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

Filing 39

MEMORANDUM and ORDER signed by Judge William B. Shubb on 08/02/2012 GRANTING re 30 Defendant's Motion to Dismiss Plaintiff's Second Cause of Action. (Streeter, J)

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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 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 this action 21 against defendant J.P. Morgan Chase (“Chase”) stating claims 22 arising from Chase’s allegedly wrongful conduct related to a 23 residential loan. 24 to dismiss plaintiff’s constructive fraud claim in her Second 25 Amended Complaint (“SAC”) for failure to state a claim upon which 26 relief can be granted pursuant to Rule 12(b)(6). 27 30.) 28 /// Currently before the court is Chase’s motion 1 (Docket No. 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 in Redding, 5 California (“the property”). 6 Plaintiff alleges that “[p]er paragraph 3 of the subject loan, 7 Chase was the trustee of an escrow account which paid taxes, 8 insurance and so forth,” and that “[f]rom that position Chase had 9 fiduciary duties over the periodic payments that the plaintiff 10 made.” (SAC ¶ 84 (Docket No. 27).) (Id. ¶ 7.) According to plaintiff, from August to October of 2009 11 12 she fell behind on the monthly payments due under the loan. (Id. 13 ¶ 88.) 14 paid more than was required under the terms of the loan agreement 15 and is now current on her loan. 16 result of Chase’s “crooked accounting,” plaintiff contends that 17 Chase repeatedly and falsely represented that her loan was in 18 default when in fact she had paid more than was due on the loan, 19 (e.g., id. ¶¶ 16, 24, 33, 59-61, Ex. 22), and caused two wrongful 20 Notices of Default to be recorded, (id. ¶¶ 23, 24, 32, 33, Exs. 21 8, 12). 22 ¶¶ 26, 40, Exs. 10, 15.) Apart from this period of time, she alleges that she has (Id. ¶¶ 28, 53, 55, 75.) Chase rescinded each of these Notices of Default. As a (Id. 23 On March 1, 2012, Chase allegedly sent plaintiff a 24 statement indicating that she was two months past due on her 25 loan, which plaintiff alleges is not correct. 26 On March 7, 2012, Chase caused another Notice of Default to be 27 recorded. 28 on her loan, (id. ¶¶ 74, 75), but that since March 7, 2012, she (Id. ¶ 73, Ex. 29.) (Id. ¶¶ 70, 71.) Plaintiff alleges she is current 2 1 has not received any billing or notices and the bank refused to 2 accept a monthly payment in April 2012, (id. ¶¶ 77, 78). Plaintiff additionally alleges that she was harmed 3 4 because Chase falsely reported to third parties that she was late 5 in making payments under the loan and in default and that credit 6 agencies have “picked up on this reporting.” 7 30.) Plaintiff filed her Complaint on December 28, 2011, in 8 9 (Id. ¶¶ 76, 87, Ex. state court, and the proceeding was removed to this court on 10 January 27, 2012. (Notice of Removal, Ex. A (“Compl.”) (Docket 11 No. 1).) 12 granted in part Chase’s motion to dismiss with leave to amend. 13 (Docket No. 15.) 14 (Docket No. 16), and the court granted Chase’s motion to dismiss 15 plaintiff’s constructive fraud claim with leave to amend. 16 (Docket No. 25.) 17 realleging breach of contract and constructive fraud claims. 18 (Docket No. 27.) 19 that Chase did not pay plaintiff interest on her loan escrow 20 account, with the result that her payments should be considered 21 “special deposits.” 22 plaintiff’s constructive fraud claim for failure to state a claim 23 under Federal Rule of Civil Procedure 12(b)(6). 24 II. The court denied plaintiff’s motion to remand and Plaintiff filed her First Amended Complaint, Plaintiff filed her SAC on May 5, 2012, Plaintiff’s only material amendments allege (SAC ¶¶ 7, 85.) Chase now moves to dismiss Discussion To survive a motion to dismiss, a plaintiff must plead 25 26 “only enough facts to state a claim to relief that is plausible 27 on its face.” 28 (2007). Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 This “plausibility standard,” however, “asks for more 3 1 than a sheer possibility that a defendant has acted unlawfully,” 2 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and “[w]here a 3 complaint pleads facts that are ‘merely consistent with’ a 4 defendant’s liability, it ‘stops short of the line between 5 possibility and plausibility of entitlement to relief.’” 