1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 NORTHERN DISTRICT OF CALIFORNIA 8
10 SARAN NUTH, et al., 11 Plaintiffs, No. 23-cv-03476-WHA
12 v.
13 NEWREZ LLC, et al., ORDER DENYING LEAVE TO AMEND COMPLAINT 14 Defendants.
15 16 INTRODUCTION 17 In this FCRA and CCCRAA action, plaintiffs move for leave to amend their complaint to 18 include a putative class claim. To the extent stated herein, plaintiffs’ motion is DENIED. 19 STATEMENT 20 At its core, plaintiffs Sarah Nuth and Kevin O’Neill contend that defendant Shellpoint 21 inaccurately reported plaintiffs’ mortgage loan as past due despite plaintiffs making timely 22 payments. Plaintiffs further allege that Shellpoint failed to conduct a reasonable investigation 23 in response to the disputed payment submitted to credit bureaus and Shellpoint. 24 This case arises out of plaintiffs’ former home in Santa Rosa in Sonoma County, 25 California. In April 2011, plaintiffs obtained a personal home mortgage loan for their home in 26 Santa Rosa, which was serviced by Shellpoint. In late March 2020, plaintiffs suffered financial 27 hardships and contacted Shellpoint for a payment accommodation. Shellpoint agreed and sent 1 deferred. In May 2020, however, plaintiffs received a letter from Shellpoint stating that they 2 were late on their mortgage payments and that “failure to bring your loan current may result in 3 fees and foreclosure—the loss of your home” (Compl. ¶ 18). That same month, Shellpoint 4 agreed to defer eighteen monthly payments through September 2022. A letter was sent to 5 plaintiffs to confirm that the forbearance plan starting April 2020 had been extended and that 6 plaintiffs “would not be penalized with a late payment charge or with a negative credit 7 reporting if [they] miss a mortgage payment” (¶ 19). 8 In August 2021, Shellpoint sent plaintiffs a “streamlined modification letter” because 9 plaintiffs’ mortgage was “seriously delinquent” (¶ 20). In the letter, Shellpoint offered a trial 10 period plan for a permanent loan modification, which would require plaintiffs to make a 11 payment each month from October to December 2021. Plaintiffs made all three payments but 12 allege that their monthly mortgage statement reflected one unapplied payment of an incorrect 13 amount and a past due incorrect amount of $45,000 (¶¶ 21-22). Later in 2021, Shellpoint 14 reported the loan as past due for 90 days, which plaintiffs contend is inaccurate. Plaintiffs 15 observed a decrease in their credit score, allegedly due to Shellpoint’s reporting. Shortly 16 thereafter, plaintiffs submitted a dispute to major credit bureaus regarding the reporting. Those 17 credit bureaus subsequently contacted Shellpoint for investigation (¶¶ 23-24). 18 In early 2022, plaintiff O’Neill tried purchasing a vehicle but was denied financing due to 19 Shellpoint’s credit reporting. Both plaintiffs were planning to move and obtained a loan broker 20 who advised them that they would not qualify for a loan because Shellpoint documented its 21 loan as past due. Plaintiffs then directly submitted a dispute to Shellpoint. In July 2022, 22 plaintiffs sold their home in Santa Rosa. While they were eventually able to secure a loan for a 23 new home, plaintiffs had to settle for a loan with a much higher interest rate; they attribute this 24 difficulty and inability to qualify for a standard 30-year mortgage loan to Shellpoint’s 25 continuous, inaccurate reporting. 26 In July 2023, plaintiffs filed the original complaint, alleging that Shellpoint violated the 27 FCRA, CCCRAA, and the Rosenthal Act. Further, plaintiffs allege that defendants Experian, 1 leave to amend their complaint to add a putative class claim against Shellpoint only. The 2 proposed class would be defined as follows:
3 All persons in California who received an “accommodation” (as defined by the CARES Act) from Shellpoint and were current before the accommodation, 4 and whose accounts were reported as delinquent or past due the month after or two months after the accommodation ended as a result of non-payments subject to 5 the accommodation, during the relevant statute of limitations period. 6 (First Amd. Compl. ¶ 31). Aside from Shellpoint, no other defendant filed an opposition. This 7 order follows full briefing and oral argument. 8 ANALYSIS 9 1. LEGAL STANDARD 10 A district court should freely grant leave to amend “when justice so requires.” FRCP 11 15(a)(2). “When considering whether to grant leave to amend, a district court should consider 12 several factors including undue delay, the movant's bad faith or dilatory motive, repeated 13 failure to cure deficiencies by amendments previously allowed, undue prejudice to the 14 opposing party, and futility.” Brown v. Stored Value Cards, Inc., 953 F.3d 567, 574 (9th Cir. 15 2020) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). The instant motion was made prior 16 to the deadline to amend pleadings, as outlined by this action’s case management order. 