LAUREL BEELER, Magistrate Judge.
This is a fraud suit over home-improvement loans. The plaintiffs allege that the defendants falsely told them that the loans would attach to their properties (like property taxes) and, correspondingly, failed to reveal that the loans would have to be repaid when a property was sold or refinanced. The plaintiffs claim that, contrary to the defendants' representations, they indeed had to repay the loans when they sold or refinanced their homes — at which point they incurred prepayment penalties. The plaintiffs also claim that the defendants charged them various improper fees.
The defendants now move to dismiss the complaint.
The named plaintiffs are California or Florida residents and homeowners.
The subject of this dispute are "Property Assessed Clean Energy" (PACE) loans. ¶ 19. These are home-improvement loans that finance environmental upgrades to residential properties (such as solar panels or better windows).
PACE loans reflect a partnership between state or local governments, on the one hand, and private finance companies, like Ygrene, on the other. The government creates a special tax-assessment district in which PACE loans will be made. The plaintiffs explain:
In the end, "PACE loans are no different than private loans except that the terms are less favorable when compared to conventional loans, and instead of a monthly billing statement, borrowers receive an annual tax assessment."
The defendants market and administer PACE programs, provide "initial funding" for PACE loans, and ultimately receive the homeowners' payments.
"As part of its services," the plaintiffs write, "Ygrene provides program design, marketing, administrative duties, origination, application processing, and ongoing reporting services."
The plaintiffs' main grievance concerns whether, and to what extent, PACE liens are attached to the property. More exactly, the plaintiffs complain that Ygrene falsely told them that the PACE loans would not have to be repaid when a borrower sold or refinanced her home. Through various channels, the plaintiffs claim, the defendants told them that the PACE liens would be transferred with the property to new owners (much like regular property taxes), so that, when the plaintiffs sold or refinanced their homes, they would not have to repay whatever balance remained on the PACE loan.
As it happens, PACE loans "do not travel with the home — in fact, they make it impossible or nearly impossible for consumers to sell their homes without first paying off the loan and incurring a large prepayment penalty. This is because conventional lenders refuse to provide loans on properties encumbered by . . . PACE loans, which benefit from superpriority status."
Contrary to the defendants' alleged representations, then, plaintiffs would have to repay the entire remaining PACE loan (and a prepayment penalty) when they sold or refinanced their homes. The plaintiffs thus see deception in the defendants' repeated warning that PACE loans "may" not transfer with the property. As the plaintiffs describe the situation, if it is possible in principle that PACE loans will transfer with the property, in practice it is virtually certain that PACE debt must be fully repaid on sale or refinance. See ¶¶ 30-31.
The plaintiffs locate falsehoods in a number of places. The most specifically identified misstatements lie in two written loan disclosures: the "Universal Approval Agreement" (UAA) that was used for California transactions; and the "Financing Agreement" (FA) used in Florida. According to the plaintiffs, the UAA and FA both
The plaintiffs also allege that they "reviewed and relied upon Ygrene's website and promotional materials, all of which similarly represented that Ygrene liens are transferable with the property in the event of a sale or refinance."
The plaintiffs also challenge several fees as improper. They point to "fees assessed by Ygrene to avoid . . . prepayment penalties," "payoff statement fees," and "unreasonable administrative fees."
The named plaintiffs sue for themselves and for 12 proposed classes: 4 national classes; 4 California subclasses; and 4 Florida subclasses. These classes are distributed equally among four topics: "Prepayment Penalty"; "Prepayment Waiver Fee"; "Prepayment Penalty — Paid"; and "Payoff and Administrative Fee."
The plaintiffs bring nine claims:
The defendants move to dismiss all these claims under Rules 9(b) and 12(b)(6).
A Rule 12(b)(6) motion to dismiss for failure to state a claim tests the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A claim will normally survive a motion to dismiss if it offers a "short and plain statement . . . showing that the pleader is entitled to relief." See Fed. R. Civ. P. 8(a)(2). This statement "must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. "The plausibility standard is not akin to a `probability requirement,' but it asks for more than a mere possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 556). "Where a complaint pleads facts that are `merely consistent with' a defendant's liability, it `stops short of the line between possibility and plausibility of `entitlement to relief.''" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557).
