Parra v. Ocwen Loan Servicing, LLC

          MEMORANDUM OPINION AND ORDER

          Honorable Edmond E. Chang United States District Judge

         Jose Parra initially filed this class-action complaint against Ocwen Loan Servicing, LLC in the Circuit Court of Cook County, advancing a number of state law claims based on Ocwen’s alleged failure to apply $773.05 in unapplied funds to the outstanding principal balance on Parra’s mortgage prior to filing for foreclosure. See generally R.1-1, ^[1] Notice of Removal at Exh. A, Compl. Invoking diversity jurisdiction, Ocwen removed the case to federal court.^[2] See generally R.1, Notice of Removal. Now, Ocwen moves to dismiss the case, primarily because the complaint fails to adequately state a claim. Fed.R.Civ.P. 12(b)(6). R. 15, Mot. to Dismiss. For the following reasons, Ocwen’s motion to dismiss is granted.

         I. Background

         For purposes of this motion, the Court accepts as true the factual allegations in the complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007). Documents attached to a complaint are considered part of the complaint for all purposes. Fed.R.Civ.P. 10(c).

         In 2006, Parra obtained a $420, 000 home mortgage through Guaranteed Rate. Compl. ¶ 6; id. at Exh. D. As part of that transaction, Parra executed a Mortgage (consisting of Uniform and Non-Uniform Covenants), an Adjustable Rate Note, an Adjustable Rate Rider, and an Endorsement Allonge of the Note (all together, “the Mortgage Contract”). Compl. ¶ 6; id. at Exhs. A-D. In 2012, Ocwen was designated as the loan servicer, and became responsible for the collection, allocation, and entry of Ocwen’s mortgage payments, principal, interest, unapplied funds, and suspension of account funds. Id. ¶ 8. In 2014, the mortgage was assigned to Deutsche Bank National Trust Company with Ocwen still as the loan servicer. Id. ¶¶ 7-8. At some point after that, Parra made a partial mortgage payment of $773.05, which Ocwen held in an unapplied funds or suspense account. Id. ¶ 26.

         In July 2016, Deutsche filed for foreclosure against Parra in state court. R.15-1, Mot. to Dismiss, Exh. 1 at 2. In his affirmative defenses to Deutsche’s foreclosure complaint, Parra asserted that he does not owe Deutsche the money claimed because it “failed to properly reduce the outstanding loan principal by the amount of the ‘unapplied funds’ prior to its filing … and in so doing increased the interest calculated due and penalties assessed during the term of the loan.” R.15-2, Mot. to Dismiss, Exh. 2 at ¶¶ 47-48. Specifically, Parra cited to Section 1 of the Uniform Covenants in the Mortgage Contract, id. at ¶ 39, which says, “Lender may hold such unapplied funds until Borrower makes payment to bring the Loan current. If Borrower does not do so within a reasonable period of time, Lender shall either apply such funds or return them to Borrower. If not applied earlier, such funds will be applied to the outstanding principal balance under the Note immediately prior to foreclosure[, ]” Compl., Exh. A at 3.

         Shortly after, in mid-April 2017, Parra filed a motion to pursue a class action representing homeowners against whom Deutsche had instituted foreclosure proceedings without applying “unapplied funds” to the outstanding principal balance. See generally Compl., Exh. 3. After hearing oral argument, the state court denied the motion in September 2017, holding that “filing a foreclosure complaint is not a foreclosure under the contract; a foreclosure occurs at the time of judgment.” Id. at Exh. 6. Parra then filed a motion to reconsider. Id. at Exh. 7. He also sought leave to amend his affirmative defenses, to include the argument that the failure to apply the “unapplied funds” violated an Illinois mortgage-foreclosure statute, 735 ILCS 5/15-1504(J). Id. at Exh. 10.

         In April 2018, the state court denied Parra’s motion to reconsider (but granted the motion to amend). Id. at Exhs. 9 (p. 3), 10. In doing so, the state court examined the case law cited by Parra and Deutsche and found “little support for the position that the commencement of ‘the process of foreclosure’ in fact creates a foreclosure.” Id. at Exh. 9 (p. 2). Thus, it held that Parra’s “Motion for Reconsideration fail[ed] to meet its burden of showing an error of law.” Id. at 3.

         A few months later, in July 2018, Parra filed this case in state court against Ocwen, the loan servicer. See generally Compl. Ocwen initially attempted to consolidate this suit with the underlying foreclosure action, but local Cook County Circuit Court rules require that proposed class actions be heard by a separate judge. Mot. to Dismiss at 8. Ocwen then removed the case to this Court based on diversity jurisdiction. Id.

         II. Legal Standard

         Under Federal Rule of Civil Procedure 8(a)(2), a complaint generally need only include “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). This short and plain statement must “give the defendant fair notice of what the … claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (cleaned up).^[3] The Seventh Circuit has explained that this rule “reflects a liberal notice pleading regime, which is intended to ‘focus litigation on the merits of a claim’ rather than on technicalities that might keep plaintiffs out of court.” Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002)).

         “A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted.” Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). “[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) (cleaned up). These allegations “must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. The allegations that are entitled to the assumption of truth are those that are factual, rather than mere legal conclusions. Iqbal, 556 U.S. at 678-79.

         III. Analysis

         In the first count of Parra’s complaint, he alleges that Ocwen breached the Mortgage Contract “by not complying with the servicing requirement … which requires that unapplied funds be applied to the outstanding principal balance under the Mortgage immediately prior to foreclosure, or that the unapplied funds be returned to the borrower.” Compl. ¶ 19. Under the choice of law provision in the Contract, the governing law is “federal law and the law of the jurisdiction in which the Property is located[, ]” which in this case is Illinois. Compl., Exh. A at 10. Under Illinois law, a plaintiff must establish four elements to make out a breach of contract claim: (1) the existence of a valid and enforceable contract; (2) performance by the plaintiff; (3) breach by the ...