Phipps v. Wells Fargo Bank, N.A. et al, No. 1:2010cv02025 - Document 17 (E.D. Cal. 2011)
Court Description: ORDER GRANTING 11 Defendants' Motion to Dismiss and Directing Clerk to Enter Judgment Against Plaintiff Scott Phipps and in Favor of Defendants Wells Fargo Bank, N.A. and Federal National Mortgage Association, signed by District Judge Lawrence J. O'Neill on 1/27/2011. CASE CLOSED. (Jessen, A)
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Phipps v. Wells Fargo Bank, N.A. et al Doc. 17 1 2 3 4 5 6 7 8 9 10 11 12 IN THE UNITED STATES DISTRICT COURT 13 FOR THE EASTERN DISTRICT OF CALIFORNIA 14 15 SCOTT PHIPPS, 16 17 18 19 CASE NO. CV F 10-2025 LJO SKO Plaintiff, ORDER ON DEFENDANTS’ F.R.Civ.P. 12 MOTION TO DISMISS (Doc. 11.) vs. WELLS FARGO BANK, N.A., et al, Defendants. / 20 21 INTRODUCTION 22 Defendants Wells Fargo Bank, N.A. (“Wells Fargo”) and Federal National Mortgage Association 23 (“Fannie Mae”) seek to dismiss as legally barred plaintiff Scott Phipps’ (“Mr. Phipps’”) breach of 24 contract and related claims arising from failure to modify his home loan. Mr. Phipps responds that 25 Wells Fargo wrongfully denied to consider loan modification under federal programs to entitle Mr. 26 Phipps to pursue his claims. This Court considered Wells Fargo and Fannie Mae’s (collectively 27 “defendants’”) F.R.Civ.P. 12(b)(6) motion on the record and VACATES the February 2, 2011 hearing, 28 pursuant to Local Rule 230(g). For the reasons discussed below, this Court DISMISSES this action. 1 Dockets.Justia.com 1 BACKGROUND 2 Summary 3 In December 2007, Mr. Phipps and his wife Chirld Ann Shagena-Phipps (“Ms. Phipps”) obtained 4 a $370,000 refinance loan secured by a Deed of Trust (“DOT”) on Mr. Phipps’ Tollhouse, California 5 residence (“property”). In July 2009, Ms. Phipps filed for divorce, moved out of the property’s home, 6 and ceased payment on the property. Mr. Phipps’ retirement income was insufficient for his bills and 7 mortgage payments. 8 Wells Fargo is a mortgage lender and mortgage loan servicer and was assigned all beneficial 9 interest in the DOT on the property in late 2009. Wells Fargo foreclosed on the property which Fannie 10 Mae purchased at a trustee’s sale. Wells Fargo transferred its beneficial interest in the DOT to Fannie 11 Mae in August 2010, and the property reverted to Fannie Mae as the foreclosing beneficiary and grantee. 12 As discussed in greater detail below, Mr. Phipps pursues breach of contract and related claims 13 arising out of the foreclosure sale occurring prior to expiration of an extension for Mr. Phipps to 14 entertain loan modification terms. Mr. Phipps claims he is entitled to a modification under a federal 15 recovery program. 16 The Home Affordable Modification Program 17 The U.S. Department of Treasury (“DOT”) established the Home Affordable Modification 18 Program (“HAMP”) pursuant to the Emergency Economic Stabilization Act of 2008 (“EESA”), 12 19 U.S.C. §§ 5201, et seq. EESA directed DOT to protect home values and other assets of individuals, to 20 preserve home ownership, to maximize returns to taxpayers, and to provide public accountability. 21 HAMP was established pursuant to 12 U.S.C. §§ 5211 and 5219 and, as part of the Troubled Asset 22 Relief Program (“TARP”), authorizes DOT to purchase certain troubled assets. See 12 U.S.C. § 5211. 23 To the extent DOT acquires mortgages, EESA directs DOT to maximize assistance of homeowners and 24 to encourage mortgage servicers to take advantage of government programs to minimize foreclosures. 25 See 12 U.S.C. § 5219. To further such goals, DOT, through Fannie Mae, entered into agreements with 26 loan servicers. Wells Fargo and Fannie Mae entered into such an agreement dated April 13, 2009 and 27 entitled “Commitment to Purchase Financial Instrument and Servicer Participation Agreement for the 28 Home Affordable Modification Program under the Emergency Economic Stabilization Act of 2008 2 1 (“Servicer Participation Agreement”). The Servicer Participation Agreement committed Wells Fargo 2 to perform certain loan modification and foreclosure prevention services for eligible loans. 3 Key Terms 4 Pursuant to the Servicer Participation Agreement, Wells Fargo as “Servicer shall perform the 5 loan modification and other foreclosure prevention services (collectively, the “Services’)” described in 6 documentation, including the HAMP Guidelines. (Bold added; underling in original.) The Servicer 7 Participation Agreement further provides: 8 11 Servicer shall perform the Services for all mortgage loans its [sic] services, whether it services such mortgage loans for its own account or for the account of another party, including any holders of mortgage-backed securities (each such other party, an “Investor”). Servicer shall use reasonable efforts to remove all prohibitions or impediments to its authority, and use reasonable efforts to obtain all third party consents and waivers that are required, by contract or law, in order to effectuate any modification of a mortgage loan under the Program. (Bold added; underlying in original.) 12 In exchange for Wells Fargo’s modification of eligible loans, the Servicer Participation 13 Agreement requires Fannie Mae to pay Wells Fargo, investors and eligible borrowers certain sums up 14 to a cap of approximately $2.8 billion in aggregate for all of Wells Fargo’s loan modifications under the 15 Servicer Participation Agreement. The Servicer Participation Agreement granted Wells Fargo the ability 16 to opt out if DOT changes HAMP terms. 9 10 17 HAMP’s Summary of Guidelines (“Summary”) state that HAMP “will offer assistance to as 18 many as 7 to 9 million homeowners, making their mortgages more affordable and helping to prevent the 19 destructive impact of foreclosures on families, communities and the national economy.” According to 20 the Summary, HAMP “will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing 21 monthly mortgage payments.” 22 The Summary further provides that participating servicers are “required to service all eligible 23 loans under the rules of the program unless explicitly prohibited by contract.” (Bold added.) HAMP 24 Guidelines further provide: 25 27 Participating servicers are required to consider all eligible loans under the program guidelines unless precluded by rules of the applicable [pooling and servicing agreements] and/or other investor servicing agreements. Participating servicers are required to use reasonable efforts to remove any prohibitions and obtain waivers or approvals from all necessary parties. (Bold in original.) 28 In addition, HAMP Guidelines require suspension of foreclosure proceedings during a borrower’s trial 26 3 1 modification period. Mr. Phipps’ Loan Modification Attempts1 2 3 Given Mr. Phipps’ inability to make mortgage payments without assistance of Ms. Phipps, Mr. 4 Phipps’ U.S. Department of Housing and Urban Development (“HUD”) counselor determined that a 5 HAMP loan modification was Mr. Phipps’ “best course of action.” HAMP guidelines indicated that Mr. 6 Phipps qualified for a modified $1,000 monthly payment. 7 In August 2009, Mr. Phipps asked Wells Fargo for a HAMP loan modification and submitted 8 a loan modification application and other requested information to Wells Fargo.2 Mr. Phipps rejected 9 Wells Fargo’s ensuing loan modification offer because “it was more than the current monthly payment 10 amount and not within 31% of his income, as directed by HAMP guidelines.” 11 Wells Fargo made another loan modification offer which “was also not within 31% of Plaintiff’s 12 income, and Wells Fargo told Plaintiff it was not a HAMP . . . loan, but an ‘internal’ Wells Fargo 13 program.” Mr. Phipps and his HUD counselor contacted Wells Fargo several times to attempt to resolve 14 “the issue of why he had not been considered for HAMP.” Although Mr. Phipps was frustrated by his 15 efforts to obtain answers from Wells Fargo, he desired to work with Wells Fargo to save his home, “even 16 if it meant taking the loan outside HAMP guidelines.” Prior to the expiration of the second loan 17 modification offer, Wells Fargo granted Mr. Phipps an extension to allow Mr. Phipps to continue 18 working with his HUD counselor and to return loan modification paperwork. 