Free Response to Motion - District Court of Colorado - Colorado

Case 1:01-cv-01644-REB-CBS

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 01-cv-1644-REB-CBS CARTEL ASSET MANAGEMENT, a Colorado corporation, Plaintiff, vs. OCWEN FINANCIAL CORPORATION, a Florida corporation; and OCWEN FEDERAL BANK FSB, a subsidiary of OCWEN FINANCIAL CORPORATION, Defendants.

SUPPLEMENTAL RESPONSE IN OPPOSITION TO "DEFENDANT OCWEN FEDERAL BANK FSB'S MOTION FOR SUBSTITUTION OF PARTY" AND CROSS-MOTION FOR JOINDER OF OCWEN LOAN SERVICING, LLC AND OCWEN FINANCIAL CORP.

Plaintiff, Cartel Asset Management ("Cartel"), through its undersigned counsel, G.W. MERRICK & ASSOCIATES, LLC, hereby submits this supplemental response in opposition to "Defendant Ocwen Federal Bank FSB's Motion for Substitution of Party" (the "Substitution Motion"), filed on December 21, 2007. Further, Cartel respectfully moves, under Fed.R.Civ.P. 25(c), to join as Defendants Ocwen Loan Servicing, LLC ("OLS") and Ocwen Financial Corp. ("OFC"). 1 As grounds for this Response in Opposition and Cross-Motion, Cartel advises the Court as follows:

OFC was a defendant in the original trial of this case. Following trial, judgment was entered in OFC's favor. Accordingly, counsel for OFC has asked that it be removed as a defendant in connection with the re-trial, and that OFC be removed from the case caption. "Joinder" is used in this situation to reflect that OFC should remain as a Defendant in this case based upon its unconditional and comprehensive guarantee of the obligations of the Bank as described in Section III of the text.

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1.

On December 21, 2007, Defendant Ocwen Federal Bank (the

"Bank") filed the Substitution Motion. Therein, the Bank seeks an Order of this Court substituting OLS for the Bank. The Bank asserts that substitution is appropriate because: (a) the Bank transferred some of its assets to OLS, Substitution Motion at 2, and (b) "[b]ecause the Bank has been dissolved, it can no longer be a party to this case." Id. 2 2. The first of these points is not contested. According to the

Substitution Motion, following the transfer of the Bank's Fort Lee, New Jersey branch to another bank, the Bank assigned "its remaining assets, liabilities and business to OLS, a wholly-owned subsidiary of OFC." Id. Accordingly, OLS has contractually assumed the Bank's liability to Cartel.

I.

The Bank has not Demonstrated that it Lacks Capacity to be a Defendant 3. However, no authority is cited by the Bank for the bald proposition

that "because the Bank has been dissolved, it can no longer be a party to this case." Id. Indeed, unless the Dissolution Plan, adopted by the Bank's Board of Directors and approved by the Office of Thrift Supervision ("OTS"), expressly provides that the Bank cannot continue as a Defendant (as part of the dissolution and winding up process) the proposition advanced by the Bank is inaccurate. See 12 C.F.R. §564.4(c)(OTS terminates the existence of a federal savings bank, and cancels its charter, only after dissolution is fully completed in accordance with the Dissolution Plan). Accordingly, at a minimum substitution [rather than joinder of OLS under Fed.R.Civ.P. 25(c)] should not be considered unless and until the Bank furnishes the full Dissolution Plan, all documents

The "dissolution" of the Bank obviously did not prevent it from filing the Substitution Motion, but according to the Bank dissolution prevents it from remaining a party Defendant.

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germane to approval of that Plan by the OTS, the Order of the OTS approving the Dissolution Plan and the Certificate of Completion of the Dissolution Plan.

II. 4.

Joinder of OLS is Superior to Substitution for the Bank Fed.R.Civ.P. 25(c) provides, in pertinent part, that "[i]n the case of

any transfer of interest, the action may be continued ... against the original party, unless the court ... directs the person to whom the interest is transferred to be substituted in the action or joined with the original party." (Emphasis supplied). 5. Joinder or substitution, effected under Rule 25(c), is not intended

to alter the substantive rights of the parties; it is merely a procedural device designed to facilitate the conduct of a case. Luxliner P.L. Export, Co. v. RDI/Luxliner, Inc., 13 F.3d 69, 71-72 (3rd Cir. 1993). Joinder of OLS as the Bank's alleged "successor" is

appropriate since any successor will be bound by the outcome of this litigation in any event. See, e.g., FDIC v. Tisch, 89 F.R.D. 446, 448 (E.D.N.Y. 1981). "Substitution of a successor in interest, or its joinder as an additional party under Rule 25(c) is generally within the sound discretion of the trial court." Prop-Jets, Inc. v. Chandler, 575 F.2d 1322, 1324 (10th Cir. 1978)(emphasis supplied). 6. Joinder of OLS -- rather than substitution of OLS for the Bank -- is

the superior alternative in the exercise of this Court's sound discretion. Joinder of OLS prejudices none of the parties, and is sought by all of them. Conversely, substitution of OLS for the Bank may be highly prejudicial to Cartel. The OFC Form 10-K for 2006 (a portion of which is attached to the Substitution Motion) discloses that the OTS required that a Cash Collateral Agreement and a Collateral Trust Agreement be executed for the protection of the Bank's creditors (including Cartel) as a condition to the OTS' approval

