Dougherty et al v. Bank of America, N.A. et al

Filing 73

ORDER signed by District Judge Troy L. Nunley on 6/1/2017 GRANTING 65 Motion for Preliminary Injunction; ENJOINING the defendants from conducting a trustee's sale or foreclosure of the property located at 5130 Fruitvale Road, Newcastle, Califo rnia 95658 until resolution of this action or further order of the Court; ORDERING the plaintiffs to deposit $1,700.00 with the Clerk of Court on the first business day of each month, to be held in bond until resolution of this action or further order of the Court. (cc: Financial) (Michel, G.)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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PENNY DOUGHERTY, and DENNIS
DOUGHERTY,
Plaintiffs,

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ORDER
v.

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No. 2:15-cv-01226-TLN-DB

BANK OF AMERICA, N.A., WELLS
FARGO BANK, N.A., as trustee on behalf
of the Harborview Mortgage Loan Trust
Mortgage Pass-Through Certificates, Series
2006-12, SELECT PORTFOLIO
SERVICING, INC., DOES 1 TO 50,
inclusive,
Defendants.

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This matter is before the Court on Plaintiffs Penny Dougherty and Dennis Dougherty’s

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(“Plaintiffs”) Motion for Preliminary Injunction. (ECF No. 65.) Plaintiffs seek to enjoin

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Defendants Select Portfolio Services, Inc., and Wells Fargo Bank, N.A., (jointly “Defendants”)

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from conducting a trustee’s sale of real property, located at 5130 Fruitvale Road, Newcastle,

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California, 95658. Defendants oppose the motion. (ECF No. 66.) Plaintiffs filed a reply. (ECF

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No. 70.) Having carefully considered the arguments raised by both parties and for the reasons set

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forth below, the Court hereby GRANTS Plaintiffs’ Motion for Preliminary Injunction (ECF No.

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65).
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FACTUAL AND PROCEDURAL BACKGROUND1

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I.

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At all times relevant to this action Plaintiffs have resided at 5130 Fruitvale Road,

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Newcastle, California 95658. (Sec. Amend. Compl., ECF No. 41.) In November 2006, Plaintiffs

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refinanced an existing loan on the property through Bank of America. (ECF No. 41 at 3.)

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Plaintiffs approached Bank of America in 2010 to obtain a loan modification. (ECF No. 41 ¶ 25.)

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Before receiving a modification and after missing a payment, Plaintiffs began making payments

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of $1,700 a month instead of their previous $1,850 a month for 14 months without incident.

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(ECF No. 41 ¶¶ 26–30.) Plaintiffs allege that in September of 2011, Bank of America returned

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Plaintiffs’ check for $1,700 and informed Plaintiffs that it would not accept any more payments

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that were not in the amount of $1,952.56. (ECF No. 41 ¶ 32.)

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Plaintiffs allege that on November 15, 2011, they attended a home loan event at which a

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Bank of America representative helped them apply for the Keep Your Home California

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(“KYHC”) principal reduction program and a loan modification through the bank. (ECF No. 41 ¶

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34.) At this event, Plaintiffs allege that the representative indicated they qualified for a KYHC

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principle reduction of $100,000 and executed loan modification papers. (ECF No. 41 ¶ 33.)

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Plaintiffs allege the modification papers would ultimately reduce the monthly loan payments to

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$1,700. (ECF No. 41 ¶ 37.)

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Bank of America sold Plaintiffs’ loan to Select Portfolio Servicing, Inc., (“SPS”) on

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November 30, 2011. (ECF No. 41 ¶ 42.) Plaintiffs allege that upon opening communication with

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SPS, their representative Debora Shrowder instructed Plaintiffs to refrain from making mortgage

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payments and asked for the loan modification papers from the November 15th event. (ECF No.

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41 ¶ 43.) Plaintiffs allege that they provided Shrowder with the only copy of those documents.

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(ECF No. 41 ¶ 43.) Plaintiffs allege that in January 2012, they spoke again with Ms. Shrowder

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who informed them that Wells Fargo and SPS were not members of the KYHC principal

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reduction program, but were members of the loan reinstatement program. (ECF No. 41 ¶¶ 46–

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47.) Plaintiffs applied for and were later admitted into the KYHC loan reinstatement program

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The fact section is taken from the Court’s previous Order granting Plaintiffs’ Motion for Temporary
Restraining Order (ECF No. 59).

