LUCY H. KOH, District Judge.
Before the Court are the Motions to Dismiss of Defendant JPMorgan Chase Bank, N.A. ("Chase"), see ECF No. 11 ("Chase Mot."), and Defendant Professional Recovery Services, Inc. ("PRS"), see ECF No. 17 ("PRS Mot."), (collectively, "Motions"). Having considered the parties' submissions, the relevant case law, and the parties' arguments at the March 21, 2013 hearing, the Court DENIES Defendants' Motions to Dismiss Plaintiffs' cause of action for a violation of the California Rosenthal Fair Debt Collection Practices Act, Cal. Civ. Code § 1788 et seq. ("RFDCPA"), predicated on a violation of 15 U.S.C. § 1692e(2)(A) of the federal Fair Debt Collection Practices Act ("FDCPA"). The Court GRANTS with prejudice Defendants' Motions to Dismiss Plaintiffs' RFDCPA claim predicated on a violation of 15 U.S.C. § 1692f(1) of the FDCPA and Plaintiffs' injunctive relief requests.
In April, 2007, Plaintiffs Jon and Yangling Rahoi ("Plaintiffs") purchased, and then subsequently occupied a portion of, a residential duplex, located at 1400 and 1402 Kansas Street, in the City of San Francisco, State of California ("the Property"). Plaintiffs financed the purchase of the Property with two loans from Chase. ECF No. 1 ("Complaint" or "Compl.") ¶ 11. The first loan was in the amount of $900,000.00 ("First Note") and was secured by a deed of trust ("First Deed of Trust"). Id. The second loan was in the amount of $240,000.00 ("Second Note") and was secured by a deed of trust ("Second Deed of Trust"). Id. Both the First and Second Deeds of Trust (collectively, "the Mortgages") encumbered the Property. Id.
Plaintiffs fell behind in their payment obligations on the Mortgages. Id. ¶ 12. In 2010, Plaintiffs began attempting to sell the Property through a short sale. Id.
In a letter dated February 17, 2011, Chase agreed to release its security interest in the Second Note in exchange for $8,500 so that the short sale could be permitted to close. Id. ¶ 13; Chase Mot., Ex. A at 2 of 9 ("February Letter").
The Complaint alleges that the short sale price was insufficient to fully satisfy the First Note and that no funds from the short sale were used to satisfy the Second Note. See Compl. ¶ 13. However, at the March 21, 2013 hearing, both parties' counsel, while not certain, believed that the short sale had fully satisfied the First Note and that there was an $80,000 surplus which was applied to the Second Note. See Tr. at 8:3-9, 8:20-9:11. According to counsel for Chase, there was an expectation that if the funds from the short sale were sufficient to satisfy the First Note, the funds would be applied towards the Second Note. See id. at 8:11-19.
Following the short sale of the Property, Chase retained the services of PRS to attempt to collect the unpaid balance on the Second Note. Id. ¶ 14. PRS sent multiple collection letters to Plaintiffs. Id. After several months of collection efforts by PRS, Chase engaged, and continues to engage, in its own attempts to collect on the unpaid balance of the Second Note, including multiple letters and multiple phone calls. Id. ¶15.
Plaintiffs filed their Complaint on July 18, 2012. Plaintiffs allege a single cause of action. Specifically, Plaintiffs allege that, in attempting to collect the balance due on the Second Note, Defendants have violated the California Rosenthal Fair Debt Collection Practices Act ("RFDCPA"). Compl. at 5-6 (citing Cal. Civ. Code § 1788 et seq.). Both Defendants' Motions to Dismiss are fully briefed. A hearing on both Motions to Dismiss was held on March 21, 2013.
A motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In considering whether the complaint is sufficient to state a claim, the court must accept as true all of the factual allegations contained in the complaint. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). However, the court need not accept as true "allegations that contradict matters properly subject to judicial notice or by exhibit" or "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). While a complaint need not allege detailed factual allegations, it "must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678.
Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to amend "shall be freely given when justice so requires," bearing in mind "the underlying purpose of Rule 15 to facilitate decisions on the merits, rather than on the pleadings or technicalities." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (internal citations, quotation marks, and alterations omitted). Nonetheless, a court "may exercise its discretion to deny leave to amend due to `undue delay, bad faith or dilatory motive on part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party ..., [and] futility of amendment.'" Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 892-93 (9th Cir.2010) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)) (alterations in original). "[W]here the plaintiff has previously been granted leave to amend and has subsequently failed to add the requisite particularity to its claims, `[t]he district court's discretion to deny leave to amend is particularly broad.'" Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 1007 (9th Cir.2009) (quoting In re Read-Rite Corp., 335 F.3d 843, 845 (9th Cir. 2003)). Indeed, repeated failure to cure a complaint's deficiencies by previous amendment is reason enough to deny leave to amend. Abagninin v. AMVAC Chem. Corp., 545 F.3d 733, 742 (9th Cir. 2008) (citing Foman, 371 U.S. at 182; Allen v. City of Beverly Hills, 911 F.2d 367, 373 (9th Cir. 1990)).
Plaintiffs contend that California Code of Civil Procedure Section 580b, which prohibits deficiency judgments in certain circumstances, precludes JPMorgan from seeking to recover under the Second Note. See Compl. ¶¶ 7, 24. Plaintiffs allege that, in light of Section 580b, Defendants' efforts to collect the unpaid amount of the Second Note violated the RFDCPA. See Id. ¶¶ 20-24. Plaintiffs seek, individually and on behalf of the class: (1) damages totaling the lesser of one percent of each of the Defendants' net worth or $500,000.00, and (2) injunctive relief. Id. ¶¶ 25, 27.
Defendants argue that Plaintiffs' allegations fail to state a claim for relief for several reasons and that, accordingly, Plaintiffs Complaint must be dismissed. Before addressing Defendants' arguments, the Court finds it prudent to discuss: (1) the definition of several key terms; (2) the background of Section 580b; and (3) the specific ways in which Plaintiffs claim that Defendants violated the RFDCPA.
At the outset, the Court defines several key terms: (1) purchase money mortgage/purchase money loan; (2) foreclosure sale; (3) short sale; and (4) deficiency judgment.
