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finding that the plaintiffs failed to state a claim for violation of California Civil Code section 2923.6(c) because the plaintiffs alleged that the notice of default and notice of trustee's sale were recorded prior to the Homeowner Bill of Rights going into effect
Summary of this case from Arbib v. Nationstar Mortgage LLCOpinion
EDCV 13-02075 JVS (DTBx).
01-27-2014
James T. WILLIAMS, et al. v. WELLS FARGO BANK, NA, et al.
Joseph Richard Manning, Jr., Law Offices of Joseph R. Manning Jr., APC, Newport Beach, CA, for James T. Williams, et al. Lynette Gridiron Winston, Anglin Flewlling Rasmussen Campbell and Trytten LLP, Pasadena, CA, Edward A. Treder, Madeleine King Lee, Barrett Daffin Frappier Treder and Weiss LLP, Diamond Bar, CA, for Wells Fargo Bank, NA, et al.
Proceedings: Defendant Wells Fargo Bank's Motion to Dismiss (fld 11-18-13)
Defendant Wells Fargo Bank's Motion to Strike Portions of Complaint (fld 11-18-13)
Defendant NDEX West LLC's Notice of Joinder in Motion of Defendant Wells Fargo Bank to Dismiss Plaintiff's Complaint (fld 12/11/13)
Joseph Richard Manning, Jr., Law Offices of Joseph R. Manning Jr., APC, Newport Beach, CA, for James T. Williams, et al.
Lynette Gridiron Winston, Anglin Flewlling Rasmussen Campbell and Trytten LLP, Pasadena, CA, Edward A. Treder, Madeleine King Lee, Barrett Daffin Frappier Treder and Weiss LLP, Diamond Bar, CA, for Wells Fargo Bank, NA, et al.
JAMES V. SELNA, JUDGE.
Cause called and counsel make their appearances. The Court issues its tentative ruling. Counsel make their arguments. The Court GRANTS the Motion to Dismiss and DENIES the Motion to Strike as moot and rules in accordance with the tentative ruling as follows:
Defendant Wells Fargo Bank, N.A., successor by merger with Wells Fargo Bank Southwest, N.A., f/k/a Wachovia Mortgage, FSB, f/k/a World Savings Bank, FSB (“Wells Fargo”) moves to dismiss the Complaint of Plaintiffs James T. Williams and Stephanie Williams (“Plaintiffs”) in its entirety pursuant to Rule 12(b)(6). (Motion to Dismiss Complaint (“MTD”), Docket No. 7.) Defendant NDeX West, LLC (“NDeX”) has filed a motion joining in Defendant Wells Fargo's Motion to Dismiss the Complaint. (Joinder in Motion to Dismiss Complaint (“MTD Joinder”), Docket No. 13.) Wells Fargo has also moved to strike portions of the Complaint pursuant to Rule 12(f). (Motion to Strike (“MTS”), Docket No. 8.) Plaintiffs oppose both Motions. (Opposition to Motion to Dismiss (“MTD Opp'n”), Docket No. 15; Opposition to Motion to Strike (“MTS Opp'n”), Docket No. 16.) Wells Fargo has replied. (Reply in Support of Motion to Dismiss (“MTD Reply”), Docket No. 18; Reply in Support of Motion to Strike (“MTS Reply”), Docket No. 19.) For the following reasons, the Court GRANTS the Motion to Dismiss and DENIES the Motion to Strike as moot.
I. Background
A. Judicial Notice
Defendants have filed a request for judicial notice in support of their Motion to Dismiss. (Request for Judicial Notice (“RJN”), Docket No. 9.) Plaintiffs oppose this request. (Objection to Request for Judicial Notice, Docket No. 16.) The Court is permitted to take judicial notice of adjudicative facts and matters of public record. Fed.R.Ev-id. 201; Bias v. Moynihan, 508 F.3d 1212, 1225 (9th Cir.2007); Lee v. City of Los Angeles, 250 F.3d 668, 688- 89 (9th Cir.2001). The Court can also take judicial notice of documents necessarily relied upon by the Complaint. New. Net, Inc. v. Lavasoft, 356 F.Supp.2d 1090, 1115-16 (C.D.Cal.2004). Therefore, the Court takes notice of the following:
Adjustable Rate Mortgage Note, dated January 3, 2005 and signed by plaintiffs James Williams and Stephanie Williams. (RJN Ex. A.)
Deed of Trust, dated January 3, 2005 and recorded in the official records of the Office of the Riverside County Recorder on January 11, 2005 as Doc # 2005- 0027173. (Id. Ex. B.)
Notice of Default, dated December 12, 2011 and recorded in the official records of the Office of the Riverside County Recorder on December 13, 2011 as Doc # 2011-0551174. (Id. Ex. D.)
Notice of Trustee's Sale, dated March 8, 2012 and recorded in the official records of the Office of the Riverside County Recorder on March 12, 2012 as Doc # 2012-0113164. (Id. Ex. E.)
Order and Notice of Dismissal Arising From Chapter 13 Confirmation Hearing, entered in Case No. 6:12- bk-18264-DS / In re James Tyrone Williams by the United States Bankruptcy Court of California-Central District, on August 24, 2012. (Id. Ex. F.)