When considering a Rule 12(b)(6) motion, the court must accept as true all factual allegations in the complaint as well as all reasonable inferences that may be drawn from such allegations. LSO, Ltd. v. Stroh, 205 F.3d 1146, 1150 n. 2 (9th Cir. 2000). Such allegations must be construed in the light most favorable to the nonmoving party. Shwarz, 234 F.3d at 435.
Fraud allegations elicit a more demanding standard. Rule 9(b) provides: "In alleging fraud . . ., a party must state with particularity the circumstances constituting fraud. . . . Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). This means that "[a]verments of fraud must be accompanied by the `who, what, when, where, and how' of the misconduct charged." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003). Like the basic "notice pleading" demands of Rule 8, a driving concern of Rule 9(b) is that defendants be given fair notice of the charges against them. See, e.g., In re Lui, 646 F. App'x 571, 573 (9th Cir. 2016) ("Rule 9(b) demands that allegations of fraud be specific enough to give defendants notice of the particular misconduct . . . so that they can defend against the charge and not just deny that they have done anything wrong.") (quotation omitted); Odom v. Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 2007) (Rule 9(b) requires particularity "so that the defendant can prepare an adequate answer"). This heightened-pleading standard can apply even to claims that do not innately require proof of fraud. E.g., Vess, 317 F.3d at 1103-05. If such a claim nonetheless avers fraudulent conduct, then at least those averments must satisfy Rule 9(b); and, if a claim rests "entirely" on a "unified course of fraudulent conduct," then "the pleading of that claim as a whole must satisfy the particularity requirement of Rule 9(b)." Id. at 1103-04. Finally, "[a] motion to dismiss a complaint or claim `grounded in fraud' under Rule 9(b) for failure to plead with particularity is the functional equivalent of a motion to dismiss under Rule 12(b)(6) for failure to state a claim." Id. at 1107.
The representations contained in the UAA and FA meet Rule 9(b)'s demands. They are definite statements making specific representations.
The rest of the alleged representations, however, are not sufficiently pleaded. The plaintiffs point vaguely to the defendants' "website," to an unidentified "promotional video" and other generic "promotional materials," to unidentified "email" or phone calls with unnamed "agents" and "representative[s]," and to unspecified statements made by unnamed third-party "contractors" — with none of this linked to identifiable people, dates, or places. All this falls short of Rule 9(b). These allegations do "not specify when and where [the misrepresentations] occurred." Vess, 317 F.3d at 1107. Nor do they "identify the [defendants'] employees," or the "certified" contractors, who made the false statements, except in the most generic way. Id. They do not "provide any dates, times, or places" where such statements were made. Id. (quoting United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1051 (9th Cir. 2001)). These allegations may satisfy Rule 8(a)(1)'s more basic notice test; they do convey the plaintiff's grievance. But they embody exactly the sort of generic identification of fraud that Rule 9(b)'s more rigorous demand is meant to winnow out.
These allegations are not significantly different from those that the Ninth Circuit rejected in Kearns. That case thus controls this analysis. The Kearns plaintiff claimed that the defendants (a car manufacturer and a dealership) made "false and misleading statements" to "increase sales" of their "Certified Pre-Owned (`CPO')" vehicles. Id. at 1122-23. Like the plaintiffs here, the Kearns plaintiff sued under California's CLRA and UCL. Id. at 1122. He claimed that "he was exposed to" misrepresentations in the manufacturer's "national marketing campaign"; in "sales materials" at the dealership where he bought his car; and in statements made by the dealership's "sales personnel." Id. at 1125-26.
The Ninth Circuit held that he had not adequately specified the offending representations. In language that applies here, the Ninth Circuit explained:
Id. at 1126. His allegations thus failed to satisfy Rule 9(b). Id. The Ninth Circuit upheld the complaint's dismissal. Id.
Essentially the same failings mark the plaintiff's allegations here. The same result — a Rule 9(b) dismissal — must obtain.
