PHYLLIS J. HAMILTON, District Judge.
Defendant's motion for an order dismissing the first amended complaint ("FAC") for failure to state a claim, or in the alternative, striking certain allegations in the FAC, and plaintiff's motion for a preliminary injunction, came on for hearing before this court on January 28, 2015. Plaintiff appeared by his counsel Marie G. Quashnock, and defendant appeared by its counsel Marcus T. Brown. Having read the parties' papers and carefully considered their arguments and the relevant legal authority, the court hereby GRANTS the motion to dismiss and DENIES the motion for preliminary injunction.
In June 2006, plaintiff David P. Garcia purchased real property located in Pleasant Hill, California. FAC ¶ 31. He obtained a loan from the predecessor of defendant PNC Mortgage ("PNC") which was secured by a promissory note and deed of trust, recorded on June 22, 2006.
Plaintiff subsequently initiated loan modification negotiations with PNC. FAC ¶ 39. He authorized his wife, Susie Garcia (not a borrower on the loan) to act in his stead in the discussions with PNC.
On February 20, 2013, before plaintiff submitted the new application, PNC recorded a Notice of Default ("NOD") on the property, showing $46,825.43 owing as of February 18, 2013. FAC ¶ 44. Attached to the NOD was a Declaration of Mortgage Servicer dated January 25, 2013, stating that the servicer had "tried with due diligence to contact the borrower as required by California Civil Code § 2923.55(f)," but had not made contact despite such due diligence.
Plaintiff alleges that on April 10, 2013, he submitted a new "complete" loan modification application to PNC ("the second application"), but that PNC made repeated requests for additional information over the period from April to August 2013. FAC ¶¶ 45-50. He also asserts that Mrs. Garcia continued to get a different representative each time she contacted PNC in response to the requests for information or documents, and that those representatives were not always able to respond adequately to her requests for a "status update on [p]laintiff's application" (apparently referring to the April 10, 2013 application). FAC ¶ 45.
On August 9, 2013, while the April 10, 2013 loan modification application was pending, PNC recorded a Notice of Rescission of the February 20, 2013 NOD; a Substitution of Trustee, substituting Cal-Western Reconveyance as Trustee in place of the former trustee; and an NOD showing $59,587.88 owing as of August 6, 2013. FAC ¶ 51. This NOD was accompanied by a copy of the same Declaration of Mortgage Servicer dated January 25, 2013, which had previously been attached to the February 20, 2013 NOD. FAC ¶ 52. Plaintiff alleges that this declaration was void, because the February 20, 2013 NOD had been rescinded, and was also false, because he was in active loan modification review and PNC was actively soliciting documents from him.
It is not clear from the FAC what plaintiff claims happened with the April 20, 2013 loan modification application. Plaintiff alleges only that on October 5, 2013, at PNC's request, he submitted a new "complete" application for a loan modification ("the third application"). FAC ¶ 54.
On November 11, 2013, Mrs. Garcia spoke with "Chris," in PNC's Loss Mitigation Department, who allegedly told her that PNC had closed the October 5, 2013 application the same day it was submitted. FAC ¶ 55. Plaintiff asserts that "Chris" offered no explanation as to why the file had been closed on October 5, 2013, or why PNC had not acknowledged receipt of the application sent in on that date, although "Chris" did allegedly say that the financial information plaintiff had previously submitted had expired, and that plaintiff would have to file another loan modification application.
At the end of January 2014, Mrs. Garcia contacted PNC to discuss which documents would be needed to submit a new loan modification application. FAC ¶ 57. On February 4, 2014, she spoke to "Anna," who stated there was no foreclosure sale scheduled on the property, and provided a long list of the required documents.
Plaintiff alleges that on March 7, 2014, he faxed a new "complete" loan modification application ("the fourth application") to PNC, along with all the requested supporting documents. FAC ¶ 59. At that point, plaintiff was unaware that a Notice of Trustee Sale had been recorded on March 3, 2014, and a copy mailed on March 4, 2014. FAC ¶ 60. Plaintiff received the Notice of Trustee Sale "on or about" March 11, 2014.