*2 Notice of Dismissal, entered in Case No. 6:12-bk- 30353-DS / In re James Tyrone Williams by the United States Bankruptcy Court of California-Central District, on July 11, 2013. (Id. Ex. G.)
In addition, courts have taken judicial notice of documents pertaining to World Savings Bank, FSB's status as a federal savings bank, its change to Wachovia Mortgage, FSB, and subsequent merger with Wells Fargo. Terrazas v. Wells Fargo Bank, N.A., 2013 WL 5774120, at *2 (S.D.Cal. Oct.24, 2013); Albert v. Wells Fargo Bank, N.A., 2012 WL 1213718, at *2 (N.D.Cal. Apr.11, 2012); Hite v. Wachovia Mortgage, 2010 U.S. Dist. LEXIS 57732, at *6-9 (E.D. Cal. June 10, 2010). Therefore, the Court also takes judicial notice of the documents from the Office of Thrift Supervision (“OTS”) and the Comptroller of Currency Administrator (“OCC”) attached as Exhibit C to the Request for Judicial Notice.
Wells Fargo has also filed a Supplemental Request for Judicial Notice, seeking judicial notice of opinions issued by the OTS and the Federal Home Loan Bank Board as well as various bulletins issued by the OCC. (Supplemental Request for Judicial Notice (“Supp.RJN”) Ex. H-L, Docket No. 21.) The Court finds that it unnecessary to rely upon these documents in order to reach a decision on the Motion to Dismiss; therefore, the Court declines to take judicial notice of these documents.
B. Factual Background
In 2005, Plaintiffs obtained a residential loan of $456,000.00 from World Saving Bank, FSB, secured by the residence located at 1015 Nighthawk Circle, Corona, CA 92881 (“Subject Property”). (Notice of Removal Ex. A (“Compl.”) ¶¶ 34-35, Docket No. 1; RJN Ex. A, B.) World Savings was renamed Wachovia Mortgage, FSB on January 1, 2008. (RJN Ex. C.) Wachovia Mortgage, FSB changed its name to Wells Fargo Bank Southwest, N.A. on November 2009, and then merged with Wells Fargo Bank, N.A. (Id.)
In May 2011, Plaintiffs fell behind on their monthly mortgage payments. (Compl.¶ 38.) In August 2011, Plaintiffs contacted Wells Fargo about obtaining a loan modification. (Id. ¶ 39.) In response to this inquiry, Plaintiffs were informed that they “qualified” for a loan modification and that no foreclosure proceedings would be initiated against Plaintiffs while their loan modification application was under review. (Id.) Additionally, Plaintiffs were advised to stop making their loan payments while the loan Title James T. Williams, et al. v. Wells Fargo Bank, NA, et al. modification application was under review. (Id.) Consequently, Plaintiffs submitted a loan modification application and stopped making their monthly payments. (Id. ¶ 41.)
In October 2011, Plaintiffs were informed by Wells Fargo that failure to cure their default by paying $15,000 would result in foreclosure. (Id. ¶ 43.) However, upon contacting Wells Fargo, Plaintiffs were told that their loan modification application was still being reviewed and that an affordable modified payment was forthcoming. (Id. ¶ 44.) Despite this assurance, on December 12, 2011, Defendants executed a Notice of Default and Election to Sell Under Deed of Trust (“Notice of Default”) with respect to the Subject Property. (Id. ¶ 45 & Ex. B.) Upon receiving the Notice of Default, Plaintiffs contacted Wells Fargo and were told that their application for a loan modification had been denied. (Id. ¶ 46.) However, Plaintiffs were also informed that re-application for a loan modification would hold the Notice of Default “in suspense.” (Id.) As a result, Plaintiffs re-applied for a loan modification. (Id. ¶ 47.) A few days after submitting this renewed application, Plaintiffs were informed that their application had been denied because there had been no change in their financial circumstances since the denial of their previous application. (Id. ¶ 50.) Plaintiffs soon discovered that the income information relied upon by Wells Fargo to make this determination was incorrect. (Id. ¶ 51.) Plaintiffs corrected this information and Wells Fargo again re-evaluated Plaintiffs' loan modification application. (Id. ¶¶ 51-52.) However, Wells Fargo again denied their application based on the fact that there was no change in Plaintiffs' financial circumstances. (Id. ¶ 53.) When Plaintiffs attempted to follow up with Wells Fargo about this denial, they were repeatedly directed to different contact representatives and were never put in contact with a representative who could help them obtain further information about the denial of their application. (Id. ¶ 54.)
On March 12, 2012, Defendants executed and recorded a Notice of Trustee Sale (“Notice of Sale”) against the Subject Property. (Id. ¶ 55; RJN Ex. E.) The following month, Plaintiffs filed for Chapter 7 Bankruptcy, which was later converted to a Chapter 13 Bankruptcy. (Compl.¶¶ 56-57.) In December 2012, Plaintiffs contacted Wells Fargo in order to obtain a loan modification following this change in their financial circumstances but were not provided with any assistance. (Id. ¶ 62.) In March 2013, Plaintiffs were informed that the foreclosure sale had been cancelled in light of the Bankruptcy. (Id. ¶ 63.) The Bankruptcy was dismissed on July 11, 2013. (Id. ¶ 64; RJN Ex. G.) Plaintiffs again tried to contact Wells Fargo in order to discuss a possible loan modification in light of a significant decrease in their income; however, they received no assistance from Wells Fargo. (Compl.¶ 66.) Plaintiffs assert that they were repeatedly directed to different representatives and automated systems whenever they tried to contact Wells Fargo. (Id.) Plaintiffs now fear that Defendants will re-issue a Notice of Sale because they have continued to fall behind on their mortgage payments. (Id. ¶¶ 67-68.) Plaintiffs further allege that undisclosed marked-up fees charged by Wells Fargo for default-related services have prevented them from curing their default. (Id. ¶¶ 19-29, 68.)
