Kenery v. Wells Fargo, N.A. et al, No. 5:2013cv02411 - Document 53 (N.D. Cal. 2014)

Court Description: ORDER GRANTING 32 MOTION TO DISMISS WITH LEAVE TO AMEND AS TO CLAIM 1 AND WITHOUT LEAVE TO AMEND AS TO CLAIMS 2 AND 3. Signed by Judge Beth Labson Freeman on 8/22/2014. (blflc1, COURT STAFF) (Filed on 8/22/2014)

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1 2 3 4 IN THE UNITED STATES DISTRICT COURT 5 FOR THE NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 ILLUMINADA KENERY, Plaintiff, 9 v. 11 For the Northern District of California United States District Court 10 12 WELLS FARGO, N.A., a National Association, WELLS FARGO HOME MORTGAGE, INC., NDEX WEST, LLC, and Does 1 through 50, inclusive, 13 Case No. 5:13-cv-02411-BLF ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND AS TO CLAIM 1 AND WITHOUT LEAVE TO AMEND AS TO CLAIMS 2 AND 3 [Re: ECF 32] Defendants. 14 15 16 Plaintiff Illuminada Kenery filed this action to stop a trustee’s sale of her home following 17 18 her default on a mortgage loan. She sues Wells Fargo, N.A., the beneficiary under the deed of trust 19 securing the loan; Wells Fargo Home Mortgage, Inc., a division of Wells Fargo, N.A.; and NDeX 20 West, LLC, the trustee under the deed of trust. Defendants move to dismiss Plaintiff’s First 21 Amended Complaint (“FAC”) under Federal Rule of Civil Procedure 12(b)(6) for failure to state a 22 claim upon which relief may be granted. Defendants assert that Plaintiff’s claims are preempted by 23 the Home Owners’ Loan Act (“HOLA”), 12 U.S.C. § 1461 et seq., and alternatively that she has 24 failed to allege facts entitling her to relief. 25 The Court has considered the briefing submitted by the parties.1 For the reasons discussed 26 below, the motion is GRANTED with leave to amend as to Claim 1 and without leave to amend as 27 to Claims 2 and 3. 28 1 The motion was submitted without oral argument on August 12, 2014. (ECF 52) I. 1 BACKGROUND 2 As alleged in the FAC, in April 2008, Plaintiff entered into an agreement with Wachovia 3 Mortgage, FSB to refinance her home mortgage loan in the amount of $587,000. (FAC ¶¶ 9-10, 4 ECF 31)2 Plaintiff secured the loan with a first deed of trust on her home. (Id. ¶ 10; Defs.’ RJN 5 Exh. A (Deed of Trust), ECF 33)3 Plaintiff alleges on information and belief that Wachovia 6 securitized the note and that the note was “split from the First Deed of Trust.” (FAC ¶ 10) She 7 further alleges that throughout the years, various entities identified themselves to Plaintiff as 8 “servicers.” (Id.) Plaintiff alleges that as a result of the securitization of the note, Defendants have 9 no interest in the Deed of Trust and no “estate, right, title, lien or interest in the Property.” (Id.) In November 2009, Wachovia Mortgage, FSB converted to Wells Fargo Bank Southwest, 11 For the Northern District of California United States District Court 10 N.A., which then merged with and into Wells Fargo Bank, N.A. (“Wells Fargo”). (RJN Exh. E 12 (Certification), ECF 33) In February 2012, Plaintiff’s husband died and she suffered economic hardship. (FAC ¶ 11) 13 14 Plaintiff fell behind on her loan payments. (Id.) She submitted at least two applications for loan 15 modification, which were denied. (Id. ¶¶ 12-13) Plaintiff alleges that she was eligible for loan 16 modification under the Home Affordable Mortgage Program (“HAMP”) and under California Civil 17 Code § 2923.5, and that the denials of her applications for modification were “wrongful.” (Id. ¶¶ 18 13-14) 19 In September 2012, NDeX West, LLC (“NDeX”), acting as an agent for Wells Fargo, 20 recorded a notice of default and election to sell in the Santa Clara County Recorder’s Office. (RJN 21 Exh. G, ECF 33) In October 2012, Wells Fargo substituted NDeX as the trustee under the deed of 22 trust. (RJN Exh. H) In December 2012, NDeX recorded a notice of trustee’s sale stating that 23 Plaintiff was in default and that a trustee’s sale had been scheduled for January 15, 2013. (RJN Exh. 24 I) It is not clear from the record whether the trustee’s sale occurred as scheduled. The Court 25 26 27 28 Plaintiff’s factual allegations are accepted as true for purposes of the motion to dismiss. See Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). 2 3 The Court addresses the merits of Defendants’ request for judicial notice in section III.A., below. 