Rovai v. Select Portfolio Servicing, Inc.

Filing 53

ORDER denying Defendant's 44 Motion to Dismiss for Lack of Subject Matter Jurisdiction. Court declines to stay the remaining state law claims. Plaintiff shall file a Motion in Opposition to a Rule 12(b)(6) Dismissal of the First Amended Compl aint by 11/17/2017. The motion must not exceed a total of 35 pages. Defendant shall file a response to the motion by 12/7/2017. The response must not exceed a total of 35 pages. Plaintiff may file a reply by 12/17/2017. The reply must not exceed a total of 10 pages. It is ordered that Plaintiff's Motion and Defendant's Response should brief the question of the appropriate choice of law to apply for the state law claims. Signed by Judge Cynthia Bashant on 10/18/2017. (jah)

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1 2 3 4 5 6 7 8 9 10 UNITED STATES DISTRICT COURT 11 SOUTHERN DISTRICT OF CALIFORNIA 12 13 ADRIANA ROVAI, Plaintiff, 14 15 16 17 18 Case No. 14-cv-01738-BAS-WVG OPINION AND ORDER: (1) DENYING DEFENDANT’S MOTION TO DISMISS FOR LACK OF JURISDICTION PURSUANT TO RULE 12(b)(1) [ECF No. 44] v. SELECT PORTFOLIO SERVICING, INC., Defendant. AND 20 (2) DECLINING TO IMPOSE ANOTHER STAY UNDER THE PRIMARY JURISDICITON DOCTRINE 21 This matter comes before the Court on Defendant Select Portfolio Servicing’s 22 (“SPS”) Motion to Dismiss for Lack of Jurisdiction in response to Plaintiff’s First 23 Amended Complaint (the “FAC”). (ECF No. 44.) Plaintiff Adriana Rovai has 24 opposed (ECF No. 47), and SPS has replied (ECF No. 49). For the reasons set forth 25 below, the Court DENIES SPS’s Motion to Dismiss at this time and sets a Rule 26 12(b)(6) briefing schedule. The Court further declines to impose another stay on 27 Rovai’s state law claims under the primary jurisdiction doctrine. 19 28 –1– 14cv1738 1 I. BACKGROUND 2 a. Factual Background 3 Plaintiff Adriana Rovai obtained a negative amortization home mortgage loan 4 from First Magnus Financial Corporation for her primary California residence on or 5 about November 10, 2005, with a principal amount of $524,000. (FAC ¶10.) The 6 loan terms allowed Rovai to make monthly payments that were less than the fully 7 amortizing amount of interest, with the interest not paid in a given month added to the 8 outstanding loan balance. (Id. ¶¶6, 7, 10.) The loan passed to other owners and 9 servicers, with Bank of America, N.A. (“BANA”) owning or servicing Plaintiff’s loan 10 prior to its servicing by Defendant SPS, a Utah-based company. (Id. ¶¶4, 6, 32.) At 11 the time SPS began servicing Rovai’s mortgage loan in December 2011, Plaintiff 12 alleges that her outstanding loan balance included $9,013.02 of interest she incurred 13 in earlier years of her loan but did not pay. (Id. ¶¶11−12.) 14 In 2011, Rovai made loan payments to SPS totaling $2,698.20. (Id.) 26 U.S.C. 15 § 6050H requires that a person who receives interest aggregating $600 or more for 16 any calendar year on any mortgage must issue to the individual who paid the interest 17 a statement identifying the amount of interest that individual paid during that year. 18 (Id. ¶1.) Pursuant to this requirement, SPS sent Rovai a Form 1098 for tax year 2011 19 in February 2012, which reported $1,443.58 in mortgage interest paid, the amount of 20 accrued interest on Rovai’s loan in 2011, and $1,254.62 in principal paid. (Id. ¶13.) 21 The form also reported a loan setup principal balance of $533,012.03. (Id. Ex. B.) 22 Rovai alleges that because her loan’s terms require payments to be credited to unpaid 23 interest before principal, SPS should not have credited any payments to principal until 24 all of her unpaid deferred interest was paid. (Id. ¶¶14−15.) She alleges that deferred 25 interest does not lose its character as interest even when it is paid back at a later point 26 or to a different mortgage servicer. (Id. ¶14.) Accordingly, she alleges that SPS’s 27 reporting was incorrect. (Id.) 28 Rovai further alleges that the Form 1098 she received for tax year 2012 –2– 14cv1738 1 similarly incorrectly calculated the mortgage interest she paid to SPS. (Id. ¶16.) 2 Rovai’s 2012 Form 1098 reports $18,021.12 of interest paid and $16,576.50 in 3 principal paid. (Id. Ex. D.) 4 Plaintiff relied upon the incorrect information contained in the 2011 and 2012 5 Forms 1098 SPS sent her. (Id. ¶16.) As a result, she both (1) filed erroneous tax 6 returns in those years insofar as her return claimed only the amount of mortgage 7 interest stated on the Form 1098, and (2) received smaller tax deductions in at least 8 the 2011 and 2012 tax years than she would have received if SPS had sent her Forms 9 1098 with proper information about her interest payments. (Id.) 10 Plaintiff noticed the discrepancy in SPS’s Form 1098 reporting in late 2013. 11 (Id. ¶21.) She reached out to SPS in April 2014 regarding its method of calculating 12 reported interest, but SPS rejected Rovai’s complaint and declined to change its 13 reporting policy. (Id. ¶21.) Rovai alleges that the IRS exclusively relies on the 14 amounts contained in a Form 1098 and rejects any attempts by taxpayers to claim a 15 different amount of interest from that which appears on the taxpayer’s Form 1098. 