Sokoloski et al v. PNC Bank NA

Filing 21

MEMORANDUM AND ORDER signed by Senior Judge William B. Shubb on 11/18/2014 DENYING 14 Defendant's Motion to Dismiss. (Kirksey Smith, K)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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JOHN SOKOLOSKI and GAIL
SOKOLOSKI,

CIV. NO. 2:14-1374 WBS CKD
MEMORANDUM AND ORDER RE: MOTION
TO DISMISS

Plaintiffs,

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v.
PNC MORTGAGE, a division of
PNC BANK, NA and DOES 1
through 10, inclusive,

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Defendant.

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Plaintiffs John and Gail Sokoloski initiated this

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action in Yuba County Superior Court against defendant PNC

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Mortgage (“PNC”), bringing claims arising out of a disputed debt

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and the threatened foreclosure of their home.

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the court is PNC’s motion to dismiss plaintiffs’ First Amended

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Complaint (“FAC”) for failure to state a claim upon which relief

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can be granted pursuant to Federal Rule of Civil Procedure

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12(b)(6).
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Presently before

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I. Factual and Procedural Background

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Plaintiffs took out a loan secured by a deed of trust

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to purchase their home in Marysville, California.

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12.)

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and filed for Chapter 13 bankruptcy in the Eastern District of

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California for the sole purpose of curing arrears on the loan.

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(Id. ¶ 14.)

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(FAC ¶¶ 1,

Plaintiffs subsequently fell behind on their loan payments

In the bankruptcy proceedings, PNC, plaintiffs’
creditor, asserted that plaintiffs owed a total balance of

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$4,601.27, which included $4,176.27 in arrears as well as $425

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that had accrued in post-petition attorney’s fees.

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15.)

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the amount of $1,707.00.

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would cover a regular payment on the loan; the surplus would go

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toward paying off the arrears and fees.

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(Id. ¶¶ 14-

The Chapter 13 plan called for sixty monthly payments in
(Id.)

A portion of the monthly payment

(Id. ¶ 16.)

Thereafter, plaintiffs began to make payments according

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to the plan.

(Id.)

In June 2013, PNC filed a “Notice of

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Mortgage Payment Change” in plaintiffs’ bankruptcy, proposing a

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trial plan that would reduce plaintiffs’ monthly loan payments

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from $1,410.05 to $554.20 per month.

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result, the bankruptcy trustee began paying the new monthly loan

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rate of $554.20 on July 1, 2013.

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Chapter 13 plan payments in the amount of $1,707.00; however,

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plaintiffs allege that because the portion going toward the

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monthly loan payment was reduced under the modification, an even

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greater surplus went toward paying off the arrears, attorney’s

(Id. ¶¶ 17-18.)

As a

Plaintiffs continued to make

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(Id. ¶ 20.)1

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fees, and administrative fees.

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plaintiffs, because of this payment scheme, plaintiffs were able

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to pay off the $4,601.27 in arrears and fees earlier than

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previously anticipated, completing their Chapter 13 plan

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obligations.

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According to

(Id.)

On January 30, 2014, staff counsel for the Chapter 13

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bankruptcy executed a “Notice of Final Cure Payment” regarding

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plaintiffs’ loan, which was sent to PNC.

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to respond to this notice within the time prescribed by law or to

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make any objection to the trustee’s final report and accounting.

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(Id.)

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trustee instructed plaintiffs to start making regular payments on

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their loan directly to PNC beginning in January 2014.

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Plaintiffs contacted PNC regarding the early termination of their

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bankruptcy and inquired how much they should pay monthly, now

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that their payments would go directly to the bank.

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PNC instructed plaintiffs to make monthly payments of their loan

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in the amount of $1,410.05 beginning in January 2014.

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From January 2014 through April 2014, plaintiffs made regular

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monthly payments of $1,410.05 directly to PNC as instructed.

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(Id. ¶ 24.)

(Id. ¶ 21.)

PNC failed

Because plaintiffs had cured the arrears, the bankruptcy

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(Id.)

(Id. ¶ 22.)

(Id.)

Although plaintiffs believed they were current on their

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payments and had paid of the arrears, on April 25, 2014, PNC

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informed plaintiffs that their loan was in default and was in the

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Plaintiffs do not specify how much of the $1,707
monthly payment went to the arrears and fees. However, it can
reasonably be inferred that if the current monthly loan payments
were in the amount of $554.20, the balance of $1,152.80 went
toward the arrears, attorney’s fees, and administrative fees.
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foreclosure process.

