Snider et al v. Wells Fargo Bank, N.A. et al, No. 3:2018cv06353 - Document 92 (N.D. Cal. 2019)
Court Description: ORDER GRANTING MOTIONS TO DISMISS, GRANTING MOTION TO DISSOLVE PRELIMINARY INJUNCTION, AND DENYING MOTION FOR ATTORNEYS' FEES. Signed by Judge Richard Seeborg on 07/31/2019. (jmdS, COURT STAFF) (Filed on 7/31/2019)
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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 GREGORY SNIDER, et al., 10 Case No. 18-cv-06353-RS Plaintiffs, 11 United States District Court Northern District of California v. 12 WELLS FARGO BANK, N.A., et al., 13 ORDER GRANTING MOTIONS TO DISMISS, GRANTING MOTION TO DISSOLVE PRELIMINARY INJUNCTION, AND DENYING MOTION FOR ATTORNEYS’ FEES Defendants. 14 I. INTRODUCTION 15 This action arises from a dispute between plaintiffs Gregory and Bryn Snider (“Plaintiffs” 16 17 or “the Sniders”) and defendants Wells Fargo Bank (“Wells Fargo”), BSI Financial Services (“BSI 18 Financial”), and Wilmington Savings Fund Society as trustee of the Brougham Fund I Trust 19 (“Wilmington”) (collectively, “Defendants”) related to Gregory Snider’s mortgage and subsequent 20 default. The Sniders allege Defendants violated state law and seek damages, statutory penalties, 21 and injunctive relief preventing foreclosure on their home. In February 2019, Defendants’ motions 22 to dismiss the original complaint were granted in part and denied in part. That same day, a 23 preliminary injunction was issued barring the Wilmington Defendants from foreclosing on the 24 Sniders’ home. The Sniders subsequently filed a First Amended Complaint (“FAC”). Defendants1 now move to dismiss the FAC. The Wilmington Defendants also move to 25 26 27 28 1 Wells Fargo and the Wilmington Defendants (i.e. Wilmington and BSI Financial) filed separate motions to dismiss. There is, however, substantial overlap in the arguments advanced in these motions. 1 strike the breach of fiduciary duty claim advanced against them and to dissolve the preliminary 2 injunction previously issued in this case. The Sniders, for their part, move for attorneys’ fees 3 based on their success in obtaining a preliminary injunction. For the reasons set forth below, the 4 Sniders are judicially estopped from pursuing their claims and the FAC is dismissed with 5 prejudice. The Wilmington Defendants’ motion to dissolve the preliminary injunction is granted 6 and the Sniders’ motion for attorneys’ fees based on that injunction is denied. Finally, the 7 Wilmington Defendants’ motion to strike is denied as moot. 8 II. BACKGROUND 9 United States District Court Northern District of California 10 A. Factual Background The Sniders purchased their Redwood City home in 1986. In 2007, they refinanced the 11 mortgage with a loan from World Savings Bank. This loan was secured by a Deed of Trust on the 12 house. World Savings Bank (then operating under the name Wachovia Mortgage) subsequently 13 merged with Wells Fargo, at which point Wells Fargo became the beneficiary and servicer of the 14 loan. In February 2017, Wells Fargo assigned the Deed of Trust to Wilmington, who retained BSI 15 Financial as the loan servicer. 16 In April 2013, the Sniders defaulted on their mortgage and requested a deferment, to which 17 Wells Fargo agreed. The Sniders also submitted a loan modification application, which was 18 denied. Over the course of the next few years, the Sniders submitted several more loan 19 modification applications, which they contend were wrongfully denied. One such application was 20 submitted in June 2015 and denied later that same month. The Sniders’ appeal of that decision was 21 denied. On October 22, 2015, Wells Fargo recorded a Notice of Default and Election to Sell 22 (“NOD”). The Sniders, however, contend they had submitted another complete loan modification 23 application only weeks earlier, which had yet to be resolved. 