JOHN SHEPARDSON v. U.S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE FOR BUNGALOW SERIES IV TRUST, et al.
Case No. 23-cv-05497-NC
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
July 3, 2024
NATHANAEL M. COUSINS, United States Magistrate Judge
Re: Dkt. Nos. 38, 39, 41
Defendants U.S. Bank Trust National Association (US Bank) and SN Servicing Corporation (SN) move to dismiss Plaintiff John Shepardson‘s second amended complaint (SAC). Like Plaintiff‘s previous complaint, the SAC alleges thirteen causes of action centered around Defendants’ allegedly wrongful collection of a balloon payment loan. These claims rely on an alleged mutual agreement between the parties and promise by US Bank not to collect on the balloon payment in lieu of monthly payments.
Because the SAC fails to allege sufficient facts to state a claim under any cause of action, the Court GRANTS Defendants’ motion to dismiss the SAC. The Court dismisses without leave to amend those claims for which it previously provided clear guidance (breach of contract, estoppel, RICO, and conspiracy to commit RICO) and for which amendment would be futile (concealment). All other claims are dismissed with leave to amend.
In 2007, Plaintiff entered into a note and second deed of trust secured by his personal residence. SAC 1, 3 ¶ 13.1 The loan was a “balloon note” with a maturity date of May 1, 2017. SAC ¶ 14, Ex. A (Note).2 The Note required Plaintiff to make monthly payments and any remaining principal/interest would be due in full on the maturity date. SAC, Ex. A. Plaintiff alleges the “lenders, including U.S. Bank through SN, waived the maturity amount due date and did not bring foreclose [sic] proceedings for approximately another five years” after the maturity date. SAC ¶ 15 (emphasis in original). Instead, US Bank, through SN, allegedly sent invoice statements to Plaintiff “indicating if the monthly payments were timely and properly made, the loan would be current and would not call due and payable the entire loan balance.” SAC ¶ 16. Plaintiff alleges US Bank filed a notice of default on April 3, 2023, SAC ¶ 42, and “wrongfully foreclosed” on his personal residence, SAC 1, despite Plaintiff‘s “timely and properly” monthly payments, SAC ¶ 148.
The Court dismissed Plaintiff‘s initial complaint and first amended complaint (FAC). ECF 18, 32. Plaintiff filed the SAC. ECF 33. Defendants filed a motion to dismiss the SAC under
II. LEGAL STANDARD
A motion to dismiss for failure to state a claim under
III. DISCUSSION
A. Plaintiff Has Not Cured the Defects in His Breach of Contract and Estoppel Claims
The Court previously addressed the shortfalls of Plaintiff‘s Second Cause of Action for breach of contract and Fifth Cause of Action for estoppel. ECF 32. Plaintiff‘s SAC has not cured these insufficiencies because the Court still “cannot discern Defendants’ alleged promise not to collect the balloon amount.” See ECF 32 at 5.
The elements for breach of contract are: “(1) the existence of the contract, (2) plaintiff‘s performance or excuse for nonperformance, (3) defendant‘s breach, and (4) the resulting damages to the plaintiff.” Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (2011). “To state a cause of action for breach of contract, it is absolutely essential to plead the terms of the contract either in haec verba or according to legal effect.” Langan v. United Servs. Auto. Ass‘n, 69 F. Supp. 3d 965, 979 (N.D. Cal. 2014) (quoting Twaite v. Allstate Ins. Co., 216 Cal. App. 3d 239, 252 (1989)). The plaintiff need not “allege the terms of the alleged contract with precision,” but the court must be able to discern the
As Defendants note, Plaintiff for a second time does not clarify whether he intends to allege a claim of equitable estoppel or promissory estoppel. See Mot. 15. This omission, in itself, poses a challenge to the adequacy of Plaintiff‘s claim. But for the purposes of this motion, the Court will again assume Plaintiff alleges a claim of promissory estoppel because equitable estoppel is not an independent cause of action under California law. Torliatt v. Ocwen Loan Servicing LLC, No. 18-cv-1516-JSC, 2018 WL 2197689, at *4 (N.D. Cal. May 14, 2018); Behnke v. State Farm Gen. Ins. Co., 196 Cal. App. 4th 1443, 1463 (2011). To succeed on a promissory estoppel claim, a plaintiff must show: “(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) the reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” O‘Brien v. Caliber Home Loans, Inc., No. 15-cv-2623-JST, 2016 WL 324284, at *5 (N.D. Cal. Jan. 27, 2016) (quoting Jones v. Wachovia Bank, 230 Cal. App. 4th 935, 945 (2014)).
