Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_15-cv-00620/USCOURTS-cand-5_15-cv-00620-2/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1962 Racketeering (RICO) Act

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

VICTOR P GIOTTA, et al.,

Plaintiffs,

v.

OCWEN FINANCIAL CORPORATION, et 

al.,

Defendants.

Case No. 15-cv-00620-BLF 

ORDER (1) DENYING DEFENDANT 

ERBEY’S MOTION TO DISMISS FOR 

LACK OF PERSONAL JURISDICTION; 

(2) GRANTING IN PART AND 

DENYING IN PART DEFENDANT 

ERBEY’S ALTERNATIVE MOTION TO 

DISMISS FOR FAILURE TO STATE A 

CLAIM; (3) GRANTING IN PART AND 

DENYING IN PART OCWEN 

DEFENDANTS’ MOTION TO DISMISS 

FOR FAILURE TO STATE A CLAIM;

AND (4) GRANTING DEFENDANT 

ALTISOURCE’S MOTION TO DISMISS 

FOR FAILURE TO STATE A CLAIM

[RE: ECF 52, 53, 54]

Before the Court are three motions to dismiss the operative first amended complaint 

(“FAC”): (1) a motion to dismiss for lack of personal jurisdiction or, in the alternative, for failure 

to state a claim brought by Defendant William C. Erbey (“Erbey”); (2) a motion to dismiss for 

failure to state a claim brought by Defendants Ocwen Financial Corporation (“Ocwen Financial”) 

and Ocwen Loan Servicing (“Ocwen Servicing”); and (3) a motion to dismiss for failure to state a 

claim brought by Defendant Altisource Solutions, Inc. (“Altisource”). The Court has considered 

the briefing, the oral arguments of counsel presented at the hearing, and the relevant legal 

authorities. For the reasons discussed below, Erbey’s motion to dismiss for lack of personal 

jurisdiction is DENIED; Erbey’s alternative motion to dismiss for failure to state a claim is 

GRANTED IN PART AND DENIED IN PART; the Ocwen Defendants’ motion to dismiss for 

failure to state a claim is GRANTED IN PART AND DENIED IN PART; and Altisource’s 

motion to dismiss for failure to state a claim is GRANTED. Leave to amend is GRANTED as to 

all dismissed claims.

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I. BACKGROUND

In this putative class action, Plaintiffs Victor and Loralee Giotta (“Plaintiffs”) allege that 

Defendants Ocwen Financial, Ocwen Servicing, and Altisource, along with their key executive, 

Defendant Erbey, engaged in a conspiracy to defraud homeowners in default on their mortgage

loans by charging them excessive and duplicative fees relating to the servicing of those loans. 

According to Plaintiffs, Erbey was the “mastermind” of the conspiracy. FAC ¶ 16. Under the 

alleged scheme, Ocwen Servicing acquired the servicing rights to mortgages at risk for, or already 

in, default. FAC ¶¶ 2, 27. Those servicing rights included the right to charge defaulting 

borrowers for property inspections, broker price opinions (“BPOs”), and similar services, which 

Plaintiffs refer to collectively as “Distressed Mortgage Services.” FAC ¶ 2 and n.5. Thus Ocwen 

Servicing collected borrowers’ loan payments on behalf of the lender but kept for itself the 

“Distressed Mortgage Fees” that it charged borrowers for Distressed Mortgage Services. FAC ¶¶ 

2, 23. According to Plaintiffs, this arrangement gave Ocwen Servicing incentive to maximize 

servicing fees. FAC ¶¶ 23-24. 

Plaintiffs allege that under Erbey’s direction, Ocwen Financial spun off its mortgage 

servicing software division, which became an independent company known as Altisource 

Portfolio Solutions S.A. (“Altisource Parent”). FAC ¶¶ 3, 10, 40. Ocwen Financial then leased

back from Altisource Parent the mortgage servicing software that Ocwen Financial previously had 

owned. FAC ¶¶ 10, 41. Ocwen Financial also hired Altisource Parent’s subsidiary, Defendant 

Altisource, to provide Distressed Mortgage Services which were charged through to defaulting 

homeowners. FAC ¶ 11. Plaintiffs allege that by hiring Altisource Parent and Altisource to 

provide services that previously had been provided in-house, Ocwen Servicing was able to charge 

borrowers artificially and unfairly high prices for the Distressed Mortgage Services. FAC ¶¶ 3, 

38, 73. Plaintiffs also allege that Ocwen Servicing charged borrowers for duplicate services. FAC 

¶ 75. 

Plaintiffs allege that pursuant to this scheme Ocwen Servicing acquired the right to service 

their defaulted mortgage loan in February 2013. FAC ¶ 6. The loan is secured by Plaintiffs’ San 

Jose residence of more than fifty years. Id. Ocwen Servicing charged Plaintiffs for eight separate 

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property inspections, procured through Altisource or through Altisource Parent’s software, each 

inspection costing either $10.50 or $15.00. SAC ¶ 81. Plaintiffs allege that those fees “were 

unnecessarily and unreasonably inflated due to Ocwen’s use of Altisource Servicing or the 

Altisource Parent’s software to procure property inspection services.” Id. Also, on more than one 

occasion Ocwen Servicing charged Plaintiffs for both a property inspection and a BPO. FAC ¶¶ 

82-83. Plaintiffs assert that obtaining both a property inspection and a BPO was duplicative 

because a BPO includes “a determination of the condition of the home, which is what Ocwen 

Servicing defines a property inspection to be.” FAC ¶ 82.

Plaintiffs filed this action on February 9, 2015. Shortly thereafter, Defendants Erbey, 

Ocwen Financial, Ocwen Servicing, and Altisource filed motions to dismiss. Plaintiffs responded 

by amending their complaint. The operative FAC asserts claims for: (1) violation of the 

Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq.; 

(2) violation of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq.; 

(3) violation of the California Rosenthal Fair Debt Collection Practices Act (“RFDCPA”), Cal. 

