BERNARD F. CLARK, Plaintiff, v. COUNTRYWIDE HOME LOANS, INC., et al., Defendants.
1:09-CV-01998-OWW-GSA
UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA
August 9, 2010
Oliver W. Wanger, United States District Judge
MEMORANDUM DECISION AND ORDER RE COUNTRYWIDE HOME LOANS, INC., RECONTRUST COMPANY, BANK OF AMERICA, N.A., MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., (erroneously sued as MERS, INC., Chase Home Finance
On or about August 2, 2007, Plaintiff Bernard F. Clark obtained a mortgage loan in the amount of $360,000 secured by a deed of trust encumbering real property in Groveland, California. Plaintiff defaulted on the loan, and Defendants proceeded to foreclose on the real property. Defendant‘s Request for Judicial Notice (RJN), Exs. B-D.
On August 24, 2009, Plaintiff filed a complaint in the Superior Court of the State of California, County of Tuolumne, alleging ten causes of action. Doc. 1. On November 12, 2009,
On April 5, 2010, Defendants Countrywide Home Loans, Inc. (Countrywide), ReconTrust Company (ReconTrust), Bank of America, N.A. (BANA), and Mortgage Electronic Registration Systems, Inc.‘s (MERS), (collectively Countrywide Defendants) moved to dismiss all of the claims in the case pursuant to
II. LEGAL STANDARD
A motion to dismiss brought under
III. BACKGROUND
On or about July 26, 2007, Plaintiff financed the purchase of a residential property located at 12689 Mt. Jefferson Street, Groveland, California (Subject Property) through a promissory note with First Magnus Financial Corp. (First Magnus) in the amount of $360,000 (Subject Loan) secured by a deed of trust. Doc. 16 at ¶ 9. Plaintiff later defaulted on the Subject Loan. On January 27, 2009, a Notice of Default and Election to Sell Under Deed of Trust, Instrument No. 2007013088, was recorded in the Office of the County Recorder of Tuolumne County. Doc. 16 at ¶ 21. The default was not cured, and on May 1, 2009, a notice of trustee‘s sale, Instrument No. 2009005160, was also recorded. Id.
Plaintiff alleges that (1) no Defendant has the original note to prove that it is a party authorized to conduct the
IV. ANALYSIS
A. Constructive or Actual Fraud
Plaintiff‘s first cause of action alleges fraud by each Defendant. This claim is based largely on the allegation that “each Defendant has represented to Plaintiff and to third parties that they were the owner of the Trust Deed and Note as either the Trustee or the beneficiary regarding ... Possession of the Note is not incidental to the right to foreclose, it is absolutely necessary.” Doc. 16 at ¶ 34. This is a wholly discredited legal theory serially advanced in mortgage fraud cases.
It is well established that there is no requirement under California law that the party initiating foreclosure be in possession of the original note. Nool v. HomeQ Servicing, 653 F. Supp. 2d 1047, 1053 (E.D. Cal. 2009); Candelo v. NDEX West, LLC, 2008 WL 5382259, at *4 (E.D. Cal. Dec. 23, 2008) (“No requirement exists under statutory framework to produce the original note to initiate non-judicial foreclosure.“); Putkkuri v. ReconTrust Co., 2009 WL 32567, *2 (S.D. Cal. Jan 5, 2009) (“Production of the
Plaintiff also alleges that the “broker” committed fraud by placing him in a sub-prime mortgage “on the promise that things would get better and the borrower could refinance when the value of their home increases.” Doc. 1 ¶ 39. All claims for fraud must comply with
Plaintiff has been previously afforded leave to amend the fraud claim. The fraud cause of action against the Countrywide Defendants and Chase is DISMISSED WITH PREJUDICE.
B. Breach of Loan Commitment
Plaintiff‘s second cause of action alleges a breach of loan commitment against MERS and First Magnus. This allegation is based on supposed oral promises made by First Magnus to modify the loan and a breach of those promises. Doc. 16 at ¶ 127. Plaintiff further alleges that MERS is liable as a nominee of the lender who breached a contract. Doc. 16 at ¶ 128. As “breach of
Certain types of contracts are invalid unless memorialized by a written document signed by the party against whom the contract is being enforced.
