B. Duarte et al v. Quality Loan Service Corp. et al

Filing 37

ORDER GRANTING DEFENDANTS MOTION TO DISMISS 27 by Judge Otis D. Wright, II: The Court DISMISSES WITH PREJUDICE Plaintiffs Complaint in its entirety as to all Defendants. A judgment will issue, after which the Clerk is directed to close the case. (lc)

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O 1 No JS-6 2 3 4 5 6 7 United States District Court Central District of California 8 9 10 11 Brenda DUARTE and Hector SANCHEZ, 12 Case No. 2:17-cv-08014-ODW-PLA Plaintiffs, 13 ORDER GRANTING v. 14 QUALITY LOAN SERVICE CORP.; DEFENDANT’S MOTION TO 15 QUALITY LOAN SERVICE DISMISS [27] 16 CORPORATION; QUANTUM 17 SERVICING CORP.; QUANTUM 18 SERVICING CORPORATION; and 19 DOES 1 through 10, Inclusive, 20 Defendants. 21 I. INTRODUCTION 22 On November 20, 2017, Plaintiffs Hector Sanchez and Brenda Duarte filed a 23 Complaint against Defendants Quality Loan Servicing Corp., Quality Loan Service 24 Corporation (together, “Quality”), and Quantum Servicing Corporation1 (“Quantum”), 25 alleging violations of the Equal Credit Opportunity Act, 15 U.S.C. § 1691, and the 26 Civil Rights Act of 1991, 42 U.S.C. § 1981, along with four state law claims. (See 27 28 1 Plaintiffs also brought suit against Quantum under the erroneous name “Quantum Servicing Corp.” (See Mot. 1.) 1 generally Compl., ECF No. 1.) Plaintiffs later filed a First Amended Complaint, 2 which Quantum now moves to dismiss in its entirety. (First Am. Compl. (“FAC”), 3 ECF No. 14.; Mot. 2, ECF No. 27.) For the reasons discussed below, the Court 4 GRANTS Defendants’ Motion to Dismiss.2 II. 5 FACTUAL BACKGROUND 6 In 2005, Plaintiffs applied for a mortgage loan with First Magnus Financial 7 (“First Magnus”) in the amount of $412,000. (FAC ¶ 19, ECF No. 14.) First Magnus 8 approved the mortgage, and the loan was secured by a deed of trust on Plaintiffs’ 9 family home in Long Beach, California (the “Property”). (FAC ¶ 2.) Plaintiffs later 10 refinanced the Property with American Brokers Conduit (“ABC”), receiving a new 11 loan in the amount of $472,000. (FAC ¶ 20.) In 2007, First Magnus and ABC were 12 identified by the Federal Reserve as subprime lenders involved in predatory loans. 13 (FAC ¶ 2.) 14 In 2010, ABC assigned Plaintiffs’ loan to Defendants Quality and Quantum. 15 (FAC ¶ 2.) The balance on the loan at the time of assignment was $472,200. (FAC 16 ¶ 21.) Quality and Quantum acted together as lender and servicer for Plaintiffs’ loan. 17 (FAC ¶ 3.) 18 Plaintiffs are Hispanic, and Defendants knew this to be the case. (FAC ¶ 7.) 19 Since 2005, Hispanics, as a group, have lost a disproportionate share of their family 20 wealth compared to non-Hispanic whites. (FAC ¶ 8.) Plaintiffs themselves lost over 21 60% of their income between 2005 and 2007. (FAC ¶ 9.) From 2008 to 2011, 22 Plaintiffs “slowly began to recover” their income. (FAC ¶ 9.) 23 However, Plaintiffs continued to struggle financially throughout this period. 24 (FAC ¶¶ 9–10.) By 2011, “they had one or more children, and had to account for 25 those expenses.” 26 informed Defendants of their financial struggles, and Plaintiffs made numerous (FAC ¶ 9.) Several times between 2010 and 2012, Plaintiffs 27 28 2 After carefully considering the papers filed in support of the Motion, the Court deemed the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; L.R. 7-15. 2 1 requests for a modification of the mortgage loan. (FAC ¶¶ 10, 22, 32.) Defendants 2 denied these loan modification requests, in contravention of best practices suggested 3 by the Office of the Comptroller of the Currency. 4 Defendants rarely, if ever, granted the type of loan modification that would allow 5 severely distressed borrowers to remain in their homes; instead, Defendants 6 “maneuver[ed] homeowners toward default, foreclosure, eviction, and money 7 judgments.” (FAC ¶ 25.) As part of their collection efforts, Defendants have filed 8 lawsuits against Latinos in Los Angeles County and Orange County Superior Courts 9 for similar delinquent mortgages. (FAC ¶ 24.) (FAC ¶¶ 24, 34.) In fact, 10 Plaintiffs do not specify in their First Amended Complaint exactly when 11 Plaintiffs defaulted on their loan. (See generally FAC.) In 2012, Defendants moved 12 to foreclose on the loan. (FAC ¶ 22.) In 2011, rates of foreclosure among Hispanic 13 home loan borrowers were higher than rates of foreclosure among non-Hispanic 14 White borrowers. (FAC ¶ 33.) Plaintiffs were ultimately evicted from the Property. 15 (FAC ¶ 57.) 16 Following foreclosure, Defendants reported Plaintiffs’ loan delinquency to the 17 credit reporting agencies. (FAC ¶¶ 22, 26, 39, 49, 56, 71.) The First Amended 18 Complaint is ambiguous as to when or how often Defendants reported Plaintiffs’ 19 delinquency. Portions of the Complaint seem to indicate that Defendants reported 20 Plaintiffs’ delinquency just once, and thereafter merely failed to subsequently advise 21 the agencies that the underlying loan was predatory. (FAC ¶¶ 26, 39.) Elsewhere, 22 Plaintiffs allege that Defendants made “annual” reports of Plaintiffs’ delinquency. 23 (FAC ¶ 71.) Plaintiffs further allege that Defendants “continued” to report Plaintiffs’ 24 delinquency until either 2016 or 2017. 3 (FAC ¶¶ 22, 49, 56.) 25 On November 2, 2017, Plaintiffs filed their initial Complaint in federal court, 26 bringing two causes of action under federal law and four causes of action under 27 3 28 For the purpose of this Motion to Dismiss, the Court views the facts in the light most favorable to the Plaintiffs and assumes that Defendants reported Plaintiffs’ delinquency annually, through and including the year 2017. 3 1 California state law. (ECF No. 1.) Plaintiffs subsequently filed a First Amended 2 Complaint on January 15, 2018. (ECF No. 14.) On February 26, 2018, Quantum 3 moved to dismiss the First Amended Complaint in its entirety. (ECF No. 27.) Quality 4 has yet to appear in this case. Both Plaintiffs and Quantum have submitted briefs in 5 support of their respective positions, and the Motion is ripe for determination. (ECF 6 Nos. 27, 30, 33.) 7 III. LEGAL STANDARD 8 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the 9 sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). 10 Dismissal is proper if the complaint “lacks a cognizable legal theory or sufficient facts 11 to support a cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 12 F.3d 1097, 1104 (9th Cir. 2008). 13 In ruling on a motion to dismiss under Rule 12(b)(6), the court assumes all 14 factual allegations in the complaint to be true, viewing those allegations in the light 15 most favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 896 (9th 16 Cir. 2002); Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir. 1996). 17 While a plaintiff need not give “detailed factual allegations,” the plaintiff must plead 18 sufficient facts that, if true, “raise a right to relief above the speculative level.” Bell 19 Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Moreover, a court need not 20 “accept as true allegations that are merely conclusory, unwarranted deductions of fact, 21 or unreasonable inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 22 (9th Cir. 2001). Ultimately, “[t]he claim must be sufficiently plausible that ‘it is not 23 unfair to require the opposing party to be subjected to the expense of discovery and 24 continued litigation.’” Mora v. U.S. Bank, No. CV 15–02436 DDP (AJWx), 2015 WL 25 4537218, at *2 (C.D. Cal July 27, 2015) (quoting Starr v. Baca, 652 F.3d 1202, 1216 26 (9th Cir. 2011)). If a court determines that a complaint fails to state a claim, the court 27 should grant leave to amend unless it determines that amendment could not possibly 28 4 1 cure the complaint’s deficiencies. Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 2 1296 (9th Cir. 1998); Fed. R. Civ. P. 15(a) IV. 3 ANALYSIS 4 For the reasons discussed below, the Court finds that Plaintiffs fail to state a 5 claim for relief. Plaintiffs’ First and Second Causes of Action are time-barred, and 6 Plaintiffs’ Third, Fourth, Fifth, and Sixth Causes of Action fail on the merits. 7 A. Material outside the Complaint 8 Generally, a court “may not consider any material beyond the pleadings in 9 ruling on a Rule 12(b)(6) motion.” United States v. Corinthian Colls., 655 F.3d 984, 10 998 (9th Cir. 2011). However, courts in the Ninth Circuit ruling on 12(b)(6) motions 11 may consider: (1) material that was “properly submitted as part of the complaint,” Hal 12 Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555, n.19 (9th Cir. 13 1989); (2) materials whose authenticity is not questioned and on which the Plaintiff’s 14 complaint necessarily relies, Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 15 2001), and (3) judicially noticed matters of public record, id. at 688–89. 16 Both Quantum and Plaintiffs ask the Court to consider certain materials outside 17 the four corners of the Complaint. (Def.’s Req. Jud. Notice Ex. 1 at 5, ECF No. 27-2; 18 FAC Ex.1, Ex. 2; Decl. of Herbert N. Wiggins (“Wiggins Decl.”) Ex. 1, ECF No. 32- 19 1.) The Court first considers Quantum’s requests. 20 1. Quantum’s Requests for Judicial Notice 21 Quantum asks the Court to judicially notice that the Property was sold at a non- 22 judicial foreclosure sale on February 27, 2012.4 (Def.’s Req. Jud. Notice Ex. 1 at 6.) 23 Judicial notice is appropriate when the fact to be noticed “is not subject to reasonable 24 dispute because it . . . can be accurately and readily determined from sources whose 25 4 26 27 28 Notably, neither Plaintiffs’ Complaint nor their First Amended Complaint specifies when Defendants foreclosed on Plaintiffs’ home loan. The gravamen of the Complaint being that Plaintiffs lost their home as a result of Defendants’ collection techniques, the Court would expect to see the date of the sale of the home included as part of a statement whose purpose is to show that Plaintiffs are entitled to relief. See Fed. R. Civ. P. 8(a). 5 1 accuracy cannot reasonably be questioned.” Fed. R. Civ. P. 201(b)(2); see also Lee, 2 250 F.3d at 689 (recognizing that a court may take judicial notice of facts in the public 3 record). If a party requests judicial notice of a fact and supplies the Court with the 4 necessary information, the Court must take judicial notice of the fact. Fed. R. Civ. P. 5 201(c)(2). 6 The source of the date of the foreclosure sale of the Property is the Trustee’s 7 Deed Upon Sale, which is filed at the Los Angeles County Recorder’s Office. (Def.’s 8 Req. Jud. Notice Ex. 1.) The Court finds that the accuracy of official records in the 9 County Recorder’s Office cannot reasonably be questioned, and therefore finds that 10 the date of the foreclosure sale is beyond reasonable dispute. See Snyder v. HSBC 11 Bank, USA, N.A., 913 F. Supp. 2d 755, 768 (D. Ariz. 2012) (taking judicial notice of a 12 publicly-recorded Trustees’ Deed Upon Sale, where defendants provided the court a 13 complete copy and plaintiffs did not object to the request). Moreover, Plaintiffs have 14 not objected to the accuracy of this date. 15 Therefore, the Court takes judicial notice of the fact that the Property was sold at a 16 non-judicial foreclosure sale on February 27, 2012. (See generally Opp’n, ECF No. 30.) 17 Quantum also asks the Court to judicially notice the results of an online search 18 of Los Angeles County Superior Court records for two case numbers that appear in the 19 First Amended Complaint. (See Def.’s Req. Jud. Notice Exs. 2, 3; FAC ¶ 12(D).) 20 The Court has no need to rely on the contents of the results of these two searches, and 21 the Court therefore declines to address whether these documents are subject to judicial 22 notice. 23 2. Plaintiffs’ Materials in Support of the Complaint 24 Plaintiffs present several materials to the Court in support of their claim for 25 relief. First, Plaintiffs present three studies. Two are attached to the Complaint. 26 (FAC Ex.1, Ex. 2.) The third is attached to a declaration submitted by Plaintiffs’ 27 attorney in support of Plaintiffs’ Opposition to the Motion to Dismiss. (Wiggins Decl. 28 6 1 Ex. 1.) Plaintiffs also present a property profile for the Property that is the subject of 2 this dispute. (Pls.’ Req. Jud. Notice Ex. 1, ECF No. 31-1.) 3 The Court need not rely upon any of these documents in ruling on this motion, 4 because Plaintiffs set forth the statistics that purportedly support their claim in their 5 First Amended Complaint. (See FAC ¶¶ 3, 8, 9, 23, 27, 30, 31.) Because the 6 Complaint itself contains the relevant data, the Court has no need to go beyond the 7 four corners of the Complaint to consider the studies themselves. With regards to the 8 property profile, Plaintiffs’ Complaint neither relies on nor refers to any of the events 9 or dates listed in the property profile, with the exception of the date of the foreclosure 10 sale itself, which the Court judicially notices. Therefore, the Court likewise has no 11 need to refer to or make use of any of the dates or events in the property profile. 12 Because the Court will not rely on any of these documents in ruling on this 13 Motion, the Court declines to address whether these documents are subject to judicial 14 notice. 15 B. Plaintiffs’ ECOA Claim Is Time-Barred 16 Plaintiffs first allege a series of violations of the Equal Credit Opportunity Act 17 (“ECOA”), relating to Defendants’ 2012 foreclosure of Plaintiffs’ home loan. 18 However, an action under the ECOA must be filed within five years of the date of the 19 alleged violation. 15 U.S.C. § 1691e(f). Plaintiffs filed their complaint on November 20 2, 2017. (ECF No. 1.) Therefore, an action for any violation that occurred before 21 November 2, 2012 is time-barred. 22 The non-judicial foreclosure sale of the home took place on February 27, 2012. 23 See supra Section IV.A.1. Because the foreclosure sale occurred outside ECOA’s 24 period of limitations, any ECOA claim arising from the foreclosure sale itself is time- 25 barred. For the same reason, any legal claim on an ECOA violation occurring before 26 the foreclosure sale is likewise time-barred. 27 Thus, the only acts of Defendants that fall within the ECOA’s five-year period 28 of limitations are the annual reports of Plaintiffs’ default that Defendants made to the 7 1 credit bureaus. (FAC ¶ 71.) The Court finds two bases on which to conclude that 2 these annual reports do not violate the provisions of the ECOA. 3 1. Discrimination 4 The ECOA provides that “[i]t shall be unlawful for any creditor to discriminate 5 against any applicant, with respect to any aspect of a credit transaction . . . on the basis 6 of race.” 15 U.S.C. § 1691(a)(1). “The ECOA allows for a cause of action for either 7 overtly discriminatory policies or facially neutral policies that have a discriminatory 8 effect.” Mora, 2015 WL 4537218 at *6; see also Taylor v. Accredited Home Lenders, 9 Inc., 580 F. Supp. 2d 1062, 1067 (S.D. Cal. 2008) (confirming that disparate impact 10 claims are allowable under the ECOA). Plaintiffs in this case have elected the latter 11 option, alleging and pursuing a disparate impact theory of discrimination. (FAC ¶¶ 12 27, 35, 37, 46.) To show disparate impact, an ECOA plaintiff “must plead (1) the 13 existence 14 disproportionate impact on persons of a particular type produced by the defendant’s 15 facially neutral acts or practices; and (3) facts demonstrating a causal connection 16 between the specific challenged practice or policy and the alleged disparate impact.” 17 Hernandez v. Sutter W. Capital, No. C 09-03658 CRB, 2010 WL 3385046, at *3 18 (N.D. Cal Aug. 26, 2010). The Court finds that Defendants’ actions in the five years 19 preceding Plaintiffs’ filing of their Complaint fail to provide the basis for a disparate 20 impact claim on all three counts. 