connection with the commencement and prosecution of this action; and
10. For such other and further relief as the Court deems just and proper.
Dated: July 24, 2012
BARON & BUDD, P.C.
By: <<signature>>
Mark Pifko
Daniel Alberstone (SBN 105275)
Roland Tellis (SBN 186269)
Mark Pifko (SBN 228412)
Baron & Budd, P.C.
15910 Ventura Boulevard, Suite 1600
Encino, California 91436
Telephone: (818)839-2333
Facsimile: (818)986-9698
Attorneys for Plaintiffs
DIANA ELLIS, JAMES SCHILLINGER, and RONALD LAZAR individually, and on behalf of other members of the public similarly situated
DEMAND FOR JURY TRIAL
Plaintiffs hereby demand a trial of their claims by jury to the extent authorized by law.
Dated: July 24, 2012
BARON & BUDD, P.C.
By: <<signature>>
Mark Pifko
Daniel Alberstone (SBN 105275)
Roland Tellis (SBN 186269)
Mark Pifko (SBN 228412)
Baron & Budd, P.C.
15910 Ventura Boulevard, Suite 1600
Encino, California 91436
Telephone: (818)839-2333
Facsimile: (818)986-9698
Attorneys for Plaintiffs
DIANA ELLIS, JAMES SCHILLINGER, and RONALD LAZAR, individually, and on behalf of other members of the public similarly situated
Footnotes
1
See Bias et al. v. Wells Fargo & Company et al, N.D. Cal., case no. 4:12-cv-00664-YGR, Order Granting in Part and Denying in Part Motion of Defendants Wells Fargo & Company and Wells Fargo Bank, N.A. to Sever and Transfer, and Severing Claims as to Other Defendants on the Court’s Own Motion, July 13, 2012 (Dkt. No. 59).
2
See Sarah Bloom Raskin, Member Board of Governors of the Federal Reserve System, Remarks at the National Consumer Law Center’s Consumer Rights Litigation Conference, Boston Massachusetts, Nov. 12, 2010, available at http://www.federalreseve.gov/newsevents/speech/raskin20101112a.htm (last visited Jan. 23,2012).
3
In re: Prevo, 394 B.R. 847, 848 (Bankr. S.D. Tex. 2008).
4
Id. at 851 (emphasis added).
5
See Mark Pearce, Director, Division of Depositor and Consumer Protection, Federal Deposit Insurance Corporation, Mortgage Servicing: An Examination of the Role of Federal Regulators in Settlement Negotiations and the Future of Mortgage Servicing Standards, before the Subcommittees on Financial Institutions and Consumer Credit, and Oversight and Investigations Committee on Financial Services, U.S. House of Representatives, July 7, 2011, available at http://financialseivices.house.gov/UploadedFiles/070711pearce.pdf (last visited, Feb. 1, 2012).
6
See Sarah Bloom Raskin, Member Board of Governors of the Federal Reserve System, Remarks at the National Consumer Law Center’s Consumer Rights Litigation Conference, Boston Massachusetts, Nov. 12, 2010, available at http://www.federalreserve.gov/newsevents/speech/raskin20101112a.htm (last visited Jan. 23,2012).
7
See Adam J. Levitin, Robo-Singing, Chain of Title, Loss Mitigation, and Other Issues in Mortgage Servicing, before the House Financial Services Committee, Subcommittee on Housing and Community Opportunity, Nov. 18, 2010, available at http:// financialservices.house.gov/Media/file/hearings/111/Levitin111810.pdf (last visited Feb. 1, 2012).
8
See http://www.isgn.com/Products/Fortracs.htm (last visited Feb. 8, 2012).
9
See Fannie Mae, Broker Price Opinion Providers and Pricing Structure, available at https:// efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/ntce121710a.pdf (last visited Feb. 1, 2012).
10
See National Association of BPO Professionals (NABPOP), Broker Price Opinion — BPO Brief, available at http://www.nabpop.org/Advocacy-BPOBrief-2.php (last visited Feb. 2, 2012).
11
See J.P. Morgan Chase & Co. 2010 Annual Report at p. 39, available at http://files.shareholder.com/downloads/ONE/1653115906x0x458380/ab2612d5-3629-46c6-ad94-5fd3ac68d23b/2010_JPMC_AnnualReport_.pdf (last visited Jan. 24, 2012).
12
See J.P. Morgan Chase & Co. 2010 Annual Report, available at http:// files.shaeholder.com/downloads/ONE/1653115906x0x458380/ab2612d5-3629-46c6-ad94-5fd3ac68d23b/2010_JPMC_AnnualReport_.pdf (last visited Jan. 24, 2012).
13
See Katherine Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims, 87 Tex. L. Rev. 121, 155(2008).
14
See In re: Jones, 418 B.R. 687, 699 (E.D. La. 2009).
2013 WL 2921799
Only the Westlaw citation is currently available.
United States District Court,
N.D. California.
Diana ELLIS, James Schillinger, and Ronald Lazar, individually and on behalf of other members of the general public similarly situated, Plaintiffs,
v.
J.P. MORGAN CHASE & CO., J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC, Defendants.
No. 12–cv–03897–YGR.
June 13, 2013.
Synopsis
Background: Borrowers filed putative class action against lender and mortgage loan servicer alleging fraud, unjust enrichment, and violation of California Business and Professions Code and Racketeer Influenced and Corrupt Organizations Act (RICO) based on defendants’ alleged uniform practice of marking up default-related fees charged by third party vendors, assessing them against borrowers’ accounts, failing to notify borrowers of the mark-ups, and assessing fees for unnecessary services. Defendants moved to dismiss.
Holdings: The District Court, Yvonne Gonzalez Rogers, J., held that:
1 Financial Institutions Supervisory Act (FISA) did not divest court of subject matter jurisdiction over borrowers’ claims;
2 neither judicially-created equitable abstention doctrine nor primary jurisdiction doctrine applied;
3 state law claims were not preempted by National Bank Act (NBA) or its related regulations;
4 borrowers sufficiently alleged injury-in-fact as required for standing;
5 complaint failed to state claim for RICO violation;
6 complaint stated claim for unjust enrichment, notwithstanding written contract; and
7 complaint stated claim for fraud, with sufficient particularity required under federal rule.
Motion granted in part and denied in part.
West Headnotes (32)Collapse West Headnotes
Change View
1Federal Civil Procedure
Although there is no mandatory sequencing of jurisdictional issues, jurisdictional questions ordinarily must precede merits determinations in dispositional orders.
0 Case that cites this headnote
170AFederal Civil Procedure
2Federal Civil Procedure
When subject matter jurisdiction is challenged, the burden of proof is placed on the party asserting that jurisdiction exists. Fed.Rules Civ.Proc.Rule 12(b)(1), 28 U.S.C.A.
0 Case that cites this headnote
170AFederal Civil Procedure
3Federal Civil Procedure
On a motion to dismiss for lack of subject matter jurisdiction, court presumes lack of jurisdiction until plaintiff proves otherwise in response to the motion. Fed.Rules Civ.Proc.Rule 12(b)(1), 28 U.S.C.A.
0 Case that cites this headnote
170AFederal Civil Procedure
4Federal Civil Procedure
A motion to dismiss for lack of subject matter jurisdiction may be either facial or factual; in a “facial attack,” the movant argues that the allegations of a complaint are insufficient to establish federal jurisdiction, while in a “factual attack” or a “speaking motion,” the movant disputes the allegations that would otherwise invoke federal jurisdiction. Fed.Rules Civ.Proc.Rule 12(b)(1), 28 U.S.C.A.
0 Case that cites this headnote
170AFederal Civil Procedure
5Federal Civil Procedure
In resolving a factual attack on subject matter jurisdiction, district court may review evidence beyond the complaint without converting the motion to dismiss into a motion for summary judgment. Fed.Rules Civ.Proc.Rule 12(b)(1), 28 U.S.C.A.
0 Case that cites this headnote
170AFederal Civil Procedure
6Federal Civil Procedure
Court need not presume the truthfulness of a plaintiff’s allegations when resolving a factual attack on subject matter jurisdiction. Fed.Rules Civ.Proc.Rule 12(b)(1), 28 U.S.C.A.
0 Case that cites this headnote
170AFederal Civil Procedure
7Federal Civil Procedure
The existence of disputed material facts in a factual attack on subject matter jurisdiction will not preclude a trial court from evaluating for itself the merits of jurisdictional claims, except where the jurisdictional and substantive issues are so intertwined that the question of jurisdiction is dependent on the resolution of factual issues going to the merits. Fed.Rules Civ.Proc.Rule 12(b)(1), 28 U.S.C.A.
0 Case that cites this headnote
170AFederal Civil Procedure
8Evidence
Facts that may be judicially noticed must be generally known within the trial court’s territorial jurisdiction or can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned. Fed.Rules Evid.Rule 201(b), 28 U.S.C.A.
0 Case that cites this headnote
157Evidence
9Banks and Banking
Section of the Financial Institutions Supervisory Act (FISA) divesting federal courts of jurisdiction to “affect by injunction or otherwise” or “modify” cease-and-desist orders issued by certain federal banking agencies did not divest court of subject matter jurisdiction over borrowers’ putative class action claims against lender and mortgage loan servicer alleging unlawful and unnecessary fees for default-related services, even though defendants had entered into consent order with regulators concerning their foreclosure practices; Act did not seek to prohibit third parties from asserting claims, nor did consent order itself purport to do so, and consent order addressed only defendants’ foreclosure proceedings, not the fraudulent scheme alleged by borrowers. 12 U.S.C.A. § 1818(i).
0 Case that cites this headnote
52Banks and Banking
10Administrative Law and Procedure
The “doctrine of primary jurisdiction” allows a court to stay a proceeding or dismiss a complaint pending the resolution of an issue within the special competence of an administrative agency.
0 Case that cites this headnote
15AAdministrative Law and Procedure
11Administrative Law and Procedure
Primary jurisdiction doctrine, which allows court to stay proceeding or dismiss complaint pending resolution of an issue within the special competence of an administrative agency, applies only if a claim requires resolution of an issue of first impression, or of a particularly complicated issue that Congress has committed to a regulatory agency, and if protection of the integrity of a regulatory scheme dictates preliminary resort to the agency which administers the scheme.
0 Case that cites this headnote
15AAdministrative Law and Procedure
12Administrative Law and Procedure
Although no fixed formula exists for applying the doctrine of primary jurisdiction, which allows court to stay proceeding or dismiss complaint pending resolution of an issue within the special competence of an administrative agency, court generally considers whether: (1) the issue is within the conventional experiences of judges or involves technical or policy considerations within the agency’s particular field of expertise; (2) the issue is particularly within the agency’s discretion; and (3) there exists a substantial danger of inconsistent rulings.
0 Case that cites this headnote
15AAdministrative Law and Procedure
13Administrative Law and Procedure
In applying the doctrine of primary jurisdiction, which allows court to stay proceeding or dismiss complaint pending resolution of an issue within the special competence of an administrative agency, court must balance the parties’ need to resolve the action expeditiously against the benefits of obtaining a federal agency’s expertise on the issue.
0 Case that cites this headnote
15AAdministrative Law and Procedure
14Federal Courts
The judicially-created equitable abstention doctrine gives federal courts discretion to abstain from deciding a claim under California’s Unfair Competition Law (UCL). West’s Ann.Cal.Bus. & Prof.Code § 17200.
0 Case that cites this headnote
170BFederal Courts
15Federal Courts
Underlying the judicially-created equitable abstention doctrine which gives federal courts discretion to abstain from deciding a claim under California’s Unfair Competition Law (UCL) is the rationale that because the remedies available under the UCL, namely injunctions and restitution, are equitable in nature, courts have discretion to abstain from employing them. West’s Ann.Cal.Bus. & Prof.Code § 17200.
0 Case that cites this headnote
170BFederal Courts
16Federal Courts
Abstention under the judicially-created equitable abstention doctrine which gives federal courts discretion to abstain from deciding a claim under California’s Unfair Competition Law (UCL) may be appropriate if: (1) resolving the claim requires determining complex economic policy, which is best handled by the legislature or an administrative agency; (2) granting injunctive relief would be unnecessarily burdensome for the trial court to monitor and enforce given the availability of more effective means of redress; or (3) federal enforcement of the subject law would be more orderly, more effectual, less burdensome to the affected interests. West’s Ann.Cal.Bus. & Prof.Code § 17200.
0 Case that cites this headnote
170BFederal Courts
17Federal Courts
The judicially-created equitable abstention doctrine which gives federal courts discretion to abstain from deciding a claim under California’s Unfair Competition Law (UCL) applies only in rare instances. West’s Ann.Cal.Bus. & Prof.Code § 17200.
0 Case that cites this headnote
170BFederal Courts
18Federal Courts
Neither judicially-created equitable abstention doctrine, which allowed federal court discretion to abstain from deciding a claim under California’s Unfair Competition Law (UCL), nor primary jurisdiction doctrine, which allowed court to stay proceeding pending resolution of issue within special competence of administrative agency, applied to borrowers’ putative class action claims against lender and mortgage loan servicer alleging violation of Racketeer Influenced and Corrupt Organizations Act (RICO), violation of UCL, fraud, and unjust enrichment; the claims involved areas within the conventional experience of the court and, despite defendants’ characterizations that court would be resolving issues under regulatory scheme of the Office of the Comptroller of Currency (OCC), uniformity or consistency would not be threatened by court’s adjudication of the claims. West’s Ann.Cal.Bus. & Prof.Code § 17200.
