O'Connor-Rose v. JPMorgan Chase Bank, N.A.

Filing 25

MEMORANDUM AND ORDER Re #17 Motion to Dismiss First Amended Complaint signed by Judge William B. Shubb on 5/2/2012: Chases motion to dismiss plaintiffs claim for constructive fraud be, and the same hereby is, GRANTED. Plaintiff has twenty days from the date of this Order to file an amended complaint, if she can do so consistent with this Order. (Kirksey Smith, K)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

EASTERN DISTRICT OF CALIFORNIA

10

----oo0oo----

11
12

DONNA RUTH O’CONNOR ROSE, an
individual,

NO. CIV. 2:12-225 WBS CMK

13
Plaintiff,

MEMORANDUM AND ORDER RE:
MOTION TO DISMISS FIRST
AMENDED COMPLAINT

14
v.
15
16

J.P. MORGAN CHASE, N.A., a
corporation,

17

Defendant.
/

18
19

----oo0oo----

20

Plaintiff Donna Ruth O’Connor-Rose brought an action

21

against defendant J.P. Morgan Chase (“Chase”) in state court,

22

stating claims arising from Chase’s allegedly wrongful conduct

23

related to a residential loan.

24

to this court on the basis of diversity jurisdiction.

25

No. 1.)

26

plaintiff’s claim for constructive fraud for failure to state a

27

claim upon which relief can be granted pursuant to Rule 12(b)(6).

28

(Docket No. 17.)

Chase then removed the proceeding
(Docket

Currently before the court is Chase’s motion to dismiss

1

1

I.

Factual and Procedural Background

2

In December of 2005, plaintiff obtained a loan in the

3

amount of $349,000 from Chase, which was secured by a Deed of

4

Trust encumbering property located at 3794 Mario Ave, Redding,

5

California (“the property”).

6

12:6-9, Ex. 1.)1 Plaintiff alleges that “[p]er paragraph 3 of the

7

subject loan, Chase was the trustee of an escrow account which

8

paid taxes, insurance and so forth,” and that “[f]rom that

9

position Chase had fiduciary duties over the periodic payments

10

that the plaintiff made.”

(First Amended Complaint (“FAC”) at

(Id. at 2:16-22, Ex. 1.)2

According to plaintiff, from August to October of 2009

11
12

she fell behind on the monthly payments due under the loan.

(Id.

13

at 14:9-11.)

14

she has paid more than was required under the terms of the loan

15

agreement and is now current on her loan.

16

10:1, 11:17.)

17

payments that were more than adequate to cover the monthly

18

installments due under her loan, Chase failed to properly credit

19

payments to her account from the end of 2009 on.

20

As a result of Chase’s “crooked accounting,” plaintiff contends

Apart from this period of time, she alleges that

(Id. at 6:2-23, 9:22-

She further alleges that although she made

(Id. at 4-11.)

21
1

22
23

Plaintiff’s FAC contains numbered paragraphs, however
many numbers are repeated. The court therefore will refer to
page and line numbers in its citations to the FAC.
2

24
25
26
27
28

In general, a court may not consider items outside the
pleadings upon deciding a motion to dismiss. Hal Roach Studios,
Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir.
1990). However, the court may consider material that is properly
submitted as a part of the complaint. Lee v. City of L.A., 250
F.3d 668, 688 (9th Cir. 2001). Plaintiff attached a number of
exhibits to her FAC, including the loan agreement signed by the
parties. As these materials were properly submitted as a part of
the complaint, the court will consider them in ruling on Chase’s
motion to dismiss.
2

1

that Chase repeatedly and falsely represented that her loan was

2

in default when in fact she had paid more than was due on the

3

loan, (e.g., id. at 4:27-5:1, 7:4-8:12, 10:2-24), and caused two

4

wrongful Notices of Default to be recorded, (id. at 5:14-25, 7:4-

5

13, Exs. 8, 12; see also Def.’s Request for Judicial Notice

6

(“RJN”) Exs. B, D (Docket No. 18)).3

7

these Notices of Default.

8

15; see also RJN Exs. C, E.)

9

Chase rescinded each of

(FAC at 5:29-6:1, 8:13-16, Exs. 10,

Plaintiff additionally alleges that Chase has falsely

10

reported to third parties that she was late in making payments

11

under the loan and in default and that credit agencies have

12

“picked up on this reporting.”

13

30.)

14

(FAC at 11:18-20, 14:4-7, Ex.

