Dowling v. Bank of America, National Association et al

Filing 38

FINDINGS and RECOMMENDATIONS RECOMMENDING GRANTING DEFENDANTS MOTION FOR RELIEF FROM ENTRY OF DEFAULT. OBJECTIONS DUE WITHIN 14 DAYS. The matter is referred to Judge Drozd; Signed by Magistrate Judge Stanley A. Boone on 3/16/2016. (Hernandez, M)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 BRENDA DOWLING, 12 Plaintiff, 13 14 15 No. 1:14-cv-01041-DAD-SAB FINDINGS AND RECOMMENDATIONS RECOMMENDING GRANTING DEFENDANTS’ MOTION FOR RELIEF FROM ENTRY OF DEFAULT v. BANK OF AMERICA, NATIONAL ASSOCIATION, et al. (ECF Nos. 29, 30, 31, 32) Defendants. 16 OBJECTIONS DUE WITHIN FOURTEEN DAYS 17 I. 18 BACKGROUND 19 On July 2, 2014, Plaintiff Brenda Dowling filed this action against Defendants Bank of 20 America, N.A. and BAC Home Loans Servicing. (ECF No. 1.) After Defendants’ motion to 21 dismiss was partially granted, Plaintiff filed a first amended complaint on June 25, 2015. (ECF 22 Nos. 24, 25.) On July 27, 2015, Plaintiff sent an e-mail asking if Defendants would be 23 answering the first amended complaint because the answer was overdue. (ECF No. 29-3.) 24 Defendants responded that they would be filing an answer to the first amended complaint. (Id.) 25 On August 3, 2015, Plaintiff’s filed a motion for entry of default and the clerk entered 26 default against the defendants. (ECF Nos. 26, 27 28.) On August 21, 2015, Defendants filed a 27 motion for relief from entry of default and a request for judicial notice. (ECF Nos. 29, 30.) 28 1 1 Plaintiff filed an opposition on September 23, 2015. (ECF No. 31.) Defendant filed a reply on 2 October 1, 2015. (ECF No. 32.) 3 On February 29, 2016, this action was reassigned to District Judge Dale Drodz and the 4 motion for relief from entry of default was referred to the undersigned. (ECF Nos. 35, 36.) Oral 5 argument was held on March 16, 2016. Counsel John Drooyan appeared late at the hearing for 6 Plaintiff Dowling. Counsel Alison Lippa appeared telephonically for Defendants. Having 7 considered the moving, opposition and reply papers, the declarations and exhibits attached 8 thereto, arguments presented at the March 16, 2016 hearing, as well as the Court’s file, the Court 9 issues the following findings and recommendations. 10 II. 11 LEGAL STANDARD 12 Rule 55(a) of the Federal Rules of Civil Procedure provides that “[w]hen a party against 13 whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that 14 failure is shown by affidavit or otherwise, the clerk must enter the party’s default.” The court 15 may set aside an entry of default for good cause. Fed. R. Civ. P. 5(c). 16 In determining if good cause exists to set aside the default, “the court must consider three 17 factors: (1) whether the party seeking to set aside the default engaged in culpable conduct that 18 led to the default; (2) whether it had no meritorious defense; or (3) whether reopening the default 19 judgment would prejudice the other party.” U.S. v. Signed Personal Check No. 730 of Yubran S. 20 (Mesle), 615 F.3d 1085, 1091 (9th Cir. 2010) (internal punctuation and citations omitted). The 21 primary concern in considering a request to set aside default, is whether the defaulting party has 22 a meritorious defense to the action. Hawaii Carpenters’ Trust Funds v. Stone, 794 F.2d 508, 513 23 (9th Cir. 1986). 24 Any of these factors are sufficient by themselves to refuse to set aside default. Mesle, 25 615 F.3d at 1091. The test is the same for setting aside default under Rules 55 or 60, however 26 when a party is seeking relief from default prior to the entry of default judgment, the test is more 27 liberally applied. Id. at 1091 n.1. While the factors which the court is to consider are 28 “disjunctive,” a court may deny relief if any of the three factors applies, and the court’s decision 2 1 is discretionary.” Brandt v. American Bankers Ins. Co. of Florida, 653 F.3d 1108, 1111–12 (9th 2 Cir.2011). 3 “[J]udgment by default is a drastic step appropriate only in extreme circumstances. . . .” 