Dade County Bar Association Bulletin – May 2016 BY ZAKARIJ LAUX
Increasingly, borrowers fighting to save their homes are going beyond raising every imaginable affirmative defense within the confines of a pending state court foreclosure action. To exert additional pressure (and sometimes just to cause delay), borrowers are also filing separate actions against their lenders or loan servicers, often in federal court, alleging various violations of the Fair Debt Collection Practices Act (FDCPA), the Florida Consumer Collection Practices Act (FCCPA), the Telephone Consumer Protection Act (TCPA), and other state and federal consumer protection statutes we in the business lovingly refer to as the “Alphabet Soup.” Although these statutes (for the most part) impose minimal statutory liability and are almost never accompanied by viable allegations of actual damages, the threat of attorneys’ fees and banks’ general distaste for being on the bad side of the “v.” provide borrowers with leverage they otherwise lack as mere foreclosure defendants asserting the overtired laundry list of affirmative defenses.
After reading the last line of the borrower’s consumer protection complaint, the attorney representing a foreclosure plaintiff who suddenly finds itself as a FDCPA defendant will likely think: “is the borrower really entitled to that jury trial she just demanded?”
The focus of this article is the developing law on that question as it relates to loan servicers. Before digging in, a short primer on the key players will be helpful. The good ol’ days when “The Bank” originated, still owns, holds, and services a mortgage loan are for the most part over. Now, the question of who “owns” the loan is complicated (if not inscrutable) and, in any event, ultimately irrelevant with respect to standing. Rather, we focus on the identity of the “holder” of the note, as that term is defined by Florida’s UCC. The holder has the right to enforce the note and, under quite settled Florida law, standing to bring the foreclosure action. In addition to the noteholder, there is almost always a loan servicer, which is a separate entity charged with carrying out the day-to-day “servicing” of the loan. This entails sending the monthly mortgage statements, providing various federally-mandated notices, and being the entity the borrower knows to call when he or she has questions regarding payments or any other issues related to the loan.
Now that we are familiar with the players, let’s return to that FDCPA complaint. Generally, the named defendant is going to be the loan servicer because, as discussed above, it is usually the only entity with which the borrower has ever communicated, which contact now forms the basis of the complaint. The noteholder (which is also usually the foreclosure plaintiff) is often a named defendant as well. Let’s assume that’s the case here: there are two consumer protection defendants—the noteholder and the loan servicer—and you are representing them both.
Presuming your clients don’t offer a nuisance settlement right off the bat—although many do and it is often the economically wise decision—the last thing they’ll want is a jury trial in district court in an action where the maximum statutory liability is $1,000 per defendant. The subject note or mortgage almost undoubtedly contains a jury trial waiver and, if you’re lucky, it uses language broad enough to encompass the borrower’s consumer protection suit. If it does, you start drafting your motion to strike the borrower’s jury trial demand. Of course you draft it on behalf of both clients (the noteholder and loan servicer) because the thought having a bench trial for one defendant and a simultaneous jury trial for the other induces nausea.
Your research teaches you that “[a] party may validly waive its Seventh Amendment right to a jury trial so long as the waiver is knowing and voluntary,” Bakrac, Inc. v. Villager Franchise Sys., Inc., 164 F. App’x 820, 823 (11th Cir. 2006), but also that a jury trial waiver is a contractual right that generally cannot be invoked by a stranger to the contract. See e.g. Williams v. Wells Fargo Bank, N.A., No. 11–21233, 2011 WL 4901346, at *13 (S.D. Fla. Oct. 14, 2011). And therein lies your problem: your noteholder client is an assignee of the note and mortgage and entitled to enforce all of their provisions, including the jury trial waiver; but your loan servicer client is a stranger to the note and mortgage and has no contractual relationship at all with the borrower. The loan servicer has rights with respect to servicing the loan, but those rights stem from a separate servicing agreement with the noteholder, not from any loan documents the borrower executed.
A string of cases from the Southern District of Florida foreshadow that your noteholder client’s motion to strike will be granted and your loan servicer client’s will be denied. And in all likelihood, even your noteholder client is going to wind up with an advisory jury under Federal Rule of Civil Procedure 39(c). See Thompson v. Caliber Home Loans, Inc., 15-21616- CIV, 2016 WL 278731 (S.D. Fla. Jan. 22, 2016) (analyzing and adopting prior district court decisions reaching this result).
There are a handful of cases from the Middle District of Florida where jury trial demands were stricken as to both the noteholder and the loan servicer. But these decisions contain no analysis as to the distinction between the two defendants or the loan servicer’s lack of contractual relationship with the borrower, likely because the issue was not raised in response to the motions to strike. As a result, they are not particularly persuasive. See e.g. Omega v. Deutsche Bank Trust Co. Americas, 920 F. Supp. 2d 1298, 1300 (S.D. Fla. 2013) (mentioning the Middle District cases and finding them inapposite as not addressing whether non-parties may invoke a contractual jury waiver provision).
A last shred of hope for loan servicers in the Southern District is found in the case of Hamilton v. Sheridan Healthcorp, Inc., 13-62008, 2014 WL 537343 (S.D. Fla. Feb. 11, 2014). There, the court discusses an exception to the general rule that only parties to the contract may enforce the contractual jury trial waiver: where a principal has signed a contract containing a jury trial waiver, its agents may enforce that waiver with regard to claims arising from acts taken within the scope of the agency. Hamilton did not involve a noteholder-servicer relationship, but it can hardly be disputed that a loan servicer is an “agent” of a noteholder and is acting within the scope of the agency relationship when it services the loan (which activity invariably forms the basis of the borrower’s consumer protection suit). See e.g. Cenat v. U.S. Bank, N.A., 930 F. Supp. 2d 1347, 1352 (S.D. Fla. 2013) (a mortgagee may be liable under the Truth in Lending Act for the actions of its loan servicer, acting as agent for the mortgagee). If the agency relationship exists sufficient for vicarious liability to apply, it ought to also exist for enforcing a contractual jury trial waiver when the borrower sues the loan servicer.
Although the odds currently seem stacked against your loan servicer client, none of the courts addressing the loan servicer jury trial issue have analyzed it under the principal-agent theory discussed by the Hamilton court. This body of law is in need of further development. Rather than raising the white flag based on the available case law, attorneys representing loan servicers should make the rational argument to expand the principal-agent exception to the analogous noteholder-servicer scenario. If we succeed in this endeavor, we take a potential jury trial out of the equation, which in turn greatly reduces the leverage borrowers obtain by bringing separate consumer protection suits to bolster their foreclosure defense strategies.
Zakarij Laux is a commercial litigator at Bast Amron, LLP. Please contact him with any comments at firstname.lastname@example.org.