ANTHONY W. ISHII, Senior District Judge.
This is a mortgage related case that was removed from the Stanislaus County Superior Court. Plaintiff James Gilbert ("Gilbert") has brought suit against Chase Home Financing ("CHF") and JPMorgan Chase Bank ("JP Morgan"), collectively "Defendants." The active complaint is the Second Amended Complaint ("SAC"), which was filed in state court. Gilbert alleges causes of action for breach of express contract, breach of implied agreement, slander of title, California Business & Professions Code § 17200 ("UCL"), money had and received, and 18 U.S.C. § 1962 ("RICO"). Defendants now move to dismiss the SAC. For the reasons that follow, the motion will be granted.
From the SAC and judicially noticed documents, Gilbert obtained title to property located at Nicklaus Drive in Turlock, California ("the Property") in 2003.
Later in 2007, JP Morgan sold the deed of trust to Freddie Mac as part of a securitization. Gilbert alleges that the Defendants did not securitize the note and deed of trust in accordance with the Pooling Servicing Agreement ("PSA") that applied to the relevant Freddie Mac Trust.
On April 29, 2011, CHF informed Gilbert that he was eligible for a loan modification. The letter also indicated that CHF is the current lender of the deed of trust. Gilbert alleges that the actual lenders are those individuals who invested in the securitized note, and those individuals have not been consulted with respect to the loan modification.
On June 21, 2012, Gilbert filed this lawsuit in state court, and on July 5, 2012, filed a lis pendens notice in the Stanislaus County Recorder's Office.
After filing an amended complaint, Defendants filed a demurrer. As part of his November 13, 2012 opposition to the demurrer, Gilbert stated that he was not in foreclosure. The state court granted the demurrer with leave to amend.
Following the order granting the demurrer, Gilbert filed the SAC. Defendants removed the case to this Court on February 21, 2013, due to the SAC's inclusion of a RICO claim.
Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the plaintiff's "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory.
Defendants argue that the first two causes of action are based on the deed of trust, the PSA, and a loan modification agreement. However, there is no indication that there is actually a loan modification contract. Instead, the only allegation is that in April 2011, Gilbert was informed that he was merely eligible for a loan modification. Further, there are no actual allegations that show a breach of any contractual provision, or that Gilbert's rights to receive the benefits of the deed of trust have been impaired. Also, contrary to Gilbert's assertion, California law does not require the recordation of an assignment of a deed of trust. Additionally, Gilbert does not have standing to challenge the securitization process, and he has shown no prejudice from securitization. Finally, the damages identified by Gilbert are prospective and speculative, as no foreclosure process has commenced on the Property.
Gilbert argues that the notice of default is false and contrary to the Freddie Mac Trust. JP Morgan breached the terms of the of the PSA in that the loan was not assigned to the Freddie Mac Trust within 90 days of the trust's closing. Therefore, Maryanne Day And Home Office could not act on behalf of the true beneficiary in executing the notice of default. Further, no assignment of the deed of trust was recorded, despite the securitization of the loan. Because the Freddie Mac Trust holds the loan, JP Morgan cannot take a default or issue notices of default.
Under California law, contracts may be either express or implied.
Gilbert's opposition is confusing and almost entirely non-responsive to Defendants' arguments. From the SAC, the Court gathers that there are three contracts at issue: the deed of trust, the PSA, and the loan modification. The Court will address these agreements separately.
Gilbert's allegations about violations of the Freddie Mac Trust's PSA, including the transfer of Gilbert's loan after the closing date, is not a novel contention. A majority of district courts have held that plaintiffs like Gilbert who are not parties to a PSA do not have standing to raise violations of a PSA or to otherwise bring claims on the basis that a PSA was violated.
The SAC is unclear, but suggests that the deed of trust was breached when it was securitized and the assignment of the deed of trust was not recorded.
Despite these allegations, the Court has found no provision in the deed of trust that requires Defendants to record a transfer. The closest provision that is apparent is ¶ 20, which deals with sales of the note together with the deed of trust. That provision only requires that notice be given to Gilbert when there is a change in servicer. Paragraph 20 does not require that transfers or assignments be recorded.
Also, by citing to Civil Code § 2932 and arguing that the transfer in the securitization process was not recorded, it appears that Gilbert is actually attempting to invoke California Civil Code § 2932.5.
Finally, by stating that the power of sale has been invoked, the SAC is essentially alleging that the foreclosure process has begun. However, Defendants have expressly stated that the foreclosure process has not begun, Gilbert has not challenged that assertion, and Gilbert's November 2012 opposition to the demurrer in state court acknowledges that he is not in foreclosure. Significantly, neither party has submitted a notice of default or any other recorded document that might suggest that foreclosure has begun, and Gilbert has made no allegations that identify when the foreclosure process began or where in the foreclosure process he is. If the foreclosure process is not proceeding or has not begun, then the power of sale has not been invoked. Without invoking the power of sale, it is unknown how Defendants could be breaching the power of sale provisions.
Dismissal of this cause of action is appropriate.