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through which SPS would receive approximately $16,000 to make Plaintiffs’ loan current. (ECF

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No. 41 ¶ 52; Decl. of Penny Dougherty, ECF No. 54-2 ¶ 7.) Defendants provided a Deed of Trust

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from May 8, 2012, recording the KYHC program loan for $16,089.03 to repay Plaintiff’s past-

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due loan amounts and a Deed of Reconveyance from May 6, 2015, demonstrating the forgiveness

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of that amount. (ECF No. 57-1, Ex. C, Ex. G.)

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Prior to receiving their KYHC loan reinstatement amount, Plaintiffs allege that Ms.

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Shrowder informed them she would start on an “in house” modification that would move forward

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simultaneously with Plaintiffs’ Home Affordable Modification Program (“HAMP”) application.

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(ECF No. 41 ¶ 54.) In March 2012, Plaintiffs allege Ms. Shrowder informed Plaintiffs they

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needed to be current on their monthly payments of $1,952.56. (ECF No. 41 ¶ 55.) Plaintiffs

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allege they made the required payments from April 2012 to November 2012. (ECF No. 41 ¶ 57.)

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However, Plaintiffs acknowledge they stopped making payments again in December 2012 and

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January 2013. (ECF No. 41 ¶ 59.) Plaintiffs allege that Ms. Shrowder entered them into a six-

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month forbearance in February 2013 with monthly payments of $1,700. (ECF No. 41 ¶ 61.) At

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that time, Plaintiffs were also advised that Wells Fargo had joined the KYHC principal reduction

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program. (ECF No. 41 ¶ 63.)

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When SPS and Wells Fargo notified Plaintiffs that it formally became a participant in the

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KYHC principal reduction program, Plaintiffs allege they immediately applied for the program

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and were informed that they were approved pending SPS documentation. (ECF No. 41 ¶ 66.)

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Plaintiffs allege that SPS did not timely or accurately provide KYHC with the required

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documentation and as a result KYHC denied Plaintiffs’ reduction request in May 2014. (ECF No.

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41 ¶ 67.) Plaintiffs allege they rejected a HAMP loan in May 2014 because the payment was

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above the $1,700 Plaintiffs wanted to pay. (ECF No. 41 ¶ 68.)

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Mrs. Dougherty’s declaration states that Plaintiffs reapplied for a loan modification and

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principal reduction through KYHC in August 2015. (ECF No. 54-2 ¶ 14.) Plaintiffs refused a

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HAMP loan at that time because they believed payments were too expensive. Plaintiffs were also

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deemed ineligible for KYHC funding because of the instant litigation.2 Plaintiffs continued with

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Plaintiffs filed the instant action on June 8, 2015. (ECF No. 1.)

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the instant action, and on January 30, 2017, Defendants recorded a Deed of Trustee’s sale. (ECF

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No. 57-1, Ex. H.) A foreclosure sale was scheduled for February 22, 2017. (ECF No. 57-1, Ex.

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H.)

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Plaintiffs filed an ex parte application for a Temporary Restraining order on February 1,

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2017. (ECF No. 54.) The Court ordered Defendants to file an opposition within seven days of

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the motion and Plaintiffs to file a reply within three days of the opposition. (ECF No. 55.)

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Subsequently, Defendants filed their opposition on February 7, 2017, and Plaintiffs filed their

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reply on February 9, 2017. (ECF Nos. 56 ¶ 58.) On February 17, 2017, the Court issued an order

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granting Plaintiffs’ application until the Court ruled on a preliminary injunction and ordering

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Plaintiffs to file a motion for preliminary injunction within fourteen days. (Order, ECF No. 59 at

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12.) Plaintiffs filed the instant motion on March 3, 2017. (ECF No. 65.)

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II.

