Rovai v. Select Portfolio Servicing, Inc.

Filing 16

ORDER granting in part Defendant's 11 Motion to Dismiss. Court dismisses with prejudice Pla's eighth cause of action. Court sua sponte orders the remaining claims stayed pending a determination by IRS. Pla's counsel shall file cross-file any status updates from the Pemberton action concurrently in this matter. Court overrules Dft's objection to the notice related case and subsequent judicial transfer. Signed by Judge Cynthia Bashant on 5/11/2015. (jah)

1
2
3
4
5
6
7
8
9
10

UNITED STATES DISTRICT COURT

11

SOUTHERN DISTRICT OF CALIFORNIA

12
13
14
15
16
17

ADRIANA ROVAI,
v.

Plaintiff,

SELECT PORTFOLIO
SERVICING, INC.,

Case No. 14-cv-1738-BAS (WVG)
ORDER:
(1) GRANTING IN PART
DEFENDANT’S MOTION
TO DISMISS; AND
(2) STAYING THE CASE
[ECF 11]

Defendant.

18

On July 24, 2014, Plaintiff Adriana Rovai brought a prospective class action

19

against Select Portfolio Servicing, Inc. ECF 1. The Complaint alleges eight causes

20

of action: seven purportedly under state law, one a “violation of 26 U.S.C. §

21

6050H”. Plaintiff claims federal question jurisdiction under 28 U.S.C. §§ 1331,

22

2201, 2022. Compl. ¶ 33. Additionally, she claims jurisdiction under the Class

23

Action Fairness Act, 28 U.S.C. §§ 1332(a) and (d). Id.

24

On December 12, 2014, Defendant brought a motion to dismiss the

25

Complaint. ECF 11. For the following reasons, the Court GRANTS IN PART the

26

motion. The Court DISMISSES with prejudice Plaintiff’s eighth cause of action

27

and STAYS the remaining claims pending a determination by the Internal Revenue

28

Service (“IRS”).
–1–

14-cv-1024-BAS(WVG)

1

I.

2

Defendant seeks to dismiss Plaintiff’s eighth claim, brought under 26 U.S.C.

3

Dismissing 26 U.S.C. § 6050H Cause of Action

§ 6050H, because that statute provides no private right of action.

4

To begin, 26 U.S.C. § 6050H requires companies that have received

5

mortgage interest in excess of $600 from a debtor to provide a mortgage interest

6

statement (or an IRS Form 1098) to that debtor. Defendant correctly states that

7

there is no expressly created private cause of action. Plaintiff asks the Court to

8

imply a private remedy under § 6050H, citing Cort v. Ash, 422 U.S. 66, 78 (1975).

9

Cort uses a four-factor test to determine whether a statute implicitly includes

16

a private cause of action:
First, is the plaintiff one of the class for whose especial benefit the
statute was enacted—that is, does the statute create a federal right in
favor of the plaintiff? Second, is there any indication of legislative
intent, explicit or implicit, either to create such a remedy or to deny
one? Third, is it consistent with the underlying purposes of the
legislative scheme to imply such a remedy for the plaintiff? And
finally, is the cause of action one traditionally relegated to state law,
in an area basically the concern of the States, so that it would be
inappropriate to infer a cause of action based solely on federal law?

17

Cort, 422 U.S. at 78.

10
11
12
13
14
15

18

Under later cases, courts have emphasized that the “key inquiry is whether

19

Congress intended to provide the plaintiff with a private right of action.” First Pac.

20

Bancorp, Inc. v. Helfer, 224 F.3d 1117, 1121 (9th Cir. 2000). Some courts have

21

gone so far as to opine that Cort has been “effectively overruled.” Thompson v.

22

Thompson, 484 U.S. 174, 188 (1988) (O’Connor, J. and Scalia, J., concurring). In

23

any case, the Ninth Circuit has determined that the four-factor test is helpful in

24

determining the legislature’s intent. Helfer, 224 F.3d at 1121.

25

Statutes similar to 26 U.S.C. § 6050H that create private rights of action do

26

so explicitly. For example, § 18(a) of the Securities Exchange Act of 1934 (1934

27

Act), 48 Stat. 897, as amended, 15 U.S.C. § 78q(a), “creates a private cause of

28

action against persons, such as accountants, who ‘make or cause to be made’
–2–

14-cv-1024-BAS(WVG)

1

materially misleading statements in any reports or other documents filed with the

2

Commission, although the cause of action is limited to persons who, in reliance on

3

the statements, purchased or sold a security whose price was affected by the

4

statements.” Touche Ross & Co. v. Redington, 442 U.S. 560, 572 (1979) (quoting

5

15 U.S.C. § 78r(a)). In Touche Ross, the Supreme Court found no private cause of

6

action for statutes “that simply require certain regulated businesses to keep records

7

and file periodic reports to enable the relevant governmental authorities to perform

8

their regulatory functions” without explicit language creating a private right. Id. at

9

569.

