Opinion
CASE NO. C15-1302JLR
03-09-2016
EDWARD D. MECUM, Plaintiff, v. WELLS FARGO BANK, N.A., et al., Defendants.
ORDER
I. INTRODUCTION
This matter comes before the court on Defendants Wells Fargo Bank, N.A. ("Wells Fargo") and Deutsche Bank National Trust Company's ("Deutsche") partial motion to dismiss (Wells Mot. (Dkt. # 8)), and Defendant Quality Loan Service Corporation of Washington's ("Quality") motion for judgment on the pleadings (Quality Mot. (Dkt. # 17)). The court has reviewed the motions, all submissions filed in support thereof and opposition thereto, the relevant portions of the record, and the applicable law. Being fully advised, the court GRANTS IN PART and denies in part Wells Fargo and Deutsche's partial motion to dismiss, DENIES Quality's motion for judgment on the pleadings, and DISMISSES WITHOUT PREJUDICE and with leave to amend the portion of Plaintiff Edward Mecum's complaint alleging a negligence claim against Wells Fargo.
No party has asked for oral argument concerning this motion, and the court deems it to be unnecessary. See Local Rules W.D. Wash. LCR 7(b)(4).
II. BACKGROUND
Consistent with the legal standard applicable to the pending motions, the court bases this factual background on the allegations in Mr. Mecum's complaint.
This case concerns the events leading up to a foreclosure sale of Mr. Mecum's home, which Quality conducted on June 21, 2013. (See Compl. (Dkt. # 1-2) ¶¶ 3.27-3.28.) Mr. Mecum purchased a home located at 842 Big Tree Drive, NW, Issaquah, WA 98027 ("the Property") in 2007 with a loan from Wells Fargo. (See id. ¶¶ 3.1-3.2.) In 2011, Mr. Mecum defaulted on that loan but received a loan modification that cured his default. (See id. at ¶ 3.2; Wells Mot. at 3-4.) Mr. Mecum's loan modification reduced his monthly payment by approximately $100.00. (Compl. ¶ 3.2.) Six months after receiving the loan modification, Mr. Mecum again defaulted on his home loan with Wells Fargo. (Id.) In January 2012, following his second default, Mr. Mecum applied for another loan modification. (Id. ¶ 3.3.) Over the course of approximately 18 months, Wells Fargo requested Mr. Mecum resubmit his application and supporting documents for various reasons. (Id.)
In October 2012, Quality recorded a notice of trustee's sale at Wells Fargo's direction. (See id. ¶ 3.4.) Quality set the original sale date for February 22, 2013, but postponed the sale until June 21, 2013, while Mr. Mecum continued his efforts to complete his modification application with Wells Fargo. (Id.) In May 2013, Mr. Mecum's single point of contact at Wells Fargo deemed his modification application complete. (Id. at ¶ 3.5.) As a result, the Wells Fargo contact "forwarded [Mr. Mecum's application] on for review by underwriting." (Id.) However, Wells Fargo continued to ask for additional documents, which Mr. Mecum promptly provided when possible. (See id. ¶¶ 3.11.)
On May 13, 2013, Wells Fargo told Mr. Mecum that "the foreclosure had been suspended" and that Sharon Scharff was his new point of contact for his modification application. (Id. ¶ 3.12.) At that time, Mr. Mecum believed Wells Fargo suspended the foreclosure because of his completed loan modification application. (Id.) On May 14, 2013, however, Wells Fargo told Mr. Mecum that it cancelled his loan modification application because an individual on his account filed for bankruptcy. (See id. ¶ 3.13.) Neither Mr. Mecum nor his wife, who Mr. Mecum implies were the only two people properly on his account, had filed for bankruptcy. (Id.) Instead, Wells Fargo apparently had erroneously added an unrelated individual to Mr. Mecum's account. (See id.) At that time, Mr. Mecum believed he was unable to "discuss any work-out options" with Wells Fargo because of the bankruptcy attached to his account. (Id. ¶ 3.15.) Mr. Mecum unsuccessfully challenged his bankruptcy status several times over the following three weeks. (See id. ¶¶ 3.13-3.15.)
On June 8, 2013, Wells Fargo called Mr. Mecum to ask if he was "willing to seek a work-out option for the loan," as Wells Fargo no longer associated his account with a bankruptcy. (Id. ¶ 3.16.) Pursuant to the instructions he received during this phone call, Mr. Mecum made several unsuccessful attempts to reach Ms. Scharff to discuss a "work-out option." (Id.) On June 17, 2013, Mr. Mecum successfully contacted Ms. Scharff, who informed him "that Wells Fargo had determined that he hadn't filed bankruptcy and that the foreclosure process could continue with a sale date of June 21, 2013." (Id. ¶ 3.17.) Ms. Scharff transferred Mr. Mecum's call and he ultimately reached a representative from the "7-Day Team," who took Mr. Mecum's information and told him someone from Wells Fargo would contact him. (Id.)
