Habtemariam v. PNC Bank, National Association, et al.

Filing 43

ORDER signed by District Judge Morrison C. England, Jr. on 07/06/17 ORDERING that PNC's 36 Motion to Dismiss is GRANTED. Plaintiff's breach of contract claim is dismissed without prejudice. Plaintiff may, but is not required to, file an amended complaint. If no amended complaint is filed within 20 days, the cause of action dismissed by this Order shall be dismissed with prejudice without further notice to the parties. The Court also cautions that this will be the last opportunity to sufficiently allege the existence of a second settlement agreement. (Benson, A)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 GENET HABTEMARIAM, 12 Plaintiff, 13 14 15 16 17 v. No. 2:16-cv-01189-MCE-GGH MEMORANDUM AND ORDER VIDA CAPITAL GROUP, LLC; US MORTGAGE RESOLUTION; PNC BANK; NATIONAL ASSOCIATION; and DOES 1 to 50, inclusive, Defendants. 18 19 In bringing this lawsuit, Plaintiff Genet Habtemariam alleges that she was 20 wrongfully subjected to foreclosure proceedings on a Second Deed of Trust that had 21 been cancelled by the owner of the note, Defendant PNC Bank, N.A., some five years 22 previously. Despite that cancellation, Plaintiff alleges the note was sold and ultimately 23 assigned by PNC to Defendant Vida Capital Group who proceeded with the foreclosure. 24 Plaintiff seeks to clear title to her property and further alleges various improprieties 25 against both Defendants. PNC previously moved under Federal Rule of Civil Procedure 26 12(b)(6) to dismiss Plaintiff’s second through fifth causes of action for failure to state a 27 claim, ECF No. 5, which the Court denied, ECF No. 24. In her opposition to that motion, 28 Plaintiff moved for leave to amend her complaint to add a claim for breach of contract. 1 1 ECF No. 8. That motion was granted ECF No. 24, and Plaintiff filed a First Amended 2 Complaint (“FAC”), ECF No. 26, on March 3, 2017. PNC now moves to dismiss the 3 newly added claim for breach of contract for failure to state a claim. ECF No. 36. As set 4 forth below, that motion is GRANTED.1 5 6 BACKGROUND2 7 8 9 In 2001, Plaintiff obtained a purchase money loan to buy a house located at 7 Shipman Court in Sacramento, California (“the subject property”). Then, in April of 2007, 10 she refinanced her initial loan through Gateway Bank FSB and took out a second 11 mortgage from National City Bank, an entity which later merged into PNC. Plaintiff’s 12 second mortgage was secured by a Second Deed of Trust (“SDOT”) recorded on 13 April 17, 2007. 14 Some three years later, PNC notified Plaintiff by mail that its SDOT was 15 discharged, apparently due to settlement agreements PNC had reached with various 16 agencies of the United States government. PNC effectuated that cancellation by 17 sending a 1099-C form approved by the Internal Revenue Service for cancelling a debt. 18 Plaintiff received the Form 1099-C on or about June 29, 2010. According to Plaintiff, 19 because the Form 1099-C cancelled the amount she owed on the second mortgage, she 20 believed it legally released her from any further obligation to pay the debt. Plaintiff 21 accordingly reported the debt cancellation as income to the Internal Revenue Service for 22 the 2010 calendar year. 23 Unbeknownst to Plaintiff, PNC never recorded a release of lien as to its SDOT 24 and in fact assigned its purported interest in the loan to Defendant US Mortgage 25 Resolution (“UMR”) in approximately March of 2012. UMR, who made no attempt to 26 27 1 Because oral argument would not have been of material assistance, the Court ordered this matter submitted on the briefing. E.D. Cal. L. R. 230(g). 2 28 The following recitation of facts is taken, sometimes verbatim, from the allegations contained in Plaintiff’s FAC. 2 1 foreclose on the loan, then sold the SDOT to Vida sometime in 2014. When Vida 2 contacted Plaintiff in early 2015 in an attempt to collect on the instrument, Plaintiff 3 responded by providing Vida with a copy of the Form 1099-C and asserting that the debt 4 had been cancelled and was not collectable. Vida nonetheless recorded a Notice of 5 Default on the subject property on September 22, 2015, and directed the trustee to 6 transfer title to Vida itself through non-judicial foreclosure proceedings which culminated 7 in title transfer to Vida by a deed recorded on February 16, 2016. 8 9 Plaintiff responded by commencing this action in state court on April 19, 2016. PNC removed Plaintiff’s lawsuit to this Court the same day, citing diversity of citizenship. 10 On May 11, 2016, Vida filed an unlawful detainer action against Plaintiff, and Plaintiff 11 was given a three-day notice to quit the premises. Rather than comply with that notice, 12 Plaintiff removed that second case to this Court and moved to consolidate it with the suit 13 she had commenced. The Court granted the motion. PNC subsequently moved to 14 dismiss four of Plaintiff’s five claims, and Vida joined in that motion. After the Court 15 denied the motion to dismiss and granted leave for Plaintiff to amend her complaint, she 16 added a breach of contract claim in connection with the settlement agreements PNC 17 reached with various agencies of the United States government, which allegedly led 18 PNC to discharge the SDOT. 19 20 STANDARD 21 22 On a motion to dismiss for failure to state a claim under Federal Rule of Civil 23 Procedure 12(b)(6), all allegations of material fact must be accepted as true and 24 construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. 