Suazo v. U.S. Bank Tr., NA

REYNALDO SUAZO, et al., Plaintiffs, v. U.S. BANK TRUST, NA, et al., Defendants.

Civil Action No. RDB-18-1451

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

September 25, 2019

MEMORANDUM OPINION

Plaintiffs Reynaldo and Eva Suazo ("Mr. and Mrs. Suazo"), Ronald Lewis ("Mr. Lewis"), and Catherine Martinson ("Ms. Martinson") (collectively, the "Named Plaintiffs" or "Plaintiffs"), on behalf of themselves and other similarly situated mortgage borrowers, allege that Defendants Caliber Home Loans, Inc. ("Caliber") and U.S. Bank Trust, NA, solely in its capacity as Trustee for LSF9 Master Participation Trust ("LSF9") (collectively, "Defendants"), have unjustly enriched themselves by engaging in unlawful debt collection practices. Caliber is alleged to have acted as the debt collector for LSF9, a special purpose vehicle holding title to high-risk mortgages. Through Caliber, LSF9 allegedly pursued outstanding mortgage obligations without the appropriate license under Maryland law. Additionally, Plaintiffs allege that the Defendants unlawfully charged inspection fees as part of these collection efforts.

Currently pending before this Court is the Plaintiffs' Motion for Leave to File an Amended Complaint. (ECF No. 35.) The Amended Complaint adds new factual allegations and changes the Plaintiffs' theory of the case in an effort to comport with the recent opinion of the Maryland Court of Appeals in Blackstone v. Sharma, 461 Md. 87, 191 A.3d 1188 (2018). Defendants oppose the amendment and seek dismissal of this case with prejudice. This Court has reviewed the parties' submissions and finds that no hearing is necessary. See Local Rule 105.6 (D. Md. 2018). For the reasons stated herein, Plaintiffs' Motion for Leave to File Amended Complaint (ECF No. 35) is DENIED. This Court finds that Plaintiffs have failed to state a claim under both the Original and Amended Complaints. Accordingly, this case is DISMISSED WITH PREJUDICE.

BACKGROUND

I. Factual Background

Plaintiffs allege that Defendants unjustly enriched themselves by engaging in mortgage debt collection practices which ran afoul of Maryland law. Defendant LSF9 is a Delaware Statutory Trust which belongs to a large family of private equity funds owned by a private equity firm called Lone Star Funds ("Lone Star"). (Am. Compl. ¶ 23.) Lone Star is organized into sixteen private equity funds which are structured as closed-end, private-equity limited partnerships which include corporate and public pension funds, sovereign wealth funds, university endowments, foundations, funds of funds, and high net worth individuals. (Id.) Although US Bank, N.A. is named as the trustee for LSF9, it does not manage the fund. (Id.) Hudson Advisors L.P. performs that task; it conducts due diligence, asset management, and other support services for LSF9 and the assets the trust acquires. (Id.)

LSF9 participates in the mortgage industry's secondary market, which springs from mortgage lenders' desire to offload the mortgages that they originate. See Blackstone, 461 Md. at 136, 191 A.2d 1188 (discussing the mortgage industry's secondary market and mortgage-backed securitization). In recent years, hedge funds and private equity funds have acquiredhundreds of thousands of defaulted consumer mortgage loans. (Am. Compl. ¶ 30.) The funds rely on collection agencies to extract profit from their mortgage portfolios. (Id.)

In league with this trend, Plaintiffs allege that Lone Star and LSF9 have acquired distressed and nonperforming home loans. (Id. at ¶ 23.) LSF9 has acquired these loans for an amount less than the value of the real estate secured by the debt and less than the sum due on the loan balance. (Id.) Defendant Caliber has allegedly served as LSF9's "debt collector" since July 10, 2014. (Id. at ¶ 24.) In turn, Caliber relies on law firms, including the BWW Law Group, LCC and the Law Offices of Jeffrey Nadel, to assist it with foreclosure proceedings. (Id. at ¶¶ 25, 106.) Consumer advocates have complained that Caliber lulls struggling borrowers into "interest-only" payment plans which quickly balloon into unaffordable payments. (Id. at ¶ 30.) Plaintiffs allege that Caliber does not expect to convert non-performing loans into performing loans, but rather uses deceptive practices to obtain a greater profit through foreclosure. (Id. at ¶ 107.) LSF9 is alleged to profit from these practices; a "substantial majority" of the properties related to each loan it acquires are expected to be liquidated. (Id. at ¶ 33.)

