Kouretas v. Nationstar Mortgage Holdings, Inc. et al

Filing 49

ORDER signed by Chief Judge Morrison C. England, Jr. on 8/18/14 GRANTING 33 35 Motions to Dismiss with leave to amend the complaint within 20 days. (Manzer, C)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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JAMES KOURETAS,

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No. 2:13-cv-02632-MCE-KJN

Plaintiff,
v.

MEMORANDUM AND ORDER

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NATIONSTAR MORTGAGE
HOLDINGS, INC., BANK OF
AMERICA, N.A.,

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Defendants.

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On December 20, 2013, Plaintiff James Kouretas (“Plaintiff”) filed a Complaint

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against Defendants Nationstar Mortgage Holdings, Inc. (“Nationstar”) and Bank of

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America, N.A. (“Bank of America”) (collectively “Defendants”). Compl., ECF No. 1.

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Defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6),1

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which was granted with leave to amend. Order, ECF No. 27. Plaintiff timely filed a First

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Amended Complaint (“FAC”), asserting causes of action for breach of the implied

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covenant of good faith and fair dealing, wrongful foreclosure, and financial elder abuse in

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violation of California Welfare and Institutions Code § 15610.30(a). FAC, Apr. 7, 2014,

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ECF No. 32. Defendants again move to dismiss for failure to state a claim pursuant to

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All further references to “Rule” or “Rules” are to the Federal Rules of Civil Procedure unless
otherwise noted.

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Rule 12(b)(6). Nationstar Mot., Apr. 23, 2014, ECF No. 33; Bank of America Mot.,

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Apr. 23, 2014, ECF No. 35. For the reasons stated below, Defendants’ Motions are

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GRANTED.2

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BACKGROUND3

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Plaintiff holds title to the property known as 3324 S Street, Sacramento,

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California, 95816 (the “Property”). The Property was secured by a first deed of trust in

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favor of Bank of America. In November 2013, Nationstar became the loan servicer.

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In May 2013, Plaintiff wrote to Bank of America to request a loan modification. A

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Bank of America representative responded, stating that the bank had received his

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request and was transferring the request to a specialist. Plaintiff was told that Bank of

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America would contact him within fifteen days. On May 28, 2013, prior to contacting

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Plaintiff regarding his request, Bank of America recorded and served on Plaintiff a notice

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of trustee’s sale. Subsequently, in June 2013, Bank of America informed Plaintiff in

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writing that his loan modification request had been forwarded to a specialist. A week

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later, Bank of America sent Plaintiff a Notice of Intent to Accelerate, threatening to

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accelerate repayment of the full amount of the note despite the fact that Plaintiff’s loan

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was being evaluated for a loan modification.

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In July 2013, Plaintiff completed and again submitted loan modification papers to

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Bank of America. Bank of America then sent a letter stating that Plaintiff was being

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considered for a short sale. Thereafter, Bank of America sent another letter to Plaintiff,

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acknowledging receipt of Plaintiff’s request for a loan modification and stating that the

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request was forwarded to a specialist in the appropriate department. However, on

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Because oral argument would not be of material assistance, the Court ordered these matters
submitted on the briefs pursuant to E.D. Cal. Local R. 230(g).
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The following recitation of facts is taken, at times verbatim, from Plaintiff’s FAC. Compl., Apr. 7,
2014, ECF No. 32.

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August 1, 2013, Bank of America recorded a notice of default. Then, on September 3,

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2013, Bank of America recorded a second notice of default.

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Later in September, multiple Bank of America representatives wrote to Plaintiff,

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stating that they would “continue the work [Plaintiff] started” with Plaintiff’s previous

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points of contact at the bank.

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Finally, in October 2013, Bank of America informed Plaintiff that it would not

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modify Plaintiff’s loan. Thereafter, Plaintiff’s loan servicing was transferred to Nationstar.

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Nationstar wrote to Plaintiff in November 2013, informing Plaintiff that Nationstar wanted

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to help Plaintiff stay in his home. Nevertheless, in December 2013, Plaintiff received a

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notice of trustee sale, which indicated that a sale was scheduled to take place on

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Monday, December 9, 2013.

