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Ophrys, LLC v. OneMain Financial, Inc.

United States District Court, D. Delaware

October 16, 2018

OPHRYS, LLC, Plaintiff,
v.
ONEMAIN FINANCIAL, INC., et al., Defendants.

          REPORT AND RECOMMENDATION

          MARY PAT THYNGE CHIEF U.S. MAGISTRATE JUDGE.

         I. INTRODUCTION

         On March 3, 2017, Ophrys, LLC (“Ophrys”) brought this action against OneMain Financial, Inc., a Delaware Corporation; OneMain Financial, Inc., a West Virginia corporation; OneMain Financial, Inc., a Minnesota corporation; OneMain Financial, Inc., a Hawaii corporation; and CF Network Issuance Trust 2010-1, a Delaware corporation, (“OneMain”), alleging breach of contract, breach of covenant of good faith and fair dealing, and unjust enrichment.[1] Currently before the court is defendants' motion to dismiss plaintiff's second amended complaint pursuant to Federal Rule of Civil Procedure (“Fed. R. Civ. P.”) 12(b)(6) for failure to state a claim upon which relief may be granted.[2] Ophrys's second amended complaint alleges breach of contract.[3] For the forthcoming reasons, the court recommends that OneMain's motion to dismiss be granted.

         II. BACKGROUND

         A. Factual Background

         Ophrys is a limited liability company organized under the laws of Washington; the company is a purchaser of distressed receivables.[4] OneMain is four separate corporations that have the same name and are believed to be controlled by Citibank, N.A. (“Citibank”)[5], and are organized under the laws of four different states: Delaware, Virginia, Minnesota, and Hawaii.[6] CF Network was a Delaware corporation at the relevant time of the lawsuit believed to be controlled by Citibank.[7]

         In April 2013, Ophrys and OneMain entered into an agreement titled “Ophrys, LLC BK Forward Flow Purchase and Sale Agreement” (“Agreement”) to facilitate the buying and selling of installment loans.[8] OneMain would sell Ophrys defaulted consumer loans from Citibank borrowers who had petitioned for relief under Chapter 13 of the United States Bankruptcy Code 11 U.S.C. § 101.[9] Ophrys would then be able to recover on the proof of the claims.[10] The Agreement states in part:

3.4 Remedies for Breach of Representations Concerning Accounts
(A) Time Period. [Ophrys]'s sole remedy against [OneMain], other than indemnification per Article 10.2, for a breach of any of the representations listed in Article 3 shall be to notify the [OneMain] of the breach (“Notice of Claim”) no later than 180 days from the applicable Closing Date . . . A Notice of Claim under this Section 3.4 must be delivered by [Ophrys] to [OneMain] in writing or in electronic format and accompanied by the documentation required under Section 3.4(b). [Ophrys]'s failure to provide a Notice of Claim with respect to any claimed breach of [OneMain] as provided in this Section 3.4 shall terminate and waive any rights [Ophrys] may have to any remedy breach under Article 3 of this Agreement . . . Notwithstanding the foregoing, a claim of a breach of representation under Sections 3.3.2 (a) and (c) shall not be subject to the 180 day limitation.[11]

         Ophrys contends that the OneMain provided Ophrys with loan accounts that did not meet the representations and warranties identified in the Agreement.[12] Specifically, Ophrys alleges that OneMain did not adhere to Section 3.3.1(j) of the Agreement which states:

3.3.1 Representations Concerning Accounts. With respect to each Account, the Seller represents that to the best of its knowledge, as of each applicable Cut-Off Dated: . . .
(j) information provided by Seller on the due diligence file is substantially similar to the final electronic file provided to the buyer in connection with the closing and specified on Exhibit 1;[13]

         Ophrys contends that most of the final electronic sale files for the Chapter 13 Accounts did not contain a substantial amount of the information that was included within the due diligence sample that was provided to Ophrys.[14] The fields of information that were allegedly contained in the due diligence sample included:

(a) the principal amount owed on the Chapter 13 Accounts;
(b) an itemized statement of interest, fees, expenses or other charges for each Chapter 13 Account;
(c) the date of the account holder's last transaction;
(d) the date of the last payment on the Chapter 13 Account;
(e) the date on which the Chapter 13 Account was charged to profit and loss.[15]

         OneMain contends that Ophrys did not attach appropriate data to the Notice of Claim that was required under Section 3.4 of the Agreement.[16] OneMain maintains that because a Notice of Claim was not received within 180 days of the applicable closing date, Ophrys waived the right to recovery.[17] Ophrys alluded to and provided supposed email correspondence between the parties, but a Notice of Claim was not attached to or included with the second amended complaint.[18]