Civ. Code §§ 1788 et seq.; (4) violation of the “unlawful” prong of California’s Unfair 

Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq.; (5) violation of the “unfair” 

prong of California’s UCL; (6) violation of the “fraudulent” prong of California’s UCL; and 

(7) fraud. 

Defendants Erbey, Ocwen Financial, Ocwen Servicing, and Altisource again move to 

dismiss. As noted above, Erbey seek dismissal for lack of personal jurisdiction or, alternatively, 

for failure to state a claim, while Ocwen Financial, Ocwen Servicing, and Altisource seek 

dismissal solely for failure to state a claim.

II. DEFENDANT ERBEY’S MOTION 

A. Personal Jurisdiction

Defendant Erbey, a resident of the United States Virgin Islands, seeks dismissal of the 

action on the ground that this Court lacks personal jurisdiction over him.

1. Legal Standard

Federal Rule of Civil Procedure 12(b)(2) authorizes a defendant to seek dismissal of an 

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action for lack of personal jurisdiction. Fed. R. Civ. P. 12(b)(2). When a defendant challenges a 

court’s personal jurisdiction over it, the plaintiff bears the burden of establishing that jurisdiction 

is proper. Ranza v. Nike, Inc., 793 F.3d 1059, 1068 (9th Cir. 2015). The plaintiff may meet that 

burden by submitting affidavits and discovery materials. Doe v. Unocal Corp., 248 F.3d 915, 922 

(9th Cir. 2001). “Where, as here, the defendant’s motion is based on written materials rather than 

an evidentiary hearing, the plaintiff need only make a prima facie showing of jurisdictional facts to 

withstand the motion to dismiss.” Ranza, 793 F.3d at 1068 (internal quotation marks and citation 

omitted). “[T]he plaintiff cannot simply rest on the bare allegations of its complaint.” 

Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004) (internal quotation 

marks and citation omitted). However, uncontroverted allegations in the complaint are accepted 

as true, and factual disputes created by conflicting affidavits are resolved in the plaintiff’s favor. 

Id.

Where no applicable federal statute governs personal jurisdiction, “the law of the state in 

which the district court sits applies.” Harris Rutsky & Co. Ins. Servs., Inc. v. Bell & Clements 

Ltd., 328 F.3d 1122, 1129 (9th Cir. 2003). “California’s long-arm statute allows courts to exercise 

personal jurisdiction over defendants to the extent permitted by the Due Process Clause of the 

United States Constitution.” Id. “[D]ue process requires that the defendant ‘have certain 

minimum contacts’ with the forum state ‘such that the maintenance of the suit does not offend 

traditional notions of fair play and substantial justice.’” Ranza, 793 F.3d at 1068 (quoting Int’l 

Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)) (internal quotation marks and citation 

omitted). “The strength of contacts required depends on which of the two categories of personal 

jurisdiction a litigant invokes: specific jurisdiction or general jurisdiction.” Id. at 1068. “General 

jurisdiction exists when the defendant’s contacts “are so continuous and systematic as to render 

[it] essentially at home in the forum State.” Daimler AG v. Bauman, 134 S. Ct. 746, 761 (2014) 

(internal quotation marks and citation omitted). A nonresident that is subject to the court’s general 

jurisdiction may be sued for claims “arising from dealings entirely distinct” from the forumrelated activities. Id. (internal quotation marks and citation omitted) (emphasis omitted). In 

contrast, specific jurisdiction exists when the defendant’s contacts with the forum state are more 

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limited but the plaintiff’s claims arise out of or relate to those contacts. Id. at 754. General 

jurisdiction is referred to as “all-purpose” jurisdiction whereas specific jurisdiction is referred to as 

“case-specific” or “case-linked” jurisdiction. Ranza, 793 F.3d at 1069 n.2 (citations omitted).

2. Discussion

Plaintiffs assert that Erbey is subject to this Court’s specific jurisdiction. Courts in the 

Ninth Circuit employ a three-prong test when determining whether a nonresident defendant may 

be subject to specific personal jurisdiction in a forum:

(1) The non-resident defendant must purposefully direct his activities or 

consummate some transaction with the forum or resident thereof; or perform some 

act by which he purposefully avails himself of the privilege of conducting activities 

in the forum, thereby invoking the benefits and protections of its laws;

(2) the claim must be one which arises out of or relates to the defendant’s forumrelated activities; and

(3) the exercise of jurisdiction must comport with fair play and substantial justice, 

i.e. it must be reasonable.

Schwarzenegger, 374 F.3d at 802. “The plaintiff bears the burden of satisfying the first two 

prongs of the test.” Id. If the plaintiff succeeds in doing so, the burden shifts to the defendant to 

“set forth a ‘compelling case’ that the exercise of jurisdiction would not be reasonable.” 

CollegeSource, Inc. v. AcademyOne, Inc., 653 F.3d 1066, 1076 (9th Cir. 2011) (quoting Burger 

King Corp. v. Rudzewicz, 471 U.S. 462, 476-78 (1985)).

a. Purposeful Direction

Plaintiffs assert that Erbey controlled the activities of Ocwen Financial, Ocwen Servicing, 

and Altisource, and that those activities were directed at a number of states, including California. 

Erbey argues that he cannot be subjected to this Court’s jurisdiction based solely upon his 

association with the Ocwen and Altisource entities and that in any event the alleged scheme to 

charge inflated and/or duplicate Distressed Mortgage Fees was not sufficiently directed toward 

California to satisfy the purposeful direction requirement.

With respect to the latter point, Erbey relies primarily upon Click, a products liability case 

holding that the “untargeted negligence” of an employee who re-drew equipment details was 

insufficient to support the exercise of personal jurisdiction over him. Click v. Dorman Long Tech. 

