Hawkins et al. v. Select Portfolio Servicing, Inc. et al.

Filing 18

MEMORANDUM and ORDER signed by District Judge Morrison C. England, Jr. on 2/13/2017 DENYING Defendant SPS's 8 Motion to Dismiss. (Jackson, T)

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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 EASTERN DISTRICT OF CALIFORNIA 9 10 11 CHARLES HAWKINS, an individual; and ODESSER H. HAWKINS, an individual, 12 13 14 15 16 Plaintiffs, No. 2:16-cv-00827-MCE-CKD MEMORANDUM AND ORDER v. BANK OF AMERICA N.A., a business entity; SELECT PORTFOLIO SERVICING, INC., a business entity; and DOES 1-50; inclusive, Defendants. 17 18 19 Through the present lawsuit, Plaintiffs Charles Hawkins and Odesser H. Hawkins 20 (“Plaintiffs”) claim that their home was subject to unlawful foreclosure proceedings due to 21 various fraudulent acts committed by Defendants Bank of America N.A. (“BANA”) and 22 Select Portfolio Servicing, Inc. (“SPS”). Both BANA and SPS serviced Plaintiffs’ 23 mortgage loans. SPS now moves to dismiss Plaintiffs’ Complaint against it on grounds 24 that Plaintiffs have failed to state any cognizable claim against SPS, therefore making 25 dismissal of SPS proper under Federal Rule of Civil Procedure 12(b)(6). For the 26 reasons set forth below, SPS’ Motion is DENIED.1 27 1 28 Having determined that oral argument was not of material assistance, the Court submitted this matter on the briefing in accordance with Local Rule 230(g). 1 BACKGROUND2 1 2 3 In approximately December of 2005, Plaintiffs bought a residence located at 4 5716 Glassboro Way in Sacramento, California. In order to finance that purchase, 5 Plaintiffs obtained both first and second mortgages on the property from First Franklin 6 Financial Corp., a lender specializing in subprime loans. The principal amount financed 7 was $253,600.00 on the first mortgage and $63,400.00 on the second. In approximately 8 December of 2006, First Franklin was sold to Merrill Lynch. Then, in 2008, Merrill 9 Lynch’s holdings were acquired by Bank of America ("BANA"). 10 According to Plaintiffs, they wanted to modify both loans in order to make only 11 one payment. On or about September 28, 2013, they claim they entered into a loan 12 modification agreement that would combine their first and second mortgages into one 13 loan with a single payment. They were placed in a three-month Trial Period Payment 14 Plan under the government’s Home Affordable Loan Modification program and, on 15 November 21, 2013, made their first modified mortgage payment of $1,706.73 to BANA. 16 At this point Plaintiffs also received a letter from BANA advising them that BANA was 17 transferring the servicing of Plaintiffs’ loan to SPS, effective December 16, 2013. After 18 making the second modified payment in December, Plaintiffs received a Validation of 19 Debt Notice from SPS confirming that the servicing of Plaintiffs’ mortgage had been 20 transferred and that the total debt owed was $292,130.79. Plaintiffs subsequently made 21 their third modified mortgage payment to SPS in January of 2014, and claim they 22 continued to remain current on their modified loan thereafter. 23 In April of 2015, after continuing to pay on their modified loan for well over a year, 24 Plaintiffs state they were approached by unidentified individuals who told them they were 25 in default on their mortgage. Plaintiffs initially thought there was some kind of 26 misunderstanding and turned to both BANA and SPS for answers. A BANA 27 2 28 The allegations in this section are drawn directly, and sometimes verbatim, from the allegations of Plaintiffs’ Complaint. 2 1 representative allegedly told Plaintiffs that they remained current, and that there was 2 only one loan associated with the subject property. Someone from BANA also told 3 Plaintiffs that their second mortgage had been “charged off” with the lien being released. 4 SPS, for its part, reiterated that their database reflected only one loan and that because 5 Plaintiffs were current on that loan there was no risk of foreclosure. SPS allegedly told 6 Plaintiffs to contact the Better Business Bureau about the foreclosure letters they were 7 receiving. 