Plaintiff alleges “U.S. Bank‘s predecessors waived and failed and refused to call the balloon payment due.” SAC ¶ 60. As a result, Plaintiff alleges “U.S. Bank was barred on the basis of waiver, estoppel and/or mutual contract modification from arbitrarily enforcing the balloon payment clause whenever it desired given the note language and its repeated representations in writing that payment of the monthly amount brought the loan current, to which John consented and agreed to, and performed on, making the requested monthly payments, which U.S. Bank accepted, thus by its conduct ratifying and approving of the contract.” SAC ¶ 100.
Plaintiff‘s allegations lack sufficient factual matter for the Court to discern the obligations of a contract or clear and unambiguous promise by US Bank. It is unclear if Plaintiff is alleging that his payment obligations under the Note, as an initial contract, were waived by the failure of US Bank‘s predecessors to enforce a default on May 1, 2017, or were modified by a pattern of monthly statements and payments. See SAC ¶¶ 88, 100. It
Moreover, Plaintiff‘s allegations are undermined by the Note, Deed of Trust, and monthly statements attached to and incorporated by reference into the SAC. See Groves v. Kaiser Found. Health Plan Inc., 32 F. Supp. 3d 1074, 1079 n.4 (N.D. Cal. 2014) (noting a court need not treat the facts in a complaint as true when they are contradicted by documents attached to or incorporated by reference into the complaint). The terms of both the Note and the Deed of Trust for Plaintiff‘s property state that Plaintiff must repay the entire remaining balance and unpaid interest on the loan by the maturity date of May 1, 2017. SAC, Ex. A, Note 1, ¶ 3, Deed of Trust 2. The Note and Deed of Trust also include non-waiver provisions: “Even if, at a time when I am in default, the Note Holder does not require me to pay immediately in full as described above, the Note Holder will still have the right to do so if I am in default at a later time.” SAC, Ex. A, Note ¶ 6(D); see Ex. A, Deed of Trust ¶¶ 1, 12 (“Lender may accept any payment or partial payment insufficient to bring the Loan current without waiver of any rights hereunder . . . Extension of the time for payment or modification of amortization of the sums . . . shall not operate to release the liability of Borrower . . .“).
As to the monthly statements Plaintiff received from US Bank, each statement attached to the SAC includes the amount of Plaintiff‘s “Outstanding Principal” and, under a heading titled “Important Messages,” states, “Loan Matured on 05/01/2017. Payoff figures are subject to change.” SAC, Ex. B. Later statements included a “Delinquency Notice” that further indicated, “You are late on your mortgage payment. Failure to bring your loan current may result in fees and foreclosure . . . $973.28 due by 02/01/2023 to bring your account current.” SAC, Ex. B. Nothing in the monthly statements lends support to Plaintiff‘s allegations, and instead indicate US Bank did not waive its right to foreclose under the Note. Plaintiff therefore fails to articulate facts under which he can plausibly establish the existence of a contract or clear and unambiguous promise by US Bank to waive collection of the balloon payment.
Because Plaintiff fails to state a claim for breach of contract or estoppel, the Second and Fifth Causes of Action are dismissed without leave to amend.
