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Neagle v. Goldman Sachs Group, Inc.

United States District Court, D. Oregon

March 1, 2019

THE GOLDMAN SACHS GROUP, INC, a Delaware Corporation d/b/a MTGLQ INVESTORS, L.P., a Delaware Limited Parnership; OCWEN FINANCIAL CORP., a Florida Corporation; OCWEN MORTGAGE SERVICING, INC. a U.S. Virgin Islands Corporation; OCWEN LOAN SERVICING, LLC, a Delaware Limited Liability Company; ALTISOURCE SOLUTIONS, INCL, a Delaware Corporation, Defendants.



         As observed by the First Circuit over a decade ago, “[s]ome antitrust cases are intrinsically hopeless because . . . they merely dress up in antitrust garb what is, at best, a business tort or contract violation.” Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of R.I., 373 F.3d 57, 69 (2004). The same can be said of allegations based on the Racketeer Influenced and Corrupt Organizations Act 18 U.S.C. § 1962 et seq (“RICO”). Here, in the course of alleging that his deed of trust did not allow certain third-party default-related service fees, plaintiff Melvin Neagle dresses up his complaint in both antitrust and RICO garb. While Neagle's complaint is long on pages and conclusory allegations, it is short on specific factual detail as to how these defendants violated antitrust or RICO laws while servicing Neagle's loan. Although he relies heavily on a Consent Order agreed to between his loan servicer and New York state regulators, none of the acts described in that case involve acts Neagle alleges the servicer did here. Because Neagle fails to state an antitrust, RICO, or financial elder abuse claim, defendants' motions to dismiss are granted.


         Neagle purchases foreclosed homes at auction and rents them or sells them later for a profit. The Ocwen defendants engage in mortgage loan servicing. Ocwen Loan Servicing, LLC is a wholly owned subsidiary of Ocwen Mortgaging Servicing, Inc., which in turn is a wholly owned subsidiary of Ocwen Financial Corporation. “Founded in 1988 by William C. Erbey, Ocwen quickly became the largest non-bank loan servicer in the United States, and the fourth-largest servicer of mortgages generally.” Second Am. Compl. (SAC) ¶ 14. “As a non-bank mortgage loan servicer, Ocwen is responsible for the collection and remittance of principal and interest payments, the administration of escrow accounts, the collection of insurance claims, the management of loans that are in default, and foreclosures.” SAC ¶ 19.

         In 2009, defendant Altisource Solutions, Inc. “was spun off from Ocwen and became a completely independent company. Altisource is now the exclusive entity that provides Ocwen with third-party services relating to Ocwen's practices in the nonbank mortgage loan servicing market pursuant to a series of exclusive dealing arrangements, with a specific focus on subprime loans.”[2] SAC ¶ 15. Defendant MTQLP Investors, L.P. “primarily performs mortgage liquidation[.]” SAC ¶ 16.

         Neagle sets out the history of loans and the loan servicing industry, including in the aftermath of the housing market crash. Traditionally, banks serviced loans themselves and had a financial interest in the repayment of the loan. After the crash, servicing loans became unprofitable for banks. “Today, banks are reluctant to enter the market as a competitor of Ocwen, which has allowed Ocwen to dominate as a non-bank mortgage loan servicer that specializes in subprime loans.” SAC ¶ 22. Nonbank servicers like Ocwen have “a cost advantage relative to bank servicers in handling nonperforming loans. That cost advantage stemmed from both their specialization in this type of servicing and from their ability to harness technological innovations in order to reduce costs.” SAC ¶ 22.

         Ocwen is paid in contractual monthly servicing fees by the owner of the loan, often under a pooling and servicing agreement (PSA) with investors or noteholders. “Ocwen and other loan servicers asses fees on borrowers' accounts for services provided by third-parties, or for Ocwen's servicing itself. The fees and costs include, among other things, broker's price opinion (“BPO”) fees, appraisal fees, title search fees, various ‘technology' fees, late fees, escrow fees, and other ancillary fees.” SAC ¶ 24. While a bank who services its own loans is concerned with interest profit, “Ocwen's primary concern as a loan servicer is to generate as much revenue as possible from fees and costs assessed against the mortgage accounts that it services.” SAC ¶ 25.