The next day, June 18, 2013, Wells Fargo told Mr. Mecum that he would have to resubmit the request for mortgage assistance forms, and Mr. Mecum faxed those forms to Wells Fargo that evening. (Id. ¶ 3.18.) When Mr. Mecum called Wells Fargo on June 20, 2013, a representative told him that Wells Fargo needed additional documents and that his profit and loss statement needed to be submitted with a different title. (Id. ¶ 3.19.) Mr. Mecum faxed those documents to Wells Fargo later that morning. (Id.) When Mr. Mecum called that afternoon to confirm receipt of the documents, Wells Fargo told him that the documents would be scheduled for review, but the review would most likely occur the next morning. (Id.) Mr. Mecum explained the urgency of the document review due to the trustee's sale scheduled for the next day, and the representative assured him that Wells Fargo would review the documents prior to the sale. (Id.)
Early on June 21, 2013, the morning of the scheduled trustee's sale, a representative from Wells Fargo's "7-Day Team" informed Mr. Mecum that Wells Fargo would not recommend postponement of the scheduled trustee's sale "due to the timing of the review and because documents were incomplete." (Id. ¶ 3.20.) Mr. Mecum then called Wells Fargo's "Office of the President / Executive Complaints" and spoke with a representative who "agreed to advocate" for Mr. Mecum. (Id. ¶ 3.21.)
Mr. Mecum also called Quality, the trustee executing the foreclosure sale, multiple times early on the morning of the sale. (See id. ¶¶ 3.22-3.23.) Quality initially told him that it did not "have any power to postpone the sale of the property because that has to be done by the bank." (Id. ¶ 3.22.) Mr. Mecum then spoke with another representative at Quality who suggested that she may "be able to get the sale postponed a week, but would need to 'run it by the legal team.'" (Id. ¶ 3.23.) Mr. Mecum called a third time and told an attorney for Quality that a representative from Wells Fargo's Office of the President was "advocating for him on [Wells Fargo's] end." (Id.) The attorney asked for the Wells Fargo representative's phone number and told Mr. Mecum she would "get back to him shortly" after she got "Wells Fargo's approval to postpone the sale." (Id.)
The attorney for Quality later emailed Mr. Mecum to explain that "Wells Fargo had denied his request to postpone the sale of his home and the sale would proceed as scheduled." (Id.; see also id. at 25, Ex. 2 ("Quality Email") ("Please be advised that Wells Fargo has denied your request that the pending Trustee's sale set for today be postponed. Based on this today's sale will proceed unless we are instructed otherwise or are restrained by a Court order or a BK stay.").) The Wells Fargo representative also called Mr. Mecum and explained that "the executive team" denied Mr. Mecum's request to postpone the sale because Mr. Mecum failed to make payments for the 12 consecutive months following his initial loan modification. (Compl. ¶ 3.24.) The trustee's sale occurred on June 21, 2013, as scheduled. (See id.) However, "[n]o bidders placed a bid on the [P]roperty and Wells Fargo took it back." (Id.)
On June 22, 2015, Mr. Mecum filed a complaint in King County Superior Court against Wells Fargo, as the servicer of his loan; Deutsche, as the potential holder of the mortgage note; and Quality, in its role as trustee of the deed of trust. (See id. ¶¶ 3.2, 3.4, 4.5.) On August 17, 2015, Wells Fargo and Deutsche removed the case to this court, with Quality's consent. (Not. of Rem. (Dkt. # 1) at 3.) On August 27, 2015, Wells Fargo and Deutsche filed a partial motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). (See generally Wells Mot.) On November 30, 2015, Quality filed its motion for judgment on the pleadings under Rule 12(c). (See generally Quality Mot.) The court addresses these motions in turn.
III. ANALYSIS
A. Legal Standards
1. Failure to State a Claim under Rule 12(b)(6)
When considering a motion to dismiss under Rule 12(b)(6), the court construes the complaint in the light most favorable to the nonmoving party. Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). The court must accept all well-pleaded allegations of material fact as true and draw all reasonable inferences in favor of the plaintiff. See Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir. 2010). "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." Iqbal, 556 U.S. at 678.
The court, however, need not accept as true a legal conclusion presented as a factual allegation. Id. Although the pleading standard announced by Federal Rule of Civil Procedure 8 does not require "detailed factual allegations," it demands more than "an unadorned, the-defendant-unlawfully-harmed-me accusation." Id. (citing Twombly, 550 U.S. at 555). A pleading that offers only "labels and conclusions or a formulaic recitation of the elements of a cause of action" will not survive a motion to dismiss under Rule 12(b)(6). Id.