B. Plaintiff‘s Defamation Claim Fails
Plaintiff‘s Third Cause of Action alleges defamation against US Bank. To plead defamation, a plaintiff must show “(1) an intentional publication, (2) that is false, (3) defamatory, and (4) unprivileged, and (5) that has a natural tendency to injure or that causes special damage.” Cook v. Ministries, No. 21-cv-0160-LB, 2021 WL 681256, at *3 (N.D. Cal. Feb. 22, 2021) (quoting Taus v. Loftus, 40 Cal. 4th 683, 720 (2007)).
Plaintiff alleges US Bank intentionally published notices about Plaintiff‘s default that were false because “they affirmatively stated that he was not current on his payments to U.S. Bank when in fact he was current on his payment on the agreement the parties entered int[o].” SAC ¶ 146; see SAC ¶¶ 145, 147–52. Plaintiff also alleges the statements
Plaintiff fails to adequately allege that the Notice of Default was false. Although the Notice of Default includes generic reference to Plaintiff being “behind in your payments,” it specifically states that a breach of Plaintiff‘s obligations under the Note “occurred in that payment has not been made of: The entire balance of unpaid principal and interest which became due on 5/1/2017, along with late charges, foreclosure fees and costs any legal fees or advances that have become due.” SAC, Ex. F. Plaintiff does not allege that he paid the balloon payment by or on the maturity date of May 1, 2017. To the extent the Notice of Default indicates Plaintiff is behind on his monthly installments, Plaintiff also does not sufficiently allege that he timely paid every monthly payment, particularly for the payment due July 1, 2022. See supra III(A).
Because Plaintiff has not plausibly alleged that the Notice of Default contained false statements, the Court does not address whether the Notice of Default is privileged. Plaintiff‘s Third Cause of Action is dismissed with leave to amend.
C. Plaintiff‘s TILA Claim Fails
Plaintiff‘s Eleventh Cause of Action alleges US Bank violated the Truth in Lending Act (TILA) (1) “by failing to timely and properly credit John‘s account with payments made;” (2) “by repeatedly failing to provide accurate payoff statements;” and (3) by “repeatedly failing to timely respond to his complaints about billing errors.” SAC ¶ 543. Although Plaintiff‘s references to statutory sections are incomplete, Plaintiff appears to allege specific violations of
The Court cannot reasonably infer from Plaintiff‘s allegations that Defendants are liable under the TILA. Plaintiff does not identify which payments US Bank did not timely and properly credit to his balance, or which monthly statements were inaccurate. To the
Plaintiff‘s Eleventh Cause of Action is therefore dismissed with leave to amend.
D. Plaintiff‘s Fraud-Based Claims Fail to Meet Rule 9(b)‘s Heightened Pleading Standard
None of Plaintiff‘s fraud-based claims meet the particularity requirements of
Plaintiff‘s First Cause of Action alleges US Bank violated
Plaintiff alleges US Bank violated the UCL because it (1) represented in monthly statements that if Plaintiff “timely and properly paid the monthly payment claimed due that the loan would be current, and thus the loan would not be foreclosed on;” (2) brought “foreclosure actions against similarly situated borrowers;” (3) wrongfully imposed costs, fees, and interest to his balance; and (4) kept more of a payment on his principal balance than was due. SAC ¶¶ 50, 55, 56. The Court will address each contention in order.
First, as addressed above, Plaintiff failed to plausibly allege a promise by US Bank that it would not pursue default and foreclosure on Plaintiff‘s property. The claim therefore fails here under a heightened pleading standard. Second, Plaintiff‘s allegation that US Bank took comparable actions against similarly situated borrowers fails under
Plaintiff alleges US Bank violated the FAL (1) by making untrue or misleading statements related to the administration of the Note and when the balloon payment was due, and (2) by failing to act in good faith to avoid foreclosure. SAC ¶¶ 52–54.