6 (quoting Twombly, 550 U.S. at 557). 7 plaintiff has stated a claim, the court must accept the 8 allegations in the complaint as true and draw all reasonable 9 inferences in favor of the plaintiff. Id. In deciding whether a Scheuer v. Rhodes, 416 10 U.S. 232, 236 (1974), overruled on other grounds by Davis v. 11 Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 12 (1972). 13 A. 14 Constructive Fraud To state a claim for constructive fraud under 15 California law, a plaintiff must allege (1) a fiduciary or 16 confidential relationship, (2) an act, omission, or concealment 17 involving a breach of that duty, (3) reliance, and (4) resulting 18 damages. 19 (2d Dist. 2000). 20 doctrine of constructive fraud that there exist a fiduciary or 21 special relationship.” 22 233 Cal. App. 3d 103, 116 (4th Dist. 1991). 23 law, a financial institution does not, as a general rule, owe a 24 “duty of care to a borrower when the institution’s involvement in 25 the loan transaction does not exceed the scope of its 26 conventional role as a mere lender of money.” 27 Fed. Savs. & Loan Ass’n, 231 Cal. App. 3d 1089, 1096 (3d Dist. 28 1991). Assilzadeh v. Cal. Fed. Bank, 82 Cal. App. 4th 399, 414 “It is essential to the operation of the Peterson Dev. Co. v. Torrey Pines Bank, 4 Under California Nymark v. Heart 1 In its May 3, 2012, Order, this court held that Chase’s 2 ancillary performance of escrow services did not give rise to a 3 fiduciary duty because Chase did not exceed its duties as a money 4 lender and that therefore plaintiff’s constructive fraud claim 5 failed. 6 interest, her payments were special deposits that created a 7 fiduciary relationship between her and Chase. Plaintiff now asserts that because Chase did not pay her 8 9 “The payment of money may create either a debt or a trust, depending upon the intention of the parties.” Abrams v. 10 Crocker-Citizens Nat’l Bank, 41 Cal. App. 3d 55, 59 (1st Dist. 11 1974). 12 the type of deposit made -- whether it is a general deposit or a 13 special one.” 14 858 (2d Dist. 1988). 15 relationship wherein the bank owes a fiduciary duty towards the 16 depositor. 17 1997). Whether a deposit creates a trust or a debt “depends upon 18 Van de Kamp v. Bank of Am., 204 Cal. App. 3d 819, Special deposits may create a trust Goldblatt v. F.D.I.C., 105 F.3d 1325, 1329 (9th Cir. When money is deposited in a bank without any special 19 agreement, the deposit is general and California law assumes a 20 creditor-debtor relationship is created between the bank and the 21 depositor. 22 on the depositor to overcome this presumption. 23 F.3d at 1328 (citing Thompson v. Beitia, 69 F.2d 356, 358 (9th 24 Cir. 1934)). 25 showing that “the parties’ agreement provides that the exact 26 amount of money deposited was to be returned or the money was to 27 be paid out by the bank for a specific purpose, the money was to 28 be segregated from other assets rather than available for the Van de Kamp, 204 Cal. App. 3d at 858. The burden is Goldblatt, 105 The depositor may overcome this presumption by 5 1 bank’s general use, and the lender was not required to pay 2 interest to the depositor in consideration of its use of the 3 funds.” 4 of Am. Nat’l Trust & Savs. Ass’n v. Cal. Savs. & Commercial Bank, 5 218 Cal. 261, 272-79 (1933)). Id. (citing Van de Kamp, 204 Cal. App. 3d at 858; Bank 6 In Goldblatt, the court found that although the parties 7 agreed that the plaintiff’s deposit would be used by the bank for 8 a specific purpose, the plaintiff was unable to overcome the 9 presumption that his deposits were general because he allowed his 10 deposits to commingle with the bank’s general funds. 11 105 F.3d at 1328. 12 California law, “[m]oney deposited with a bank for a particular 13 purpose but, with the depositor’s consent, commingled with other 14 funds is a general deposit.” 15 & Savs. Ass’n v. Bd. of Supervisors of L.A. Cnty., 93 Cal. App. 16 2d 75, 80 (2d Dist. 1949)). 17 Goldblatt, The Ninth Circuit explained that under Id. (quoting Bank of Am. Nat. Trust In Petherbridge v. Prudential Savings & Loan Ass’n, 79 18 Cal. App. 3d 509 (4th Dist. 1978), the plaintiff alleged that a 19 non-interest bearing impound account set up by her lender in her 20 Deed of Trust created a trust relationship. 