16 (Id. ¶17.) Rovai alleges that due to SPS’s conduct she has been unable to correctly 17 state her taxes or obtain the full mortgage interest deduction to which she is entitled 18 under applicable tax law. (Id. ¶26.) 19 b. Procedural Background 20 On July 24, 2014, Plaintiff brought this prospective class action against 21 Defendant SPS alleging a federal cause of action under 26 U.S.C. § 6050H and several 22 causes of action under state law. (ECF No. 1). She seeks damages as well as 23 injunctive and equitable relief. (Id.) Defendant filed a 12(b)(6) motion to dismiss 24 Plaintiff’s original complaint. (ECF No. 11.) In ruling on that motion, this Court 25 found no express or implied private cause of action under 26 U.S.C. § 6050H and 26 dismissed Plaintiff’s corresponding federal claim with prejudice. (ECF No. 16.) The 27 Court sua sponte stayed the case as to Plaintiff’s remaining state law claims under the 28 primary jurisdiction doctrine, pending a determination by the IRS about whether –3– 14cv1738 1 mortgage lenders are required to report deferred interest on the Forms 1098 they issue. 2 (Id.) 3 During the stay, the Ninth Circuit issued a decision in Smith v. Bank of America, 4 N.A., 679 Fed. App’x 549 (9th Cir. 2017), a case also concerning interest reporting 5 under §6050H. The Ninth Circuit determined that Smith should be dismissed under 6 Rule 12(b)(1) for lack of subject matter jurisdiction on the ground that the complaint 7 failed to show an injury-in-fact. Id. at 550. After Smith, this Court ordered the 8 Plaintiff to show cause as to why the complaint should not be dismissed for lack of 9 standing. (ECF No. 35.) Plaintiff conceded that her original complaint failed to 10 satisfy Smith, but also argued she could amend her complaint to cure its standing 11 deficiency. (ECF No. 36.) The Court dismissed the original complaint and permitted 12 amendment. (ECF No. 38.) The present dispute concerns whether the FAC (ECF No. 13 39) now establishes Rovai’s Article III standing. 14 II. LEGAL STANDARD 15 A. Rule 12(b)(1) 16 A complaint must be dismissed under Federal Rule of Civil Procedure 12(b)(1) 17 if it fails to allege facts sufficient to establish subject matter jurisdiction. Savage v. 18 Glendale Union High Sch., 343 F.3d 1036, 1039 n.2 (9th Cir. 2003). Once a party has 19 moved to dismiss for lack of subject matter jurisdiction, the opposing party bears the 20 burden of establishing the Court’s jurisdiction. See Kokkonen v. Guardian Life Ins. 21 Co., 511 U.S. 375, 377 (1994). A Rule 12(b)(1) challenge to jurisdiction may be facial 22 or factual. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In a 23 facial attack, the challenger asserts that the allegations contained in a complaint are 24 insufficient on their face to invoke federal jurisdiction, whereas in a factual challenge, 25 the challenger disputes the truth of the allegations that, by themselves, would 26 otherwise invoke jurisdiction. Id. 27 B. Article III Standing 28 Those who seek to invoke the jurisdiction of the federal courts must satisfy the –4– 14cv1738 1 threshold requirement of showing an actual case or controversy under Article III. L.A. 2 v. Lyons, 461 U.S. 95, 101 (1983). To do so, a plaintiff must allege the irreducible 3 constitutional minimum of: (1) an injury in fact via “an invasion of a legally protected 4 interest which is (a) concrete and particularized, and (b) actual or imminent, not 5 conjectural or hypothetical”; (2) causation, i.e., the injury is “fairly traceable to the 6 challenged action of the defendant”; and (3) redressability, i.e. it is “likely, as opposed 7 to merely speculative, that the injury will be redressed by a favorable decision.” Lujan 8 v. Defs. of Wildlife, 504 U.S. 555, 560−61 (1992) (internal citations and quotations 9 omitted). “Each element of standing must be supported with the manner and degree 10 of evidence required at the successive stage of litigation.” Maya v. Centex Corp., 658 11 F.3d 1060, 1068 (9th Cir. 2011.) At the pleading stage, a trial court must accept as 12 true all material allegations of the complaint and construe the complaint in favor of 13 the complaining party. Warth v. Seldin, 422 U.S. 490, 501 (1975). General factual 14 allegations of injury resulting from the defendant’s conduct may suffice because the 15 trial court presumes that general allegations embrace those specific facts necessary to 16 support the claim. Lujan, 504 U.S. at 561. A failure to establish Article III standing 17 results in dismissal of the complaint for lack of subject matter jurisdiction. Steel Co. 18 v. Citizens for Better Envt., 523 U.S. 83, 94 (1998). 19 III. 20 DISCUSSION Defendant SPS contends that this Court lacks subject matter jurisdiction to 21 hear this action because Plaintiff lacks Article III standing. SPS has not submitted 22 extrinsic evidence with its motion, rather the motion is based entirely on the 23 allegations in the FAC and its attached documents, as well as documents of which 24 the Court may take judicial notice. Defendant’s Rule 12(b)(1) motion is thus a facial 25 challenge and will be evaluated as such. The Court will assume Rovai’s factual 26 allegations to be true and will draw all reasonable inferences in her favor. Doe v. 27 Holy See, 557 F.3d 1066, 1073 (9th Cir. 2009). 