Here, the alleged promise for a loan modification is subject to the statute of frauds. Absent a written agreement to modify the loan, any claim based upon an oral contract to modify the loan is barred by the statute of frauds. See Secrest, 167 Cal. App. 4th at 552.
At oral argument, Plaintiff claimed that Countrywide promised him that if he brought the loan current, they would modify his loan. Plaintiff further claims that, in reliance on this promise, he obtained money (approximately $8,000) to bring the loan current, but Countrywide refused the loan modification. Although Plaintiff cannot state a breach of contract claim based upon this conduct, he may be able to state a claim for fraud. In California, the elements for a claim of fraud are: (1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud; (4) justifiable reliance; and (5) resulting damage. Small v. Fritz Companies, Inc., 30 Cal. 4th 167, 173 (2003). Upon removal to federal court, all claims for fraud must be pled with sufficient particularity to satisfy
C. Negligence
Plaintiff alleges negligence against First Magnus and BANA. The claim against BANA is based solely upon BANA‘s violation of RESPA. Doc. 16 at ¶¶ 129-132. Plaintiff further alleges that he sent a Qualified Written Request (QWR) to BANA and the reply was untimely.
To establish a negligence claim, “it must be shown that (1) the defendant owed the plaintiff a legal duty, (2) the defendant breached that duty, and (3) the breach was a proximate or legal cause of the plaintiff‘s injuries. The absence of any one of these three elements is fatal to a negligence claim.” Gilmer v. Ellington, 159 Cal. App. 4th 190, 195 (2008) (internal citation omitted). “Financial institutions owe no duty of care to a borrower when the institution‘s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.” Nymark v. Heart Fed. Sav. & Loan Ass‘n, 231 Cal. App. 3d 1089, 1096 (1991). As BANA owes no duty to the Plaintiff, Plaintiff cannot assert a claim of negligence against BANA.
if any servicer of a federally related mortgage loan receives a qualified written request from the borrower (or agent of the borrower) for information relating to the servicing of such loan, the servicer shall provide a written response acknowledging receipt of the correspondent within 20 days ... unless the action requested is taken within such period.
D. Breach of Fiduciary Duty
As a general rule, a financial institution owes no duty of care to a borrower where the institution‘s involvement in the loan transaction does not exceed the scope of its conventional role as a lender of money. Nymark v. Heart Fed. Savings & Loan Assn., 231 Cal. App. 3d 1089, 1096 (1991). There is no fiduciary relationship between Plaintiffs and any defendant. Accordingly, the Countrywide Defendants’ motion to dismiss the fiduciary duty claim is GRANTED WITHOUT LEAVE TO AMEND.
The implied covenant of good faith and fair dealing exists in every contract. The implied covenant “is aimed at making effective the agreement‘s promises.” Kransco v. Am. Empire Surplus Lines Ins. Co., 23 Cal. 4th 390 (2000). “Broadly stated, that covenant requires that neither party do anything which will deprive the other of the benefits of the agreement.” Freeman & Mills, Inc. v. Belcher Oil Co., 11 Cal. 4th 85 (1995).
A tortuous breach of the covenant of good faith and fair dealing claim is limited to situations in which a fiduciary or special relationship exists. Mitsui Manuf. Bank v. Superior Court, 212 Cal. App. 3d 726, 730 (1989). As no fiduciary relationship exists here, the Countrywide Defendants’ motion to dismiss this cause of action is GRANTED WITHOUT LEAVE TO AMEND to the extent it alleges tortuous breach of contract. If it is meant to allege a breach of contract claim, a sufficient independent breach of contract claim must be stated.
F. Economic Duress
Plaintiff‘s sixth claim against all Defendants is for “economic duress.” Plaintiff asserts this claim on the grounds that Countrywide made an oral promise to the Plaintiff to modify the loan. Doc. 16 at ¶¶ 143-148.
