CHARLES R. BREYER, District Judge.
Plaintiff Terry Ford ("Plaintiff") is a borrower under a home loan for $549,000.00, who defaulted on the loan and currently faces foreclosure. She brings action against all entities involved with the loan. She alleges that Defendants executed various foreclosure documents and other documents reassigning interests under the loan that misrepresented the nature and authority of the Defendant companies and their respective signors. She alleges that these misrepresentations breached contractual obligations and violated California's Unfair Competition Law ("UCL"). This, Plaintiff alleges, opens the door to equitable claims through which she challenges the Defendants' interests in the subject property and right to initiate foreclosure. In addition to damages, Plaintiff seeks to enjoin a nonjudicial foreclosure sale, originally scheduled for December 6, 2011, and now postponed. Nothing in the Complaint or subsequent filings suggests that the foreclosure sale has since then occurred, or that Defendants have brought an unlawful detainer action to evict Plaintiff.
The Court finds this matter suitable for resolution without oral argument pursuant to Civil Local Rule 7-1(b), and VACATES the hearing currently set for Friday, June 22, 2012. The Court GRANTS Defendants' motion to dismiss as to all causes of action. Plaintiff has twenty (20) days from the date of this order to file an amended complaint for those claims that the Court dismisses without prejudice.
Since 1998, Plaintiff Terry Ford has owned a parcel of real property located at 240 Cedar Lane, Pacifica, CA 94044. Compl. ¶ 14. On or about March 3, 2006 Plaintiff refinanced the subject property with Defendant Lehman Brothers Bank, FSB, a Federal Savings Bank ("Lehman"), and signed a Deed of Trust securing a loan in the principal amount of $549,000.00. Compl. ¶ 15; Compl. Ex. 1. The Deed of Trust named Plaintiff as the borrower, Lehman as the lender, Old Republic Title ("Old Republic") as the trustee, and Mortgage Electronic Registration Systems, Inc. ("MERS") as the beneficiary of the security instrument and "nominee for Lender and Lender's successors and assigns." Compl. ¶ 15; Compl. Ex. 1 ¶¶ B-E. The Deed of Trust was subsequently recorded in the County of San Mateo on March 14, 2006. Compl. Ex. 1.
The terms of the Deed of Trust pertinent to Plaintiff's complaint are as follows:
On April 15, 2006 Lehman assigned, sold or transferred its servicing rights to the security instrument to Aurora Loan Services, LLC ("Aurora") through a Notice of Assignment, Sale or Transfer of Servicing Rights ("Notice of Assignment"). Compl. ¶ 17; Compl. Ex. 4. On or about November 2, 2010, Plaintiff defaulted on the loan secured by the Deed of Trust. Compl. ¶ 16.
The Complaint concentrates on several documents executed after Plaintiff's default occurred. On July 13, 2011, MERS, in its capacity as "nominee for Lehman," signed a Corporate Assignment of Deed of Trust ("Corporate Assignment"), which appeared to assign and transfer all beneficial interest under the Deed of Trust to Aurora. Compl. ¶ 18; Compl. Ex. 2. The Corporate Assignment, recorded in San Mateo County on July 21, 2012, bore the signature of an individual named Stacy Sandoz, represented as Vice President of MERS. Compl. ¶¶ 18, 19; Compl. Ex. 2.
On July 29, 2011, First American Title Insurance Company ("First American"), declaring itself the agent of Cal-Western Reconveyance Corporation ("Cal-Western"), executed a Notice of Default and Election to Sell Under Deed of Trust ("Notice of Default"), which was then recorded on August 1, 2011, thereby initiating foreclosure proceedings. Compl. ¶ 21; Compl. Ex. 5. The signature of an individual named Derrick Sue appears on the Notice of Default, although the document does not indicate his title or relationship to First American. Compl. ¶ 22; Compl. Ex. 5. The Notice of Default notified Plaintiff that she was $24,854.45 in arrears. Mot. at 2; Compl. Ex. 5.