Purchase Money Mortgage/Purchase Money Loan. A mortgage is "[a] conveyance of title to property that is given as security for the payment of a debt...." MORTGAGE, Black's Law Dictionary (9th ed. 2009). A "purchase-money mortgage" is a type of mortgage transaction in which "a buyer [of property] gives the seller [a mortgage] ... to secure the unpaid balance of the price" of the purchased property. Id. While the traditional purchase money transaction contemplates a transaction in which the seller of property provides the buyer with a loan secured by the purchased property, the term purchase money has also been applied to describe transactions wherein the buyer of real property receives a loan from a third-party lender (i.e. a lender other than the seller of the property) and provides the lender with a mortgage on the purchased property. See Section 580b (providing that a "mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling" shall be considered a "purchase money loan" for the purposes of that section). The key feature of a purchase money loan is that the property securing the loan is the same property that the loan funds were used to purchase. See Roseleaf Corp. v. Chierighino, 59 Cal.2d 35, 41 (1963) (describing the "standard purchase money mortgage transaction" as one "in which the vendor of real property retains an interest in the land sold to secure payment of part of the purchase price"); Palm v. Schilling, 199 Cal.App.3d 63, 76 (1988) (holding that a "deed retains its purchase money character so long as the creditor retains an interest in the original property sold").
Foreclosure Sale. A "foreclosure" is "[t]he sale of mortgaged property, authorized by a court decree or a power-of-sale clause, to satisfy the debt." SALE, Black's Law Dictionary (9th ed. 2009). Foreclosures may be "judicial" or "non-judicial." A sale pursuant to a court decree is called a "judicial foreclosure." FORECLOSURE, Black's Law Dictionary (9th ed. 2009). Accomplishing a judicial foreclosure may be costly and time-consuming for the lender, and requires the lender to comply with stringent procedural requirements such as filing a complaint, serving process, providing notice, and a hearing. Id. A sale pursuant to a "power-of-sale clause" is a "nonjudicial" or "power-of-sale foreclosure." A "power-of-sale clause" is a "provision in a mortgage or deed of trust permitting the mortgagee or trustee to sell the property without court authority if the payments are not made." POWER-OF-SALE CLAUSE, Black's Law Dictionary (9th ed. 2009). A lender may prefer a nonjudicial foreclosure because this procedure does not require the lender to comply with the stringent notice requirements and procedural burdens associated with a judicial foreclosure.
Short-Sale. A short-sale is a procedure pursuant to which the mortgagor (borrower) and the mortgagee (lender) agree that the mortgagee will release its interest in the mortgaged property if the mortgagor sells the property to a third-party for a certain price which is "below the mortgage loan balance." 2 Law of Real Estate Financing § 12:10.
As explained by the Court in Rex v. Chase Home Finance LLC:
Id., 905 F.Supp.2d 1111, 1139 (C.D. Cal. 2012)
Deficiency and Deficiency Judgment. Black's Law Dictionary defines a "deficiency" as "[t]he amount still owed when the property secured by a mortgage is sold at a foreclosure sale for less than the outstanding debt." DEFICIENCY, Black's Law Dictionary (9th ed. 2009). A "deficiency judgment" is "[a] judgment against a debtor for the unpaid balance of the debt if a foreclosure sale or a sale of repossessed personal property fails to yield the full amount of the debt due." JUDGMENT, Black's Law Dictionary (9th ed. 2009). In California, the procedures governing deficiency judgments are set forth primarily in California Civil Procedure Code Sections 580a and 726. See, e.g., Cal. Civ. Proc. Code § 726 (setting forth the procedures for obtaining deficiencies judgments); Cal. Civ. Proc. Code § 580a (setting forth procedures governing deficiency judgments following a nonjudicial foreclosure).
California Code of Civil Procedure Section 580b was originally enacted in 1933. See Brown v. Jensen, 41 Cal.2d 193, 199 (1953). The statute provides anti-deficiency protection for purchase money mortgagors. As in effect at the time of the transactions in this case, Section 580b provided:
Cal. Civ. Proc. Code § 580b (West 2012).
As explained by the California Supreme Court in DeBerard Properties, Ltd. v. Lim, Section 580b serves two purposes. See id., 20 Cal.4th 659, 663 (1999).
"First, section 580b ... stabilizes purchase money secured land sales by keeping the vendor from overvaluing the property and by suggesting to the purchaser its true value." Id. "Section 580b places the risk of inadequate security on the purchase money mortgagee. A vendor is thus discouraged from overvaluing the security." Id. at 663-64 (quoting Roseleaf, 59 Cal.2d at 42).
"Second, [Section 580b] is a macroeconomic stabilization measure: if property values drop and the land is foreclosed upon, the purchaser's loss is limited to the land that he or she used as security in the transaction, purchasers as a class are harmed less than they might otherwise be during a time of economic decline, and the economy benefits." Id.; see also id. at 664 ("If inadequacy of the security results, not from overvaluing, but from a decline in property values during a general or local depression, section 580b prevents the aggravation of the downturn that would result if defaulting purchasers were burdened with large personal liability. Section 580b thus serves as a stabilizing factor in land sales.") (quoting Roseleaf, 59 Cal.2d at 42).
Section 580b has traditionally been applied to prohibit a lender from seeking to hold a borrower personally liable for the unpaid amount of a purchase money mortgage following a nonjudicial or judicial foreclosure. See, e.g., Kurtz v. Calvo, 75 Cal.App.4th 191, 194 (1999) ("Section 580b prohibits a deficiency judgment after a judicial or nonjudicial foreclosure under a trust deed securing a purchase money loan."); Birman v. Loeb, 64 Cal.App.4th 502, 510 (1998) ("Section 580b precludes a `deficiency judgment' after foreclosure, judicial or nonjudicial, under a purchase money trust deed given to the seller."). However, as will be discussed below, Plaintiffs contend that Section 580b applies following a short sale as well.
Plaintiffs allege a single cause of action for violation of the RFDCPA. See Compl. ¶¶ 20-24. However, Plaintiffs' RFDCPA claim is predicated on two separate provisions of the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA"), which is incorporated into the RFDCPA by reference. See Cal. Civ. Code § 1788.17 (providing that "every debt collector collecting or attempting to collect a consumer debt shall comply with the provisions of Sections 1692b to 1692j ... of, Title 15 of the United States Code").
First, Plaintiffs contend that Defendants violated Section 1692e(2)(A) of the FDCPA, which prohibits "[t]he false representation of ... the character, amount, or legal status of any debt." 15 U.S.C. § 1692e. Plaintiffs allege that, in light of Section 580b, Chase was precluded from collecting Plaintiffs' remaining debt on the Second Note following the short sale. See Compl. ¶¶ 7, 20-24.