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Ltd., No. C 06-1936 PJH, 2006 WL 2644889, at *5 (N.D. Cal. Sept. 14, 2006). The fact that the 

product was sold in California, among other places, was insufficient to establish personal 

jurisdiction. Id. Click is distinguishable from the present case, because although here the FAC

alleges that the loan servicing scheme was nationwide, see FAC ¶ 45, it also alleges that 

“California has Ocwen Servicing’s largest concentration of loans,” FAC ¶ 26, and that Ocwen 

Servicing actually consummated transactions in California, including the loan servicing 

transactions that form the basis for Plaintiffs’ claims, FAC ¶¶ 73-75, 81-83. Plaintiffs’ 

uncontroverted allegation regarding the concentration of Ocwen Servicing’s loans in California 

alone might be sufficient to establish that the scheme was purposely directed toward California. 

The actual brick-and-mortar loan services provided with respect to Plaintiffs’ California home –

allegedly pursuant to the scheme – certainly are. 

The more difficult question is whether Plaintiffs have made out a prima facie case with 

respect to Erbey’s participation in the scheme. “Under the fiduciary shield doctrine, a person’s 

mere association with a corporation that causes injury in the forum state is not sufficient in itself to 

permit that forum to assert jurisdiction over the person.” Davis v. Metro Productions, Inc., 885 

F.2d 515, 520 (9th Cir. 1989). “The corporate form shielding an individual associated with the 

corporation from personal jurisdiction may be ignored in two circumstances: (1) where the 

corporation is the agent or alter ego of the individual defendant; or (2) by virtue of the individual’s 

control of and direct participation in the alleged activities.” Fasugbe v. Willms, No. CIV. 2:10–

2320 WBS KJN, 2011 WL 3667440, at *3 (E.D. Cal. Aug. 22, 2011). Plaintiffs do not assert alter 

ego here, but they do allege that Erbey participated directly in the alleged scheme by controlling 

and directing the activities of Ocwen Financial, Ocwen Servicing, and Altisource. “A corporate 

officer or director is, in general, personally liable for all torts which he authorizes or directs or in 

which he participates, notwithstanding that he acted as an agent of the corporation and not on his 

own behalf.” Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 734 (9th Cir.

1999). Cases in which a corporate officer’s control and participation provided a sufficient basis 

for personal liability “have typically involved instances where the defendant was the ‘guiding 

spirit’ behind the wrongful conduct, . . . or the ‘central figure’ in the challenged corporate 

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activity.” Wolf Designs, Inc. v. DHR Co., 322 F. Supp. 2d 1065, 1072 (C.D. Cal. 2004) (internal 

quotation marks and citation omitted). 

Conclusory allegations that use the buzz words “guiding spirit” or “central figure” are 

insufficient to establish an exception to the corporate shield doctrine. Fasugbe, 2011 WL 

3667440, at *4. Defendants argue that Plaintiffs do no more than argue such buzz words and 

make conclusory allegations that Erbey “directed” or “controlled” the activities of the entity 

defendants. The Court agrees that many of Plaintiffs’ allegations regarding Erbey’s participation 

in the scheme are conclusory. See, e.g., FAC ¶ 16 (alleging that “Erbey created, oversaw and 

implemented” the scheme). However, Plaintiffs do make specific allegations regarding the 

corporate positions that Erbey held, and his stock ownership, which provide a factual basis for the 

allegations regarding Erbey’s control of the entity defendants. See, e.g., FAC ¶ 1. Plaintiffs also 

describe how Erbey was forced out of his executive positions by the New York Department of 

Financial Services, which investigated Erbey and the Ocwen and Altisource entities for selfdealing and other misconduct. See FAC ¶¶ 1-2, 16; Consent Order, FAC Exh. 6. A Consent 

Order was entered under which Erbey was required to resign from his positions with the Ocwen 

and Altisource entities as well as other entities. Id. ¶ 57. The Court concludes that Plaintiffs’ 

allegations regarding Erbey’s participation in the scheme, combined with evidence that the New 

York Department of Financial Services found Erbey to be a sufficiently central figure in the 

entities’ operations to require his removal, are sufficient to establish the requisite prima facie

showing of jurisdictional facts with respect to the first Schwarzenegger prong.

b. Arising Out Of

The Ninth Circuit has dubbed the second prong of Schwarzenegger’s specific jurisdiction 

inquiry as the “but for test.” In re Western States Wholesale Nat. Gas Antitrust Litig., 715 F.3d 

716, 742 (9th Cir. 2013). “Under the ‘but for’ test, a lawsuit arises out of a defendant’s contacts 

with the forum state if a direct nexus exists between those contacts and the cause of action.” Id.

(internal quotation marks and citation omitted). Plaintiffs allege that pursuant to a scheme that 

Erbey masterminded and at Erbey’s direction, Ocwen Servicing acquired their mortgage loan and 

charged them excessive and duplicative fees. See FAC ¶¶ 1-2, 16, 81-85. Those allegations are 

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sufficient to establish that Plaintiffs’ claims arise out of Erbey’s forum-related activities.

c. Reasonableness

Because Plaintiffs have made out a prima facie case with respect to the first two prongs of 

the Schwarzenegger test, the burden shifts to Erbey to “set forth a ‘compelling case’ that the 

exercise of jurisdiction would not be reasonable.” CollegeSource, 653 F.3d at 1076 (quoting 

Burger King, 471 U.S. at 476-78). Courts in the Ninth Circuit consider a seven-factor balancing 

test when addressing the question of reasonableness:

(1) the extent of the defendant’s purposeful injection into the forum state’s affairs; 

(2) the burden on the defendant of defending in the forum; (3) the extent of the 

conflict with the sovereignty of the defendant’s state; (4) the forum state’s interest 

in adjudicating the dispute; (5) the most efficient judicial resolution of the 

controversy; (6) the importance of the forum to the plaintiff’s interest in convenient 

and effective relief; and (7) the existence of an alternative forum.