On August 23, 2011, Aurora, identifying itself as the present beneficiary under the Deed of Trust, executed a Substitution of Trustee naming Cal-Western as trustee and later recorded it in San Mateo County on September 2, 2011. Compl. ¶ 25; Compl. Ex. 6. The document bears the signature of an individual named Michelle Rice, who is designated as Aurora's Vice President. Compl. ¶ 26; Compl. Ex. 6. There is an accompanying Affidavit of Mailing Substitute Trustee ("Affidavit"), signed by an individual named Megan Cooper on behalf of Cal-Western; it does not indicate her title or relationship to Cal-Western. Compl. ¶ 27; Compl. Ex. 6.
In the three months following the filing of the Notice of Default, Plaintiff failed to cure the default, so Cal-Western executed a Notice of Trustee's Sale on November 2, 2011, announcing that a nonjudicial foreclosure sale would be held on December 6, 2011. Compl. ¶ 28; Request for Judicial Notice (dkt. 4) Ex. 5 (hereinafter "RJN"). Defendants recorded the Notice of Trustee's Sale on November 15, 2011. Mot. at 2.
Plaintiff filed a Complaint on November 23, 2011, in the Superior Court of California, County of San Mateo. The Complaint asserts five causes of action: (1) breach of contract, (2) violations of Business & Professions Code § 17200, California's Unfair Competition Law, (3) an action to quiet title on the subject property, (4) an action for an accounting, and (5) declaratory relief.
Under Rule 12(b)(6), a party may move to dismiss a cause of action which fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). On a motion to dismiss, all well-pleaded allegations of material fact are taken as true and construed in the light most favorable to the non-moving party.
In the context of fraud claims, Rule 9(b) requires a party to "state with particularity the circumstances constituting fraud . . . . Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." To comply with Rule 9(b), a plaintiff must plead "with particularity" the time and place of the fraud, the statements made and by whom, an explanation of why or how such statements were false or misleading, and the role of each defendant in the alleged fraud.
A complaint should not be dismissed without leave to amend unless it is clear that the claims could not be saved by amendment.
Plaintiff alleges, in support of her five causes of action, that some documents in connection with the Deed of Trust are invalid due to either fraud or lack of authority of signing parties.
Specifically, Plaintiff alleges that Stacy Sandoz was not a Vice President of MERS as the Corporate Assignment would suggest, but rather "was in fact not employed at all by MERS nor was she authorized by MERS to take such actions due to the fact that the document was not properly notarized . . . no such person existed or signed said document or notarial record." Compl. ¶¶ 19, 38; Compl. Ex. 2. Plaintiff brings the same allegations against Michele Rice, the signatory of the Substitution of Trustee and purported Vice President of Aurora, and Megan Cooper, who represented Cal-Western on the accompanying Affidavit of Mailing Substitute Trustee. Compl. ¶¶ 26, 27; Compl. Ex. 6. Plaintiff similarly contends that Derrick Sue, whose signature appears on the Notice of Default and Election to Sell Under Deed of Trust, is fictitious or else not employed by First American. Compl. ¶ 22; Compl. Ex. 5. Furthermore, Plaintiff alleges that MERS did not have an agreement with Lehman to operate as its nominee and that no agency relationship existed between Cal-Western and First American. Compl. ¶¶ 20, 22, 39, 40.
Defendants request that the court grant their motion to dismiss all claims in the Complaint on the ground that Plaintiff has failed to tender payment to cure the default on her loan. Mot. at 4. Defendants pose failure to tender as a threshold issue. They cite
Next, Defendants argue that each of the Plaintiff's five causes of actions can be dismissed for failure to state a claim. This Court agrees.
A complaint for breach of contract must plead: (1) the existence of a contract, (2) a breach of the contract by defendant, (3) performance or excuse of non-performance on behalf of plaintiff, and (4) damages suffered by plaintiff as a result of defendant's breach.
