Free Response in Opposition to Motion - District Court of California - California

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1 EDWARD D. VOGEL, Cal. Bar No. 110081 [email protected] 2 J. BARRETT MARUM, Cal. Bar No. 228628 [email protected] 3 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP A Limited Liability Partnership 4 Including Professional Corporations 501 West Broadway, 19th Floor 5 San Diego, California 92101-3598 Telephone: 619-338-6500 6 Facsimile: 619-234-3815 7 Attorneys for Defendants AMERICA'S SERVICING COMPANY 8 and U.S. BANK, N.A. as trustee for CREDIT SUISSE FIRST BOSTON HEAT-2005-2 9 10 11 12 13 14 RICHARD A. CONNORS, an individual, 15 16 v. Plaintiff, Case No. 08 CV 1134 L LSP AMERICA'S SERVICING COMPANY'S AND U.S. BANK, N.A.'S OPPOSITION TO RICHARD A. CONNORS' MOTION FOR ISSUANCE OF PRELIMINARY INJUNCTION The Hon. M. James Lorenz Date: Time: Crtrm.: August 22, 2008 9:30 a.m. 14 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

17 HOME LOAN CORP. dba EXPANDED MORTGAGE CREDIT, a Texas Corp., 18 MORTGAGE ELECTRONIC REGISTRATION SYSTEMS (MERS) a 19 Delaware Corp., U.S. BANK NATIONAL ASSOCIATION, as trustee for CREDIT 20 SUISSE FIRST BOSTON HEAT-2005-2, AMERICA'S SERVICING COMPANY, CAL 21 WESTERN RECONVEYANCE CORP., a California Corporation., 22 Defendants. 23 24 25 26 27 28
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TO ALL PARTIES AND TO THEIR ATTORNEYS OF RECORD: Defendants America's Servicing Company ("ASC") and U.S. Bank, N.A. as trustee

3 for Credit Suisse First Boston Heat-2005-2 ("U.S. Bank") hereby oppose Plaintiff Richard A. 4 Connors' ("Plaintiff") Motion for Issuance of Preliminary Injunction as follows: 5 6 7 I. INTRODUCTION Plaintiff seeks a preliminary injunction to block the foreclosure sale of the real

8 property located at 402 Paseo del Norte, Escondido, California (the "Property"). Plaintiff bases 9 his preliminary injunction request on alleged technical violations of the Real Estate Settlement 10 Procedures Act ("RESPA") and the Fair Debt Collections Practices Act ("FDCPA"). Plaintiff, 11 however, cannot prove that he is likely to succeed on the merits of his claims and indeed, both fail 12 as a matter of law for the reasons discussed below. Moreover, neither RESPA nor the FDCPA 13 supports the type of equitable relief Plaintiff seeks. As a result, his motion for a preliminary 14 injunction must be denied. 15 Most telling about Plaintiff's motion, however, is the fact that he admits that he

16 defaulted on his loan payments in "late 2007." (Declaration of Richard A. Connors "Connors 17 Decl." ¶ 11.) Plaintiff's admitted default gave the trustee under the deed of trust securing the note 18 the absolute right to commence foreclosure proceedings. Plaintiff, through this lawsuit and this 19 motion, nevertheless seeks to bar those proceedings, proceedings that are solely attributable to his 20 failure to make his monthly mortgage payments. Plaintiff cannot escape the agreed upon and 21 expected consequences of his defaults by hiding behind some claimed (but non-existent) notice 22 discrepancies. 23 Plaintiff's alleged causes of action do not support injunctive relief. First, Plaintiff

24 received all of the notices to which he was entitled under RESPA and, even if he had not, a 25 RESPA violation has no effect whatsoever on the validity or enforceability of a note or deed of 26 trust. Second, ASC is not a debt collector as that term is used in the FDCPA and thus, did not owe 27 him any duties pursuant to it. Moreover, even though it owed Plaintiff no duties under the 28 FDCPA, ASC nevertheless responded to Plaintiff's request for validation of his debt and provided
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1 him all of the information required by the FDCPA. Finally, even if Plaintiff could show that he 2 was likely to succeed on the merits of his claims, neither RESPA nor the FDCPA authorizes 3 equitable relief and thus neither can support his request for injunctive relief. 4 Accordingly, the Court should reject Plaintiff's attempt to seize upon alleged

5 technical violations of RESPA and the FDCPA to avoid the consequences of his admitted failure 6 to make his monthly mortgage payments. The Court should deny Plaintiff's motion for a 7 preliminary injunction. 8 9 10 II. LEGAL STANDARD A party moving for preliminary injunction must show that a legal remedy is