17 2. FOMAN FACTORS 18 A. Bad Faith 19 Defendants argue that plaintiffs make this motion to use a threat of a class action to 20 extract a premium settlement for the individual plaintiff (with nothing for the supposed class). 21 That would be an abuse but there has been no evidence, such as a threat letter, to substantiate 22 these arguments. 23 B. Undue Delay and Undue Prejudice to Defendants 24 Although undue delay is part of the analysis in deciding whether leave to amend should 25 be granted, undue delay by itself is “insufficient to justify denying a motion to amend.” Bowles 26 v. Reade, 198 F.3d 752, 758 (9th Cir. 1999). Furthermore, defendants bear the burden of 27 establishing undue prejudice. DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1 Plaintiffs argue that this motion is not unduly delayed because three and a half months of 2 fact discovery remained when the motion was filed. Defendants argue that because plaintiffs do 3 not add any new claims or theories of liability and merely add a putative class to their CCRAA 4 claim, that plaintiffs’ class action claims are unduly delayed. Defendants also argue that all 5 discovery conducted up until this point was completed with the assumption that plaintiffs only 6 had individual claims. 7 Although plaintiffs’ motion was filed before the deadline to amend the pleadings, this 8 order agrees that the instant motion was unduly delayed and has prejudiced Shellpoint, given that 9 discovery up until now has been conducted under the impression that plaintiffs were only 10 proceeding with individual claims. Nor have plaintiffs adequately justified the delay in adding a 11 putative class at this stage in discovery. More importantly, this is not a routine amendment. 12 Adding a class allegation would entail a significant enlargement of this action. Unlike adding an 13 individual party, including a class claim at this stage resembles an innumerable amount of 14 putative class members intervening in this action. This would run contrary to Rule 23 which 15 seeks to prevent the haphazard intervention of a class instead of ruling on whether a class is to 16 proceed “at an early practicable time” after a suit is filed. FRCP 23(c)(1). 17 C.
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1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 NORTHERN DISTRICT OF CALIFORNIA 8
10 SARAN NUTH, et al., 11 Plaintiffs, No. 23-cv-03476-WHA
12 v.
13 NEWREZ LLC, et al., ORDER DENYING LEAVE TO AMEND COMPLAINT 14 Defendants.
15 16 INTRODUCTION 17 In this FCRA and CCCRAA action, plaintiffs move for leave to amend their complaint to 18 include a putative class claim. To the extent stated herein, plaintiffs’ motion is DENIED. 19 STATEMENT 20 At its core, plaintiffs Sarah Nuth and Kevin O’Neill contend that defendant Shellpoint 21 inaccurately reported plaintiffs’ mortgage loan as past due despite plaintiffs making timely 22 payments. Plaintiffs further allege that Shellpoint failed to conduct a reasonable investigation 23 in response to the disputed payment submitted to credit bureaus and Shellpoint. 24 This case arises out of plaintiffs’ former home in Santa Rosa in Sonoma County, 25 California. In April 2011, plaintiffs obtained a personal home mortgage loan for their home in 26 Santa Rosa, which was serviced by Shellpoint. In late March 2020, plaintiffs suffered financial 27 hardships and contacted Shellpoint for a payment accommodation. Shellpoint agreed and sent 1 deferred. In May 2020, however, plaintiffs received a letter from Shellpoint stating that they 2 were late on their mortgage payments and that “failure to bring your loan current may result in 3 fees and foreclosure—the loss of your home” (Compl. ¶ 18). That same month, Shellpoint 4 agreed to defer eighteen monthly payments through September 2022. A letter was sent to 5 plaintiffs to confirm that the forbearance plan starting April 2020 had been extended and that 6 plaintiffs “would not be penalized with a late payment charge or with a negative credit 7 reporting if [they] miss a mortgage payment” (¶ 19). 8 In August 2021, Shellpoint sent plaintiffs a “streamlined modification letter” because 9 plaintiffs’ mortgage was “seriously delinquent” (¶ 20). In the letter, Shellpoint offered a trial 10 period plan for a permanent loan modification, which would require plaintiffs to make a 11 payment each month from October to December 2021. Plaintiffs made all three payments but 12 allege that their monthly mortgage statement reflected one unapplied payment of an incorrect 13 amount and a past due incorrect amount of $45,000 (¶¶ 21-22). Later in 2021, Shellpoint 14 reported the loan as past due for 90 days, which plaintiffs contend is inaccurate. Plaintiffs 15 observed a decrease in their credit score, allegedly due to Shellpoint’s reporting. Shortly 16 thereafter, plaintiffs submitted a dispute to major credit bureaus regarding the reporting. Those 17 credit bureaus subsequently contacted Shellpoint for investigation (¶¶ 23-24). 