Fillip Alan Desser et al v. US Bank Home Mortgage et al, No. 2:2013cv09190 - Document 30 (C.D. Cal. 2014)
Court Description: ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS FIRST AMENDED COMPLAINT 24 by Judge Dean D. Pregerson: Plaintiffs negligent misrepresentation and fraudulent misrepresentation claims are preempted by the FCRA to the extent that they assert damages resulting from Defendants reporting to credit reporting agencies. Defendants motion to dismiss is denied all other respects. (lc). Modified on 8/27/2014 .(lc).
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Fillip Alan Desser et al v. US Bank Home Mortgage et al Doc. 30 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 FILLIP ALAN DESSER, MARLO ILYNE DESSER, 12 Plaintiffs, 13 v. 14 15 16 17 18 19 U.S. BANK, N.A.; US BANK HOME MORTGAGE, a division of U.S. BANK, N.A. NORTH AMERICAN SAVINGS BANK, F.S.B., a federal savings bank, NATIONAL DEFAULT SERVICING CORPORATION, a corporation, Defendants. ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 13-09190 DDP (CWx) ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS FIRST AMENDED COMPLAINT [Dkt. No. 24] 20 21 Before the court is a Motion to Dismiss Fillip Alan Desser and 22 Marlo Ilyne Desser (“Plaintiffs”)'s First Amended Complaint (“FAC”) 23 filed by Defendant U.S. Bank, N.A. on behalf of itself and 24 Defendant U.S. Bank Home Mortgage. (Dkt. No. 24.) The matter is 25 fully briefed and suitable for decision without oral argument. 26 Having considered the parties' submissions, the court adopts the 27 following order. 28 Dockets.Justia.com 1 I. Background 2 The following alleged facts are drawn from Plaintiffs' FAC: 3 In April 2007, Plaintiffs purchased a home with a first trust 4 deed loan from North American Savings Bank, F.S.B. (See FAC ¶ 8.) 5 The loan was serviced by a division of Defendant U.S. Bank, N.A., 6 U.S. Bank Home Mortgage (collectively, “Defendant”).1 (See id. ¶ 7 9.) 8 9 In July 2009, Defendant mailed Plaintiffs a loan modification offer. (See id. at ¶ 10.) To accept the offer, Plaintiffs were 10 required to agree to the Home Affordable Mortgage Protection 11 (“HAMP”) Trial Period Plan agreement (“TPP”). (See id.) Under the 12 TPP, Plaintiffs were obligated to make trial modification payments 13 of $2015.84 in August 2009, September 2009, and October 2009. (Id. 14 ¶ 11.) The TPP stated that if Plaintiffs complied with the TPP’s 15 terms, Plaintiffs’ mortgage would be modified pursuant to HAMP’s 16 rules. (Id. at ¶ 10.) 17 Plaintiffs accepted the offer, signed the TPP agreement, and 18 timely paid each trial payment. (Id. ¶ 11.) After Plaintiffs paid 19 the final trial payment, Defendant requested additional paperwork 20 from Plaintiffs. (Id. ¶ 12.) On October 12, 2009, Plaintiffs 21 complied with the documentation request. (Id. ¶ 13.) 22 On October 29, 2009, Plaintiffs called Defendant because they 23 had not received any information about whether they qualified for a 24 final HAMP loan modification. (Id. ¶ 14.) Plaintiffs were told by a 25 representative in Defendant's HAMP Department to make a fourth 26 27 28 1 U.S. Bank N.A. asserts that U.S. Bank Home Mortgage, a division of U.S. Bank N.A., has been erroneously sued in this action as a separate entity. (Motion at 1.) 2 1 trial modification payment in November 2009. (Id.) Plaintiffs made 2 the requested payment. (Id. ¶ 15.) 3 On approximately November 19, 2009, Plaintiffs received a 4 Final Modification Agreement (“Agreement”). (Id. ¶ 16 and Ex. C.) 5 The Agreement required Plaintiffs to pay a monthly mortgage payment 6 of $2084.49, an amount slightly higher than the trial payment 7 amount of $2015.84. (Id.) The Agreement contained a payment 8 schedule requiring that the first mortgage payment be made by 9 October 1, 2009. (Id.) However, because Plaintiffs received the 10 Agreement after the initial payment was due under the Agreement's 11 payment schedule, Plaintiffs were not aware of and did not pay the 12 October 2009 and November 2009 payments required by the schedule. 13 (See id.) On December 2, 2009, Plaintiffs notarized and mailed the 14 Agreement to Defendant. (Id. ¶ 17.) 15 Plaintiffs subsequently attempted to obtain confirmation from 16 Defendant that their HAMP modification was in place and requested a 17 copy of the Agreement signed by Defendant. (Id. ¶ 18.) However, 18 Defendant failed to provide such confirmation or a signed copy of 19 the Agreement. (Id.) 20 Instead, on March 18, 2010, Plaintiffs received a letter from 21 Defendant denying their pending loan modification for failure to 22 provide requested documentation. (Id. ¶ 19.) Exasperated, 23 Plaintiffs contacted Defendant again and were told by a bank 24 representative that they should not worry and that their 25 application was still under review. (Id.) The representative 26 explained that the problem in their file was a result of the fourth 27 trial payment, which Defendant’s new software could not process, 28 resulting in their fourth payment being misapplied. (Id.) The 3 1 representative further advised Plaintiffs that new loan 2 modification documents would be generated, which Plaintiffs would 3 need to sign, and that Plaintiffs should not make any payments 4 until this occurred because the exact amount of the re-worked 5 modification was not yet known and if a payment was not sent in the 6 exact amount required it would also be misapplied and cause further 7 problems with their application. (Id. ¶ 21) 8 On March 24, 2010, a representative of Defendant informed 9 Plaintiffs that Defendant had not received the original, notarized, 10 final modification documents Plaintiffs had sent on December 2, 11 2009. (Id. ¶ 22.) The representative confirmed that Plaintiffs 12 should stop making payments due to system adjustments that 13 Defendant was undertaking. (Id.) Per the representative's 14 instructions, Plaintiffs re-sent the documents, with copies of the 15 notary journal. (Id. ¶ 23.) 