24 According to the Sniders, Wells Fargo also force-placed insurance on the property several 25 times, beginning in 2013, and billed this insurance to the Sniders’ account even though they 26 already had insurance. The bank purchased force-placed insurance again in 2015 and 2016. The 27 FAC further alleges Wells Fargo charged excessive interest and, once the Sniders were in default, 28 CASE NO. 2 18-cv-06353-RS 1 2 On March 18, 2016, the Sniders filed a Chapter 13 Bankruptcy Petition. Wilmington RJN, 3 Ex. 5. They did not, however, disclose any of the claims at issue in this case in their bankruptcy 4 schedules. Wilmington RJN, Ex. 6. Wells Fargo subsequently filed with the bankruptcy court a 5 proof of claim detailing the breakdown of the amounts owed on the loan, including all interest and 6 fees. Wilmington RJN, Ex. 7. It appears the Sniders did not object to Wells Fargo’s representation 7 regarding the amount owed. Wilmington RJN, Ex. 5. During the course of the bankruptcy, the 8 Sniders also filed multiple proposed Chapter 13 bankruptcy plans. Wells Fargo objected to one 9 such plan for failing to provide for full payment of the arrears. Wells Fargo RJN, Ex. 5. The 10 11 United States District Court Northern District of California refused to accept payments which would have cured the default. Sniders subsequently amended their plan in response to this objection. Wells Fargo RJN, Ex. 4. During the bankruptcy proceeding, the Sniders also moved for an order compelling Wells 12 Fargo to participate in the bankruptcy court’s Mortgage Modification Mediation program. Wells 13 Fargo RJN, Ex. 6. The bankruptcy court granted this unopposed motion. Wilmington RJN, Ex. 5. 14 The mediation ultimately proved unsuccessful and the bankruptcy court subsequently confirmed 15 the Sniders’ Second Amended Plan in March 2017. Wells Fargo RJN, Ex. 1, 8. Under the plan, the 16 Sniders paid the arears owed to all secured creditors, including Wells Fargo, at 0% interest. Wells 17 Fargo RJN, Ex. 4 at 2. On August 8, 2018, the Sniders moved to dismiss the bankruptcy 18 proceedings without discharge. Wells Fargo RJN, Ex. 10. The trustee and creditors did not object 19 and the bankruptcy court granted the motion on August 20, 2018. Wells Fargo RJN, Ex. 1. On 20 November 20, 2018, a Notice of Trustee Sale (“NOTS”) was recorded with respect to the Sniders’ 21 home. Wilmington RJN, Ex. 13. The present action was filed approximately a week later. 22 III. LEGAL STANDARD 23 Under the Federal Rules of Civil Procedure, a complaint must contain “a short and plain 24 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a). While 25 “detailed factual allegations” are not required, a complaint must have sufficient factual allegations 26 to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 27 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A motion to dismiss under 28 CASE NO. 3 18-cv-06353-RS United States District Court Northern District of California 1 Rule 12(b)(6) tests the legal sufficiency of the claims alleged in the complaint. Navarro v. Block, 2 250 F.3d 729, 732 (9th Cir. 2001). Dismissal under Rule 12(b)(6) may be based on either the “lack 3 of a cognizable legal theory” or on “the absence of sufficient facts alleged” under a cognizable 4 legal theory. UMG Recordings, Inc. v. Shelter Capital Partners LLC, 718 F.3d 1006, 1014 (9th 5 Cir. 2013). When evaluating such a motion, courts generally “accept all factual allegations in the 6 complaint as true and construe the pleadings in the light most favorable to the nonmoving party.” 7 Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). 8 Courts may also take judicial notice of facts that are “not subject to reasonable dispute.” 9 Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018) (quoting Fed. R. Evid. 10 201(b)). “A fact is ‘not subject to reasonable dispute’ if it is ‘generally known,’ or ‘can be 11 accurately and readily determined from sources whose accuracy cannot reasonably be 12 questioned.’” Id. (quoting Fed. R. Evid. 201(b)). For example, courts may take judicial notice of 13 matters of public record. Courts may not, however, take judicial notice of disputed facts contained 14 in such records. Id. 15 Defendants request judicial notice of various documents filed in the bankruptcy 16 proceedings in order to illustrate the course of those proceedings. The Sniders object generally to 17 judicial notice of these documents to the extent Defendants seek to rely on the truth of the facts 18 recited therein. These documents simply show the trajectory of the bankruptcy process and do not 19 appear to touch on any disputed questions of fact between the parties. Accordingly, judicial notice 20 is granted with respect to Exhibits 5, 6, 7, and 13 to the Wilmington Defendants’ Request for 21 Judicial Notice and Exhibits 1, 4, 5, 6, 8, and 10 to Wells Fargo’s Request for Judicial Notice. 