Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_14-cv-01738/USCOURTS-casd-3_14-cv-01738-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1331 Fed. Question

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

ADRIANA ROVAI,

Plaintiff,

Case No. 14-cv-01738-BAS-WVG

OPINION AND ORDER: 

(1) DENYING DEFENDANT’S 

MOTION TO DISMISS FOR 

LACK OF JURISDICTION 

PURSUANT TO RULE 12(b)(1)

[ECF No. 44]

AND

(2)DECLINING TO IMPOSE 

ANOTHER STAY UNDER THE 

PRIMARY JURISDICITON 

DOCTRINE

v.

SELECT PORTFOLIO SERVICING, 

INC.,

Defendant.

This matter comes before the Court on Defendant Select Portfolio Servicing’s 

(“SPS”) Motion to Dismiss for Lack of Jurisdiction in response to Plaintiff’s First 

Amended Complaint (the “FAC”). (ECF No. 44.) Plaintiff Adriana Rovai has 

opposed (ECF No. 47), and SPS has replied (ECF No. 49). For the reasons set forth 

below, the Court DENIES SPS’s Motion to Dismiss at this time and sets a Rule 

12(b)(6) briefing schedule. The Court further declines to impose another stay on 

Rovai’s state law claims under the primary jurisdiction doctrine.

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I. BACKGROUND

a. Factual Background

Plaintiff Adriana Rovai obtained a negative amortization home mortgage loan 

from First Magnus Financial Corporation for her primary California residence on or 

about November 10, 2005, with a principal amount of $524,000. (FAC ¶10.) The 

loan terms allowed Rovai to make monthly payments that were less than the fully 

amortizing amount of interest, with the interest not paid in a given month added to the 

outstanding loan balance. (Id. ¶¶6, 7, 10.) The loan passed to other owners and 

servicers, with Bank of America, N.A. (“BANA”) owning or servicing Plaintiff’s loan 

prior to its servicing by Defendant SPS, a Utah-based company. (Id. ¶¶4, 6, 32.) At 

the time SPS began servicing Rovai’s mortgage loan in December 2011, Plaintiff 

alleges that her outstanding loan balance included $9,013.02 of interest she incurred 

in earlier years of her loan but did not pay. (Id. ¶¶11−12.) 

In 2011, Rovai made loan payments to SPS totaling $2,698.20. (Id.) 26 U.S.C. 

§ 6050H requires that a person who receives interest aggregating $600 or more for 

any calendar year on any mortgage must issue to the individual who paid the interest 

a statement identifying the amount of interest that individual paid during that year. 

(Id. ¶1.) Pursuant to this requirement, SPS sent Rovai a Form 1098 for tax year 2011 

in February 2012, which reported $1,443.58 in mortgage interest paid, the amount of 

accrued interest on Rovai’s loan in 2011, and $1,254.62 in principal paid. (Id. ¶13.) 

The form also reported a loan setup principal balance of $533,012.03. (Id. Ex. B.) 

Rovai alleges that because her loan’s terms require payments to be credited to unpaid 

interest before principal, SPS should not have credited any payments to principal until 

all of her unpaid deferred interest was paid. (Id. ¶¶14−15.) She alleges that deferred 

interest does not lose its character as interest even when it is paid back at a later point 

or to a different mortgage servicer. (Id. ¶14.) Accordingly, she alleges that SPS’s 

reporting was incorrect. (Id.)

Rovai further alleges that the Form 1098 she received for tax year 2012

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similarly incorrectly calculated the mortgage interest she paid to SPS. (Id. ¶16.) 

Rovai’s 2012 Form 1098 reports $18,021.12 of interest paid and $16,576.50 in 

principal paid. (Id. Ex. D.)

Plaintiff relied upon the incorrect information contained in the 2011 and 2012 

Forms 1098 SPS sent her. (Id. ¶16.) As a result, she both (1) filed erroneous tax 

returns in those years insofar as her return claimed only the amount of mortgage 

interest stated on the Form 1098, and (2) received smaller tax deductions in at least 

the 2011 and 2012 tax years than she would have received if SPS had sent her Forms 

1098 with proper information about her interest payments. (Id.) 

Plaintiff noticed the discrepancy in SPS’s Form 1098 reporting in late 2013. 

(Id. ¶21.) She reached out to SPS in April 2014 regarding its method of calculating 

reported interest, but SPS rejected Rovai’s complaint and declined to change its 

reporting policy. (Id. ¶21.) Rovai alleges that the IRS exclusively relies on the 

amounts contained in a Form 1098 and rejects any attempts by taxpayers to claim a 

different amount of interest from that which appears on the taxpayer’s Form 1098. 

