Fisher et al v. Nationstar Mortgage LLC, No. 5:2017cv02994 - Document 34 (N.D. Cal. 2018)

Court Description: ORDER GRANTING 31 MOTION TO DISMISS FIRST AMENDED COMPLAINT WITHOUT LEAVE TO AMEND. Signed by Judge Beth Labson Freeman on 4/24/2018. (blflc4S, COURT STAFF) (Filed on 4/24/2018)

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1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 ROBERT F. FISHER, ET AL., Plaintiffs, 8 NATIONSTAR MORTGAGE LLC, [Re: ECF 31] Defendant. 11 United States District Court Northern District of California ORDER GRANTING MOTION TO DISMISS v. 9 10 Case No. 17-cv-02994-BLF 12 13 Plaintiffs Robert F. Fisher and Marion Fisher bring this action against Defendant 14 Nationstar Mortgage LLC (“Nationstar”) for alleged misconduct relating to the review of their 15 application for modification of their home mortgage loan. The action was initiated in state court 16 and removed to this District based on diversity jurisdiction. Notice of Removal, ECF 1. 17 Previously, the Court granted Nationstar’s motion to dismiss the complaint with leave to amend. 18 ECF 28. Thereafter, Plaintiffs filed a first amended complaint. First. Am. Compl. (“FAC”), 19 ECF 30. Before the Court is Nationstar’s motion to dismiss the first amended complaint. Mot. 31. 20 21 Plaintiffs have not filed an opposition. Pursuant to Civil Local Rule 7-1(b), the Court takes this 22 matter under submission without oral argument. For the reasons discussed below, Nationstar’s 23 motion to dismiss the first amended complaint is GRANTED without leave to amend. 24 25 I. BACKGROUND For purposes of considering this motion, the Court deems facts pled in the Complaint to be 26 true. Conclusory allegations, however, “are not entitled to be assumed true.” Ashcroft v. Iqbal, 27 556 U.S. 662, 681 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554–55 (2007)). 28 Plaintiffs live at 1645 Harrod Way, Salinas, California 93906. FAC ¶ 13. Nationstar is the 1 current servicer of Plaintiffs’ loan. Id. ¶ 6. When Plaintiffs applied for a loan modification review 2 in 2016–2017, Nationstar “orally agreed” to review their application in good faith and within a 3 reasonable time. Id. ¶¶ 14–16. Moreover, employees and agents of Nationstar assured Plaintiffs 4 that they would qualify for a loan modification and they needed to submit certain documents. Id. ¶ 5 15. Plaintiffs further allege that they were “instructed to default” and told to “continue to be in 6 default on [their] mortgage payments and to send in all loan documents so Defendant would put 7 [them] in loan modification review.” Id. ¶ 19. Plaintiffs submitted all of the documents that 8 Nationstar requested but received no denial or acceptance from the review within a reasonable 9 time. Id. ¶ 18. Rather, Nationstar continued to request additional documents and information, and told Plaintiffs that the “file was in review.” Id. ¶ 21. Plaintiffs allege that they complied with 11 United States District Court Northern District of California 10 Nationstar’s requests and “sent in all requested documents.” Id. ¶ 22. Plaintiffs continued to ask about their loan modification application. Id. ¶ 23. Nationstar’s 12 13 agents told Plaintiffs that the loan modification was under review but “it was not necessary” for 14 Plaintiffs to pay their mortgage. Id. ¶ 24. Plaintiffs allege that Nationstar shut down access to 15 their online account and changed their single point of contact numerous times. Id. ¶¶ 27–28. 16 Plaintiffs further claim that Nationstar made “ominous outbound robo-calls” regarding their 17 mortgage default. Id. ¶ 29. At some point, Plaintiffs were told that Nationstar put their “loan in foreclosure.” Id. ¶ 30. 18 19 The FAC is unclear on who made this statement regarding the foreclosure. Plaintiffs never 20 received a letter from Nationstar that their loan modification application was denied, and Plaintiffs 21 believe that their application remains in review for a loan modification. Id. ¶¶ 31, 33. Plaintiffs 22 also believe that Nationstar’s “extremely incompetent and obstructive” conduct has caused 23 Plaintiffs to “potentially” lose their residence. Id. ¶ 35. Notably, the FAC does not allege that 24 Nationstar ever filed a notice of default or notice of trustee’s sale in order to commence the non- 25 judicial foreclosure process, or that the property was ever sold at a trustee’s sale. See generally 26 FAC. 27 28 The FAC pleads three causes of action: (1) violation of California Business and Professions Code § 17200 and California Homeowner Bill of Rights; (2) breach of the covenant of 2 1 good faith and fair dealing; and (3) negligence.1 2 II. LEGAL STANDARD “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a 3 4 claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation 5 Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 6 729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts 7 as true all well-pled factual allegations and construes them in the light most favorable to the 8 plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the 9 Court need not “accept as true allegations that contradict matters properly subject to judicial notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or 11 United States District Court Northern District of California 10 unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) 12 (internal quotation marks and citations omitted). While a complaint need not contain detailed 13 factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to 14 relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 15 Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the 16 court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. 