19 Prior to the expiration of the extension, Wells Fargo completed foreclosure of the property which 20 Fannie Mae purchased at a trustee’s sale. Mr. Phipps requested Wells Fargo to rescind the foreclosure 21 sale. Wells Fargo agreed to work “to resolve the situation” and approved Mr. Phipps for a loan 22 modification within 31 percent of his income. The loan modification was sent to Wells Fargo’s 23 “military section” “by mistake and where it languished for some time.” The loan modification was 24 25 26 1 The following recitation of Mr. Phipps’ loan modification attempts is derived from Mr. Phipps’ operative complaint (“complaint”). 2 27 28 Mr. Phipps appears to claim he was eligible for a HAMP loan modification because he was the property’s owner-occupant, his loan’s principal balance was less than $729,750, the first mortgage lien originated prior to January 1, 2009, his monthly mortgage payment exceeded 31 percent of his monthly gross income, and his mortgage payment was unaffordable due to financial hardship capable of documentation. 4 1 routed to Fannie Mae, which declined to authorize the loan modification in that Mr. Phipps had “ample 2 opportunity” previously to resolve the matter. 3 In response to Mr. Phipps’ inquiry whether he should purchase winter fuel, Wells Fargo “assured 4 him it was going to work with him, and he should proceed with his winter fuel delivery.” Based on such 5 representations, Mr. Phipps “spent a considerable sum purchasing fuel.” 6 Mr. Phipps again requested Wells Fargo to resolve the matter, to rescind foreclosure, and to 7 provide a loan modification. Wells Fargo offered Mr. Phipps, outside HAMP guidelines, a $1,750 8 monthly payment with $7,500 up front. 9 10 Fannie Mae instituted an unlawful detainer action against Mr. Phipps in Fresno County Superior Court. 11 Mr. Phipps’ Claims 12 On October 28, 2010, Mr. Phipps filed his complaint “to vindicate his own rights under TARP 13 and HAMP, and related programs, and to require Wells Fargo to honor it commitments pursuant to those 14 programs.” The complaint alleges that Mr. Phipps “is an intended third-party beneficiary” of the 15 Servicer Participation Agreement “for which Wells Fargo has an obligation to act” for Mr. Phipps’ 16 benefit. 17 The complaint pursues claims of breach of contract and promissory estoppel and under the Unfair 18 Competition Law (“UCL”), Cal. Bus. & Prof. Code, §§ 17200, et seq. The complaint further alleges that 19 the foreclosure sale of the property to Fannie Mae is void and seeks declaratory relief to that effect. The 20 complaint’s claims will be addressed below. 21 DISCUSSION 22 F.R.Civ.P. 12(b)(6) Motion To Dismiss Standards 23 24 Defendants seek to dismiss the complaint’s claims as lacking necessary supporting facts and elements. 25 A F.R.Civ.P. 12(b)(6) motion to dismiss is a challenge to the sufficiency of the pleadings set 26 forth in the complaint. “When a federal court reviews the sufficiency of a complaint, before the reception 27 of any evidence either by affidavit or admissions, its task is necessarily a limited one. The issue is not 28 whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to 5 1 support the claims.” Scheurer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683 (1974); Gilligan v. Jamco 2 Development Corp., 108 F.3d 246, 249 (9th Cir. 1997). A F.R.Civ.P. 12(b)(6) dismissal is proper where 3 there is either a “lack of a cognizable legal theory” or “the absence of sufficient facts alleged under a 4 cognizable legal theory.” Balisteri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990); Graehling 5 v. Village of Lombard, Ill., 58 F.3d 295, 297 (7th Cir. 1995). 6 In resolving a F.R.Civ.P. 12(b)(6) motion, a court must: (1) construe the complaint in the light 7 most favorable to the plaintiff; (2) accept all well-pleaded factual allegations as true; and (3) determine 8 whether plaintiff can prove any set of facts to support a claim that would merit relief. Cahill v. Liberty 9 Mut. Ins. Co., 80 F.3d 336, 337-338 (9th Cir. 1996). Nonetheless, a court is not required “to accept as 10 true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” 11 In re Gilead Sciences Securities Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (citation omitted). A court 12 “need not assume the truth of legal conclusions cast in the form of factual allegations,” U.S. ex rel. 13 Chunie v. Ringrose, 788 F.2d 638, 643, n. 2 (9th Cir.1986), and a court must not “assume that the 14 [plaintiff] can prove facts that it has not alleged or that the defendants have violated . . . laws in ways 15 that have not been alleged.” Associated General Contractors of California, Inc. v. California State 16 Council of Carpenters, 459 U.S. 519, 526, 103 S.Ct. 897 (1983). A court need not permit an attempt 17 to amend if “it is clear that the complaint could not be saved by an amendment.” Livid Holdings Ltd. 18 v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). 19 “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual 20 allegations, a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more 21 than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” 22 Bell Atl. Corp. v. Twombly, 550 U.S. 554,127 S. Ct. 1955, 1964-65 (2007) (internal citations omitted). 23 Moreover, a court “will dismiss any claim that, even when construed in the light most favorable to 24 plaintiff, fails to plead sufficiently all required elements of a cause of action.” Student Loan Marketing 25 Ass'n v. Hanes, 181 F.R.D. 629, 634 (S.D. Cal. 1998). In practice, “a complaint . . . must contain either 26 direct or inferential allegations respecting all the material elements necessary to sustain recovery under 27 some viable legal theory.” Twombly, 550 U.S. at 562, 127 S.Ct. at 1969 (quoting Car Carriers, Inc. v. 28 Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984)). 6 1 2 3 4 5 In Ashcroft v. Iqbal, __ U.S. __, 129 S.Ct. 1937,1949 (2009), the U.S. Supreme Court recently explained: To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” . . . A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. . . . The plausibility standard is not akin to a “probability requirement,” but it asks for more than a sheer possibility that a defendant has acted unlawfully. (Citations omitted.) 6 7 After discussing Iqbal, the Ninth Circuit Court of Appeals summarized: “In sum, for a complaint 8 to survive a motion to dismiss, the non-conclusory ‘factual content,’ and reasonable inferences from that 9 content, must be plausibly suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret 10 Service, 572 F.3d 962, 989 (9th Cir. 2009) (quoting Iqbal, __ U.S. __, 129 S.Ct. at 1949). 11 The U.S. Supreme Court applies a “two-prong approach” to address a motion to dismiss: 12 First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. . . . Second, only a complaint that states a plausible claim for relief survives a motion to dismiss. . . . Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. . . . But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged – but it has not “show[n]”-“that the pleader is entitled to relief.” Fed. Rule Civ. Proc. 8(a)(2). 13 14 15 16 17 18 19 In keeping with these principles a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. 20 21 22 Iqbal, __ U.S. __, 129 S.Ct. at 1949-1950. For a F.R.Civ.P. 12(b)(6) motion, a court generally cannot consider material outside the 23 complaint. Van Winkle v. Allstate Ins. Co., 290 F.Supp.2d 1158, 1162, n. 2 (C.D. Cal. 2003). 