Rahi v. Specialized Loan Servicing LLC

Background

Baldev and Surinder Rahi sued in their individual capacities and as trustees and beneficiaries of their living trust. The dispute concerns a mortgage obtained from Bank of America in 2005. After later modifications, the loan was assigned to MEB Loan Trust IV, U.S. Bank National Association, in 2019, and Specialized Loan Servicing LLC became the servicer.

The plaintiffs alleged that several mortgage payments were not properly credited, including six payments made between May and October 2020. They alleged that these accounting errors affected their credit scores and prevented them from obtaining financing for the Appian Way Project. They asserted claims under the Rosenthal Fair Debt Collection Practices Act, the federal Fair Debt Collection Practices Act, the implied covenant of good faith and fair dealing, the Fair Credit Reporting Act, and the California Consumer Credit Reporting Agencies Act.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not plausibly state a legal claim.

Rulings

The court dismissed with prejudice the Rosenthal Act claim brought on behalf of the trust. The trust was not alleged to be a party to the loan and therefore was not a debtor for purposes of that Act. The court did not dismiss the Rosenthal Act claim brought by the individual plaintiffs. It held that the alleged monthly notices of default supported a continuing-violation theory and that the claim survived even without deciding the plaintiffs’ equitable-tolling argument.

The court dismissed with prejudice the plaintiffs’ Fair Debt Collection Practices Act claim against U.S. Bank. The plaintiffs did not plausibly allege that U.S. Bank’s principal purpose was debt collection or that it regularly collected debts owed to others. The court relied on the rule that an entity collecting its own debt does not qualify as a debt collector under the regular-collection definition, even if it acquired the debt after default.

The court denied Bank of America’s and U.S. Bank’s motions to dismiss the implied-covenant claim. The court concluded that the plaintiffs’ allegations that late payments were later cured did not necessarily defeat their claim that the defendants failed to account properly for payments. The claim also plausibly alleged harm from reduced creditworthiness and was not dismissed on preemption grounds. The court stated that North Carolina law appeared to govern because the loan agreement selected North Carolina law, but it also determined that the claim could survive under California law.

The court denied Bank of America’s motion to dismiss the Fair Credit Reporting Act claim. The plaintiffs alleged that they identified inaccurate information, notified consumer reporting agencies, and that Bank of America failed to investigate after receiving notice of the dispute. The court also held that the complaint alleged Bank of America reported inaccurate information and that the plaintiffs attached credit reports supporting that allegation. The court did not reach the argument that a cited provision applied only to consumer reporting agencies because the plaintiffs did not rely on it as an independent basis for relief.

The court dismissed with prejudice the California Consumer Credit Reporting Agencies Act claim against Bank of America. The plaintiffs had not plausibly alleged that Bank of America knew or should have known that the information it furnished was inaccurate when it reported the information. The court noted that the plaintiffs did not raise the alleged accounting errors until after the reporting and had already received four opportunities to plead the claim.

The court denied the defendants’ requests to strike damages allegations. It held that the plaintiffs, as trustees and beneficiaries, had grounds to seek damages on behalf of the trust and that the complaint also alleged that they spent their own funds improving the properties. The court further stated that emotional-distress damages may be recoverable for claims such as the implied-covenant and Fair Debt Collection Practices Act claims.

Disposition

The court dismissed, with prejudice, three matters: the Rosenthal Act claim brought on behalf of the trust, the plaintiffs’ Fair Debt Collection Practices Act claim, and the plaintiffs’ California Consumer Credit Reporting Agencies Act claim. The defendants’ motions to dismiss the remaining claims were denied, and the motions to strike were denied. The order disposed of ECF Nos. 85, 87, and 89. Judge Laurel Beeler signed the order as a United States Magistrate Judge.