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owed PNC $10,526.91 to bring their loan current, which included

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approximately $5,240.44 in foreclosure fees and costs.

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26.)

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mistake by terminating the Chapter 13 plan.

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Plaintiffs spoke to the bankruptcy trustee, who nevertheless

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confirmed that their payments had been made according to the

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plan.

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(Id. ¶ 25.)

According to PNC, plaintiffs

(Id. ¶

PNC told plaintiffs that the bankruptcy trustee had made a
(Id. ¶ 29.)

(Id.)
PNC maintains its threats to foreclose on the property

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and that plaintiffs owe it $10,526.91 to bring the loan up to

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date.

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misrepresentation of how much they actually owe, because they are

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current on their payments and have paid off the arrears.

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26.)

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of the implied covenant of good faith and fair dealing.

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also seek statutory damages, attorney’s fees, and costs under the

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Rosenthal Fair Debt Collection Practices Act, Cal. Civ. Code §§

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1788-1788.32, and to enjoin PNC from engaging in unfair business

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practices pursuant to California’s Unfair Competition Law

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(“UCL”), Bus. & Prof. Code § 17200, et seq.

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dismiss all of plaintiffs’ claims pursuant to Rule 12(b)(6) for

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failure to state a claim upon which relief can be granted.

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(Def.’s Mot. (Docket No. 17).)

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II. Judicial Notice

(Id. ¶ 30.)

Plaintiffs allege this amount is a

(Id. ¶

Plaintiffs bring state law claims for negligence and breach
They

PNC now moves to

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In general, a court may not consider items outside the

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complaint when deciding a motion to dismiss, but it may consider

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items of which it can take judicial notice.

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F.3d 1370, 1377 (9th Cir. 1994).

Barron v. Reich, 13

PNC requests that the court
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take judicial notice of several exhibits, including the

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solicitation letter PNC sent plaintiffs in May 2013 offering a

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downward modification of their loan payment plan to $554.20 per

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month.

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had attached Ex. 1, along with other materials, in support of the

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complaint they filed in state court, but omitted it from their

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FAC.

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basis for contradicting plaintiffs’ allegations regarding PNC’s

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offer to reduce plaintiffs’ monthly payments to $554.20.

(Req. for Judicial Notice (Docket No. 14-2).)

(Def.’s Mot. at 6.)

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7.)

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Plaintiffs

PNC attempts to use Exhibit 1 as a

(Id. at

Plaintiffs did not respond to PNC’s request for judicial

notice.

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Through the “incorporation by reference” doctrine, the

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court may “take into account documents . . . alleged in a

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complaint and whose authenticity no party questions, but which

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are not physically attached to the [plaintiff’s] pleading . . .

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even though the plaintiff does not explicitly allege the contents

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of that document in the complaint.”

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1068, 1076 (9th Cir. 2005) (quotation marks and citations

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omitted).

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timely payments on plaintiffs’ current loan with PNC, in

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accordance with a modified monthly payment plan initiated by PNC.

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(FAC ¶¶ 17, 20.)

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modification plan, the court will take judicial notice of Exhibit

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1, the “Streamlined Modification Trial Plan Notice.”

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Knievel v. ESPN, 393 F.3d

Plaintiffs allege the bankruptcy trustee made full,

Because plaintiffs’ FAC “incorporates” the

Second, the court will take judicial notice of Exhibit

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2, the “Order to Close Chapter 13 Case Without Discharge,” as

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well as other filings in the Chapter 13 bankruptcy proceeding,

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because they are matters of public record related to legal
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proceedings in the district court.

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and Rehab. Servs., Inc., 356 B.R. 18, 22 (E.D. Cal. 2006) (Ishii,

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J.) (taking judicial notice of filings in bankruptcy proceedings

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although they were outside pleadings because they were public

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records (citing Duke Energy Trading & Marketing, L.L.C. v. Davis,

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267 F.3d 1042, 1048 n.3 (9th Cir. 2001) (taking judicial notice

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of filings made in a related bankruptcy proceeding)).

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III. Analysis

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See Rose v. Beverly Health

On a Rule 12(b)(6) motion to dismiss, the court must

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accept the allegations in the complaint as true and draw all

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reasonable inferences in favor of the plaintiff.

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Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by

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

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319, 322 (1972).

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must plead “only enough facts to state a claim to relief that is

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plausible on its face.”