STANDARD OF LAW

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Injunctive relief is “an extraordinary remedy that may only be awarded upon a clear

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showing that the plaintiff is entitled to such relief.” Winter v. Natural Res. Def. Council, Inc., 555

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U.S. 7, 22 (2008) (citing Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (per curiam)). “The

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purpose of a preliminary injunction is merely to preserve the relative positions of the parties until

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a trial on the merits can be held.” University of Texas v. Camenisch, 451 U.S. 390, 395 (1981)

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(emphasis added); see also Costa Mesa City Employee’s Assn. v. City of Costa Mesa, 209 Cal.

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App. 4th 298, 305 (2012) (“The purpose of such an order is to preserve the status quo until a final

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determination following a trial.”) (internal quotation marks omitted); GoTo.com, Inc. v. Walt

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Disney, Co., 202 F.3d 1199, 1210 (9th Cir. 2000) (“The status quo ante litem refers not simply to

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any situation before the filing of a lawsuit, but instead to the last uncontested status which

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preceded the pending controversy.”) (internal quotation marks omitted). In cases where the

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movant seeks to alter the status quo, preliminary injunction is disfavored and a higher level of

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scrutiny must apply. Schrier v. University of Co., 427 F.3d 1253, 1259 (10th Cir. 2005).

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Preliminary injunction is not automatically denied simply because the movant seeks to alter the

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status quo, but instead the movant must meet heightened scrutiny. Tom Doherty Associates, Inc.

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v. Saban Entertainment, Inc., 60 F.3d 27, 33–34 (2d Cir. 1995).
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“A plaintiff seeking a preliminary injunction must establish [1] that he is likely to succeed

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on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief,

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[3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest.”

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Winter, 555 U.S. at 20. A plaintiff must “make a showing on all four prongs” of the Winter test

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to obtain a preliminary injunction. Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135

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(9th Cir. 2011). In evaluating a plaintiff's motion for preliminary injunction, a district court may

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weigh the plaintiff's showings on the Winter elements using a sliding-scale approach. Id. A

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stronger showing on the balance of the hardships may support issuing a preliminary injunction

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even where the plaintiff shows that there are “serious questions on the merits . . . so long as the

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plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in the

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public interest.” Id. Simply put, the plaintiff must demonstrate, “that [if] serious questions going

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to the merits were raised [then] the balance of hardships [must] tip[ ] sharply in the plaintiff's

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favor,” in order to succeed in a request for preliminary injunction. Id. at 1134–35 (emphasis

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added).

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III.

ANALYSIS

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Plaintiffs seek a preliminary injunction under the serious questions variation of the Winter

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test. “Under the ‘serious questions’ variation of the test, a preliminary injunction is proper if

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there are serious questions going to the merits; there is a likelihood of irreparable injury to the

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plaintiff; the balance of hardships tips sharply in favor of plaintiff; and the injunction is in the

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public interest.” Lopez v. Brewer, 680 F.3d 1068, 1072 (9th Cir. 2012) (citing Alliance for the

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Wild Rockies v. Cottrell, 632 F.3d 1127, 1131–32 (9th Cir. 2011)). So long as serious questions

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going to the merits exist, the balancing of the hardship tips sharply in favor of plaintiff, and if

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plaintiff makes a showing on the other two prongs of the Winter test, a preliminary injunction

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may issue. Id. The Court turns to a discussion of these four factors.

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A. Serious Questions Going to the Merits
Plaintiffs assert that there are five serious questions going to the merits of their claims.

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Plaintiffs identify the five serious questions as: (1) whether the Doughertys and Bank of America

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entered into an enforceable modification agreement at the home loan convention in November
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2011; (2) whether Plaintiffs would have fallen behind on the loans had SPS honored the

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agreement; (3) whether SPS misplaced the modification agreement when it assumed servicing the

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loan; (4) whether Ms. Shrowder made misrepresentations which affected the Doughertys

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payments; and (5) whether SPS purposefully or intentionally did not send in the appropriate paper

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work under the KYHC principal reduction program. (ECF No. 65 at 7–9.) In the Order granting

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a Temporary Restraining Order, the Court found that there were at least serious questions going

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to the merits of Plaintiffs’ breach of contract claim. (Order, ECF No. 59 at 8.)

