UNITED STATES OF AMERICA et al v. Ocwen Loan Servicing LLC
Filing
496
MEMORANDUM OPINION AND ORDER - GRANTING IN PART AND DENING IN PART 400 SEALED MOTION [RELATORS' MOTION FOR RELIEF UNDER FEDERAL RULE OF CIVIL PROCEDURE 37 AGAINST DEFENDANTS OCWEN LOAN SERVICING, LLC, AND OCWEN FINANCIAL CORPORATION] filed by Brian Bullock, Michael J Fisher. Signed by Judge Amos L. Mazzant, III on 6/8/2016. (baf, )
United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
UNITED STATES OF AMERICA
Ex rel., Michael J. Fisher, and Michael Fisher
Individually, and Brian Bullock, and Brian
Bullock, Individually
v.
OCWEN LOAN SERVICING, LLC and
OCWEN FINANCIAL CORPORATION
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CIVIL ACTION NO 4:12-CV-543
Judge Mazzant
MEMORANDUM OPINION AND ORDER
Pending before the Court is Relators Michael J. Fisher and Brian Bullock’s Motion for
Relief Under Federal Rule of Civil Procedure 37 Against Defendants Ocwen Loan Servicing,
LLC, and Ocwen Financial Corporation (Dkt. #400). After reviewing the relevant pleadings, the
Court finds that the motion should be granted in part and denied in part.
BACKGROUND
The above-referenced case is a qui tam action under the False Claims Act (the “FCA”), in
which the United States has declined to intervene. Relators assert their FCA claims based upon
false certifications of compliance allegedly made as part of the Treasury Department’s Home
Affordable Modification Program (“HAMP”).
In particular, Relators allege that the loan
servicing, modifications, and loss mitigation practices of Defendants Ocwen Loan Servicing,
LLC (“OLS”) and Ocwen Financial Corporation (“OFC,” collectively with OLS, “Ocwen” or
“Defendants”) failed to comply with federal and state law, in violation of Ocwen’s certifications
of compliance and applicable servicing laws. For purposes of the present motion, Relators allege
that Ocwen has either withheld relevant documents in violation of the Court’s orders or failed to
create and maintain documents in violation of federal law (Dkt. #400 at p. 1).
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Relators first requested production of loan file documents from Ocwen on January 15,
2015 (Dkt. #400 at p. 3; see Dkt. #400, Exhibit F at pp. 14-15). On June 10, 2015, Ocwen
produced the first “sample” of only fourteen loan files, which were heavily redacted and were
missing numerous documents (Dkt. #400 at p. 3).
On June 25, 2015, Relators filed their Emergency Motion to Compel 30(b)(6) Testimony
and the Predicate Document Production (Dkt. #175). On July 6, 2015, the Court granted
Relators’ Emergency Motion to Compel, and it ordered Ocwen to produce “all documents
reasonably bearing on any claim or defense” within thirty days (Dkt. #188). The Court also
stated that “[t]he pace of discovery must increase and the Court enters this Order to accomplish
that goal.” (Dkt. #188 at p. 2).
On July 7, 2015, Relators filed their Emergency Motion to Compel Defendants to
Produce Loan Files, in which they specifically sought requested loan files (Dkt. #193). On July
17, 2015, the Court granted Relators’ Emergency Motion to Compel, and ordered Ocwen to
provide data files within twenty days containing “basic information, including loan numbers” for
all loans Ocwen has serviced since 2009, allowed Relators to select and request a sample of up to
3,000 “complete loan files,” and ordered Ocwen to produce the complete loan files within twenty
days of Relators’ request (Dkt. #215 at pp. 2-3). Once again, the Court stated that “[t]he pace of
discovery must increase and the Court enters this Order to accomplish this goal.” (Dkt. #215 at
p. 2).