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544, 570 (2007).

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for more than a sheer possibility that a defendant has acted

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unlawfully,” and where a plaintiff pleads facts that are “merely

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consistent with a defendant’s liability,” it “stops short of the

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line between possibility and plausibility.”

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556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 557).

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See Scheuer v.

To survive a motion to dismiss, a plaintiff

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

This “plausibility standard,” however, “asks

Ashcroft v. Iqbal,

As a preliminary matter, PNC argues that “plaintiffs’

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omission from their FAC of how their Chapter 13 plan concluded is

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fatal to their claims because the bankruptcy was closed but never

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discharged.”

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were not permitted to rely on the terms of their Chapter 13 plan

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because they never obtained a formal discharge from bankruptcy

(Def.’s Mot. at 5.)

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According to PNC, plaintiffs

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court.

In support, PNC cites the Bankruptcy code, which states,

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[A]s soon as practicable after completion by the
debtor of all payments under the plan . . . after such
debtor certifies that all amounts payable under such
order or such statute that are due on or before the
date of certification . . . have been paid, unless the
court approves a written waiver of discharge executed
by the debtor after the order for relief under this
chapter, the court shall grant the debtor a discharge
of all debts provided for by the plan . . . .

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11 U.S.C. § 1328(a).

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in this provision suggests that, absent a formal discharge,

Contrary to PNC’s interpretation, nothing

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plaintiffs were not permitted to “rely on the terms of the plan,”

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(Def.’s Mot. at 5-6), in alleging that they paid off the arrears.

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This passage merely states that a debtor’s eligibility for a

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court-ordered discharge is predicated on “completion by the

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debtor of all payments under the plan.”

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Stanislaus, 506 F.3d 774, 777 (9th Cir. 2007) (“A debtor who

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completes payments under a Chapter 13 plan is entitled to a broad

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discharge of all debts provided for by the plan . . . .”

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(internal quotation marks omitted)).

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suggest that a chapter 13 plan is not considered completed or

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satisfied unless the debtor gets a formal discharge.

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See Ellett v.

The provision does not

Plaintiffs allege that they cured their arrears

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according to the terms of the plan, (FAC ¶ 19), and that

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thereafter the trustee served a Notice of Final Cure Payment on

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PNC, to which PNC failed to object, (id. ¶ 22).

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plaintiffs’ bankruptcy proceeding, the bankruptcy court issued an

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order confirming the plaintiffs’ payments were completed,

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adopting the trustee’s finding that the “amount of unsecured

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In the

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claims discharged without payment” was zero and “the case was

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completed on December 23, 2013.”

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2012) (Trustee’s February 21, 2014 Final Report and Account

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(Docket No. 23); March 28, 2014 Order Approving Final Report and

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Discharging Trustee (Docket No. 27)).

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13 Case Without Discharge indicates that the only reason

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plaintiffs failed to obtain a formal discharge was because they

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did not complete an instructional course concerning financial

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management, and not because their payments were not completed.

2:12-bk-42019 (Bankr. E.D. Cal

The Order to Close Chapter

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2:12-bk-42019 (Bankr. E.D. Cal 2012) (March 31, 2014 Order to

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Close Chapter 13 Case Without Discharge (Docket No. 28)).

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Plaintiffs’ failure to obtain a formal discharge therefore does

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not contradict their allegations that they paid off their arrears

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pursuant to the chapter 13 plan.

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Additionally, PNC does not address how the lack of a

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formal discharge is fatal to any of plaintiffs’ claims.

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Plaintiffs’ claims arise from PNC’s misleading business practices

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and their violation of Bankruptcy Rule 3002.1.

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finds PNC’s allegation regarding the absence of a Chapter 13

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formal discharge inapposite.

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A.

The court thus

Implied Covenant of Good Faith and Fair Dealing

“The law implies in every contract . . . a covenant

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of good faith and fair dealing.

The implied promise requires

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each contracting party to refrain from doing anything to injure

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the right of the other to receive the agreement’s benefits.”

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Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713, 720 (2007).

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Plaintiffs allege PNC entered into a contract with them for a

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loan secured by their property.

(FAC ¶ 48.)
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According to

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plaintiffs, they have substantially performed pursuant to that

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contract, (id. ¶ 49), having made timely payments of the full

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amount owed, (id. ¶¶ 16, 24).

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arrears on their debt, (id. ¶ 20), in addition to keeping up with

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their payment, PNC diverted plaintiffs’ payments that should have

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been applied to its loan balance to foreclosure fees and costs,

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(id. ¶ 45).