         After the housing market crash, Ocwen rapidly grew its business, going from $360 million in revenues in 2010 to $2.2 billion in revenues in 2014. SAC ¶ 27. Much of Ocwen's growth came from “massive acquisitions:”

Due to the massive amounts of acquisitions by Ocwen, coupled with the reluctance of financial institutions to enter the servicing market as a competitor, Ocwen rapidly exapanded as a nonbank loan servicer that specialized in subprime loans. But the end of 2014, Ocwen serviced over 50% of all subprime mortgage loans in the nation.

SAC ¶ 29 (internal citation omitted).

         “Ocwen developed technology services to reduce the cost of servicing loans, including software programs designed to manage homeowners' loan accounts and assess fees pursuant to protocols and policies designed by the executives at Ocwen.” SAC ¶ 30. “In August of 2009, Ocwen spun-off its technology platforms business into a separate company, Altisource.” SAC ¶ 31. Ocwen's Chairman of the Board, who owned 13% of Ocwen's stock, took the same position at Altisource. “Other key executives shared positions with Altisource as well.” SAC ¶ 31.

         “Ocwen contracted with Altisource to purchase mortgage and technology services under service agreements that extend through 2025. Ocwen quickly became Altisource's largest customer, accounting for over 80% of Altisource's total revenue in 2014.” SAC ¶ 32. “Altisource's revenues more than tripled between 2010 and 2014.” SAC ¶ 52.

         The close relationship between Ocwen and Altisource (and other “closely affiliated” companies) led to an investigation by the New York Department of Financial Services.” See SAC ¶ 34 (quoting letter from regulators stating an “ongoing review of Ocwen's mortgage servicing practices has uncovered a number of potential conflicts of interest between Ocwen and other public companies with which Ocwen is closely affiliated.”). Regulators questioned whether Ocwen had an “arms-length business relationship” with the affiliated companies and were “concerned that this tangled web of conflicts could create incentives that harm borrowers and push homeowners unduly into foreclosure.” SAC ¶ 34. Quoting the regulators, Neagle alleges the servicing industry “presents the extraordinary circumstance where there is effectively no customer to select a vendor for ancillary services” and “Ocwen's use of related companies to provide such services raises concerns about whether such transactions are priced fairly and conducted at arms-length.” SAC ¶ 37.

         At some point, Ocwen began serving Neagle's loan. “As a loan servicer, Ocwen's interactions with a borrower are governed by a mortgage contract.” SAC ¶ 39. These contracts consist of the note and deed of trust and, at least with loans serviced by Ocwen, are generally identical as they follow the Fannie Mae template.

         Neagle's deed of trust provides that in the event of a default, the lender will “pay for whatever is reasonable or appropriate to protect Lender's interest in the Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property, and securing and/or repairing the Property.” Deed of Trust ¶ 9; ECF No. 57-1.[3] “Any amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower[.]” Deed of Trust ¶ 9. Neagle alleges that nothing in the deed of trust discloses “that the loan servicer or lender will engage in self-dealing or will mark-up the actual cost of those third party services to make a profit from the borrower's delinquency.” SAC ¶ 42. This undisclosed mark-up is the focus of Neagle's claims:

Pursuant to the conspiracy, Ocwen directs Altisource to order and coordinate default-related services, and Altisource places orders for such services with third-party vendors. The third-party vendors charge Altisource for the performance of the default related services, who then marks up the price, in numerous instances by 100% or more, and passes it along to Ocwen. Thereafter, Ocwen willfully accepts the inflated charge from Altisource, and bills the marked-up fees and costs to the borrower, increasing the balance owed.

SAC ¶ 45.

         The inflated fees drive borrowers further into default. “In the present case, Plaintiff had incurred well over $14, 000.00 in debt as a result of artificially inflated fees and costs.” SAC ¶ 70. At some point, Neagle defaulted on his loan. In April 2012, One West Bank FSB filed a foreclosure action against Neagle. SAC ¶ 80. On June 13, 2013, Ocwen purchased the mortgage servicing rights to Neagle's loan as part of a deal to purchase servicing rights on $78 billion in unpaid principal loans. SAC ¶ 81. In October 2013, One West Bank FSB assigned the beneficial interest in Neagle's deed of trust to Ocwen, who moved to substitute itself into the foreclosure action. On March 3, 2016, Ocwen assigned its rights to MTQLQ. SAC ¶ 94.[4]


         To survive a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a complaint must contain sufficient factual matter that “state[s] a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible on its face when the factual allegations allow the court to infer the defendant's liability based on the alleged conduct. Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). The factual allegations must present more than “the mere possibility of misconduct.” Id. at 678.

