DAVID O. CARTER, District Judge.
Before the Court are two motions to dismiss Plaintiffs' Second Amended Complaint: (1) Servicer Defendants' Motion to Dismiss; and (2) Trustee Defendants' Motion to Dismiss. After reviewing the motions,
Plaintiffs filed a Second Amended Complaint ("SAC") against Servicer Defendants and Trustee Defendants on behalf of themselves, as well as seeking to represent other similarly situated individuals, for claims that concern the mortgage loan modification and foreclosure process.
The complaint was originally filed on December 20, 2011. The case was transferred to the Southern Division of the Central District of California due to related case number SACV 11-1345 filed on September 6, 2011 listing many of the same plaintiffs and defendants. Case number SA CV 11-1345 was voluntarily dismissed in favor of the present case. On January 17, 2012, Plaintiffs filed a First Amended Complaint ("FAC"). (Dkt. 7.) On March 9, 2012, the case was transferred to this Court.
On April 4, 2012, Plaintiffs filed a Motion for Transfer and Consolidation of Case to the District of Massachusetts. (Dkt. 67.) The case was stayed pending the outcome of the Multi District Panel ("MDL Panel") decision regarding the transfer of the case. On June 11, 2012, the MDL Panel denied transfer. (Dkt. 76.) This Court gave Plaintiffs leave to file a Second Amended Complaint.
On July 25, 2012, Plaintiffs filed the SAC. (Dkt. 81.) The SAC includes three categories of claims: (1) claims against Loan Originator Defendants; (2) claims against Loan Servicer Defendants; and (3) claims against Trustee Defendants. SAC at 5-6. On September 17, 2012, Plaintiffs dismissed claims against the Loan Originator Defendants by stipulation. Originator Defs. Stip. (Dkt. 112.)
The claims against Loan Servicer Defendants are based on Plaintiffs' allegations that the Servicer Defendants' offers and conduct regarding loan modifications were fraudulent and violated state laws. SAC at 6. The Servicer Defendants identified are: OneWest Bank, FSB; BAC Home Loan Servicing, LP; Ocwen Loan Servicing, LLC; Wells Fargo Bank, N.A.; Chase Home Finance, LLC; Rushmore Loan Management Services; and Citi Mortgage, Inc.
On August 24, 2012, Defendants filed a Motion to Dismiss claims against Servicer Defendants pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.
On August 24, 2012, Defendants filed a Motion to Dismiss claims against Trustee Defendants pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Trustee Defs.' Mot. (Dkt. 101). On September 14, 2012, Plaintiffs filed an Opposition to the Servicer Defendants' Motion. Opp. (Dkt. 108). Servicer Defendants filed a Reply on September 24, 2012. Rep. (Dkt. 121).
The Court will address both Motions in this Order and will provide additional factual information as necessary.
Under Federal Rule of Civil Procedure 12(b)(6), a complaint must be dismissed when a plaintiffs allegations fail to set forth a set of facts which, if true, would entitle the complainant to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (holding that a claim must be facially plausible in order to survive a motion to dismiss). The pleadings must raise the right to relief beyond the speculative level; a plaintiff must provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (citing Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986)). On a motion to dismiss, this court accepts as true a plaintiff's well-pled factual allegations and construes all factual inferences in
In evaluating a Rule 12(b)(6) motion, review is ordinarily limited to the contents of the complaint and material properly submitted with the complaint. Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir.1994); Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n. 19 (9th Cir.1990). Under the incorporation by reference doctrine, the court may also consider documents "whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading." Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994), overruled on other grounds by 307 F.3d 1119, 1121 (9th Cir.2002).
A motion to dismiss under Rule 12(b)(6) can not be granted based upon an affirmative defense unless that "defense raises no disputed issues of fact." Scott v. Kuhlmann, 746 F.2d 1377, 1378 (9th Cir. 1984). For example, a motion to dismiss may be granted based on an affirmative defense where the allegations in a complaint are contradicted by matters properly subject to judicial notice. Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir.2010). In addition, a motion to dismiss may be granted based upon an affirmative defense where the complaint's allegations, with all inferences drawn in Plaintiff's favor, nonetheless show that the affirmative defense "is apparent on the face of the complaint." See Von Saher v. Norton Simon Museum of Art at Pasadena, 592 F.3d 954, 969 (9th Cir.2010).
Additionally, Federal Rule of Evidence 201 allows the court to take judicial notice of certain items without converting the motion to dismiss into one for summary judgment. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir.1994). The court may take judicial notice of facts "not subject to reasonable dispute" because they are either: "(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R.Evid. 201; see also Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir.2001) (noting that the court may take judicial notice of undisputed "matters of public record"), overruled on other grounds by 307 F.3d 1119, 1125-26 (9th Cir.2002). The court may disregard allegations in a complaint that are contradicted by matters properly subject to judicial notice. Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir.2010).
Dismissal without leave to amend is appropriate only when the court is satisfied that the deficiencies in the complaint could not possibly be cured by amendment. Jackson v. Carey, 353 F.3d 750, 758 (9th Cir.2003); Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir.2000) (holding that dismissal with leave to amend should be granted even if no request to amend was made). Rule 15(a)(2) of the Federal Rules of Civil Procedure states that leave to amend should be freely given "when justice so requires." This policy is applied with "extreme liberality." Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir.1990).