Plaintiff anchors her breach of contract claim in her understanding that the security instrument (1) vested the power of sale only in the trustee and (2) permits only the Lender to reassign or substitute that trustee. Compl. ¶ 24. These premises give rise to two alleged instances of breach. First, because the note designated MERS as merely Lehman's "nominee," and not an agent, MERS did not assume Lehman's substitution right. Thus, Lehman's exclusive power to substitute a trustee did not transfer to Aurora when Lehman executed the Corporate Assignment on July 13, 2011. Compl. ¶ 24. Therefore, Plaintiff alleges that Aurora lacked the authority to substitute Cal-Western as the new trustee. Consequently, Aurora's attempt to do so violated paragraph 24 of the Deed of Trust, which limits the manner in which a trustee may be substituted. Compl. ¶¶ 24, 31. Second, because Cal-Western never contractually assumed the role of trustee, it lacked the power of sale. Compl. ¶ 24. Without legal authority to initiate foreclosure, Plaintiff contends, Cal-Western and First American, as its agent, breached the terms of the Deed of Trust imposing a specific foreclosure procedure. Compl. ¶ 24; Compl. Ex. 1 at 3.
As Plaintiff points out in her Opposition, paragraph 24 of the Deed of Trust sets forth a procedure for substituting a trustee, which "govern[s] to the exclusion of all other provisions." Compl. Ex. 1 ¶ 24. If this procedure is indeed mandatory, then a deviation from it may form the basis for a breach of contract claim. However, other provisions complicate the picture and may cut against Plaintiff's allegations. For example, the terms on page three of the Deed of Trust explicitly give MERS the right to foreclose and sell, as well as take any action required of the Lender, which may very well include substitutions and assignments. Additionally, other cases involving similar, if not identical, deeds of trust have held that MERS, as beneficiary and nominee, had the power to make assignments and substitutions under California's statutory foreclosure scheme.
Assuming, arguendo, that Plaintiff has sufficiently alleged breach, the cause of action nevertheless fails because the Complaint does not sufficiently allege other requisite elements of a breach of contract claim.
Plaintiff alleges that "as an actual and proximate result of the conduct of the alleged breaches of written contract, and because of the breaches of said written contract [sic] have continued for the past year, the named Defendants and each of them, continue to be responsible for the many breaches and damages caused to the Plaintiff herein. . . . Plaintiff is therefore seeking damages for the many breaches of the contracts referenced herein and as set forth in the prayer in this Complaint." Compl. ¶¶ 32, 33.
A complaint must allege actual damages that were proximately caused by the defendant's breach.
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Plaintiff's Complaint lacks any factual allegations that might distinguish the present case from
Plaintiff also fails to allege her own performance or excuse for non-performance under the contract. Here the issue of Plaintiff's failure to tender an amount sufficient to cure the default materializes again, not under the laws of equity, but rather as a means to satisfy one of the requisite elements for a breach of contract claim.
Defendants argue that Plaintiff's default on the loan, uncorrected since November of 2010, precludes recovery under a breach of contract claim because it demonstrates that Plaintiff has not satisfied her own obligations under the Deed of Trust. Mot. at 8. The Court agrees.
In general, a "plaintiff who has not performed under a contract is foreclosed from suing another for breach of that agreement."
In similar foreclosure cases, courts have dismissed breach of contract claims for failure to adequately allege this performance.
Plaintiff admits in her Complaint that she entered into a loan agreement on March 3, 2006, and defaulted on that loan on November 2, 2010. She does not allege any tender of payment since then. Nor is there any indication that she has offered to tender payment that could reinstate the loan or otherwise fulfill her obligations. She therefore fails to allege performance.
Similarly, Plaintiff does not offer any factual allegations in her Complaint that might excuse her failure to perform, let alone with any degree of specificity. Plaintiff provides some explanation in her Opposition, but none of her arguments purport to excuse the initial default, which constituted a breach of Plaintiff's primary debt obligations under the loan.
Plaintiff cannot sustain her cause of action because she neither alleges performance under the contract nor an excuse for nonperformance of the contractual terms.
Accordingly, the Court GRANTS the Defendants' Motion to Dismiss Plaintiff's breach of contract claim without prejudice, so she may cure the defects identified herein.
Section 17200, California's so-called Unfair Competition Law ("UCL") prohibits "any unlawful, unfair or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200. Plaintiff alleges that individuals whose names appeared on various documents in connection with the Deed of Trust were either fictitious or lacked the authority to act on behalf of the companies they purported to represent, either as employees or agents. Compl. ¶¶ 19, 22, 26-27. Plaintiff additionally challenges the validity of the notarization of the Corporate Assignment, Substitution of Trustee, and Affidavit. Compl. ¶¶ 19, 26-27. She argues that by utilizing unauthorized agents, Defendants engaged in "unfair, deceptive, untrue acts" and therefore violated Section 17200. Compl. ¶ 37.