16 Plaintiffs' mortgage statements continued, up through December 17 2010, to state that they were $59,920.35 in arrears on their 18 mortgage and that the interest rate on their loan was 6.000%, 19 despite their having finalized a modification at 2.000%. (Id. ¶ 24 20 and Ex. F.) 21 In January 2011, Plaintiffs' mortgage statement for the first 22 time reflected the terms of the finalized HAMP modification. (Id. ¶ 23 25.) However, although the January 2011 statement indicated the 24 correct interest rate and monthly payment, the statement indicated 25 that Plaintiffs had a past due amount of $28,413.15. (See id. and 26 FAC Ex. G.) Upon receipt of this statement, Plaintiffs contacted 27 Defendant on numerous times, but “U.S. Bank did not respond 28 appropriately” and Plaintiffs' file was referred for foreclosure. 4 1 2 (Id. ¶ 25.) On June 3, 2011, U.S. Bank Home Mortgage and National Default 3 Servicing Corporation recorded a Notice of Default alleging 4 arrearages of $49,883.46 as of May 28, 2011. (Id. ¶ 27 and Ex. H.) 5 On September 6, 2011, Defendant substituted National Default 6 Servicing Corporation (“NDSC”) as trustee in place of Fidelity 7 National Title Company, the original trustee on the mortgage. (Id. 8 ¶ 29 and Ex. J.) On the same day, NDSC recorded a Notice of 9 Trustee’s Sale, alleging an “unpaid balance and other charges” of 10 $422,003.57 and setting a sale date of September 27, 2011. (Id. ¶ 11 30 and Ex. K.) On November 13, 2012, NDSC recorded a second Notice 12 of Trustee’s Sale, alleging an “unpaid balance and other charges” 13 of $431,168.98 and setting a sale date of December 4, 2012. (Id. ¶ 14 31 and Ex. L.) 15 Throughout the foreclosure process, Plaintiffs sought to get 16 the HAMP Modification problems corrected “according to the promises 17 made to them by U.S. Bank,” including by engaging the assistance of 18 several attorneys and a loan modification specialist and sending 19 numerous letters to Defendant. (Id. ¶ 32.) Plaintiffs were also 20 forced into bankruptcy in an attempt to save their property through 21 a Chapter 13 reorganization on three separate occasions. (Id.) 22 On January 24, 2013, Plaintiffs received a letter from 23 Defendant summarizing its activity on Plaintiffs' case. The letter 24 indicated that the final loan modification documents were mailed to 25 Plaintiffs on November 19, 2009 and their first modification 26 payment was due October 1, 2009. (Id. ¶ 33.) It stated and that 27 Plaintiffs’ modification paperwork was received by Defendant on 28 March 26, 2010 and was processed December 8, 2010. (Id.) 5 1 On August 30, 2013, Plaintiff Marlo Desser received an offer 2 letter of employment which included a guaranteed salary and 3 benefits from a company in the financial sector. (Id. ¶ 37.) 4 However, she was informed on or about September 10, 2013 that the 5 offer letter had to be rescinded because of negative credit 6 reporting by Defendant concerning her default. (Id.) 7 Plaintiffs filed the instant action in Los Angeles County 8 Superior Court on November 8, 2013. (See Notice of Removal ¶ 1.) 9 Defendant removed the action to this court on December 20, 2013. 10 (See id. at ¶ 13.) Plaintiffs assert seven causes of action: (1) 11 breach of written contract, (2) breach of the implied covenant of 12 good faith and fair dealing, (3) fraudulent misrepresentation, (4) 13 promissory estoppel, (5) negligent misrepresentation, (6) 14 declaratory relief, and (7) preliminary and permanent injunction. 15 On May 19, 2014, Defendant filed the instant Motion to 16 Dismiss. (Dkt. No. 24.) The foreclosure process has been stayed 17 during the pendency of this action. 18 19 20 II. Legal Standard A complaint will survive a motion to dismiss when it contains 21 “sufficient factual matter, accepted as true, to state a claim to 22 relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 23 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 24 570 (2007)). When considering a Rule 12(b)(6) motion, a court must 25 “accept as true all allegations of material fact and must construe 26 those facts in the light most favorable to the plaintiff.” Resnick 27 v. Hayes, 213 F.3d 443, 447 (9th Cir.2000). Although a complaint 28 need not include “detailed factual allegations,” it must offer 6 1 “more than an unadorned, the-defendant-unlawfully-harmed-me 2 accusation.” Iqbal, 556 U.S. at 678. Conclusory allegations or 3 allegations that are no more than a statement of a legal conclusion 4 “are not entitled to the assumption of truth.” Id. at 679. In other 5 words, a pleading that merely offers “labels and conclusions,” a 6 “formulaic recitation of the elements,” or “naked assertions” will 7 not be sufficient to state a claim upon which relief can be 8 granted. Id. at 678 (citations and internal quotation marks 9 omitted). 