18 In early 2022, plaintiff O’Neill tried purchasing a vehicle but was denied financing due to 19 Shellpoint’s credit reporting. Both plaintiffs were planning to move and obtained a loan broker 20 who advised them that they would not qualify for a loan because Shellpoint documented its 21 loan as past due. Plaintiffs then directly submitted a dispute to Shellpoint. In July 2022, 22 plaintiffs sold their home in Santa Rosa. While they were eventually able to secure a loan for a 23 new home, plaintiffs had to settle for a loan with a much higher interest rate; they attribute this 24 difficulty and inability to qualify for a standard 30-year mortgage loan to Shellpoint’s 25 continuous, inaccurate reporting. 26 In July 2023, plaintiffs filed the original complaint, alleging that Shellpoint violated the 27 FCRA, CCCRAA, and the Rosenthal Act. Further, plaintiffs allege that defendants Experian, 1 leave to amend their complaint to add a putative class claim against Shellpoint only. The 2 proposed class would be defined as follows:
3 All persons in California who received an “accommodation” (as defined by the CARES Act) from Shellpoint and were current before the accommodation, 4 and whose accounts were reported as delinquent or past due the month after or two months after the accommodation ended as a result of non-payments subject to 5 the accommodation, during the relevant statute of limitations period. 6 (First Amd. Compl. ¶ 31). Aside from Shellpoint, no other defendant filed an opposition. This 7 order follows full briefing and oral argument. 8 ANALYSIS 9 1. LEGAL STANDARD 10 A district court should freely grant leave to amend “when justice so requires.” FRCP 11 15(a)(2). “When considering whether to grant leave to amend, a district court should consider 12 several factors including undue delay, the movant's bad faith or dilatory motive, repeated 13 failure to cure deficiencies by amendments previously allowed, undue prejudice to the 14 opposing party, and futility.” Brown v. Stored Value Cards, Inc., 953 F.3d 567, 574 (9th Cir. 15 2020) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). The instant motion was made prior 16 to the deadline to amend pleadings, as outlined by this action’s case management order. 17 2. FOMAN FACTORS 18 A. Bad Faith 19 Defendants argue that plaintiffs make this motion to use a threat of a class action to 20 extract a premium settlement for the individual plaintiff (with nothing for the supposed class). 21 That would be an abuse but there has been no evidence, such as a threat letter, to substantiate 22 these arguments. 23 B. Undue Delay and Undue Prejudice to Defendants 24 Although undue delay is part of the analysis in deciding whether leave to amend should 25 be granted, undue delay by itself is “insufficient to justify denying a motion to amend.” Bowles 26 v. Reade, 198 F.3d 752, 758 (9th Cir. 1999). Furthermore, defendants bear the burden of 27 establishing undue prejudice. DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1 Plaintiffs argue that this motion is not unduly delayed because three and a half months of 2 fact discovery remained when the motion was filed. Defendants argue that because plaintiffs do 3 not add any new claims or theories of liability and merely add a putative class to their CCRAA 4 claim, that plaintiffs’ class action claims are unduly delayed. Defendants also argue that all 5 discovery conducted up until this point was completed with the assumption that plaintiffs only 6 had individual claims. 7 Although plaintiffs’ motion was filed before the deadline to amend the pleadings, this 8 order agrees that the instant motion was unduly delayed and has prejudiced Shellpoint, given that 9 discovery up until now has been conducted under the impression that plaintiffs were only 10 proceeding with individual claims. Nor have plaintiffs adequately justified the delay in adding a 11 putative class at this stage in discovery. More importantly, this is not a routine amendment. 12 Adding a class allegation would entail a significant enlargement of this action. Unlike adding an 13 individual party, including a class claim at this stage resembles an innumerable amount of 14 putative class members intervening in this action. This would run contrary to Rule 23 which 15 seeks to prevent the haphazard intervention of a class instead of ruling on whether a class is to 16 proceed “at an early practicable time” after a suit is filed. FRCP 23(c)(1). 17 C. Futility of Amendment 18 “Futility of amendment can, by itself, justify the denial of a motion for leave to amend. 19 If no amendment would allow the complaint to withstand dismissal as a matter of law, courts 20 consider amendment futile.” Kroessler v. CVS Health Corp., 977 F.3d 803, 815 (9th Cir. 2020) 21 (internal quotation and citations omitted). The putative class would be defined as:
