Richissin v. Rushmore Loan Management Services, LLC

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

Timothy J. Richissin, et al., ) CASE NO. 20 CV 871

)

Plaintiffs, ) JUDGE PATRICIA A. GAUGHAN

)

vs. )

)

Rushmore Loan Management )

Services, LLC, et al., ) Memorandum of Opinion and Order

)

Defendants. )

INTRODUCTION

This matter is before the Court upon Defendants’ Motion for Judgment on the Pleadings

(Doc. 14). This is a breach of contract case. For the reasons that follow, the motion is

GRANTED in PART and DENIED in PART. Defendants’ motion is DENIED as to count one

and GRANTED as to count two.

FACTS

For purposes of ruling on the pending motion, the facts set forth in the pleadings are

presumed true.

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Plaintiffs Timothy and Heidi Richissin filed this lawsuit against defendants Rushmore

Loan Management Services LLC (“Rushmore”) and U.S. Bank Trust, N.A., as Trustee for Loan

Acquisition Trust 2017-RPL1 (“U.S. Bank”) alleging wrongdoing related to a settlement

agreement.

Plaintiffs executed a promissory note and mortgage in connection with the acquisition of

real property. Non-defendant Household Realty Corporation (“HRC”) initiated foreclosure

proceedings against plaintiffs in 2013. As part of a resolution of the foreclosure action, plaintiffs

and HRC entered into a settlement agreement. The settlement agreement bound all parties, as

well as their successors and assigns. Pursuant to the agreement, HRC agreed to report to the

three major credit reporting agencies that the tradeline has been deleted. It appears that HRC

fulfilled its obligation. The agreement provides that, prior to instituting litigation related to the

credit reporting, plaintiffs would notify each of the three credit reporting agencies through the

dispute processes set forth in the Fair Credit Reporting Act.

According to the complaint, on or about February 1, 2017, the loan was sold to defendant

U.S. Bank. At some point between the sale of the loan and September 26, 2019, defendant

Rushmore improperly reinstated the tradeline. In correspondence dated September 26, 2019

(“September 26 letter”), counsel for plaintiffs informed Rushmore that they believed Rushmore

committed an error in the “servicing of the loan” by reinstating the tradeline in contravention of

the settlement agreement. Rushmore responded on October 22, 2019, acknowledging that it

erroneously reinstated the tradeline. Rushmore indicated that the reporting has been

“suppressed’ and that it placed a “permanent block” on the account.

Plaintiffs allege that they suffered damage to their credit ratings, which prevented them

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from obtaining credit. Thereafter, plaintiffs filed this lawsuit containing two claims for relief.

Count one is a claim for breach of contract and is asserted against both defendants. Count two is

a claim for violation of the Real Estate Settlement Procedures Act (“RESPA”) and is asserted

only against defendant Rushmore.

Defendants move for judgment on the pleadings and plaintiffs oppose the motion.

STANDARD OF REVIEW

A “motion for judgment on the pleadings under Rule 12(c) is generally reviewed under

the same standard as a Rule 12(b)(6) motion.”Mellentine v. Ameriquest Mortg. Co., 2013 WL

560515 (6th Cir. February 14, 2013) (citing EEOC v. J.H. Routh Packing Co., 246 F.3d 850, 851

(6th Cir.2001)). “For purposes of a motion for judgment on the pleadings, all well-pleaded

allegations of the pleadings of the opposing party must be taken as true, and the motion may be

granted only if the moving party is nevertheless entitled to judgment.” JPMorgan Chase Bank,

N.A. v. Winget, 510 F.3d 577, 581 (6th Cir.2007).

Thus, “[w]e assume the factual allegations in the complaint are true and construe the

complaint in the light most favorable to the plaintiff.” Comtide Holdings, LLC v. Booth Creek

Management Corp., 2009 WL 1884445 (6th Cir. July 2, 2009) (citing Bassett v. Nat'l Collegiate

Athletic Ass'n, 528 F.3d 426, 430 (6th Cir.2008) ). In construing the complaint in the light most

favorable to the non-moving party, “the court does not accept the bare assertion of legal

conclusions as enough, nor does it accept as true unwarranted factual inferences.” Gritton v.