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Despite fully paying off the

PNC disputes that plaintiffs paid off the arrears and
argues that, for this reason, plaintiffs do not state a plausible

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claim for breach of the implied covenant of good faith and fair

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dealing.

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“continued to be in arrears when their debt was not discharged in

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bankruptcy,” plaintiffs were in breach of contract and thus

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cannot state a plausible claim for a breach of the covenant of

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good faith and fair dealing.

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however, the court must accept plaintiffs’ allegations as true.

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See Scheuer, 416 U.S. at 236.

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plaintiffs’ allegations that their arrears were paid in full and

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that they had performed pursuant to their loan contract.

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(Def.’s Reply at 4-5.)

That is, because plaintiffs

(Id.)

On a motion to dismiss,

The court must thus accept

PNC points to Exhibit 1, the May 2013 letter judicially

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noticed by the court, to contradict plaintiffs’ allegations that

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they fully paid off the arrears.

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plaintiffs’ allegations are taken as true and construed in the

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light most favorable to them, “[t]he court need not . . . accept

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as true allegations that contradict matters properly subject to

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judicial notice or by exhibit.”

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Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

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the May 2013 letter offering plaintiffs a reduced monthly payment

(Def.’s Reply at 4-5.)

While

Sprewell v. Golden State

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PNC contends that

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of $554.20 was in fact only an offer of a three-month trial plan.

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PNC asserts that after the three-month trial period had expired,

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plaintiffs continued to make the $554.20 monthly payment from

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October through December 2013.

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Trustee was not paying what was actually owed on the loan for at

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least the last three months of 2013.

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still in arrears upon closing of the Chapter 13 plan even if all

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allegations in the complaint are taken as true.”

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7.)

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“Accordingly, the Bankruptcy

Therefore, plaintiffs were

(Def.’s Mot. at

However, from the May 2013 letter, it is not at all

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clear that the reduced payment plan was really only meant to last

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three months.

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like a prelude to a permanent modification.

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“Based on a careful review of your mortgage account, we are

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offering you an opportunity to enter into a Trial Period Plan for

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a mortgage modification . . . .”

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1, at 3.)

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information “so that you completely understand the actions you

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need to take to successfully complete the Trial Period Plan to

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permanently modify your mortgage.”

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frequently asked question, “When will I know if my loan can be

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modified permanently and how will the modified loan balance be

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determined?” the letter states,

In fact, the letter makes the “trial period” sound
The letter states,

(Req. for Judicial Notice Ex.

The letter then tells plaintiffs to read all of the

(Id.)

In reply to the

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Once you make all of your trial period payments on
time and return to us the required copies of a
modification agreement with your signature, we will
sign one copy and send it back to you so that you will
have a fully executed modification agreement detailing
the terms of the modified loan. Any difference between
the amount of the trial period payments and your
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regular mortgage payments will be added to the balance
of your loan along with any other past due amounts as
permitted by your loan documents.
While this will
increase the total amount that you owe, it should not
significantly change the amount of your modified
mortgage payment.”
(Req. for Judicial Notice Ex. 1 (emphasis added).)

of the May 2013 is thus susceptible to a reading that PNC
intended for the trial plan to transition into a permanent
modification to plaintiffs’ loan.

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Plaintiffs allege they made

timely payments of the full amount due every month, $554.20, and
would therefore be eligible for a permanent modification.

The

May 2013 letter therefore does not contradict plaintiffs’
allegations that they made full, timely payments; that their loan
is current and the arrears are fully paid; and that $10,526.91 is
a misleading representation of the character, amount, or legal
status of their debt.

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The language

(FAC ¶¶ 26-27.)

Therefore, although the court takes judicial notice of
the letter, at PNC’s request, the court finds the letter does not
assist PNC on its motion to dismiss.

Plaintiffs plausibly allege

that PNC injured their rights to receive the benefits of their
loan contract by insisting that plaintiffs now owe $10,526.91 in
arrears and fees despite plaintiffs’ satisfaction of the arrears
pursuant to their Chapter 13 plan.

By alleging PNC deprived them

of a fair accounting of their debt under the loan contract,
plaintiffs assert a plausible claim for breach of the implied
covenant of good faith and fair dealing.

See Wilson, 42 Cal. 4th

at 720.
B.