Plaintiffs filed suit against Defendants in state court on October 11, 2013, asserting claims for violation of California Civil Code section 2923.6, negligence, violation of California Business and Professions Code section 17200, and a demand for an accounting. (Compl.¶¶ 85-145.) Wells Fargo removed the case to federal court on November 12, 2013. (Notice of Removal.)
II. Legal Standard
A. Motion to Dismiss
Under Rule 12(b)(6), a defendant may move to dismiss for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A plaintiff must provide “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim has “facial plausibility” if the plaintiff pleads facts that “allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).
In resolving a Rule 12(b)(6) motion under Twombly, the Court must follow a two pronged approach. First, the court must accept all well-pleaded factual allegations as true, but “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678. Nor must the court “accept as true a legal conclusion couched as a factual allegation.” Id. (quoting Twombly, 550 U.S. at 555). Second, assuming the veracity of well-pleaded factual allegations, the court must “determine whether they plausibly give rise to an entitlement to relief.” Id. at 679. This determination is context-specific, requiring the Court to draw on its experience and common sense, but there is no plausibility “where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct.” Id.
B. Motion to Strike
Under Rule 12(f), a party may move to strike from a pleading “an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed.R.Civ.P. 12(f). The grounds for a motion to strike must appear on the face of the pleading under attack, or from matters of which the Court may take judicial notice. SEC v. Sands, 902 F.Supp. 1149, 1165 (C.D.Cal.1995). The essential function of a Rule 12(f) motion “is to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial.” Sidney-Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir.1983). “As a general proposition, motions to strike are regarded with disfavor because [they] are often used as delaying tactics, and because of the limited importance of pleadings in federal practice.” Sands, 902 F.Supp. at 1165-66 (alteration in original) (internal quotation marks omitted).
III. Discussion
In ruling on the Motion to Dismiss, the Court first considers Defendants' contention that Plaintiffs have failed to state sufficient facts to support a viable claim for relief because these arguments apply to the claims asserted against both Defendants. The Court then examines Defendants' argument that the claims against Defendant Wells Fargo are preempted by the Home Owners Loan Act (“HOLA”) of 1933, 12 U.S.C. § 1461 et seq. and the regulations promulgated thereunder by the OTS.
A. Failure to State a Claim
Defendants argue that all four causes of action in Plaintiffs' Complaint should be dismissed because Plaintiffs have failed to plead sufficient facts to state a claim for relief. The Court will examine each cause of action in turn.
i. HBOR Violation
Plaintiffs' first cause of action asserts claims under the Home owner's Bill of Rights (“HBOR”). (Compl.¶¶ 85- 99.) More specifically, Plaintiffs allege that Defendants violated sections 2923.6(c) and 2923.6(g) of the California Civil Code. (Id.) The Court will examine each of these alleged violations in turn.
Plaintiffs allege that Defendants violated section 2923.6(c) by “dual-tracking,” meaning the initiation of foreclosure proceedings while a loan modification application is pending. Section 2923.6(c) reads as follows:
(c) If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower's mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee's sale, while the complete first lien loan modification application is pending. A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale or conduct a trustee's sale until any of the following occurs:
(1) The mortgage servicer makes a written determination that the borrower is not eligible for a first lien loan modification, and any appeal period pursuant to subdivision (d) has expired.
The borrower does not accept an offered first lien loan modification within 14 days of the offer.
(3) The borrower accepts a written first lien loan modification, but defaults on, or otherwise breaches the borrower's obligations under, the first lien loan modification.Cal. Civ.Code § 2923.6(c). Defendants argue that this claim should be dismissed because violations of section 2923.6(c) are triggered by the recording of a notice of default, recording of a notice of sale, or the completion of a trustee's sale. Here, no such filing or sale has occurred since HBOR became effective in 2013. HBOR does not apply retroactively; therefore, the Notice of Default recorded in December 2011 and the Notice of Trustee's Sale recorded in March 2012 do not constitute violations of the HBOR. See Weber Living Trust v. Wells Fargo Bank, N.A., 2013 WL 1196959, at *4 (N.D.Cal. Mar.25, 2013). Furthermore, Plaintiffs have not alleged that they submitted a completed third loan modification since the denial of the second application in early 2012. Therefore, at no point since HBOR became effective in 2013 does there appear to have been a pending loan modification application submitted by Plaintiffs.