28 –5– 14cv1738 1 A. Injury-in-Fact 2 SPS argues that Rovai fails to show an injury-in-fact because there is no 3 legally protected or cognizable interest in this case and her allegations of injury are 4 conclusory. (ECF No. 44-1 at 9−10.) 5 1. Legally Protected Interest 6 The Court first addresses SPS’s legally protected interest argument, which 7 contends that Rovai has failed to show even the most minimal requirement of injury- 8 in-fact. SPS argues that no IRS law, rule, regulation, or guidance has ever required 9 the reporting of capitalized mortgage interest on a Form 1098. (ECF No. 44-1 at 9.) 10 Accordingly, Rovai does not have a legally protected or cognizable interest in a Form 11 1098 that reported payments of capitalized mortgage interest as interest on Rovai’s 12 2011 and 2012 Forms 1098. In response, Rovai contends that SPS’s argument 13 improperly goes to the merits. (ECF No. 47 at 8.) Nevertheless, Rovai reiterates her 14 argument that SPS was required to report deferred interest payments on the Form 1098 15 both under existing tax law and §6050H’s plain meaning. (ECF No. 16 at 5.) 16 Both SPS’s and Rovai’s arguments improperly go to the merits of this case. It 17 may very well be that Rovai’s claims could fail on a merits analysis, but the scope of 18 standing analysis is limited to whether the allegations show that the court can even 19 exercise jurisdiction over the asserted claims. Catholic League for Religious & Civ. 20 Rights v. San Francisco, 624 F.3d 1043, 1049 (9th Cir. 2010) (“Nor can standing 21 analysis, which prevents a claim from being adjudicated for lack of jurisdiction, be 22 used to disguise merits analysis, which determines whether a claim is one for which 23 relief can be granted if factually true.”); Opperman v. Path, Inc., 87 F. Supp. 3d 1018, 24 1038 (N.D. Cal. 2014). The Court will disregard the merits arguments advanced by 25 both sides. 26 Furthermore, SPS’s legally protected interest argument focuses too narrowly 27 on §6050H and its implementing regulations and guidance. The Court, of course, 28 recognizes that Rovai’s state law claims incorporate an alleged violation of §6050H –6– 14cv1738 1 or an alleged duty arising under it, which is what makes her legal theory “novel”. 1 2 See, e.g., Horn v. Bank of Am., N.A., No. 3:12-cv-1718-GPC-BLM, 2014 WL 3 1455917, at *3 (S.D. Cal. April 14, 2014). The Court has already found that no private 4 right exists under §6050H. (ECF No. 16 at 3) (“Because [§6050H] does not explicitly 5 create a private cause of action and focuses on the person regulated, the Court is 6 reticent to imply a private right.”) But the Court left intact the potential viability of 7 this case under common law theories. Indeed, the FAC, like the original complaint, 8 asserts causes of action for alleged violations by SPS of Rovai’s state law rights, 9 including breach of contract (FAC ¶¶46−51), breach of the covenant of good faith and 10 fair dealing (id. ¶¶52−57), fraud (id. ¶¶73−81), and negligence (id. ¶¶82−87), and a 11 statutory right under California Business & Professions Code §17200 et seq. (id. 12 ¶¶58−62). Injuries to such rights can constitute Article III injuries. See, e.g., Ala. 13 Power Co. v. Ickes, 302 U.S. 464, 479 (1938) (injury to common law right suffices 14 for Article III standing); Fragley v. Facebook, 830 F. Supp. 2d 785, 801 (N.D. Cal. 15 2011) (finding Article III standing where plaintiffs alleged injury-in-fact to a 16 California statutory right). 17 2. The Alleged Injuries 18 SPS argues that even if Rovai has a legally protected interest, Rovai’s single 19 new allegation in the FAC is not substantiated with any factual allegations and 20 therefore Rovai fails to show a concrete and particularized injury. (ECF No. 44-1 at 21 10.) In response, Rovai contends that Smith v. Bank of America, N.A. sets forth the 22 “elements” that plaintiffs in cases against a mortgage servicer for under-reporting 23 mortgage interest on a Form 1098 must allege to establish standing. (ECF No. 47 at 24 4−5.) Rovai has alleged both elements and, therefore, she argues, she has standing. 25 26 27 28 1 Despite the novelty of bringing state law claims on the basis of an alleged violation of §6050H, there is at least one example of a federal court sitting in diversity exercising jurisdiction over state law tort claims for alleged violations of federal tax law requirements. See, e.g., Clemens v. USV Pharm., A Div. of Revlon, Inc., 838 F.2d 1389 (5th Cir. 1988). –7– 14cv1738 1 In Smith, the plaintiffs sued a mortgage lender on state law causes of action 2 based on an alleged violation of §6050H and on an implied federal right of action 3 under §6050H. 679 Fed. App’x at 550. The plaintiffs specifically alleged, like Rovai 4 does, that they received a Form 1098 that did not comply with the requirements of 5 §6050H. Id. The Ninth Circuit held that “mere receipt of an erroneous form, without 6 more, is insufficient to establish Article III standing.” Id. The Ninth Circuit observed 7 that the plaintiffs had failed to allege that they ever filed erroneous tax returns in 8 reliance on the incorrect Form 1098 or that they had received smaller tax deductions 9 as a result. Id. The court remanded the case to the district court for dismissal pursuant 10 to Rule 12(b)(1). Smith, 679 Fed. App’x at 550. 