Federal Rule of Civil Procedure 9(b) states that an allegation of "fraud or mistake must state with particularity the circumstances constituting fraud." Fed. R.Civ.P. 9(b). The "circumstances" required by Rule 9(b) are the "who, what, when, where, and how" of the fraudulent activity. Vess v. Ciba — Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.2003); Neubronner
However, "intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed.R.Civ.P. 9(b); see also Neubronner, 6 F.3d at 672 (explaining that Rule 9(b)'s heightened pleading standard may be relaxed when the allegations of fraud relate to matters particularly within the opposing party's knowledge, such that a plaintiff cannot be expected to have personal knowledge).
Plaintiffs' claims against Servicer Defendants are based on Servicer Defendants' offering and processing loan modifications.
In response to the mortgage crisis, the Departments of the Treasury and Housing and Urban Development, created the Home Affordable Modification Program ("HAMP"). HAMP's purpose is to assist borrowers who are unable to continue making their mortgage payments by creating a program to modify the borrowers' loans and provide guidelines for participating lending institutions. HAMP Supplemental Directive 09-01 (Dkt. 94) Ex. 2.
Plaintiffs allege that through Servicer Defendants' websites and mail offers, Plaintiffs became aware that Servicer Defendants were offering loan modifications to struggling borrowers. SAC at 33. Plaintiffs applied for loan modifications believing that the offers were made in good faith and would comply with HAMP guidelines. Id. at 34. Plaintiffs allege that Servicer Defendants either never intended to modify their loans or purposely mismanaged and delayed Plaintiffs' loan application process. Id.
In connection with these allegations, Plaintiffs bring the following claims: (1) fraud as defined in California Civil Code; (2) violations of California Civil Code § 1788; (3) violations of California Business and Professions Code § 17200; and (4) negligence.
"`Fraud' means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury." Cal. Civ.Code § 3294(c)(3). "The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or `scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage." Lazar v. Superior Court, 12 Cal.4th 631, 638, 49 Cal.Rptr.2d 377, 909 P.2d 981 (1996).
Plaintiffs claim that the Servicer Defendants' initial offers of a loan modification,
Plaintiffs' allegations suffer from several insurmountable flaws. First, there is a lack of particularity in the pleading. When stating a claim for fraud, the pleading party must specify the "who, what, when, where, and how" of the fraudulent activity. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.2003). Here, the Plaintiffs offer a list of Defendants and the names of their CEOs allegedly responsible for implementing fraudulent company policies. SAC at 46-47. The Plaintiffs also offer a list of fraudulent activity that took place under the direction of the CEOs, e.g.: (a) "falsely deny receiving documents from Plaintiffs and [other loan modification applicants]"; (b) lying to Plaintiffs regarding their loan modification eligibility; (c) intentionally delaying communication with Plaintiffs regarding eligibility; (d) purposely not communicating with Plaintiffs about the status of their loan modification requests; (e) purposely failing to properly review Plaintiffs' modification requests; and (f) purposely hindering Plaintiffs' loan modification process by allowing the applications to expire and requiring Plaintiffs to resubmit and restart the process.
The next challenge to pleading fraud is that Plaintiffs cannot satisfy the
Despite Plaintiffs' claims to the contrary, the claim for fraud based on the initial loan modification offer is too closely tied to a claim for fraud based on violations of HAMP to be viable. Additionally, if Defendants only offered a conditional trial period or an offer to be considered for a modification, Plaintiffs could not have reasonably relied on the loan modification offer. Thus, the claim for fraud based on the initial loan modification offer is DISMISSED WITHOUT LEAVE TO AMEND.
While Plaintiffs may not be able to state a claim for fraud based on the initial offers for a loan modification, Plaintiffs may have a claim for fraud based on Defendants' actions after the commencement of the loan modification process. Plaintiffs would have to amend the complaint to plead their claims with more specificity and separate allegations that rely on HAMP guidelines.
Upon examination of the claims for fraud described by the seven plaintiffs against the Servicer Defendants, the Court finds each one fails for lack of specificity. The seven claims generally follow a similar fact pattern outlined below:
The Court chooses to highlight Plaintiff John Alvino Alva, Jr.'s claim as it came close to pleading a viable claim for fraud. The case of Plaintiff Alva versus Defendants Bank of America, N.A. and BAC Home Servicing, LP is described below:
Plaintiff Alva fails the first element of fraud because he cannot in conclusory terms allege that Defendants' customer service agents "lied about his eligibility" or "fraudulently misplaced documents" without stating the "who, what, when, where, and how" of the fraudulent activity. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.2003). While a plaintiffs allegations are typically accepted as
Thus, Plaintiffs' claims on the basis of fraud are dismissed for failing to state a claim upon which relief can be granted due to lack of particularity in pleading.
Leave to amend should be denied "only when the court is satisfied that the deficiencies in the complaint could not possibly be cured by amendment." Jackson v. Carey, 353 F.3d 750, 758 (9th Cir.2003); Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir.2000). Here, the Court finds that if the Plaintiffs added specificity, namely names, dates, places, to their allegations, the claims for fraud may be cured by amendment.