The SAC does not plausibly allege that the loan modification is a contract. The SAC alleges that, on April 29, 2011, Gilbert received a letter stating that he was eligible for a loan modification.
The SAC states that, under Barroso v. Ocwen Loan Servicing, LLC, 208 Cal.App.4th 1001 (2012), a valid and enforceable loan modification was made. In Barroso, the complaint described the letter that informed Barroso of her eligibility for a modification, described the specific terms and requirements of the modification (including a trial period for payments), alleged performance by the plaintiff, alleged acceptance of the lower payments by the lender/servicer for a significant period of time, and described the breach.
If there is an existing and enforceable loan modification, but Defendants are not accepting the lower payment amount that is mandated thereby, then there is both an obvious breach of contract and obvious pecuniary damages. However, the description of the April 29, 2011, letter does not reveal the existence of a binding contract, the SAC does not contain any allegations that are similar to the allegations in Barroso, and Gilbert does not address Defendants' argument that the loan modification letter is not a contract. Dismissal of this cause of action is appropriate.
Defendants argue that Gilbert has not alleged the elements of a slander of title claim. Defendants make many of the same arguments against this cause of action as they do against the first two causes of action, including that a record of assignment in the beneficial interest of the deed of trust is not required and that Gilbert cannot rely on securitization.
Gilbert argues that a cause of action has been pled. First, the recorded deed of trust is a publication and is invalid because JP Morgan is not the true beneficiary and thus, could not make a valid assignment. Rather, JP Morgan sold the beneficial interest in the deed of trust to the Freddie Mac Trust. By maintaining a false deed of trust, Defendants recorded a false document. Second, JP Morgan acted with malice because it recorded documents in reckless disregard of the facts underlying the foreclosure process. Finally, the SAC shows pecuniary loss in that Gilbert was forced to seek legal counsel to protect his interest and prevent his home from being wrongfully sold, and the deed of trust is a significant dissuasive factor to a prospective purchaser.
The elements of a claim for slander of title are: (1) a publication; (2) the publication is without privilege or justification; (3) the publication is false; and (4) the publication causes direct and immediate pecuniary loss.
There is no dispute that the recording of the deed of trust by Defendants in March 2007 constitutes a publication. However, it is not clear to the Court that the deed of trust is a false document. There is no dispute that Gilbert signed the recorded deed of trust or that the Property is subject to the recorded deed of trust. As part of the process for substituting a trustee, the deed of trust requires that the substitution instrument identify where in the public record that the deed of trust is recorded.
Defendants argue that Gilbert lacks standing to bring UCL claims because he has not shown an economic injury that was caused by an unfair business practice. The allegations of injury are too vague and conclusory, and there has been no foreclosure sale or notice of default. Further, Gilbert has failed to identify an "unlawful" business practice, has not pled fraudulent conduct with the particularity required by Rule 9, and has not adequately described any "unfair" conduct.
Gilbert argues that the other causes of action that are properly alleged in the complaint serve as the derivative basis for the UCL claim. Gilbert also argues that he is likely to prevail on his wrongful foreclosure claim and that real property is unique.
The UCL prohibits "unfair competition," which is defined to mean any "unlawful, unfair, or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200;
For claims based on "unlawful" conduct, the UCL "borrows violations of other laws and treats these violations, when committed pursuant to business activity, as unlawful practices independently actionable . . . and subject to the distinct remedies provided thereunder."
For claims based on "fraudulent" conduct, "fraudulent conduct" under the UCL "does not refer to the common law tort of fraud . . . ."
For claims based on "unfair" practices that are brought by consumers, there is a split of authority and at least three different methods for determining whether a business practice is "unfair": (1) the "balancing test" in which the impact on the victim is balanced against the reasons, justifications, and motives of the wrongdoer; (2) the "tethered test" whereby an allegedly violated public policy is tethered to specific constitutional, statutory, or regulatory provisions; and (3) the "section 5 test" which adopts the factors that determine whether section 5 of the Federal Trade Commission Act has been violated, i.e. a substantial consumer injury, the injury is not outweighed by countervailing benefits to consumers or competition, and the consumers could not have reasonably avoided the injury.
Defendants' arguments are persuasive. First, the SAC's UCL allegations aver only that Gilbert has suffered and will continue to suffer "damages." No description of the damages suffered is provided. Without allegations that show economic injury, Gilbert does not have standing.
Second, although "unlawful" conduct is mentioned, the UCL allegations do not identify which laws were violated. Without a violation of another law, there is no "unlawful" UCL claim.
Third, although the term "unfair" is used, there are no allegations made under the UCL cause of action that fit one of the three methods for demonstrating "unfair" conduct.
Finally, the "fraudulent" allegations do not meet the heightened pleading standard of Rule 9(b). Gilbert must allege the who, what, when, where, and how of the fraudulent conduct, and must also identify what each defendant did in the fraudulent scheme.
For the above reasons, dismissal of this cause of action is appropriate.