24 Nonetheless, “judicial notice may be taken of a fact to show that a complaint does not state a cause of 25 action.” Sears, Roebuck & Co. v. Metropolitan Engravers, Ltd., 245 F.2d 67, 70 (9th Cir. 1956); see 26 Estate of Blue v. County of Los Angeles, 120 F.3d 982, 984 (9th Cir. 1997). A court properly may take 27 judicial notice of matters of public record outside the pleadings and consider them for purposes of the 28 motion to dismiss. Mir v. Little Co. of Mary Hosp., 844 F.2d 646, 649 (9th Cir. 1988). 7 1 With these standards in mind, this Court turns to defendants’ challenges to Mr. Phipps’ claims. 2 3 4 5 Breach Of Contract The complaint’s thrust is its (first) breach of contract claim that Wells Fargo breached its obligations by: 1. 6 7 8 9 10 Failing to provide Mr. Phipps “the opportunity to accept permanent loan modifications for which he was eligible”; and 2. Accepting Mr. Phipps’ request for an extension of the loan modification offer but foreclosing on the property within the extension period. The breach of contract claim further alleges that Mr. Phipps “was ready, willing and able to consummate a loan modification within the HAMP guidelines of 31% of his take-home pay.” 11 Mr. Phipps attributes the breach of contract claim to allege a third-party beneficiary theory under 12 the Servicer Participation Agreement and a direct breach claim against Wells Fargo. Defendants fault 13 the breach of contract claim in that Mr. Phipps is not a third-party beneficiary under the Servicer 14 Participation Agreement, HAMP at most required consideration of loan modification, there is no private 15 right of action under HAMP, and the complaint fails to satisfy breach of contract elements. 16 17 18 Third-Party Beneficiary Defendants argue that Mr. Phipps is not an intended beneficiary under the Servicer Participation Agreement to bar his breach of contract claim. 19 The parties agree that federal law governs interpretation of the Servicer Participation Agreement 20 and related documents. Federal law controls the interpretation of a contract entered into pursuant to 21 federal law and to which the United States is a party. County of Santa Clara v. Astra USA, Inc., 588 22 F.3d 1237, 1243 (9th Cir.2009), pet. for cert. filed, 78 U.S.L.W. 3644 (U.S. Apr. 21, 2010) (No. 23 09-1273). The Servicer Participation Agreement was entered into between Wells Fargo and Fannie Mae 24 in Fannie Mae’s capacity as a financial agent of the United States to render the Servicer Participation 25 Agreement subject to interpretation under federal law. 26 The parties further agree that whether Mr. Phipps is a third-party beneficiary under the Servicer 27 Participation Agreement is determined by federal law. Under federal common law only an intended 28 beneficiary may enforce a contract as a third-party beneficiary: 8 1 3 [B]efore a third party can recover under a contract, it must show that the contract was made for its direct benefit – that it is an intended beneficiary of the contract. A promisor owes a duty of performance to any intended beneficiary of the promise, and the intended beneficiary may enforce the duty by suing as a third party beneficiary of the contract, whereas an incidental beneficiary acquires no right against the promisor. 4 Astra, 588 F.3d at 1244 (internal quotation marks, brackets and citations omitted, emphases in Astra). 2 5 In Astra, 588 F.3d at 1244, the Ninth Circuit Court of Appeals further explained: 6 8 To qualify as an intended beneficiary, the third party must show that the contract reflects the express or implied intention of the parties to the contract to benefit the third party. Although intended beneficiaries need not be specifically or individually identified in the contract, they still must fall within a class clearly intended by the parties to benefit from the contract. 9 Demonstrating third-party beneficiary status in a government contract situation is particularly 10 difficult: “Parties that benefit from a government contract are generally assumed to be incidental 11 beneficiaries rather than intended ones, and so may not enforce the contract absent a clear intent to the 12 contrary.” Astra, 588 F.3d at 1244 (internal quotation marks and citations omitted, emphasis in 13 original). 7 14 The Ninth Circuit further explained clearing the “clear intent” hurdle: 15 This “clear intent” hurdle is not satisfied by a contract's recitation of interested constituencies, vague, hortatory pronouncements, statements of purpose, explicit reference to a third party, or even a showing that the contract operates to the third parties' benefit and was entered into with them in mind. 16 17 18 Astra, 588 F.3d at 1244. 19 To determine whether a party is an intended beneficiary of a government contract, a court must 20 examine “the precise language of the contract for a clear intent to rebut the presumption that the third 21 parties are merely incidental beneficiaries.” Astra, 588 F.3d at 1244 (internal quotation marks, brackets 22 and citations omitted). Specifically, a court examines the contract as a whole and “weigh[s] the 23 circumstances of the transaction.” Astra, 588 F.3d at 1245 (internal quotation marks and citations 24 omitted). “[W]hen a contract is mandated by a federal statute, [this] includes the governing statute and 25 its purpose.” Astra, 588 F.3d at 1245(internal quotation marks and citations omitted). 26 Moreover, “if the plaintiff is an intended beneficiary . . . then the third party contract claim may 27 go forward. Only when the plaintiff would qualify solely as an incidental beneficiary of the government 28 contract is it necessary to have an express, specific statement of the promisor's contractual liability to 9 1 that third party (such as by an express right-to-sue clause).” Astra, 588 F.3d at 1245. 2 Defendants contend that the Servicer Participation Agreement neither gives borrowers rights nor 3 expressly intends to confer third-party beneficiary status on borrowers. The Servicer Participation 4 Agreement does not state that the servicer “must modify all mortgages that meet the eligibility 5 requirements.” Escobedo v. Countrywide Home Loans, Inc., 2009 WL 4981618, at *3 (S.D. Cal. 2009). 6 The Servicer Participation Agreement “nowhere states that it gives borrowers any rights or otherwise 7 expressly intends to confer third party beneficiary status on borrowers.” Benito v. Indymac Mortg. 8 Services, 2010 WL 2130648, at *7 (D.Nev. 2010). A fellow judge of this Court has explained: 9 10 11 12 13 Parties that benefit from a government contract are generally assumed to be incidental beneficiaries, and may not enforce the contract absent a clear intent to the contrary. . . . Furthermore, a qualified borrower to a HAMP agreement “would not be reasonable in relying on the Agreement as manifesting an intention to confer a right on him because the Agreement does not require [a servicer] modify eligible loans.” . . . Therefore, “qualified borrowers are incidental beneficiaries of the Agreement and do not have enforceable rights under the contract.” [citation omitted]. Zendejas v. GMAC Wholesale Mortg. Corp., 2010 WL 2629899, at * 4 (E.D. Cal. 2010). 14 Relying on unpublished district court orders, Mr. Phipps argues that “plaintiffs may indeed be 15 third-party beneficiaries and thus enforce the terms of HAMP.” Mr. Phipps argues that under the 16 unambiguous terms of the Servicer Participation Agreement, Mr. Phipps “had a right to have his loan 17 considered for modification.” Mr. Phipps points to Servicer Participation Agreement statements that 18 “Servicer shall perform the loan modification and other foreclosure prevention services” described in 19 documents, including HAMP Guidelines. Without identifying the particular portion of the Servicer 20 Participation Agreement, Mr. Phipps claims it obligated Wells Fargo to “service all eligible loans under 21 the rules of the program unless explicitly prohibited by contract.” Mr. Phipps concludes that since his 22 loan qualified under HAMP, “he was an intended third-party to the ‘loan modification and other 23 foreclosure prevention services.’” 