(Id. ¶17.) Rovai alleges that due to SPS’s conduct she has been unable to correctly 

state her taxes or obtain the full mortgage interest deduction to which she is entitled 

under applicable tax law. (Id. ¶26.)

b. Procedural Background

On July 24, 2014, Plaintiff brought this prospective class action against 

Defendant SPS alleging a federal cause of action under 26 U.S.C. § 6050H and several 

causes of action under state law. (ECF No. 1). She seeks damages as well as 

injunctive and equitable relief. (Id.) Defendant filed a 12(b)(6) motion to dismiss 

Plaintiff’s original complaint. (ECF No. 11.) In ruling on that motion, this Court 

found no express or implied private cause of action under 26 U.S.C. § 6050H and 

dismissed Plaintiff’s corresponding federal claim with prejudice. (ECF No. 16.) The 

Court sua sponte stayed the case as to Plaintiff’s remaining state law claims under the 

primary jurisdiction doctrine, pending a determination by the IRS about whether 

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mortgage lenders are required to report deferred interest on the Forms 1098 they issue. 

(Id.) 

During the stay, the Ninth Circuit issued a decision in Smith v. Bank of America, 

N.A., 679 Fed. App’x 549 (9th Cir. 2017), a case also concerning interest reporting 

under §6050H. The Ninth Circuit determined that Smith should be dismissed under 

Rule 12(b)(1) for lack of subject matter jurisdiction on the ground that the complaint 

failed to show an injury-in-fact. Id. at 550. After Smith, this Court ordered the 

Plaintiff to show cause as to why the complaint should not be dismissed for lack of 

standing. (ECF No. 35.) Plaintiff conceded that her original complaint failed to 

satisfy Smith, but also argued she could amend her complaint to cure its standing 

deficiency. (ECF No. 36.) The Court dismissed the original complaint and permitted 

amendment. (ECF No. 38.) The present dispute concerns whether the FAC (ECF No. 

39) now establishes Rovai’s Article III standing.

II. LEGAL STANDARD

A. Rule 12(b)(1) 

A complaint must be dismissed under Federal Rule of Civil Procedure 12(b)(1) 

if it fails to allege facts sufficient to establish subject matter jurisdiction. Savage v. 

Glendale Union High Sch., 343 F.3d 1036, 1039 n.2 (9th Cir. 2003). Once a party has 

moved to dismiss for lack of subject matter jurisdiction, the opposing party bears the 

burden of establishing the Court’s jurisdiction. See Kokkonen v. Guardian Life Ins. 

Co., 511 U.S. 375, 377 (1994). A Rule 12(b)(1) challenge to jurisdiction may be facial 

or factual. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In a 

facial attack, the challenger asserts that the allegations contained in a complaint are 

insufficient on their face to invoke federal jurisdiction, whereas in a factual challenge, 

the challenger disputes the truth of the allegations that, by themselves, would 

otherwise invoke jurisdiction. Id. 

B. Article III Standing

Those who seek to invoke the jurisdiction of the federal courts must satisfy the 

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threshold requirement of showing an actual case or controversy under Article III. L.A. 

v. Lyons, 461 U.S. 95, 101 (1983). To do so, a plaintiff must allege the irreducible 

constitutional minimum of: (1) an injury in fact via “an invasion of a legally protected 

interest which is (a) concrete and particularized, and (b) actual or imminent, not 

conjectural or hypothetical”; (2) causation, i.e., the injury is “fairly traceable to the 

challenged action of the defendant”; and (3) redressability, i.e. it is “likely, as opposed 

to merely speculative, that the injury will be redressed by a favorable decision.” Lujan 

v. Defs. of Wildlife, 504 U.S. 555, 560−61 (1992) (internal citations and quotations 

omitted). “Each element of standing must be supported with the manner and degree 

of evidence required at the successive stage of litigation.” Maya v. Centex Corp., 658 

F.3d 1060, 1068 (9th Cir. 2011.) At the pleading stage, a trial court must accept as 

true all material allegations of the complaint and construe the complaint in favor of 

the complaining party. Warth v. Seldin, 422 U.S. 490, 501 (1975). General factual 

allegations of injury resulting from the defendant’s conduct may suffice because the 

trial court presumes that general allegations embrace those specific facts necessary to 

support the claim. Lujan, 504 U.S. at 561. A failure to establish Article III standing 

results in dismissal of the complaint for lack of subject matter jurisdiction. Steel Co. 

v. Citizens for Better Envt., 523 U.S. 83, 94 (1998). 

III. DISCUSSION

Defendant SPS contends that this Court lacks subject matter jurisdiction to 

hear this action because Plaintiff lacks Article III standing. SPS has not submitted 

extrinsic evidence with its motion, rather the motion is based entirely on the 

allegations in the FAC and its attached documents, as well as documents of which 

the Court may take judicial notice. Defendant’s Rule 12(b)(1) motion is thus a facial 

challenge and will be evaluated as such. The Court will assume Rovai’s factual 

allegations to be true and will draw all reasonable inferences in her favor. Doe v. 

Holy See, 557 F.3d 1066, 1073 (9th Cir. 2009). 

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A. Injury-in-Fact

SPS argues that Rovai fails to show an injury-in-fact because there is no 

legally protected or cognizable interest in this case and her allegations of injury are 

conclusory. (ECF No. 44-1 at 9−10.) 

