Frederick H. Odle et al v. MGC Mortgage Inc et al, No. 2:2015cv05019 - Document 34 (C.D. Cal. 2016)
Court Description: ORDER GRANTING DEFENDANTS MOTION TO DISMISS 30 by Judge Dean D. Pregerson . ( MD JS-6. Case Terminated ) . (lc) Modified on 9/29/2016 (lc).
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Frederick H. Odle et al v. MGC Mortgage Inc et al Doc. 34 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 13 14 FREDERICK H. ODLE, an individual and as Trustees of the Frederick and Cynthia Odle 2013 Trust, Cynthia I. Odle, an individual and Trustees of the Frederick and Cynthia Odle 2013 Trust, 15 Plaintiff, 16 17 v. MGC MORTGAGE INC., 18 Defendants. 19 ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 15-05019 DDP (JCx) ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS [Dkt. 30] 20 21 Presently before the Court is a Motion to Dismiss filed by 22 Defendants MGC Mortgage, Inc. (“MGC”) and LLP Mortgage, Ltd. LP 23 (“LLP”). Having considered the submissions of the parties, the 24 court grants the motion and adopts the following Order. 25 I. 26 Background In 2007, Plaintiffs obtained a $560,000 refinance mortgage 27 loan, secured by a Deed of Trust, from BrooksAmerica Mortgage 28 Corporation (“Brooks”). (First Amended Complaint (“FAC”) ¶ 12.) Dockets.Justia.com 1 At some point, Defendant MGC Mortgage, Inc. (“MGC”) became the 2 mortgage loan servicer. 3 submitted a loan modification application to MGC. (Id. ¶ 17.) 4 Plaintiffs allege that they requested, but were not assigned, a 5 single point of contact. 6 they did not receive a written acknowledgment of their application 7 within five business days of submitting it to MGC. 8 At some unspecified time, MGC denied Plaintiffs a loan 9 modification. 10 (Id. ¶ 14.) (Id. ¶ 27.) On or about May 3, 2016, Plaintiffs also allege that (Id. ¶¶ 33-34.) (Id. ¶ 46.) Plaintiffs’ original Complaint was dismissed with leave to 11 amend. (Dkt. No. 26, Order Granting Defendants’ Motion to Dismiss 12 “Order”) at 10.) Plaintiffs then filed their FAC alleging four 13 causes of action: (1) violation of California Civil Code section 14 2923.7, (2) violation of California Civil Code section 2924.10,(3) 15 negligence, and (4) violation of California Business and 16 Professions Code section 17200. 17 FAC. 18 II. 19 Defendants now move to dismiss the Legal Standard A complaint will survive a motion to dismiss when it contains 20 “sufficient factual matter, accepted as true, to state a claim to 21 relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 22 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 23 570 (2007)). When considering a Rule 12(b)(6) motion, a court must 24 “accept as true all allegations of material fact and must construe 25 those facts in the light most favorable to the plaintiff.” Resnick 26 v. Hayes, 213 F.3d 443, 447 (9th Cir. 2000). Although a complaint 27 need not include “detailed factual allegations,” it must offer 28 “more than an unadorned, the-defendant-unlawfully-harmed-me 2 1 accusation.” Iqbal, 556 U.S. at 678. Conclusory allegations or 2 allegations that are no more than a statement of a legal conclusion 3 “are not entitled to the assumption of truth.” Id. at 679. In other 4 words, a pleading that merely offers “labels and conclusions,” a 5 “formulaic recitation of the elements,” or “naked assertions” will 6 not be sufficient to state a claim upon which relief can be 7 granted. Id. at 678 (citations and internal quotation marks 8 omitted). 9 “When there are well-pleaded factual allegations, a court should 10 assume their veracity and then determine whether they plausibly 11 give rise to an entitlement of relief.” Id. at 679. 12 must allege “plausible grounds to infer” that their claims rise 13 “above the speculative level.” Twombly, 550 U.S. at 555. 