Id. at 1079 (citation omitted). 

Erbey does not address this test at all, relying exclusively upon his arguments that 

Plaintiffs have not demonstrated contacts sufficient to make out a prima facie case of personal 

jurisdiction. Accordingly, Erbey has failed to meet his burden of setting forth a “compelling case” 

that exercise of jurisdiction would not be reasonable here.

d. Conclusion

Plaintiffs have made a prima facie showing of specific personal jurisdiction and Erbey has 

not met his burden of demonstrating that exercise of jurisdiction would not be reasonable. 

Accordingly, Erbey’s motion to dismiss for lack of personal jurisdiction is DENIED.

B. Failure to State a Claim

Defendant Erbey alternatively seeks dismissal of the action under Federal Rule of Civil 

Procedure 12(b)(6) for failure to state a claim upon which relief may be granted.

1. Legal Standard

When determining whether a claim has been stated, the Court accepts as true all well-pled 

factual allegations and construes them in the light most favorable to the plaintiff. Reese v. BP 

Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the Court need not 

“accept as true allegations that contradict matters properly subject to judicial notice” or 

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“allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable 

inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation 

marks and citations omitted). While a complaint need not contain detailed factual allegations, it 

“must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible 

on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 

550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the court to draw the 

reasonable inference that the defendant is liable for the misconduct alleged.” Id.

2. Discussion

Defendant Erbey contends that Plaintiffs have not alleged facts sufficient to show his 

personal participation in the alleged scheme. The Ninth Circuit has made clear that when a 

corporate officer personally authorizes, directs, or participates in wrongdoing, the officer “cannot 

hide behind the corporation” to avoid liability. Coastal Abstract Service, 173 F.3d at 734 (internal 

quotation marks and citation omitted). Courts in this district have held that corporate officers who 

direct and manage a fraudulent scheme giving rise to RICO liability may be held personally liable 

under RICO. See Smith v. Levine Leichtman Capital Partners, Inc., 723 F. Supp. 2d 1205, 1216 

(N.D. Cal. 2010). As discussed above in the context of Erbey’s motion to dismiss for lack of 

personal jurisdiction, Plaintiffs have alleged that Erbey was the mastermind behind the alleged 

scheme; that Erbey controlled and directed the conduct of the Ocwen and Altisource entities; that 

Erbey held specified key corporate positions that gave him that control; and that Erbey was 

required to step down from those positions under a Consent Order entered after an investigation 

into alleged self-dealing similar to that alleged here. See FAC ¶¶ 1-2, 16, 57. Those allegations, 

accepted as true, state plausible claims against Erbey based upon his personal participation in the 

alleged scheme. Thus Erbey’s motion to dismiss for failure to plead sufficient facts regarding his 

personal participation in the scheme is DENIED.

Erbey also seeks to join the Rule 12(b)(6) motions brought by the Ocwen and Altisource 

entities, discussed below. See Erbey’s Mot. at 20 n.5, ECF 53. Erbey’s request for joinder is 

GRANTED. The motions brought by the Ocwen and Altisource Defendants are deemed to be 

brought by Erbey as well. 

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 III. OCWEN AND ALTISOURCE DEFENDANTS’ MOTIONS (JOINED BY ERBEY)

The Ocwen and Altisource Defendants seek dismissal of the action under Rule 12(b)(6) for 

failure to state a claim upon which relief may be granted. As discussed above, Erbey joins those 

motions. The applicable legal standard is set forth in section II.B.1. above, and need not be 

repeated here.

A. Notice-and-Cure (Ocwen)

Plaintiffs’ deed of trust, which is attached to their FAC, contains the following notice-andcure provision:

Neither Borrower nor Lender may commence, join, or be joined to any judicial 

action (as either an individual litigant or the member of a class) that arises from the 

other party’s actions pursuant to this Security Instrument or that alleges that the 

other party has breached any provision of, or any duty owed by reason of, this 

Security Instrument, until such Borrower or Lender has notified the other party 

(with such notice given in compliance with the requirements of Section 15) of such 

alleged breach and afforded the other party hereto a reasonable period after the 

giving of such notice to take corrective action.

Deed of Trust ¶ 20, FAC Exh. 9. The Ocwen Defendants assert that Plaintiffs were required to 

comply with this notice-and-cure provision before filing the present action and that their failure to 

do so bars their suit. Plaintiffs respond that the plain contract language limits the notice-and-cure 

requirement to judicial actions brought by the borrower against the lender or vice versa. Here, 

Plaintiffs – the borrowers – sue the loan servicer and related entities, none of which is the lender. 

The Ocwen Defendants argue that the notice-and-cure provision extends to loan servicers,

citing to paragraph 13 of the deed of trust, which states that “[t]he covenants and agreements of 

this Security Instrument shall bind (except as provided in Section 20) and benefit the successors 

and assigns of Lender.” Deed of Trust ¶ 13. The parties dispute whether Ocwen Servicing 

qualifies as an “assign” under the contract. That dispute presents an issue of contract 

interpretation. The deed of trust provides that it “shall be governed by federal law and the law of 

the jurisdiction in which the Property is located.” Deed of Trust ¶ 16. Federal law provides that 

contracts are to be interpreted according to their plain language “with the understanding that the

common or normal meaning of language will be given to the words of a contract unless 

circumstances show that in a particular case a special meaning should be attached to it.” Simonoff 

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v. Expedia, Inc., 643 F.3d 1202, 1205 (9th Cir. 2011) (internal quotation marks and citations 

omitted). Similarly, under California law, “[i]f contractual language is clear and explicit, it 

governs.” Bank of the West v. Sup. Ct., 2 Cal. 4th 1254, 1264 (1992). 

The deed of trust does not define “assign.” Thus the ordinary meaning of the word applies. 

