McMahon v. JPMorgan Chase Bank, N.A. et al

Filing 44

ORDER signed by District Judge John A. Mendez on 04/25/17 ORDERING that SPS's 30 Motion to Dismiss McMahon's first, second, and fourth claims is GRANTED with prejudice and DENIED as to McMahon's fifth through seventh claims. SPS shall file its Answer to the FAC within 20 days. McMahon's counsel is ORDERED to pay monetary sanctions of $250.00 within 7 days for exceeding page limit. (Benson, A)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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GORDON MCMAHON, an
individual;

No.

2:16-cv-1459-JAM-KJN

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Plaintiff,
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v.
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JPMORGAN CHASE BANK, N.A.;
SELECT PORTFOLIO SERVICING,
INC.; and DOES 1 through 10
inclusive,

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ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANT SELECT
PORTFOLIO SERVICING’S MOTION TO
DISMISS

Defendants.

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Plaintiff Gordon McMahon (“McMahon”) sued Defendant Select

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Portfolio Servicing (“SPS”) and other defendants seeking to save

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his home from foreclosure.

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McMahon’s First Amendment Complaint (“FAC”), ECF No. 26, with

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prejudice.

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36. 1

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///

ECF No. 30.

ECF No. 1.

SPS moves to dismiss

McMahon opposes the motion.

ECF No.

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This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was
scheduled for April 4, 2017.
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I.

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FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND

The Court takes the facts alleged by McMahon as true for
purposes of this motion.

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McMahon obtained a mortgage loan in 2005.

FAC ¶ 1.

The

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interest rate and monthly payment increased about two years

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later, and by the end of 2007, McMahon could not make his

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mortgage payments.

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Id.

SPS began servicing McMahon’s loan in June 2013.

FAC ¶ 49.

McMahon submitted his first Request for Mortgage Assistance

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(“RMA”) to SPS two months later.

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a Trial Period Plan (“TPP”), but calculated that plan using an

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incorrect amount for McMahon’s monthly income.

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McMahon informed SPS of this inaccuracy, and SPS revoked the

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TPP.

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inaccurate monthly income.

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of his RMA, but SPS never responded to the appeal.

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FAC ¶ 60.

FAC ¶ 52.

SPS offered McMahon

FAC ¶ 57.

In revoking the TPP, SPS used another
Id.

McMahon appealed SPS’s denial
FAC ¶ 61.

In May 2015, Keep Your Home California approved McMahon for

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up to $100,000 in Principal Reduction Program funds.

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McMahon submitted an RMA notifying SPS of his change in

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circumstances.

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“account would not qualify for another government program such

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as HAMP.”

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Id.

FAC ¶ 84.

SPS denied the RMA, stating that McMahon’s

FAC ¶¶ 86, 89.

McMahon submitted another application in June 2016, which

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SPS did not respond to.

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suit against SPS, seeking a temporary restraining order (“TRO”)

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and preliminary injunction.

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FAC ¶¶ 96-97.

McMahon then filed this

FAC ¶ 98.

The Court granted McMahon’s application for TRO on June 29,
2016, enjoining SPS from foreclosing on McMahon’s property.
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ECF

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No. 7.

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outcome of McMahon’s pending RMA.

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application nine days later.

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denial, and SPS denied the appeal.

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23, 2016 the Court granted McMahon’s motion for preliminary

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injunction.

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On July 11, the Court stayed the case pending the
ECF No. 10.

FAC ¶ 99.

SPS denied the

McMahon appealed SPS’s

FAC ¶¶ 100, 101.

On August

ECF No. 17

McMahon filed another RMA in November 2016.

FAC ¶ 102.

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SPS denied the application and the appeal.

FAC ¶¶ 103, 107.

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McMahon alleges that over the past four years, SPS has failed to

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appropriately consider his loan modification applications and

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otherwise comply with the law.

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FAC ¶ 108.

