Bigsby v. Barclays Capital Real Estate, Inc., 14-cv-1398 (JGK)

391 F.Supp.3d 336

Lamar BIGSBY, Jr., Karla Freeland, Maria Brandt, Kathleen Murry, and Herman Grimes, on behalf of themselves and all others similarly situated, Plaintiffs,

v.BARCLAYS CAPITAL REAL ESTATE, INC., doing business as HomEq Servicing, Defendant.

14-cv-1398 (JGK)

United States District Court, S.D. New York.

Signed July 20, 2019

Joseph Karl Jones, Benjamin Jarret Wolf, Jones, Wolf & Kapasi, LLC, Paul Stewart Grobman, Paul Grobman, Esq., New York, NY, for Plaintiffs.

James Ellis Brandt, Michael Andrew Watsula, Serrin Andrew Turner, Tracey L. Orick, Latham & Watkins LLP, New York, NY, for Defendant.

OPINION & ORDER

JOHN G. KOELTL, District Judge:

This case was originally filed by plaintiffs Lamar Bigsby, Jr., and Karla Freeland more than five years ago against the defendant, Barclays Capital Real Estate, Inc., in its capacity as successor to a mortgage-servicing company known as HomEq Servicing Corp. The plaintiffs alleged that the defendant defrauded mortgagors in the assessment of foreclosure-related fees, giving rise to claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO") and related common law claims. The defendant filed a motion to dismiss, and the Court granted the motion in part and dismissed the plaintiffs' RICO claims. See Bigsby v. Barclays Capital Real Estate, Inc., 170 F. Supp. 3d 568 (S.D.N.Y. 2016) (" Bigsby I").

With leave of Court, the plaintiffs filed a second amended complaint, adding three additional plaintiffs – Maria Brandt, Kathleen Murry, and Herman Grimes – and repleading their RICO claims and adding other claims. The defendant filed another motion to dismiss, and the Court again granted the motion in part and dismissed several of the plaintiffs' claims, including their RICO claims. Bigsby v. Barclays Capital Real Estate, Inc., 298 F. Supp. 3d 708 (S.D.N.Y. 2018) (" Bigsby II"). The plaintiffs then filed a motion for reconsideration with respect to that decision, and the Court held that one of the plaintiffs' claims based on California law should not have been dismissed. See Dkt. No. 147 at 42.

The dust has settled, and the plaintiffs are left with claims for breach of contract, unjust enrichment, conversion, violation of the California Unfair Competition Law ("California UCL"), and violation of § 2924c of the California Civil Code.¹ The defendant has moved for summary judgment dismissing all the plaintiffs' remaining claims, and the plaintiffs have moved to strike certain documents submitted by the defendant in connection with its motion.

I.

The standard for granting summary judgment is well established. "The Court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; Gallo v. Prudential Residential Servs., Ltd. P'ship, 22 F.3d 1219, 1223 (2d Cir. 1994). "[T]he trial court's task at the summary judgment motion stage of the litigation is carefully limited to discerning whether there are any genuine issues of material fact to be tried, not to deciding them. Its duty, in short, is confined at this point to issue-finding; it does not extend to issue-resolution." Gallo, 22 F.3d at 1224. The moving party bears the initial burden of "informing the district court of the basis for its motion" and identifying the matter that "it believes demonstrate[s] the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323, 106 S.Ct. 2548. The substantive law governing the case will identify those facts that are material and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Summary judgment is improper if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). If the moving party meets its burden, the nonmoving party must produce evidence in the record and "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible." Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993).

II.

The plaintiffs – Lamar Bigsby, Jr., Karla Freeland, Maria Brandt, Kathleen Murry, and Herman Grimes – were mortgagors who each took out loans with various lenders. Def.'s 56.1 Stmt. ¶¶ 3, 20, 41, 54, 66. Bigsby was a resident of Georgia; Freeland was a resident of Massachusetts; and Brandt, Murry, and Grimes were residents of California. Second Am. Compl. ¶¶ 9–13. Each of the plaintiffs' loans, other than Kathleen Murry's, were securitized pursuant to a Pooling and Servicing Agreement, under which another corporation would serve as the trustee.² See Def.'s 56.1 Stmt. ¶¶ 3–7, 20–24, 41–45, 54–56, 66–70. Under the Pooling and Servicing Agreements, the plaintiffs' loans were serviced first by HomEq and then by the defendant. Id. All of the plaintiffs went into default on their mortgage obligations, and the defendant instituted foreclosure proceedings against them. The plaintiffs' claims are based on the defendant's alleged misconduct during those foreclosure proceedings and related bankruptcy proceedings. The plaintiffs argue that the defendant engaged in five discrete, unlawful schemes: the inflated fees scheme, the fee splitting scheme, the post-acceleration late fees scheme, the overcharging scheme, and the improper collection scheme.

