Ottovich et al v. Chase Home Finance, LLC et al, No. 3:2010cv02842 - Document 30 (N.D. Cal. 2010)
Court Description: ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS by Judge Alsup granting in part and denying in part 21 Motion to Dismiss (whalc2, COURT STAFF) (Filed on 9/22/2010)
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Ottovich et al v. Chase Home Finance, LLC et al Doc. 30 1 2 3 4 5 6 7 IN THE UNITED STATES DISTRICT COURT 8 FOR THE NORTHERN DISTRICT OF CALIFORNIA 9 11 For the Northern District of California United States District Court 10 12 13 14 15 HARVEY G. OTTOVICH REVOCABLE LIVING TRUST DATED MAY 12, 2006, HARVEY OTTOVICH AS TRUSTEE FOR THE HARVEY G. OTTOVICH REVOCABLE LIVING TRUST DATED MAY 12, 2006, MARK OTTOVICH AS SUCCESSOR TRUSTEE FOR AND BENEFICIARY OF HARVEY G OTTOVICH REVOCABLE LIVING TRUST DATED MAY 12, 2006, 18 19 20 21 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS AND VACATING HEARING Plaintiffs, 16 17 No. C 10-02842 WHA v. WASHINGTON MUTUAL, INC., CHASE HOME FINANCE, LLC, AND JP MORGAN CHASE BANK, N.A., AN ACQUIRER OF CERTAIN ASSETS AND LIABILITIES OF WASHINGTON MUTUAL BANK FROM FEDERAL DEPOSIT INSURANCE CORPORATION ACTING AS RECEIVER, DOES ONE THROUGH 50, INCLUSIVE, 22 Defendants. 23 / 24 INTRODUCTION 25 This is a motion to dismiss in a foreclosure dispute. Defendants Chase Home Finance, 26 LLC, and JP Morgan Chase Bank, N.A., move to dismiss all nine claims asserted against them in 27 28 Dockets.Justia.com 1 plaintiffs’ amended complaint.* For the reasons set forth below, defendants’ motion to dismiss is 2 GRANTED IN PART AND DENIED IN PART. The hearing on this motion is hereby VACATED. 3 4 STATEMENT This civil action involves a mortgage loan secured by California real property located at 5 303 Laurel Avenue in Hayward (Compl. ¶ 8). Plaintiff Harvey Ottovich alleges defendants 6 provided him a purchase money loan secured by the property (Compl. ¶ 9). In May 2006 Harvey 7 Ottovich ceded title to the property to plaintiff Harvey G. Ottovich Living Trust Dated May 12, 8 2006, with plaintiff Mark Ottovich as the designated successor trustee and beneficiary. Mark 9 Ottovich was also the attorney-in-fact for his brother Harvey and was in possession of a valid 11 For the Northern District of California United States District Court 10 power of attorney executed by Harvey Ottovich (Compl. ¶ 10). Soon after ceding title Harvey Ottovich became incapacitated and was unable to perform 12 daily duties required to manage the property (Compl. ¶ 12). In March 2009 Mark Ottovich, on 13 behalf of his brother and the Trust, began contacting defendants to seek information on how much 14 money was owed on the loan for the property (Compl. ¶ 13–14). From March 2009 to April 2010 15 Mark Ottovich made over 25 attempts to contact defendants to clarify the amount owed on the 16 loan and to make payments to defendants. During this one-year period, plaintiffs’ complaint 17 alleges, defendants refused to provide information to plaintiffs about the amount of money due to 18 make loan payments current, misrepresented how much money plaintiffs owed defendants, and 19 accepted payments from plaintiffs for the loan on the property but did not apply these payments to 20 payment of that loan (Compl. ¶ 14–17). As a result of this behavior, plaintiffs alleged that they 21 incurred damages in the form of late fees as well as emotional distress (Compl. ¶ 28–30). 22 In April 2010 defendants sent a letter to plaintiffs notifying them of foreclosure on the 23 property (Compl. ¶ 16). Plaintiffs initiated the instant action in state court and defendants 24 removed (Dkt. No. 1). Defendants initially brought a motion to dismiss on July 9, 2010 (Dkt. No. 25 5). Defendants initial motion to dismiss, however, was terminated when plaintiffs filed an 26 27 * During the case management conference on September 16, 2010, plaintiffs admitted that they had not yet 28 served notice of this suit to Washington Mutual, Inc. Plaintiffs were instructed to serve Washington Mutual, or the FDIC on behalf of Washington Mutual, within thirty days. Washington Mutual did not join in this motion to dismiss, evidently not yet being in the case. 2 1 amended complaint with additional facts (Dkt. No. 11). Defendants filed this motion to dismiss 2 and plaintiffs filed a timely opposition (Dkt. No. 25). 