Second, Plaintiffs contend that Defendants violated Section 1692f(1)
Having discussed the definitions of the key terms, the background of Section 580b, and Plaintiffs' arguments, the Court proceeds to address Defendants' arguments as to why Plaintiffs' RFDCPA claim must be dismissed.
Defendants argue that Plaintiffs' RFDCPA claim must be dismissed for six reasons:
First, Defendants argue that Section 580b does not preclude enforcement of the Second Note because Plaintiffs' home was sold through a short sale and Section 580b only precludes deficiency judgments where there has been a foreclosure. See Chase Mot. at 1; PRS Mot. at 1.
Second, Chase argues that, even if Section 580b does apply, Plaintiffs waived Section 580b's protections when they agreed with Chase in the February Letter that Chase would release its Second Deed of Trust on the Property. See Chase Mot. at 1.
Third, PRS argues that Plaintiffs' claim should be dismissed because the RFDCPA does not cover the collection of a mortgage loan. See PRS Mot. at 1.
Fourth, PRS argues that Plaintiffs' claims fail because, even if Section 580b applies, Section 580b did not extinguish Plaintiffs' debt. See PRS Mot. at 5. Accordingly, PRS argues that Defendants' representations that a debt existed and Defendants' attempts to collect the debt did not violate the RFDCPA. Id.
Fifth, PRS argues that Plaintiffs' claim must be dismissed under Federal Rule of Civil Procedure 8 ("Rule 8") because Plaintiffs have failed to plead sufficient facts to support their RFDCPA claim. Id. at 7-8.
Finally, Chase argues that Plaintiffs' request for injunctive relief is improper because: (1) Plaintiffs have not alleged a viable claim, and (2) injunctive relief would conflict with a Consent Order into which Chase entered with the Office of the Comptroller of the Currency ("OCC") on April 13, 2011. See Id. The Court addresses each of these arguments in turn.
Defendants first argue that Plaintiffs' claims must be dismissed because Section 580b does not apply to short sales. See Chase Mot. at 4; PRS Mot. at 5. Defendants argue that this conclusion is supported by: (1) the statutory language, Chase Mot. at 5; PRS Mot. at 6; (2) the legislative history, Chase Mot. at 6; and (3) the District Court for the Southern District of California's decision in Espinoza v. Bank of America, 823 F.Supp.2d 1053 (S.D. Cal. 2011), Chase Mot. at 7; PRS Mot. at 6.
Plaintiffs respond that permitting Defendants' "attempts to collect on any deficiency [would] violate the purpose of Section 580b," which is to ensure that for a purchase money mortgage "only the land can be called upon to satisfy the debt." ECF No. 24 ("Chase Opp.") at 5 (quoting Bank of Sonoma Co. v. Dorries, 185 Cal.App.3d 1291, 1294 (1986)) (internal quotation marks omitted). Plaintiffs contend that, in light of this purpose, Section 580b should be afforded a "broad and liberal construction," even if that construction "goes beyond the narrow bounds of the statutory language." Id. at 6. (quoting Budget Realty Inc. v. Hunter, 157 Ca. App.3d 511, 513 (1984)). Plaintiffs also argue that the legislative history and the district court's decision in Espinoza do not show that Section 580b does not apply to short sales. See id. at 5-6.
For the reasons set forth below, the Court agrees with Plaintiffs that Section 580b applies to short sales. The Court begins by discussing the prior case law addressing this issue.
At the outset, the Court notes that there is relatively little case law concerning whether Section 580b precludes a lender from seeking a deficiency judgment following a short sale. The only federal case to address this issue is Rex v. Chase Home Finance LLC, in which Judge David O. Carter of the Central District of California held that Section 580b prohibited Chase from pursuing a deficiency judgment against two borrowers regardless of the fact that the property was sold through a short sale as opposed to a foreclosure. Id., 905 F. Supp. 2d at 1145. While this Court will not recount the entirety of the Rex Court's lengthy reasoning, the Rex Court focused on the portion of Section 580b providing "that `[n]o deficiency judgment shall lie in any event after a sale of real property.'" Id. at 1139 (quoting Section 580b). The Rex Court reasoned that "[t]he phrase `in any event'" and the fact that Section 580b did not reference a particular type of sale (e.g. a foreclosure sale) suggested that the Legislature intended "to have the statute apply broadly to all types of sales." Id. at 1139-40.
In addition to Rex, three California state courts have addressed whether Section 580b applies where the property was sold pursuant to a short sale. See Wright v. Gerson, G028195, 2002 WL 1360014 (Cal. Ct. App. June 24, 2002)
For the reasons set forth below the Court agrees with the Rex, Wright, and Banks Courts that Section 580b applies to short sales. The Court addresses in turn: (1) the statutory language; (2) the purpose of the statute; and (3) the legislative history and the Espinoza decision.
The Court begins by considering the language of Section 580b. For the reasons set forth below, the statutory language fails to persuade the Court that Section 580b's anti-deficiency protections do not apply following a short sale.
As in effect at the time of the short sale in this case, Section 580b provided:
As set forth supra, in reaching the conclusion that Section 580b applies to short sales, the Rex Court focused on the import of the phrase "in any event after a sale." Rex, 905 F. Supp. 2d at 1139. Indeed, this Court agrees with the Rex Court that the use of the phrase "in any event ... after a sale" suggests that Section 580b was intended to apply broadly such that it should be read as prohibiting a deficiency judgment following the sale of a purchase money mortgagee's property regardless of whether the sale is a foreclosure sale or a short sale. See id.; cf Deberard, 20 Cal. 4th at 670 (holding that statute's use of the phrase "in any event" belied defendant's argument that Section 580b's protections could be waived); Brown, 41 Cal. 2d at 198 (finding that statute's statement that "in no event shall there be a deficiency judgment" supported the conclusion that Section 580b applied even where there was "no sale because the security" had been exhausted).
Chase, nevertheless, argues that the statute must be limited to foreclosure sales because the statute refers to "a sale ... under a deed of trust or mortgage." Section 580b (emphasis added). Defendants argue that this phrase "means [that the sale must occur] pursuant to the `power of sale' clause in one of those documents." Chase Mot. at 4.