A party‘s consent to a contract must be freely given.
Here, Plaintiff‘s claim of economic duress is that defendants proceeded with the foreclosure sale in violation of an oral promise that they would not do so if Plaintiff “brought the loan current.” Doc. 1 ¶¶ 146-147. This is an allegation of breach of oral contract, not of economic duress. He also complains that the parties never assigned the deed to one another, an invocation of the “failure to hold the original promissory note” theory, which is meritless. Plaintiff has failed to plead a claim for economic duress.
Plaintiff did not request leave to amend the claim for
G. Civil RICO
The seventh cause of action is a Civil RICO claim against all Defendants.
(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in or the activities of which effect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise‘s affairs through a pattern of racketeering activity or collection of unlawful debt.
“A civil RICO complaint must at least allege: ‘(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (known as “predicate acts“) (5) causing injury to plaintiff‘s “business or property.“’ ” Flores v. Emerich & Fike, 416 F. Supp. 2d 885, 911 (E.D. Cal. 2006). A civil RICO claim must also comply with
Plaintiff essentially alleges that every defendant was aware that the notice of default was invalid and that every defendant either participated in or rendered substantial assistance in the issuance of the invalid notice. These allegations are not remotely sufficient to support of a Civil RICO violation.
Plaintiff did not request leave to amend the Civil RICO claim. Countrywide Defendants’ and Chase‘s motions to dismiss the Civil RICO claim are GRANTED WITHOUT LEAVE TO AMEND.
Plaintiff alleges that Countrywide and ReconTrust failed to comply with
Under California law, a statute will only be deemed to contain a private right of action if the Legislature has manifested an intent to create such a right. Moradi-Shalal v. Fireman‘s Fund Ins. Companies, 46 Cal. 3d 287, 305 (1988).
The Perata Mortgage Relief Act was enacted relatively recently, and thus California courts have had little chance to examine its provisions. Nevertheless, section 2923.6, passed along with section 2923.5, clearly does not create a private right of action. That section solely “creat[es] a duty between a loan servicer and a loan pool member. The statute in no way confers standing on a borrower to contest a breach of that duty.” Farner v. Countrywide Home Loans, No. 08cv2193 BTM (AJB), 2009 WL 189025, at *2 (S.D. Cal. Jan. 26, 2009). Other courts to consider this question have agreed unanimously with the Farner court. See Tapia v. Aurora Loan Servs., LLC, No. 1:09-cv-01143 AWI (GSA), 2009 WL 2705853, at *1 (E.D. Cal. Aug. 25, 2009); Anaya v. Advisors Lending Group, No. CV F 09-1191 LJO DLB, 2009 WL 2424037, at *8 (E.D. Cal. Aug. 5, 2009); Pantoja v. Countrywide Home Loans, Inc., 640 F. Supp. 2d 1147, 1188, No. C 09-01615 JW, 2009 WL 2423703, at *7 (N.D. Cal. July 9, 2009); Connors v. Home Loan Corp., No. 08cv1134-L (LSP), 2009 WL 1615989, at *7 (S.D. Cal. June 9, 2009).
Whether or not section 2923.5 creates a private right of action, however, has not been the subject of unanimity among the courts. Only two courts have considered this question, and they have reached inconsistent results. See Yulaeva v. Greenpoint Mortgage Funding, Inc., No. CIV. S-09-1504 LKK/KJM, 2009 WL 2880393, at *11 (E.D. Cal. Sept. 03, 2009)
(assuming without deciding that section 2923.5 does not provide a private right of action); Ortiz v. Accredited Home Lenders, Inc., 69 F. Supp. 2d 1159, 1166, No. 09 CV 0461 JM (CAB), 2009 WL 2058784, at *5 (S.D. Cal. Jul. 13, 2009) (finding section 2923.5 does contain a private right of action, as “the California legislature would not have enacted this ‘urgency’ legislation, intended to curb high foreclosure rates in the state, without any accompanying enforcement mechanism.“). Under California law, “courts are not at liberty to impute a particular intention to the Legislature when nothing in the language of the statute implies such an intention.” Dunn-Edwards Corp. v. Bay Area Air Quality Management Dist., 9 Cal. App. 4th 644, 658 (1992). Thus, “if the Legislature intends to create a private cause of action, we generally assume it will do so directly, in clear, understandable, unmistakable terms.” Vicko Ins. Servs., Inc. v. Ohio Indemnity Co., 70 Cal. App. 4th 55, 62-63 (1999), quoting Moradi-Shalal, 46 Cal. 3d at 294-295 (internal marks omitted).