On March 20, 2014, Mrs. Garcia called PNC to ask why plaintiff had received a Notice of Trustee Sale when he had just faxed a fourth application for a loan modification. FAC ¶ 61. This time she spoke to "Crystal," who explained that PNC needed to receive the completed application 15 business days in advance of the Trustee sale, or the sale could not be stopped.
On March 22, 2014, plaintiff received a letter from PNC acknowledging receipt of the fourth application and supporting documents, which had been faxed on March 7, 2014. FAC ¶ 62. The letter was dated Friday, March 14, 2014, but was not mailed until Tuesday, March 18, 2014.
Plaintiff filed the present action in Contra Costa Superior Court on March 24, 2014. The court granted plaintiff's application for a temporary restraining order on March 25, 2014. PNC subsequently postponed the date of the foreclosure sale to May 1, 2014. FAC ¶¶ 64-65 & Exh. I. On April 24, 2014, the court granted plaintiff's motion for preliminary injunction. PNC had not been properly served as of that date, and did not oppose the motion.
On April 29, 2014, plaintiff sent a qualified written request ("QWR") to PNC pursuant to the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2605, in an attempt to gather additional information about his loan. FAC ¶ 67 & Exh. J. PNC provided an initial response on May 9, 2014, and a further response on June 12, 2014, but did not provide copies of all the documents plaintiff had requested.
PNC removed the case to this court on August 6, 2014, and on November 9, 2014, plaintiff filed the FAC, asserting seven causes of action — (1) violation of California Civil Code § 2923.5; (2) violation of various provisions of the California Homeowner's Bill of Rights ("HBOR"), Cal. Civ. Code §§ 2923.7, 2923.55, 2924.10, and 2923.6 and/or 2924.11; (3) violation of RESPA; (4) violation of California Business & Professions Code § 17200; (5) quiet title; (6) negligence; and (7) declaratory judgment. On November 20, 2014, the parties filed a stipulation agreeing that the state court's preliminary injunction would be dissolved; that plaintiff would file another motion for preliminary injunction in this court; and that PNC would cause any scheduled trustee's sale of the property to be postponed until after the hearing of the new motion to be filed by plaintiff.
PNC now seeks an order dismissing the FAC for failure to state a claim, and/or striking certain allegations in the complaint. Plaintiff seeks a preliminary injunction barring PNC from selling the property until after the present dispute is resolved.
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the claims alleged in the complaint.
A complaint may be dismissed under Rule 12(b)(6) for failure to state a claim if the plaintiff fails to state a cognizable legal theory, or has not alleged sufficient facts to support a cognizable legal theory.
The allegations in the complaint "must be enough to raise a right to relief above the speculative level."
Although the court generally may not consider material outside the pleadings when resolving a motion to dismiss for failure to state a claim, the court may consider matters that are properly the subject of judicial notice.
PNC seeks an order dismissing all causes of action asserted in the FAC, for failure to state a claim.
In the first cause of action, plaintiff alleges that PNC violated Civil Code § 2923.5 by filing a declaration that falsely stated that PNC had tried but was unable to contact plaintiff in person or by telephone, at least 30 days before filing the NOD, to explore options for avoiding foreclosure. FAC ¶ 73-76.
Civil Code § 2923.5 provides that "a mortgagee, trustee, beneficiary, or authorized agent may not file a notice of default . . . until 30 days after initial contact is made as required by [subsection (a)(2)] or 30 days after satisfying the due diligence requirements as described in subdivision (e)." Cal. Civ. Code § 2923.5(a)(1). The authorized agent must "contact the borrower in person or by telephone in order to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure."
PNC argues that this cause of action should be dismissed because there is no authority for allowing a borrower to sue to avoid foreclosure when the servicer complies with § 2923.5 by contacting the borrower, but then "makes an error" in the declaration by stating that the contact was unsuccessful. Moreover, PNC asserts, the FAC includes no plausible allegation that the declaration was false.
