Harte v. Ocwen Financial Corp. et al
Filing
87
ORDER ADOPTING REPORT AND RECOMMENDATIONS. For the reasons set forth in the attached Memorandum and Order, having reviewed the unopposed portions of 83 Judge Reyes' March 11, 2016 report and recommendation (the "R&R") and finding no clear error, the Court adopts Judge Reyes' unopposed recommendations. The Court (1) denies OLS' motion to dismiss Plaintiff's claims for promissory estoppel, (2) grants OLS' motion to dismiss Plaintiff's claims for breach o f an implied covenant of good faith, (3) grants OLS' motion to dismiss Plaintiff's claims for breach of the loan modification agreement, and (4) grants OFC's motion to dismiss Plaintiff's veil piercing theory indirect liability. For the reasons set forth above, the Court rejects OFC's objections to the R&R and denies OFC's motion to dismiss Plaintiff's agency theory of indirect liability. The Court reserves decision as to Plaintiff's objection to Judge Reyes' recommendation that the Court dismiss Plaintiff's breach of contract claims that are based on the mortgage. Ordered by Judge Margo K. Brodie on 3/31/2016. (Rolle, Drew)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
--------------------------------------------------------------DEBORAH C. HARTE on behalf of herself and
others similarly situated,
Plaintiff,
MEMORANDUM & ORDER
13-CV-5410 (MKB) (RER)
v.
OCWEN FINANCIAL CORPORATION and
OCWEN LOAN SERVICING, LLC,
Defendants.
--------------------------------------------------------------MARGO K. BRODIE, United States District Judge:
Plaintiff Deborah C. Harte commenced this action in New York Supreme Court, Kings
County, on behalf of herself and a nationwide class of similarly situated homeowners, alleging
that Defendants Ocwen Financial Corporation (“OFC”) and Ocwen Loan Servicing, LLC
(“OLS”), made misrepresentations to mortgage borrowers in violation of New York statutory
and common law. On September 30, 2013, Defendants removed this action from state court to
the United States District Court for the Eastern District of New York. (Notice of Removal,
Docket Entry No. 1.) On September 19, 2014, the Court granted in part and denied in part
Defendants’ motions to dismiss the Complaint. Harte v. Ocwen Fin. Corp., No. 13-CV-5410,
2014 WL 4677120 (E.D.N.Y. Sept. 19, 2014). On October 20, 2014, Plaintiff filed an Amended
Complaint, (Am. Compl., Docket Entry No. 54), and on December 5, 2014, with leave of the
Court, Plaintiff filed a Second Amended Complaint (“SAC”), (SAC, Docket Entry No. 60).
On April 16, 2015, OFC and OLS separately moved to dismiss the SAC. (OFC Mot. to
Dismiss the SAC (“OFC Mot.”), Docket Entry No. 70; OLS Mot. to Dismiss the SAC (“OLS
Mot.”), Docket Entry No. 72.) The Court referred Defendants’ motions to Magistrate Judge
Ramon E. Reyes, Jr., for a report and recommendation. (Order dated Oct. 6, 2015.) By report
and recommendation dated March 11, 2016 (the “R&R”), Judge Reyes recommended that the
Court grant in part and deny in part Defendants’ motions to dismiss. (R&R 19, Docket Entry
No. 83.) On March 25, 2016, Plaintiff and OFC each filed timely objections to the R&R. (Pl.
Obj. to R&R (“Pl. Obj.”), Docket Entry No. 84; OFC Obj. to R&R (“OFC Obj.”), Docket Entry
No. 85.) For the reasons set forth below, the Court adopts Judge Reyes’ R&R in part, and
reserves decision as to Plaintiff’s objections to the R&R as to her breach of contract claim.
I.
Background
a.
Plaintiff’s loan modification
On September 15, 2005, Plaintiff obtained an adjustable-rate home mortgage loan in the
amount of $420,000. 1 (SAC ¶ 37.) In December of 2011, Plaintiff began the process of
modifying her loan through OLS, her loan servicer. (Id. ¶ 53.) Over the following seven
months, Plaintiff worked with OLS to modify her loan. (See id. ¶¶ 55–98.) During that time,
Plaintiff provided OLS with documentation it requested for the modification and often had to
resubmit documents responsive to OLS’ duplicative requests. (Id. ¶¶ 75–76, 78, 96.) At one
point in the process, OLS told Plaintiff to stop making her mortgage payments while her
modification application was pending. (Id. ¶ 61.) A January of 2012 letter from OLS to
Plaintiff, requested additional information from Plaintiff, and stated that while OLS was
considering her modification request it would neither “initiate a new foreclosure action” nor
“move ahead with the foreclosure sale on an active foreclosure,” so long as OLS “received all
required documents” and Plaintiff “met the eligibility requirements.” (Id. ¶ 62.)