Defendants make several arguments in response. Defendants insist that individuals who signed the contested documents did not misstate their authority, and Plaintiff has no personal knowledge upon which to base her allegations. Mot. at 1, 11-15. In addition, Defendants contend that as a non-party to the agreements that vested the named individuals with the authority to execute those documents, Plaintiff is not entitled to challenge them. Lastly, Defendants argue that even if Plaintiff could bring such an action, the Complaint does not plead the claim with the specificity required under Section 17200.
Defendants are correct in concluding that the Complaint does not sufficiently address the specific elements required for a UCL claim. Defendants have not, however, identified a more fundamental problem with the Complaint: Plaintiff's allegations cannot confer standing under the UCL. Both defects, discussed in detail below, direct this Court to GRANT Defendants' Motion to Dismiss with leave to amend.
California's Proposition 64, enacted in 2004 as an amendment to the UCL and codified in California Business & Professions Code Section 17204, created stricter eligibility requirements for private individuals pursuing Section 17200 claims.
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In the instant case, Plaintiff falls even shorter of the eligibility requirements than the plaintiff in
Lack of standing under the UCL alone warrants dismissal in this case, but Plaintiff's Complaint also fails to sufficiently allege the other elements of a UCL claim.
Plaintiff also fails to plead sufficient facts to support a UCL claim for "unlawful, unfair, or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200. Because the framers of the UCL expressed the three categories of unfair competition in the disjunctive, "each prong of the UCL is a separate and distinct theory of liability," each offering "an independent basis for relief."
There is little question that the execution of documents in connection with a Deed of Trust constitutes a "business act or practice." As for the nature of the conduct alleged, while the Complaint alludes to all three prongs of this statute generally, Plaintiff does not specify the theory on which she bases her claim, nor does she address the elements of any one of these theories. Compl. ¶ 41 ("[T]he instances mentioned in paragraphs 32-26 [sic] above are unfair, deceptive, untrue acts, which are prohibited by California Business And Professions Code § 17200."). Other courts have dismissed UCL claims on these grounds.
The "unlawful" prong of the UCL requires a plaintiff to demonstrate that the defendant's conduct violated some other law.
Aside from the cause of action for breach of contract, Plaintiff alleges no violation of federal, state, or local law in her Complaint that could be actionable under Section 17200. Courts consistently conclude that a breach of contract is not itself an unlawful act for the purposes of the UCL.
Contractual considerations aside, to the extent that Plaintiff bases a theory of "unlawful" conduct on defendant Aurora's lack of authority to substitute a trustee or Cal-Western's lack of authority to initiate foreclosure proceedings, her cause of action fails. California Civil Code Sections 2924 through 2924k, "[t]he comprehensive statutory framework established to govern nonjudicial foreclosure sales" are intended to be "exhaustive."
Furthermore, California Civil Code Section 2934a(a)(1)(A) provides that "a trustee under a trust deed . . . may be substituted by . . . all of the beneficiaries under the trust deed, or their successors in interest." Again, while Aurora's attempt to appoint Cal-Western as the new trustee may have breached the terms of the Deed of Trust, it did comply with California law.
Thus, to the extent Plaintiff predicates her UCL claim on a violation of another law, this cause of action fails.
The California Supreme Court has yet to establish a definitive test that may be used in consumer cases to determine whether a particular business act or practice is "unfair" for the purposes of the UCL.
One test, which has garnered the most attention from the Ninth Circuit, limits unfair conduct to that which "offends an established public policy" and is "tethered to specific constitutional, statutory, or regulatory provisions."
Plaintiff's complaint does not, in any meaningful way, address the considerations presented by these tests. She fails to link her claim to a "legislatively declared" policy as required under the first test. Under the second and third tests, the Complaint fails because Plaintiff does not allege that Defendants' conduct caused any injury, to the Plaintiff or others. Even under the second test, which a California Court of Appeal admits is "fact intensive and not conducive to resolution at the demurrer stage," Plaintiff's claim under this theory cannot proceed without allegations of its fundamental requirements.