The motion is GRANTED. The dismissal is with leave to amend to allege facts showing specifically how PNC failed to comply with the requirements of § 2923.5 prior to recording the August 9, 2013 NOD. In addition, however, the court notes that the only relief available under § 2923.5 is a postponement of the foreclosure sale until the servicer complies with the due diligence requirements.
In the second cause of action, plaintiff alleges that PNC violated several provisions of the HBOR
Accordingly, in this order, the court simply decides whether the FAC pleads facts sufficient to state a plausible claim for violation of any of these statutes. The court finds that PNC's motion to dismiss the HBOR claims must be GRANTED. The dismissal of the claims under § 2923.7, 2924.10, and 2923.6 is with leave to amend. The dismissal of the claim under § 2923.55(e) is with prejudice.
In his first HBOR claim, plaintiff asserts that PNC violated § 2923.7 by "failing to provide a single point of contact to assist [p]laintiff after he specifically requested an alternative to foreclosure." FAC ¶ 87(a). The court finds that this claim must be dismissed. While the statute is somewhat ambiguous, it appears that the requirement to establish a single point of contact (or "SPOC") is triggered only "[u]pon request from a borrower . . ." Cal. Civ. Code § 2923.7(a). Here, the FAC does not allege that plaintiff ever requested a SPOC.
More importantly, plaintiff asserts that PNC failed to provide a SPOC, as evidenced by the fact that Mrs. Garcia never spoke to the same person twice, and that each time she called she spoke to a different person who was not able to explain plaintiff's "status" or why his applications had been closed. The allegation that a number of different individuals at PNC responded to Mrs. Garcia's requests for information is not sufficient in itself to state a claim. The statute provides that once requested, the SPOC may be an individual or an entire "team of personnel." Cal. Civ. Code § 2923.7(e).
In addition, it is not clear exactly what information plaintiff claims PNC failed to provide via the SPOC. The statute lists five responsibilities of the SPOC.
The dismissal is with leave to amend to allege facts showing that plaintiff requested a SPOC (if he did), that PNC failed to provide a SPOC,
In his second HBOR claim, plaintiff alleges that PNC violated § 2923.55(e) by "encouraging" plaintiff to put off seeking legal representation "by misstating that [p]laintiff `still had time,' thus interfering with [p]laintiff's right to be represented by an attorney" in any discussion with the servicer regarding his financial situation and options to avoid foreclosure. FAC ¶ 87(b). The court finds that this claim must be dismissed.
Under § 2923.55(e), a borrower may designate "a HUD-certified housing counseling agency, attorney, or other adviser to discuss with the mortgage servicer, on the borrower's behalf, the borrower's financial situation and options for the borrower to avoid foreclosure." Cal. Civ. Code § 2923.55(e). While this provision allows the borrower to designate an attorney to have discussions with the mortgage servicer, it does not include a requirement that the servicer advise the borrower of this right or that the servicer avoid "interfering" with that right.
Moreover, the allegations in the FAC do not show that plaintiff attempted to designate an attorney, or requested that he be allowed to do so. Plaintiff alleges only that Mrs. Garcia asked if plaintiff needed an attorney, and that "Chris" responded that no foreclosure sale had been set, so her husband "still had time." As pled, these were true statements by "Chris," and did not constitute any violation of PNC's obligations under § 2923.55. Certainly there is no allegation that plaintiff attempted to designate an attorney, but such designation was not accepted by PNC. The dismissal of this claim is with prejudice.
In his third HBOR claim, plaintiff asserts that PNC violated § 2924.10 by "failing to provide written acknowledgment of receipt of [p]laintiff's third application and documents sent on October 5, 2013 within 5 business days, and [p]laintiff's fourth application and documents sent on March 7, 2014, within 5 business days." FAC ¶ 87(c). The court finds that this claim must be dismissed.