14 “Determining whether a complaint states a plausible claim for 15 relief” is a “context-specific task that requires the reviewing 16 court to draw on its judicial experience and common sense.” 17 556 U.S. at 679.1 18 Plaintiffs Iqbal, Although Rule 15 requires courts to “freely give leave when 19 justice so requires,” Fed. R. Civ. P. 15, the Supreme Court has 20 held that “the grant or denial of an opportunity to amend is within 21 the discretion of the District Court.” Foman v. Davis, 371 U.S. 22 178, 182 (1962). One justified reason for denying leave to amend is 23 the “repeated failure to cure deficiencies by amendments previously 24 allowed.” Id. 25 III. DISCUSSION 26 27 28 1 Plaintiffs’ discussion of the relevant standard does not cite or discuss either Iqbal or Twombly, or any subsequent authority. 3 1 A. California Civil Code § 2923.7 2 As explained in this Court’s prior Order, California Civil 3 Code section 2923.7 requires mortgage servicers to establish a 4 “single point of contact” (“SPOC”) for borrowers who request a 5 “foreclosure prevention alternative,” such as a loan modification. 6 Cal. Civil Code § 2923.7(a). 7 borrower about the application process, deadlines, missing 8 documents, and the current status of the foreclosure alternative. 9 Cal. Civil Code § 2923.7(b). The SPOC must communicate with the However, California Civil Code § 10 2924.12(c) provides that a “mortgage servicer . . . shall not be 11 liable for any violation that it has corrected and remedied prior 12 to the recordation of a trustee’s deed upon sale . . . .” 13 Civil Code § 2924.12(c). ” Cal. 14 As they did in their original Complaint, Plaintiffs allege 15 that they requested an SPOC and that Defendants did not provide 16 one. (FAC ¶ 27.) 17 does not allege that any foreclosure activity has taken place, let 18 alone that a trustee’s deed upon sale has been recorded. 19 Plaintiffs dispute Defendants’ representation to the court that no 20 foreclosure activity, including the recording of a notice of 21 default, has occurred. 22 arguments and make no mention of the Section 2924.12(c) bar. 23 Plaintiff’s California Civil Code section 2923.7 claim is therefore 24 dismissed with prejudice. As in the original Complaint, however, the FAC Nor do Plaintiffs once again ignore Defendants’ 25 B. 26 Plaintiffs’ claim under California Civil Code section 2924.10 California Civil Code § 2924.10 27 suffers, as it did in Plaintiffs’ original Complaint, from the same 28 deficiency. As they did in their original Complaint, Plaintiffs 4 1 allege that Defendants did not provide them with a written 2 acknowledgment of the loan modification application. (FAC ¶ 33.) 3 California Civil Code section 2924.10 requires mortgage servicers 4 to provide written acknowledgment of a borrower’s modification 5 application within five business days of receipt. 6 2924.10(a). 7 Defendants’ arguments and California Civil Code section 2924.12(c). 8 Absent any allegations of foreclosure activity, Plaintiffs’ 9 California Civil Code section 2924.10 claim is dismissed with 10 Cal. Civ. Code § Once again, however, Plaintiffs continue to ignore prejudice. 11 C. 12 As in their original Complaint, Plaintiffs allege a cause of Negligence 13 action for negligence against Defendants. (FAC ¶¶ 36-51.) 14 elements of a negligence claim are (1) the existence of a duty to 15 exercise due care, (2) breach of that duty, (3) causation, and (4) 16 damages. 17 The “existence of a duty of care owed by a defendant to a plaintiff 18 is a prerequisite to establishing a claim for negligence.” 19 v. Heart Fed. Savings & Loan Assn., 231 Cal. App. 3d 1089, 1095 20 (1991). 21 The Merrill v. Navegar, Inc., 26 Cal.4th 465, 500 (2001). Nymark “[A]s a general rule, a financial institution owes no duty of 22 care to a borrower when the institution’s involvement in the loan 23 transaction does not exceed the scope of its conventional role as a 24 mere lender of money.” 