California’s Unfair Competition Law (“UCL”)

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The California UCL “provides an equitable means through

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which both public prosecutors and private individuals can bring

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suit to prevent unfair business practices and restore money or

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property to victims of these practices.”

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Superior Court, 57 Cal. 4th 364, 370 (2013).

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Business & Professions Code defines “unfair competition” to

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include “any unlawful, unfair, or fraudulent business act or

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practice.”

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establishes three varieties of unfair competition--acts or

Yanting Zhang v.

Cal. Bus. & Prof. Code § 17200.

The California

“‘[The

UCL]

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practices which are unlawful, or unfair, or fraudulent.’”

Cal-

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Tech Commc’ns, 24 Cal. 4th 163, 180 (1999) (quoting Podolsky v.

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First Healthcare Corp., 50 Cal. App. 4th 632, 647 (2d Dist.

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1996)).

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of liability.”

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(9th Cir. 2009).

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wrongful conduct upon which plaintiffs’ UCL claim can be based.

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(Def.’s Mot. at 8.)

“Each prong of the UCL is a separate and distinct theory

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Kearns v. Ford Motor Co., 567 F.3d 1120, 1127
PNC argues there is no statutory violation or

Plaintiffs attempt to premise their UCL claim on the

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fact that PNC “failed to file any response pursuant to FRBP

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3002.1(g) to the final cure notice.”

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¶ 21.)

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a notice of final cure payment,” pursuant to 3002.1(f), a

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creditor

(Pls.’ Opp’n at 8; see FAC

Rule 3002.1 requires that once a creditor is served with

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shall serve on the debtor, debtor’s counsel, and the
trustee a statement indicating (1) whether it agrees
that the debtor has paid in full the amount required
to cure the default on the claim, and (2) whether the
debtor is otherwise current on payments consistent
with § 1322(b)(5) of the Code.
The statement shall
itemize the required cure or postpetition amounts, if
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any, that the holder contends remain unpaid as of the
date of the statement.

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Fed. R. Bankruptcy 3002.1(g).

“notice of final cure payment” pursuant to 3002.1(f), but PNC
failed to reply, as required by the rule, to confirm or deny that
plaintiffs paid in full their arrears and whether plaintiffs were
otherwise current on all payments.

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Plaintiffs

prematurely in such a way that misled and damaged them.
8.)

(Id. ¶

In April 2014, PNC told plaintiffs their loan was in

default, insisting that plaintiffs were not current on their loan
payments and owed $10,526.91.

(Id. ¶ 25.)

PNC cites two reasons why plaintiffs do not allege a
plausible UCL claim premised on PNC’s violation of U.S.
Bankruptcy Code.

PNC argues that plaintiffs “have not pointed to

any violation by PNC of the Bankruptcy Code.

Rather, they have

merely argued that PNC did not timely object to the confirmed
plan.”

(Def.’s Mot. at 8.)

This is inaccurate, because

plaintiffs specifically plead a violation of Bankruptcy Rule
3002.1, (FAC ¶ 41), which requires a timely response to the
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(Id. ¶ 21.)2

allege this conduct caused their bankruptcy plan to close

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The bankruptcy trustee executed a

It should be noted that PNC had a duty not just to the
plaintiff but to this court to comply with 3002.1. The purpose
of 3002.1 was to assist with the administration of § 1322(b)(5),
which provides for the curing of a default within a reasonable
time and maintenance of payments while the case is pending. 11
U.S.C. § 1322(b)(5). “In order to be able to fulfill the
obligations of § 1322(b)(5), a debtor and the trustee have to be
informed of the exact amount needed to cure any prepetition
arrearage . . . and the amount of the postpetition payment
obligations.” Fed. R. Bankr. P. 3002.1 advisory committee’s
note. A lender’s failure to comply with the Rule has the
potential to not only mislead or injure parties but also to
interfere with bankruptcy procedure and the administration of
justice.
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confirmed plan.3

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“By proscribing ‘any unlawful’ business act or

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practice, the UCL borrows rules set out in other laws and makes

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violations of those rules independently actionable.”

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Zhang, 57 Cal. 4th at 370 (internal quotation marks and citation

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omitted).

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that can properly be called a business practice and that at the

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same time is forbidden by law.”

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1201 (1993) (quoting Barquis v. Merchs. Collection Ass’n, 7 Cal.

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Yanting

The “unlawful” prong of the UCL encompasses “anything

Rubin v. Green, 4 Cal. 4th 1187,

3d 94, 114 (1972)).