24 The Servicer Participation Agreement does not state expressly that it is for borrowers’ benefit. 25 The Servicer Participation Agreement obligates Wells Fargo to perform “loan modification and other 26 foreclosure prevention services” for “all mortgage loans it services,” to “use reasonable efforts to remove 27 all prohibitions or impediments to its authority,” and “to obtain all third party consensus and waivers 28 that are required, by contract or law, in order to effectuate any modification of a mortgage loan” under 10 1 HAMP. HAMP supporting guidelines require servicers, such as Wells Fargo, to “consider all eligible 2 loans” and to “use reasonable efforts to remove any prohibitions and obtain waivers or approvals from 3 all necessary parties.” 4 The Servicer Participation Agreement and HAMP guidelines direct Wells Fargo to modify loans, 5 to evaluate criteria to determine loan modification, and specify how to modify eligible loans. The import 6 of the Servicer Participation Agreement in the context of its enabling legislation is provide loan 7 modification to eligible borrowers. “The Agreement on its face expresses a clear intent to directly 8 benefit eligible borrowers.” Marques v. Wells Fargo Home Mortg., Inc., 2010 WL 3212131, a *6 (S.D. 9 Cal. 2010) (“Plaintiff at the very least had a right to have his loan considered for modification.”) 10 At best for Mr. Phipps, the Servicer Participation Agreement committed Wells Fargo to consider 11 HAMP loan modification subject to eligibility criteria. The Servicer Participation Agreement did not 12 require Wells Fargo to provide Mr. Phipps a HAMP loan modification. This Court agrees with other 13 district courts that Mr. Phipps is no more than an incidental beneficiary under the Servicer Participation 14 Agreement and is not entitled to rely on the Servicer Participation Agreement to manifest an intent to 15 confer rights on to him. 16 Moreover, the complaint lacks facts that Mr. Phipps was eligible for a HAMP loan modification. 17 Although the complaint lists HAMP eligibility criteria, it lacks facts that Mr. Phipps met the criteria. 18 The complaint raises inferences that Mr. Phipps did not meet HAMP loan modification criteria in that 19 he considered Wells Fargo’s non-HAMP loan modification offers and “was resolute in attempting to 20 work with Wells Fargo to save the Home, even if it meant taking the loan outside HAMP guidelines.” 21 Mr. Phipps cannot establish third-party beneficiary status for benefits to which he was not eligible. At 22 best, the complaint alleges that Mr. Phipps attempted a HAMP loan modification, not that he was 23 eligible and wrongly denied. The complaint lacks facts to support a third-party beneficiary theory of 24 relief. 25 No Private Right Of Action Under HAMP 26 27 28 Defendants note that HAMP provides no private right of action to defeat the breach of contract claim. A fellow district court explains the absence of a private right of action under HAMP: 11 1 2 3 4 On October 8, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008, Pub.L. No. 110-343, 122 Stat. 3765 (codified 12 U.S.C. § 5201 et seq.) ( “EESA” ). Section 109 required the Secretary of the Treasury (“the Secretary”) to take certain measures in order to encourage and facilitate loan modifications. 12 U.S.C. § 5219. However, Section 109 did not create any private right of action against servicers for grievances relating to the EESA. Ramirez v. Litton Loan Serv., LP, 2009 WL 1750617, *1 (D.Ariz.2009); Barrey v. Ocwen Loan Serv., LLC, 2009 WL 1940717, * 1 (D.Ariz.2009). 5 ... 6 7 8 9 10 Per designation by the Secretary, Freddie Mac serves as compliance officer for the HAMP. U.S. Dep't of Treasury, Supplemental Directive 2009-08, at 4 (Nov. 3, 2009). The HAMP requires mortgagees to collect, retain, and transmit mortgagor and property data to Freddie Mac in order to ensure compliance with the program. See Supplemental Directive 2009-01, at 13-14, 19-21 (Apr. 6, 2009); Supplemental Directive 2009-06 (Sept. 11, 2009). As the compliance agent, Freddie Mac is charged with conducting “independent compliance assessments” including “evaluation of documented evidence to confirm adherence . . . to HAMP requirements” such as the evaluation of borrower eligibility. Supplemental Directive 2009-01, at 25-26. 11 12 13 14 15 16 Nowhere in the HAMP Guidelines, nor in the EESA, does it expressly provide for a private right of action. Rather, Congressional intent expressly indicates that compliance authority was delegated solely to Freddie Mac. By delegating compliance authority to one entity, Freddie Mac, Congress intended that a private cause of action was not permitted. See Reyes-Gaona v. N.C. Growers Ass'n, 250 F.3d 861, 865 (4th Cir.2001) (reiterating that “the doctrine of expressio unis est exclusio alterius instructs that where a law expressly describes a particular situation to which it shall apply, what was omitted or excluded was intended to be omitted or excluded.”). Marks v. Bank of America, N.A., 2010 WL 2572988, at *5, 6 (D. Az. 2010). 17 In the absence of a private right of action under HAMP, Mr. Phipps’ breach of contract claim 18 fails. Mr. Phipps’ claim that he does not seek a “private cause of action” is unsupported and of no avail. 19 Elements 20 In addition to the absence of legal grounds to support third-party beneficiary remedies or a 21 private right of action, defendants fault the breach of contract claim’s absence of facts to support breach 22 of contract elements. 23 “The standard elements of a claim for breach of contract are: ‘(1) the contract, (2) plaintiff's 24 performance or excuse for nonperformance, (3) defendant's breach, and (4) damage to plaintiff 25 therefrom.’” 26 Cal.Rptr.3d 6 (2008). “To form a contract, an ‘offer must be sufficiently definite . . . that the 27 performance promised is reasonably certain.’” Alexander v. Codemasters Group Limited, 104 28 Cal.App.4th 129, 141. 127 Cal.Rptr.2d 145 (2002). Wall Street Network, Ltd. v. New York Times Co., 164 Cal.App.4th 1171, 1178, 80 12 1 Essential elements to contract existence are: (1) “[p]arties capable of contracting;” (2) “[t]heir 2 consent;” (3) a “lawful object;” and (4) a “sufficient cause or consideration.” Cal. Civ. Code, § 1550. 3 Defendants challenge the breach of contract claim’s allegation that “Wells Fargo has breached 4 its duties by failing to provide Plaintiff . . . with the opportunity to accept permanent loan modifications 5 for which he was eligible.” Defendants argue that in the absence of a right to loan modification under 6 HAMP or the Making Home Affordable Program, Wells Fargo lacked an obligation or duty for a breach 7 of contract claim. Defendants point out that HAMP and Making Home Affordable Program guidelines 8 require: 9 1. Borrowers to meet eligibility requirements and to submit required documentation; 10 2. A loan to qualify for modification; 11 3. A trial period if modification is offered; and 12 4. Borrowers to make all necessary payments under the trial period prior to a permanent 13 modification offer. 14 Defendants note the complaint’s absence of allegations that Mr. Phipps was eligible under HAMP and 15 qualified for HAMP modification given the complaint’s conclusory allegation that Mr. Phipps “qualified 16 under HAMP and likely qualified under HARP [Home Affordable Refinance Program].” Defendants 17 further note that the complaint identifies only eligibility requirements for evaluation, not modification 18 qualifications. Defendants point to the following HAMP guidelines: 19 21 A borrower will qualify for HAMP only if the interest rate on the mortgage loan can be reduced by at least 0.125 percent without the modified monthly mortgage payment ratio going below 31 percent. If the servicer cannot reduce the borrower’s monthly mortgage payment ratio to the target of 31 percent, the modification will not satisfy HAMP requirements and no incentives will be payable in connection with the modification. 