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Federal Judge Shuts Down Mortgage Company’s Attempt to Dismiss Two Class Action Complaints that were Redressed by a CFPB Consent Order

A federal judge here in California recently denied a mortgage company’s attempt to dismiss two counts of a class action suit against it. The company, Castle & Cooke Mortgage, argued that the consumers in those two counts had already obtained redress under a consent order the company entered into with the Consumer Financial Protection Bureau (CFPB) back in 2013. The consent order settled the CFPB’s charges that Castle had violated the Regulation Z loan originator compensation rule. The amended complaint in the class action alleged TILA violations, violations of various Utah laws including an unjust enrichment claim, and, with regards to the California subclass, violations of our Unfair Competition Law (UCL).

What the Class Action is About

The main allegation in the underlying lawsuit is that Castle broke the law by implementing a secret bonus program which gave its loan officers incentives to put borrowers in loans with higher interest rates. Castle sought to dismiss the unjust enrichment claims and the California UCL claims. The trial court denied that request. In 2013 the CFPB sued Castle for maintaining this bonus program, and later that year Castle entered into a consent agreement under which it agreed to pay millions of dollars in restitution and penalties. The named plaintiff in this lawsuit received a restitution check as a result of the consent agreement. However, the consent agreement did not limit or affect borrowers’ rights to pursue their own claims against Castle.

Unjust Enrichment Claim

Castle argued that because the TILA claim provides an adequate remedy at law, the plaintiffs should not be allowed to pursue the equity claim of unjust enrichment. Plaintiffs argued that they should be allowed to plead unjust enrichment in the alternative to the TILA claim. The motion court agreed with the plaintiffs because, at this early pleadings stage, it is impossible to determine whether the pursuit of the legal claims will be fruitless. Basically the court ruled that it is too soon to know whether the unjust enrichment claim will be appropriate, so it should not be dismissed at this stage.

California UCL Claim

Castle argued that the presence of legal claims in the complaint dooms the plaintiff’s UCL claims because the UCL provides equitable relief only in the form of restitution or an injunction. The trial court did not agree. It reasoned that because this claim is a claim under California law the plaintiffs are definitely allowed to pursue the claim as an alternative to legal remedies. Further, the UCL even says, “Unless otherwise specifically provided, the remedies or penalties provided by this chapter are cumulative to each other, and to the remedies or penalties available under other laws of this state.” Castle also argued that neither injunctive nor restitutionary relief is available because the plaintiff has not demonstrated any ongoing TILA violations. The court determined that such an argument would be better addressed at the summary judgment stage.