2. Judgment on the Pleadings under Rule 12(c)
Under Rule 12(c), a party may move for judgment on the pleadings after the pleadings are closed. See Fed. R. Civ. P. 12(c). A court "must accept all factual allegations in the complaint as true and construe them in the light most favorable to the non-moving party." Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009) (citation omitted); see also Yakima Valley Mem'l Hosp. v. Wash. State Dep't of Health, 654 F.3d 919, 925 (9th Cir. 2011). "Judgment on the pleadings is properly granted when there is no issue of material fact in dispute, and the moving party is entitled to judgment as a matter of law." Fleming, 581 F.3d at 925; see Lyon v. Chase Bank USA, N.A., 656 F.3d 877, 883 (9th Cir. 2011).
When a Rule 12(c) motion is used as a vehicle for dismissal after an answer has been filed, or when it is functionally equivalent to a Rule 12(b)(6) motion, the same standard applies to both. Dworkin v. Hustler Magazine Inc., 867 F.2d 1188, 1192 (9th Cir. 1989); see Seabright Ins. Co. v. Matson Terminals, Inc., 828 F. Supp. 2d 1177 (D. Haw. 2011) (observing that the motions differ in time of filing but are otherwise functionally identical and require the same legal standard). Dismissal for failure to state a claim "is proper if there is a 'lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.'" Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011) (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988)).
B. Wells Fargo and Deutsche's Partial Motion to Dismiss
Wells Fargo and Deutsche challenge two aspects of Mr. Mecum's complaint: his negligence claim against Wells Fargo and his request for relief in the form of invalidating the trustee's sale of the Property. (Wells Mot. at 3.) The court first discusses the negligence cause of action and then addresses whether dismissal of Mr. Mecum's request to set aside the foreclosure sale is appropriate.
Mr. Mecum's response implies that Deutsche also faces a negligence claim in this matter. (Resp. to Wells (Dkt. # 12) at 13 ("Deutsche Bank is complicit in any violations of law or any actions of Wells Fargo . . . .").) However, his complaint alleges negligence against only Wells Fargo and Quality. (Compl. at 15 ("Second Cause of Action: Defendants Wells Fargo and [Quality] were Negligent in their Conduct of Loan Modification and Foreclosure Sale").) Thus, Deutsche does not face a negligence claim in this matter.
1. Negligence Claim against Wells Fargo
To prove negligence, Mr. Mecum must show the existence of a duty, a breach of that duty, damages, and that the breach of duty caused the damages. See, e.g., Lowman v. Wilbur, 309 P.3d 387, 389 (Wash. 2013). "The threshold determination in a negligence action is whether a duty of care is owed by the defendant to the plaintiff." Taylor v. Stevens Cty., 759 P.2d 447, 449 (Wash. 1988).
Mr. Mecum references a duty to "properly handle Plaintiff's file and the modification process," but his complaint does not identify the source of this alleged duty. (Compl. ¶ 4.7.) Wells Fargo argues that irrespective of whether a duty exists, the waiver provision of the Washington Deed of Trust Act ("DTA"), RCW 61.24.127, bars Mr. Mecum's negligence claim. (Wells Mot. at 8.) In response, Mr. Mecum identifies Regulation X, a federal regulation governing the mortgage lending process, as the source of Wells Fargo's duty. (Resp. to Wells (Dkt. # 12) at 12); see also 12 C.F.R. § 1024.1, et seq. As to waiver, Mr. Mecum argues that Wells Fargo's actions were "so egregious" that his negligence claim should go forward. (Resp. to Wells at 12-13.)
Mr. Mecum's response includes a declaration in which Mr. Mecum attests to the truth of the allegations in his complaint. (Mecum Decl. (Dkt. # 13).) To decide a motion to dismiss for failure to state a claim, the court can look only to the allegations in the complaint, but the court presumes the truth of the allegations and draws all reasonable inferences in favor of Mr. Mecum. See Cervantes v. City of San Diego, 5 F.3d 1273, 1274 (9th Cir. 1993) (quoting Farr v. United States, 990 F.2d 451, 454 (9th Cir. 1993)) ("Review is limited to the complaint; 'evidence outside the pleadings . . . cannot normally be considered in deciding a 12(b)(6) motion.'"); Fed. R. Civ. P. 12(d) (providing that on a Rule 12(b)(6) motion, the court may either exclude evidence outside the pleadings or, upon notice to both parties and a chance to present evidence, reconstrue the motion as a summary judgment motion). The court does not convert the motion to dismiss into a motion for summary judgment and instead declines to consider Mr. Mecum's declaration.
Mr. Mecum argues that Regulation X imposes a duty on Wells Fargo to properly conduct the loan modification process for his mortgage. (See Compl. ¶¶ 3.7, 3.10, 4.7.) Regulation X provides that a loan servicer must exercise "reasonable diligence" in obtaining the necessary information to establish a "complete loss mitigation application." See 12 C.F.R. § 1024.41. However, this court has already concluded that the Home Owners' Loan Act of 1933 ("HOLA"), 12 U.S.C. §§ 1461-70, and related regulations preempt a state law claim for negligence premised on a bank's method of processing loan modifications. See Johnson v. JP Morgan Chase Bank N.A., No. C14-5607RJB, 2015 WL 4743918, at *8 (W.D. Wash. Aug. 11, 2015).
