Wheeler v. Specialized Loan Services et al, No. 3:2017cv01267 - Document 19 (S.D. Cal. 2018)
Court Description: ORDER Granting 7 Motion to Dismiss. The Court grants Defendant Specialized Loan Servicing, LLC's Motion to Dismiss, but grants Plaintiff leave to amend his Complaint. Plaintiff may file an amended complaint within thirty (30) days of the date on which this Order is electronically docketed. Signed by Judge Janis L. Sammartino on 5/14/2018. (All non-registered users served via U.S. Mail Service)(mpl)
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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 SOUTHERN DISTRICT OF CALIFORNIA 9 10 RICHARD B. WHEELER, Case No.: 17-CV-1267-JLS (JMA) Plaintiff, 11 12 v. ORDER GRANTING MOTION TO DISMISS 13 SPECIALIZED LOAN SERVICES; MORTGAGE LAW FIRM PLC, (ECF No. 7) 14 Defendants. 15 16 17 Presently before the Court is Defendant Specialized Loan Servicing, Inc.’s1 Motion 18 to Dismiss, (“MTN,” ECF No. 7). Also before the Court is Plaintiff’s Opposition to the 19 Motion, (“Opp’n,” ECF No. 15), and Defendant’s Reply in Support of its Motion, 20 (“Reply,” ECF No. 18). After considering the Parties’ arguments and the law, the Court 21 rules as follows. BACKGROUND 22 23 Plaintiff filed a Complaint against Defendant, to which Defendant filed a Motion for 24 More Definite Statement. The Court granted the Motion, and Plaintiff filed an Amended 25 Complaint, (“FAC,” ECF No. 6). 26 27 28 1 Specialized Loan Servicing, Inc. was erroneously sued as Specialized Loan Services. 1 17-CV-1267-JLS (JMA) 1 Plaintiff alleges he refinanced his house in 2007. Before doing so, he negotiated 2 with three mortgage companies in order to find a good rate. Plaintiff chose Twin Capital 3 Mortgage after a broker from that company offered to “reimburse the fee for the home 4 approval which was about $350.” (FAC 2.)2 5 rate was not what he had been expecting, but the broker “encouraged” him to sign the loan 6 and “assured” him he would get a better loan later. (Id. at 3.) Plaintiff never received the 7 $350 and when he called Twin Capital, he was told the broker that he had been working 8 with was no longer with the company, and refused to pay Plaintiff the $350. (Id.)3 When Plaintiff went to sign the loan, the 9 It is unclear how Defendant then became involved with Plaintiff’s loan. In March 10 2017, Plaintiff states he submitted an application to Defendant for a loan modification, 11 which Defendant denied. (Id. at 4.) Defendant informed Plaintiff he was entitled to a 12 second independent review, and that he must submit the request no later than June 1. 13 Plaintiff “immediately sent them a letter.” 14 proceeded with the sale of Plaintiff’s house in May 2017. (Id.) The review was denied and Defendant 15 Plaintiff states the sale of his house was a violation of various provisions. First, he 16 alleges a violation of California Civil Code § 2923.6(c), which provides “[i]f a borrower 17 submits a complete application for a first lien loan modification . . . a mortgage 18 servicer . . . shall not record a notice of default or notice of sale, or conduct a trustee’s sale, 19 while the complete first lien loan modification application is pending.” The mortgage 20 servicer may not notice or conduct a sell until “[t]he mortgage servicer makes a written 21 determination that the borrower is not eligible for a first lien loan modification, and any 22 appeal period . . . has expired.” Cal. Civil Code § 2923.6(c)(1). The appeal period referred 23 to is described in Civil Code § 2923.6(d), which provides: “If the borrower’s application 24 for a first lien loan modification is denied, the borrower shall have at least 30 days from 25 26 2 Pin citations refer to the CM/ECF page numbers electronically stamped at the top of each page. Defendant argues this issue over the $350 has nothing to do with Defendant because Plaintiff alleges it was promised to him by the broker of another company. (See FAC 3 (Plaintiff stating the broker worked at Twin Capital).) Plaintiff does not appear to contest this and does not describe how this issue relates to Defendant, thus, the issue is irrelevant to Plaintiff’s allegations against Defendant. 