17 III. DISCUSSION 18 A. 19 As a threshold issue, Plaintiffs allege that this Court does not have subject matter 20 jurisdiction over this action because there is no diversity jurisdiction. FAC 2. According to the 21 FAC, the amount in controversy is not satisfied as Plaintiffs are not “seeking punitive damages.” 22 See id. While the proper procedure for a plaintiff to challenge jurisdiction is by a motion to 23 remand, the Court may always sua sponte remand a case for lack of subject matter jurisdiction. 24 Cabriales v. Aurora Loan Servs., No. C 10-161, 2010 WL 761081, at *2 (N.D. Cal. Mar. 2, 2010) 25 (“If at any time before final judgment it appears that the district court lacks subject matter 26 jurisdiction over a case that has been removed to federal court, the case shall be remanded.”) Subject Matter Jurisdiction 27 1 28 The caption page of the FAC lists a fourth “actual fraud” claim. However, the body of the FAC does not plead a fourth cause of action based on fraud. 3 1 2 (citing 28 U.S.C. § 1447(c)). However, this Court has already determined that it has subject matter jurisdiction over this 3 action based on diversity jurisdiction when it ruled on Nationstar’s motion to dismiss the original 4 complaint. ECF 28. In its October 16, 2017 Order, the Court found that Nationstar had shown 5 that the original complaint sought damages well in excess of $75,000. Id. at 5. While the Court 6 allowed Plaintiffs to amend the complaint regarding the amount in controversy, it made clear that 7 such an amendment would not deprive this Court of jurisdiction. Id.; St. Paul Mercury Indem. Co. 8 v. Red Cab Co., 303 U.S. 283, 295 (1938) (“[S]ubsequent reduction of the amount claimed cannot 9 oust the district court’s jurisdiction.”); Bay Area Surgical Mgmt., LLC v. Principal Life Ins. Co., No. 5:12-CV-01140, 2012 WL 3656451, at *2 (N.D. Cal. Aug. 24, 2012) (“When removal is 11 United States District Court Northern District of California 10 based on diversity jurisdiction, ‘events occurring subsequent to removal which reduce the amount 12 recoverable, whether beyond the plaintiff’s control or the result of his volition, do not oust the 13 district court’s jurisdiction once it has attached.’” (citation omitted)). Indeed, the Ninth Circuit 14 recently confirmed that “when the amount in controversy is satisfied at removal, any subsequent 15 amendment to the complaint or partial dismissal that decreases the amount in controversy below 16 the jurisdictional threshold does not oust the federal court of jurisdiction.” Chavez v. JPMorgan 17 Chase & Co., No. 16-55957, 2018 WL 1882908, at *3 (9th Cir. Apr. 20, 2018). As such, 18 regardless of the amount of relief that Plaintiffs now seek in their FAC, this Court has subject 19 matter jurisdiction. 20 B. 21 The Court now turns to Nationstar’s motion to dismiss each claim asserted in the FAC Failure to State a Claim 22 under Rule 12(b)(6). For the reasons that follow, Nationstar’s motion to dismiss the FAC is 23 GRANTED without leave to amend. 24 25 i. First Cause of Action: UCL Under the first cause of action, Plaintiffs allege violation of California Business and 26 Professions Code § 17200, the Unfair Competition Law (“UCL”). The first cause of action also 27 asserts that Nationstar violated California’s Homeowner Bill of Rights (“HBOR”). The Court 28 previously ordered that an HBOR claim must be pled as a separate cause of action if Plaintiffs 4 1 seek to bring such a claim independent of the UCL claim. October 16, 2017 Order 9. However, 2 Plaintiffs have not pled an independent cause of action under HBOR in their FAC. As such, the 3 Court finds that the first cause of action is a UCL claim and that Plaintiffs no longer attempt to 4 assert a standalone HBOR claim. Nevertheless, the Court will analyze Plaintiffs’ HBOR 5 allegations to determine whether those allegations support a UCL claim. Under the UCL, Plaintiffs allege that Nationstar engaged in various deceptive business 7 practices by making misleading statements regarding the loan modification and by failing and 8 refusing to offer a loan modification. FAC ¶¶ 52–55. Plaintiffs further allege that Nationstar 9 violated HBOR by not providing a written denial and failing to establish a single point of contact. 