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STANDARD

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On a motion to dismiss for failure to state a claim under Federal Rule of Civil

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Procedure 12(b)(6), all allegations of material fact must be accepted as true and

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construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins.

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Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Rule 8(a)(2) requires only “a short and plain

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statement of the claim showing that the pleader is entitled to relief” in order to “give the

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defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Bell

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Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41,

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47 (1957)). A complaint attacked by a Rule 12(b)(6) motion to dismiss does not require

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detailed factual allegations. However, “a plaintiff’s obligation to provide the grounds of

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his entitlement to relief requires more than labels and conclusions, and a formulaic

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recitation of the elements of a cause of action will not do.” Id. (internal citations and

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quotations omitted). A court is not required to accept as true a “legal conclusion

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couched as a factual allegation.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009) quoting

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Twombly, 550 U.S. at 555). “Factual allegations must be enough to raise a right to relief
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above the speculative level.” Twombly, 550 U.S. at 555 (citing 5 Charles Alan Wright &

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Arthur R. Miller, Federal Practice and Procedure § 1216 (3d ed. 2004) (stating that the

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pleading must contain something more than “a statement of facts that merely creates a

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suspicion [of] a legally cognizable right of action.”)).

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Furthermore, “Rule 8(a)(2) . . . requires a showing, rather than a blanket

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assertion, of entitlement to relief.” Twombly, 550 U.S. at 556 n.3 (internal citations and

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quotations omitted). Thus, “[w]ithout some factual allegation in the complaint, it is hard

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to see how a claimant could satisfy the requirements of providing not only ‘fair notice’ of

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the nature of the claim, but also ‘grounds’ on which the claim rests.” Id. (citing 5 Charles

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Alan Wright & Arthur R. Miller, supra, at § 1202). A pleading must contain “only enough

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facts to state a claim to relief that is plausible on its face.” Id. at 570. If the “plaintiffs . . .

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have not nudged their claims across the line from conceivable to plausible, their

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complaint must be dismissed.” Id. However, “[a] well-pleaded complaint may proceed

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even if it strikes a savvy judge that actual proof of those facts is improbable, and ‘that a

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recovery is very remote and unlikely.’” Id. at 556 (quoting Scheuer v. Rhodes, 416 U.S.

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232, 236 (1974)).

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A court granting a motion to dismiss a complaint must then decide whether to

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grant leave to amend. Leave to amend should be “freely given” where there is no

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“undue delay, bad faith or dilatory motive on the part of the movant, . . . undue prejudice

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to the opposing party by virtue of allowance of the amendment, [or] futility of the

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amendment . . . .” Foman v. Davis, 371 U.S. 178, 182 (1962); Eminence Capital, LLC v.

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Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (listing the Foman factors as those to

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be considered when deciding whether to grant leave to amend). Not all of these factors

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merit equal weight. Rather, “the consideration of prejudice to the opposing party . . .

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carries the greatest weight.” Id. (citing DCD Programs, Ltd. v. Leighton, 833 F.2d 183,

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185 (9th Cir. 1987)). Dismissal without leave to amend is proper only if it is clear that

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“the complaint could not be saved by any amendment.” Intri-Plex Techs. v. Crest Group,

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Inc., 499 F.3d 1048, 1056 (9th Cir. 2007) (citing In re Daou Sys., Inc., 411 F.3d 1006,
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1013 (9th Cir. 2005); Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir.

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1989) (“Leave need not be granted where the amendment of the complaint . . .

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constitutes an exercise in futility . . . .”)).

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ANALYSIS

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A.

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The implied covenant of good faith and fair dealing exists in every contract, and

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Breach of the Implied Covenant of Good Faith and Fair Dealing

ensures that neither party will do anything “which will deprive the other parties thereto of

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the benefits of the contract.” McNeary-Calloway v. JP Morgan Chase Bank, N.A.,

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863 F. Supp. 2d 928, 954 (N.D. Cal. 2012). Under California law, breach of the implied

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covenant may give rise to an action sounding in tort or contract. See Pension Trust

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Fund for Operating Eng’r v. Fed. Ins. Co., 307 F.3d 944, 955 (9th Cir. 2002).