Specifically, Plaintiff‘s first allegation under the FAL is that US Bank, through SN, made or disseminated, or caused to be made or disseminated, “before the public in this State, untrue or misleading statements in connection with the note and administration of it and second deed of trust and knew or should have know[n] the statements were untrue or misleading, including but not limited to, the note indicating payment of the monthly invoices kept the note and deed of trust current.” SAC ¶ 52. The Court cannot discern from these facts what specific statements Plaintiff refers to. Relatedly, Plaintiff alleges US Bank made untrue or misleading statements as to when Plaintiff‘s balloon payment was due in violation of the Note and
Plaintiff‘s second allegation that US Bank failed to make a good faith effort to avoid foreclosure makes no reference to a “statement,” which is an element required to state a claim under the FAL. SAC ¶ 54; see
Accordingly, Plaintiff‘s First Cause of Action is dismissed with leave to amend.
2. Intentional Misrepresentation, Negligent Misrepresentation, and Promise Without Intention of Performing
Plaintiff‘s Sixth, Eighth, and Ninth Causes of Action allege intentional misrepresentation, promise without intention of performing, and negligent misrepresentation against US Bank. To state a cause of action for intentional misrepresentation under California law, a plaintiff must allege: “(1) misrepresentation
Plaintiff fails to state a claim with particularity for intentional misrepresentation, negligent misrepresentation, or promise without intent to perform because, as discussed, Plaintiff has not plausibly alleged that US Bank represented or promised that monthly payments would bring Plaintiff‘s loan current such that it would not foreclose on the property. See SAC ¶¶ 293–94, 391–92, 439–40; supra III(A).
Plaintiff‘s Sixth, Eighth, and Ninth Causes of Action are dismissed with leave to amend.
3. Negligence
Plaintiff‘s Fourth Cause of Action alleges negligence by US Bank. Under California law, the “elements of a cause of action for negligence are (1) a legal duty to use reasonable care, (2) breach of that duty, and (3) proximate cause between the breach and (4) the plaintiff‘s injury.” Patera v. Citibank, N.A., 79 F. Supp. 3d 1074, 1086 (N.D. Cal. 2015).
Plaintiff alleges US Bank “had a duty to timely and properly administer the loan” and “provide proper statutory notice of any balloon payments due.” SAC ¶ 198; see SAC ¶ 184. US Bank allegedly breached these duties “by claiming the balloon payment was
Plaintiff‘s allegations fail to establish proximate cause between US Bank‘s alleged breach of duty and Plaintiff‘s injuries. In particular, the Court agrees with Defendants that, on the face of the SAC, “Plaintiff‘s nonpayment of the loan [by] the maturity date is the cause of Plaintiff‘s damages.” Mot. 15. The Court also cannot reasonably infer US Bank breached its duty to provide proper notice that the balloon payment was due because, as discussed, Plaintiff fails to identify the notices in which US Bank allegedly committed this breach. The Court therefore declines to reach the question of US Bank‘s duty of care.
Plaintiff‘s Fourth Cause of Action is dismissed with leave to amend.
4. Concealment
Plaintiff‘s Seventh Cause of Action alleges concealment against US Bank. “To state a claim for fraudulent concealment, a plaintiff must allege (1) concealment or suppression of a material fact; (2) a duty to disclose; (3) intentional concealment with the intent to defraud; (4) actual, justifiable reliance; and (5) resulting damages.” Rosal v. First Fed‘n Bank of Cal, 671 F. Supp. 2d 1111, 1132 (N.D. Cal. 2009) (citing Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal. App. 4th 858, 868 (2008)).
