Fernandez et al v. Wells Fargo Bank, N.A. et al, No. 3:2012cv03941 - Document 20 (N.D. Cal. 2012)
Court Description: ORDER GRANTING 6 MOTION to Dismiss Complaint filed by Wells Fargo Bank, N.A. and DENYING AS MOOT 18 MOTION to Appear by Telephone filed by Corazon Fernandez, Vergelio Fernandez, Amended Pleadings due by 11/26/2012. Case Management Conference set for 2/6/2013 10:00 AM in Courtroom A, 15th Floor, San Francisco.. Signed by Judge Nathanael M. Cousins on 10/29/2012. (nclc1S, COURT STAFF) (Filed on 10/29/2012)
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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 SAN FRANCISCO DIVISION 10 VIRGELIO and CORAZON FERNANDEZ, Case No. 12-cv-03941 NC 11 ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND Plaintiffs, 12 v. 13 WELLS FARGO BANK, N.A., and CAL14 Re: Dkt. Nos. 6, 18 WESTERN RECONVEYANCE CORP., Defendants. 15 This action arises from an alleged default on a home loan and the resulting 16 17 commencement of nonjudicial foreclosure proceedings. Plaintiffs Virgelio and Corazon 18 Fernandez bring this suit against Defendants Wells Fargo Bank, N.A. and Cal-Western 19 Reconveyance Corporation under California law for wrongful foreclosure, failure to 20 comply with notice requirements, and unfair business practices. After removing the action 21 to federal court, Wells Fargo moves to dismiss each of Plaintiffs claims on the grounds 22 that they are preempted by the federal Home Owner s Loan Act (“HOLA”). The issues are 23 (1) whether HOLA preempts all of Plaintiffs state law claims, and (2) if not, whether there 24 is any state statutory remedy available to Plaintiffs. Because HOLA does not preempt 25 Plaintiffs claim under California Civil Code § 2923.5, but it is unclear whether that 26 section s remedy is available to Plaintiffs, the Court GRANTS the motion to dismiss 27 WITH LEAVE TO AMEND. 28 // Case No. 12-cv-03941 NC ORDER GRANTING MOTION TO DISMISS I. BACKGROUND 1 2 A. Plaintiffs’ Complaint 3 In May 2007, Plaintiffs took a $557,600 home loan from Wells Fargo s predecessor, 4 World Savings Bank, FSB. Dkt. No. 1, Ex. A ¶ 6. The loan is secured by a deed of trust on 5 Plaintiffs home at 25994 Gushue Street in Hayward, California. Id. An agent for Cal6 Western recorded a notice of default and initiated foreclosure proceedings on Plaintiffs 7 home on February 9, 2012. Id. ¶ 8. In response, Plaintiffs sued Wells Fargo and Cal8 Western in the Superior Court of California for the County of Alameda. Id. ¶¶ 3-4. 9 Plaintiffs allege (1) that because their loan was securitized or sold, Wells Fargo was not the 10 beneficiary under the deed of trust at the time it recorded the notice of default, and has no 11 valid right to initiate foreclosure; (2) that Wells Fargo improperly recorded the notice of 12 default because it failed to contact Plaintiffs thirty days prior to the recording as required 13 under California Civil Code § 2923.5; and (3) that Wells Fargo s failure to comply with 14 § 2923.5 violated California Business and Professions Code § 17200. Id. ¶¶ 9-20. 15 Plaintiffs seek declaratory relief, a temporary restraining order, a preliminary injunction, a 16 permanent injunction, damages, costs, and fees. Dkt. No. 1, Ex. A. 17 18 B. Wells Fargo’s Motion to Dismiss Wells Fargo moves to dismiss Plaintiffs claims on the grounds that Plaintiffs first 19 and second claims are preempted by HOLA, 12 U.S.C. § 1461, et seq. Dkt. No. 6 at 12-17. 20 The state laws Plaintiffs allege Wells Fargo violated regulate the processing and servicing 21 of mortgages, and Wells Fargo alleges that HOLA occupies the entire field of such 22 regulations. Id. at 12-15. Furthermore, because HOLA preempts Plaintiffs claims, Wells 23 Fargo argues, its derivative claim of unfair business practices under § 17200 also fails, as it 24 cannot stand alone. Id. at 20. Wells Fargo also contends that even if Plaintiffs claims 25 were not preempted, that Plaintiffs fail to state a claim for relief. Id. at 17-21. Wells Fargo 26 states that as a matter of law it has the right to initiate foreclosure proceedings, id. at 17, 27 and that it “tried with due diligence as prescribed by . . . § 2923.5(g) to contact [Plaintiffs]” 28 prior to filing the notice of default, id. at 19-20. Wells Fargo alleges that Plaintiffs Case No. 12-cv-03941 NC ORDER GRANTING MOTION TO DISMISS 2 1 § 17200 claim fails because they cannot show that Wells Fargo engaged in any unfair or 2 unlawful business practice and because Plaintiffs did not suffer any loss, an essential 3 element of the claim. Id. at 20. Plaintiffs oppose Wells Fargo s motion on the grounds that nonjudicial foreclosure 4 5 proceedings are “uniquely within the realm of state law” and therefore HOLA does not 6 preempt their claims of wrongful foreclosure and failure to notify. Dkt. No. 12 at 8. 7 Plaintiffs also challenge, for the first time, the lawfulness of Wells Fargo s initiation of 8 foreclosure proceedings under California Civil Code § 2932.5, which requires a party who 9 wishes to exercise its power of sale to record the assignment first. Id. at 10. 10 11 C. Wells Fargo’s Request for Judicial Notice Wells Fargo requests that the Court take judicial notice of the following documents: 12 (A) Plaintiffs adjustable rate mortgage note; (B) the deed of trust securing Plaintiffs 13 mortgage; (C) the certificate of corporate existence for World Savings Bank; (D) a letter 14 from the Office of Thrift Supervision (“OTS”) to World Savings Bank; (E) the charter of 15 Wachovia Mortgage, FSB; (F) an official certification of the Comptroller of the Currency 16 stating that effective November 1, 2009, Wachovia Mortgage, FSB converted to Wells 17 Fargo Bank Southwest, N.A., which then merged with Wells Fargo Bank, N.A.; (G) the 18 FDIC s profile and history of World Savings Bank, FSB, from the FDIC s official website; 19 and (H) the notice of default dated February 9, 2012 in the official records of the Alameda 20 County Recorder s Office. Dkt. No. 7, Exs. A-H. 21 22 Plaintiffs object to Wells Fargo s request on the grounds that the documents contain hearsay. Dkt. No. 14 at 2. 23 Although a district court generally may not consider any material beyond the 24 pleadings in ruling on a Rule 12(b)(6) motion, the Court may take judicial notice of 25 documents referenced in the complaint, as well as matters in the public record, without 26 converting a motion to dismiss into one for summary judgment. See Lee v. City of Los 27 Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001). A matter may be judicially noticed if it is 28 either “generally known within the territorial jurisdiction of the trial court” or “can be Case No. 12-cv-03941 NC ORDER GRANTING MOTION TO DISMISS 3 1 accurately and readily determined from sources whose accuracy cannot reasonably be 2 questioned.” Fed. R. Evid. 201(b); W. Radio Servs. Co. v. Qwest Corp., 530 F.3d 1186, 3 1192 n.4 (9th Cir. 2008). In addition, under Federal Rule of Civil Procedure 10(c), a court 4 may take judicial notice of “documents whose contents are alleged in a complaint and 5 whose authenticity no party questions, but which are not physically attached to the 6 pleading.” Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). However, the court may 7 not judicially notice the truth of the disputed facts contained in such a document. Lee, 250 8 F.3d at 689. 9 Here, the documents that Wells Fargo seeks judicial notice of are documents that are 10 in the public record and subject to verification. The Court will therefore take judicial notice 11 of Exhibits A-G. Because the issue of whether Plaintiffs were notified properly is in 12 dispute, however, the Court will take judicial notice of the existence of Exhibit H, the 13 notice of default, but will not judicially notice the truth of the facts asserted in Exhibit H, 14 for example that Wells Fargo used due diligence to contact Plaintiffs. 15 D. Jurisdiction 16 This court has jurisdiction under 28 U.S.C. § 1332. Wells Fargo filed a notice to 17 remove Plaintiffs complaint from state to federal court. Dkt. No. 1. Wells Fargo is a 18 national bank whose main office, as designated in its articles of association, is located in 19 South Dakota. Plaintiffs reside in California. Because Plaintiffs fail to state a claim for 20 relief against Cal-Western, it is fraudulently joined and can be ignored for purposes of 21 diversity jurisdiction. Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 22 2001); see infra Part III.D. All parties have consented to the jurisdiction of this court under 23 28 U.S.C. § 636(c). II. STANDARD OF REVIEW 24 25 A. Preemption 26 In the field of national banking, Congress has created an “extensive federal statutory 27 and regulatory scheme,” Bank of America v. City & Cnty. of San Francisco, 309 F.3d 551, 28 558 (9th Cir. 2002), which gives “both enumerated and incidental „powers to national Case No. 12-cv-03941 NC ORDER GRANTING MOTION TO DISMISS 4 1 banks as grants of authority not normally limited by, but rather ordinarily pre-empting, 2 contrary state law,” Barnett Bank v. Nelson, 517 U.S. 25, 32 (1996). HOLA is a “radical 3 and comprehensive response to the inadequacies of the existing state system, . . . so 4 pervasive as to leave no room for state regulatory control.” Silvas v. E*Trade Mortg. Corp., 5 514 F.3d 1001, 1004 (9th Cir. 2008) (internal citation omitted). Under HOLA, the OTS has 6 “broad authority to issue regulations governing . . . federal savings associations.” Id. at 7 1005. OTS has stated expressly that it “occupies the entire field of lending regulation for 8 federal savings associations.” 12 C.F.R. § 560.2(a). 9 A preemption analysis under HOLA requires a court to determine whether the law at 10 issue is identified in 12 C.F.R. § 560.2(b), which provides a nonexclusive list of the types of 11 state laws preempted by HOLA. See Silvas, 514 F.3d at 1005. Among the laws specifically 12 preempted by HOLA are those affecting “terms of credit, including amortization of loans 13 and the deferral and capitalization of interest and adjustments to the interest rate, balance, 14 payments due, or term to maturity of the loan;” “[d]isclosure and advertising, including 15 laws requiring specific statements, information, or other content to be included in credit 16 application forms, credit solicitations, billing statements, credit contracts, or other credit 17 related documents and laws requiring creditors to supply copies of credit reports to 18 borrowers or applicants;” and “[p]rocessing, origination, servicing, sale or purchase of, or 19 investment or participation in, mortgages.” 12 C.F.R. § 560.2(b)(4), (9) and (10). 20 If the state law at issue falls into one of the enumerated categories, then it is 21 preempted by HOLA. Silvas, 514 F.3d at 1005. If it does not fall into one of the 22 enumerated categories but affects lending, a presumption of preemption arises that is 23 reversed only “if the law can clearly be shown to fit within the confines of paragraph (c) [of 24 § 560.2].” Id. Section 560.2(c) excludes from preemption “[s]tate laws . . . that . . . only 25 incidentally affect the lending operations of federal savings associations.” 12 C.F.R. 26 § 560.2(c). Examples of permissible state regulation include legislation that “regulate[s] 27 national banks in areas such as contracts, debt collection, acquisition and transfer of 28 property, and taxation, zoning, criminal, and tort law.” Bank of America, 309 F.3d at 559. Case No. 12-cv-03941 NC ORDER GRANTING MOTION TO DISMISS 5 1 B. Failure to State a Claim 2 To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a 3 plaintiff must plead his claim with sufficient specificity to “give the defendant fair notice of 4 what the claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 5 U.S. 544, 555 (2007). “To survive a motion to dismiss, a complaint must contain sufficient 6 factual matter, accepted as true, to state a claim to relief that is plausible on its face. A 7 claim has facial plausibility when the plaintiff pleads factual content that allows the court to 8 draw the reasonable inference that the defendant is liable for the misconduct alleged.” 9 Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009) (citation and internal quotation marks omitted). 10 A court is not required to accept as true conclusory allegations, unreasonable inferences, or 11 unwarranted deductions of fact. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 12 1025, 1031 (9th Cir. 2008). If a complaint lacks facial plausibility, a court must grant leave 13 to amend unless it is clear that the complaint s deficiencies cannot be cured by amendment. 