Plaintiffs allege that Defendants violated California Civil Code section 2923.6(g) by failing to re-evaluate Plaintiffs for a loan modification after notification of a material change in their financial circumstances. Section 2923.6(g) provides:
In order to minimize the risk of borrowers submitting multiple applications for first lien loan modifications for the purpose of delay, the mortgage servicer shall not be obligated to evaluate applications from borrowers who have already been evaluated or afforded a fair opportunity to be evaluated for a first lien
loan modification prior to January 1, 2013, or who have been evaluated or afforded a fair opportunity to be evaluated consistent with the requirements of this section, unless there has been a material change in the borrower's financial circumstances since the date of the borrower's previous application and that change is documented by the borrower and submitted to the mortgage servicer.Cal. Civ.Code § 2923.6(g). Plaintiffs allege that there has been a material change in their financial circumstances since Defendants' denial of their previous applications for foreclosure prevention. This includes a decrease in gross income to approximately $12,000 and an increase in their expenses. (Compl.¶¶ 72, 90.) These changes were explained in a letter submitted to Defendants by Plaintiffs' counsel dated October 4, 2013. (Id. Ex. C.) As such, they claim that Defendants are required to re-evaluate them for a loan modification.
The Court finds that the Complaint has failed to state a claim for violation of section 2923.6(g). First, the Court finds that the information provided to Defendants was insufficient to trigger the exception contained in section 2923.6(g). The only such documentation specifically mentioned in the Complaint is the October 4, 2013 letter sent by Plaintiffs' counsel to Defendants regarding the alleged change in Plaintiffs' financial circumstances. The letter contains the following statements regarding the alleged change in Plaintiffs' financial circumstances: “Mr. and Mrs. Williams' gross disposable household income is approximately $12,000 per month, and the borrowers have also been faced with an increase in their expenses. As a result, Mr. and Mrs. Williams have had a material change in their financial circumstances and would qualify for a modified monthly mortgage payment.” (Id.) The letter provides no further details or documentation of these alleged changes. As noted by Defendants, in Ware v. Bayview Loan Servicing, LLC, the court found that a similar letter from the plaintiffs' counsel contained insufficient documentation of the alleged change in the plaintiffs' financial circumstances to trigger section 2923.6(g). 2013 WL 6247236, at *5-6 (S.D.Cal. Oct.29, 2013). The Court concluded that “[t]o accept the letter as a valid notice of material change would be at odds with the very purpose of subsection), which is meant to relieve mortgage servicers from evaluating multiple loan modification applications submitted for the purpose of delay.” Id. at *6; cf. Winterbower v. Wells Fargo Bank, N.A., 2013 WL 1232997, at *3 (C.D.Cal. Mar.27, 2013).
Furthermore, section 2923.6 appears inapplicable because Plaintiffs have not alleged that they have submitted a new loan modification application following the documentation of their alleged financial change. The Complaint indicates that Plaintiffs' first and second loan modification applications were both denied. (Compl.¶¶ 46, 50, 53.) The Complaint does not allege that a subsequent loan modification application was ever submitted. Instead, Plaintiffs appear to suggest that Defendants are obligated to reevaluate Plaintiffs' previous loan modification applications. Section 2923.6 requires lenders to evaluate applications of borrowers whose previous applications for loan modification were denied. Cal. Civ.Code § 2923.6(g). Therefore, by failing to allege that Plaintiffs submitted a new loan modification application, Plaintiffs have failed to state a claim for relief under section 2923.6. See Ware, 2013 WL 6247236, at *5-6.
Accordingly, the Court dismisses the first cause of action of the Complaint.
ii. Negligence
Plaintiffs' second cause of action asserts a claim for negligence, contending that Defendants breached a duty of care and skill owed to Plaintiffs in the servicing of their loan and implementation of their loan modification program. (Compl.¶¶ 100-14.) The Complaint lists a number of ways in which Defendants purportedly breached this duty of care: (1) “ ‘[d]ual tracking' Plaintiffs toward foreclosure during the purported loan modification ‘review' in violation of the Home owner's Bill of Rights and despite firm assurances that no foreclosure activity would take place against the Subject Property while Plaintiffs' loan modification application was in review”; (2) “[e]ngaging in a pattern and practice of making promises to Plaintiffs that Defendants' representatives knew would not be honored”; (3) “[f]ailing to fairly evaluate Plaintiffs' loan for an alternative to foreclosure, including a loan modification, even after a material change in the borrowers' financial circumstances has been documented and submitted to the mortgage servicer, pursuant to Civil Code § 2923.6(g)”; (4) “[s]ending Plaintiffs false and misleading advertisements misrepresenting the availability of options to save Plaintiffs' home and leading Plaintiffs to believe Wells Fargo would and could qualify Plaintiffs for a foreclosure prevention plan and avoid a trustee's sale all in a matter of days”; (5) “[f]ailing to sufficiently train loss mitigation staff and failure to maintain adequate systems for tracking borrower documents and information that are relevant to foreclosure and loss mitigation, so that Plaintiffs could receive consistent and accurate information from one phone call to the next”; (6) “[f]ailing to notify Plaintiffs that they were foreclosing on the Subject Property, while, in fact, telling Plaintiff the opposite, ultimately confusing and misleading Plaintiff”; and (7) “[f]ore-closing on the Subject Property without the legal authority to do so”. (Id. ¶ 108.)