Additionally, the Plaintiffs will have to plead that the damages caused were due to a justifiable reliance on a misrepresentation and not due to Plaintiffs' failures to pay their mortgage. In Plaintiff Alva's case, for example, Defendant BAC noticed Plaintiff Alva of a trustee's sale set for November 18, 2009. SAC at 52. Although the record is silent on this detail, the trustee's sale presumably was postponed or cancelled as Plaintiff was approved for a trial period loan modification in December 2009. Id. Plaintiff Alva alleges he then made six timely payments at the loan modification rate. Id. at 53. The next date provided in the record is February 10, 2011, when Plaintiff Alva receives notice of the trustee's sale set for March 10, 2011. Id. at 52-53. The property is sold on March 10, 2011. Id. at 53.
The facts as stated above raise the question whether the property was sold as part of a fraudulent scheme or because Plaintiff Alva stopped making payments on his mortgage after the six timely payments in 2010, and therefore Defendant BAC was exercising its rights as a lender by foreclosing on the property in 2011. Clarification on this final element of fraud would be relevant to determine whether Plaintiff is entitled to the damages he claims.
Because the Plaintiffs' allegations of fraud lack particularity, the Court GRANTS Defendants' Motion to Dismiss. Because the Plaintiffs could cure the deficiencies in the allegations based on the Defendants' actions after the loan modification discussions began by bolstering their allegations with factual substance, these claims for fraud are DISMISSED WITHOUT PREJUDICE.
California Civil Code § 1788 ("the Rosenthal Act" or "the Act") is a statute implemented to stop unfair or deceptive debt-collecting practices. Cal. Civ.Code § 1788.1(b). Section 1788.17 of the Act incorporates by reference Sections 1692(b) to 1692(j) of the federal government's Fair Debt Collection Practices Act ("FDCPA"). Cal. Civ.Code § 1788.17; 15 U.S.C. §§ 1692(b)-(j). Under the FDCPA, a debt collector may not use "any false, deceptive, or misleading representation or means in connection with the collection of any debt" or "unfair or unconscionable means to collect or attempt to collect any debt." 15 U.S.C. §§ 1692e-f. "To evaluate claims under the Rosenthal Act, the Court must consider whether the alleged communications from the debt collector would likely mislead the `least sophisticated debtor.'" Guerrero v. RJM Acquisitions LLC, 499 F.3d 926, 934 (9th Cir.2007).
Plaintiffs claim Defendants, in their roles as "debt collectors," violated the Rosenthal Act with their fraudulent acts
A "debt collector" as defined by the FDCPA is "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." 15 U.S.C. § 1692a(6). The FDCPA distinguishes a "debt collector" from a "creditor" who is "any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another." 15 U.S.C. § 1692a(4). Thus, "FDCPA's definition of debt collector does not include the consumer's creditors, a mortgage servicing company, or any assignee of the debt, so long as the debt was not in default at the time it was assigned." Nool v. HomeQ Servicing, 653 F.Supp.2d 1047, 1053 (E.D.Cal.2009) (citing to Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir.1985)) (internal quotations omitted) (emphasis added).
Although Plaintiffs allege Servicer Defendants are debt collectors, they do not support their allegation with any facts that show how Servicer Defendants were acting in a debt collecting capacity within the meaning of the FDCPA. "[A] plaintiffs obligation to provide the `grounds' of his `entitlement to relief requires more than labels and conclusions." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Here, Plaintiffs have merely labeled the Servicer Defendants debt collectors and repeated the allegations they raised under their fraud claim. Plaintiffs would have to plead that the Servicer Defendants were assigned defaulted loans for the purpose of collection. Nool, 653 F.Supp.2d at 1053. This allegation may not be accurate for any of the seven Plaintiffs.
In Lucia v. Wells Fargo Bank, the court found Plaintiffs' allegations that "the communications from Wells Fargo demanded three Trial Period payments and indicate[d] that the borrower [was] required to pay the debt" were "sufficient to demonstrate a demand for payment in support of
Under the FDCPA, a letter that does not demand payment but simply informs the borrowers of the status of their account is not considered communication "in the collection of a claim." Walcker v. SN Commercial, LLC, 286 Fed.Appx. 455, 457 (9th Cir.2008) (citing to Bailey v. Sec. Nat'l Servicing Corp., 154 F.3d 384, 388-89 (7th Cir.1998)). The Ninth Circuit applied this reasoning to dismiss a claim brought by plaintiffs alleging that the loan servicer's letters informing plaintiffs that their loan had been transferred and offering the plaintiffs a "fresh new start with their outstanding payments" were attempts to collect a debt. Walcker, 286 Fed.Appx. at 457. The Ninth Circuit found that these letters were informational and not attempts to collect debts.