         While considering a motion to dismiss, the court must accept all allegations of material fact as true and construe those facts in the light most favorable to the non-movant. Burget v. Lokelani Bernice Pauahi Bishop Trust, 200 F.3d 661, 663 (9th Cir. 2000). But the court is “not bound to accept as true a legal conclusion couched as a factual allegation.” Twombly, 550 U.S. at 555. If the complaint is dismissed, leave to amend should be granted unless “the pleading could not possibly be cured by the allegation of other facts.” Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995).


         Neagle alleges the conspiracy to pass inflated fees to borrowers violated the Sherman Act, RICO, and constitutes Financial Elder Abuse under Oregon law in violation of ORS § 124.100. As discussed below, Neagle fails to state a valid claim for any of his five claims. Ocwen and MTGLQ also argue dismissal is appropriate because Neagle failed to comply with the notice and cure provision of his deed of trust before filing this action. I agree and begin with that argument.


         Neagle's deed of trust states, “The covenants and agreements of this Security Instrument shall bind (except as provided in Section 20) and benefit the successors and assigns of Lender.” ¶ 13. Ocwen and MTGLQ are assigns of the lender. See SAC ¶¶ 78, 79, 82, 94 (alleging the original lender assigned the deed to One West Bank, FSB, who assigned the deed to Ocwen, who assigned the deed to MTGLQ). Section 20 of Neagle's deed of trust provides:

Neither Borrower nor Lender may commence, join, or be joined to any judicial action (as either an individual litigant or the member of a class) that arises from the other party's actions pursuant to this Security Instrument or that alleges that the other party has breached any provision of, or any duty owed by reason of, this Security Instrument, until such Borrower or Lender has notified the other party (with such notice given in compliance with the requirements of Section 15) of such alleged breach and afforded the other party hereto a reasonable period after the giving of such notice to take corrective action.

         Neagle did not allege that he provided Ocwen or MTGLQ with notice and opportunity to cure but argues the provision does not apply because: (1) neither Ocwen nor MTQLQ is the “Lender;” (2) his claims are statutory, not contractual; and (3) notice here would be futile.

         The Ninth Circuit considered, and rejected, the same arguments Neagle raises when affirming the dismissal, on notice and cure grounds, of a borrower's Fair Debt Collections Practices Act (FDCPA) claim against a loan servicer (also Ocwen).[5] Giotta v. Ocwen Loan Serv., LLC, 706 Fed.Appx. 421, 422-23 (2017) (unpublished). Though I am not bound by the unpublished Giotta opinion, I am not prevented from being persuaded by its logic. Giotta is directly on point and its reasoning is as sound as it is concise.

         The borrowers there challenged the district court's dismissal of their FDCPA claim for failing to provide their loan servicer with notice and the opportunity to cure. Although the district court in Giotta relied on a written loan modification, the Ninth Circuit looked to the deed of trust. The notice provision there is identical to the notice provision here. In its brief discussion that applies equally well here, the Ninth Circuit explained:

1. The Notice Provision's text covers this action. The Notice Provision clearly applies to: (1) “any judicial action . . . that arises from the other party's actions pursuant to this Security Instrument;” or (2) “any judicial action . . . that alleges that the other party has breached any provision of, or any duty owed by reason of, this Security Instrument.” The Giottas were in default on their mortgage. Therefore, the Deed of Trust authorized property inspections and valuations to protect the Lender's interest in the property and to pass the fees for those services on to the borrower: “Lender may charge Borrower fees for services performed in connection with Borrower's default, for the purpose of protecting Lender's interest in the Property and rights under this Security Instrument, including, but not limited to, attorneys' fees, property inspection and valuation fees.” In this case, the Giottas allege that Ocwen violated the FDCPA when it billed the Giottas for those fees without disclosing the profit structure of the third-party entity that conducted the services. Accordingly, the instant suit is a “judicial action . . . that arises from the other party's actions pursuant to this Security Instrument.”
2. The Notice Provision requires notice to Ocwen. Per its text, the Notice Provision applies only to the “Lender.” However, the Deed of Trust explicitly provides that “[t]he covenants and agreements of this Security Instrument shall bind (except as provided in Section 20) and benefit the successor and assigns of Lender.” Further, it specifically notified the Giottas that the note may be sold. Although Ocwen is not the “Lender” as defined in the Deed of Trust, it is an assign. Per the record, One West Bank assigned the servicing rights on the Giottas' mortgage to Ocwen . . . . Providing notice before filing an action is a benefit (as opposed to a binding covenant or agreement), because it gives the Lender prior notice and an opportunity to take corrective action before litigation is formally commenced. Therefore, as an assign of the Lender, the Notice Provision is a “benefit” of the “covenants and agreements” in the Deed of Trust, inuring to Ocwen.