On August 3, 2015, Defendants filed an Emergency Motion to Extend Document
Production and Rule 30(b)(6) Deposition Deadlines, and requested that the Court extend the
deadline from its July 6, 2015 and July 17, 2015 Orders by 30 days to September 4, 2015, and
requested an extension of the 30(b)(6) deadline to September 30, 2015 (Dkt. 218 at p. 7). On
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August 5, 2015, the Court granted in part and denied in part Defendants’ emergency motion, and
extended both deadlines by twenty-one days (Dkt. #223 at p. 2).
On August 6, 2015, Ocwen provided responsive data files for almost four million loans
serviced by Ocwen and Homeward since 2009 (Dkt. #412 at p. 3; see Dkt. #232, Exhibit 2 at ¶
8). Relators asserted that the data files were missing fields, which they needed to select a sample
of loans for expert analysis (Dkt. #412 at p. 3). Ocwen worked with Relators, and produced 132
spreadsheets containing more than 2.5 billion cells of loan-related data (Dkt. #412 at p. 3).
On August 23, 2015, Defendants filed an Emergency Motion to Extend the Document
Production Deadlines, in which it requested that the Court grant another three week extension to
comply with the Court’s July orders (Dkt. #232 at p. 7). On September 2, 2015, Relators agreed
to an extension of the deadline within their sur-reply (See Dkt. #243). On September 2, 2015,
the Court held a hearing on this issue, and following the hearing, the Court denied the motion as
moot (Dkt. #244).
On September 8, 2015, the Court entered an Amended Scheduling Order, which provided
for the following dates: (1) the deadline for complete production under the July 6 Order was
extended to September 23, 2015; and (2) the 30(b)(6) deposition period was extended to October
16-30, 2015 (Dkt. #246).
On October 8, 2015, Relators made a request for 250 Ocwen loan files under the Court’s
order (Dkt. #412 at p. 3, see Dkt. #412, Exhibit C). It then followed-up with additional requests
for 695 loan files between October 13 and October 23, 2015 (Dkt. #412 at p. 3; see Dkt. #412,
Exhibit D).
On October 19, 2015, the Court held a hearing, in which the parties discussed the
production of “complete” loan files. During the hearing, Ocwen outlined five categories of
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information it would include:
1. All borrower correspondence and agreements and related documents that are
imaged on Ocwen’s systems of record—Vault, ResWare (which contains
images of Ocwen documents concerning foreclosures and bankruptcies), and
Mail Merge files.
2. The entire comment log for each loan from Ocwen’s system of record,
RealServicing.
3. The complete transaction history for each loan from RealServicing.
4. The complete complaint file for each OLS loan.
5. Income worksheets for each OLS loan, as stored in the Stage Five system, a
data warehouse environment from which Real Servicing queries and pulls
loan data.
(Dkt. #412 at p. 4). Ocwen also stated that it would produce capitalization data (Dkt. #412 at p.
4). Following the parties’ argument, the Court stated:
THE COURT: Well, all I can say is the Court entered an order that requires the
complete files to be produced within 20 days, so when you give them this case
information—and I don’t know what else you want me to do other than say that I
stand by my order, and if the complete loan files aren’t produced, and that
includes the capitalization, then I’ll take appropriate sanctions at the appropriate
time.
(Dkt. #400, Exhibit G at 20:14-20).
On October 23, 2015, Defendants filed their Unopposed Motion to Extend Document
Production Deadlines, in which they requested an extension of the Amended Scheduling Order
deadlines for producing document to November 9, 2015, “except for the e-mails of Nicole
Darden discovered [on October 22, 2015],” for which Defendants requested an extension of
November 16, 2015 (Dkt. #256 at p. 7). On October 26, 2015, the Court granted Defendants’
motion (Dkt. #258).
Ocwen asserts that they produced the loan files, which totaled more than 250,000
documents, within twenty days of each request (Dkt. #412 at p. 4; see Dkt. #412, Exhibit F). It
produced the loan file documents in TIFF format, as they were kept in the ordinary course of
business and extracted from Ocwen’s systems (Dkt. #412 at p. 4). Ocwen also tasked a team of
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employees to conduct a manual QC using RealServicing comment logs and transaction histories
to identify documents that should have been in each loan’s image files and to the extent any of
those documents were missing, attempt to locate them (Dkt. #412 at p. 5). Ocwen asserts that
the QC process yielded approximately 8,600 documents, or three percent of the loan file
production, that Owen produced between December 8, 2015, and January 8, 2016 (Dkt. #412 at
p. 6; see Dkt. #412, Exhibit H).
