Bostwick v. SN Servicing Corporation

Background

After an earlier dismissal order, the plaintiffs filed a Third Amended Complaint against SN Servicing Corporation and U.S. Bank. They alleged that SN violated the Rosenthal Fair Debt Collection Practices Act, a California law governing debt collection, by providing an incorrect reinstatement quote after the plaintiffs requested one. The plaintiffs alleged that the quote contained unexplained charges and omitted bankruptcy payments.

The complaint also referred to a letter from Seterus stating that future payments should be sent to SN. The letter was quickly retracted, and the complaint did not allege coordination between Seterus and SN concerning that communication. Seterus filed an answer and did not participate in this motion.

The defendants moved to dismiss for failure to state a claim under Rule 12(b)(6), which tests whether a complaint alleges enough facts to support a legally valid claim.

Analysis

The court denied the motion as to SN. It explained that a mortgage servicer can qualify as a debt collector under the Rosenthal Act when it engages in debt-collection practices to obtain repayment of mortgage debt. The plaintiffs alleged that SN provided a reinstatement quote that misrepresented the amount due. At this stage, the court had to accept that allegation as true.

The court applied an objective standard asking whether the communication would likely mislead the least sophisticated debtor. It concluded that the plaintiffs’ allegations, though brief, were enough to state a claim based on a potentially material misrepresentation about the amount owed. The court also rejected the defendants’ argument that the complaint should be dismissed for failing to allege damages attributable to SN, explaining that the plaintiffs had not been shown to need more detailed damages allegations to survive the motion.

The court granted the motion as to U.S. Bank. The complaint alleged that U.S. Bank was the beneficiary of the loan, but it did not allege that U.S. Bank engaged in debt collection, provided the reinstatement quote, or participated in the other conduct. The court stated that U.S. Bank could be held responsible only for its own alleged actions absent a factual or legal basis for holding it liable for another defendant’s conduct.

Disposition

The court granted in part and denied in part the defendants’ motion to dismiss the Third Amended Complaint. The claim against SN was allowed to proceed. The court dismissed all claims related to U.S. Bank without prejudice and gave the plaintiffs leave to file an amended complaint within 21 days. The amended complaint had to include a comparison showing the changes from the current complaint.