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The implied covenant “rests upon the existence of some specific contractual

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obligation” and there “is no obligation to deal fairly or in good faith absent an existing

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contract.” Sipe v. Countrywide Bank, 690 F. Supp. 2d 1141, 1160 (E.D. Cal. 2010).

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Moreover, under California contract law, the covenant “is limited to assuring compliance

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with the express terms of the contract, and cannot be extended to create obligations not

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contemplated by the contract.” Pasadena Live, LLC v. City of Pasadena, 8 Cal. Rptr. 3d

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233, 237 (2004) (emphasis in original). Nor can the implied covenant contradict the

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express terms of a contract. Storek & Storek, Inc. v. Citicorp Real Estate, Inc.,

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100 Cal. App. 4th 44, 55 (2002). Accordingly, courts have consistently held that for an

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action under the implied covenant to withstand a motion to dismiss under Rule 12(b)(6),

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Plaintiff must cite a specific provision of the contract that was frustrated. Lingad v.

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Indymac Fed. Bank, 682 F. Supp. 2d 1142, 1154 (E.D. Cal. 2010).

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Plaintiff alleges that “defendants engaged in deceptive and bad faith practices by

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way of their dual-tracking and providing multiple points of contact . . . while making

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affirmative representations that [they] would work with him toward a reasonable
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modification of the loan secured by his home.” FAC at 4. However, Plaintiff does not

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cite to any specific contractual provision that Defendants’ actions allegedly frustrated.

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See, e.g., Rockridge Trust v. Wells Fargo, N.A., C-13-01457 JCS, 2013 WL 5428722, at

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*32 (N.D. Cal. Sept. 25, 2013) (explaining that “to state a claim for breach of the implied

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covenant of good faith and fair dealing, a plaintiff must identify the specific contractual

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provision that was frustrated”). In fact, based on the allegations contained within

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Plaintiff’s FAC, it appears that Plaintiff deprived Defendants of the benefits of the bargain

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by not paying what he owed them over a period of months. FAC at 3. Moreover, the

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FAC does not allege any affirmative representations from Defendants that they would

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work with Plaintiff for a loan modification. Rather, the FAC states that Plaintiff sought to

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negotiate a loan modification, and Defendants forwarded the request to a specialist who

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rejected Plaintiff’s request to modify the loan. FAC at 3. Plaintiff provides no facts

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indicating that mutual assent ever occurred. See Sun Pac. Mktg. Coop., Inc. v. DiMare

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Fresh, Inc., CIV-F-06-1404 AWI, 2010 WL 3220301 (E.D. Cal. Aug. 13, 2010)

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(explaining that a modification to a contract requires mutual assent and consideration,

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just as any new contract would).

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Plaintiff fails to allege the existence of a contractual provision prohibiting

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Defendants from asserting their right to adhere to the original contract while Plaintiff’s

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request for a loan modification was pending. Plaintiff’s FAC is thus insufficient to “raise

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[his] right to relief above the speculative level” for breach of the implied covenant of good

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faith and fair dealing to award contract damages. Twombly, 550 U.S. at 555.

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Although Plaintiff appears to rely only on contract principles in stating his claim, to

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the extent that Plaintiff also alleges a claim for the tortious breach of the implied

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covenant of good faith and fair dealing, his claim also fails. Such a claim is precluded

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“unless the parties are in a special relationship with fiduciary characteristics,” and is not

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applicable to an ordinary commercial transaction “where the parties deal at arms’

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length.” Pension Trust Fund, 307 F.3d at 955 (internal citations omitted). Furthermore,

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“California courts do not invoke a special relationship between a lender and borrower.”
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Spencer v. DHI Mortgage Co., Ltd., 642 F. Supp. 2d 1153, 1165 (E.D. Cal. 2009).

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Plaintiff does not allege a special relationship with fiduciary characteristics with

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Defendants, and therefore any tort claim based on the breach of the implied covenant

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could not survive a motion to dismiss.

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As set forth above, Plaintiff’s claim for breach of the implied covenant of good
faith and fair dealing is DISMISSED with leave to amend.

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B.

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Next, Defendants move to dismiss Plaintiff’s wrongful foreclosure claim.