21 of outwardly neutral practices; (2) a significantly adverse or First, in pleading the existence of outwardly neutral practices, a plaintiff must 22 point to a “specific, identified . . . practice or selection criterion.” 23 GreenPoint Mortg. Funding, Inc., 633 F. Supp. 2d 922, 927 (N.D. Cal. 2008) (quoting 24 Stout v. Potter, 276 F.3d 1118, 1121 (9th Cir. 2002)). Thus, a plaintiff alleging 25 disparate impact “generally cannot attack an overall decisionmaking process . . . but 26 must instead identify the particular element or practice within the process that causes 27 an adverse impact.” 28 Defendants reported Plaintiffs’ delinquency to the credit reporting agencies “as part of Stout, 276 F.3d at 1125. 8 Ramirez v. While Plaintiffs do allege that 1 their collection process,” Plaintiffs fail to allege any facts relating to a specific 2 practice, policy, or selection criterion that Defendants followed in preparing and 3 sending reports to the credit reporting agencies. (FAC ¶ 39 (emphasis in original).) 4 Moreover, a series of specific, bilateral transactions concerning a lender and a 5 single borrower, without more, cannot provide a basis for disparate-impact liability. 6 Disparate impact liability generally rests on the notion that a class of people has been 7 disparately impacted by a defendant’s policies, and, as such, a lender must have 8 applied its policy to many individual borrowers both inside and outside the class in 9 order for a plaintiff to be able to conduct a disparate impact analysis in the first place. 10 See Barrett v. H & R Block, Inc., 652 F. Supp. 2d 104, 110 (“[A] plaintiff must 11 demonstrate that it is the application of a specific or particular . . . practice that has 12 created the disparate impact under attack.”) (quoting Wards Cove Packing Co., Inc. v. 13 Atonio, 490 U.S. 642, 657 (1989)). Disregarding events falling outside ECOA’s 14 period of limitations, Plaintiffs have alleged that Defendants made annual credit 15 reports, but they fail to allege that Defendants made annual reports about anyone other 16 than Plaintiffs. 17 Defendants maintained a policy and applied that policy to several customers, and 18 therefore, Plaintiffs have not alleged the kind of “specific or particular” policy 19 necessary to conduct a disparate impact analysis. Wards Cove, 490 U.S. at 657. In 20 the absence of a clearly defined and broadly applied policy, a disparate impact 21 analysis is quite literally impossible. The Court finds that Defendants’ annual reports 22 of Plaintiffs’ delinquency are not a “policy” or “practice” for the purpose of Plaintiffs’ 23 disparate impact claim. (FAC ¶ 71.) Plaintiffs allege no facts or data that show that 24 Likewise, Plaintiffs fail to satisfy the second element of disparate impact 25 liability. The “facially neutral acts” to which Plaintiffs point are Defendants’ annual 26 credit reports. Hernandez, 2010 WL 3385046, at *3. Plaintiffs’ theory of disparate 27 impact puts them in the impossible position of alleging facts that show that 28 Defendants’ annual reports of the delinquency of Plaintiffs in particular have had a 9 1 disproportionate impact on Latinos in general. The absurdity of this position is 2 manifest: a lender’s actions toward a single borrower cannot possibly impact an entire 3 race or ethnic group. Plaintiffs’ allegations are limited to how Defendants’ reports 4 impacted Plaintiffs, and are devoid of allegations related to how Defendants’ reports 5 impacted anyone else. 6 A successful ECOA plaintiff, by contrast, offers data whose sample set is the 7 class of people who have been actually subjected to the defendant’s allegedly 8 discriminatory policies. For example, in Ramirez, the plaintiffs presented publicly 9 accessible data showing that “minorities who borrowed from [the defendant lender] 10 between 2004 and 2006 are almost 50% more likely than white borrowers to have 11 received a high-APR loan to purchase or refinance their home.” 633 F. Supp. 2d at 12 928–29. The court found this data “sufficient to allege a disparate impact . . . on 13 minority borrowers as compared to white borrowers with similar credit risks.” Id. at 14 929. The Ramirez plaintiffs stated a claim on the basis of data about people who had 15 actually done business with the defendant lender. Plaintiffs here present no such data. 16 Plaintiffs’ case neatly analogizes to a Sixth Circuit case in which a lender 17 denied an Iraqi borrower’s request for modification of a commercial loan. 16630 18 Southfield Ltd. P’ship v. Flagstar Bank, F.S.B., 727 F.3d 502, 503 (6th Cir. 2013). 19 The borrower alleged disparate-impact discrimination under the ECOA, pointing to 20 the lender’s practice of “refinanc[ing] delinquent borrowers who were Caucasian” or 21 “not members of minority groups.” Id. at 506 (quotation marks and ellipsis omitted). 22 The Court found such conclusory allegations insufficient to create an inference of 23 discrimination, noting that the plaintiff’s “Iraqi origin does not by itself establish the 24 requisite inference.” Id. at 505. To state a claim, the court explained, the plaintiff 25 would have needed to identify similarly situated individuals whom the creditor treated 26 more favorably. See id. at 506. The Sixth Circuit further explained: 27 Where, as here, the complaint alleges facts that are merely consistent 28 with liability (i.e., being Iraqi and being denied a loan extension) as 10 1 opposed to facts that demonstrate discriminatory intent (i.e., disparate 2 impact or direct evidence), the existence of obvious alternative 3 explanations simply illustrates the unreasonableness of the inference 4 sought and the implausibility of the claims made. 5 16630 Southfield, 727 F.3d at 505. 6 The Sixth Circuit’s reasoning fully applies to this case. Plaintiffs did not 7 identify any similarly situated individuals whom Defendants treated more favorably in 8 their annual credit reporting process. Indeed, Plaintiffs’ Complaint suggests that the 9 exact opposite is true, namely, that Defendants utilized aggressive debt collection 10 practices with all distressed borrowers, not just Latino borrowers. (See FAC ¶¶ 3, 25, 11 37, 38.) 12 By alleging disparate impact on the basis of nationwide statistics, Plaintiffs 13 demonstrate a misunderstanding of the nature of a disparate impact claim. (FAC ¶¶ 8, 14 23, 29, 31, 37.) Plaintiffs present statistics demonstrating disproportionately high 15 rates of post-Great Recession income loss and loan foreclosure among certain 16 minority populations, including Latinos, in an effort to show that Defendants’ 17 aggressive debt collection practices have a disparate impact on the ability of Plaintiffs 18 and Latinos to avoid foreclosure. (FAC ¶¶ 11.) For the purpose of a disparate impact 19 claim, however, these statistics are irrelevant. See Mora, 2015 WL 4537218, at *7 20 (examining plaintiff’s statistics regarding income disparity between Hispanics and 21 non-Hispanic whites and discerning no “actual impact on the relevant group” caused 22 by defendant’s policies). All Plaintiffs’ statistics show is that the Great Recession had 23 a disparate impact upon certain minority borrowers’ ability to fulfill the obligations of 24 their mortgages. 25 Plaintiffs’ disparate impact argument ultimately fails because it was the Great 26 Recession, not Defendants’ debt collection practices, that disparately impacted 27 Latinos. By requiring a nexus of causation, the third element of an ECOA disparate 28 impact claim ensures that the cause of the disparate impact is the defendant’s policies 11 1 and practices themselves, not some outside force. See Hernandez, 2010 WL 3385046, 2 at *3. Here, it is outside economic forces, not Defendants’ policies, causing the 3 disparity that Plaintiffs allege has impacted them as both individuals and as part of a 4 racial minority group. This being the case, Plaintiffs have also failed to show a causal 5 connection between the accused practice and the disparate impact. 