Disponett, 2009 WL 1505256 (6th Cir. May 27, 2009) (citing In re Sofamor Danek Group, Inc.,

123 F.3d 394, 400 (6th Cir.1997). As outlined by the Sixth Circuit:

Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the

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claim showing that the pleader is entitled to relief.” “Specific facts are not necessary; the

statement need only give the defendant fair notice of what the ... claim is and the grounds

upon which it rests.”Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting Bell Atlantic

Corp. v. Twombly, 550 U.S. 544, 555 (2007)). However, “[f]actual allegations must be

enough to raise a right to relief above the speculative level” and to “state a claim to relief

that is plausible on its face.” Twombly, 550 U.S. at 555, 570. A plaintiff must “plead[ ]

factual content that allows the court to draw the reasonable inference that the defendant is

liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

Keys v. Humana, Inc., 684 F.3d 605, 608 (6th Cir.2012). Thus, Twombly and Iqbal require that

the complaint contain sufficient factual matter, accepted as true, to state a claim to relief that is

plausible on its face based on factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged. Twombly, 550 U.S. at 570;

Iqbal, 556 U.S. at 678. The complaint must contain “more than labels and conclusions, and a

formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555.

ANALYSIS

1. Breach of contract

According to defendants, the settlement agreement requires that plaintiffs notify the three

major credit reporting agencies before instituting litigation. Plaintiffs, however, fail to allege that

they satisfied this condition precedent before filing this lawsuit. Plaintiffs respond that they have

alleged that they “dutifully performed their obligations pursuant to the Agreement and have

complied with all of its terms and conditions.” According to plaintiffs, this is sufficient to allege

that they complied with all conditions precedent.

Upon review, the Court rejects defendants’ argument. It is not entirely settled whether a

plaintiff is required to affirmatively plead the performance of a condition precedent when

performance of the condition is not an element of the underlying cause of action. See, e.g.,

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Brown Family Trust, LLC v. Dick’s Clothing and Sporting Goods Inc., 2014 WL 617668 (S.D.

Ohio Feb. 18, 2014). The Court, however, need not reach this issue. Federal Rule of Civil

Procedure 9(c) provides that “in pleading conditions precedent, it suffices to allege generally that

all conditions precedent have occurred or been performed.” See, Ginsburg v. Ins. Co. of North

America, 427 F.2d 1318 (6th Cir. 1970)(plaintiff satisfied Rule 9(c) by affirmatively pleading in

requests for admission that she performed conditions precedent). The Court finds that plaintiffs’

allegation that they have complied with all conditions to the contract satisfies the pleading

requirements set forth in Rule 9(c). Thus, even assuming plaintiffs are required to plead

performance of conditions precedent, they have done so here.

Defendants citations are inapposite. As an initial matter, defendants cite Ohio cases,

which do not address federal pleading rules. Defendants further cite Salazar v. Progressive

Northern Ins. Co., 2014 WL 12596528 (N.D. Ohio Sept. 30, 2104). Salazar, however, is easily

distinguishable. In Salazar, the court first noted that Rule 9(c) requires only a general allegation

of compliance with conditions precedent. The court held, however, that dismissal may be proper

where the facts pleaded by the plaintiff “contradict her general claim that she satisfied the

conditions precedent to filing suit under the insurance policy.” There is no such contradiction in

the complaint before this Court.1

For these reasons, the Court finds that defendants are not entitled to judgment on the

pleadings.

1 Defendants also rely on Prince v. NLRB, 2017 WL 1424983 (S.D.

Ohio April 20, 2017). In Prince, however, the pro se plaintiff did

not dispute that he failed to exhaust his administrative remedies a

condition precedent prior to filing suit.

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2. RESPA

Defendant Rushmore argues that judgment on the pleadings is warranted because the

September 26 letter does not constitute either a qualified written request (“QWR”) or a notice of

error (“NOE”). According to defendant, both of these terms require that the correspondence

relates to the “servicing” of the loan. Because the September 26 letter did not identify a problem

with the servicing of the loan, and instead related to the reinstatement of the tradeline on

plaintiffs’ credit report, there can be no RESPA violation. In response, plaintiffs argue that error

resolution and information requests apply regardless of whether the servicer receives a QWR.

According to plaintiffs, the phrase “other standard servicer’s duties,” which is set forth in 12

U.S.C. § 2605(k)(1)(c) imposes broader duties on servicers than “merely responding to QWRs

that relate to servicing errors.” According to plaintiffs, issues related to credit reporting fall

within this broad definition. Because the September 26 letter identifies a credit reporting issue,

which relates to a servicing error, judgment on the pleadings is not warranted.

Upon review, the Court agrees with defendant that judgment on the pleadings is

warranted with respect to plaintiffs’ claim asserted under 12 U.S.C. § 2605 because the

September 26 letter is not directed at the “servicing of the loan.” 12 U.S.C. § 2605(e) sets out

various obligations loan servicers have in responding to borrower inquiries. In order to trigger

the servicer’s statutory duties, the borrower must send the servicer a “[QWR] for information

relating to the servicing of [the] loan.” The QWR must include “a statement of the reasons for

the belief of the borrower, to the extent applicable, that the account is in error.” In response, the

servicer is obligated to, among other things, timely respond to the borrower, make any

appropriate corrections, and transmit to the borrower a written notification of such correction. 12

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U.S.C. § 2605(e)(2).