25 loan modification is the renegotiation of loan terms, which falls 26 squarely within the scope of a lending institution's conventional 27 role as a lender of money.” 28 LP, 221 Cal. App. 4th 49, 67 (2013). Nymark, 231 Cal. App. 3d at 1096. “[A] Lueras v. BAC Home Loans Servicing, 5 Thus, a residential lender 1 does not owe “a common law duty of care to offer, consider, or 2 approve a loan modification, or to explore and offer foreclosure 3 alternatives.” Id. 4 Nevertheless, “Nymark does not support the sweeping conclusion 5 that a lender never owes a duty of care to a borrower. Rather, the 6 Nymark court explained that the question of whether a lender owes 7 such a duty requires the balancing of the ‘Biakanja factors.’” 8 Alvarez v. BAC Home Loans Servicing, L.P., 228 Cal. App. 4th 941, 9 945 (2014) (internal alterations, quotations, and citations 10 omitted).2 11 to not make material misrepresentations about the status of an 12 application for a loan modification . . . .” 13 4th at 68. 14 consider modification of the plaintiffs' loans, the Biakanja 15 factors clearly weigh in favor of a duty.” Alvarez v. BAC Home 16 Loans Servicing, L.P., 228 Cal. App. 4th at 948. 17 For instance, “a lender does owe a duty to a borrower Lueras, 221 Cal. App. Likewise, “where defendants allegedly agree[] to The Biakanja factors are: “[1] the extent to which the 18 transaction was intended to affect the plaintiff, [2] the 19 foreseeability of harm to him, [3] the degree of certainty that the 20 plaintiff suffered injury, [4] the closeness of the connection 21 between the defendant's conduct and the injury suffered, [5] the 22 moral blame attached to the defendant’s conduct, and [6] the policy 23 of preventing future harm.” Biakanja v. Irving, 49 Cal. 2d 647, 650 24 (1958); see also Nymark, 231 Cal. App. 3d at 1098 (applying the 25 Biakanja factors in determining whether a financial institution 26 owed a duty to a borrower-client). 27 28 2 Biakanja v. Irving, 49 Cal.2d 647 (1958). 6 1 In Lueras, the plaintiff alleged that defendants, the lender 2 and trustee, “had a duty to offer [him] a loan modification and 3 breached that duty by refusing to do so.” Lueras v. BAC Home Loans 4 Servicing, LP, 221 Cal. App. 4th 49, 63 (2013). The Court of Appeal 5 disagreed and held that the Biakanja factors did not support 6 imposing a duty. Id. at 67. 7 modification was necessary due to the borrower’s inability to repay 8 the loan, the borrower’s harm, suffered from denial of a loan 9 modification, would not be closely connected to the lender's It reasoned that “[i]f the 10 conduct.” Id. Likewise, “[i]f the lender did not place the borrower 11 in a position creating a need for a loan modification, then no 12 moral blame would be attached to the lender's conduct.” Id. 13 In Alvarez, in contrast, the plaintiffs did not allege “that 14 defendants owed plaintiffs a duty to offer or approve a loan 15 modification.” Alvarez, 228 Cal. App. 4th at 944. 16 alleged that the defendant undertook to review the plaintiffs’ 17 loans for a modification. Id. at 944. The plaintiffs further 18 alleged that the defendants breached that duty by, inter alia, 19 mishandling the application and failing to review it in a timely 20 manner. 21 defendants agreed to consider the loan modification application, 22 the defendants owed the plaintiffs a duty to “exercise reasonable 23 care in [their] review.” 24 948. 25 “[t]he transaction was intended to affect the plaintiffs,” (2) “it 26 was entirely foreseeable that failing to timely and carefully 27 process the loan modification applications could result in 28 significant harm to the applicants[,]” (3) “the plaintiffs alleged Id. at 945. Instead, they The plaintiffs argued that because the Id. The Court of Appeal agreed. Id. at Applying the Biakanja factors, the court reasoned that (1) 7 1 the mishandling of their application caused them loss of title to 2 their home among [and] deterrence from seeking other remedies . . 