6 7 For these reasons, Defendants’ annual post-foreclosure credit reports do not provide a basis for disparate impact liability under ECOA. 8 2. Scope of ECOA 9 Plaintiffs maintain that Defendants’ post-foreclosure reporting acts were 10 discriminatory because the underlying, foreclosed loan was discriminatory. (FAC ¶¶ 11 56, 58.) That a post-transaction report to a third party is discriminatory merely 12 because some aspect of the underlying transaction is discriminatory is a novel legal 13 theory for which Plaintiffs provide no legal precedent or support. (See generally 14 Opp’n 12–14.) By advancing this novel legal theory, Plaintiffs ask the Court to first 15 find that Defendants’ loan modification denials and foreclosure actions—all of which 16 happened outside the period of limitations—are ECOA violations, and then to impute 17 the discriminatory nature of these violations to Defendants’ post-foreclosure reporting 18 acts, some of which are within the period of limitations. (See, e.g., FAC ¶ 58.) The 19 Court declines to adopt this analytical framework and instead takes a simpler 20 approach: Defendants’ post-foreclosure reports fall outside the scope of the ECOA in 21 the first place, and therefore, the reports cannot possibly be violations of the ECOA, 22 regardless of any prior discriminatory activity. 23 The ECOA is violated when a “creditor discriminate[s] against any applicant, 24 with respect to any aspect of a credit transaction . . . on the basis of race . . . .” 15 25 U.S.C. § 1691(a)(1). 26 Defendants’ debt collection efforts, and that each report to the credit reporting 27 agencies is therefore an aspect of the mortgage transaction between Plaintiffs and 28 Defendants. (FAC ¶ 34.) The Court disagrees, and finds that Defendants’ post- Plaintiffs contend that Defendants’ reports are part of 12 1 foreclosure credit reports are not “aspect[s] of a credit transaction” under the ECOA. 2 15 U.S.C. § 1691(a)(1). 3 When determining the meaning of a statutory provision, a court looks first “to 4 its language, giving the words used their ordinary meaning.” Artis v. District of 5 Columbia, 138 S.Ct. 594, 603 (2018). “[W]hen the statute’s language is plain, the 6 sole function of the courts—at least where the disposition required by the text is not 7 absurd—is to enforce it according to its terms.” Lamie v. U.S. Tr., 540 U.S. 526, 534 8 (2004). 9 transaction” as used in the ECOA. 15 U.S.C. § 1691(a)(1). Here, the dispute is over the scope of the phrase “aspect of a credit 10 Plaintiffs contend that Defendants’ reports to the credit reporting agencies are 11 aspects of the credit transaction between Plaintiffs and Defendants, but the Court 12 concludes that the plain meaning of the term “transaction” excludes such a result. The 13 meaning of this phrase is plain, and is unambiguous in the context of a statute that 14 governs lender-borrower relations. 15 conducting business or other dealings; esp., the formation, performance, or discharge 16 of a contract.” Transaction, Black’s Law Dictionary (10th ed. 2014). The structure of 17 the word ‘transaction’ itself yields its plain meaning: a transaction is an action that 18 takes place between two parties. Thus, the term “credit transaction” in § 1691(a)(1) 19 unambiguously refers to a transaction between a lender and a borrower, and not a 20 transaction between a lender and some third party. A transaction is “[t]he act or an instance of 21 The second half of the Black’s Law Dictionary definition of ‘transaction’ 22 provides further instruction. Id. If a transaction is the “formation, performance, or 23 discharge of a contract,” then a transaction ends when all the legal rights and 24 obligations under the contract have been extinguished. 25 transaction ends when all the legal rights and obligations arising from the extension 26 and repayment of credit have been extinguished. Analogously, a credit 27 California’s power-of-sale anti-deficiency statute provides the last piece of the 28 puzzle. See Cal. Civ. Proc. Code § 580d(a); see also In re Kearns, 314 B.R. 819, 823 13 1 (B.A.P. 9th Cir. 2004) (“[A nonjudicial] foreclosure . . . trigger[s] one of the 2 antideficiency statutes and precludes a subsequent deficiency judgment.”) (citing Cal 3 Civ. Proc. Code § 580d). This statute provides that “no deficiency shall be owed or 4 collected, and no deficiency judgment shall be rendered for a deficiency on a note 5 secured by a deed of trust or mortgage on real property . . . in any case in which the 6 real property . . . has been sold by the mortgagee or trustee under power of sale 7 contained in the mortgage or deed of trust.” Cal. Civ. Proc. Code § 580d(a). 8 This statute applies to Defendants’ foreclosure on Plaintiffs’ loan. The non- 9 judicial foreclosure sale on February 27, 2012 was an exercise of the power of sale 10 contained in the deed of trust. (Def.’s Req. Jud. Notice Ex. 1 at 5–6.) Pursuant to 11 California’s anti-deficiency statute, Plaintiffs owe no deficiency—and Defendants can 12 collect no deficiency—on the mortgage. In this way, a non-judicial foreclosure in 13 California extinguishes the legal rights and obligations arising from the mortgage 14 transaction and ends the “credit transaction.” 15 U.S.C. § 1691(a)(1); Cal. Civ. Proc. 15 Code § 580d(a). Because Defendants’ reports to the credit bureaus happened after the 16 foreclosure of the Property, the annual reports are not aspects of the credit transaction, 17 and they therefore do not violate the ECOA. 18 This result squares with the underlying purpose of the ECOA. The guiding 19 principle of the ECOA is that an applicant’s access to credit and favorable credit terms 20 ought to be based on creditworthiness, not on improper factors such as the applicant’s 21 race. See H.R. Rep. No. 94-210, at 3 (1975) (“[D]iscrimination in credit transactions 22 on the basis of race . . . must be prevented. Numerous instances of denial of credit for 23 reasons other than a person’s creditworthiness were brought to the Committee’s 24 attention during hearings on the legislation.”). Thus, in order to qualify as an “aspect 25 of a credit transaction” and therefore fall within the scope of the ECOA, an accused 26 action must, at minimum, have the potential to affect the borrower’s ability to obtain 27 credit and favorable credit terms from the accused lender. 28 14 1 Defendants’ annual reports do not pass this test. Nothing about the annual 2 reports makes Defendants’ credit any less available to Plaintiffs or to Latinos 3 compared to non-Latinos. The credit transaction ended on February 27, 2012, and the 4 ability of Plaintiffs and Latinos to get credit from Defendants remains unchanged by 5 Defendants’ annual reports to the credit agencies. 6 The Court is mindful of Plaintiffs’ observation that Defendants’ adverse annual 7 credit reports may impede Plaintiffs’ ability to obtain credit from other lenders. (FAC 8 ¶¶ 41, 49, 76.) This effect, however, is beyond the scope of the ECOA. The Court’s 9 survey of the published disparate-impact ECOA cases suggest that only a narrow class 10 of disparate-impact ECOA claims typically survive a motion to dismiss. Such claims 11 are most often based on a lender’s discretionary pricing policy, a type of policy where 12 individual lending officers have discretion to alter the terms of the loan as to 13 individual borrowers. See, e.g., Ramirez, 633 F. Supp. 2d 922, 929 (finding that a 14 discretionary pricing policy supports a disparate impact claim); Taylor, 580 F. Supp. 15 2d at 1069 (same); Barrett, 652 F. Supp. 2d at 110 (same). In each of these cases, the 16 lender’s discretionary pricing policy was a specific policy or practice that had a 17 disproportionate impact on the availability of that lender’s credit to borrowers of 18 certain racial groups. Here, Plaintiffs have not shown that Defendants employ a 19 specific policy, nor have they shown that Defendants’ annual reports have negatively 20 affected Plaintiffs’ access to Defendants’ credit and favorable credit terms. Moreover, 21 Plaintiffs cite no case—and the Court finds no case—recognizing a violation of the 22 ECOA that occurred after the debt had been extinguished by foreclosure or otherwise. 