In the SAC, Plaintiffs allege Servicer Defendants are "attempting to collect a debt." SAC at 83. In Plaintiffs' Opposition, Plaintiffs state that "whether or not Defendants were allegedly acting as debt collectors or attempting to collect a debt... will require factual development on a number of fronts." Opp. at 16. Plaintiffs clarify that they "may produce evidence that the allegedly misrepresentative reliance inducing offers of assistance mailed by Defendants to Plaintiffs state that said offers were attempts to collect debts." Id. Plaintiffs once again provide little factual grounds to grant relief as the coy "may produce evidence" language in the Opposition will not suffice. The Plaintiffs received copies of these offers and allegedly relied upon them. SAC at 83-84. If the loan modification offers stated on their face that they were also attempts to collect a debt, Plaintiffs should so state. Merely labeling the Defendants' actions "attempts to collect a debt" without alleging facts that show Defendants were acting in a debt-collecting capacity will not survive a motion to dismiss. Twombly, 550 U.S. at 555, 127 S.Ct. 1955.
The Plaintiffs' ability to properly plead that Defendants' misrepresentations took place while collecting a debt is not dependant on receiving discovery from the Defendants. It is not clear what "factual development on a number of fronts" is necessary to state that the Servicer Defendants were acting in a debt-collecting capacity. This is not a scenario where Defendants have exclusive knowledge on whether their loan modification offers stated that they were attempts to collect debts. The Court cannot determine whether Plaintiffs' allegations are plausible without first receiving "well-pleaded, non-conclusory factual allegation[s]." Ashcroft v. Iqbal, 556 U.S. 662, 680, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Upon amendment, Plaintiffs would have to plead their claim with sufficient facts to determine
Construing the SAC in the light most favorable to Plaintiffs, the Court finds that even if the Rosenthal Act claim were not dismissed for the aforementioned reasons, the allegations against the Servicer Defendants are not pled with sufficient particularity. Plaintiffs' claims are based on alleged fraudulent activity, and thus must include the "who, what, when, where, and how" of the fraudulent activity. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.2003).
For the foregoing reasons, Plaintiffs' claims of violations of the Rosenthal Act are DISMISSED WITH LEAVE TO AMEND. Plaintiffs' third amended complaint would have to properly plead that Servicer Defendants are debt collectors and that their violations of the Rosenthal Act occurred while collecting a debt, as well as plead the violations with sufficient specificity to state a claim upon which relief can be granted.
The Unfair Competition Law ("UCL"), codified as California Business and Professional Code § 17200, was designed to protect consumers and competitors by promoting fair competition in the commercial market. McKell v. Washington Mut., Inc., 142 Cal.App.4th 1457, 1470, 49 Cal.Rptr.3d 227 (2006). To allege a UCL claim, a plaintiff must show that the defendant's business practice was "unlawful, unfair, or fraudulent" by stating with reasonable particularity the facts supporting the violations. Cal. Bus. & Prof.Code § 17200 (West 2012); Khoury v. Maly's of California, Inc., 14 Cal.App.4th 612, 619, 17 Cal.Rptr.2d 708 (1993). Although the UCL's scope is broad, violations that sound in fraud must meet the pleading requirements under Federal Rule of Civil Procedure 9(b), which require the "who, what, when, where, and how" of the fraudulent misrepresentation. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir.2003). Alternatively, a plaintiff "may choose not to allege a unified course of fraudulent conduct in support of a claim, but rather to allege some fraudulent and some non-fraudulent conduct." Vess, 317 F.3d at 1104. "In such cases, only the allegations of fraud are subject to Rule 9(b)'s heightened pleading requirements." Id.
In order to allege a claim under the "unlawful" prong of the UCL, Plaintiffs must prove a law has been broken. Saunders v. Superior Court, 27 Cal.App.4th 832, 838-39, 33 Cal.Rptr.2d 438 (1994) ("The `unlawful' practices prohibited by section 17200 are any practices forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made.").
Plaintiffs allege Defendants' conduct violated the Rosenthal Act; breached duties of good faith and fair dealing; and committed "other common law violations (fraud and misrepresentation)." SAC at 79. As the Court has dismissed Plaintiffs' fraud and Rosenthal Act claims, the SAC does not properly allege a law has been broken. However, as not all claims were dismissed with prejudice, Plaintiffs may be able to state an unlawful UCL claim upon amendment. Thus, the motion to dismiss Plaintiffs' cause of action for a violation of the UCL based on unlawful acts is GRANTED and DISMISSED WITH LEAVE TO AMEND.
In order to sustain a cause of action under § 17200 for unfair business
Rubio v. Capital One Bank, 613 F.3d 1195, 1204-05 (9th Cir.2010), cert. denied, ___ U.S. ___, 131 S.Ct. 1817, 179 L.Ed.2d 773 (2011) (citations omitted).
Plaintiffs' SAC provides little more than a recitation of the elements necessary to state a claim under the unfair prong of a UCL claim. Plaintiffs state "Servicer Defendants have in bad faith, engaged in all the acts and omissions described herein" and such acts "offend public policy, are unethical, oppressive, unscrupulous, or substantially injurious to customers." SAC at 79. Plaintiffs also allege "the gravity of the harm to Plaintiffs and others resulting from such unfair acts and practices outweighs any conceivable reasons, justifications and/or motives of the Servicer Defendants." Id.