McMahon brings six causes of action against SPS in his FAC:

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(1) violation of the Homeowners Bill of Rights (“HBOR”) at

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California Civil Code § 2924.12, (2) violation of the Equal

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Credit Opportunity Act (“ECOA”) at 15 U.S.C. § 1691(d)(1),

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(3) violation of the Real Estate Settlement Procedures Act

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(“RESPA”), Regulation X at 12 C.F.R. § 1024.41, (4) violation of

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Regulation X at 12 C.F.R. §§ 1024.35, 1024.36, (5) negligence,

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and (6) violation of California Business and Professions Code

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§ 17200.

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II.

OPINION

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A.

Request for Judicial Notice

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SPS asks the Court to take judicial notice of eight

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documents submitted with its motion to dismiss.

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The first seven documents concern the real property at issue and

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are recorded with the Solano County Recorder’s Office.

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for Judicial Notice (“RJN”) at 2-3.
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ECF No. 31.

Request

The Court may take judicial

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notice of publically recorded documents.

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Chase Bank, N.A., 725 F. Supp. 2d 1087, 1091 (E.D. Cal. 2010).

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The eighth document is McMahon’s First Amended Complaint in the

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case he filed in superior court in December 2014.

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district court may take judicial notice of records in a state

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court case.

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*1 (N.D. Cal. Nov. 13, 2012).

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request for judicial notice in full.

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B.

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RJN at 3.

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Simpson v. Best W. Int'l, Inc., 2012 WL 5499928, at
The Court therefore grants SPS’s

Analysis
1.

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Sullivan v. JP Morgan

First Cause of Action

California Civil Code § 2924.12 permits a borrower to bring

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a lawsuit based upon a violation of the HBOR “[a]fter a

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trustee's deed upon sale has been recorded” if “actual economic

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damages . . . result[ed] from a material violation of

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[s]ection[s] . . . 2923.55, 2923.6 . . . or 2924.17.”

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Code § 2924.12(b).

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alleges SPS has violated §§ 2923.55, 2923.6, and 2924.17.

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a.

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Cal. Civ.

Under his first cause of action, McMahon

California Civil Code § 2923.55

Section 2923.55 states that a servicer may not record a

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notice of default until after the servicer sends the borrower a

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statement notifying the borrower that he may request a copy of

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the promissory note, deed of trust, any assignment, and payment

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history.

Cal. Civ. Code § 2923.55(b)(1)(B).

SPS argues McMahon has not plead a § 2923.55 claim because

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he has not alleged that a material violation occurred.

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4.

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indicating how any alleged violation of § 2923.55 was material.

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Mot. at

McMahon does not point to any allegation in the FAC

Because the need to plead materiality is evident from the
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face of statute, McMahon has already amended his complaint once,

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and McMahon brought similar claims in his state court case, the

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Court finds that granting leave to further amend the complaint

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would be futile.

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(E.D. Cal. May 17, 2010) (“[L]eave to amend may be denied if it

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appears to be futile.”).

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McMahon’s § 2923.55 claim with prejudice.

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Centeno v. Wilson, 2010 WL 1980157, at *1

b.

The Court therefore dismisses

California Civil Code § 2923.6

Section 2923.6(c) states that a servicer cannot record a

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notice of default or a notice of trustee’s sale while a complete

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first lien loan modification is pending.

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§ 2923.6(c).

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denial of a first lien loan modification application, the

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mortgage servicer shall send a written notice to the borrower

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identifying the reasons for the denial, including . . . [i]f the

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denial was based on investor disallowance, the specific reasons

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for the investor disallowance.”

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Cal. Civ. Code

Section 2923.6(f)(2) states that “[f]ollowing the

Cal. Civ. Code § 2923.6(f)(2).

SPS argues it did not violate § 2923.6 because “the

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operative Notice of Trustee’s Sale was recorded on June 6,

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2016,” before McMahon sent in his loan application.

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Mot. at 5.

McMahon does not address SPS’s argument in his opposition

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brief, nor does he indicate in the FAC when the alleged § 2923.6

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violation occurred.

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§ 2923.6 violation occurred in the context of the June 6, 2016

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Notice of Trustee’s Sale or at some other point.

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dismisses McMahon’s § 2923.6(c) claim with prejudice.

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c.

McMahon does not clarify whether any

The Court

California Civil Code § 2924.17

Section 2924.17(a) requires that any document filed in the
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context of a foreclosure proceeding “shall be accurate and

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complete and supported by competent and reliable evidence.”

