PHYLLIS J. HAMILTON, District Judge.
Defendant Wells Fargo Bank, N.A.'s ("Wells Fargo") motion to dismiss came on for hearing before this court on April 25, 2018. Plaintiff Ezequiel Villegas appeared through Samuel Pooler, who appeared on behalf of his counsel, Laleh Ensafi. Defendant appeared through its counsel, Le Duong. Having read the papers filed by the parties and carefully considered their arguments and the relevant legal authority, and good cause appearing, the court hereby rules as follows.
The case concerns Wells Fargo's foreclosure on Villegas's home mortgage. Plaintiff filed this case on December 28, 2017 in the Superior Court of California, County of Mendocino. Dkt. 1. Defendant removed the case to this court based on both diversity and federal question jurisdiction.
On January 19, 2006, Villegas took out a mortgage in the amount of $280,000 on his home, located at 224 Margie Drive, Willits, CA 95490 (the "Property"), with Resmae Mortgage Corporation. Dkt. 19-1 ("Compl.") at 2, 6; Dkt. 7 ("Mot.") at 1. The mortgage is made up of a loan (the "Note", Ex. B
In 2008 Villegas failed to make mortgage payments, and he defaulted in 2009.
Villegas alleges that he entered into a modified loan agreement on July 23, 2013 with Wilmington Trust National Association ("Wilmington"), and that Wells Fargo acted as attorney-in-fact in that transaction, during which time Wells Fargo misrepresented the character and legal status of the debt obligation.
On May 8, 2017, Wells Fargo executed and recorded a Substitution of Trustee, which purported to make Quality Loan Service Corporation the new trustee.
Plaintiff sent Wells Fargo a letter asking about the ownership of the debt obligation, and Wells Fargo replied on July 26, 2017, stating that a trust owns the debt, with Wilmington acting as trustee.
Plaintiff seeks compensatory, special, and general damages of no less than $750,000; punitive damages; injunctive relief compelling Wells Fargo to remove any instrument that could be construed as a cloud upon plaintiff's title to the Property; declaratory judgment that defendant does not have any rights as to plaintiff, the Property, or plaintiff's debt; a restraining order to prevent Wells Fargo from undertaking any action against the Property; costs of the suit; attorneys' fees; and any other relief the court deems proper.
Defendant now moves to dismiss the case.
Federal Rule of Civil Procedure 12(b)(6) tests for the legal sufficiency of the claims alleged in the complaint.
While the court must accept as true all the factual allegations in the complaint, legally conclusory statements, not supported by actual factual allegations, need not be accepted.
"A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."
Review is generally limited to the contents of the complaint, although the court can also consider a document on which the complaint relies if the document is central to the claims asserted in the complaint, and no party questions the authenticity of the document.
Wells Fargo moves to dismiss each of Villegas's five claims: (1) violation of 15 U.S.C. § 1692f(6), the Fair Debt Collection Practices Act ("FDCPA"); (2) violation of California Homeowner's Bill of Rights ("HBOR"), California Civil Code §§ 2924(a)(6) & 2924.17; (3) violation of HBOR § 2934a(a)(1)(A)(C); (4) negligent representation; and (5) violation of Cal. Bus. Prof. Code § 17200 ("UCL").
15 U.S.C. § 1692f(6) provides:
On its face, 15 U.S.C. § 1692f(6) limits the actions only of "debt collectors." The court must first determine whether plaintiff adequately alleged that defendant is a "debt collector" under the statute. The FDCPA defines "debt collector," in relevant part:
15 U.S.C. § 1692a(6).
Within that statute, there are three potentially relevant definitions of "debt collector" and a partial safe harbor provision: "(1) `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,' and (2) any person `who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.'"
Plaintiff does not appear to allege or argue that Wells Fargo is a debt collector because it "uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts." 15 U.S.C. § 1692a(6).
Assuming plaintiff does make this argument, its pleading is insufficient for two reasons. First, as a matter of law, the Ninth Circuit has held that foreclosing on a deed of trust is not "debt collection" under this definition.
