Delmar Financial Company v. Ocwen Loan Servicing, LLC

Filing 40

MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that Plaintiff's motion to dismiss Defendant's counterclaim or, in the alternative, motion for a more definite statement is DENIED. ECF No. 26 . Signed by District Judge Audrey G. Fleissig on September 21, 2018. (BRP)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
DELMAR FINANCIAL COMPANY,
Plaintiff,

v.
OCWEN LOAN SERVICING, LLC,
Defendant.

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Case No. 4:18CV00208 AGF

MEMORANDUM AND ORDER
This matter is before the Court on Plaintiff’s motion to dismiss (ECF No. 26)
Defendant’s counterclaim (ECF No. 23) for failure to state a claim pursuant to Rule
12(b)(6) or, alternatively, for more definite statement pursuant to Rule 12(e). For the
reasons set forth below, the motion will be denied.
BACKGROUND
Plaintiff Delmar Financial Company (Delmar), a Missouri company, is a mortgage
lender that originates loans and holds loan servicing rights. Defendant Ocwen Loan
Servicing (Ocwen), a Delaware company, is a mortgage loan servicer with its principal
place of business in Florida. In 2014, Delmar and Ocwen entered into a Subservicing
Agreement, governed by New York law, under which Ocwen was to act as Delmar’s
subservicer, providing loan servicing support such as collecting payments from
borrowers and remitting those payments to secondary market investors.

In December 2017, Delmar filed a lawsuit alleging that Ocwen had breached the
Agreement by failing to perform in numerous respects. 1 Specifically, Delmar claims that
Ocwen, failed to initiate timely foreclosures, used an inadequate service platform,
violated regulatory rules, and committed a variety of other operational errors that caused
Delmar to incur losses. In April 2018, Delmar notified Ocwen of its intent to terminate
the Agreement for cause. Ocwen then filed a counterclaim alleging that Delmar breached
the Agreement by refusing to reimburse Ocwen for certain costs and expenses incurred
by Ocwen in its performance of services.
The Agreement entitles Ocwen to obtain payment for its costs and expenses either
by withdrawing funds from certain custodial accounts or, if funds cannot be withdrawn
from those accounts, then by invoicing Delmar, with payment due 10 days thereafter.
Ocwen pleads that Delmar has failed to pay Ocwen for: (1) actual and unreimbursed
servicing advances and expenses owed to Ocwen on at least three loans; (2) legal
expenses, costs, and losses incurred by Ocwen in defending its servicing actions against a
lawsuit brought by a borrower; and (3) expenses incurred by Ocwen in connection with
the return of funds to HUD upon re-conveyance on at least two loans. Ocwen further
pleads that Delmar’s termination of the Agreement reflects its intent not to pay. In
response, Delmar filed the present motion seeking dismissal of the counterclaim under
Rule 12(b)(c) or, alternatively, a more definite statement under Rule 12(e).

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Delmar’s original petition also asserted theories of breach of implied duty of good faith
and fair dealing (count II) and negligence (count III). This Court granted Ocwen’s
motion to dismiss those counts. ECF No. 18. Only count I for breach of contract
remains.
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ARGUMENTS OF THE PARTIES
In support of its motion to dismiss, Delmar characterizes Ocwen’s claim as one of
anticipatory breach seeking speculative damages based on Ocwen’s faulty assumption
that Delmar will not reimburse Ocwen for expenses owed under the Agreement.
Alternatively, Delmar submits that Ocwen’s factual allegations are too vague and
ambiguous to satisfy Rule 8 pleading requirements.
In response, Ocwen counters that it has sufficiently alleged damages in two forms.
First, it seeks damages resulting from Delmar’s breach of contractual obligations where
the time for performance has already passed. These damages, Ocwen claims, are not
speculative, but real and present. Second, Ocwen argues that, under New York law,
Delmar’s wrongful repudiation of the Agreement constitutes an anticipatory breach
entitling Ocwen to claim damages as if there had been a total breach. As to definiteness,
Ocwen insists that its pleadings are sufficient for purposes of Rule 8 and that further
detail will develop in discovery.
In reply, Delmar argues that (1) Ocwen’s damages cannot be real and present
because Ocwen did not specifically plead that it invoiced Delmar for the amounts in
question and (2) Delmar did not anticipatorily repudiate the Agreement but rather
terminated it for cause, as was its right.

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DISCUSSION
Rule 12(b)(6) - Ocwen’s pleadings are sufficient.
To survive a motion to dismiss, “a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007)). Determining whether a complaint states a plausible claim for relief is a
context-specific task that requires the reviewing court to draw on its judicial experience
and common sense. Id. at 679. The court accepts the plaintiff’s factual allegations as
true and draws all reasonable inferences in favor of the nonmoving party. Torti v. Hoag,
868 F.3d 666, 671 (8th Cir. 2017). But “[c]ourts are not bound to accept as true a legal
conclusion couched as a factual allegation, and factual allegations must be enough to
raise a right to relief above the speculative level.” Id.
To state a claim for breach of contract under New York law, “a plaintiff must
plead and prove: (1) the existence of a contract; (2) a breach of that contract; and (3)
damages resulting from the breach.” House of Europe Funding I, Ltd. v. Wells Fargo
Bank, N.A., No. 13 CIV. 519 RJS, 2014 WL 1383703, at *10 (S.D.N.Y. Mar. 31, 2014)
citing Nat'l Mkt. Share, Inc. v. Sterling Nat'l Bank, 392 F.3d 520, 525 (2d Cir. 2004). In
its motion to dismiss, Delmar contends that Ocwen has failed to plead sufficient facts
with respect to damages. To satisfy the damages prong, a party must “come forward with
evidence sufficient to demonstrate damages flowing from the breach alleged” and may
not rely “on wholly speculative theories of damages.” Lexington 360 Assocs. v. First

