ANTHONY W. ISHII, Senior District Judge.
This is a mortgage dispute brought by Plaintiffs Jeffrey Yost and Kariesha Arnold (collectively, "Plaintiffs"). The case was removed from the Fresno County Superior Court. Defendants Nationstar Mortgage LLC (Nationstar) and Government National Mortgage Association (Ginnie Mae) (collectively, "Defendants") have filed a motion to dismiss all claims pursuant to Federal Rule of Civil Procedure 12(b)(6). Defendants also request judicial notice of their exhibits in support of their motion to dismiss pursuant to Federal Rules of Evidence 201. Defendants' request for judicial notice is GRANTED. For the reasons that follow, the motion to dismiss is GRANTED.
The Court takes the following allegations from the complaint as true for the purposes of this motion to dismiss. The Court also takes as true facts contained in the exhibits of which the Court has taken judicial notice.
In October of 2008, Plaintiffs entered into a loan agreement with CTX Mortgage Company, LLC ("CTX") in the amount of $257,860.00 for the purchase of real property, which is the subject of this lawsuit. Compl. ¶ 11; Ex. 1. In April of 2013, an Assignment of Deed of Trust was executed, transferring the beneficial interest from CTX to Defendant Nationstar. Ex. 2. During the same month, a Substitution of Trustee was executed. Ex. 3. Nationstar substituted The Wolf Firm as trustee under the Deed of Trust.
Plaintiffs initiated this action against Nationstar, Ginnie Mae and unnamed Defendants ("DOES 1-10") for monetary damages and equitable relief, alleging eleven causes of action: (1) no party in interest; (2) fraud; (3) demand for accounting; (4) intentional misrepresentation; (5) negligent misrepresentation; (6) promissory fraud; (7) violation of Cal. Civ. Code § 2923.5; (8) breach of the implied covenant of good faith and fair dealing; (9) negligence; (10) violation of Bus. & Prof. Code § 17200; and (11) negligent infliction of emotional distress. Doc. 1.
On May 24, 2013, Defendants filed a motion to dismiss and a motion for judicial notice of exhibits. Docs. 5, 6.
On June 7, 2013, Plaintiffs filed an opposition. Doc. 7.
On June 17, 2013, Defendants filed a reply. Doc. 8.
A complaint may be dismissed under Rule 12(b)(6) of the Federal Rules of Civil Procedure if it appears beyond doubt that a plaintiff can prove no set of facts in support of the claim that would entitle her to relief.
When deciding a motion to dismiss, all allegations of material fact in the complaint are taken as true and construed in the light most favorable to the plaintiff.
In alleging fraud or mistake, Rule 9(b) requires a party to "state with particularity the circumstances constituting fraud or mistake," including "the who, what, when, where, and how of the misconduct charged."
Defendants move for judicial notice of their exhibits in support of their motion to dismiss pursuant to Federal Rules of Evidence 201, and request that the Court take judicial notice of the following documents: (1) Deed of Trust recorded in the Official Records of Fresno County on October 31, 2008, as instrument number 2008-0154105; (2) Corporate Assignment of Deed of Trust recorded in the Official Records of Fresno County on April 16, 2013, as instrument number 2013-0055222; (3) Substitution of Trustee recorded in the Official Records of Fresno County on April 16, 2013, as instrument number 2013-0055223.
Federal Rules of Evidence 201(b) provides the criteria for judicially noticed facts: "A judicially noticed fact must be one not subject to reasonable dispute in that it is 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." As to the documents recorded in the Official Records of Fresno County, the court takes judicial notice of them as they are matters of public record.
As an initial matter, Plaintiffs' complaint is subject to global attack for failure to satisfy Federal Rules of Civil Procedure 8 and 9. Plaintiffs' allegations are insufficient in that they are ascribed to Defendants collectively.
A plaintiff suing multiple defendants "must allege the basis of his claim against each defendant to satisfy Federal Rule of Civil Procedure 8(a)(2), which requires a short and plain statement of the claim to put defendants on sufficient notice of the allegations against them."
Under the pleading standard of either Rule 8 or Rule 9, Plaintiffs must distinguish Defendants' particular roles in the alleged causes of action. Plaintiffs need to provide facts showing how each and every Defendant is involved and enable Defendants to know what misconduct or fraudulent representations they are charged with. Because Plaintiffs merely lump Nationstar, Ginnie Mae and DOES 1-10 together, Defendants' motion to dismiss is GRANTED. Plaintiffs will have leave to amend to satisfy the pleading requirements.
The Government National Mortgage Association (Ginnie Mae) is a government agency within the Department of Housing and Urban Development.
The complaint's state law claims against Ginnie Mae are DISMISSED WITH LEAVE TO AMEND.