Plaintiff argues that Wells Fargo is a debt collector because it "regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." Compl. at 2-3; Dkt. 11 at 8-9. But the Ninth Circuit has held that foreclosing on a trust deed is not "debt collection" under this definition.
Section 1692a(6) contains a specific definition of debt collector "[f]or the purpose of section 1692f(6)[.]" 15 U.S.C. § 1692a(6). Plaintiff argues that Wells Fargo is a debt collector under that provision, which requires plaintiff to allege the defendant has a "business[,] the principal purpose of which is the enforcement of security interests." § 1692a(6); Compl. at 2:28-3:1; Dkt. 11 at 8-9. Under this definition, "enforcement of a security interest" includes foreclosing on secured notes.
Where a definition of a debt collector under the FDCPA turns on the "principal purpose" of the company, the Ninth Circuit requires a "factual basis from which we could plausibly infer that the principal purpose of" the business is the enforcement of security interests.
Section 1692a(6)(F)(iii) provides a qualified safe harbor from the definition of "debt collector" by excluding those who acquire debt before default. Plaintiff argues that the FDCPA requires an entity to be either a "creditor" or a "debtor" as to a specific debt and that every entity must be one or the other—it cannot be "both" or "neither." Dkt. 11 at 5-6. Plaintiff argues without citation that the "statutory language and legislative history of the FDCPA" establish that premise.
Section 1692a(6)(F)(iii) provides a qualified safe harbor to the definition of "debt collector" under § 1692a(6). But failing to qualify under a safe harbor does not make a company a "debt collector" under the statute, as plaintiff argues. Indeed, plaintiff's argument that "It is an undisputed fact that the FDCPA's definition of a `debt collector' pursuant to § 1692a(6)(F)(iii) includes
Wells Fargo argues that it is protected by the safe harbor because "America's Servicing Company was servicing [plaintiff's] Loan prior to 2009 when it first went into default" and "America's Servicing Company is a division of Wells Fargo." Dkt. 7 at 5. So, Wells Fargo argues it had acquired the loan before default and cannot be a debt collector pursuant to § 1692a(6)(F)(iii). Even if factually true, plaintiff has alleged sufficient facts to plead that Wells Fargo is not protected by the qualified safe harbor provided by § 1692a(6)(F)(iii). The statute defines "debt collector"—"notwithstanding" the safe harbor provisions in (6)(F)—to include "any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts." § 1692a(6). Courts apply the "least sophisticated consumer" test to determine whether a company is protected under the safe harbor.
Because plaintiff failed to allege that Wells Fargo is a debt collector under the FDCPA, he has failed to plead a claim under that statute, and the claim is DISMISSED. The court finds that it is possible that amendment may not be futile, so plaintiff is GRANTED LEAVE TO AMEND his complaint to state a claim in accordance with the requirements explained in this order.
Cal. Civ. Code § 2924(a)(6) prohibits an entity from recording a default or initiating "the foreclosure process unless it is the holder of the beneficial interest under the mortgage or deed of trust, the original trustee or the substituted trustee under the deed of trust, or the designated agent of the holder of the beneficial interest."
The basis for plaintiff's claim appears to be premised on the fact that the debt was transferred only after plaintiff defaulted on his mortgage. Dkt. 11 at 9; Compl. at 14. Plaintiff alleges that transferring debt after default does not transfer the loan itself, but only creates a "debt collector" as defined by the FDCPA. So, a party who obtains debt that is in default cannot be the "holder of the beneficial interest" of the debt under California law because they are a debt collector, not a creditor, under the FDCPA. Based on the FDCPA provision, plaintiff argues, a debt collector cannot fulfill the requirements of the California statute allowing only beneficiaries to take some actions. Compl. at 14.