8 Despite these assurances from both BANA and SPS, Plaintiffs began receiving 9 notices that they had an outstanding debt of some $129,424.15. Although their credit 10 report also showed only one loan, on December 27, 2015, Plaintiffs obtained notice that 11 their home was being auctioned off at a foreclosure auction the next day, and the 12 property was in fact sold pursuant to a trustee's sale on December 28, 2015. SPS still 13 insisted that Plaintiffs' loan was current and that they had been approved for a home 14 modification. Additionally, a BANA representative allegedly went through its loan file 15 without seeing any indication of a second mortgage. Significantly, too, BANA insisted 16 that it had purchased all of First Franklin, who had issued both the first and the second 17 mortgages. 18 An unlawful detainer proceeding ensued after Plaintiffs’ property was sold at the 19 trustee’s sale, and ultimately Plaintiffs were told by the company that had purchased the 20 property that they could retain their home only if they assumed a debt of $129,424.15 21 plus foreclosure fees and other charges. Moreover, title in the residence would be 22 transferred back to Plaintiffs only after several years of payments on this debt. 23 According to Plaintiffs, in order to save their family home, they had no choice other than 24 to accept these unfavorable terms and to resort to this lawsuit in order to rectify the 25 injustice to which they were subjected. 26 Plaintiffs’ lawsuit includes six separate causes of action against both SPS and 27 BANA for fraud, negligent misrepresentation, negligence, intentional infliction of 28 emotional distress, wrongful foreclosure, and violations of California’s Unfair Practices 3 1 Act, Cal. Bus. & Prof. Code § 17200, et seq. (“UCL”). SPS now moves to dismiss all six 2 of those claims, alleging that Plaintiffs have failed to plead any viable claims against it. 3 4 STANDARD 5 6 On a motion to dismiss for failure to state a claim under Federal Rule of Civil 7 Procedure 12(b)(6),3 all allegations of material fact must be accepted as true and 8 construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. 9 Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Rule 8(a)(2) “requires only ‘a short and plain 10 statement of the claim showing that the pleader is entitled to relief’ in order to ‘give the 11 defendant fair notice of what the . . . claim is and the grounds upon which it rests.’” Bell 12 Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 13 47 (1957)). A complaint attacked by a Rule 12(b)(6) motion to dismiss does not require 14 detailed factual allegations. However, “a plaintiff's obligation to provide the grounds of 15 his entitlement to relief requires more than labels and conclusions, and a formulaic 16 recitation of the elements of a cause of action will not do.” Id. (internal citations and 17 quotations omitted). A court is not required to accept as true a “legal conclusion 18 couched as a factual allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting 19 Twombly, 550 U.S. at 555). “Factual allegations must be enough to raise a right to relief 20 above the speculative level.” Twombly, 550 U.S. at 555 (citing 5 Charles Alan Wright & 21 Arthur R. Miller, Federal Practice and Procedure § 1216 (3d ed. 2004) (stating that the 22 pleading must contain something more than “a statement of facts that merely creates a 23 suspicion [of] a legally cognizable right of action”)). 24 Furthermore, “Rule 8(a)(2) . . . requires a showing, rather than a blanket 25 assertion, of entitlement to relief.” Twombly, 550 U.S. at 555 n.3 (internal citations and 26 quotations omitted). Thus, “[w]ithout some factual allegation in the complaint, it is hard 27 3 28 All further references to “Rule” or “Rules” are to the Federal Rules of Civil Procedure unless otherwise noted. 4 1 to see how a claimant could satisfy the requirements of providing not only ‘fair notice’ of 2 the nature of the claim, but also ‘grounds' on which the claim rests.” Id. (citing Wright & 3 Miller, supra, at 94, 95). A pleading must contain “only enough facts to state a claim to 4 relief that is plausible on its face.” Id. at 570. If the “plaintiffs . . . have not nudged their 5 claims across the line from conceivable to plausible, their complaint must be dismissed.” 6 Id. However, “[a] well-pleaded complaint may proceed even if it strikes a savvy judge 7 that actual proof of those facts is improbable, and ‘that a recovery is very remote and 8 unlikely.’” Id. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). 