Section 2923.5 contains no language that indicates any intent whatsoever to create a private right of action.
Neither section 2923.5 or 2923.6 creates a private right of action. Plaintiff offers no contrary authority or argument.
Plaintiff did not request leave to amend the Section 2923.5 claim. The Countrywide Defendants’ motion to dismiss the claim brought under
I. Rosenthal Fair Debt Collection Practices Act
The complaint next alleges a violation of the Rosenthal Fair Debt Collection Practices Act (RFDCPA),
“The law is clear that foreclosing on a deed of trust does not invoke the statutory protections of the RFDCPA.” Collins v. Power Default Servs., Inc., No. 09-4838 SC, 2010 WL 234902, at *3 (N.D. Cal. Jan. 14, 2010) (collecting numerous cases). “Foreclosure pursuant to a deed of trust does not constitute debt collection under the RFDCPA.” Casteneda v. Saxon Mortgage Serve., Inc., 687 F. Supp. 2d 1191, 1197 (E.D. Cal 2009); see also Gonzalez v. First Franklin Loan Servs., No. 1:09-CV-00941 AWI-GSA, 2010 WL 144862, at *7 (E.D. Cal. Jan. 11, 2010) (“Foreclosure related actions...do not implicate the RFDCPA.“) The conduct Plaintiff complains of concerns foreclosure related actions in connection with his residential mortgage. This conduct is not covered by the RFDCPA. For this reason, Plaintiff‘s RFDCPA claim is subject to dismissal.
Plaintiff has been previously afforded leave to amend the RFDCPA claim. Countrywide Defendants’ and Chase‘s motions to dismiss the RFDCPA claim are GRANTED WITHOUT LEAVE TO AMEND.
Plaintiff‘s eleventh cause of action is against First Magnus and MERS for violation of
The misrepresentations by Defendants and/or Defendants’ predecessors, failures to disclose, and failure to investigate as described above were made with the intent to induce Plaintiff to obligate themselves on the Loan in reliance on the integrity of Defendants and/or Defendants’ predecessors.
(Compl. at ¶ 180). In California, “[t]he elements of fraud, which give[] rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or scienter); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” Small v. Fritz Companies, Inc., 30 Cal. 4th 167, 173 (2003) (internal quotation marks omitted). Plaintiff‘s fraud claim is subject to
The allegations in the complaint fail to specify the “who, what, when, where, and how of the misconduct charged.” Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (internal quotation marks omitted). The complaint provides no particular details on what specific role First Magnus or MERS played in the “scheme” to “fraudulently induce Plaintiff” to enter into his loan transaction, or when and where the scheme occurred. See
Plaintiff‘s sixteenth cause of action restates the allegations from the eleventh cause of action against all Defendants and fails for the same reasons.
Plaintiff has been previously afforded leave to amend the
Plaintiff reasserts a RESPA claim against each Defendant, alleging: (1) “That the failure to respond to Plaintiff‘s RESPA constitutes a violation of
Just as Plaintiff‘s prior alleged RESPA claim failed to state a claim, this RESPA claim fails. The new claim does not allege who or how each Defendant violated RESPA. Instead the allegation simply affords the conclusion of law that the Defendants violated RESPA resulting in damages to the Plaintiff. Plaintiff did not request leave to amend the RESPA claim. Countrywide Defendants’ and Chase‘s motions to dismiss this RESPA cause of action are GRANTED WITHOUT LEAVE TO AMEND.
