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Trunzo v. Citi Mortg.

United States District Court, W.D. Pennsylvania

August 29, 2014

CITI MORTGAGE, et al, Defendants

Page 518

For ALEXANDRA R. TRUNZO, Individually, and on behalf of other similarly situated former and current homowners in Pennsylvania, Plaintiff: Joseph Decker, Babst, Calland, Clements & Zomnir, Pittsburgh, PA; Michael P. Malakoff, Michael P. Malakoff, PC, Pittsburgh, PA.

For ANTHONY HLISTA, Individually, and on behalf of other similarly situated former and current homowners in Pennsylvania, Plaintiff: Michael P. Malakoff, Michael P. Malakoff, PC, Pittsburgh, PA.

For CITI MORTGAGE, a mortgage servicer, Defendant: Debra L. Bogo-Ernst, LEAD ATTORNEY, PRO HAC VICE, Mayer, Brown, Rowe & Maw, Chicago, IL; Thomas R. Johnson, LEAD ATTORNEY, Jane D. Pohl, K& L Gates, LLP, Pittsburgh, PA; Michael D. Frisch, PRO HAC VICE, Mayer Brown LLP, Chicago, IL.

For SETERUS, INC., Defendant: Elizabeth P. Kessler, Matthew A. Kairis, PRO HAC VICE, Jones Day, Columbus, OH; Kevin C. Meacham, Jones Day, Pittsburgh, PA.

For PHELAN HALLINAN & SCHMIEG, LLP, a law firm and debt collector, Defendant: Daniel S. Bernheim, Jonathan J. Bart, LEAD ATTORNEYS, Wilentz Goldman & Spitzer, P.A., Philadelphia, PA.


Page 519

Mark R. Hornak, United States District Judge.

Before the Court are the latest two motions filed in the extensive three-year litigation of this case: (1) Plaintiffs' Motion for Leave to File Second Amended Complaint, ECF No. 173; and (2) Defendant Phelan, Hallinan, and Schmieg, LLP's (" PHS" ) Motion for Reconsideration, ECF No. 175, which relates to this Court's June 2012 ruling on PHS's motion to dismiss. For the reasons that follow, Plaintiffs' Motion is denied, and PHS's Motion is granted, on other grounds.[1]

Page 520


The heart of Plaintiffs' motion, as Plaintiffs' represent it, is that their Proposed Second Amended Complaint (" PSAC" ) includes allegations presented for the first time that Plaintiffs suffered a loss by virtue of the inflation of their mortgage debt, which caused a diminution in their property value. Pls.' Br. in Supp. of Mot. to File a Second Am. Compl. (" Pls.' Br." ), ECF No. 190, at 6.

Plaintiffs contend that these new allegations (1) " will reestablish the class aspect of the Hlistas' UTPCPL claims by adequately alleging that they were harmed directly by Citi's inflated lien in a way that would obviate any individualized defenses and would be typical of other class members subjected to improper overcharges with similar adverse lien losses" ; (2) " this additional lien theory would also establish elements of other, previously dismissed claims," for example, " [t]he loss of property attendant to an inflation of a lien would also constitute a payment, satisfying an element of the Hlistas' Act 6 claim previously found to be deficient," and " the same loss in property would demonstrate contractual damages," id. at 6-7; and that (3) the PSAC " pleads the central contractual claims against Citi" because it brings to the Court's attention the provision in Plaintiffs' mortgage which " establishes that " the party that services the loan not only acquires servicing rights, but also all 'mortgage loan servicing obligations to Borrower," id. at 7.

Citi vehemently opposes Plaintiffs' motion, arguing that Plaintiffs' attempt to resurrect claims against it that this Court dismissed with prejudice back in June of 2012 is futile because those claims against Citi remain legally unsustainable. Citi's Opp'n to Pls.' Am. Mot. for Leave to File Second Am. Compl. (" Citi's Opp'n" ), ECF No. 186, at 2.

