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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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 13 JOHN SOKOLOSKI and GAIL SOKOLOSKI, CIV. NO. 2:14-1374 WBS CKD MEMORANDUM AND ORDER RE: MOTION TO DISMISS Plaintiffs, 14 15 16 17 v. PNC MORTGAGE, a division of PNC BANK, NA and DOES 1 through 10, inclusive, 18 Defendant. 19 ----oo0oo---- 20 Plaintiffs John and Gail Sokoloski initiated this 21 22 action in Yuba County Superior Court against defendant PNC 23 Mortgage (“PNC”), bringing claims arising out of a disputed debt 24 and the threatened foreclosure of their home. 25 the court is PNC’s motion to dismiss plaintiffs’ First Amended 26 Complaint (“FAC”) for failure to state a claim upon which relief 27 can be granted pursuant to Federal Rule of Civil Procedure 28 12(b)(6). 1 Presently before 1 I. Factual and Procedural Background 2 Plaintiffs took out a loan secured by a deed of trust 3 to purchase their home in Marysville, California. 4 12.) 5 and filed for Chapter 13 bankruptcy in the Eastern District of 6 California for the sole purpose of curing arrears on the loan. 7 (Id. ¶ 14.) 8 9 (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 10 $4,601.27, which included $4,176.27 in arrears as well as $425 11 that had accrued in post-petition attorney’s fees. 12 15.) 13 the amount of $1,707.00. 14 would cover a regular payment on the loan; the surplus would go 15 toward paying off the arrears and fees. 16 (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 17 to the plan. (Id.) In June 2013, PNC filed a “Notice of 18 Mortgage Payment Change” in plaintiffs’ bankruptcy, proposing a 19 trial plan that would reduce plaintiffs’ monthly loan payments 20 from $1,410.05 to $554.20 per month. 21 result, the bankruptcy trustee began paying the new monthly loan 22 rate of $554.20 on July 1, 2013. 23 Chapter 13 plan payments in the amount of $1,707.00; however, 24 plaintiffs allege that because the portion going toward the 25 monthly loan payment was reduced under the modification, an even 26 greater surplus went toward paying off the arrears, attorney’s (Id. ¶¶ 17-18.) As a Plaintiffs continued to make 27 28 2 (Id. ¶ 20.)1 1 fees, and administrative fees. 2 plaintiffs, because of this payment scheme, plaintiffs were able 3 to pay off the $4,601.27 in arrears and fees earlier than 4 previously anticipated, completing their Chapter 13 plan 5 obligations. 6 According to (Id.) On January 30, 2014, staff counsel for the Chapter 13 7 bankruptcy executed a “Notice of Final Cure Payment” regarding 8 plaintiffs’ loan, which was sent to PNC. 9 to respond to this notice within the time prescribed by law or to 10 make any objection to the trustee’s final report and accounting. 11 (Id.) 12 trustee instructed plaintiffs to start making regular payments on 13 their loan directly to PNC beginning in January 2014. 14 Plaintiffs contacted PNC regarding the early termination of their 15 bankruptcy and inquired how much they should pay monthly, now 16 that their payments would go directly to the bank. 17 PNC instructed plaintiffs to make monthly payments of their loan 18 in the amount of $1,410.05 beginning in January 2014. 19 From January 2014 through April 2014, plaintiffs made regular 20 monthly payments of $1,410.05 directly to PNC as instructed. 21 (Id. ¶ 24.) (Id. ¶ 21.) PNC failed Because plaintiffs had cured the arrears, the bankruptcy 22 (Id.) (Id. ¶ 22.) (Id.) Although plaintiffs believed they were current on their 23 payments and had paid of the arrears, on April 25, 2014, PNC 24 informed plaintiffs that their loan was in default and was in the 25 26 27 28 1 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. 3 1 foreclosure process. 2 owed PNC $10,526.91 to bring their loan current, which included 3 approximately $5,240.44 in foreclosure fees and costs. 4 26.) 5 mistake by terminating the Chapter 13 plan. 6 Plaintiffs spoke to the bankruptcy trustee, who nevertheless 7 confirmed that their payments had been made according to the 8 plan. 9 (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 10 and that plaintiffs owe it $10,526.91 to bring the loan up to 11 date. 12 misrepresentation of how much they actually owe, because they are 13 current on their payments and have paid off the arrears. 14 26.) 15 of the implied covenant of good faith and fair dealing. 16 also seek statutory damages, attorney’s fees, and costs under the 17 Rosenthal Fair Debt Collection Practices Act, Cal. Civ. Code §§ 18 1788-1788.32, and to enjoin PNC from engaging in unfair business 19 practices pursuant to California’s Unfair Competition Law 20 (“UCL”), Bus. & Prof. Code § 17200, et seq. 21 dismiss all of plaintiffs’ claims pursuant to Rule 12(b)(6) for 22 failure to state a claim upon which relief can be granted. 23 (Def.’s Mot. (Docket No. 17).) 