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Union Nat'l Bank of N.C., 234 A.D. 2d 187, 190 (N.Y. App. Div. 1996). Delmar argues
that Ocwen merely alleges speculative damages from anticipatory breach.
Accepting as true the facts alleged in the counterclaim, the Court finds that Ocwen
has sufficiently pleaded damages to state a claim for breach of contract. First, Ocwen
alleges actual damages in the form of various reimbursable costs and expenses already
incurred in performance of its obligations under the Agreement. Second, and again
according to Ocwen’s version of the facts, namely that Delmar repudiated the Agreement,
Ocwen has sufficiently pleaded an anticipatory breach from which similar ascertainable
damages would flow. Delmar acknowledges that “wrongful repudiation of the contract
by one party before the time for performance entitles the nonrepudiating party to
immediately claim damages for a total breach.” Princes Point LLC v. Muss Dev. L.L.C.,
87 N.E.3d 121, 133 (N.Y. 2017). Delmar’s defense of rightful termination (for cause)
raises a factual dispute that is premature at this stage.
Delmar also attacks the counterclaim insofar as Ocwen failed to specifically plead
that it invoiced Delmar for amounts owed before considering them unpaid. While
Delmar raised the absence of a demand in its motion for a more definite statement, it
asserts this issue under Rule 12(b)(6) for the first time in its reply. As such, Ocwen has
not had the opportunity to respond applying dismissal standards. This is why, “as a
general rule, courts will not consider arguments raised for the first time in a reply.” Green
v. Missouri, 734 F. Supp. 2d 814, 848 (E.D. Mo. 2010). Even reaching the merits,
Delmar’s invoice theory goes to the factual dispute whether it breached the Agreement,

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not whether damages would exist if it did. 2 Delmar challenges the pleadings only as to
damages, and the Court finds them sufficient to survive a 12(b)(6) motion.
Rule 12(e) - Ocwen’s pleadings are sufficiently definite.
A complaint must contain “a short and plain statement of the claim showing that
the pleader is entitled to relief.” Fed. R. Civ. P. 8(a). “A party may move for a more
definite statement of a pleading to which a responsive pleading is allowed but which is so
vague or ambiguous that the party cannot reasonably prepare a response.” Fed. R. Civ. P.
12(e). “Together these rules permit the court and the litigants to know, at the pleading
stage, who is being sued and the grounds for same, thereby facilitating the just, speedy,
and inexpensive determination of the action.” Bay Industries, Inc. v. Tru–Arx Mfg., LLC,
No. 06–C–1010, 2006 WL 3469599, at *1 (E.D. Wis. Nov. 29, 2006). “Because of
liberal notice pleading and the availability of extensive discovery, motions for a more
definite statement are universally disfavored.” McCoy v. St. Louis Public Schools,
4:11CV918 CDP, 2011 WL 4857931, at *2 (E.D. Mo. Oct. 13, 2011). “Rule 12(e) is not
designed to remedy an alleged lack of detail” but simply “intended to serve as a means to
remedy unintelligible pleadings.” Boswell v. Panera Bread Co., 91 F. Supp. 3d 1141,
1144 (E.D. Mo. 2015). “The only question is whether it is possible to frame a response
to the pleading.” Id.

2

The Court finds unpersuasive Delmar’s suggestion that Ocwen’s counterclaim could
have been avoided if only Ocwen had sent a bill. Even accepting this tenuous premise,
Ocwen’s allegation that Delmar “has refused to reimburse” Ocwen invites a reasonable
inference that Ocwen sought the amounts owed. The specific facts can be explored in
discovery.
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Mindful of these principles, the Court finds Delmar’s Rule 12(e) motion
unavailing. Ocwen’s pleadings are not unintelligible, and, under foregoing precedent,
Delmar’s contention merely that Ocwen’s pleadings lack sufficient detail does not
constitute a basis for relief. Moreover, Ocwen’s lack of specificity with respect to
individual loans has not impeded Delmar’s ability to respond to the merits of Ocwen’s
claim, as evidenced by the substantive arguments set forth in Delmar’s present motion
and reply. Further factual particulars can be ascertained through discovery.
CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that Plaintiff’s motion to dismiss Defendant’s
counterclaim or, in the alternative, motion for a more definite statement is DENIED.
ECF No. 26.

_______________________________
AUDREY G. FLEISSIG
UNITED STATES DISTRICT JUDGE
Dated this 21st day of September, 2018.

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