Compu-Link Corp. v. PHH Mortgage Corp.
2:22-cv-00983
E.D. Cal.May 15, 2023Background
- Plaintiff Compu‑Link ("Celink") is a reverse‑mortgage subservicer that contracted with three relevant clients: defendant PHH Mortgage, investor Waterfall, and a Waterfall‑Celink joint venture whose subsidiary was a former Celink competitor.
- Celink and PHH negotiated an amendment shortly before their original contract expired; the parties intended to replace a non‑compete with a non‑solicit provision allowing PHH to develop an internal servicing platform but barring PHH from soliciting Celink’s clients.
- At the eleventh hour a five‑word phrase (“with respect to the Loans,” a defined term referring to PHH’s loans) was added to the non‑solicit clause, which Celink alleges is a mutual scrivener’s error that unintentionally narrowed the clause.
- Around the same time, Waterfall and the joint‑venture client demanded Celink transfer thousands of loans to the joint‑venture subsidiary; Celink ultimately transferred them and the subsidiary subsequently partnered with and was acquired by PHH, which began subservicing those loans.
- Celink sued PHH asserting breach of the original non‑compete, reformation of the amended contract, fraudulent inducement, breach of the implied covenant, tortious interference, unjust enrichment, indemnification, and inducement of breach; PHH moved to dismiss under Rule 12(b)(6).
- The court: denied dismissal of several claims previously allowed (implied covenant, tortious interference, unjust enrichment, inducement of breach as amended), dismissed negligent interference (claim 8) without leave, dismissed breach of the original non‑compete (claim 1) with leave to amend, and denied dismissal of fraudulent inducement (claim 5) and reformation (claim 2).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of original non‑compete (Claim 1) | PHH negotiated and agreed to competing arrangements with Waterfall/joint venture before the original non‑compete expired. | Timing/pleading insufficient: the non‑compete was deleted ~July 2020 and the announced PHH deals occurred almost a year later; no plausible facts showing earlier negotiations. | Dismissed for failure to plausibly plead breach of the original non‑compete; dismissal with leave to amend. |
| Fraudulent inducement (Claim 5) | PHH falsely represented present intent to develop an internal system and not compete, inducing Celink to amend and continue subservicing. | Statements were future predictions/opinions not actionable. | Denied dismissal: plaintiff pleaded who/what/when with sufficient particularity to allege present‑intent misrepresentations under California law. |
| Reformation of amended agreement (Claim 2) | The five‑word addition was a mutual scrivener’s error; parties intended a broader non‑solicit (bar PHH from soliciting Celink’s clients). | The written agreement reflects the parties’ intent; no basis for reformation. | Denied dismissal: complaint sufficiently alleges the parties’ true intent, the mistake, whose mistake and how it occurred to satisfy Rules 8 and 9(b) for reformation under Cal. Civ. Code § 3399. |
| Negligent interference with contract (Claim 8) | (As pleaded) PHH negligently interfered with Celink’s relationships. | Move to dismiss. | Claim 8 voluntarily abandoned by plaintiff and dismissed without leave to amend. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for federal pleadings)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility threshold for complaints)
- Lazar v. Superior Court, 12 Cal.4th 631 (1996) (fraudulent inducement may be based on false statements of present intent)
- Kearns v. Ford Motor Co., 567 F.3d 1120 (9th Cir. 2009) (Rule 9(b) particularity requirements for fraud pleading)
- Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201 (9th Cir. 2019) (Rule 12(b)(6) dismissal standard discussion)