LAUREL BEELER, Magistrate Judge.
This case involves the allegedly botched modification of a home mortgage loan. The homeowners, plaintiffs Charlotte and Nelvin Johnson, contend that their mortgage-loan servicer, defendant PNC Bank, N.A., mishandled their request for a loan modification by overstating their income. This error (say the Johnsons) resulted in a modified loan payment that they still cannot afford. More specifically, the Johnsons argue that PNC failed to account for the decreased income that would follow Mrs. Johnson`s eventual retirement. Mrs. Johnson was not retired when the Johnsons sought a loan modification; she has not yet retired. The Johnsons sue in negligence and under California`s Homeowner Bill of Rights. The latter claim is framed as an "unfair business practice" claim under the state`s Unfair Competition Law (Cal. Civ. Code § 17200 et seq.). The defendants, PNC and U.S. Bank, N.A., move for summary judgment against both claims. (ECF No. 67.)
The Johnsons own residential real property in American Canyon, California. At all relevant times, PNC serviced their mortgage loan on that property.
Mr. Johnson says that the PNC representative "invited us to send documentation related to her retirement."
By late March 2014, the Johnsons had sent PNC everything that the latter said it needed to evaluate the modification request.
PNC calculated Mr. Johnson`s gross monthly income from his Social Security Administration disability-benefits paperwork; it calculated Mrs. Johnson`s monthly wages from the material that she submitted to support the loan-modification request.
(The Johnsons previously claimed that PNC had overstated their monthly income by about $200. This indeed was the gravamen of their complaint. Their allegations and attendant legal theory have since changed, however, as discussed throughout this order. At the summary-judgment hearing, the plaintiffs agreed that, in evaluating their modification request, PNC correctly calculated their income.)
The Johnsons and PNC then entered into a three-month "Trial Period Plan" — which PNC describes (without dispute) as the precursor to a fully blown modification.
The Johnsons' primary theory now is that PNC overstated their income by failing to account for Mrs. Johnson`s planned retirement. The Johnsons contend (in sum) that PNC should have treated her normal wages as temporary income — because her "impending retirement" would bring those wages to an end — and should have reduced the income that it attributed to the Johnsons when it calculated modified loan terms. The Johnsons raised this, and other arguments, for the first time in their opposition to PNC`s summary-judgment motion. Because none of their theories raises a genuine issue for trial, the court grants PNC`s motion.
The court must grant a motion for summary judgment if the movant shows that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). Material facts are those that may affect the outcome of the case. Anderson, 477 U.S. at 248. A dispute about a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the non-moving party. Id. at 248-49.
The party moving for summary judgment bears the initial burden of informing the court of the basis for the motion, and identifying portions of the pleadings, depositions, answers to interrogatories, admissions, or affidavits that demonstrate the absence of a triable issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). To meet its burden, "the moving party must either produce evidence negating an essential element of the nonmoving party`s claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000); see Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001) (quoting Celotex, 477 U.S. at 325) ("When the nonmoving party has the burden of proof at trial, the moving party need only point out `that there is an absence of evidence to support the nonmoving party`s case.'").
If the moving party meets its initial burden, the burden then shifts to the non-moving party to produce evidence supporting its claims or defenses. Nissan Fire & Marine, 210 F.3d at 1103. The non-moving party may not rest upon mere allegations or denials of the adverse party`s evidence, but instead must produce admissible evidence that shows there is a genuine issue of material fact for trial. See Devereaux, 263 F.3d at 1076. If the non-moving party does not produce evidence to show a genuine issue of material fact, the moving party is entitled to summary judgment. See Celotex, 477 U.S. at 323.
In ruling on a motion for summary judgment, the court does not make credibility determinations or weigh conflicting evidence, and it draws all inferences in the light most favorable to the non-moving party. E.g., Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986); Ting v. United States, 927 F.2d 1504, 1509 (9th Cir. 1991).
The Johnsons' central claim is that PNC overstated their income and so arrived at a modified monthly payment that remains unaffordable. For most of this lawsuit, their more specific claim has been that PNC simply miscalculated their monthly income, using a figure 10% greater than what they actually made, and thus arrived at a modified monthly payment that is "at least $200" greater than it should be and, perhaps more to the point, that is above HAMP`s 31% benchmark. This is no longer the Johnsons' claim. They no longer dispute that PNC correctly calculated their actual income. They no longer dispute that their modified payment is below the 31% mark. Thus, insofar as the remaining claims in the Second Amended Complaint rest on the raw-miscalculation theory — and even the Johnsons suggest that that is the only pertinent theory in their operative complaint (see ECF No. 69 at 8-9) — the court grants PNC summary judgment and dismisses those claims with prejudice. The rest of this order discusses the Johnsons' current main theory, that PNC should have accounted for Mrs. Johnson`s plan to eventually retire, and other arguments that the Johnsons have made in opposing summary judgment.