0 Case that cites this headnote
170BFederal Courts
19Banks and Banking
In analyzing preemption under National Bank Act (NBA), court asks whether state law prevents or significantly interferes with a national bank’s exercise of its powers. 12 U.S.C.A. § 24.
0 Case that cites this headnote
52Banks and Banking
20Banks and Banking
Borrowers’ putative class action claims against lender and mortgage loan servicer for unjust enrichment and unfair business practices under California law, based on defendants’ imposition of allegedly unlawful and unnecessary fees for default-related services, were not preempted by the National Banking Act (NBA) or its related Office of the Comptroller of Currency (OCC) regulations; claims did not invade the exclusive province of the OCC by interfering with bank’s ability to calculate fees, but instead, fell under generally applicable state laws prohibiting activity likely to mislead the public. 12 U.S.C.A. § 24; 12 C.F.R. §§ 7.4002(a), 7.4002(b)(2)(i)–(iv); 12 C.F.R. section 34.4(a); West’s Ann.Cal.Bus. & Prof.Code § 17200.
0 Case that cites this headnote
52Banks and Banking
21Federal Courts
Borrowers, as plaintiffs in putative class action against lender and mortgage loan servicer, sufficiently alleged injury-in-fact, as required to have standing to pursue claims for unjust enrichment and unfair business practices under California law, as well as Racketeer Influenced and Corrupt Organizations Act (RICO) claims, based on defendants’ alleged scheme to impose unlawful and unnecessary fees upon borrowers for default-related services; borrowers claimed they suffered injury-in-fact when they paid some or all of the allegedly unlawful fees assessed on their accounts. U.S.C.A. Const. Art. 3, § 2, cl. 1; West’s Ann.Cal.Bus. & Prof.Code § 17200; 18 U.S.C.A. §§ 1962, 1964(c).
0 Case that cites this headnote
170BFederal Courts
22Racketeer Influenced and Corrupt Organizations
A consumer who has been overcharged can claim “injury to property,” for purposes of establishing standing under Racketeer Influenced and Corrupt Organizations Act (RICO), based on a wrongful deprivation of money, which is a form of property. 18 U.S.C.A. § 1962.
0 Case that cites this headnote
319HRacketeer Influenced and Corrupt Organizations
23Racketeer Influenced and Corrupt Organizations
To state a claim for relief under Racketeer Influenced and Corrupt Organizations Act (RICO), a plaintiff must allege (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. 18 U.S.C.A. § 1962(c).
0 Case that cites this headnote
319HRacketeer Influenced and Corrupt Organizations
24Racketeer Influenced and Corrupt Organizations
When a plaintiff alleges a unified course of fraudulent conduct under Racketeer Influenced and Corrupt Organizations Act (RICO) and relies entirely on that course of conduct as the basis of a claim, the claim is said to be grounded in fraud or to sound in fraud, and the pleading of that claim as a whole must satisfy the particularity requirement of federal rule for pleading fraud. 18 U.S.C.A. § 1962(c); Fed.Rules Civ.Proc.Rule 9(b), 28 U.S.C.A.
0 Case that cites this headnote
319HRacketeer Influenced and Corrupt Organizations
25Racketeer Influenced and Corrupt Organizations
Under Racketeer Influenced and Corrupt Organizations Act (RICO), to sufficiently allege conduct by “any person employed by or associated with any enterprise,” plaintiff must allege two distinct entities: a “person” and an “enterprise” that is not simply the same “person” referred to by a different name. 18 U.S.C.A. § 1962(c).
0 Case that cites this headnote
319HRacketeer Influenced and Corrupt Organizations
26Racketeer Influenced and Corrupt Organizations
An “associated-in-fact enterprise,” for purposes of Racketeer Influenced and Corrupt Organizations Act (RICO), is a group of persons associated together for a common purpose of engaging in a course of conduct. 18 U.S.C.A. § 1962(c).
0 Case that cites this headnote
319HRacketeer Influenced and Corrupt Organizations
27Racketeer Influenced and Corrupt Organizations
To constitute an “association-in-fact enterprise” under Racketeer Influenced and Corrupt Organizations Act (RICO), there must be: (1) a common purpose of engaging in a course of conduct; (2) evidence of an ongoing organization, formal or informal; and (3) evidence that the various associates function as a continuing unit. 18 U.S.C.A. § 1962(c).
0 Case that cites this headnote
319HRacketeer Influenced and Corrupt Organizations
28Racketeer Influenced and Corrupt Organizations
Borrowers failed to state Racketeer Influenced and Corrupt Organizations Act (RICO) claim against lender and mortgage loan servicer, since complaint failed to sufficiently allege an association-in-fact enterprise consisting of any entity other than lender’s subsidiaries or affiliates, or that defendants engaged in enterprise conduct for a common purpose distinct from their own affairs. 18 U.S.C.A. § 1962(c).
0 Case that cites this headnote
319HRacketeer Influenced and Corrupt Organizations
29Racketeer Influenced and Corrupt Organizations
The failure to adequately plead a substantive violation of Racketeer Influenced and Corrupt Organizations Act (RICO) precludes a claim for RICO conspiracy. 18 U.S.C.A. § 1962(d).
0 Case that cites this headnote
319HRacketeer Influenced and Corrupt Organizations
30Implied and Constructive Contracts
Under California law, the required elements of a claim for unjust enrichment are the receipt of a benefit and unjust retention of the benefit at the expense of another.
0 Case that cites this headnote
205HImplied and Constructive Contracts
31Implied and Constructive Contracts
Borrowers stated claim in putative class action against lender and mortgage loan servicer for unjust enrichment, under California law, by alleging that defendants had collected and retained excessive and unnecessary fees from borrowers related to loan default services; even though written mortgage agreements with borrowers allegedly addressed the imposition of the fees, it was premature, on motion to dismiss, for court to determine whether the contracts precluded borrowers’ claims.
0 Case that cites this headnote
205HImplied and Constructive Contracts
32Fraud
Borrowers stated claim for fraud, with sufficient particularity required under federal rule, in putative nationwide class action against lender and mortgage loan servicer, by alleging numerous instances where defendants charged borrowers marked-up fees for default-related services, including the specific dates of statements borrowers had received, and that defendants had failed to disclose material information that the amounts demanded on mortgage statements were false, because amounts did not correspond to actual figures outlined in mortgage agreements. Fed.Rules Civ.Proc.Rule 9(b), 28 U.S.C.A.
0 Case that cites this headnote
184Fraud
Attorneys and Law Firms
Mark Philip Pifko, Daniel Alberstone, Roland K. Tellis, Baron Budd, P.C., Encino, CA, for Plaintiffs.
Peter Obstler, John Anthony Polito, Zachary J. Alinder, Bingham McCutchen, LLP, San Francisco, CA, for Defendants.
Opinion
Order Granting in Part and Denying in Part Defendants’ Motion to Dismiss
YVONNE GONZALEZ ROGERS, District Judge.
*1 Named Plaintiffs Diana Ellis, James Schillinger, and Ronald Lazar filed a Class Action Complaint against Defendants J.P. Morgan Chase & Co., J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC (collectively, “Chase” or “Defendants”). (Dkt. No. 1.) Plaintiffs allege Chase engaged in fraudulent practices by charging marked-up or unnecessary fees in connection with Defendants’ home mortgage loan servicing businesses. This action was filed separately as to these Defendants pursuant to a previous order of the Court. (See Bias, et al. v. Wells Fargo & Co., et al., Case No. 12–cv–00664–YGR [Dkt. No. 59].)
Defendants filed a Motion to Dismiss Plaintiffs’ Complaint Pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6) on August 21, 2012, seeking dismissal of the Complaint with prejudice. (Dkt. No. 6.) On September 4, 2012, Plaintiffs filed their Opposition to the Chase Defendants’ Motion to Dismiss Plaintiffs’ Complaint Pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). (Dkt. No. 11.) Chase filed their Reply in Support of Motion to Dismiss Complaint on September 11, 2012. (Dkt. No. 14.) The Court held oral argument on November 6, 2012. (Dkt. No. 21.)
Having carefully considered the papers submitted and the pleadings in this action, oral argument at the hearing held on November 6, 2012, and for the reasons set forth below, Defendants’ Motion to Dismiss:
• Is Denied based on a lack of subject matter jurisdiction pursuant to 12 U.S.C. section 1818(i) of the National Bank Act;
• Is Denied based on the doctrines of primary jurisdiction and equitable abstention;
• Is Denied based on preemption by the National Bank Act;
• Is Denied based on a lack of standing under Article III, the California Business and Professions Code section 17200, et seq., and the Racketeer Influenced and Corrupt Organizations Act (“RICO”);
• Is Granted as to the second and third claims for violations of RICO and conspiracy to violate RICO With Leave to Amend; and
• Is Denied as to the fourth and fifth claims for unjust enrichment and fraud, respectively.
I. Factual and Procedural Background
Plaintiffs allege that Defendants have engaged and continue to engage in fraudulent practices in connection with their home mortgage loan servicing business.1 (Compl.¶ 2.) Defendants allegedly adopted a uniform practice designed to maximize fees assessed on delinquent borrowers’ accounts. (Id. ¶ ¶ 2–4.) As part of the scheme, Defendants “formed an enterprise with their respective subsidiaries, affiliates, and ‘property preservation’ vendors, … unlawfully mark[ed] up default-related fees charged by third parties[,] and assess[ed] them against borrowers’ accounts” for an undisclosed profit. (Id. ¶ 9.) Specifically, “Defendants order[ed] default-related services from their subsidiaries and affiliated companies, who, in turn, obtain[ed] the services from third-party vendors.” (Id. ¶ 40 .) The third-party vendors charged Defendants for their services, but Defendants “assess[ed] borrowers a fee that [wa]s significantly marked-up from the third-party vendors’ actual fees for the services .” (Id.) Through the unlawful enterprise, Defendants marked-up fees charged by vendors, “often by 100% or more,” and failed to disclose the mark-ups and hidden profits to borrowers. (Id. ¶ 4.)
*2 In addition to marked-up fees, Defendants had a “practice of routinely assessing fees … even when they [we]re unnecessary.” (Compl.¶ 4.) Plaintiffs allege that: “even if the property inspections were properly performed and actually reviewed by someone at the bank, Chase’s continuous assessment of fees for these inspections on borrowers accounts [sic ] [wa]s still improper because of the frequency with which they [we]re performed. If the first inspection report show[ed] that the property [wa]s occupied and in good condition, it [would be] unnecessary and inappropriate for Chase’s system to automatically continue to order monthly inspections. Nothing in the reports justifie[d] continued monitoring.” (Id. ¶ 52.)
Plaintiffs allege that their mortgage contracts disclosed that Defendants will pay for default-related services when necessary, which would be reimbursed by borrowers, but “[n]owhere [wa]s it disclosed to borrowers that the servicer may mark-up the actual cost of those services to make a profit, nor d[id] it permit such fees to be assessed on borrowers’ accounts when they [we]re unnecessary.” (Compl.¶ 42.) Defendants identified the marked-up fees as “Miscellaneous Fees,” “Corporate Advances,” “Other Fees,” or “Advances” on mortgage statements. (Id. ¶¶ 10, 49 & 50.) Plaintiffs allege that the marked-up fees included Broker’s Price Opinion fees (“BPOs”), appraisal fees, and inspection fees. (Id. ¶¶ 30, 43–45, 49–50 & 52.) A “significant number” of BPOs were “ordered by Chase’s Bankruptcy Processing team and Collection Department in San Diego, California.” (Id. ¶ 49.)
Plaintiffs also allege that Defendants used a sophisticated home loan management program provided by Fidelity National Information System, Inc. called Mortgage Servicing Package (the “Program”). (Compl.¶¶ 36.) The Program “automatically implement[ed] decisions about how to manage borrowers’ accounts based on internal software logic” and imposed the default-related fees when a loan was past due. (Id. ¶ 37.) The parameters and guidelines for the Program were inputted by Defendants and “designed by the executives” at J.P. Morgan Chase & Company and J.P. Morgan Chase Bank, N.A. (Id. ¶¶ 35–37.) “Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A. assess[ed] fees for default-related services on borrowers accounts through these systems.” (Id. ¶ 37.) In addition, Plaintiffs allege that Defendants use a “Bankruptcy Work Station” platform “infused with computer logic to manage a loans [sic ] during pending bankruptcy” and a program called “FORTRACS” which “automate[d] default management processing, decisionmaking and documentation of a loan.” (Id. ¶ 38.)