3 ANALYSIS 4 The amended complaint sets forth nine federal and state law claims: (1) breach of 5 contract.; (2) breach of the implied covenant of good faith and fair dealing; (3) violations of the 6 Real Estate Settlement Procedures Act (“RESPA”) under 12 U.S.C. 2605; (4) unfair debt 7 collection under California Civil Code Section 1788 and the Fair Debt Collections Act, 15 U.S.C. 8 1692 et seq.; (5) demand for accounting; (6) injunctive relief; (7) declaratory relief; (8) unfair 9 business practices under Section 17200 of the California Business & Professions Code; and (9) intentional infliction of emotional distress. As explained in the analysis below, the motion to 11 For the Northern District of California United States District Court 10 dismiss is GRANTED IN PART AND DENIED IN PART. 12 1. STANDARD OF REVIEW 13 To survive a motion to dismiss for failure to state a claim, a pleading must contain 14 sufficient factual matter, accepted as true, to state a claim that is plausible on its face. FRCP 15 12(b)(6); Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). A claim is facially plausible when there 16 are sufficient factual allegations to draw a reasonable inference that defendants are liable for the 17 misconduct alleged. While a court “must take all of the factual allegations in the complaint as 18 true,” it is “not bound to accept as true a legal conclusion couched as a factual allegation.” Id. at 19 1949-50. “[C]onclusory allegations of law and unwarranted inferences are insufficient to defeat a 20 motion to dismiss for failure to state a claim.” Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 21 (9th Cir. 1996). Dismissal without leave to amend is only appropriate when the Court is satisfied 22 that the deficiencies in the complaint could not possibly be cured by amendment. Jackson v. 23 Carey, 353 F.3d 750, 758 (9th Cir. 2003) (citation omitted). With these legal standards set forth, 24 this order turns to the nine claims in the amended complaint. 25 2. STANDING 26 The “irreducible constitutional minimum” of standing contains three elements: (1) the 27 plaintiff must have suffered an “injury in fact” — an invasion of a legally protected interest which 28 is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical; 3 1 (2) there must be a causal connection between the injury and the conduct complained of; and (3) 2 it must be “likely,” as opposed to merely “speculative,” that the injury will be redressed by a 3 favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992). 4 Defendants contend that all plaintiffs lack standing, but defendants only make specific Plaintiffs’ amended complaint alleged that all plaintiffs, especially Harvey Ottovich, have a 7 concrete, redressable injury claim connected to the behavior of defendants. The Supreme Court 8 ruled in Department of Commerce v. United States House of Representatives, that if any plaintiff 9 has standing, it satisfies the standing requirement for all co-plaintiffs who are proper parties on 10 the same complaint seeking the same relief because the case before the court is justiciable. 525 11 For the Northern District of California arguments as to why plaintiff Mark Ottovich lacks standing. Defendants’ argument fails. 6 United States District Court 5 U.S. 316, 330 (1999). Plaintiffs meet the standing elements set forth in Lujan, because plaintiffs’ 12 amended complaint sufficiently alleged that all plaintiffs, including Mark Ottovich, are proper 13 parties seeking the same relief. 14 Defendants also allege that all claims against defendant Chase Home Finance must be 15 dismissed because they are not redressable. Specifically, defendant Chase asserts that it is a 16 different entity from defendant Washington Mutual and defendant JP Morgan and that it is not 17 responsible for or party to the dealings between those defendants and plaintiffs. Plaintiffs’ 18 amended complaint, however, alleged nine claims against all defendants. Taking the assertions in 19 the amended complaint as true, defendants’ argument for lack of standing on this point also fails. 20 For these reasons, defendants’ motion to dismiss for lack of standing is DENIED. 21 3. 22 Plaintiffs’ first claim is for breach of contract. Defendants move to dismiss on the ground BREACH OF CONTRACT 23 that the complaint does not allege sufficient facts. Defendants’ motion to dismiss correctly sets 24 out the standard elements of a claim for breach of contract: “(1) the contract, (2) plaintiff’s 25 performance or excuse for nonperformance, (3) defendant’s breach, and (4) damage to plaintiff 26 therefrom.” Troyk v. Fanners Group, Inc., 171 Cal.App.4th 1305, 1352 (2009). 