10 “When there are well-pleaded factual allegations, a court 11 should assume their veracity and then determine whether they 12 plausibly give rise to an entitlement of relief.” Id. at 679. 13 Plaintiffs must allege “plausible grounds to infer” that their 14 claims rise “above the speculative level.” Twombly, 550 U.S. at 15 555. “Determining whether a complaint states a plausible claim for 16 relief” is a “context-specific task that requires the reviewing 17 court to draw on its judicial experience and common sense.” Iqbal, 18 556 U.S. at 679. 19 III. Discussion 20 In moving to dismiss Plaintiffs’ FAC, Defendant makes the 21 following arguments: (A) that all of Plaintiffs’ claims fail for 22 lack of damages or preemption under the Fair Credit Reporting Act, 23 (B) that Plaintiffs fail to state a claim for breach of contract or 24 breach of the implied covenant of good faith, (C) that Plaintiffs’ 25 negligent misrepresentation claim fails to state a claim, and (D) 26 that Plaintiffs’ declaratory and injunctive relief claims fail to 27 state a claim. 28 7 1 2 A. Home Affordable Modification Program Before considering Defendant’s arguments, it is helpful to 3 review basic aspects of HAMP. The Emergency Economic Stabilization 4 Act of 2008 (“EESA”), Pub.L. No. 110–343, 122 Stat. 3765, required 5 the Secretary of the Treasury to implement a plan that would assist 6 homeowners in avoiding foreclosure and encourage servicers of 7 mortgages to minimize foreclosures. See 12 U.S.C. § 5219(a); 8 Corvello v. Wells Fargo Bank, NA, 728 F.3d 878, 880 (9th Cir. 2013) 9 (summarizing the history and elements of the EESA and HAMP). The 10 Treasury Department in turn created HAMP, which provides incentives 11 for banks to refinance mortgages to enable distressed homeowners to 12 stay in their homes. Many home loan servicers signed Servicer 13 Participation Agreements with the Treasury Department that required 14 them to follow Treasury guidelines and procedures in return for 15 compensation for each permanent mortgage modification achieved 16 under HAMP. See Corvello, 728 F.3d at 880. 17 Under the Treasury Department guidelines in effect at the time 18 of the facts at issue in this case, the process by which homeowners 19 could seek loan modifications was as follows: Borrowers supplied to 20 their servicer information about their finances and inability to 21 pay their current mortgage. See Treasury Department Supplemental 22 Directive 09-01 (Apr. 6, 2009). Based on this information, the 23 servicer then determined whether the borrowers were eligible for a 24 loan modification. Id. If so, the servicer prepared a Trial Period 25 Plan (“TPP”), which required the borrowers to submit documentation 26 to confirm the accuracy of their earlier representations and make 27 trial payments of a modified amount to the servicer. Id. In the 28 case of borrowers who made all of their payments and whose 8 1 representations remained accurate, the servicer was required to 2 offer a permanent home loan modification. Id. 3 With this brief background, the court considers Defendant’s 4 asserted bases for dismissal of Plaintiffs’ FAC. 5 B. 6 Preemption Under the Fair Credit Reporting Act Defendant argues that all seven of Plaintiffs’ causes of 7 action are preempted by the Fair Credit Reporting Act (“FCRA”). 8 (See Motion at 4; Reply at 1.) Defendant contends that the only 9 cognizable damages alleged by Plaintiffs is Plaintiff Marlo 10 Desser’s lost employment opportunity, which resulted from 11 Defendant’s reporting to credit agencies that Plaintiffs had 12 defaulted on their loan. (See id.) Defendant argues that, because 13 the FCRA bars state law claims against providers of credit 14 information for providing inaccurate information to consumer credit 15 reporting agencies, all of Plaintiffs’ claims are preempted. (Id.) 16 Plaintiffs argue that, as an initial matter, Defendant’s 17 premise that Plaintiff has not alleged any cognizable damages 18 unrelated to credit reporting is incorrect. (Opp. at 4.) It 19 contends that “the true heart of Plaintiffs’ grievances has nothing 20 to do with U.S. Bank’s reporting and instead focuses on U.S. Bank’s 21 breached promise to have the account deemed current upon finalizing 22 the loan modification in their system.” (Id.) The court agrees with 23 Plaintiffs that, with respect to each cause of action, Plaintiffs 24 have alleged damages that are unrelated to Defendant’s negative 25 credit reporting, including that Plaintiffs face the impending loss 26 of their home through foreclosure and that they have incurred 27 accrued interest and late charges. (See Opposition at 5; FAC ¶¶ 28 (Damages) 36, 40 and ¶¶ (Causes of Action) 9, 10, 16, 29, 30, 31, 9 1 36, 38, 39, 53.) Defendant contends that Plaintiffs have not paid 2 any interest or fees on their loan and that such damages are 3 therefore fictitious. (Mot. at 4; Reply at 2.) However, the court 4 agrees with Plaintiffs that accrued interest and fees need not have 5 been paid at this time in order to constitute cognizable damages 6 because they are liabilities incurred by Plaintiffs. As damages are 7 alleged with respect to each cause of action that are unrelated to 8 credit reporting, none of the claims will be dismissed in their 9 entirety on the basis of FCRA preemption.2 10 However, FCRA preemption may serve to preempt portions of 11 Plaintiffs’ claims. Section 1681t(b)(1)(F), one of two preemption 12 clauses in the FRCA and the one that is relevant here provides 13 that, with some exceptions: 14 15 16 No requirement or prohibition may be imposed under the laws of any State ... with respect to any subject matter regulated under ... section 1681s–2 ... relating to the responsibilities of persons who furnish information to consumer reporting agencies. 