Furthermore, the plaintiffs allege a "unified course of fraudulent conduct" within the meaning of Ninth Circuit precedent. See, e.g., Vess, 317 F.3d at 1103-05. The vast bulk of the complaint, in other words, "sounds in fraud." See id. at 1103-04. A different conclusion is hard to reach. The complaint is overwhelmingly a story of alleged fraud — in particular, about how the defendants falsely claimed that PACE liens would transfer with the plaintiffs' properties on sale or refinance. And, conversely, about how the defendants failed to disclose that, upon such an event, the plaintiffs were virtually certain to have to repay the PACE loan and would suffer a prepayment penalty. Almost every claim in the complaint expressly alleges fraud. Almost every claim, in other words, expressly grounds itself in fraud. If these allegations and claims do not depict a "unified course of fraudulent conduct," then it is hard to see the case that would. All the claims that are "grounded in fraud" must therefore "as a whole" exhibit Rule 9(b) specificity. Id. The upshot of this holding is that Rule 9(b) thus applies to claims that are not innately grounded in fraud. The CLRA claim and the UCL "unfair"-prong claim do not have fraud as necessary elements. Here, though, they advance nothing but fraud. And so they must be pleaded with heightened particularity. Id.
Very little in the complaint steps outside the "unified course" of allegedly fraudulent conduct. Very few claims partly avoid Rule 9(b) because they partly rest on "some non-fraudulent conduct." See id. at 1104.
The only "non-fraudulent" factual allegations (that the court can see) involve fees. In addition to the alleged fraud related to whether the PACE liens would transfer with the property, the plaintiffs also make the ancillary claim that Ygrene charged them various fees that did not appear, or were inadequately disclosed, in their loan documents.
The California CLRA claim, as well, is expressly based on both "false representations" and on unspecified "unconscionable provisions" in the plaintiffs' contracts.
Finally, the plaintiffs insist that their improper-training allegations elude Rule 9(b).
The court concludes that the following claims are directly for fraud or are grounded in fraud and are thus subject to Rule 9(b):
Insofar as they rest on the insufficient allegations just discussed — which, again, are essentially all the fraud allegations other than those involving the UAA and FA — these claims fail to state a viable claim. The underlying allegations must be re-pleaded, to meet Rule 9(b)'s heightened-specificity demand, or these claims will go forward resting on only the statements in the UAA and FA.
The defendants make an additional argument against the California plaintiffs' CLRA claim. Apart from failing under Rule 9(b), the defendants contend, the CLRA claim also fails because PACE loans are "intangible" financial products to which the CLRA does not apply.
The court disagrees. The California Supreme Court, and federal courts in California, have held that the CLRA does not apply to intangible financial products like the PACE loans. They have also held that such loans do not fall into the CLRA whenever a defendant provides "ancillary services" in connection with a loan.
Consider the statutory text. The CLRA makes "unlawful" certain "unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or [that] results in the sale or lease of goods or services to any consumer." Becker v. Wells Fargo Bank, N.A., 2011 WL 1103439, *12 (E.D. Cal. Mar. 22, 2011) (quoting Cal. Civ. Code § 1770(a)). "Goods" are defined as "tangible chattels bought or leased for use primarily for personal, family, or household purposes." Cal. Civ. Code § 1761(a). "Services" are "work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods." Cal. Civ. Code § 1761(b).
The PACE loans are intangible financial products. They are not a "good" or "service" under the CLRA; and the PACE-related "services" that Ygrene allegedly provided do not bring the PACE loans into the statute's coverage.
The seminal case is Fairbanks v. Super. Ct., 46 Cal.4th 56 (2009). The Supreme Court of California there held, unanimously, that the CLRA does not apply to life-insurance policies. Id. at 61-65. Such policies are "intangible goods" outside the CLRA's scope. See id. at 64-65. The Fairbanks court also held that normal "ancillary services" do not bring insurance policies into the CLRA's fold. Id. at 65. The Fairbanks plaintiffs had pointed to the fact that insurance agents "help[] consumers select policies that meet their needs, . . . assist[] policyholders to keep their policies in force, and . . . process[] claims" for their customers. Id. The California high court decided that these services were not "sufficient to bring life insurance within the reach of the" CLRA. Id. The court explained:
Id. (citation omitted) (emphasis added). The Fairbanks court thus upheld a judgment on the pleadings against the CLRA claim. Id. at 59-60, 65.