24 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 25 In general, a court may not consider items outside the 26 complaint when deciding a motion to dismiss, but it may consider 27 items of which it can take judicial notice. 28 F.3d 1370, 1377 (9th Cir. 1994). Barron v. Reich, 13 PNC requests that the court 4 1 take judicial notice of several exhibits, including the 2 solicitation letter PNC sent plaintiffs in May 2013 offering a 3 downward modification of their loan payment plan to $554.20 per 4 month. 5 had attached Ex. 1, along with other materials, in support of the 6 complaint they filed in state court, but omitted it from their 7 FAC. 8 basis for contradicting plaintiffs’ allegations regarding PNC’s 9 offer to reduce plaintiffs’ monthly payments to $554.20. (Req. for Judicial Notice (Docket No. 14-2).) (Def.’s Mot. at 6.) 10 7.) 11 Plaintiffs PNC attempts to use Exhibit 1 as a (Id. at Plaintiffs did not respond to PNC’s request for judicial notice. 12 Through the “incorporation by reference” doctrine, the 13 court may “take into account documents . . . alleged in a 14 complaint and whose authenticity no party questions, but which 15 are not physically attached to the [plaintiff’s] pleading . . . 16 even though the plaintiff does not explicitly allege the contents 17 of that document in the complaint.” 18 1068, 1076 (9th Cir. 2005) (quotation marks and citations 19 omitted). 20 timely payments on plaintiffs’ current loan with PNC, in 21 accordance with a modified monthly payment plan initiated by PNC. 22 (FAC ¶¶ 17, 20.) 23 modification plan, the court will take judicial notice of Exhibit 24 1, the “Streamlined Modification Trial Plan Notice.” 25 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 26 2, the “Order to Close Chapter 13 Case Without Discharge,” as 27 well as other filings in the Chapter 13 bankruptcy proceeding, 28 because they are matters of public record related to legal 5 1 proceedings in the district court. 2 and Rehab. Servs., Inc., 356 B.R. 18, 22 (E.D. Cal. 2006) (Ishii, 3 J.) (taking judicial notice of filings in bankruptcy proceedings 4 although they were outside pleadings because they were public 5 records (citing Duke Energy Trading & Marketing, L.L.C. v. Davis, 6 267 F.3d 1042, 1048 n.3 (9th Cir. 2001) (taking judicial notice 7 of filings made in a related bankruptcy proceeding)). 8 III. Analysis 9 See Rose v. Beverly Health On a Rule 12(b)(6) motion to dismiss, the court must 10 accept the allegations in the complaint as true and draw all 11 reasonable inferences in favor of the plaintiff. 12 Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by 13 Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 14 319, 322 (1972). 15 must plead “only enough facts to state a claim to relief that is 16 plausible on its face.” 17 544, 570 (2007). 18 for more than a sheer possibility that a defendant has acted 19 unlawfully,” and where a plaintiff pleads facts that are “merely 20 consistent with a defendant’s liability,” it “stops short of the 21 line between possibility and plausibility.” 22 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 557). 23 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’ 24 omission from their FAC of how their Chapter 13 plan concluded is 25 fatal to their claims because the bankruptcy was closed but never 26 discharged.” 27 were not permitted to rely on the terms of their Chapter 13 plan 28 because they never obtained a formal discharge from bankruptcy (Def.’s Mot. at 5.) 6 According to PNC, plaintiffs 1 court. In support, PNC cites the Bankruptcy code, which states, 2 3 4 5 6 7 [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 . . . . 8 11 U.S.C. § 1328(a). 9 in this provision suggests that, absent a formal discharge, Contrary to PNC’s interpretation, nothing 10 plaintiffs were not permitted to “rely on the terms of the plan,” 11 (Def.’s Mot. at 5-6), in alleging that they paid off the arrears. 12 This passage merely states that a debtor’s eligibility for a 13 court-ordered discharge is predicated on “completion by the 14 debtor of all payments under the plan.” 15 Stanislaus, 506 F.3d 774, 777 (9th Cir. 2007) (“A debtor who 16 completes payments under a Chapter 13 plan is entitled to a broad 17 discharge of all debts provided for by the plan . . . .” 18 (internal quotation marks omitted)). 19 suggest that a chapter 13 plan is not considered completed or 20 satisfied unless the debtor gets a formal discharge. 21 See Ellett v. The provision does not Plaintiffs allege that they cured their arrears 22 according to the terms of the plan, (FAC ¶ 19), and that 23 thereafter the trustee served a Notice of Final Cure Payment on 24 PNC, to which PNC failed to object, (id. ¶ 22). 25 plaintiffs’ bankruptcy proceeding, the bankruptcy court issued an 26 order confirming the plaintiffs’ payments were completed, 27 adopting the trustee’s finding that the “amount of unsecured 28 7 In the 1 claims discharged without payment” was zero and “the case was 2 completed on December 23, 2013.” 