Black’s Law Dictionary defines an “assign” or “assignee” as “[s]omeone to whom property rights 

or powers are transferred by another.” Black’s Law Dictionary, 10th ed. (2014). Nothing on the 

face of the complaint or in the deed of trust itself suggests that the lender has transferred property 

rights to Ocwen Servicing or the other defendants. Arguably the lender has transferred “powers” 

to Ocwen Servicing, since Ocwen Servicing has the authority to collect loan payments on the 

lender’s behalf and to provide and charge for certain services such as property inspections and 

BPOs. Even if Ocwen Servicing could be considered the lender’s “assign” for purposes of 

paragraph 13, however, that paragraph states that the deed of trust shall bind and benefit assigns of 

the Lender “except as provided in Section 20.” Section 20 is the paragraph that contains the 

notice-and-cure provision. Thus under the plain language of the contract it does not appear that 

the notice-and-cure provision in paragraph 20 may be extended to loan servicers via paragraph 13. 

The Ocwen Defendants argue that the “except as provided in Section 20” language relates only to 

paragraph 20’s reference to sale of the Note. However, Defendants provide no legal or factual 

support for that argument, which appears as a single-sentence footnote in their reply brief.

The Ocwen Defendants cite two decisions from this district which they assert applied 

identical notice-and-cure provisions to claims against entities other than the lender. See Jackson v. 

Atl. Savings of America, No. C 13-05755 CW, 2014 WL 4802879 (N.D. Cal. Sept. 26, 2014); 

Hollowell v. Alliance Bancorp, Inc., No. 3:10-cv-01658-MMC, 2011 WL 2884801 (N.D. Cal. July 

19, 2011). In Jackson, the notice-and-cure argument was asserted by Wells Fargo Bank, N.A. It 

is not clear from the decision what Wells Fargo’s role was, but even assuming that Wells Fargo 

was the loan servicer, the court did not analyze whether the notice-and-cure provision properly 

could be applied to a loan servicer as distinct from a lender. In fact, the court granted dismissal as 

to all defendants, including the lender. In Hollowell, the court relied upon the notice-and-cure 

provision to dismiss the plaintiff’s contract claims against U.S. Bank National Association, which 

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had purchased plaintiff’s loan. Hollowell, 2011 WL 2884801, at *1-2. As was the case in 

Jackson, the court did not discuss whether the notice-and-cure provision could be extended 

beyond claims between the borrower and the lender to claims between the borrower and the loan 

servicer. 

Plaintiffs cite decisions in which the courts addressed that issue expressly and declined to 

apply notice-and-cure provisions similar to the one at issue here to suits brought against entities 

other than the lender. See Patrick v. Teays Valley Trustees, LLC, No. 3:12-CV-39, 2012 WL 

5993163, at *9 (N.D.W.Va. Nov. 30, 2012) (“[T]he Notice-and-Cure Provision in the Plaintiffs’

Deed of Trust expressly bind the borrower and the lender – not the borrower and a loan service

provider or substitute trustee.”); Schmidt v. Wells Fargo Home Mort., No. 3:11-CV-059, 2011 WL 

1597658, at *3 (E.D. Va. Apr. 26, 2011) (“The notice-and-cure provisions in the deeds of trust 

bind the borrower and the lender, not the borrower and the loan servicer.”). Defendants urge this

Court to follow the cases from this district rather than cases from other jurisdictions. As noted 

above, it appears that Defendants have read the decisions upon which they rely too broadly. The 

cases cited by Plaintiffs comport with this Court’s reading of the plain language of the deed of 

trust.

Accordingly, the Ocwen Defendants’ motion to dismiss the FAC for failure to comply with 

the notice-and-cure provision is DENIED.

B. Claim 1 – RICO (Ocwen and Altisource)

Ocwen Financial, Ocwen Servicing, and Altisource move to dismiss Claim 1, which 

alleges both a substantive RICO claim and a RICO conspiracy claim. 

1. Substantive RICO Claim

The elements of a substantive civil RICO claim are: “(1) conduct (2) of an enterprise 

(3) through a pattern (4) of racketeering activity (known as predicate acts) (5) causing injury to the 

plaintiff’s business or property.” Grimmett v. Brown, 75 F.3d 506, 510 (9th Cir. 1996) (internal 

quotation marks and citation omitted). 

Plaintiffs allege predicate acts of mail and wire fraud. Where a civil RICO claim is based 

upon mail or wire fraud, those fraudulent acts must be alleged with the particularity required by 

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Federal Rule of Civil Procedure 9(b). Lancaster Cmty. Hosp. v. Antelope Valley Hosp. Dist., 940 

F.2d 397, 405 (9th Cir. 1991); Schreiber Distrib. Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 

1393, 1400-01 (9th Cir. 1986). “Federal Rule of Civil Procedure 9(b) requires a pleader of fraud 

to detail with particularity the time, place, and manner of each act of fraud, plus the role of each 

defendant in each scheme.” Lancaster Cmty. Hosp., 940 F.2d at 405 (citing Fed. R. Civ. P. 9(b)).

“Mail and wire fraud can be premised on either a non-disclosure or an affirmative 

misrepresentation.” Eller v. EquiTrust Life Ins. Co., 778 F.3d 1089, 1092 (9th Cir. 2015). Here, 

Plaintiffs allege that “Defendants used the mail and wires on numerous occasions to exchange 

fraudulent communications facilitating the ordering of, the charging and payment for, and the 

ultimate billing to borrowers for the Distressed Mortgage Fees that were inflated and/or 

duplicative by virtue of Defendants’ undisclosed, unlawful and fraudulent self-dealing.” FAC ¶ 

117 (emphasis added). Plaintiffs also allege that Defendants provided “statements to borrowers 

that conceal the nature of the Inflated and Duplicative Distressed Mortgage Fees or the true cost 

thereof,” FAC ¶ 123 (emphasis added), and that the invoices, statements, and proofs of claims that 

were transmitted to borrowers via the Internet, telephone, facsimile, and United States Mail “failed 

to disclose the Ocwen Enterprise’s unlawful conspiracy, or that the Distressed Mortgage Fees 

were inflated or duplicative of other services,” FAC ¶ 131 (emphasis added). Thus the alleged 

acts of mail and wire fraud in this case are premised upon non-disclosure. Plaintiffs’ counsel 

confirmed at the hearing that “[t]his is really a concealment case” rather than a case based on 

affirmative misrepresentations. Hrg. Tr. 66:18-24, ECF 71.