Thus, to the extent that Plaintiff attempts to state a claim under the "unfair" prong of the UCL, this cause of action fails.
"Fraudulent acts are ones where members of the public are likely to be deceived."
Under the Federal Rules of Civil Procedure 9(b), the "circumstances constituting fraud" or any other claim that "sounds in fraud" must be stated "with particularity." Fed. R. Civ. P. 9(b);
The Complaint does, with particularity, allege several instances that could plausibly constitute acts of fraud. Specifically, Plaintiff argues that MERS committed fraud under the UCL by causing Stacy Sandoz, who is neither Vice President as stated nor authorized to act on behalf of MERS in this capacity, to execute the Corporate Assignment. Compl. ¶¶ 19, 38, 43; Compl. Ex. 2. The Complaint makes identical allegations against Aurora regarding Vice President Michele Rice, as stated on the Substitution of Trustee. Compl. ¶¶ 26, 45; Compl. Ex. 6. The Plaintiff similarly maintains that First American's use of the name "Derrick Sue" on the Notice of Default and Election to Sell was fraudulent conduct, owing to the fact that "no such person by that name exists or is employed by First American." Compl. ¶¶ 22, 40; Compl. Ex. 5. The Complaint also claims that Cal-Western fraudulently represented Megan Cooper as having the authority to execute the Affidavit of Mailing Substitute Trustee, since no such person exists, is employed by Cal-Western, or signed said document. Compl. ¶¶ 27, 46; Compl. Ex. 6. Such detailed accounts may very well satisfy the particularity requirement under 9(b) because they appear to allege the who, what, when, and how of the alleged "deceptive business acts." Compl. ¶ 36.
Defendant argues that Plaintiff fails to state that the alleged fraudulent statements "were disseminated to the public [such that] reasonable consumers are likely to be deceived." Mot. at 10 (quoting
More problematic, however, Plaintiff does not and likely cannot plead actual reliance on the Defendants' alleged fraud. The Complaint does not indicate that Plaintiff ever believed in the alleged misrepresentations or that they caused her to take any action to her detriment. As discussed above with regard to UCL standing, Plaintiff fails to plead loss of money or property, let alone a causal correlation of a loss with the Defendants' alleged fraud.
To the extent that Plaintiff attempts to state a claim under the "fraudulent" prong of the UCL, the cause of action fails.
For the foregoing reasons, the Court GRANTS Defendants' Motion to Dismiss Plaintiff's UCL claim without prejudice to provide an opportunity to establish standing and more clearly articulate the basis for this cause of action.
Plaintiff seeks to quiet title on the subject property and prays for injunctive relief to enjoin the pending foreclosure sale announced in the Notice of Trustee's Sale. She predicates her claim on two theories: (1) Defendants are "without any right, title, estate, lien, or interest in the property" and therefore, had no authority to initiate foreclosure proceedings through the Notice of Default and Notice of Trustee's Sale; and (2) the allegedly fraudulent substitution documents disrupted the chain of title. Compl. ¶¶ 50-54.
Defendants respond by reiterating that as an equitable cause of action, a quiet title claim requires Plaintiff to discharge the Note's debt. Mot. at 15. They further contend that Plaintiff has failed to allege all elements of a quiet title claim.
Plaintiff lacks standing to quiet title on the subject property because she has not tendered payment or alleged the ability to tender payment. "A tender is an offer of performance made with the intent to extinguish the obligation."
Based on the Complaint presently before the Court, Plaintiff cannot avail herself of the relief she seeks because she has not tendered or offered to tender any amount due under the loan since November 2, 2010. She therefore remains in default of the loan secured by the Deed of Trust. At least one court has construed the record's silence on a plaintiff's tender or ability to tender as a concession of inability to do so.
Plaintiff, citing
Plaintiff further cites
In citing
As a result, the cause of action to quiet title cannot proceed without further action by Plaintiff to satisfy the obligations under the loan. If Plaintiff chooses to amend her pleading, she must tender amounts sufficient to cure the default or allege an offer (and ability) to tender such payments.
In addition to Plaintiff's lack of standing to pursue a quiet title claim as described above, Plaintiff fails to allege all requisite elements of the cause of action, and therefore, does not adequately state a claim.