The Complaint alleges “Chase” serviced the mortgages. (Compl. ¶¶ 61, 64 & 67.) As to Plaintiff Diana Ellis, Chase assessed $154.24 for “Miscellaneous Fees” on a July 1, 2011 Mortgage Loan Statement. (Id. ¶ 62.) Plaintiff Ellis alleges this fee was marked-up and unnecessary, and that “over the history of her loan, her account was assessed numerous other unlawful and unnecessary fees for default-related services.” (Id.) Plaintiff Ellis alleges on information and belief that she “paid some or all of the unlawful fees assessed on her account.” (Id.) As to Plaintiff James Schillinger, Chase continually assessed fees for default-related services, including property inspections, on his account. (Id. ¶ 65.) He alleges such fees were charged on dates including October 18, 2011, October 28, 2011, and February 18, 2012. Plaintiff Schillinger alleges that he “paid some or all of the unlawful fees assessed on his account.” (Id.) As to Plaintiff Ronald Lazar, Chase continually assessed fees, including fees for property inspections, on his account in 2010 and 2011. (Id. ¶ 68.) The fees were identified as “Miscellaneous Fees.” (Id.) In addition, Chase sent Plaintiff Lazar an “Acceleration Warning” dated June 2, 2011, in which it demanded he pay $86.80 in “Other Fees” and $28.00 in “Advances.” The Acceleration Warning letter stated that “Other Fees and Advances include those amounts allowed by your Note and Security Instrument.” (Id.) Plaintiff Lazar alleges that he “paid some or all of the unlawful fees assessed on his account. (Id. ¶ 69.) As to each Plaintiff, they allege they cannot provide details of each and every fee assessed because Defendants maintain the complete accounting. (Id. ¶¶ 62, 65 & 69.)
*3 Plaintiffs allege that “Defendants are under a continuous duty to disclose to [them and class members] the true character, quality, and nature of the fees they assess on borrowers’ accounts.” (Compl .¶ 71.) Chase “actively concealed the true character … of the[ ] assessment of marked-up fees against borrowers’ accounts” and borrowers “reasonably relied upon Defendants’ knowing, affirmative, and active concealment.” (Id.) In addition, Chase “falsely represent[ed] on statements provided to borrowers that ‘Other Fees’ and ‘Advances,’ which are charges for BPOs and property inspections, include ‘amounts allowed by [borrowers’] Note and Security Instrument.’ “ (Id. ¶ 53 (first alteration supplied).)
With respect to damages, borrowers allege harm resulting from: (i) charges for default-related services accumulated over time such that borrowers were driven further into default and/or ensured to stay in default; (ii) damage to credit scores; (iii) the inability to obtain favorable interest rates on future loans because of their default; and (iv) in some cases, foreclosure. (Compl.¶¶ 55–59.)
On the basis of the allegations summarized above, Plaintiffs bring this action on behalf of two sub-classes. The first sub-class is a nationwide class consisting of:
All residents of the United States of America who had a loan serviced by Chase Home Finance LLC at any time, or a loan serviced by J.P. Morgan Chase Bank, N.A. from May 1, 2011 continuing through the date of final disposition of this action, and whose accounts were assessed fees for default-related services, including Broker’s Price Opinions, and inspection fees, at any time, continuing through the date of final disposition of this action.
(Compl. ¶ 76 [the “Nationwide Sub–Class”].) The second sub-class consists of:
All residents of the State of California who had a loan serviced by Chase Home Finance LLC at any time, or a loan serviced by J.P. Morgan Chase Bank, N.A. from May 1, 2011 continuing through the date of final disposition of this action, and whose accounts were assessed fees for default-related services, including Broker’s Price Opinions, and inspection fees, at any time, continuing through the date of final disposition of this action.
(Id. ¶ 76 [the “California Sub–Class”].)
The Complaint alleges five claims: first, a violation of California Business and Professions Code section 17200, et seq. (“UCL” or “Section 17200”) based on the allegedly unlawful, unfair, and fraudulent business practices summarized above.2 (Compl.¶¶ 90–102.) Specifically, Defendants omitted a true itemization that identified the nature of each fee and “conceal[ed] the fact the category identified as ‘Miscellaneous Fees’ reflect[ed] marked-up and/or unnecessary fees that were never incurred by Defendants.” (Id. ¶ 93.) Plaintiff Ellis and California borrowers reasonably relied on Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A. and believed the charges were valid and that they were obligated to pay the amounts specified in communications with those Defendants. (Id. ¶¶ 93 & 99.) The failure to disclose the fact that the purportedly owed amounts had been marked-up or that they were unnecessary violated the disclosures in the mortgage agreements. (Id. ¶ 94.) In addition, Defendants lulled borrowers into a sense of trust and dissuaded them from challenging the unlawful fees by telling them “in statements and other documents from Chase Home Finance LLC and J.P. Morgan Chase Bank, N.A., that such fees are ‘allowed by [borrowers’] Note and Security Instrument.’ “ (Id. ¶ 99 (alteration in original).) Plaintiff Ellis alleges that had she known the true nature of the mark-ups or unnecessary fees, she would have disputed them and not paid them. (Id. ¶ 99.)
*4 Plaintiffs’ second claim alleges a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. section 1962(c). (Compl.¶¶ 103–124.) The alleged “enterprise” consisted of: (i) J.P. Morgan Chase & Company, J.P. Morgan Chase Bank, N.A., and Chase Home Finance LLC, including their directors, employees, and agents; (ii) their subsidiaries, affiliated companies, and intercompany divisions; and (iii) their “property preservation” vendors3 and their real estate brokers who provide BPOs. (Id. ¶¶ 2, 4, 9, 33, 46 & 106.) This “association-in-fact” enterprise is an “ongoing, continuing group … of persons and entities associated together for the common purpose of limiting costs and maximizing profits by fraudulently concealing assessments for unlawfully marked-up and/or unnecessary fees for default-related services on borrowers’ accounts.” (Id. ¶ 107; see id. ¶ 46.) The enterprise members—while “systematic[ally] link[ed]” through contractual and financial ties—act according to policies established by Chase executives but also “have an existence separate and distinct from the enterprise.” (Compl.¶¶ 108–109.) Plaintiffs allege that Defendants’ scheme constituted “racketeering activity” based on acts of mail and wire fraud (18 U.S.C. sections 1341 and 1343), through which the enterprise “provided mortgage invoices, loan statements, payoff demands, or proofs of claims to borrowers, demanding that borrowers pay fraudulently concealed marked-up or unnecessary fees for default-related services, such as BPOs or property inspections.” (Id. ¶¶ 110–112.) Defendants made “false statements” using the mail and wires, including telling borrowers in statement and other documents that the fees were “allowed by [their] Note[s] and Security Instrument[s].” (Id. ¶¶ 114–115.) Defendants also accepted payments through the mail and wires. (Id. ¶ 112.) Plaintiffs seek treble damages under RICO.
Plaintiffs’ third claim alleges a conspiracy to violate RICO. (Compl.¶¶ 125–129.) Defendants allegedly conspired to violate RICO as summarized above, were aware of the nature and scope of the enterprise’s unlawful scheme, and agreed to participate in said scheme. Plaintiffs’ fourth claim alleges that Defendants have been unjustly enriched by their wrongful acts and omissions of material fact. (Id. ¶¶ 130–139.) Plaintiffs seek restitution and an order disgorging all profits obtained by Defendants. (Id. ¶ 139.) Plaintiffs’ fifth claim alleges fraud as summarized above. (Id. ¶¶ 140–152.)
In the pending Motion, Defendants make five primary arguments. (Mot. at 1.) First, this Court lacks subject matter jurisdiction of this action pursuant to 12 U.S.C. section 1818(i) of the National Bank Act based on a consent order entered between J.P. Morgan Chase Bank, N.A. and the United States Department of Treasury’s Office of the Comptroller of Currency (“OCC”) on April 13, 2011 (“Consent Order”). Second, the Court should abstain from taking jurisdiction under the doctrines of primary jurisdiction and/or equitable abstention. Third, Plaintiffs’ claims are preempted by the National Bank Act. Fourth, Plaintiffs lack standing because they have not suffered injury-in-fact. Fifth, Plaintiffs fail to state a claim upon which relief can be granted. Defendant J.P. Morgan Chase & Co. also seeks dismissal because it is a non-operating holding corporation that “could not conceivably have taken any action ascribed to ‘Chase’ or the ‘Chase Enterprise.’ “ (Mot. at 25.)
*5 Plaintiffs oppose all of these arguments and request leave to amend if the Court dismisses any claim. The Court addresses each claim in turn.
II. Jurisdictional Arguments Under Fed.R.Civ.P. 12(b)(1)
1 Both Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) are raised in this Motion. Although there is no mandatory “sequencing of jurisdictional issues,” jurisdictional questions ordinarily must precede merits determinations in dispositional order. Sinochem Int’l. Co. Ltd. v. Malaysia Int’l Shipping Corp., 549 U.S. 422, 431, 127 S.Ct. 1184, 167 L.Ed.2d 15 (2007) (citing Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 584, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999)). The Court therefore proceeds first with its jurisdictional analysis of the pending Motion under Rule 12(b)(1). Those issues include the first three of Defendants’ five arguments referenced above, namely whether: (1) 12 U.S.C. section 1818(i) divests this Court of subject matter jurisdiction; (2) the Court should abstain from taking jurisdiction under the doctrines of primary jurisdiction and/or equitable abstention; and (3) Plaintiffs’ claims are preempted by the National Bank Act. Although Defendants argue Plaintiffs’ lack of standing under both Rules 12(b)(1) and 12(b)(6), the Court will address standing in the Rule 12(b)(6) portion of this Order.
A. Legal Standard Under Fed.R.Civ.P. 12(b)(1)
23 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) tests the subject matter jurisdiction of the Court. See, e.g., Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039–40 (9th Cir.2003), cert. denied, 541 U.S. 1009, 124 S.Ct. 2067, 158 L.Ed.2d 618 (2004). When subject matter jurisdiction is challenged, the burden of proof is placed on the party asserting that jurisdiction exists. Scott v. Breeland, 792 F.2d 925, 927 (9th Cir.1986) (holding that “the party seeking to invoke the court’s jurisdiction bears the burden of establishing that jurisdiction exists”). Accordingly, the court will presume lack of subject matter jurisdiction until the plaintiff proves otherwise in response to the motion to dismiss. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 376–78, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994).
4567 Motions under Rule 12(b)(1) may be either “facial” or “factual .” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir.2004) (citing White v. Lee, 227 F.3d 1214, 1242 (9th Cir.2000)). In a facial attack, the movant argues that the allegations of a complaint are insufficient to establish federal jurisdiction. Id. By contrast, a factual attack or “speaking motion” disputes the allegations that would otherwise invoke federal jurisdiction. Id. In resolving a factual attack, district courts may review evidence beyond the complaint without converting the motion to dismiss into a motion for summary judgment. Id. (citing Savage, 343 F.3d at 1039 n. 2). Courts consequently need not presume the truthfulness of a plaintiff’s allegations in such instances. Id. (citing White, 227 F.3d at 1242). Indeed, “[o]nce the moving party has converted a motion to dismiss into a factual motion by presenting affidavits or other evidence properly before the court, the party opposing the motion must furnish affidavits or other evidence necessary to satisfy its burden of establishing subject matter jurisdiction.” Id. (quoting Savage, 343 F.3d at 1039 n. 2). Further, the existence of disputed material facts will not preclude a trial court from evaluating for itself the merits of jurisdictional claims, except where the jurisdictional and substantive issues are so intertwined that the question of jurisdiction is dependent on the resolution of factual issues going to the merits. Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir.1983) (citing Thornhill Publ’g Co. v. Gen. Tel. Corp., 594 F.2d 730, 733–35 (9th Cir.1979)).
*6 The Court treats Defendants’ Motion as a factual attack on subject matter jurisdiction and therefore considers all admissible evidence in the record.
B. Request for Judicial Notice
8 Fed.R.Evid. 201 allows a court to take judicial notice of “matters of public record,” but not facts that may be subject to a reasonable dispute. Lee v. City of Los Angeles, 250 F.3d 668, 689–90 (9th Cir.2001). Facts that may be judicially noticed must be “generally known within the trial court’s territorial jurisdiction” or “can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201(b).
The parties have filed numerous requests for judicial notice (“RJN”) in connection with this Motion. Defendants seek judicial notice of eight documents in support of their Motion based on Fed.R.Evid. 201(b). (Defendants’ Request for Judicial Notice in Support of Motion to Dismiss Complaint [Dkt. No. 7] [“Motion RJN”].)4
Defendants seek judicial notice of four additional documents with their Reply based on Fed.R.Evid. 201. (Defendants’ Request for Judicial Notice in Support of Reply in Support of Motion to Dismiss Complaint [Dkt. No. 15] [“Reply RJN”].) Defendants contend these documents consist of administrative publications available on government websites and/or are opinions or pleadings capable of accurate and ready determination by resort to official court files.5
Plaintiffs seek judicial notice of three exhibits in conjunction with their Opposition based on Fed.R.Evid. 201. (Declaration of Roland Tellis in Support of Plaintiffs’ Opposition to Chase Defendants’ Motion to Dismiss Plaintiffs’ Complaint Pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6) [Dkt. No. 11–1] [“Opposition RJN”].)6 Each document is publicly-available.
No objections to the above RJNs were filed with the Court, nor did the parties raise any objection at oral argument when asked by the Court. Finally, pursuant to an Order of this Court, the parties have filed a Joint Stipulation for Submission and Judicial Notice of Supplemental Exhibit. (Dkt. No. 30.) Exhibit A is the Amendment to April 13, 2011 Consent Order, dated February 28, 2013.
It does not appear to the Court that, with regard to certain exhibits, the parties have meaningfully attempted to explain what facts are subject to judicial notice. Fed.R.Evid. 201(b). Moreover, the Court does not believe that all of the documents filed by the parties are necessary to the Court’s determination on this Motion. However, based on the lack of objection by the parties, the Court Grants judicial notice of the requested documents for determination of this Motion to the extent that the documents consist of court documents, OCC orders or stipulations, or formal publications of the OCC. The Court takes judicial notice of the fact that other documents are publicly-available in the form presented to the Court, but not of any “facts” therein unless otherwise specified by this Order.