The Court notes that Plaintiffs' allegations regarding the alleged false promises and misrepresentations made by Wells Fargo representatives appear better suited to a negligent misrepresentation claim, which requires 9(b) particularity in order to survive a motion to dismiss. See, e.g., Newhouse v. Aurora Bank FSB, 915 F.Supp.2d 1159, 1168 (E.D.Cal.2013) (noting that negligence claim was actually a claim for misrepresentation, which requires 9(b) particularity). Plaintiffs' vague allegations regarding misrepresentations made by Wells Fargo are insufficient to state the “who, what, when, where, and how” of the fraudulent conduct charged. Vess v. Ciba-Geigy Corp., USA, 317 F.3d 1097, 1106 (9th Cir.2003).
To state a claim for negligence under California law, a plaintiff must plead the familiar elements duty, breach of duty, proximate cause, and damages. Corales v. Bennett, 567 F.3d 554, 572 (9th Cir.2009). More specifically, those elements are stated as “(1) defendant's obligation to conform to a certain standard of conduct for the protection of others against unreasonable risks (duty); (2) failure to conform to that standard (breach of the duty); (3) a reasonably close connection between the defendant's conduct and resulting injuries (proximate cause); and (4) actual loss (damages).” Id. (internal quotation marks and citation omitted).
Generally, “ ‘a financial institution owes no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.' ” Wise v. Wells Fargo Bank, N.A., 850 F.Supp.2d 1047, 1052-53 (C.D.-Cal.2012) (quoting Nymark v. Heart Fed. Savs. & Loan Ass'n, 231 Cal.App.3d 1089, 1096, 283 Cal.Rptr. 53 (1991)). A duty is created only when a lender “actively participates in the financed enterprise beyond the domain of the usual money lender.” Wise, 850 F.Supp.2d at 1053 (internal quotation marks and citation omitted).
On this basis, Defendants contend that they owe no duty of care as a matter of law. (MTD 16-19; Reply 9-11.) Plaintiffs disagree, arguing that “Defendant Wells Fargo stepped out of its conventional duties as lender and servicer and assumed additional responsibilities when it dispatched letters advertising its mortgage assistance programs and undertook efforts to consider borrowers, including Plaintiffs, for loss mitigation options, including, but not limited to, loan modifications.” (Compl. ¶ 102; Opp'n 14-18.) In reaching this conclusion, Plaintiffs heavily rely upon Ansanelli v. JP Morgan Chase Bank, N.A., in which the court concluded that a duty of care exists in the loan modification context. 2011 WL 1134451, at *7 (N.D.Cal. Mar.28, 2011). Courts have reached differing conclusions on this issue. See Rockridge Trust v. Wells Fargo, N.A., 2013 WL 5428722, at *35-36 (N.D.-Cal. Sept.25, 2013) (collecting cases reaching both the conclusion that there is a duty of care and the contrary conclusion that there is no such duty).
The Court concludes in accordance with the line of cases holding that loan modification-a renegotiation of the loan's terms-is so related to “the key functions of a money lender” as to not give rise to an enforceable duty of care to the borrower. See, e.g., id.; Deschaine v. Indy Mac Mortg. Servs., 2013 U.S. Dist. LEXIS 163203, at *17-18 (E.D.Cal. Nov. 15, 2013) (noting that Ansanelli represents a minority position given that it is widely recognized that renegotiationg the terms of a loan is “one of the key functions of a money lender”). Most importantly, this approach was recently confirmed by the California Court of Appeal in Lueras v. BAC Home Loans Servicing, L.P., which noted that “a loan modification is the renegotiation of loan terms, which falls squarely within the scope of a lending institution's conventional role as a lender of money.” 221 Cal.App.4th 49, 67, 163 Cal.Rptr.3d 804 (2013).
In their Opposition, Plaintiffs argue that the application of the six Biakanja factors requires the Court to find a duty of care under these facts. (Opp'n 16-17.) In Biakanja v. Irving, the court identified six factors to determine whether to recognize a duty of care. 49 Cal.2d 647, 650, 320 P.2d 16 (1958); see also Nymark, 231 Cal.App.3d at 1098, 283 Cal.Rptr. 53 (applying the Biakanja factors). However, in Lueras, the California Court of Appeal concluded that the Biakanja factors do not support the imposition of a common law duty in the context of loan modification. Lueras, 221 Cal.App.4th at 67, 163 Cal.Rptr.3d 804.
In the absence of a duty of care, Plaintiffs cannot state a claim for negligence; thus, the Court dismisses the second cause of action.
iii. Cal. Bus. & Prof.Code § 17200
Plaintiffs' third cause of action asserts a claim for violation of California Business and Professions Code section 17200. (Compl.¶¶ 115-35.) The UCL prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” Cal. Bus. & Prof.Code § 17200. Recovery under the UCL is limited to restitution or injunctive relief. An act can be alleged to violate any or all of the three prongs of the UCL -unlawful, unfair, or fraudulent. A claim pursuant to section 17200 is derivative and generally requires an underlying claim in order to be valid. Khoury v. Maly's of Cal., Inc., 14 Cal.App.4th 612, 619, 17 Cal.Rptr.2d 708 (1993). Therefore, to allege unfair business practices, a plaintiff “must state with reasonable particularity the facts supporting the statutory elements of the violation.” Id. Here, Plaintiffs contend that Defendants violated section 17200 by violating California Civil Code section 2923.6, failing to provide a single point of contact in violation of California Civil Code section 2923.7, making misrepresentations, instituting improper foreclosure proceedings to generate unwarranted fees, and foreclosing on the Subject Property without the legal authority to do so.