17 15 U.S.C. § 1681t(b)(1)(F) (emphasis added). Section 1681s–2, in 18 turn, prohibits furnishers of credit information from reporting 19 information they know or have reasonable cause to believe is 20 inaccurate and requires them to correct and update information 21 determined to be inaccurate or incomplete. See 15 U.S.C. § 1681s- 22 2(a)-(b). 23 24 25 26 27 28 2 Plaintiffs also contend that their being forced to hire attorneys to vindicate their rights presents additional cognizable damages. (Opp. at 5.) However, as Defendant points out, Plaintiffs have not pointed in their FAC to any provision of the loan modification agreement providing for attorney’s fees. (Reply at 2.) The court therefore does not recognize attorney’s fees as a form of cognizable damages in this case. However, this does not affect the court’s preemption analysis, since other damages unrelated to the credit reporting have been alleged. 10 1 Although FCRA preemption is an area of law in flux, there is 2 strong support for the view that the FCRA preempts “claims for 3 relief [] based on state laws relating to activity covered by 4 Section 1681 s–2, that is, conduct relating to a furnisher's 5 responsibilities to provide accurate information and conduct 6 reasonable investigations following a dispute.” Subhani v. JPMorgan 7 Chase Bank, Nat. Ass'n, 2012 WL 1980416 (N.D. Cal. June 1, 2012) 8 (providing thorough review of cases). Courts have generally held 9 that state statutory or common law claims alleging damages related 10 to a furnisher’s disclosure of inaccurate credit information are 11 preempted. See, e.g., Roybal v. Equifax, 405 F. Supp. 2d 1177, 1181 12 (E.D. Cal. 2005) (“Because Plaintiffs' State Claims [including, 13 inter alia, negligent misrepresentation and common law negligence] 14 are based on alleged injury arising purely from the reporting of 15 credit information by a furnisher of credit, they are completely 16 preempted.”) (citing cases); Davis v. Maryland Bank, 2002 WL 17 32713429, at 13-14 (N.D. Cal. June 19, 2002) (finding FCRA 18 preempted claims for negligence, defamation, intentional 19 interference with prospective economic advantage and intentional 20 infliction of emotional distress to the extent that they arose from 21 improper investigation and disclosure of inaccurate credit 22 information.) Accordingly, the tort claims asserted by Plaintiffs 23 here, fraudulent misrepresentation and negligent misrepresentation, 24 are preempted to the extent that these claims assert damages 25 resulting from Defendant’s reporting to a credit agency of 26 inaccurate information concerning the status of Plaintiffs’ loan. 27 28 However, the causes of action asserted by Plaintiffs that sound in contract must be addressed separately. On this issue, the 11 1 court finds Judge Carter’s analysis of FCRA preemption in Rex v. 2 Chase Home Fin. LLC, 905 F. Supp. 2d 1111, 1152 (C.D. Cal. 2012) 3 instructive. In Rex, the plaintiff-borrowers carried out “short 4 sales” of their homes-–sales in which the sale price is 5 insufficient to pay off the mortgage–-and eschewed other options 6 such as foreclosure in reliance on promises by the defendant bank 7 to release the plaintiffs from the obligation to pay the short sale 8 deficiency. Id. at 1119. When the bank did not release the 9 plaintiffs but instead sought to collect the short sale deficiency 10 and reported the plaintiffs’ failure to pay the deficiency to 11 credit reporting agencies, the plaintiff brought suit alleging 12 various claims, including breach of contract. The court concluded 13 that the breach of contract claim was not preempted because the 14 FCRA’s preemption clause “prohibits only legal duties ‘imposed 15 under the laws of any State,’ whereas requirements voluntarily 16 assumed by contract are not imposed under state law.” Rex, 905 F. 17 Supp. 2d at 1152 (quoting Leet v. Cellco P'ship, 480 F.Supp.2d 422, 18 432 (D. Mass. 2007) (denying motion to dismiss because a “breach of 19 contract claim is not preempted by the FCRA”) (internal quotation 20 marks omitted).3 Under this reasoning, which this court finds 21 3 22 23 24 25 26 27 28 In reaching this conclusion, the court also relied on Kavicky v. Wash. Mut. Bank, F.A., 2007 WL 1341345, at *2 (D.Conn. May 5, 2007) (“[T]he FCRA does not preempt breach of contract claims.”); Cipollone v. Liggett Group, Inc., 505 U.S. 504, 515, 525–26 (1992) (holding that provision in 15 U.S.C. § 1334(b) stating that “[n]o requirement or prohibition ... shall be imposed under State law with respect to the advertising or promotion of” a product did not preempt a claim for breach of express warranty because such a claim is “imposed by the warrantor” and “common understanding dictates that a contractual requirement, although only enforceable under state law, is not ‘imposed’ by the State, but rather is ‘imposed’ by the contracting party upon itself”); Spencer v. Nat'l City Mortg., 831 F.Supp.2d 1353, 1356, 1364 (continued...) 