22 Making Home Affordable Program, Handbook for Servicers of Non-GSE Mortgages Version 3.0, section 23 6.3. 24 Defendants conclude that if Mr. Phipps “could not qualify, there would be no offer of a HAMP 25 modification.” 20 26 Pointing to HAMP guidelines documentation, Mr. Phipps claims that Wells Fargo was obligated 27 to work with Mr. Phipps “to determine if the HAMP is appropriate,” “to validate the homeowner’s 28 eligibility for HAMP and capacity to pay,” to offer eligible borrowers HAMP participation prior to 13 1 foreclosure, to forego foreclosure during the “trial period,” and to send a “Borrower Notice” for failure 2 to provide required financial documentation and to state reasons for “non-approval.” Mr. Phipps accuses 3 defendants of failing to use reasonable efforts to effectuate loan modification, to consider Mr. Phipps 4 for loan modification, and to provide notice to Mr. Phipps “regarding not being offered a HAMP 5 modification” and of “all other available foreclosure prevention options.” Mr. Phipps further accuses 6 defendants of “[c]ontinuing the foreclosure process during the time it was not allowed to do so under 7 HAMP.” 8 As noted above, the key problem for Mr. Phipps is the complaint’s absence of facts that Mr. 9 Phipps was eligible for a HAMP loan modification. The obligations to which Mr. Phipps seeks to assign 10 to defendants are contingent on HAMP eligibility. The complaint merely lists eligibility criteria, not 11 facts that Mr. Phipps met them. Moreover, Mr. Phipps’ pulling a few phrases from HAMP guidelines 12 in the abstract does not translate to defendants’ contractual obligations to him. Defendants correctly note 13 the absence of facts to support breach of contract elements. 14 Foreclosure During Extension 15 Defendants further challenge the breach of contract allegation that Wells Fargo extended the 16 deadline to accept a proposed loan modification “but then breached its obligations to Plaintiff by 17 foreclosing on his Home within the extension period.” Defendants fault failure to allege contract 18 existence given no indication whether the alleged extension was oral or written. Defendants further fault 19 the absence of pleading consideration in that Mr. Phipps promised nothing more than his existing 20 obligation to make loan payments. Defendants challenge the absence of Mr. Phipps’ performance in that 21 the complaint does not allege that Mr. Phipps returned necessary paperwork to enter into the proposed 22 modification and to fulfill “his end of the bargain.” Lastly, defendants point to the absence of Mr. 23 Phipps’ damages given Mr. Phipps’ default and failure to reinstate the loan and to meet modification 24 requirements, Wells Fargo’s entitlement to foreclose, and Mr. Phipps’ lack of an entitled HAMP benefit. 25 Mr. Phipps responds that Wells Fargo had given him “an option to accept the terms of a loan 26 modification within a certain time period. If this is not a valid contract, then no option contract could 27 ever be binding.” 28 Mr. Phipps’ option contract analogy is unavailing. The complaint merely alleges that Wells 14 1 Fargo granted an extension “to return the loan modification.” The complaint lacks a further description 2 of granting Mr. Phipps an extension. Mr. Phipps attempts to convert the extension into a modification. 3 Mr. Phipps’ request for an extension is not his outright acceptance of an offer to bind defendants. 4 Defendants raise valid points that granting of an extension fails to satisfy elements to support a breach 5 of contract claim. The complaint lacks a viable breach of contract claim, and no facts are apparent to 6 invigorate such a claim to warrant an attempt at amendment. 7 Moreover, Mr. Phipps is unable to enforce a gratuitous oral promise to forebear a foreclosure sale 8 and thus modify the DOT. A contract in writing may not be altered by an executory oral agreement. 9 Karlsen v. American Sav. & Loan Assn., 15 Cal.App.3d 112, 121, 92 Cal.Rptr. 851 (1971) (citing Cal. 10 Civ. Code, § 1698)). “An agreement to postpone a valid sale of property beyond the date when said 11 property may be sold under and according to the terms of the trust deed obviously is an agreement to 12 alter the terms of the instrument . . . To hold otherwise would reduce a trust deed in any case to an 13 unsubstantial if not worthless security.” Stafford v. Clinard, 87 Cal.App.2d 480, 481, 197 P.2d 84 14 (1948); See Nguyen v. Calhoun, 105 Cal.App.4th 428, 445, 129 Cal.Rptr.2d 436 (2003) (“the foreclosure 15 sale may not be set aside based on the lender's alleged breach of an oral agreement to postpone the 16 trustee's sale.”) 17 The breach of contract claim is subject to dismissal without an attempt at amendment. 18 Promissory Estoppel 19 The complaint’s (second) promissory estoppel claim alleges that Mr. Phipps continued to make 20 mortgage payments “expecting that he would be able” to remain on the property based on Wells Fargo’s 21 representations that it would approve him for a HAMP loan modification and would extend time to 22 respond to Wells Fargo’s loan modification offer. 23 Defendants fault the complaint’s failure to allege promissory estoppel elements. Defendants 24 characterize the promissory estoppel claim as “a last-ditch attempt to overcome the fatal flaws of the 25 breach of contract claims.” 26 Elements 27 Under the promissory estoppel doctrine, “a promisor is bound when he should reasonably expect 28 a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can 15 1 be avoided only by its enforcement.” Youngman v. Nevada Irrigation Dist., 70 Cal.2d 240, 249, 74 2 Cal.Rptr. 398 (1969); see Lloyd v. R.K.O. Pictures, Inc., 136 Cal.App.2d 638, 299, 289 P.2d 295 (1955) 3 (“Promissory estoppel is defined as a“promise which the promissor should reasonably expect to induce 4 action or forbearance of a definite and substantial character on the part of the promisee and which does 5 induce such action or forbearance is binding if injustice can be avoided only by enforcement of the 6 promise.”) Promissory estoppel elements are “(1) a promise clear and unambiguous in its terms; (2) 7 reliance by the party to whom the promise is made; (3) his reliance must be both reasonable and 8 foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” Laks v. Coast Fed. 9 Sav. & Loan Assn., 60 Cal.App.3d 885, 891, 131 Cal.Rptr. 836 (1976); see Toscano v. Greene Music, 10 124 Cal.App.4th 685, 692, 21 Cal.Rptr.3d 732 (2004). 11 Promissory estoppel is “a doctrine which employs equitable principles to satisfy the requirement 12 that consideration must be given in exchange for the promise sought to be enforced.” Raedeke v. 13 Gibraltar Sav. & Loan Assn., 10 Cal.3d 665, 672,111 Cal.Rptr. 693 (1974). A“promise is an 14 indispensable element of the doctrine of promissory estoppel,” which “cannot be invoked and must be 15 held inapplicable in the absence of a showing that a promise had been made upon which the complaining 16 party relied to his prejudice.” Division of Labor Law Enforcement v. Transpacific Transportation Co., 17 69 Cal.App.3d 268, 277, 137 Cal.Rptr. 855 (1977). “Estoppel cannot be established from . . . 18 preliminary discussions and negotiations.” National Dollar Stores v. Wagnon, 97 Cal.App.2d 915, 919, 19 219 P.2d 49 (1950). 