Hernandez v. Wells Fargo Bank, N.A.
3:18-cv-07354
N.D. Cal.Jul 10, 2019Background
- Plaintiffs (initially Alicia Hernandez, later joined by 15 others) had mortgage loans serviced by Wells Fargo Bank, N.A.; they applied for loan modifications, were denied, and many were foreclosed. 545 customers allegedly lost homes due to incorrect denials tied to a software calculation error.
- In 2010 and again in 2015 the OCC found deficiencies in Wells Fargo Bank and Wells Fargo & Company (WFC) oversight; consent orders required corrective action. In 2015 a software error was discovered that misstated fees and caused modification denials; OCC assessed penalties and the errors were publicly disclosed in 2018.
- Plaintiffs sued WFC and Wells Fargo Bank, N.A., asserting negligence, conversion, California UCL violations, IIED, violations of California HBOR, and various state consumer-protection claims; the amended complaint alleges WFC failed to oversee, test, and audit the Bank.
- Wells Fargo Bank, N.A. previously had some claims proceed; this opinion addresses WFC’s motion to dismiss the claims against the corporate parent only.
- The court concluded plaintiffs failed to adequately plead indirect liability (agency or alter-ego) of WFC for the Bank’s servicing acts and therefore analyzed only direct-liability theories against WFC.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Indirect liability (agency) | WFC owned/controlled Bank; identical board membership shows control and oversight responsibility | Mere ownership/board overlap insufficient; no allegation WFC ran day-to-day mortgage operations | Dismissed—agency not plausibly alleged |
| Indirect liability (alter-ego) | Unity of interest shown by overlapping boards and alleged control; veil should be pierced | Allegations show only supervision, not the unity required to pierce corporate veil | Dismissed—alter-ego not plausibly alleged |
| IIED | WFC’s conscious failure to oversee after consent orders was outrageous/reckless and caused severe distress | Plaintiffs have no private right to enforce consent orders or HAMP; conduct falls short of outrageousness | Dismissed—IIED not pled plausibly |
| California HBOR (Section 2924.17) | WFC’s failures to ensure review and oversight violated HBOR duties | HBOR duties apply to servicer (the Bank), not parent; WFC not servicer | Dismissed as to WFC |
| UCL (unlawful & unfair) | WFC’s failures violated HAMP and HBOR policy; conduct was unfair and caused consumer injury | HAMP is not a law/regulation for UCL predicate; WFC owed no supervisory duty; failures without duty insufficient for unfairness | Dismissed—both unlawful and unfair prongs fail against WFC |
| State consumer-protection claims | WFC’s deficient oversight amounted to misleading/unfair business practices across states | WFC itself did not service/deny/foreclose; no duty alleged; not indirectly liable | Dismissed as to WFC |
| Request for judicial notice | Plaintiffs asked court to judicially notice SEC filings and consent orders | WFC objected to taking notice for truth of matters asserted | Granted—court judicially noticed the listed documents as party admissions |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (establishes plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (elaborates Twombly on pleading and conclusory allegations)
- Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025 (9th Cir.) (pleading standards and construing facts for nonmoving party)
- Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523 (agency/control factors for parent-subsidiary liability)
- Cel-Tech Commc’ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163 (UCL unfairness must be tethered to legislatively declared policy or competition)
- S. Bay Chevrolet v. Gen. Motors Acceptance Corp., 72 Cal. App. 4th 861 (defines "unfair" under UCL—immoral, unethical, oppressive, or substantially injurious)
- Corvello v. Wells Fargo, 728 F.3d 878 (9th Cir.) (cited by plaintiffs but distinguished by court)