Plaintiffs' first cause of action alleges neither Nationstar nor Ginnie Mae has the right to foreclose the property because neither party has any beneficial interest in the Deed of Trust or the promissory note. Compl. ¶¶ 18, 20, 21.
As discussed earlier, the Court takes judicial notice of the undisputed facts contained in the Deed of Trust (Ex. 1), the Corporate Assignment of Deed of Trust (Ex. 2) and the Substitution of Trustee (Ex. 3). Accordingly to these documents, MERS is named the beneficiary in the deed of trust. MERS then assigned its beneficial interest to Nationstar. Hence, Nationstar currently holds the beneficial interest in the Deed of Trust. Nationstar has also substituted The Wolf Firm as the trustee. Plaintiffs' "No Party in Interest" claim is ungrounded.
Plaintiffs also allege the promissory note was never actually securitized and neither Defendant is the note holder in due course, therefore, neither Defendant has the power to initiate foreclosure. Opp'n. 6.
Securitization does not change the relationship between the parties. California has rejected the notion that parties lose their interest in a loan when it is securitized or sold and assigned into a pool of trust.
Accordingly, Plaintiffs' "No Party in Interest" claim is ungrounded. The Court GRANTS Defendants' motion to dismiss regarding this claim, and it is DISMISSED WITHOUT LEAVE TO AMEND.
Plaintiffs assert several fraud-based causes of action: fraud, intentional misrepresentation and promissory fraud. Specifically, Plaintiffs allege Defendants had promised Plaintiffs a loan modification but later refused to provide it. Compl. ¶ 47.
Defendants argue these claims are subject to dismissal because: (1) they do not satisfy the heightened pleading standard of Rule 9(b), Mot. 8, 11; (2) these claims fail to allege the actual misrepresentation and damages, and are barred by the Economic Loss Doctrine, Mot. 9; Reply 3; and (3) neither Defendant is a party to the loan origination. Mot. 11.
In the opposition, Plaintiffs argue the alleged misrepresentation is evidenced by a quote from the Deed of Trust and it is reinforced by Defendants' participation in HAMP. Plaintiffs claim that once they meet HAMP's criteria, their loan should have been modified. Opp'n 7, 8. Plaintiffs further argue the more relaxed requirement of specificity should apply to their pleadings because Defendants have better knowledge of any fraud.
In California, the elements of fraud are (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (5) resulting damage.
A party alleging intentional misrepresentation must satisfy a heightened pleading standard by stating with particularity the circumstances constituting fraud. Fed. R. Civ. P. 9(b).
Promissory fraud is a subspecies of fraud and deceit . . . "where a promise is made without an intention to perform, there is an implied misrepresentation of fact that may be actionable fraud."
Plaintiffs' fraud, intentional misrepresentation and promissory fraud claims are defective because they are not stated with the requisite particularity. Plaintiffs merely allege that Defendants misrepresented to Plaintiffs that they could modify their loan. To substantiate these claims, Plaintiffs quote a line from the Deed of Trust: "[t]his Security Instrument secures to Lender . . . (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note . . ." Ex. 1. The Court does not see how this language indicates a promise made by Defendants. This sentence provides that if a plaintiff receives a loan modification, the right to receive payment from the modification would belong to the lender. Accordingly, the complaint does not sufficiently show what Defendants allegedly misrepresented. It fails to establish the first element of fraud, much less to meet the "who, what, when, where and how" heightened pleading requirement.
Plaintiffs allege their claims are subject to the more relaxed specificity requirement. Plaintiffs are incorrect. The Court acknowledges that in a limited class of cases, the Ninth Circuit has allowed Rule 9(b) to be relaxed with respect to matters within the sole possession and control of the opposing party.
Plaintiffs also claim that the alleged misrepresentation is reinforced by their meeting of the HAMP criteria. This argument is without merit because servicers are only required to consider loans eligible under the program, but not required to modify mortgages.
Defendants contend that Plaintiffs' fraud-based claims are barred by the Economic Loss Rule, that is, Plaintiffs may seek remedies for a tort claim only for physical injury, not for pure economic harm. However, Defendants cite several "negligence" cases to support their argument. Defendants' reliance on those cases is misplaced.
Under California law, the Economic Loss Doctrine does not preclude a fraud claim in the context of a contractual relationship.
Here, if Plaintiffs could show that Defendants' misrepresentations constitute fraud in inducement rather than a mere failure to perform contractual obligations, Plaintiffs are entitled to recovery, regardless of whether their harm is purely monetary. Thus, Plaintiffs may amend the complaint if they wish to do so.
