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Christiana Trust v. Riddle

United States Court of Appeals, Fifth Circuit

December 21, 2018

CHRISTIANA TRUST, A DIVISION OF WILMINGTON SAVINGS FUND SOCIETY, FSB, AS TRUSTEE, Plaintiff,
v.
MARY SUE RIDDLE, Defendant Third Party Plaintiff - Appellant,
v.
BANK OF AMERICA, N.A., Third Party Defendant-Appellee.

          Appeal from the United States District Court for the Northern District of Texas

          Before KING, ELROD, and HAYNES, Circuit Judges. [*]

          JENNIFER WALKER ELROD, CIRCUIT JUDGE.

         Mary Sue Riddle, who took out a home-equity loan from Bank of America, alleges that the bank is vicariously liable for the failure of the bank's loan servicer to comply with the Real Estate Settlement Procedures Act (RESPA). The district court dismissed Riddle's claims under Rule 12(b)(6). We affirm for two independent reasons. First, Riddle did not plead an agency relationship between Bank of America and the loan servicer, an essential element of a vicarious liability claim. Second, even if Bank of America had an agency relationship with the loan servicer, the bank cannot be held vicariously liable, as a matter of law, for the servicer's alleged RESPA violations.

         I.

         In December 2006, Mary Sue Riddle executed a home-equity note with Bank of America for a loan of $127, 000. To secure her obligations on the note, Riddle executed a security instrument-a Homestead Lien Contract and Deed of Trust on her property in San Angelo, Texas-in favor of Bank of America. In September 2012, Bank of America sent a letter to Riddle stating that Ocwen Loan Servicing, LLC (Ocwen), would start servicing the loan.[1] In January 2015, Bank of America assigned the loan, including the security interest in Riddle's property, to Christiana Trust, a division of the Wilmington Savings Fund Society. In April 2015, Ocwen notified Riddle that BSI Financial Services (BSI) would take over as the new loan servicer.

         In October 2016, Christiana Trust filed a complaint against Riddle for judicial foreclosure of her property, alleging that Riddle had failed to make payments on the note. In response, Riddle filed an answer, counterclaims against Christiana Trust, and a third-party complaint against Ocwen, BSI, and Bank of America. Bank of America responded to Riddle's complaint with a Rule 12(b)(6) motion to dismiss. Riddle then filed both an amended complaint against the same third-party defendants and a response in opposition to Bank of America's motion to dismiss the original third-party complaint. The amended complaint-like the original one-includes, as relevant for this appeal, [2] claims under the Real Estate Settlement Procedures Act (RESPA), a federal statute that governs the procedures of mortgage loans. Bank of America quickly moved to dismiss the amended third-party complaint, too. In her response opposing this second motion to dismiss, Riddle clarified her RESPA theory against Bank of America, alleging that "Ocwen was [Bank of America's] servicing agent" and that Bank of America "is vicariously liable for [Ocwen's] RESPA violations."

         The district court dismissed all of Riddle's claims against Bank of America with prejudice.[3] Soon after, Riddle filed a motion for reconsideration, which the district court denied. Riddle then filed a notice of interlocutory appeal.[4]

         II.

         We review a district court's dismissal under Rule 12(b)(6) de novo. Sullivan v. Leor Energy, LLC, 600 F.3d 542, 546 (5th Cir. 2010). We may affirm the dismissal of a claim on any ground made manifest by the record below. See id. We affirm the district court's dismissal for two independent reasons. First, Riddle's amended third-party complaint fails to plead that Bank of America had an agency relationship with either Ocwen or BSI, an essential element of her vicarious liability theory. Second, as a matter of law, Bank of America cannot be held vicariously liable for the alleged RESPA violations of its loan servicer-regardless of whether the servicer is Bank of America's agent.

         A.

         "To survive a motion to dismiss, a complaint 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 Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)); Hinojosa v. Livingston, 807 F.3d 657, 683-84 (5th Cir. 2015). Riddle's claim for relief, as articulated on appeal, asserts that Bank of America is vicariously liable for Ocwen's violations of 12 C.F.R. § 1024.41(c)(1). The Consumer Financial Protection Bureau (CFPB) promulgated this regulation pursuant to its rulemaking authority under RESPA. See 12 U.S.C. § 2605(k)(1)(E) (conferring this authority). The regulation imposes duties on servicers who "receive[] a complete loss mitigation application more than 37 days before a foreclosure sale." 12 C.F.R. § 1024.41(c)(1). When a servicer receives such an application, [5] the servicer must-within thirty days of receiving the application-"evaluate the borrower for all loss mitigation options available to the borrower" and "provide the borrower with a notice . . . stating the servicer's determination of which loss mitigation options, if any, it will offer the borrower[.]" Id.

         Riddle asserts that Ocwen and BSI received timely loss-mitigation applications but failed to consider them and notify Riddle of her loss-mitigation options.[6] Specifically, Riddle alleges the following in her amended third-party complaint:

44. Third-Party Defendants, Ocwen and BSI failed to comply with their RESPA obligations under 12 C.F.R. § 1024.41. Specifically, Ocwen and BSI violated 12 C.F.R. § 1024.41(c) because they received a complete or facially complete loss mitigation applications [sic] at least 37 days before a scheduled foreclosure sale, and yet failed to consider Mary for all loss ...

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