11 In the wake of Smith, Rovai now alleges two injuries due to SPS’s incorrect 12 Forms 1098 and their underlying method of calculating interest payments: (1) Rovai 13 filed erroneous tax returns in 2011 and 2012 in reliance on those forms and (2) Rovai 14 received smaller tax deductions in 2011 and 2012 than she would have because she 15 relied on those forms. (FAC ¶16.) The FAC, like the original complaint, also alleges 16 that Rovai has suffered damages of the accountancy fees that will be necessary to 17 amend her tax returns. (Id. ¶28.) The Court considers whether these injuries constitute 18 an injury-in-fact. 19 a. Tax Deduction Injury 20 Although simply filing an erroneous tax return is likely not a “concrete” injury 21 if no further harm is alleged, Rovai alleges that she “received smaller tax deductions 22 in at least the 2011 and 2012 tax years than she would have received had the proper 23 information been provided to her on her Form 1098 by [SPS].” (Id. ¶16.) 24 “Economic injury is clearly a sufficient basis for standing.” Maya, 658 F.3d at 25 1069 (quoting San Diego Cty. v. Gun Rights Comm. v. Reno, 98 F.3d 1121, 1130 (9th 26 Cir. 1996)). An alleged injury of economic loss or overpayment has established an 27 injury-in-fact in other contexts. See, e.g., Opperman v. Path, Inc., 87 F. Supp. 3d 28 1018, 1037 (N.D. Cal. 2014) (plaintiff’s alleged overpayment for goods due to –8– 14cv1738 1 defendant’s conduct satisfied Article III); Yount v. Salazar, No. CV11-8171 PCT- 2 DGC, 2014 WL 4904423, at *7 (D. Ariz. Sept. 30, 2014) (loss of value in existing 3 claims and investments constituted injury-in-fact for Article III). The Court finds that 4 Rovai’s tax deduction allegations establish an economic injury that also satisfies 5 Article III. 6 7 The FAC contains multiple factual allegations substantiating Rovai’s allegation of economic injury by receiving smaller tax deductions in 2011 and 2012:  The amount of deferred interest outstanding on Rovai’s loan at the time 8 SPS began servicing her mortgage was $9,013.02.2 (FAC ¶11.) 9  Rovai did not make any payments on her deferred interest prior to the 10 point at which SPS began servicing her loan. (Id.) 11  SPS was required to allocate Rovai’s payments to interest before 12 principal. (Id. ¶¶14−15.) 13 14  Although Rovai paid SPS $2,698.20 in 2011, SPS credited $1,254.62 of 15 that amount to principal. The remainder was credited to accrued interest. 16 (Id. ¶13.)  SPS credited $16,576.50 of Rovai’s 2012 payments to principal and 17 $18,272.28 to interest. (Id. Ex. D.) 18 19 On the basis of these allegations, it is not an “academic exercise in the 20 conceivable”, Maya, 658 F.3d at 1068, to understand how Rovai’s mortgage interest 21 tax deductions in 2011 and 2012 – which are deductions from her overall tax liability 22 – would likely have been higher if even a single payment credited to principal in those 23 years had been credited to deferred interest instead. 24 Contrary to SPS’s argument, it is not necessary for Rovai to further allege that 25 she paid more in taxes than she would have as a result of receiving the smaller tax 26 2 27 28 Although the 2011 Form 1098 refers to the entire $533,012.13 balance on Rovai’s loan as “principal”, (FAC Ex. B), the Court accepts as true Rovai’s allegation that $9,013.02 of that balance was actually deferred interest for the purposes of its appropriate tax treatment. –9– 14cv1738 1 deductions. Although it is Rovai’s burden to show an injury-in-fact, that burden is 2 “supported in the same way as any other matter on which the plaintiff bears the burden 3 of proof, i.e., with the manner and degree of evidence required at the successive stages 4 of litigation.” Lujan, 504 U.S. at 561. Given the amount of the mortgage interest 5 payments Rovai alleges SPS did not credit to interest and therefore did not report on 6 her Forms 1098, it is not conjectural that she suffered an economic injury due to her 7 receipt of smaller tax deductions in 2011 and 2012. 8 The Court next turns to whether Rovai’s alleged injury is particularized. SPS 9 concedes that the FAC pertains to Rovai’s own Forms 1098. (ECF No. 44-1 at 10.) 10 Indeed, Rovai’s allegations concern the Forms 1098 SPS provided her, the federal tax 11 returns she filed by relying on those forms, and the smaller federal tax deductions she 12 received. (FAC ¶¶12, 13, 16.) Rovai also alleges that SPS was obligated or had a 13 duty to accurately report her deferred interest payments on the 2011 and 2012 Forms 14 1098 it provided her by virtue of §6050H. (Id. ¶¶5, 48, 53, 60, 75, 83.) These 15 allegations satisfy the particularity requirement because they show Rovai suffered the 16 alleged injury “in a personal and individual way.” See Spokeo, 136 S. Ct. at 1548. 17 Citing no supporting authority, SPS argues that Rovai nevertheless fails to allege a 18 particularized injury because she “has not alleged facts showing that SPS breached a 19 legal duty or norm as to her in particular.” (ECF No. 44-1 at 10−11.) SPS’s argument 20 appears to engage a Rule 12(b)(6)’s merits inquiry − in the guise of a constitutional 21 standing inquiry − about whether the plaintiff has plausibly pleaded a claim upon 22 which relief may be granted. As the Ninth Circuit has indicated, such an inquiry is 23 “ill-suited to application in the constitutional standing context.” Maya, 658 F.3d at 24 1068. For the purposes of Article III standing, Rovai’s allegations of tax deduction 25 injury are sufficient at the pleading stage. 