3 .[,]” (4) the mishandling of the documents deprived Plaintiff of 4 the possibility of obtaining the modification, (5) the plaintiffs 5 had little ability to protect their interests because “the bank 6 holds all the cards[,]” (6) the California Homeowner Bill of Rights 7 “demonstrates a rising trend to require lenders to deal reasonably 8 with borrowers in default to try to effectuate a workable loan 9 modification.” Id. at 948-50 (internal quotations and citations 10 11 omitted). As explained in this Court’s prior Order, California district 12 courts, like California state courts, have reached differing 13 conclusions regarding whether a duty of care exists in the loan 14 modification context. 15 LLC, No. CV 14-09408 MMM, 2015 WL 10059081 at *14 (C.D. Cal. Oct. 16 1, 2015) (noting split and concluding no duty exists); see also 17 Robinson v. Bank of Am., No. 12-CV-494-RMW, 2012 WL 1932842, at *7 18 (N.D. Cal. May 29, 2012); Ansanelli v. JP Morgan Chase Bank, N.A., 19 No C 10-3892 WHA, 2011 WL 1134451, at *7 (N.D. Cal. Mar. 28, 2011); 20 Watkinson v. MortgageIT, Inc., No. 10-CV-327-IEG, 2010 WL 2196083 21 (S.D. Cal. June 1, 2010); Garcia v. Ocwen Loan Servicing, LLC , No. 22 C 10-290 PVT, 2010 WL 1881098, at *1-3. (N.D. Cal. May 10, 2010). 23 In dismissing Plaintiff’s original Complaint, this court observed 24 that Plaintiffs failed to discuss how the specific facts of this 25 case apply to the Biakanja factors, and that the court could 26 therefore not conclude that MGC owed Plaintiffs a duty of care. 27 (Order at 8-9.) See, e.g., Griffin v. Green Tree Servicing, 28 8 1 MGC argues once more that this court should follow Lueras 2 rather than Alvarez, and contends that all six Biakanja factors 3 weigh against the finding of a duty under the circumstances here. 4 (Mot. at 6-8.) Plaintiffs, represented by counsel, assert the 5 opposite. 6 relevant factors, their opposition only argues that the first and 7 second factors, namely the extent to which the transaction was 8 intended to affect the plaintiffs and the foreseeability of harm to 9 them, weigh in favor of a duty. 10 (Opposition at 12.) Although Plaintiffs identify the (Id. at 12:21-25.) With respect to those two factors, Defendants’ arguments are 11 not compelling. 12 section 2923.6(a) “encourages loan modifications only if 13 ‘[a]nticipated recovery under the loan modifications or work-out 14 plan exceeds the anticipated recovery through foreclosure on a net 15 present value basis.” 16 based on this language, mortgage modifications are not intended to 17 affect the Plaintiffs because the “end aim” of mortgage 18 modifications is to maximize returns to the lender. 19 5.) 20 21 22 23 24 25 26 Defendants contend that California Civil Code (Opp. at 7:1-3.) Defendants argue that, (Mot. at 7:4- The full statute, however, reads: [a] The Legislature finds and declares that any duty that mortgage servicers may have to maximize net present value under their pooling and servicing agreements is owed to all parties in a loan pool, or to all investors under a pooling and servicing agreement, not to any particular party in the loan pool or investor under a pooling and servicing agreement, and that a mortgage servicer acts in the best interests of all parties to the loan pool or investors in the pooling and servicing agreement if it agrees to or implements a loan modification or workout plan for which both of the following apply: 27 (1) The loan is in payment default, or payment default is reasonably foreseeable. 28 (2) Anticipated recovery under the loan modification or 9 1 workout plan exceeds the anticipated recovery through foreclosure on a net present value basis. 