Congress enacted HOLA to "restore public confidence by creating a nationwide system of federal savings and loan associations to be centrally regulated according to nationwide 'best practices.'" Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1004 (9th Cir. 2008). The Ninth Circuit views HOLA and the related regulations as a "radical and comprehensive response to the inadequacies of the existing state system, and so pervasive as to leave no room for state regulatory control." Id. (internal quotation marks omitted) (quoting Conference of Fed. Sav. & Loan Ass'ns v. Stein, 604 F.2d 1256, 1257 (9th Cir. 1979)). Consequently, the general presumption against preemption of state laws is inapplicable in the context of national banking. Silvas, 514 F.3d at 1005.
Moreover, under HOLA, the Office of Thrift Supervision promulgated 12 C.F.R. § 560.2, a regulation that expressly preempts state laws that fall within certain categories. Id. Those categories include any state law affecting the "[p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages." 12 C.F.R. § 560.2(b)(10). The regulation also identifies tort law among the categories of state laws that are not preempted "to the extent that they only incidentally affect the lending operations of Federal Savings associations." 12 C.F.R. § 560.2(c)(4). This court has recently concluded that a negligence claim "affects" lending operations when it is premised on duties imposed by federal lending regulations, such as Regulation X. See Johnson, 2015 WL 4743918, at *8. Thus, Regulation X cannot be the source of Wells Fargo's duty. See Silvas, 514 F.3d at 1004-05; Johnson, 2015 WL 4743918, at *8.
Mr. Mecum's claims against Wells Fargo and Deutsche for violating Regulation X remain intact, and neither Wells Fargo nor Deutsche challenge that claim. (See Compl. ¶¶ 4.1-4.5; Wells Mot. at 3.)
Mr. Mecum therefore fails to identify a duty owed by Wells Fargo that could form the basis of his negligence claim. In other words, Mr. Mecum's negligence claim against Wells Fargo lacks a cognizable legal theory on which it can proceed. See Balistreri, 901 F.2d at 699 (citing Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984)) ("Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory."). Thus, the court grants Wells Fargo and Deutsche's motion to dismiss the negligence claim against Wells Fargo.
Mr. Mecum also fails to identify a duty that the DTA imposes upon Wells Fargo. (See generally Compl.; Resp. to Wells at 10-13); see also RCW 61.24.010 et seq.; Bain v. Metro. Mortg. Grp. Inc., No. C09-0149JCC, 2010 WL 891585, at *4 (W.D. Wash. Mar. 11, 2010) (explaining that a plaintiff must allege that a defendant was a trustee, as opposed to a lender, before the DTA imposes duties upon that defendant). Because the court concludes that Mr. Mecum has failed to state a negligence claim against Wells Fargo, the court declines to consider whether he waived any such claim. (See Wells Mot. at 8.)
Mr. Mecum acknowledges that his complaint, which was based on the "more relaxed" pleading standard in Washington state courts, may not satisfy the pleading standards of this court. (Resp. to Wells at 9.)
2. Prayer for Relief in the Form of Setting aside the Foreclosure Sale
Wells Fargo and Deutsche argue that "[Mr.] Mecum's claim to invalidate the sale is barred as a matter of law," so "[t]he Court should . . . dismiss this claim with prejudice." (Wells Mot. at 7.) However, invalidating a trustee's sale is a prayer for relief, not a claim. (See Compl. at 19.) Because a prayer for relief is a remedy and not a claim, a Rule 12(b)(6) motion to dismiss for failure to state a claim is not a proper vehicle to challenge the requested relief. See, e.g., Jordan v. United States, No. 15-CV-1199 BEN (NLS), 2015 WL 5919945, at *2-3 (S.D. Cal. Oct. 8, 2015) ("A prayer for damages constitutes a remedy, not a claim within the meaning of Rules 8(a)(2) or 12(b)(6). Thus, [a] prayer for relief does not provide any basis for dismissal under Rule 12."); Oppenheimer v. Sw. Airlines Co., No. 13-CV-260-IEG (BGS), 2013 WL 3149483, at *3-4 (S.D. Cal. June 17, 2013) ("[T]he availability of [a certain type of relief does not] control or even pertain to the sufficiency of any claim."); Monaco v. Liberty Life Assur. Co., No. C06-07021 MJJ, 2007 WL 420139, at *6 (N.D. Cal. Feb. 6, 2007) ("[A] complaint is not subject to a motion to dismiss for failure to state a claim under Rule 12(b)(6) because the prayer seeks relief that is not recoverable as a matter of law." (emphasis in original)).