20 Defendants argue that the complaint fails to allege a clear promise providing a basis to determine 21 to which obligations the parties agreed. Defendants point to the absence of facts of a Wells Fargo 22 promise given the complaint’s reference to Wells Fargo’s representations to Mr. Phipps. Defendants 23 further note the absence of allegations that Wells Fargo promised to provide HAMP loan modification 24 or not to foreclose until an unspecified date. 25 Mr. Phipps responds that “Wells Fargo promised it would not foreclose on the property until a 26 date certain and would allow Plaintiff that full amount of time to consider the proposed loan 27 modification.” Although Mr. Phipps makes such claims in his opposition papers, he points to no 28 corresponding allegation in his complaint. The complaint identifies no “date certain” to delay 16 1 foreclosure. The complaint merely attributes to Wells Fargo representations that it would approve Mr. 2 Phipps for a loan modification within HAMP guidelines and would extend the time to respond to Wells 3 Fargo’s offer. Such representations do not amount to promises not to foreclose. The foreclosure 4 resulted from Mr. Phipps’ failure to make loan payments. 5 Mr. Phipps also relies on his purchase of fuel based on assurances that Wells Fargo would work 6 with him. Assurances to work with Mr. Phipps do not equate to a promise to support promissory 7 estoppel. Defendants are correct that the fuel purchase does not equate to “substantial reliance sufficient 8 to overturn the otherwise valid foreclosure proceedings.” Mr. Phipps points to no promise alleged in 9 the complaint to base a promissory estoppel claim. Neither complaint allegations nor inferences 10 therefrom equate to a necessary promise. The promissory estoppel claim fails, and Mr. Phipps offers 11 nothing to resurrect it. 12 Absence Of Particularity Pleading Standard – Fraud 13 Defendants characterize as fraud to require “requisite specficity” the promissory estoppel 14 allegations that Wells Fargo represented to Mr. Phipps that Wells Fargo “would (a) approve him for a 15 loan modification within the HAMP guidelines, and (b) that it would extend the time required to respond 16 to the final offer which was not in compliance with the HAMP guidelines.” 17 The elements of a California fraud claim are: (1) misrepresentation (false representation, 18 concealment or nondisclosure); (2) knowledge of the falsity (or “scienter”); (3) intent to defraud, i.e., 19 to induce reliance; (4) justifiable reliance; and (5) resulting damage. Lazar v. Superior Court, 12 Cal.4th 20 631, 638, 49 Cal.Rptr.2d 377 (1996). The same elements comprise a cause of action for negligent 21 misrepresentation, except there is no requirement of intent to induce reliance. Caldo v. Owens-Illinois, 22 Inc., 125 Cal.App.4th 513, 519, 23 Cal.Rtpr.3d 1 (2004). 23 “[T]o establish a cause of action for fraud a plaintiff must plead and prove in full, factually and 24 specifically, all of the elements of the cause of action.” Conrad v. Bank of America, 45 Cal.App.4th 133, 25 156, 53 Cal.Rptr.2d 336 (1996). There must be a showing “that the defendant thereby intended to induce 26 the plaintiff to act to his detriment in reliance upon the false representation” and “that the plaintiff 27 actually and justifiably relied upon the defendant’s misrepresentation in acting to his detriment.” 28 Conrad, 45 Cal.App.4th at 157, 53 Cal.Rptr.2d 336. “The absence of any one of these required elements 17 1 will preclude recovery.” Wilhelm v. Pray, Price, Williams & Russell, 186 Cal.App.3d 1324, 1332, 231 2 Cal.Rptr. 355 (1986). 3 F.R.Civ.P. 9(b) requires a party to “state with particularity the circumstances constituting fraud.”3 4 In the Ninth Circuit, “claims for fraud and negligent misrepresentation must meet Rule 9(b)'s 5 particularity requirements.” Neilson v. Union Bank of California, N.A., 290 F.Supp.2d 1101, 1141 (C.D. 6 Cal. 2003). A court may dismiss a claim grounded in fraud when its allegations fail to satisfy F.R.Civ.P. 7 9(b)’s heightened pleading requirements. Vess, 317 F.3d at 1107.4 A motion to dismiss a claim 8 “grounded in fraud” under F.R.Civ.P. 9(b) for failure to plead with particularity is the “functional 9 equivalent” of a F.R.Civ.P. 12(b)(6) motion to dismiss for failure to state a claim. Vess, 317 F.3d at 10 1107. As a counter-balance, F.R.Civ.P. 8(a)(2) requires from a pleading “a short and plain statement of 11 the claim showing that the pleader is entitled to relief.” 12 F.R.Civ.P. 9(b)’s heightened pleading standard “is not an invitation to disregard Rule 8's 13 requirement of simplicity, directness, and clarity” and “has among its purposes the avoidance of 14 unnecessary discovery.” McHenry v. Renne, 84 F.3d 1172, 1178 (9th Cir. 1996). F.R.Civ.P 9(b) requires 15 “specific” allegations of fraud “to give defendants notice of the particular misconduct which is alleged 16 to constitute the fraud charged so that they can defend against the charge and not just deny that they have 17 done anything wrong.” Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). “A pleading is sufficient 18 under Rule 9(b) if it identifies the circumstances constituting fraud so that the defendant can prepare an 19 adequate answer from the allegations.” Neubronner v. Milken, 6 F.3d 666, 671-672 (9th Cir. 1993) 20 (internal quotations omitted; citing Gottreich v. San Francisco Investment Corp., 552 F.2d 866, 866 (9th 21 Cir. 1997)). The Ninth Circuit has explained: 22 Rule 9(b) requires particularized allegations of the circumstances constituting fraud. The time, place and content of an alleged misrepresentation may identify the statement or the 23 24 25 26 27 28 3 F.R.Civ.P. 9(b)’s particularity requirement applies to state law causes of action: “[W ]hile a federal court will examine state law to determine whether the elements of fraud have been pled sufficiently to state a cause of action, the Rule 9(b) requirement that the circumstances of the fraud must be stated with particularity is a federally imposed rule.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003) (quoting Hayduk v. Lanna, 775 F.2d 441, 443 (1 st Cir. 1995)(italics in original)). 4 “In some cases, the plaintiff may allege a unified course of fraudulent conduct and rely entirely on that course of conduct as the basis of a claim. In that event, the claim is said to be ‘grounded in fraud’ or to ‘sound in fraud,’ and the pleading of that claim as a whole must satisfy the particularity requirement of Rule 9(b).” Vess, 317 F.3d at 1103-1104. 18 1 2 3 4 omission complained of, but these circumstances do not “constitute” fraud. The statement in question must be false to be fraudulent. Accordingly, our cases have consistently required that circumstances indicating falseness be set forth. . . . [W]e [have] observed that plaintiff must include statements regarding the time, place, and nature of the alleged fraudulent activities, and that “mere conclusory allegations of fraud are insufficient.” . . . The plaintiff must set forth what is false or misleading about a statement, and why it is false. In other words, the plaintiff must set forth an explanation as to why the statement or omission complained of was false or misleading. . . . 5 6 In certain cases, to be sure, the requisite particularity might be supplied with great simplicity. 7 In Re Glenfed, Inc. Securities Litigation, 42 F.3d 1541, 1547-1548 (9th Cir. 1994) (en banc) (italics in 8 original) superseded by statute on other grounds as stated in Marksman Partners, L.P. v. Chantal 9 Pharm. Corp., 927 F.Supp. 1297 (C.D. Cal. 1996); see Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 10 1997) (fraud allegations must be accompanied by “the who, what, when, where, and how” of the 11 misconduct charged); Neubronner, 6 F.3d at 672 (“The complaint must specify facts as the times, dates, 12 places, benefits received and other details of the alleged fraudulent activity.”) 13 In a fraud action against a corporation, a plaintiff must “allege the names of the persons who 14 made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they 15 said or wrote, and when it was said or written.” Tarmann v. State Farm Mut. Auto. Ins. Co. 16 2 Cal.App.4th 153, 157, 2 Cal.Rptr.2d 861 (1991). 17 Defendants argue that the complaint lacks facts of an alleged misrepresentation in that the 18 complaint does not allege that Wells Fargo promised to forego foreclosure. Defendants criticize the 19 absence of allegations of “when the alleged promise took place or who made the alleged promise.” 