Plaintiff's claim under § 2924(a)(6) fails for two reasons. First, as addressed above, plaintiff has failed to allege that Wells Fargo is a debt collector under the FDCPA. So, even based on his own view of the claim's legal requirements, his claim fails. Second, the FDCPA's definition of debt collector is irrelevant to § 2924(a)(6). That statute does not import the terms "creditor" or "debt collector" from the FDCPA. Section 2924(a)(6) has its own requirements unrelated to the FDCPA: plaintiff must allege Wells Fargo is not the agent of the holder of the beneficial interest under California law—not under the FDCPA. Although unclear, plaintiff seems to attempt to plead his § 2924(a)(6) claim as a derivative of his FDCPA claim.
Plaintiff has failed to plead a claim under § 2924(a)(6), so the claim brought under that statute is DISMISSED. The court finds that it is possible that amendment may not be futile, so plaintiff is GRANTED LEAVE TO AMEND his complaint to state a claim.
Plaintiff's second cause of action also alleges a violation of § 2924.17, which has different substantive requirements from § 2924(a)(6). § 2924.17 provides that before recording or filing a notice of default, a notice of sale, or other specified documents, "a mortgage servicer shall ensure that it has reviewed competent and reliable evidence to substantiate the borrower's default and the right to foreclose, including the borrower's loan status and loan information." Cal. Civ. Code § 2924.17(b). The statute also provides that various notices must be "accurate and complete and supported by competent and reliable evidence." § 2924.17(a).
Plaintiff alleges that defendant did not provide competent support for its authorization to proceed with a non-judicial action against the Property, including by failing to provide an accurate chain of title. Compl. at 14.
Defendant's standing argument misses the core of plaintiff's claim. Plaintiff's claim concerns defendant's duty to review and provide accurate documents when performing various foreclosure-related actions. Plaintiff argues the documents defendant relied upon were flawed or non-operative, and defendant violated its duty by relying on them and representing them as accurate. The pleading is sufficient under Rule 8, which tests the plausibility of the pleading rather than whether the materials defendant reviewed and provided were in fact accurate or effective.
Defendant's motion to dismiss with respect to § 2924.17 is DENIED.
First, plaintiff brings a claim under § 2934a(a)(1)(A)(C), which does not exist. Cal. Civ. Code § 2934a has subparts (a)(1)(A)-(B) and (a)(2)(A)-(D), but not (a)(1)(A)(C). The court reads plaintiff's complaint to allege a violation of § 2934a(a)(1), which provides two alternative methods to substitute a trustee, one of which is the provision plaintiff relies on in substance. It provides that a trustee "may be substituted" by recording a substitution executed and acknowledged by "the holders of more than 50 percent of the record beneficial interest of a series of notes secured by the same real property . . ." Cal. Civ. Code § 2934a(a)(1)(B).
The basis for plaintiff's claim appears to be premised on the fact that the debt was transferred only after plaintiff defaulted on his mortgage. Dkt. 11 at 10; Compl. at 15. He alleges that transferring debt after default does not transfer the loan itself, but only creates a "debt collector" as defined by the FDCPA. The argument seems to be similar to plaintiff's argument with respect to § 2924(a)(6), addressed above.
Like plaintiff's § 2924(a)(6) claim, plaintiff's claim under § 2934a(a)(1) fails for two reasons. First, as addressed above, plaintiff has failed to allege that Wells Fargo is a debt collector under the FDCPA. So, even based on his own view of the claim's legal requirements, his claim fails. Second, the FDCPA's definition of debt collector is irrelevant to § 2934a(a)(1). That statute does not import the terms "creditor" or "debt collector" from the FDCPA. § 2934a(a)(1) has its own requirements unrelated to the FDCPA: plaintiff must allege the holders of the beneficial interest failed to take some action. Although unclear, plaintiff seems to attempt to plead his § 2934a(a)(1) claim as a derivative of his FDCPA claim.
Plaintiff has failed to plead a claim under that statute, and the claim is DISMISSED. The court finds that it is possible that amendment may not be futile, so plaintiff is GRANTED LEAVE TO AMEND his complaint to state a claim.
"The elements of negligent misrepresentation are (1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage."