23 The Court therefore finds that Defendants’ post-foreclosure reports to the credit 24 reporting agencies are not “aspect[s] of a credit transaction” under the ECOA. 25 3. Continuing Violation Doctrine 26 Plaintiffs also argue that the continuing violation doctrine applies to these 27 yearly reports, such that the entire mortgage transaction becomes one long course of 28 discriminatory conduct that falls within the scope of the ECOA and is therefore not 15 1 time-barred. (FAC ¶ 39.) Under the continuing violation doctrine, a violation that 2 falls outside the statutory period of limitations is nevertheless actionable if the 3 violation is part of a continued pattern or practice of violations. See Havens Realty 4 Corp. v. Coleman, 455 U.S. 363, 380 (1982). 5 explained that when a plaintiff challenges “an unlawful practice that continues into the 6 limitations period, the complaint is timely when it is filed within the statutory limit of 7 the last asserted occurrence of that practice,” because the continued nature of the 8 practice keeps the claim from going “stale.” Id. at 380–81 (alterations omitted). The Supreme Court in Havens 9 As the Havens court implicitly recognized, application of the continuing 10 violation doctrine in this instance requires that the discriminatory actions falling 11 within the limitations period be actual violations of the ECOA on their own. See 12 Ramirez, 633 F. Supp. 2d. at 930 (applying continuing violation doctrine when 13 defendants utilized a discretionary pricing policy during limitations period); Barrett, 14 652 F. Supp. 2d at 111 (same); City of Los Angeles v. JPMorgan Chase & Co., No. 15 2:14–cv–04168–ODW (RZx), 2014 WL 6453808, at *7 (C.D. Cal. Nov. 14, 2014) 16 (applying continuing violation doctrine to FHA claim when Defendants’ practice of 17 offering a disproportionate number of high-risk loans to minority borrowers continued 18 into limitations period). 19 Defendant’s actions that fall within the limitations period—are not violations of the 20 ECOA. See supra Sections IV.B.1, IV.B.2. The continuing violation doctrine is 21 inapplicable when, as here, the actions falling within the period of limitations are not 22 themselves violations. Here, Defendants’ yearly credit reports—the only of 23 Having concluded that no violation of the ECOA took place within the period 24 of limitations, the Court concludes that Plaintiffs’ ECOA claim is time-barred. 25 Because the non-judicial foreclosure sale took place more than five years before 26 Plaintiffs first filed their Complaint, and because all aspects of the credit transaction 27 between Plaintiffs and Defendants ceased at the non-judicial foreclosure sale, any 28 ECOA violation with respect to this mortgage transaction will necessarily fall outside 16 1 the period of limitations. Thus, amendment of the Complaint would be futile. 2 Therefore, the Court DISMISSES WITH PREJUDICE Plaintiffs’ ECOA claim as to 3 Quantum. See Colquitt v. Mfrs. and Traders Tr. Co., 144 F. Supp. 3d 1219, 1229 (D. 4 Or. 2015) (dismissing with prejudice portions of Plaintiffs’ ECOA claim alleging 5 violations outside the relevant period of limitations). 6 C. Plaintiffs’ 42 U.S.C. § 1981 Claim Is Time-Barred 7 Plaintiffs’ second cause of action alleges a violation of the Civil Rights Act of 8 1991, 42 U.S.C. § 1981, for racial discrimination in formation and administration of a 9 contract. (FAC ¶¶ 52–60). Section 1981 provides that: 10 All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts . . . as is enjoyed by white citizens . . . . 11 12 .... 13 14 For purposes of this section, the term “make and enforce contracts” includes the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship. 15 16 17 42 U.S.C. § 1981 (a)–(b). 18 19 20 21 22 23 24 The period of limitations for a § 1981 violation is at most four years. 5 Jones v. R.R. Donnelley & Sons Co., 541 U.S. 369, 382 (2004); 28 U.S.C. § 1658. As with Plaintiffs’ ECOA claim, the only actions of Defendants that fall within the period of limitations are the annual reports of Plaintiffs’ delinquency made by Defendants to the credit reporting agencies. The Court employs an analysis that largely parallels its analysis of Plaintiffs’ ECOA claim and concludes that Plaintiffs’ § 1981 claim is likewise time-barred. 25 26 27 28 5 For the purpose of dismissal of Plaintiffs’ § 1981 claim, the Court assumes that the period of limitations is four years. 17 1 1. Discrimination 2 Plaintiffs allege that Defendants made annual reports “of a foreclosed predatory 3 loan, where said loan was in fact illegal.” (FAC ¶ 71.) They argue that the annual 4 reports were a “racially predatory loan practice[]” undertaken “knowingly . . . to injure 5 a Hispanic couple.” 6 Defendants showed no mercy on Plaintiffs following default. What they do not show 7 is that Defendants engaged in racial discrimination. (FAC ¶ 56.) These allegations, taken as true, show that 8 Disparate impact claims are not cognizable under 42 U.S.C. § 1981, Gen. Bldg. 9 Contractors Ass’n, Inc. v. Pennsylvania, 458 U.S. 375, 391 (1982), so Plaintiffs need 10 to allege actual discriminatory treatment to have success on this claim. The closest 11 Plaintiffs come to alleging discriminatory treatment is in asserting that Defendants 12 filed lawsuits in Los Angeles County and Orange County against Latinos for 13 delinquent predatory mortgages. (FAC ¶ 24.) However, as this Court explained in 14 Mora—a case prosecuted by the same attorney representing Plaintiffs in this case— 15 “[i]t is hornbook law that the mere fact that something bad happens to a member of a 16 particular racial group does not, without more, establish that it happened because the 17 person is a member of that racial group.” Mora, 2015 WL 4537218, at *8 (citing 18 Williams v. Calderoni, No. 11 CIV. 3020 CM, 2012 WL 691832, at *7 (S.D.N.Y. 19 Mar. 1, 2012)). Disparate treatment claims rest on the allegation that a defendant 20 treated two similarly situated individuals differently, treating one less favorably than 21 the other merely because the former is part of a protected class. See Snoqualmie 22 Indian Tribe v. City of Snoqualmie, 186 F. Supp. 3d 1155, 1162 (W.D. Wash. 2016) 23 (recognizing that a § 1981 plaintiff can plead discriminatory intent by “alleg[ing] that 24 a similarly situated individual . . . outside of the plaintiff’s protected group received 25 more favorable treatment from defendant”). Here, Plaintiffs have alleged nothing to 26 indicate that Defendants, in their annual credit reporting process, treated Plaintiffs any 27 less favorably than they treated non-Latino borrowers who had also defaulted. 28 18 1 Plaintiffs have failed to allege actual discriminatory treatment, and thus have failed to 2 state a claim for relief under § 1981. 3 2. Scope of 42 U.S.C. § 1981 4 Plaintiffs seek to use the same novel theory they used in their ECOA claim to 5 characterize the annual credit reports as discriminatory violations of 42 U.S.C. § 1981. 6 (FAC ¶ 58.) The Court has already established that Defendants’ annual credit reports 7 fall outside the scope of the ECOA. See supra, Section IV.B.2. The Court similarly 8 concludes that Defendants’ annual reports of Plaintiffs’ delinquency to the credit 9 reporting agencies fall outside the scope of 42 U.S.C. § 1981. 