12 1 persuasive, the claims asserted by Plaintiffs that sound in 2 contract--breach of contract, implied covenant of good faith, and 3 promissory estoppel–-are not preempted under Section 4 1681t(b)(1)(F), even to the extent that they assert damages related 5 to the disclosure of credit information. 6 Defendant argues that Rex stands for the proposition that 7 breach of contract claims are immune from FCRA preemption only 8 where there are additional allegations unrelated to credit 9 reporting to support the claim and that Plaintiffs have made no 10 such allegations in this case. (Reply at 3 (citing Rex, 905 11 F.Supp.2d at 1150).) This argument is unsuccessful because, as 12 discussed above, the court finds that Plaintiffs have made viable 13 allegations of damages unrelated to credit reporting. 14 In sum, the court finds that none of Plaintiffs’ claims are 15 preempted completely. The claims that sound in tort--fraudulent 16 misrepresentation and negligent misrepresentation--are preempted to 17 the extent that they assert damages based on Defendant’s credit 18 reporting. 19 B. 20 Breach of Contract and Implied Covenant of Good Faith Defendant makes several arguments in support of its position 21 that Plaintiffs’ breach of contract and breach of the implied 22 covenant claims must be dismissed.4 23 3 24 25 26 27 28 (...continued) (N.D.Ga. 2011) (holding that the FCRA did not preempt claim, despite plaintiff's allegation “she suffered approximately $116,997 in damages as a result of [defendant's] false negative reporting to the [credit reporting agencies]”). See Rex, 905 F. Supp. 2d at 1152. 4 None of the arguments presented by the parties in their briefing papers specifically reference Plaintiffs’ implied covenant (continued...) 13 1 First, Defendant argues that the breach of contract claim is 2 based on conduct which “does not violate the express terms of the 3 contract (i.e. the Trial Period Plan).” (Mot. at 5.) In particular, 4 Defendant notes that Plaintiffs have not pointed to contract 5 language stating that Defendant agreed to modify Plaintiffs’ loan 6 by a certain date or explain any reason for any perceived delay on 7 its part. (Id.) 8 9 Plaintiffs respond by asserting that the contract at issue is not the TPP, but the Loan Modification Agreement sent to Plaintiffs 10 by Defendant on November 19, 2009, which specified a “Modification 11 Effective Date” for the loan of October 1, 2009. (Opp. at 5 (citing 12 FAC Ex. C); FAC at 12-13.) Plaintiffs contend that they accepted 13 the Agreement by sending in a notarized signed copy of the 14 Agreement on December 2, 2009 and, after being informed that 15 Defendant did not receive this communication, sending their signed 16 Agreement in again in March 2010. (FAC ¶¶ 17, 23.) 17 Plaintiffs are correct. In the circumstances, Plaintiffs’ 18 acceptance of the Agreement was all that was required to create a 19 contract. Defendant makes no argument to the contrary. The court 20 notes that the Agreement contains the following text: “I understand 21 that the loan Documents will not be modified unless and until (1) I 22 receive from the Lender a copy of this Agreement signed by the 23 Lender, and (II) the Modification Effective Date . . . has 24 occurred.” (FAC Ex. C, Loan Modification Agreement, at ¶ 2(B).) The 25 second condition is met because Modification Effective Date had 26 already passed when the Agreement was sent to Plaintiffs. While 27 4 28 (...continued) claim. 14 1 there is no representation by either party that Defendant ever 2 provided a signed version of the Agreement to Plaintiffs, the 3 language quoted above from ¶ 2(B)(II) of the Agreement is not an 4 obstacle to finding the creation of a binding agreement. As a 5 California appeals court recently noted in construing identical 6 language in a loan modification agreement, concluding that no 7 contract was formed because Defendant did not return a signed copy 8 of the Agreement would violate basic principles of contract 9 interpretation, including that the court must avoid an 10 interpretation which will make a contract extraordinary, harsh, 11 unjust, or inequitable. See Barroso v. Ocwen Loan Servicing, LLC, 12 208 Cal. App. 4th 1001, 1013 (2012). Such an interpretation would 13 allow the servicer to avoid any obligations simply by failing to 14 return a signed agreement. Id. See also Corvello, 728 F.3d at 883 15 (concluding that a similar provision in a TPP impermissibly “made 16 the existence of any obligation conditional solely on action of the 17 bank,” allowing the bank to “avoid their obligations to borrowers 18 merely by choosing not to send a signed Modification Agreement”) 19 (quoting Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 20 2012)). Therefore, the court concludes that a contract was formed 21 establishing a modified loan with terms effective as of October 1, 22 2009. 23 Plaintiffs contend that Defendant breached the Agreement by 24 attempting to collect mortgage payments in amounts different from 25 those specified in the Agreement until December 2010. Specifically, 26 they note that the Agreement altered the monthly amount to 27 $2,084.49 at an interest rate of 2%. (Opp. at 5.) Plaintiffs 28 contend that Defendant failed to comply with these commitments by 15 1 continuing to bill Plaintiffs at $2,853.35 per month and 6% 2 interest until December 2010. (Id.) Defendant responds that the 3 mortgage statements do not reflect any breach because such 4 statements “would not reflect a new or different payment until and 5 unless a permanent loan modification is granted.” (Reply at 4.) 