10

Generally, “[s]tatutes that focus on the person regulated rather than the

11

individuals protected create ‘no implication of an intent to confer rights on a

12

particular class of persons.’” Alexander v. Sandoval, 532 U.S. 275, 289 (2001)

13

(quoting California v. Sierra Club, 451 U.S. 287, 294 (1981)). Because 26 U.S.C. §

14

6050H does not explicitly create a private cause of action and focuses on the person

15

regulated, the Court is reticent to imply a private right. See Sandoval, 532 U.S. at

16

287 (“Raising up causes of action where a statute has not created them may be a

17

proper function for common-law courts, but not for federal tribunals.” Lampf,

18

Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 365 (1991) (Scalia,

19

J., concurring in part and concurring in judgment).). Requiring a mortgagor to

20

provide its Form 1098s to the mortgagee, in addition to the IRS, permits a

21

mortgagee to stay apprised of the accruing tax burden and benefit, but it does not

22

follow that this entitles a mortgagee to private recourse under the statute.

23

Lastly, other courts addressing this statute have considered this issue and

24

declined to read 26 U.S.C. 6050H as creating a private cause of action. See Barbieri

25

v. Wells Fargo & Co., No. CIV.A. 09-3196, 2014 WL 7330461, at *9 (E.D. Pa.

26

Dec. 22, 2014). It is possible that the 1098 forms, if inaccurate, are challengeable

27

with the IRS or under a common law theory, but 26 U.S.C. § 6050H does not itself

28

create a private cause of action against the mortgagor. Accordingly, the Court
–3–

14-cv-1024-BAS(WVG)

1

GRANTS IN PART Defendant’s motion and DISMISSES WITH PREJUDICE

2

the eighth cause of action for violation of 26 U.S.C. § 6050H.1

3

II.

4

Under

Staying Action Under Doctrine of Primary Jurisdiction
primary

jurisdiction

doctrine,

courts

may

“allocate

initial

5

decisionmaking responsibility” to an agency when a cognizable claim first requires

6

“resolution of an issue of first impression, or of a particularly complicated issue

7

that Congress has committed to a regulatory agency.” Syntek Semiconductor Co. v.

8

Microchip Tech. Inc., 307 F.3d 775, 780 (9th Cir. 2002) (quoting Richard J. Pierce,

9

Jr., Administrative Law Treatise § 14.1, p. 917 (4th ed.2002) and Brown v. MCI

10

WorldCom Network Servs., Inc., 277 F.3d 1166, 1172 (9th Cir.2002)). This is a

11

question within a court’s discretion, although factors considered may include “(1)

12

the need to resolve an issue that (2) has been placed by Congress within the

13

jurisdiction of an administrative body having regulatory authority (3) pursuant to a

14

statute that subjects an industry or activity to a comprehensive regulatory authority

15

that (4) requires expertise or uniformity in administration.” Syntek (citing General

16

Dynamics Corp., 828 F.2d 1356, 1362 (9th Cir.1987)).

17

In United States v. W. Pac. R. Co., 352 U.S. 59, 65 (1956), the Supreme

18

Court determined that the Interstate Commerce Commision, “in the interests of a

19

uniform and expert administration of the regulatory scheme[,]” should first

20

construe the scope of tariffs regulating the transportation of incendiary bombs.

21

Here, the state law causes of action each turn on whether Defendant

22

accurately reported the interest paid in Plaintiff’s 1098 Forms. These forms are

23

completed, submitted, and relied upon by the IRS to enforce the nationwide

24

taxation scheme Congress has entrusted to it. The IRS promulgates rules regarding

25

the scope of interest payments and the proper administration of Form 1098s. 26

26
27
1

28

The Court notes that the claims requiring Fed Rule of Civil Procedure 9(b)’s heightened pleading standard appear
doomed to fail under these facts. However, as the Court will likely permit Plaintiff to amend the Complaint if the IRS
rules in her favor, any such determination would be without prejudice or mooted by the subsequent complaint.

–4–

14-cv-1024-BAS(WVG)

1

C.F.R. § 1.221-1; 26 C.F.R. § 1.6050H-2. The IRS’ position is therefore necessary

2

in this case to determine whether Defendant’s actions breached any duties to

3

Plaintiff.

4

This Court previously ruled that determining the proper method of reporting

5

Option Arm loan interest should be referred to the IRS under the primary

6

jurisdiction doctrine. See Order Granting in Part Motion to Dismiss and Staying

7

Case, Pemberton et al. v. Nationstar Mortgage LLC, 3:14-cv-01738-BAS-WVG,

8

ECF 17 (S.D. Cal. Feb. 5, 2015).2 The Court’s analysis there applies equally to the

9

present facts. Consequently, the Court sua sponte ORDERS this matter STAYED

10

pending the IRS’s determination in that matter. Plaintiff’s counsel shall cross-file

11

any status updates from the Pemberton action concurrently in this matter.
Lastly, the Court OVERRULES Defendant’s objection to the notice of

12
13

related case and subsequent judicial transfer. The matter was transferred prior to

14

this Court’s ruling on any motions, and so there is no evidence that Plaintiff

15

initiated the transfer to shop for favorable rulings. Further, the underlying IRS

16

determination is identical, as are the causes of action. This Court is familiar with

17

these legal issues and the required factual determinations, and therefore judicial

18

efficiency is promoted by the transfer.
IT IS SO ORDERED.

19
20

Dated: May 11, 2015

21
22
23
24
25
26
27
28

2

To summarize the basis for primary jurisdiction: this is an issue of first impression, and it
requires expertise and uniformity to properly administer.
–5–

14-cv-1024-BAS(WVG)