2 1 presumes that it did not, because on April 23, 2013, Plaintiff filed this action in the Santa Clara 2 County Superior Court, seeking to stop Defendants’ sale of the property. (Not. of Rem. Exh. A, 3 ECF 1) Wells Fargo removed the action to federal district court on the basis of diversity of 4 citizenship. (Not. of Rem. at 2) On January 14, 2014, the Court dismissed the majority of 5 Plaintiff’s claims as preempted by HOLA and dismissed her remaining claims for injunctive and 6 declaratory relief as derivative of the preempted claims. (Order Granting Mot. to Dismiss, ECF 29) 7 The Court granted Plaintiff leave to amend with respect to her claims under California’s unfair 8 competition law (“UCL”), to quiet title, and for injunctive and declaratory relief. (Id.) The Court 9 denied leave to amend as to all other claims. (Id.) Plaintiff filed the operative FAC on February 12, 2014, asserting claims for: (1) violation of 11 For the Northern District of California United States District Court 10 California’s UCL, (2) quiet title, and (3) declaratory relief. Wells Fargo filed the present motion to 12 dismiss on February 26, 2014. On April 4, 2014, NDeX filed a notice of joinder in the motion to 13 dismiss.4 The case was reassigned to the undersigned judge on April 17, 2014. II. 14 LEGAL STANDARDS “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a 15 16 claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation Force 17 v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 729, 732 18 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts as true all 19 well-pled factual allegations and construes them in the light most favorable to the plaintiff. Reese v. 20 BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the Court need not 21 “accept as true allegations that contradict matters properly subject to judicial notice” or “allegations 22 that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re 23 Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation marks and citations 24 omitted). While a complaint need not contain detailed factual allegations, it “must contain sufficient 25 factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. 26 Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A 27 28 The Court concludes that NDeX’s joinder in Wells Fargo’s motion is appropriate, as Wells Fargo’s arguments apply equally to NDeX. 4 3 1 claim is facially plausible when it “allows the court to draw the reasonable inference that the 2 defendant is liable for the misconduct alleged.” Id. 3 4 III. DISCUSSION Defendants contend that Plaintiff’s claims are preempted by HOLA and alternatively that she 5 has failed to allege sufficient facts entitling her to relief. Before turning to the merits of those 6 arguments, the Court addresses Wells Fargo’s request for judicial notice and Plaintiff’s suggestion 7 that removal of the action was improper. 8 A. Judicial Notice 9 Wells Fargo has filed a request for judicial notice of nine documents, attached to the request as Exhibits A through I: (A) Deed of Trust; (B) Certificate of Corporate Existence issued by the 11 For the Northern District of California United States District Court 10 Office of Thrift Supervision; (C) Office of Thrift Supervision’s authorization of name change from 12 World Savings Bank, FSB to Wachovia Mortgage, FSB; (D) Charter of Wachovia Mortgage, FSB; 13 (E) Certification of Comptroller of the Currency stating that effective November 1, 2009, Wachovia 14 Mortgage, FSB converted to Wells Fargo Bank Southwest, N.A., which then merged with and into 15 Wells Fargo Bank, N.A.; (F) Printout from the website of the Federal Deposit Insurance Corporation 16 dated December 15, 2010, showing the history of Wachovia Mortgage, FSB; (G) Notice of Default; 17 (H) Substitution of Trustee; and (I) Notice of Trustee’s Sale. (Defs.’ RJN, ECF 33) 18 Judicial notice is appropriate with respect to Exhibits A, G, H, and I because they are 19 documents publicly filed with the Santa Clara County Recorder. See Mir v. Little Co. of Mary 20 Hosp., 844 F.2d 646, 649 (9th Cir. 1988) (court may take judicial notice of matters of public 21 record). Judicial notice is appropriate with respect to Exhibit F because it is a printout from a 22 government website. See Cachil Dehe Band of Wintun Indians of the Colusa Indian Comm’ty v. 23 Cal., 547 F.3d 962, 969 n.4 (9th Cir. 2008) (taking judicial notice of information located on 24 California Gambling Control Commission website). Finally, judicial notice is appropriate with 25 respect to Exhibits B, C, D, and E, because they reflect official acts of the Executive Branch. See 26 Graybill v. Wells Fargo Bank, N.A., 953 F. Supp. 2d 1091, 1093 n.2 (N.D. Cal. 2013) (court may 27 take judicial notice of “records reflecting official acts of the Executive Branch, without converting a 28 motion to dismiss into a motion for summary judgment”). 4 Plaintiff has neither opposed the request for judicial notice nor disputed the authenticity of 1 2 the documents. The request for judicial notice is GRANTED. 3 B. Subject Matter Jurisdiction 4 Plaintiff asserts in her opposition that removal of the action was “without adequate basis.” 5 (Pl.’s Opp. at 3, ECF 34) Wells Fargo removed on the basis of diversity of citizenship. (Not. of 6 Removal at 2, ECF 1) It is not clear whether Plaintiff intends her assertion to be a challenge to 7 diversity jurisdiction. However, the Court has “a duty to establish subject matter jurisdiction over 8 the removed action sua sponte, whether the parties raised the issue or not.” United Investors Life 9 Ins. Co. v. Waddell & Reed Inc., 360 F.3d 960, 967 (9th Cir. 2004). Where, as here, Plaintiff is a citizen of California (see FAC ¶ 1, ECF 31), jurisdiction based 11 For the Northern District of California United States District Court 10 upon diversity of citizenship can be established only so long as none of the defendants is a citizen of 12 California. See 28 U.S.C. § 1332(a); Abrego v. The Dow Chemical Co., 443 F.3d 676, 679 (9th Cir. 13 2006). Recently, the Ninth Circuit clarified that Wells Fargo, N.A. is a citizen only of South 14 Dakota. Rouse v. Wachovia Mortg., FSB, 747 F.3d 707, 715 (9th Cir. 2014) (holding that for 15 diversity purposes a national bank is a citizen only of the state in which its main office is located, 16 which for Wells Fargo is South Dakota).5 There does not appear to be any dispute with respect to 17 the citizenship of the remaining defendants. The Notice of Removal asserted that Wells Fargo, N.A. 18 had been sued herein erroneously as “Wells Fargo Home Mortgage, Inc.” That assertion has not 19 been challenged by Plaintiff. Moreover, at least one district court has held that because “Wells 20 Fargo Home Mortgage, Inc. merged into Wells Fargo Bank, N.A. on May 8, 2004, and ceased to 21 exist as a separate entity,” the citizenship of Wells Fargo Home Mortgage “is of no consequence 22 when considering the Court’s diversity jurisdiction.” Vasquez v. Wells Fargo Home Mortg., No. 23 11cv462 L(WMC), 2012 WL 985308, at *2 (S.D. Cal. Mar. 22, 2012). Finally, the Notice of 24 Removal established that NDeX is a citizen of Delaware, Texas, Michigan, and Minnesota, but not 25 26 27 28 5 Prior to the Rouse decision, it has been unclear whether Wells Fargo should be considered a citizen of California for diversity purposes – the Ninth Circuit Court of Appeals had not opined and district courts within the circuit were split. See, e.g., Grace v. Wells Fargo Bank, N.A., 926 F. Supp. 2d 1173, 1178 (S.D. Cal. 2013) (finding Wells Fargo to be a citizen of both South Dakota and California); Flores v. Wells Fargo Bank, N.A., No. 3:11-CV-06619 JSC, 2012 WL 832546, at *5 (N.D. Cal. Mar. 12, 2012) (finding Wells Fargo to be a citizen only of South Dakota). 5 1 2 of California. (Not. of Rem. at 3, ECF 1) It also appears from the face of the FAC that the amount in controversy exceeds $75,000. 3 (See FAC ¶ 10, ECF 31) Accordingly, the Court concludes that diversity jurisdiction has been 4 established under 28 U.S.C. § 1332. 5 C. Preemption Under HOLA 6 Defendants’ primary argument supporting dismissal of this action is that all of Plaintiff’s 7 claims are preempted by the Home Owners’ Loan Act. The Court has reviewed HOLA and 8 applicable case authority evaluating the preemption issue in cases similar to the case at bar. 9 The Ninth Circuit Court of Appeals has held that HOLA preempts state law. Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1004 (9th Cir. 2008). Applying field preemption, the Ninth 11 For the Northern District of California United States District Court 10 Circuit ruled that the scope of preemption under HOLA is broad. “HOLA was designed to restore 12 public confidence by creating a nationwide system of federal savings and loan associations to be 13 centrally regulated according to nationwide best practices.” Id. (internal quotation marks and 14 citation omitted). The Ninth Circuit has “described HOLA and its following agency regulations as a 15 ‘radical and comprehensive response to the inadequacies of the existing state system,’ and ‘so 16 pervasive as to leave no room for state regulatory control.’” Id. at 1004-05 (quoting Conference of 17 Fed. Sav. & Loan Ass’ns v. Stein, 604 F.2d 1256, 1257, 1260 (9th Cir. 1979). In cases invoking 18 preemption under HOLA, the presumption against preemption does not apply. Id. at 1005 19 Under HOLA, the Office of Thrift Supervision (“OTS”) has extensive authority to govern 20 federal savings associations. Silvas, 514 F.3d at 1005. OTS has promulgated a regulation that 21 expressly “occupies the entire field of lending regulation for federal savings associations.” 12 22 C.F.R. § 560.2(a). Section 560.2(b) lists thirteen categories of state laws preempted by HOLA, but 23 makes clear that the scope of preemption includes, but is not limited to, those categories. 12 C.F.R. 24 § 560.2(b). Perhaps most relevant here, HOLA expressly preempts “state laws purporting to impose 25 requirements regarding . . . [t]he terms of credit, including amortization of loans and the deferral and 26 capitalization of interest and adjustments to the interest rate, balance, payments due, or term to 27 maturity of the loan, including the circumstances under which a loan may be called due and payable 28 upon the passage of time or a specified event external to the loan.” 12 C.F.R. § 560.2(b)(4). HOLA 6 1 also preempts state laws imposing requirements on “[p]rocessing, origination, servicing, sale or 2 purchase of, or investment or participation in, mortgages.” 12 C.F.R. § 560.2(b)(10). Section 3 560.2(c) lists categories of state laws that are not preempted “to the extent that they only 4 incidentally affect the lending operations of Federal savings associations or are otherwise consistent 5 with the purposes of” the regulation. 12 C.F.R. § 560.2(c). The list includes contract law and real 6 property law. 12 C.F.R. § 560.2(c)(1), (c)(2). 7 8 9 1. HOLA’s Application in this Case Previously, this Court concluded that HOLA preempted the claims alleged in the Complaint. (Order Granting Mot. to Dismiss, ECF 29) Plaintiff was granted leave to amend several of those claims so that she could attempt to allege facts demonstrating that HOLA preemption does not 11 For the Northern District of California United States District Court 10 apply. (Id.) Following that amendment, the case was reassigned to the undersigned (see 12 unnumbered docket entry dated Apr. 17, 2014). Because the undersigned is addressing HOLA 13 preemption for the first time, the following HOLA preemption analysis is provided. The Court must 14 consider two questions: (1) whether HOLA applies to Defendants, and (2) whether HOLA applies 15 to Plaintiff’s claims. 16 17 2. HOLA’s Application to these Defendants As to the first issue, the Court must determine whether HOLA preemption applies to 18 Defendants. Wachovia Mortgage, FSB, the bank that issued the loan in question, was a federal 19 savings bank governed by the OTS under the provisions of HOLA. (See RJN Exhs. B, C) 20 However, on November 1, 2009, Wachovia Mortgage, FSB converted to Wells Fargo Bank 21 Southwest, N.A., which then merged with and into Wells Fargo Bank, N.A. (RJN Exh. E 22 (Certification), ECF 33) Following the conversion of the banking entity from a federal savings bank 23 to a national banking association, the governing regulatory agency changed from the OTS to the 24 Comptroller of the Currency (“OCC”). See 12 U.S.C. § 371(a) (“Any national banking association 25 may make, arrange, purchase or sell loans or extensions of credit secured by liens on interests in real 26 estate, subject to . . . such restrictions and requirements as the Comptroller of the Currency may 27 prescribe by regulation or order.”); see also Bank of America v. City and County of San Francisco, 28 309 F.3d 551, 561-63 (9th Cir. 2002) (discussing authority of OCC under National Banking Act) . 