4 Mesle, 615 F.3d at 1091 (quoting Falk v. Allen, 739 F .2d 461, 463 (9th Cir.1984)). “Where 5 timely relief is sought from a default . . . and the movant has a meritorious defense, doubt, if any, 6 should be resolved in favor of the motion to set aside the [default] so that cases may be decided 7 on their merits.” Mendoza v. Wight Vineyard Mgmt., 783 F.2d 941, 945-46 (9th Cir. 1986) 8 (quoting Schwab v. Bullock’s Inc., 508 F.2d 353, 355 (9th Cir.1974)). 9 Judgment by default is a drastic step and is appropriate only in extreme circumstances. 10 Mesle, 615 F.3d at 1089. When applying the factors to be considered, the district court is to keep 11 in mind that such judgments are disfavored and cases should be decided on the merits whenever 12 reasonably possible. United States v. Aguilar, 782 F.3d 1101, 1106 (9th Cir. 2015); Eitel v. 13 McCool, 782 F.2d 1470, 1472 (9th Cir. 1986). 14 III. 15 DISCUSSION 16 Defendants contend that good cause exists to set aside the default in this action. Plaintiff 17 responds that Defendants cannot meet the factors to be considered in setting aside default, and 18 the Court should deny the motion to set aside entry of default. The Court shall consider whether 19 Defendants’ conduct was culpable, if there is a meritorious defense, and the prejudice to Plaintiff 20 if default is set aside. 21 A. Culpable Conduct 22 Plaintiff argues that Defendants’ conduct is culpable since the press of business is not an 23 excuse for the failure to file an answer to the first amended complaint. Defendants contend that 24 at the time that Plaintiff filed the motion for entry of default, Plaintiff was aware that Defendants 25 were preparing an answer and that Defendants did not think that a stipulation for an extension of 26 time was necessary. 27 A defendant’s conduct is considered culpable where he has received actual or 28 constructive notice of the filing of an action and intentionally fails to answer. Mesle, 615 F.3d at 3 1 1092. Intentionally in this context “means that a movant cannot be treated as culpable simply for 2 having made a conscious choice not to answer; rather, to treat a failure to answer as culpable, the 3 movant must have acted with bad faith, such as an ‘intention to take advantage of the opposing 4 party, interfere with judicial decisionmaking, or otherwise manipulate the legal process.’ ” Id. 5 (quoting TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 697 (9th Cir. 2001)). Courts 6 typically hold that a defendant’s conduct is culpable for when considering the good cause factors 7 where there is no explanation of the default inconsistent with a devious, deliberate, willful, or 8 bad faith failure to respond. Mesle, 615 F.3d at 1092 (quoting TCI Group Life Ins. Plan, 244 9 F.3d at 698. Therefore, “it is clear that simple carelessness is not sufficient to treat a negligent 10 failure to reply as inexcusable, at least without a demonstration that other equitable factors, such 11 as prejudice, weigh heavily in favor of denial of the motion to set aside a default.” Mesle, 615 12 F.3d at 1092. Here, Defendants had filed a motion to dismiss the complaint and after the first amended 13 14 complaint was filed had informed Plaintiff that they would be filing an answer to the first 15 amended complaint rather than a motion to dismiss. (Decl. of Alison V. Lippa ¶ 5, ECF No. 2916 2.) Defendants’ answer was due on June 16, 2015, and no answer was filed. After Plaintiff 17 contacted Defendant regarding no answer being filed, Defendants responded that they would 18 “definitely” be filing an answer. (ECF No. 29-3.) Defendants state they relied on the e-mail 19 exchange and the fact that the parties had been in contact on several occasions regarding the 20 filing of the first amended complaint and answer.1 Due to the contact between the parties, 21 Defendants thought there was an agreement between the parties as to the filing of the answer and 22 therefore did not feel it was necessary to seek a stipulation to extend time to respond to the 23 complaint. (ECF No. 29-2 at ¶ 8.) While clearly the prudent practice would have been to request a stipulation for an 24 25 extension of time to file an answer to the first amended complaint rather than ignoring the 26                                                              1 During oral argument representations were made regarding the communication that occurred between counsel. 