In similar circumstances, some courts have converted Rule 12(b)(6) motions to Rule 12(f) motions to strike. See, e.g., Videckis v. Pepperdine Univ., No. CV 15-00298 DDP (JCx), 2015 WL 8916764, at *9 (C.D. Cal. Dec. 15, 2015). The court would also deny a motion to strike, however, because Wells Fargo and Deutsche have not shown that Mr. Mecum's prayer for relief is "redundant, immaterial, impertinent, or scandalous." Fed. R. Civ. P. 12(f); see also Freeman v. Alta Bates Summit Med. Ctr. Campus, No. C 04-2019 SBA, 2004 WL 2326369, at *2 (N.D. Cal. Oct. 12, 2004) (citing 61 Am. Jur. 2d Pleading § 505 (1999)) ("[M]otions to strike are rarely granted in the absence of a showing of prejudice to the moving party.").
Rule 54 further illustrates why a Rule 12(b)(6) motion is not a proper vehicle for challenging a prayer for relief. See Fed. R. Civ. P. 54(c) ("[F]inal judgment should grant the relief to which each party is entitled, even if the party has not demanded that relief in its pleadings."); see also Oppenheimer, 2013 WL 3149483, at *4 n.1 (citing Soltys v. Costello, 520 F.3d 737, 742 (7th Cir. 2008) ("[T]he fundamental legal error in this case may have been the parties' and the district court's shared assumption that a prayer for [a certain type of relief] had to appear in the complaint in order to sustain an award of such damages.")).
Mr. Mecum has not provided any legal theory to ground his prayer to invalidate the foreclosure sale. (See Resp. to Wells at 11; see generally Compl.) Invalidating a trustee's sale without authority contradicts the language of the DTA and undermines one of its purposes. See RCW 61.24.050(1) ("After a trustee's sale, no person shall have any right, by statute or otherwise, to redeem the property sold at the trustee's sale."); see also Plein v. Lackey, 67 P.3d 1061, 1065 (Wash. 2003) (identifying a goal of the DTA as ensuring "that the process should promote stability of land titles"). Wells Fargo and Deutsche's motion and Mr. Mecum's response highlight this apparent incongruity between Mr. Mecum's claims and his prayer for relief. (See Wells Mot. at 6-7; Resp. to Wells at 10-11.) However, because a Rule 12(b)(6) motion is an improper vehicle to challenge the requested relief, the court denies the portion of Wells Fargo and Deutsche's motion to dismiss challenging Mr. Mecum's prayer for relief.
C. Quality's Motion for Judgment on the Pleadings
Mr. Mecum alleges two causes of action against Quality: negligence and violation of Washington's Consumer Protection Act ("CPA"), RCW 19.86.010, et seq. (See Compl. at 15-16.) Quality moves for judgment on the pleadings on both of Mr. Mecum's causes of action against it. (Quality Mot.) The court addresses each cause of action against Quality in turn.
1. Negligence Claim against Quality
To prove negligence, Mr. Mecum must show duty, breach, causation, and damages. See, e.g., Lowman, 309 P.3d at 389. Quality challenges Mr. Mecum's negligence claim on two grounds. Quality argues that it did not breach any duty to Mr. Mecum during the course of the foreclosure proceedings and trustee's sale. (Quality Mot. at 4.) Alternatively, Quality argues that Mr. Mecum's failure to seek a presale injunction resulted in waiver of any negligence claim he might bring. (Id.)
a. Quality's Breach of Duty
Quality argues it did not breach any duty it owed to Mr. Mecum because it appropriately initiated the foreclosure proceedings when Mr. Mecum materially defaulted on his loan and there was no defect in the trustee's sale. (See id. at 3.) However, Mr. Mecum does not challenge those aspects of the foreclosure process. (See generally Resp. to Quality (Dkt. # 19); see also Compl. ¶¶ 4.8-4.9.) Instead, Mr. Mecum argues that Quality breached its duty by failing to exercise independent discretion in deciding not to postpone the trustee's sale. (Resp. to Quality at 12.)
Quality's motion for judgment on the pleadings does not challenge the duty and damages elements of Mr. Mecum's negligence claim. (See Quality Mot. at 4-5.) Quality raises the causation element of Mr. Mecum's negligence claim by arguing that "Plaintiff has failed to plead a breach of that duty by Quality, and proximate damages flowing therefrom," without further elaboration. (Id. at 4.) The court considers this passing remark to insufficiently raise causation and accordingly addresses only the breach element of Mr. Mecum's claim. See Coos Cty. Bd. of Cty. Comm'rs v. Kempthorne, 531 F.3d 792, 811 n.15 (9th Cir. 2008) (explaining that the district court properly declined to consider an argument in its analysis of a motion to dismiss when "[s]ave for expressing its disagreement with [the opposing party's] conclusions, [the plaintiff] does not explain how th[e] provision was violated"); United States v. Kimble, 107 F.3d 712, 715 n.2 (9th Cir. 1997) (deeming an argument "to have been abandoned" where the party failed to "coherently develop[ ]" it in his briefs).