Federal courts sitting in diversity jurisdiction generally apply the substantive law of the forum state. E.g., Nelson v. Int'l Paint Co., 716 F.2d 640, 643 (9th Cir. 1983) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941). To raise a prima facie claim of negligence in California law, a plaintiff must prove: 1) the existence of a duty to exercise due care; 2) a breach of that duty; 3) causation; and 4) damage. See, e.g., Merrill v. Navegear, Inc., 26 Cal.4th 465, 500 (2001). This court reviewed the applicable law in an earlier ruling in this case and decided that, under California law, once a lender agrees to consider a borrower`s request for a residential-mortgage-loan modification, it owes the borrower a duty to use reasonable care in handling that request. (See ECF No. 38 at 5-7) (citing, inter alia, Alvarez v. BAC Home Loans Servicing, L.P., 228 Cal.App.4th 941 (2014)).
The Johnsons' negligence claim now reduces primarily to the issue of Mrs. Johnson`s planned retirement. The Johnsons allege that they told PNC of Mrs. Johnson`s "impending retirement" and argue that the lender should have accounted for this in calculating their income. Because PNC negligently failed to consider Mrs. Johnson`s eventual retirement, the plaintiffs conclude, it offered them a modified loan with payment terms that they still could not afford — which constitutes their injury. (See ECF 69 at 5-8, 12).
The Second Amended Complaint does not state or fairly comprehend this theory. The Johnsons raised it for the first time in their opposition to the present summary-judgment motion. (A point they nearly concede. [See ECF No. 69 at 8.]) Because both parties fully addressed the retirement issue, both in their briefs and at the hearing, however, and for the sake of completeness, the court addresses it here.
The Johnsons more specifically argue that PNC should have considered the "impending retirement" under the Handbook`s income-verification guidelines. The relevant part of the Handbook provides that lenders must maintain a "Verification Policy" and that (among other things) this policy "should describe how the [loan] servicer will":
(ECF No. 69 at 7) (citing Handbook — ECF No. 67-17 at 44-45 [§§ 5.1, 5.1.1]) (emphases added). The plaintiffs argue that these terms compelled PNC to account for Mrs. Johnson`s planned retirement. "[P]ending retirement," the Johnsons write, is "certainly a `non-traditional income scenario.'" (ECF No. 69 at 7.) They also contend that, given her plan to retire, Mrs. Johnson`s regular wages constitute "additional income" that was "not likely to continue," and that PNC should have considered this under the "etc." term that is reproduced above. (Id.)
The court disagrees. Multiple problems prevent the court from adopting the Johnsons' position, and from agreeing that it raises a triable negligence claim.
First, assume for the moment that a borrower`s plan to eventually retire can be treated as a "non-traditional income scenario," or that a borrower`s normal wages can be "additional income" under the Handbook`s "etc." catchall. Even accepting that, these Handbook provisions address only how loan servicers are to describe their income-verification policies — what they must tell borrowers about those policies. These terms do not obviously compel lenders to adopt any particular policy with respect to such income — such as disregarding a borrower`s normal wages once told that that borrower is planning to retire. At all lengths, the Johnsons have not directed the court to any part of the Handbook, or to existing law, that suggests that these terms compelled, not only what PNC was required to disclose about its income-verification policies, but how PNC was substantively required to handle borrowers' plans to eventually retire. Nothing indicates that the Handbook imposed that particular duty on PNC.
Second, removing the provisional assumption, the Johnsons' reading of these terms is sharply counterintuitive. It simply is not convincing to cast someone`s normal wages or salary as "sporadic" or "additional" income. Almost everyone hopes to eventually retire. That does not make their normal employment income temporary, "non-traditional," or "additional." The Johnsons' proposed interpretation moreover is at odds with normal rules of construction. The Handbook here names things such as "seasonal," "sporadic," and "bonus" compensation. This is not the same class of thing as one`s normal full-time wages. To the contrary, normal wages are — in this context — almost the opposite of the "non-traditional" and "additional" income that the Handbook expressly names. The catchall et cetera must be read to contemplate sources of income that are in keeping with the other things specifically named, not to blow open an entry point for anything that a litigant labels "temporary."
Third, nothing in the record proves that the Johnsons sent PNC "retirement documents for Charlotte Johnson." It is therefore entirely unclear what PNC could have used to calculate the effect of Mrs. Johnson`s "impending retirement." The Johnsons argue that PNC somehow should have adjusted its calculations once Mr. Johnson told PNC (in a phone call) that Mrs. Johnson wanted to retire. But that would have cut against the Handbook`s mandate. In a rule that on its face is more substantively compulsory than the ones that the Johnsons cite in this area, the Handbook states: "In no event may a [lender`s] Verification Policy state that a servicer can rely solely on [a] borrower's stated income." (ECF No. 67-17 at 48 [§ 5.1.11]) (emphasis added). Both practically and as a matter of complying with the Handbook`s guidelines, PNC could not have adjusted its income calculations merely because Mr. Johnson told them that Mrs. Johnson was planning to retire.