“A non-disclosure, however, can support a fraud charge only when there exists an 

independent duty that has been breached by the person so charged.” Eller, 778 F.3d at 1092 

(internal quotation marks and citation omitted); see also Brissett v. Entrust Group, Inc., No. 13-

16393, 2015 WL 6500972, at *1 (9th Cir. Oct. 28, 2015) (Under California law, “[a] fraud claim 

based upon the suppression or concealment of a material fact must involve a defendant who had a 

legal duty to disclose the fact.”) (internal quotation marks and citation omitted). “Absent an 

independent duty, such as a fiduciary duty or an explicit statutory duty, failure to disclose cannot 

be the basis of a [RICO] fraudulent scheme.” Eller at 1092 (internal quotation marks and citation 

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omitted). In general, no fiduciary relationship exists between a mortgagee and the loan servicer. 

See Monreal v. GMAC Mortg., LLC, 948 F. Supp. 2d 1069, 1078 (S.D. Cal. 2013). Plaintiffs have 

not identified a fiduciary duty or any other duty that would give rise to a disclosure obligation on 

the part of Defendants. Plaintiffs’ failure to allege a duty to disclose is fatal to their RICO claim 

based upon mail and wire fraud.

Moreover, although Plaintiffs’ RICO claim is premised upon Defendants’ participation in a 

scheme to charge borrowers inflated and duplicative fees, Plaintiffs have not alleged facts showing

that they were charged fees that were unlawful or unfair. With respect to the asserted inflation of 

fees, Plaintiffs allege that Ocwen Servicing outsourced certain services to Altisource and that “the 

costs passed onto Ocwen’s borrowers included revenue and profits built in for the Ocwen Entities 

as well as the Altisource Entities.” FAC ¶ 71. Plaintiffs allege that after the Altisource spin-off, 

Ocwen Servicing charged homeowners approximately $100 for each BPO. FAC ¶ 73. However, 

Plaintiffs do not allege how much Ocwen Servicing charged for a BPO prior to the Altisource 

spin-off or that $100 exceeded the market rate for a BPO.1 Moreover, Plaintiffs have not 

explained why it is unlawful or unfair for Ocwen Servicing and/or Altisource to realize a profit on 

the subject transactions. 

The Court pressed Plaintiff’s counsel on that point at the hearing, asking what regulation or 

law makes the alleged up-charges illegal or unfair and what standard is to be used to distinguish 

between reasonable profit versus an unlawful level of profit. Hrg. Tr. 53:23-54:1, 59:8-12, ECF 

71. Counsel conceded that Ocwen Servicing legitimately could add a charge for itself when 

passing through costs of services performed by an unrelated third party. Hrg. Tr. 57:9-18, ECF 

71. However, counsel argued that the same practice was unlawful or unfair in this case because 

Altisource is a spin-off company. Hrg. Tr. 52:18-55:1, ECF 71. Plaintiffs have not cited, and the 

Court has not discovered, any case supporting that position. To the contrary, at least one 

California appellate court has held expressly that the performance of property inspections by an 

 

1

Plaintiffs allege that prior to the Altisource spin-off Ocwen Servicing “paid real estate agencies 

$45-$50 to perform a BPO,” FAC ¶ 73, but they do not allege whether Ocwen Servicing charged 

homeowners that amount or some other amount for the BPO. 

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affiliated company “does not render the practice of charging property inspection fees to the 

borrower unfair.” Walker v. Countrywide Home Loans, Inc., 98 Cal. App. 4th 1158, 1177 (2002). 

In Walker, the court noted the absence of “evidence showing that Countrywide’s use of an 

affiliated company to perform inspections is unfair or unethical.” Id. at 1178. The court went on 

to observe that “[t] he record does not show that Countrywide disregarded separate corporate 

identities or charged fees for inspections not performed,” and concluded its analysis by stating that 

“[u]sing an affiliated company conceivably could reduce transaction costs and increase efficiency, 

to the consumer’s benefit.” Id. 

Plaintiffs rely upon Weiner v. Ocwen Financial, No. 2:14-cv-02597-MCE-DAD, 2015 WL 

4599427 (E.D. Cal. July 29, 2015), in which the district court denied a motion to dismiss brought 

by Ocwen Financial and Ocwen Servicing to challenge contract, fraud, RFDCPA, RICO, and 

unjust enrichment claims based upon the same Ocwen-Altisource scheme alleged in the present 

action. Weiner is distinguishable in that the plaintiff there alleged specific facts showing that he 

had been charged BPO and title search fees in excess of prevailing market rates. See id. at *6. For 

example, the plaintiff in Weiner alleged that he had paid more than $800 for title search fees that 

should have run him between $150 and $450. Id. In the present case, Plaintiffs allege 

conclusorily that Ocwen Servicing charges borrowers “more than what is reasonable in the 

marketplace,” FAC ¶ 123, ECF 41, but they do not allege any facts to support that conclusory 

allegation. 

Moreover, the Weiner court noted that the deed of trust before it “permit[ted] Ocwen to be 

reimbursed for reasonable and appropriate fees but not marked up fees designed to make a profit.” 