Following Fairbanks, federal courts have held that "mortgage loans" fall outside the CLRA and that normal "ancillary services" do not bring such loans inside the statute. See Becker, 2011 WL 1103439 at *13 ("[T]he California Supreme Court [has] clarified that ancillary loan `servicing' does not bring a loan within the scope of the CLRA. . . ."); Justo v. IndyMac Bancorp, 2010 WL 623715, *3-4 (C.D. Cal. Feb. 19, 2010) (mortgage-loan modification); Reynoso v. Paul Fin., LLC, 2009 WL 3833298, *9 (N.D. Cal. Nov. 16, 2009) (mortgage loan); Consumer Solutions REO, LLC v. Hillery, 658 F.Supp.2d 1002, 1015-16 (N.D. Cal. 2009) (same). These cases all dismissed CLRA claims with prejudice.
The PACE loans, too, are "intangible [financial] goods" that fall outside the express scope of the CLRA. Nothing in the complaint suggests that the defendants engaged in anything more than "ancillary services" in connection with the plaintiffs' loans. Nothing in the complaint suggests that the defendants did anything that would bring the PACE contracts inside the bounds of the CLRA. The CLRA claim is thus dismissed with prejudice.
The plaintiffs also claim that the defendants "tortiously interfered with the performance of" their PACE loans.
The basic elements of tortious interference are alike in Florida and California law. As the plaintiffs explain:
"The elements of tortious interference under California law," the plaintiffs rightly say, are "almost identical to the Florida elements."
The two states differ over whether a third party with some interest in a contract can culpably interfere with that contract. In Florida law, an interested party cannot interfere: "For the interference to be unjustified, the interfering defendant must be a third party, a stranger to the business relationship." Kennedy, 2017 WL 2223050 at *6 (quoting Salit v. Ruden, McClosky, Smith, Schuster & Russell, P.A., 742 So.2d 381, 385-86 (Fla. App. 1999)).
As a matter of Florida law, the defendants were not strangers to the plaintiffs' contracts. They thus cannot be liable for interfering with those contracts. The plaintiffs' own allegations show that the defendants had "supervisory" and "financial" interests in these loans. First, the plaintiffs allege that the defendants were primarily responsible for administering the PACE loans. They describe the defendants as "program administrators and intermediaries between" the local governments and borrowers.
This scotches the Florida interference claim. The defendants cannot have played the role that the plaintiffs allege and yet been "strangers" to the PACE loans under Florida law. Indeed, given the situation that the plaintiffs describe — again, focusing on the role that they ascribe to the defendants — the Florida interference claim cannot plausibly be amended to be made viable. The court therefore dismisses it with prejudice.
The question is more complicated in California law. "It has long been held that a stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract." Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 513 (1994) (emphasis in original). It is equally clear that "the tort cause of action for interference with contract does not lie against a party to the contract." Id. (citing cases). What is less certain is the middle case. What is uncertain, that is, is whether and when interference will lie against one who is neither a party nor a complete stranger to the contract. Someone who has a "direct interest and involvement" in the contract; this may be a "financial interest" or significant control or oversight" of part of the contractual arrangement.
The Ninth Circuit has observed that "the `not-a-stranger' principle . . . is in a state of flux" in California. Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1127 (9th Cir. 2014). That same court has reasoned that the California rule may permit interference liability against those who have an "economic interest" in the subject contract. United Nat'l Maint., Inc. v. San Diego Convention Ctr., Inc., 766 F.3d 1002, 1007 (9th Cir. 2014). Closely analyzing this aspect of California interference law, the Ninth Circuit wrote in United National:
United National, 766 F.3d at 1007. The Ninth Circuit anchored its conclusion by observing that, "California courts have repeatedly held that parties with an economic interest in a contractual relationship may be liable for intentional interference with that contract." Id. at 1008.