20 Defendants point to an absence of damages from fraud given Mr. Phipps’ admitted loan default to invoke 21 Wells Fargo’s right to initiate foreclosure and the absence of Mr. Phipps’ “absolute right to a loan 22 modification.” 23 The complaint’s conclusory allegations fail to meet Rule 9(b)’s strict standard. The complaint 24 lacks facts to support fraud elements let alone the who, what, when, when and how of alleged 25 misconduct. Mere allegations of representation is insufficient to warrant dismissal of the complaint’s 26 claims to the extent they sound in fraud. Morever, the complaint lacks allegations that defendants 27 promised or represented that Mr. Phipps was entitled to loan modification to further doom a claim 28 sounding in fraud. 19 1 UCL 2 The complaint’s third claim alleges violation of the UCL that Wells Fargo engaged in “bait and 3 switch” by leading Mr. Phipps to believe “he was approved for a HAMP modification and then 4 providing offers substantially higher than the 31% ratio authorized by HAMP.” 5 “The UCL's purpose is to protect both consumers and competitors by promoting fair competition 6 in commercial markets for goods and services.” Kasky v. Nike, Inc., 27 Cal.4th 939, 949, 119 7 Cal.Rptr.2d 296 (2002). “Unfair competition” is defined as “any unlawful, unfair or fraudulent business 8 act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by [the false 9 advertising law (§ 17500 et seq.)].” Kasky, 27 Cal.4th at 949, 119 Cal.Rptr.2d 296 (citing Cal. Bus. & 10 Prof. Code, § 17200)). The UCL establishes three varieties of unfair competition – “acts or practices 11 which are unlawful, or unfair, or fraudulent.” Shvarts v. Budget Group, Inc., 81 Cal.App.4th 1153, 12 1157, 97 Cal.Rptr.2d 722 (2000). 13 “A plaintiff alleging unfair business practices under these statutes [UCL] must state with 14 reasonable particularity the facts supporting the statutory elements of the violation.” Khoury v. Maly's 15 of California, Inc., 14 Cal.App.4th 612, 619, 17 Cal.Rptr.2d 708 (1993). 16 Defendants fault the UCL claim’s reliance on “an unfair and deceptive business practice” and 17 failure to specify whether Mr. Phipps pursues an unlawful, unfair or fraudulent act or practice. 18 Defendants further fault the complaint’s failure to describe “how the alleged conduct is unfair or 19 deceptive.” 20 Unfair Act Or Practice 21 In consumer cases, such as this, the California Supreme Court has not established a definitive 22 test to determine whether a business practice is unfair. Drum v. San Fernando Valley Bar Ass'n, 182 23 Cal.App.4th 247, 256, 106 Cal.Rptr.3d 46 (2010). A split of authority has developed among the 24 California Courts of Appeal, which have applied three tests for unfairness in consumer cases. Drum, 25 182 Cal.App.4th at 256, 106 Cal.Rptr.3d 46. 26 The test applied in one line of cases requires “that the public policy which is a predicate to a 27 consumer unfair competition action under the ‘unfair’ prong of the UCL must be tethered to specific 28 constitutional, statutory, or regulatory provisions.” Drum, 182 Cal.App.4th at 256, 106 Cal.Rptr.3d 46 20 1 (citing Bardin v. Daimlerchrysler Corp., 136 Cal.App.4th 1255, 1260-1261, 39 Cal.Rptr.3d 634 (2006); 2 Davis v. Ford Motor Credit Co., 179 Cal.App.4th at 581, 595-596, 101 Cal.Rptr.3d 697 (2009); Gregory 3 v. Albertson’s Inc.,104 Cal.App.4th 845, 854, 128 Cal.Rptr.2d 389 (2002). 4 Defendants argue that the complaint fails to allege a “cognizable violation of any statutory or 5 regulatory provision, or any significant harm to competition” and thus does not “tether” a UCL claim 6 to a “violation of any statutory or regulatory violation.” Mr. Phipps points to no statutory or regulatory 7 violation to support a UCL claim. 8 A second line of cases applies a test to determine whether the alleged business practice “is 9 immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers and requires the 10 court to weigh the utility of the defendant's conduct against the gravity of the harm to the alleged 11 victim.” Drum, 182 Cal.App.4th at 257, 106 Cal.Rptr.3d 46 (citing Bardin, 136 Cal.App.4th at 1260, 12 39 Cal.Rptr.3d 634; Davis, 179 Cal.App.4th at 594-595, 101 Cal.Rptr.3d 697)). 13 Defendants fault the complaint’s absence of allegations of a Wells Fargo practice that was 14 immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers, especially given 15 that the DOT permits non-judicial foreclosure upon a borrower’s default. Defendants note the absence 16 of misrepresentation allegations. 17 Mr. Phipps responds that Wells Fargo led Mr. Phipps to believe that Wells Fargo participated 18 “in a widely publicized government program to modify distressed mortgages” and would adhere to the 19 Servicer Participation Agreement. Without pointing to particular allegations, Mr. Phipps contends that 20 “a trier of fact could find Defendant’s outright refusal to comply with its mandate under HAMP to be 21 contrary to public policy, immoral, unethical, oppressive, and substantially injurious to consumers.” 22 23 Mr. Phipps offers nothing meaningful to support a UCL claim based on immoral, unethical, oppressive, unscrupulous or injurious practices. The complaint lacks facts to support such a claim. 24 The test applied in a third line of cases draws on the definition of “unfair” in section 5 of the 25 Federal Trade Commission Act (15 U.S.C. § 45, subd. (n)), and requires that “(1) the consumer injury 26 must be substantial; (2) the injury must not be outweighed by any countervailing benefits to consumers 27 or competition; and (3) it must be an injury that consumers themselves could not reasonably have 28 avoided.” Drum, 182 Cal.App.4th at 257, 106 Cal.Rptr.3d 46 (citing Davis, 179 Cal.App.4th 597-598, 21 1 101 Cal.Rptr.3d 697; Camacho v. Automobile Club of Southern California, 142 Cal.App.4th 1394, 1403, 2 48 Cal.Rptr.3d 770 (2006)). 3 Defendants point to absence of an alleged injury which Mr. Phipps could not reasonably have 4 avoided in that his default triggered Wells Fargo’s right to foreclose. Mr. Phipps offers nothing 5 meaningful to substantiate an unfair practice under the third line of cases. 6 7 8 The complaint lacks a UCL unfair act or practice claim, and Mr. Phipps offers nothing to support amendment to attempt to plead such a claim. Fraudulent Act Or Practice 9 The “fraudulent” prong under the UCL requires a plaintiff to “show deception to some members 10 of the public, or harm to the public interest,” Watson Laboratories, Inc. v. Rhone-Poulenc Rorer, Inc., 11 178 F.Supp.2d 1099, 1121 (C.D. Ca. 2001), or to allege that “members of the public are likely to be 12 deceived.” Medical Instrument Development Laboratories v. Alcon Laboratories, 2005 WL 1926673, 13 at *5 (N.D. Cal. 2005). A UCL claim based on the “fraudulent” prong must allege reliance. In re 14 Tobacco II Cases, 46 Cal.4th 298, 328, 93 Cal.Rptr.3d 559, 207 P.3d 20 (2009); Cattie v. Wal-Mart 15 Stores, Inc., 504 F.Supp.2d 939, 947-49 (S.D.Cal.2007). F.R.Civ.P. 9(b)'s heightened pleading 16 standards apply to claims for UCL claims are based on a fraudulent course of conduct. Kearns v. Ford 17 Motor Co., 567 F.3d 1120, 1124 (9th Cir.2009). 18 Defendants fault the absence of facts of “fraudulent conduct” given the complaint’s mere 19 reference to Wells Fargo’s alleged “unfair and deceptive business practice.” Defendants note the 20 absence of allegations that Wells Fargo promised to forego to foreclose or advised Mr. Phipps not to 21 pursue alternative avenues to remedy his default. 