Plaintiffs attempt to predicate a UCL violation upon Defendants' alleged violation of the HBOR fails. First, the Court has already dismissed Plaintiffs claims for violation of California Civil Code section 2923.6. Therefore, Plaintiffs cannot assert a derivative UCL claim based upon that section of the California Civil Code. In addition, Plaintiffs attempt to assert a UCL claim based upon Defendants' failure to appoint them a single point of contact in violation of California Civil Code section 2923.7. The Complaint does indicate that Plaintiffs were repeatedly directed to different representatives when they attempted to contact Wells Fargo about their loan. (Compl.¶¶ 54, 62.) However, the text of section 2923.7 requires that the borrower make a specific request for a single point of contact. Cal. Civ.Code § 2923.7. The Complaint does not allege that Plaintiffs made any such request. Therefore, Plaintiffs cannot predicate a UCL claim based upon a violation of section 2923.7. In addition, the Complaint also cites to several other statutes that Plaintiffs have allegedly violated, including 18 U.S.C. §§ 1341, 1343, and 1962, and California Civil Code sections 1572, 1573, 1709, 1710, and 1711. (Compl.¶ 126.) However, these bare-bones allegations are insufficient because Plaintiffs fail to provide any explanation detailing how Defendants violated these provisions.
Plaintiffs' also assert a UCL claim based upon misrepresentations purportedly made by Defendants regarding the loan modification process. (Compl.¶ 120.) These allegations sound in fraud and are therefore subject to a heightened pleading standard under FRCP 9(b). See, e.g., Mullins v. Wells Fargo Bank, N.A., 2013 WL 5299181, at *11 (E.D.Cal. Sept.18, 2013) (“Where a plaintiff chooses to allege fraudulent conduct and relies on such conduct as the basis for its UCL claim, the claim is grounded in or sounds in fraud such that its pleading as a whole must satisfy the particularity requirement of Federal Rule of Civil Procedure 9(b).”). Plaintiffs do not describe these alleged misrepresentations with particularity as to who, what, when, and where the statements were made. Therefore, they have not met the heightened 9(b) pleading standard. Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir.2009). Consequently, Plaintiffs cannot assert a UCL claim based upon these alleged misrepresentations.
Plaintiffs also base their UCL claim upon Defendants' alleged assessment of marked-up fees against their account. (Compl.¶ 120.) More specifically, Plaintiffs allege that Defendants illegally overcharged Plaintiffs by marking up the prices charged by vendors for default-related services. (Id. ¶¶ 19-29.) Plaintiffs further contend that these excess fees have been fraudulently concealed by Defendants by identifying them on Plaintiffs' account as “Other Charges,” “Other Fees,” “Miscellaneous Fees,” or “Corporate Advances.” (Id. ¶ 26.) However, Plaintiffs fail to provide any specific factual support for their claim that Defendants have marked-up the cost of these services. The Complaint is devoid of any factual details regarding when these charges were assessed, the vendors involved, or why Plaintiffs have concluded that these charges were excessive. These vague allegations are not sufficient to state a claim regarding these allegedly illegal fees.
Accordingly, Plaintiffs' UCL claim is dismissed.
iv. Demand for an Accounting
Defendants also argue that Plaintiffs' fourth cause of action fails because they are not entitled to an accounting. “A cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting.” Teselle v. McLoughlin, 173 Cal.App.4th 156, 179, 92 Cal.Rptr.3d 696 (2009). Plaintiffs contend that they are entitled to an accounting because Wells Fargo has overcharged Plaintiffs by marking up the prices charged by vendors for default-related services. (Compl.¶ 141.) Plaintiffs allege that the claimed arrearages on the Notice of Default is not correct because of these excess charges and fees, thereby requiring an accounting. (Id. ¶¶ 142, 143, 145, 92 Cal.Rptr.3d 696.)
The Court finds that Plaintiffs' demand for an accounting is flawed. Plaintiffs have not alleged the existence of a fiduciary relationship, nor have they pled any other extraordinary situation that might otherwise substantiate an assertion of equity jurisdiction. See Hafiz v. Greenpoint Mortg. Funding, Inc., 652 F.Supp.2d 1039, 1043-44 (N.D.Cal.2009). In addition, as the court has previously noted in considering Plaintiffs' UCL claim, Plaintiffs' allegations regarding the excess fees purportedly charged by Wells Fargo are devoid of sufficient factual detail to survive a motion to dismiss. Moreover, an accounting is inappropriate in this case because Plaintiffs have not alleged that Defendants owe them any money. As noted by Defendants, the Complaint fails to establish that Plaintiffs have paid any sum to Defendants since they went into default in 2011. (MTD 25; Reply MTD 15.) In such cases in which the defendant does not owe the plaintiff any money, courts have found that the plaintiff has no right to seek an accounting. Pazagard v. Wells Fargo Bank, N.A., 2011 WL 3737234, at *5 (C.D.Cal. Aug.23, 2011) (“[B]ecause it is Plaintiffs who still owe money to Defendant, and not the other way around, Plaintiffs cannot properly bring a claim for an accounting.”). Furthermore, as in Pazagard, it is unclear why the proper balance on the loan cannot be ascertained through ordinary means, such as requesting a written itemization from Defendant.” Id. at *5.