Which leads to the fourth and last consideration. The Johnsons' argument, were it viable, would yield an unworkable loan-modification regime. Their argument thus is not one that the law can countenance. Assume that negligence law did bind PNC to adjust the Johnsons' income to reflect "impending retirement" — and that PNC had to do this without the benefit of some concrete documentation of what that retirement would entail for the Johnsons financially. How, as a practical matter, was PNC to make the appropriate adjustment? How was it to correctly calculate new loan terms? On the Johnsons' position PNC could have done little more than guess at the Johnsons' future income. What if PNC guessed wrong? Would it then be liable for that? In this case, the Johnsons originally claimed that PNC had overstated their monthly income by 10%; this allegedly caused their modified loan payment to be "at least $200 higher" than it should have been. (2AC — ECF No. 30 at 4-5 [¶¶ 13, 21].) Had PNC tried to estimate the Johnsons' post-retirement financial situation, one must imagine that any error could easily have been larger than 10% of the Johnsons' "actual" future income, or more than $200 per month. Were that the rule, lenders would be whipsawed between two poles of liability. The law will not consciously sanction a rule under which actors can do no right.
The Johnsons' negligence claim must therefore fail as a matter of law. Although PNC had a general duty to use care in handling the Johnsons' loan-modification request, see Alvarez, supra, on the undisputed facts of this case, in calculating the Johnsons' monthly income, PNC was under no duty to somehow account for Mrs. Johnson`s plan to eventually retire. Put differently, by not decreasing the Johnsons' monthly income to reflect Mrs. Johnson`s planned retirement, PNC did not breach the general duty that it owed the Johnsons.
The Johnsons' remaining arguments are not viable. None raises a genuine issue for trial. For example, they claim that PNC failed to consider whether they were at risk for "imminent default" on their loan. (ECF No. 69 at 5.) Plugging this contention a bit incongruously into their "income after retirement" argument, the Johnsons quote the following Handbook language:
(Id.; see Handbook — ECF No. 67-17 at 39 [§ 4.4].)
Even if PNC somehow violated this section, it would not give rise to an actionable claim. This provision is part of the Handbook`s eligibility criteria; that is, it appears in the Handbook rules that a lender must follow in determining whether a borrower who has requested a HAMP modification in fact qualifies for one. (See Handbook — ECF No. 67-17 at 4, 15-16, 39.) There is obviously no dispute that PNC found the Johnsons eligible for a modification: they received that modification. It is only the amount of the modified payment that they challenge.
The Johnsons also suggest that PNC used the wrong version of the Handbook when it evaluated their modification request. (ECF No. 69 at 4.) It is undisputed that PNC used version 4.4 of the Handbook. (Arthur Decl. — ECF No. 67-12 at 2-3 [¶ 11].) It is undisputed that this was the version in effect in March 2014, after the Johnsons' application was complete, when PNC evaluated their request. (Id.) The Johnsons argue that "there is a material issue as to whether plaintiff[s'] application . . . should have been reviewed" under an earlier version of the Handbook. (ECF No. 69 at 4.) Specifically, the Johnsons contend that PNC should have used the August 2013 version of the Handbook, which was in effect when they "initially" submitted their modification request. (ECF No. 69 at 4.)
This theory marks out no issue for trial. The Johnsons have not identified a rule that compelled PNC to use an earlier version of the Handbook. They identify no principle that should have led PNC to consider using a superseded version of the Handbook. They have not provided the version of the Handbook that they contend should have been used. They have not shown that that earlier version included some different relevant rule. And they have not shown that applying an earlier rule would have led PNC to a different result — which is tantamount to saying that the Johnsons have not suggested, through argument or evidence, how they were injured by PNC`s not using an earlier version of the Handbook. This all amounts to a wholesale failure to raise a prima facie issue on every element of negligence.
One more point should be made here. The Johnsons write that PNC`s summary-judgment motion must be denied because, "it is impossible to determine what effect following the previous guidebook would have ha[d] on the [loan-modification] application. . . ." (ECF No. 69 at 4.) That does not seem necessarily true. Presumably, if the Johnsons had identified the superseded rule that that they thought PNC should have applied, it would be possible to determine whether this other rule could have changed PNC`s evaluation and potentially have led to a different result. (Had an earlier rule compelled a lender to somehow account for a borrower`s "impending retirement," for example, that might have affected PNC`s assessment in a relevant way.) If it is true, though, that it is "impossible" to say what effect a prior rule would have had, then this also means that the Johnsons cannot recover on their "wrong handbook" theory. For then there would be no way to say that not using that earlier version harmed the Johnsons. The posited impossibility would make any conclusion about causation and damage wholly speculative.