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Cal. Civ. Code § 2924.17(a).

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§ 2924.17 because it “failed to ensure Plaintiff’s loan is

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subject to the [Pooling and Servicing Agreements (“PSA”)] in

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question, because the PSA lacks Exhibit B, which identifies the

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loans subject into the PSA in question.”

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McMahon alleges SPS violated

FAC at 20.

SPS argues “Plaintiff’s allegations . . . are predicated on
his challenge to ownership of the loan.

However, Section

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2924.17 does not pertain to authority to foreclose, but rather

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to declarations substantiating the default precipitating the

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foreclosure.”

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Mot. at 6.

McMahon does not respond to this argument in his

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opposition.

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inaccurate or incomplete or indicate how any alleged § 2924.17

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violation was material.

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with such vague allegations, and he has not indicated that he

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has any more specific allegations to support this claim.

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Court dismisses McMahon’s § 2924.17 claim with prejudice.

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2.

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McMahon also does not clarify which document was

McMahon cannot go forward on this claim

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Second Cause of Action

McMahon brings his second claim under 15 U.S.C.

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§ 1691(d)(1), which states “[w]ithin thirty days . . . after

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receipt of a completed application for credit, a creditor shall

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notify the applicant of its action on the application.”

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20.

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creditor’s “refusal to extend additional credit under an existing

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credit arrangement where the applicant is delinquent or otherwise

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in default.”

FAC at

However, the ECOA’s notice requirements do not apply to a

Vasquez v. Bank of Am., N.A., 2013 WL 6001924, at
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*12 (N.D. Cal. Nov. 12, 2013) (quoting 15 U.S.C. § 1691(d)(6)).

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Exhibit C to SPS’s RJN shows McMahon defaulted on his mortgage in

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September 2010.

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requirements do not apply here, and the Court dismisses McMahon’s

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second cause of action with prejudice.

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3.

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Exh. C to RJN.

Accordingly, the ECOA notice

Fourth Cause of Action 2

McMahon alleges SPS violated Regulation X of RESPA because

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SPS “failed to evaluate and make a determination on each of

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Plaintiff’s [RMAs] 3 within thirty days and failed to acknowledge

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that Plaintiff’s application was complete or . . . provide an

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incomplete information notice.”

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Regulation X states:

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(i)

FAC § 145.

If a servicer receives a loss mitigation
application [the] servicer shall . . .

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(B) Notify the borrower in writing within 5
days . . . after receiving the loss mitigation
application that the servicer acknowledges
receipt of the loss mitigation application and
that the servicer has determined that the loss
mitigation application is either complete or
incomplete. If a loss mitigation application is
incomplete, the notice shall state the
additional documents and information the
borrower must submit to make the loss
mitigation application complete.

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12 C.F.R. § 1024.41(b)(2)(i).

Regulation X also states that “[a]

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servicer is only required to comply with the requirements of this

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section for a single complete loss mitigation application for a

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borrower's mortgage loan account.”

12 C.F.R. § 1024.41(i).

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McMahon brings his third cause of action against only JPMorgan
Chase—not SPS—and therefore it is not at issue in this Order.
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McMahon alleges he submitted RMAs on January 29, 2014, November
12, 2014, May 29, 2015, June 20, 2016, and November 25, 2016.
FAC § 144.
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SPS argues that the safe harbor provisions of this statute

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are applicable in that McMahon has admitted that the required

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written notifications were given after the January 10, 2014

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effective date of the regulation. In McMahon’s state court

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complaint, attached to SPS’s request for judicial notice as

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Exhibit 8, McMahon states that he sent SPS a loan modification on

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January 29, 2014.

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that “SPS acknowledged Plaintiff’s submission of documents” four

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days later.

Compl. ¶ 58, RJN Exh. 8.

Id. ¶ 59.

McMahon then states

McMahon also states that SPS sent McMahon

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a letter indicating SPS had received his complete application.

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Id. ¶ 60.

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In light of McMahon’s allegations in his state court

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complaint, the Court finds that McMahon is unable to set forth a

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viable claim for a violation of 12 C.F.R. § 1024.41 and dismisses

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this claim with prejudice.