22 23 24 Defendants are correct. The complaint lacks a UCL fraudulent act or practice claim, and Mr. Phipps offers nothing to support amendment to attempt to plead such a claim. Unlawful Act Or Practice 25 Defendants explain that a UCL “unlawful” prong claim requires an underlying violation of law. 26 The UCL prohibits “unlawful” practices “forbidden by law, be it civil or criminal, federal, state, or 27 municipal, statutory, regulatory, or court-made.” Saunders v. Superior Court, 27 Cal.App.4th 832, 838, 28 33 Cal.Rptr.2d 438 (1999). The UCL “thus creates an independent action when a business practice 22 1 violates some other law.” Walker, 98 Cal.App.4th at 1169, 121 Cal.Rptr.2d 79. According to the 2 California Supreme Court, the UCL “borrows” violations of other laws and treats them as unlawful 3 practices independently actionable under the UCL. Farmers Ins. Exchange v. Superior Court, 2 Cal.4th 4 377, 383, 6 Cal.Rptr.2d 487 (1992). 5 A fellow district court has explained the borrowing of a violation of law other than the UCL: 6 To state a claim for an “unlawful” business practice under the UCL, a plaintiff must assert the violation of any other law. Cel-Tech Commc'ns, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163, 180, 83 Cal.Rptr.2d 548, 973 P.2d 527 (1999) (stating, “By proscribing ‘any unlawful’ business practice, section 17200 ‘borrows' violations of other law and treats them as unlawful practices that the unfair competition law makes independently actionable.”) (citation omitted). Where a plaintiff cannot state a claim under the “borrowed” law, she cannot state a UCL claim either. See, e.g., Smith v. State Farm Mutual Automobile Ins. Co., 93 Cal.App.4th 700, 718, 113 Cal.Rptr.2d 399 (2001). Here, Plaintiff has predicated her “unlawful” business practices claim on her TILA [Truth in Lending Act] claim. However, as discussed above, Plaintiff's attempt to state a claim under TILA has failed. Accordingly, Plaintiff has stated no “unlawful” UCL claim. 7 8 9 10 11 12 13 Rubio, 572 F.Supp.2d at 1168. 14 Defendants point to the complaint’s failure to allege or identify a violation of law to support a 15 UCL claim. Defendants are correct. The complaint lacks a UCL unlawful act or practice claim, and Mr. 16 Phipps offers nothing to support amendment to attempt to plead such a claim. 17 Declaratory Relief 18 The complaint’s fourth claim is entitled “Declaratory Relief” and alleges that “any purported sale 19 of the Home was void ab initio as it violated the provisions of the California Civil Code relating to 20 foreclosures.” The claim seeks declarations that Mr. Phipps has title to the property, that the property’s 21 transfer to Fannie Mae is void ab initio, and that Fannie Mae has no right, interest or title to the property. 22 Defendants point to the absence of an actual controversy to support a declaratory relief claim in 23 that the foreclosure has extinguished the note and DOT which gave rise to Mr. Phipps’ rights and 24 obligations. Mr. Phipps responds that “the agreement to postpone . . . created no interest in Fannie 25 Mae.” 26 The Declaratory Judgment Act (“DJA”), 28 U.S.C. §§ 2201, 2202, provides in pertinent part: 27 In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief 28 23 1 is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such. 2 3 28 U.S.C. §2201(a). 4 The DJA’s operation “is procedural only.” Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, 5 300 U.S. 227, 240, 57 S.Ct. 461, 463 (1937). “A declaratory judgment is not a theory of recovery.” 6 Commercial Union Ins. Co. v. Walbrook Ins. Co., Ltd., 41 F.3d 764, 775 (1st Cir. 1994). The DJA 7 “merely offers an additional remedy to litigants.” Nat’l Union Fire Ins. Co. v. Karp, 108 F.3d 17, 21 8 (2nd Cir. 1997) (italics in original). A DJA action requires a district court to “inquire whether there is 9 a case of actual controversy within its jurisdiction.” American States Ins. Co. v. Kearns, 15 F.3d 142, 10 143 (9th Cir. 1994). 11 As to a controversy to invoke declaratory relief, the question is whether there is a “substantial 12 controversy, between parties having adverse legal rights, or sufficient immediacy and reality to warrant 13 the issuance of a declaratory judgment.” Maryland Cas. Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 14 273, 61 S.Ct. 510, 512 (1941). The U.S. Supreme Court has further explained: 15 A justiciable controversy is thus distinguished from a difference or dispute of a hypothetical or abstract character; from one that is academic or moot. . . . The controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests. . . . It must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts. 16 17 18 19 Haworth, 300 U.S. at 240-241, 57 S.Ct. at 464 (citations omitted). 20 The failure of the complaint as a whole demonstrates the absence of an actual controversy subject 21 to declaratory relief. A declaratory relief action “brings to the present a litigable controversy, which 22 otherwise might only be tried in the future.” Societe de Conditionnement v. Hunter Eng. Co., Inc., 655 23 F.2d 938, 943 (9th Cir. 1981). In the absence of a viable claim, the complaint fails to support declaratory 24 relief. 25 26 Defendants further note the absence of an actual controversy given that the complaint lacks allegations of irregularities in the foreclosure process. 27 “A properly conducted nonjudicial foreclosure sale constitutes a final adjudication of the rights 28 of the borrower and lender.” Moeller, 25 Cal.App.4th at 831, 30 Cal.Rptr.2d 777. “As a general rule, 24 1 a trustee's sale is complete upon acceptance of the final bid.” Nguyen v. Calhoun, 105 Cal.App.4th 428, 2 440-441, 129 Cal.Rptr.2d 436 (2003). “If the trustee's deed recites that all statutory notice requirements 3 and procedures required by law for the conduct of the foreclosure have been satisfied, a rebuttable 4 presumption arises that the sale has been conducted regularly and properly; this presumption is 5 conclusive as to a bona fide purchaser.” Moeller, 25 Cal.App.4th at 831, 30 Cal.Rptr.2d 777 (citations 6 omitted). “A nonjudicial foreclosure sale is accompanied by a common law presumption that it ‘was 7 conducted regularly and fairly.’” Melendrez v. D & I Investment, Inc., 127 Cal.App.4th 1238, 1258, 26 8 Cal.Rptr.3d 413 (2005) (quoting Brown v. Busch, 152 Cal.App.2d 200, 204, 313 P.2d 19 (1957)). “This 9 presumption may only be rebutted by substantial evidence of prejudicial procedural irregularity.” 10 Melendrez, 127 Cal.App.4th at 1258, 26 Cal.Rptr.3d 413. 11 To challenge foreclosure, “it is necessary for the complaint to state a case within the code 12 sections for which reason it is essential to allege the facts affecting the validity and invalidity of the 13 instrument which is attacked.” Kroeker v. Hurlbert, 38 Cal.App.2d 261, 266, 101 P.2d 101 (1940). 14 A “trustee or mortgagee may be liable to the trustor or mortgagor for damages sustained where there has 15 been an illegal, fraudulent or wilfully oppressive sale of property under a power of sale contained in a 16 mortgage or deed of trust.” Munger v. Moore, 11 Cal.App.3d 1, 7, 89 Cal.Rptr. 323 (1970). 17 The complaint lacks facts of a specific statutory irregularity or misconduct in the foreclosure 18 proceedings. Mr. Phipps’ claim of an agreement to postpone the foreclosure sale is unsupported by 19 corresponding allegations in the complaint. As noted above, the complaint merely alleges an extension 20 to consider loan modification and a representation to work with Mr. Phipps. The complaint’s conclusory 21 allegations provide nothing to support a discrepancy in the foreclosure process to warrant dismissal of 22 claims, including the declaratory relief claim. The complaint lacks no allegations to overcome the 23 presumption of the foreclosure sale’s validity. 24 CONCLUSION AND ORDER 25 For the reasons discussed above, this Court: 26 1. DISMISSES this action with prejudice; and 27 2. DIRECTS the clerk to enter judgment against plaintiff Scott Phipps and in favor of 28 defendants Wells Fargo Bank, N.A., and Federal National Mortgage Association and to 25 1 close this action. 2 3 IT IS SO ORDERED. Dated: 66h44d January 27, 2011 /s/ Lawrence J. O'Neill UNITED STATES DISTRICT JUDGE 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 26
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