10 Id. ¶¶ 49–50. Nationstar argues that Plaintiffs’ first cause of action is deficient because Plaintiffs 11 United States District Court Northern District of California 6 fail to allege a legal basis for the UCL claim and they lack standing to assert that claim. 12 The Court is persuaded by Nationstar’s arguments. To state a claim under the UCL, 13 Plaintiffs must allege that Nationstar engaged in an “unlawful, unfair or fraudulent business act or 14 practice” as a result of which Plaintiffs suffered an “injury in fact” and “lost money or property as 15 a result of the unfair competition.” See Bus. & Prof. Code § 17204; Hall v. Time Inc., 158 Cal. 16 App. 4th 847, 852 (Ct. App. 2008), as modified (Jan. 28, 2008). “Section 17200 ‘borrows’ 17 violations from other laws by making them independently actionable as unfair competitive 18 practices.” Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1143 (2003). For the 19 following reasons, the FAC fails to satisfy these requirements. 20 21 a. The Unlawful Prong Plaintiffs fail to state a claim under the UCL’s “unlawful” prong. Without pleading a 22 violation of another statute or common law, Plaintiffs’ UCL claim under the unlawful prong 23 would fail. Kaurloto v. U.S. Bank, N.A., No. 16-CV-06652, 2016 WL 6808117, at *7 (C.D. Cal. 24 Nov. 17, 2016) (“A UCL claim stands or falls ‘depending on the fate of antecedent substantive 25 causes of action.’” (quoting Krantz v. BT Visual Images, L.L.C., 89 Cal. App. 4th 164, 178 (Ct. 26 App. 2001), as modified (May 22, 2001))). Here, Plaintiffs’ first cause of action asserts violation 27 of HBOR. FAC ¶¶ 49–50. Specifically, the FAC pleads that Nationstar violated HBOR’s “dual- 28 tracking” provision and failed to establish a single point of contact. Id. ¶ 50. The FAC further 5 1 alleges that Nationstar should have provided a written denial including the “reasons for denial and 2 deadline for appeal.” Id. ¶ 49. While the FAC does not cite HBOR’s code section, it appears that 3 Plaintiffs rely on §§ 2923.6 and 2923.7 as they assert “dual tracking” and “single point of contact” 4 violations. See Cal. Civ. Code § 2923.6 (2017); Cal Civ. Code § 2923.7.2 The Court’s review of the FAC reveals that no violations of HBOR are sufficiently pled. 6 As a prohibition against “dual tracking,” HBOR bars mortgage servicers from recording a notice 7 of default or notice of trustee’s sale, or conducting a trustee’s sale, while a complete first lien loan 8 modification application is pending. Cal. Civ. Code § 2923.6(c) (2017). Therefore, to adequately 9 plead a claim under dual tracking, the FAC must allege that Nationstar recorded a notice of default 10 or notice of trustee’s sale, or proceeded to conduct a trustee’s sale. But like the original complaint, 11 United States District Court Northern District of California 5 nowhere does the FAC state such an allegation. See Rizk v. Residential Credit Sols., Inc., No. CV 12 14-9371, 2015 WL 573944, at *10 (C.D. Cal. Feb. 10, 2015) (holding that the plaintiff failed to 13 state a claim under “dual tracking” because there was no allegation that a notice of default was 14 recorded). In addition, the FAC’s allegation that Nationstar should have provided a written denial 15 16 including the “reasons for denial and deadline for appeal” does not constitute a dual tracking 17 violation. While a mortgage servicer is required to provide a written notice identifying the reasons 18 for denial and the time to appeal, that requirement is triggered “[f]ollowing the denial of [the] first 19 lien loan modification application.” See Cal. Civ. Code § 2923.6(f) (2017). Here, the FAC 20 alleges that Nationstar has not denied Plaintiffs’ loan mortgage application. FAC ¶¶ 31, 33. As 21 such, the FAC does not support Plaintiffs’ allegation that Nationstar was obligated to provide the 22 “reasons for denial and deadline for appeal” regarding their loan modification application. 23 As mentioned, the FAC alleges that Nationstar failed to “establish a single point of 24 contact,” which is premised on Civil Code § 2923.7, which requires Nationstar to keep Plaintiffs 25 26 27 28 2 Section 2923.6 remained in effect only until January 1, 2018, and as of that date was repealed. Beginning January 1, 2018, a new “dual tracking” provision is provided under § 2924.11. As the alleged facts took place before 2018, the Court considers the pre-2018 version of § 2923.6. The Court need not analyze the effect of the repeal of § 2923.6 because Plaintiffs’ first cause of action fails under the pre-2018 version. 6 informed about the status of the loan modification application. See Cal. Civ. Code § 2923.7. 