A. Legal Standard

Federal Rule of Civil Procedure 15(a) provides that leave to amend shall be " freely give[n] when justice so requires." Fed.R.Civ.P. 15(a)(2). Among the grounds that justify a court's denial of leave to amend are undue or unexplained delay, bad faith, dilatory motive, prejudice, and futility. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962).; Lorenz v. CSX Corp., 1 F.3d 1406, 1414 (3d Cir. 1993). " Futility" means that the complaint, as amended, would fail to state a claim upon which relief could be granted. Glassman v. Computervision Corp., 90 F.3d 617, 623 (1st Cir. 1996) (citing 3 Moore's Federal Practice ¶ 15.08[4], at 15-80 (2d ed. 1993)). In assessing " futility," the court applies the same standard of legal sufficiency as applied under Rule 12(b)(6). Id. (citing 3 Moore's at ¶ 15.08[4], at 15-81). In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997).

This Court is mindful " that the pleading philosophy of the Rules counsels in favor of liberally permitting amendments to a complaint." CMR D.N. Corp. v. City of Philadelphia, 703 F.3d 612, 629 (3d Cir. 2013) (citing Adams v. Gould Inc., 739 F.2d 858, 864 (3d Cir. 1984)). The motion is nevertheless committed to the " sound discretion of the district court." Id. (citing Cureton v. Nat'l Collegiate Athletic Ass'n, 252 F.3d 267, 272 (3d Cir. 2001)); see id. at 630-31 (" the District

Page 521

Court correctly determined that the City would be prejudiced because the proposed amendment would bring a new theory into the case several years after the beginning of the litigation" ); Jang v. Boston Scientific Scimed, Inc., 729 F.3d 357, 368 (3d Cir. 2013) (" This court has declined to reward a wait-and-see approach to pleading" ); Arthur v. Maersk, Inc., 434 F.3d 196, 204 (3d Cir. 2006) (" When a party fails to take advantage of previous opportunities to amend, without adequate explanation, leave to amend is properly denied." ).

B. Discussion

This Court will first discuss Plaintiffs' newly-pled " automatic lien" theory, and will then move on to Plaintiffs' new allegations that Citi is a residential mortgage lender.

Plaintiffs' PSAC reveals a heavy dose of new allegations that they not only suffered a " cash loss" but a " lien loss" due to an inflation of the amount required to clear their mortgage lien. Pl.'s Br. at 8. To maintain any private action under the UTPCPL, a plaintiff must allege and prove that he or she sustained an " ascertainable loss of money or property . . . as a result of the defendant's allegedly deceptive conduct. 73 Pa. Stat. Ann. § 201-9.2 (emphasis added); see Williams v. Empire Funding Corp., 227 F.R.D. 362, 371 (E.D. Pa. 2005) (a private UTPCPL plaintiff must " establish that defendant's purportedly unlawful conduct caused a definable loss of money or property" ).

In Paragraphs 57, 85, 86, and 87 of their PSAC, Plaintiffs allege that they suffered damages or an " ascertainable loss" " as a result of Defendants' illegal foreclosure-related attorneys' fee charges resulting in inflated liens placed on their homes." As the law now stands [2] in Pennsylvania, there is no controlling legal authority to support Plaintiffs' theory that sending a payment demand automatically puts a " lien" on their property, thereby diminishing their property's value and triggering a UTPCPL claim, nor do Plaintiffs cite to any Pennsylvania law saying so. See also Trunzo II, 2014 WL 1317577, at *13 (" Apart from the fact that Plaintiffs have failed to cite any Pennsylvania state law on point with regard to an automatic lien theory under the UTPCPL that would classify the mere charging of fees as an " ascertainable loss of money or property, real or personal," Plaintiffs cannot, in effect, amend their Amended Complaint via their Brief in Opposition to Citi's Motion to Strike" ).