C. First Jurisdictional Argument: Applicability of 12 U.S.C. Section 1818(i) (“Section 1818(i)”)
*7 Defendants argue that Section 1818(i) divests this Court of subject matter jurisdiction because the conduct alleged and relief sought is “subsumed, regulated, and governed entirely by the Consent Order.” (Mot. at 2.)
i. Scope of the Consent Order
On April 13, 2011, J.P. Morgan Chase Bank, N.A. consented to the issuance of a Consent Cease and Desist Order by the OCC. (Motion RJN, Ex. A (Consent Order).) The Consent Order issued after an “interagency horizontal review of major residential mortgage servicers” and “examination of the residential real estate mortgage foreclosure processes of JPMorgan Chase Bank, N.A., … (‘Bank’).” Consent Order at 1.7 The OCC “identified certain deficiencies and unsafe or unsound practices in residential mortgage servicing and in the Bank’s initiation and handling or foreclosure proceedings.” Id. The “unsafe and unsound banking practices” identified by the OCC were found to have been “[i]n connection with certain foreclosures of loans in [the Bank’s] residential mortgage servicing portfolio.” Id., Art. I §§ 2–3. Without admitting or denying the OCC’s findings, the Bank “committed to taking all necessary and appropriate steps to remedy the deficiencies and unsafe or unsound practices identified by the OCC, and to enhance the Bank’s residential mortgage servicing and foreclosure processes.” Id. at 1–2. The Consent Order stated that it was intended to and shall be construed as a “final order issued pursuant to 12 U.S.C. [section] 1818(b).” Id., Art. XIII § 8.
The Bank agreed to submit to the OCC a comprehensive action plan describing actions necessary to achieve compliance with the Consent Order. Consent Order, Art. III § 1. Once accepted by the OCC, the Bank was prohibited from “tak [ing] any action that would constitute a significant deviation from, or material change to, the requirements of the Action Plan or [the Consent Order], unless and until the Bank [receives] a prior written determination of no supervisory objection from the Deputy Comptroller.” Id. The Action Plan sought to “achieve[ ] and maintain[ ] effective mortgage servicing, foreclosure, and loss mitigation activities …, as well as associated risk management, compliance, quality control, audit, training, staffing, and related functions.” Id., Art. III § 2 (defining “loss mitigation” to include “activities related to special forbearances, modifications, short refinances, short sales, cash-for-keys, and deeds-in-lieu of foreclosure”).
Among other things, the Bank agreed to implement a Compliance Program to ensure that mortgage servicing and foreclosure operations, including loss mitigation (as defined above) and loan modification, complied with all legal requirements, OCC supervisory guidance, and requirements of the Consent Order. Id., Art. IV § 1. The Consent Order explicitly required that the Compliance Program include, among other things: (i) policies and procedures to conduct, oversee, and monitor mortgage servicing, loss mitigation, and foreclosure operations; (ii) processes to ensure that the Bank has properly documented ownership of the promissory note and mortgage or deed of trust at all stages of foreclosure and bankruptcy litigation, and that all affidavits filed in foreclosure proceedings are properly executed and notarized; (iii) “processes to ensure that all fees, expenses, and other charges imposed on the borrower are assessed in accordance with the terms of the underlying mortgage note, mortgage, or other customer authorization with respect to the imposition of fees, charges, and expenses, and in compliance with all applicable Legal Requirements and OCC supervisory guidance”; and (iv) ongoing testing for compliance with applicable legal requirements and OCC supervisory guidance. Id., Art. IV § 1(a)-(q). Additional policies were to be adopted by the Bank regarding “outsourcing foreclosure or related functions, including Loss Mitigation and loan modification, and property management functions for residential real estate acquired through or in lieu of foreclosure” to third-party agents, contractors, or consulting or law firms. Id., Art. V § 1.
*8 Article VII of the Consent Order (entitled Foreclosure Review) further required the Bank to retain an independent consultant to conduct an independent review of certain residential foreclosure actions or proceedings. Recently, the OCC and Bank agreed to modifications to the Consent Order, resulting in the Amendment to April 13, 2011 Consent Order. (Dkt. No. 30–1 [“Amendment”] at 1.) Specifically, the Amendment superseded Article VII of the previous Consent Order relating to the Foreclosure Review.8 The Amendment recognized that the prior order “required the Bank … to retain an independent consultant (the ‘IC’) to conduct an independent review of certain residential mortgage loan foreclosure actions or proceedings for borrowers who had a pending or completed foreclosure on their primary residence any time from January 1, 2009 to December 21, 2010 (the ‘In–Scope Borrower Population’), the purposes of which were set forth in paragraph 3 of Article VII of the 2011 Consent Order (the ‘Independent Foreclosure Review’).”9 Amendment at 1–2. The Amendment acknowledged that the Bank had taken steps to comply with their obligations under Article VII of the Consent Order. Id. at 2.10
Under the Amendment, the Bank agreed to: (i) make a cash payment to a qualified settlement fund for distribution to the In–Scope Borrower Population in accordance with a distribution plan developed by the OCC and the Board of Governors of the Federal Reserve System in their discretion11; and (ii) take other loss mitigation and other foreclosure prevention actions.12 Amendment at 2. “[T]he amount of any payments to borrowers made pursuant to th[e] Amendment to the Consent Order do[es] not in any manner reflect specific financial injury or harm that may have been suffered by borrowers receiving payments, except as expressly provided for in th[e] Amendment to the Consent Order, nor do the payments constitute either an admission or a denial by the Bank of any wrongdoing or a civil money penalty under 12 U.S.C. [section] 1818(i).” Amendment at 2–3; see id., Art. V § 1 (OCC agreed not to initiate further enforcement actions against Bank and subsidiaries with respect to findings in Article I of Consent Order, the matters addressed in Article VII of the Consent Order (Foreclosure Review), and “any other past mortgage servicing or foreclosure-related practices that are addressed by the 2011 Consent Order through the execution date of this Amendment to the Consent Order”).
As to the above-referenced payments by the Bank, the Amendment explicitly states that:
In no event shall the Bank request or require any borrower to execute a waiver of any claims against the Bank (including any agent of the Bank) in connection with any payment or Foreclosure Prevention assistance pursuant to this Amendment to the Consent Order. However, nothing herein shall operate to bar the Bank from asserting in the future in any separate litigation, or as part of a settlement related to the Bank’s foreclosure and servicing practices, any right that may exist under applicable law to offset the amounts received by a borrower through the distribution process set forth above. Nothing herein shall operate to amend or modify in any respect any preexisting settlement between the Bank or an affiliate thereof and a borrower in the In–Scope Borrower Population.
*9 Amendment, Art. V § 3.
ii. Jurisdictional Framework Under Section 1818(i)
Section 1818(i)(1) of Title 12 of the United States Code provides in full:
The appropriate Federal banking agency may in its discretion apply to the United States district court, or the United States court of any territory, within the jurisdiction of which the home office of the depository institution is located, for the enforcement of any effective and outstanding notice or order issued under this section or under section 1831 o or 1831p–1 of this title, and such courts shall have jurisdiction and power to order and require compliance herewith; but except as otherwise provided in this section or under section 1831 o or 1831p–1 of this title no court shall have jurisdiction to affect by injunction or otherwise the issuance or enforcement of any notice or order under any such section, or to review, modify, suspend, terminate, or set aside any such notice or order.
(Emphasis supplied.)
As recently explained by a Central District of California court in an action against Chase Home Finance LLC and related entities, Section 1818(i)(1) contains two parts: both a jurisdiction-granting clause and jurisdiction-divesting clause. Rex v. Chase Home Finance LLC, 905 F.Supp.2d 1111, 1124–26(C.D.Cal.2012) (examining whether Section 1818(i) divested court of jurisdiction based on same Consent Order as here, where Chase defendants allegedly failed to release plaintiffs from obligation to pay short sale deficiencies despite promises to do so).
In its analysis, the Rex court found it necessary to consider other provisions of Section 1818 such that the jurisdictional bar in sub-section (i) could be read in the context of the entire statute. Id. at 1125–26 (citing In re JPMorgan Chase Mortg. Modification Litig., 880 F.Supp.2d 220, 231 (D.Mass.2012) [“In re JP Morgan Chase ”] ). Specifically, it looked to Section 1818(c)(2), which provides that a recipient of a cease-and-desist order “may seek an injunction in district court restraining enforcement of the order,” and Section 1818(h)(2), which “authorizes court of appeals review of final [federal banking agency] orders.” Rex, 905 F.Supp.2d at 1126 (alteration in original). The court ultimately concluded that because the judicial mechanisms of Section 1818 focused on the ability of either the federal banking agency or recipient of a cease-and-desist order to obtain review of the order, it was “clear that the Jurisdiction–Divesting Clause was ‘not intend[ed] to … prohibit non-parties from exercising their separate remedies at law.” Id. at 1126 (quoting In re JPMorgan Chase, 880 F.Supp.2d at 231) (alterations in original). Instead, “the primary purpose of [Section 1818] is to prevent federal courts from usurping the OCC’s power to enforce its own consent orders against parties to the orders.” Rex, 905 F.Supp.2d at 1126 (quoting In re JPMorgan Chase, 880 F.Supp.2d at 231) (emphasis and alteration in original). Also significant to both the In re JP Morgan Chase and Rex courts was the fact that Section 1818 does not otherwise provide for a non-party to a consent order to challenge findings made therein. In re JPMorgan Chase, 880 F.Supp.2d at 232 (jurisdictional bar not meant to displace non-party’s right to present claims to federal court); Rex, 905 F.Supp.2d at 1126.
iii. Analysis
*10 Defendants argue Plaintiffs’ claims would “necessarily affect the Consent Order” and, therefore, the Court is expressly precluded under Section 1818(i) from exercising jurisdiction. (Mot. at 2–3 & 10.) Where judicial adjudication and award of relief would affect the OCC’s administration, compliance, enforcement of a Consent Order, Section 1818(i) prohibits jurisdiction. (Id. at 3.) For this proposition, Defendants rely primarily on two district court cases, Bakenie v. JPMorgan Chase Bank, N.A., No. SACV 12–60 JVS (MLGx), 2012 WL 4125890 (C.D.Cal. Aug. 6, 2012) and American Fair Credit Ass’n v. United Credit Nat’l Bank, 132 F.Supp.2d 1304 (D.Colo.2001).
In Bakenie, the court analyzed the same April 13, 2011 Consent Order. There, plaintiffs alleged damage arising from improper notarial practices, specifically that “various foreclosure documents were acknowledged by non-notaries, outside of the presence of the signers, without verification of the signer’s identification, and without proper recordation in a sequential journal.” 2012 WL 4125890, at *1 (quoting First Am. Compl.). The court agreed that these particular foreclosure-related claims affected the enforcement of the Consent Order. Id. at * 3; see American Fair Credit Ass’n, 132 F.Supp.2d at 1306–07, 1312 (Section 1818(i) divested court’s jurisdiction over claims brought by non-party to consent orders because state law claims sought money damages from party to consent order in direct contravention of the order).
Under Bakenie and American Fair Credit Ass’n, Defendants contend that the OCC has raised and redressed the same default-related fees that Plaintiffs here challenge. (Mot. at 12.) Defendants claim they are investigating and remediating those claims, including determining whether: (i) fees charged were permissible, customary, and reasonable under terms of the loan documents and applicable state and federal law; (ii) the frequency of fees charged on delinquent borrowers’ accounts (including BPOs) was excessive under the loan documents and applicable law; and (iii) errors, misrepresentations, or other deficiencies resulted in financial injury to borrowers. (Id. (citing Consent Order, Art. VII §§ 3(e)-(f), (h)).) Defendants argue that this action will require the Court to determine what the “actual cost” of default-related services is, whether what was charged was necessary or reasonable, and whether the failure to disclose the actual cost versus the charged cost was a material omission constituting fraud. (Mot. at 13.) Thus, if the Court finds that the fees were unreasonable but the independent review finds the opposite, this would “affect” Defendants’ ability to comply “with the OCC or the Court.” (Id.)13 Finally, Defendants emphasize that the appropriate course for Plaintiffs to seek remedy is under the Consent Order, which makes millions of dollars of relief available to borrowers. (Mot. at 14.)
*11 Plaintiffs counter with four primary arguments. First, the Consent Order targeted JP Morgan Chase Bank’s foreclosure practices only and required creation of a foreclosure compliance program and improvements the administration of foreclosure activities. An independent review under the Consent Order separately required an examination of pending foreclosures between January 1, 2009 and December 31, 2010. (Opp. at 1.) Plaintiffs argue that independent consultant’s findings regarding whether fees previously charged (including BPOs) were permissible, reasonable, and/or assessed too frequently were strictly limited to the foreclosure context. (Id. (citing Consent Order, Art. VII).) Importantly, Plaintiffs assert this review did not contemplate or address the fraud alleged here. (Opp. at 2.)
Second, Plaintiffs argue that the OCC explicitly intended that borrowers receiving compensation under the Consent Order retain the right to pursue other legal remedies regarding their mortgages. (Opp. at 2; see Opposition RJN, Ex. 2 (“question and answer” portion of OCC website regarding Consent Order); Amendment, Art. V § 3 (preservation of borrowers’ rights in the Amendment).)