9 10 ANALYSIS 11 12 A. Fraud 13 The elements of a cause of action for fraud are: (1) a misrepresentation; 14 (2) knowledge of its falsity; (3) an intent to defraud; (4) justifiable reliance; and 15 (5) resulting damage. See Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 990 16 (2004). SPS correctly points out that when a plaintiff alleges fraud, Rule 9(b) ordinarily 17 requires that the “circumstances constituting fraud. . . [should] be stated with 18 particularity.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1104 (9th Cir. 2003). 19 According to SPS, Plaintiffs have utterly failed to satisfy these pleading 20 requirements. SPS contends Plaintiffs have failed to allege any misrepresentations by 21 SPS, let alone any factual basis for the assertion that SPS knew the falsity of such 22 communications or made them with the intent to defraud. SPS goes on to assert that 23 Plaintiffs have not alleged reliance, causation, or damages and have not pled their 24 claims with the requisite specificity. 25 Plaintiffs, however, have alleged that SPS repeatedly advised them that there 26 was only one loan on the property, an assertion that ultimately proved to be false. 27 According to the Complaint, on or around April 20, 2015, Plaintiffs claim that an 28 authorized representative of SPS confirmed that their database showed only one loan on 5 1 the property. Thereafter, during June and July of 2015, Plaintiffs claim they were again 2 assured that there was no other loan on the subject property. Plaintiffs contend they 3 were also told by SPS that, since they were current on their loan, there was no risk of 4 foreclosure. Pls.’ Compl., ¶¶ 30-31, 49-50. Plaintiffs assert that these allegations were 5 in fact false and communicated with the intent to lull Plaintiffs into a false sense of 6 security. Id. ¶ 53. In addition, Plaintiffs claim that they justifiably relied on SPS’s 7 representations about their loan status by not exploring available options to make the 8 second mortgage current before the property was sold at a trustee’s sale. Id. ¶ 54. 9 Finally, in demonstrating resulting damage, Plaintiffs point to the fact that their property 10 was ultimately sold at a trustee’s sale and that they had to assume a large additional 11 mortgage to retain their home. Id. ¶¶ 55, 58. 12 Under the circumstances, the Court believes that Plaintiffs’ fraud allegations are 13 sufficient to withstand pleadings scrutiny at this time. Despite the heightened standards 14 applicable to fraud claims, as Plaintiffs point out such requirements may be relaxed 15 when “the defendant must necessarily possess full information concerning the facts of 16 the controversy,” Bradley v. Hartford Acc. & Indem. Co., 30 Cal. App. 3d 818, 825 17 (1973), or “when the facts lie more in the knowledge of the opposite party,” Turner v. 18 Milstein, 103 Cal. App. 2d 651, 658 (1951). Moreover, in some instances specificity can 19 be premature where discovery can eliminate confusion as to what representations were 20 made and by whom. See, e.g., Charpentier v. L..A. Rams Football Co., 75 Cal. App. 4th 21 301, 312 (1999). 22 The circumstances of this matter present a quandary as to just what happened to 23 the loans securing Plaintiffs’ mortgages. Plaintiffs were unquestionably provided with 24 inaccurate information upon which they relied and which resulted in substantial damage. 25 Plaintiffs have pointed to specific instances where SPS itself provided information that 26 later proved to be incorrect, and have identified dates and sources for that information. 27 This is enough to state a viable fraud claim at this time, particularly since Defendants, as 28 opposed to Plaintiffs, are more apt to have information as to just how and why that 6 1 information was faulty, and whether they knew or had reason to know the information 2 was incorrect yet intended to induce Plaintiffs’ reliance on their representations. At a 3 minimum, Plaintiffs are entitled to engage in discovery that further elucidates what 4 transpired and just how SPS may have been responsible. Consequently, SPS’s Motion 5 to Dismiss Plaintiffs’ first cause of action, for fraud, is DENIED. 