2 Section 2923.7 provides that “[u]pon request from a borrower who requests a foreclosure 3 prevention alternative, the mortgage servicer shall promptly establish a ‘single point of contact’ 4 and provide to the borrower one or more direct means of communication with the single point of 5 contact.” Cal. Civ. Code § 2923.7(a). A single point of contact (“SPOC”) is defined as “an 6 individual or team of personnel each of whom has the ability and authority to perform the 7 responsibilities described” in the statute. Cal. Civ. Code § 2923.7(e). The statute requires a SPOC 8 to coordinate “receipt of all documents associated with available foreclosure prevention 9 alternatives” and to “[notify] the borrower of any missing documents necessary to complete the 10 application.” Cal. Civ. Code § 2923.7(b)(2); Johnson v. Bank of Am., N.A., No. 14-05053-JSC, 11 United States District Court Northern District of California 1 2015 WL 351210, at *5–6 (N.D. Cal. Jan. 23, 2015). 12 Plaintiffs’ sole allegation that their single point of contact “changed numerous times” is 13 insufficient to plead a violation of § 2923.7. HBOR only provides a pre-foreclosure remedy for 14 material violations of § 2923.7. Neal v. Select Portfolio Servicing, Inc., No. 5:15-CV-03212-EJD, 15 2017 WL 1065284, at *6 (N.D. Cal. Mar. 20, 2017). A material violation is one where “the 16 alleged violation affected a plaintiff’s loan obligations or the modification process.” Cornejo v. 17 Ocwen Loan Servicing, LLC, 151 F. Supp. 3d 1102, 1113 (E.D. Cal. 2015). Here, while Plaintiffs 18 allege that their single point of contact “changed numerous times,” they do not allege how those 19 changes affected their ability to submit documents or the loan modification process. In fact, the 20 FAC pleads that Nationstar’s agents “continued to request” documents and that Plaintiffs 21 “complied with all of these requirements and sent in all requested documents in a timely manner.” 22 FAC ¶¶ 21–22. Hence, Plaintiffs’ own admissions prevent a plausible inference that the purported 23 changes in the single point of contact materially affected “plaintiff’s loan obligations or the 24 modification process” in a negative way. Cornejo, 151 F. Supp. 3d at 1113. Thus, Plaintiffs do 25 not sufficiently allege any material violation of § 2923.7. 26 Accordingly, Plaintiffs fail to predicate their UCL claim on violations of other law. In 27 particular, Plaintiffs have not cured the deficiencies in their earlier HBOR allegations in the 28 original complaint and thus they cannot rely on HBOR to support their UCL claim. Moreover, as 7 1 discussed in other parts of this order, the Court finds that the FAC’s allegations fail to support the 2 second and third causes of action. Hence, the UCL claim cannot be based on those causes of 3 action. Therefore, Plaintiffs’ UCL claim under the unlawful prong in untenable. Kaurloto, 2016 4 WL 6808117, at *7 (“A UCL claim stands or falls ‘depending on the fate of antecedent 5 substantive causes of action.’” (quoting Krantz, 89 Cal. App. 4th at 178)). 6 b. The Unfair Prong Plaintiffs fail to plead a claim under the UCL’s “unfair” prong. An alleged “unfair” 7 8 practice must be “tethered” to specific “constitutional, statutory, or regulatory provisions.” 9 Scripps Clinic v. Superior Court, 108 Cal. App. 4th 917, 940 (2003). Here, Plaintiffs appear to attempt to satisfy this requirement by alleging that Nationstar “failed to properly qualify the loan 11 United States District Court Northern District of California 10 modification” and violated “established California public polices to promote and preserve home 12 ownership and to prevent foreclosures.” FAC ¶ 54 (citing Cal. Civ. Code §§ 1695(b), 2923.5, and 13 3412). However, the FAC contains no factual allegations that show how Nationstar “failed to 14 properly qualify the loan modification” or violated California’s public policy. In fact, while 15 California Civil Code § 2923.5 sets forth a list of requirements that a mortgage servicer must 16 follow, the FAC does not include allegations that even suggest that Nationstar did not comply with 17 that section. For example, § 2923.5(a)(1) states that the mortgage servicer may not record a notice 18 of default until certain conditions are met. Cal Civ. Code § 2923.5(a)(1) (2017). However, 19 Plaintiffs do not allege that Nationstar violated that section because the FAC does not plead that a 20 notice of default has been recorded. In addition, given that the FAC does not even allege that 21 Nationstar denied Plaintiffs’ loan modification application, it is unclear how Nationstar’s 22 purported conduct contravenes California Civil Code §§ 1695(b) and 3412.3 Hence, the FAC 23 merely alleges violations of various statutes in conclusory terms without adequate factual 24 allegations. See id. Merely reciting statutes is insufficient. As such, the FAC’s allegations fail to 25 3 26 27 28 Section § 1695(b) states that: “The Legislature declares that it is the express policy of the state to preserve and guard the precious asset of home equity, and the social as well as the economic value of homeownership.” Cal. Civ. Code § 1695(b). Section 3412 provides that “[a] written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.” Cal. Civ. Code § 3412. 