Weiner, 2015 WL 4599427, at * 7. Plaintiffs have not pointed to similar language in their deed of 

trust. In fact, Plaintiffs’ deed of trust provides that if Plaintiffs fail to perform the covenants and 

agreements contained therein, “then Lender may do and pay for whatever is reasonable or 

appropriate to protect Lender’s interest in the Property and rights under this Security Instrument, 

including protecting and/or assessing the value of the Property. . . . Any amounts disbursed by 

Lender under this Section 9 shall become additional debt of Borrower secured by this Security 

Instrument.” Deed of Trust ¶ 9, FAC Exh. 9. The deed of trust also provides that in the event 

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Plaintiffs default on the loan they may be charged fees for services performed “for the purpose of 

protecting Lender’s interest in the Property and rights under this Security Instrument, including, 

but not limited to, attorneys’ fees, property inspection and valuation fees.” Deed of Trust ¶ 14. In 

light of the factual differences between Weiner and the present case, Plaintiffs’ reliance upon 

Weiner is misplaced.

Plaintiffs also rely upon Bias v. Wells Fargo & Co., 942 F. Supp. 2d 915, 937 (N.D. Cal. 

2013), in which the district court denied a motion to dismiss UCL, RICO, unjust enrichment, and 

fraud claims based upon an alleged scheme similar to that alleged in the present case. In Bias, the 

plaintiffs alleged that the third party that provided the BPOs provided phony invoices to the loan 

servicer that were never actually paid. Id. at 924. The invoices were doctored up to trick the 

plaintiffs into thinking that significant third-party costs were being incurred in obtaining the 

BPOs, but really the loan servicer paid a lesser amount directly to the local real estate brokers 

while assessing the borrowers’ accounts for the marked-up amount on the falsified invoices. Id. 

Plaintiffs do not allege that Altisource or any other entity generated falsified invoices in this case.

In addition to inflated fees, Plaintiffs allege that they were charged duplicative fees. 

Plaintiffs do not allege that Defendants charged them twice for the same service. Instead, 

Plaintiffs assert that “any charge to a borrower for an inspection done around the same time they

[sic] as a BPO or appraisal would be duplicative.” FAC ¶ 79, ECF 41. According to Plaintiff, a 

BPO includes the equivalent of a property inspection, so the property inspection is rendered 

superfluous when done close in time to a BPO. FAC ¶¶ 78-79. Plaintiffs’ counsel argued at the 

hearing that while the lender and loan servicer may be contractually entitled to obtain both an 

inspection and BPO if “they like belts and suspenders,” “it still may be unfair to charge the 

borrower the full amount of what is duplicated.” Hrg. Tr. 65:1-10, ECF 71. However, Plaintiffs 

have not identified a factual or legal basis for concluding that the “belt and suspenders” approach 

was unlawful or unfair in this case.

In light of the foregoing analysis, the Court concludes that Plaintiffs have failed to allege 

predicate acts of mail or wire fraud with the specificity required by Rule 9(b). In particular, 

Plaintiffs have not alleged that Defendants owed a duty to disclose, which is fatal to Plaintiffs’ 

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RICO claims based upon fraudulent concealment. Moreover, Plaintiffs have not alleged facts 

showing that the fees they were charged for property inspections and BPOs were unlawful or 

unfair. Thus Plaintiffs have not alleged with adequate specificity what Defendants would have 

been required to disclose even if they had a disclosure duty. Accordingly, the Ocwen and 

Altisource motions are GRANTED as to the substantive RICO claim. 

2. RICO Conspiracy Claim

A failure to plead a substantive RICO violation is fatal to a RICO conspiracy claim. 

Howard v. America Online, Inc., 208 F.3d 741, 751 (9th Cir. 2000). Thus the Ocwen and 

Altisource motions are GRANTED as to the RICO conspiracy claim as well.

C. Claim 2 - FDCPA and Claim 3 - RFDCPA (Altisource)

Altisource moves to dismiss Claims 2 and 3, alleging violations of the FDCPA and 

RFDCPA, on the basis that Plaintiffs have not alleged facts showing that Altisource is a debt 

collector. 

To establish liability under either the FDCPA or the RFDCPA, a plaintiff must show that 

the defendant was a debt collector or engaged in debt collection activity. Hunt v. Wells Fargo 

Bank, N.A., No. 2:13-cv-02435-MCE-KJN, 2014 WL 1028391, at *4-5 (E.D. Cal. Mar. 17, 2014). 

Altisource moves to dismiss Claims 2 and 3 on the basis that Plaintiffs have not alleged facts 

showing that it is a debt collector or engaged in debt collection activity. See FAC ¶ 149 (alleging 

that Ocwen Servicing is a debt collector but making no such allegation as to Altisource). 

Altisource also points out that Plaintiffs have not alleged that they received any communications 

from Altisource. Finally, to the extent that Plaintiffs allege that Altisource may be held liable for 

aiding and abetting Ocwen Servicing’s alleged debt collection activities, a number of courts have 

declined to extend the FDCPA in that manner. See, e.g., Rich v. BAC Home Loans Servicing LP, 

No. CV-11-00511-PHX-SRB, 2013 WL 10104612, at *5 (D. Ariz. Dec. 13, 2013) (“There is no 

support in the FDCPA for extending its coverage to secondary liability for aiding and abetting.”). 

Plaintiffs cite this Court’s decision in Gold v. Midland Credit Mgmt., Inc., 82 F. Supp. 3d 

1064 (N.D. Cal. 2015), for the proposition that a defendant may be liable under the FDCPA and 

RFDCPA as an “indirect” debt collector. In order to establish such liability, the plaintiff must 

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show that the “indirect” debt collector and the “direct” debt collector are an “interdependent single 

economic enterprise.” Id. at 1072. Plaintiffs have not alleged facts showing that Altisource and 

Ocwen Servicing are a “single economic enterprise.” 