The statute goes on to impose credit reporting protection in favor of the borrower.

“During the 60-day period beginning on the date of the servicer’s receipt from any borrower of a

qualified written request relating to a dispute regarding the borrower's payments, a servicer may

not provide information regarding any overdue payment, owed by such borrower and relating to

such period or qualified written request, to any consumer reporting agency.” 12 U.S.C. §

2605(e)(3).

The Court finds that the September 26 letter does not relate to the “servicing of the loan”

and, as such, defendant cannot be liable under Section 2605(e)(3). “Servicing” is a statutorily

defined term. “The term ‘servicing’ means receiving any scheduled periodic payments from a

borrower pursuant to the terms of any loan...and making the payments of principal and interest

and such other payments with respect to the amounts received from the borrower as may be

required pursuant to the terms of the loan.” 12 U.S.C. §2605(i)(3). Not all issues arising between

borrowers and servicers are subject to 12 U.S.C. § 2605(e)(3). See, e.g., Smallwood v. Bank of

America, 2015 WL 7736876 (S.D. Ohio Dec. 1, 2015)(requests for loan modifications are not

QWRs because modifications do not qualify as “servicing” such that obligations are triggered

under Section 2605). The complaint does not allege any error on the part of the defendant in

either “receiving scheduled periodic payments” or “making...payments” on behalf of the

borrower. Rather, the September 26 letter identifies “breaching a settlement agreement by failing

to suppress credit reporting” as the basis for its request. (Doc. 1-1). Plaintiffs do not cite any

authority supporting a conclusion that breaching the terms of a separate settlement agreement

constitutes a “servicing” error. This is so even though the underlying issue is the alleged

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reinstatement of the tradeline. There is no indication that the reinstatement arose as the result of

the failure of defendant to properly account for the receipt and distribution of payments made by

plaintiffs. Nor is there any allegation that defendant ever improperly reported any credit

information to a credit bureau.2 Rather, the sole basis for the September 26 letter is to alert

defendant that it is in breach of a settlement agreement. The Court finds that these actions do

not meet the statutory definition of “servicing” and, as such, defendant’s obligations under

Section 2605(e) are not triggered by the September 26 letter.

Plaintiffs also allege that defendant violated Sections 2605(k)(1)(c), which is directed at

NOEs. Section 2605(k)(1)(c) prohibits a servicer from failing to “take timely action to respond

to a borrower's requests to correct errors relating to allocation of payments, final balances for

purposes of paying off the loan, or avoiding foreclosure, or other standard servicer’s duties.”

According to plaintiffs, the phrase “other standard servicer’s duties” imposes broader obligations

on servicers than merely responding to requests that relate to servicing errors. In support of their

position, plaintiffs rely on 12 C.F.R. § 1024.353 and the commentary thereto. The provision

provides as follows:

(b) Scope of error resolution. For purposes of this section, the term “error” refers to the

following categories of covered errors:

2 Plaintiffs do not allege that defendant’s reinstatement of the

tradeline violates any credit reporting obligations that arise

pursuant to statute. Nor do plaintiffs contend that the tradeline is

inaccurate. Rather, plaintiffs allege solely that defendant’s

obligations to maintain deletion of the tradeline arise by contract.

3 This provision appears in Regulation X, which was promulgated by

the Consumer Financial Protection Board. Regulation X expanded

servicer’s duties to respond to requests made by borrowers.

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(1) Failure to accept a payment that conforms to the servicer's written

requirements for the borrower to follow in making payments.

(2) Failure to apply an accepted payment to principal, interest, escrow, or other

charges under the terms of the mortgage loan and applicable law.

(3) Failure to credit a payment to a borrower's mortgage loan account as of the

date of receipt in violation of 12 CFR 1026.36(c)(1).

(4) Failure to pay taxes, insurance premiums, or other charges, including charges

that the borrower and servicer have voluntarily agreed that the servicer should

collect and pay, in a timely manner as required by § 1024.34(a), or to refund an

escrow account balance as required by § 1024.34(b).

(5) Imposition of a fee or charge that the servicer lacks a reasonable basis to

impose upon the borrower.

(6) Failure to provide an accurate payoff balance amount upon a borrower's

request in violation of section 12 CFR 1026.36(c)(3).

(7) Failure to provide accurate information to a borrower regarding loss mitigation

options and foreclosure, as required by § 1024.39.

(8) Failure to transfer accurately and timely information relating to the servicing

of a borrower's mortgage loan account to a transferee servicer.

(9) Making the first notice or filing required by applicable law for any judicial or

non-judicial foreclosure process in violation of § 1024.41(f) or (j).