11 inadequate, meaning that the moving party is faced with an immediate and irreparable injury for 12 which the moving party cannot be compensated with money damages. See Dymo Industries, Inc. 13 v. Tapeprinter, Inc., 326 F.2d 141, 143 (9th Cir. 1964). "[A] preliminary injunction should 14 issue...upon a clear showing of either (1) probable success on the merits and possible irreparable 15 injury, or (2) sufficiently serious questions going to the merits to make them fair grounds for 16 litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary 17 relief." Aguirre v. Chula Vista Sanitary Service & Sani-Tainer, Inc., 542 F.2d 779, 781 (9th Cir. 18 1976) (citing Gresham v. Chambers, 501 F.2d 687, 691 (2nd Cir. 1974)); Walczak v. EPL 19 Prolong, Inc., 198 F.3d 725, 731 (9th Cir. 1999). 20 Thus, the standard for a preliminary injunction balances the moving party's

21 likelihood of success against the relative hardship to the parties. See Sun Microsystems, Inc. v. 22 Microsoft Corp., 188 F.3d 1115, 1119 (9th Cir. 1999). "If the harm that may occur to the [moving 23 party] is sufficiently serious, it is only necessary that there be a fair chance of success on the 24 merits." William Inglis & Sons Baking Co. v. ITT Continental Baking Co., Inc., 526 F.2d 86, 88 25 (9th Cir. 1975). 26 This does not mean, however, that a party seeking a preliminary injunction can

27 prevail solely upon a showing that irreparable harm will result absent an injunction. Instead, to 28 prevail on a preliminary injunction request, the party seeking the injunction must demonstrate at
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1 least some possibility of success on the merits of his claims. See Aguirre, 542 F.2d at 781 2 (requiring a clear showing of at least some possibility of success on the merits before injunctive 3 relief will issue). If a movant will not prevail on the merits of his claims, he may not obtain a 4 preliminary injunction ­ no matter the harm that may result. Hoechst Diafoil Co. v. Nan Ya 5 Plastics Corp., 174 F.3d 411, 417 (4th Cir. 1999) ("[W]here it is legally impossible for a plaintiff 6 to succeed on the merits of its underlying claim, the district court may not grant the requested 7 injunction, no matter how severe or irreparable an injury the plaintiff may otherwise suffer.") The 8 moving party's burden includes demonstrating a likelihood of prevailing on any affirmative 9 defenses as well as its case in chief. See Dr. Seuss Enters., L.P. v. Penguin Book USA, Inc., 924 10 F. Supp. 1559, 1562 (S.D. Cal. 1996) (Jones, J.) ("The plaintiff's burden of showing a likelihood 11 of success on the merits includes the burden of showing a likelihood that it would prevail against 12 any affirmative defense raised by the defendant."); accord A & M Records, Inc. v. Napster, Inc., 13 239 F.3d 1004, 1015 n. 3 (9th Cir. 2001). 14 15 16 17 III. PLAINTIFF CANNOT SHOW THAT HE IS LIKELY TO PREVAIL ON THE MERITS OF HIS CLAIMS OR THAT THEY ENTITLE HIM TO INJUNCTIVE RELIEF Stripped to their essentials, Plaintiff's claims supporting his request for injunctive

18 relief are simple. According to Plaintiff, ASC's and/or U.S. Bank's alleged failure to provide him 19 with notice of the transfer of his loan's servicing and purported refusal to respond properly to his 20 inquiries under the FDCPA entitles him to a preliminary injunction. Plaintiff is mistaken. 21 A. 22 Plaintiff's RESPA Claim Fails Because he Received the Required RESPA Notice 12 U.S.C. § 26005(b) & (c) provide collectively that transferors and transferees of

23 loan servicing duties must provide notice of the transfer to the borrower. Other portions of section 24 2605 and the regulations promulgated pursuant to it make it clear that the purpose of this notice is 25 to ensure that the borrower knows where to send his or her loan payments. 12 U.S.C. § 2605(d) 26 (providing a sixty-day period after the effective date of servicing transfer during which the 27 borrower may not be charged a late fee if he timely sends his loan payments to the old servicer 28 instead of the new servicer); 24 C.F.R. § 3500.21(d) (stating that certain "transfers are not
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1 considered an assignment, sale or transfer of mortgage loan servicing for purposes of [the notice] 2 requirement if there is no change in the payee, address to which payment must be delivered, 3 account number, or amount of payment due"). It is unclear from Plaintiff's motion whether he 4 challenges the transfer of his loan's servicing to ASC and/or U.S. Bank or the transfer of that 5 servicing from ASC and/or U.S. Bank. In either case, Plaintiff cannot meet his burden of showing 6 that he is likely to prevail on the merits of his RESPA claim. 7 With respect to the transfer of servicing to ASC, ASC provided Plaintiff with the

