Koepplinger v. Seterus, Inc., 1:17cv995

KENNETH KOEPPLINGER, on behalf of himselfand others similarly situated, Plaintiff, v. SETERUS, INC., Defendant.

1:17cv995

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

August 24, 2018

MEMORANDUM OPINION AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

This case comes before the undersigned United States Magistrate Judge for a recommendation on "Defendant Seterus, Inc.'s Motion to Dismiss Plaintiff's Amended Complaint" (Docket Entry 18) (the "Dismissal Motion"). For the reasons that follow, the Court should deny the Dismissal Motion.

BACKGROUND

This putative class action arises from a series of debt collection letters that Seterus, Inc. (the "Defendant") sent Kenneth Koepplinger (the "Plaintiff"). (See, e.g., Docket Entry 16 (the "Amended Complaint"), ¶¶ 1-5.) According to the Amended Complaint:

Defendant "is a servicer of mortgages for residential housing loans owned, backed, or controlled by Fannie Mae" (id., ¶ 19), including the mortgage on Plaintiff's home (see id., ¶ 25). Defendant obtained servicing rights to Plaintiff's mortgage "while [it was] in a state of default," rendering Defendant "a 'debt collector' as that term is defined by 15 U.S.C. § 1692a(6)" of the Fair Debt Collection Practices Act (the "FDCPA"). (Id., ¶ 14.) In addition, Defendant "is a 'collection agency' as defined by the North Carolina Collection Agency Act ([the] 'NCCAA'), N.C.[ Gen. Stat.] § 58-70-15" (id., ¶ 15) or, alternatively, it "is a 'debt collector,' as defined by the North Carolina Debt Collection Act ([the] 'NCDCA'), N.C.[ Gen. Stat.] § 75-50" (id., ¶ 16).

Defendant "earns money based upon a percentage of the funds that it collects from consumers' mortgage payments as well as through the assessment of late fees and other penalties." (Id., ¶ 20.) Defendant services "hundreds of thousands of loans throughout the United States" (id., ¶ 29), but "[b]ecause it does not originate" consumer mortgages, Defendant "only becomes involved with a customer if it acquires the servicing rights to a portfolio of loans from Fannie Mae or if Fannie Mae agrees to allow [Defendant] to purchase the servicing rights to a portfolio of loans from another servicer" (id., ¶ 32). Many of the loans contained in a particular loan portfolio "are delinquent when [Defendant] acquires the rights to the portfolio" (id., ¶ 33) and other loans become delinquent during Defendant's "servicing of the loans" (id., ¶ 34).

"Upon information and belief, when loans for North Carolina customers become more than 45 days delinquent, [Defendant] sends aletter that it refers to as a 'NC Final Letter' to coerce and intimidate the borrower into paying the entire default amount of the loan." (Id., ¶ 35.) The NC Final Letter states, inter alia:

"If full payment of the default amount is not received by us . . . on or before the Expiration Date, we will accelerate the maturity date of your loan and upon such acceleration the ENTIRE indebtedness of the loan, including principal, accrued interest, and all other sums due thereunder, shall, at once and without further notice, become immediately due and owing."

The NC Final Letter further states:

["]If you send only a partial payment, the loan still will be in default and we may keep the payment and still will accelerate the maturity date.["]

(Id., ¶ 38 (citations omitted) (emphasis and ellipsis in original).) As such, "[t]he NC Final Letters cause borrowers to believe that they will lose their homes if all arrearages to [Defendant] are not paid within the time period identified in the Letter." (Id., ¶ 45.)

In this regard,

[t]he NC Final Letters create a false sense of urgency by threatening to accelerate the entire indebtedness of a consumer's loan if "full payment of the default amount is not received . . . on or before the Expiration Date," when [Defendant's] actual policy, attested to by a [Federal] Rule [of Civil Procedure] 30(b)(6) Deponent, is to never accelerate a loan that is less than 45 days delinquent.

(Id., ¶ 40 (emphasis and ellipsis in original).) "The following is a relevant portion of" the deposition discussing this policy (id., ¶ 41):

Q. My understanding of your testimony just now is that if [Defendant] receives a payment in response to an NC Final, then the debt is no longer 45 days due and so that's sufficient to hold off the acceleration process?

A. That's correct.

Q. Okay. And is that -- is that [Defendant's] policy just with regard to North Carolina?

A. That's [Defendant's] policy for the loans where we are accepting payments and we're able to apply full contractual payment to the loan.

Q. Okay. So in response to a letter like Exhibit [Q], [Defendant's] policy, if they're accepting payments, is if they receive an amount equal to a normal monthly payment, they will not accelerate the debt?