3 27 28 2 17-CV-1267-JLS (JMA) 1 the date of the written denial to appeal the denial and to provide evidence that the mortgage 2 servicer’s determination was in error.” Further, if the borrower’s application for a first lien 3 loan modification is denied, the mortgage servicer shall not notice a sale or conduct a 4 trustee’s sale until the later of 31 days after the borrower is notified in writing of the denial, 5 or if the borrower appeals, the later of 15 days after the denial of the appeal or 14 days after 6 a first lien loan modification is offered. Civil Code § 2923.6 (e)(1) & (2). 7 Plaintiff also alleges a violation of 12 C.F.R. § 1024.41, arguing “a borrower has the 8 right to appeal the denial of any loan modification application [and] the borrower must be 9 informed of the amount of time to file the appeal and its requirements.” (FAC 5.) 10 It appears that the crux of Plaintiff’s Complaint is that Defendant proceeded to sell 11 Plaintiff’s home before the appeal window had closed, thus he was rushed to file his letter 12 for second independent review of the denial of his request for a loan modification. 13 LEGAL STANDARD 14 Federal Rule of Civil Procedure 12(b)(6) permits a party to raise by motion the 15 defense that the complaint “fail[s] to state a claim upon which relief can be granted,” 16 generally referred to as a motion to dismiss. The Court evaluates whether a complaint states 17 a cognizable legal theory and sufficient facts in light of Federal Rule of Civil Procedure 18 8(a), which requires a “short and plain statement of the claim showing that the pleader is 19 entitled to relief.” Although Rule 8 “does not require ‘detailed factual allegations,’ . . . it 20 [does] 21 accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. 22 Twombly, 550 U.S. 544, 555 (2007)). In other words, “a plaintiff’s obligation to provide 23 the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and 24 a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. 25 at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). A complaint will not suffice 26 “if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’ ” Iqbal, 556 U.S. 27 at 677 (citing Twombly, 550 U.S. at 557). demand more than an unadorned, the-defendant-unlawfully-harmed-me 28 3 17-CV-1267-JLS (JMA) 1 In order to survive a motion to dismiss, “a complaint must contain sufficient factual 2 matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Id. (quoting 3 Twombly, 550 U.S. at 570); see also Fed. R. Civ. P. 12(b)(6). A claim is facially plausible 4 when the facts pled “allow the court to draw the reasonable inference that the defendant is 5 liable for the misconduct alleged.” Iqbal, 556 U.S. at 677 (citing Twombly, 550 U.S. at 6 556). That is not to say that the claim must be probable, but there must be “more than a 7 sheer possibility that a defendant has acted unlawfully.” Id. Facts “‘merely consistent with’ 8 a defendant’s liability” fall short of a plausible entitlement to relief. Id. (quoting Twombly, 9 550 U.S. at 557). Further, the Court need not accept as true “legal conclusions” contained 10 in the complaint. Id. This review requires context-specific analysis involving the Court’s 11 “judicial experience and common sense.” Id. at 678 (citation omitted). “[W]here the well- 12 pleaded facts do not permit the court to infer more than the mere possibility of misconduct, 13 the complaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’” 14 Id. 15 ANALYSIS 16 Defendant moves to dismiss Plaintiff’s Complaint for various reasons. The Court 17 will begin with the procedural request: Defendant requests the Court strike Plaintiff’s 18 Complaint because it is unsigned. See Fed. R. Civ. P. 11 (requiring every pleading to be 19 signed by an attorney or party. “The court must strike an unsigned paper unless the 20 omission is promptly corrected after being called to the attorney’s or party’s attention.”). 21 Plaintiff states he submitted a second, signed version of his Amended Complaint. (Opp’n 22 3.) Plaintiff is correct. The document was deemed a discrepancy by the Clerk’s Office 23 and the Court erroneously rejected the document as an identical duplicate of Plaintiff’s 24 already-filed Amended Complaint. (See ECF No. 9 (discrepancy rejected because the 25 document was previously submitted and an identical document was previously accepted).) 26 Because Plaintiff attempted to file a signed copy of his pleading, the Court does not strike 27 the document. 