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Wrongful Foreclosure

“Wrongful foreclosure is an action in equity, where a plaintiff seeks to set aside a

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foreclosure sale that has already occurred.” Foster v. SCME Mortg. Bankers, Inc.,

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CIV 2:10-518 WBS GGH, 2010 WL 1408108, at *4 (E.D. Cal. Apr. 7, 2010) (emphasis

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added). The elements of a claim of wrongful foreclosure under California law are as

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follows:

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(1) the trustee or mortgagee caused an illegal, fraudulent, or
willfully oppressive sale of real property pursuant to a power
of sale in a mortgage or deed of trust; (2) the party attacking
the sale (usually but not always the trustor or mortgagor) was
prejudiced or harmed; and (3) in cases where the trustor or
mortgagor challenges the sale, the trustor or mortgagor
tendered the amount of the secured indebtedness or was
excused from tendering.

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Lona v. Citibank, N.A., 134 Cal. Rptr. 3d 622, 633 (2011). Plaintiff fails to adequately

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plead any of these elements.

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First, Plaintiff does not allege that foreclosure has taken place, and therefore fails

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to satisfy the initial requirement, that of an illegal, fraudulent or willfully oppressive sale.

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Id. The facts in the FAC state only that Plaintiff received a notice from Defendant

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Nationstar that the trustee sale “will take place on December 9, 2013,” but Plaintiff never

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alleges that the sale happened. FAC at 3. In fact, in his Opposition, Plaintiff concedes

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that “the foreclosure has not been completed.” Opp’n at 3. Plaintiff nevertheless argues

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that his wrongful foreclosure claim is ripe because he is “in foreclosure,” due to the

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scheduling of the trustee’s sale. Opp’n at 3. As set forth in Plaintiff’s FAC, there has not
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been a “foreclosure sale that has already occurred” and therefore there is nothing for

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Plaintiff to “set aside.” See Foster, CIV. 2:10-518 WBS GGH, 2010 WL 1408108, at *4.

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Because the Property has not yet been sold, “a claim for wrongful foreclosure is not yet

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ripe.” Id.; see Pratap v. Wells Fargo Bank, N.A., C 12-06378 MEJ, 2013 WL 5487474, at

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*8 (N.D. Cal. Oct. 1, 2013) (dismissing a claim for wrongful foreclosure because "[w]hen

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no foreclosure sale has occurred, the cause of action is premature.").

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The FAC similarly fails to adequately allege the second element. “Prejudice or

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harm is not established unless the plaintiff demonstrates that the foreclosure would have

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been averted but for the alleged deficiencies.” Ogilvie v. Select Portfolio Servicing,

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12-CV-001654-DMR, 2012 WL 4891583 (N.D. Cal. Oct. 12, 2012) (internal citations

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omitted). Because Plaintiff has not alleged that the foreclosure sale has taken place, he

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cannot allege that it would have been averted under any circumstances. Moreover,

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even if Plaintiff had alleged that the foreclosure sale had occurred, however, he does not

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adequately allege prejudice. Rather, he asserts only conclusory allegations that

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Defendants engaged in “bad-faith and deceptive tactics” and “lip-service loan

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modification negotiations” “in a scheme to lull [Plaintiff] to sleep.” FAC at 4. The facts

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alleged in the FAC recount that Defendant considered modification and declined.

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Plaintiff cites no law or contract provision to indicate that Defendant was not entitled to

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refuse modification, or that during the consideration of Plaintiff’s loan modification

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request that he was absolved from payment on his loan. FAC at 3. On the contrary,

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Plaintiff states that during this process he received more than one notice of default,

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which indicates that he was on notice of his continuing obligation to pay. FAC at 3.

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Lastly, Plaintiff fails to allege that he at any time tendered the full amount owed on

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his loan.4

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Plaintiff argues that the “arcane” tender rule should not be applied in this case, because “[Bank
of America] did not invoke any tender of anything when it begged for a taxpayer handout,” presumably
referring to the financial “bailout” of 2008. Opp’n at 3-4. Plaintiff cites no authority in support of this
proposition, and does not establish any of the exceptions to the tender requirement. See Lona,
134 Cal. Rptr. 3d at 640-42. This argument therefore fails.