As a threshold matter, to the extent Chase argues that the phrase "sale ... under a deed of trust or mortgage" means that the sale must occur under the power of sale clause (i.e. that the sale must be a nonjudicial foreclosure), this argument is not supported by the case law. It is well established that Section 580b applies where the property has been sold through either a nonjudicial or a judicial foreclosure. See, e.g., Kurtz, 75 Cal. App. 4th at 194 (holding that Section 580b applies "after a judicial or nonjudicial foreclosure"); Birman, 64 Cal. App. 4th at 510 (same).
Even putting this issue aside, the Court is still not persuaded that the statute's use of the word "under" in the phrase "sale ... under a deed of trust or mortgage" limits the statute's application to judicial and nonjudicial foreclosure sales. While the term "under" has often been used in referencing foreclosure sales, see, e.g., Kurtz, 75 Cal. App. 4th at 194 ("Section 580b prohibits a deficiency judgment after a judicial or nonjudicial foreclosure under a trust deed securing a purchase money loan.") (emphasis added), and might arguably suggest a sale pursuant to an authority set forth in the mortgage agreement, the Court is unaware of any California decision explicitly holding that a "sale under a deed of trust or mortgage" means a foreclosure sale and excludes other types of sales.
Moreover, the Court observes, as did the Rex Court, that had "the California legislature wished to limit the application of Section 580b to only certain modes of sale, it could have used" more explicit limiting language. Rex, 905 F. Supp. 2d at 1139. For example, in California Code of Civil Procedure Section 580d, which affords anti-deficiency protection not only to purchase money mortgagees, but also to non-purchase money mortgagees, the Legislature used the following language: "No judgment shall be rendered for any deficiency ... in any case in which the real property ... has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust." Cal. Code Civ. Proc. § 580d. Section 580d's explicit reference to a sale "under power of sale contained in the mortgage or deed of trust" clearly and unequivocally limits the statute's scope to nonjudicial foreclosures, which, as discussed supra, are sales pursuant to the power of sale provision in a mortgage agreement. See, e.g., Birman, 64 Cal. App. 4th at 514 n.3 (holding that Section 580d prohibited "any deficiency judgment following a nonjudicial" foreclosure sale). The absence of such clear and unequivocal limiting language in Section 580b weighs against finding that Section 580b's anti-deficiency protections are limited based on the type of sale used to accomplish the transaction. See Rex, 905 F. Supp. 2d at 1139-40.
Thus, it is not clear based on Section 580b's language that the statute's application is necessarily limited to foreclosure sales and that the statute cannot also be applied following a short sale. Accordingly, the Court proceeds to consider the purpose of the statute.
The Court finds that Section 580b's purposes support applying Section 580b following a short sale and that this factor weighs strongly in Plaintiffs' favor.
As set forth supra, Section 580b's purposes are twofold. First, Section 580b, "places the risk of inadequate security on the purchase money mortgagee." DeBerard, 20 Cal. 4th at 663-64 (quoting Roseleaf, 59 Cal. 2d at 42). Second, in the event that there is a "decline in property values during a general or local depression ... prevent[] the aggravation of [an economic] downturn" by ensuring that "defaulting purchasers [are not] burdened with large personal liability." Id. at 664 (quoting Roseleaf, 59 Cal. 2d at 42).
California Courts have emphasized that, in determining whether Section 580b applies in a particular context, the Legislature's purpose is a "paramount consideration." Prunty, 37 Cal.App.3d at 436 (holding that "the Legislature's `purpose' in adopting the 1963 amendment of section 580b [was] the paramount consideration in our construction of the language employed in it"); see also Conley v. Matthes, 56 Cal.App.4th 1453, 1461 (1997) ("[T]he language of section 580b has been liberally construed to extend antideficiency protection beyond the standard transaction where the circumstances of the case indicate the policies of the statute will be served.") (citing Spangler v. Memel, 7 Cal.3d 603, 610 (1972))
Following this principle, courts have given section 580b a broad interpretation. See Prunty, 37 Cal.App.3d at 436 (recognizing that courts have "given [Section 580b] a broad and liberal construction that often goes beyond the narrow bounds of the statutory language"). For example, Section 580b by its express language prohibits "deficiency judgment ... after a sale." However, in light of the statute's purposes, California state courts have held that Section 580b should be applied to prohibit deficiency judgments in cases where the lender has opted to forgo the foreclosure sale in favor of seeking to recover the remaining loan balance directly from the borrower. See, e.g., Frangipani v. Boecker, 64 Cal.App.4th 860, 865 (1998) (holding that Section 580b precluded lender from proceeding directly against borrower because, if lenders were permitted to pursue borrowers directly, lenders "would never be concerned that the fair market value of the land was the sole means of recovering the property's sales price" which would undermine the statute's purpose of "discourage[ing] land sales that are unsound because the land is overvalued"); Venable v. Harmon, 233 Cal.App.2d 297, 302 (1965) (holding that Section 580b prohibited lender from proceeding against borrower directly because permitting the lender to recover "a personal judgment and retain title to the land" would be contrary to Section 580b's purpose of preventing "defaulting purchasers [from] los[ing] [their] land and [being] burdened with personal liability") (internal citation and quotation marks omitted).
Here, the Court finds that applying Section 580b promotes both of Section 580b's dual purposes. First, just as applying Section 580b to foreclosure sales "places the risk of inadequate security on the purchase money mortgagee," DeBerard, 20 Cal. 4th at 663-64, barring a deficiency judgment following a short sale ensures that the lender and not the borrower is required to assume the risk that the security may prove inadequate.
Second, applying Section 580b to short sales promotes the statute's purpose of mitigating the damage caused by declining property values during an economic depression. DeBerard, 20 Cal. 4th at 663-64. Indeed, short sale transactions gained prominence as an alternative to foreclosures during the subprime mortgage crisis of 2008 and the following economic downturn. See 2 Law of Real Estate Financing § 12:10 ("The subprime mortgage crisis of 2008 and attendant decline in property values ignited a new entry to the mortgagee options upon default—the so-called short sale."). Were the Court to construe Section 580b as not applying after a short sale, banks would have a new tool that would allow them to both collect the proceeds of the sale of the home and proceed against the borrower directly (a result that is undoubtedly barred if a bank accomplishes the sale through a foreclosure sale). Borrowers would "los[e] [their] land and [be] burdened with personal liability," and the severity of any economic downturn would be enhanced. Venable, 233 Cal. App. 2d at 302. Thus, construing Section 580b as providing anti-deficiency protection following short sales promotes the statute's purpose of "prevent[ing] the aggravation of [the] downturn" by ensuring that defaulting borrowers are not "burdened with large personal liability." DeBerard, 20 Cal. 4th at 664.