28 /// 4 17-CV-1267-JLS (JMA) 1 I. Defendant’s main argument is that Plaintiff’s Complaint should be dismissed 2 3 Res Judicata pursuant to the doctrine of res judicata. (MTN 2.) Defendant states: 4 On October 16, 2015, Plaintiff filed a small claims complaint alleging the same violations of Cal. Civ. Code § 2924.11 and 12 C.F.R. § 1024.41. On July 21, 2016, the parties appeared for the hearing on Plaintiff’s claims, were sworn in to testify, and the court dismissed Plaintiff’s action with prejudice. Thus, as the same claims against the same defendants, concerning the same property, have already been heard and dismissed with prejudice, Plaintiff’s immediate action should also be dismissed. 5 6 7 8 9 (Id. (citations omitted).)4 In response, Plaintiff states his small claims court lawsuit was 10 irrelevant as of July 21, 2016. (Opp’n 4.) He states the sale of his house was cancelled, so 11 “the lawsuit that was filed in small claims court on October 16, 2015 no longer served any 12 13 purpose since there was no pending sale date on the house. The hearing on July 21, 2016 served no purpose and therefore should not have taken place.” (Id.) 14 A. Legal Standard 15 The Court applies California’s res judicata rules to this matter. See Robi v. Five 16 Platters, Inc., 838 F.2d 318, 322 (9th Cir. 1988) (federal courts are to “apply the res judicta 17 rules of a particular state to judgments issued by courts of that state”). Under California 18 19 20 21 22 23 law, res judicata applies if (1) the previous adjudication was final and on the merits; (2) the current dispute involves the same claim or cause of action; and (3) the party against whom res judicata is being asserted against was a party or in privity with a party in the first proceeding. Kay v. City of Ranchos Palos Verdes, 504 F.3d 803, 808 (9th Cir. 2007); Villacres v. ABM Indus. Inc., 189 Cal. App. 4th 562, 591–92 (Ct. App. 2010). /// 24 25 26 27 28 Defendant requests the Court take judicial notice of Plaintiff’s small claims court claim and the small claims court order. A court “may take notice of proceedings in other courts, both within and without the federal judicial system, if those proceedings have a direct relation to matters at issue.” Bias v. Moynihan, 508 F.3d 1212, 1225 (9th Cir. 2007) (quoting Bennett v. Medtronic, Inc., 285 F.3d 801, 803 n.2 (9th Cir. 2002)). The Court GRANTS the request and judicially notices the documents. (ECF No. 7-2.) 4 5 17-CV-1267-JLS (JMA) 1 B. Analysis 2 Plaintiff filed a small claims court claim on October 16, 2015 against Defendant. He 3 alleged a violation of “CA CCP 2924.11 and 12 CFR 1024.41” stating “mortgage services 4 are restricted from advancing foreclosure process if homeowner is securing a foreclosure 5 alternative. Injunctive relief will be available prior to foreclusure [sic] sale.” (Id. at 5.) 6 He states the date the event occurred was July 18, 2014. The minute order from the 7 Superior Court of California Small Claims Court is brief and states only: 8 All parties as noted above and witnesses are sworn. The following parties testify: [Plaintiff and the attorneys for Specialized Loan Services and Mortgage Law Firm PLC]. Defendant informs Court that this is second case filed by the Plaintiff and requests the Court to dismiss this case with prejudice. Defendant’s request to dismiss with prejudice is granted. The Court orders the entire action dismissed with prejudice 9 10 11 12 13 14 (Id.) 1. Final and On the Merits 15 California Code of Civil Procedure § 116.710 states that a “plaintiff in a small claims 16 action shall have no right to appeal the judgment on the plaintiff’s claim.” Therefore, a 17 judgment in small claims court is final and res judicata precludes future actions on the same 18 claim or cause of action. Sons v. McManis, No. CIV F 08–0840 AWI TAG, 2010 WL 19 118391, at *7 (E.D. Cal. Jan. 8, 2010) (citing Sanderson v. Niemann, 110 P.2d 1025, 1026 20 (Cal. 1941)). The small claims court decision was final, and this element is therefore met. 21 2. Claim / Cause of Action 22 Res judicata precludes future actions on the same claim or cause of action as the 23 prior case. To determine whether the same claim or cause of action is at issue, California 24 courts employ the primary rights theory. Manufactured Home Communities Inc. v. City of 25 San Jose, 420 F.3d 1022, 1031 (9th Cir. 2005). “[U]nder the primary rights theory, the 26 determinative factor is the harm suffered.” Villacres, 189 Cal. App. 4th at 577. Thus, “a 27 claim arises from the harm suffered, as opposed to the particular theory of the litigant. 28 6 17-CV-1267-JLS (JMA) 1 Even when multiple legal theories for recovery exist, one injury gives rise to only one claim 2 for relief.” Peterson v. Highland Music, Inc., 140 F.3d 1313, 1322 (9th Cir. 1998). 