Under 2924.10, when a borrower submits a "
Here, as with the following claim, the court finds that the FAC does not include factual allegations sufficient to state a plausible claim that by the time any of the foreclosure notices were recorded, plaintiff had completed his application by providing the documents PNC had requested and within the timeframes PNC had specified. At a minimum, in any amended complaint, plaintiff must allege facts showing what documents or information PNC requested in connection with the third and fourth applications, when PNC requested those documents or that information, what deadlines PNC imposed (if any), and when plaintiff in fact provided the requested documents and information.
In his fourth HBOR claim, plaintiff asserts that PNC improperly engaged in "dual tracking" by "conducting a non-judicial foreclosure sale, including scheduling a foreclosure sale date and/or postponing a foreclosure sale date, while [p]laintiff's application is still in review. FAC ¶ 87(f);
Under Civil Code § 2913.6, "[i]f a borrower submits a
The requirements and prohibitions of § 2923.6(c) are triggered by the borrower's submission of a "complete" loan modification application. Here, while plaintiff alleges in a conclusory fashion that his first, second, third, and fourth loan modification applications were all "complete," FAC ¶¶ 42, 45, 54, 59, he alleges no facts from which it can be determined whether, as to each application, plaintiff supplied PNC with all documents required by PNC within the reasonable timeframes specified."
In the third cause of action, plaintiff asserts that PNC violated 12 U.S.C. § 2605(e), which relates to the duty of the loan servicer to respond to borrower inquiries. Plaintiff alleges that she sent PNC a QWR on April 29, 2014; that PNC did not provide all the documents and information requested in the QWR; and that PNC provided information to consumer reporting agencies regarding overdue payments owed by plaintiff, which plaintiff claims were "related to his QWR," and many of which "were neither late nor overdue." FAC ¶¶ 94-95.
PNC argues that the FAC fails to allege facts sufficient to state a claim under § 2605(e). The court finds that the motion must be GRANTED. The dismissal is with leave to amend to allege facts supporting the claim. Specifically, plaintiff must allege which provisions of § 2605(e) were violated, and must plead facts sufficient to support those allegations — in particular, he must allege facts showing that the information he requested in the QWR was "information relating to the servicing of [his] loan."
Finally, plaintiff must allege facts showing that he was damaged by the alleged violations. RESPA authorizes "actual damages to the borrower" as a result of a failure to comply with RESPA requirements." 12 U.S.C. § 2605(f)(1)(A). However, alleging a breach of RESPA duties alone does not state a claim under RESPA. Plaintiffs must, at a minimum, also allege that the breach resulted in actual, pecuniary damages.
Here, plaintiff alleges only that he "has suffered actual damages, including but not limited to devastation of his credit, monetary damages, and threatened foreclosure of their [sic] home." FAC ¶ 96. Not only is this allegation vague and conclusory, but there is no indication as to any connection between the alleged RESPA violation(s) and any actual damages sustained by plaintiff.
In the fourth cause of action, plaintiff alleges that PNC violated § 17200 by violating RESPA and various sections of the Civil Code ("unlawful" business practices); and by failing to perform loan servicing functions consistent with its responsibilities to plaintiff under HAMP, failing to properly supervise its employees and representatives, failing to permanently modify loans and/or provide alternatives to foreclosure, and engaging in acts and practices that prolong the HAMP process ("unfair" business practices). FAC ¶¶ 103-107. There are no clear allegations of "fraudulent" business practices.
PNC argues that the § 17200 cause of action fails to state a claim because plaintiff has not stated a claim as to the underlying statutes. In addition, PNC asserts, plaintiff cannot show standing under § 17200 because he has not alleged a loss or deprivation of money or property (economic injury) that was caused by the alleged unfair business practice(s).
The motion is GRANTED. First, because the § 17200 claim is derivative of the other causes of action asserted, the FAC fails to state a claim for violation of § 17200 because plaintiff has failed to state a claim under those other causes of action. In addition, the FAC fails to allege standing, because plaintiff has not pled facts showing he suffered injury resulting from PNC's non-judicial foreclosure activities (as opposed to injury resulting from his own default).