706 Fed.Appx. at 422 (all but final alteration in original).

         The reasoning in Giotta is persuasive. Neagle alleges that Ocwen and MTGLQ were (at least) assigns of the Lender. See SAC ¶¶ 78, 79, 82, 94. Neagle's claims arise from Ocwen and MTGLQ's actions pursuant to the deed of trust; i.e., servicing the loan and charging Neagle “fees for services performed in connection with [Neagle's] default . . . including property inspection and valuation fees.” Deed of Trust ¶ 14.

         Neagle argues that because his claims arise from statute and not contract, the notice provision does not apply. Giotta considered, and rejected, that argument. 706 Fed.Appx. at 422-23 (concluding notice provision did not contravene the purpose of the FDCPA and “thus does not impermissibly abrogate” the statute). Although Neagle does not bring a FDCPA claim, the notice provision does not abrogate any of the claims he does bring.

         The purpose of the Sherman Act is “to protect trade and commerce against unlawful restraints and monopolies.” Miranda v. Selig, 860 F.3d 1237, 1240 (9th Cir. 2017) (quoting Sherman Act, ch. 647, 26 Stat. 209 (1890)). RICO's purpose is to prohibit racketeering activity. Reves v. Ernst & Young, 507 U.S. 170, 181-82 (1993). ORS 124.110 seeks to prevent financial abuse of a vulnerable person via a wrongful taking of money or property. Schmidt v. Noonkester, 287 Or.App. 48, 50 n.1 (2017). As in Giotta, “the Notice Provision does not contravene the statute[s'] purposes and, thus does not impermissibly abrogate the [statutes].” 706 Fed.Appx. At 422-23; see also Clark v. Capital Credit & Collection Servs., Inc., 460 F.3d 1162, 1170 (9th Cir. 2006) (noting party may generally waive statutory protection if waiver does not “contravene[] the statutory policy.”) (quoting New York v. Hill, 528 U.S. 110, 116 (2000)).

         As Neagle does not allege he provided Ocwen or MTGLQ with notice and the opportunity to cure the alleged violations, his claims against those defendants are dismissed. Because Altisource does not argue the notice provision applies to it, and because I assume Neagle could allege notice in an amended complaint, I turn to the merits of Neagle's claims.


         Neagle brings antitrust claims under sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2.[6] Section 1 of the Sherman Act restricts unreasonable restraints on trade perpetrated by distinct entities acting in concert, whether via, “contract, combination . . . or conspiracy.” See Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 768 (1984) (quoting 15 U.S.C. § 1).

To successfully bring a claim under section 1 of the Sherman Act, a plaintiff must prove three elements: (1) an agreement, conspiracy, or combination among two or more persons or distinct business entities; (2) which is intended to harm or unreasonably restrain competition; and (3) which actually causes injury to competition, beyond the impact on the claimant, within a field of commerce in which the claimant is engaged (i.e., “antitrust injury”).

McGlinchy v. Shell Chem. Co., 845 F.2d 802, 811 (9th Cir. 1988) (internal citations omitted).

         Section 2 of the Sherman Act functions as a restraint against the tendency in capitalistic economies for single firms to seek and maintain monopoly power over a specific market. See Verizon Commc'ns Inc. v. Law Offices of Curtis v. Trinko, LLP, 540 U.S. 398, 407 (2004). Section 2 prohibits monopolies as well as attempts or conspiracies to form monopolies. Image Tech. Services, Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1202 (9th Cir. 1997); 15 U.S.C. § 2. Firms with monopoly power can set prices far above where the rational forces of supply and demand in a competitive marketplace would have them, to the detriment of both consumers and the economy as a whole. See Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1433 (9th Cir. 1995).

         The enforcement mechanisms of section 2 of the Sherman Act restricts the ability of firms to acquire monopoly power via illegal, anticompetitive actions, but are not meant to prevent a firm from acquiring an increased share of a specific market via legitimate business practices. See Verizon Commc'ns Inc., 540 U.S. at 407. To state a claim under section 2, Neagle must allege the defendants “(1) possessed monopoly power in the relevant market, (2) willfully acquired or maintained that power through exclusionary conduct and (3) caused antitrust injury.” MetroNet Services Corp. v. Qwest Corp., 383 F.3d 1124, 1130 (9th Cir. 2004). ...

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