Lau v. Specialized Loan Servicing, LLC

Background

Zong Lau and Hui Lau brought claims arising from the foreclosure of an apartment formerly belonging to their late father, Jsang Kei Lau. After the court dismissed their First Amended Complaint, it allowed them to replead one portion of Count Two under the Real Estate Settlement Procedures Act (RESPA), a federal mortgage-servicing statute, based on an alleged failure to provide notice of a mortgage-servicing transfer. The court had previously terminated the other defendants, leaving Fay Servicing, LLC and Caliber Home Loans, Inc. as defendants on that claim.

The plaintiffs filed a Second Amended Complaint. Fay and Caliber moved to dismiss it under Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6), or alternatively sought summary judgment under Rule 56. Magistrate Judge Gabriel W. Gorenstein recommended dismissal under Rule 12(b)(6) with prejudice and without leave to amend. He concluded that RESPA authorizes borrowers to sue and that the complaint did not allege facts showing that the plaintiffs were borrowers under RESPA. He also recommended denying further amendment because the plaintiffs had already amended twice and had not indicated that additional facts could cure the problem.

Plaintiffs’ Objection

The plaintiffs made one objection. They argued that Fay and Caliber had irrevocably waived the statutory-standing defense by failing to raise it in their earlier motion to dismiss the First Amended Complaint.

The court rejected that argument. It explained that statutory standing, unlike constitutional standing, concerns whether a particular plaintiff has a cause of action under a statute and therefore relates to the merits of the statutory claim. The court distinguished this type of defense from defenses involving a party’s willingness to submit to the court’s authority, such as personal jurisdiction, venue, service, or an arbitration agreement. The court concluded that the statutory-standing defense was a merits-based defense that became available again when the plaintiffs filed the Second Amended Complaint. Fay and Caliber therefore had not permanently waived it.

Ruling

Judge Cronan overruled the plaintiffs’ objection and adopted the Report and Recommendation in its entirety. The court dismissed the Second Amended Complaint with prejudice and without leave to amend, directed the Clerk to enter judgment in favor of all defendants, and ordered the case closed. The court also certified that an appeal would not be taken in good faith and denied fee-free appeal status under 28 U.S.C. § 1915(a)(3).