Silvester v. Selene Finance, LP

Background

Mark Silvester and Kendra Silvester brought a proposed class action against Selene Finance, LP concerning Selene’s servicing of a mortgage between the plaintiffs and JP Morgan Chase Bank, N.A. The amended complaint asserted eight claims: three under the Racketeer Influenced and Corrupt Organizations Act (RICO), one under the Fair Debt Collection Practices Act (FDCPA), two under New York General Business Law § 349, and two for breach of contract. The proposed § 349 and contract claims included proposed national and New York classes.

Selene moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. The court considered the complaint, documents attached to or incorporated into it, and certain other documents the court found proper to consider at this stage.

RICO claims

The court dismissed the claim under 18 U.S.C. § 1962(c). Plaintiffs alleged that Selene, its personnel, and inspection companies formed an association-in-fact enterprise to increase profits by charging unnecessary inspection fees. The court found that the amended complaint did not plausibly allege that Selene and the inspection companies shared a common purpose beyond Selene’s computer system automatically ordering inspections.

The court also found that the alleged mail- and wire-fraud acts were essentially alleged contract violations rather than qualifying RICO predicate acts. In addition, the alleged fraud was not pleaded with the particularity required by Rule 9(b), because plaintiffs did not identify sufficient details about the communications, participants, timing, locations, or reasons the communications were fraudulent.

Because plaintiffs did not adequately plead the enterprise or predicate acts required for the § 1962(c) claim, the court dismissed the § 1962(a) claim as well. The court dismissed the § 1962(d) conspiracy claim because plaintiffs had not adequately pleaded a substantive RICO violation.

FDCPA claim

The court dismissed the FDCPA claim, which alleged that Selene charged excessive or false inspection fees and misrepresented those fees. The court relied on the mortgage terms, which authorized property inspections and related charges after default. It also found that plaintiffs had not plausibly alleged that they were charged for inspections that were never performed. The court noted that the alleged inspections were described as “drive-by” inspections, so the complaint did not provide a plausible basis to determine whether the inspections occurred.

New York consumer-protection claims

The fifth and sixth claims alleged violations of New York General Business Law § 349 for proposed national and New York classes. The court dismissed both claims. The mortgage disclosed that the lender could inspect the property, take steps to protect or assess its value after default, and charge for services connected to the default. The court concluded that plaintiffs were challenging the reasonableness or propriety of the fees under the mortgage, rather than identifying a materially misleading consumer practice.

Breach-of-contract claims

The seventh and eighth claims alleged that Selene breached the mortgage by charging for unnecessary or unperformed inspections and by violating certain New York Department of Financial Services regulations. The court dismissed both claims for several stated reasons.

First, plaintiffs did not respond to Selene’s argument that there was no contractual relationship between plaintiffs and Selene, and the court treated that issue as conceded. Second, the mortgage was between plaintiffs and the lender, not Selene, and the court found that acting as the loan servicer did not by itself create a contractual relationship between Selene and plaintiffs. Third, even assuming a contractual relationship through an agency arrangement, plaintiffs alleged that they had defaulted by failing to make mortgage payments. The court held that plaintiffs therefore could not allege their own required performance under the mortgage. The court also adopted plaintiffs’ failure to explain their performance as a separate basis for dismissal.

Disposition

The court granted Selene’s motion to dismiss. It dismissed all eight claims and directed the Clerk of Court to terminate the pending motion and close the case. The opinion does not state an additional prejudice designation for this dismissal. Judge Philip M. Halpern signed the order.