14 Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002). 15 III. DISCUSSION 16 “[T]he process of foreclosure has traditionally been a matter of state real property 17 law.” Mabry v. Superior Court, 110 Cal. Rptr. 3d 201, 217 (Cal. Ct. App. 2010), review 18 denied (Aug. 18, 2010). Nonjudicial foreclosure, at issue here, is a process made available 19 by California law; it “is not a lender s right in many states, and certainly does not derive 20 from HOLA.” Ortiz v. Wells Fargo Bank, N.A., 10-cv-04812 RS, 2011 WL 4952979 at *3 21 (N.D. Cal. May 27, 2011). Although HOLA governs lending and savings associations, 22 “[t]here is no federal or nationally-uniform standard for creating and enforcing security 23 interests in real property.” Id. Wells Fargo argues that HOLA preempts any state law that 24 affects the operation of a federal savings association. Dkt. No. 6 at 12. Although HOLA s 25 regulation of lending may be extensive, there is nothing to suggest that it preempts every 26 state law that touches upon lending. Those laws regulating the process of state-created 27 nonjudicial foreclosure are worth a particularly close look. 28 // Case No. 12-cv-03941 NC ORDER GRANTING MOTION TO DISMISS 6 1 A. 2 Plaintiffs allege that Wells Fargo could not lawfully initiate foreclosure proceedings 3 4 5 6 7 8 9 10 against them because it does not own the beneficial interest in the deed of trust. Dkt. No. 1, Ex. A ¶ 11. Plaintiffs argue that World Savings Bank securitized and sold its interest in their home to a real estate mortgage investment conduit (“REMIC”) prior to its merger with Wells Fargo, and that therefore Wells Fargo cannot validly execute the deed of trust because it did not in fact acquire the interest from World Savings Bank. Id. Plaintiffs also argue that California Civil Code § 2932.5 required Wells Fargo to record its interest upon assignment in order to enforce the terms of the deed. Dkt. No. 12 at 10. In determining whether Plaintiffs state law claim is preempted, the Court looks to see 11 12 13 14 15 16 17 18 19 20 21 HOLA Preempts Plaintiffs’ Claim that Wells Fargo Wrongfully Foreclosed upon Their Property Because It Lacked the Power of Sale. if it is among the non-exclusive list of examples in paragraph (b) of 12 C.F.R. § 560.2. If so, the preemption analysis ends there. Silvas, 514 F.3d at 1005. Paragraph (b) states that HOLA preempts state laws regulating the “sale or purchase of, or investment or participation in, mortgages.” 12 C.F.R. § 560.2(b)(10). Here, Plaintiffs allege wrongful foreclosure by Wells Fargo because World Savings Bank sold and securitized its mortgage and thus relinquished its rights to enforce the deed of trust. Because this claim falls squarely within the language of § 560.2(b)(10), HOLA preempts it, and the analysis ends.1 The Court GRANTS Wells Fargo s motion to dismiss Plaintiffs claim of wrongful foreclosure. B. 22 HOLA Does Not Preempt Plaintiffs’ Claim that Wells Fargo Failed to Notify Them in Accordance with California Civil Code § 2923.5. Plaintiffs allege that Wells Fargo violated § 2923.5 because it failed to notify 23 Plaintiffs thirty days prior to recording the notice of default. Wells Fargo argues that 24 25 26 27 28 1 Accordingly, the Court does not reach Defendants alternative grounds for dismissal. It notes, however, that the securitization of a mortgage does not alter the rights and liabilities of the parties who first entered into the agreement, Hague v. Wells Fargo Bank, N.A., 11-cv-02366 TEH, 2011 WL 6055759, at *5 (N.D. Cal. Dec. 6, 2011), and that § 2932.5 does not apply to deeds of trust, Calvo v. HSBC Bank USA, N.A., 130 Cal. Rptr. 3d 815, 819 (Cal. Ct. App. 2011), review denied (Jan. 4, 2012). Case No. 12-cv-03941 NC ORDER GRANTING MOTION TO DISMISS 7 1 HOLA preempts this claim, and alternatively, that it satisfied the statutory requirement of 2 due diligence in attempting to contact Plaintiffs. In the first step of the analysis, the Court 3 looks to § 560.2(b). Silvas, 514 F.3d at 1005. Foreclosure is not among the types of state 4 laws preempted by HOLA. Paragraph (b), however, contains only “illustrative examples” 5 “without limitation.” 