For the reasons set forth above, the Court finds that construing Section 580b as applying to short sale transactions serves Section 580b's purposes. Satisfying the statutory purpose weighs heavily in favor of interpreting Section 580b as providing anti-deficiency protection following short sales. See Prunty, 37 Cal. App. 3d at 436 ("[T]he Legislature's `purpose' in adopting the 1963 amendment of section 580b is the paramount consideration in our construction of the language employed in it.").
Next, the Court considers Defendants' arguments that the legislative history associated with California Code of Civil Procedure Section 580e ("Section 580e") and Judge Gonzalez's decision in Espinoza, which construed Section 580e, support Defendants' position that Section 580b does not apply after a short sale.
Section 580e was enacted in January 2011 and provides anti-deficiency protection for borrowers following short sales. As originally enacted, the statute provided that:
Cal. Code Civ. Proc. § 580e (January 2011).
As originally enacted, the statute only provided protection against deficiency judgments sought by the holder of a first deed of trust or mortgage. See 2011 Cal. Legis. Serv. Ch. 82 (S.B. 458) ("Senate Bill 458"). However, in July 2011, the Legislature passed Senate Bill 458, which expanded Section 580e to protect borrowers against deficiency judgments sought by any deed or mortgage holder so long as the deed or mortgage holder provides its written consent to the sale.
Chase argues that the fact that "the California Legislature expressly enacted Section 580e to apply" to short sales provides "the best evidence that Section 580b was not intended to apply to situations involving short sales...." Chase Mot. at 6. Chase also argues that the legislative history associated with Section 580e shows that, prior to enacting Section 580e, there was no protection against deficiency judgments in cases involving short sales. Specifically, the June 20, 2011 Analysis of Senate Bill 458 from the Assembly Committee on Banking and Finance states that Senate Bill 458 "builds on SB 931 ... which first provided anti-deficiency protection for short sales." Chase Mot., Ex. 3 (emphasis added). The Court disagrees.
The enactment of Section 580e and the legislative history associated with this statute are not necessarily inconsistent with construing Section 580b as applying to short sales. As recognized by the Rex Court, while Section 580b applies only to purchase money loans, Section 580e applies more broadly to any "note secured solely by a deed of trust or mortgage for a dwelling of not more than four units." Section 580e(a)(1); see also Rex, 905 F. Supp. 2d at 1142. For non-purchase money loans, anti-deficiency protections are provided not by Section 580
It follows that for non-purchase money loans, i.e. those covered only by Section 580
The Court finds that Defendants' reliance on Espinoza is misplaced for similar reasons. The Espinoza plaintiffs, who were borrowers who sold their property through a short sale, sought a declaration from the Court that a lien-holder was prohibited from pursuing a deficiency judgment against them based on Section 580
Significantly, the Espinoza Court did not explicitly address the issue of whether Section 580
While not raised by Defendants, the Court additionally notes that certain provisions of the legislative history associated with the recent amendments to Section 580b describe Section 580b as applying to foreclosures. See, e.g., CA B. An., S.B. 1069 Sen., 6/19/2012, California Bill Analysis, S.B. 1069 Sen., 6/19/2012 (Section 580b "[p]rohibits a secured lender under a deed of trust or mortgage, following a judicial foreclosure, from obtaining a deficiency judgment against the borrower, but only to the extent that the loan is a `purchase-money loan'") (emphasis added); Senate Bill 1069 ("Existing law provides that no deficiency judgment shall lie following a judicial foreclosure with respect to, among other things, a deed of trust or mortgage given to ... secure repayment of a purchase money loan...."). These passages also do not persuade the Court that Section 580b does not apply after a short sale. While the aforementioned statements generally describe Section 580b as applying following a foreclosure sale, they do not indicate that the Legislature intended that Section 580b would not apply if the property was sold through another form of sale, such as a short sale. Indeed, at least one note in the legislative history indicates that the Legislature was cognizant of the fact that the plain language of Section 580b might permit its application to short sales. See CA B. An., S.B. 1069 Sen., 5/1/2012, California Bill Analysis, S.B. 1069 Sen., 5/1/2012 ("Staff notes that while many argue that the provision is limited to judicial foreclosures, some legal experts contend that the plain language of the statute allows application ... to other types of sales.").
Accordingly, for the reasons set forth above, neither the legislative history nor the Espinoza decision persuade the Court that Section 580b does not apply after short sales.
While it is by no means clear whether Section 580b applies to short sales, the Court concludes that it does. As set forth above, it is not clear that the statutory language "sale ... under a deed of trust or mortgage" limits Section 580b's applications to foreclosure sales. Moreover, the statutory language stating that Section 580b applies "in any event ... after sale" supports a broad application of Section 580b. Furthermore, applying Section 580b to short sales promotes Section 580b's dual purposes of placing the risk of inadequate security on the purchase money mortgagee, and preventing the aggravation of an economic downturn by ensuring that defaulting purchasers are not burdened with large personal liability. See DeBerard, 20 Cal. 4th at 663-64. California Courts have heavily emphasized the significance of the statutory purpose in determining whether Section 580b should be applied to a particular transaction. Finally, the Court is not persuaded that the enactment of Section 580e, the legislative history associated with that section, the legislative history associated with the recent amendments to Section 580b, or the Espinoza decision provide a sufficient basis to hold that Section 580b does not apply following a short sale. Accordingly, to the extent Defendants seek dismissal on the ground that Section 580b does not apply to short sales, Defendants' Motions are denied.
Chase also argues that Plaintiffs' RFDCPA claim fails because Plaintiffs "[w]aived the [a]pplication of Section 580b" by agreeing to the terms of the February Letter. Chase Mot. at 8. In the February Letter, Chase agreed to "release [its] security interest in the ... Property." February Letter. In exchange, Plaintiffs agreed to pay Chase $8,500 and to remain "responsible for the deficiency balance remaining on the Loan...." Id. Chase argues that when Plaintiffs agreed with Chase that Chase would release its security interest, Plaintiffs removed the Second Note from the scope of Section 580b. See Chase Mot. at 9 (citing Jack Erickson & Assoc. v. Hesselgesser, 50 Cal.App.4th 182 (1996)).