1. Legally Protected Interest

The Court first addresses SPS’s legally protected interest argument, which 

contends that Rovai has failed to show even the most minimal requirement of injuryin-fact. SPS argues that no IRS law, rule, regulation, or guidance has ever required 

the reporting of capitalized mortgage interest on a Form 1098. (ECF No. 44-1 at 9.) 

Accordingly, Rovai does not have a legally protected or cognizable interest in a Form 

1098 that reported payments of capitalized mortgage interest as interest on Rovai’s 

2011 and 2012 Forms 1098. In response, Rovai contends that SPS’s argument 

improperly goes to the merits. (ECF No. 47 at 8.) Nevertheless, Rovai reiterates her 

argument that SPS was required to report deferred interest payments on the Form 1098

both under existing tax law and §6050H’s plain meaning. (ECF No. 16 at 5.) 

Both SPS’s and Rovai’s arguments improperly go to the merits of this case. It 

may very well be that Rovai’s claims could fail on a merits analysis, but the scope of 

standing analysis is limited to whether the allegations show that the court can even 

exercise jurisdiction over the asserted claims. Catholic League for Religious & Civ. 

Rights v. San Francisco, 624 F.3d 1043, 1049 (9th Cir. 2010) (“Nor can standing 

analysis, which prevents a claim from being adjudicated for lack of jurisdiction, be 

used to disguise merits analysis, which determines whether a claim is one for which 

relief can be granted if factually true.”); Opperman v. Path, Inc., 87 F. Supp. 3d 1018, 

1038 (N.D. Cal. 2014). The Court will disregard the merits arguments advanced by 

both sides. 

Furthermore, SPS’s legally protected interest argument focuses too narrowly 

on §6050H and its implementing regulations and guidance. The Court, of course, 

recognizes that Rovai’s state law claims incorporate an alleged violation of §6050H 

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or an alleged duty arising under it, which is what makes her legal theory “novel”.1 

See, e.g., Horn v. Bank of Am., N.A., No. 3:12-cv-1718-GPC-BLM, 2014 WL 

1455917, at *3 (S.D. Cal. April 14, 2014). The Court has already found that no private 

right exists under §6050H. (ECF No. 16 at 3) (“Because [§6050H] does not explicitly 

create a private cause of action and focuses on the person regulated, the Court is 

reticent to imply a private right.”) But the Court left intact the potential viability of 

this case under common law theories. Indeed, the FAC, like the original complaint, 

asserts causes of action for alleged violations by SPS of Rovai’s state law rights, 

including breach of contract (FAC ¶¶46−51), breach of the covenant of good faith and 

fair dealing (id. ¶¶52−57), fraud (id. ¶¶73−81), and negligence (id. ¶¶82−87), and a 

statutory right under California Business & Professions Code §17200 et seq. (id. 

¶¶58−62). Injuries to such rights can constitute Article III injuries. See, e.g., Ala. 

Power Co. v. Ickes, 302 U.S. 464, 479 (1938) (injury to common law right suffices 

for Article III standing); Fragley v. Facebook, 830 F. Supp. 2d 785, 801 (N.D. Cal. 

2011) (finding Article III standing where plaintiffs alleged injury-in-fact to a 

California statutory right). 

2. The Alleged Injuries

SPS argues that even if Rovai has a legally protected interest, Rovai’s single

new allegation in the FAC is not substantiated with any factual allegations and 

therefore Rovai fails to show a concrete and particularized injury. (ECF No. 44-1 at 

10.) In response, Rovai contends that Smith v. Bank of America, N.A. sets forth the 

“elements” that plaintiffs in cases against a mortgage servicer for under-reporting 

mortgage interest on a Form 1098 must allege to establish standing. (ECF No. 47 at 

4−5.) Rovai has alleged both elements and, therefore, she argues, she has standing.

 

1 Despite the novelty of bringing state law claims on the basis of an alleged 

violation of §6050H, there is at least one example of a federal court sitting in 

diversity exercising jurisdiction over state law tort claims for alleged violations of 

federal tax law requirements. See, e.g., Clemens v. USV Pharm., A Div. of Revlon, 

Inc., 838 F.2d 1389 (5th Cir. 1988).

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In Smith, the plaintiffs sued a mortgage lender on state law causes of action 

based on an alleged violation of §6050H and on an implied federal right of action 

under §6050H. 679 Fed. App’x at 550. The plaintiffs specifically alleged, like Rovai 

does, that they received a Form 1098 that did not comply with the requirements of 

§6050H. Id. The Ninth Circuit held that “mere receipt of an erroneous form, without 

more, is insufficient to establish Article III standing.” Id. The Ninth Circuit observed 

that the plaintiffs had failed to allege that they ever filed erroneous tax returns in 

reliance on the incorrect Form 1098 or that they had received smaller tax deductions 

as a result. Id. The court remanded the case to the district court for dismissal pursuant 

to Rule 12(b)(1). Smith, 679 Fed. App’x at 550. 