27 28 Plaintiffs alleged sufficient facts in their amended complaint to meet each element for a breach of contract claim. First, plaintiffs entered into a contract with defendants for a loan on the 4 1 property. Second, although plaintiffs acknowledge nonperformance on that contract, they also 2 alleged sufficient facts for excuse of that nonperformance. Third, the amended complaint alleged 3 numerous instances of defendants’ breach of that contract. Fourth, plaintiffs also asserted 4 specific details as to damages suffered as a result of defendants’ breach of contract with plaintiffs. 5 Defendants also assert that the agent-immunity rule applies and prevents plaintiffs from 6 asserting a successful breach of contract claim. Plaintiffs’ amended complaint, however, alleged 7 that defendants were the “agents, employees, and co-conspirators of their co-defendants” and 8 were “acting within the course and scope of the agency, employment and/or conspiracy” (Compl. 9 ¶ 6). Plaintiffs alleged that defendants were acting in the scope of their agency relationship as one possibility, but it was not the only possibility they alleged. Plaintiffs also alleged defendants 11 For the Northern District of California United States District Court 10 could have been acting in the scope of their employment. Assuming the latter is true, the agent 12 immunity rule does not apply. Defendants argument fails. 13 Defendants’ motion to dismiss plaintiffs’ claim for breach of contract is DENIED. 14 4. 15 Plaintiffs’ second claim is for breach of the implied covenant of good faith and fair 16 dealing. To establish this claim, a plaintiff must establish the existence of a contractual obligation, 17 the identities of the parties involved, and conduct that impedes the other party’s rights to benefit 18 from the contract. Plaintiffs have sufficiently pled all of these elements in the amended complaint 19 under the breach of contract claim. In addition, defendants do not make specific arguments 20 detailing how plaintiffs failed to establish the elements for this claim. Defendants’ motion to 21 dismiss this claim is DENIED. BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING 22 5. RESPA 23 Plaintiffs’ third claim alleged that the defendants violated RESPA by not responding to 24 written requests from plaintiffs. Section 2605 under RESPA governs claims regarding written 25 requests. Section 2605(e)(1) specifically requires servicers of federally related mortgage loans to 26 respond to “qualified written requests” from borrowers seeking information relating to loan 27 servicing. 12 U.S.C. 2605(e)(1). Servicers’ failure to provide a response is actionable under 28 Section 2605(f). A number of courts have read Section 2605(f) to require a showing of pecuniary 5 1 damages. In Hutchinson v. Delaware Savings Bank FSB, the court stated that “alleging a breach 2 of RESPA duties alone does not state a claim under RESPA. Plaintiff must, at a minimum, also 3 allege that the breach resulted in actual damages.” 410 F. Supp. 2d 374, 383 (D.N.J. 2006). 4 Here, defendants argue that plaintiffs’ RESPA claim fails because no pecuniary loss is 5 alleged. This order disagrees. Plaintiffs alleged sufficient pecuniary damages resulting from 6 defendants’ alleged non-response to plaintiffs’ written requests. Plaintiffs specifically alleged 7 that they had to pay late fees and other monetary penalties because of defendants’ non- 8 responsiveness. 9 For these reasons, defendants’ motion to dismiss plaintiffs’ RESPA claim is DENIED. 6. 11 For the Northern District of California United States District Court 10 UNFAIR DEBT COLLECTION Plaintiffs’ fourth claim, for unfair debt collection, alleged that defendants violated 12 provisions of California’s Rosenthal Fair Debt Collection Practices Act and the Federal Debt 13 Collections Act (Compl. ¶ 52–56). Under these laws, a “debt collector” is any person “who 14 regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be 15 owed or due another.” 15 U.S.C. 1692a(6); see also Cal. Civ. Code 1788.2(c). A defendant must 16 be a “debt collector” to be subject to these laws. Additionally, a complaint must allege how the 17 “debt” at issue was an “obligation of . . . a consumer to pay money arising out of a transaction in 18 which the money, property, insurance, or services which are the subject of the transactions are 19 primarily for personal, family or household purposes” as required under these laws. 15 U.S.C. 20 1692a(5); see also Cal. Civ. Code 1788.2(b), (e). 