1
The Court assumes familiarity with the record, as detailed in the Court’s prior decision,
Harte v. Ocwen Fin. Corp., No. 13-CV-5410, 2014 WL 4677120 (E.D.N.Y. Sept. 19, 2014), and
the R&R, and describes only the facts necessary to address the parties’ objections to the R&R.
2
On May 16, 2012, while Plaintiff’s loan modification application was pending, OLS filed
a foreclosure action against Plaintiff in New York Supreme Court, Kings County. 2 (Id. ¶ 85.)
Although her mortgage note required that OLS send her a notice of acceleration or default before
filing a foreclosure action, on May 16, 2012, Plaintiff had not yet received any such notices. (Id.
¶¶ 38, 86.) After May 16, 2012, Plaintiff continued communicating with OLS regarding the loan
modification, but at no time was she notified of the pending foreclosure action against her and, at
times, OLS reassured Plaintiff that a foreclosure action would not be initiated while her
application was being processed. (Id. ¶¶ 87–92.)
By letter dated July 9, 2012, OLS notified Plaintiff that it had sent her a notice of default,
and OLS offered to assist Plaintiff in bringing her loan current. (Id. ¶ 93.) However, at the time
of the letter, Plaintiff had not yet received a notice of default. (Id.) The July 9, 2012 letter
suggested that Plaintiff seek a loan modification. (Id.) Thereafter, Plaintiff received a notice of
default, stating that she was 345 days in default and could cure the default by paying $32,116.04
on or before October 9, 2012. (Id. ¶ 94.) Despite having received the notice of default from
OLS, Plaintiff continued to receive communications from OLS regarding her pending loan
modification. (Id. ¶¶ 95–96.) Ultimately, by letter dated September 20, 2012, OLS informed
Plaintiff that it was unable to offer Plaintiff a loan modification because certain documentation
was missing or incomplete. (Id. ¶ 97.) At that time, Plaintiff determined that she would
be unable to obtain a modification from OLS, and, in an effort to keep her home, she
subsequently filed a bankruptcy petition for relief under Chapter 13 of the U.S. Bankruptcy
Code. (Id. ¶¶ 98–99.)
2
According to Plaintiff, this practice of proceeding with foreclosure while a loan
modification is pending is known as “dual tracking.” (SAC ¶ 83.)
3
b.
Plaintiff’s claims against OLS and OFC
Plaintiff brings claims against OLS for breach of contract, promissory estoppel and
violation of section 349 of the New York General Business Law, arising from OLS’ conduct in
connection with the servicing of Plaintiff’s mortgage and with Plaintiff’s application for a loan
modification. (Id. ¶¶ 123–150.) Plaintiff also seeks to hold OFC liable for all claims against its
wholly-owned subsidiary, OLS. (Id. ¶¶ 15, 128, 133, 140, 147.) According to Plaintiff, OFC is
liable for OLS’ loan servicing misconduct because, at the relevant time, OLS was acting under
OFC’s direction and control and had actual or apparent authority to do so. (Id. ¶¶ 14–28; Pl.
Mem. in Opp’n to OFC Mot. (“Pl. Opp’n”) 23–24, Docket Entry No. 78.) In support of this
theory, Plaintiff alleges facts in the SAC regarding the structure of OFC and OLS, including that
OFC acted only through its subsidiaries in servicing loans, and regarding the overlap of both
entities from its executive management to its physical address and use of corporate branding.
(SAC ¶¶ 14–28.) In addition, Plaintiff alleges that OFC’s execution of settlement agreements
and its agreements with regulators, such as the New York State Department of Financial Services
(“DFS”), bound OLS or necessarily required OLS, to act on OFC’s behalf in carrying out the
obligations imposed by these agreements. (Id. ¶¶ 22–28.) These allegations focus principally on
two agreements between OFC and DFS: a September 1, 2011 “Mortgage Servicing Practices”
agreement (the “MSP Agreement”) and a December 5, 2012 Consent Order (the “Consent
Order”). 3 (Id. ¶¶ 23–24.)