12 C.F.R. §560.2(b). Wells Fargo urges that § 2923.5 falls within the 6 “processing and servicing” of a mortgage in § 560.2(b)(10) and cites several district court 7 opinions from this district that have found § 2923.5 preempted. Wells Fargo fails to 8 explain, however, how a thirty-day notification requirement is analogous to state laws that 9 regulate the extension of credit. “[S]uch a broad interpretation of what it means to 10 “service” or “participate in” a mortgage could operate to preempt most all California 11 foreclosure statutes where the foreclosing entity is a national lender.” Loder v. World Sav. 12 Bank, N.A., 11-cv-00053 TEH, 2011 WL 1884733, at *7 (N.D. Cal. May 18, 2011) 13 (declining to decide whether § 2923.5 is preempted “without a more thorough analysis of 14 whether loan servicing is distinct from foreclosure”). In the absence of more guidance from 15 Wells Fargo, the Court concludes that § 2923.5 is not the type of law contemplated by 16 paragraph (b). 17 Next, the Court considers whether § 2923.5 “affects” lending and should be presumed 18 preempted. Silvas, 514 F.3d at 1005. Some courts in this district have found that § 2923.5 19 does affects lending and is therefore preempted. For example, in Giordano v. Wachovia 20 Mortg., FSB, the court stated that “clearly, state laws governing foreclosure proceedings 21 affect lending” but did not explain how. 10-cv-04661 JF, 2010 WL 5148428, at *4 (N.D. 22 Cal. Dec. 14, 2010). Other courts have found that “[w]hile lenders conceivably could make 23 lending decisions and policies based at least in part on the state foreclosure laws that would 24 apply where the loans are made, the foreclosure rules have no direct application to what 25 lenders can or must do or not do when making loans.” Ortiz, 2011 WL 4952979, at *3. 26 Here, Wells Fargo does not argue that § 2923.5 or any of California s law governing 27 the process of nonjudicial foreclosure constrains its ability to “extend credit as authorized 28 under federal law.” 12 C.F.R. § 560.2(a). In the absence of evidence, or even argument, Case No. 12-cv-03941 NC ORDER GRANTING MOTION TO DISMISS 8 1 that the state law notice requirements of a state-created foreclosure process impinge upon 2 the extension of credit in the first place, the Court is hesitant to find that § 2923.5 affects 3 lending. The Court need not make this determination, however, because it finds that any 4 effect § 2923.5 has on lending operations is only incidental, and that it furthers a vital state 5 interest. See 12 C.F.R. § 560.12(c)(6). Paragraph (c) of § 560.2 outlines the types of state law that HOLA does not preempt 6 7 and which rebut the presumption that state laws that affect lending are preempted. 12 8 C.F.R. § 560.2(c); Silvas, 514 F.3d at 1005. They include contract and real property law to 9 the extent they only incidentally affect lending operations, as well as any other law that 10 “furthers a vital state interest” and “has only an incidental effect on lending operations or is 11 not otherwise contrary to the purposes” of HOLA. 12 C.F.R. § 560.2(c)(6). Section 2923.5 12 merely requires Wells Fargo to contact Plaintiffs thirty days before recording the notice of 13 default. As discussed above, it is not obvious that this law has any effect on lending. 14 Section 2923.5 provides a procedural safeguard for borrowers; it does not create a right to 15 loan modification or to loan counseling. Valverde v. Wells Fargo Bank, N.A., 11-cv-02423 16 SC, 2011 WL 3740836, at *8 (N.D. Cal. Aug. 25, 2011). Furthermore, the only remedy 17 available under § 2923.5 is postponement of the foreclosure sale until the lender complies. 18 Mabry, 110 Cal. Rptr. 3d at 204. Contrast this with the California law that invalidated due19 on-sale clauses, which the Supreme Court held was preempted by HOLA in Fidelity Fed. 20 Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141 (1982). The due-on-sale clause was an 21 essential part of the mortgage contract and enabled lenders to replace long-term, low-yield 22 loans with loans at the current market rate. Id. at 168-69. California s law invalidating 23 such clauses “reduce[d] the amount of home-financing funds available to potential home 24 buyers” and “cause[d] a rise in home loan interest rates.” Id. at 168. In light of the 2 25 evidence before this Court, § 2923.5 cannot have more than an incidental effect on lending. 