8 1 state a UCL claim under the “unfair” prong because they largely consist of legal conclusions. See 2 Eclectic Props. East, LLC v. Marcus & Millichap Co., 751 F.3d 990, 996 (9th Cir. 2014) 3 (allegations that are no more than legal conclusions are not entitled to an assumption of truth). 4 5 c. The Fraudulent Prong Plaintiffs fail to state a UCL claim under the “fraudulent” prong. A UCL claim based on 6 fraud must satisfy Rule 9(b)’s heightened pleading requirements. In re iPhone Application Litig., 7 844 F. Supp. 2d 1040, 1073 (N.D. Cal. 2012). Under the federal rules, a plaintiff alleging fraud 8 “must state with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). Here, the 9 FAC fails to plead with particularity who, where, and when any employee or agent of Nationstar engaged in fraudulent conduct in violation of the UCL. Rather, the FAC merely alleges that 11 United States District Court Northern District of California 10 Nationstar fraudulently kept Plaintiffs’ application under review in conclusory terms. 12 13 d. The Standing Requirement More importantly, to have standing to assert a UCL claim, a plaintiff must “(1) establish a 14 loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic 15 injury, and (2) show that that economic injury was the result of, i.e., caused by, the unfair business 16 practice or false advertising that is the gravamen of the claim.” Kwikset Corp. v. Superior Court, 17 51 Cal.4th 310, 322 (2011) (emphasis in original). Here, the FAC does not satisfy the first prong. 18 Plaintiffs merely allege that they suffered “material financial injury in fact” in the form of “loss of 19 Plaintiffs’ equity, costs and expenses related to protecting Plaintiffs’ Residence, reduced credit 20 score, unavailability of credit, increased costs of credit, reduced availability of goods and services 21 tied to credit ratings, increased costs of those services, as well as fees and costs, including, without 22 limitation, attorneys’ fees and costs and damages for the inability to get credit.” FAC ¶ 57. 23 However, while Plaintiffs assert that they suffered injury due to loss of equity, reduced credit 24 score and inability of obtaining credit, those assertions are conclusory without any factual 25 allegations. Iqbal, 556 U.S. at 681 (holding that conclusory statements are “not entitled to be 26 assumed true”). The FAC fails to cure this deficiency which the Court previously identified in its 27 October 16, 2017 Order. Also, the alleged costs for litigation do not confer standing under the 28 UCL. Cordon v. Wachovia Mortg., a Div. of Wells Fargo Bank, N.A., 776 F. Supp. 2d 1029, 1039 9 1 (N.D. Cal. 2011) (holding that legal expenses do not confer standing under the UCL, concluding 2 that “[u]nder Plaintiff’s reasoning, a private plaintiff bringing a UCL claim automatically would 3 have standing merely by filing suit.”). Hence, Plaintiffs fail to adequately plead that damages 4 have been incurred as a result of any purported violations of the UCL. Moreover, Plaintiffs have not established standing under the second prong. As mentioned, 5 Plaintiffs must satisfy the causation requirement by sufficiently pleading that their alleged harm 7 was caused by Nationstar’s purported unlawful conduct. See Hall v. Time Inc., 70 Cal. Rptr. 3d 8 466, 471–72 (Cal. Ct. App. 2008), as modified (Cal. Ct. App. Jan. 28, 2008). The FAC alleges 9 that Nationstar received Plaintiffs’ loan modification application for review and has not issued a 10 denial or approval. FAC ¶¶ 31, 33. However, as Nationstar argues (Mot. 7–8), the FAC does not 11 United States District Court Northern District of California 6 plead how such conduct (assuming it is unlawful) caused a loss in the equity (or market value) of 12 Plaintiffs’ home or affected their credit. In addition, Plaintiffs’ purported dual tracking allegations 13 cannot satisfy the causation requirement as the FAC does not allege that Nationstar ever filed a 14 notice of default or notice of trustee’s sale in order to commence the non-judicial foreclosure 15 process, or that the property was ever sold at a trustee’s sale. Plaintiffs therefore cannot establish 16 the second “causation” prong for standing under the UCL. Id. 17 e. Conclusion For the above reasons, the Court GRANTS Nationstar’s motion to dismiss the first cause 18 19 of action. Here, the Court finds that granting leave to amend is not warranted. Despite the fact 20 that the Court identified deficiencies in Plaintiffs’ original complaint, the FAC fails to cure those 21 deficiencies. In particular, Plaintiffs have not cured the deficiencies in their HBOR allegations. 22 Plaintiffs continue to allege their purported injury in conclusory terms and fail to plead that 23 Nationstar recorded a notice of default or notice of trustee’s sale to commence the non-judicial 24 foreclosure process. Plaintiffs also failed to offer any indication that they can cure those 25 deficiencies such that leave to amend would not be futile. Thus, the dismissal is without leave to 26 amend. 