Nuth v. Newrez LLC

Background

Sarah Nuth and Kevin O’Neill alleged that Shellpoint inaccurately reported their mortgage loan as past due even though they had made timely payments. They also alleged that Shellpoint failed to conduct a reasonable investigation after they disputed the reporting with credit bureaus and directly with Shellpoint. The plaintiffs asserted claims under the Fair Credit Reporting Act, the California Consumer Credit Reporting Agencies Act, and the Rosenthal Act.

The dispute arose from a mortgage for the plaintiffs’ former home. After the plaintiffs experienced financial hardship in 2020, Shellpoint agreed to a payment accommodation and later deferred eighteen monthly payments. Shellpoint subsequently sent a loan-modification offer requiring three monthly trial payments. The plaintiffs alleged that they made those payments but that their account statements showed an unapplied payment and an incorrect past-due amount. Shellpoint later reported the loan as 90 days past due. The plaintiffs attributed a lower credit score, a denied vehicle-financing application, difficulty obtaining a mortgage, and a higher interest rate on a later home loan to that reporting.

Motion to Amend

The plaintiffs moved for leave to amend their complaint to add a putative class claim against Shellpoint. The proposed class consisted of California residents who received an accommodation as defined by the Coronavirus Aid, Relief, and Economic Security Act, were current before the accommodation, and whose accounts were reported as delinquent or past due after the accommodation ended because of nonpayments covered by the accommodation.

Federal Rule of Civil Procedure 15(a)(2) generally directs courts to freely allow amendments when justice requires. The court considered the factors identified in Foman v. Davis, including bad faith, undue delay, repeated failure to cure deficiencies, prejudice, and futility. The motion was filed before the deadline for amending pleadings, and the court found no evidence supporting defendants’ argument that plaintiffs were using the class claim to pressure defendants into a settlement.

Court’s Analysis

The court nevertheless found undue delay and prejudice to Shellpoint. Discovery had been conducted on the understanding that plaintiffs were pursuing only individual claims, and plaintiffs did not adequately explain why they waited to seek a class claim. The court reasoned that adding the class allegation would significantly enlarge the case and would resemble the intervention of many potential class members. This, the court stated, conflicted with Rule 23’s goal of deciding at an early practicable time whether a class action should proceed.

The court also examined potential problems with the proposed class. At oral argument, the parties identified a legal issue concerning whether the CARES Act prohibited Shellpoint from reporting a borrower as past due after a forbearance plan when the borrower later made partial payments required by a trial loan-modification plan. The court indicated that a narrower issue class or statutory-damages class might be possible, but it found the class proposed by plaintiffs more unwieldy and unmanageable, particularly at that late stage.

The court further discussed the relation-back doctrine, which can treat an amended claim as though it had been filed with the original complaint for statute-of-limitations purposes. The court assumed, without deciding, that each month of inaccurate reporting could be a separate claim. It held that the original complaint did not give notice of eventual class claims: the case-management statement said the action was not a class action, and the original complaint focused on the individual plaintiffs’ facts. The court explained that this made relation back unavailable for limitations purposes, but did not by itself require denial of the amendment.

Disposition

Because of the delay, the unwieldy proposed class, and the prejudice to Shellpoint, the court denied the plaintiffs’ motion for leave to amend the complaint. The order did not state that the denial was with or without prejudice. It also did not decide the underlying credit-reporting claims or whether the proposed class would ultimately be certified.