Defendants also contend they cannot be held liable for the alleged misrepresentation because they are not parties to the loan origination. First, the complaint is unclear about whether any misrepresentations at issue concern the original loan creation in 2008. Any amended complaint must sufficiently link Defendants in this action to the alleged fraud. Second, there are situations in which a non-party to the loan origination may be held liable for fraud, but the complaint's allegations are inadequate to impose liability on Defendants.
In California, "liability may be imposed on one who aids and abets the commission of an intentional tort if the person knows the other's conduct constitutes a breach of a duty and gives substantial assistance or encouragement to the other to so act."
For the foregoing reasons, Defendant's motion to dismiss the second, fourth and sixth causes of action is GRANTED. These claims are DISMISSED WITH LEAVE TO AMEND.
Plaintiffs' fifth cause of action alleges negligent misrepresentation. Plaintiffs claim that Defendant negligently made a false representation (Compl. ¶ 55), Defendant misrepresented to Plaintiffs that they could modify their loan in the future (Compl. ¶ 56), Defendant had no reasonable grounds for believing this representation was true when made (Compl. ¶ 57) and Plaintiffs were harmed (Compl. ¶ 58).
Similar to the other fraud-based claims, Defendants contend: (1) this claim fail to meet the heightened pleading standard under Rule 9(b), Mot. 11; (2) Plaintiffs have not alleged the actual misrepresentation,
Courts are divided as to whether the heightened pleading standard of Federal Rule of Civil Procedure 9(b) applies to the state law claim of negligent misrepresentation.
The Court need not decide whether negligent misrepresentation allegations must comply with the pleading standard of Rule 9(b) because the complaint's allegations fail on other grounds. First, the complaint has failed to state a claim under the notice pleading standard of Rule 8. The elements of negligent misrepresentation are: "(1) a misrepresentation of a past or existing material fact, (2) without reasonable grounds for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed, and (5) damages."
Second, Plaintiffs' claim fails because it does not involve misrepresentation of a past or existing material fact, but instead alleges "promises regarding future events."
For the foregoing reasons, Plaintiffs' negligent misrepresentation claim is DISMISSED WITH LEAVE TO AMEND.
In the third cause of action, Plaintiffs request an accounting. Defendants contend Plaintiffs are not entitled to an accounting because an accounting is not a cause of action and there is no fiduciary relationship between Plaintiffs and any Defendant. Mot. 10.
"An action for an accounting is equitable in nature. It may be brought to compel the defendant to account to the plaintiff for money or property, (1) where a fiduciary relationship exists between the parties, or (2) where, even though no fiduciary relationship exists, the accounts are so complicated that an ordinary legal action demanding a fixed sum is impracticable." 5 Witkin Cal. Proc. Plead. § 819. Under California law, a claim for accounting does not require a fiduciary relationship.
Accordingly, Plaintiff's accounting claim is DISMISSED WITHOUT LEAVE TO AMEND.
Plaintiffs' complaint alleges that Defendants failed to follow the requirements of § 2923.5, including contacting Plaintiffs, exploring options to avoid foreclosure and advising Plaintiffs of their right to request a meeting with Defendants, prior to recording a notice of default on the property. Compl. ¶¶ 70, 71. Defendants move to dismiss this claim, arguing that no notice of default has been filed and there has been no foreclosure. Mot. 1, 11. Defendants further argue that Plaintiffs' acknowledgement that Nationstar worked with them to assess their loan modification qualification evidences Defendants' compliance with § 2923.5. Mot. 12.
Section 2923.5 requires a mortgage servicer, mortgagee, beneficiary, or authorized agent to "contact the borrower in person or by telephone to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure" at least thirty days before filing a notice of default. Cal. Civ. Code § 2923.5(b).
The Court cannot find, nor does Plaintiffs cite, any case in which a court has found a violation of section 2923.5 when a notice of default had not been filed and the mortgage foreclosure process has not been initiated. Because Plaintiffs concede that no notice of default has been filed, their claim under § 2923.5 is not ripe.
Furthermore, Plaintiffs do not contend that when they repeatedly applied for loan modifications, Nationstar ignored them and refused to assess their qualification. The complaint's allegations indicate that Plaintiffs have engaged in the loan modification process with Nationstar. Here, as in
Accordingly, Plaintiffs' claim for violation of § 2923.5 must be DISMISSED WITHOUT LEAVE TO AMEND.
Plaintiffs allege that Defendants breached the implied covenant of good faith and fair dealing in the loan contract. Compl. ¶ 75. Defendants contend they are not liable for the claim because they are not parties to the original loan discussions and agreements. Mot. 12. Plaintiffs oppose this argument by stating that Defendants failed to fulfill their obligations under the government loan modification programs. Opp'n 11.
