Michael Music v. Bank of America
16-15036
| 9th Cir. | Oct 23, 2017Background
- Mr. Music owned insured property that burned; Bank of America (BoA) received the insurance proceeds while Music was in default on his loan.
- The deed of trust allowed insurance proceeds to be applied to repair/rebuild unless repair was economically infeasible or the lender’s security would be lessened, in which case proceeds could be credited to the loan balance.
- BoA credited the proceeds to the outstanding loan balance rather than releasing them to Music for rebuilding.
- Music sued for breach of contract and breach of the implied covenant of good faith and fair dealing; he also raised equitable estoppel and a claim about a corporate advance charged at sale closing.
- The district court dismissed Music’s amended complaint without leave to further amend; Music appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BoA breached the deed of trust by not releasing insurance proceeds for rebuilding | Music: Proceeds should have been used to rebuild the property | BoA: Because Music was in default, contract permits crediting proceeds to loan where lender’s security would be lessened | Court: No breach — Music in default and lender permissibly credited proceeds; allowing release would lessen lender’s security |
| Whether Music’s nonperformance (defaults) is excused | Music: Fire and loss of rental income made performance impossible or excused | BoA: Mere hardship or unexpected expense does not excuse contractual performance | Court: No excuse; under California law plaintiff must perform or plead valid excuse; hardship insufficient |
| Whether BoA breached implied covenant by failing to inspect/appraise post-fire | Music: Failure to inspect/appraise was bad-faith obstruction of rebuilding | BoA: Implied covenant cannot create duties beyond the contract; no contract term required inspection | Court: No breach — implied covenant cannot impose substantive duties absent contract terms |
| Whether BoA is equitably estopped from asserting default to retain proceeds | Music: BoA represented or concealed facts inducing his reliance | BoA: No plausible facts showing representation or concealment that caused Music’s default | Court: No estoppel — Music pled no facts showing requisite representation or inducement |
| Whether BoA liable for a “Recoverable Corporate Advance Balance” charged at sale closing | Music: Charge constituted breach by BoA | BoA: Charge was asserted by Bayview Loan Servicing after BoA assigned rights; BoA not involved | Court: No plausible theory of BoA liability; claim fails under Rule 8 plausibility standard |
| Whether district court abused discretion by denying leave to amend | Music: Additional facts about damages could save claims | BoA: Plaintiff already given amendment and points to no facts that would cure substantive defects | Court: No abuse — pleaded facts would not cure legal defects; dismissal with prejudice affirmed |
Key Cases Cited
- Careau & Co. v. Security Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371 (contract plaintiff must perform or have legal excuse for nonperformance)
- Standard Iron Works v. Globe Jewelry & Loan, Inc., 164 Cal. App. 2d 108 (hardship or unexpected expense does not excuse contractual performance)
- Ford v. Manufacturers Hanover Mortg. Corp., 831 F.2d 1520 (lender may retain proceeds when releasing them would undermine security and delay foreclosure)
- Guz v. Bechtel Nat’l, Inc., 24 Cal. 4th 317 (implied covenant cannot impose substantive duties beyond contract terms)
- Simmons v. Ghaderi, 44 Cal. 4th 570 (elements required to establish equitable estoppel)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (complaint must state a plausible claim under Rule 8)
- Halkin v. VeriFone Inc., 11 F.3d 865 (district court may deny leave to amend when no facts could save complaint)
- Salameh v. Tarsadia Hotel, 726 F.3d 1124 (district court’s discretion to deny leave to amend is particularly broad when plaintiff previously amended)