26 27 28 2 “[T]o the degree that the requirements [of § 2923.5] impose . . . burdens on federal savings banks that might arguably push the statute out of the permissible category of state foreclosure law and into the federally preempted category of loan servicing or loan making, evidence of such a burden is necessary before the argument can be persuasive.” Mabry, 110 Cal. Rptr. 3d at 218. Case No. 12-cv-03941 NC ORDER GRANTING MOTION TO DISMISS 9 In enacting § 2923.5, the California legislature sought to “ameliorate the deleterious 1 2 effects on the state economy and local economies and the California housing market” by 3 “modifying the foreclosure process to require mortgagees, beneficiaries, or authorized 4 agents to contact borrowers.” 2008 Cal. Legis. Serv. Ch. 69 (S.B. 1137). The legislature 5 found that “changes in accessing the state s foreclosure process are essential to ensure that 6 the process does not exacerbate the current crisis by adding more foreclosures to the glut of 7 foreclosed properties already on the market when a foreclosure could have been avoided.” 8 Id. One of the legislature s motivating factors in passing this bill was the high foreclosure 9 rate in 2007: “more than 84,375 properties were lost to foreclosure in California, and 10 254,824 loans went into default.” Id. The findings of the state legislature in enacting 11 § 2923.5 indicate that its enactment furthers a vital state interest. Because of this state 12 interest and because § 2923.5 has only an incidental effect, if any, on lending, HOLA does 13 not preempt it. Although Wells Fargo argues in its briefs that the trustee sale has not taken place, 14 15 Plaintiffs do not assert any facts that would indicate that they are still in possession of their 16 house. Because the only remedy available to them under § 2923.5 is postponement of the 17 sale, the Court GRANTS Wells Fargo s motion to dismiss but gives Plaintiffs LEAVE TO 18 AMEND if they are able to plead that they are still in possession of their home. 19 C. 20 21 22 23 24 25 26 27 28 Because Plaintiffs’ Claim of Unfair Business Practices Under § 17200 Is a Derivative Claim, It Is Dismissed. Plaintiffs claim of unfair business practices under California Business and Professions Code § 17200 must be predicated on some other violation of law. “[S]ection 17200 borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.” Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 973 P.2d 527, 539-40 (Cal. 1999) (internal citation omitted). Although nearly “any state, federal or local law can serve as the predicate for an action” under § 17200, the remedies available under § 17200 are limited. Podolsky v. First Healthcare Corp., 58 Cal. Rptr. 2d 89, 98 (Cal. Ct. App. 1996). Specifically, an action Case No. 12-cv-03941 NC ORDER GRANTING MOTION TO DISMISS 10 1 brought under § 17200 “is equitable in nature; damages cannot be recovered.” Korea 2 Supply Co. v. Lockheed Martin Corp., 63 P.3d 937, 943 (Cal. 2003). Because the Court 3 dismisses Plaintiffs wrongful foreclosure and § 2923.5 claims, it also GRANTS Wells 4 Fargo s motion to dismiss the § 17200 claim. If Plaintiffs amend their complaint to state a 5 claim for relief under § 2923.5, they are granted leave to restate their § 17200 claim as well, 6 to the extent they seek equitable relief. 7 D. Plaintiffs Fail to State a Claim Against Cal-Western and that Failure Is Obvious. 