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4.

Fifth Cause of Action

Under his heading for the fifth cause of action, McMahon

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alleges violations of three different provisions of Regulation

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X: 12 C.F.R. § 1024.35(d), (e) and 12 C.F.R. § 1024.36(d).

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a.

Sections 1024.35(d), (e)

Under § 1024.35(d), a servicer who receives a notice of

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error (“NOE”) from a borrower “shall provide to the borrower a

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written response acknowledging receipt of the notice of error.”

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12 C.F.R. § 1024.35(d).

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Section 1024.35(e) states that a “servicer must respond to
a notice of error by either:
(A)

Correcting the error or errors identified by
the borrower and providing the borrower with
a written notification of the correction,
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the effective date of the correction, and
contact information, including a telephone
number, for further assistance; or

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(B)

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Conducting a reasonable investigation and
providing the borrower with a written
notification that includes a statement that
the servicer has determined that no error
occurred, a statement of the reason or
reasons for this determination, a statement
of the borrower's right to request documents
relied upon by the servicer in reaching its
determination, information regarding how the
borrower can request such documents, and
contact information, including a telephone
number, for further assistance.

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12 C.F.R. § 1024.35(e)(1)(i).
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A servicer need not comply with these sections, however, if
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an “asserted error is substantially the same as an error
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previously asserted by the borrower.”

12 C.F.R.

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§ 1024.35(g)(1)(i).

If a servicer determines it does not need

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to comply with paragraphs (d) or (e) because the asserted error
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is duplicative of a previously asserted error, “the servicer
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shall notify the borrower of its determination in writing.”

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C.F.R. § 1024.35(g)(2).
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McMahon alleges he sent “an NOE and/or RFI” on May 26,
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2014, December 5, 2015, December 29, 2016, and January 20, 2017.
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FAC ¶ 153.

SPS contends it responded to McMahon’s December 5,

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2015 NOE.

Mot. at 8.

SPS argues after it responded to

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McMahon’s December 5 NOE, it did not need to respond to the
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subsequent NOEs because the assertions of error were duplicative
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of the December 5 NOE.

Mot. at 8-9.

McMahon responds that even

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if SPS found the asserted errors duplicative, SPS had to notify
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McMahon of its decision, which McMahon alleges SPS did not do.
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SPS’s argument ignores the plain text of the regulation,
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which states that a servicer has to notify a borrower in writing

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if the servicer determines an NOE is duplicative.

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§ 1024.35(g)(2).

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not respond to his subsequent NOEs, even to tell him they were

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duplicative, and therefore SPS violated § 1024.35(g)(2).

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According to McMahon’s allegations, SPS did

The Court denies SPS’s motion to dismiss McMahon’s claim
based on 12 C.F.R. §§ 1024.35(d), (e).

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12 C.F.R.

b.

Section 1024.36(d)

Under § 1024.36(d), “a servicer must respond to an
information request by either:
(i)
Providing the borrower with the requested
information and contact information, including
a telephone number, for further assistance in
writing; or
(ii)

Conducting a reasonable search for the
requested information and providing the
borrower with a written notification that
states that the servicer has determined that
the requested information is not available to
the servicer, provides the basis for the
servicer's determination, and provides contact
information, including a telephone number, for
further assistance.

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12 C.F.R. § 1024.36(d)(1).
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A servicer need not comply with this section if the
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information requested “is substantially the same as
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information previously requested by the borrower.”

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C.F.R. § 1024.36(f)(1)(i).

But a servicer still has to

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notify the borrower of its determination that it is not
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required to comply with § 1024.36(d).

12 C.F.R.

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§ 1024.36(f)(2).

McMahon alleges that SPS did not send the

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requested information or notify McMahon that SPS did not
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need to send him the information.
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FAC ¶ 155.

SPS does not

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dispute this allegation.
The Court denies SPS’s motion to dismiss McMahon’s
§ 1024.36(d) claim.

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5.

Sixth Cause of Action

McMahon alleges SPS negligently handled his loan

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modification applications.

FAC at 26-27.

SPS argues McMahon

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cannot establish a negligence claim because he cannot show that

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SPS owed McMahon a duty of care.