Plaintiff alleges US Bank, through SN, “intentionally concealed material facts by issuing monthly statements affirmatively stating that if the claimed monthly amount due was timely paid the loan would be current and thus [the] loan would not be foreclosed on.” SAC ¶ 342. For Plaintiff‘s claim to survive on this theory, he must plausibly allege that (1) US Bank affirmatively represented that it would not pursue default and foreclosure on his 2017 balloon payment, then (2) concealed to him that it did in fact intend to pursue default and foreclosure. As previously discussed, Plaintiff has failed to adequately allege that US Bank represented it would not pursue default and foreclosure on the balloon payment. And, as Defendants observe, Plaintiff has not specified how US Bank concealed the material fact that it may pursue default based on Plaintiff‘s failure to make the balloon payment in 2017 when Plaintiff himself has attached the terms of the Note and monthly
Because the exhibits Plaintiff incorporates into the SAC contradict his allegations of concealment, amendment would be futile. Plaintiff‘s Seventh Cause of Action is dismissed without leave to amend.
5. RICO Claims
Plaintiff‘s Twelfth and Thirteenth Causes of Action alleged a violation of RICO and conspiracy to violate RICO by US Bank. To state a claim under
The Court previously identified deficiencies in Plaintiff‘s RICO claims. ECF 32. Namely, that Plaintiff‘s allegations of predicate acts “fall short of the specificity required under Rule 9(b).” ECF 32 at 6. Plaintiff‘s allegations of US Bank‘s predicate acts in the SAC are identical to the previously insufficient allegations: “repeatedly providing false and misleading monthly invoice statements indicating payment brought the loan current and not subject to foreclosure.” FAC ¶ 104; SAC ¶ 592. Although Plaintiff lengthens his allegations as to the other elements of a RICO claim, see SAC ¶¶ 589–91, the added statements are equally vague and insubstantial such that the claim is not pleaded with particularity. As a result, Plaintiff‘s RICO claim and related claim for conspiracy to violate RICO fail. See Religious Tech. Ctr. v. Wollersheim, 971 F.2d 364, 367 n.8 (9th Cir. 1992).
Plaintiff‘s Twelfth and Thirteenth Causes of Action are dismissed without leave to amend.
6. Aiding and Abetting
Plaintiff‘s Tenth Cause of Action alleges US Bank aided and abetted SN in committing “the wrongs herein alleged, including, to violate
A party may be liable for aiding and abetting another when it either “(a) knows the other‘s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person‘s own conduct, separately considered, constitutes a breach of duty to the third person.” Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101, 1118 (C.D. Cal. 2003); In re First Alliance Mortg. Co., 471 F.3d 977, 993 (9th Cir. 2006). Under the first test, “to satisfy the knowledge prong, the defendant must have ‘actual knowledge of the specific primary wrong the defendant substantially assisted.‘” In re First Alliance, 471 F.3d at 993. “[W]hen a claim alleges the aiding and abetting of a fraud, substantial assistance must be pled in accordance with Rule 9(b)‘s heightened specificity requirements.” Neilson, 290 F. Supp. 2d at 1130 & n.81.
Because the Court has concluded all of Plaintiff‘s other claims, on which the claim for aiding and abetting is based, fail to state claim, Plaintiff‘s aiding and abetting claim necessarily fails. Plaintiff also does not allege facts relating to a violation of
The Tenth Cause of Action is dismissed with leave to amend.
IV. CONCLUSION
For these reasons, Plaintiff‘s Second, Fifth, Seventh, Twelfth, and Thirteenth Causes of Action are dismissed without leave to amend. Plaintiff‘s First, Third, Fourth, Sixth, Eighth, Ninth, Tenth, and Eleventh Causes of Action are dismissed with leave to amend. Plaintiff must file an amended complaint or a notice that he will not be amending the SAC by July 19, 2024. Plaintiff‘s amended complaint may not exceed 25 pages, and Plaintiff must seek leave of court to add claims or parties.
Because the Court GRANTS Defendants’ motion to dismiss, the Court DENIES as moot Defendants’ motion for a more definite statement, which was brought in the alternative. Defendants’ Request for Judicial Notice is also DENIED because the Court relied only on the documents attached to the SAC in deciding the motion to dismiss, and not on the documents submitted with the Request for Judicial Notice.
IT IS SO ORDERED.
Dated: July 3, 2024
NATHANAEL M. COUSINS
United States Magistrate Judge