8 Plaintiffs only allegation against Cal-Western is that because Wells Fargo violated 9 § 2923.5 and failed to exercise due diligence “Cal-Western s recordation of the Notice of 10 Default which did not comply with § 2923.5 was thus unfair and unlawful.” Dkt. No. 1, Ex. 11 A ¶ 14. Joinder of a party is fraudulent and thus does not affect diversity jurisdiction when 12 the plaintiff s allegations against that party obviously fail to state a claim for relief. Morris 13 v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001). A defendant has the right to 14 present facts showing fraudulent joinder. Id. Wells Fargo argues that Plaintiffs cannot state 15 a claim against Cal-Western because Cal-Western is the trustee under the deed of trust, and 16 § 2923.5 imposes no obligation on trustees to contact the borrower. First, it is not clear from the complaint that Plaintiffs bring a claim against Cal- 17 18 Western, although they name it as a defendant. Plaintiffs do not allege that Cal-Western 19 had an obligation to contact them; they only attack the validity of the notice of default Cal20 Western s agent recorded because Wells Fargo failed to contact them. Second, the statute in effect at the time the notice of default was recorded stated that 21 22 “[a] mortgagee, beneficiary, or authorized agent shall contact the borrower in person or by 3 23 telephone . . . .” Cal. Civ. Code § 2923.5(a)(2). In contrast, other subsections of § 2923.5 24 explicitly include trustees. See, e.g., Cal. Civ. Code § 2923.5(a)(1) (“[a] mortgagee, trustee, 25 beneficiary, or authorized agent . . . .). The absence of the word trustee in § 2923.5(a)(2) is 26 27 28 3 Notably, the California legislature amended § 2923.5(a)(2) in July 2012 to explicitly exclude trustees. See 2012 Cal. Legis. Serv. Ch. 86 (A.B. 278) “A mortgage servicer shall contact the borrower in person or by telephone . . . .” “„Mortgage servicer shall not include a trustee, or a trustee s authorized agent, acting under a power of sale pursuant to a deed of trust.” Case No. 12-cv-03941 NC ORDER GRANTING MOTION TO DISMISS 11 1 significant; the statute does not impose an obligation on trustees to contact borrowers. Cal2 Western s only obligation under § 2923.5 is to “include a declaration that the mortgagee, 3 beneficiary, or authorized agent has contacted the borrower.” Cal. Civ. Code § 2923.5(b) 4 (emphasis added). The notice of default recorded by Cal-Western s agent included a 5 declaration, and although Plaintiffs dispute the veracity of the statements therein, they do no 6 dispute its existence. The inclusion of the declaration is all the law requires of Cal-Western. Plaintiffs allege a violation of § 2923.5 based on a failure to contact them. Section 7 8 2923.5 does not impose an obligation on Cal-Western, the trustee on the deed of trust, to 9 contact borrowers. For this reason, it is obvious that Plaintiffs cannot state a claim against 10 Cal-Western for failure to contact them in accordance with § 2923.5. The Court therefore 11 DISMISSES Cal-Western. 12 // 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Case No. 12-cv-03941 NC ORDER GRANTING MOTION TO DISMISS 12 IV. CONCLUSION 1 2 HOLA preempts Plaintiffs claim of wrongful foreclosure, and so the Court GRANTS 3 Wells Fargo s motion to dismiss that claim. Because the Court finds that § 2923.5 is the 4 type of state law contemplated in § 560.2(c), HOLA does not preempt Plaintiffs claim that 5 Wells Fargo failed to notify them prior to filing a notice of default. Nevertheless, the Court 6 GRANTS Wells Fargo s motion to dismiss this claim, but gives Plaintiffs LEAVE TO 7 AMEND to state facts that indicate they are eligible for the only remedy available to them 8 under § 2923.5. If Plaintiffs choose to amend, the Court also grants leave to amend their 9 § 17200 claim. Because Plaintiffs have not demonstrated a likelihood of success on the 10 merits at this time, their motion for a temporary restraining order and preliminary injunction 11 is DENIED. Finally, Cal-Western is DISMISSED from this case because Plaintiffs do not 12 state an actionable claim against it. Plaintiffs have twenty-eight days from the date of this 13 order to file an amended complaint. The case management conference currently scheduled 14 for October 31, 2012 is continued to February 6, 2013 at 10:00 a.m. Accordingly, 15 Plaintiffs motion to appear by telephone on October 31 is DENIED as moot. 16 IT IS SO ORDERED. 17 Date: October 29, 2012 18 _________________________ Nathanael M. Cousins United States Magistrate Judge 19 20 21 22 23 24 25 26 27 28 Case No. 12-cv-03941 NC ORDER GRANTING MOTION TO DISMISS 13
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