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Rule 3002.1(g) provides that a creditor “shall serve”

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on the debtor and trustee a statement in response to the

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trustee’s Notice of Final Cure payment.

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Rule 30002.1 permits the bankruptcy court to impose sanctions for

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a lender’s failure to comply with 3002.1(g), such as precluding

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the creditor from presenting any omitted information as evidence

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in any contested matter or adversary proceeding in the case, or

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to award other appropriate relief, including reasonable expenses

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and attorney’s fees caused by the failure.

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3002.1(i).

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debtor may be entitled to sanctions even after the case has

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closed:

Another provision in

Fed. R. Bankr. P.

In fact, where a residential mortgage is at issue, a

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If, after the chapter 13 debtor has completed payments
under the plan and the case has been closed, the
holder of a claim secured by the debtor’s principal
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Although the court in ruling on this motion accepts
plaintiffs’ allegation as true, the court also notes that the
docket for plaintiffs’ chapter 13 action confirms that PNC failed
to respond to the trustee’s Notice as required by 3002.1(g).
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residence seeks to recover amounts that should have
been but were not disclosed under the rule, the debtor
may move to have the case reopened in order to seek
sanctions against the holder of the claim . . . .

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Fed. R. Bankr. P. 3002.1 advisory committee’s note.

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incorrect in their contention that their conduct was not

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unlawful.

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response to the Notice of Final Cure Payment, which PNC failed to

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do.

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basis for a UCL claim, but also would have permitted plaintiffs

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PNC is thus

The Bankruptcy Code clearly required PNC to file a

PNC’s violation of Rule 3002.1(g) may not only serve as a

to reopen their chapter 13 case to seek sanctions.

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PNC also argues plaintiffs lack standing to bring a

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private cause of action under the UCL.

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Standing to bring a private action under the UCL “is limited to

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any ‘person who has suffered injury in fact and has lost money or

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property as a result of unfair competition.’”

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Superior Court, 51 Cal. 4th 310, 321 (2011) (quoting § 17204).

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The purpose of this provision is “to confine standing to those

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actually injured by a defendant’s business practices . . . .”

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Id.

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plaintiffs’ current loan balance payments to the alleged

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foreclosure fees and costs, increasing the overall loan balance

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and reducing the equity in the property.

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equity is within the scope of “lost money or property”

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contemplated by the California legislature.

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CitiMortgage, Inc., 227 Cal. App. 4th 299, 310-311 (1st Dist.

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2014) (holding that plaintiff’s allegation that the lender

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deprived plaintiff of the opportunity to pursue other means of

(Def.’s Mot. at 8.)

Kwikset Corp. v.

Plaintiffs allege they suffered loss because PNC misapplied

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(FAC ¶ 45.)

A loss of

See Rufini v.

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avoiding foreclosure, leading to the loss of his home and the

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equity he had in it, was sufficient to constitute “lost money or

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property” under the UCL).

4

plaintiffs have standing to bring a UCL claim against PNC based

5

on the bank’s violation of the Bankruptcy Code.

Having sufficiently alleged injury,

6

C.

Negligence

7

“The existence of a duty of care by a defendant to a

8

plaintiff is a prerequisite to establishing a claim for

9

negligence.

Whether a legal duty exists in a given case is

10

primarily a question of law.”

11

Loan Ass’n, 231 Cal. App. 3d 1089, 1095 (3d Dist. 1991) (internal

12

quotation marks and citations omitted).

13

Nymark v. Heart Fed. Savings &

“[A]s a general rule, a financial institution owes no

14

duty of care to a borrower when the institution’s involvement in

15

the loan transaction does not exceed the scope of its

16

conventional role as a mere lender of money.”

17

App. 3d at 1096.

18

purport to state a legal principle that a lender can never be

19

held liable for negligence in its handling of a loan transaction

20

within its conventional role as a lender of money.”

21

Chase Home Finance LLC, 213 Cal. App. 4th 872, 898 (1st Dist.

22

2013) (quoting Ottolini v. Bank of Am., Civ. No. 3:11-477 EMC,

23

2011 WL 3652501, at *6 (N.D. Cal. Aug. 19, 2011) (holding that

24

where there was an ongoing dispute about the lender’s performance

25

of the loan contract, and where the lender made specific

26

representations as to the likelihood of a loan modification, “a

27

cause of action for negligence has been stated that cannot be

28

properly resolved based on lack of duty alone”).

Nymark, 231 Cal.