6 B. Negligence Based Claims 7 In their second and third causes of action, Plaintiffs plead two claims sounding in 8 negligence, negligent misrepresentation, and common-law negligence. According to 9 SPS, because both claims presuppose a duty of care, they fail because no such duty 10 11 was owed to Plaintiffs by SPS. Like negligence, a negligent misrepresentation claim presupposed the existence 12 of a duty of care. See Paz v. California, 22 Cal. 4th 550, 559 (2001) (any negligence 13 based cause of action requires duty of care). SPS correctly points out that “as a general 14 rule, a financial institution owes no duty of care to a borrower when the institution’s 15 involvement in the loan transaction does not exceed the scope of its conventional role as 16 a mere lender of money.” Nymark v. Heart Fed. Savings & Loan Assn., 231 Cal. App. 3d 17 1089, 1096 (1991). Specifically with regard to modification of an existing loan and in a 18 case also involving SPS, this Court has previously recognized that an ordinary loan 19 modification “is nothing more than a renegotiation of loan terms” with no duty of care 20 owed to the borrower since “[r]enegotiating loan terms falls squarely within Defendants’ 21 conventional role as money lender.” Jerviss v. Select Portfolio Servicing, Inc., 22 No. 2:15-cv-01904, 2015 WL 7572130 at *4-5 (E.D. Cal. Nov. 25, 2015). 23 There are nonetheless exceptions to the general rule. Once a lender agrees to 24 consider a modification of a borrower’s loan, for example, the lender owes the borrower 25 a duty to exercise reasonable care in reviewing a loan modification application. 26 Alvarez v. BAC Home Loans Servicing, LP, 228 Cal. App. 4th 941, 948 (2014). In 27 reaching that conclusion, the California Court of Appeal reasoned that failing to timely 28 and carefully process an application may give rise to negligence liability due to the 7 1 significant harm that such failure may entail. Id. at 948-49. That finding was 2 underscored by the court’s recognition that a lender’s mishandling may be particularly 3 blameworthy since borrowers typically lack the bargaining power to remedy poor 4 performance. Id. at 949. 5 The reasoning of Alvarez extends to the circumstances presented by this case. 6 Once SPS began providing information on the status of Plaintiffs’ loan modification, 7 particularly once confronted with the fact that Plaintiffs were facing foreclosure once a 8 seemingly phantom loan resurfaced, SPS had a duty to provide Plaintiffs with accurate 9 information concerning the loans on the property. According to Plaintiffs’ Complaint, 10 SPS failed to do so, instead reassuring Plaintiffs that they were current on their loan 11 obligations and were in no danger of foreclosure. Pls.’ Compl., ¶¶ 30-31, 49-50. 12 Nor is the Court persuaded by SPS’s remaining arguments that Plaintiffs have not 13 identified any breach of duty, let alone causation and damages. As stated above, 14 Plaintiffs plainly allege that SPS representatives told them that there were no other loans 15 on the property, that the loan SPS serviced was current, and that there was no danger of 16 foreclosure. Plaintiffs also allege that as a result of those representations they refrained 17 from taking other steps to protect their property from foreclosure, and sustained damage 18 when a trustee’s sale nonetheless occurred. 19 Given the foregoing, Defendant SPS’s Motion to Dismiss as to the second and 20 third causes of action, for negligent misrepresentation and for negligence, is also 21 DENIED. 22 C. 23 As Plaintiffs’ fourth cause of action, they assert intentional infliction of emotional 24 distress (“IIED”) given Defendants’ alleged misrepresentations, the foreclosure on their 25 home that ensued, and the severe emotional distress and attendant “extreme fear, 26 humiliation and shame” they claim to have suffered as a result. Id. at ¶ 97. 27 28 Intentional Infliction Of Emotional Distress To prevail on a claim for IIED, Plaintiffs must show (1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the 8 1 probability of causing, emotional distress; (2) resulting severe or extreme emotional 2 distress by the plaintiff; and (3) actual and proximate causation of the emotional distress 3 by the defendant’s outrageous conduct. Cochran v. Cochran, 65 Cal. App. 4th 488, 494 4 (1998). “The alleged outrageous conduct ‘must be so extreme as to exceed all 5 bounds . . . usually tolerated in a civilized community.’” Id. In addition, the requisite 6 severe emotional distress must be such that “no reasonable [person] in civilized society 7 should be expected to endure it.” Potter v. Firestone Tire & Rubber Co., 6 Cal. 4th 965, 8 1004 (1993). 