Mot. at 9-10.

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

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of care to a borrower when the institution's involvement in the

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loan transaction does not exceed the scope of its conventional

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role as a mere lender of money.”

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Loan Assn., 231 Cal. App. 3d 1089, 1096 (1991).

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lender agrees to consider a modification of a borrower's loan .

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. . the lender owes the borrower a duty to exercise reasonable

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care in reviewing a loan modification application.”

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Bank of Am. N.A., 2017 WL 590253, at *4 (E.D. Cal. Feb. 14,

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2017) (citing Alvarez v. BAC Home Loans Servicing, LP, 228 Cal.

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App. 4th 941, 948 (2014)); see also Clinton v. Select Portfolio

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Servicing, Inc., 2016 WL 7034895, at *4 (E.D. Cal. Dec. 2, 2016)

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(holding that SPS as the loan servicer owed a duty of care to

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the borrower in processing his loan modification application).

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Nymark v. Heart Fed. Savings &
But “[o]nce a

Hawkins v.

McMahon alleges SPS invited him to apply for a loan

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modification and SPS at least began considering his application

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several times.

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allegations sufficient to plead SPS owed a duty of care to

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McMahon.

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FAC ¶¶ 51, 77.

The Court finds McMahon’s

SPS also argues that McMahon fails to allege damages
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because he does not allege that he “would have received [a loan

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modification] had the application been ‘properly’ reviewed.”

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Mot. at 11.

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income incorrectly twice and that SPS should have offered him a

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modification based on his correct income.

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McMahon also alleges SPS damaged him by “causing [him] to forego

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other options for addressing the default and/or unaffordable

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mortgage payments, injury to credit reputation, [and] costs and

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expenses incurred to prevent or fight foreclosure.”

But McMahon alleges SPS calculated his monthly

FAC ¶¶ 57-61, 82, 86.

FAC ¶ 165.

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The Court find McMahon has sufficiently alleged duty,

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breach, causation, and damages to state a negligence claim and

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denies SPS’s motion to dismiss this claim.

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6.

Seventh Cause of Action

McMahon alleges SPS violated California Business and

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Professions Code § 17200 et seq.

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cause of action based on [§ 17200], a plaintiff must allege

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facts sufficient to show a violation of some underlying law.”

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Dougherty v. Bank of Am., N.A., 177 F. Supp. 3d 1230, 1251 (E.D.

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Cal. 2016) (citing People v. McKale, 25 Cal.3d 626, 635 (1979)).

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FAC at 27-28.

“To state a

SPS argues McMahon’s § 17200 claim fails because McMahon

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has not alleged injury-in-fact and because it relies “on his

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remaining causes of action, all of which fail.”

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SPS’s arguments lack merit.

Mot. at 12.

As discussed above, McMahon has

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properly alleged injury.

See Doughherty, 177 F. Supp. 3d at 1260

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(finding damage to credit sufficient to allege injury under

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§ 17200).

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and he can predicate his § 17200 claim on those remaining claims.

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The Court denies SPS’s motion to dismiss McMahon’s § 17200 claim.

Additionally, McMahon’s fifth and sixth claims remain,

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III.

ORDER

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For the reasons set forth above, the Court GRANTS SPS’s

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motion to dismiss McMahon’s first, second, and fourth claims with

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prejudice and DENIES SPS’s motion to dismiss McMahon’s fifth

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through seventh claims. SPS shall file its Answer to the FAC

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within twenty days of the date of this Order.

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Additionally, the Court’s Order re Filing Requirements
(“Order”), ECF No. 5-2, limits memoranda in support of and

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opposition to motions to dismiss to fifteen pages.

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A violation of the Order requires the offending counsel (not the

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client) to pay $50.00 per page over the page limit to the Clerk

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of Court.

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the page limit.

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page limit by 5 pages.

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monetary sanctions in the amount of $250.00 no later than seven

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days from the date of this Order.

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Id.

Order at 1.

The Court does not consider arguments made past
Id.

McMahon’s opposition brief exceeded the
McMahon’s counsel must therefore pay

IT IS SO ORDERED.
Dated: April 25, 2017

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