"There is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement."
In support of their claim, Plaintiffs point to a single sentence in the Deed of Trust, which states: "This Security Instrument and the Secured Notes shall be governed by and construed under . . . the law of the jurisdiction in which the Property is located." Compl. ¶ 78; Ex. 1. The Court does not see how this sentence suggests that Plaintiffs have a contractual right to loan modification. "Absent additional facts, Plaintiffs have failed to allege nonconclusory factual content from which the court could infer the existence of a modification agreement that could provide the basis for additional duties owed by each party."
Accordingly, Defendants' motion to dismiss Plaintiffs' claim for breach of the implied covenant of good faith and fair dealing must be GRANTED. This claim is DISMISSED WITH LEAVE TO AMEND.
Plaintiffs allege that when Defendants undertook the task of reviewing Plaintiffs' HAMP application, Defendants assumed duties of care to Plaintiffs that went beyond the usual lender and borrower relationship. Compl. ¶¶ 94, 95. Plaintiffs allege that Defendants breached their duty by failing to give a fair review for Plaintiffs' HAMP assistance and rejecting Plaintiffs' loan application without a good reason. Plaintiffs contend that Defendants' negligence was the proximate and legal cause of the loss of Plaintiffs' home.
Defendants move to dismiss the claim, arguing that financial institutions acting in the scope of their conventional activities do not owe a duty of care to borrowers, and further, Plaintiffs' claim is barred by the Economic Loss Rule. Mot. 13.
"To prevail on a negligence claim, plaintiffs must show that the defendant owed them a legal duty, that it breached the duty, and that the breach was a proximate or legal cause of their injuries."
According to Plaintiffs' allegations, it does not appear Defendants acted beyond the domain of the usual money lender. Most courts that have considered the issue have held that a duty does not arise when a lender reviews a debtor's application for a loan.
To the extent that Plaintiffs base their negligence claim on an alleged entitlement to a modification under HAMP, Plaintiffs' claim is an improper attempt to privately enforce HAMP when Congress granted no such private right of action.
Moreover, Plaintiffs' allegations fail to establish causation. Plaintiffs allege that Defendants' negligence in processing their modification application caused them to lose their home. However, Plaintiffs admit that they were in default on their loan. As discussed earlier, Defendants have never promised Plaintiffs a modification. Defendants have the right to foreclose on the property. It was Plaintiffs' default that caused the foreclosure and Plaintiffs' injury, not Defendants' denial of a loan modification.
Finally, Defendants are correct in arguing that this claim is barred by Economic Loss Rule.
Accordingly, Plaintiffs have not stated a claim for negligence and Defendant's motion to dismiss with respect to the negligence claim is GRANTED. Plaintiffs will have LEAVE TO AMEND the complaint.
Plaintiffs allege Defendants wrongly foreclosed their home and negligently inflicted emotional distress upon them. Compl. ¶¶ 108, 109.
First, Plaintiffs concede that there has been no foreclosure. To the extent that Plaintiffs want to claim NIED based on the facts in the complaint, this claim is subject to dismissal.
"The negligent causing of emotional distress is not an independent tort but the tort of negligence. The traditional elements of duty, breach of duty, causation, and damages apply."
Plaintiffs allege Defendant violated § 17200 by engaging in unlawful, fraudulent and unfair business practices. Compl. ¶¶ 101-103.
Section 17200 prohibits any unlawful, unfair or fraudulent business act or practice. Cal. Bus. & Prof. Code § 17200. California courts have repeatedly held that claims rooted in § 17200 must plead or allege that a business practice independently forbidden by law has occurred.
Plaintiffs similarly fail to state a claim under the "unfair" prong of § 17200. "The term `unfair . . . business act or practice' . . . mean[s] deceptive conduct that injures consumers and competitors."
To the extent that Plaintiffs' § 17200 claim is predicated on the "fraudulent" prong of the statute, it fails to state a claim for relief as well. Allegations of fraudulent conduct under§ 17200 must satisfy the heightened pleading requirements of Rule 9(b).
The Court finds Plaintiffs' § 17200 claim uncompelling and therefore, GRANTS WITH LEAVE TO AMEND Defendants' motion to dismiss.
Accordingly, the Court orders:
1. Defendants' motion to dismiss is GRANTED.
2. Plaintiffs' First (No Party in Interest), Third (Accounting) and Seventh (Violation of Cal. Civ. Code § 2923.5) causes of action are DISMISSED WITHOUT LEAVE TO AMEND.
3. All other causes of action are DISMISSED WITH LEAVE TO AMEND.
4. Plaintiffs shall file an amended complaint that is consistent with the analysis of this order within 30 days from this order's date of service.