The DTA creates a three-party mortgage system involving the lender, the borrower, and a trustee. See, e.g., Bain v. Metro. Mortg. Grp., Inc., 285 P.3d 34, 38 (Wash. 2012). This system empowers a trustee to execute a nonjudicial foreclosure when a borrower defaults on his or her mortgage. See Klem v. Wash. Mut. Bank, 295 P.3d 1179, 1187-88 (Wash. 2013) [hereinafter Klem II]. The Washington Supreme Court views the trustee's authority under the DTA as a "tremendous power to vest in anyone's hands." Id. at 1188. Because the trustee has such great power, the Court has also made clear that "common law and equity requires that trustee to be evenhanded to both sides and to strictly follow the law." Id. (citing Albice v. Premier Mortg. Servs. of Wash., Inc., 276 P.3d 1277, 1282 (Wash. 2012)). Furthermore, the Washington Supreme Court "has frequently emphasized that the [DTA] 'must be construed in favor of borrowers because of the relative ease with which lenders can forfeit borrowers' interests and the lack of judicial oversight in conducting nonjudicial foreclosure sales.'" See id. (quoting Udall v. T.D. Escrow Servs., Inc., 154 P.3d 882, 890 (Wash. 2007)).
Mr. Mecum alleges that Quality's duty to exercise independent discretion is implicit in a trustee's duty under the DTA. (Compl. ¶¶ 4.8-4.9.) Klem II acknowledges a trustee's duty to exercise independent discretion as part of its duty under the DTA to exercise good faith in performing mortgage foreclosures. See 295 P.3d at 1189. When it is consistent with this duty, the trustee has the power to postpone a sale for up to 120 days "for any cause the trustee deems advantageous." RCW 61.24.040(6).
In Klem II, the Washington Supreme Court concluded that a trustee's failure to "exercise its independent discretion as an impartial third party with duties to both parties" satisfied the CPA's requirement of an unfair or deceptive act. Klem II, 295 P.3d at 1190. Although Klem II addressed a CPA claim, the Washington Supreme Court more generally analyzed a trustee's duty under the DTA. Id. at 1187-90 (discussing a violation of a trustee's duty under the DTA as a way the first element of a CPA claim—an unfair or deceptive act or practice—can be satisfied). The Klem II opinion demonstrates that a trustee's failure to exercise independent discretion constitutes a breach of the trustee's duty under the DTA. See id at 1190.
Thus, even though Mr. Mecum's claim for negligence differs from the CPA claim in Klem II, the rationale expressed in Klem II is applicable to assessing the DTA's applicability to the duty and breach elements of a negligence claim.
Mr. Mecum alleges that when he first called Quality to ask it to postpone the foreclosure sale, Quality told him that it does not "have any power to postpone the sale of the property because that has to be done by the bank." (Compl. ¶ 3.22.) When Mr. Mecum called Quality again that morning, an attorney for Quality told him that she would "get back to him shortly" after she contacted Wells Fargo, and that she "needed to get Wells Fargo's approval to postpone the sale of the property." (Id. ¶ 3.23.) The attorney for Quality followed up with Mr. Mecum via email, explaining that "Wells Fargo had denied his request to postpone the sale of his home." (Id. ¶ 3.23; see also Quality Email ("Please be advised that Wells Fargo has denied your request that the pending Trustee's sale set for today be postponed. Based on this today's sale will proceed unless we are instructed otherwise or are restrained by a Court order . . . .").)
The court can reasonably infer from these allegations that Quality deferred to Wells Fargo in deciding not to postpone the sale. Deferring to Wells Fargo can constitute a breach of Quality's duty of good faith under the DTA, which is the duty Mr. Mecum argues Quality breached. Thus, the court denies Quality's motion for judgment on the pleadings because Mr. Mecum adequately alleges breach in his negligence claim.
b. Waiver of Claims under the DTA
Quality alternatively argues that Mr. Mecum waived his negligence claim. (Quality Mot. at 4.) Washington courts have held that a borrower waives its ability to contest a foreclosure sale on any grounds once the sale is completed, as long as the borrower "(1) received notice of the right to enjoin the sale, (2) had actual or constructive knowledge of a defense to foreclosure prior to the sale, and (3) failed to bring an action to obtain a court order enjoining the sale." Plein, 67 P.3d at 1065 (collecting cases). However, the DTA's statutory waiver applies only "where it is equitable under the circumstances and where it serves the goals of the act." Albice, 276 P.3d at 1283. The goals of the DTA are "(1) that the nonjudicial foreclosure process should be efficient and inexpensive; (2) that the process should result in interested parties having an adequate opportunity to prevent wrongful foreclosure; and (3) that the process should promote stability of land titles." Plein, 67 P.3d at 1065.