3 2012) (Trustee’s February 21, 2014 Final Report and Account 4 (Docket No. 23); March 28, 2014 Order Approving Final Report and 5 Discharging Trustee (Docket No. 27)). 6 13 Case Without Discharge indicates that the only reason 7 plaintiffs failed to obtain a formal discharge was because they 8 did not complete an instructional course concerning financial 9 management, and not because their payments were not completed. 2:12-bk-42019 (Bankr. E.D. Cal The Order to Close Chapter 10 2:12-bk-42019 (Bankr. E.D. Cal 2012) (March 31, 2014 Order to 11 Close Chapter 13 Case Without Discharge (Docket No. 28)). 12 Plaintiffs’ failure to obtain a formal discharge therefore does 13 not contradict their allegations that they paid off their arrears 14 pursuant to the chapter 13 plan. 15 Additionally, PNC does not address how the lack of a 16 formal discharge is fatal to any of plaintiffs’ claims. 17 Plaintiffs’ claims arise from PNC’s misleading business practices 18 and their violation of Bankruptcy Rule 3002.1. 19 finds PNC’s allegation regarding the absence of a Chapter 13 20 formal discharge inapposite. 21 22 A. The court thus Implied Covenant of Good Faith and Fair Dealing “The law implies in every contract . . . a covenant 23 of good faith and fair dealing. The implied promise requires 24 each contracting party to refrain from doing anything to injure 25 the right of the other to receive the agreement’s benefits.” 26 Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713, 720 (2007). 27 Plaintiffs allege PNC entered into a contract with them for a 28 loan secured by their property. (FAC ¶ 48.) 8 According to 1 plaintiffs, they have substantially performed pursuant to that 2 contract, (id. ¶ 49), having made timely payments of the full 3 amount owed, (id. ¶¶ 16, 24). 4 arrears on their debt, (id. ¶ 20), in addition to keeping up with 5 their payment, PNC diverted plaintiffs’ payments that should have 6 been applied to its loan balance to foreclosure fees and costs, 7 (id. ¶ 45). 8 9 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 10 claim for breach of the implied covenant of good faith and fair 11 dealing. 12 “continued to be in arrears when their debt was not discharged in 13 bankruptcy,” plaintiffs were in breach of contract and thus 14 cannot state a plausible claim for a breach of the covenant of 15 good faith and fair dealing. 16 however, the court must accept plaintiffs’ allegations as true. 17 See Scheuer, 416 U.S. at 236. 18 plaintiffs’ allegations that their arrears were paid in full and 19 that they had performed pursuant to their loan contract. 20 (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 21 noticed by the court, to contradict plaintiffs’ allegations that 22 they fully paid off the arrears. 23 plaintiffs’ allegations are taken as true and construed in the 24 light most favorable to them, “[t]he court need not . . . accept 25 as true allegations that contradict matters properly subject to 26 judicial notice or by exhibit.” 27 Warriors, 266 F.3d 979, 988 (9th Cir. 2001). 28 the May 2013 letter offering plaintiffs a reduced monthly payment (Def.’s Reply at 4-5.) While Sprewell v. Golden State 9 PNC contends that 1 of $554.20 was in fact only an offer of a three-month trial plan. 2 PNC asserts that after the three-month trial period had expired, 3 plaintiffs continued to make the $554.20 monthly payment from 4 October through December 2013. 5 Trustee was not paying what was actually owed on the loan for at 6 least the last three months of 2013. 7 still in arrears upon closing of the Chapter 13 plan even if all 8 allegations in the complaint are taken as true.” 9 7.) 10 “Accordingly, the Bankruptcy Therefore, plaintiffs were (Def.’s Mot. at However, from the May 2013 letter, it is not at all 11 clear that the reduced payment plan was really only meant to last 12 three months. 13 like a prelude to a permanent modification. 14 “Based on a careful review of your mortgage account, we are 15 offering you an opportunity to enter into a Trial Period Plan for 16 a mortgage modification . . . .” 17 1, at 3.) 18 information “so that you completely understand the actions you 19 need to take to successfully complete the Trial Period Plan to 20 permanently modify your mortgage.” 21 frequently asked question, “When will I know if my loan can be 22 modified permanently and how will the modified loan balance be 23 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 24 25 26 27 28 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 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 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. 18 19 20 21 22 23 24 25 26 27 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. 