22 IV. DISCUSSION 23 A. Judicial Estoppel of Plaintiffs’ Claims 24 Defendants invoke the doctrine of judicial estoppel to preclude the Sniders from 25 prosecuting any of their claims for failure to disclose them during the bankruptcy proceedings. 26 Judicial estoppel is an equitable doctrine designed to protect the integrity of the judicial process by 27 “prohibiting parties from deliberately changing positions according to the exigencies of the 28 CASE NO. 4 18-cv-06353-RS United States District Court Northern District of California 1 moment.” New Hampshire v. Maine, 532 U.S. 742, 749-50 (2001) (quotation omitted). The 2 appropriateness of judicial estoppel in a particular circumstance is subject to judicial discretion 3 and is “not reducible to any general formulation.” Id. at 750. Nonetheless, courts often consider 4 (1) whether the party’s later position is “clearly inconsistent” with its prior position, (2) whether 5 the party persuaded a court to accept the party’s earlier position, and (3) whether the party would 6 derive an unfair advantage or unfairly harm the opposing party if allowed to assert the later 7 inconsistent position. Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782-83 (9th Cir. 8 2001). 9 In the bankruptcy context, plaintiffs are routinely “estopped from asserting a cause of 10 action not raised in a reorganization plan or otherwise mentioned in the debtor’s schedules or 11 disclosure statements.” Id. at 783 (explaining that the “integrity of the bankruptcy system depends 12 on full and honest disclosure by debtors of all of their assets”). This is because incomplete 13 disclosure makes it difficult for the bankruptcy court and creditors to make informed decisions 14 during the course of the bankruptcy proceedings. See Billmeyer v. Plaza Bank of Commerce, 42 15 Cal. App. 4th 1086, 1091-92 (Cal. Ct. App. 1995). Accordingly, courts in the Ninth Circuit apply 16 a “presumption of deliberate manipulation” to a plaintiff’s failure to disclose during bankruptcy. 17 Ah Quin v. Cty. of Kauai DOT, 733 F.3d 267, 271 (9th Cir. 2013). 18 It is undisputed that, as debtors in a bankruptcy proceeding, the Sniders were obligated to 19 disclose all unliquidated claims in their bankruptcy schedules but failed to do so. As explained in 20 the prior Order Re Motions to Dismiss, issued on February 12, 2019, this lack of disclosure is 21 inconsistent with their attempt to prosecute these claims now. Moreover, by approving the 22 Sniders’ Chapter 13 plan, the bankruptcy court implicitly accepted the Sniders’ incomplete 23 representations regarding their assets. The prior Order Re Motions to Dismiss nonetheless rejected 24 Defendants’ arguments in favor of judicial estoppel because no discharge was entered and there 25 appeared to be little evidence of either prejudice to creditors or bad faith on the part of the Sniders. 26 In reaching this conclusion, the Court declined to follow district courts that have held that entry of 27 an automatic bankruptcy stay alone is enough to justify judicial estoppel regardless of the 28 CASE NO. 5 18-cv-06353-RS 1 circumstances. Defendants’ motions to dismiss renew the argument in favor of judicial estoppel and United States District Court Northern District of California 2 3 provide additional facts tending to show that the Sniders benefitted from the omissions in their 4 bankruptcy schedules, that creditors were prejudiced as a result of these omissions, and that the 5 integrity of the bankruptcy proceeding was undermined. First, the Sniders were able to delay 6 foreclosure for the duration of those proceedings. Furthermore, under the Chapter 13 plan, the 7 Sniders were permitted to pay 0% interest to Wells Fargo and other creditors, rather