The first element requires plaintiff to plead that defendant misrepresented a material fact. Plaintiff adequately alleges that Wells Fargo represented Wilmington Trust National Association owned the debt in a July 26, 2017 letter and a May 8, 2017 notice of default, which plaintiff argues was false. Compl. at 7, 10.
The second element requires plaintiff to plead the statement was made without reasonable ground for believing it to be true. Plaintiff alleges various paperwork was incorrectly completed, and Wells Fargo as an institutional player should have known that was the case.
The third element requires plaintiff to plead intent to defraud or induce reliance. The court assumes without deciding that defendant's intent can be presumed from the alleged acts.
The claim also requires plaintiff to plead that he justifiably relied on the misrepresentation, and that his justifiable reliance resulted in damage. Plaintiff does not plead any action he took in reliance on any adequately-pled misrepresentation. Plaintiff alleges that Wells Fargo charged various fees related to the foreclosure, but not that plaintiff paid any of them. Compl. at 17-18. Plaintiff does not even allege that he paid Wells Fargo regular mortgage payments, presumably instead of the true debt owner.
Plaintiff must allege a misrepresentation that he acted in reliance on, and that such reliance caused damage. He has failed to do so, and based on plaintiff's papers and his counsel's representations at the hearing he is unable to do so. The court finds that any attempt to amend this claim would be futile because plaintiff cannot demonstrate damages resulting from actions he took in reliance on the alleged negligent misrepresentations, so the court DISMISSES THE CLAIM WITHOUT LEAVE TO AMEND.
Defendant argues plaintiff's UCL claim fails because (1) plaintiff fails to allege that Wells Fargo engaged in any unlawful, unfair, or fraudulent activity; and (2) plaintiff does not have standing to bring this claim against Wells Fargo.
The court DISMISSES plaintiff's UCL claim WITH LEAVE TO AMEND to specify which prong the claim relies upon, and the facts underlying the claim: namely, Wells Fargo's allegedly unlawful, unfair, or fraudulent activity.
For a plaintiff to have standing, the UCL requires both (1) injury in fact and (2) a loss of money or property.
Plaintiff has not alleged that he has actually lost money or property. He has not alleged that he has made mortgage payments or paid fees to Wells Fargo as a result of Wells Fargo's unlawful, unfair, or fraudulent conduct—he has only alleged that he is in default and that he has entered payment plans; he has not alleged any actual payments. Nor has plaintiff adequately alleged that there is a pending sale of the Property such that he will lose property. Plaintiff alleges that a Notice of Trustee Sale was executed against the property on August 25, 2017—nearly nine months ago—but the complaint alleges nothing more and at the hearing his representative professed not to know details of the sale. Defense counsel stated without contradiction that no sale is pending.
As such, plaintiff must also plead facts sufficient to state he has standing to bring his UCL claim.
For the foregoing reasons, plaintiff's first cause of action under 15 U.S.C. § 1692f(6) of the FDCPA is DISMISSED WITH LEAVE TO AMEND to plead facts sufficient to allege that defendant is a debt collector under the statute; plaintiff's second cause of action under Cal. Civ. Code § 2924(a)(6) is DISMISSED WITH LEAVE TO AMEND to plead facts sufficient to allege that defendant is not the holder of the beneficial interest, a trustee, or a designated agent under California law; defendant's motion to dismiss plaintiff's second cause of action under Cal. Civ. Code § 2924.17 is DENIED; plaintiff's third cause of action under Cal. Civ. Code § 2934a(a)(1) is DISMISSED WITH LEAVE TO AMEND to plead the particular statute at issue and facts sufficient to allege its violation; plaintiff's fourth cause of action for negligent misrepresentation is DISMISSED WITHOUT LEAVE TO AMEND; and plaintiff's fifth cause of action under the UCL is DISMISSED WITH LEAVE TO AMEND to plead the particular UCL prong the claim is brought under, facts sufficient to allege a violation of that prong, and facts sufficient to allege standing.