7 1 2 The claims at issue in this action relate to actions taken by both Wachovia and Wells Fargo. As previously pointed out by this Court in its ruling on the initial motion to dismiss, the preemption where a loan that originated with a bank subject to OTS supervision later is held by a 5 bank regulated by the OCC under the National Bank Act (“NBA”), 12 USC sec. 1, et seq. In the 6 absence of controlling authority, district courts have taken three distinct approaches when 7 confronted with this situation, and in particular, when confronted with mortgages that originated 8 with Wachovia but are held by Wells Fargo at the time of suit. Under the first approach, the 9 presiding court applies a HOLA preemption analysis to all claims related to the mortgage regardless 10 of whether the claims arose before or after Wachovia merged into Wells Fargo. See, e.g., Lothlen v. 11 For the Northern District of California Ninth Circuit Court of Appeals has not directly addressed the issue of the scope of HOLA 4 United States District Court 3 Wells Fargo Bank, N.A., No. C 13-00922 SI, 2013 WL 6185527, at *2 n.3 (N.D. Cal. Nov. 26, 12 2013) (“[C]laims regarding foreclosures occurring after Wells Fargo’s merger with Wachovia are 13 still generally covered by HOLA so long as the loan itself originated pre-merger.”); Appling v. 14 Wachovia Mortg., FSB, 745 F. Supp. 2d 961, 971 (N.D. Cal. 2010) (“[A]lthough Wells Fargo itself 15 is not subject to HOLA and OTS regulations, this action is nonetheless governed by HOLA because 16 Plaintiff’s loan originated with a federal savings bank and was therefore subject to the requirements 17 set forth in HOLA and OTS regulations.”). 18 Under the second approach, the court declines to apply a HOLA preemption analysis to 19 Wells Fargo on the ground that it is a national bank and thus not subject to HOLA. See Gerber v. 20 Wells Fargo Bank, N.A., No. CV 11-01083-PHX-NVW, 2012 WL 413997, at *4 (D. Ariz. Feb. 9, 21 2012) (“[P]reemption is not some sort of asset that can be bargained, sold, or transferred. . . . 22 HOLA preemption does not apply to Wells Fargo.”). 23 Finally, under the third approach, the court applies a HOLA preemption analysis only to 24 those claims arising from actions taken by Wachovia and not to claims arising from actions taken by 25 Wells Fargo. See Rodriguez v. U.S. Bank Nat. Ass’n, No. C 12-00989 WHA, 2012 WL 1996929, at 26 *7 (N.D. Cal. June 4, 2012) (“This Court has taken the position that whether HOLA governs the 27 action depends on when the alleged conduct occurred.”). “[A] growing number of courts, including 28 many within this District, have held that whether HOLA preemption applies depends on whether the 8 1 claims arise from actions taken by the federal savings association or from actions taken by the 2 national bank.” Hixson v. Wells Fargo Bank NA, No. C 14-285 SI, 2014 WL 3870004, at *3 (N.D. 3 Cal. Aug. 6, 2014) (collecting cases). Having considered the legal rationales supporting each of the three approaches to HOLA 4 5 preemption, this Court finds most persuasive the rationale supporting application of HOLA 6 preemption only to those actions taken by a federal savings association covered by HOLA. In the 7 present case, Plaintiff alleges that the loan originated with Wachovia in 2008 (FAC ¶ 10), at which 8 time Wachovia was subject to OTS supervision (RJN Exhs. B, C). Thus, Wells Fargo may assert 9 HOLA preemption with respect to claims arising out of Wachovia’s conduct. However, claims arising out of conduct subsequent to Wachovia’s November 1, 2009 conversion to a national bank 11 For the Northern District of California United States District Court 10 are not subject to HOLA preemption. The Court adopts this approach in recognition that HOLA imposes a complete regulatory 12 13 process on federal savings associations. In return for the protections afforded under the broad scope 14 of federal preemption, those banks are subject to an array of regulations that proscribe their conduct 15 and protect consumers in general. Wells Fargo has not submitted any evidence that it has subjected 16 itself to OTS supervision with respect to Plaintiff’s loan or any of the numerous other Wachovia 17 loans it took over in the merger. The Court concludes that Wells Fargo may not avail itself of the 18 benefits of HOLA without bearing the corresponding burdens.6 3. 