Plaintiff filed her Complaint on December 28, 2011, and

15

the proceeding was removed to this court on January 27, 2012.

16

(Docket No. 1.)

17

and granted defendant’s earlier motion to dismiss.

18

15).

19

contract and constructive fraud.

20

filed a motion to dismiss the claim for constructive fraud.

21

(Docket No. 17.)

22

II.

(Docket No.

Plaintiff has filed a FAC stating claims for breach of
(Docket No. 16,)

Defendant has

Discussion
To survive a motion to dismiss, a plaintiff must plead

23
24

The court denied plaintiff’s motion to remand

“only enough facts to state a claim to relief that is plausible

25
3

26
27
28

Chase requests that the court judicially notice several
publically recorded documents. (See FAC Exs. A-E.) The court
will take judicial notice of these documents, since they are
identical to materials attached to plaintiff’s FAC and are
matters of public record whose accuracy cannot be reasonably
questioned. See Lee, 250 F.3d at 689.
3

1

on its face.”

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570

2

(2007).

3

than a sheer possibility that a defendant has acted unlawfully,”

4

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and “[w]here a

5

complaint pleads facts that are ‘merely consistent with’ a

6

defendant’s liability, it ‘stops short of the line between

7

possibility and plausibility of entitlement to relief.’”

8

(quoting Twombly, 550 U.S. at 557).

9

plaintiff has stated a claim, the court must accept the

This “plausibility standard,” however, “asks for more

Id.

In deciding whether a

10

allegations in the complaint as true and draw all reasonable

11

inferences in favor of the plaintiff.

12

U.S. 232, 236 (1974), overruled on other grounds by Davis v.

13

Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322

14

(1972).

15

Scheuer v. Rhodes, 416

“It is essential to the operation of the doctrine of

16

constructive fraud that there exist a fiduciary or special

17

relationship.”

18

App. 3d 103, 116 (4th Dist. 1991).

19

relationship between two parties, “any material concealment or

20

misrepresentation will amount to fraud sufficient to entitle the

21

party injured thereby to an action.”

22

Express, Inc., 180 Cal. App. 3d 1011, 1020 (2d Dist. 1986).

23

order to state a claim for constructive fraud under California

24

law, a plaintiff must allege (1) a fiduciary or confidential

25

relationship, (2) an act, omission, or concealment involving a

26

breach of that duty, (3) reliance, and (4) resulting damages.

27

Assilzadeh v. Cal. Fed. Bank, 82 Cal. App. 4th 399, 414 (2d Dist.

28

2000).

Peterson Dev. Co. v. Torrey Pines Bank, 233 Cal.
When there is a fiduciary

Ford v. Shearson Lehman Am.
In

Unlike an action for ordinary fraud, a constructive fraud
4

1

action does not require a showing that a defendant intended to

2

defraud the plaintiff.

3

590, 601 (9th Cir. 2010) (citing Quintilliani v. Mannerino, 62

4

Cal. App. 4th 54, 70, 72 (4th Dist. 1998)).

5

claims must still, however, be pled with particularity under the

6

higher pleading standards of Rule 9(b).

7

Mortg. Funding, Inc., 403 Fed. App’x 154, 156 (9th Cir. 2010);

8

Sonoma Foods, Inc. v. Sonoma Cheese Factory, LLC, 634 F. Supp. 2d

9

1009, 1021 (N.D. Cal. 2007).

Mindys Cosmetics, Inc. v. Dakar, 611 F.3d

Constructive fraud

Guerrero v. Greenpoint

Here, plaintiff alleges that she and Chase were in a

10
11

fiduciary relationship.

12

fiduciary obligation, he must either knowingly undertake to act

13

on behalf and for the benefit of another, or must enter into a

14

relationship which imposes that undertaking as a matter of law.”

15

Comm. On Children’s Television, Inc. v. Gen. Foods Corp., 35 Cal.

16

3d 197, 221 (1983).

17

the best interests of the beneficiary.”

18

Football League, 131 Cal. App. 4th 621, 641 (6th Dist. 2005)

19

(quoting Children’s Television, 35 Cal.3d at 222).

20

“[B]efore a person can be charged with a

A fiduciary is required to give “priority to
Oakland Raiders v. Nat’l

Plaintiff does not allege that the lender-borrower

21

relationship imposes a fiduciary obligation on Chase as a matter

22

of law.

23

established case law providing that the ordinary lender-borrower

24

relationship does not impose any fiduciary duty on the lender.