3 Both cases appear to arise from Plaintiff’s allegation that Defendant unlawfully 4 foreclosed on his house. Plaintiff’s small claims court claim in 2015 alleges a violation of 5 California Civil Code of Procedure 2924.11 and 12 C.F.R. 1024.41 and argued that 6 Defendant may not foreclose on Plaintiff’s house if Plaintiff is “securing a foreclosure 7 alternative.” (ECF No. 7-2, at 5.) Plaintiff states this happened on July 18, 2014. 8 Plaintiff’s FAC in this case appears to center around events that happened in 2017, when 9 Plaintiff filed his application for a loan modification, and alleges Defendant unlawfully 10 foreclosed on his house before Plaintiff’s appeal window had closed. (FAC 4.) 11 Defendant argues that Plaintiff’s original complaint in this case, (ECF No. 1), brings 12 identical claims to the ones asserted in his small claims complaint. (See MTN 4.) But, 13 Plaintiff filed an amended complaint, which supersedes his original complaint, so the Court 14 looks only at the FAC. See Lacey v. Maricopa Cnty., 693 F.3d 896, 925 (9th Cir. 2012). 15 It is not clear to the Court that the small claims court cases and Plaintiff’s FAC arise from 16 the same alleged injury. Plaintiff’s FAC does not mention any events in July 2014, which 17 is when the injury allegedly occurred that led to the small claims court case. Defendant 18 has failed to show how the two complaints arise from the same injury. See Vella v. 19 Hudgins, 572 P.2d 28, 31–32 (Cal. 1977) (holding the burden of proving the elements of 20 res judicata is on the party asserting it). Thus, this element is not met. 21 3. Same Parties 22 23 Both cases were brought by Plaintiff against Defendants Specialized Loan Servicing, Inc. and Mortgage Law Firm PLC. This element is met. 24 4. Conclusion 25 Because Defendant has not proven all elements under res judicata, the Court 26 DENIES Defendant’s Motion to Dismiss on this basis. 27 /// 28 /// 7 17-CV-1267-JLS (JMA) 1 II. Defendant also argues Plaintiff’s Complaint fails to state a claim for which relief can 2 3 Dismissal Pursuant to Rule 12(b) be granted. (MTN 5.) A. Claim Under California Civil Code § 2923.65 4 5 California Civil Code § 2923.6 provides that “[i]f a borrower submits a complete 6 application for a first lien loan modification,” a mortgage servicer “shall not record a notice 7 of default or notice of sale, or conduct a trustee’s sale, while the complete first lien loan 8 modification application is pending” until “the mortgage servicer makes a written 9 determination that the borrower is not eligible for a first lien modification, and any appeal 10 period” has expired. Cal. Civ. Code § 2923.6(c). The statute further states that “the 11 borrower shall have at least 30 days from the date of the written denial to appeal the denial 12 and to provide evidence that the mortgage servicer’s determination was in error.” 13 § 2923.6(d). If the borrower appeals the denial, then the mortgage servicer may not record 14 a notice of sale or conduct a trustee’s sale until 15 days after the denial of the appeal. 15 § 2923.6 (e). 16 Here, Plaintiff alleges he received a letter on May 12, 2017 stating that his loan 17 modification request had been denied. The letter stated Plaintiff could appeal the decision 18 no later than June 1, 2017. Plaintiff “immediately” filed his request for appeal. The review 19 was denied and Defendant proceeded with the sale of Plaintiff’s house on May 17, 2017. 20 (FAC 4.) Plaintiff argues Defendant proceeded with the sale of his house before the 30- 21 day appeal period had ended. At this stage, the Court accepts this to be true, and Defendant 22 does not contest this. But, Defendant argues that Plaintiff did in fact appeal, and Defendant 23 sold the house after Plaintiff appealed. 24 Defendant does not address the 15-day time requirement under § 2923(e), but only 25 argues that the allegations do not “indicate[] that Defendant’s purported failure to provide 26 27 28 5 This statute was repealed on January 1, 2018, but the Ninth Circuit has held that homeowners may still pursue their claims under former section 2923.6. Wilkerson v. Nationstar Mortg., LLC, No. 16-55388, 2018 WL 2093321, at *1 (9th Cir. May 7, 2018). 8 17-CV-1267-JLS (JMA) 1 Plaintiff with more time to appeal the denial of his application had any effect on the 2 modification process.” (Reply 2.) Even though Plaintiff did send an appeal letter, this does 3 not cure a violation of the time requirement under § 2923(e). Accepting all allegations as 4 true, Plaintiff has pleaded a violation of California Civil Code § 2923.6. However, 5 Defendant makes another argument in its reply brief. 