21 Plaintiffs’ amended complaint alleged that defendants were debt collectors and that the 22 property was the home of Harvey Ottovich. This satisfies the pleading requirements under the 23 appropriate standard of review. Defendants assert that they are not debt collectors as defined by 24 law. Defendants argue that the collection of debt or foreclosure of the property pursuant to 25 default on a loan does not constitute debt collection. Hulse v. Ocwen Federal Bank, FSB, 195 F. 26 Supp. 2d 1188, 1204 (D. Or. 2002). This argument is incomplete. First, Hulse has been found to 27 be overly broad in the categorical exclusions it provided under federal law to lenders. See 28 Kaltenbach v. Richards, 464 F.3d 524, 528–29 (5th Cir. 2006). Second, the behavior of 6 1 defendants, in the instant case, goes beyond mere foreclosure proceedings, as plaintiffs alleged 2 that defendants repeatedly obfuscated the truth with regard to the loan amounts and payments. 3 Defendants’ motion to dismiss plaintiffs’ unfair debt collection claim is DENIED. 4 7. 5 Plaintiffs’ fifth claim was a demand for accounting. An accounting may take the form of ACCOUNTING relevant actionable claims. To state a claim for accounting the complaint must allege: (1) a 8 relationship or other circumstances appropriate to the remedy; and, (2) a balance due from the 9 defendant to the plaintiff that can only be ascertained by an accounting. Brea v. McGlashan, 3 10 Cal.App.2d 454, 460 (1934). Defendants assert they did not enter into a fiduciary relationship 11 For the Northern District of California a legal remedy or an equitable claim. A request for a legal accounting must be tethered to 7 United States District Court 6 with plaintiffs because a lender does not owe a fiduciary duty to a borrower. A fiduciary 12 relationship between the parties, however, is not required to state a cause of action for an 13 accounting. “All that is required is that some relationship exists that requires an accounting.” 14 Teselle v. McLoughlin, 173 Cal.App.4th 156, 179 (2009). The facts alleged by plaintiffs establish 15 such a relationship and the potential need for an accounting. 16 Defendants’ motion to dismiss plaintiffs’ claim for accounting is DENIED. 17 8. 18 Plaintiffs’ sixth claim is for injunctive relief. “In brief, the bases for injunctive relief are INJUNCTIVE RELIEF 19 irreparable injury and inadequacy of legal remedies. In each case, a court must balance the 20 competing claims of injury and must consider the effect on each party of the granting or 21 withholding of the requested relief.” Amoco Production Co. v. Village of Gambell, 480 U.S. 531, 22 542 (1987). The Supreme Court recently clarified that, even where a likelihood of success on the 23 merits is established, a mere “possibility” of irreparable injury will not suffice; rather, irreparable 24 injury must be “likely.” Winter v. Natural Resources Defense Council, 129 S.Ct. 365, 374–76 25 (2008). Until this case is finally determined, it is impossible to say that injunctive relief will not 26 be in order. Defendants’ motion to dismiss plaintiffs’ claim for injunctive relief is DENIED. 27 28 7 1 9. DECLARATORY RELIEF 2 Plaintiffs’ seventh claim seeks declaratory relief. Until this case is finally determined, it is 3 impossible to say that declaratory relief will not be in order. Defendants’ motion to dismiss 4 plaintiffs’ claim for declaratory relief is DENIED. 5 10. UNFAIR BUSINESS PRACTICES 6 Plaintiffs’ eighth claim is for unfair business practices. California unfair competition law 7 covers “any unlawful, unfair, or fraudulent business act or practice.” Cal. Bus. & Prof. Code 8 17200 et seq. Persons authorized to bring claims under this code section are “those who have 9 suffered injury in fact and lost money or property as a result of the unfair competition.” Cal. Bus. & Prof. Code 17204. In addition, “damages” are not an available remedy under Section 17200. 11 For the Northern District of California United States District Court 10 “A UCL [Section 17200] action is equitable in nature; damages cannot be recovered.” Korea 12 Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1144 (2003). A prevailing plaintiff is 13 generally limited to injunctive relief and restitution, meaning monies or property unfairly 14 obtained by defendants in which plaintiff has an ownership interest. Id. at 1144, 1148. Plaintiffs 15 allege that defendants engaged in fraudulent, unlawful, and unfair practices within the meaning of 16 the statute by failing and refusing to disclose information about current loans to its customers. 