6 However, as just discussed, a permanent loan modification was 7 “granted” when Defendant sent Plaintiffs the Loan Modification 8 Agreement, which, as noted stated an effective date of October 1, 9 2009. Once Plaintiffs accepted the Agreement, Defendant was bound 10 to comply with its terms. 11 Second, Defendant argues that Plaintiffs ultimately did modify 12 the terms of Plaintiffs’ loan in January 2011, and thus Plaintiffs’ 13 claims cannot be based on any purported failure to send Plaintiffs 14 a final loan modification agreement or to honor the terms of the 15 Agreement. (Mot. at 5-6.) Although Plaintiffs do not specifically 16 address this argument, their position appears to be in part that 17 the mortgage statements reflecting a modified loan beginning in 18 January 2011 do not constitute performance of the Agreement because 19 these changes were made 15 months after the effective date of the 20 Agreement (and 10 months from the date Plaintiffs sent in a signed 21 copy of the Agreement for a second time) during which time their 22 loan continued to accrue interest at a rate higher than the rate 23 stated in the Agreement. The court agrees that this could 24 constitute failure to perform on the part of Defendant resulting in 25 damages to Plaintiffs. 26 Plaintiffs additionally contend that Defendant breached a 27 contractual obligation when it failed, in issuing mortgage 28 statements reflecting a loan modification beginning in January 16 1 2011, to bring their account current. Plaintiffs argue that they 2 followed the instructions of Defendant’s representatives in not 3 making payments based on the understanding that the delay would not 4 prejudice them as their account would be brought current when the 5 modification was ultimately processed by Defendant. (Opp. at 6.) 6 Defendant argues that Plaintiffs’ factual assertions in this 7 respect are false because “U.S. Bank Home Mortgage would not advise 8 a mortgagor to default on their loan.” (Opp. at 2 (quoting FAC Ex. 9 H (Letter from Defendant to Plaintiff, Jan 24, 2013).) However, on 10 a motion to dismiss, this court is required to accept a plaintiff’s 11 factual allegations as true; disputing the truth of Plaintiffs’ 12 allegations is not a basis for dismissing the claim. Fed. R. Civ. 13 P. 12(b)(6). 14 However, Plaintiffs’ alleged promise to bring their account 15 current when their loan modification was ultimately processed is 16 not a viable basis for a breach of contract claim for a different 17 reason: Plaintiffs have not identified any valid contractual 18 commitment to support such a claim. The Agreement itself includes 19 only a commitment to make Plaintiffs’ account current as of the 20 Agreement’s “Modification Effective Date,” which was October 1, 21 2009. See Agreement ¶ 3(B). Plaintiffs appear to contend that 22 Defendant’s representatives’ oral communications amount to a 23 modification of the Agreement. However, such an oral modification 24 would not be effective in the circumstances alleged because it 25 would not satisfy California’s statute of frauds, which requires 26 that certain types of contracts be in writing to have legal effect. 27 See Cal. Civ. Code § 1624. The statute of frauds is applicable here 28 because a mortgage for real property is within its provisions, see 17 1 Cal. Civ. Code §§ 1624(a)(3) and 2922, and “an agreement to modify 2 a contract that is subject to the statute of frauds is also subject 3 to the statute of frauds.” Secrest v. Sec. Nat. Mortgage Loan Trust 4 2002-2, 167 Cal. App. 4th 544, 553 (2008). Because there is no 5 writing reflecting an agreement to bring Plaintiffs’ account 6 current as of the date that it completed processing of the loan 7 modification, no valid modification of the Agreement to this effect 8 occurred. This conclusion means that Plaintiffs’ breach of contract 9 claim is limited to only damages Plaintiffs can prove without 10 11 reference to Defendant’s alleged oral promises. Defendant’s third argument is that Plaintiffs’ allegation that 12 Defendant refused to provide “re-worked” modification terms or a 13 second loan modification fails to state a claim because a lender 14 has no duty to modify a loan. (Mot. at 6 (citing Stebley v. Litton 15 Loan Servicing, LLP, 202 Cal. App. 4th 522, 526 (2011) (finding no 16 duty to modify loan under Cal. Civ. Code section 2923.5). In 17 response, Plaintiff contends that Defendant did modify the loan but 18 failed implement the terms of its own agreement. (Opp at 6.) For 19 the reasons stated above, the court agrees with Plaintiff that it 20 may assert breach of contract claim arising from commitments made 21 by Defendant in the original Agreement, but not based on 22 Defendant’s alleged oral promises. The court states no opinion as 23 to the viability of Plaintiffs’ promissory estoppel claim, which is 24 based on the same oral representations. 25 Fourth, Defendant contends that Plaintiffs have failed to 26 allege any damages from the purported breaches related to the 27 modification of their loan. The court does not agree. As discussed 28 above, Plaintiffs have alleged various potentially viable damages, 18 1 including accrued interest and late payment fees, as well as the 2 impending loss of their home through a noticed foreclosure sale. 3 Finally, Defendant contends that the breach of contract claim 4 should be dismissed because tort damages are not recoverable in 5 this context. (Mot. at 6.) Defendant provides no elaboration and 6 the subject of Defendant’s argument is not clear to the court. 