Mr. Mecum alleges that Quality did not breach its duty until the day of the sale. (See Compl. ¶¶ 3.23, 4.8.) The statutory waiver, however, requires Mr. Mecum to give Quality a five-day notice of any injunction he seeks. RCW 61.24.130(2) ("No court may grant a restraining order or injunction to restrain a trustee's sale unless the person seeking the restraint gives five days notice to the trustee . . . ."). Thus, it may be inequitable to conclude that Mr. Mecum waived his negligence claim against Quality because he did not request an injunction premised on actions that did not occur in time for him to timely request an injunction. Cf. Bakhchinyan v. Countrywide Bank, N.A., No. C13-2273-JCC, 2014 WL 1273810, at *6 (W.D. Wash. Mar. 27, 2014).
Klem II is instructive on this issue as well. See Klem II, 295 P.3d at 1185 n.7. The court in Klem II identified "ample reasons why a presale injunction was not an available remedy and thus application of the equitable doctrine of waiver would be inappropriate." Id. In that analysis, the Court recognized that the borrower did not have knowledge of the trustee's agreement to defer to the lender until after the sale, and that the notice requirements "may also have made a presale injunction impossible to acquire." Id. Because of the apparent inequity in applying a waiver in this case, the court cannot conclude at this stage that Mr. Mecum waived his negligence claim against Quality.
The defendant in Klem II raised the same waiver argument that is before this court. See Klem II, 295 P.3d at 1185. The Washington Supreme Court noted that the Washington Court of Appeals correctly reasoned why the waiver argument should be rejected. See Klem II, 295 P.3d at 1185. The Court of Appeals explained that where the guardians for the borrower attempted to contact both the trustee and the bank multiple times in the days leading up to the foreclosure sale and only received word of the bank's refusal to allow the postponement of the sale two days before the scheduled sale, the failure to enjoin the sale did not waive the borrower's claims brought post-sale. See Klem v. Wash. Mut. Bank, No. 66252-0-1, 2011 WL 6382147, at *2, *7 (Wash. Ct. App. Dec. 19, 2011) (unreported) [hereinafter Klem I]; see also Emp'rs Ins. of Wausau v. Granite State Ins. Co., 330 F.3d 1214, 1220 n.8 (9th Cir. 2003) ("[W]e may consider unpublished state decisions, even though such opinions have no precedential value."). As a result, the court of appeals concluded:
Under the circumstances presented in this case, waiver does not apply because the facts supporting [the borrower's DTA] claims did not fully take place until the sale itself and could not have been brought in an action to restrain the sale. One of the requirements for waiver is that a party must have actual or constructive knowledge of the facts supporting the claim. Moreover, the language of the [DTA] requires the grantor to be informed that waiver "of any proper grounds for invalidating the Trustee's sale" may result where it fails to bring a lawsuit to restrain the sale. Here, [the borrower] did not seek to invalidate the sale. Given our mandate to strictly construe the [DTA] in the borrower's favor, we conclude that [the borrower] did not waive its claims.Klem I, 2011 WL 6382147, at *7 (citations omitted). Because the borrower faced a similar last-minute notice of refusal to postpone the sale as Mr. Mecum alleges, the court finds Klem I and Klem II persuasive.
Because the court concludes that Mr. Mecum adequately pleaded that Quality breached its duty and cannot conclude at this stage that the DTA's waiver provision applies, the court denies Quality's motion for judgment on the pleadings with respect to Mr. Mecum's negligence claim.
2. CPA Claim against Quality
Quality next argues that Mr. Mecum failed to sufficiently plead the elements of a CPA claim. (Quality Mot. at 5-7.) The elements of a CPA claim are that the defendant (1) engaged in an "unfair or deceptive act or practice; (2) occurring in trade or commerce; (3) [which has a] public interest impact; (4) [the plaintiff suffered injury] in his or her business or property; [and] (5) causation." Klem II, 295 P.3d at 1185 (quoting Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 719 P.2d 531, 533 (1986)). Quality's motion challenges whether Mr. Mecum has adequately pleaded elements (1), (3), and (5). (See Quality Mot. at 5-7.)
Quality first argues that Mr. Mecum failed to allege an "unfair or deceptive act" performed by Quality. (Id. at 5.) Again, however, Quality's argument overlooks Klem II, in which the Washington Supreme Court held that "the practice of a trustee in a nonjudicial foreclosure deferring to the lender on whether to postpone a foreclosure sale and thereby failing to exercise its independent discretion as an impartial third party with duties to both parties is an unfair or deceptive act or practice and satisfies the first element of the CPA." 295 P.3d at 1190. As discussed above, Mr. Mecum adequately alleges that Quality failed to exercise independent discretion. See supra § IILC.1.a. The court accordingly rejects Quality's argument as to element (1).