25 Co., 80 F.3d 336, 337–38 (9th Cir. 1996). Rule 8(a)(2) “requires only ‘a short and plain 26 statement of the claim showing that the pleader is entitled to relief’ in order to ‘give the 27 defendant fair notice of what the . . . claim is and the grounds upon which it rests.’” Bell 28 Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 3 1 47 (1957)). A complaint attacked by a Rule 12(b)(6) motion to dismiss does not require 2 detailed factual allegations. However, “a plaintiff's obligation to provide the grounds of 3 his entitlement to relief requires more than labels and conclusions, and a formulaic 4 recitation of the elements of a cause of action will not do.” Id. (citation omitted). A court 5 is not required to accept as true a “legal conclusion couched as a factual allegation.” 6 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). 7 “Factual allegations must be enough to raise a right to relief above the speculative level.” 8 Twombly, 550 U.S. at 555 (citing 5 Charles Alan Wright & Arthur R. Miller, Federal 9 Practice and Procedure § 1216 (3d ed. 2004) (stating that the pleading must contain 10 something more than “a statement of facts that merely creates a suspicion [of] a legally 11 cognizable right of action”)). 12 Furthermore, “Rule 8(a)(2) . . . requires a showing, rather than a blanket 13 assertion, of entitlement to relief.” Id. at 555 n.3 (citation omitted). Thus, “[w]ithout some 14 factual allegation in the complaint, it is hard to see how a claimant could satisfy the 15 requirements of providing not only ‘fair notice’ of the nature of the claim, but also 16 ‘grounds’ on which the claim rests.” Id. (citing Wright & Miller, supra, at 94–95). A 17 pleading must contain “only enough facts to state a claim to relief that is plausible on its 18 face.” Id. at 570. If the “plaintiffs . . . have not nudged their claims across the line from 19 conceivable to plausible, their complaint must be dismissed.” Id. However, “[a] well- 20 pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those 21 facts is improbable, and ‘that a recovery is very remote and unlikely.’” Id. at 556 (quoting 22 Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). 23 A court granting a motion to dismiss a complaint must then decide whether to 24 grant leave to amend. Leave to amend should be “freely given” where there is no 25 “undue delay, bad faith or dilatory motive on the part of the movant, . . . undue prejudice 26 to the opposing party by virtue of allowance of the amendment, [or] futility of the 27 amendment . . . .” Foman v. Davis, 371 U.S. 178, 182 (1962); Eminence Capital, LLC v. 28 Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (listing the Foman factors as those to 4 1 be considered when deciding whether to grant leave to amend). Not all of these factors 2 merit equal weight. Rather, “the consideration of prejudice to the opposing party . . . 3 carries the greatest weight.” Id. (citing DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 4 185 (9th Cir. 1987)). Dismissal without leave to amend is proper only if it is clear that 5 “the complaint could not be saved by any amendment.” Intri-Plex Techs. v. Crest Grp., 6 Inc., 499 F.3d 1048, 1056 (9th Cir. 2007) (citing In re Daou Sys., Inc., 411 F.3d 1006, 7 1013 (9th Cir. 2005); Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 8 1989) (“Leave need not be granted where the amendment of the complaint . . . 9 constitutes an exercise in futility . . . .”)). 10 11 ANALYSIS 12 13 As an initial matter, PNC contends that “when a plaintiff asserts a cause of action 14 for breach of a written contract, she must attach a copy of the contract to the complaint 15 or set forth the allegedly breached terms verbatim.” Id. at 5. In support of this claim, 16 PNC cites only California law. See, e.g., Otworth v. S. Pac. Transp. Co., 166 Cal. App. 17 3d 452, 459 (1985) (“If the action is based on an alleged breach of a written contract, the 18 terms must be set out verbatim in the body of the complaint or a copy of the written 19 instrument must be attached and incorporated by reference.”). However, in this Court, 20 pleadings are governed by Federal Rule of Civil Procedure 8. “Federal law does not 21 require [a p]laintiff to recite the contract terms verbatim or to attach a copy of the contract 22 to the complaint.” Securimetrics, Inc. v. Hartford Cas. Ins. Co., No. C 0500917CW, 23 2005 WL 1712008, at *2 (N.D. Cal. July 21, 2005). Instead, a plaintiff may plead a 24 contract’s “legal effect.” Id.3 “To plead a contract’s legal effect, a plaintiff must ‘allege 25 26 27 28 3 The Court notes that the conclusion in Securimetrics relied on Rule 84 and the Federal Rules of Civil Procedure’s appendix of forms, which were abrogated in the Rules’ 2015 Amendment. Lyda v. CBS Corp., 838 F.3d 1331, 1337 n.2 (Fed. Cir. 2016). However, that abrogation “d[id] not alter existing pleading standards or otherwise change the requirements of Civil Rule 8.” Fed R. Civ. P. 84 advisory committee’s note to 2015 amendment. Thus, the Rules continue to allow plaintiffs to plead breach of contract claims by pleading the legal effect of the contract at issue. 