Plaintiffs respond that Chase's argument must fail because, in Deberard, the California Supreme Court held that parties may not contractually waive the protections of Section 580b. See Chase Mot. at 7 (citing Deberard, 20 Cal. 4th at 659). As set forth below, although the Court does not agree that Deberard's prohibition on waivers applies in this case, the Court does agree that Section 580b continued to apply to the Second Note notwithstanding Chase's release of its security interest.
As a threshold matter, the Court must distinguish between two ideas: (1) waiver, and (2) destruction. Deberard primarily addresses waiver. In Deberard, two borrowers renegotiated their purchase money loan and agreed to waive Section 580b's protections in exchange for certain concessions by the deed holder, e.g. reducing the borrowers' payments. See id., 20 Cal. 4th at 662. Notably, the deed holder did not agree to release its security interest in the borrowers' property. Id. The Deberard Court held that the borrowers' agreement with the deed holder constituted a prohibited waiver of Section 580b's protections. See id. at 663. In concluding that Section 580b could not be waived, the Court reasoned that "[i]f the purchase money creditor retains an interest in the original property, the debtor cannot be held for a deficiency." Id. (quoting Palm v. Schilling, 199 Cal.App.3d 63, 76 (1988)). Based on this language, it appears that an impermissible waiver occurs where a purchase money mortgagor waives the protections of Section 580b while permitting the purchase money mortgagee to retain a security interest in the original property.
The second idea is the concept of destruction. While Deberard held that there could be no waiver of the protections of Section 580b, Deberard acknowledged that parties may "destroy" the purchase money nature of a transaction by extinguishing the lender's security interest in the original property. See id. ("If the purchase money creditor does not wish to accept the risk that the property will be lost through foreclosure by another secured creditor, the remedy is to either foreclose himself or destroy the purchase money nature of the transaction") (quoting Palm, 199 Cal. App. 3d at 76) (emphasis added). If the purchase money nature of the transaction is destroyed, Section 580b no longer applies. See Goodyear v. Mack, 159 Cal.App.3d 654 (1984), disapproved of on other grounds by DeBerard, 20 Cal. 4th at 671 (holding that Section 580b no longer applied where buyers of property encumbered with a purchase money mortgage arranged for re-conveyance of the trust deed in exchange for a new note secured by different property); cf In re Prestige, 234 F.3d at 1117 (holding that "where the security has been lost due to a violation of § 726 and, consequently, there has not been and can never be a sale of the property, § 580b does not apply").
Here, in the February Letter, Chase released its security interest in the property, which arguably destroyed the purchase money nature of the parties' transaction. Thus, this is not an instance in which the parties have engaged in a prohibited waiver of Section 580b's protection. Consequently, the question in this case is whether Section 580b should still apply even though the purchase money nature of the transaction has arguably been destroyed. Under the circumstances of this case, the Court finds that Section 580b should still apply.
In this case, Chase relinquished its security interest securing the Second Note concurrently with, and for the express purpose of allowing, a short sale transaction which was ostensibly designed to satisfy Chase's First Note. See Chase Mot., Ex. A at 3 (February 15, 2011 letter from Chase agreeing to the short sale); id. at 2 (February 17, 2011 letter ("February Letter") from Chase agreeing to relinquish its security interest).
Moreover, while not alleged in the Complaint, there appears to have been an agreement between the parties that any funds beyond the amount needed to satisfy the First Note would be applied towards the Second Note, and approximately $80,000 actually was applied to the Second Note. See Tr. at 8:11-19; 8:20-9:11. This suggests that the parties intended that the short sale would not only address the First Note, but, if possible, the Second Note as well. To the extent Chase released its interest securing the Second Note for the purposes of permitting a sale that would generate funds that would be used to satisfy that note, this fact further supports the conclusion that permitting Chase to recover the deficiency on the Second Note would be inconsistent with Section 580b's purposes. See Venable, 233 Cal. App. 2d at 302 (holding that Section 580b prevents the aggravation of downturns by prohibiting borrowers from losing their land and being burdened with personal liability).
Accordingly, the Court rejects Chase's argument that Section 580b no longer applies because Chase released its security interest in the Property in the February Letter.
PRS also argues that dismissal is appropriate because the RFDCPA does not apply to mortgage loans. PRS Mot. at 1. The Court disagrees.
At the outset, the Court defines several key terms. As used in the RFDCPA, "[t]he term `debt collection' means any act or practice in connection with the collection of consumer debts." Cal. Civ. Code § 1788.2(b). "The term `debt collector' means any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection." Cal. Civ. Code § 1788.2(c). "The terms `consumer debt' and `consumer credit' mean money, property or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction." Cal. Civ. Code § 1788.2(f). Finally, "[t]he term `consumer credit transaction' means a transaction between a natural person and another person in which property, services or money is acquired on credit by that natural person from such other person primarily for personal, family, or household purposes." Cal. Civ. Code § 1788.2(e).
Here, PRS concedes that it is "a debt collector within the meaning of the" RFDCPA. See Tr. at 38:11-15 .
As used in the RFDCPA, a "consumer debt" is one in which: (1) "money" is "due or owing"; (2) "by reason of a ... transaction"; (3) wherein "property ... is acquired on credit"; (4) "primarily for personal, family, or household purposes." Cal. Civ. Code § 1788.2(e)-(f). In a residential mortgage loan transaction like the one involved in this case, the borrower owes a debt (condition 1) to the lender as a result of the lender's provision of funds for the borrower to acquire "property" (conditions 2 and 3) which the borrower uses as a residence, i.e. "for personal, family, or household purposes" (condition 4). Id. Thus, nothing about the express language of the RFDCPA excludes a residential mortgage from the definition of "consumer debt." Accordingly, Plaintiff is not precluded from bringing a RFDCPA claim based on the First and Second Notes.
Thus, for the reasons set forth above, PRS's argument that Plaintiffs' claim should be dismissed because a mortgage loan is not a consumer debt fails.
The Court next addresses PRS's argument that, even if Section 580b applies, Section 580b merely prohibits a lender from seeking a deficiency judgment and does not extinguish the debt. See PRS at 5. PRS argues that, because Plaintiffs' debt relating to the Second Note still exists, it is still "due and owing." Id. at 6. Consequently, PRS argues, Plaintiffs' claim that Defendants violated the RFDCPA by misrepresenting that Plaintiffs owed a debt and by seeking to collect the debt fails. Id. The Court agrees in part and disagrees in part with PRS's argument.
