Proof Of Common Law Fraud Not Needed To Maintain Suit Under "Catch-All" Section Of PA State Consumer Protection Law In Loan Servicer Jerk-Around Case
In a purported class action lawsuit filed in a U.S. District Court in Pittsburgh, Pennsylvania filed by two homeowners against a pair of mortgage servicers and a law firm/debt collector alleging conduct that is apparently now the standard for the servicing industry (jerk-arounds, conflicting communications, allegedly erroneous charges, etc.), a district judge recently granted the defendants' motion to dismiss several counts made against them, but allowed other counts to survive, thereby allowing the lawsuit to proceed.
Among the counts allowed to survive (specifically, count VII in the lawsuit) was one involving claims for violations under Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL").
The following excerpt is District Judge Mark R. Hornak's analysis of the applicable law and his assessment of the allegations in determining the the lawsuit should continue with regard to this count:
- The Unfair Trade Practices and Consumer Protection Law ("UTPCPL") is Pennsylvania's consumer protection law. Bennett v. A.T. Masterpiece Homes at Broadsprings, LLC, 40 A.3d 145, 151 (Pa. Super. Ct. 2012). Its purpose is to prevent "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce," as defined by the act. Id.; 73 Pa. Cons. Stat. Ann. § 201-3 (West 2008). The Pennsylvania Supreme Court has stated that the UTPCPL should be liberally construed in order to effect its legislative goal of consumer protection. Bennett, 40 A.3d at 151 (citing Pennsylvania ex rel. Creamer v. Monumental Properties, Inc., 329 A.2d 812, 814 (Pa. 1974),
Homeowners rely upon two specific definitional provisions of the UTPCPL for their claims that PHS. Citi, and Seterus engaged in "unfair or deceptive acts or practices." § 201-2(4).
The first, Section 201-2(4)(v), is inapplicable to the facts as alleged by Homeowners. This section labels as "unfair or deceptive" the act of "[representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation or connection that he does not have." In other words, section 201-2(4)(v) applies to cases where a defendant misrepresents the characteristics of a product, such as suits involving false advertising. See, e.g., Haggart v. Endogastric Solutions, Inc., No. 10-0346, 2011 WL 466684, at *6 (W.D. Pa. Feb. 4, 2011) (noting that Pennsylvania law requires a plaintiff to allege, among other things, that the challenged advertisement is false for liability under section 201-2(4)(v) to attach); Glover, 2010 WL 5829248, at *9 (W.D. Pa Oct. 21, 2010) (dismissing claim against a mortgage servicer, because the servicer did not make any deceptive representations regarding the "characteristics, uses, or benefits" of a loan modification agreement); Meyer v. Cmty. Coll. of Beaver Cnty., 2 A.3d 499, 549 (Pa. 2010) (noting that sections 201-2(4)(v) through (vii) relate to claims of nonconforming goods or services). Homeowners' allegations that they paid improper reinstatement fees when in default does not equate to an allegation that PHS, Citi, or Seterus misrepresented the actual characteristics or benefits of the note and mortgage themselves. Glover, 2010 WL 5829248, at *9. Accordingly, to the extent that Homeowners bring claims against Defendants under section 201-2(4)(v) of the UTPCPL, that claim is dismissed with prejudice.
The second UTPCPL provision upon which Homeowners rely is the "catchall provision" of section 201-2(4)(xxi).
This section is expansive in that it encompasses a wide range of circumstances because a defendant need only engage in "any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding" for liability to attach. Id.
PHS argues that a heightened level of pleading akin to an allegation of common law fraud is required to bring an action pursuant to the "catch-all" provision, and Homeowners fail to meet this heightened threshold. See, e.g., Ross v. Foremost Ins. Co., 998 A.2d 648, 654 (Pa. Super. Ct. 2010) ("In order to establish a violation of the [UTPCPL's] catchall provision, a plaintiff must prove all of the elements of common-law fraud." (internal quotations omitted)). Similarly, Citi and Seterus argue, among other things, that Homeowners do not show that they relied upon any statements from either company. Justifiable reliance on a misrepresentation is an element of common law fraud, along with scienter, intention by the defendant to induce action, and damages to the plaintiff. Id.
Recent developments in Pennsylvania law convince this Court that meeting a heightened "fraud pleading" standard is not required to maintain a cause of action under the "catch-all" section of the UTPCPL.