A mortgage lender or a trustee under a deed of trust generally does not owe a fiduciary duty to the borrower. See Nymark, 231 Cal.App.3d at 1093 n. 1, 283 Cal.Rptr. 53 (“The relationship between a lending institution and its borrower-client is not fiduciary in nature.”). While a fiduciary relationship between the parties is not necessary for the plaintiff to demand an accounting, some special relationship between the parties is generally required. See, e.g., Sabherwal v. Bank of New York Mellon, 2013 WL 4833940, at *9 (S.D.Cal. Sept.10, 2013) (“To properly plead a relationship other than a fiduciary duty that could give rise to a claim for an accounting, Plaintiff must allege at least that [defendant] was in control of some aspect of the Plaintiff's business for some period of time, was Plaintiff's trusted agent, caused a loss to Plaintiff through specific misconduct, and is now liable to Plaintiff for the damages resulting from that misconduct.”) (citation omitted).
Accordingly, this claim is dismissed.
b. Preemption
Wells Fargo also argues that all of Plaintiffs' claims are preempted by HOLA and the regulations promulgated thereunder by the OTS.
i. Applicability of HOLA Preemption to Wells Fargo
Plaintiffs initially secured their loan from World Savings Banks, FSB, which is regulated by the OTS. (RJN Ex A, C.) Numerous cases have held that HOLA preemption continues to apply to loans originated by a federal savings bank even after those banks are merged into national banking associations. See, e.g., Babb v. Wachovia Mortg., FSB, 2013 WL 3985001, at *4 (C.D.Cal. July 26, 2013) (“Courts have held that successors in interest may properly assert preemption under HOLA even if the successor entity is not a federally chartered savings.”); Castillo v. Wachovia Mortg., 2012 WL 1213296, at *4-5 (N.D.Cal. Apr.11, 2012) (collecting cases). Therefore, Wells Fargo, the successor to World Savings Bank, may assert HOLA preemption.
Plaintiffs contend that Defendants' reliance upon HOLA preemption is misplaced because of the 2011 amendment of HOLA as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. (Opp'n 7.) The Act amended section 1465 of HOLA to provide that HOLA “does not occupy the field in any area of State law” and preemption decisions “shall be made in accordance with the laws and legal standards applicable to national banks regarding the preemption of State law.” 12 U.S.C. § 1465. However, Dodd-Frank limited the applicability of this new preemption regime to contracts entered into after the Act's enactment. 12 U.S.C. § 5553. Plaintiffs secured their residential loan in 2005, before the Act became effective on July 21, 2010. Therefore, the new preemption regime established by the Dodd-Frank amendments does not apply in this case. Settle v. World Sav. Bank, F.S.B., 2012 WL 1026103, at *14 (C.D.Cal. Jan.11, 2012) (“The court ... concludes that claims involving contracts formed before July 21, 2010 are subject to the preemption regime in place before Dodd-Frank.”); see also Copeland-Turner v. Wells Fargo Bank, 800 F.Supp.2d 1132, 1137-38 (D.Or.2011).
ii. HOLA Preemption Standard
In Silvas v. E*Trade Mortgage, Corp., 514 F.3d 1001 (9th Cir.2008), the Ninth Circuit addressed whether HOLA and OTS regulations preempt state laws in the context of mortgage lending. Under HOLA, OTS has “broad authority to issue regulations governing thrifts.” Id. at 1005. These regulations have the same preemptive effect as federal statutes, id. (citing Fidelity Fed. Sav. & Loan Assoc. v. de la Cuesta, 458 U.S. 141, 153, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982)), and OTS regulations occupy the entire field of lending regulation for federal savings associations, id. (citing 12 C.F.R. § 560.2(a)).
Subsection (b) of § 560.2 provides a list of “illustrative examples of the types of state laws that are preempted” by HOLA. 12 C.F.R. § 560.2(b). In contrast, subsection (c) sets forth a list of the types of state laws that are not preempted. The Silvas court approved of the following procedure in determining whether a state law is preempted under § 560.2:
When analyzing the status of state laws under § 560.2, the first step will be to determine whether the type of law in question is listed in paragraph (b). If so, the analysis will end there; the law is preempted. If the law is not covered by paragraph (b), the next question is whether the law affects lending. If it does, then, in accordance with paragraph (a), the presumption arises that the law is preempted. This
presumption can be reversed only if the law can clearly be shown to fit within the confines of paragraph (c). For these purposes, paragraph (c) is intended to be interpreted narrowly. Any doubt should be resolved in favor of preemption.Id. (citing OTS, Final Rule, 61 Fed.Reg. 50951, 50966-67 (Sept. 30, 1996)).
HOLA does not preempt all causes of action arising out of loan modification or foreclosure proceedings, but only those that would impose additional requirements on federal savings associations. Rumbaua v. Wells Fargo Bank, N.A., 2011 U.S. Dist. LEXIS 95533, at *19 (N.D.Cal. Aug. 25, 2011). State laws of general applicability, such as contract, tort, and real property law, are not preempted by HOLA “to the extent that they only incidentally affect the lending operations of Federal savings associations.” 12 C.F.R. § 560.2(c). However, in determining whether a cause of action is preempted by HOLA, courts cannot look merely to its abstract nature; rather, they must consider “the functional effect upon lending operations of maintaining the cause of action.” Susilo v. Wells Fargo Bank, N.A., 796 F.Supp.2d 1177, 1186 (C.D.Cal.2011) (citation and internal quotation marks omitted).