5 1 the substance of its terms,’ which is more difficult than pleading the contract’s precise 2 language because it ‘requires a careful analysis of the instrument, comprehensiveness 3 in statement, and avoidance of legal conclusions.’” Ramirez v. GMAC Mortg., No. CV 4 09-8189 PSG (FFMx), 2010 WL 148167, at *2 (C.D. Cal. Jan. 12, 2010) (quoting Parrish 5 v. NFL Players Ass’n, 534 F. Supp. 2d 1081, 1094 (N.D. Cal. 2007)). 6 Regardless of the method a plaintiff takes in pleading a breach of contract claim, 7 he or she must allege “(1) the existence of a contract; (2) the party’s performance under 8 that contract or an excuse for nonperformance; (3) the defendant's breach; and 9 (4) resulting damages.” Gerritsen v. Warner Bros. Entm’t Inc., 112 F. Supp. 3d 1011, 10 1035 (C.D. Cal. 2015). Plaintiff’s breach of contract claim alleges that PNC “[i]ssued the 11 1099-C to Plaintiff as a result of two separate settlement agreements it entered into with 12 federal government agencies.” FAC, ¶ 56. Plaintiff alleges that she was a third-party 13 beneficiary to these two settlement agreements, and that PNC violated those 14 settlements by selling the SDOT to Vida. Id. ¶ 57. PNC contends, however, that 15 Plaintiff’s breach of contract claim is inadequately pleaded because it “fails to allege the 16 existence of a contract or its specific terms . . . sufficiently to identify the alleged contract, 17 its terms or any alleged breach of such a contract.” Mot. to Dismiss, at 4. Furthermore, 18 PNC argues that the FAC only “vaguely refers to the two separate purported contracts in 19 a very confusing way” such that it is unclear what the relevant terms are of each contract 20 and how PNC allegedly breached them both. Id. 21 Plaintiff’s breach of contract claim is deficient under Rule 8, failing to give PNC 22 sufficient notice of the claims against it. The FAC alleges that PNC entered into “two 23 distinct settlement agreements” with “the U.S. Justice Department and the Consumer 24 Financial Protection Bureau, and the Federal Reserve and the Office of the Comptroller 25 of the Currency,” FAC, ¶¶ 56–57, but then fails to distinguish which allegations apply to 26 each agreement. For example, the FAC fails to specify which agencies were parties to 27 which agreement. Were all four government agencies party to both, or did different 28 agencies enter into the different agreements? 6 1 Though PNC has been able to identify a settlement agreement that largely 2 matches the gist of Plaintiff’s breach of contract claims, see Req. for Judicial Notice, 3 ECF No. 38, Ex. 1, it differs from the allegations in the FAC in several respects. For 4 example, it is dated December 23, 2013, id., while the FAC describes a settlement that 5 the parties entered into sometime in 2011 and revised in 2014, FAC ¶ 58(2). The 6 settlement also names only the Consumer Financial Protection Bureau and the United 7 States as parties, Req. for Judicial Notice, Ex. 1, which is inconsistent with the list of four 8 agencies provided in the FAC. These inconsistences demonstrate the insufficiency of 9 the allegations—does Plaintiff allege that PNC violated this settlement agreement or 10 some other agreement?4 Furthermore, with regard to the alleged second settlement, 11 Plaintiff has plainly admitted that she “does not have access to the agreement and 12 therefore such cannot be attached or referenced with specificity.” Pl.’s Opp’n, ECF 13 No. 39, at 5. Because of this lack of specificity in the FAC, the breach of contract claim 14 fails to put PNC on notice of what is alleged against it, and PNC’s motion is GRANTED. 15 16 CONCLUSION 17 18 For the reasons provided above, PNC’s Motion to Dismiss, ECF No. 36, is 19 GRANTED. Plaintiff’s breach of contract claim is dismissed without prejudice. Plaintiff 20 may, but is not required to, file an amended complaint. If no amended complaint is filed 21 within twenty (20) days of the date this Order is electronically filed, the cause of action 22 dismissed by this Order shall be dismissed with prejudice without further notice to the 23 /// 24 /// 25 /// 26 27 28 4 It appears that the agreement provided by PNC is indeed one of the two settlement agreements Plaintiff contemplated. See Pl.’s Opp’n, ECF No. 39, at 5 (requesting leave to amend the complaint, “should the court require,” to explicitly refer to this agreement). That PNC was able to find the agreement, however, does not remedy the faults in the FAC. 7 1 parties. The Court also cautions that this will be the last opportunity to sufficiently allege 2 the existence of a second settlement agreement. 3 4 IT IS SO ORDERED. Dated: July 6, 2017 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8

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