Finally, the Johnsons argue that PNC "negligently delayed review of [their] application from [PNC`s] receipt of their final supplement [of application information] on February 22, 2014 to May 14[,] 2014." (ECF No. 69 at 8-9.)
First, the Johnsons do not explain why they should be allowed to advance this new argument at this stage of the proceedings. They wave toward procedural Rule 15, which governs amendments to pleadings, but offer no argument under that rule. (Id.) They provide no explanation and cite no authority showing that, in a situation like this, where a new theory is raised in response to a summary-judgment motion — a motion challenging the residue of a second amended complaint — justice requires (see Fed. R. Civ. P. 15(a)(2)) that a late amendment be permitted so that the new theory can breathe continued life into a plaintiff`s case.
Second, the Johnsons' delay argument is substantively wanting. It does not raise an issue for trial under Rule 56. The Johnsons do not ground their delay argument in sufficient proof or adequate explanation. For example, they have not provided any evidence showing that the wait between February and April 2014 harmed them. They claim that this delay "enrich[ed]" PNC by "nearly $5000" (ECF No. 69 at 9, 13), but they offer no proof to support that number. They only gesture in the direction of their original note, their December 2013 modification application, and the modification agreement that they ultimately signed. (Id. at 9.) It is not this court`s job — nor its proper role as neutral arbiter — "to scour the record in search of genuine factual issues regarding [the plaintiffs`] . . . claim; rather, it is the [Johnsons'] job to `identity with reasonable particularity the evidence that precludes summary judgment.'" Rodriguez v. City of Moses Lake, 2008 WL 5205947, *4 (E.D. Wash. Dec. 11, 2008) (quoting Keenan v. Allen, 91 F.3d 1275, 1279 (9th Cir. 1996)). On this lately added delay theory, they have not done so.
The Johnsons' other remaining claim is under California`s Unfair Competition Law ("UCL"), Cal. Bus. & Profs. Code § 17200. (2AC — ECF No. 30 at 6-9 [¶¶ 23-34].) "The UCL prohibits `unlawful' practices `forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made.'" Altman v. PNC Mortg., 850 F.Supp.2d 1057, 1076 (E.D. Cal. 2012) (quoting Saunders v. Superior Court, 27 Cal.App.4th 832, 838 (1994)). The UCL thus "borrows" violations of almost any other law and makes them independently actionable. E.g., Farmers Ins. Exchange v. Superior Court, 2 Cal.4th 377, 383 (1992).
(The court should perhaps be more specific here. The Johnsons' operative complaint frames its UCL claim under that law`s "unfair business practices" term. (2AC — ECF No. 30 at 6. This part of the UCL reaches "conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition." Cel-Tech Commc'ns, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163, 187 (1999) (emphases added). Their summary-judgment argument mentions both the "unfair" and "unlawful" prongs of the UCL. (See ECF No. 69 at 12-13). Because the "unlawful" rubric is both broader, and conceptually better fitted to the facts and arguments of this case, the court assumes that the Johnsons intend to argue under the "unlawful" prong.)
The Johnsons root their UCL claim in PNC`s alleged violation of California`s Homeowner Bill of Rights — and, in particular, the "Single Point of Contact" provisions of California Civil Code § 2923.7. (See, e.g., 2AC — ECF No. 30 at 6 [¶¶ 24-25].) The Johnsons originally claimed that PNC had violated § 2923.7, ultimately, by miscalculating their gross monthly income. But, again, the Johnsons have abandoned that theory.
Because a UCL claim is premised on other violations, it rises or falls with the underlying infraction. "Where a plaintiff cannot state a claim under the `borrowed' law, she cannot state a UCL claim either." Rubio v. Capital One Bk., 572 F.Supp.2d 1157, 1167 (C.D. Cal. 2008) (citing Smith v. State Farm Mut. Auto. Ins. Co., 93 Cal.App.4th 700, 718 (2001)). Here, because the Johnsons have not raised a genuine issue for trial on any of their theories, as discussed earlier in this order, their UCL claim also fails as a matter of law. See, e.g., Rubio, 572 F. Supp. 2d at 1168.
The court is sympathetic to the situation of homeowners like the Johnsons. But, in this case, there is no plausible claim that PNC did anything wrong in calculating the Johnsons' mortgage-loan modification. The court grants PNC`s summary-judgment motion and dismisses with prejudice the plaintiffs' remaining claims: i.e., the First and Second Causes of Action in the Second Amended Complaint.
This disposes of ECF No. 67.