Next, Quality challenges whether Mr. Mecum sufficiently pleaded facts supporting the "public interest" element of the CPA claim. (Quality Mot. at 6.) In cases stemming from a private dispute, as here, Washington courts consider four factors when determining whether a plaintiff satisfies the public interest element of the CPA: "(1) whether the defendant committed the alleged acts in the course of his/her business, (2) whether the defendant advertised to the public in general, (3) whether the defendant actively solicited this particular plaintiff, and (4) whether the plaintiff and defendant have unequal bargaining positions." Trujillo v. Nw. Tr. Servs., Inc., 355 P.3d 1100, 1108 (Wash. 2015) (citing Michael v. Mosquera-Lacy, 200 P.3d 695, 700 (Wash. 2009)); see also Hangman Ridge, 719 P.2d at 537-38 (identifying the test courts use when determining if a plaintiff with a private dispute meets the public interest element of a CPA claim). "The plaintiff need not establish all of the[] factors, and none is dispositive." Trujillo, 355 P.3d at 1108. "However the dispute arises, 'it is the likelihood that additional plaintiffs have been or will be injured in exactly the same fashion that changes a factual pattern from a private dispute to one that affects the public interest.'" Stephens v. Omni Ins. Co., 159 P.3d 10, 24 (Wash. Ct. App. 2007) (quoting Hangman Ridge, 719 P.2d at 538).
Mr. Mecum alleges that Quality is involved in many mortgages in Washington and that Quality deferred to the bank in determining not to postpone his foreclosure sale. (See Compl. ¶¶ 3.26, 3.30, 4.15.) Quality's determination of whether to postpone a foreclosure sale is an act conducted in the course of its business as trustee. See Klem II, 295 P.3d at 1188; (Compl. ¶ 3.30.) Moreover, the court can infer that Mr. Mecum had unequal bargaining power with Quality because trustees like Quality are typically appointed and compensated by loan servicers like Wells Fargo. See Klem II, 295 P.3d at 1188. Borrowers like Mr. Mecum are not involved in the selection of a trustee for the DTA's three-party mortgage relationship, and Mr. Mecum's inability to participate in this process deprives him of bargaining power with Quality. See id. Because Quality is involved in many similar business-related transactions in Washington and the borrower in a nonjudicial foreclosure lacks bargaining power with the trustee, the court concludes that Mr. Mecum sufficiently pleaded facts to support the public interest element of his CPA claim. See Trujillo, 355 P.3d at 1108.
Finally, Quality argues that Mr. Mecum's complaint fails to allege a causal link between the alleged misrepresentation and the purported injury, the fifth element of a CPA claim. (Quality Mot. at 6.) Mr. Mecum's alleged injury is the loss of his home and the time and money he has spent to challenge the sale. (Compl. ¶ 4.16; Resp. to Quality at 16.) Mr. Mecum alleges that Quality proceeded with the foreclosure sale without exercising independent discretion and that the trustee's sale directly resulted in his loss of title to the Property. (See Compl. ¶¶ 3.24, 4.8, 4.9.) Thus, the court concludes that Mr. Mecum has sufficiently alleged a causal link between Quality's failure to exercise independent discretion and Mr. Mecum's injury.
Because Mr. Mecum's allegations suffice to overcome Quality's challenges to Mr. Mecum's negligence and CPA claims, the court denies Quality's motion.
D. Leave to Amend
As a general rule, when a court grants a motion to dismiss, the court should dismiss the complaint with leave to amend. See Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051-52 (9th Cir. 2003) (citing Fed. R. Civ. P. 15(a)). The policy favoring amendment is to be applied with "extreme liberality." Id. at 1051. In determining whether dismissal without leave to amend is appropriate, courts consider such factors as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, and futility of amendment. Foman v. Davis, 371 U.S. 178, 182 (1962).
The legal conclusions herein make it unclear whether Mr. Mecum can amend his complaint to state a negligence claim against Wells Fargo. However, Wells Fargo and Deutsche have not made a showing that amendment would be futile, and Mr. Mecum acknowledges that his complaint, which was based on the "more relaxed" pleading standard in Washington state courts, may not meet the pleading standards of this court. (Resp. to Wells at 9.)
Accordingly, the court grants Mr. Mecum 14 days from the filing of this order to amend his complaint to remedy the issues identified herein. To the extent that Mr. Mecum chooses to amend his complaint, he should identify the source of Wells Fargo's duty underlying his negligence claim. The court may interpret Mr. Mecum's failure to cure the identified deficiencies as an indication that further amendment would be futile. See Foman, 371 U.S. at 182. If Mr. Mecum does not file an amended complaint within 14 days, the court will dismiss the negligence claim against Wells Fargo without prejudice and without leave to amend.
IV. CONCLUSION
For the foregoing reasons, the court GRANTS IN PART and denies in part Wells Fargo and Deutsche's partial motion to dismiss (Dkt. # 8), DENIES Quality's motion for judgment on the pleadings (Dkt. # 17), and DISMISSES WITHOUT PREJUDICE the portion of Mr. Mecum's complaint alleging a negligence claim against Wells Fargo. The court GRANTS Mr. Mecum 14 days to amend his complaint to remedy the deficiencies identified herein.
Dated this 9th day of March, 2016.
/s/_________
JAMES L. ROBART
United States District Judge