But “Nymark and the cases cited therein do not

16

Jolley v.

1

Indeed, several courts have found the lender owed a

2

debtor a duty of care where it offered the debtor a trial loan

3

modification plan and then reneged, which appears to be similar

4

to plaintiffs’ allegations in this case.

5

App. 4th at 905 (citing Asanelli v. JP Morgan Chase Bank, N.A.,

6

Civ. No. 3:10-3892 WA, 2011 WL 1134451, at *8 (N.D. Cal. Mar. 28,

7

2011) (holding that where the defendant “went beyond its role as

8

a silent lender and loan servicer to offer an opportunity to

9

plaintiffs for loan modification and to engage with them

See Jolley, 213 Cal.

10

concerning the trial plan,” plaintiff’s allegations constituted

11

“sufficient active participation to create a duty of care to

12

plaintiffs to support a claim for negligence”); Robinson v. Bank

13

of Am., Civ. No. 5:12-494 RMW PSG, 2012 WL 1932842 (N.D. Cal. May

14

29, 2012) (finding a duty where the lender allegedly executed and

15

breached the modification agreement, then engaged in a series of

16

contradictory and somewhat misleading communications with

17

plaintiff regarding the status of his loan)).

18

Here, similar to Asanelli and Robinson, plaintiffs

19

allege that PNC offered them a loan modification and then reneged

20

on March 12, 2014, well after plaintiff’s obligations to make

21

payments through the Chapter 13 plan had terminated.

22

Because Jolley, Asanelli, and Robinson support finding that PNC

23

owed plaintiffs a duty of care, the court rejects PNC’s argument

24

that it owed no such duty.

25

allege that PNC breached its duty by negligently filing payment

26

changes in the plaintiffs’ bankruptcy and by assessing erroneous

27

fees and arrears.

28

D.

(FAC ¶ 23.)

Furthermore, plaintiffs sufficiently

(Id. ¶ 55.)

Rosenthal Fair Debt Collection Practices Act
17

1

(“RFDCPA”)

2

The California legislature enacted the RFDCPA “to

3

prohibit debt collectors from engaging in unfair or deceptive

4

acts or practices in the collection of consumer debts and to

5

require debtors to act fairly in entering into and honoring such

6

debts . . . .”

7

consumers from certain debt collection practices, including,

8

inter alia, threats and unlawful conduct, § 1788.10; the use of

9

obscene or profane language, § 1788.11; under certain

Cal. Civ. Code § 1788.1.

The Act protects

10

circumstances, communications with the debtor’s employer or

11

family member other than a spouse, 1788.12; and

12

misrepresentations in communications, § 1788.13.

13

PNC argues plaintiffs’ RFDCPA claim fails as a matter

14

of law because PNC is not a “debt collector” within the meaning

15

of the statute.

16

person who, in the ordinary course of business, regularly, on

17

behalf of himself or herself or others, engages in debt

18

collection.”

19

that the RFDCPA does not apply to lenders foreclosing on a

20

mortgage.

21

1111, 1135 (N.D. Cal. 2009) (“[P]laintiff failed to plead that

22

any defendant was ‘collecting a debt’ because foreclosing on a

23

property pursuant to a deed of trust is not the collection of a

24

debt within the meaning of the RFDCPA.”); Ricon v. Recontrust

25

Co., Civ No. 3:09-937 IEG JMA, 2009 WL 2407396, at *4 (S.D. Cal.

26

Aug. 4, 2009) (“Plaintiff’s Rosenthal Act claim fails because the

27

Rosenthal Act does not apply to lenders foreclosing on a deed of

28

trust.”); Pittman v. Barclays Capital Real Estate, Inc., Civ. No.

The RFDCPA defines “debt collector” as “any

§ 1788.2(c).

Several district courts have held

See Rosal v. First Fed. Bank of Cal., 671 F. Supp. 2d

18

1

3:09-241 JM AJB, 2009 WL 1108889, at *3 (S.D. Cal. Apr. 24, 2009)

2

(holding plaintiff could not seek recovery under RFDCPA for the

3

lender’s alleged misrepresentations regarding whether it would

4

foreclose “because a residential mortgage loan does not qualify

5

as a ‘debt’ under the statute”).4

6

However, where a plaintiff’s claim “arises out of debt

7

collection activities beyond the scope of the ordinary

8

foreclosure process, a remedy may be available under the RFDCPA.”