While Plaintiffs restate the two tests for pleading a claim of unfair practices under the UCL, they do not state particular facts to support their claim except to re-allege and incorporate every allegation in the 151-page pleading. This particular claim is dismissed because "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. Plaintiffs' Opposition provides slightly more insight into the alleged unfairness by restating the case law on when advertising can be considered deceptive. Opp. at 14. However, this clarification is too little, too late. As Plaintiffs could potentially allege facts to show how their case rises to the level of deceptive advertising, the claim will be dismissed without prejudice. Thus, the Motion to Dismiss this claim is GRANTED and the cause of action against Defendants for unfair violations of the UCL is DISMISSED WITH LEAVE TO AMEND.
Pinel v. Aurora Loan Services, LLC, 814 F.Supp.2d 930, 941 (N.D.Cal.2011) (citations omitted). Violations that sound in fraud must meet the pleading requirements under Federal Rule of Civil Procedure 9(b), which require the "who, what, when, where, and how" of the fraudulent misrepresentation. Vess v. Ciba-Geigy
As discussed above, Plaintiffs' allegations of fraud fail because the pleadings lack specificity. Therefore, the UCL claims based on fraudulent practices shall also be DISMISSED WITH LEAVE TO AMEND.
The elements of negligence include duty, breach of duty, proximate cause, and damages. Berkley v. Dowds, 152 Cal.App.4th 518, 526, 61 Cal.Rptr.3d 304 (2007). To determine the scope of a duty, a court's considerations include "the foreseeability of harm to the plaintiff, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury suffered, the moral blame attached to the defendant's conduct, the policy of preventing future harm, the extent of the burden to the defendant and consequences to the community of imposing a duty to exercise care with resulting liability for breach, and the availability, cost, and prevalence of insurance for the risk involved." Kentucky Fried Chicken of Cal., Inc. v. Superior Court, 14 Cal.4th 814, 820, 59 Cal.Rptr.2d 756, 927 P.2d 1260 (1997); see also Eric M. v. Cajon Valley Union Sch. Dist., 174 Cal.App.4th 285, 293, 95 Cal.Rptr.3d 428 (2009). Furthermore, negligence requires that the breach be a "failure to exercise the degree of care in a given situation that a reasonable person under similar circumstances would employ to protect others from harm." City of Santa Barbara v. Superior Court of Santa Barbara Cnty., 41 Cal.4th 747, 754, 62 Cal.Rptr.3d 527, 161 P.3d 1095 (2007).
Financial institutions typically do not owe a duty of care to a borrower when its activities do not exceed those of a conventional money lender. Nymark v. Heart Fed. Sav. & Loan Assn., 231 Cal.App.3d 1089, 1096, 283 Cal.Rptr. 53 (Ct.App.1991). "Numerous cases have characterized a loan modification as a traditional money lending activity." Settle v. World Sav. Bank, F.S.B., ED CV 11-00800 MMM, 2012 WL 1026103 (C.D.Cal. Jan. 11, 2012). See also, Johnston v. Ally Fin. Inc., 11-CV-0998-H BLM, 2011 WL 3241850 (S.D.Cal. July 29, 2011) (quoting Karimi v. Wells Fargo, 2011 U.S. Dist. LEXIS 47902, at *7, 2011 WL 2936324 (C.D.Cal. 2011) ("In addition, loan modification is an activity that is "intimately tied to Defendant's lending role."")). But see Ansanelli v. JP Morgan Chase Bank, N.A., C 10-03892 WHA, 2011 WL 1134451 (N.D.Cal. Mar. 28, 2011) ("Yet the complaint alleges that defendant went beyond its role as a silent lender and loan servicer to offer an opportunity to plaintiffs for loan modification and to engage with them concerning the trial period plan. Contrary to defendant, this is precisely `beyond the domain of a usual money lender.'").
Using Plaintiff Alva as the archetype for the Plaintiffs' claims, the allegations as stated in the SAC lack a legal basis. Plaintiff Alva claims Defendant BAC owed a reasonable duty of care when it offered a loan modification, to ensure that Plaintiff was not exposed to substantial risk of loss. SAC at 54. Neither Plaintiff Alva's allegations nor any of the other six plaintiffs cite to any law that establishes this duty in the SAC. In Plaintiffs' Opposition, Plaintiffs cite to Nymark v. Heart Fed. Sav. & Loan Assn., 231 Cal.App.3d 1089, 1098, 283 Cal.Rptr. 53 (Ct.App.1991), which provides a six-factor test for determining when "a financial institution owes a duty of care to a borrower-client." Opp. (Dkt. 107) at 17.
This Court finds that the six-factor test is unnecessary to determine that no duty can be established as many of the California district courts, particularly in the Central District, have found that modifying the
Additionally, as the insufficiency is legal in nature, the Plaintiffs will not be able to plead any facts that would cure the defect in the claim. Thus, the Court finds the cause of action for negligence is DISMISSED WITH PREJUDICE.
On August 24, 2012, Defendant OneWest submitted a supplemental Motion to Dismiss arguing that all of Plaintiffs' claims against OneWest are preempted by the Home Owner's Loan Act of 1933 ("HOLA"). OneWest Mot. (Dkt. 96) at 7-9. OneWest argues that it is a federal savings bank and only the Office of Thrift Supervision ("OTS") can impose regulations of a federal savings bank. Thus, Plaintiffs' claims are preempted by OTS regulation. OneWest Mot. at 7. Plaintiffs did not file an opposition to the HOLA argument. OneWest Notice of Non-Opposition (Dkt. 117) at 2.