26 b. Accountancy Fees Injury 27 The third injury Rovai alleges are “the accountancy fees that will be necessary 28 to prepare and file amended returns.” (FAC ¶28.) Accountancy fees incurred to file – 10 – 14cv1738 1 an amended tax return could be a sufficient injury-in-fact for Article III standing. See 2 Strugala v. Flagstar Bank, No. 5:13-cv-05927, 2017 WL 3838439, at *3 (N.D. Cal. 3 Sept. 1, 2017) (finding standing where plaintiff had paid accountancy fees to file an 4 amended tax return). However, Rovai does not allege that she has ever incurred such 5 fees in order to file an amended tax return, nor does she allege an intent to file an 6 amended return. 7 accountancy fees related to filing an amended return. Therefore, she has not alleged an injury-in-fact based on 8 B. Causation 9 SPS argues that Rovai has failed to allege that her injury is fairly traceable to 10 SPS because any lost tax deduction was due to Rovai’s conduct, not that of SPS. (ECF 11 No. 44-1 at 11.) SPS argues that Rovai could have claimed a higher tax deduction 12 before filing her tax returns or could have amended her returns, but failed to do so. 13 At the pleading stage, the question is whether Rovai has alleged that her alleged 14 injury is fairly traceable to the conduct of SPS. To survive a motion to dismiss for 15 lack of Article III standing, “plaintiffs must establish a line of causation between 16 defendants’ action and their alleged harm that is more than attenuated.” Maya, 658 17 F.3d at 1070. A causal chain does not fail simply because there are several links so 18 long as those links are not hypothetical or tenuous, but rather are plausible. Id. (citing 19 Nat’l Audubon Soc., Inc. v. Davis, 307 F.3d 835, 849 (9th Cir. 2002)). Where the 20 independent decision of a third party has a significant effect on the plaintiff’s injuries, 21 the causal chain is too weak to support standing at the pleading stage. Allen, 468 U.S. 22 at 759. 23 Rovai’s allegations establish that her alleged tax deduction injury is fairly 24 traceable to SPS’s conduct. First, under §6050H, regardless of the merit of Rovai’s 25 argument about the duty it imposes on SPS, SPS was the entity responsible for 26 providing Rovai with her Forms 1098 because it received payments from her 27 exceeding $600 in 2011 and 2012. (FAC ¶¶5, 12, Exs. B, D.) Second, Rovai alleges 28 that SPS provided her with 2011 and 2012 Forms 1098 that failed to account for – 11 – 14cv1738 1 deferred interest payments based on its practice of calculating mortgage interest in 2 violation of §6050H. (Id. ¶¶ 13−14, 16, 49, 54, 60, 76−79, 84−85.) Third, Rovai 3 alleges that this deferred interest was incurred but not paid until SPS began servicing 4 her loan, thus eliminating the possibility that her prior mortgage loan owners or 5 servicers caused her alleged injury. (Id. ¶11.) Fourth, Rovai alleges that she relied on 6 the Forms 1098 SPS provided to her – like other taxpayers, tax professionals, and the 7 IRS do – when she filed her 2011 and 2012 tax returns. (Id. ¶¶16−17.) Assuming the 8 truth of these allegations, as the Court must, Rovai has fairly traced her tax deduction 9 injury to SPS’s conduct. 10 In reaching this conclusion, the Court finds unpersuasive SPS’s argument that 11 Rovai has not alleged causation because she could have claimed a higher tax deduction 12 before filing her tax returns or by filing an amended return. This argument, however, 13 “wrongly equates injury ‘fairly traceable to the defendant with injury as to which the 14 defendant’s actions are the very last step in the chain of causation.” Bennett v. Spear, 15 520 U.S. 154, 169 (1997). Injury produced by the determinative or coercive effect 16 upon the action of someone else still satisfies the causation requirement of Article III. 17 Id; Maya, 658 F.3d at 1072 n.8. 18 Regarding pre-return filing conduct, SPS argues that Rovai ignored the IRS’s 19 “plain and simple” instruction on Line 10 of Schedule A to Form 1040 that would 20 have allowed her to claim a larger mortgage deduction. Rovai explicitly alleges that 21 she relied on the 2011 and 2012 Forms 1098 SPS provided her and she did not notice 22 the discrepancy in SPS’s interest reporting until late 2013. (FAC ¶¶16, 21.) Assuming 23 the truth of these allegations, Rovai would not have known before she filed her 2011 24 and 2012 tax returns that the information on her Forms 1098 was incorrect. Even 25 assuming Rovai were aware of the discrepancy before she filed her returns, Rovai also 26 alleges that the IRS like everyone else – exclusively relies on the information 27 contained in a Form 1098, and will reject any attempt by a taxpayer to claim an amount 28 of mortgage interest different than the amount reported on that form. (Id. ¶¶17−18.) – 12 – 14cv1738 1 Even if SPS’s conduct is not the very last step in the chain of causation Rovai alleges, 2 these allegations still show that her alleged injury is fairly traceable to SPS’s conduct. 