27 Counsel is advised to use care in making representations to the Court. The Court refers to the representations that are made by counsel in analyzing the merits of the issues presented. Therefore, counsel should be very careful to 28 ensure that representations made in the case are accurate. 4 1 deadline and relying on counsels’ “understanding”,2 the failure to do so in this instance would be 2 negligent, rather than conduct consistent with a devious, deliberate, willful, or bad faith failure to 3 respond. Mesle, 615 F.3d at 1092. Further, it is clear that Defendants had been actively 4 defending this action since it was filed, and were in the process of preparing an answer to the 5 first amended complaint at the time that default was entered. Additionally, once default was 6 entered Defendants filed the motion to set default aside within three weeks. In this instance, the 7 Court does not find that the failure to answer was culpable conduct by the Defendants.3 8 B. Meritorious Defense 9 Defendants state that they have a meritorious defense for the claims raised in the first 10 amended complaint. Plaintiffs contend that Defendants have not met their burden of 11 demonstrating a meritorious defense because they have not included a declaration asserting facts 12 supporting the defense. While the party seeking to set aside default must present specific facts that would 13 14 constitute a defense, the burden on the party seeking to set aside the default is not extraordinarily 15 heavy. Mesle, 615 F.3d at 1095. Plaintiff argues that Defendants have not provided a 16 declaration to support their meritorious defense argument. “All that is necessary to satisfy the 17 ‘meritorious defense’ requirement is to allege sufficient facts that, if true, would constitute a 18 defense: ‘the question whether the factual allegation [i]s true’ is not to be determined by the 19 court when it decides the motion to set aside the default.” Id. There is no requirement that the 20 memorandum be supported by a declaration in this Circuit. Defendants have requested that the Court take judicial notice of documents to support 21 22 their defense. The Court grants the request for judicial notice for purposes of this motion. 23                                                              2 24 25 26 The deadlines imposed are those imposed by the federal rules which are intended to be adhered to absent further order of the court. The time and effort of the parties and the Court in addressing this particular matter is what can happen when the rules are taken as recommendations. Even without a stipulation and subsequent order on that stipulation, Defendants could have requested an extension which this court would have found good cause to extend for a very limited time. 3 Plaintiff argues that Defendants have not shown that their conduct was due to mistake, inadvertence, surprise or 27 neglect. However, the standard to set aside entry of default is whether the conduct was culpable. Mesle, 615 F.3d at 1091. While the standard applicable is the same for setting aside default under Rules 55 or 60, when a party is 28 seeking relief from default prior to the entry of default judgment, the test is more liberally applied. Id. at 1091 n.1. 5 1 Plaintiff has alleged eight causes of action in the first amended complaint: breach of 2 contract; conversion; infliction of emotional distress; and violations of the Fair Debt Collection 3 Practices Act (“FDCPA”), 15 U.S.C. §§ 1962e(2)(A) and 1962d(5), California Homeowner’s 4 Bill of Rights, Cal. Civ. Code §§ 2920 et seq., and California Unfair Competition Law (“UCL”), 5 Cal. Bus. & Prof. Code §§ 17200 et seq. In this action, California law applies to the state law 6 claims. Freund v. Nycomed Amersham, 347 F.3d 752, 761 (9th Cir. 2003). 1. 7 8 Breach of Contract “Under California law, ‘[a] cause of action for breach of contract requires proof of the 9 following elements: (1) existence of the contract; (2) plaintiff’s performance or excuse for 10 nonperformance; (3) defendant’s breach; and (4) damages to plaintiff as a result of the breach.’ ” 11 Ehret v. Uber Technologies, Inc., 68 F.Supp.3d 1121, 1139 (N.D. Cal. Sept 17, 2014) (quoting 12 CDF Firefighters v. Maldonado, 158 Cal.App.4th 1226, 1239 (2008).) 