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of the Bank's Dissolution Plan. See OFC's Form 10-K, dated March 30, 2006, at p. 3 (attached to the Substitution Motion as Exhibit A). Neither the Cash Collateral Agreement, nor the Collateral Trust Agreement, has been produced by the Bank. Absent production of these crucial instruments it cannot be said that the removal of the Bank as a Defendant in this case will not prejudice Cartel's rights, remedies and security in respect of these instruments. Cf. Citibank v. Grupo Cupey, Inc., 382 F.3d 29 (1st Cir.

2004)(where lender assigned its claim on bond, court properly dismissed assignee's claim against surety because bond limited surety's liability to assignor; moreover, decision to allow assignee to be substituted as plaintiff did not affect substantive rights under the bond).

III. 7.

Joinder of OFC is Fully Appropriate

As noted above, and in the OFC Form 10-K, dated March 30,

2006, at p.3, in order to induce the OTS to approve the Bank's Dissolution Plan, OFC executed "an agreement to guaranty the obligations of the Bank ... a cash collateral agreement and a collateral trust agreement, all on terms acceptable to the OTS." Id. Like OLS, therefore, the Bank has contractually assumed and bound itself to be fully liable for the Bank's liability to Cartel. 8. Because OFC has accepted a transfer of the Bank's liability

interest, it should be joined as an additional party (in respect of the Bank's liability to Cartel) to avoid the prospect of a multiplicity of suits in respect of OFC's guaranty obligation. Wainwright v. Kraftco Corp., 58 F.R.D. 9, 13-14 (N.D.Ga. 1973)(party who "could have the burden of liability" joined under Fed.R.Civ.P. 25(c) so "that a multiplicity of lawsuits may be avoided"); Moody v. Albemarle Paper Co., 50 F.R.D.

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494, 499 (E.D.N.C. 1970) (using Fed.R.Civ.P. 25(c) to join a party who "could have the burden of liability" because "[t]he court sees as one of its duties, the avoidance of a multiplicity of suits"). 9. Joinder of OFC as a Defendant under Fed.R.Civ.P. 25(c) will have

the salutary effects of: (a) providing an efficient and cost-effective mechanism for enforcing OFC's guaranty used to induce the approval of the OTS, a federal agency, and (b) avoiding a multiplicity of suits in respect of that guaranty. Moreover, joinder of OFC does not unfairly prejudice the rights of any of the parties to this litigation. WHEREFORE, Cartel opposes the Substitution Motion. Cartel

respectfully urges that the Substitution Motion be denied and that this Court enter an Order, under Fed.R.Civ.P. 25(c), joining OLS and OFC as parties Defendant. Respectfully submitted this 5th day of February, 2008.

/s/ Glenn W. Merrick Glenn W. Merrick Brian S. Emeson G.W. MERRICK & ASSOCIATES, LLC 5445 DTC Parkway, Suite 912 Greenwood Village, Colorado 80111 Telephone: (303) 831-9400 Facsimile: (303) 771-5803 ATTORNEYS FOR PLAINTIFF

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CERTIFICATE OF SERVICE I hereby certify that on the 5th day of February, 2008, a true and correct copy of the foregoing SUPPLEMENTAL RESPONSE IN OPPOSITION TO "DEFENDANT OCWEN FEDERAL BANK FSB'S MOTION FOR SUBSTITUTION OF PARTY" AND CROSS-MOTION FOR JOINDER OF OCWEN LOAN SERVICING, LLC AND OCWEN FINANCIAL CORP. RESPONSE TO "DEFENDANT OCWEN FEDERAL BANK FSB'S MOTION FOR SUBSTITUTION OF PARTY AND FOR AMENDMENT OF CAPTION" was electronically filed with the clerk of court using the CM/ECF System: Lino S. Lipinsky de Orlov, Esq. Sandra Wick Mulvany, Esq. McKENNA LONG & ALDERIDGE LLP 1875 Lawrence Street, Suite 200 Denver, Colorado 80202

/s/ Dyanna M. Spicher

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