The Ninth Circuit stated that although there is typically a presumption against preemption, this presumption does not apply to the field of banking due "a history of significant federal presence" in the field. Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1004 (9th Cir.2008) (citing United States v. Locke, 529 U.S. 89, 108, 120 S.Ct. 1135, 146 L.Ed.2d 69 (2000)).
Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1005 (9th Cir.2008).
Section 560.2(b) provides illustrative examples of the types of law preempted by HOLA, including, without limitation, state laws purporting to impose requirements regarding:
(9) Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents and laws requiring creditors to supply copies of credit reports to borrowers or applicants; and (10) Processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages." 12 C.F.R. § 560.2(b) (9) and (10).
However, Section 560.2(c) provides exceptions to preemption, including claims arising under tort law or any other law "to the extent that they only incidentally affect the lending operations of Federal savings associations or are otherwise consistent
The OTS has provided the following guideline to determine whether a state law is preempted by federal regulation:
Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1005 (9th Cir.2008). "HOLA does not preempt UCL claims in which the `predicated acts were violations of the general legal duties with which every business must comply.'" Bertoli v. Wachovia Corp., FSB, C11-03432 TEH, 2011 WL 5244687 (N.D.Cal. Nov. 3, 2011). "Only claims that are specific to a defendant's lending activities, as distinguished from legal duties applicable to all businesses, are preempted under HOLA." Id.
The duty not to commit fraud is one such general legal duty. In Taguinod v. World Savings Bank, the district court found that claims for fraud were typically preempted when the allegations addressed issues "related to fees, disclosures and interest rates." Taguinod v. World Sav. Bank, FSB, 755 F.Supp.2d 1064, 1070 (C.D.Cal.2010). The Taguinod court held that when Plaintiffs alleged that changes were made to their loan documents after the documents had been signed, the claim for fraud was not preempted. Id. at 1070. Here, Plaintiffs allege that Defendant OneWest's customer service representatives purposely denied receiving Plaintiffs' documents or purposely allowed Plaintiffs' application documents to expire. SAC at 6. The Court finds that because these activities are merely incidental to OneWest's role as a lender, they are not preempted by HOLA. Although the fraud claim was dismissed above, it is without prejudice. The Court does not find Plaintiffs' UCL or Rosenthal claims preempted by HOLA to the extent such claims rely on the fraud claim described above. Thus, the claims are dismissed without prejudice.
Plaintiffs' second category of claims, claims against Trustee Defendants, is based on the non judicial foreclosure process. Plaintiffs allege that Trustee Defendants illegally initiated the foreclosure process or foreclosed on Plaintiffs' properties. SAC at 6.
Plaintiffs allege that when they purchased their properties, they signed a Note or Deed of Trust in exchange for a loan. Plaintiffs allege that these Notes and Deed of Trusts are then pooled together and sold to a Trust. SAC at 87. The Trust issues bonds or certificates and owes a fiduciary duty to the bondholders or "certificateholders." These Trusts are then serviced by the Servicer Defendants.
Based on this legal theory, Plaintiffs bring the following claims against Trustee Defendants: (1) violations of California Commercial Code § 3602; and (2) negligence.
Under California Commercial Code Section 3602, "an instrument is paid to the extent payment is made by or on behalf of a party obliged to pay the instrument." Cal. Com.Code § 3602(a)(1).
Plaintiffs allege that foreclosure on their properties is a violation of California Commercial Code Section 3602 because the Servicer Defendants, Fannie Mae, or Freddie Mac made payments "on their behalf," therefore their loan obligations were not in default. SAC at 88. In Plaintiffs' Opposition, they clarify that they are not claiming to be third-party beneficiaries to the Trust Agreements or PSAs, but instead under the terms of the Notes or Deeds of Trusts there is a clause that provides that "[a]ny person who takes over [the promises and obligations included in the Note], including the obligations of a guarantor, surety or endorser of this Note, is also obligated to keep all the promises made in this Note." Opp. at 2. Plaintiffs argue that when Servicer Defendants entered into the Trust Agreements and agreed to pay Advances on delinquent loans, Servicer Defendants took over the obligations under the Note, including making payments, and therefore Plaintiffs' loans were not in default.
The Court will use Plaintiff Sophy Bonsynat ("Plaintiff Bonsynat") to illustrate Plaintiffs' allegations. On August 2, 2007, Plaintiff Bonsynat gave a Note and Deed of Trust to Defendant Wells Fargo Bank, N.A. ("Defendant Wells Fargo") in exchange for a loan of $414,000 to purchase the property located on 939 East 19th St., Long Beach, CA 90806 ("19th St Property"). SAC at 127. Section 6(b) of the Note states: "If I do not pay the full amount of each monthly payment on the date it is due, I will be in default." Bonsynat Note (Dkt. 40) Ex. 2. The Note also stated under Section 8: "Any person who takes over these obligations, including obligations of a guarantor, surety or endorser of this Note, is also obligated to keep all of the promises made in this Note." Id. It is Section 8 of the Note that provides the basis of Plaintiff Bonsynat's complaint.