25

See Bridgeman v. United States, No. 10–01457, 2011 U.S. Dist.

26

LEXIS 6059, at *52 (E.D. Cal. Jan. 21, 2011); Oaks Mgmt. Corp. v.

27

Superior Court, 145 Cal. App. 4th 453, 466 (4th Dist. 2006);

28

Nymark v. Heart Fed. Savs. & Loan Ass’n, 231 Cal. App. 3d 1089

Indeed, such an argument would run contrary to well-

5

1

(3d Dist. 1991).

2

a fiduciary duty under paragraph 3 of the loan agreement.

3

paragraph provides that plaintiff will pay certain funds to Chase

4

to cover taxes, insurance premiums, and other “Escrow Items,” and

5

that Chase may collect and hold these funds in escrow.

6

1 ¶ 3.)

7

Instead, plaintiff alleges that Chase owed her
That

(FAC Ex.

“Although parties may create fiduciary relationships by

8

contract, mere contractual relationships, without more, do not

9

give rise to fiduciary relationships.”

Sonoma Foods, Inc., 634

10

F. Supp. 2d at 1021 (internal quotation marks and alterations

11

omitted).

12

institution does not, as a general rule, owe a “duty of care to a

13

borrower when the institution’s involvement in the loan

14

transaction does not exceed the scope of its conventional role as

15

a mere lender of money.”

16

(citations omitted).

17

which bring it into a ‘special relationship’ with a customer,”

18

including when a bank affirmatively offers trust and other

19

specifically fiduciary services.

20

Cal. App. 3d 678, 691 n.12 (4th Dist. 1991).

As alluded to above, under California law, a financial

Nymark, 231 Cal. App. 3d at 1095–96

However, a bank may “undertake obligations

Copesky v. Superior Court, 229

In Peterson, the plaintiff sought a construction loan

21
22

from defendant Torrey Pines Bank (“TPB”), and under the loan

23

agreement between the parties TPB provided certain escrow

24

services.

25

alleged that TPB owed him a fiduciary duty based on its escrow-

26

related conduct.

27

argument, noting that it is not uncommon for a lending

28

institution to handle escrow functions and holding that the

Peterson, 233 Cal. App. 3d at 109.

Id. at 116.

The plaintiff

The court, however, rejected this

6

1

parties’ relationship “fell into the usual category of an arm’s

2

length, adverse, ‘normal commercial banking transaction.’”

3

at 119-20; see also Hudson v. Wells Fargo Bank, N.A., No. C-11-

4

03966 JCS, 2011 WL 5882880, at *8 (N.D. Cal. Nov. 23, 2011)

5

(plaintiff’s allegations that funds from a rehabilitation loan

6

were placed into a rehabilitation escrow account pursuant to the

7

loan agreement were insufficient to give rise to fiduciary duty);

8

Palestini v. Homecomings Fin., LLC, No. 10CV1049-MMA, 2010 WL

9

3339459, at *5 (S.D. Cal. Aug. 23, 2010) (claim for breach of

Id.

10

fiduciary duty dismissed with prejudice because defendant

11

responsible for an escrow account related to a home loan owed

12

plaintiff no fiduciary duty).

13

An examination of the paragraph cited by plaintiff

14

shows that while the paragraph does provide that Chase will

15

create an escrow account in which it will hold a portion of the

16

loan funds in order pay certain taxes and fees on the property,

17

it does not contain any language either referring to a trust or

18

suggesting that Chase agrees to hold funds in trust for plaintiff

19

or give priority to her interests.

20

nonconclusory allegations suggesting that defendant acted outside

21

of the conventional role of a lender or agreed to act as a

22

trustee for plaintiff, the FAC does not adequately allege a

23

fiduciary relationship.

24

fraud claim fails and the court will grant Chase’s motion to

25

dismiss the constructive fraud claim.4

Because there are no

Accordingly, plaintiff’s constructive

26
27
28

4

In her Opposition, plaintiff spends a good deal of time
discussing the Real Estate Settlement Procedures Act (“RESPA”).
Because she does not bring any claims under RESPA, however, this
7

1

IT IS THEREFORE ORDERED that Chase’s motion to dismiss

2

plaintiff’s claim for constructive fraud be, and the same hereby

3

is, GRANTED.

4

Plaintiff has twenty days from the date of this Order

5

to file an amended complaint, if she can do so consistent with

6

this Order.

7

DATED:

May 2, 2012

8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

discussion is irrelevant.
8