Applying these principles, the Court considers whether Plaintiffs' claims based on the foreclosure process are preempted by HOLA.
iii. Application to Plaintiffs' Claims
Thus, under this standard, the Court considers whether Plaintiffs' claims against Wells Fargo are preempted by HOLA.
Plaintiffs' first cause of action asserting claims for alleged violations of section 2923.6 of the HBOR is preempted under HOLA. Plaintiffs' allegations regarding Wells Far-go's failure to properly consider them for a loan modification fall within the illustrative examples of laws preempted by HOLA contained in section 560.2(b). More specifically, that section indicates that state laws imposing requirements regarding “terms of credit” and “[p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages” are preempted by HOLA. 12 C.F.R. § 560 .2(b)(4), (b)(10). The Court finds that the way in which lenders evaluate loan modification applications fall within these categories. See, e.g., Kaplan v. Wells Fargo N.A., 2013 U.S. Dist. LEXIS 109023, at *10- 11 (C.D.Cal. July 30, 2013). In addition, the Court finds that Plaintiffs' claim of “dual tracking” is also preempted. Marquez v. Wells Fargo Bank, N.A., 2013 WL 5141689, at *5 (N.D.Cal. Sept.13, 2013) (citing Sato v. Wachovia Mortg., FSB, 2011 WL 2784567, at *7 (N.D.Cal. July 13, 2011)).
The Court similarly finds that Plaintiffs' demand for an accounting is preempted by HOLA. Section 560.2 specifically preempts state law claims involving “[t]he terms of credit, including ... balance [and] payments due....” 12 C.F.R. § 560.2(b) (4). In addition, section 560.2(b)(5) preempts state law claims involving “[l]oan-related fees, including without limitations, initial charges, late charges, prepayment penalties, servicing fees, and over limit fees.” Id. § 560.2(b)(5). Therefore, any claims regarding allegedly excessive fees are preempted by HO-LA. See, e.g., Lothlen v. Wells Fargo Bank, N.A., 2013 WL 6185527, at *3-4 (N.D.Cal. Nov.26, 2013) (finding claims against lender based on charging of “improperly assessed exorbitant fees and charges” were preempted).
However, Plaintiffs' negligence and UCL claims against Defendant Wells Fargo are only partially preempted. To the extent these claims rely upon Wells Fargo's purported violation of section 2923.6 or assessment of allegedly excessive fees against Plaintiffs account, the claims are preempted for the reasons discussed above. Similarly, it appears that any claim regarding the procedures used by Wells Fargo in servicing Plaintiffs' loan or handling their application for a loan modification are preempted. See, e.g., Babb v. Wachovia Mortg., FSB, 2013 WL 3985001, at *6-7 (C.D.Cal. July 26, 2013) (noting that “such claims fall within the scope of HOLA's Section 560.2(b)(10) loan servicing provision”); Valverde v. Wells Fargo Bank, N.A., 2011 WL 3740836, at *5 (N.D.Cal. Aug.25, 2011) (noting that claims that the defendant “failed to use proper care or comply with industry standards essentially seek to impose new requirements on the lender, and are thus preempted by HOLA”). However, to the extent that Plaintiffs' negligence and UCL claims rely upon purported affirmative misrepresentations made by Wells Fargo, the Court finds that these claims are not preempted. See, e.g., Susilo, 796 F.Supp.2d at 1186 (“The Court finds that plaintiff's state law claims are based in part on affirmative misrepresentations and concealment, and only incidentally affect lending activity. Accordingly, the Court finds that insofar as they do not impose requirements to provide specific notices or disclosures during the foreclosure process, plaintiff's claims are not preempted by HOLA.”); Meyer v. Wells Fargo Bank, N.A., 2013 WL 6407516, at *4 (N.D.-Cal. Dec.6, 2013) (finding that the plaintiff's negligence and UCL claims were not preempted to the extent that they rely upon the “general duty not to misrepresent material facts when doing business with borrowers or any other persons”); DeLeon v. Wells Fargo Bank, N.A., 2011 WL 311376, at *10-11 (N.D.Cal. Jan.28, 2011) (finding fraud and unfair competition claims were not preempted where plaintiff alleged defendant “falsely represented” a loan modification would be given and that foreclosure would not occur during the modification process). Therefore, the Court finds that Plaintiffs' negligence and UCL claims are only partially preempted by HOLA.
As noted above, any such claims relying upon these alleged misrepresentations must satisfy the heightened 9(b) pleading standard.
II. Conclusion
For these reasons, the Court GRANTS the Motion to Dismiss and DENIES the Motion to Strike as moot. In light of the foregoing preemption analysis, the first cause of action and the fourth cause of action asserted against Defendant Wells Fargo are dismissed with prejudice. All other claims are dismissed without prejudice; however, any subsequent repleading of these claims must comport with the limitations imposed by this order. Plaintiffs shall have thirty days to replead.
All Citations
Not Reported in F.Supp.2d, 2014 WL 1568857