8 notice required by RESPA on March 1, 2005. (Declaration of J. Barrett Marum "Marum Decl.," 9 Ex. C); 12 U.S.C. § 2605(c). Plaintiff also declared, under oath, that it was ASC "to whom I had 10 always sent my loan payments." (Connors Decl. ¶ 12.) 1 ASC thus remains the servicer for 11 Plaintiff's loan and, as such, RESPA required no further notices to Plaintiff. (Id.); 12 U.S.C. 12 § 2605(b). Since ASC continues to service Plaintiff's loan, no servicing transfer to or from U.S. 13 Bank ever occurred such that RESPA would have required U.S. Bank to provide Plaintiff with any 14 notices. 12 U.S.C. § 2605(b) & (c). 15 Although Plaintiff suggests that both ASC and U.S. Bank were servicers such that

16 transfers to or from U.S. Bank would have required RESPA notice, Plaintiff's tortured argument is 17 undercut by the very language of the statute he cites. A servicer is "the person responsible for 18 servicing of a loan[.]" 12 U.S.C. § 2605(I)(2). "Servicing" is defined as "receiving any scheduled 19 periodic payments from a borrower pursuant to the terms of any loan[.]" 12 U.S.C. § 2605(I)(3) 20 (emphasis supplied). Nowhere does section 2605 suggest that there can be two servicers that are 21 both bound by its notice requirements at the same time. Instead, it refers consistently to the 22 servicer in the singular and as the person who receives payments from the borrower. In this case, 23 that is ASC. (Connors Decl. ¶ 12.) This interpretation fits with the clear intent of the notice 24 provisions contained in section 2605(b) & (c) to ensure that the borrower knows where to send his 25 26 27 28
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Plaintiff has never denied receiving ASC's March 1, 2005 notice. When asked by the Court at the July 2, 2008 hearing whether or not the servicing entity had ever changed, Plaintiff testified under oath that he had several different loans on different homes over the years "and I can't say for a fact if this one has been reassigned or if I was given notice on this particular one." (Marum Decl., Ex. A at 24:25-25:8.) -5-

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1 or her monthly payments as discussed above. Here, there was never any confusion as Plaintiff 2 "always" sent his loan payments to ASC. (Connors Decl. ¶ 12); See also 24 C.F.R. § 3500.21(d) 3 (providing that transfers between master servicers (the person who owns the servicing rights) 4 where the subservicer (a person who does not own the right to service the loan but does so on the 5 master servicer's behalf) remains the same need not be accompanied by RESPA notice if the 6 payee, address to which payment is made, account number and amount of payment remain the 7 same.) Simply put, RESPA does not require notice to a borrower when the owner of his note 8 and/or the beneficiary of his deed of trust changes.2 9 Plaintiff also apparently contends that ASC failed to properly respond to his

10 qualified written request pursuant to 12 U.S.C. § 2605(e). Plaintiff, however, has not submitted 11 any evidence that he made such a request. (See generally Connors Decl.) To the extent Plaintiff 12 claims that his January 2008 letter to ASC constitutes such a request, that claim is belied by the 13 title Plaintiff applied to his letter: 14 15 16 17 (Connors Decl., Ex. B.) In any event, ASC responded appropriately to Plaintiff's request as 18 discussed below.3 19 Plaintiff received all of the notice to which he was entitled pursuant to RESPA and REQUEST FOR VALIDATION AND INFORMATION TO VALIDATE ALLEGED DEBT NOTICE OF FAIR DEBT COLLECTIONS PRACTICES ACT CALIFORNIA CIVIL CODE SECTION 1788-1788.3

20 the loan documents. His RESPA claim fails as a result as does his claim for injunctive relief based 21 thereon. 22
2

23 24 25 26 27 28
3

The note and deed of trust also do not require notice to Plaintiff before their transfer. The deed of trust provides that "[t]he Note or a partial interest in the Note (together with this Security Instrument) can be sold one or more times without prior notice to Borrower." (Connors Decl., Ex. A, Deed of Trust at ¶ 20) (emphasis supplied). Even if Plaintiff's January 2008 letter were construed as a request pursuant to section 2605(e), it requests information regarding the ownership of his loan, not its servicing. 12 U.S.C. § 2605(e) ("If any servicer . . . receives a qualified written request from the borrower . . . for information relating to the servicing of such loan") (emphasis supplied). It is not at all clear how a request for validation of a debt pursuant to the FDCPA has anything to do with the mechanics of the loan servicing. -6-

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1 B. 2

Plaintiff's FDCPA Claim is Meritless Because the FDCPA does not Apply to ASC Section 1692g of the FDCPA requires that a "debt collector," upon the debtor's

3 request, provide the debtor with validation of his debt. 15 U.S.C. § 1692g. Plaintiff contends that 4 ASC violated this section by failing to properly respond to Plaintiff's request.4 Once again, 5 Plaintiff's claim fails as a matter of law. 6 The FDCPA by its own terms applies only to "debt collectors." 15 U.S.C.