3
The MSP Agreement and the Consent Order are publicly available. See Agreement on
Mortgage Servicing Practices, Sept. 1, 2011, http://www.dfs.ny.gov/about/letters/clocwen.pdf;
Consent Order Under N.Y. Banking L. § 44, Dec. 5, 2012, http://www.dfs.ny.gov/about/ea/
ea121205.pdf. Given the SAC’s extensive reliance on both, the Court incorporates them by
reference into the SAC’s allegations. See L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 422
(2d Cir. 2011) (“A complaint is deemed to include any written instrument attached to it as an
4
c.
Defendants’ motions to dismiss
OLS and OFC separately moved to dismiss the SAC. (OLS Mot. 1; OFC Mot. 1.) OLS
asserted that Plaintiff failed to state claims for breach of contract, promissory estoppel or for a
violation of section 349 of the New York State General Business Law. (OLS Mem. in Supp.
OLS Mot. 1–3, Docket Entry No. 73.) In its motion, OFC asserted that Plaintiff failed to
plausibly allege how OFC, as OLS’ parent, was directly or indirectly liable for the claims
asserted against OLS. (OFC Mem. in Supp. OFC Mot. (“OFC Mem.”) 1–3, Docket Entry
No. 71.) According to OFC, the SAC failed to include allegations regarding OFC’s direct
involvement in the servicing of Plaintiff’s loan or the handling of her modification application.
(Id. at 6–7.) In addition, OFC asserted that Plaintiff’s theories of indirect liability — veil
piercing and agency — also fail. (Id. at 7–23.) As to agency, OFC asserted that the SAC lacks
any allegations supporting such a theory of liability. (Id. at 20–23.) OFC argued that the SAC
fails to “raise even the slightest inference of an agency relationship between OFC and OLS,” and
is devoid of allegations showing that OLS took any action against Plaintiff while “under the
control of OFC.” (Id. at 21.) Regarding Plaintiff’s theory arising from the regulatory
agreements detailed in the SAC, OFC argued that these agreements were insufficient “to impute
agency-based liability on a parent corporation.” (Id. at 22.)
d.
Judge Reyes’ recommendations
Judge Reyes recommended that the Court grant in part and deny in part OLS and OFC’s
motions to dismiss. (R&R 19.) As to the claims against OLS, Judge Reyes recommended that
exhibit, materials incorporated in it by reference, and documents that, although not incorporated
by reference, are ‘integral’ to the complaint.” (alteration omitted) (quoting Sira v. Morton, 380
F.3d 57, 67 (2d Cir. 2004))).
5
the Court dismiss Plaintiff’s claims for breach of contract 4 and breach of the implied covenant of
good faith, and recommended that the Court deny OLS’ motion to dismiss Plaintiff’s claim for
promissory estoppel. (Id.) As to the claims against OFC, Judge Reyes recommended that the
Court dismiss Plaintiff’s veil piercing theory of indirect liability, but deny OFC’s motion as to
Plaintiff’s agency theory of indirect liability. (Id.)
II. Discussion
a.
Standards of review
i.
Report and recommendation
A district court reviewing a magistrate judge’s recommended ruling “may accept, reject,
or modify, in whole or in part, the findings or recommendations made by the magistrate judge.”
28 U.S.C. § 636(b)(1)(C). When a party submits a timely objection to a report and
recommendation, the district court reviews the parts of the report and recommendation to which
the party objected under a de novo standard of review. Id.; see also United States v. Romano,
794 F.3d 317, 340 (2d Cir. 2015). The district court may adopt those portions of the
recommended ruling to which no timely objections have been made, provided no clear error is
apparent from the face of the record. John Hancock Life Ins. Co. v. Neuman, No. 15-CV-1358,
2015 WL 7459920, at *1 (E.D.N.Y. Nov. 24, 2015).
ii.
Rule 12(b)(6)
In reviewing a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil
Procedure, a court must “accept all factual allegations in the complaint as true and draw
4
Plaintiff alleged a breach of contract claim based on (1) OLS’ initiation of the
acceleration provision of the mortgage without providing Plaintiff with the proper notice of
default prior to such initiation and (2) OLS’ failure to adhere to the contractual obligations
imposed by the loan modification application. (SAC ¶¶ 123–134.)
6
inferences from those allegations in the light most favorable to the plaintiff.” Tsirelman v.
Daines, 794 F.3d 310, 313 (2d Cir. 2015) (quoting Jaghory v. N.Y. State Dep’t of Educ., 131
F.3d 326, 329 (2d Cir. 1997)); see also Matson v. Bd. of Educ., 631 F.3d 57, 63 (2d Cir. 2011)
(quoting Connecticut v. Am. Elec. Power Co., 582 F.3d 309, 320 (2d Cir. 2009)). A complaint
must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). A claim is plausible “when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Matson, 631 F.3d at 63 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)); see also Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v.
Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 717–18 (2d Cir. 2013). Although all allegations
contained in the complaint are assumed true, this principle is “inapplicable to legal conclusions”
or “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory
statements.” Iqbal, 556 U.S. at 678.
b.
Unopposed recommendations
OLS did not object to Judge Reyes’ recommendation that the Court deny its motion to
dismiss the promissory estoppel claim against it. Plaintiff did not object to Judge Reyes’
recommendation that the Court grant OLS’ motion to dismiss as to Plaintiff’s claims for breach
of an implied covenant of good faith or breach of the loan modification agreement, or Judge
Reyes’ recommendation that the Court dismiss Plaintiff’s veil piercing theory of indirect liability
against OFC. The Court has reviewed the unopposed portions of the R&R and, finding no
clear error, the Court adopts these recommendations pursuant to 28 U.S.C. § 636(b)(1).
Accordingly, the Court (1) denies OLS’ motion to dismiss Plaintiff’s claims for promissory
estoppel, (2) grants OLS’ motion to dismiss Plaintiff’s claims for breach of an implied covenant
7
of good faith (3) grants OLS’ motion to dismiss Plaintiff’s claims for breach of the loan
modification agreement, and (4) grants OFC’s motion to dismiss Plaintiff’s veil piercing theory
of indirect liability.
c.
The parties’ objections
Plaintiff and OFC objects to certain recommendations made by Judge Reyes in the R&R.
(Pl. Obj. 1; OFC Obj. 1–2.) Plaintiff objects to Judge Reyes’ recommendation that the Court
grant OLS’ motion to dismiss Plaintiff’s breach of contract claim, asserting that Judge Reyes
improperly held that Plaintiff’s failure to make timely mortgage payments as required under the
mortgage, precluded her breach of contract claim based on the mortgage. (Pl. Obj. 4–7.)
OFC objects to Judge Reyes’ recommendation that the Court deny OFC’s motion to
dismiss Plaintiff’s agency theory of indirect liability. (OFC Obj. 1–2.) OFC asserts that, as to
Plaintiff’s agency theory of liability, Judge Reyes failed to apply the plausibility standard that
governs motions to dismiss, and in failing to apply the proper standard, Judge Reyes improperly
held that the MSP Agreement and the Consent Order executed by OFC and DFS support
Plaintiff’s claims on either an actual or apparent authority agency theory. (Id. at 6–15.) As to
actual authority, according to OFC, the SAC does not plausibly allege that OFC exercised
control over OLS in connection with the servicing of Plaintiff’s loans or the processing of
Plaintiff’s loan modification application. (Id. at 10–12.) As to apparent authority, OFC asserts
that Plaintiff does not allege any facts suggesting she was aware of any authority OFC had over
OLS. (Id. at 13–14.)
For the reasons discussed below, the Court rejects OFC’s objections to the R&R and
reserves decision as to Plaintiff’s objections. The Court therefore denies OFC’s motion to
dismiss the SAC.
8
d.
Plaintiff plausibly alleges agency theory of indirect liability against OFC
“It is fundamental that a parent is considered a legally separate entity from its subsidiary,
and cannot be held liable for the subsidiary’s actions based solely on its ownership of a
controlling interest in the subsidiary.” N.Y. State Elec. & Gas Corp. v. FirstEnergy Corp., 766
F.3d 212, 224 (2d Cir. 2014) (citations omitted). “However, a corporate parent may be held to
account for the wrongs of its subsidiary (1) under an alter ego or veil-piercing analysis where the
corporate parent has disregarded the subsidiary’s corporate form, or (2) under traditional
principles of agency.” Mouawad Nat. Co. v. Lazare Kaplan Int’l Inc., 476 F. Supp. 2d 414, 421
(S.D.N.Y. 2007); see Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111, 194 (2d Cir. 2010)
(“[The] principle of corporate separateness may be disregarded when a subsidiary acts as an
agent of its parent.”), aff’d, --- U.S. ---, 133 S. Ct. 1659 (2013); Rochester Gas & Elec. Corp. v.
