Tawfik v. Select Portfolio Servicing, Inc.

Background

Hussein Tawfik and Heidi Tawfik asserted California-law claims against JPMorgan Chase Bank, N.A. (Chase), Select Portfolio Servicing, Inc. (SPS), and U.S. Bank, N.A. The claims included declaratory relief, breach of contract, unjust enrichment, fraud, and violations of California’s Unfair Competition Law.

The dispute involved two properties. Chase acquired certain Washington Mutual assets, including the Foster City loan and related servicing rights. SPS serviced the Mountain View loan for U.S. Bank. The plaintiffs alleged that Chase claimed they owed about $106,000 more than they actually owed on the Foster City loan. They alleged that SPS and U.S. Bank charged more than the required monthly payment on the Mountain View loan, failed to credit approximately $80,000 in payments, charged interest on an inflated balance, and failed to report mortgage payments to credit agencies.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not adequately state a legally recognized claim. The court also granted the parties’ requests for judicial notice of the submitted court and loan documents because the plaintiffs did not dispute those documents’ authenticity.

Chase’s Motion

The court held that the plaintiffs’ theory against Chase failed as a matter of law. The bankruptcy proceedings included a stipulation preserving Chase’s legal, equitable, and contractual rights concerning its security interest in the Foster City property. The confirmed bankruptcy plan adopted that stipulation. The court concluded that the plan therefore did not eliminate the deferred, non-interest-bearing principal of approximately $108,000.

The court also held that the 2013 loan-modification agreement superseded the earlier adjustable-rate provision that allegedly capped the unpaid principal balance. The modification agreement stated that it amended and supplemented the mortgage and note, superseded conflicting provisions, and required payment of the deferred principal balance. The court dismissed all claims against Chase with prejudice because amendment would be futile under the documents’ plain language.

SPS and U.S. Bank: Statute of Limitations

The court applied four-year limitations periods to the breach-of-contract and Unfair Competition Law claims discussed in this section. It held that claims based on monthly overcharges occurring outside the four-year period were barred. However, under the continuous-accrual doctrine, each monthly overcharge created a separate limitations period. As a result, claims based on overcharges occurring within the limitations period were not barred.

The court applied the same reasoning to the alleged failure to credit approximately $80,000 in January 2016 and the later interest charges based on the allegedly inflated balance. Claims based on older interest charges were barred, but the court held that SPS had not shown as a matter of law that claims based on interest charges during the limitations period—or a remedy requiring credit for the payment—were time-barred.

The court also held that SPS had not shown that the credit-reporting claim was time-barred. The complaint did not state when SPS allegedly began failing to report the plaintiffs’ mortgage payments, and the court declined to assume that the credit-reporting claim was necessarily based on the January 2016 failure to credit the payment.

SPS and U.S. Bank: Failure to State a Claim

For breach of contract, the court declined to dismiss the claim. The bankruptcy stipulation stated that the monthly principal-and-interest payment was $4,300.70, and the court concluded that the complaint plausibly alleged that SPS breached the parties’ agreement by charging $4,370.89. The court also stated that the related declaratory-relief claim could proceed because the parties disputed their contractual duties.

The court dismissed the unjust-enrichment claim with prejudice. Because the dispute concerned the interpretation of an enforceable contract, the existence of that contract barred an unjust-enrichment claim.

The court dismissed the Unfair Competition Law claims with leave to amend. The claim under the unlawful-practices theory failed because a breach of contract alone is not an underlying violation of state or federal law for that theory. The allegations under the unfairness theory were only conclusory and lacked supporting facts.

The court also dismissed the fraud claims with leave to amend. Federal Rule of Civil Procedure 9(b) requires fraud to be pleaded with particularity, including the circumstances of who made the alleged misrepresentation, what was said, when and where it was said, and how it was fraudulent. The court found that the plaintiffs did not provide enough detail about SPS’s statements regarding credit reporting or facts showing that SPS did not intend to report the payments.

Disposition

The court granted Chase’s motion to dismiss with prejudice. It granted in part and denied in part SPS and U.S. Bank’s motion to dismiss. The unjust-enrichment claim was dismissed with prejudice; the Unfair Competition Law and fraud claims were dismissed with leave to amend; and the declaratory-relief and breach-of-contract claims were not dismissed. The court allowed an amended complaint against SPS, if the plaintiffs chose to file one, within 21 days.