19 Application of HOLA Preemption to the Claims in the FAC The second prong of the preemption analysis requires the Court to consider whether the 20 21 claims pertaining to conduct before November 1, 2009 are based on laws that HOLA preempts. The 22 Ninth Circuit has adopted the process developed by OTS to determine whether a state law is 23 preempted under 12 C.F.R. § 560.2(b): 24 25 26 27 28 When analyzing the status of state laws under § 560.2, the first step will be to 6 As noted above, Wells Fargo is a national bank subject to regulation by the OCC under the National Bank Act, 12 USC sec. 1, et seq. While the NBA potentially could give rise to preemption of claims arising out of Wells Fargo’s post-merger conduct, Defendants have not asserted a preemption defense based upon the NBA. Accordingly, the Court does not consider whether or to what extent NBA preemption might apply here. 9 1 2 3 4 determine whether the type of law in question is listed in paragraph (b). If so, the analysis will end there; the law is preempted. If the law is not covered by paragraph (b), the next question is whether the law affects lending. If it does, then, in accordance with paragraph (a), the presumption arises that the law is preempted. This presumption can be reversed only if the law can clearly be shown to fit within the confines of paragraph (c). For these purposes, paragraph (c) is intended to be interpreted narrowly. Any doubt should be resolved in favor of preemption. 5 6 Silvas, 514 F.3d at 1005 (quoting OTS, Final Rule, 61 Fed. Reg. 50951, 50966-67 (Sept. 30, 1996)). 7 The FAC pleads three causes of action: (1) violation of California’s UCL, (2) quite title, and 8 (3) declaratory relief. Although little is clear in the FAC, the Court has determined that limited 9 conclusions can be reached from its review of the pleading. The FAC refers to the allegedly improper “securitization” of the note and the “split” of the 11 For the Northern District of California United States District Court 10 note from the deed of trust. (FAC ¶¶ 10, 19) It is difficult to determine from the FAC whether any 12 claim is based on the act of securitization or whether Plaintiff intended to allege that the 13 securitization set in motion other events that form the bases of her claims. To the extent that any of 14 Plaintiff’s claims are based upon her securitization theory, they are preempted. See Lothen, 2013 15 WL 6185527, at *3 (“Numerous district courts in this circuit have previously determined that 16 HOLA preempts claims based on the proposition that a lender wrongfully securitized a loan and that 17 it may not foreclose because it does not hold the note.”) (internal quotation marks and citations 18 19 omitted). All of Plaintiff’s remaining claims appear to be grounded in Wells Fargo’s conduct in 20 denying her applications for loan modification and scheduling a trustee’s sale. For the reasons 21 discussed above, those claims are not subject to a HOLA preemption analysis. 22 D. Plaintiff has Failed to Allege Sufficient Facts to State a Claim 23 Although Defendants’ primary argument for dismissal is based on HOLA, they argue in the 24 alternative that Plaintiff has failed to state a claim for violation of California’s UCL, to quiet title, or 25 for declaratory relief. The question before the Court is whether Plaintiff has alleged “enough facts 26 to state a claim for relief that is plausible on its face.” Twombly, 550 U.S. at 570. This “facial 27 plausibility” standard requires Plaintiff to allege facts that, taken as whole, demonstrate “more than 28 a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678. Moreover, “[a] 10 1 pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of 2 action will not do.’” Id. 3 4 5 The pleading deficiencies with respect to each of Plaintiff’s claims are discussed as follows. 