9 Defendant SPS alleges that Plaintiffs cannot meet any of these hurdles in stating 10 a viable IIED claim. They correctly point to authority finding that, as a matter of law, the 11 mere act of foreclosing on property does not constitute the “outrageous conduct” 12 required to support a claim for IIED. Aguinaldo v. Ocwen Loan Servicing, LLC, 13 No. 5:12-cv-01393-EJD, 2012 WL 3835080, at *7 (N.D. Cal. Sept. 4, 2012). They also 14 claim that Plaintiffs’ description of the distress they suffered is too conclusory to suffice. 15 Accepting Plaintiffs’ allegations as true, as it must do in the context of a motion to 16 dismiss, the Court disagrees. Plaintiffs contend that SPS wrongfully advised them that 17 they were current on their mortgage and that there were no other loans associated with 18 the subject property. Those allegations, particularly when coupled with SPS’s 19 assurances that Plaintiffs were current on their loan and that there was no risk of 20 foreclosure, are adequate at this time to support a claim for IIED given what ultimately 21 transpired. Whether conduct is outrageous is usually a question of fact. Ragland v. U.S. 22 Bank National Assn., 209 Cal. App. 4th 182, 204 (2012). 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 9 1 D. 2 Defendant SPS takes issue with Plaintiffs’ fifth cause of action, for wrongful Wrongful Foreclosure 3 foreclosure, on grounds that SPS had no formal involvement in the foreclosure of the 4 property.4 Moreover, according to SPS, even if it was involved, Plaintiffs have failed to 5 satisfy the pleading requirements of the claim by failing to allege a valid tender of the 6 amount owed. 7 Again, given the substantial questions that remain as to exactly what happened in 8 this matter, it would be premature at this time to dismiss Plaintiffs’ claim. Plaintiffs assert 9 that the true scope of SPS’s involvement can only be ascertained through discovery that 10 has not yet taken place at this early stage of the proceedings. The Court agrees that 11 any determination of SPS’s involvement in the foreclosure, whether directly or indirectly, 12 should wait until after initial discovery has been completed. 13 SPS’s argument that Plaintiffs have failed to allege a valid tender is no more 14 persuasive. Tender is not required where the validity of the underlying debt is attacked, 15 since tender would constitute an affirmation of that disputed debt. Onofrio v. Rice, 16 55 Cal. App. 4th 413, 424 (1997); Stockton v. Newman, 148 Cal. App. 2d 558, 564 17 (1957). Moreover, since a court need not require tender where it would be inequitable to 18 do so, the requirement is a matter subject to the Court’s discretion in any event. Onofrio, 19 55 Cal. App. 4th at 424. Under the circumstances present here the Court finds that 20 requiring tender would indeed be inequitable, and declines to impose any such 21 condition. 22 For all these reasons, SPS’s Motion to Dismiss Plaintiffs’ fifth cause of action is 23 DENIED. 24 /// 25 /// 26 4 27 28 SPS has requested that the Court take judicial notice, pursuant to Federal Rule of Evidence 201(b), of various records maintained by the Sacramento County Recorders’ Office concerning the subject property, including the Notice of Default, Notice of Trustee’s Sale, and Trustee’s Deed upon Sale. Those requests are unopposed and are granted. 10 1 E. 2 Plaintiffs’ sixth and final cause of action is for violation of California’s UCL. The 3 UCL prohibits “any unlawful, unfair or fraudulent” business act or practice. Cal. Bus. & 4 Prof. Code § 17200. A private party can sue under the UCL only if he or she “has 5 suffered injury in fact and has lost money or property as a result of said unfair 6 competition.” Id. § 17204. Here, SPS attacks Plaintiffs’ UCL claim not on grounds that 7 no unlawful, unfair or fraudulent practice has been identified, but instead because 8 Plaintiffs have allegedly failed to allege any damages attributable to SPS’s conduct that 9 can satisfy the injury in fact requirement. That contention, however, by SPS’s own Violation Of California’s UCL 10 admission is predicated on the validity of the arguments it posited in support of dismissal 11 of Plaintiffs’ preceding causes of action, and as set forth above the Court has rejected 12 those arguments at this early stage of the litigation. Therefore, Plaintiffs’ sixth cause of 13 action also survives pleadings scrutiny. 14 15 CONCLUSION 16 17 18 19 20 For all the foregoing reasons, Defendant SPS’s Motion to Dismiss (ECF No. 8) is DENIED. IT IS SO ORDERED. Dated: February 13, 2017 21 22 23 24 25 26 27 28 11

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