As a threshold matter, the Court agrees, that even where Section 580b applies, Section 580b only "eliminates a creditor's ability to seek a deficiency judgment, ... it does not eliminate the underlying debt." Herrera v. LCS Fin. Servs. Corp. ("Herrera I"), C09-02843 TEH, 2009 WL 2912517, at *8 (N.D. Cal. Sept. 9, 2009) (citing Mortgage Guarantee Co. v. Sampsell, 51 Cal.App.2d 180, 185 (1942)); see also PRS Mot. at 5. Thus, the mere fact that Defendants attempted to collect upon the debt did not violate the RFDCPA. See id. at *8 (dismissing plaintiff's complaint because it "only [pled] a claim based on the fact, and not the content, of [defendant's] collection efforts").
Rather, in order for Plaintiffs to state a claim under the RFDCPA based on Defendants' attempts to collect on the Second Note, Plaintiffs must allege facts showing that Defendants' communications "misrepresented the nature" of the debt. Id. Whether there has been a misrepresentation is evaluated from the perspective of the "least sophisticated investor." Herrera v. LCS Fin. Servs. Corp. ("Herrera II"), C09-02843 TEH, 2009 WL 5062192, at *4 (N.D. Cal. Dec. 22, 2009). "If the least sophisticated debtor would `likely be misled' by a communication ... the debt collector has violated the Act." Id. For example, in Herrera II, the Court found that the plaintiff stated a claim for misrepresentation in violation of the FDCPA and RFDCPA where the plaintiff alleged that the defendant sent her a letter "stating that her debt [was] `due and owing' when that debt [was] subject to [Section 580b]" and the letter did "not advise the [plaintiff] as to the significance of section 580b." Id. at *7 (denying motion to dismiss amended complaint). The Court reasoned that the "least sophisticated debtor could be misled by [such] a letter" because it did "not advise the [plaintiff] as to the significance of section 580b." Id.
Here, Plaintiffs allege that Defendants violated the RFDCPA in two respects. First, Plaintiffs allege that Defendants misrepresented the truth, in violation of 15 U.S.C. § 1692e(2)(A), which is incorporated into the RFDCPA, because Defendants "communicated to the Plaintiffs ... (i) [t]hat the amount of the debt was $166,045.78 when, in truth, there was no debt owed; (ii) [t]hat the character of the money owed was a debt when, in truth, there was no debt owed; and (iii) [t]hat the legal status of the $166,045.78 was an amount that was owed to Chase when, in truth, Plaintiffs were under absolutely no legal obligation to pay any portion of that sum to Chase or PRS ..." Compl. ¶ 23; 15 U.S.C. § 1692e(2)(A) (prohibiting "[t]he false representation of ... the character, amount, or legal status of any debt"). Second, Plaintiffs allege that Defendants violated 15 U.S.C. § 1692f(1), which is also incorporated into the RFDCPA, by attempting to collect the deficiency on the Second Note when the debt "was not [legally] authorized." Compl. ¶ 24; 15 U.S.C. § 1692f (prohibiting "[t]he collection of any amount ... unless such amount is expressly authorized by the agreement creating the debt or permitted by law").
As to the latter claim under Section 1692f(1), the Court agrees with PRS that this claim fails. Plaintiffs' Section 1692f(1) claim alleges, in essence, that Defendants violated the law simply by trying to collect upon the Second Note when no debt was owed. This claim fails because, while Section 580b applies and therefore "eliminates [Defendants'] ... ability to seek a deficiency judgment," as set forth above, Section 580b did "not [technically] eliminate the underlying debt." Herrera I, 2009 WL 2912517 at *8. Thus, Defendants were not attempting to collect a debt which was not legally authorized in violation of Section 1692f(1). See Herrera I, 2009 WL 2912517 at *7-8 (holding that a creditor was not liable merely for attempting to collect upon a debt after a foreclosure because Section 580b did not extinguish the debt).
As to the former claim under Section 1692e(2)(A), the Court is persuaded that this claim should survive. Some of Plaintiffs' misrepresentation allegations in connection with this claim may be construed as alleging that Defendants violated Section 1692e(2)(A) and the RFDCPA simply by attempting to collect upon the debt when "there was no debt owed." See e.g. Compl. ¶ 23 (alleging that Defendants misrepresented the truth when they "communicated to the Plaintiffs ... (i) [t]hat the amount of the debt was $166,045.78 when, in truth, there was no debt owed; [and] (ii) [t]hat the character of the money owed was a debt when, in truth, there was no debt owed). Nevertheless, at least one of Plaintiffs' allegations in support of their misrepresentation claim appears to state a valid cause of action.
Specifically, Plaintiffs allege that Defendants' communications misrepresented the truth by stating "[t]hat the legal status of the $166,045.78 was an amount that was owed to Chase when, in truth, Plaintiffs were under absolutely no legal obligation to pay any portion of that sum to Chase or PRS ..." Compl. ¶ 23(iii). The Court construes this allegation as an allegation that Defendants' communications failed to advise Plaintiffs that, as a result of Section 580b, Defendant could not pursue a legal action to hold Plaintiffs personally liable for the deficiency on the Second Note. As set forth in Herrera, the least sophisticated investor might be misled by a debtor's communication claiming that a debt was owed if that communication fails to advise the debtor "as to the significance of section 580b." Herrera II, 2009 WL 5062192 at *7. Accordingly, the Courts finds that Plaintiffs have stated a claim for misrepresentation in violation of Section 1692e(2)(A), as incorporated into the RFDCPA.
Thus, for the reasons set forth above, the Court denies PRS's Motion to Dismiss Plaintiffs' RFDCPA claim predicated on Section 1692e(2)(A) and grants PRS's Motion to Dismiss Plaintiffs' RFDCPA claim predicated on Section 1692f(1). The Court additionally finds that granting Plaintiffs leave to amend their Section 1692f(1) claim would be futile because Plaintiffs cannot show that Section 580b extinguished Plaintiffs' debt and therefore cannot show that Defendants were seeking to collect a debt, which Plaintiffs claim was not "permitted by law." 15 U.S.C. § 1692f(1). Accordingly, the Court denies Plaintiffs' leave to amend their Section 1692f(1) claim. See Carvalho, 629 F.3d at 892-93 (holding that a court "may ... deny leave to amend due to ... futility of amendment.").