GPU, Inc., 355 F. App’x 547, 549 (2d Cir. 2009) (“A parent corporation can be held derivatively
liable as the effective owner/operator of a subsidiary’s facility where circumstances justify
piercing the subsidiary’s corporate veil.”). “Suing a parent corporation on an agency theory is
quite different from attempting to pierce the corporate veil,” because, on an agency theory, “the
claim against the parent is premised on the view that the subsidiary had authority to act, and was
in fact acting, on the parent’s behalf — that is, in the name of the parent.” Sahu v. Union
Carbide Corp., No. 04-CV-8825, 2012 WL 2422757, at *16 (S.D.N.Y. June 26, 2012) (quoting
Royal Indus. Ltd. v. Kraft Foods, Inc., 926 F. Supp. 407, 412 (S.D.N.Y. 1996)), aff’d sub nom.
Janki Bai Sahu v. Union Carbide Corp., 528 F. App’x 96 (2d Cir. 2013). “A corporate parent’s
ownership interest in a subsidiary, standing alone, is insufficient to demonstrate the existence of
an agency relationship.” Bigio v. Coca-Cola Co., 675 F.3d 163, 175 (2d Cir. 2012) (citing
Fletcher v. Atex, Inc., 68 F.3d 1451, 1455, 1461–62 (2d Cir. 1995)). Instead, to establish a
9
parent’s agency relationship with a subsidiary, traditional agency principles apply and there must
be “facts sufficient to show (1) the principal’s manifestation of intent to grant authority to the
agent, and (2) agreement by the agent.” Commercial Union Ins. Co. v. Alitalia Airlines, S.p.A.,
347 F.3d 448, 462 (2d Cir. 2003) (citations omitted) (applying New York law).
Such a relationship may arise from an agent’s “actual” or “apparent” authority. “Actual
authority ‘is the power of the agent to do an act or to conduct a transaction on account of the
principal which, with respect to the principal, he is privileged to do because of the principal’s
manifestations to him.’” Dinaco, Inc. v. Time Warner, Inc., 346 F.3d 64, 68 (2d Cir. 2003)
(quoting Minskoff v. Am. Express Travel Related Servs. Co., 98 F.3d 703, 708 (2d Cir. 1996)).
Such authority may be “bestowed upon an agent ‘by direct manifestations from the principal to
the agent, and the extent of the agent’s actual authority is interpreted in the light of all
circumstances attending these manifestations, including the customs of business, the subject
matter, any formal agreement between the parties, and the facts of which both parties are
aware.’” Amusement Indus., Inc. v. Stern, 693 F. Supp. 2d 327, 344 (S.D.N.Y. 2010) (quoting
Peltz v. SHB Commodities, Inc., 115 F.3d 1082, 1088 (2d Cir. 1997)). Conversely, “[a]pparent
authority arises from the ‘written or spoken words or any other conduct of the principal which,
reasonably interpreted, causes [a] third person to believe that the principal consents to have [an]
act done on his behalf by the person purporting to act for him.’” Dinaco, 346 F.3d at 69
(alterations in original) (quoting Minskoff, 98 F.3d at 708).
“Commonly, an outsider will not be privy to the details of what conversation or conduct
took place between a principal and the agent.” Craig v. Sandals Resorts Int’l, 69 F. Supp. 3d
322, 328 (E.D.N.Y. 2014) (quoting Amusement Indus., Inc., 693 F. Supp. 2d at 344). As a result,
“[t]o adequately allege an actual agency relationship, a plaintiff need only allege facts sufficient
10
to support a reasonable inference of actual authority, and its pleadings may rely upon facts that
would constitute circumstantial evidence of authority.” Skanga Energy & Marine Ltd. v.
Arevenca S.A., 875 F. Supp. 2d 264, 269 (S.D.N.Y. 2012) (applying New York agency law),
aff’d sub nom. Skanga Energy & Marine Ltd. v. Petroleos de Venezuela S.A., 522 F. App’x 88
(2d Cir. 2013); Amusement Indus., Inc., 693 F. Supp. 2d at 344 (“[C]ourts have recognized that
to survive a motion to dismiss under 12(b)(6) on this issue, a plaintiff need only ‘raise[] a
sufficient inference that some sort of agency relationship existed between’ the purported
principal and agent.” (quoting Commercial Fin. Servs., Inc. v. Great Am. Ins. Co. of N.Y., 381