In the wake of Smith, Rovai now alleges two injuries due to SPS’s incorrect 

Forms 1098 and their underlying method of calculating interest payments: (1) Rovai 

filed erroneous tax returns in 2011 and 2012 in reliance on those forms and (2) Rovai 

received smaller tax deductions in 2011 and 2012 than she would have because she 

relied on those forms. (FAC ¶16.) The FAC, like the original complaint, also alleges 

that Rovai has suffered damages of the accountancy fees that will be necessary to 

amend her tax returns. (Id. ¶28.) The Court considers whether these injuries constitute 

an injury-in-fact.

a. Tax Deduction Injury

Although simply filing an erroneous tax return is likely not a “concrete” injury 

if no further harm is alleged, Rovai alleges that she “received smaller tax deductions 

in at least the 2011 and 2012 tax years than she would have received had the proper 

information been provided to her on her Form 1098 by [SPS].” (Id. ¶16.) 

“Economic injury is clearly a sufficient basis for standing.” Maya, 658 F.3d at 

1069 (quoting San Diego Cty. v. Gun Rights Comm. v. Reno, 98 F.3d 1121, 1130 (9th 

Cir. 1996)). An alleged injury of economic loss or overpayment has established an 

injury-in-fact in other contexts. See, e.g., Opperman v. Path, Inc., 87 F. Supp. 3d 

1018, 1037 (N.D. Cal. 2014) (plaintiff’s alleged overpayment for goods due to 

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defendant’s conduct satisfied Article III); Yount v. Salazar, No. CV11-8171 PCTDGC, 2014 WL 4904423, at *7 (D. Ariz. Sept. 30, 2014) (loss of value in existing 

claims and investments constituted injury-in-fact for Article III). The Court finds that 

Rovai’s tax deduction allegations establish an economic injury that also satisfies 

Article III.

The FAC contains multiple factual allegations substantiating Rovai’s allegation 

of economic injury by receiving smaller tax deductions in 2011 and 2012: 

 The amount of deferred interest outstanding on Rovai’s loan at the time 

SPS began servicing her mortgage was $9,013.02.2 (FAC ¶11.)

 Rovai did not make any payments on her deferred interest prior to the

point at which SPS began servicing her loan. (Id.)

 SPS was required to allocate Rovai’s payments to interest before 

principal. (Id. ¶¶14−15.) 

 Although Rovai paid SPS $2,698.20 in 2011, SPS credited $1,254.62 of 

that amount to principal. The remainder was credited to accrued interest. 

(Id. ¶13.) 

 SPS credited $16,576.50 of Rovai’s 2012 payments to principal and 

$18,272.28 to interest. (Id. Ex. D.) 

On the basis of these allegations, it is not an “academic exercise in the 

conceivable”, Maya, 658 F.3d at 1068, to understand how Rovai’s mortgage interest 

tax deductions in 2011 and 2012 – which are deductions from her overall tax liability 

– would likely have been higher if even a single payment credited to principal in those 

years had been credited to deferred interest instead. 

Contrary to SPS’s argument, it is not necessary for Rovai to further allege that 

she paid more in taxes than she would have as a result of receiving the smaller tax 

 

2Although the 2011 Form 1098 refers to the entire $533,012.13 balance on 

Rovai’s loan as “principal”, (FAC Ex. B), the Court accepts as true Rovai’s allegation 

that $9,013.02 of that balance was actually deferred interest for the purposes of its 

appropriate tax treatment.

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deductions. Although it is Rovai’s burden to show an injury-in-fact, that burden is 

“supported in the same way as any other matter on which the plaintiff bears the burden 

of proof, i.e., with the manner and degree of evidence required at the successive stages 

of litigation.” Lujan, 504 U.S. at 561. Given the amount of the mortgage interest 

payments Rovai alleges SPS did not credit to interest and therefore did not report on 

her Forms 1098, it is not conjectural that she suffered an economic injury due to her 

receipt of smaller tax deductions in 2011 and 2012. 

The Court next turns to whether Rovai’s alleged injury is particularized. SPS 

concedes that the FAC pertains to Rovai’s own Forms 1098. (ECF No. 44-1 at 10.) 

Indeed, Rovai’s allegations concern the Forms 1098 SPS provided her, the federal tax 

returns she filed by relying on those forms, and the smaller federal tax deductions she 

received. (FAC ¶¶12, 13, 16.) Rovai also alleges that SPS was obligated or had a 

duty to accurately report her deferred interest payments on the 2011 and 2012 Forms 

1098 it provided her by virtue of §6050H. (Id. ¶¶5, 48, 53, 60, 75, 83.) These

allegations satisfy the particularity requirement because they show Rovai suffered the 

alleged injury “in a personal and individual way.” See Spokeo, 136 S. Ct. at 1548. 