3 The Court is also not persuaded by SPS’s argument that Rovai’s failure to 4 amend breaks the causal chain between SPS’s provision of incorrect 2011 and 2012 5 Forms 1098 to Rovai and her tax deduction injury in those years, which was completed 6 when she received smaller tax deductions. See, e.g., Maya, 658 F.3d at 1069 (“[I]f 7 plaintiff would not have purchased their homes absent defendants’ misconduct, the 8 injury was created at the moment of the fraudulent purchase. . .”). 9 Lastly, the Court finds the authorities on which SPS relies for its causation 10 argument are inapplicable. See Chandler v. State Farm Mutual Automobile Insurance 11 Company, 598 F.3d 1115, 1118, 1122 (9th Cir. 2010) (holding there was no standing 12 to sue an automobile insurer based on made-whole rule exception peculiar to 13 insurance claims); Bennett v. United States, 361 F. Supp. 2d 510, 518 (W.D. Va. 2005) 14 (finding no jurisdiction over plaintiff’s suit against IRS for income tax refund of 15 withheld income under both 26 U.S.C. §7422 and the Anti-Injunction Act). 16 C. Redressability 17 SPS makes two arguments against redressability in this case. First, SPS argues 18 that this case is “not the proper arena” to address Rovai’s alleged injury, but rather 19 Rovai’s proper recourse is to the IRS. (ECF No. 44-1 at 12.) Second, SPS argues that 20 there is no remedy this Court can award Rovai because only the IRS could have 21 approved a higher deduction and determined the impact on Rovai’s tax liability. 22 Accordingly, SPS argues a damages award is not an option. 23 A plaintiff’s burden to show redressability is “relatively modest.” Renee v. 24 Duncan, 623 F.3d 787, 797 (9th Cir. 2010). Rovai must allege that it is likely that the 25 injury resulting from SPS’s conduct will be redressed by a favorable court decision. 26 Bernhardt v. Cty. of Los Angeles, 279 F.3d 862, 869 (9th Cir. 20002). “A claim may 27 be too speculative if it can be redressed only through the unfettered choices made by 28 independent actors not before the court.” Id. The question here is whether Rovai’s – 13 – 14cv1738 1 tax deduction injury would likely be remedied by a favorable court decision. 2 Rovai seeks three forms of relief: damages for receiving smaller 2011 and 2012 3 tax deductions, an order requiring SPS to provide corrected Forms 1098, and a 4 declaratory judgment that SPS’s conduct is unlawful. (FAC, Prayer for Relief.) These 5 forms of relief would likely remedy Rovai’s injury, which was produced by SPS’s 6 allegedly incorrect method of calculating mortgage interest, SPS’s allegedly incorrect 7 Forms 1098, and the resulting economic harm to Rovai. It is in this Court’s power to 8 provide a damages award. See Jewel v. NSA, 673 F.3d 902 (9th Cir. 2011) (noting 9 that “there is no real question about redressability” because the plaintiff “seeks an 10 injunction and damages, either of which is an available remedy. . .”). The requested 11 injunctive relief of corrected Forms 1098 and preclusion of SPS from issuing Forms 12 1098 that do not accurately report mortgage interest payments would also address the 13 injury Rovai alleges. See id. Lastly, a declaratory judgment declaring unlawful SPS’s 14 method of calculating mortgage interest, for the purpose of its tax deductibility to 15 interest payers, would redress the conduct Rovai alleges resulted in SPS providing 16 erroneous Forms 1098. 17 Despite the redressability of the Rovai’s claims through a favorable decision, 18 SPS argues that “all questions pertaining to Rovai’s claimed mortgage interest 19 deduction are appropriate for determination by the IRS and that the IRS is currently 20 formulating tax policy addressing the reporting of capitalized mortgage interest” (ECF 21 No. 44-1 at 12.) SPS offers no evidence that the IRS is currently formulating such tax 22 policy. 23 redressability requirement, which asks only whether the remedies a court can provide 24 are likely to redress the alleged injury, with this Court’s prior determination that the 25 IRS might be better suited to address the question of §6050H’s scope in the first 26 instance as a matter of the primary jurisdiction doctrine. (ECF No. 16 at 4−5.) The 27 question of whether the IRS might be better suited to resolve an issue does not bear 28 upon whether this Court has subject matter jurisdiction. See Syntek Semiconductor More importantly, SPS’s argument appears to confuse Article III’s – 14 – 14cv1738 1 Co. v. Microchip Tech. Inc., 307 F.3d 775, 780 (9th Cir. 2002) (“Primary jurisdiction 2 is not a doctrine that implicates the subject matter jurisdiction of the federal courts”). 