The parties have not addressed this nuance in California law. The court is hesitant to go further in this vein without the benefit of the parties' input as to whether — despite their financial interest in and supervision of the plaintiffs' PACE loans — the defendants can be liable for tortiously interfering with those loans under California law. The most the court can say at this juncture is that the defendants' arguments do not justify dismissing the California interference claim. Their motion to dismiss is to this extent denied. The court can address the California-interference issue in any new motion to dismiss.
Finally, the defendants move to dismiss the plaintiffs' unjust-enrichment claim. The court concludes that the California unjust-enrichment claim must be dismissed, but that the Florida claim survives.
The California unjust-enrichment claim must be dismissed because it is merely "superfluous" of the plaintiffs' other statutory and tort claims. As Judge Seeborg of this court has explained: "California law does not uniformly recognize unjust enrichment as a cause of action; rather, courts typically consider it as a principle that gives rise to restitution in order to avoid permitting a defendant to benefit unjustly where no valid contract exists." Top Agent Network, Inc. v. Zillow, Inc., 2015 WL 7709655, at *8 (N.D. Cal. Apr. 13, 2015) (citing McBride v. Boughton, 123 Cal.App.4th 379, 388 (2004)).
More operatively — and in language that applies here — Judge Seeborg held that a redundant unjust-enrichment claim had to be dismissed. Id. After recasting that claim as one for restitution (not an uncommon adjustment in California case law), Judge Seeborg reasoned:
Top Agent, 2015 WL 7709655 at *8 (emphases added).
Because, in this case, the plaintiffs' unjust-enrichment claim is based on the same conduct as the statutory and tort claims through which they seek relief, the unjust-enrichment claim is superfluous and must be dismissed.
Furthermore, under California law, it is doubtful whether an unjust-enrichment claim can lie where an express contract covers the same subject matter — even if that contract is not strictly between the litigants. See Paracor, 96 F.3d at 1167. The PACE contracts here may have been between the plaintiffs and the governments, on the one side, and, on the other, between the governments and Ygrene. But those contracts were part of one overall transaction; they were mutually necessary to the transactions happening at all; they must have been in the parties' (real or constructive) contemplation; and, maybe most important, they in fact defined the parties' respective obligations. The express contracts leave no space for an unjust-enrichment claim. See id.
For both these reasons, the California plaintiffs' unjust-enrichment claim is dismissed with prejudice.
The outcome is different in Florida law. There, the "express contract" rule appears to bar unjust-enrichment claims only where that contract is strictly between the litigants. See, e.g., Diamond "S" Dev. Corp. v. Mercantile Bank, 989 So.2d 696, 697 (Fla. App. 2008) (an "unjust enrichment claim [is] precluded by the existence of an express contract between the parties concerning the same subject matter") (emphasis added); Degutis v. Fin. Freedom, LLC, 978 F.Supp.2d 1243, 1266 (M.D. Fla. 2013) (express contract "between the Parties" defeated unjust-enrichment claim). Moreover, under Florida law, an unjust-enrichment claim can coexist with other tort claims covering the same subject matter. Harris v. Nordyne, LLC, 2014 WL 12516076, *7 (S.D. Fla. Nov. 14, 2014). The Harris court thus concluded:
Id. (quotations, citations, and footnotes omitted) (emphasis added).
The court denies the motion to dismiss the Florida plaintiffs' unjust-enrichment claim.
The court reaches the following conclusions. The CLRA claim, the Florida tortious-interference claim, and the California unjust-enrichment claim are dismissed with prejudice. The motion to dismiss is denied with respect to the California tortious-interference claim and the Florida unjust-enrichment claim. All the claims that the court has identified as being directly for fraud or grounded in fraud
Vess, 317 F.3d at 1105 (quoting Lone Star Ladies Inv. Club v. Schlotzsky's Inc., 238 F.3d 363, 368 (5th Cir. 2001) and Carlon v. Thaman (In re NationsMart Corp. Secs. Litig.), 130 F.3d 309, 315 (8th Cir. 1997)) (emphases in Vess).