On December 30, 2015, Relators demanded that Ocwen commit by January 5, 2016, that
it would complete its supplemental loan file production by January 8, 2016 (Dkt. #412 at p. 5;
see Dkt. #412, Exhibit I). Ocwen confirmed by e-mail on January 8, 2016, that the QC process
had concluded and production was complete (Dkt. #412 at p. 5; Dkt. #412, Exhibits J, K).
On March 18, 2016, Ocwen received the expert report of Relators’ expert witness, David
Pawlowski (“Pawlowski”) (Dkt. #412 at p. 7).
Ocwen’s counsel tasked its experts at
CrossCheck with analyzing Pawlowski’s findings, and on May 2, 2016, CrossCheck completed
its preliminary analysis (Dkt. #412 at p. 7). In analyzing Pawlowski’s findings, CrossCheck
determined that comment codes and payment history data from FiServ was missing, and
determined that it affected the comment codes and payment history for the period from February
15, 2013, through September 30, 2014 (Dkt. #412 at p. 7). Ocwen (1) informed Realtors that
same day that Ocwen would be producing additional documents that following week; and (2)
began collecting the data (Dkt. #412 at p. 7). On May 13, 2016, Ocwen produced all FiServ
data, including data from before the February 2013 Ocwen acquisition, for the loans Relators
requested (Dkt. #412 at p. 7; see Dkt. #412, Exhibit L).
On May 6, 2016, Relators filed their Motion for Relief under Federal Rule of Civil
Procedure 37 Against Defendants Ocwen Loan Servicing, LLC, and Ocwen Financial
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Corporation (Dkt. #400). On May 12, 2016, the Court entered an order stating that it would take
up the motion on an expedited basis, and entered an expedited briefing schedule (Dkt. #409). On
May 17, 2016, Defendants filed their response (Dkt. #412). On May 20, 2016, Relators filed
their reply (Dkt. #419). On May 23, 2016, Defendants filed their sur-reply (Dkt. #427). On May
25, 2016, Relators filed a response to Defendants’ sur-reply (Dkt. #441). On May 31, 2016,
Defendants filed their reply to their sur-reply (Dkt. #462).
LEGAL STANDARD
“Federal Rule of Civil Procedure 37 authorizes sanctions for failure to comply with
discovery orders.” SynQor, Inc. v. Artesyn Techs., Inc., No. 2:07-CV-497-TJW-CE, 2011 WL
2683184, at *3 (E.D. Tex. July 11, 2011); see Chilcutt v. United States, 4 F.3d 1313, 1319-20
(5th Cir. 1993). Rule 37(b)(2) states, in relevant part:
If a party or a party’s officer, director, or managing agent—or a witness
designated under Rule 30(b)(6) or 31(a)(4)—fails to obey an order to provide or
permit discovery, including an order under Rule 26(f), 35, or 37(a), the court
where the action is pending may issue further just orders. They may include the
following: (i) directing that the matters embraced in the order or other designated
facts be taken as established for purposes of the action, as the prevailing party
claims; (ii) prohibiting the disobedient party from supporting or opposing
designated claims or defenses, or from introducing designated matters in
evidence; (iii) striking pleadings in whole or in part; (iv) staying further
proceedings until the order is obeyed; (v) dismissing action or proceeding in
whole or in part; (vi) rending default judgment against the disobedient party; (vii)
treating as contempt of court the failure to obey any order except an order to
submit to a physical or mental examination.