13 Defendants contend that Plaintiff failed to fully perform under the alleged contract. Due 14 to Plaintiff’s failure to comply with the terms and conditions stated in the Partial Claim 15 Commitment, Offer of Partial Claim and Agreement (“Offer”), and/or subordinate documents, 16 the offer terminated. Further, Defendants contend that representations made by Plaintiff 17 pursuant to the partial claim were relied upon by Defendant and were either incomplete or untrue 18 or both. Plaintiff and her husband failed to comply with the conditions of the agreement 19 executed on July 7, 2010 which required them to report any material change in circumstances 20 and to provide certain information regarding their personal finances. 21 Defendants’ allegations that Plaintiff failed to perform her obligations under the contract 22 are sufficient to raise a meritorious defense to the breach of contract claim. 23 2. Conversion 24 Plaintiff contends that she made payments that Defendants did not properly credit. Under 25 California law, “[c]onversion is the wrongful exercise of dominion over the property of another. 26 The elements of a conversion claim are: (1) the plaintiff’s ownership or right to possession of the 27 property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and 28 (3) damages.” Welco Elecs., Inc. v. Mora, 223 Cal.App.4th 202, 208 (2014), reh’g denied (Feb. 6 1 19, 2014). 2 Defendants contend that according to the agreement of the parties, all funds received 3 from Plaintiff were to be held in a suspense account and if the agreement was cancelled were to 4 be applied to the remaining obligation and not to be refunded to Plaintiff. Since the foreclosure 5 continued, all payments made by Plaintiff were credited to the remaining obligation on the 6 property. Defendants’ allegations that the parties agreed that any payments made were to be 7 applied to the obligations on the property are sufficient to raise a meritorious defense to 8 conversion. 9 10 3. Intentional Infliction of Emotional Distress Plaintiff claims that Defendants actions including passing her to seventeen different 11 customer service agent over a thirty-two month period, refusal to acknowledge the Partial Claim 12 Agreement or credit payments of $6,288.30 pursuant to the Agreement, and repeatedly 13 misstating the balance owed on the loan caused her to discontinue her attempts at loan 14 modification which resulted in the foreclosure of the loan. (ECF No 25 at ¶¶ 72, 73.) Plaintiff 15 alleges that these cumulative actions were so extreme and outrageous that they rise to the level of 16 intentional infliction of emotional distress. 17 Under California law, the elements of intentional infliction of emotional distress are: “(1) 18 outrageous conduct by the defendant, (2) intention to cause or reckless disregard of the 19 probability of causing emotional distress, (3) severe emotional suffering, and (4) actual and 20 proximate causation of the emotional distress.” Wong v. Tai Jing, 189 Cal.App.4th 1354, 1376 21 (2010) (quoting Agarwal v. Johnson, 25 Cal.3d 932, 946 (1979)). Conduct is “outrageous if it is 22 ‘so extreme as to exceed all bounds of that usually tolerated in a civilized community.’ ” Simo 23 v. Union of NeedleTrades, Industrial & Textile Employees, 322 F.3d 602, 622 (9th Cir. 2002) 24 (quoting Saridakis v. United Airlines, 166 F.3d 1272, 1278 (9th Cir. 1999)). The emotional 25 distress must be “of such a substantial quantity or enduring quality that no reasonable man in a 26 civilized society should be expected to endure it.” Simo, 322 F.3d at 622. 27 Defendants contend that Plaintiff is unable to prove her emotional distress claim because 28 the conduct complained of is not “so extreme as to exceed all bounds of that usually tolerated in 7 1 a civilized society.” Simo, 322 F.3d at 622. Plaintiff argues that the allegations in the complaint 2 are sufficient to prove that she was subjected to infliction of emotional distress. However, it is 3 not the Court’s role at this stage to decide the issue of whether Plaintiff was subjected to 4 intentional infliction of emotional distress. 