Citing no supporting authority, SPS argues that Rovai nevertheless fails to allege a 

particularized injury because she “has not alleged facts showing that SPS breached a 

legal duty or norm as to her in particular.” (ECF No. 44-1 at 10−11.) SPS’s argument 

appears to engage a Rule 12(b)(6)’s merits inquiry − in the guise of a constitutional 

standing inquiry − about whether the plaintiff has plausibly pleaded a claim upon 

which relief may be granted. As the Ninth Circuit has indicated, such an inquiry is 

“ill-suited to application in the constitutional standing context.” Maya, 658 F.3d at 

1068. For the purposes of Article III standing, Rovai’s allegations of tax deduction 

injury are sufficient at the pleading stage. 

b. Accountancy Fees Injury

The third injury Rovai alleges are “the accountancy fees that will be necessary 

to prepare and file amended returns.” (FAC ¶28.) Accountancy fees incurred to file 

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an amended tax return could be a sufficient injury-in-fact for Article III standing. See 

Strugala v. Flagstar Bank, No. 5:13-cv-05927, 2017 WL 3838439, at *3 (N.D. Cal. 

Sept. 1, 2017) (finding standing where plaintiff had paid accountancy fees to file an 

amended tax return). However, Rovai does not allege that she has ever incurred such 

fees in order to file an amended tax return, nor does she allege an intent to file an 

amended return. Therefore, she has not alleged an injury-in-fact based on 

accountancy fees related to filing an amended return. 

B. Causation

SPS argues that Rovai has failed to allege that her injury is fairly traceable to 

SPS because any lost tax deduction was due to Rovai’s conduct, not that of SPS. (ECF 

No. 44-1 at 11.) SPS argues that Rovai could have claimed a higher tax deduction 

before filing her tax returns or could have amended her returns, but failed to do so. 

At the pleading stage, the question is whether Rovai has alleged that her alleged 

injury is fairly traceable to the conduct of SPS. To survive a motion to dismiss for 

lack of Article III standing, “plaintiffs must establish a line of causation between 

defendants’ action and their alleged harm that is more than attenuated.” Maya, 658 

F.3d at 1070. A causal chain does not fail simply because there are several links so 

long as those links are not hypothetical or tenuous, but rather are plausible. Id. (citing 

Nat’l Audubon Soc., Inc. v. Davis, 307 F.3d 835, 849 (9th Cir. 2002)). Where the 

independent decision of a third party has a significant effect on the plaintiff’s injuries, 

the causal chain is too weak to support standing at the pleading stage. Allen, 468 U.S. 

at 759. 

Rovai’s allegations establish that her alleged tax deduction injury is fairly 

traceable to SPS’s conduct. First, under §6050H, regardless of the merit of Rovai’s 

argument about the duty it imposes on SPS, SPS was the entity responsible for 

providing Rovai with her Forms 1098 because it received payments from her 

exceeding $600 in 2011 and 2012. (FAC ¶¶5, 12, Exs. B, D.) Second, Rovai alleges 

that SPS provided her with 2011 and 2012 Forms 1098 that failed to account for 

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deferred interest payments based on its practice of calculating mortgage interest in 

violation of §6050H. (Id. ¶¶ 13−14, 16, 49, 54, 60, 76−79, 84−85.) Third, Rovai 

alleges that this deferred interest was incurred but not paid until SPS began servicing 

her loan, thus eliminating the possibility that her prior mortgage loan owners or 

servicers caused her alleged injury. (Id. ¶11.) Fourth, Rovai alleges that she relied on 

the Forms 1098 SPS provided to her – like other taxpayers, tax professionals, and the 

IRS do – when she filed her 2011 and 2012 tax returns. (Id. ¶¶16−17.) Assuming the 

truth of these allegations, as the Court must, Rovai has fairly traced her tax deduction 

injury to SPS’s conduct. 

In reaching this conclusion, the Court finds unpersuasive SPS’s argument that 

Rovai has not alleged causation because she could have claimed a higher tax deduction

before filing her tax returns or by filing an amended return. This argument, however, 

“wrongly equates injury ‘fairly traceable to the defendant with injury as to which the 

defendant’s actions are the very last step in the chain of causation.” Bennett v. Spear, 

520 U.S. 154, 169 (1997). Injury produced by the determinative or coercive effect 

upon the action of someone else still satisfies the causation requirement of Article III. 

Id; Maya, 658 F.3d at 1072 n.8. 

Regarding pre-return filing conduct, SPS argues that Rovai ignored the IRS’s 

“plain and simple” instruction on Line 10 of Schedule A to Form 1040 that would 

have allowed her to claim a larger mortgage deduction. Rovai explicitly alleges that 

she relied on the 2011 and 2012 Forms 1098 SPS provided her and she did not notice 

the discrepancy in SPS’s interest reporting until late 2013. (FAC ¶¶16, 21.) Assuming 

the truth of these allegations, Rovai would not have known before she filed her 2011 

and 2012 tax returns that the information on her Forms 1098 was incorrect. Even 

assuming Rovai were aware of the discrepancy before she filed her returns, Rovai also

alleges that the IRS like everyone else – exclusively relies on the information 

contained in a Form 1098, and will reject any attempt by a taxpayer to claim an amount 

of mortgage interest different than the amount reported on that form. (Id. ¶¶17−18.) 

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Even if SPS’s conduct is not the very last step in the chain of causation Rovai alleges, 

these allegations still show that her alleged injury is fairly traceable to SPS’s conduct. 

