Daniels v. Select Portfolio Servicing, Inc.
246 Cal. App. 4th 1150
| Cal. Ct. App. | 2016Background
- Julia and Andre Daniels obtained a $650,000 adjustable-rate mortgage in 2005 and later sought loan modifications after rates rose; they allege Bank of America (BofA) repeatedly represented modifications would be granted if they complied and, at one point, instructed them to become delinquent to qualify.
- Appellants submitted documents and made reduced $1,000 “trial” payments; BofA is alleged to have lost/denied documents, delayed processing, and refused to accept higher payments; Select Portfolio Servicing (SPS) began servicing in December 2012.
- Mortgage Electronic Registration Systems assigned the deed of trust to U.S. Bank (as trustee of a securitized trust) in 2011; ReconTrust was later substituted as trustee and recorded notices of default and sale.
- Appellants sued BofA, SPS, U.S. Bank, ReconTrust and others asserting misrepresentation (intentional and negligent), breach of contract, promissory estoppel, negligence, wrongful foreclosure, UCL violations, and civil conspiracy.
- The trial court dismissed claims against SPS and U.S. Bank on demurrer (res judicata) and entered judgment for BofA and ReconTrust on pleadings; the Court of Appeal reversed in part, permitting many claims to proceed or to be amended.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Preclusion (res judicata) | Maxam dismissal shouldn’t bar new, more specific allegations now raised by Daniels | Maxam judgment barred claims that could have been raised there | Court: whether claim preclusion applies insufficiently developed; declined to decide and allowed amendment opportunity |
| Misrepresentation (intentional & negligent) | BofA employees made specific false statements (e.g., BofA didn’t have submitted docs); reliance caused damages | Defendants argued lack of particularity, lack of justifiable reliance, or timing problems | Court: Daniels stated misrepresentation claims vs. BofA (based on Pearson misstatement) and vs. U.S. Bank (agency theory); claims vs. SPS deficient but leave to amend granted |
| Duty for negligence re: loan-modification handling | BofA owed duty to exercise reasonable care in processing modifications; mishandling foreseeably caused harm | Banks contend no duty beyond conventional lending; loan-modification decisions are discretionary | Court: applied Biakanja factors and held BofA could owe duty; negligence claim vs. BofA survives; secondary-liability allegations vs. SPS and U.S. Bank need amendment |
| Breach of contract / Promissory estoppel re: promised modification | BofA orally promised modification and a permanent modification would follow compliance and trial payments | Defendants: oral promises lacked sufficiently definite essential terms; statute of frauds; unenforceable agreement to agree | Court: oral agreement not pleaded with definite terms (HAMP-like standards absent); statute of frauds not dispositive given alleged full performance; breach and estoppel claims dismissed with leave to amend to plead definite terms or HAMP-based standard |
Key Cases Cited
- Biakanja v. Irving, 49 Cal.2d 647 (Cal. 1958) (establishes multi-factor test for imposing duty to third parties absent privity)
- DKN Holdings LLC v. Faerber, 61 Cal.4th 813 (Cal. 2015) (explains difference between claim preclusion and issue preclusion)
- Wells v. Marina City Properties, Inc., 29 Cal.3d 781 (Cal. 1981) (limits preclusive effect of judgment entered after demurrer sustained with leave)
- Keidatz v. Albany, 39 Cal.2d 826 (Cal. 1952) (demurrer-sustained dismissal bars later suits alleging same facts or same defects)
- Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012) (HAMP TPPs enforceable because governing standards supply omitted permanent-modification terms)
- Corvello v. Wells Fargo Bank, N.A., 728 F.3d 878 (9th Cir. 2013) (applies California law to hold certain TPP-based promises enforceable)
- Lueras v. BAC Home Loans Servicing, LP, 221 Cal.App.4th 49 (Cal. Ct. App. 2013) (discusses negligence duty issues in loan-modification context)
- Nymark v. Heart Fed. Sav. & Loan Assn., 231 Cal.App.3d 1089 (Cal. Ct. App. 1991) (general rule that conventional lenders typically owe no duty beyond contractual obligations)
- Small v. Fritz Companies, Inc., 30 Cal.4th 167 (Cal. 2003) (fraud pleading particularity and negligent misrepresentation elements)