LeMaster v. Ditech Financial LLC

Background

Valerie LeMaster sued Ditech Financial LLC, formerly known as Green Tree Servicing, LLC; Federal National Mortgage Association; and the Consumer Financial Protection Bureau. She alleged that the defendants breached a 2015 Consent Order resolving an action brought by the Federal Trade Commission and the Consumer Financial Protection Bureau against Ditech for alleged violations of federal consumer-protection laws.

Under the Consent Order, Ditech agreed, among other things, to pay $48 million to the Consumer Financial Protection Bureau to create a consumer redress fund. The order was not related to LeMaster’s state-court foreclosure and eviction litigation, and LeMaster was not a party to it. In this federal action, she alleged that she was an affected customer and third-party beneficiary who could enforce the Consent Order. She also asserted state-law claims against Ditech and Federal National Mortgage Association, including fraud, negligent misrepresentation, breach of an implied duty of good faith and fair dealing, and negligence.

Motions and jurisdiction

The Consumer Financial Protection Bureau moved to dismiss for lack of standing. Standing is the legal requirement that a person have the right to bring a claim in court. Ditech and Federal National Mortgage Association moved for judgment on the pleadings, asking the court to rule based on the pleadings without a trial. Magistrate Judge David T. Schultz recommended granting the motions. LeMaster objected.

The district court reviewed the challenged portions of the recommendation from the beginning, as required when a party makes specific objections. It held that whether the Consent Order allowed third-party enforcement was a legal question that could be answered by reading the order and applying case law; discovery was unnecessary.

Federal claims

The court relied on authority stating that a person who is not a party to a government consent decree generally cannot enforce it unless the government explicitly agrees to third-party enforcement. The Consent Order contained no such agreement. Even if LeMaster might have benefited from the Consent Order, the court explained that receiving a benefit does not itself create a legally enforceable right to enforce the order.

The court rejected LeMaster’s arguments concerning a prior appellate decision and Federal Rule of Civil Procedure 71. It explained that Rule 71 addresses the procedure for enforcing an order when relief is granted to or against a nonparty; it does not itself give a third party the ability to enforce an order. The court also agreed that LeMaster’s complaint did not assert a claim under the Administrative Procedure Act. The court noted that a claim based on the Consumer Financial Protection Bureau’s alleged failure to enforce the Consent Order for LeMaster’s individual case would likely not be reviewable, but it did not treat the complaint as asserting such a claim.

State-law claims

LeMaster acknowledged that the court’s only basis for hearing her state-law claims was supplemental jurisdiction, which can allow a federal court to hear related state-law claims when it has original jurisdiction over federal claims. Because LeMaster lacked standing to assert the federal claims, the court concluded that it lacked subject-matter jurisdiction over the state-law claims as well. The court added that, even if supplemental jurisdiction existed, it would decline to exercise it.

Disposition

The court overruled LeMaster’s objections and adopted the Report and Recommendation. The Consumer Financial Protection Bureau’s motion to dismiss was granted. Ditech Financial LLC and Federal National Mortgage Association’s motion for judgment on the pleadings was granted in part: LeMaster’s Consent Order claims and her state-law claims were each dismissed without prejudice. Her motion for a preliminary injunction to stop eviction was denied as moot. The entire action was dismissed without prejudice for lack of subject-matter jurisdiction.