F. Supp. 2d 291, 302 (S.D.N.Y. 2005))).
Circumstantial evidence relevant to the establishing an agency relationship can take many
forms. Skanga Energy, 522 F. App’x 88, 90 (considering the entities’ shared use of a logo as a
factor in assessing the existence of an agency relationship); Elbit Sys., Ltd. v. Credit Suisse Grp.,
917 F. Supp. 2d 217, 226 (S.D.N.Y. 2013) (alleging a parent’s control of a subsidiary through
the parent’s intervention and direction of the subsidiary’s response to a compliance issue);
STMicroelectronics v. Credit Suisse Grp., 775 F. Supp. 2d 525, 539–40 (E.D.N.Y. 2011)
(considering the entities’ use of a shared brand logo and email suffix in determining the
existence of an agency relationship on a motion to dismiss); Cromer Fin. Ltd. v. Berger,
No. 00-CV-2284, 2002 WL 826847, at *5 (S.D.N.Y. May 2, 2002) (considering marketing
materials making representations to third parties as relevant to the allegations of actual
authority); see also Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 95–96 (2d Cir. 2000)
(affirming the finding of an agency relationship where, among other things, the subsidiaries
“devoted one hundred percent of their time to the [parents’] business” and had the “sole business
function” of “perform[ing] investor relations services on the [parents’] behalf” while the parents
11
“fully funded the [subsidiaries’] expenses”); In re S. African Apartheid Litig., 633 F. Supp. 2d
117, 121 (S.D.N.Y. 2009) (“Circumstantial evidence of a principal-agent relationship includes
the exclusive dedication of a subsidiary to assisting the parent company, payment of the
subsidiary’s expenses by the parent company, and requests for approval of the parent company
for important decisions by the subsidiary.”).
Here, like most outsiders who are not privy to arrangements between a parent corporation
and its subsidiary, Plaintiff relies on circumstantial evidence in her attempt to allege the
existence of an agency relationship between OFC and OLS. The Court finds that, crediting
Plaintiff’s allegations concerning the corporate structure of OFC and OLS, the commonalities
between both entities, and the inferences that can be drawn from the MSP Agreement and the
Consent Order, Plaintiff has pled facts that “raise[] a sufficient inference that some sort of
agency relationship existed between” OFC and OLS that covered the conduct at issue in the
SAC. Amusement Indus., Inc., 693 F. Supp. 2d at 344.
In contrast to the original Complaint, the SAC alleges facts relevant to the structure of
OFC and OLS and the commonalities between each entity. (SAC ¶¶ 17–21.) Specifically, the
SAC alleges general facts about the connection between the parent, OFC, and its wholly owned
subsidiary, OLS, including the entities’ overlapping structure, revenue flow, and interaction with
regulators. (Id. ¶¶ 15, 17–21.) As alleged in the SAC, 99% of OFC’s revenues in 2012 were
from loan servicing, and “OLS was OFC’s only licensed mortgage servicer.” (Id. ¶ 17.) The
entities also overlapped in terms of their operation and management. (Id. ¶¶ 17–21.)
Throughout the relevant time period, OFC and OLS shared senior executives, physical office
space, an address and a telephone number. (Id. ¶¶ 18–21.) In addition, each entity’s publicfacing websites displayed the same logos and slogans, which were copyrighted by OFC, and
12
OFC’s website included its own section welcoming visitors to “Ocwen Loan Servicing.” (Id.
¶ 19.)
The MSP Agreement and the Consent Order buttress these indicia of control and are
additional circumstantial evidence of the agency relationship between OFC and OLS, and
the connection between that agency relationship and Plaintiff’s claims. (Id. ¶¶ 23–24.) Pursuant
to the MSP Agreement, which covers the relevant time period of the SAC, “Ocwen” — defined
as OFC and OLS collectively — was required to undertake a wide array of measures related to
the servicing of loans, communications with borrowers, the accuracy of loan documentation and
the treatment of borrowers who were pursuing loan modifications. (MSP Agreement 1, 4, 14,
18.) Many of these subjects are directly relevant to the conduct underlying Plaintiff’s claims.
For example, the MSP Agreement mandated the implementation of “policies and procedures to
ensure that borrowers’ account information is accurate and complete.” (Id. at 2.) In addition,
“Ocwen” was prohibited from engaging in “dual tracking,” the very conduct Plaintiff alleges she
experienced when seeking to modify the terms of her mortgage. (Id. at 14.) Under the MSP
Agreement, “Ocwen” had to “ensure that borrowers who [were] engaged in pursuing loan
modifications or other loss mitigation [were] not referred to foreclosure,” conduct that Plaintiff
also complains of in the SAC. (See SAC ¶¶ 33–34, 83–94.) OFC, through its CEO Tom Faris,
“as the parent company of [OLS],” was the sole signatory to the MSP Agreement and, “in the
case of any portfolio serviced by a different Ocwen subsidiary or affiliate,” committed OFC “to
cause [the subsidiary or affiliate] to adhere to [the MSP Agreement].” (MSP Agreement 1.)