27 28 ii. Second Cause of Action: Breach of the Covenant of Good Faith and Fair Dealing 10 Plaintiffs allege a breach of the covenant of good faith and fair dealing under the second 1 2 cause of action. The FAC pleads that Nationstar “orally agreed to review” Plaintiffs’ loan 3 modification application. FAC ¶¶ 61, 71. Plaintiffs also allege that Nationstar breached the 4 covenant by denying them “the benefits of the oral agreement to review loan modification 5 application” and failing to timely deny or approve their loan modification application. Id. ¶¶ 72– 6 74. 7 “California law, like the law in most states, provides that a covenant of good faith and fair dealing is an implied term in every contract.” Chodos v. W. Publ'g Co., 292 F.3d 992, 996 (9th 9 Cir. 2002). “[T]he scope of conduct prohibited by the covenant of good faith is circumscribed by 10 the purposes and express terms of the contract.” Carma Developers (Cal.), Inc. v. Marathon Dev. 11 United States District Court Northern District of California 8 Cal., Inc., 2 Cal. 4th 342, 373 (1992). The elements of a cause of action for breach of the implied 12 covenant of good faith and fair dealing are: (1) the parties entered into a contract; (2) the plaintiff 13 fulfilled his/her obligations thereunder; (3) any conditions precedent to defendant’s performance 14 occurred; (4) defendant unfairly interfered with plaintiff’s right to receive the benefits of the 15 contract; and (5) plaintiff was harmed by defendant’s conduct. Rosenfeld v. JPMorgan Chase 16 Bank, N.A., 732 F.Supp.2d 952, 968 (N.D. Cal. 2010). 17 Nationstar argues that the second cause of action is deficient because Plaintiffs’ allegations 18 do not relate to the “enforcement of any existing contract terms.” Mot. 10. According to 19 Nationstar, Plaintiffs’ allegations do not “sound in contract based on the existing deed of trust.” 20 Id. Indeed, the FAC’s allegations make clear that the alleged contract at issue is Nationstar’s 21 purported “oral agreement” to review Plaintiffs’ loan modification application rather than an 22 agreement that modifies the loan terms. FAC ¶¶ 61, 73. As such, Plaintiffs’ claim for a breach of 23 the covenant of good faith and fair dealing is premised on the existence and breach of an oral 24 agreement. The Court, however, finds that Plaintiffs’ claim fails for the following reasons. 25 First, Plaintiffs do not adequately plead the existence of a contract. The FAC’s allegations 26 that the parties entered into a contract by an oral agreement to review the loan modification within 27 an unspecified period of time is conclusory and too indefinite to create a legally binding contract. 28 See Price v. Wells Fargo Bank, 213 Cal.App.3d 465, 483 (1989) (the alleged oral agreement to 11 1 restructure the borrower’s debts was too indefinite to create a legally binding contract); Ladas v. 2 California State Auto. Assn., 19 Cal. App. 4th 761, 770 (Ct. App. 1993) (“[A]n offer must be 3 sufficiently definite or must call for such definite terms in the acceptance that the performance 4 promised is reasonably certain.”). Nor does the FAC adequately plead that consideration was 5 given to form a binding contract. The Court also finds that the alleged conduct by Nationstar was 6 not an offer to form a contract but more closely resembles an invitation to apply for a loan 7 modification, which if accepted by further assent from Nationstar could form a contract between 8 the two parties. See Restatement (Second) of Contracts § 26 (1981). Preliminary negotiations or 9 agreements for future negotiations are not enforceable contracts.4 Bustamante v. Intuit, Inc., 141 10 Cal. App. 4th 199, 213 (Ct. App. 2006). Second, even assuming that the parties entered into an oral contract, Plaintiffs’ allegations United States District Court Northern District of California 11 12 do not identify any express terms of a contract which Nationstar has breached. While California 13 law “implies in every contract . . . a covenant of good faith and fair dealing,” Alameda Cty. Flood 14 Control v. Dep't of Water Res., 152 Cal. Rptr. 3d 845, 876 (Cal. Ct. App. 2013), “[t]he implied 15 covenant of good faith and fair dealing is limited to assuring compliance with the express terms of 16 the contract,” Pasadena Live, LLC v. City of Pasadena, 8 Cal. Rptr. 3d 233, 237 (Cal. Ct. App. 17 2004) (emphasis in original). The covenant “cannot impose substantive duties or limits on the 18 contracting parties beyond those incorporated in the specific terms of their agreement.” Agosto v. 19 Astor, 120 Cal.App.4th 596, 607 (Ct. App. 2004). Here, Plaintiffs have not alleged any express 20 terms of the purported oral agreement which Nationstar has breached. For example, while the 21 FAC alleges that Nationstar failed to “timely deny or approve” the loan modification application, 22 the FAC does not identify any express terms setting forth the time limit for Nationstar to deny or 23 approve the application. Third, the FAC’s own allegations prevent a plausible inference that Nationstar breached 24 25 any agreement to “review” Plaintiffs’ loan modification application. The FAC alleges that 26 4 27 28 Nationstar also argues that the alleged oral agreement cannot constitute an enforceable contract under the statute of frauds. Mot. 10–11. Because Plaintiffs have failed to allege the existence of a binding oral agreement, the court need not address whether such a contract would be barred under the statute of frauds. 