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To maintain a cause of action for breach of contract under California Law, a plaintiff must
demonstrate: (1) the existence of a contract; (2) plaintiff’s performance or excuse for

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nonperformance; (3) defendant’s breach; and (4) the resulting damages to plaintiff. Concorde

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Equity II, LLC v. Miller, 732 F. Supp. 2d 990, 1000 (N.D. Cal. 2010). Plaintiffs proffer the

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declaration of Penny Dougherty in support of their motion. Mrs. Dougherty states that at the

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home loan event on November 15, 2011, she and her husband “completed an application for a

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loan modification and provided documents relating to [their] income.” (ECF No. 54–2 ¶ 3.) Mrs.

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Dougherty further declares that at the convention she “worked with a Bank of America

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representative to complete and sign a pink sheet that [she] believed was a permanent modification

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agreement for which [she] was approved.” (ECF No. 54–2 ¶ 4.) As alleged in the complaint,

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Plaintiffs provided their only copy of the pink sheet to Defendants’ representative Ms. Shrowder.

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(ECF No. 41 ¶ 43.)

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Defendants now present the Court with evidence they claimed to possess in their

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opposition to the temporary restraining order, but did not submit. Defendants argue there is no

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evidence that Plaintiffs entered into a contract with Bank of America at the convention in

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November 2011. (ECF No. 66 at 8.) Defendants assert Plaintiffs never entered into a permanent

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modification with monthly mortgage payments of $1,700, but instead entered into a trial period

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plan (“TPP”) with monthly trial payments of $2,090.41. (ECF No. 66 at 12.) Defendants proffer

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the declaration of Sherry Benight, the Document Control Officer at SPS, in support of their

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argument. (ECF No. 68.) Plaintiffs object to Benight’s declaration insofar as it discusses

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Plaintiffs’ verbal interactions with Bank of America at the convention. (ECF No. 71.)
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“In a preliminary injunction proceeding, the district court is accorded broad discretion in

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ruling on the admissibility of evidence.” Sega Enterprise Ltd. v. Accolade, Inc., 977 F.2d 1510,

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1530 n.10 (9th Cir. 1992). “The trial court may give even inadmissible evidence some weight,

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when to do so serves the purpose of preventing irreparable harm before trial.” Flynt Distributing

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Co., Inc. v. Harvey, 734 F.2d 1389, 1394 (9th Cir. 1984). Plaintiffs assert that Benight’s

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statements regarding Plaintiffs’ meeting with Bank of America at the convention should be given

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less weight because she lacks personal knowledge of the interaction. (ECF No. 71 at 2–3.)

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Plaintiffs argue that the interaction was in person and Benight fails to provide a “basis to assume

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that these in-person interactions were recorded within Bank of America’s business records.”

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(ECF No. 71 at 2.) In essence, Defendants seek to demonstrate through the absence of written

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record that Bank of America did not form a contract with Plaintiffs for a mortgage rate of $1,700

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a month. However, Plaintiffs are correct that Benight does not provide any background or

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support for her statements. Benight does not explain the foundation upon which she bases her

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statements or give the Court any reason to find that an absence of records means that such

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promises did not occur. Furthermore, if Defendants have documentation supporting Benight’s

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statements, they fail to present it. Accordingly, the Court gives the statements little weight in

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determining whether or not there are serious questions going to Plaintiffs’ breach of contract

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claim.

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As to the first element for breach of contract — the existence of a contract — the Court

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previously relied on Mrs. Dougherty’s declaration and Defendants lack of evidence when

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determining that a serious question existed as to whether a contract was formed. (ECF No. 59 at

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7.) Plaintiff’s declaration similarly demonstrates a serious question as to a contract being formed

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at the November 2011 convention. As discussed above, Defendants proffered evidence lacks

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foundation to demonstrate a contract did not exist. Furthermore, Plaintiffs allege SPS misplaced

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the loan modification papers from the November 2011 convention. Plaintiffs allege they entered

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into a verbal loan modification with a pink slip detailing the terms at the convention, provided

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SPS with their only copy of the pink slip, and SPS subsequently lost the documents. Nothing in

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Benight’s declaration contradicts this possibility. Consequently, Benight’s thorough review of
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the records would make the question even more serious. Benight’s statements support Plaintiffs’

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contention that there are serious questions as to whether the document was lost. Defendants have

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not presented the Court with evidence to definitely dispel the Court’s questions regarding the

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existence of a contract. Accordingly, there are at least serious questions going to the existence of

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a contract.