The Court is also not persuaded by SPS’s argument that Rovai’s failure to 

amend breaks the causal chain between SPS’s provision of incorrect 2011 and 2012 

Forms 1098 to Rovai and her tax deduction injury in those years, which was completed 

when she received smaller tax deductions. See, e.g., Maya, 658 F.3d at 1069 (“[I]f 

plaintiff would not have purchased their homes absent defendants’ misconduct, the 

injury was created at the moment of the fraudulent purchase. . .”). 

Lastly, the Court finds the authorities on which SPS relies for its causation 

argument are inapplicable. See Chandler v. State Farm Mutual Automobile Insurance 

Company, 598 F.3d 1115, 1118, 1122 (9th Cir. 2010) (holding there was no standing 

to sue an automobile insurer based on made-whole rule exception peculiar to 

insurance claims); Bennett v. United States, 361 F. Supp. 2d 510, 518 (W.D. Va. 2005)

(finding no jurisdiction over plaintiff’s suit against IRS for income tax refund of 

withheld income under both 26 U.S.C. §7422 and the Anti-Injunction Act). 

C. Redressability

SPS makes two arguments against redressability in this case. First, SPS argues 

that this case is “not the proper arena” to address Rovai’s alleged injury, but rather 

Rovai’s proper recourse is to the IRS. (ECF No. 44-1 at 12.) Second, SPS argues that 

there is no remedy this Court can award Rovai because only the IRS could have

approved a higher deduction and determined the impact on Rovai’s tax liability. 

Accordingly, SPS argues a damages award is not an option. 

A plaintiff’s burden to show redressability is “relatively modest.” Renee v. 

Duncan, 623 F.3d 787, 797 (9th Cir. 2010). Rovai must allege that it is likely that the 

injury resulting from SPS’s conduct will be redressed by a favorable court decision. 

Bernhardt v. Cty. of Los Angeles, 279 F.3d 862, 869 (9th Cir. 20002). “A claim may 

be too speculative if it can be redressed only through the unfettered choices made by 

independent actors not before the court.” Id. The question here is whether Rovai’s 

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tax deduction injury would likely be remedied by a favorable court decision. 

Rovai seeks three forms of relief: damages for receiving smaller 2011 and 2012

tax deductions, an order requiring SPS to provide corrected Forms 1098, and a 

declaratory judgment that SPS’s conduct is unlawful. (FAC, Prayer for Relief.) These 

forms of relief would likely remedy Rovai’s injury, which was produced by SPS’s

allegedly incorrect method of calculating mortgage interest, SPS’s allegedly incorrect 

Forms 1098, and the resulting economic harm to Rovai. It is in this Court’s power to 

provide a damages award. See Jewel v. NSA, 673 F.3d 902 (9th Cir. 2011) (noting 

that “there is no real question about redressability” because the plaintiff “seeks an 

injunction and damages, either of which is an available remedy. . .”). The requested 

injunctive relief of corrected Forms 1098 and preclusion of SPS from issuing Forms 

1098 that do not accurately report mortgage interest payments would also address the 

injury Rovai alleges. See id. Lastly, a declaratory judgment declaring unlawful SPS’s 

method of calculating mortgage interest, for the purpose of its tax deductibility to

interest payers, would redress the conduct Rovai alleges resulted in SPS providing 

erroneous Forms 1098. 

Despite the redressability of the Rovai’s claims through a favorable decision, 

SPS argues that “all questions pertaining to Rovai’s claimed mortgage interest 

deduction are appropriate for determination by the IRS and that the IRS is currently 

formulating tax policy addressing the reporting of capitalized mortgage interest” (ECF 

No. 44-1 at 12.) SPS offers no evidence that the IRS is currently formulating such tax 

policy. More importantly, SPS’s argument appears to confuse Article III’s

redressability requirement, which asks only whether the remedies a court can provide 

are likely to redress the alleged injury, with this Court’s prior determination that the 

IRS might be better suited to address the question of §6050H’s scope in the first 

instance as a matter of the primary jurisdiction doctrine. (ECF No. 16 at 4−5.) The 

question of whether the IRS might be better suited to resolve an issue does not bear 

upon whether this Court has subject matter jurisdiction. See Syntek Semiconductor 

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Co. v. Microchip Tech. Inc., 307 F.3d 775, 780 (9th Cir. 2002) (“Primary jurisdiction 

is not a doctrine that implicates the subject matter jurisdiction of the federal courts”). 

The Court also rejects as misguided SPS’s second argument that only the IRS 

could have approved a higher tax deduction and determined the impact on Rovai’s tax 

liability. (ECF No. 44-1 at 12.) This dispute is not about the IRS’s determinations of

Rovai’s mortgage interest tax deductions in 2011 and 2012, nor is it about the IRS’s 

determinations concerning her tax liability in those years. Rovai is suing SPS for its 

“completely separate actions and omissions, which resulted in negative tax 

consequences.” Dr. Henry Erle Childers IV v. The New York and Presbyterian 

Hospital, 36 F. Supp. 3d 292, 304 (S.D.N.Y. 2014). Thus, SPS’s reliance on Ward v. 

