United States District Court, S.D. Florida
KAREN A. CARVELLI, Individually and On Behalf of All Others Similarly Situated, Plaintiffs,
OCWEN FINANCIAL CORPORATION, RONALD M. FARIS, and MICHAEL R. BOURQUE, JR., Defendants.
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS THE
CONSOLIDATED SECURITIES CLASS ACTION COMPLAINT
L. ROSENBERG, UNITED STATES DISTRICT JUDGE.
MATTER is before the Court on Defendants' Motion
to Dismiss, DE 72, Lead Plaintiff's Corrected Response in
Opposition to Defendants' Motion to Dismiss, DE 81, and
Defendants' Reply in Support of their Motion to Dismiss,
DE 83. The Court heard argument on April 16, 2018. For the
reasons set forth below, Defendants' Motion to Dismiss is
case is DISMISSED WITH PREJUDICE.
August 28, 2017, Lead Plaintiff University of Puerto Rico
Retirement System (“UPR”) filed its Amended
Consolidated Securities Class Action Complaint (the
“Complaint”) against Defendants Ocwen Financial
Corporation (“Ocwen”), Ronald M. Faris and
Michael R. Bourque, Jr. (Faris and Bourque, collectively, the
“Individual Defendants, ” and together with
Ocwen, the “Defendants”). DE 67. UPR brought this
action on behalf of itself and a putative class of others who
acquired Ocwen common stock between January 13, 2015 and
April 20, 2017 (the “Class Period”). UPR's
two-count complaint alleges violations of Section 10(b) and
20(a) of the Securities Exchange Act of 1934 and SEC Rule
is incorporated in Florida and maintains its principal
executive offices in West Palm Beach, Florida. Id.
¶ 17. Throughout the Class Period, Mr. Faris served as
Chief Executive Officer, President of Ocwen, and as a
Director on the Board of Directors of Ocwen, id.
¶ 18; Mr. Bourque served as the Chief Financial Officer,
id. ¶ 19.
is a diversified financial services company founded in 1988.
Id. ¶ 3. During the Class Period, Ocwen's
core business involved servicing mortgages. Id.
¶¶ 21-22. At all times relevant to the Complaint,
Ocwen used a mortgage servicing software platform furnished
by Altisource Portfolio Solutions, S.A.
(“Altisource”) called REALServicing. Prior to the
Class Period, Ocwen entered into Consent Orders with certain
of its regulators regarding its mortgage servicing business.
Id. ¶ 247(a). Ocwen signed (i) a consent
judgment with the Consumer Financial Protection Bureau
(“CFPB”) and forty-nine attorneys general in
December 2013, id. ¶¶ 28, 30; (ii) a
consent order with the New York Department of Financial
Services in December 2014, id. ¶¶ 31-33;
and (iii) a consent order with the California Department of
Business Oversight in January 2015, id. ¶ 34.
Prior to the Class Period, Ocwen disclosed these regulatory
settlements to the market. Id. ¶¶ 27-38,
Complaint alleges that Defendants failed to fix operational
and technological deficiencies with REALServicing, and
instead made materially false and misleading statements and
omissions, that its mortgage servicing misconduct was a thing
of the past. Specifically, the Complaint alleges that
Defendants' misrepresentations and omissions concerned:
(i) Ocwen's purported progress in and commitment to
complying with the Regulator Settlements, e.g.,
id. ¶¶ 100, 179, 147, 153, 161, 167, 186,
222, 224, 242; (ii) the efficacy and remediation of
REALServicing, e.g., id. ¶¶ 177,
184, 212; (iii) Ocwen's supposed commitment to borrowers,
e.g., id. ¶¶ 168, 220; (iv) the
efficacy of the Company's internal controls,
e.g., id. ¶¶ 131, 158- 59; and
(v) the Company's failure to make the required disclosure
obligations under GAAP FAS 5/ASC 40 and SEC Rule Item 303,
id. ¶¶ 132-41. For example, Defendants
stated that Ocwen was “committed to correcting any
deficiencies, remediating any borrower harm, and improving
our compliance management systems and customer service,
” id. ¶ 151, and that Ocwen
“invested heavily in compliance and risk
management” and that those “operations are now
mature and delivering improved controls and results.”
id. ¶ 242.