1. California’s UCL Claim 1 asserts a violation of California Business & Professions Code § 17200 et seq. In 6 order to state a claim for relief under that provision, Plaintiff must allege facts showing that 7 Defendants engaged in an “unlawful, unfair or fraudulent business act or practice.” Cal. Bus. & 8 Prof. Code § 17200. “Because the statute is written in the disjunctive, it is violated where a 9 defendant’s act or practice violates any of the foregoing prongs.” Davis v. HSBC Bank Nevada, 11 For the Northern District of California United States District Court 10 12 N.A., 691 F.3d 1152, 1168 (9th Cir. 2012). The Court addresses each of the prongs in turn. a. Unlawful “By proscribing any unlawful business practice, section 17200 borrows violations of other 13 laws and treats them as unlawful practices that the unfair competition law makes independently 14 actionable.” Chabner v. United of Omaha Life Ins. Co., 225 F.3d 1042, 1048 (9th Cir. 2000) 15 (internal quotation marks and citation omitted). “It does not matter whether the underlying statute 16 also provides for a private cause of action; section 17200 can form the basis for a private cause of 17 action even if the predicate statute does not.” Id. 18 Claim 1 does not identify any law upon which to piggyback a § 17200 claim; in fact the only 19 statute mentioned in Claim 1 is § 17200 itself. (FAC ¶¶ 15-22, ECF 31). To the extent that the 20 UCL claim is based on unlawful securitization of the loan, as alleged in paragraph 19 of the FAC, 21 the claim is preempted under HOLA and is dismissed without leave to amend. 22 23 24 25 Because the basis for this claim is unclear, the Court will grant Plaintiff leave to amend to allege sufficient facts to establish some other unlawful conduct. b. Unfair In consumer cases, such as this, “the UCL does not define the term ‘unfair’ as used in 26 Business and Professions Code section 17200.” Durell v. Sharp Healthcare, 183 Cal. App. 4th 27 1350, 1364 (2010). The California Supreme Court has not established a definitive test to determine 28 whether a business practice is unfair either. Phipps v. Wells Fargo Bank, N.A., No. CV F 10-2025 11 1 LJO SKO, 2011 WL 302803, at *16 (E.D. Cal. Jan. 27, 2011). Three lines of authority have 2 developed among the California Courts of Appeal. In the first line, the test requires “that the public 3 policy which is a predicate to a consumer unfair competition action under the ‘unfair’ prong of the 4 UCL must be tethered to specific constitutional, statutory, or regulatory provisions.” Drum v. San 5 Fernando Valley Bar Ass’n 182 Cal. App. 4th 247, 257 (2010) (internal quotation marks and 6 citation omitted). A second line of cases applies a test to determine whether the identified business 7 practice is “immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers 8 and requires the court to weigh the utility of the defendant’s conduct against the gravity of the harm 9 to the alleged victim.” Id. (internal quotation marks and citation omitted). The third test draws the definition of “unfair” from antitrust law and requires that “(1) the consumer injury must be 11 For the Northern District of California United States District Court 10 substantial; (2) the injury must not be outweighed by any countervailing benefits to consumers or 12 competition; and (3) it must be an injury that consumers themselves could not reasonably have 13 avoided.” Id. (internal quotation marks and citation omitted). 14 Claim 1 asserts that “Defendants deprived Plaintiff of his [sic] interest in the Real Property 15 when they wrongfully securitized Plaintiff’s note and deed of trust.” (FAC ¶ 19, ECF 31) A similar 16 allegation appears in an earlier paragraph of the FAC, which alleges that “[o]n information and 17 belief, the Note was securitized and split from the First Deed of Trust.” (Id. ¶ 10) Plaintiff appears 18 to believe that as a result of this “securitization,” “none of the Defendants have any estate, right, 19 title, lien or interest in the PROPERTY.” (Id.) These allegations do not set forth facts necessary to 20 satisfy the pleading requirements for any of the three possible theories of recovery under the 21 “unfair” prong of the UCL. Moreover, to the extent that the claim is based on the alleged 22 securitization of the note, it is preempted by HOLA as described above. 23 24 25 26 Because the basis for this claim is unclear, the Court will grant Plaintiff leave to amend to allege sufficient facts to establish some other unfair conduct. c. Fraudulent “A business practice is fraudulent under the UCL if members of the public are likely to be 27 deceived.” Davis, 691 F.3d at 1169. Allegations of fraud under § 17200 must satisfy the 28 heightened pleading standard of Federal Rule of Civil Procedure 9(b). Kearns v. Ford Motor Co., 12 1 567 F.3d 1120, 1125 (9th Cir. 2009). While Claim 1 alleges in conclusory fashion that Defendants 2 engaged in “fraudulent” practices, the claim contains no factual allegations from which the reader 3 could even guess at the nature of such conduct. Additionally, to the extent that this claim is based 4 on allegations of fraud related to the alleged securitization of the note, such claim is preempted. 