17 18 A. Fraudulent Conduct After Section 17200 was amended in November 2004, plaintiffs must plead that they were 19 injured in fact “as a result” of defendants’ fraudulent conduct. This means that plaintiffs must 20 allege that had the omitted information been disclosed, they would have been aware of it and 21 behaved differently. Plaintiffs’ amended complaint alleged that defendants made false promises, 22 misappropriated funds, and withheld information. As a result, plaintiffs assert that they were 23 injured because they had to pay additional fees, penalties, and even purchase additional insurance. 24 Plaintiffs, therefore, state a factually sufficient claim for fraudulent conduct under Section 17200. 25 26 27 28 B. Unlawful Practices Plaintiffs also allege that defendants engaged in unlawful practices in violation of Section 17200. A practice is unlawful if it violates a law other than Section 17200 when committed pursuant to business activity. See Farmers Insurance Exchange v. Superior Court, 2 Cal.4th 377, 8 1 383 (1992). Plaintiffs’ amended complaint alleged that defendants actions were in violation of 2 the RESPA and constituted unlawful conduct under Section 17200. Accordingly, plaintiffs’ 3 allegation that defendants violated Section 17200 for unlawful practices is sufficient. 4 5 6 7 8 9 11 For the Northern District of California United States District Court 10 12 13 C. Unfair Practices A business practice constitutes unfair competition “if it offends an established public policy or . . . is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.” People v. Duz-Mor Diagnostic Laboratory, Inc., 68 Cal.App.4th 654, 658 (1998) (internal quotations and citations omitted). While a business practice can constitute unfair competition if it causes consumers to pay higher prices, a business practice can also constitute unfair competition if the practice offends public policy. Ibid. Plaintiffs alleged that defendants both caused plaintiffs to pay higher prices, through the misappropriation of funds, and also violated public policy by refusing to serve plaintiffs as loan customers. Plaintiffs adequately pled defendants’ conduct was unfair within the meaning of the statute. 14 15 16 Defendants’ motion to dismiss plaintiffs’ claim for unfair competition is DENIED without prejudice to trial or to summary judgment on a more complete record. 17 11. 18 Plaintiffs’ ninth claim against defendants is for intentional infliction of emotional distress. 19 To state a claim for this tort, a party must allege (1) outrageous conduct, “so extreme as to exceed 20 all bounds of that usually tolerated in a civilized community,” (2) an intent to cause or a reckless 21 disregard of the possibility of causing emotional distress, (3) severe or extreme emotional 22 distress, and (4) that the outrageous conduct proximately caused the emotional distress. Symonds 23 v. Mercury Sav. & Loan Ass’n, 225 Cal.App.3d 1458, 1468 (1990). 24 25 26 27 28 INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS Plaintiffs’ amended complaint is insufficient under Iqbal and Twombly. Plaintiffs’ amended complaint lacks specific facts describing the severe emotional distress suffered, let alone that defendants’ conduct proximately caused this distress. Plaintiffs merely assert legal conclusions that they suffered severe emotional distress as a result of the conduct of defendants. Furthermore, plaintiffs also failed to allege sufficient facts to establish intent by defendants to 9 1 inflict emotional distress. Plaintiffs’ claim for intentional infliction of emotional distress is 2 DISMISSED with leave to amend. 3 4 5 6 7 8 9 CONCLUSION For the reasons set forth above, defendants’ motion to dismiss all claims asserted in the complaint is GRANTED IN PART AND DENIED IN PART. Specifically, defendants’ motion to dismiss claim nine is GRANTED with leave to amend and DENIED as to all other claims. Plaintiffs may seek leave to amend the complaint and will have FOURTEEN CALENDAR DAYS from the date of this order to file a motion, noticed on the normal 35-day calendar, for leave to amend the complaint. If no motion is filed by this deadline, the claim will be dismissed. 11 For the Northern District of California United States District Court 10 The hearing on this motion is hereby VACATED. 12 13 IT IS SO ORDERED. 14 Dated: September 22, 2010. 15 WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 16 17 18 19 20 21 22 23 24 25 26 27 28 10
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