Complaint alleges that these statements were materially false
and misleading because, throughout the Class Period, just
like prior to the Class Period, REALServicing was fraught
with deficiencies that Defendants did not remediate. These
deficiencies made REALServicing incapable of functioning as
an adequate system of record, caused Ocwen to remain out of
compliance with the Regulator Settlements, and led to
violations of federal and state mortgage servicing laws.
Id. ¶¶ 44-81.
Complaint alleges that the truth concerning the deficient and
unremediated state of REALServicing and Ocwen's
non-compliance with the Regulator Settlements began to be
revealed in February 2016 with the issuance of Ocwen's
2015 10-K. Id. ¶¶ 96-97. According to the
Complaint, from February 2017 until the end of the Class
Period, investors suffered a string of bad news about the
full scope of the facts and risks that Defendants had
concealed finally emerged. Id. ¶¶ 106-20.
Altisource revealed that it had received a Notice and
Opportunity to Respond and Advise (“NORA”) letter
from the CFPB related to violations of federal law concerning
its relationship to Ocwen and Ocwen's use of
REALServicing. Id. ¶¶ 106-08. Then, Ocwen
revealed that its remediation costs were higher than expected
and that it had taken a reserve charge in connection with the
CFPB enforcement action. Id. ¶¶ 109-11.
Finally, on the last day of the Class Period, the Office of
the Attorney General for the State of Florida and the Office
of Financial Regulation for the State of Florida filed a
complaint against Ocwen and its related entities for their
continued violation of federal and state laws in connection
with Ocwen's mortgage servicing misconduct. That same day
Ocwen also revealed that the Multi-State Mortgage Committee,
state regulators from more than twenty states, had issued
cease-and-desist orders to Ocwen's subsidiaries in
connection with the Company's gross mishandling of escrow
accounts, based on an investigation that was a
“culmination of several years of examinations and
monitoring” and that prohibited Ocwen from acquiring
Mortgage Servicing Rights (“MSRs”) until Ocwen
could demonstrate it had remediated its escrow-related
deficiencies. Id. ¶¶ 112-20.
Complaint alleges that as a result of Defendants' fraud,
the price of Ocwen common stock fell from a Class Period high
of $11.61 per share to $2.49 per share - a decline of nearly
80%. Id. ¶ 120.
Plaintiff filed its Complaint on August 28, 2018, DE 67,
alleging one count for violations of Section 10(b) of the
Exchange Act and Rule 10b-5 and one count for violations of
Section 20(a) of the Exchange Act. Defendants moved to
dismiss, arguing that the Complaint does not sufficiently
allege that Defendants made material misrepresentations or
omissions and that Plaintiff did not properly plead loss
causation. DE 72.
securities fraud claim under Section 10(b) must satisfy six
elements: (1) a material misrepresentation or omission; (2)
made with scienter; (3) a connection with the purchase or
sale of a security; (4) reliance on the misstatement or
omission; (5) economic loss; and (6) a causal connection
between the material misrepresentation or omission and the
loss, an element commonly called “loss
causation.” Mizzaro v. Home Depot, Inc., 544
F.3d 1230, 1236-37 (11th Cir. 2008); see also 15
U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5.
state a “control person” claim under Section
20(a), a plaintiff must allege that: (1) Ocwen committed a
primary violation of the securities laws; (2) the Individual
Defendants had power to control the general business affairs
of Ocwen; and (3) the Individual Defendants “had the
requisite power to directly or indirectly control or
influence the specific corporate policy which resulted in
primary liability.” Theoharous v. Fong, 256
F.3d 1219, 1227 (11th Cir. 2001) (citation omitted). If a
plaintiff fails to plead adequately a violation of Section
10(b) and Rule 10b-5, a claim under Section 20(a) necessarily
fails as well. See Garfield v. NDC Health Corp., 466
F.3d 1255, 1261 (11th Cir. 2006). See generally In re
KLX, Inc. Sec. Litig., 232 F.Supp.3d 1269, 1274 (S.D.
moved to dismiss the Complaint based on Federal Rules of
Civil Procedure 12(b)(6) and 9(b), and the Private Securities