Defendants argue that Gilbert's common count cause of action for money had and received is based on the same facts as his slander of title and UCL claims. Because those claims fail, the claim for money had and received also fails.
Plaintiff does not address these arguments.
"The action for money had and received is based upon an implied promise which the law creates to restore money which the defendant in equity and good conscience should not retain."
This cause of action is based mostly on the loan modification. The SAC alleges that, since April 29, 2011, Gilbert has made mortgage payments at a higher rate than that agreed to in the loan modification.
The SAC also alleges that Gilbert's account with the true beneficial holder of the deed of trust was not credited due to the improperly recorded deed of trust. However, this claim appears to be based on a contention that the deed of trust was improperly recorded and that the PSA was violated. As discussed above, Gilbert's property is subject to the recorded deed of trust, and Gilbert does not have standing to challenge a violation of the PSA. Further, it is highly noteworthy that, since 2007, apparently no other "party has ever come forward to enforce Plaintiff's obligations under the deed of trust."
Dismissal of this cause of action is appropriate.
Defendants argue that the RICO claim fails for many reasons. First, the SAC does not allege a pattern of racketeering activity because the acts of fraud are not alleged with particularity under Rule 9 and, in any event, are based on proper communications regarding Gilbert's loan. Second, the complaint does not demonstrate a RICO enterprise. Finally, the SAC does not show an injury that resulted in damages, rather the SAC indicates only insufficient prospective injuries.
Gilbert argues that a plaintiff may maintain a RICO claim if the RICO violation was a proximate cause of injury. Gilbert's loan audit (which is attached as Exhibit A to the SAC) shows that Defendants' actions include an invalid transfer of beneficial rights, missing assignments in the chain of title, demanding payment without legal right under the deed of trust, and clouding title. These acts and injuries are sufficient to state a RICO claim.
The elements of a civil RICO claim are: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity; (5) causing injury to plaintiff's business or property.
There are problems with this cause of action. First, the SAC does not adequately allege racketeering activity. It appears that the SAC is relying on mail and wire fraud. "Wire or mail fraud consists of the following elements: (1) formation of a scheme or artifice to defraud; (2) use of the United States mails or wires, or causing such a use, in furtherance of the scheme; and (3) specific intent to deceive or defraud."
Second, the SAC is critical that Defendants: failed to disclose securitization agreements and the fact of securitization, maintained the deed of trust in the public record, and serviced the loan without authority from the true beneficiary. None of these contentions is persuasive. Gilbert has offered no authority that required Defendants to disclose to him anything concerning securitization.
Third, the claim is littered with extraneous and incongruous allegations. For example, the SAC alleges that the conduct of the Defendants induced him to accept the loan. However, all of the Defendants' identified conduct occurred after Gilbert entered into the loan. Such allegations add nothing but confusion to the SAC.
Fourth, the allegations concerning an enterprise appear to rely on racketeering activity. However, the enterprise is not the racketeering activity, rather the enterprise performs the racketeering activity.
Fifth, the injury allegedly suffered by Gilbert is unclear. At one point, the SAC alleges that he faces the prospect of losing his home. However, there is no indication that the foreclosure process has either begun or concluded. The prospect of someday losing the property is speculative, and does not represent a concrete injury.
For these reasons, dismissal of the RICO cause of action is appropriate.
Defendants argue that three causes of action (wrongful foreclosure, Civil Code § 2923.5, and injunctive relief) are listed in the style of the SAC, but the body of the SAC does not allege them, nor do any allegations support them. Defendants request that these causes of action be dismissed with prejudice. Gilbert does not address this argument or request.
The Court does not believe that claims for wrongful foreclosure or Civil Code § 2923.5 are part of this case. The SAC identifies each cause of action separately and distinctly, and these causes of action are not included as separate causes of action. Further, Gilbert's opposition does not state that he is in foreclosure or refute Defendants' assertion that the foreclosure process has not begun, and Gilbert acknowledged in November 2012 that he was not in foreclosure. Given the absence of allegations and the briefing in this motion, it appears to the Court that inclusion of the wrongful foreclosure and Civil Code § 2923.5 claims in the style was an oversight. To the extent that these claims are arguably included in the SAC, they will be dismissed.
As for the claim for injunctive relief, an injunction is a remedy, not a cause of action, and a request for injunctive relief will fail in the absence of an underlying cause of action.
The SAC does not plead plausible causes of action. This is the first attempt by Gilbert to meet federal pleading standards. As such the Court will dismiss the SAC with leave to amend. Any amended complaint must be consistent with the analyses in this order and must meet the requirements of Federal Rule of Civil Procedure 11.
Accordingly, IT IS HEREBY ORDERED that:
1. Defendants' Rule 12(b)(6) motion to dismiss is GRANTED;
2. The Second Amended Complaint is DISMISSED with leave to amend;
3. Plaintiff shall file an amended complaint, that is consistent with Rule 11 and this Order, no later than fourteen (14) days from service of this order; and
4. Failure of Plaintiff to file an amended complaint within the time frame set by this Order will result in leave to amend being withdrawn and the closure of this case without further notice.