PRS also contends that Plaintiffs' complaint fails to satisfy Federal Rule of Civil Procedure 8. PRS Mot. at 8. Rule 8 requires that a Plaintiff allege "sufficient factual matter ... to `state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678. PRS argues that Plaintiffs have failed to satisfy Rule 8 because Plaintiffs have not alleged facts showing that: (1) the debt at issue is covered by the RFDCPA; and (2) Section 580b was applicable and precluded collection of the deficiency. PRS Mot. at 8. PRS's arguments fail.
As set forth above, the Court has concluded that Plaintiffs have alleged facts sufficient to show that the debt at issue is covered by the RFDCPA. The Court has also concluded that Section 580b applies. To the extent Chase argues that Plaintiffs' allegations fail under Rule 8 because PRS was not precluded from collecting on the deficiency, as set forth above, the Court agrees that Plaintiffs' RFDCPA claim fails to the extent it is based on a violation of 15 U.S.C. § 1692f(1). Specifically, Plaintiffs' allegations fail to establish a violation of Section 1692f(1) because Plaintiffs' allegations in support of this claim assert, in essence, that Defendants are liable merely for trying to collect the deficiency on the Second Note. Nevertheless, the Court has concluded that Plaintiffs' RFDCPA claim states a valid cause of action to the extent it is predicated on a violation of 15 U.S.C. § 1692e(2)(A) because Defendants allegedly misrepresented the truth by failing to advise Plaintiffs "as to the significance of section 580b." Herrera II, 2009 WL 5062192 at *7.
Accordingly, dismissal of Plaintiffs' RFDCPA claim predicated on Section 1692e(2)(A) for failure to comply with Rule 8 is not warranted. However, for the reasons set forth above, the Court dismisses Plaintiffs' RFDCPA claim predicated on Section 1692f(1).
Finally, the Court addresses Chase's argument that the Court should "dismiss Plaintiffs' injunctive relief requests...." See Chase Mot. at 11. Plaintiffs seek "a temporary restraining order, preliminary injunction, and permanent injunction, enjoining Defendants ... from collecting or attempting to collect any California mortgage or deed of trust or note secured thereby following Chase's release of its security interest in such note where such mortgage or deed of trust was `on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.'" Compl. ¶ 27.
Chase argues that Plaintiffs are not entitled to injunctive relief for two reasons. First, Chase argues that Plaintiffs' claim is not "viable" and therefore Plaintiffs cannot demonstrate a "likelihood of success on the merits." Chase Mot. at 10. Second, Chase argues that any injunctive relief would "affect" the April 13, 2011 Consent Order Chase entered into with the OCC. Id. (quoting 12 U.S.C. § 1818(i)); RJN, Ex. 4 ("Consent Order"). As noted by Chase, 12 U.S.C. § 1818(i) prohibits the Court from granting injunctive relief that would "affect" the Consent Order. 12 U.S.C. § 1818(i)(1) ("[N]o court shall have jurisdiction to affect by injunction or otherwise the issuance or enforcement of any notice or order under [section 1831o or 1831p-1] ... or to review, modify, suspend, terminate, or set aside any such notice or order."). The Court finds the latter argument persuasive.
The Consent Order provides that Chase adopt an "Action Plan" to address certain deficiencies and unsafe or unsound practices in Chase's residential mortgage servicing. Consent Order Article III(1). The Consent Order additionally provides that "[t]he Board shall ensure that, upon implementation of the Action Plan, [Chase] achieves and maintains effective mortgage servicing, foreclosure, and loss mitigation activities ... the phrase `loss mitigation' ... shall include, but not be limited to ... short sales ..." Consent Order Article III(2) (emphasis added). The Action Plan adopted by Chase must ensure that, among other things, Chase complies "with all applicable federal and state laws ..." Consent Order Article III(3). Thus, the Consent Order encompasses within its scope Chase's practices relating to short sales and also requires that Chase develop policies to ensure that its practices are in compliance with federal and state laws.
Plaintiffs seek an injunction barring Chase from pursuing a deficiency judgment against borrowers if Chase "releases ... its security interest" in the borrower's note. Compl. ¶ 27. While Plaintiffs' requested injunctive relief does not expressly pertain to short sales, to the extent Plaintiffs' requested relief limits Chase's remedies after it has released its security interests — a key step in effecting a short sale — Plaintiffs' requested injunctive relief appears to be a proxy for an order directly restricting Chase's short sale practices. Plaintiffs are, in essence, seeking to use an injunction to require Chase to comply with the law and end its practice of seeking deficiency judgments following short sales. This relief would "affect" the Consent Order to the extent the Consent Order requires Chase and the Board to work together to ensure that Chase implements effective short sale practices which are in compliance with "applicable federal and state laws." Consent Order Article III(2)-(3). Notably, Plaintiffs do not meaningfully dispute that their requested injunctive relief affects the Consent Order. See Chase Opp. at 9 (stating that "Plaintiffs disagree" with Chase's argument that injunctive relief "would ... conflict with a prior Consent Order" and then proceeding to argue that "the point is irrelevant" because the fact that one of Plaintiffs' requested remedies is improper does not warrant dismissal of Plaintiffs' claims).
Because Plaintiffs' requested injunctive relief would affect the Consent Order, Plaintiffs' injunctive relief requests are dismissed. See 12 U.S.C. § 1818(i); In re JPMorgan Chase Mortgage Modification Litig., 880 F.Supp.2d 220, 233 n.19 (D. Mass. 2012) (holding that, while Section 1818(i) did not prohibit plaintiffs from bringing state law causes of action against Chase for monetary damages, "it would be improper for [the] court ... to award any injunctive relief that relates to prospective servicing practices that are anticipated by the OCC's [Consent] Order"). Moreover, because it does not appear that Plaintiffs can amend their injunctive relief requests to seek relief which would not affect the Consent Order, the Court denies Plaintiffs leave to amend their injunctive relief requests. See Carvalho, 629 F.3d at 892-93 (holding that a court "may ... deny leave to amend due to ... futility of amendment.").
For the reasons set forth above, the Court DENIES Defendants' Motions to Dismiss Plaintiffs' cause of action for a violation of the RFDCPA predicated upon a violation of 15 U.S.C. § 1692e(2)(A). The Court GRANTS with prejudice Defendants' Motions to Dismiss Plaintiffs' RFDCPA claim predicated on a violation of 15 U.S.C. § 1692f(1) of the FDCPA and Plaintiffs' injunctive relief requests.