(10) Moving for foreclosure judgment or order of sale, or conducting a foreclosure

sale in violation of § 1024.41(g) or (j).

(11) Any other error relating to the servicing of a borrower's mortgage loan.

In addition, plaintiffs point out that the commentary indicates that

...[S]tandard servicer duties are not limited to duties that constitute “servicing,” as

defined in this rule, and include, for example, duties to comply with investor agreements

and servicing program guides, to advance payments to investors, to process and pursue

mortgage insurance claims, to monitor coverage for insurance (e.g., hazard insurance), to

monitor tax delinquencies, to respond to borrowers regarding mortgage loan problems, to

report data on loan performance to investors and guarantors, and to work with investors

and borrowers on options to mitigate losses for defaulted mortgage loans.

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Defendant argues that there is nothing on the face of the statute or Regulation X that

would include credit reporting errors as within the scope of an NOE under RESPA. The Court

agrees with defendant. Plaintiffs do not allege or argue that the alleged breach of the settlement

agreement or any failure to properly report credit information falls within the first ten enumerated

categories of 12 C.F.R. § 1024.35. Rather, plaintiffs argue that credit reporting errors constitute

“other” errors that relate to the servicing of a mortgage loan under category 11. But, defendant’s

obligation to refrain from reporting the tradeline arose as a result of a written settlement

agreement, not as a “standard servicer duty.” Moreover, even if this alleged error arose outside

of the settlement agreement, the Court disagrees with plaintiffs’ position that credit reporting

falls within the “catchall” phrase of 12 C.F.R. § 1024.35(b)(11). Congress and the Consumer

Financial Protection Board are surely well-aware that credit reporting may occur, yet this activity

is not expressly identified anywhere as a “servicing duty” or servicing “error.” This may be

because the Fair Credit Reporting Act is a remedial statutory scheme that covers credit reporting

errors.

Plaintiffs argue that 12 U.S.C. § 2605(e)(3) ,which imposes an obligation on servicers to

suspend credit reporting, demonstrates that Congress understood that servicers undertake credit

reporting duties. The Court finds that Section 2605(e)(3) undercuts, rather than advances,

plaintiffs’ position. Congress inserted this provision into RESPA, but did not expressly identify

“credit reporting” anywhere as an enumerated “servicing” activity or “servicing error.” This

demonstrates an intent that credit reporting activities would not trigger obligations under

Regulation X. Regardless, plaintiffs cite no law supporting their position that credit reporting

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constitutes a “servicing” activity under RESPA.4

Nor does the commentary save plaintiffs’ claim. Plaintiffs argue that the commentary

identifies additional types of activities, including working with “borrowers on options to mitigate

loss for defaulted mortgages,” that may trigger the servicer’s duty to respond to an NOE. But

there are no allegations in the complaint that the September 26 letter is directed at “options to

mitigate loss for a mortgage in default.” Accordingly, the commentary does not assist plaintiffs.

The Court also rejects plaintiffs’ argument that they have stated a claim for violation of

Section 2605(k)(1)(E). That provision prohibits a servicer from failing to “comply with any

other obligation found by the Bureau of Consumer Financial Protection, by regulation, to be

appropriate to carry out the consumer protection purposes of this chapter.” Plaintiffs do not

identify any such “other obligation.”

Because plaintiffs fail to point to any provision of RESPA that is triggered by the

September 26 letter, which notified defendant that it breached the parties’ settlement agreement,

defendant is entitled to judgment on the pleadings with respect to count two.

4 Plaintiffs argue that “several courts have alluded to the fact that

questions related to credit reporting raised in either QWRs or

NOEs may constitute viable claims under 12 C.F.R. §

1024.35(b)(11).” (Doc. 18 at PageID 153)(emphasis added). But a

cursory review of these cases demonstrates that they do not support

plaintiffs’ position because they do not discuss whether credit

reporting issues trigger obligations under RESPA. See, Fowler v.

Bank of America, Corporation, 747 Fed. Appx. 666, 670 (10th Cir.

2018)(rejecting plaintiffs’ claim that any actual damages suffered

for improper credit reporting were tied in any way to plaintiff’s

RESPA claims); Ponder v. Ocwen Loan Servicing, 2020 U.S. Dist.

LEXIS 145132 (N.D. Ga. April 22, 2020)(summary judgment not

proper where defendant generically argued that plaintiff’s letters do

not constitute QWRs because they were “tantamount to a

continuous wild goose chase").

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CONCLUSION

For the foregoing reasons, Defendants’ Motion for Judgment on the Pleadings is

GRANTED in PART and DENIED in PART. Defendant’s motion is DENIED as to count one

and GRANTED as to count two.

IT IS SO ORDERED.

s/

PATRICIA A. GAUGHAN

United States District Judge

Chief Judge

Dated: 11/30/20

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