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This Court’s previous order granting Defendants’ motions to dismiss the initial

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complaint notified Plaintiff of his failure to allege that the foreclosure sale had taken

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place and that his home was taken from him. Though this is the first time Plaintiff

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alleges wrongful foreclosure as a separate cause of action, the original defect remains.

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Moreover, in his Opposition, Plaintiff admits that “the foreclosure has not been

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completed.” Opp’n at 3. Therefore, the Court finds that amendment would be futile.

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Because Plaintiff’s wrongful foreclosure claim cannot “be saved by any amendment,” it is

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DISMISSED with prejudice. Intri-Plex Techs., 499 F.3d at 1056; see Ascon Props., Inc.,

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866 F.2d at 1160 (“Leave need not be granted where the amendment of the complaint

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. . . constitutes an exercise in futility . . . .”)).

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C.

Financial Elder Abuse

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The California Legislature enacted the Elder Abuse Act, Cal. Welf. & Inst. Code

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§§ 15600-15675 (the “Act”), “to protect elders by providing enhanced remedies which

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encourage private, civil enforcement of laws against elder abuse and neglect.” Negrete

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v. Fid. & Guar. Life Ins. Co., 444 F. Supp. 2d 998, 1001 (C.D. Cal. 2006). These

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remedies include reasonable attorney’s fees and costs. § 15657.5. A person is

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considered an “elder” under the Act if the person is sixty-five years of age or older. Cal.

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Welf. & Inst. Code § 15610.27. Financial elder abuse is defined in subsection

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15610.30(a), which provides:

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“Financial abuse” of an elder or dependent adult occurs when
a person or entity does any of the following: (1) Takes,
secretes, appropriates, or retains real or personal property of
an elder or dependent adult to a wrongful use or with intent to
defraud, or both. (2) Assists in taking, secreting,
appropriating, or retaining real or personal property of an
elder or dependent adult to a wrongful use or with intent to
defraud, or both.

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Cal. Welf. & Inst. Code § 15610.30(a)(1)-(2). To utilize the Elder Abuse Act's enhanced

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remedies, a plaintiff must prove “by clear and convincing evidence that the defendant

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has been guilty of recklessness, oppression, fraud, or malice in the commission of the

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abuse.” Id. § 15657.5(b).

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Here, just as in Plaintiff’s original Complaint, Plaintiff fails to allege that any

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person or entity has “take[n], secrete[d], appropriate[d], or retaine[d]” his real or personal

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property. § 15610.30(a). Plaintiff’s allegations that “[D]efendants worked together to

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provide [Plaintiff] with multiple points of contact and with divergent and confusing written

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representations,” along with the remaining allegations in Plaintiff's FAC, are insufficient

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to state a claim upon which relief can be granted under the Elder Abuse Act, as there is

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simply no allegation that Plaintiff has been deprived of any real or personal property.

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Plaintiff was put on notice as to this defect in this Court’s order regarding Defendants’

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previous motions to dismiss. Because Plaintiff has failed for the second time to correct

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this defect, and because Plaintiff concedes that the Property has not been sold, the

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Court finds that amendment as to this claim would be futile. Intri-Plex Techs., 499 F.3d

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at 1056; see Ascon Props., Inc., 866 F.2d at 1160 Accordingly, Plaintiff’s claim for

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financial elder abuse is DISMISSED with prejudice.

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CONCLUSION

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For the reasons set forth above, Defendants’ Motions to Dismiss, ECF Nos. 33,

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35, are GRANTED with leave to amend as to Plaintiff’s claim for breach of the implied

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covenant of good faith and fair dealing and GRANTED without leave to amend as to

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Plaintiff’s claims for wrongful foreclosure and financial elder abuse. Not later than twenty

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(20) days following the date this Memorandum and Order is electronically filed, Plaintiff

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may (but is not required to) file an amended complaint.

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If no amended complaint is filed within said twenty (20) day period, without further notice

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to the parties, Plaintiff’s claim for breach of the implied covenant of good faith and fair

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dealing will also be dismissed with prejudice and this action will be closed.

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IT IS SO ORDERED.
Dated: August 18, 2014

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