         Ophrys also alleges that OneMain failed to adhere to Section 3.3.2(c) of the Agreement which is an exemption from the Notice of Claim requirement and provides:

3.3.2. Additional Representations and Warranties of [OneMain]. [OneMain] represents that to the best of its knowledge as of the applicable Closing Dated: . . .
(c) each Account has been originated, maintained and serviced in compliance with applicable state and federal laws including where applicable, without limitation, the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the Fair Credit Billing Act . . . .[19]

         Specifically, Ophrys claims that the Chapter 13 Accounts did not comply with Federal Rules of Bankruptcy Procedure (“Fed. R. Bankr. P.”) 3001 of the as well as standards put forth by the Office of the Comptroller of the Currency (“OCC”).[20] Fed.R.Bankr.P. 3001 requires a creditor to provide a proof of claim, and states:

(3) Claim Based on an Open-End or Revolving Consumer Credit Agreement.
(A) When a claim is based on an open-end or revolving consumer credit agreement-except one for which a security interest is claimed in the debtor's real property-a statement shall be filed with the proof of claim, including all of the following information that applies to the account:
(I) the name of the entity from whom the creditor purchased the account;
(ii) the name of the entity to whom the debt was owed at the time of an account holder's last transaction on the account;
(iii) the date of an account holder's last transaction;
(iv) the date of the last payment on the account; and
(v) the date on which the account was charged to profit and loss.
(B) On written request by a party in interest, the holder of a claim based on an open-end or revolving consumer credit agreement shall, within 30 days after the request is sent, provide the requesting party a copy of the writing specified in paragraph (1) of this subdivision.[21]

         The OCC advises debtholders that they should provide sellers of debt with:

(a) a copy of the signed contract or other documents that provide evidence of the relevant consumer's liability for the debt;
(b) copies of all or the last 12, whichever is fewer, account statements;
(c) all account numbers used by the bank and any predecessors to identify the debt;
(d) an itemized account of all amounts claimed to be sold, including loan principal, interest, and all fees; and
(e) the date, source and amount of the debtor's last payment and the dates of default and amount owed.[22]

         Ophrys claims that OneMain did not provide the proper information required by Fed.R.Bankr.P. 3001 and the OCC including “information about account open dates, last payment dates, charge off dates, last activity date, fees, interest, or other charges.”[23] OneMain contends that Ophrys has provided only conclusory statements and has not demonstrated how Fed.R.Bankr.P. 3001 and the OCC standard are considered applicable law that OneMain failed to follow.[24]

         Ophrys also asserts that its claim of lack of proper of information in the 13 Agreements is very similar to another claim against Citibank where the Consumer Financial Protection Board (“CFPB”) found that Citibank violated the Consumer Financial Protection Act.[25] Ophrys alleges that Citibank was subsequently subjected to a Consent Order as a result of this violation.[26] OneMain admits it is subject to a Consent Order from the CFPB, but notes that the Consent Order addressed Citibank's credit card program and included a “stipulation that Citibank neither admitted nor denied any of the findings of fact or conclusions of law.”[27] Ophrys also alleges that the account information OneMain provided on the loan closing dates was inaccurate and that OneMain refuses to provide sufficient information to determine the extent of its breach.[28]

         B. Procedural Background

         On March 13, 2017, Ophrys filed a complaint against OneMain.[29] OneMain responded by filing a Fed.R.Civ.P. 12(b)(6) motion to dismiss for failure to state a claim.[30] On May 12, 2017, Ophrys filed its first amended complaint; OneMain responded by filing another Fed.R.Civ.P. 12(b)(6) motion to dismiss for failure to state a claim.[31] On December 4, 2017, the court granted OneMain's motion to dismiss without prejudice.[32] The court reasoned that although Ophrys alleged elements of a breach of contract claim under New York law, it did not allege facts showing compliance with Article 3.4 of the Agreement that requires a Form of Notice and Notice of Claim within 180 days of the closing date of the sale.[33] The court found that unless Ophrys complied with Section 3.4 of the Agreement, or the claim fell under an exception, Ophrys waived its right to any remedy.[34]

         On January 16, 2018, Ophrys filed a second amended complaint; OneMain responded by filing its third Fed.R.Civ.P. 12(b)(6) motion to dismiss for failure to state a claim.[35] This motion, presently under consideration, contends that Ophrys did not have leave to file the second amended complaint and that Ophrys failed to provide sufficient facts to properly state a claim.[36]

         III. ...


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