Although, on its face, the MSP Agreement does not expressly create or relate to an
agency relationship between OFC and OLS, when read in light of Plaintiff’s other allegations, an
inference of such an agency relationship can be drawn. The SAC alleges, and OFC concedes,
13
that as a financial services holding company, OFC acted only “through its subsidiaries” in
servicing loans. (SAC ¶¶ 14–15; see also OFC Mem. 1 (“Plaintiff acknowledges that OFC ‘is a
financial services holding company’ that ‘through its subsidiaries, engages in the servicing and
origination of mortgage loans . . . .’” (quoting SAC ¶ 14)).) As alleged in the SAC, the only
OFC subsidiary engaged in loan servicing was OLS. (SAC ¶¶ 14–17.) Given OFC’s inability to
service loans on its own, it is plausible to infer from these facts that OFC necessarily conferred
authority to its loan servicing subsidiary, OLS, to act as its agent in carrying out the obligations
of the MSP Agreement and, further, that OFC controlled OLS to ensure its loan servicing
activities complied with those obligations. While plausible standing alone, that inference
becomes even more so when considered in light of the additional evidence alleged by Plaintiff.
As Judge Reyes found, Plaintiff correctly asserts that the Consent Order also provides
support for her allegations of an agency relationship between OFC and OLS. (R&R 17–19.) By
its terms, the Consent Order relates to the prior MSP Agreement and OFC’s loan servicing
obligations. (Consent Order 1–3; SAC ¶ 23.) The Consent Order addresses the
“non-compliance with the [MSP] Agreement by Ocwen” — referring to OFC and OLS — in the
servicing of borrowers’ loans. (Consent Order 3.) This misconduct was observed by DFS at
some point prior to the execution of the order. (Id.) Among other things, the Consent Order
recounts “Ocwen’s” continued practice of “dual tracking” borrowers by “pursuing foreclosure
actions against certain borrowers who [were] seeking a loan modification,” which, as the
Consent Order notes, violated the MSP Agreement. (Id.) The Consent Order also recounts
“Ocwen’s” servicing of loans in a manner that violated state law, including the “fail[ure] to send
borrowers a 90-day notice prior to commencing a foreclosure action as required [under New
York law].” (Id. at 2.) Notably, these failures are similar to those Plaintiff alleged in the SAC,
14
and, given the timing of the Consent Order, can be construed as having occurred during the time
period relevant to the claims in the SAC. (SAC ¶¶ 85–86, 93–94.)
In objecting to the R&R, OFC asserts that because execution of the Consent Order
post-dates the conduct underlying the SAC, obligations imposed on OFC or carried out by OLS
under the Consent Order provide no support for Plaintiff’s agency arguments. (OFC Obj. 11.)
However, this view misunderstands the relevance of the Consent Order. The Consent Order is
further support for the inference that OFC exercised authority over OLS’ loan servicing
activities. Given OFC’s alleged inability to service loans, its subsidiary, OLS, appears to be
responsible for the ongoing loan servicing issues documented in the Consent Order, including the
continued “dual tracking” of borrowers. That DFS was holding OFC, not OLS, accountable for
those post-MSP Agreement loan servicing issues supports the inference that OFC exercised some
authority over OLS’ loan servicing activities sufficient to remediate the problems identified by
DFS.
As Judge Reyes found, the circumstantial evidence presented by the MSP Agreement and
Consent Order, on their own, supports an inference of an agency relationship between OFC and
OLS. (R&R 18–19.) That inference is even stronger when the Court considers the MSP
Agreement and Consent Order alongside the indicia of control alleged in the SAC, such as OFC
and OLS’ shared physical address, executive managers, telephone numbers, branding and
internet presence. These allegations present precisely the type of circumstantial evidence
available to an outsider like Plaintiff, who is not privy to the parent-subsidiary relationship
between OFC and OLS. Taken together, the Court finds that the SAC’s allegations “support a
reasonable inference of actual authority.” Skanga Energy, 875 F. Supp. 2d at 269.
The cases relied upon by OFC in its objections to the R&R are distinguishable. (OFC
15
Obj. 8–9 (first citing Dumont v. Litton Loan Servicing, LP, No. 12-CV-2677, 2014 WL 815244
(S.D.N.Y. Mar. 3, 2014); and then citing Spagnola v. Chubb Corp., 264 F.R.D. 76 (S.D.N.Y.