Third, Section 1818(i) does not divest the Court from exercising “parallel or co-extensive subject matter jurisdiction.” (Opp. at 4.)14 It only narrowly prohibits a court from “modifying or countermanding” OCC orders. Plaintiffs argue that Defendants provide no authority in which a court declined jurisdiction over a class action, as here, where the parties did not expressly seek to set aside or modify a federal banking order or to enjoin regulatory proceedings. (Id.) In addition, Plaintiffs distinguish Bakenie because the challenges to Chase’s foreclosure and notarial practices there were “squarely covered” by the Consent Order. (Opp. at 5.) Plaintiffs instead rely on In re JP Morgan Chase and the district court’s holding that Congress did not intend to prohibit nonparties from exercising separate remedies even where the OCC and a defendant have entered into a consent order. (Id. at 6.)
Fourth, Plaintiffs argue this action would not “affect” the Consent Order under Section 1818(i) because they “do not seek any remedies that are inconsistent with the Consent Order” nor do they seek to set aside the order. (Opp. at 7.) Plaintiffs point out that Defendants, despite reiterating that they are prohibited from significantly deviating or materially changing their actions under the Consent Order, have failed to articulate how this would occur if this action were to proceed. (Id.) By analogy, Plaintiffs refer to the National Mortgage Settlement Consent Judgment between the federal government and state attorneys general and five major financial institutions, including J.P. Morgan Chase Bank, N.A. United States of America v. Bank of America Corp., et al., No. 1:12–cv–361 (D.D.C. Apr. 4, 2012) (“NMS Consent Judgment”); see Opposition RJN, Ex. 3 and Reply RJN, Ex. B. With respect to that action, Chase did not assert a lack of subject matter jurisdiction even though it agreed to comply with certain standards for mortgage servicing, including as to third-party servicing fees.15 Plaintiffs reason that if the NMS Consent Judgment Section was entered, Section 1818(i) must not really divest federal courts of jurisdiction. (Opp. at 8.)16
*12 9 The Court finds that Section 1818(i) does not divest this Court of jurisdiction for four reasons. First, the deficiencies and unsafe or unsound practices identified by the OCC were primarily, if not entirely, devoted to foreclosures. Importantly, Defendant’s independent consultant, Deloitte & Touche LLP, was only charged with making determinations regarding fees and their frequency (including BPOs) with respect to a defined group of borrowers—those active in foreclosure between January 1, 2009 and December 31, 2010. (Consent Order, Art. VII §§ 1 & 3(e)-(f); Motion RJN, Ex. C (Interim Status Report: Foreclosure–Related Consent Orders dated November 2011) at 5 (sought to provide relief to borrowers who “suffered financial injury as a result of [the Bank’s] errors, misrepresentations, or other deficiencies in foreclosure actions …”); Motion RJN, Ex. E (Interim Status Report: Foreclosure–Related Consent Orders dated June 2012) at 7; Motion RJN, Ex. G (Interagency Review of Foreclosure Policies and Practices dated April 2011) at 1–2 (review “did not include a complete analysis of the payment history of each loan prior to foreclosure or the potential mortgage-servicing issues outside of the foreclosure process”).) The Consent Order did not require remediation to borrowers for financial injuries outside of the scope of the review. (See November 2011 Interim Status Report at 5.) Moreover, Deloitte assumed that fraud of the nature alleged here did not occur. (Reply RJN, Ex. A (Engagement Letter) at 15 (assuming that fees permissible under state laws or Fannie Mae guidelines were reasonable and not excessive, services were “actually rendered” if there was an invoice, and “all fees and penalties were assessed in accordance with the applicable loan documents”).)17 As such, the steps taken to remedy the deficiencies were not intended to address a fraudulent scheme, as alleged here.
Second, the Complaint on its face does not seek to “review, modify, suspend, terminate, or set aside” the Consent Order. See Section 1818(i).
Third, the recent Amendment to the Consent Order indicates that the OCC did not intend for third-parties to waive their rights by requesting a review of their mortgages.18 From this express reservation, the Court must conclude that third-party actions were not intended to be barred by the Consent Order. This finding is consistent with recent cases addressing the same jurisdictional arguments under Section 1818(i) asserted by the same Defendants over the same Consent Order.
Fourth, even if the Court assumes that Section 1818(i) or the Consent Order somehow intended to divest federal courts’ jurisdiction over third-party actions, Defendants have not sufficiently articulated how the outcome of this action “necessarily affects” the OCC’s enforcement of the Consent Order. Defendants repeatedly assert that Plaintiffs should not be permitted to “double down on the Consent Order” but fail to explain how adjudication of this action would actually “review, modify, suspend, terminate, or set aside” the Consent Order itself, nor how it would “affect” the OCC’s enforcement in the first place. The “double down” argument contrasts the explicit provisions in the Amendment that: (i) borrowers shall not be required to execute a waiver of their claims against the Bank “in connection with any payment or Foreclosure Prevention assistance pursuant to th[e] Amendment”; and (ii) the Bank shall not be barred from asserting in separate litigation “any right that may exist under applicable law to offset the amounts received by a borrower through the distribution process set forth [in the Amendment].” (Amendment, Art. V § 3 (emphasis supplied); see June 2012 Interim Status Report at 6 (“OCC will not permit servicers to require borrowers to sign a waiver of their ability to pursue claims against the servicer in order to receive compensation under the Independent Foreclosure Review”).). It is unclear how Plaintiffs’ action “necessarily affect[s] or “obstruct[s] the OCC’s efforts to provide relief” where an offset would prohibit a double recovery by borrowers in the class. (Mot. at 2:2–5; see id. at 2:22–23, 3:8–11, 13:4–6 & 13:18–20.) Defendants have not provided any authority or evidence that an overlap of borrowers who may require offset is sufficient to divest this Court of jurisdiction.
*13 The primary cases relied upon by Defendants are inapposite and do not support a lack of jurisdiction. Bakenie is distinguishable from the case at hand because the alleged improper practices related to “improper notarial practices” by plaintiffs whose properties were subjected to foreclosure. 2012 WL 4125890, at *1. Unlike this case, the OCC made specific findings relating to notarial practices as to foreclosed borrowers. Consent Order, Art. I § 2(a)-(b). American Fair Credit does not control either. There, the consent orders expressly prohibited a payment of money to the plaintiff; here, a “direct contravention” of the Consent Order or Amendment has not been identified, particularly in light of the offset provision in the Amendment. See American Fair Credit, 132 F.Supp.2d at 1312.
In sum, the Court agrees with the well-reasoned analysis of Section 1818(i) by the district courts in Rex and In re JPMorgan Chase. This section itself seeks to ensure that federal courts do not interject themselves into the relationship between the OCC and parties when it comes to enforcement or review of a consent order. Rex, 905 F.Supp.2d at 1126; In re JPMorgan Chase, 880 F.Supp.2d at 231–32. The statute at large does not seek to prohibit third-parties from asserting claims, nor did the Consent Order itself purport to do so.
For the foregoing reasons, the Court Denies Defendant’s Motion to Dismiss based on the argument that Section 1818(i) divests the Court of subject matter jurisdiction.
D. Second Jurisdictional Argument: Doctrine of Primary Jurisdiction and Equitable Abstention
Defendants advance both the doctrines of primary jurisdiction and equitable abstention as additional reasons that this Court should not adjudicate Plaintiffs’ claims.
10111213 The doctrine of primary jurisdiction allows a court to stay a proceeding or dismiss a complaint pending the resolution “of an issue within the special competence of an administrative agency.” Clark v. Time Warner Cable, 523 F.3d 1110, 1114 (9th Cir.2008). Primary jurisdiction applies in a limited set of circumstances, “only if a claim requires resolution of an issue of first impression, or of a particularly complicated issue that Congress has committed to a regulatory agency, and if protection of the integrity of a regulatory scheme dictates preliminary resort to the agency which administers the scheme.” Id. (internal citations and quotations omitted). Although no fixed formula exists for applying the doctrine of primary jurisdiction (Davel Comm’ns, Inc. v. Qwest Corp., 460 F.3d 1075, 1086 (9th Cir.2006)), the Ninth Circuit has considered whether (1) the issue is within the “conventional experiences of judges” or “involves technical or policy considerations within the agency’s particular field of expertise,” (2) the issue “is particularly within the agency’s discretion,” and (3) “there exists a substantial danger of inconsistent rulings.” Maronyan v. Toyota Motor Sales, U.S.A., Inc., 658 F.3d 1038, 1048–49 (9th Cir.2011) (internal citations omitted).19 The court must also balance the parties’ need to resolve the action expeditiously against the benefits of obtaining the federal agency’s expertise on the issues. Nat’l Comm’ns Ass’n, Inc. v. American Telephone & Telegraph Co. Co., 46 F.3d 220, 223 (2d Cir.1995) (cited in Maronyan, 658 F.3d at 1049).
*14 14151617 “The judicially-created equitable abstention doctrine gives courts discretion to abstain from deciding a UCL claim.” Wehlage v. EmpRes Healthcare, Inc., 791 F.Supp.2d 774, 784 (N.D.Cal.2011) (citing Desert Healthcare Dist. v. PacifiCare FHP, Inc., 94 Cal.App.4th 781, 795, 114 Cal.Rptr.2d 623 (Cal.Ct.App.2001) and Alvarado v. Selma Convalescent Hosp., 153 Cal.App.4th 1292, 1297–98, 64 Cal.Rptr.3d 250 (Cal.Ct.App.2007)). Underlying the doctrine is the rationale that “because the remedies available under the UCL, namely injunctions and restitution, are equitable in nature,” courts have discretion to abstain from employing them. Desert Healthcare, 94 Cal.App.4th at 795, 114 Cal.Rptr.2d 623. “Abstention under the doctrine may be appropriate if: (1) resolving the claim requires ‘determining complex economic policy, which is best handled by the legislature or an administrative agency;’ (2) ‘granting injunctive relief would be unnecessarily burdensome for the trial court to monitor and enforce given the availability of more effective means of redress;’ or (3) ‘federal enforcement of the subject law would be more orderly, more effectual, less burdensome to the affected interests.’ “ Wehlage, 791 F.Supp.2d at 784–85 (quoting Alvarado, 153 Cal.App.4th at 1298, 64 Cal.Rptr.3d 250); see Shamsian v. Dep’t of Conservation, 136 Cal.App.4th 621, 642, 39 Cal.Rptr.3d 62 (Cal.Ct.App.2006) (court has discretion to abstain where: (1) the requested relief would “interfere with the department’s administration of the act and regulation of beverage container recycling and potentially risk throwing the entire complex economic arrangement out of balance” and (2) the “public’s need for” the relief “is not so great as to warrant judicial interference in the administrative scheme designed to address those needs”). The equitable abstention doctrine applies in rare instances. Rex, 905 F.Supp.2d at 1134.
18 Defendants argue that primary jurisdiction applies because the OCC has special expertise to: (i) enforce claims requiring the resolution of issues under their regulatory scheme; and (ii) apply uniform and consistent treatment of the complex and comprehensive issues involving home loan servicing practices, especially in a context where the OCC has already determined that Defendants have engaged in unsound practices. (Mot. at 14–15.)
Plaintiffs disagree and note this is a fraud case. Primary jurisdiction applies “only if a claim requires resolution of an issue of first impression” or is “a particularly complicated issue that Congress has committed to a regulatory agency.” (Opp. at 8 (citing Clark, 523 F.3d at 1114).) Plaintiffs argue neither is implicated here. (Opp. at 9; Dkt. No. 25.)
This case asserts claims for violations of RICO and the UCL, fraud, and unjust enrichment. These are areas within the conventional experience of this Court and, despite Defendants’ characterizations that this Court will be resolving issues under the OCC’s regulatory scheme, the Court is not persuaded that uniformity or consistency will be threatened by adjudicating these claims. While Defendants have rightfully pointed out that there may be administrative difficulties in determining the offsets for class members, these inconveniences alone are not a reason to abstain from this action. Such determinations are frequently made in class actions or can be addressed at the class certification stage. Indeed, the purpose of the Amendment itself is to provide the “greatest benefit to borrowers … in a more timely manner than would have occurred under the Independent Foreclosure Review.” Amendment at 2. Abstention does not serve this purpose.
*15 For the foregoing reasons, the Court Denies Defendants’ Motion to Dismiss based on the doctrines of primary jurisdiction and equitable abstention.
E. Third Jurisdictional Argument: Preemption Under National Bank Act
Defendants next argue that Plaintiffs’ claims are preempted under the National Bank Act and related OCC regulations.
The National Bank Act (“NBA”) vests national banks such with authority to exercise “all such incidental powers as shall be necessary to carry on the business of banking.” 12 U.S.C. § 24 (Seventh). Real estate lending is expressly designated as part of the business of banking. 12 U.S.C. § 371(a). As the agency charged with administering the NBA, the OCC “has the primary responsibility for the surveillance of the ‘business of banking’ authorized by the [NBA].” Martinez v. Wells Fargo Home Mortg., 598 F.3d 549, 554–55 (9th Cir.2010) (citations omitted). “To carry out this responsibility, the OCC has the power to promulgate regulations and to use its rulemaking authority to define the “incidental powers” of national banks beyond those specifically enumerated in the statute.” Id. at 555 (citing 12 U.S.C. § 93a).) The regulations possess the same preemptive effect of the NBA itself. Martinez, 598 F.3d at 555.