10 Plaintiffs allege that the annual credit reports were part of Defendants’ 11 collection efforts, in an apparent effort to characterize the annual reports as part of the 12 “enforcement of the contract” under § 1981. (FAC ¶ 58.) The Court declines to read 13 § 1981 so broadly. As discussed supra, Section IV.B.2., California has an anti- 14 deficiency statute that extinguishes a borrower’s debt obligations upon non-judicial 15 foreclosure sale of the property held in trust. 16 Plaintiffs’ loan contract was terminated on February 27, 2012, and at that point their 17 contractual relationship with Defendants ceased to exist. (Def.’s Req. Jud. Notice Ex. 18 1 at 6.) When, as here, a contractual relationship between lender and borrower has 19 ended, a lender’s report of a borrower’s delinquency to an entity not party to the loan 20 contract cannot be considered an act that “enforce[s] the contract,” thereby giving rise 21 to § 1981 liability. Just as Defendants’ annual reports were not an “aspect of a credit 22 transaction” under the ECOA, neither are they part of the “making and enforcing of 23 contracts” under § 1981. Cal. Civ. Proc. Code § 580d(a). 24 The Court finds no violation of 42 U.S.C. § 1981 to have occurred within the 25 relevant period of limitations. The contractual relationship between Plaintiffs and 26 Defendants ended on February 27, 2012, thus putting an end to the “making” and the 27 “enforcing” of that contract. Because this happened more than four years before the 28 filing of the Complaint, the period of limitations has run. Consequently, because 19 1 § 1981 liability ended more than four years before Plaintiffs filed their Complaint, no 2 events within the period of limitations could possibly be § 1981 violations, making 3 amendment of this claim futile. 4 Plaintiffs’ claim under 42 U.S.C. § 1981 as to Quantum. 5 D. The Court DISMISSES WITH PREJUDICE Plaintiffs’ claim for violation of California’s law fails on the merits. 6 Plaintiffs bring their third cause of action under California’s unfair competition 7 law (“UCL”), Business and Professions Code section 17200 et seq. (FAC ¶¶ 61–67.) 8 The Court first notes that Plaintiffs’ UCL claim is entirely derivative of their federal 9 claims, which the Court finds insufficient as a matter of law. As a result, Plaintiffs’ 10 UCL claim similarly fails. See Cullen v. Netflix, Inc., 880 F. Supp. 2d 1017, 1028 11 (N.D. Cal. 2012) (dismissing plaintiff’s UCL claims for unlawful and unfair business 12 practices when those claims were derivative of other causes of actions dismissed by 13 the Court). 14 The Court also finds that Plaintiffs fail to state a standalone, non-derivative 15 claim for violation of the UCL. To state a claim under the UCL, a plaintiff must 16 allege that a defendant engaged in an “unlawful, unfair, or fraudulent business act or 17 practice” which caused the plaintiff to suffer injury in fact and loss of money or 18 property. Cal. Bus. & Prof. Code § 17204; Bernardo v. Planned Parenthood Fed’n of 19 Am., 115 Cal. App. 4th 322, 351 (1993). The statute is written in the disjunctive, 20 meaning that a violation can be based on “any or all of the three prongs of the UCL— 21 unlawful, unfair, or fraudulent.” Aliya Medcare Fin., LLC v. Nickell, 156 F. Supp. 3d 22 1105, 1138 (C.D. Cal. 2015) (quoting Stearns v. Select Comport Retail Corp., 763 F. 23 Supp. 2d 1128, 1149 (N.D. Cal. 2010)). Plaintiffs fail to state a claim under all three 24 prongs of the California UCL. 25 First, Plaintiffs have failed to allege that Defendants engaged in any act or 26 practice that was unlawful. “The California Supreme Court has explained that by 27 proscribing any unlawful business practice, Business and Professions Code section 28 17200 borrows violations of other laws and treats them as unlawful practices that the 20 1 unfair competition law makes independently actionable.” Bernardo, 115 Cal. App. 2 4th at 352 (quoting Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 3 4th 163, 180 (1999)) (citations and internal quotation marks omitted). For the reasons 4 stated above, Plaintiffs have failed to allege that Defendants have violated any law 5 within the applicable period of limitations. As such, Plaintiffs have failed to state a 6 UCL claim for unlawful business practices. 7 Nor have Plaintiffs alleged facts to show that Defendants’ business practices 8 were unfair. Courts have used the unfairness prong of Business and Professions Code 9 section 17200 to enjoin particularly “deceptive or sharp practices.” Bernardo, 115 10 Cal. App. 4th at 354 (quoting Klein v. Earth Elements, Inc., 59 Cal. App. 4th 965, 970 11 (1997). 12 definition of “unfair” under the UCL, Camacho v. Auto. Club of S. Cal., 142 Cal. App. 13 4th 1394, 1401 (2006), the Court is not free to apply its own “purely subjective 14 notions of fairness,” Cel-Tech, 973 P.2d at 564. To determine if a business practice is 15 unfair to a consumer, the Court balances “the utility of the defendant’s conduct against 16 the gravity of the harm to the alleged victim. . . . .”6 Klein, 59 Cal. App. 4th at 969– 17 970 (quoting State Farm Fire & Casualty Co. v. Superior Court, 45 Cal. App. 4th 18 1093, 1104 (1996)); see also Scripps Clinic v. Superior Court, 108 Cal. App. 4th 917, 19 939 (2003) (marking the similarity between an unfairness analysis under the UCL and 20 a nuisance analysis at common law). An action for relief on the basis of the UCL must be filed “within 4 years after 21 22 Although California courts have struggled to arrive at a single, unified the cause of action accrued.” Cal. Bus. & Prof. Code § 17208. Therefore, 23 6 24 25 26 27 28 The Cel-Tech court held that this definition of “unfair” was inapplicable to cases of the type before it, in which a business alleged unfair competition against a competitor. However, the Cel-Tech court expressly clarified that nothing in its opinion related to actions by consumers such as Plaintiffs in this case. Cel-Tech, 20 Cal. 4th at 187 n.12. The balancing test articulated by the Klein court retains its relevance in UCL actions brought by consumers. See also Scripps Clinic v. Superior Court, 108 Cal. App. 4th 917, 940 (2003) (confining its discussion the Cel-Tech holding to cases involving “unfair competition actions”); see also Camacho, 142 Cal. App. 4th at 1401 (recognizing a split among the California circuits with regards to whether the Cel-Tech definition of unfair applies to consumer cases involving anticompetitive practices, and holding that it does not). 21 1 Defendants’ annual credit reports are the only accused actions that fall within the 2 period of limitations. (FAC ¶ 71.) Plaintiffs do not allege that the reports were 3 factually inaccurate; instead, they allege that Defendants failed to inform the reporting 4 agencies that the underlying loan was racially discriminatory and predatory. (FAC ¶ 5 58.) 6 Applying the balancing test as articulated by the California courts, the Court 7 concludes that Defendants’ credit reporting practices are not the type of “unfair” 8 practice that is actionable under the UCL. Annual credit reporting of the kind alleged 9 by Plaintiffs allows borrowers to credibly assert their creditworthiness, and provides 10 lenders a reliable basis on which to assess creditworthiness. In this way, Defendants’ 11 annual credit reporting serves a valuable function for both lenders and borrowers. 12 Against this benefit, the Court balances the gravity of the harm suffered by 13 Plaintiffs as a result of Defendants’ annual reports. See Klein, 59 Cal. App. 4th at 14 969–970. Plaintiffs allege that Defendants’ annual reports rendered Plaintiffs unable 15 to obtain credit on favorable credit terms, harming their creditworthiness as business 16 owners and potentially preventing them from earning a living. (FAC ¶ 76.) These 17 allegations are speculative and conclusory. Plaintiffs do not allege any facts showing 18 that they were actually denied credit or favorable credit terms at any point as a result 19 of Defendants’ annual reports. Plaintiffs’ assertion that Defendants’ reports injured 20 Plaintiffs’ ability to obtain credit is a “naked assertion[] devoid of further factual 21 enhancement,” which the Court need not accept as true. Ashcroft v. Iqbal, 556 U.S. at 22 678 (internal quotation marks omitted). Plaintiffs have not plausibly alleged any 23 actual harm against which the Court could balance the benefits of Defendants’ annual 24 reporting. 