38 Cal.App.5th 346
Cal. Ct. App.2019Background
- Plaintiff Kwang Sheen defaulted on two junior loans held/serviced by Wells Fargo and sought loan modifications beginning in 2010; Wells sent letters that Sheen alleges suggested his debt had been treated as unsecured and that there would be no foreclosure.
- The second loan was sold into the secondary market, ultimately to Mirabella, whose servicer (FCI) later conducted a trustee sale in 2014; Sheen lost his home at auction and in subsequent unlawful detainer proceedings.
- Sheen sued Wells (among others) alleging negligence (duty to carefully process loan-modification requests), intentional infliction of emotional distress (IIED), and unfair competition (Cal. Bus. & Prof. Code § 17200) based on Wells’s communications and handling of his modification requests.
- Sheen expressly declined to plead contract, negligent misrepresentation, promissory estoppel, fraud, or statutory claims tied to foreclosure or loan servicing; he relied on a common-law negligence theory following Alvarez and Daniels.
- The trial court sustained Wells’s demurrer without leave to amend, concluding Wells owed no tort duty during loan-modification negotiations and dismissing IIED and UCL claims; the Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a lender owes a tort duty of care to a borrower during loan-modification negotiations | Sheen: lenders who control modification processes owe a duty to exercise reasonable care when reviewing/handling modification applications (relying on Alvarez) | Wells: no common-law tort duty exists in contract negotiation context; economic losses belong to contract and related doctrines (relying on Lueras, Gas Leak Cases) | Court: No tort duty; follow Lueras and Supreme Court guidance in Gas Leak Cases — dismiss negligence claim |
| Whether Wells’s alleged conduct supports intentional infliction of emotional distress | Sheen: misleading letters and statements about foreclosure/no-sale caused severe emotional distress | Wells: communications, even if misleading, are not extreme/outrageous as required for IIED | Court: IIED claim fails — alleged conduct not outrageous; dismissal affirmed |
| Whether Sheen stated a §17200 (UCL) claim based on alleged misconduct | Sheen: Wells’s practices were unfair, fraudulent, and violated public policy, supporting UCL relief | Wells: UCL claim depends on an underlying viable cause of action; core claim (negligence) fails | Court: UCL claim fails for lack of an underlying actionable violation; dismissal affirmed |
Key Cases Cited
- Biakanja v. Irving, 49 Cal.2d 647 (Cal. 1958) (articulates factors for imposing a duty of care in economic-loss contexts)
- Rowland v. Christian, 69 Cal.2d 108 (Cal. 1968) (sets out duty-of-care factors used to assess new tort duties)
- Southern California Gas Leak Cases, 7 Cal.5th 391 (Cal. 2019) (refused to extend tort duty for purely economic losses; emphasized contract law domain)
- Lueras v. BAC Home Loans Servicing, LP, 221 Cal.App.4th 49 (Cal. Ct. App. 2013) (held lenders do not owe a tort duty to offer/consider/approve loan modifications)
- Alvarez v. BAC Home Loans Servicing, L.P., 228 Cal.App.4th 941 (Cal. Ct. App. 2014) (contrary view: recognized a tort duty in loan-modification negotiations)
- Daniels v. Select Portfolio Servicing, Inc., 246 Cal.App.4th 1150 (Cal. Ct. App. 2016) (followed Alvarez in recognizing a tort duty)