19 “In analyzing preemption, [courts must] ask whether the state law ‘prevent[s] or significantly interfere[s] with the national bank’s exercise of its powers.’ “ Gutierrez v. Wells Fargo Bank, N.A., 704 F.3d 712, 722 (9th Cir.2012) (“Gutierrez II ”) (quoting Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25, 33, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996)) (first alteration supplied). “[S]tate laws of general application continue to apply to national banks when ‘doing so does not prevent or significantly interfere with the national bank’s exercise of its powers.’ “ Gutierrez II, 704 F.3d at 722 (quoting Barnett Bank, 517 U.S. at 33).
As to the UCL claim, Defendants argue that Plaintiff Ellis’ claim for excessive, unnecessary, or undisclosed default-related service fees are preempted for four reasons: “(1) by regulation, fee-setting is a business decision; (2) by regulation, state-law claims may not be used to impose disclosure requirements; (3) by regulation, claims concerning both origination and processing are preempted; and, (4) UCL claims are preempted when the predicate conduct is preempted.” (Mot. at 16 (citing Martinez, 598 F.3d at 556).)20
Under these regulations, Defendants assert that any determination regarding the establishment of fees, the failure to disclose information about actual costs incurred for services, and claims regarding servicing of mortgages are preempted. (Mot. at 17; see Martinez, 598 F.3d at 557.) Because these “predicate acts” are preempted, Defendants argue any resulting UCL claim is preempted.
As to the unjust enrichment and fraud claims, Defendants similarly assert these are preempted because the claims are based on “assumptions about the reasonableness of default-related fees and services, which is the exclusive province of the OCC.” (Mot. at 18.) The RICO claims are preempted because they are based on an alleged breach of contract between Plaintiffs and Chase, and not fraudulent communications. (Id.)
*16 Plaintiffs respond by emphasizing that Northern District of California courts have held that “consumer protection laws of general application are not preempted by federal banking laws.” Jefferson v. Chase Home Finance, No. C. 06–6510 TEH, 2008 WL 1883484, at * 10 (N.D.Cal. Apr.29, 2008). Plaintiffs argue that they do not ask this Court to determine what an appropriate BPO or inspection fee should be, and they do not challenge the Chase’s ability to charge fees. Rather, their claims target Defendants’ fraudulent practices of utilizing software that automatically inflates fees, charges the inflated fees to borrowers, and demands payment by borrowers by stating the fees must be paid pursuant to the mortgage agreements. At most, Plaintiffs contend that adjudication of these claims would have no more than an “incidental effect” on Chase’s lending activities. (Opp. at 14.)
20 The Court finds that under the Ninth Circuit’s opinion in Gutierrez II, the UCL claim may proceed at least as to the fraudulent prong. In Gutierrez II, the Ninth Circuit examined Wells Fargo’s practices with regard to posting account debits and overdraft fees following a bench trial before the district court. The district court found that, among other things, Wells Fargo’s practices violated the unfair and fraudulent prongs of Section 17200 .21 The Ninth Circuit held that “federal law preempts state regulation of the posting order as well as any obligation to make specific, affirmative disclosures to bank customers” but that “[f]ederal law does not … preempt California consumer law with respect to fraudulent or misleading representations concerning posting.” 704 F.3d at 716. As to the preempted state regulation, the court held that the posting process was integrally related to the receipt of deposits, which normally falls within the federal banking regulatory power. Id. at 723. In addition, the OCC specifically delegated to banks the method of calculating fees. Id. at 724 (citing 12 C.F.R. § 7.4002(b)). With respect to the overdraft fees at issue in Gutierrez, “[t] he OCC has interpreted these incidental powers to include the power to set account terms and the power to charge customers non-interest charges and fees.” 704 F.3d at 724. In other words, “federal law authorizes national banks to establish a posting order as part and parcel of setting fees, which is a pricing decision” specifically within the power of national banks. Id.
On remand, the district court re-visited certain injunctive relief and restitution issues in light of the Ninth Circuit’s holding that:
[T]he National Bank Act preempts the application of the “unfair” prong of Section 17200 to a national bank’s order of posting. Both the posting order itself, and any requirement to make particular disclosures are within the exclusive purview of the National Bank Act. Liability based on failure to disclose was likewise preempted on the ground that it was tantamount to mandating specific disclosures.
*17 Liability based on the “fraudulent” prong of Section 17200 for false and misleading statements, however, was held not preempted. [The Ninth Circuit] held that for these purposes Section 17200 is a non-discriminatory state law of general applicability that did not impose disclosure requirements in conflict with federal law. Rather, it prohibited statements that are likely to mislead the public.
Gutierrez v. Wells Fargo Bank, N.A., No. C 07–05923 WHA, –––F.Supp.2d ––––, 2013 WL 2048030, at * 1–2 (N.D.Cal. May 14, 2013) (“Gutierrez III ”); see Gutierrez II, 704 F.3d at 727 (“we hold that Gutierrez’s claim for violation of the fraudulent prong of the [UCL] by making misleading misrepresentations with regard to its posting method is not preempted, and we affirm the district court’s finding to this extent”); Gutierrez I, 730 F.Supp.2d at 1129 (“Wells Fargo affirmatively reinforced the expectation that transactions were covered in the sequence made while obfuscating its contrary practice of posting transactions in high-to-low order to maximize the number of overdrafts assessed on customers.”).
Based on Gutierrez, Defendants’ blanket argument that the UCL claim is preempted in its entirety fails. As will be discussed in more detail infra, Plaintiffs have sufficiently stated a claim for fraud which, as pled, also states a claim for a UCL violation under the fraudulent prong. Plaintiffs have alleged both that Defendants failed to advise them of actual costs of services and inflated fees, and also that false statements were made to borrowers when Defendants told them the fees were in accordance with their mortgage agreements. Failure to adequately disclose this practice can shape reasonable expectations of consumers and be misleading. See Gutierrez III, 2013 WL 2048030, at * 2. As such, Defendant’s Motion to Dismiss the entire first claim for violation of the UCL is Denied. Defendant’s Motion that unjust enrichment and fraud are preempted is likewise Denied because those claims do not invade the exclusive province of the OCC. Rather, they—as generally applicable state laws—“do not significantly interfere with the bank’s ability to … calculate fees.” Gutierrez II, 704 F.3d at 727.22
For the foregoing reasons, the Court Denies Defendants’ Motion to Dismiss based on preemption.
III. Failure to State a Claim Under Fed.R.Civ.P. 12(b)(6)
In this section, the Court addresses Defendants’ fourth and fifth primary arguments: that Plaintiffs lack standing because they have not suffered injury-in-fact and, even if they do have standing, they fail to state a claim upon which relief can be granted.
A. Legal Standard Under Fed.R.Civ.P. 12(b)(6)
Pursuant to Fed.R.Civ.P. 12(b)(6), a complaint may be dismissed against a defendant for failure to state a claim upon which relief may be granted against that defendant. Dismissal may be based on either the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir.1990); Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533–34 (9th Cir.1984). For purposes of evaluating a motion to dismiss, the court “must presume all factual allegations of the complaint to be true and draw all reasonable inferences in favor of the nonmoving party.” Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir.1987). Any existing ambiguities must be resolved in favor of the pleading. Walling v. Beverly Enters., 476 F.2d 393, 396 (9th Cir.1973).
B. Standing under Article III, UCL, and RICO
*18 Defendants assert Plaintiffs lack standing in three ways. First, Plaintiffs have failed to allege an “injury in fact” to establish Article III standing. (Mot. at 19 (“No Plaintiff alleges that he or she made any actual payments to any Defendant related to any allegedly improper fees.”).) Second, Plaintiff Ellis has not alleged that she “lost money or property” and thus cannot pursue her UCL claim without economic injury. (Mot. at 19–20.) Third, Plaintiffs have failed to allege harm to a specific business or property interest—or a “concrete financial loss”—as required under RICO. (Id. at 19 (citing Canyon County v. Syngenta Seeds, Inc., 519 F.3d 969, 975 (9th Cir.2008).)
Plaintiffs respond that they “unambiguously allege that they ‘paid some or all of the unlawful fees assessed on [their] account[s].’ “ (Opp. at 14 (citing Compl. ¶¶ 62, 65 & 68) (emphasis and alteration in original).) They argue these allegations alone are sufficient to allege standing under Article III, the UCL, and RICO.
21 The Court is satisfied with the allegations as pled and finds there is standing to pursue these claims. Plaintiffs allege on information and belief that they have paid some or all of the unlawful fees assessed on their accounts. (Compl. ¶¶ 62, 65 & 68.) The Court must take these allegations as true and in the light most favorable to Plaintiffs, even if made on information and belief. Such allegations state an economic injury that qualifies as injury-in-fact under the UCL. See Kwikset Corp. v. Superior Court, 51 Cal.4th 310, 323, 120 Cal.Rptr.3d 741, 246 P.3d 877 (2011) (economic injury may be shown where plaintiff “surrender[s] in a transaction more, or acquire[s] in a transaction less, than he or she otherwise would have”); see Cal. Bus. & Prof.Code § 17204 (UCL claim may be brought “by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.”). “[A] party who has lost money or property generally has suffered injury in fact .” Kwikset, 51 Cal.4th at 322, 120 Cal.Rptr.3d 741, 246 P.3d 877 (emphasis in original). For these same reasons, Article III standing is also satisfied.
As to RICO standing, the “[c]ivil remedies” provision of RICO permits “[a]ny person injured in his business or property by reason of a violation of [18 U.S.C.] section 1962 … [to] sue” and recover treble damages and the cost of the suit, including a reasonable attorney’s fee. 18 U.S.C. § 1964(c). “To have standing under [Section] 1964(c), a civil RICO plaintiff must show: (1) that his alleged harm qualifies as injury to his business or property; and (2) that his harm was ‘by reason of’ the RICO violation, which requires the plaintiff to establish proximate causation.” Canyon County v. Syngenta Seeds, Inc., 519 F.3d 969, 972 (9th Cir.2008) (internal citation omitted). With regard to the requirement of injury to business or property, “[i]n the ordinary context of a commercial transaction, a consumer who has been overcharged can claim an injury to her property, based on a wrongful deprivation of her money…. Money, of course, is a form of property.” Id. at 976 (internal citation omitted).23
*19 22 Plaintiffs allege they have paid marked-up fees and thus satisfy RICO standing. A consumer who has been overcharged can claim injury to property under RICO based on a wrongful deprivation of money, which is a form of property. Canyon County, 519 F.3d at 976; see Dufour v. BE LLC, No. C 09–03770 CRB, 2010 WL 2560409, at * 11 (N.D.Cal. June 22, 2010) (“Plaintiffs here allege that they were deprived of their money based upon Defendants’ conduct, which is sufficient.”).
For these reasons, the Court Denies Defendants’ Motion to Dismiss based on lack of standing.
C. RICO Claims
1. Second Claim: Substantive RICO Violation: 18 U.S.C. Section 1962(c) ( “Section 1962(c)”)
23 Under Section 1962(c), “[i]t shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.” To a state a claim, a plaintiff must allege: “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Odom v. Microsoft Corp., 486 F.3d 541, 547 (9th Cir.2007) (en banc ). Racketeering activity is also referred to as the “predicate acts.” Living Designs, Inc. v. E.I. Dupont de Numours and Co., 431 F.3d 353, 361 (9th Cir.2005).
24 Where a plaintiff alleges “a unified course of fraudulent conduct and rel[ies] entirely on that course of conduct as the basis of a claim[,] … the claim is said to be ‘grounded in fraud’ or to ‘sound in fraud,’ and the pleading of that claim as a whole must satisfy the particularity requirement of [Federal Rule of Civil Procedure] 9(b).” Yess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1103–04 (9th Cir.2003). To be alleged with particularity, a plaintiff must allege “the who, what, when, where, and how” of the alleged fraudulent conduct (Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.1997)) and “set forth an explanation as to why [a] statement or omission complained of was false and misleading” (In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir.1994) (en banc )). In other words, “the circumstances constituting the alleged fraud [must] be specific enough to give defendants notice of the particular misconduct … so that they can defend against the charge and not just deny that they have done anything wrong.” Yess, 317 F.3d at 1106 (first alteration supplied; internal quotation and citations omitted). “Rule 9(b)‘s requirement that ‘[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity’ applies to civil RICO fraud claims.” Edwards v. Marin Park, Inc., 356 F.3d 1058, 1065–66 (9th Cir.2004) (internal citation omitted); Moore v. Kayport Package Exp., Inc., 885 F.2d 531, 541 (9th Cir.1989).
*20 Defendants challenge Plaintiffs’ RICO claim for failure to sufficiently allege each required element, and a failure to meet the heightened pleading requirements for mail and wire fraud. (Mot. at 20.) The Court will first address conduct of an enterprise.
25 Section 1962(c) targets conduct by “any person employed by or associated with any enterprise….” The Supreme Court has recognized the basic principle that Section 1962(c) imposes a distinctiveness requirement—that is, one must allege two distinct entities: a “person” and an “enterprise”24 that is not simply the same “person” referred to by a different name. Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 & 166, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001) (holding that under Section 1962(c), distinctiveness is satisfied and RICO applies “when a corporate employee unlawfully conducts the affairs of the corporation of which he is the sole owner-whether he conducts those affairs within the scope, or beyond the scope, of corporate authority”). The Court noted that the distinctiveness requirement was consistent with a prior holding that liability “depends on showing that the defendants conducted or participated in the conduct of the ‘enterprise’s affairs,’ not just their own affairs.” Id. at 163 (quoting Reves v. Ernst & Young, 507 U.S. 170, 185, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993)).