Plaintiff defaulted on the loan in September 2011. The allegations in the FAC make clear that he was in default under the loan prior to the time period of PNC's alleged conduct, and that he remains in default today. Where a borrower claims a violation of the UCL in connection with non-judicial foreclosure activity, there is no standing to sue for alleged conduct that occurred after the plaintiff's default under the loan, because the borrower cannot satisfy the causation component of the standing requirement.
In the fifth cause of action, plaintiff claims that there is "confusion over who exactly owns his loan," and seeks to quiet title "to ascertain who exactly owns his loan, and their precise interest therein, to the subject property, subject to the valid existent encumbrances that are on the property." FAC ¶¶ 114-115. PNC argues that this claim must be dismissed because the FAC does not allege facts sufficient to support the elements of the claim. The court finds that the motion must be GRANTED.
"A quiet title action must include: (1) a description of the property in question; (2) the basis for plaintiff's title; and (3) the adverse claims to plaintiff's title."
The fact that PNC has the authority to proceed with foreclosure under the Deed of Trust does not mean that there is some "confusion" over who owns title to the property. Regardless of who owns the loan, the impact on plaintiff's title to the property is the same — the property is encumbered by a deed of trust securing the obligation with a power of sale. In addition, because plaintiff admits that PNC is the servicer, there is no question that PNC is the agent of the beneficiary, and is therefore entitled to foreclose.
The court will grant leave to amend, but only to the extent that plaintiff can allege facts showing that PNC has an adverse claim to the title to the property.
In the sixth cause of action, plaintiff asserts a claim of negligence. The elements of a cause of action for negligence are (1) a legal duty to use reasonable care, (2) breach of that duty, and (3) proximate cause between the breach and (4) the plaintiff's injury.
PNC argues that this claims should be dismissed because financial institutions such as lenders and mortgage servicers generally owe no common law duty of care to borrowers such as the plaintiff here, and because plaintiff has failed to allege facts showing that PNC owed him a duty of care or that he suffered damages because of PNC's alleged negligence.
In the FAC, plaintiff concedes that "[a]s a general rule, a financial institution owes no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role a mere lender of money." FAC ¶ 118. This is the rule as stated by numerous courts, including the California Court of Appeal in
Plaintiff alleges that in August 2012, PNC agreed to perform certain loan modification and foreclosure prevention services for plaintiff's loan, thus going beyond its role as a "silent lender and loan servicer." FAC ¶ 118. He asserts that PNC's duty consisted of "having appropriate staff capable of competently handling the loan modification application, ensuring documents are properly collected, processed, and reviewed, and ensuring that the [p]laintiff's loan modification application and accompanying documents are filed in the proper fashion in [d]efendants' computer systems." FAC ¶ 119. He also asserts that the duty included the requirement that PNC "not make material representations about the status of a loan modification application or about the day, time or status of a foreclosure sale of the deadlines to submit an application."
Under California law, a loan servicer does not owe a common law duty of care to offer, consider, or approve a loan modification, or to explore or offer foreclosure alternatives.
The motion is GRANTED. Plaintiff has not adequately alleged the existence of a duty of care and has not adequately alleged damages resulting from any breach of that duty of care. Nor has he clearly alleged which actions by PNC constituted the alleged breach. Many of the allegations —
In addition, the FAC alleges no facts showing that, but for the alleged negligence, plaintiff would have obtained a loan modification or otherwise have been able to avoid foreclosure. Plaintiff alleges only that PNC's breach of duty "is a proximate cause of [p]laintiff's injuries, which to date, had caused him to lose money, loss of equity in his home as a result of additional late fees, penalties and interest added to his loan as a result of [d]efendants' delay and failure to process his application, attorneys' fees and costs of suit, plus other damages subject to proof at trial." FAC ¶ 122. All these claimed injuries are a result of plaintiff's defaulting on his loan payments, not the product of any alleged delay on PNC's part.
It is true that the
Moreover, there is no allegation in the FAC that PNC agreed to a loan modification, or improperly denied plaintiff's application for a loan modification. For the reasons stated above in connection with the discussion of the HBOR claims, plaintiff has not adequately alleged that he submitted any "complete" application for a loan modification.