6 Defendant argues that “it may be inferred” from Plaintiff’s small claims court 7 complaint that he has submitted at least one other application for a loan modification to 8 Defendant in 2015. (Reply 3.) Defendant argues therefore it had no obligation to review 9 Plaintiff’s 2017 application. Pursuant to Civil Code § 2923.6(g), 10 the mortgage servicer shall not be obligated to evaluate applications from borrowers . . . who have been evaluated or afforded a fair opportunity to be evaluated consistent with the requirements of this section, unless there has been a material change in the borrower’s financial circumstances since the date of the borrower’s previous application and that change is documented by the borrower and submitted to the mortgage servicer. 11 12 13 14 15 Defendant first raised this argument in its Reply, thus, Plaintiff has not had an 16 opportunity to respond to it. However, this argument encapsulates the confusion behind 17 this entire case: the timeline of events and how the small claims court case relates, if at all, 18 to the current case. Defendant is correct that, although the small claims court claim is bare, 19 with sparse allegations, it does appear to refer to Plaintiff’s prior request for loan 20 modification. Thus, Defendant was under no obligation to respond to Plaintiffs’ request in 21 2017 absent a material change in Plaintiff’s financial circumstances that was documented 22 and submitted to Defendant. See Cal. Civ. Code § 2923.6(g). Plaintiff does not allege this 23 condition was met. Therefore, the Court GRANTS Defendant’s Motion to Dismiss this 24 claim, but GRANTS Plaintiff leave to amend his Complaint. In his second amended 25 complaint, Plaintiff is to more clearly describe the series of events underlying his 26 allegations against Defendant. 27 28 /// 9 17-CV-1267-JLS (JMA) 1 B. Claim Under 12 C.F.R. § 1024.41 2 Defendant argues that while Plaintiff does not state a specific section within 12 3 C.F.R. § 1024.41, Plaintiff’s claim must fail because Plaintiff was afforded an opportunity 4 to appeal the denial of his application for a loan modification. (MTN 7.) It is unclear to 5 the Court under which subsection of 12 C.F.R. § 1024.41 Plaintiff is alleging a violation. 6 Plaintiff refers to “section (2)(c)(i)(ii),” which does not exist. Plaintiff argues this section 7 states a borrower has a right to appeal the denial of a loan modification application and the 8 borrower must be informed of the amount of time to file the appeal and its requirements. 9 (FAC 5.) But, Plaintiff was granted a right to appeal the denial of his loan modification 10 application and he states he was informed of this and that he could appeal until June 1, 11 2017. He did in fact send Defendant a request for a second independent review. (Opp’n 12 10.) Therefore, the Court GRANTS Defendant’s Motion to Dismiss this claim. The Court 13 again GRANTS Plaintiff leave to amend his Complaint and encourages Plaintiff to more 14 clearly explain which section of this regulation he alleges was violated. 15 III. Mortgage Law Firm PLC 16 Plaintiff has not filed any document with the Court indicating he has served the 17 second Defendant named in his Complaint: Mortgage Law Firm PLC. In fact, it is unclear 18 how Plaintiff’s allegations relate to Mortgage Law Firm at all, as the company is not 19 mentioned in the First Amended Complaint except in the caption. Should Plaintiff file 20 another amended complaint, he must include any allegations he intends to assert against 21 Mortgage Law Firm. Plaintiff must also serve Mortgage Law Firm or it will be dismissed 22 pursuant to Federal Rule of Civil Procedure 4(m). 23 CONCLUSION 24 For the foregoing reasons, the Court GRANTS Defendant Specialized Loan 25 Servicing, LLC’s Motion to Dismiss, but grants Plaintiff leave to amend his Complaint. 26 Plaintiff MAY FILE an amended complaint within thirty (30) days of the date on which 27 this Order is electronically docketed. Should Plaintiff fail to file an amended complaint 28 10 17-CV-1267-JLS (JMA) 1 within the time provided, the Court may enter a final order dismissing this case with 2 prejudice. 3 4 IT IS SO ORDERED. Dated: May 14, 2018 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 17-CV-1267-JLS (JMA)
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