654 B.R. 296
Bankr. S.D. Ind.2023Background
- Plaintiffs are four former Chapter 13 debtors (O’Flynn, Novak, Wilhold, Addison) who sued Ocwen/PHH (mortgage servicer) and AltiSource (vendor spun off from Ocwen) alleging overcharging, false credit reporting, failure to follow bankruptcy procedures, RICO violations, FDCPA/RESPA and Indiana consumer-law violations, discharge-injunction breaches, and unjust enrichment.
- The Amended Complaint challenges fees and post‑bankruptcy collection/credit reporting tied to mortgage servicing and proofs of claim/Rule 3002.1 responses.
- Defendants moved to dismiss; the Bankruptcy Court expressed jurisdictional limits (many claims are non‑core and the debtors’ cases are closed) and issued a report & recommendation rather than a final order on non‑core claims.
- Key contract issue: Novak and Wilhold’s mortgages contain a notice‑and‑cure pre‑suit requirement; court examined whether servicer Ocwen can enforce it and whether plaintiffs pleaded compliance.
- Court recommended dismissal of RICO counts, partial dismissal for Novak on FDCPA grounds, allowed several statutory claims (FDCPA for some plaintiffs, RESPA, IDCSA, IHLPA for some plaintiffs), dismissed unjust enrichment as preempted, and limited enforcement of §524 discharge violations to contempt in the issuing bankruptcy courts (retained only for O’Flynn and Addison).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Subject‑matter jurisdiction over non‑core post‑discharge claims | Bankruptcy court may decide motions and sanction for discharge violations and related claims in this adversary | Many claims are non‑core and not “related to” closed cases; bankruptcy court lacks final‑order jurisdiction over most counts | Court expressed jurisdictional concern and submitted a report & recommendation; retained §524 contempt claims only for debtors whose discharges were entered in this court (O’Flynn, Addison); Novak and Wilhold must reopen their bankruptcy dockets for contempt relief |
| Enforceability of mortgage notice‑and‑cure (Novak & Wilhold) | Plaintiffs: provision applies only to borrower/lender, not servicer; many claims fall outside mortgage duties; or plaintiffs gave notice | Ocwen: as assignee/servicer it can enforce Section 20 and plaintiffs failed to plead written notice and cure | Ocwen may enforce provision; Novak & Wilhold did not adequately plead compliance, so claims tied to mortgage duties were dismissed as to those plaintiffs except claims based on inaccurate credit reporting |
| RICO (Counts I–II) — existence of an enterprise | Plaintiffs: Ocwen and AltiSource form an association‑in‑fact with overlapping ownership, shared profits and coordinated misconduct | Defendants: alleged relationships are ordinary commercial arrangements and do not show a distinct enterprise separate from the defendants’ own conduct | RICO counts dismissed for failure to plausibly allege an enterprise distinct from defendants’ lawful corporate activities |
| FDCPA — debt‑collector status and timeliness | Plaintiffs: Ocwen became a debt collector when it obtained servicing after default; equitable tolling/fraudulent concealment may save claims | Ocwen: loans were not in default when it acquired them (so not a debt collector) and many claims are time‑barred | FDCPA claim survives for O’Flynn, Wilhold, Addison (Novak dismissed for lack of default); plaintiffs sufficiently alleged concealment to avoid dismissal on limitations at pleading stage |
| RESPA — escrow/account duties | Plaintiffs: servicer failed to perform required escrow analyses, misled borrowers and failed timely payments | Ocwen: Plaintiffs failed to plead required elements (e.g., lack of annual escrow analysis) and lenders may be exempt while servicer not | RESPA claims survive for Novak, Wilhold, Addison; O’Flynn’s RESPA allegation dismissed with prejudice (no RESPA claim pled) |
| IDCSA (Indiana statutory consumer protection) | Plaintiffs: Ocwen committed incurable deceptive acts (knew of system defects, made false filings/communications) | Ocwen: claims must satisfy Rule 9(b); statute may not apply to out‑of‑state consumer (Wilhold) | IDCSA claims survive (pleaded with Rule 9(b) particularity) except Wilhold’s claim dismissed for lack of Indiana nexus |
| IHLPA (Indiana Home Loan Practices Act) | Plaintiffs: Ocwen knowingly made material misrepresentations in connection with mortgage servicing | Ocwen: plaintiffs failed to satisfy notice prerequisites and IHLPA applies only to Indiana real estate | IHLPA claim adequately pled generally; Wilhold’s IHLPA claim dismissed because his property is located in Illinois |
| Enforcement of §524/discharge injunction and class action viability | Plaintiffs seek damages and class relief for post‑discharge collection and fee practices | Defendants: no private cause of action under §105 to enforce §524; relief must be by contempt in the issuing bankruptcy court | Court: no freestanding private right of action under §524; contempt in the issuing bankruptcy court is the remedy. Retained §524 contempt claims for O’Flynn and Addison; Novak and Wilhold’s §524 claims dismissed without prejudice to reopen their bankruptcy cases |
| Unjust enrichment (state common law) vs Bankruptcy Code preemption | Plaintiffs: unjust enrichment available for recovery of unearned/collected fees | Defendants: state unjust enrichment claims are preempted because remedies arise from the Bankruptcy Code and Rules | Unjust enrichment claims dismissed as preempted by the Bankruptcy Code and Rules |
Key Cases Cited
- Celotex Corp. v. Edwards, 514 U.S. 300 (1995) (federal jurisdiction in bankruptcy is statutory and limited)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (conclusory allegations insufficient)
- United States v. Turkette, 452 U.S. 576 (1981) (definition and proof of a RICO enterprise)
- Reves v. Ernst & Young, 507 U.S. 170 (1993) (operation or management requirement for RICO liability)
- Fitzgerald v. Chrysler Corp., 116 F.3d 225 (7th Cir. 1997) (enterprise vs. corporate conduct distinction in RICO context)
- Cox v. Zale Delaware, Inc., 239 F.3d 510 (7th Cir. 2001) (holding that §105 does not create a private cause of action to enforce §524 beyond contempt procedures)
- Taggart v. Lorenzen, 139 S. Ct. 1795 (2019) (standards for contempt to enforce bankruptcy injunctions)