LSF9 and Caliber are alleged to have violated Maryland law, and unjustly enriched themselves, at the expense of the Named Plaintiffs and the proposed classes. The allegations vary with respect to each Named Plaintiff, but Defendants are alleged to have engaged in the following general pattern of activity. First, LSF9 acquired each Plaintiff's mortgage loan from a prior loan servicer, such as Bank of America or Ocwen Loan Servicing, LLC, after the loans entered default. (Id. at ¶¶ 39; 56; 79.) Next, Caliber began its collection efforts and entered into standard modification/forbearance agreements with the Named Plaintiffs on behalf of LSF9. (Id. at ¶¶ 45-47, 64-65, 94.) In some cases, these collection efforts included threats offoreclosure or the initiation of foreclosure proceedings. (Id. at ¶ 59, 82.) Then, Caliber, acting on behalf of LSF9, collected sums claimed due for interest, fees, and costs unrelated to the principal loan balance. (Id. at ¶¶ 47, 73, 98; 135.) Ms. Martinson in particular alleges that Caliber charged her various fees in violation of Maryland law, including property inspection fees in violation of Md. Code Ann., Com. Law § 12-121(b) and foreclosure costs and fees in violation of a court order issued by the Circuit Court for Carroll County, Maryland. (Id. at ¶ 58; 68.) Ultimately, the Named Plaintiffs either refinanced their loan or made payments under unfavorable "interest-only" modification agreements. (Id. at ¶¶ 49-51; 59-70; 93-94.)

II. Procedural Background.

Plaintiffs commenced this putative class action lawsuit in the Circuit Court for Montgomery County, Maryland on April 12, 2018. On May 18, 2018, Defendants removed the case to this Court,¹ citing 28 U.S.C. §§ 1331, 1332, 1367, 1441, 1446, 1453 and the Class Action Fairness Act of 2005 ("CAFA"), 28 U.S.C. § 1332(d). In their Original Class Action Complaint (ECF No. 2), Plaintiffs alleged that LSF9 had unlawfully extracted profits from mortgage borrowers without obtaining a license to pursue debt collection activities as required under the Maryland Collection Agency Licensing Act ("MCALA"), Md. Code Ann., Bus. Reg. § 7-301, et seq. (See, e.g., Compl. ¶¶ 111, 114.) On June 6, 2018, this Court stayed this case pending the resolution of a consolidated appeal of four Maryland Circuit Court cases before the Court of Appeals of Maryland, Blackstone, et al. v. Sharma, et al.; Shanahan, et al. v. Marvastian,et al., Case No. 40, Sept. Term, 2017; O'Sullivan, et al. v. Altenburg, et al., Case No. 45, Sept. Term, 2017; Goldberg, et al. v. Neviaser, et al., Case No. 47, Sept. Term, 2017.

On August 2, 2018, the Maryland Court of Appeals issued its ruling in the consolidated appeal and held that a foreign statutory trust, such as LSF9, is not required to obtain a license as a collection agency under MCALA.² See Blackstone v. Sharma, 461 Md. 87, 191 A.3d 1188 (2018). Following the Blackstone decision, this Court lifted the Stay; dismissed with prejudice Plaintiffs' declaratory judgment claim (Count I); dismissed without prejudice Plaintiffs' unjust enrichment claims (Counts II and III); clarified that Plaintiffs' inspection fee claim under Md. Com. Law § 12-121(a)(1)(ii) (Count IV) remained pending; permitted Plaintiffs to file a Motion for Leave to File an Amended Complaint; and dismissed with prejudice all claims asserted against a third Defendant, Select Portfolio Servicing, Inc. (Letter Order, ECF No. 34.)

On November 9, 2018, Plaintiffs filed a Motion for Leave to File an Amended Complaint (ECF No. 35.) The proposed Amended Complaint (ECF No. 35-3) makes sweeping changes to the Original Complaint. In light of the Blackstone decision, Plaintiffs withdraw their allegation that Defendants violated MCALA, and now asserts that Defendant LSF9 violated the Maryland Mortgage Lender Law ("MMLL"), Md. Code, Fin. Inst. § 11-501, et seq. by operating as an unlicensed mortgage lender. (See, e.g., Am. Compl. ¶¶ 2-3, 5-12.) The Amended Complaint also adds new factual allegations to support its inspection fee claim (Compl. ¶¶ 13-19, 54-76), and introduces a new claim pursuant to the Maryland ConsumerProtection Act, Com. Law § 13-101, et seq. and the Maryland Consumer Debt Collection Act, Com. Law § 14-201, et seq. The Amended Complaint now seeks to certify two classes (as opposed to three classes sought in the Original Complaint) comprised of consumers who allegedly suffered harm because of Defendants' practices: the "Caliber Class" and the "Inspection Fee Class." (Am. Compl. ¶ 1.)

In sum, the Amended Complaint asserts the following three counts: an unjust enrichment claim on behalf of the Named Plaintiffs and the Caliber Class against LSF9 and Caliber (Count I); a claim arising from alleged violations of the Maryland Consumer Debt Collection Act ("MCDCA"), Md. Code, Com. Law § 14-201, et seq. and the Maryland Consumer Protection Act ("MCPA"), Md. Code, Com. Law § 13-101, et seq., brought by the Named Plaintiffs and the Caliber Class against all Defendants (Count II); and an inspection fee claim based on violations of Md. Code, Com. Law § 12-121(a)(1)(ii) on behalf of Ms. Martinson and the Inspection Class against LSF9 and Caliber (Count III). In a single filing, Defendants oppose the Amendment and seeks dismissal of all of Plaintiffs' claims with prejudice. (Defs.' Brief in Opposition, ECF No. 36.)

STANDARD OF REVIEW

I. Motion for Leave to File an Amended Complaint.

Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to...