5 Plaintiff additionally argues that Defendants cite no facts to support the contention that 6 she was not subjected to infliction of emotional distress. While Plaintiff contends that she 7 suffered adverse effects due to the acts of Defendants, Defendants argue that the conduct 8 described in the complaint does not appear to be “so extreme as to exceed all bounds of that 9 usually tolerated in a civilized society.” Simo, 322 F.3d at 622. Plaintiff’s failure to state a 10 claim would be a meritorious defense. Aguilar, 782 F.3d 1101, 1108-09. The Court finds that, 11 based upon the allegations in the first amended complaint, Defendants have raised a meritorious 12 defense that the actions alleged in the first amended complaint are insufficient to support the 13 claim of intentional infliction of emotional distress. 14 4. Fair Debt Collection Practices Act 15 Two of Plaintiff’s causes of action allege violations of the FDCPA. “To establish a claim 16 under the FDCPA, a plaintiff must show: (1) she is a consumer within the meaning of 15 U.S.C. 17 § 1692a(3); (2) the debt arises out of a transaction entered into for personal purposes; (3) the 18 defendant is a debt collector within the meaning of 15 U.S.C. § 1692a(6); and (4) the defendant 19 violated one of the provisions of the FDCPA, 15 U.S.C. §§ 1692a–1692o.” Laugenour v. 20 Northland Group Inc., No. 2:12-cv-02995 GEB DAD PS, 2013 WL 3745727, at *2 (E.D. Cal. 21 July 15, 2013) (citing Moriarity v. Nationstar Mortg., LLC, No. 1:13–cv–0855 AWI SMS, 2013 22 WL 3354448, at *4 (E.D. Cal. July 3, 2013)). 23 Defendants contend that they are not debt collectors under the FDCPA. According to 24 Defendants, under the FDCPA they qualify as a mortgage lender and are statutorily exempted 25 from liability under the FDCPA. 15 U.S.C. §1692a(6)(F). “[T]he law is well-settled . . . that 26 creditors, mortgagors, and mortgage servicing companies are not debt collectors and are 27 statutorily exempt from liability under the FDCPA.” Scott v. Wells Fargo Home Mortgage Inc., 28 326 F. Supp. 2d 709, 718 (E.D. Va.) aff’d sub nom. Scott v. Wells Fargo & Co., 67 F. App’x 238 8 1 (4th Cir. 2003). Plaintiff argues that the first amended complaint alleges that Defendants are 2 debt collectors under the FDCPA, however, again at this stage in the litigation, the Court is not to 3 determine whether factual allegations are true, that question is the subject of later litigation. 4 Mesle, 615 F.3d at 1094. 5 Defendants raise the meritorious defense that they are not debt collectors under the 6 FDCPA. 7 5. California Homeowner’s Bill of Rights 8 Plaintiff alleges that Defendants violated California’s Home Owner’s Bill of Rights by 9 failing to establish a single point of contact during the loan modification process. Defendants 10 contend that Plaintiff cannot bring a claim under the Homeowner’s Bill of Rights because the 11 property is not her primary residence, the first amended complaint makes no allegations of 12 wrongful conduct after January 1, 2013 the effective date of the statute, and in fact single points 13 of contact were assigned to communicate with Plaintiff after which the loan was modified and 14 she received a principal reduction. 15 While Plaintiff contends that the first amended complaint alleges that the property was 16 foreclosed on in 2014, the conduct which would require a single point of contact during the loan 17 modification process occurred well prior to the actual foreclosure on the property. Further, 18 Defendants also raise the defense that Plaintiff cannot bring a claim under the Homeowner’s Bill 19 of Rights where the property is not her primary residence and that they did assign a single point 20 of contact during the loan modification process. 21 Defendants have raised a meritorious defense to Plaintiff’s claims under the 22 Homeowner’s Bill of Rights. 23 6. California Unfair Competition Law 24 Plaintiff also alleges that the acts complained of in the complaint violate the UCL. 25 Defendants respond that for the reasons previously stated they were justified in foreclosing on 26 the property and applying Plaintiff’s payments to the remaining obligation on the property. 