Around September or October 2007, Plaintiff Bonsynat's Note and Deed of Trust were sold to Defendant Freddie Mac. Defendant Wells Fargo was to service the Note. SAC at 128. Shortly thereafter, Defendant Freddie Mac pooled
After executing the Note and Deed of Trust, Plaintiff Bonsynat experienced financial hardship and was unable to make her loan payments. Id. at 128. On July 24, 2009, Defendant Wells Fargo sent Plaintiff Bonsynat a Notice of Default on behalf of Defendant Freddie Mac, acting as a trustee for a yet-to-be-identified Trust. The Trustee's Sale took place on August 11, 2010. The 19th Street Property was purchased by Trustee Freddie Mac for an unidentified Trust. Id. at 128-29.
Plaintiff Bonsynat alleges that Defendant Wells Fargo or Defendant Freddie Mac had taken over the payment obligations demanded by the Note. Plaintiff Bonsynat bases this allegation on the Freddie Mac Pass-Through Certificates Master Trust Agreement ("Freddie Mac Trust Agreement"), under which Defendant Freddie Mac guarantees timely loan payments to the Trust. Id. at 129. In order to satisfy the guarantee either Defendant Wells Fargo or Defendant Freddie Mac "took over" the loan payments. Id. Because the Defendants made payments on the Note to the Trust, the loan could not have been in default and foreclosing on the 19th St Property was unlawful. Id.
Defendants argue that any payments made by the Servicer, Fannie Mae, or Freddy Mac Defendants to the Trust were based on Trust Agreements or PSAs and are not made "on behalf of the Plaintiffs. Mot. at 6. The Trust Agreements or PSAs were intended to protect the purchasers of the mortgage-backed bonds and certificates. Id. at 6. The Plaintiffs are not a party to these agreements and the agreements expressly prohibit unintentional third party beneficiaries. Id. Plaintiffs concede they are not third party beneficiaries to the Trust Agreements or PSAs. Opp. at 2.
Defendants also argue that the Trust Agreements and PSAs were not intended to curtail the lender's right to foreclose on a property when the borrower has stopped meeting his or her payment obligations. The Trust Agreements "expressly preserve the Servicer Defendants' ability to foreclose on Plaintiffs in the event of Plaintiffs' failure to pay." Mot. (Dkt. 101) at 8.
On a motion to dismiss, this Court accepts as true a plaintiffs well-pled factual allegations and construes all factual inferences in the light most favorable to the plaintiff. Manzarek, 519 F.3d at 1031. The Court is not required to accept as true legal conclusions couched as factual allegations. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.
Here, the Court finds that dismissal is still proper even if it accepts as true that Servicer Defendants made Advances to the Trustee Defendants when the Plaintiffs were delinquent on their loan payments. The Court does not have to accept the legal conclusion that these Advances constituted the Servicer Defendants "taking over" Plaintiffs' loan obligations. The Court bases this decision on three findings: (1) the Trust Agreements and PSAs were not created for the benefit of the Plaintiffs; (2) the Trust Agreements and PSAs did not constitute a forfeiture of the right to foreclose on Plaintiffs' property; and (3) default is clearly defined as Plaintiffs' failure to make loan payments.
The Court will use the SAC Exhibit 1 ("Lehman XS Trust Agreement") as an illustrative example. The Lehman XS Trust Agreement lists Defendant Aurora Loan Services, LLC ("Servicer Defendant Aurora") as the "Master Servicer." SAC, Ex. 1. Section S-140 of the Lehman XS Trust Agreement states:
SAC, Ex. 1 at S-140 (emphasis added).
The Trust Agreements and PSAs were not created for the benefit of the Plaintiffs because it states on the face of the Exhibit submitted by the Plaintiffs that the Trust Agreements are for the benefit of the Certificate Holders. Therefore, the Plaintiffs cannot argue that the Trust Agreements are evidence of the Servicer Defendants taking over Plaintiffs' loan obligations.
The Trust Agreements and PSAs do not constitute a forfeiture of the right to foreclose on Plaintiffs' property because the Trust Agreement plainly states that Servicer Defendant Aurora is only required to make Advances for delinquent loan payments to the extent that such advances are reasonably recoverable from future payments and collections. The language of the document shows that by paying the Advances, Defendant Aurora was not "taking over" the Plaintiffs' obligations because Plaintiffs were still ultimately responsible for paying back their loans. Furthermore, the Advances were reimbursable, which meant the debt owed to the Trust was ultimately not satisfied by the Servicer Defendants' Advances. SAC, Ex. 1 ("The Master Servicer, a Servicer or the Trustee in its capacity as successor Master Servicer, as applicable, will be entitled to recover any Advances made by it with respect to a Mortgage Loan out of late payments thereon or out of related liquidation proceeds
Finally, "default" is clearly defined as Plaintiffs' failure to make loan payments. See Bonsynat Note (Dkt. 40) Ex. 2 ("If I do not pay the full amount of each monthly payment on the date it is due, I will be in default.").