FED. R. CIV. P. 37(b)(2)(A). “The following factors should guide a districts court’s exercise of
its discretion to impose sanctions for a discovery violation: ‘(1) the reasons why disclosure was
not made; (2) the amount of prejudice to the opposing party; (3) the feasibility of curing such
prejudice with a continuance of the trial; and (4) any other relevant circumstances.’” United
States v. Dvorin, 817 F.3d 438, 453 (5th Cir. 2016) (quoting United States v. Garrett, 238 F.3d
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293, 298 (5th Cir. 2000)); Primrose Operating Co. v. Nat’l Am. Ins. Co., 382 F.3d 546, 563-64
(5th Cir. 2004). “Any sanction imposed should be the least severe penalty necessary to ensure
compliance with the court’s discovery orders.” Dvorin, 817 F.3d at 453. The district court is
given broad discretion in conducting this “fact-intensive inquiry.” Id. (citing Mercury Air Grp.,
Inc. v. Mansour, 237 F.3d 542, 548 (5th Cir. 2001). However, the court’s discretion is not
“unlimited.” Chilcutt, 4 F.3d at 1320 (citing Marshall v. Segona, 621 F.2d 763, 767 (5th Cir.
1980); Emerick v. Fenick Indus., Inc., 539 F.2d 1379, 1381 (5th Cir. 1976)).
The Supreme Court has stated that the district court must be guided by the following
considerations when determining whether to impose sanctions under Rule 37(b): (1) the sanction
must be just; and (2) it must “specifically relate[] to the particular ‘claim’ which was at issue in
the order to provide discovery.” Chilcutt, 4 F.3d at 1320-21 (quoting Ins. Corp. of Ir., Ltd. v.
Compagnie Des Bauxites de Guinee, 456 U.S. 694, 697 (1982)); Compaq Comput. Co. v.
Ergonome, Inc., 387 F.3d 403, 413-14 (5th Cir. 2004). Extreme sanctions are “‘remed[ies] of
last resort’ which should be applied only in extreme circumstances.” Butler v. Cloud, 104 F.
App’x 373, 374 (5th Cir. 2004) (per curiam) (quoting Batson v. Neal Spelce Assocs., Inc., 765
F.2d 511, 515 (5th Cir. 1985)). The Fifth Circuit has stated that extreme sanctions, such as
dismissing a claim or default judgment, are proper when the discovery misconduct resulted from
willfulness or bad faith, when the deterrent value of Rule 37 could not be substantially achieved
by the use of less drastic sanctions, or when the discovery misconduct was plainly attributable to
an attorney rather than a “blameless client,” or because of “confusion or a sincere
misunderstanding of the court’s order.” Batson, 765 F.2d at 514.
ANALYSIS
Relators request that the Court grant the following relief pursuant to Federal Rule of Civil
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Procedure 37(b)(2)(A) and 37(c)(1):
A.
B.
C.
D.
The Court should bar Ocwen and its expert from using or relying on any
documents or evidence relating to borrower loan files that Ocwen did not
produce on or before the Court’s deadline of November 11, 2015,
including electronic information accessed through Ocwen’s or any
Ocwen-related vendor’s systems.
The jury should be instructed that it may presume that Ocwen failed to
comply with its record-keeping obligations, and that the missing
documents would have demonstrated Ocwen’s failure to comply with its
loan servicing requirements under the law.
As an alternative to a jury instruction, the Court should find (and should so
inform the jury) that Ocwen has violated its record-keeping obligation
under federal law, and that the missing documents would have shown
Ocwen’s failure to comply with servicing requirements.
In addition, the Court should order Ocwen to pay Relators the reasonable
attorney’s fees, expert witness fees, and other expenses and costs resulting
from Ocwen’s failure to comply with the Court’s orders and with its
discovery obligations.
(Dkt. #400 at pp. 2-3). Ocwen assert that they “believed in good faith that [they] had produced
complete loan files as stored in its systems of record in the ordinary course of business,” and
their failure to include some historical comment logs and transaction histories from FiServ was
inadvertent (Dkt. #412 at p. 1). Therefore, Ocwen argues that the Court should not grant
sanctions because they did not act “willful[ly] or [in] bad faith” and “Relators have not been
prejudiced.” (Dkt. #412 at p. 2).