7 §§ 1692a(6); 1692g. ASC is not a "debt collector" as that term is used in the FDCPA because 8 ASC began servicing Plaintiff's debt at a time it was not in default. (Marum Decl., Ex. C.); 15 9 U.S.C. § 1694a(4) & (a)(6); Federal Trade Commission v. Check Investors, Inc., 502 F.3d 159, 10 173-74 (3rd Cir. 2007) (holding that an entity that acquires debt when it is not in default is a 11 "creditor" under the FDCPA, not a "debt collector.") Since it is not a debt collector under the 12 FDCPA, ASC was not required to comply with its terms. Perry v. Stewart Title Co., 756 F.2d 13 1197, 1208 (5th Cir. 1985) ("The legislative history of section 1692a(6) indicates conclusively that 14 debt collector does not include the consumer's creditors, a mortgage servicing company, or an 15 assignee of a debt, as long as the debt was not in default at the time it was assigned.") (emphasis 16 supplied); Bailey v. Security National Servicing Corp., 154 F.3d 384, 387 (7th Cir. 1998) (holding 17 that a servicing company attempting to collect on debt owed pursuant to a forbearance agreement 18 was not a debt collector subject to the FDCPA's "hyper-technical requirements"). Plaintiff's claim 19 against ASC premised on the FDCPA therefore fails as a matter of law and cannot serve to support 20 his preliminary injunction request. 21 In any event, ASC, through the law firm of Pite Duncan, LLP, responded to

22 Plaintiff's request and provided him with all of the information (and more) required by section 23 1692g. (Connors Decl., Ex. C.) Section 1692g provides that a debt collector, in response to a 24 debtor's inquiry "shall cease collection of the debt . . . until the debt collector obtains verification 25 of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of 26 27 28
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Although Plaintiff has pled this claim against both ASC and U.S. Bank, the alleged conduct upon which his claim is founded, ASC's purported failure to properly respond to his request for validation of his debt, is attributable solely to ASC. -7-

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1 such verification or judgment, or name and address of the original creditor, is mailed to the 2 consumer by the debt collector." 15 U.S.C. § 1692g(b) (emphasis supplied). The Pite Duncan 3 letter easily meets these requirements, providing both validation of the debt and relevant names 4 and addresses. (Connors Decl., Ex. C) (informing Plaintiff of the name and address of the 5 originating lender, the name and address of the current servicer and beneficiary and attaching the 6 note, deed of trust and a statement regarding the note's unpaid principal balance). Accordingly, 7 Plaintiff's FDCPA claim would not support his request for a preliminary injunction even if the 8 FDCPA governed ASC's conduct, which it does not. 9 C. 10 RESPA and the FDCPA do not Entitle a Private Plaintiff to Equitable Relief Plaintiff's preliminary injunction motion also fails because the statutes upon which

11 he has based his motion do not entitle him to the injunctive relief he requests. Even if he were to 12 prevail on his RESPA and FDCPA claims, Plaintiff would not be entitled to an order blocking the 13 Property's foreclosure sale. 14 RESPA expressly provides that "[n]othing in this chapter shall affect the validity or

15 enforceability of any sale or contract for the sale of real property or any loan, loan agreement, 16 mortgage, or lien made or arising in connection with a federally related mortgage loan." 12 U.S.C. 17 § 2615. Although published authority interpreting this section of RESPA is scant, several 18 unpublished cases confirm that RESPA violations may not be used as a defense against 19 enforceability of a lien or a foreclosure action. See In re Klinger, 2007 WL 1795877 * 5 (Bankr. 20 D. Conn. 2007) ("Moreover, failure to comply with RESPA does not adversely affect the validity 21 or enforceability of the Note."); Security Pacific National Bank v. Robertson, 1997 WL 561235 * 22 (Conn. Sup. Ct. August 28, 1997) (RESPA violations not a defense to a foreclosure action). 23 Section 2605 of RESPA also does not provide private litigants with the ability to