3 The Court also rejects as misguided SPS’s second argument that only the IRS 4 could have approved a higher tax deduction and determined the impact on Rovai’s tax 5 liability. (ECF No. 44-1 at 12.) This dispute is not about the IRS’s determinations of 6 Rovai’s mortgage interest tax deductions in 2011 and 2012, nor is it about the IRS’s 7 determinations concerning her tax liability in those years. Rovai is suing SPS for its 8 “completely separate actions and omissions, which resulted in negative tax 9 consequences.” Dr. Henry Erle Childers IV v. The New York and Presbyterian 10 Hospital, 36 F. Supp. 3d 292, 304 (S.D.N.Y. 2014). Thus, SPS’s reliance on Ward v. 11 American Family Life Assurance Company, 444 F. Supp. 2d 540 (D.S.C. 2006), a case 12 in which the plaintiff sought relief specifically to undermine the IRS’s prior tax 13 assessment, is misplaced. * 14 * * 15 For the foregoing reasons, the Court denies SPS’s Motion to Dismiss for Lack 16 of Jurisdiction Pursuant to Rule 12(b)(1). Nevertheless, the Court observes that SPS’s 17 challenge is a facial challenge to subject matter jurisdiction. SPS may file a factual 18 Rule 12(b)(1) challenge to Rovai’s Article III standing at a later point. Moreover, this 19 Court will sua sponte revisit at any time the question of Rovai’s Article III standing 20 should it suspect that Rovai does not in fact possess Article III standing to assert any 21 or all of her state law claims. 22 In denying SPS’s current motion to dismiss for lack of subject matter 23 jurisdiction, the Court sua sponte provides notice that it is concerned that Rovai has 24 not plausibly pleaded any claims upon which relief may be granted. “A trial court 25 may act on its own initiative to note the inadequacy of a complaint and dismiss it for 26 failure to state a claim.” Wong v. Bell, 642 F.2d 359, 362 (9th Cir. 1981). Before 27 such dismissal, a court should provide the plaintiff with an opportunity to at least 28 submit a written opposition to such a motion. Id. Although the parties previously – 15 – 14cv1738 1 briefed Defendant’s prior motion to dismiss, significant time has passed since that 2 briefing. Therefore, the Court will afford the Plaintiff the opportunity to file a brief 3 in opposition to a Rule 12(b)(6) dismissal, and sets a briefing schedule at the 4 conclusion of this opinion and order. 5 IV. THE PROPRIETY OF A STAY UNDER THE PRIMARY 6 JURISDICTION DOCTRINE 7 Having found that this Court has subject matter jurisdiction to consider Rovai’s 8 state law claims, the Court now considers the propriety of imposing a stay under the 9 primary jurisdiction doctrine once more. 10 The primary jurisdiction doctrine “is a prudential doctrine under which courts 11 may, under appropriate circumstances, determine that initial decisionmaking 12 responsibility should be performed by the relevant agency rather than the courts.” 13 Syntek Semiconductor Co. v. Microchip Tech. Inc., 397 F.3d 775, 780 (9th Cir. 2002). 14 It “is not a doctrine that implicates the subject matter jurisdiction of the federal 15 courts.” Id. The Ninth Circuit has made clear that the application of the primary 16 jurisdiction doctrine serves two underlying policies: (1) whether application will 17 enhance court decisionmaking and efficiency by allowing the court to take advantage 18 of administrative expertise and (2) whether application will help assure uniform 19 application of regulatory laws. See Chabner v. United of Omaha Life Ins., Co, 225 20 F.3d 1042, 1051 (9th Cir. 2000). The Court does not believe that the first policy will 21 be served at this juncture and that efficiency considerations outweigh the Court’s prior 22 concern with uniformity. 23 A. Judicial Decisionmaking and Efficiency 24 First, the Court is not convinced that staying this case a second time will 25 enhance its decisionmaking or serve efficiency purposes. This case is one of four that 26 referred to the IRS the issue of reporting deferred interest under §6050H. See Neely 27 v. JP Morgan Chase Bank, N.A., No. 8:16-cv-01924, ECF No. 30 (C.D. Cal. Feb. 6, 28 2017); Strugala v. Flagstar Bank, FSB, No. 5:13-cv-05927-EJD, 2015 WL 5186493 – 16 – 14cv1738 1 (N.D. Cal. Sept. 4, 2015); Rovai v. Select Portfolio Servicing, Inc., No. 3:14-cv- 2 01738-BAS-WVG, ECF No. 16 (S.D. Cal. May 11, 2015); Pemberton v. Nationstar 3 Mortgage LLC, No. 3:14-cv-01024-BAS-WVG, ECF No. 17 (S.D. Cal. Feb. 5, 2015). 4 The IRS initially accepted the issue into its Industry Issue Resolution (“IIR”) program 5 on December 29, 2015. (ECF No. 45 at 2.) The IRS announced on August 25, 2016 6 that the IRS had added the issue to its Priority Guidance Plan, indicating that it would 7 address the issue in the upcoming year. (Id. 2−3.) Based on this development, the 8 Court kept the stay in place. 9 The IRS subsequently terminated the IIR project, as reflected in a 10 communication to Rovai’s counsel on October 28, 2016, indicating that it would 11 instead address the issue through a formal guidance process. (ECF No. 32, Ex. A.) 12 Since that communication over a year ago, there has been no indication that the IRS 13 “has taken up or will take up the issues.” Pimental v. Google, Inc., No. C-11-02585- 14 YGR, 2012 WL 1458179, at *5 (N.D. Cal. April 26, 2012). The primary jurisdiction 15 doctrine only “requires the court to enable a ‘referral’ to the agency, staying further 16 proceedings so as to give the parties reasonable opportunity to seek an administrative 17 ruling.” Reiter v. Cooper, 507 U.S. 258, 268 (1993) (emphasis added); Brown v. MCI 18 Worldcom Network Servs., Inc., 277 F.3d 1166, 1173 (9th Cir. 2002). The Court 19 believes there has been a reasonable opportunity for the parties to refer the question 20 to the IRS and receive guidance, but this process has not resulted in any efficient 21 resolution of the issue. 