California law provides that a complaint for quiet title "shall be verified" and shall include the following: (a) a description of the property that is the subject of the action, (b) the title of the plaintiff, (c) the adverse claims to the title of the plaintiff, (d) the date as of which the determination is sought, and (e) a prayer for the determination of the title of the plaintiff against the adverse claims. Cal. Code Civ. P. § 761.020.
Plaintiff fails to allege any claims adverse to her title. Plaintiff argues in her Opposition that by initiating foreclosure proceedings, Defendants are asserting interests adverse to Plaintiff. Opp'n at 19. In
Accordingly, the Court GRANTS Defendant's motion to dismiss Plaintiff's quiet title cause of action without prejudice.
As an alternative cause of action should the above claims fail, Plaintiff requests an accounting from the Court. She alleges that as a result of the Defendants' misconduct, she cannot ascertain the amount due on her loan. Defendants respond that Plaintiff's confusion does not automatically entitle her to an accounting, and that the Complaint must adequately allege the elements of the cause of action, which it does not. Defendants are correct.
A claim for accounting survives a motion to dismiss only if (1) the relationship between a plaintiff and defendant, such as a fiduciary relationship, calls for an accounting, and (2) the defendant owes a balance to the plaintiff that is too complicated to calculate without an accounting from the Court.
As Defendants point out, California Civil Code Section 2943(c)(1) provides that while California law obligates a beneficiary to prepare and deliver a statement responding to a borrower's written demand for information on payments collected and amounts still owed, the obligation ends when a Notice of Trustee's Sale has been recorded. Cal. Civ Code §§ 1943(b)(1), (c)(1). As the Notice of Trustee's Sale was recorded on November 15, 2011, Plaintiff can no longer compel Defendants to produce an accounting. The Complaint does not allege that Plaintiff made any written request before that point.
In addition, Plaintiff cannot satisfy the second element of this claim. The Complaint does not allege that Defendants owe any money to Plaintiff; instead it makes clear that as a defaulting borrower, Plaintiff remains indebted to Defendants. Furthermore, the amount of Plaintiff's debt can be made certain, even without calculation. The Notice of Default, filed by Cal-Western on July 29, 2011, after Plaintiff's last payment had been received, clearly states that Plaintiff owed $24,854.45 in arrears. Nothing in the Complaint supports a conclusion that this figure would have changed since then. Thus, ascertaining the amount of money still owed to Defendants does not rise to the level of complexity required for a judicial accounting.
Accordingly, the Defendant's motion to dismiss Plaintiff's cause of action for accounting is GRANTED with prejudice.
Declaratory relief is not an independent cause of action or theory of recovery, only a remedy. Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202. Where a substantive cause of action already exists in the complaint, a plaintiff cannot assert a declaratory relief claim as a "superfluous second cause of action for the determination of identical issues."
All eight declarations sought by Plaintiff recite, almost verbatim, the prayers embodied in her other causes of actions. Compl. ¶ 59 (requesting, for example, that the "court (4) render its order quieting title in the Plaintiff. . . . (5) order an accounting as prayed for in the Fourth Cause of Action. . . . [and] (7) issue a Permanent Injunction . . . to prevent the foreclosure sale"). As presently stated, the declaratory relief claim could not resolve any issues beyond those addressed in the first four claims.
Moreover, the deficiency of Plaintiff's previous claims suggests the absence of any actual, litigable controversy subject to declaratory relief.
Accordingly, the Court GRANTS Defendant's Motion to Dismiss Plaintiff's claim for Declaratory Relief with prejudice.
For the foregoing reasons, the Court GRANTS Defendants' Motion to Dismiss Plaintiff's causes of action for Breach of Contract, violation of California's Unfair Competition Law, and Quiet Title WITHOUT PREJUDICE, and Plaintiff's causes of action for an Accounting and Declaratory Relief WITH PREJUDICE. Pursuant to Defendants Cal-Western and First American's unopposed Declaration of Non-Monetary Status and Defendant Old Republic's unopposed Disclaimer of Interest, all claims are DISMISSED against them as well. Plaintiff has twenty (20) days from the date of entry of this order to file an amended complaint.
Additionally, Plaintiff's Opposition introduces a slew of new allegations sounding in breach of contract, which the Court disregards in this motion.