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Defendants fail to present new evidence or arguments regarding elements two, three and

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four of the breach of contract claim. Accordingly, serious questions remain and this factor

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weighs in favor of granting a preliminary injunction.

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B. Irreparable Injury

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“Preliminary injunctive relief is available only if plaintiffs ‘demonstrate that irreparable

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injury is likely in the absence of an injunction.’” Johnson v. Couturier, 572 F.3d 1067, 1081 (9th

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Cir. 2009) (quoting Winter, 555 U.S. at 22). Plaintiffs are asking for injunctive relief to stop the

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foreclosure of their home. Plaintiffs contend that if SPS and Wells Fargo are permitted to

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foreclose on the property Plaintiffs will lose their entire ownership and possessory interest in the

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property. (ECF No. 65 at 9.) Defendants argue a loss of property is the outcome of every

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foreclosure and therefore Plaintiffs need to allege more than loss of property to demonstrate

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irreparable injury. (ECF No. 66 at 18.) Defendants contend that courts cannot issue a

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preliminary injunction to preserve the status quo where there is no cognizable right to relief.

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(ECF No. 66 at 19.) Defendants argue, here, the risk of foreclosure was present before the

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controversy began. (ECF No. 66 at 19.)

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Plaintiffs have raised serious questions that Defendants breached the modification which

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lead Plaintiffs to default on their loan. Defendants use Plaintiffs’ default to argue that Plaintiffs

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have no legal or equitable right to the property and thus the Court would not be preserving the

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status quo by enjoining Defendants from conducting a trustee’s sale. (ECF No. 66 at 19.)

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Defendants again cite Voorhies v. Greene, 139 Cal. App. 2d 989, 995–98 (1983), in support of

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this proposition. The Court conducted a thorough analysis of Voorhies in its previous order.

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Defendants have not presented any new arguments that persuade the Court to view Voorhies in a

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different light. Furthermore, the Court’s Standard of Law, supra section II, very clearly denotes
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that the status quo is not simply the situation before filing of a lawsuit, but the last uncontested

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status which preceded the pending controversy. See GoTo.com, Inc. v. Walt Disney, Co., 202

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F.3d 1199, 1210 (9th Cir. 2000). The last uncontested status preceding this litigation would have

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been when Plaintiffs were making regular mortgage payments and foreclosure was not looming.

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As was disucssed in the TRO, real property is considered unique and the resulting loss of

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the property would irreparably harm Plaintiffs if the Court does not enjoin Defendants.

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Accordingly, this factor weighs in favor of Plaintiffs.

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C. Balancing of Equities
“The purpose of preliminary injunctive relief is to preserve the status quo if the balance of

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equities so heavily favors the moving party that justice requires the court to intervene to secure

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the positions until the merits of the action are ultimately determined.” Heflebower v. U.S. Bank

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Nat. Ass’n, No. CV F 13–1121 LJO MJS, 2013 WL 3864214, at *18 (E.D. Cal. July 23, 2013)

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(citing Univ. of Tex. v. Camenisch, 451 U.S. 390, 395 (1981)). A court balancing the equities will

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look to possible harm that could befall either party. See CytoSport, Inc. v. Vital Pharm., Inc., 617

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F. Supp. 2d 1051, 1081 (E.D. Cal. 2009) aff’d, 348 Fed. Appx. 288 (9th Cir. 2009). Where the

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court finds serious questions going to the merits, the balance of equities must tip sharply in favor

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of Plaintiffs. Lopez, 680 F.3d at 1072.

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Plaintiffs will suffer a permanent deprivation of their home and livelihood as ranchers if

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an injunction does not issue. (ECF No. 65 at 3.) In contrast, Defendants identify their harm as

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approximately twelve thousand dollars in taxes and mortgage insurance resulting from Plaintiffs’

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default and a past due balance of $92,655.42. (ECF No. 66 at 19.) Various district courts in the

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Ninth Circuit have determined the balance of equities tips sharply in the plaintiff’s favor when a

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plaintiff seeks to enjoin the defendant from carrying out a foreclosure sale. See Castellanos v.