24 seek equitable relief for violations of it. 12 U.S.C. § 2605(f). In construing an analogous section 25 of RESPA, courts have held that Congresses' decision to omit equitable relief indicated an intent 26 to bar private litigants from obtaining such relief: See Mullinax v. Radian Guar. Inc., 199 F. 27 Supp.2d 311, 333 (M.D.N.C. 2002) ("The wording of the subsections authorizing RESPA 28 remedies suggests that private injunctions are not available.") And, as aptly noted by the Mullinax
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1 court, when a statute such as RESPA "'expressly provides' a specific set of remedies, the Supreme 2 Court has cautioned that courts must 'be chary of reading others into it.'' Mullinax, 199 F.Supp.2d 3 at 334 citing Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 19 (1979). Section 4 2605 does not provide for equitable relief and the Court should decline to read a remedy into the 5 statute that Congress saw fit to leave out. 6 The FDCPA also does not authorize injunctive relief for violations of its

7 provisions. See 15 U.S.C. § 1692k (listing damages and counsel fees as remedies, but not 8 injunctive relief). While the Ninth Circuit does not appear to have ruled on this issue, many courts 9 have found equitable relief unavailable under the FDCPA, at least with respect to private actions. 10 See Weiss v. Regal Collections, Inc., 385 F.3d 337, 342 (3rd Cir. 2004); Crawford v. Equifax 11 Payment Servs., Inc., 201 F.3d 877, 882 (7th Cir. 2000) (noting that all private actions under the 12 FDCPA are for damages); Bolin v. Sears Roebuck & Co., 231 F.3d 970, 977 n. 39 (5th Cir. 2000) 13 ("[A]lthough this circuit has not definitively ruled on the issue, courts uniformly hold that the 14 FDCPA does not authorize equitable relief."); Sibley v. Fulton DeKalb Collection Service, 677 15 F.2d 830, 834 (11th Cir. 1982) (equitable relief is not available to an individual under the 16 FDCPA.). At least two lower courts from within the Ninth Circuit agree. Palmer v. Stassinos, 17 233 F.R.D. 546, 552 (N.D. Cal. 2006) ("the FDCPA does not allow private plaintiffs to obtain 18 equitable relief"); Taylor v. Quall, 471 F.Supp.2d 1053, 1059 (C.D. Cal. 2007) (striking 19 allegations seeking injunctive relief pursuant to the FDCPA from complaint). Since equitable 20 relief is not available under the FDCPA, it cannot support Plaintiff's request for a preliminary 21 injunction. 22 23 24 25 IV. PLAINTIFF HAS NOT DEMONSTRATED THE ABILITY TO POST AN ADEQUATE BOND The median home value in Plaintiff's zip code has declined by nearly 25% in the

26 last year alone. (Marum Decl., Ex. B.) Moreover, it is a widely known fact that San Diego home 27 prices have declined precipitously since their peak in mid-2005. Plaintiff purchased his home 28
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1 towards the end of 2003. (Connors Decl. ¶ 2.) Depending on the amount remaining on his second 2 mortgage, Plaintiff's home may very well be worth less than he currently owes his various lenders. 3 In the event the Court elects to grant Plaintiff's request for a preliminary injunction

4 the Court should also require Plaintiff to post a bond in a sufficient amount to protect his lenders 5 against further declines in the value of the Property. Federal Rule of Civil Procedure 65 requires 6 that a party obtaining a preliminary injunction post a bond to protect the non-moving party's 7 interests. FED. R. CIV. PROC. 65(c) ("The court may issue a preliminary injunction or a temporary 8 restraining order only if the movant gives security in an amount that the court considers proper to 9 pay the costs and damages sustained by any party found to have been wrongfully enjoined or 10 restrained.") There is a very real and substantial risk that if the foreclosure sale of the Property is 11 enjoined the value obtained at that foreclosure sale (if Plaintiff does not ultimately prevail on 12 claims entitling him to injunctive relief) will be less than the amount Plaintiff owes his lenders. 13 Thus, if the Court decides to grant Plaintiff's request despite all of its infirmities outlined above, 14 the Court should require Plaintiff to post a substantial bond. 15 16 17 V. CONCLUSION For the foregoing reasons, ASC and U.S. Bank respectfully request that the Court

18 deny Plaintiff's request for a preliminary injunction. 19 Dated: August 20, 2008 20 21 22 23 24 25 26 27 28
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SHEPPARD, MULLIN, RICHTER & HAMPTON LLP

By

/s/ J. Barrett Marum Edward D. Vogel J. Barrett Marum Attorneys for America's Servicing Company

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