2 3 4 5 6 7 8 Cal. Civ. Code § 2923.6. not establish that the “end aim” of mortgage modification transactions is to benefit lenders, but rather specifies that servicers owe an equal duty to all investors in a loan pool and defines what constitutes “acting in the best interests of the loan pool parties.” As to Defendants’ arguments regarding the second factor, 9 10 11 12 13 14 15 16 17 18 19 20 Read in its entirety, the statute does Defendants mischaracterize the FAC. Defendants argue that the FAC alleges a foreseeable risk of foreclosure. (Opp. at 7:9-10.) While the FAC does allege that default and “imminent foreclosure” was one of the potential harms, the FAC also identifies “the disclosure of sensitive information . . . [and] a forestallment of Plaintiffs from looking sideways for other assistance with their loan.” (FAC ¶ 44.) Although not a model of clarity, this paragraph does adequately allege that Defendants’ acceptance of Plaintiffs’ loan modification application foreseeably caused Plaintiffs to forego or abandon other efforts to meet their loan obligations while their modification application was pending. Plaintiffs do not, however, oppose Defendants’ arguments with 21 22 respect to a majority of the Biakanja factors. 23 address Defendants’ arguments that Alvarez is distinguishable on 24 its facts. 25 Plaintiffs have not alleged that any foreclosure activity, 26 including the recording of a notice of default, has taken place 27 here. 28 third, fourth, and fifth Biakanja factors and weighs against the (Motion at 11.) Nor do Plaintiffs Notably, and as discussed above, This fact, unlike the situation in Alvarez, bears on the 10 1 imposition of a duty. Furthermore, and unlike the plaintiff in 2 Alvarez, Plaintiffs here do not allege that Defendants mishandled 3 their loan application or otherwise erred in the processing of the 4 application. 5 negligence cause of action, apart from the inapplicable section 6 2923.7 and 2924.10 claims described above, appears to be that 7 “Defendant forced Plaintiffs into delinquency by denying them a 8 loan modification wrongly and without explanation.” 9 But, even assuming Defendants owed Plaintiffs a duty of care, 10 California Civil Code section 2923.4 states that although the 11 purpose of the California Homeowner Bill of Rights (“HBOR”) is to 12 ensure that borrowers are considered for loss mitigation options 13 such as loan modifications, “[n]othing in the act . . . shall be 14 interpreted to require a particular result of that process.” Cal. 15 Civ. Code § 2923.4. 16 modification application could not have constituted a breach of any 17 duty MGC might have owed to Plaintiffs. Indeed, the only wrongful conduct alleged in the (FAC ¶ 46.) Thus, the mere denial of Plaintiffs’ 18 Given the differences between the facts alleged here and those 19 in cases such as Alvarez, along with Plaintiffs’ failure to address 20 Defendants’ arguments regarding the majority of the relevant 21 factors, the court cannot conclude that Defendants owed Plaintiffs 22 a duty of care. 23 dismissed. Plaintiffs’ negligence claim is, therefore, 24 D. 25 Plaintiffs concede that their claim for unfair business Unfair Business Practices 26 practices under California Business and Professions Code Section 27 7200 is predicated on their claims for negligence and HBOR 28 violations under sections 2923.7 and 2924.10. 11 (Opp. at 15-21.) 1 Because those claims must be dismissed, as discussed above, so too 2 must Plaintiff’s unfair business practices claim. 3 III. Conclusion 4 5 For the reasons stated above, Defendants’ Motion to Dismiss is GRANTED. Plaintiffs’ FAC is DISMISSED, with prejudice. 6 7 8 IT IS SO ORDERED. 9 10 11 12 Dated: September 29, 2016 13 DEAN D. PREGERSON 14 United States District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12
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