than the 8 contractual interest rate. This plan was in place for over a year. The Sniders also moved 9 unopposed for an order compelling Wells Fargo to participate in the bankruptcy court’s loan 10 modification program. Wells Fargo contends it would have had little reason to agree to this 11 process had the company known the Sniders intended later to reverse course and dispute the 12 amount owed in the first place. Finally, Wells Fargo argues that other creditors may have behaved 13 differently during bankruptcy had they known the Sniders were claiming reduced debt obligations 14 to Wells Fargo and were seeking damages from the bank. Defendants describes a concerning course of events. The Sniders’ failure to disclose their 15 16 claims against Wells Fargo casts doubt on the fairness and propriety of the plan terms.2 Indeed, the 17 Sniders’ creditors could have perhaps sought more favorable plan terms had they known of these 18 additional assets and the possibility that the debt owed to Wells Fargo was lower than it appeared. 19 Moreover, Wells Fargo likely would not have agreed to expend resources on the bankruptcy 20 court’s mediation process had it known the Sniders would later challenge the amount owed under 21 the plan. In sum, the Sniders’ failure to disclose their claims undermined the integrity of 22 bankruptcy proceedings. 23 24 25 26 27 2 The Sniders represented at oral argument that a 0% interest rate is standard in Chapter 13 bankruptcy plans and that the omissions in their bankruptcy schedules had no bearing on this term. Be that as it may, the Sniders’ creditors and the bankruptcy court still relied upon these schedules in evaluating the bankruptcy plan as a whole. Therefore, the Sniders’ omission of potentially valuable claims against Wells Fargo is pertinent. These undisclosed claims implicate both the amount of debt the Sniders owed, as well as the potential assets available to the Sniders to pay other creditors. 28 CASE NO. 6 18-cv-06353-RS 1 The Sniders’ primary rejoinder is that judicial estoppel is inappropriate because “Wells 2 Fargo does not show how anything would have changed if there had been disclosure.” Opp. to 3 Wells Fargo 6. They further contend they “ha[d] no motive to conceal the cause of action since it 4 would have no monetary effect on confirmation of the [C]hapter 13 plan.” Id. at 11. In the 5 bankruptcy context, however, courts “apply a presumption of deliberate manipulation.” Ah Quin, 6 733 F.3d at 271. Here, that presumption is bolstered by the benefit the Sniders derived from the 7 bankruptcy process, combined with the overall distortion of that process. In short, while the mere fact of an automatic stay does not always justify the application of 8 United States District Court Northern District of California 9 judicial estoppel, the Sniders’ failure to disclose their claims, only to pursue them immediately 10 after the bankruptcy case was dismissed, undermined the integrity of the bankruptcy process and 11 unfairly prejudiced creditors.3 Indeed, the Sniders admitted at oral argument that the reason they 12 ultimately dismissed the bankruptcy proceeding, which had been ongoing for well over a year, was 13 to enable them to pursue these undisclosed claims. The FAC is, accordingly, dismissed without 14 leave to amend. 15 B. Collateral Estoppel 16 Although the question of judicial estoppel fully resolves Defendants’ motions to dismiss, 17 addressing the related question of collateral estoppel may facilitate appellate review. Wells Fargo 18 argues the Sniders should be estopped from contesting the amount owed under the loan agreement 19 because the issue was resolved during the bankruptcy proceedings. Confirmation of a bankruptcy 20 plan “alters the status quo and fixes the rights and obligations of the parties.” Bullard v. Blue Hills 21 Bank, 135 S. Ct. 1686, 1692 (2015). In other words, “[c]onfirmation has preclusive effect, 22 foreclosing relitigation of any issue actually litigated by the parties and any issue necessarily 23 determined by the confirmation order.” Id.; see also HSBC Bank USA, N.A. v. Blendheim (In re 24 25 26 27 3 The Sniders argue, rather perplexingly, that because Defendants argue the claims are meritless these claims would not meaningfully have increased the value of the Sniders’ assets and therefore would have no effect on the bankruptcy proceedings. Clearly, the mere fact that Defendants seek to defeat the Sniders on the merits does not automatically render the claims valueless. 