A.

First, to carry out the "inflated fees scheme," the defendant allegedly hired outside counsel for foreclosure and bankruptcy proceedings, either directly or indirectly, through "outsourcers." Bigsby II, 298 F. Supp. 3d at 714 ; Second Am. Compl. ¶¶ 28–32. The defendant entered into a Master Servicing Agreement with a nonlegal, intermediary entity – often Fidelity National Foreclosure Solutions ("Fidelity") – which provided that the intermediary would serve as the defendant's representative in dealings with the hired outside counsel and be solely responsible for counsel's performance. Bigsby II, 298 F. Supp. 3d at 714. In exchange, the Master Servicing Agreement provided that the defendant would pay the intermediary a fee for each foreclosure and bankruptcy the intermediary monitored, and a continuing fee for each foreclosure (assessed every six months) so long as the mortgagor was "reasonably performing" on a payment plan. Id. These Master Servicing Agreements also set out maximum fees for services related to foreclosure and bankruptcy proceedings. Id.

Pursuant to the Master Servicing Agreements, the intermediary entities also entered into retainer agreements with outside counsel that contained schedules for the fees counsel was permitted to charge the defendant for foreclosure and bankruptcy proceedings. Id. The intermediaries and outside counsel then allegedly charged the defendant for legal fees that were above the maximums set in the Master Servicing Agreements and retainer agreements, and the defendant passed these fees onto the plaintiffs. Id.

The plaintiffs contend that the defendant engaged in this scheme during the foreclosures on the homes of Brandt, Murry, and Grimes, and during Bigsby's bankruptcy. The plaintiffs bring claims of unjust enrichment and conversion against the defendant for allegedly engaging in this scheme.

B.

Second, the alleged "fee splitting scheme" is similar to the inflated fees scheme and involves the same fees. The loan documents for the plaintiffs' mortgages were standard forms issued by Fannie Mae and Freddie Mac. Id. These forms permitted the defendant to assess various fees associated with foreclosure costs against mortgagors in default. Id. Some of the foreclosure-related fees the defendant assessed against the plaintiffs were listed as "attorney's fees" or "legal fees" and were allegedly designed to pass only the cost of foreclosure and bankruptcy counsel onto defaulting mortgagors. Id. The plaintiffs allege that the defendant, however, used these "attorney's fees" or "legal fees" not only to pass onto mortgagors the cost of counsel but also to pass on the cost of hiring the nonlegal intermediary to serve as an intermediary with counsel. Id. The plaintiffs claim that this scheme resulted in the defendant's collecting legal fees split with a nonlegal entity. See Second Am. Compl. ¶¶ 42–45. As evidence of this scheme, the plaintiffs point out that the defendant entered an indemnity agreement with Fidelity providing that Fidelity would hold the defendant harmless for "[a]ny allegations that the business model employed by [Fidelity] ... constitutes an impermissible ‘fee splitting’ or ‘referral fee’ arrangement." Bigsby II, 298 F. Supp. 3d at 714 (quoting Second Am. Compl. Ex. C).

The plaintiffs contend that this scheme affected Brandt, Murry, Grimes, and Bigsby. They claim that the scheme is unlawful because the "attorney's fees" the defendant ultimately collected from the plaintiffs had been split with a nonlegal intermediary – such as Fidelity – and such fee splitting is illegal. With respect to this scheme, the plaintiffs bring claims of unjust enrichment, conversion, and violation of the California UCL.

C.

Third, to carry out the alleged "post-acceleration late fees scheme," the defendant allegedly charged plaintiff Grimes four monthly late fees, totaling $208.32, after accelerating his loan. Def.'s 56.1 Stmt. ¶¶ 72–75; Stacy Decl. ¶ 11. Grimes's loan was accelerated on July 30, 2009, a notice of default was recorded on the loan...