Relators assert that “[p]reclusion of late or undisclosed evidence is well within the
Court’s discretion under Rule 37(b), in light of Ocwen’s failure to comply with the Court’s
previous orders….” (Dkt. #400 at p. 10). Relators assert that Ocwen was ordered to complete
their production of loan files by November 11, 2015, and Ocwen has offered no substantial
justification for its failure to do so (Dkt. #400 at p. 10). Additionally, Relators assert that
Ocwen’s production has been “disorganized, untimely, and incomplete[,]” which caused Relators
to incur considerable amount of work and expense (Dkt. #400 at p. 10). Defendants assert that if
Relators were prejudiced, they should have raised this issue when Ocwen had time to address it,
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instead of “filing an eleventh-hour motion[.]” (Dkt. #412 at p. 14). Additionally, Ocwen asserts
that they produced the files to Relators as they were maintained in the ordinary course of
business, which Relators were aware (Dkt. #412 at p. 14). Defendants also assert that the FiServ
data should not be precluded (Dkt. #412 at p. 14).
Alternatively, Defendants assert that
“Relators should be afforded more time to supplement their expert reports with additional
analysis relating to the FiServ data….” (Dkt. #412 at p. 15).
After reviewing the relevant pleadings, the Court finds that Ocwen should be precluded
from using the FiServ data at trial. The Court finds that Ocwen failed to obey the Court’s orders
to disclose to Relators the complete loans files as was ordered within the Court’s July 6, 2015
Order and July 17, 2015 Order. Additionally, this failure was not justified. While it is possible
that Ocwen did not know that the FiServ data existed until its experts investigated Pawlowski’s
findings, the Court finds that it was Ocwen’s duty to disclose complete loan files to Relators,
which included the FiServ data.
The Court finds that this case is similar to the case cited by Relators, Personal Audio,
LLC v. Apple, Inc., Civ. A. No. 9:09CV111, 2011 WL 6148587 (E.D. Tex. June 16, 2011). In
Personal Audio, the district court found that sanctions were necessary for late-produced
documents and MP3 players, as the defendant did not demonstrate that its failure to produce the
evidence was substantially justified or harmless. 2011 WL 6148587, at *1. The district court
found that the plaintiff was free to use the newly-produced evidence at trial; however, the
defendant could not use the evidence, except to the extent that the plaintiff used it, and then the
defendant could utilize the evidence for cross-examination of the witness. 2011 WL 6148587, at
*2.
Given the history of this case, the Court finds that this is an appropriate sanction. The
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Court has addressed the issue of Ocwen’s production of complete loan files on numerous
occasions, as set forth above. Specifically, in its hearing on the loan files on October 19, 2015,
the Court addressed the issue of production of complete loans files, and stated:
[T]he Court entered an order that requires the complete files to be produced
within 20 days, so when [Relators] give [Ocwen] this case information – and I
don’t know what else you want me to do other than say that I stand by my order,
and if the complete loan files aren’t produced, and that includes the capitalization,
then I’ll take appropriate sanctions at the appropriate time.
(Dkt. #400, Exhibit G at 20:14-20). Ocwen has been aware that they were required to produce
complete loan files to Relators since at a minimum July 2015. Although they assert that they
were not aware of the “historical comment logs and transaction histories from….FiServ[,]” the
Court finds that Ocwen had a duty under the Federal Rules of Civil Procedure and the Local
Rules to disclose relevant information, and has not demonstrated that its failure to comply was
substantially justified.
Ocwen asserts that, alternatively, the Court should afford Relators more time to
supplement their expert reports with additional analysis relating to the FiServ data. Relators
assert that they, and their experts, do not have sufficient time to address the newly produced data
(See Dkt. #419 at pp. 5-6). The Court agrees. The parties are less than one month before the
trial is scheduled to begin in this case. Relators do not have a sufficient amount of time to
adequately address the FiServ data, which Ocwen just provided, and thus, would be prejudiced if
the data was allowed to be used at trial.
