901 F. Supp. 2d 1253
D. Haw.2012Background
- Plaintiffs borrowed $450,000 from Wells Fargo on a mortgage on property in Kailua, Hawaii, March 19, 2009.
- Wells Fargo allegedly sold the Note and Mortgage to Freddie Mac, while retaining servicing rights.
- The Freddie Mac 2009 Trust allegedly terminated, with Plaintiffs claiming Wells Fargo’s servicing rights terminated as well.
- Plaintiffs allege Wells Fargo continued servicing and sent improper mortgage bills after termination.
- Plaintiffs asserted five counts: FDCPA, Quiet Title, Fraud/Conversion/Unjust Enrichment, Hawaii unfair competition (HRS 480-2), and Hawaii Collection Agencies statute (HRS ch. 443B).
- Court granted Wells Fargo’s motion to dismiss the Complaint with leave to amend, except Count Five, which was dismissed with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| FDCPA applicability to Wells Fargo | Klohs claims Wells Fargo is a debt collector post-Trust termination. | Wells Fargo was a loan servicer, not a debt collector, and debt not in default when servicing. | Count I dismissed; Wells Fargo not a debt collector. |
| Effect of Freddie Mac Trust termination on Wells Fargo's status | Termination ended Wells Fargo’s servicing rights, making it a debt collector. | Securitization/termination does not destroy servicing rights or debtor-obligations; claim implausible. | Count I & related theory rejected; termination does not end loan obligations. |
| Quiet title viability | Wells Fargo has no interest in Note or Mortgage; cloud on title. | Servicer status and interest remain; no prima facie cloud on title. | Count II dismissed; no cognizable quiet title claim. |
| Fraud/Conversion/Unjust Enrichment viability | Wells Fargo fraudulently claimed servicing rights and misapplied payments. | Theories rest on invalid termination premise; no factual basis of misappropriation. | Count III dismissed; no plausible fraud/conversion/unjust enrichment claim. |
| Unfair competition (HRS 480-2) viability | Defendant engaged in unfair/bad faith collection after Trust termination. | No substantiated theory of deception; requirements of HRS 480-2 not met. | Count IV dismissed for failure to state a § 480-2 claim. |
| Hawaii Collection Agencies Act viability | Wells Fargo violated collection agency statute by misrepresenting status. | Banks are exempt from collection agency definition; Wells Fargo not a collection agency. | Count Five dismissed with prejudice. |
Key Cases Cited
- Heintz v. Jenkins, 514 U.S. 291 (U.S. 1995) (FDCPA applies to debt collectors)
- Perry v. Stewart Title Co., 756 F.2d 1197 (5th Cir. 1985) (debt collectors exclude creditors and servicing companies when debt not defaulted)
- Bailey v. Sec. Nat’l Servicing Corp., 154 F.3d 384 (7th Cir. 1998) (creditor/servicer not a debt collector if debt not in default)
- United States v. Stefonek, 179 F.3d 1030 (7th Cir. 1999) (no such thing as 'attempted torts' in civil law)