25 Even if Plaintiffs had adequately pled actual harm to their ability to obtain 26 credit, the fact would remain that Plaintiffs indeed defaulted on their loan. The First 27 Amended Complaint paints Defendants as merciless lenders, but showing a defaulting 28 borrower no mercy is not the same as treating that borrower “unfairly.” The Court 22 1 finds that the harm in this case is outweighed by the benefit that annual credit 2 reporting provides for both lenders and borrowers. As such, the Court finds that 3 Plaintiffs’ First Amended Complaint is devoid of actionable practices that could be 4 characterized as “unfair” under the UCL. See State Farm, 45 Cal. App. 4th at 1104 5 (collecting and surveying cases in which a court found an unfair business practice 6 under the UCL). 7 Finally, Plaintiffs fail to allege that Defendants engaged in a fraudulent business 8 practice. The test for “fraud” under section 17200 is whether the public is likely to be 9 deceived. Comm. on Children’s Television, Inc. v. Gen. Foods Corp., 35 Cal. 3d 197, 10 211 (1983) (en banc). As with Plaintiffs’ other claims, the UCL’s limitations period 11 confines the Court’s view to Defendants’ annual credit reports. The question is 12 whether the public is likely to be deceived by these reports. The answer is no, because 13 these reports are made to credit bureaus, not to the public. Because the public does 14 not see Defendants’ annual reports to the credit bureaus, the reports are highly 15 unlikely to deceive the public. Defendants’ reporting practices are not “fraudulent” 16 under the California UCL. 17 Plaintiffs also seek statutory fines under the UCL on behalf of the State of 18 California. (FAC ¶ 67.) Statutory fines are only recoverable in an action brought by 19 the Attorney General, a district attorney, certain county counsel, or a city attorney. 20 Cal. Bus. & Prof. Code § 17206(c); see also People of Cal. v. Time Warner, Inc., No. 21 CV 08-4446-SVW, 2008 WL 4291435, at *2 (C.D. Cal. Sept. 17, 2008). A member 22 of the public bringing suit under the UCL may pray for injunctive relief and 23 restitution, but not statutory damages. See Korea Supply Co. v. Lockheed Martin 24 Corp., 29 Cal. 4th 1134, 1144 (Cal. 2003). Plaintiffs therefore lack standing to seek 25 statutory fines. 26 For the above reasons, Plaintiffs have failed to state a claim under all three 27 prongs of California’s law against unfair competition. Moreover, the Court finds 28 amendment of Plaintiffs’ UCL claim would be futile under all three prongs. The 23 1 Court therefore DISMISSES WITH PREJUDICE Plaintiffs’ Third Cause of Action 2 as to Quantum. 3 E. Plaintiffs’ claim for breach of the covenant of good faith and fair dealing 4 fails as a matter of law. 5 Plaintiffs’ Fourth Cause of Action is based on Defendants’ alleged breach of the 6 implied covenant of good faith and fair dealing. (FAC ¶¶ 68–73.) The implied 7 covenant exists to “assur[e] compliance with the express terms of the contract,” 8 Racine & Laramie, Ltd. v. Dep’t of Parks and Recreation, 11 Cal. App. 4th 1026, 9 1032 (1992), and it ensures that “neither party will do anything that will injure the 10 right of the other to receive the benefits of the agreement.” Agosta v. Astor, 120 Cal. 11 App. 4th 596, 573 (2004) (alterations omitted). To state a claim for breach of the 12 covenant in this case, Plaintiffs must plead facts showing that (1) Plaintiffs and 13 Defendants entered into a contract; (2) Plaintiffs fulfilled their obligations under the 14 contract; (3) any conditions precedent to Defendants’ performance occurred; (4) 15 Defendants unfairly interfered with Plaintiffs’ rights to receive the benefits of the 16 contract, and (5) Plaintiffs were harmed by Defendants’ conduct. 17 JPMorgan Chase Bank, N.A., 732 F. Supp. 2d 952, 968 (N.D. Cal. 2010) (citing 18 CACI No. 325). Rosenfeld v. 19 Plaintiffs’ claim fails as a matter of law under the second of these elements 20 because Plaintiffs’ own Complaint shows that they failed to fulfill their obligations 21 under the loan contract. (FAC ¶¶ 12C, 27, 34, 39, 49, 75.) Plaintiffs admit that they 22 were financially devastated and repeatedly sought modification of the terms of the 23 loan because they were, at that point, unable to fulfill their obligations under the loan 24 contract. (FAC ¶ 32.) Although Plaintiffs allege that they “attempted to perform all 25 of the reasonable requirements of the contract” with Defendants (FAC ¶ 69), this 26 allegation does not suffice, because breach of the implied covenant requires that a 27 plaintiff actually meet their contractual obligations, and not merely attempt to meet 28 24 1 the obligations that are by some measure reasonable. Rosenfeld, 732 F. Supp. 2d at 2 968. 3 The reasonableness of a contractual obligation is irrelevant in an implied 4 covenant analysis, because the implied covenant can hold parties only to the duties 5 established by the terms of the underlying contract. Agosta, 120 Cal. App. 4th at 573 6 (quoting Guz v. Bechtel Nat. Inc., 24 Cal. 4th 317, 349–50 (2000)). Plaintiffs plead 7 that the rights included under the contract include “the right not to have inaccurate, 8 incomplete, or misleading information reported by said Defendants to the credit 9 reporting agencies.” (FAC ¶ 71.) This is a conclusory allegation, unsupported by 10 specific contractual language or a summary of the actual agreement. See Dooms v. 11 Fed. Home Loan Mtg. Corp., No. CV F 11-0352 LJO DLB, 2011 WL 1232989, at *10 12 (E.D. Cal. Mar. 31, 2011) (dismissing a breach of implied covenant claim when 13 plaintiff had not pled “a specific contractual obligation on which to premise an 14 implied covenant claim”). A valid claim for breach of the implied covenant in this 15 case would require, at minimum, pleading that the contract expressly imposed upon 16 Defendants some duty with respect to post-transaction credit reporting. Plaintiffs 17 allege nothing about how their contract imposed upon Defendants a duty not to report 18 Plaintiffs’ delinquency to the credit bureaus, or to report the delinquency in a 19 particular way. 20 Far from being a breach of any express or implied contract term, Defendants’ 21 sale of the home was a permissible exercise of a power of sale contained in the loan 22 contract. (FAC ¶ 22.) Plaintiffs defaulted on their loan in February 2012, satisfying 23 the condition precedent to Defendants’ lawful exercise of this power. (FAC ¶ 22.) In 24 any case, the Court may dismiss this cause of action without addressing whether 25 Defendants breached the implied covenant in the events leading up to the foreclosure 26 sale, because these events fall outside California’s four-year period of limitations for 27 actions based on a written contract. Cal. Civ. Proc. Code § 337. 28 25 Plaintiffs’ own allegations provide a complete defense to their own claim for 1 2 breach of the covenant of good faith and fair dealing. Whatever obligations 3 Defendants had under the contract were extinguished by the foreclosure sale, a lawful 4 consequence of Plaintiffs’ failure to fulfill their own contractual obligations. 5 Defendants had a duty to treat Plaintiffs any differently than they did in their annual 6 reporting to the credit bureaus, that duty sounds somewhere other than in contract. If 7 Amendment of Plaintiffs’ implied covenant claim would be futile for two 8 reasons. First, Plaintiffs have pled their own defense by pleading facts showing that 9 they did not fulfill their obligations under the loan contract. Second, the foreclosure 10 sale, a lawful exercise of Defendants’ contractual right, extinguished both the contract 11 and any and all covenants implied therefrom. Because this happened more than four 12 years before Plaintiffs filed their original Complaint, Plaintiffs’ implied covenant 13 claim is time-barred. 