However, the Court finds that only the recently produced FiServ data should be precluded
at trial. Although there is evidence that Ocwen produced documents after the November 11,
2015 deadline, it appears that, in some instances, if not all, Relators were aware of the late
production (See Dkt. #412, Exhibits I, J, K). The Court agrees with Ocwen that if Relators were
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prejudiced by other instances of late-production, Relators should have requested relief at that
time.1
Therefore, the Court finds that the following sanctions are appropriate:
(1) All of the newly-produced FiServ data is admissible for Relators’ use at trial; and
(2) Ocwen may not use or introduce the newly-produced FiServ data as evidence at trial;
Ocwen’s experts shall not rely on or discuss any of the newly-produced FiServ data.
Ocwen may, however, cross-examine Relators’ witnesses about the FiServ data, if
introduced by Relators.2
Relators also assert that the Court should order Ocwen to pay Relators’ fees, expenses,
and costs (Dkt. #400 at p. 15). Defendants assert that they are not responsible for Relators’ costs
and fees (Dkt. #412 at p. 15). Alternatively, Defendants assert that the Court “should address the
effects of Ocwen’s error[, and] Relators should be afforded more time to supplement their expert
reports with additional analysis (Dkt. #412 at p. 15). For reasons stated above, the Court finds
that there is not sufficient time before trial for Relators to supplement their expert reports. The
Court finds that Ocwen should pay Relators’ fees, expenses, and costs, to the extent that Relators
have incurred costs regarding the newly-produced FiServ data only.3
1
In their sur-reply, Ocwen asserts that “Relators have repeatedly failed to meet their expert discovery deadlines,
even producing expert reliance materials after an expert’s deposition.” (Dkt. #427 at p. 6) (emphasis in original).
The Court finds that this is not relevant to the issue of the present motion—whether sanctions should be imposed
against Ocwen based upon their failure to comply with the Court’s order. Therefore, the Court will not consider this
evidence.
2
Relators also assert that the Court should instruct the jury that it may presume Ocwen violated its record-keeping
obligations and that the missing documents would show Ocwen’s non-compliance, or alternatively, the Court should
find that Ocwen failed to comply with MHA requirements (Dkt. #400 at pp. 11, 14). The Court finds that these
requests are not appropriate at this time. However, the Court will take these issues under advisement, and hold these
issues for determination during trial.
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In their reply, Relators assert that Ocwen’s “experts should not be allowed to rebut the conclusions by Relators’
experts on missing documents and violations related thereto—or they should be barred from testifying at all.” (Dkt.
#419 at p. 7). To the extent that Relators are asserting a new request for relief, the Court will not address that claim,
as it was not properly raised. See Local Rule CV-7; see also Chambers v. Stalder, 62 F.3d 396, 1995 WL 449670, at
*1 n. 3 (5th Cir. July 14, 1995) (declining to address new claim for relief because “any issue raised for the first time
in the reply brief is waived.”).
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CONCLUSION
It is therefore ORDERED that Relators Michael J. Fisher and Brian Bullock’s Motion
for Relief Under Federal Rule of Civil Procedure 37 Against Defendants Ocwen Loan Servicing,
LLC, and Ocwen Financial Corporation (Dkt. #400) is hereby GRANTED IN PART AND
DENIED IN PART.
It is further ORDERED that:
(1) All of the newly-produced FiServ data is admissible for Relators’ use at trial;
(2) Ocwen may not use or introduce the newly-produced FiServ data as evidence at trial;
Ocwen’s experts shall not rely on or discuss any of the newly-produced FiServ data.
.
Ocwen may, however, cross-examine Relators’ witnesses about the FiServ data, if
introduced by Relators.
(3) Ocwen shall pay Relators’ fees, costs, and expenses incurred by the newly-produced
FiServ data.
SIGNED this 8th day of June, 2016.
___________________________________
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
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