For the foregoing reasons, the Court finds that by entering into Trust Agreements and PSAs the Servicer Defendants, Fannie Mae, and Freddy Mac did not "take over" Plaintiffs' payment obligations. Therefore, no payments were made "on behalf of the Plaintiffs and the loans were in default.
Saldate v. Wilshire Credit Corp., 686 F.Supp.2d 1051, 1061 (E.D.Cal.2010).
In Plaintiff Bonsynat's factual allegations, she admits she experienced financial hardship and was unable to make her loan payments. SAC at 128. California law is clear that when the borrower has signed an agreement offering his or her property as security, the lender may non judicially foreclose on the property when the borrower stops making payments. Because the Court found above that payments made by the Servicer Defendants, Fannie Mae, or Freddie Mac were not "on behalf of the Plaintiffs, the Servicer Defendants were within their rights to foreclose on properties where the Plaintiffs had stopped making loan payments.
The Court finds it unnecessary to address Defendants' arguments that Plaintiffs did not offer tender to stop the foreclosures, that California Commercial Code § 3602 does not apply to non judicial foreclosure sales, or that California Commercial Code § 3602 does not create a private cause of action, as the Court dismisses with prejudice on the grounds that Defendants did not "take over" Plaintiffs' payment obligations. As it is clear on the face of the Trust Agreements and PSAs that any advance payments were not made for the benefit of the borrowers and the right to foreclosure had not been waived, the Plaintiffs cannot amend the pleadings to state a viable cause of action on those grounds.
Thus, the Court DISMISSES Plaintiffs' violation of California Commercial Code § 3602 claim WITH PREJUDICE.
The elements of negligence include duty, breach of duty, proximate cause, and damages. Berkley v. Dowds, 152 Cal.App.4th 518, 526, 61 Cal.Rptr.3d 304 (2007). To determine the scope of a duty, a court's considerations include "the foreseeability of harm to the plaintiff, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury suffered, the moral blame attached to the
Financial institutions typically do not owe a duty of care to a borrower when its activities do not exceed those of a conventional money lender. Nymark v. Heart Fed. Sav. & Loan Assn., 231 Cal.App.3d 1089, 1096, 283 Cal.Rptr. 53 (Ct. App.1991). Furthermore, a "trustee under a deed of trust has neither the powers nor the obligations of a strict trustee; rather, he serves as a kind of common agent for the trustor and the beneficiary." Hatch v. Collins, 225 Cal.App.3d 1104, 1111, 275 Cal.Rptr. 476 (1990). "[The trustee's] agency is a passive one, for the limited purpose of conducting a sale in the event of the trustor's default or reconveying the property upon satisfaction of the debt." Id. "[A] trustee has a general duty to conduct the sale `fairly, openly, reasonably, and with due diligence,' exercising sound discretion to protect the rights of the mortgagor and others." Id. at 1112, 275 Cal.Rptr. 476.
Plaintiffs allege that the Servicer Defendants, Trustee Defendants, Fannie Mae and Freddie Mac owed Plaintiffs a duty of care leading up to the foreclosure proceedings and through the foreclosure sales to ensure Plaintiffs were not unnecessarily exposed to property loss. SAC at 148. Based on Plaintiffs' theory that the Servicer Defendants, Fannie Mae, or Freddie Mac made mortgage payments on their behalf, Plaintiffs allege their loans were not in default and Defendants did not have a right to foreclose on Plaintiffs' properties. Id. In Plaintiffs' Opposition, Plaintiffs concede that foreclosure is a traditional money lending activity. Opp. at 9. Plaintiffs argue that illegal foreclosure is outside of the money lender's scope of activities. Id. Plaintiffs also allege that Defendants' behavior has been morally blameworthy and their alleged misconduct has affected millions of consumers. Id. at 9.
The Court finds Plaintiffs are unable to establish a breach of duty, and therefore the cause of action for negligence fails. Plaintiffs claim that Defendants foreclosed on properties with loans that were not in default because a third party made payments on Plaintiffs' behalf. SAC at 148. This allegation was dismissed with prejudice above. Because Plaintiffs acknowledged that foreclosure is within the traditional money lending scope and their theory of illegal foreclosure is dismissed, Plaintiffs cannot claim Defendants owed them a duty of care. Thus, the motion to dismiss the negligence claim is GRANTED and the claim is DISMISSED WITH PREJUDICE.
On June 25, 2012, this Court held a Status Conference which set the deadline for submitting the SAC and related motions. On that date the Court made it known there was a strong possibility that the SAC would be Plaintiffs' last opportunity to amend and file their complaint. Tr.
For the foregoing reasons, the Court GRANTS Servicer Defendants' Motion to Dismiss. The claims of fraud, violations of California Civil Code § 1788, and violations of California Business and Professions Code § 17200 are DISMISSED WITHOUT PREJUDICE and the claim of negligence is DISMISSED WITH PREJUDICE.
The Court GRANTS Trustee Defendants' Motion to Dismiss WITH PREJUDICE.
Plaintiff shall file an amended complaint, if at all, on or before December 10, 2012.
The Clerk shall serve a copy of this minute order on counsel for all parties in this action.