21 The plaintiff asserted that her Deed of Trust created a fiduciary 22 relationship because it stated her deposits would be “held in 23 trust.” 24 duty depended on “whether the parties intended a trust or debtor- 25 creditor relationship.” 26 plaintiff paid the impounds and the short time between the bank’s 27 receipt of payments and payment of taxes, interest, and insurance 28 premiums all supported the conclusion that “the relationship Id. Id. at 516, 518. The court stated that whether there was a fiduciary Id. at 517. 6 The manner in which the 1 intended was that of debtor-creditor, not trustee-beneficiary.” 2 Id. at 522-24. 3 general funds and that, contrary to the purpose of a trust, the 4 impound account, which was put in place to enhance the security 5 of the Deed of Trust, was established for the security of the 6 defendant rather than for the security of the plaintiff further 7 evidenced that a trust was not created. 8 9 That the funds were commingled with defendant’s Id. The facts alleged here are similar to those alleged in Petherbridge, where the court found that the parties did not have 10 a fiduciary relationship. 11 held onto her deposits for an extended period of time before 12 paying taxes, interest, and insurance premiums and, as in 13 Petherbridge, the purpose of the escrow account is to secure the 14 Deed of Trust and not to financially benefit plaintiff. 15 there is no allegation that plaintiff’s funds were to be 16 segregated from Chase’s general funds. 17 The SAC does not allege that Chase Further, In Marsh, on which plaintiff relies, the court noted 18 that a provision in a loan agreement stating that interest would 19 not be paid on impound account deposits supported the conclusion 20 that the parties intended to create a trust. 21 Savs. & Loan Ass’n, 66 Cal. App. 3d 674, 683 (4th Dist. 1977). 22 In Marsh, however, the court found that the express language in 23 the Deed of Trust and the parties’ conduct indicated intent to 24 form a trust. 25 Deed of Trust indicating intent to form a trust. Id. Marsh v. Home Fed. Here, there is no language in plaintiff’s 26 Plaintiff fails to allege facts sufficient to meet her 27 burden of demonstrating that her deposits were special deposits. 28 The creation of the escrow agreement to pay taxes and other 7 1 necessary fees did not give rise to a fiduciary relationship 2 between Chase and plaintiff because Chase’s conduct did not 3 exceed the conventional role of a money lender. 4 plaintiff’s constructive fraud claim fails and the court will 5 grant Chase’s motion to dismiss the constructive fraud claim. 6 B. Accordingly, Leave to Amend “Valid reasons for denying leave to amend include undue 7 8 delay, bad faith, prejudice, and futility.” Cal. Architectural 9 Bldg. Prods. v. Franciscan Ceramics, 818 F.2d 1466, 1472 (9th 10 Cir. 1988). 11 given, the court is not required to allow futile amendments. 12 DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 13 1992); Klamath-Lake Pharm. Ass’n v. Klamath Med. Serv. Bureau, 14 701 F.2d 1276, 1293 (9th Cir. 1983); see also Reddy v. Litton 15 Indus., Inc., 912 F.2d 291, 296-97 (9th Cir. 1990); Rutman Wine 16 Co. v. E. & J. Gallo Winery, 829 F.2d 729, 738 (9th Cir. 1987). 17 Furthermore, while leave to amend must be freely See This is the second time that the court has dismissed 18 plaintiff’s claim for constructive fraud for failure to state a 19 claim because plaintiff failed to allege a fiduciary duty. 20 court also dismissed plaintiff’s earlier fraud claim. 21 has therefore been given three chances to plead a claim alleging 22 some form of fraud, but is apparently unable to do so. 23 without leave to amend is therefore appropriate.1 The Plaintiff Dismissal IT IS THEREFORE ORDERED that Chase’s motion to dismiss 24 25 26 27 28 1 At oral argument, plaintiff’s counsel expressed an interest in amending the SAC to include a new and different cause of action based on recently discovered facts. The court expresses no position on the merits of any such claim or the process by which plaintiff could seek to bring such a claim. 8 1 plaintiff’s constructive fraud claim be, and the same hereby is, 2 GRANTED WITH PREJUDICE. 3 DATED: August 2, 2012 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9

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