American Family Life Assurance Company, 444 F. Supp. 2d 540 (D.S.C. 2006), a case 

in which the plaintiff sought relief specifically to undermine the IRS’s prior tax 

assessment, is misplaced. 

* * *

For the foregoing reasons, the Court denies SPS’s Motion to Dismiss for Lack 

of Jurisdiction Pursuant to Rule 12(b)(1). Nevertheless, the Court observes that SPS’s 

challenge is a facial challenge to subject matter jurisdiction. SPS may file a factual 

Rule 12(b)(1) challenge to Rovai’s Article III standing at a later point. Moreover, this 

Court will sua sponte revisit at any time the question of Rovai’s Article III standing 

should it suspect that Rovai does not in fact possess Article III standing to assert any 

or all of her state law claims.

In denying SPS’s current motion to dismiss for lack of subject matter 

jurisdiction, the Court sua sponte provides notice that it is concerned that Rovai has 

not plausibly pleaded any claims upon which relief may be granted. “A trial court 

may act on its own initiative to note the inadequacy of a complaint and dismiss it for 

failure to state a claim.” Wong v. Bell, 642 F.2d 359, 362 (9th Cir. 1981). Before 

such dismissal, a court should provide the plaintiff with an opportunity to at least 

submit a written opposition to such a motion. Id. Although the parties previously 

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briefed Defendant’s prior motion to dismiss, significant time has passed since that 

briefing. Therefore, the Court will afford the Plaintiff the opportunity to file a brief 

in opposition to a Rule 12(b)(6) dismissal, and sets a briefing schedule at the 

conclusion of this opinion and order.

IV. THE PROPRIETY OF A STAY UNDER THE PRIMARY 

JURISDICTION DOCTRINE

Having found that this Court has subject matter jurisdiction to consider Rovai’s 

state law claims, the Court now considers the propriety of imposing a stay under the 

primary jurisdiction doctrine once more.

The primary jurisdiction doctrine “is a prudential doctrine under which courts 

may, under appropriate circumstances, determine that initial decisionmaking 

responsibility should be performed by the relevant agency rather than the courts.” 

Syntek Semiconductor Co. v. Microchip Tech. Inc., 397 F.3d 775, 780 (9th Cir. 2002). 

It “is not a doctrine that implicates the subject matter jurisdiction of the federal 

courts.” Id. The Ninth Circuit has made clear that the application of the primary 

jurisdiction doctrine serves two underlying policies: (1) whether application will 

enhance court decisionmaking and efficiency by allowing the court to take advantage 

of administrative expertise and (2) whether application will help assure uniform 

application of regulatory laws. See Chabner v. United of Omaha Life Ins., Co, 225 

F.3d 1042, 1051 (9th Cir. 2000). The Court does not believe that the first policy will 

be served at this juncture and that efficiency considerations outweigh the Court’s prior 

concern with uniformity.

A. Judicial Decisionmaking and Efficiency

First, the Court is not convinced that staying this case a second time will 

enhance its decisionmaking or serve efficiency purposes. This case is one of four that 

referred to the IRS the issue of reporting deferred interest under §6050H. See Neely 

v. JP Morgan Chase Bank, N.A., No. 8:16-cv-01924, ECF No. 30 (C.D. Cal. Feb. 6, 

2017); Strugala v. Flagstar Bank, FSB, No. 5:13-cv-05927-EJD, 2015 WL 5186493 

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(N.D. Cal. Sept. 4, 2015); Rovai v. Select Portfolio Servicing, Inc., No. 3:14-cv01738-BAS-WVG, ECF No. 16 (S.D. Cal. May 11, 2015); Pemberton v. Nationstar 

Mortgage LLC, No. 3:14-cv-01024-BAS-WVG, ECF No. 17 (S.D. Cal. Feb. 5, 2015). 

The IRS initially accepted the issue into its Industry Issue Resolution (“IIR”) program 

on December 29, 2015. (ECF No. 45 at 2.) The IRS announced on August 25, 2016 

that the IRS had added the issue to its Priority Guidance Plan, indicating that it would 

address the issue in the upcoming year. (Id. 2−3.) Based on this development, the 

Court kept the stay in place. 

The IRS subsequently terminated the IIR project, as reflected in a 

communication to Rovai’s counsel on October 28, 2016, indicating that it would 

instead address the issue through a formal guidance process. (ECF No. 32, Ex. A.) 

Since that communication over a year ago, there has been no indication that the IRS 

“has taken up or will take up the issues.” Pimental v. Google, Inc., No. C-11-02585-

YGR, 2012 WL 1458179, at *5 (N.D. Cal. April 26, 2012). The primary jurisdiction

doctrine only “requires the court to enable a ‘referral’ to the agency, staying further 

proceedings so as to give the parties reasonable opportunity to seek an administrative 

ruling.” Reiter v. Cooper, 507 U.S. 258, 268 (1993) (emphasis added); Brown v. MCI 

Worldcom Network Servs., Inc., 277 F.3d 1166, 1173 (9th Cir. 2002). The Court 

believes there has been a reasonable opportunity for the parties to refer the question 

to the IRS and receive guidance, but this process has not resulted in any efficient 

resolution of the issue. 