28 CASE NO. 7 18-cv-06353-RS 1 Blendheim), 803 F.3d 477, 486-87 (9th Cir. 2015); Trulis v. Barton, 107 F.3d 685, 691 (9th Cir. 2 1995) (“Once a bankruptcy plan is confirmed, it is binding on all parties and all questions that 3 could have been raised pertaining to the plan are entitled to res judicata effect.”). United States District Court Northern District of California 4 The Sniders do not dispute that, by confirming the Sniders’ amended bankruptcy plan, the 5 bankruptcy court adjudicated the amount owed to Wells Fargo under the terms of the loan 6 agreement. The Sniders argue, however, that it would be unfair to allow Wells Fargo to obtain the 7 benefit of either collateral estoppel or res judicata based on its ability to “sneak [] illegal interest 8 into a bankruptcy proof of claim undetected.” Opp. to Wells Fargo 16. As a preliminary matter, it 9 is not clear how Wells Fargo’s inclusion of information in a publicly filed proof of claim qualifies 10 as “sneak[ing].” More importantly, however, the Sniders fail to point to any authority in support of 11 their position. Accordingly, even if judicial estoppel did not apply, the Sniders’ would be estopped 12 from contesting the amount owed to Wells Fargo as confirmed by the plan, including the interest 13 rate charged and the fees associated with the purchase of insurance. 14 C. Dissolution of Preliminary Injunction 15 In light of dismissal of the FAC without leave to amend, the motion to dissolve the 16 preliminary injunction is granted. Even if the FAC were to survive the motion to dismiss, 17 dissolution of the preliminary injunction would still be appropriate in light of new evidence which 18 shows there is no serious question going to the merits of the Sniders’ claim under California Civil 19 Code § 2923.6. 20 D. Request for Attorneys’ Fees 21 The Sniders request attorneys’ fees based on their prior success in obtaining a preliminary 22 injunction. Under the California Civil Code, courts may award a “prevailing borrower” attorneys’ 23 fees and costs in a HBOR action. Cal. Civ. Code § 2924.12(h). The term “prevailing borrower” 24 may include a borrower who obtains injunctive relief. Id. The decision whether to award 25 attorneys’ fees under this provision ultimately falls within the court’s discretion. Hardie v. 26 Nationstar Mortg. LLC, 32 Cal. App. 5th 714, 724-25 (Cal. Ct. App. 2019); Millman v. 27 Wilmington Sav. Fund Soc., FSB, No. 17-cv-04123-EMC, 2018 WL 2021236, at *5 (N.D. Cal. 28 CASE NO. 8 18-cv-06353-RS 1 May 1, 2018) (declining to award attorneys’ fees based in part on due process concerns). The 2 preliminary injunction at issue here was obtained under the “sliding scale” test based on a “serious 3 question” going to the merits rather than a likelihood of success on the merits. Alliance for Wild 4 Rockies v. Cottrell, 632 F.3d 1127, 1134 (9th Cir. 2011). Furthermore, the production of additional 5 evidence has undermined even the limited finding of a serious question going to the merits. In 6 view of these facts and in the interest of justice, the request for attorneys’ fees is denied. V. CONCLUSION 7 8 United States District Court Northern District of California 9 For the reasons set forth above, Defendants’ motions to dismiss are granted. All claims set forth in the FAC are, accordingly, dismissed without leave to amend. The Wilmington 10 Defendants’ motion to dissolve the preliminary injunction is also granted. The Sniders’ motion for 11 attorneys’ fees is denied. Finally, the Wilmington Defendants’ motion to strike is denied as moot. 12 13 IT IS SO ORDERED. 14 15 16 17 Dated: July 31, 2019 ______________________________________ RICHARD SEEBORG United States District Judge 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 9 18-cv-06353-RS
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