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Countrywide Bank NA, No. 15-CV-00896-BLF, 2015 WL 914436, at *2 (N.D. Cal. Feb. 27,

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2015) (finding balance of equities to tip sharply in favor of temporary restraining order in light of

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possible foreclosure proceedings); Velaquez v. Chase Home Fin. LLC., No. CIV S-12-0433, 2012

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WL 671965, at *8 (E.D. Cal. Mar. 16, 2012) (finding balance of equities to tip sharply in favor of

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preliminary injunction due to certain ejection from home). Looking to the harm suffered by both
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parties, the Court finds Plaintiffs’ failure to make loan payments and Defendants’ depreciating

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security interest insufficient hardships to outweigh Plaintiffs’ potential loss of a home. See

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Tamburri v. Suntrust Mortg., Inc., No. C-11-2899 EMC, 2011 WL 2654093, at *2 (N.D. Cal. July

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6, 2011) (finding a mortgage lender’s monetary loss over three years insufficient to overcome the

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homeowner’s hardship of imminent foreclosure). Moreover, Defendants’ monetary losses will be

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mitigated by the bond required by the Court. For these reasons, the Court finds that the balance

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of equities tips sharply in Plaintiffs’ favor.

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D. Public Interest
The Court found in its previous order, “foreclosures adversely impact households and

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communities.” (ECF No. 59 at 11.) Furthermore, as was the case in their opposition to the

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application for Temporary Restraining Order, Defendants do not address the public interest

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element except to say that an injunction “is not in the public interest.” (ECF No. 66 at 20.) For

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the same reasons the Court stated in its Order Granting a Temporary Restraining Order, the Court

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finds that this element weighs in favor of Plaintiffs.

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E. Bond Payment
“The court may issue a preliminary injunction . . . only if the movant gives security in an

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amount that the court considers proper to pay the costs and damages sustained by any party found

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to have been wrongfully enjoined . . . .” Fed. R. Civ. P. 65(c). Courts have discretion to excuse

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the bond requirement. Governing Council of Pinoleville Indian Community v. Mendocino Cnty.,

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684 F. Supp. 1042, 1047 (N.D. Cal. 1988). Here, Defendants argue their costs and damages are

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“$12,232.19 in taxes and mortgage insurance for the Loan,” and seek a “bond in the amount of

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the current arrearages . . . of $92,655.42.” (ECF No. 66 at 19, 21.) Plaintiffs argue that they

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should not be required to post bond because Defendants have failed to show they are entitled to

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any amount of the arrearages as they are not the lender. (ECF No. 70 at 7.) As the Court noted in

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its previous order, Defendants are protected by their security interest in Plaintiffs’ property. (ECF

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No. 59 at 11.) To the extent that Defendants seek a bond in the amount of the outstanding

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arrearages, the amount could reasonably be recouped through a trustee’s sale if Defendants

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succeed in the case.
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Taking into account the circumstances including, but not limited to, the fact that over the

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past three years Plaintiffs have lived on the property without making any payments to Defendants

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and the unknown length of the litigation, the Court concludes that a bond is appropriate. This

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litigation has been pending for two years and has not yet left the pleading stage. The Court and

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the parties cannot reasonably anticipate how much longer the pending litigation will continue.

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The Court feels that justice is best served by requiring a bond with monthly payments to the Court

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of $1,700.00 — the amount Plaintiffs allege was promised to be their new monthly mortgage

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payment. In the event that Defendants are wrongfully enjoined the bond will cover a portion of

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the arrearages. In contrast, Plaintiffs will be paying the mortgage payment they allege was

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promised to them.

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IV.

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For the foregoing reasons, the Court hereby GRANTS Plaintiffs’ Motion for Preliminary

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CONCLUSION

Injunction (ECF No. 65).
1. Defendants are ENJOINED from conducting a trustee’s sale or foreclosure of the

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property located at 5130 Fruitvale Road, Newcastle, California, 95658, until the

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resolution of this action or further order of the Court.

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2. Plaintiffs are ORDERED to deposit on the first business day of each month, the

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sum of $1,700.00 with the Clerk of Court to be held in bond until the resolution of

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this action or further order of the Court.

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IT IS SO ORDERED.

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Dated: June 1, 2017

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Troy L. Nunley
United States District Judge

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