Second, it is no longer clear that the expertise of the IRS may be so necessary 

to adjudicate Rovai’s state law claims that this Court must impose an additional stay 

of unknown duration. Although the Court recognizes that Rovai’s state law claims 

incorporate or are premised on a duty arising under §6050H, the statute’s use of the 

term “interest” is susceptible to statutory construction. “A district court is suited to 

resolve issues of statutory interpretation” of this term. Pimental, 2012 WL 1458179, 

at *3. 

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Furthermore, the IRS is not particularly well-suited to address the common law 

principles underlying all but one of Rovai’s state law claims. An administrative 

agency’s specialization does not offer much assistance in resolving questions of the 

application of common law principles which are “more competently decided in a 

judicial forum.” See General Elec. Co. v. Nedlloyd, 817 F.2d 1022, 1027−28 (2d Cir. 

1987); see also, e.g., N.Y. State Thruway v. Level 3 Communs., LLC, 734 F. Supp. 2d. 

257, 265 (N.D.N.Y, 2010) (“[c]ontract disputes are legal questions within the 

conventional competence of the courts and thus the doctrine of primary jurisdiction 

does not normally apply.”) Here, resolution of the question about whether §6050H 

imposes a duty to report deferred interest would not end the Court’s inquiry as to 

whether Rovai has successfully shown that common law principles entitle her to relief 

from SPS’s allegedly wrongful conduct. 

This is not to say that the IRS has no relevant expertise regarding the scope of 

§6050H that would be helpful. In fact, the Court previously stayed the matter hoping 

the IRS would provide its expertise or guidance. (ECF No. 16.) But as only a portion 

of the state law claims falls within the purview of the IRS, further delay in resolving 

Rovai’s claims through the imposition of another stay does not aid judicial efficiency. 

B. Uniformity in Administration

The Court’s prior concerns about uniformity present a closer call in the Court’s

decision not to impose another stay. The Court’s primary concern in staying the case 

pursuant to the primary jurisdiction doctrine was uniformity. The Court observed that 

all “the state law causes of action each turn on whether Defendant accurately reported 

the interest paid in Plaintiff’s 1098 Forms.” (ECF No. 16 at 4.) Those forms are 

completed, submitted, and relied upon by the IRS to enforce the nationwide taxation 

scheme. (Id.) The Court further observed that the IRS promulgates rules regarding 

the scope of interest payments and the proper administration of Forms 1098. (Id. 

(citing 26 C.F.R. §1.221-1; 26 C.F.R. §1.6050H02).) In light of these circumstances, 

the Court sought for the IRS to weigh on the issue of reporting deferred interest under

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§6050H first. 

Notwithstanding this earlier determination, the Court finds that the need for 

judicial efficiency determinatively outweighs its initial concern with uniformity.3 

Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 760 (9th Cir. 2015) (“Under our 

precedent, ‘efficiency’ is the ‘deciding factor’ in whether to invoke primary 

jurisdiction.”) Moreover, the Court’s uniformity concerns were solely concerned with

§6050H, not with what the common law and state statutory principles underlying 

Rovai’s state law claims might require of SPS. If it becomes clear at a later point that 

the Court and the IRS “on a collision course in rendering different decisions” about 

the scope of §6050H, the Court can easily revisit the propriety of a stay to avoid a 

conflict. See, e.g., N.Y. State Thruway v. Level 3 Communs., LLC, 734 F. Supp. 2d. 

257, 265 (N.D.N.Y, 2010). 

V. CONCLUSION & ORDER

For the foregoing reasons, the Court ORDERS as follows: 

1. Defendant SPS’s Motion to Dismiss for Lack of Subject Matter Jurisdiction 

Pursuant to Rule 12(b)(1) is DENIED. 

2. The Court DECLINES TO STAY the remaining state law claims.

3. The Court HEREBY ORDERS the following Rule 12(b)(6) dismissal briefing 

schedule:

a. Plaintiff Rovai shall file a Motion in Opposition to a Rule 12(b)(6) 

Dismissal of the First Amended Complaint no later than November 17, 

2017. The motion must not exceed a total of 35 pages in length. 

b. Defendant SPS shall file a response to such motion no later than 

December 7, 2017. The response must not exceed a total of 35 pages in 

length. 

 

3 The Court also observes that at least one district court considering similar 

claims has found Article III standing and lifted its stay. See Neely v. JP Morgan 

Chase Bank, N.A., No. 8:16-cv-01924, ECF No. 39 (C.D. Cal. Apr. 26, 2017).

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c. Plaintiff Rovai may file a reply no later than December 14, 2017. The 

reply must not exceed a total of 10 pages. 

d. It is ORDERED that Plaintiff’s Motion in Opposition to a Rule 12(b)(6) 

Dismissal and Defendant’s response should brief the question of the 

appropriate choice of law to apply for the state law claims. 

IT IS SO ORDERED. 

DATED: October 18, 2017

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