Torliatt v. Ocwen Loan Servicing, LLC

Background

Lawrence Torliatt filed a proposed class action concerning “Pay to Pay” convenience fees charged when mortgage payments were made online or by telephone. His mortgage was serviced by Fannie Mae and sub-serviced by Ocwen. Effective June 2019, servicing transferred to PHH Mortgage Corp. The fees were processed by Western Union and cost Ocwen and PHH between $0.20 and $0.40 per transaction, according to the amended complaint.

Torliatt alleged that the fees violated the federal Fair Debt Collection Practices Act (FDCPA), the California Rosenthal Fair Debt Collection Practices Act (Rosenthal Act), California’s unfair competition law (UCL), and the deed of trust. The court addressed PHH’s motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim.

FDCPA claim

The court held that Torliatt adequately alleged that charging the convenience fees violated FDCPA § 1692f(1), which generally prohibits collecting a fee or other amount unless the agreement creating the debt expressly authorizes it or the law permits it. The court followed the majority of district courts in the Ninth Circuit that had found similar convenience fees could violate the FDCPA at the pleading stage. It also found that PHH had not identified a state-law provision permitting the fees and did not argue that the loan contract expressly authorized them.

However, the court held that Torliatt did not adequately allege that PHH was a “debt collector” under the FDCPA. The complaint did not adequately allege that PHH regularly collected debts owed to another entity, and its allegation that PHH was a debt collector largely repeated the statutory definition. The court also found that Torliatt had not adequately shown that PHH fell outside the statute’s exclusion for certain debts not in default when obtained. The documents cited in the complaint did not show that Torliatt was in default when PHH began servicing the loan, and the court stated that an outstanding balance alone does not establish default.

Rosenthal Act and UCL claims

The court explained that the Rosenthal Act’s definition of “debt collector” is broader than the FDCPA’s definition and that mortgage servicers may qualify under the California statute. Although Torliatt’s allegations were thin, the court found them sufficient to state a Rosenthal Act claim. Because PHH acknowledged that the UCL claims rose or fell with the Rosenthal Act claim, the court also found that Torliatt adequately stated a UCL claim.

Breach-of-contract claim

Torliatt relied on paragraph 14 of the deed of trust, which stated that the lender could not charge fees expressly prohibited by the security instrument or applicable law. The court held that Torliatt had not adequately alleged that the convenience fees were expressly prohibited by the FDCPA or Rosenthal Act. The court therefore dismissed the breach-of-contract claim.

Personal jurisdiction and disposition

PHH argued that claims by proposed class members who did not live in the forum state should be dismissed for lack of personal jurisdiction based on a Supreme Court decision concerning personal jurisdiction. The court declined to reconsider its prior holding that the decision did not apply to class actions.

The court stated that PHH’s motion to dismiss was GRANTED IN PART AND DENIED IN PART. Torliatt’s FDCPA and breach-of-contract claims were DISMISSED WITHOUT PREJUDICE, and the court ordered him to file an amended complaint by May 1, 2020. The motion was denied as to the Rosenthal Act and UCL claims.