A. As long as, right, it brings the loan less than 45 days due.

Q. Okay. Where does it say that in this letter that if you make one payment or enough such that one payment is recorded, we won't do this, or does it say that?

A. Well, the expiration date provides really the -- the timeline where the customer needs to make some sort of payment so that the 45 days are not past due.

Q. Not some sort of payment, $3,204.72, that's what it says, right?

A. Yes. And we're allowing the customer, we're also -- yes. We would like the $3,204.72. But our objective is not to foreclose on our customers. Our objective is to be able to take -- even if it's a partial payment, if where -- if they're in the bucket where a partial payment can be made, our objective is to collect that payment to help them stay in their house. Because them making payments, staying in their house helps us in our business as well. Foreclosing on them is really not, you know, helpful to us nor to them.

Q. Yeah.

A. And so therefore, this letter is sent out per the guidelines that are outlined and we allow the customer -- we allow the customer to make that partial payment. And then when a full -- if a partial payment does not equal the contractual payment, then your -- then this letter still -- still stands. But because a contractual paymentis able to be applied to the loan account, then we don't have to continue with the -- this letter.

(Id. (emphasis omitted).)

Moreover, "[u]pon information and belief, [Defendant] will not accelerate borrowers' loans and proceed to foreclosure even if the borrower fails to make a payment equal to the default amount listed in the NC Final Letter and fails to make any payments that come due during the notice period." (Id., ¶ 42 (emphasis in original).) "Put simply, [Defendant] does not accelerate loans in the manner threatened by its NC Final Letter in the usual course of business." (Id., ¶ 43.) "The NC Final Letters misrepresent the conditions under which [Defendant] intends to accelerate loans and materially deceive consumers into believing their loans will be accelerated if they fail to fully cure their default prior to the Expiration Date." (Id., ¶ 44 (emphasis in original).)

"The NC Final Letters misrepresent [Defendant's] intentions and present consumers with a false ultimatum that they satisfy all arrearages within the false deadline identified in the NC Final Letter, or face acceleration and ultimately foreclosure." (Id., 47.)¹ "The NC Final Letters are materially misleading in that theythreaten consumers with acceleration and foreclosure when [Defendant] has neither the present intent, nor the present ability, to undertake such actions." (Id., ¶ 48.) "The[se] empty threats of acceleration and foreclosure . . . are clearly designed to scare and intimidate individuals into paying delinquent amounts" (id., ¶ 49) and may "caus[e] individuals to send additional money to [Defendant] that, absent the false and misleading statements, they could have utilized on other necessary expenditures, including food and utility payments" (id., ¶ 50). "The empty threats of acceleration and foreclosure are designed to scare consumers into making payments they otherwise may not" (id., ¶ 52) and "make it impossible for a consumer to make a rational decision in response to the NC Final Letter because it threatens immediate, irreversible consequences" (id., ¶ 51).

"Accordingly, the NC Final Letters threaten action not actually intended to be taken by [Defendant] in the ordinary course of business and constitute unfair threats, coercion, or attempts to coerce payments from consumers in violation of the FDCPA, NCDCA or NCCAA." (Id., ¶ 54.) "Each NC Final Letter constitutes a separate violation of the FDCPA, the NCCAA or the NCDCA in that, inter alia, the NC Final Letter threatens to take action not taken in the ordinary course of business nor intended to be taken in the particular instance." (Id., ¶ 58.) Put another way:

Each NC Final Letter creates a false sense of urgency designed to unfairly coerce payments from consumers inthat the letters indicate an intent to accelerate indebtedness if the arrearages are not cured by the deadline set forth in the NC Final Letters; however, pursuant to Defendant's actual corporate policy discussed supra, [Defendant] does not actually intend to follow through with its false ultimatum so long as consumers partially satisfy their arrearage.

(Id., ¶ 59 (emphasis in original).) "As a result of the forgoing, Plaintiff has experienced anxiety, stress, anger, frustration, and mental anguish." (Id., ¶ 60.)

Plaintiff therefore pursues claims under the FDCPA (id., ¶¶ 92-112), NCCAA (id., ¶¶ 113-31), and North Carolina Unfair and Deceptive Trade Practices Act (the "UDTPA") (id., ¶¶ 158-66), or, alternatively, NCDCA (id., ¶¶ 132-57). In response, "pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure [(the "Rules"), Defendant] moves this Court to dismiss all claims against it in Plaintiff's First Amended Complaint for failure to state a claim upon which relief can be granted." (Docket Entry 18 at 1.) Plaintiff has opposed Defendant's Dismissal Motion (see Docket Entry 21), and Defendant has replied (see...