5 Because the basis for this claim is unclear, the Court will grant Plaintiff leave to amend to allege 6 sufficient facts to establish some other fraudulent conduct. 7 8 9 Claim 1. E. Quiet Title Claim 2 seeks to quiet title to the property. “An action may be brought . . . to establish title 11 For the Northern District of California United States District Court 10 Based upon the foregoing, the motion to dismiss is GRANTED with leave to amend as to against adverse claims to real or personal property or any interest therein.” Cal. Civ. P. Code § 12 760.020(a). “A borrower may not, however, quiet title against a secured lender without first paying 13 the outstanding debt on which the mortgage or deed of trust is based.” Lueras v. BAC Home Loans 14 Servicing, LP, 221 Cal. App. 4th 49, 86 (2013). 15 Plaintiff does not deny that she obtained the loan in question, nor does she allege that she has 16 the ability to bring her loan payments current. It is not clear from the face of the FAC whether 17 Plaintiff has made any loan payments since February 2012. (See FAC ¶¶ 11-14) Moreover, 18 Plaintiff’s quiet title claim appears to be based upon the meritless securitization/lack of ownership 19 theory discussed herein in connection with her UCL and declaratory relief claims. 20 Accordingly, the motion to dismiss is GRANTED without leave to amend as to Claim 2. 21 F. 22 Claim 3 seeks a declaration that Defendants do not have the right to foreclose on Plaintiff’s Declaratory Relief 23 property. The FAC is devoid of any facts that would call into question Defendants’ interest in the 24 property or authority to proceed with a trustee’s sale following Plaintiff’s default on her mortgage 25 loan. To the contrary, judicially noticeable documents establish that the original lender, Wachovia, 26 merged into Wells Fargo (RJN Exh. E, ECF 33); that NDeX acted as Wells Fargo’s agent in 27 recording the notice of default in Santa Clara County (RJN Exh. G); and that Wells Fargo, as the 28 beneficiary under the deed of trust, substituted NDeX as the trustee under the deed of trust (RJN 13 1 Exh. H). In light of these documents, Plaintiff’s conclusory allegation that Defendants lack any 2 interest in the property is insufficient to state a claim for relief. See In re Gilead, 536 F.3d at 1055 3 (holding that the Court need not “accept as true allegations that contradict matters properly subject 4 to judicial notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or 5 unreasonable inferences”) (internal quotation marks and citations omitted). otherwise, California law does not require possession of the note in order to initiate a non-judicial 8 foreclosure sale. Hafiz v. Greenpoint Mortg. Funding, Inc., 652 F. Supp. 2d 1039, 1043 (N.D. Cal. 9 2009); see also, Johnson v. Homecomings Fin., No. 09cv1262 L(NLS), 2011 WL 4373975, at *7 10 (S.D. Cal. Sept. 20, 2011) (rejecting “the discredited theory that the deed in question was ‘split’ 11 For the Northern District of California Moreover, even if the note had been “split” from the deed of trust by assignment or 7 United States District Court 6 from the note through securitization, rendering the note unenforceable”). The motion to dismiss is GRANTED without leave to amend as to Claim 3. 12 13 IV. ORDER 14 For the foregoing reasons, 15 (1) The request for judicial notice is GRANTED; 16 (2) The motion to dismiss is GRANTED with leave to amend as to Claim 1 and without leave to amend as to Claims 2 and 3; 17 18 (3) add additional claims or parties without express leave of the Court; and 19 20 Leave to amend is limited to the claims addressed in this order; Plaintiff may not (4) Any amended complaint shall be filed on or before September 12, 2014. 21 22 Dated: August 22, 2014 __________________________________ BETH LABSON FREEMAN United States District Judge 23 24 25 26 27 28 14

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