2627 An enterprise that is not a legal entity is commonly known as an “association-in-fact” enterprise. Mitsui O.S.K. Lines, Ltd. v. Seamaster Logistics, Inc., 871 F.Supp.2d 933, 939 n. 6 (N.D.Cal.2012). In Odom v. Microsoft Corp., the Ninth Circuit held that “an associated-in-fact enterprise under RICO does not require any particular organizational structure, separate or otherwise.” 486 F.3d 541, 551 (9th Cir.2007) (no requirement of an “ascertainable structure”). “[A]n associated-in-fact enterprise is ‘a group of persons associated together for a common purpose of engaging in a course of conduct.’ “ Id. at 552 (quoting United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981)); Boyle v. United States, 556 U.S. 938, 944, 129 S.Ct. 2237, 173 L.Ed.2d 1265 (2009). Ninth Circuit precedent requires proof of three elements: (i) a common purpose of engaging in a course of conduct; (ii) evidence of an “ongoing organization, formal or informal”; and (iii) evidence that the various associates function as a continuing unit. Odom, 486 U.S. at 552 (citing Turkette ).25
28 Defendants primarily assert that Plaintiffs fail to allege the existence of an enterprise that is distinct from Defendants themselves because subsidiaries and affiliates of a corporation generally do not constitute an association-in-fact enterprise. (Mot. at 20.) In addition, Plaintiffs direct their claims to Chase’s conduct in marking-up fees, charging them to borrowers, and establishing policies that impose the marked-up fees, but they “do not allege that any non-Chase entity has taken any specific action at all in support of the purported enterprise.” (Id. at 21.) In other words, the “Chase Enterprise” is only Chase and no one else’s conduct makes up the enterprise. (Id.)
*21 Plaintiff responds that they have, in fact, alleged there were non-Chase members of the enterprise, namely the “property preservation vendors” and real estate brokers who performed BPOs who helped carry out the scheme. (Opp. at 19 (citing Compl. ¶ 106).) Plaintiffs note that an associated-in-fact enterprise does not require any particular organizational structure, separate or otherwise, under the Ninth Circuit’s holding in Odom. 486 F.3d at 551. Plaintiffs also argue that the enterprise conduct consisted of Chase’s use of the mail and wires to engage in its scheme to defraud. (Opp. at 21.)
The Court agrees that Plaintiffs have not sufficiently identified the structure of the enterprise, nor that Defendants have engaged in enterprise conduct distinct from their own affairs. Throughout the Complaint, Plaintiffs allege that the enterprise includes “subsidiaries,” “affiliated companies,” “intercompany divisions,” and third-party property preservation vendors and real estate brokers. (Compl.¶¶ 2, 4, 9, 33, 46, 106.) Defendants “order[ed] default-related services from their subsidiaries and affiliated companies, who, in turn, obtain[ed] the services from third-party vendors.” (Id. ¶ 40.) These vendors charged Defendants for services, but Defendants marked-up the fees in excess of any amounts actually paid. (Id.) Defendants “provided mortgage invoices, loan statements, payoff demands, or proofs of claims to borrowers” to “demand” payment of fees, but these documents “fraudulently concealed” the true nature of the fees, some of which were “never incurred” at all by Defendants. (Id. ¶¶ 93, 112, 114 & 143.) Defendants also falsely represented to borrowers in statements and other documents that the fees were “allowed by [their] Note and Security Instrument .” (Id. ¶¶ 53 & 115.) Plaintiffs allege that the enterprise’s common purpose was to “limit[ ] costs and maximiz[e] profits by fraudulently concealing assessments for unlawfully marked-up and/or unnecessary third party fees for default-related services on borrowers’ accounts.” (Id. ¶ 107.)
These allegations stand in contrast to those alleged in a related action, Bias, et al. v. Wells Fargo & Co., et al., Case No. 12–cv–00664–YGR. Here, Plaintiffs repeatedly state that subsidiaries, affiliated companies, and intercompany divisions are members of the enterprise. However, Plaintiffs fail to specifically identify these members or to provide any factual allegations to detail their involvement or make their involvement in the enterprise plausible. Plaintiffs vaguely allege that unidentified subsidiaries, affiliated companies, and/or intercompany divisions order default-related services from third-party vendors and brokers. No specific factual allegations explain how this occurs, and without this information, the Court cannot ascertain the structure of the alleged enterprise. Nor can the Court determine whether Defendants have engaged in conduct of the enterprise, as opposed to their own affairs.
*22 In addition, the Court notes that the “common purpose” here is the same as that alleged against Wells Fargo in Bias—to limit costs and maximize profits by fraudulently concealing marked-up and/or unnecessary third party fees. However, an associated-in-fact enterprise must consist of “a group of persons associated together for a common purpose of engaging in a course of conduct.” Odom, 486 F.3d at 552 (quoting Turkette ). Plaintiffs’ Complaint lacks factual allegations that show that the unidentified enterprise members associated together with Defendants for that alleged common purpose. This is unlike in Bias, where plaintiffs alleged that Wells Fargo had associated with third party Premiere Asset Services for a common purpose.
For these reasons, the Court Dismisses Plaintiffs’ RICO claim under Section 1262(c) With Leave to Amend for failure to sufficiently allege an enterprise. Plaintiffs’ amended complaint must address the deficiencies stated herein, or Plaintiffs may file a motion for leave to amend if future discovery in this action reveals a factual basis for a RICO claim.26
2. Third Claim: Conspiracy to Violate RICO: 18 U.S.C. Section 1962(d) ( “Section 1962(d)”)
Under Section 1962(d), “[i]t shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.” “To establish a violation of section 1962(d), Plaintiffs must allege either an agreement that is a substantive violation of RICO or that the defendants agreed to commit, or participated in, a violation of two predicate offenses.” Howard v. America Online Inc., 208 F.3d 741, 751 (9th Cir.2000). The conspiracy defendant “must intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense, but it suffices that he adopt the goal of furthering or facilitating the criminal endeavor.” Id. (quoting Salinas v. United States, 522 U.S. 52, 65, 118 S.Ct. 469, 139 L.Ed.2d 352 (1997)). Moreover, the defendant must also have been “aware of the essential nature and scope of the enterprise and intended to participate in it.” Id. (quoting Baumer v. Pachl, 8 F.3d 1341, 1346 (9th Cir.1993)).
29 In Howard, the Ninth Circuit affirmed the “district court[‘s holding] that the failure to adequately plead a substantive violation of RICO precludes a claim for conspiracy.” Id.; see Turner v. Cook, 362 F.3d 1219, 1231 n. 17 (9th Cir.2004) (affirming dismissal of RICO claims, including conspiracy, where plaintiffs failed to allege, among other things, acts of mail fraud, wire fraud, and pattern of racketeering activity).
Here, Plaintiffs have failed to allege the requisite substantive elements of RICO under Section 1962(c), and thus their claim for conspiracy under Section 1962(d) also fails.
For these reasons, Plaintiffs’ claim for conspiracy under Section 1962(d) is Dismissed With Leave to Amend.
D. Fourth Claim: Unjust Enrichment
*23 Defendants argue the unjust enrichment claim fails because the only cognizable claim in California is a quasi-contractual claim for restitution, which cannot exist where there is a binding, enforceable agreement defining the right of the parties. (Mot. at 24 (citing Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1167 (9th Cir.1996)).) According to Defendants, the mortgage contracts “permit” the charges at issue here, and the unjust enrichment is “based upon the contract.” (Reply at 15.)
30 Plaintiffs argue they have pled the required elements of a claim for unjust enrichment: the receipt of a benefit and unjust retention of the benefit at the expense of another. (Opp. at 24.) Further, the viability of the claim is unaffected by the existence of the agreements. (Id. (citing In re Countrywide Fin. Corp. Mortg. Mktg. & Sales Practices Litig., 601 F.Supp.2d 1201, 1220–21 (S.D.Cal.2009)).) In In re Countrywide, the district court rejected both of defendants’ arguments for dismissal of an unjust enrichment claim, holding that “[a]lthough there are contracts at issue in this case, none appears to provide for the specific recovery sought by Plaintiffs’ unjust enrichment claim.” Id. at 1220–21 (noting conflicting case law regarding whether California recognizes unjust enrichment as a claim and declining to conclude the claim was not legally cognizable).
31 Despite Defendants’ arguments that the mortgage agreements preclude the claim here, the Court finds it is premature for the Court to take a position on whether this action derives from the subject matter of the agreements such that a claim for unjust enrichment is unavailable. In re Countrywide, 601 F.Supp.2d at 1220–21. Under California law, Plaintiffs have pled sufficient facts to support a claim for unjust enrichment. Lectrodryer v. SeoulBank, 77 Cal.App.4th 723, 726, 91 Cal.Rptr.2d 881 (Cal.Ct.App.2000); see also Hirsch v. Bank of America, N.A., 107 Cal.App.4th 708, 721–22, 132 Cal.Rptr.2d 220 (Cal.Ct.App.2003) (valid claim for unjust enrichment stated where banks collected and retained excessive fees passed through to them by title companies at the expense of plaintiffs). Whether Plaintiffs will succeed with their burden of establishing this claim should be certified as a nationwide class is not appropriate to determine at this time.
For these reasons, the Court Denies Defendants’ Motion to Dismiss the fourth claim for unjust enrichment.
E. Fifth Claim: Fraud
Defendants argue that the fraud claim fails to meet the heightened pleading standard of Federal Rule of Civil Procedure 9(b). (Mot. at 24.) In particular, Plaintiffs have not alleged injury or reliance based “on any specific communication from any Defendant” and have failed to specifically plead the “time, date, and amount of allegedly improper fees charged to the named Plaintiffs” or payment of the same. (Id.; Reply at 15.) In addition, Defendant argues that where the fraud claim is based on the omission of material facts, a “duty to disclose” must exist to state a claim. (Mot. at 24.)
*24 Plaintiffs disagree, emphasizing that it has provided specific detail regarding the nature of the scheme and that Defendants can adequately prepare an answer to the Complaint. (Opp. at 25.) Plaintiffs identify the mortgage contracts as the source of Defendants’ duty to disclose. (Id.)
32 Defendants’ arguments fail to persuade. As to the claimed lack of specificity, Plaintiffs have provided more detail than Defendants acknowledge. Plaintiffs have alleged numerous instances where deficient information was provided and could have been revealed—namely, in the mortgage agreements themselves, in the mortgage statements reflecting the marked-up fees, or during communications with Chase where it told Plaintiffs that the fees were in accordance with their mortgage agreements. Plaintiffs provide specific dates for statements in which they believe they were charged the marked-up fees, and allege they paid the fees without knowing their true nature. Plaintiffs describe the content of the omission as the failure to inform them that the fees were marked-up and that the majority of the fees ultimately went to Chase, and not third-party vendors performing the services. As discussed above, Plaintiffs have also sufficiently alleged that they did pay the marked-up fees.
As to the argument regarding a “duty to disclose,” the alleged omissions by Defendants here are interwoven with misrepresentations. Defendants’ failure to advise Plaintiffs of the actual costs for services is linked to the inflated costs that Chase expressly demanded as due in monthly mortgage statements and other documents. Using the mortgage agreements as justification, Defendants allegedly demanded payment for fees that, in some cases, were never actually incurred. (See Compl. ¶ 112.) Moreover, Plaintiffs allege that false representations were made to borrowers when Chase told them that the fees were in accordance with their mortgage contracts—this is distinguishable from an omission. (Compl. ¶¶ 53 & 115.) As alleged, the fraud is equally about the failure to disclose material information as it is that the amounts demanded on mortgage statements were false because they did not correspond to the actual amounts owed pursuant to the mortgage agreements relied upon by Defendants. Based on the alleged nature of the fraudulent scheme, the lack of an explicit “duty to disclose” is not dispositive in light of affirmative fraud that is also alleged.
The Court notes that, unlike the unjust enrichment claim, Defendants provide authorities from California, Oregon, and Tennessee in support of dismissing the fraud claim. Plaintiffs will ultimately bear the burden of establishing whether their fraud claim can be certified as a nationwide class and the Court declines to engage in a choice of law analysis at this juncture. However, regardless of which state’s law applies here, Defendants’ argument fails because Plaintiffs have alleged more than a fraud claim of omission here.
*25 For the foregoing reasons, the Court Denies Defendants’ Motion to Dismiss the fifth claim for fraud.
F. Request to Dismiss JPMorgan Chase & Co. Under Rule 8
Defendants argue that JPMorgan Chase & Co. must be dismissed as a Defendant for two reasons: first, it is a non-operating holding company that “could not conceivably have taken any action” attributed to the Chase Enterprise. (Mot. at 25.) Second, the allegations do not provide fair notice under Federal Rule of Civil Procedure 8 because they are conclusory. (Id. (citing Compl. ¶ 26).)
Plaintiffs concede that JPMorgan Chase & Co. is not itself a national bank or an operating subsidiary thereof (Opp. at 10), but does not specifically address Defendant’s argument for dismissal. Defendants emphasize this lack of opposition, and re-assert that JPMorgan Chase & Co. is merely a holding company that “could not have been involved in any purported conduct here.” (Reply at 9 n. 1 .)