9

Walters, 730 F. Supp. 2d at 1203 (holding the RFDCPA applied

10

where “the gravamen of plaintiff’s claim is that [the lender]

11

engaged in a pattern of improper conduct in the course of

12

servicing her loan, ultimately causing the wrongful foreclosure

13

of the home”); see also Wilson v. Draper & Goldberg, P.L.L.C.,

14

443 F.3d 373, 376 (4th Cir. 2006) (interpreting the Federal

15

counterpart to the RFDCPA, noting that if the Federal Debt

16

Collection Practices Act did not apply to loans secured by

17

mortgages, that “would create an enormous loophole in the Act

18

immunizing any debt from coverage if that debt happened to be

19

secured by a real property interest and foreclosure proceedings

20
4

21
22
23
24
25
26
27
28

The statute defines “debt” as “money, property or their
equivalent which is due or owning or alleged to be due or owing
from a natural person to another person.” § 1788.2(d). It
defines “consumer debt,” as “money, property or their equivalent,
due or owing or alleged to be due or owing from a natural person
to another person.” § 1788.2(e). PNC argues separately that a
residential mortgage loan is not a debt under the act. This is
not truly a distinct argument, because the definition of “debt
collector” incorporates the term “debt,” and the cases holding
that a lender foreclosing on a residential mortgage is not a
“debt collector” do so on the basis that a residential mortgage
is not a debt. See Ricon, 2009 WL 2407396, at *4 (holding a
lender was not a debt collector based on the Act’s definition of
“consumer debts”).
19

1

were used to collect the debt”).

2

allegations arise from PNC’s allegedly improper conduct in

3

servicing their loan, outside of the foreclosure process, which

4

ultimately led to the wrongful foreclosure of their property.

5

(Id. ¶ 25.)

6

purview of the RFDCPA.

7

Like Walters, here plaintiffs’

PNC’s “debt collection” would thus come under the

PNC argues in the alternative that plaintiffs’ RFDCPA

8

claim fails because the FAC does not allege that PNC’s conduct

9

amounted to an unconscionable means to collect a debt.

(Def.’s

10

Mot. at 6.)

11

factual allegations for such a conclusion regarding PNC’s

12

unconscionable debt collection practices.

13

allege PNC engaged in “multiple violations” of the RFDCPA,

14

without further specifying which section of the Act.

15

The court agrees that plaintiffs offer no supporting

Moreover, plaintiffs

Plaintiffs do plausibly allege that PNC’s attempt to

16

collect from plaintiff $10,526.91 is a “false or misleading

17

representation of the character, amount or legal status of a

18

debt.”

19

provision prohibiting this conduct,5 the RFDCPA incorporates by

20

reference sections of the Fair Debt Collection Practices Act,6

21
22
23
24
25
26
27
28

(FAC ¶ 26.)

While the RFDCPA does not contain a

5

Section § 1788.13, “Misrepresentations in
Communications,” does not appear to address a “misleading
representation of a debt.”
6

Cal. Civ. Code Section 1788.17 of the RFDCPA states
that “every debt collector attempting to collect a consumer debt
shall comply with the provisions of [FDCPA] Sections 1692b to
1692j . . . .” “Federal judicial interpretations of the FDCPA
are incorporated into the Rosenthal Act by Civil Code § 1788.17
such that a plaintiff may state a claim for violation of the
Rosenthal Act simply by showing that a defendant violated any of
several provisions of the FDCPA.” Masuda v. Citibank, N.A., Civ.
No. 4:14-159 PJH, 2014 WL 1759580, at *2 (N.D. Cal. Apr. 29,
20

1

which prohibits “the false representation of the character,

2

amount, or legal status of any debt.”

3

Because PNC insists plaintiffs are not current on their loan

4

payments and continue to owe arrears, foreclosure fees and costs

5

despite plaintiffs’ timely monthly payments and PNC’s failure to

6

object to the Notice of Final Cure Payment issued by the

7

bankruptcy trustee, the $10,526.91 can fairly be said to

8

constitute a “false representation” of the “amount . . . of a

9

debt.”

10

15 U.S.C. § 1692e(2)(A).

Therefore, plaintiffs have stated a claim under the

RFDCPA as it incorporates § 1692e(2)(A) of the FDCPA.

11

IT IS THEREFORE ORDERED that defendant’s motion to

12

dismiss be, and the same hereby is, DENIED.

13

Dated:

November 18, 2014

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19
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21
22
23
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25
26
27
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2014).
21