27 The UCL prohibits “any unlawful, unfair or fraudulent business act or practice and 28 unfair, deceptive, untrue or misleading advertising.” Cal Bus. & Prof. Code § 17200. “An act 9 1 can be alleged to violate any or all three of the prongs of the UCL—unlawful, unfair, or 2 fraudulent.” Stearns v. Select Comfort Retail Corp., 763 F.Supp.2d 1128, 1149 (N.D. Cal. 2010) 3 (quoting Berryman v. Merit Prop. Mgmt., Inc., 152 Cal.App.4th 1544, 1554 (2007)). 4 “For an action based upon an allegedly unlawful business practice, the UCL ‘borrows 5 violations of other laws and treats them as unlawful practices that the unfair competition law 6 makes independently actionable.’ ” Stearns, 763 F.Supp.2d at 1150 (citation omitted); see also 7 Smith v. State Farm Mutual Automobile Ins. Co., 93 Cal.App.4th 700, 718-19 (2001) (“An 8 ‘unlawful’ business activity includes ‘anything that can properly be called a business practice 9 and that at the same time is forbidden by law.”). 10 For the reasons stated in addressing the additional causes of actions raised in the first 11 amended complaint, Defendants have a meritorious defense to the UCL claim. 12 C. Prejudice 13 The parties disagree regarding whether Plaintiff would be prejudiced by setting aside 14 default. Plaintiff argues that she would be prejudiced because conduct on which the foreclosure 15 was based began in 2010 and the delay in discovery increases the likelihood that witnesses will 16 be unavailable or unable to testify competently. 17 To be prejudicial, the setting aside of the judgment must do more harm than merely 18 delaying the resolution of the case or requiring the plaintiff to litigate the action on the merits. 19 Mesle, 615 F.3d at 1095; TCI Grp. Life Ins. Plan, 244 F.3d at 701. The standard is whether the 20 non-movant’s ability to pursue her claim will be hindered. FOC Fin. Ltd. P’ship v. Nat’l City 21 Commercial Capital Corp., 612 F.Supp.2d 1080, 1084 (D. Ariz. 2009) (quoting TCI Group Life 22 Ins. Plan, 244 F.3d at 701). 23 While Plaintiff argues that the delay could cause witnesses to be unavailable or unable to 24 competently testify in this action, the Court notes that the answer to the complaint was due on 25 June 16, 2015, and Defendants filed their motion to set aside default approximately two months 26 later on August 21, 2015. Although some time has passed since the motion was filed, this delay 27 was not due to Defendants, but was due to the court taking the matter under submission and the 28 reassignment of the action. The action was filed less than two years ago and the slight delay due 10 1 to the failure to answer will not hinder Plaintiff’s ability to pursue her claims. The Court finds 2 that the length of the delay in this action is not sufficient to establish prejudice. 3 IV. 4 CONCLUSION AND RECOMMENDATION Upon review of the factors to be considered in deciding whether to set aside default for 5 6 the failure to file an answer to the complaint, the Court finds that Defendants did not engage in 7 culpable conduct; Defendants have a meritorious defense to the claims raised in this action; and 8 Plaintiff will not be prejudiced if default is set aside. Based on the foregoing, IT IS HEREBY RECOMMENDED that: 9 10 1. Defendants’ motion to set aside default be GRANTED; and 11 2. Defendants should be ordered to file an answer to the amended complaint. 12 These findings and recommendations are submitted to the district judge assigned to this 13 action, pursuant to 28 U.S.C. § 636(b)(1)(B) and this Court’s Local Rule 304. Within fourteen 14 (14) days of service of this recommendation, any party may file written objections to these 15 findings and recommendations with the Court and serve a copy on all parties. Such a document 16 should be captioned “Objections to Magistrate Judge’s Findings and Recommendations.” The 17 district judge will review the magistrate judge’s findings and recommendations pursuant to 28 18 U.S.C. § 636(b)(1)(C). The parties are advised that failure to file objections within the specified 19 time may result in the waiver of rights on appeal. Wilkerson v. Wheeler, 772 F.3d 834, 839 (9th 20 Cir. 2014) (citing Baxter v. Sullivan, 923 F.2d 1391, 1394 (9th Cir. 1991)). 21 22 IT IS SO ORDERED. 23 Dated: March 16, 2016 UNITED STATES MAGISTRATE JUDGE 24 25 26 27 28 11

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