7 C. 8 9 10 Negligent Misrepresentation Defendant argues that Plaintiffs failed to state a claim for negligent misrepresentation. (Mot. at 6.) Negligent misrepresentation is “a species of the tort of 11 deceit.” Bily v. Arthur Young & Co., 3 Cal. 4th 370, 407 (1992). 12 The elements of the tort are “(1) a misrepresentation of a past or 13 existing material fact, (2) without reasonable grounds for 14 believing it to be true, (3) with intent to induce the plaintiff's 15 reliance, (4) ignorance of the truth and justifiable reliance by 16 the plaintiff, and (5) damages.” See Fox v. Pollack, 181 Cal.App.3d 17 954, 962 (1986). To prevail on their claim of negligent 18 misrepresentation, Plaintiffs must establish that Defendant owed 19 them a duty of care. See Bily 3 Cal. 4th at 408-414; Nutmeg Sec., 20 Ltd. v. McGladrey & Pullen, 92 Cal. App. 4th 1435, 1444 (Ct. App. 21 2001). 22 Plaintiffs’ negligent misrepresentation claim rests on their 23 allegations that they repeatedly called Defendant for updates and 24 expressed concern that by not making payments they would jeopardize 25 their pending HAMP modification and lose their home to foreclosure, 26 but they were repeatedly given false assurances by Defendant’s 27 representatives that their loan modification was "pending final 28 reset"; “not to worry” because they would not be penalized for not 19 1 making payments because Defendant was going to "reset" their loan 2 modification; and that they were not in danger of losing their 3 home. (FAC at 16.) 4 Defendant argues that Plaintiffs have not stated a negligent 5 misrepresentation claim because Defendant does not owe Plaintiffs a 6 duty of care. Defendant relies on Nymark v. Heart Fed. Sav. & Loan 7 Assn., 231 Cal. App. 3d 1089, 1096 (1991) for the proposition that 8 “as a general rule, a financial institution owes no duty of care to 9 a borrower when the institution’s involvement in the loan 10 transaction does not exceed the scope of its conventional role as a 11 mere lender of money.” Id. at 1096. Defendant cites various cases 12 declining to impose a duty of care in negligence claims brought by 13 homeowners against banks on the basis of this general rule. See 14 Mot. at 5 (citing, inter alia, Rangel v. DHI Mortgage Co., Ltd., 15 2009 WL 2190210, at *3 (E.D. Cal. July 21, 2009) (declining to 16 impose a duty of care in negligence claim where the plaintiff 17 alleged that he was “placed into a loan that [was] inappropriate 18 for her personal financial circumstances”); Watts v Decision One 19 Mortg., 2009 WL 2044595, at *2-3 (S.D. Cal. July 13, 2009) 20 (declining to find a duty of care in the context of negligent 21 infliction of emotional distress claim where the plaintiff failed 22 to allege any facts suggesting such a duty); Wagner v. Benson, 101 23 Cal. App. 3d 27, 35 (Ct. App. 1980) (declining to find duty of care 24 for negligence claim where the plaintiffs alleged that the 25 defendant-bank loaned money to them, as inexperienced investors, 26 for a risky venture.) 27 28 As Plaintiffs note, however, the Nymark rule is not absolute. In California, determining whether a financial institution owes a 20 1 duty of care to a borrower-client involves a 6-factor test. The 2 court must consider “[1] the extent to which the transaction was 3 intended to affect the plaintiff, [2] the foreseeability of harm to 4 him, [3] the degree of certainty that the plaintiff suffered 5 injury, [4] the closeness of the connection between the defendant's 6 conduct and the injury suffered, [5] the moral blame attached to 7 the defendant's conduct, and [6] the policy of preventing future 8 harm.” Nymark, 231 Cal.App.3d at 1098 (citing Biakanja v. Irving, 9 49 Ca.2d 647 (1958)). 10 The balance of these factors suggests that a duty of care was 11 owed by Defendant under the circumstances as alleged by Plaintiffs. 12 First, the loan modification transaction was plainly intended to 13 affect Plaintiff, as it would determine whether they are able to 14 keep their home. Second, it was foreseeable that Plaintiffs’ 15 alleged reliance on Defendant’s representations that their account 16 would be brought current would cause harm to Plaintiffs by 17 precipitating their default and the potential loss of their home. 18 Third, harm to Plaintiffs arising from Defendant’s alleged conduct 19 is likely in that Defendant has already initiated a foreclosure 20 sale (which is stayed pending this action) and Plaintiffs have 21 alleged harm in the form of accrued interest and late payment 22 charges and a lost employment opportunity. Fourth, such harm can be 23 attributed directly to Defendant’s alleged conduct. 24 The court does not have a sufficient basis to reach a 25 conclusion as to the fifth factor, concerning whether moral blame 26 is attached to Defendant’s alleged conduct. 27 28 Finally, discouraging lenders from making representations that would lead borrowers to default is consistent with the federal 21 1 government’s policy of facilitating loan modifications as 2 established through HAMP and various recent state-level reforms 3 aimed at the same goal. See, e.g., Cal. Civ. Code § 2923.6 4 (establishing a scheme that encourages lenders to offer loan 5 modifications to borrowers). 