The dismissal of this claim is with leave to amend, but only to the extent that plaintiff can articulate which actions constituted the alleged negligence, and can properly plead the existence of a common law duty, and damages resulting from PNC's breach of that duty.
In the seventh cause of action, plaintiff seeks a judicial declaration regarding the parties' respective rights and duties. PNC argues that this cause of action should be dismissed because it is dependent on the theory that the pending foreclosure violated one or more HBOR provisions, but plaintiff has failed to state a claim based on any allegations of HBOR violations.
The motion is DENIED. As PNC concedes, this claim is derivative of the other causes of action alleged in the FAC. As the dismissal is with leave to amend, at least in part, the declaratory judgment claim remains in the case and can be realleged in any amended complaint.
Federal Rule of Civil Procedure 12(f) provides that the court "may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). The function of a 12(f) motion to strike is to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial.
Motions to strike are not favored and "should not be granted unless it is clear that the matter to be stricken could have no possible bearing on the subject matter of the litigation."
PNC argues that if the court determines that plaintiff has stated a claim in the FAC, the allegations in FAC ¶¶ 2, 14-30, and 34-35 should be stricken as immaterial and impertinent. These paragraphs include generalized allegations regarding HBOR and its purposes; the "background" of the "mortgage crisis;" the mortgage industry; enforcement actions by the Federal Reserve against certain mortgage loan servicers (including PNC); the federal Home Affordable Modification Program ("HAMP") and related federal programs.
The motion is DENIED. While the materiality of these allegations is questionable, PNC has not established that if the allegations remain in the complaint, it will be prejudiced and/or will be required to spend time and resources "litigating spurious issues."
"A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest."
In this motion, plaintiff seeks an order enjoining PNC "from transferring any ownership interest in or further encumbering the property . . . pending trial in this action." First, he argues that he is likely to prevail on the claim of dual tracking violations, on the claim of single point of contact violations, and on the claims of "pre-Notice of Default outreach" violations, for the reasons argued in his opposition to the motion to dismiss. He does not argue that he is likely to prevail on any claims other than § 2923.5 claim and the HBOR claims.
Second, plaintiff contends that he will suffer irreparable harm if the foreclosure sale proceeds, because he and his wife will lose their residence. He asserts that this harm is immediate and not speculative, even though there is currently no operative notice of pending sale, as PNC planned to sell the property at a trustee's sale until plaintiff obtained a TRO in state court (before the case was removed).
Third, plaintiff asserts that the balance of equities favors his position, as he will lose his home forever if PNC is permitted to sell it at auction, while PNC will not suffer if the sale is postponed until the issues in the case have been finally determined.
Fourth, plaintiff contends that a preliminary injunction in this case would serve the public interest, as home foreclosures have an adverse effect on households and communities, and because enjoining foreclosure sales will have public benefits in that lenders will be forced to comply with foreclosure statutes.
The motion is DENIED. Given the failure of the FAC to state a claim as to the HBOR claims, the court finds that plaintiff has not established a likelihood of success on the merits. Nor has he established a likelihood of irreparable harm. He argues that if PNC is not prevented from proceeding with the foreclosure sale (which is not currently pending), he will suffer irreparable harm because he will lose his residence. However, the notices of default were recorded because plaintiff defaulted on the loan more than three years ago — not because of anything PNC did.
In accordance with the foregoing, PNC's motion to dismiss is GRANTED, with leave to amend as to the claims under Civil Code § 2923.5, § 2923.7, § 2924.10, and 2923.6; the claim under RESPA; the quiet title claim; the negligence claim; and the claim for declaratory relief. The claim under Civil Code § 2923.55(e) and the § 17200 claim are dismissed with prejudice. The motion to strike is DENIED. Plaintiff's motion for preliminary injunction is DENIED.
Any amended complaint shall be filed no later than March 9, 2015. Plaintiff shall add no new claims or parties without agreement of PNC or leave of court.