Notably, District Judge Cathy Bissoon in Kaymark v. Bank of America, 11 F.Supp.3d 496, 2014 WL 1316120 (W.D. Pa. Mar. 31, 2014), recently rejected Plaintiffs' counsel's " automatic lien" theory and concluded that where a plaintiff alleges a speculative loss based on the alleged diminution in value of his or her property, this " forward-looking" and " speculative" allegation " is insufficient to establish ascertainable loss under the []UTPCPL; " [i]n short, the law calls for loss that can be identified with some level of certainty." Kaymark, 2014 WL 1316120, at *2. As Citi points out in its Brief in Opposition to Plaintiffs' Motion, Plaintiffs' allegations in Kaymark that

Page 522

they " suffered an ascertainable loss by either paying the misrepresented and overcharged amounts in whole or in part, or, where Homeowners did not make an actual monetary payment, Homeowners suffered an ascertainable loss of property when the unauthorized charges were liened against their homes, thereby decreasing the value of their property," [WL] at *6, is almost identical to Plaintiffs' " automatic lien" allegations here, with the exception that here, Plaintiffs have also alleged that the unauthorized fees " caused Homeowners to establish an escrow deposit pending resolution of the foreclosure-related fee and cost debt dispute," PSAC ¶ 86.[3]

Plaintiffs' addition, into the mix of UTPCPL-specific averments, of an allegation that they made an escrow deposit, which was actually already alleged in Plaintiffs' Amended Complaint at Paragraph 14 and incorporated into the UTPCPL-specific averments via Paragraph 83, see Am. Compl. ¶ ¶ 14, 83, gets Plaintiffs no farther down the road towards tracking on-point, Pennsylvania case law and statutory law in support of its UTPCPL cause of action, which requires that Plaintiffs allege an " ascertainable loss of money or property as a result of the defendant's prohibited action." See 73 Pa. Stat. Ann. § 201-9.2 (emphasis added).

Regardless, a closer look at Plaintiffs' dense PSAC reveals the allegation that Plaintiffs' " counsel determined that only $3,906.44 of the requested amount represented legitimate charges under Pennsylvania law. The Hlistas promptly placed $3.906.44 into a NLSA client account which was non-interest bearing." PSAC ¶ 13. This allegation plainly sets forth Plaintiffs' acknowledgment that the amount they paid into the escrow account was money that they acknowledge they actually owed. Thus, this escrow account theory, like Plaintiffs' " automatic lien" theory, cannot support a plausible UTPCPL claim. Simply put, Plaintiffs have failed to plausibly allege that they suffered any loss of " money or property" through the mere issuance of payment demands on Citi's behalf.

Even if an " automatic lien" theory was to take hold in Pennsylvania law, this Court already explained in Trunzo II that

[a]s Citi notes, " [b]y Plaintiffs' own allegations, the amounts listed in the August 30 letter were never paid. Rather, Plaintiffs paid different amounts, not sought in the August 30 letter, to Seterus in December 2010--well after Citi transferred the servicing rights for Plaintiffs' loan to Seterus." Def.'s Resp. in Supp. at 4 (citing Am. Compl. ¶ 16; Trunzo I, 876 F.Supp.2d at 529). It follows that even if this Court were to entertain Plaintiffs' " continuing conduct" or " start the ball rolling" theories or Plaintiffs' unpled " automatic lien" theory (as explained below), any purported lien based on the August 30 letter, having been effectively eliminated by Seterus's December 7 letter, plainly evidences what Citi has identified as unique causation issues with the Plaintiffs' claims.

Trunzo II, 2014 WL 1317577, at *12. Therefore, this Court finds that the proposed amendment (via the PSAC) to Plaintiff's Amended Complaint would ultimately be futile.[4]

Page 523

Next up is Plaintiffs' attempt to resurrect their Act 6 claim via their PSAC. As this Court held in June 2012 in Trunzo I, sections 403, 404, and 406 of Act 6 apply only to " residential mortgage lenders," and Plaintiffs failed to allege a " sufficient factual basis for their proposition that Citi or Seterus received, by assignment, more rights than those relating to the servicing of Homeowner's mortgage." Trunzo I, 876 F.Supp.2d at 540. At the outset of their new-and-purportedly-improved Act 6 allegations, Plaintiffs argue, via a footnote in their PSAC, that " [w]ith respect to Citi the Hlistas respectfully request reconsideration of the denial of the Loan Interest and Protection Act claim with prejudice based on their repayment to the NLSA client account . . . Also see the Amended Complaint, ¶ 14 pleading these facts." PSAC ¶ 58 n.8. The fact that Plaintiffs allegedly made a deposit into their attorney's escrow account, of funds they admittedly owed, ...

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