In Bennett v. A. T. Masterpiece Homes at Broadsprings, LLC, 40 A.3d 145 (Pa. Super. Ct. 2012), the Pennsylvania Superior Court analyzed two conflicting lines of cases on this issue of the appropriate pleading standard. One line of cases relied upon the pre-1996 language of section 201-2(4)(xxi) to conclude that litigants must allege enough facts to satisfy the elevated pleading standard necessary for common law fraud. Id. at 152.
However, the Bennett court noted that these cases had not considered the change to the "catch-all" provision's language in 1996, when the Pennsylvania legislature amended section 201-2(4)(xxi) to include the term "deceptive" in addition to the term "fraudulent." Id.
In order to give effect to all words in the statute as required by the Pennsylvania rules of statutory construction, the Bennett court adopted the reasoning of an opposing line of cases, which held that the inclusion of the word "deceptive" in section 201-2(4)(xxi) "lessened the degree of proof needed to maintain an action under the "catch-all" provision. Id. at 153-55.
The Superior Court concluded its reasoning by stating "we hold deceptive conduct which creates a likelihood of confusion or misunderstanding can constitute a cognizable claim under Section 201-2(4)(xxi)." Id. at 154-55.
Accordingly, conduct that is capable of being interpreted as "misleading" falls within the reach of the UTPCPL. See id. at 156 (holding that the lower court correctly instructed the jury when it stated that "misleading conduct" was actionable under the UTPCPL's catch-all provision). Having reviewed the Bennett court's analysis and the cases underpinning its decision, this Court is satisfied that section 201-2(4)(xxi) does not require a litigant to plead the elements of common law fraud.
Regarding the alleged deceptive conduct here, Homeowners have asserted sufficient facts at this stage in the proceedings to show that confusion or misunderstanding could reasonably arise from PHS's, Citi's, and Seterus's actions and that Homeowners were indeed misled by those actions.
Homeowners allege that Citi referred Homeowners' mortgage to foreclosure while, at the same time, the company was representing to Homeowners that there was the possibility of an alternate payment arrangement. The purpose of this arrangement was to allow Homeowners to avoid the very foreclosure proceedings Citi initiated. PHS and Seterus then sent Homeowners multiple conflicting reinstatement letters, which Homeowners allege contain misrepresentations as to the amount of their debt. Homeowners further claim that they were damaged when they remitted a payment that included intentionally mislabeled fees. These allegations allow Homeowners to maintain a cause of action against all three Defendants under the UTPCPL's "catch-all" section.
Citi and Seterus also advance another argument in support of their Motions to Dismiss regarding the UTPCPL. They claim that Homeowners lack standing to sue them under the UTPCPL, because neither Citi nor Seterus were original signatories to the note and mortgage, meaning that Homeowners cannot allege that they purchased any goods or services from either Citi or Seterus.
However, the UTPCPL's reach is expansive, and, to that end, the Third Circuit in In re Smith, 866 F.2d 576 (3d Cir. 1989) emphasized that a district court should not limit the UTPCPL's application to only those circumstances where the unfair or deceptive conduct induced the consumer to make the initial purchase. Id. at 583.
Such a reading of the statute "would insulate all kinds of practices from the [UTPCPL], such as debt collection, which occur after entering an agreement and which were not a basis for the original agreement." Id. (emphasis added). Similarly, liability can be imposed upon a mortgage assignee under the UTPCPL providing the plaintiff advances specific allegations of wrongdoing against the assignee, not simply against the original lender. See Murphy v. F.D.I.C., 408 Fed. App'x. 609, 611 (3d Cir. 2010) (emphasizing the UTPCPL does not impose liability on a loan assignee absent claims of an assignee's wrongdoing). Homeowners assert such allegations directly against both Citi and Seterus here. Therefore, the fact that Citi and Seterus were not parties to the original mortgage is not dispositive.
For the foregoing reasons, all Defendants' Motions to Dismiss as they apply to Homeowners' claims under the UTPCPL are denied.
For Judge Hornak's ruling, see Trunzo v. Citi Mortgage, No. 2:11-cv-01124 (W.D. Pa. June 25, 2012).
Editor's Note: Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL") is that state's consumer protection law that generally prohibits unfair and deceptive practices ("UDAP") in trade and commerce within the state. For similar UDAP statutes in other states, see Consumer Protection In The States: A 50-State Report on Unfair and Deceptive Acts and Practices Statutes.