12 1 Nationstar did review the application and asked Plaintiffs for updated financial information. FAC 2 ¶¶ 20–21, 24, 33. Thus, Plaintiffs fail to allege a breach of any oral agreement. 3 Accordingly, Plaintiffs have not sufficiently pled a claim for breach of the covenant of 4 good faith and fair dealing. The original complaint’s deficiencies have not been cured. In 5 particular, the FAC does not adequately plead the existence of a binding contract, let alone allege 6 any express terms of the contract. Moreover, the FAC’s allegations that Nationstar did review 7 Plaintiffs’ loan modification application contradict Plaintiffs’ assertion that Nationstar breached 8 the purported oral agreement. This deficiency cannot be cured by an amendment. Moreover, 9 Plaintiffs continue to fail to state a claim for breach of the covenant of good faith and fair dealing and they have offered no indication that they can remedy their repeated failure. Accordingly, 11 United States District Court Northern District of California 10 Nationstar’s motion to dismiss the second cause of action is GRANTED without leave to amend. 12 13 iii. Third Cause of Action: Negligence The third cause of action asserts a common law negligence claim. FAC ¶¶ 86–112. 14 Plaintiffs allege that Nationstar “owed a duty of reasonable care in the handling of Plaintiff[s’] 15 loan modification at issue,” “breached that duty by failing to take care and keep control over 16 documents,” and “caused extensive delays in the review process.” Id. ¶ 106. Plaintiffs further 17 allege that Nationstar “had a duty to modify Plaintiff[s’] loan based on [Nationstar’s] duty as [a 18 loan] servicer.” Id. ¶ 108. The elements of a negligence cause of action are (1) legal duty owed to 19 plaintiff; (2) breach; (3) causation; and (4) injury to plaintiff. Mendoza v. City of Los Angeles, 66 20 Cal.App.4th 1333, 1339 (1998). 21 Nationstar argues that Plaintiffs’ negligence claim fails because Nationstar did not owe 22 Plaintiffs a duty of care as their loan servicer. Mot. 14. The Court agrees with Nationstar’s 23 argument. In fact, the Court previously ruled that California law does not impose a duty of care to 24 lenders when considering loan modifications. October 16, 2017 Order 8. Plaintiffs have provided 25 no opposition or allege facts that persuades the Court to change its earlier conclusion. 26 Nevertheless, because the California Supreme Court has not addressed the issue of whether 27 lenders owe borrowers a duty of care when considering loan modifications under California law, 28 the Court explains the basis for its conclusion below. 13 1 In California, “as a general rule, a financial institution owes no duty of care to a borrower 2 when the institution’s involvement in the loan transaction does not exceed the scope of its 3 conventional role as a mere lender of money.” Nymark v. Heart Fed. Sav. & Loan Assn., 231 Cal. 4 App. 3d 1089, 1096 (1991). However, that general rule is not determinative in every case. 5 Rossetta v. CitiMortgage, Inc., 18 Cal. App. 5th 628, 637 (Ct. App. 2017). To determine whether 6 a duty of care exists in a particular case, California courts balance the factors set forth in Biakanja 7 v. Irving (1958) 49 Cal. 2d 647 (1958). Id. Those factors are: (1) the extent to which the 8 transaction was intended to affect the plaintiff, (2) the foreseeability of harm to the plaintiff, (3) 9 the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant’s conduct and the injury suffered, (5) the moral blame attached to the 11 United States District Court Northern District of California 10 defendant’s conduct, and (6) the policy of preventing future harm. Biakanja, 49 Cal. 2d at 650. 12 “California courts of appeal have not settled on a uniform application of the Biakanja 13 factors in cases that involve a loan modification.” Rosetta, 18 Cal. App. 5th at 637–38. 