22 Second, it is no longer clear that the expertise of the IRS may be so necessary 23 to adjudicate Rovai’s state law claims that this Court must impose an additional stay 24 of unknown duration. Although the Court recognizes that Rovai’s state law claims 25 incorporate or are premised on a duty arising under §6050H, the statute’s use of the 26 term “interest” is susceptible to statutory construction. “A district court is suited to 27 resolve issues of statutory interpretation” of this term. Pimental, 2012 WL 1458179, 28 at *3. – 17 – 14cv1738 1 Furthermore, the IRS is not particularly well-suited to address the common law 2 principles underlying all but one of Rovai’s state law claims. An administrative 3 agency’s specialization does not offer much assistance in resolving questions of the 4 application of common law principles which are “more competently decided in a 5 judicial forum.” See General Elec. Co. v. Nedlloyd, 817 F.2d 1022, 1027−28 (2d Cir. 6 1987); see also, e.g., N.Y. State Thruway v. Level 3 Communs., LLC, 734 F. Supp. 2d. 7 257, 265 (N.D.N.Y, 2010) (“[c]ontract disputes are legal questions within the 8 conventional competence of the courts and thus the doctrine of primary jurisdiction 9 does not normally apply.”) Here, resolution of the question about whether §6050H 10 imposes a duty to report deferred interest would not end the Court’s inquiry as to 11 whether Rovai has successfully shown that common law principles entitle her to relief 12 from SPS’s allegedly wrongful conduct. 13 This is not to say that the IRS has no relevant expertise regarding the scope of 14 §6050H that would be helpful. In fact, the Court previously stayed the matter hoping 15 the IRS would provide its expertise or guidance. (ECF No. 16.) But as only a portion 16 of the state law claims falls within the purview of the IRS, further delay in resolving 17 Rovai’s claims through the imposition of another stay does not aid judicial efficiency. 18 B. Uniformity in Administration 19 The Court’s prior concerns about uniformity present a closer call in the Court’s 20 decision not to impose another stay. The Court’s primary concern in staying the case 21 pursuant to the primary jurisdiction doctrine was uniformity. The Court observed that 22 all “the state law causes of action each turn on whether Defendant accurately reported 23 the interest paid in Plaintiff’s 1098 Forms.” (ECF No. 16 at 4.) Those forms are 24 completed, submitted, and relied upon by the IRS to enforce the nationwide taxation 25 scheme. (Id.) The Court further observed that the IRS promulgates rules regarding 26 the scope of interest payments and the proper administration of Forms 1098. (Id. 27 (citing 26 C.F.R. §1.221-1; 26 C.F.R. §1.6050H02).) In light of these circumstances, 28 the Court sought for the IRS to weigh on the issue of reporting deferred interest under – 18 – 14cv1738 1 §6050H first. 2 Notwithstanding this earlier determination, the Court finds that the need for 3 judicial efficiency determinatively outweighs its initial concern with uniformity.3 4 Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 760 (9th Cir. 2015) (“Under our 5 precedent, ‘efficiency’ is the ‘deciding factor’ in whether to invoke primary 6 jurisdiction.”) Moreover, the Court’s uniformity concerns were solely concerned with 7 §6050H, not with what the common law and state statutory principles underlying 8 Rovai’s state law claims might require of SPS. If it becomes clear at a later point that 9 the Court and the IRS “on a collision course in rendering different decisions” about 10 the scope of §6050H, the Court can easily revisit the propriety of a stay to avoid a 11 conflict. See, e.g., N.Y. State Thruway v. Level 3 Communs., LLC, 734 F. Supp. 2d. 12 257, 265 (N.D.N.Y, 2010). 13 V. For the foregoing reasons, the Court ORDERS as follows: 14 15 CONCLUSION & ORDER 1. Defendant SPS’s Motion to Dismiss for Lack of Subject Matter Jurisdiction Pursuant to Rule 12(b)(1) is DENIED. 16 17 2. The Court DECLINES TO STAY the remaining state law claims. 18 3. The Court HEREBY ORDERS the following Rule 12(b)(6) dismissal briefing 19 schedule: 20 a. Plaintiff Rovai shall file a Motion in Opposition to a Rule 12(b)(6) 21 Dismissal of the First Amended Complaint no later than November 17, 22 2017. The motion must not exceed a total of 35 pages in length. b. 23 Defendant SPS shall file a response to such motion no later than 24 December 7, 2017. The response must not exceed a total of 35 pages in 25 length. 26 27 28 3 The Court also observes that at least one district court considering similar claims has found Article III standing and lifted its stay. See Neely v. JP Morgan Chase Bank, N.A., No. 8:16-cv-01924, ECF No. 39 (C.D. Cal. Apr. 26, 2017). – 19 – 14cv1738 1 c. reply must not exceed a total of 10 pages. 2 3 Plaintiff Rovai may file a reply no later than December 14, 2017. The d. It is ORDERED that Plaintiff’s Motion in Opposition to a Rule 12(b)(6) 4 Dismissal and Defendant’s response should brief the question of the 5 appropriate choice of law to apply for the state law claims. 6 7 IT IS SO ORDERED. DATED: October 18, 2017 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 – 20 – 14cv1738

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