177 F. Supp. 3d 1230
E.D. Cal.2016Background
- Plaintiffs obtained a jumbo adjustable mortgage in 2006; loan later transferred from Bank of America (BOA) to Wells Fargo with Select Portfolio Servicing (SPS) as servicer. Notice of default was recorded in 2015.
- Plaintiffs sought a loan modification beginning in 2009–2011; BOA allegedly promised a modification and KYHC (Keep Your Home California) principal reduction that would lower payments to ~$1,700/month.
- BOA directed Plaintiffs to apply for KYHC at a November 2011 event; soon thereafter BOA sold the loan and SPS assumed servicing; SPS representative (Shrowder) made additional promises and requested payment plans and paperwork.
- Plaintiffs allege they made reduced payments based on BOA/SPS assurances, incurred arrears/fees, and were ultimately denied the full KYHC principal reduction (remaining ~$84,000) after SPS allegedly failed to submit required documents (denial in May 2014).
- Procedural posture: Plaintiffs filed a first amended complaint asserting six causes of action (intentional/negligent misrepresentation, breach of contract, negligence, IIED, UCL). BOA, Wells, and SPS moved to dismiss under Rule 12(b)(6).
- District court: granted in part and denied in part. Key holdings: misrepresentation and negligence claims survived against BOA and SPS (statute-of-limitations/discovery rule and pleading sufficiency); breach-of-contract and IIED claims were dismissed in part with leave to amend; certain claims against Wells (as distinct from SPS) were dismissed with leave to amend for lack of specific agency/individualized allegations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Statute of limitations for fraud/negligent-fraud | Accrual delayed by discovery rule; Plaintiffs only discovered denial (KYHC final denial) in May 2014 | Claims accrued by Dec 2011 (last BOA contact); suit filed too late | Denied motions on SOL grounds: discovery rule plausibly alleged, accrual as late as May 2014. Claims timely. |
| Fraud pleading specificity (Rule 9(b)) | Plaintiffs identified who (BOA/SPS representatives), when (Nov 2011 convention; subsequent interactions), what and how they were misled | Defendants say allegations are lumped, lack individual actor ID (esp. Wells) and details | Claims against SPS and BOA survive under Rule 9(b). Claims against Wells for misrepresentation dismissed with leave to amend for insufficient agency/individualized allegations. |
| Breach of contract / Statute of Frauds (oral modification) | Plaintiffs contend BOA/SPS agreed to modifications (written TPP referenced later) and partial-payment conduct constituted modification | Defendants: mortgage/DOT and statute of frauds bar oral modifications; DOT expressly permitted acceptance of partial payments without waiver | Breach claim dismissed as to BOA, Wells, SPS in part with leave to amend: FAC unclear which written contracts govern (TPP not pleaded); partial-payment theory fails because DOT reserves lender rights. Plaintiffs may amend. |
| Duty / negligence re: loan modification process | Lenders/servicers assumed special duties when promising to review/modify loan; Biakanja factors support duty; mishandling caused fees, delay, lost KYHC funds | Defendants: no duty beyond conventional lender role; damages caused by Plaintiffs' missed payments, not defendants' conduct | Court finds a duty under Biakanja factors and denies dismissal of negligence claims against BOA, SPS, and Wells (duty, breach, causation plausibly alleged). IIED claims dismissed with leave to amend. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for pleadings)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must nudge claims across the line from conceivable to plausible)
- Norgart v. Upjohn Co., 21 Cal.4th 383 (1999) (discovery rule for accrual of fraud claims under California law)
- Biakanja v. Irving, 49 Cal.2d 647 (1958) (factors for imposing tort duties in transactional contexts)
- Nymark v. Heart Fed. Sav. & Loan Assn., 231 Cal.App.3d 1089 (1991) (general rule that lender owes no duty when acting in conventional lending role)
- Charnay v. Cobert, 145 Cal.App.4th 170 (2006) (negligent misrepresentation requires lack of reasonable ground for belief in statement)
- Jolly v. Eli Lilly & Co., 44 Cal.3d 1103 (1988) (standard for when suspicion of wrongdoing triggers accrual under discovery rule)