6 On balance, the court concludes that Plaintiffs’ allegations, 7 accepted as true, are sufficient to create a duty of care on the 8 part of Defendant for the purposes of Plaintiffs’ negligent 9 misrepresentation claim. 10 This conclusion is consistent with the holdings of several 11 cases where courts have found that a lending institution owed a 12 duty of care to borrowers arising from the lender’s conduct in 13 processing an application for a loan modification. See Robinson v. 14 Bank of Am., 2012 WL 1932842, at *7 (N.D. Cal. May 29, 2012) 15 (holding that bank owed the plaintiff-borrower a duty of care for 16 purposes of negligence action where the “defendant-lender executed 17 and breached the modification agreement, then engaged in a series 18 of contradictory and somewhat misleading communications with 19 plaintiff—in person, in writing, and by phone—regarding the status 20 of his loan”); Ansanelli v. JP Morgan Chase Bank, N.A., 2011 WL 21 1134451, at *7 (N.D. Cal. Mar. 28, 2011) (finding a duty of care 22 where the bank-defendant allegedly “went beyond its role as a 23 silent lender and loan servicer to offer an opportunity to 24 plaintiffs for loan modification and to engage with them concerning 25 the trial period plan,” but then reneged on a promise to modify the 26 plaintiffs' loan and reported the loan as past due although 27 plaintiffs made proper payments, damaging their credit rating); 28 Watkinson v. MortgageIT, Inc., 2010 WL 2196083 (S.D. Cal. June 1, 22 1 2010) (finding that the defendant-bank owed a duty of care in 2 processing the plaintiff's loan application where the “Defendant 3 overstated Plaintiff's income and the value of the Property on the 4 loan application, knowing that both of those were false”); Garcia 5 v. Ocwen Loan Servicing, LLC, 2010 WL 1881098, at *1-3. (N.D. Cal. 6 May 10, 2010) (finding duty of care in processing loan application 7 for purposes of negligence claim where the defendant-bank lost the 8 plaintiff’s loan application documents). 9 D. 10 Declaratory and Injunctive Relief Defendant contends that Plaintiffs’ demand for declaratory and 11 injunctive relief fails because there is no viable substantive 12 basis for such relief. As Defendant asserts, both forms of relief 13 are viable only where independent claims supporting such relief are 14 viable. See, e.g.,Padayachi v. Indymac Bank, 2010 WL 1460309 (N.D. 15 Cal. Apr. 9, 2010) (plaintiff “may not maintain a claim for 16 declaratory relief unless one of his other claims survives the 17 motion to dismiss”); Santos v. Countrywide Home Loans, 2009 WL 18 3756337 (E.D. Cal. Nov. 6, 2009) (“Declaratory and injunctive 19 relief are not independent claims, rather they are forms of 20 relief.” Shell Oil Co. v. Richter, 52 Cal. App. 2d 164, 168, 125 21 P.2d 930 (1942) (“Injunctive relief is a remedy and not, in itself, 22 a cause of action, and a cause of action must exist before 23 injunctive relief may be granted.”). Defendant argues that 24 Plaintiffs’ demands for declaratory and injunctive relief must be 25 dismissed because their predicate causes of action must be 26 dismissed. (Mot. at 8.) This argument fails because, for the 27 reasons discussed above, the court will not dismiss the underlying 28 causes of action. 23 1 Defendant additionally argues that Plaintiffs’ request for a 2 declaration that Defendant has an obligation to permanently modify 3 their loan must be dismissed because Plaintiffs concede that 4 Defendant has already modified their loan and Plaintiffs thus 5 “already have the very thing they seek.” (Id.) This argument is 6 unsuccessful because Plaintiffs contend that the terms of the 7 modification they ultimately received were inconsistent with 8 Defendant’s alleged promises. 9 Finally, Defendant argues that Plaintiffs’ demand for an 10 injunction preventing Defendant from foreclosing on their home 11 should be dismissed because Defendant has already stayed 12 foreclosure during the pendency of this proceeding. (Id.) While 13 this argument speaks to the lack of any need for a preliminary 14 injunction (for which Plaintiff has not filed any motion), 15 Defendant’s point does not address the viability of Plaintiffs’ 16 request for injunctive relief following a final resolution on the 17 merits. 18 Plaintiffs’ FAC is deficient in that its requests for 19 declaratory and injunctive relief are set out in separate causes of 20 action rather than in the prayer for relief. However, in the 21 interest of expediting this litigation, the court will construe 22 Plaintiffs’ demand for such relief as part of the prayer for relief 23 rather than require Plaintiffs to file a second amended complaint 24 solely for this purpose. 25 26 IV. Conclusion 27 For the reasons stated herein, Defendant’s Motion to Dismiss 28 Plaintiffs’ First Amended Complaint is GRANTED IN PART AND DENIED 24 1 IN PART as follows: Plaintiffs’ negligent misrepresentation and 2 fraudulent misrepresentation claims are preempted by the FCRA to 3 the extent that they assert damages resulting from Defendant’s 4 reporting to credit reporting agencies. Defendant’s motion to 5 dismiss is denied all other respects. 6 7 IT IS SO ORDERED. 8 9 Dated: August 27, 2014 10 DEAN D. PREGERSON 11 United States District Judge 12 1 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 25
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