14 “Although lenders have no duty to offer or approve a loan modification, courts are divided on the 15 question of whether accepting documents for a loan modification is within the scope of a lender’s 16 conventional role as a mere lender of money, or whether, and under what circumstances, it can 17 give rise to a duty of care with respect to the processing of the loan modification application.” Id. 18 (internal citations omitted). Some courts have followed Lueras v. BAC Home Loans Servicing, 19 L.P., 221 Cal. App. 4th 49, 67 (Ct. App. 2013), and its progeny to decide that under the Biakanja 20 factors a loan servicer does not owe a home mortgagee a common law duty of care in the 21 processing of a loan modification application. Other courts have instead followed Alvarez v. BAC 22 Home Loans Servicing, L.P., 228 Cal. App. 4th 941, 944 (Ct. App. 2014), and its progeny in 23 deciding that a common law duty of care in the loan modification process does arise under 24 application of the Biakanja factors. California appellate courts and federal district courts within 25 the Ninth Circuit appear to be split relatively evenly on this question. See Rosetta, 18 Cal. App. 26 5th at 638–39 (collecting cases). 27 To the extent it has addressed the question, the Ninth Circuit has concluded that 28 “application of the Biakanja factors does not support imposition of such a duty.” Anderson v. 14 Deutsche Bank Nat. Tr. Co. Americas, 649 F. App’x 550, 552 (9th Cir. 2016) (no duty of care 2 where the borrower’s negligence claim is based on allegation of delay in the processing of loan 3 modification application); see also Badame v. J.P. Morgan Chase Bank, N.A., 641 F. App’x 707, 4 709-10 (9th Cir. 2016) (“Chase did not owe Plaintiffs a duty of care when considering their loan 5 modification application because ‘a loan modification is the renegotiation of loan terms, which 6 falls squarely within the scope of a lending institution’s conventional role as a lender of money.’”) 7 (quoting Lueras, 221 Cal. App. 4th at 67); Deschaine v. IndyMac Mortg. Servs., 617 F. App’x 8 690, 693 (9th Cir. 2015) (“IndyMac owed no duty of care to Deschaine when considering his 9 request for a loan modification, because ‘a loan modification is the renegotiation of loan terms, 10 which falls squarely within the scope of a lending institution’s conventional role as a lender of 11 United States District Court Northern District of California 1 money.’”) (quoting Lueras, 221 Cal. App. 4th at 67). 12 This Court finds the Lueras line of cases to be more persuasive and therefore concludes 13 that, were it to address the issue, the California Supreme Court most likely would find that a 14 mortgage servicer does not owe a borrower a duty of care in processing an application for a 15 residential loan modification. Strother v. S. Cal. Permanente Med. Grp., 79 F.3d 859, 865 (9th 16 Cir. 1996) (holding that in the absence of the state’s highest court decision on state law, “a federal 17 court must predict how the highest state court would decide the issue” (citation omitted)). In 18 particular, this Court is not persuaded that the California Supreme Court would find that the 19 foreseeability of harm, closeness of connection, moral blame, or other Biakanja factors give rise to 20 a common law duty. “Harm to the borrower as a result of an extended review period, while 21 foreseeable, is neither certain nor primarily attributable to the lender’s delay in the processing of 22 the application.” Anderson, 649 Fed. App’x at 552. Where modification is necessary because the 23 borrower cannot repay the loan, the borrower’s harm is not closely connected with the lender’s 24 conduct, and the lender is not morally culpable. See id. The Court therefore concludes that the 25 California Supreme Court would find cases involving applications for residential loan 26 modification to fall within the general rule that financial institutions do not owe borrowers a 27 common law duty of care. 28 Accordingly, Nationstar’s motion to dismiss the third cause of action is GRANTED 15 1 without leave to amend. 2 IV. ORDER 3 For the foregoing reasons, Nationstar’s motion to dismiss the first amended complaint is 4 GRANTED without leave to amend. Although the Court recognizes that leave to amend should 5 be freely granted, the Court is not required to grant leave to amend if the Court determines that 6 permitting an amendment would be an exercise in futility. See, e.g., Rutman Wine Co. v. E. & J. 7 Gallo Winery, 829 F.2d 729, 738 (9th Cir. 1987) (“Denial of leave to amend is not an abuse of 8 discretion where the pleadings before the court demonstrate that further amendment would be 9 futile.”). Despite the Court’s guidance in the October 16, 2017 Order, Plaintiffs have not cured the deficiencies in their claims. Moreover, Plaintiffs have failed to provide any indication that leave 11 United States District Court Northern District of California 10 to amend would not be futile. Accordingly, Plaintiffs’ first amended complaint is DISMISSED 12 without leave to amend. The Clerk of Court shall close the case. 13 IT IS SO ORDERED. 14 15 16 17 Dated: April 24, 2018 ______________________________________ BETH LABSON FREEMAN United States District Judge 18 19 20 21 22 23 24 25 26 27 28 16

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