While Plaintiffs did not explicitly state that they oppose this portion of the Motion to Dismiss, they do highlight in their Opposition that there are allegations that each of the Defendants (including J.P. Morgan Chase & Co.) was an active participant in the scheme to defraud. (See Opp. at 23 (citing Compl. ¶ 109).) The Court further notes that there are additional allegations regarding J.P. Morgan Chase & Co. in the Complaint. (See id. ¶ 26 (J.P. Morgan Chase & Co. exercises specific and financial control over other Defendants’ operations, dictates their policies and practices, exercises power and control over them with regard to the conduct alleged in the Complaint, and is the ultimate recipient of the ill-gotten gains).) Plaintiffs also allege that executives at the highest levels of J.P. Morgan Chase & Co. organized the fraudulent scheme. (Id. ¶¶ 26 & 109, 132 Cal.Rptr.2d 220.) At the pleading stage, this states a plausible claim against J.P. Morgan Chase & Co. and Defendants have not provided any concrete reason that it could not have “conceivably” engaged in any part of the conduct alleged in the Complaint.
For these reasons, the Court Denies Defendants’ Motion to Dismiss J.P. Morgan Chase & Co. as a Defendant for the claims that have survived this Motion to Dismiss—i.e., the UCL claim, unjust enrichment, and fraud.
IV. Conclusion
For the foregoing reasons, the Court Grants in Part and Denies in Part Defendants’ Motion to Dismiss. The Motion to Dismiss under Rule 12(b)(1) and Defendants’ arguments as to standing are hereby Denied. The second and third claims for violation of RICO and conspiracy to violate RICO, respectively, are Dismissed With Leave to Amend. Defendants’ Motion to Dismiss the first claim for violation of the UCL, fourth claim for unjust enrichment, and fifth claim for fraud is Denied.
Plaintiffs must file an amended complaint within twenty-one (21) days from the date of this Order. If Plaintiffs do not wish to file an amended complaint at this time, Plaintiffs are granted leave to file a motion for leave to amend if future discovery reveals a factual basis to support the dismissed RICO claims. In that case, Plaintiffs shall file a notice stating that they intend to stand on the first, fourth, and fifth claims as pled in the Complaint (Dkt. No. 1), and the Court will deem the Complaint to be operative as of the date of that notice. Defendants shall have fourteen (14) days to respond to the amended complaint or the filing of the notice described above.
*26 This Order terminates Dkt. No. 6.
It Is So Ordered.
Footnotes
1
Plaintiffs are citizens of California, Tennessee, and Oregon. (Compl.¶¶ 18–20, 60–69.) Plaintiffs allege that J.P. Morgan Chase & Co. is a corporation organized under the laws of Delaware with its principal place of business in New York. (Id. ¶ 21.) Defendant J.P. Morgan Chase Bank, N.A. is a subsidiary of J.P. Morgan Chase & Co. and is a national bank organized and existing as a national association under the National Bank Act, 12 U.S.C. section 21, et seq., with its principal place of business in Columbus, Ohio. (Id. ¶ 22.) Plaintiffs further allege that Defendant Chase Home Finance LLC is a subsidiary of the other Defendants and a Delaware limited liability company with its principal place of business in New Jersey. (Id. ¶ 23.) Plaintiffs assert that J.P. Morgan Chase & Co. exercises specific and financial control over other Defendants’ operations, dictates their policies and practices, and exercises power and control over them with regard to the conduct alleged in the Complaint. (Id. ¶ 26.) J.P. Morgan Chase & Co. is further alleged to be the ultimate recipient of the “ill-gotten gains” alleged in the Complaint. (Id.) Plaintiffs allege that executives at the highest levels of J.P. Morgan Chase & Co. and J.P. Morgan Chase Bank, N.A. organized the fraudulent scheme, which was then carried out by executives and employees of all Defendants. (Id.)
2
The UCL claim is brought on behalf of Plaintiff Ellis and members of the California Sub–Class. (Compl.¶ 91.) All other claims in this action are brought on behalf of all Plaintiffs and the members of the Nationwide Sub–Class. (Id. ¶¶ 104, 126, 131 & 141.)
3
The property preservation vendors include: Safeguard Real Estate Properties, LLC, d/b/a Safeguard Properties, LLC; Mortgage Contracting Services, LLC; and LPS Field Services, Inc. (Compl.¶ 106.)
4
Exhibits A and C–G to the Motion RJN consist of the Consent Order and status reports, stipulations, or publications relating to the Consent Order executed by and/or issued by the OCC. Exhibit B is a printout from the Federal Deposit Insurance Corporation (“FDIC”) website reflecting that JPMorgan Chase Bank, National Association is FDIC insured. Exhibit H is a copy of civil minutes dated August 6, 2012 in Bakenie v. JPMorgan Chase Bank, N.A., No. SACV 16–60 JVS (MLGx) (C.D.Cal.) (Selna, J.).
5
Exhibit A is an engagement letter between Deloitte & Touche LLP and J.P. Morgan Chase Bank, N.A. regarding a foreclosure review pursuant to the Consent Order with the OCC. Exhibit B is an excerpt of the Consent Judgment between Chase, the United States, and 49 State Attorneys General in United States v. Bank of America Corporation, et al., No. 1:12–cv–361 (D.D.C. Apr. 4, 2012). Exhibit C is an exhibit to Consent Judgment attached as Exhibit B. Exhibit D consists of Remarks by John Walsh, Acting Comptroller of the Currency before the 2012 National Interagency Community Reinvestment Conference on March 26, 2012.
6
Exhibit 1 is a Statement of Mark Pearce, Director of the Division of Depositor and Consumer Protection of the FDIC, made before the Subcommittees on Financial Institutions and Consumer Credit, and Oversight and Investigations Committee on Financial Services of the U.S. House of Representatives on July 7, 2011. Exhibit 2 is a “Borrowers’ Quick Reference Guide to the Financial Remediation Framework” available on the OCC website. Exhibit 3 is a copy of the complete Consent Judgment and exhibits in United States v. Bank of America Corporation, et al., No. 1:12–cv–361 (D.D.C. Apr. 4, 2012).
7
The Court notes that the “Bank” referenced in the Consent Order was J.P. Morgan Chase Bank, N.A., but the Consent Order also applied to subsidiaries of the Bank, even though those subsidiaries were not named as parties to the Order. Consent Order, Art. XIII § 7. This Order may refer to the “Bank” in the Consent Order as Chase, or vice versa.
8
While the Amendment superseded Article VII of the prior Consent Order, it “d[id] not replace the other remaining Articles of the 2011 Consent Order or the agreement by and between the Bank and the [OCC] dated February 27, 2012, both of which shall remain in effect without modification.” Amendment at 1.
9
Among the many purposes of the Foreclosure Review, the independent consultant was to determine “whether a delinquent borrower’s account was only charged fees and/or penalties that were permissible under the terms of the borrower’s loan documents, applicable state and federal law, and were reasonable and customary” and “whether the frequency that fees were assessed to any delinquent borrower’s account (including broker price opinions) was excessive under the terms of the borrower’s loan documents, and applicable state and federal law.” Consent Order, Art. VII §§ 3(e)-(f).
10
The OCC issued a Financial Remediation Framework for Use in Independent Foreclosure Review on June 21, 2012. (Motion RJN, Ex. F .) The framework provided “examples of situations where compensation or other remediation is required for financial injury due to servicer errors, misrepresentations, or other deficiencies. The independent consultants will use the Framework to recommend remediation for financial injury identified during the Independent Foreclosure Review.”
11
The Bank agreed to make a cash payment of $753,250,131.00 into the qualified settlement fund for borrowers who had a pending or completed foreclosure on their primary residence any time from January 1, 2009 to December 31, 2010. Amendment, Art. I § 1.
12
By no later than January 7, 2015, the Bank will provide loss mitigation or other foreclosure prevention actions in the amount of $1,205,200,210.00. Amendment, Art. IV § 1.
13
Defendants also seem to argue that even if the Court and the independent review both conclude the fees were reasonable, jurisdiction is still lacking because Defendants would not know whose orders control. (Mot. at 13.)
14
The Court notes that despite Plaintiffs’ frequent references to “parallel or coextensive subject matter jurisdiction,” the Court sees no such terminology in either Section 1818(i) or American Fair Credit Ass’n—which Plaintiffs appear to cite as authority.
15
Specifically, Chase agreed it “shall not impose unnecessary or duplicative property inspection, property preservation or valuation fees on the borrower” including a prohibition on “impos[ing] its own mark-ups on Servicer initiated third-party default or foreclosure related services.” NMS Consent Judgment at A–36–A–37. Moreover, “[c]laims and defenses asserted by third parties, including individual mortgage loan borrowers on an individual and class basis” were not released and were specifically reserved by the NMS Consent Judgment. Id. at G–6 & G–10.
16
Defendants respond that the NMS was “expressly negotiated” between Chase and the OCC such that it would not “affect” the OCC Consent Order. (Reply at 5; see NMS Consent Judgment at F–36 (reserving and not releasing claims pursuant to Section 1818 or “any action by the [federal banking agency] to enforce the Consent Order”).)
17
The Court takes judicial notice of these statements in the Engagement Letter because such letter was provided to the OCC pursuant to the Consent Order under Article VII, section 2. The document is publicly-available on the OCC’s website and Plaintiffs have not objected to this Court taking judicial notice.
18
“In no event shall the Bank request or require any borrower to execute a waiver of any claims against the Bank (including any agent of the Bank) in connection with any payment or Foreclosure Prevention assistance pursuant to this Amendment to the Consent Order. However, nothing herein shall operate to bar the Bank from asserting in the future in any separate litigation … any right that may exist under applicable law to offset the amounts received by a borrower through the distribution process set forth above.” Amendment, Art. V § 3.
19
In determining whether the doctrine of primary jurisdiction applies, the Ninth Circuit also has considered: “(1) [the] need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration.” Clark, 523 F.3d at 1115 (citing Syntek Semiconductor Co., Ltd., v. Microchip Tech. Corp., 307 F.3d 775, 781 (9th Cir.2002)).
20
Specifically, Defendants identify the applicable regulations as 12 C.F.R. section 7.4002(a), which provides that “[a] national bank may charge its customers non-interest charges and fees, including deposit and account service charges.” A bank engages in “safe and sound banking principles” in establishing such charges and fees “if [it] employs a decision-making process through which is considers the following factors, among others: (i) The cost incurred by the bank in providing the service; (ii) The deterrence of misuse by customers of banking services; (iii) The enhancement of the competitive position of the bank in accordance with the bank’s business plan and marketing strategy; and (iv) The maintenance of the safety and soundness of the institution.” 12 C.F.R. § 7.4002(b)(2)(i)-(iv).
In addition, 12 C.F.R. section 34.4(a) provides that a national bank may make real estate loans without regard to state law limitations concerning: “(9) Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents; (10) Processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages.” 12 C.F.R. § 34.4(a)(9)-(10).
21
The “fraudulent” conduct violating Section 17200 included failure to disclose (or to adequately disclose) the challenged practices and making misleading statements to consumers regarding the practice. Gutierrez v. Wells Fargo Bank, N.A., 730 F.Supp.2d 1080, 1126–28 (N.D.Cal.2010) (“Gutierrez I ”).
22
Defendants argue that the RICO claims are preempted because they are based on state law breach of contract claims. (Mot. at 18.) The Court finds that this argument, although couched as preemption, attacks the substance of the RICO claims and is unrelated to preemption by the NBA. The Court will address RICO, infra.
23
However, where a plaintiff is a governmental entity not acting as a “consumer” but “to enforce the laws or promote the general welfare” the analysis is slightly different. Canyon County, 519 F.3d at 976–80. Canyon County sought to recover damages under RICO for monies it spent on public health care and law enforcement services for undocumented immigrants. Id. at 971. Financial loss in that specific context was insufficient to allege injury to one’s “business or property.” Id. at 975–76. Accordingly, the Ninth Circuit held that the county lacked RICO standing. Id. at 976–80.
24
A “ ‘person’ includes any individual or entity capable of holding a legal or beneficial interest in property.” 18 U.S.C. § 1961(3). An “ ‘enterprise’ includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” 18 U.S.C. § 1961(4).
25
The Ninth Circuit in Odom noted that the definition of an enterprise is, based on its text, “not very demanding.” 486 F.3d at 548; Boyle, 556 U.S. at 944 (“the very concept of an association in fact is expansive”). In fact, the Supreme Court has recognized that “RICO is to be read broadly” and is to “be liberally construed to effectuate its remedial purposes.” Sedima, S.P.R.I v. Imrex Co., Inc., 473 U.S. 479, 497–98, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985) (quoting Pub.L. 91–452 § 904(a), 84 Stat. 947 (1970)); see Boyle, 556 U.S. at 946 (association-in-fact enterprise must have three structural features: a purpose; relationships among those associated with the enterprise; and longevity sufficient to permit these associations to pursue the enterprise’s purpose).
26
In light of the Court’s dismissal on these grounds, the Court declines to address additional arguments raised by Defendants. To the extent that Plaintiffs choose to amend their complaint, Defendants may not re-argue on a future motion to dismiss any argument that has been rejected in this Order. In addition, Defendants may not raise for the first time on a future motion to dismiss any argument that was previously available but not raised on this Motion.
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