14 Plaintiffs’ Fourth Cause of Action. 15 F. 16 17 The Court therefore DISMISSES WITH PREJUDICE Injunctive and Declaratory Relief Finally, Plaintiffs ask the Court for injunctive and declaratory relief. (FAC ¶¶ 74–80.) 18 1. Injunctive Relief 19 Plaintiffs’ claim for injunctive relief is premised on Plaintiffs’ four substantive 20 causes of action. (FAC ¶ 74.) Because the Court has dismissed all of Plaintiffs’ 21 substantive claims, Plaintiffs have no claim on which to base their prayer for 22 injunctive relief. See Marcus v. ABC Signature Studios, Inc., 279 F. Supp. 3d 1056, 23 1073 (C.D. Cal. 2017) (“[I]njunctive relief is a remedy and not, in itself, a cause of 24 action.”) (alterations omitted); see also Massacre v. Davies, No. 13-cv-04005 NC, 25 2014 WL 4076549, at *6 (N.D. Cal. Aug. 18, 2014) (dismissing plaintiff’s claim for 26 injunctive relief after dismissing all of Plaintiff’s other claims). Because the Court has 27 dismissed all the underlying claims with prejudice, the Court likewise DISMISSES 28 WITH PREJUDICE Plaintiffs’ injunctive relief claim as to Quantum. 26 1 2. Declaratory Relief 2 The same reasoning applies to Plaintiffs’ claim for declaratory relief. 3 Declaratory relief is not an independent cause of action, but is instead a form of 4 equitable relief. Kimball v. Flagstar Bank F.S.B., 881 F. Supp. 2d 1209, 1219 (S.D. 5 Cal. 2012) (citing Batt v. City & Cnty. Of San Francisco, 155 Cal. App. 4th 65, 82 6 (2007). “Equitable remedies are dependent upon a substantive basis for liability and 7 have no separate viability if the underlying claims fail.” Chan v. Chancelor, No. 8 09cv1839 AJB (CAB), 2011 WL 5914263, at *6 (C.D. Cal. Nov. 28, 2011); see 9 Kimball, 881 F. Supp. 2d at 1220 (dismissing a claim for declaratory relief when all 10 other causes of action failed to state a claim). Here, Plaintiffs’ underlying claims have 11 all failed, stripping Plaintiffs’ claim for declaratory relief of its viability. 12 All of Plaintiffs’ underlying claims have been dismissed with prejudice, and 13 accordingly, the Court DISMISSES WITH PREJUDICE Plaintiffs’ Sixth Cause of 14 Action for declaratory relief as to Quantum. 15 G. Remaining Defendant(s) 16 Quantum moves for dismissal of the First Amended Complaint in its entirety. 17 (Mot. 2.) The Court has dismissed with prejudice all of Plaintiffs’ claims with respect 18 to Quantum, but not with respect to Quality.7 Quality has been served with notice of 19 this suit, but has not appeared. (ECF No. 35.) For the following reasons, and on its 20 own initiative, the Court dismisses all of Plaintiffs’ claims as to Quality. 21 A trial court may, on its own initiative, note the inadequacy of a complaint and 22 dismiss it for failure to state a claim. Wong v. Bell, 642 F.2d 359, 361–62 (9th Cir. 23 1981) (citing 5 C. Wright & A. Miller, Federal Practice and Procedure, § 1357, at 593 24 (1969)). Sua sponte dismissal on statute-of-limitations grounds is permissible when 25 26 27 28 7 In addition to suing “Quality Loan Servicing Corp.,” Plaintiffs also sued “Quality Loan Servicing Corporation,” but Plaintiffs do not appear to have served the latter entity with notice of the suit. It appears that Plaintiffs are treating both “Quality” entities as the same entity, because the party on whom Plaintiffs have been serving notice throughout the progress of this suit is “Quality Loan Servicing Corp.” (See ECF Nos. 8, 24, 35.) 27 1 the facts supporting a statute of limitations defense are set forth in the papers the 2 plaintiff submitted. Donell v. Kleppers, No. 10-CV-2613, 2011 WL 6098025, at *4 3 (S.D. Cal. Dec. 6, 2011). 4 defendant has waived the statute of limitations defense. Begley v. Cty. of Kauai, No. 5 CIVIL 16-00350 LEK-KJM, 2018 WL 443437, at *3 n.2 (D. Haw. Jan. 16, 2018) 6 (citing Levald v. City of Palm Desert, 998 F.2d 680, 687 (9th Cir. 1993)). Before 7 dismissing sua sponte, the Court must give the plaintiff an opportunity to be heard, 8 unless that plaintiff “cannot possibly win relief.” Dufour v. Allen, No. 14-cv-05616- 9 CAS(SSx), 2017 WL 373441, at *3 (C.D. Cal. Jan. 23, 2017) (citing Sparling v. 10 Such dismissal is inappropriate, however, where the Hoffman Const. Co., 864 F.2d 635, 638 (9th Cir. 1988)). 11 Quality has not filed an answer, nor has default been entered against it. 12 Therefore, Quality has not waived any defenses, including defenses based on a statute 13 of limitations. See Begley, 2018 WL 443437, at *3 n.2 (reasoning that a defendant 14 had not waived the statute of limitations defense because the defendant had not yet 15 filed a responsive pleading). The remaining issue is whether Plaintiffs have been 16 adequately heard such that dismissal of their claims as to Quality is not improper. 17 Ninth Circuit precedent makes clear that a court should not dismiss a claim sua 18 sponte unless the claimant has had an opportunity to be heard. See, e.g., Wong, 642 19 F.2d at 362. Here, Plaintiffs have had adequate opportunity to be heard with respect 20 to both defendants. Plaintiffs make no distinction between Quality and Quantum; 21 indeed, the First Amended Complaint attempts to obliterate the difference between the 22 two entities. Plaintiffs allege that “Quality and Quantum[] acted together, and had a 23 paid contractual relationship.” (FAC ¶ 3.) According to Plaintiffs, Quantum acted as 24 lender and Quality acted as loan servicer, or, in the alternative, Quality acted as lender 25 and Quantum acted as loan servicer. (FAC ¶ 3.) Other portions of the Complaint 26 reassert similar dual alternative allegations (FAC ¶ 33, 48), and the First Amended 27 Complaint in general reflects a lack of differentiation between the two Defendants. 28 (See FAC ¶ 14 (characterizing Quantum as a “mortgage lender and/or servicer); FAC 28 1 ¶¶ 21, 22, 24–28, 32–34 (referring to Quality and Quantum collectively as 2 “defendants” and making no distinction between the actions of the two).) Moreover, 3 Plaintiffs, in their prayer for relief, appear to demand from both Defendants all forms 4 of relief, making no attempt to specify which forms of relief they seek from each 5 Defendant. (FAC ¶¶ 29–30.) 6 The First Amended Complaint treats Quality and Quantum interchangeably, 7 and Plaintiffs have had an opportunity to argue that the Court should not dismiss their 8 claims as to Quantum. Because the First Amended Complaint treats Quality and 9 Quantum interchangeably, the very same arguments that support dismissal as to 10 Quantum support dismissal as to Quality, and Plaintiffs’ oppositions to these 11 arguments fail as to Quality for the same reasons they fail as to Quantum. Thus, the 12 Court concludes that Plaintiffs have had an opportunity to be heard, and the Court 13 DISMISSES WITH PREJUDICE all six Causes of Action with respect to Quality, 14 on the same grounds for dismissal as to Quantum. 15 Program, No. C-11-05156 DMR, 2012 WL 2238002, at *2 (dismissing, sua sponte 16 and with prejudice, all of plaintiff’s claims as time-barred, before either defendant had 17 appeared). 18 /// 19 /// 20 /// 21 /// 22 /// 23 /// 24 /// 25 V. Accord Cato v. Cmty. Job CONCLUSION 26 For the foregoing reasons, the Court GRANTS Defendants’ Motion to Dismiss. 27 (ECF No. 27.) The Court DISMISSES WITH PREJUDICE Plaintiffs’ Complaint in 28 29 1 its entirety as to all Defendants. A judgment will issue, after which the Clerk is 2 directed to close the case. 3 4 IT IS SO ORDERED. 5 6 May 7, 2018 7 8 ____________________________________ 9 OTIS D. WRIGHT, II 10 UNITED STATES DISTRICT JUDGE 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 30

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