L. Quiet Title
“[A] mortgagor of real property cannot, without paying his debt, quiet his title against the mortgagee.” Miller v. Provost, 26 Cal. App. 4th 1703, 1707 (1994) (citations omitted). Here, Plaintiff defaulted on the Subject Loan, and does not allege that he has since paid the outstanding balance.
Plaintiff has been previously afforded leave to amend the
N. Cal. Bus. & Prof. Code §17200
Plaintiff asserts a claim under California‘s Unfair Competition Law (UCL).
Defendants argue that Plaintiff did not state a claim under the UCL because: (1) “Plaintiff has not alleged sufficient facts under
The UCL prohibits unfair competition including “any unlawful, unfair or fraudulent business act or practice.”
As to the unlawful prong, the UCL incorporates other laws and treats violations of those laws as unlawful business practices independently actionable under state law. Chabner v. United Omaha Life Ins. Co., 225 F.3d 1042, 1048 (9th Cir. 2000). As to the “unfair” prong, “[a]n unfair business practice is one that either ‘offends an established public policy’ or is ‘immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.’ ” McDonald v. Coldwell Banker, 543 F.3d 498, 506 (9th Cir. 2008) (quoting People v. Casa Blanca Convalescent Homes, Inc., 159 Cal. App. 3d 509, 530 (1984)). As to the fraudulent prong, “fraudulent acts are ones where members of the public are likely to be deceived.” Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137, 1151-52 (9th Cir. 2008). For UCL claims, “[a] plaintiff must state with reasonable particularity the facts supporting the statutory elements of the violation.” Khoury v. Maly‘s of Cal., Inc., 14 Cal. App. 4th 612, 619 (1993).
Plaintiff‘s UCL claim has several deficiencies. First,
Plaintiff has been previously afforded leave to amend the Section 17200 claim. Defendants’ motion to dismiss the Section 17200 cause of action is GRANTED WITHOUT LEAVE TO AMEND.
O. Production of Original Note
The complaint‘s 15th cause of action against ReconTrust and MERS alleges that no Defendant owns the note and therefore has no right to foreclose. Doc. 16 ¶ 214. As discussed above, this is not the law in California. Plaintiff‘s demand to produce the note fails as matter of law for the reasons stated above.
Q. Injunctive Relief
Countrywide Defendants and Chase move to dismiss the last cause of action for injunctive relief on the grounds that: (1) injunctive relief is not a cause of action; and (2) it must be tethered to some independent legal duty owed by the defendant to the plaintiff.
Plaintiff alleges “Defendants threaten to, and unless restrained, will foreclose upon Plaintiff‘s home by conducting a trustee‘s sale or causing a trustee‘s sale to be conducted, or otherwise.” Doc. 16 at ¶ 229. Plaintiff further alleges that “[i]njunctive relief is necessary to enjoin Defendants from foreclosing upon Plaintiff‘s home.” Doc. 16 at ¶ 231.
“Injunctive relief is a remedy and not, in itself, a cause of action, and a cause of action must exist before injunctive relief may be granted.” Camp v. Board of Supervisors, 123 Cal. App. 3d 334, 356 (1981) (quoting Shell Oil Co. v. Richter, 52 Cal. App. 2d 164, 168 (1942)). Here, as all of the substantive allegations have been dismissed, Plaintiff cannot obtain injunctive relief.
Plaintiff has been previously afforded leave to amend the claim for injunctive relief. Countrywide Defendants’ and Chase‘s
V. CONCLUSION
For the reasons set forth above, Defendants’ motions to dismiss are GRANTED in their entirety.
Plaintiff requests leave to amend to state a fraud claim against the Countrywide Defendants in connection with the alleged oral promise to modify the loan agreement. Any amended complaint shall be filed within thirty (30) days of electronic service. No claims may be reasserted against Chase.
SO ORDERED
Dated: August 9, 2010
/s/ Oliver W. Wanger
Oliver W. Wanger
United States District Judge