Powell v. Ocwen Financial Corporation
- Vernon Broderick
- 1:18-cv-01951
- U.S. District Court · Southern District of New York
- 8
In Powell v. Ocwen Financial Corporation, Judge Aaron granted plaintiffs’ motion to file a second amended ERISA complaint, subject to one correction.
The order affected the trustees of The United Food & Commercial Workers Union & Employers Midwest Pension Fund and the defendants in their ERISA action. It allowed the plaintiffs to add allegations concerning four additional trusts, while requiring removal of references to injunctive relief against the Assurant defendants.
What happened
In Powell v. Ocwen Financial Corporation, trustees of the United Food & Commercial Workers Union & Employers Midwest Pension Fund sued Ocwen and other defendants under the Employee Retirement Income Security Act. They alleged misconduct involving the management of mortgages underlying trusts in which the fund invested and sought to add four additional trust investments to their complaint.
The defendants opposed the amendment, arguing that the plaintiffs had waited too long, that the amendment would cause unfair costs and discovery burdens, and that the new claims were legally insufficient. The plaintiffs said they learned only later that the fund held interests in the additional trusts and that identifying the relevant mortgage servicers had been difficult.
Judge Aaron granted the motion to amend, finding that the delay did not show bad faith, the added burden did not amount to unfair prejudice, and the defendants had not shown that the amendments were futile. The plaintiffs were ordered to remove references to prospective relief against the Assurant defendants and file the second amended complaint within seven days.
The detailed version
- Powell v. Ocwen Financial Corporation · No. 1:18-cv-01951
- Vernon Broderick
- Nov. 21, 2019
Background
The plaintiffs—Ronald E. Powell, Robert O’Toole, Robert Wilson, Brian Jordan, Donald G. Schaper, and William R. Seehafer, as trustees of The United Food & Commercial Workers Union & Employers Midwest Pension Fund—brought a purported class action under the Employee Retirement Income Security Act of 1974 against Ocwen Financial Corporation and related entities, Wells Fargo Bank, N.A., the Assurant defendants, Southwest Business Corporation, and other defendants.
The amended complaint alleged that the defendants engaged in misconduct concerning the management of residential mortgages underlying two trusts created by American Home Mortgage Investment Corporation in which the plaintiffs’ benefit plan invested. The claims alleged breach of fiduciary duty under 29 U.S.C. §§ 1105 and 1109 and prohibited transactions under 29 U.S.C. § 1106(b).
In an earlier order, District Judge Vernon Broderick granted in part and denied in part various motions to dismiss. The court converted Ocwen’s and Wells Fargo’s motions to dismiss into motions for summary judgment on two threshold issues: whether the mortgages qualified as plan assets and whether Ocwen qualified as a fiduciary of the plan. The parties then conducted limited discovery on those issues.
Motion to Amend
The plaintiffs later determined that the plan owned certificates in three additional pooling and servicing agreement trusts and held a note in one additional indenture trust for which Ocwen or PHH Mortgage Corporation served as servicer for some or all of the securitized mortgages. These trusts were not included in the amended complaint. The plaintiffs moved under Federal Rule of Civil Procedure 15(a) for permission to file a second amended complaint adding them.
Rule 15(a) provides that courts should freely allow amendments when justice requires. The court explained that leave to amend may be denied for good reason, including undue delay, bad faith, futility, or undue prejudice. The party opposing amendment bears the burden of showing prejudice, bad faith, or futility.
Court’s Analysis
The court found the plaintiffs’ explanation for the delay plausible and not evidence of bad faith. Counsel stated that information about the plan’s investments and the identity of mortgage servicers was scattered and difficult to obtain. The court concluded that the plaintiffs’ failure to identify all relevant trusts sooner did not rise to the level of bad faith or show a dilatory motive.
The court acknowledged that adding the trusts would create some additional discovery and litigation burdens for the defendants. It nevertheless found that the disadvantage was not substantial enough to bar the amendment and therefore did not constitute undue prejudice.
The court also rejected the defendants’ futility arguments. Ocwen and Wells Fargo argued that no-action clauses in the additional trusts barred the claims. The court noted that Judge Broderick had already held in this case that no-action clauses did not bar the claims concerning the original trusts, and that the defendants’ cited cases did not involve ERISA breach-of-fiduciary-duty claims like those in the proposed second amended complaint. The court also held that the pleading satisfied the requirement for a short and plain statement of the claim, noting that specific facts were not necessary at that stage.
The proposed second amended complaint also added an ERISA prohibited-transaction claim under 29 U.S.C. § 1106(a), in addition to the previously alleged claim under § 1106(b). The court found no prejudice from allowing that amendment because the plaintiffs had signaled in earlier briefing that they intended to seek it. The court did not decide whether the § 1106(a) claim or any other claim would ultimately survive; it stated that the defendants could seek dismissal later on a more fully developed record.
Disposition
Judge Stewart D. Aaron granted the plaintiffs’ motion to amend. The plaintiffs were ordered to file the second amended complaint within seven days. They also had to remove references to injunctive relief against the Assurant defendants and file a redlined version showing those removals.
This order allowed the plaintiffs to revise their pleading; it did not decide the underlying ERISA claims.
Read the full 8-page opinion on CourtListener, the free public archive maintained by the Free Law Project.