16 17 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”) 28 11 1 The California UCL “provides an equitable means through 2 which both public prosecutors and private individuals can bring 3 suit to prevent unfair business practices and restore money or 4 property to victims of these practices.” 5 Superior Court, 57 Cal. 4th 364, 370 (2013). 6 Business & Professions Code defines “unfair competition” to 7 include “any unlawful, unfair, or fraudulent business act or 8 practice.” 9 establishes three varieties of unfair competition--acts or Yanting Zhang v. Cal. Bus. & Prof. Code § 17200. The California “‘[The UCL] 10 practices which are unlawful, or unfair, or fraudulent.’” Cal- 11 Tech Commc’ns, 24 Cal. 4th 163, 180 (1999) (quoting Podolsky v. 12 First Healthcare Corp., 50 Cal. App. 4th 632, 647 (2d Dist. 13 1996)). 14 of liability.” 15 (9th Cir. 2009). 16 wrongful conduct upon which plaintiffs’ UCL claim can be based. 17 (Def.’s Mot. at 8.) “Each prong of the UCL is a separate and distinct theory 18 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 19 fact that PNC “failed to file any response pursuant to FRBP 20 3002.1(g) to the final cure notice.” 21 ¶ 21.) 22 a notice of final cure payment,” pursuant to 3002.1(f), a 23 creditor (Pls.’ Opp’n at 8; see FAC Rule 3002.1 requires that once a creditor is served with 24 25 26 27 28 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 12 1 any, that the holder contends remain unpaid as of the date of the statement. 2 3 4 5 6 7 8 9 10 11 12 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. 15 16 17 18 19 20 22 23 24 25 26 27 28 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 2 21 (Id. ¶ 21.)2 allege this conduct caused their bankruptcy plan to close 13 14 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. 13 1 confirmed plan.3 2 “By proscribing ‘any unlawful’ business act or 3 practice, the UCL borrows rules set out in other laws and makes 4 violations of those rules independently actionable.” 5 Zhang, 57 Cal. 4th at 370 (internal quotation marks and citation 6 omitted). 7 that can properly be called a business practice and that at the 8 same time is forbidden by law.” 9 1201 (1993) (quoting Barquis v. Merchs. Collection Ass’n, 7 Cal. 10 Yanting The “unlawful” prong of the UCL encompasses “anything Rubin v. Green, 4 Cal. 4th 1187, 3d 94, 114 (1972)). 11 Rule 3002.1(g) provides that a creditor “shall serve” 12 on the debtor and trustee a statement in response to the 13 trustee’s Notice of Final Cure payment. 14 Rule 30002.1 permits the bankruptcy court to impose sanctions for 15 a lender’s failure to comply with 3002.1(g), such as precluding 16 the creditor from presenting any omitted information as evidence 17 in any contested matter or adversary proceeding in the case, or 18 to award other appropriate relief, including reasonable expenses 19 and attorney’s fees caused by the failure. 20 3002.1(i). 21 debtor may be entitled to sanctions even after the case has 22 closed: Another provision in Fed. R. Bankr. P. In fact, where a residential mortgage is at issue, a 23 24 25 26 27 28 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 3 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). 14 1 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 . . . . 2 3 4 Fed. R. Bankr. P. 3002.1 advisory committee’s note. 5 incorrect in their contention that their conduct was not 6 unlawful. 7 response to the Notice of Final Cure Payment, which PNC failed to 8 do. 9 basis for a UCL claim, but also would have permitted plaintiffs 10 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. 11 PNC also argues plaintiffs lack standing to bring a 12 private cause of action under the UCL. 13 Standing to bring a private action under the UCL “is limited to 14 any ‘person who has suffered injury in fact and has lost money or 15 property as a result of unfair competition.’” 16 Superior Court, 51 Cal. 4th 310, 321 (2011) (quoting § 17204). 17 The purpose of this provision is “to confine standing to those 18 actually injured by a defendant’s business practices . . . .” 19 Id. 20 plaintiffs’ current loan balance payments to the alleged 21 foreclosure fees and costs, increasing the overall loan balance 22 and reducing the equity in the property. 23 equity is within the scope of “lost money or property” 24 contemplated by the California legislature. 25 CitiMortgage, Inc., 227 Cal. App. 4th 299, 310-311 (1st Dist. 26 2014) (holding that plaintiff’s allegation that the lender 27 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 28 15 (FAC ¶ 45.) A loss of See Rufini v. 1 avoiding foreclosure, leading to the loss of his home and the 2 equity he had in it, was sufficient to constitute “lost money or 3 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 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2014). 21

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