2010)).) In Dumont, the plaintiffs attempted to hold OFC liable for OLS’ misconduct on indirect
theories of liability including agency. Dumont, 2014 WL 815244, at *18–25. In a four sentence
analysis, the district court found that the plaintiffs alleged no facts supporting an agency theory
of liability and declined to find an agency relationship, stating that the Court could not “infer
agency merely from the existence of a parent-subsidiary relationship.” Id. at *23. Unlike
Dumont, however, as discussed above, Plaintiff has alleged more than merely a
“parent-subsidiary relationship” by pointing to facts that circumstantially support an inference
that OLS acted as OFC’s agent in the servicing of borrowers’ loans.
As OFC highlights in its objections, the Dumont court considered and rejected the MSP
Agreement and Consent Order in connection with the plaintiffs’ veil-piercing theory of liability.
Id. at *22. The Court agrees that those documents, on their own, would fail to establish “the
inference of complete domination” required for piercing the corporate veil. However, as noted
above, “[s]uing a parent corporation on an agency theory is quite different from attempting to
pierce the corporate veil,” Sahu, 2012 WL 2422757, at *16, and “[t]o adequately allege an actual
agency relationship, a plaintiff need only allege facts sufficient to support a reasonable inference
of actual authority, and its pleadings may rely upon facts that would constitute circumstantial
evidence of authority,” Skanga Energy, 875 F. Supp. 2d at 269. Accordingly, for purposes of
Plaintiff’s agency theory — unlike Dumont where the court considered these documents in
determining whether the plaintiff had alleged a veil piercing theory of liability — the Court has
considered these agreements in detail in the context of Plaintiff’s agency theory and the facts
alleged in the SAC and finds them to be relevant circumstantial evidence of OFC’s authority
16
over OLS. 5
The Court finds that Plaintiff has sufficiently alleged the existence of an agency
relationship between OFC and OLS, and a connection between that relationship and the conduct
underlying the SAC to survive a motion to dismiss. Discovery may clarify the relationship
between OFC and OLS, but at this stage, Plaintiff has satisfied her burden. STMicroelectronics,
775 F. Supp. 2d at 540 (“Although [the plaintiff’s] agency theory may prove unfounded,
questions as to the existence and scope of the agency are issues of fact and are not properly the
basis of a motion to dismiss. The bones are enough for now; discovery may provide the meat.”
(internal quotation marks and citations omitted)).
III. Conclusion
Having reviewed the unopposed portions of the R&R, and finding no clear error, the
Court adopts Judge Reyes’ unopposed recommendations. The Court (1) denies OLS’ motion to
dismiss Plaintiff’s claims for promissory estoppel, (2) grants OLS’ motion to dismiss Plaintiff’s
claims for breach of an implied covenant of good faith, (3) grants OLS’ motion to dismiss
Plaintiff’s claims for breach of the loan modification agreement, and (4) grants OFC’s motion to
dismiss Plaintiff’s veil piercing theory indirect liability. For the reasons set forth above, the
5
OFC’s reliance on Spagnola v. Chubb, 264 F.R.D. 76 (S.D.N.Y. 2010), is also
unavailing. (OFC Obj. 8–9.) There, the district court rejected the plaintiffs’ agency theory,
where the plaintiffs relied on the corporate parent’s signing of an agreement with regulators,
which purportedly bound the parent’s subsidiaries. Spagnola, 264 F.R.D. at 89–90. The
plaintiffs in Spagnola argued that this agreement demonstrated the parent’s “complete
domination and control” of the subsidiaries. Id. at 90. However, the district court found the
agreement insufficient to plead agency liability “in itself,” because the plaintiffs failed to allege
any facts as to the parent’s manifestation of intent to grant authority to the subsidiaries as its
agents. Id. Here, unlike Spagnola, Plaintiff’s allegations regarding the MSP Agreement and
OFC’s inability to service loans, plausibly supports the inference that OFC conferred authority to
OLS, its only loan servicing subsidiary, to carry out the loan servicing obligations imposed by
the MSP Agreement.
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Court rejects OFC’s objections to the R&R and denies OFC’s motion to dismiss Plaintiff’s
agency theory of indirect liability. The Court reserves decision as to Plaintiff’s objection to
Judge Reyes’ recommendation that the Court dismiss Plaintiff’s breach of contract claims that
are based on the mortgage.
SO ORDERED:
s/ MKB
MARGO K. BRODIE
United States District Judge
Dated: March 31, 2016
Brooklyn, New York
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