Razuki v. Nationstar Mortgage, LLC

Background

Salam Razuki and Kenton Miller filed a First Amended Complaint as a proposed class action against Nationstar Mortgage, LLC, doing business as Mr. Cooper. They alleged that Nationstar failed to pay interest required by California law on escrow accounts containing property-tax and insurance funds for mortgage customers. The complaint asserted claims under California’s Unfair Competition Law, for breach of contract, and for unjust enrichment or quasi-contract.

Razuki and Miller alleged that they were California residents with Nationstar mortgages on California residences and that they did not receive all interest owed. They sought to represent a multistate class that included customers in several states, as well as a subclass of California residents.

Jurisdiction and proposed multistate class

Nationstar challenged the complaint’s jurisdictional allegations and argued that the plaintiffs could not sue on behalf of customers outside California. The court held that the complaint alleged enough facts to establish federal jurisdiction under the Class Action Fairness Act. It noted allegations of diversity of citizenship, more than $5 million in controversy, and a proposed class numbering in the hundreds of thousands.

The court treated the challenge to claims involving customers outside California as a threshold issue of standing, meaning whether the named plaintiffs had a sufficient personal connection to those claims. Because Razuki and Miller were California residents and property owners, and the complaint did not allege that they were injured by conduct in any other state, the court held that they could not represent Nationstar customers outside California at that time. The court said that any amended complaint should identify the state laws supporting out-of-state claims, because the existing complaint mentioned only California law.

Pleading sufficiency

The court examined whether the complaint plausibly alleged that Nationstar had to pay at least 2% interest on the escrow accounts. California Civil Code Section 2954.8 contains an exception for money that a state or federal regulator requires a nonbank financial institution to place in a non-interest-bearing demand trust account at a bank. The court explained that interest is required only for accounts outside that exception.

The complaint did not allege facts describing the type of accounts Nationstar used for the plaintiffs’ escrow funds. It alleged only that the plaintiffs deposited money into escrow accounts and that Nationstar had to pay interest if applicable law required it. Because the allegations did not show whether the accounts fell inside or outside the statutory exception, the court found that the claims were possible but not plausible under the federal pleading rules.

Disposition

The court dismissed the amended complaint with leave to amend by April 20, 2020. It stated that new claims or defendants could be added only with the court’s express permission. The court also stated that failure to meet the deadline would result in dismissal of the case under Rule 41(b). Judge James Donato signed the order on March 26, 2020.