Altisource’s motion is GRANTED as to the FDCPA and RFDCPA claims. 

D. Claims 4, 5 and 6 - UCL Unlawful, Unfair, and Fraud Prongs (Altisource)

Altisource moves to dismiss Claims 4, 5, and 6, asserting violations of the unlawful, unfair, 

and fraud prongs of California Business & Professions Code § 17200 (prohibiting an individual or 

entity from engaging in an “unlawful, unfair or fraudulent business act or practice”). “Because the 

statute is written in the disjunctive, it is violated where a defendant’s act or practice violates any of 

the foregoing prongs.” Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152, 1168 (9th Cir. 2012). 

1. Unlawful

“By proscribing any unlawful business practice, section 17200 borrows violations of other 

laws and treats them as unlawful practices that the unfair competition law makes independently 

actionable.” Chabner v. United of Omaha Life Ins. Co., 225 F.3d 1042, 1048 (9th Cir. 2000) 

(internal quotation marks and citation omitted). Plaintiffs base their UCL claim under the 

unlawful prong on asserted violations of the FDCPA, the RFDCPA, RICO, and the Dodd-Frank 

Wall Street Reform and Consumer Protection Act. FAC ¶¶ 171-75. For the reasons discussed 

herein, Plaintiffs have failed to alleged violations of the FDCPA, RFDCPA, or RICO against 

Altisource. The Dodd-Frank Act prohibits “a covered person or service provider from committing 

or engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection 

with any transaction with a consumer for a consumer financial product or service, or the offering 

of a consumer financial product or service.” 12 U.S.C. § 5531(a). As discussed above, Plaintiffs 

have not alleged facts showing that the fees charged in this case were unfair, deceptive, or abusive.

2. Unfair

In Claim 5, Plaintiffs allege that Defendants’ conduct in charging inflated and duplicative 

fees was unfair. FAC ¶ 185. However, Plaintiffs have not alleged facts or presented legal 

authority showing that the alleged up-charging was wrongful or that Defendants were not entitled 

to obtain both property inspections and BPOs within a short period of time. 

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3. Fraud

“A business practice is fraudulent under the UCL if members of the public are likely to be 

deceived.” Davis, 691 F.3d at 1169. Allegations of fraud under § 17200 must satisfy the 

heightened pleading standard of Federal Rule of Civil Procedure 9(b). Kearns v. Ford Motor Co., 

567 F.3d 1120, 1125 (9th Cir. 2009). Rule 9(b) requires that “a party must state with particularity 

the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). “‘Averments of fraud must be 

accompanied by the who, what, when, where, and how of the misconduct charged.’” Kearns, 567 

F.3d at 1124 (quoting Yess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)). As 

discussed at length above in the context of the RICO claim, Plaintiffs assert fraudulent 

concealment in this case but they do not allege facts showing that Defendants had a duty to 

disclose or that the fees charged to Plaintiffs were unlawful or unfair. 

4. Conclusion

In light of the foregoing, Altisource’s motion is GRANTED as to all three of Plaintiffs’ 

UCL claims. 

E. Claim 7 - Fraud (Ocwen and Altisource)

The Ocwen and Altisource entities move to dismiss Claim 7, asserting fraudulent 

concealment. As discussed in the context of the RICO claim, Plaintiffs do not allege facts 

showing that Defendants had a duty to disclose or that the fees charged to Plaintiffs were unlawful 

or unfair. Accordingly, the Ocwen and Altisource motions are GRANTED as to the fraud claim.

F. Leave to Amend

In deciding whether to grant leave to amend, the Court must consider the factors set forth 

by the Supreme Court in Foman v. Davis, 371 U.S. 178 (1962), and discussed at length by the 

Ninth Circuit in Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (9th Cir. 2009). A district 

court ordinarily must grant leave to amend unless one or more of the Foman factors is present: 

(1) undue delay, (2) bad faith or dilatory motive, (3) repeated failure to cure deficiencies by 

amendment, (4) undue prejudice to the opposing party, and (5) futility of amendment. Eminence 

Capital, 316 F.3d at 1052. “[I]t is the consideration of prejudice to the opposing party that carries 

the greatest weight.” Id. However a strong showing with respect to one of the other factors may 

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warrant denial of leave to amend. Id. 

The record does not suggest undue delay or bad faith. Nor have Plaintiffs repeatedly 

failed to cure deficiencies in their pleading. Although Plaintiffs previously amended their 

complaint in response to motions to dismiss filed by Defendants, Plaintiffs have not to date had 

the benefit of the Court’s analysis regarding the adequacy of their pleadings. The case is at an 

early stage, so granting leave to amend would not prejudice Defendants. Finally, it is not clear 

that amendment would be futile. 

Accordingly, leave to amend is GRANTED as to all dismissed claims. 

IV. ORDER

For the foregoing reasons, IT IS HEREBY ORDERED that:

(1) Defendant Erbey’s motion to dismiss for lack of personal jurisdiction is DENIED;

(2) Defendant Erbey’s alternative motion to dismiss for failure to state a claim is 

DENIED with respect to his argument that Plaintiffs have not alleged his personal 

participation in the alleged misconduct and GRANTED to the extent that the 

Ocwen and Altisource motions, in which Erbey joins, are granted; 

(3) The Ocwen Defendants’ motion to dismiss for failure to state a claim is 

GRANTED IN PART AND DENIED IN PART as set forth herein;

(4) Defendant Altisource’s motion to dismiss for failure to state a claim is GRANTED;

(5) Leave to amend is GRANTED as to all dismissed claims;

(6) Any amended pleading shall be filed on or before January 15, 2016; and

(7) Leave to amend is granted only to cure the deficiencies discussed in this order; 

Plaintiffs shall not add new claims or parties without express leave of the Court.

Dated: December 11, 2015

 ______________________________________

BETH LABSON FREEMAN

United States District Judge

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