22 All persons in California who received an “accommodation” (as defined by the CARES Act) from Shellpoint and were current before the accommodation, and 23 whose accounts were reported as delinquent or past due the month after or two months after the accommodation ended as a result of non-payments subject to the 24 accommodation, during the relevant statute of limitations period. 25 (First Amd. Compl. ¶ 31). First, Shellpoint argues that the named plaintiffs are inadequate 26 representatives because they live out of state and must travel to California for any depositions, 27 future mediations, and settlement conferences. Second, defendant argues that plaintiffs’ 1 limitations of two years and plaintiffs’ dispute claims arose in October and November 2021 2 (Opp. at 13). 3 At oral argument, counsel on both sides assisted in the Court in understanding the legal 4 issue that separates plaintiffs and Shellpoint: whether the CARES Act prohibits Shellpoint 5 from reporting a borrower as past due to a credit reporting agency when the borrower had 6 previously been on a forbearance plan and subsequently made partial payments pursuant to and 7 as required by a trial modification plan, that were not the full payment amounts originally 8 required. The judge could possibly see a more limited class action posing this legal issue as an 9 issue class and a statutory damages class. This, however, is not the class proposed by 10 plaintiffs, which was more unwieldly and more unmanageable and, at this late date, would not 11 be allowed. 12 The class claim proposed by plaintiffs is further complicated by the relation back 13 doctrine. This order assumes that plaintiffs are correct that each month that Shellpoint 14 continued to inaccurately report a past due payment was a separate and distinct claim. Even 15 so, those separate and distinct claims arising before the reach-back of the statute of limitations, 16 as measured from the date the class claims were filed, would be time-barred unless those class 17 claims are deemed to “relate back,” meaning treated as if they had been filed all along in the 18 original complaint. The relation-back doctrine is allowed if: (1) the original complaint gave 19 the defendant adequate notice of the claims of the newly proposed plaintiff; (2) the relation 20 back does not unfairly prejudice the defendant; and (3) there is an identity of interests between 21 the original and newly proposed plaintiff. In re Syntex Corp Securities Litigation, 95 F.3d 922, 22 935 (9th Cir. 1996). 23 Here, the original complaint gave no notice that there would eventually be class claims. 24 In fact, the joint case management statement said it was not a class action. The original 25 complaint set forth the legal basis and factual basis for the claims of our individual plaintiffs. 26 While some of the same statutes would be involved in the class claims, the underlying facts 27 would not necessarily be the same for the other putative class members—a variable 1 compounded by the fact that this suit is against not only Shellpoint but against three credit 2 reporting agencies who are one step removed. 3 By now, each defendant surely has tracked down the particulars regarding plaintiffs’ 4 specific case and how things went wrong (if they did) in this case. But likely no defendant 5 here investigated to learn the extent to which there was a class-wide, systemic problem. 6 Indeed, until this motion, no class had been defined or attempted to be defined. Therefore, this 7 order finds that the original complaint did not provide adequate notice of the factual basis for 8 claims by anyone other than our individual plaintiffs. 9 That only means, however, that relation-back would be unavailable for purposes of the 10 statute of limitations. It does not necessarily mean that the amendment would not be allowed 11 altogether. Put differently, we could have a class seeking recovery for a period of time different 12 || from but substantially overlapping with the claim of the representatives (but on the same theory).
13 Given the delay, the unwieldy proposed class, and the prejudice to Shellpoint, the motion M4 is DENIED.
16 CONCLUSION 2 17 To the extent stated herein, plaintiffs’ motion for leave to amend the complaint is 18 DENIED. 19 20 21 IT IS SO ORDERED. 22 23 Dated: May 23, 2024. 24 Ls Pee 26 WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 27 28