Hobbs et al v. Wells Fargo Bank, N.A. et al

Filing 20

FINDINGS and RECOMMENDATIONS signed by Magistrate Judge Carolyn K. Delaney on 12/19/17 RECOMMENDING that Motions to dismiss 6 and 7 be granted and this action be closed. F&R referred to District Judge Kimberly J. Mueller. Objections to F&R due within fourteen days. (Kaminski, H)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 DANIEL L. HOBBS, et al., 12 13 14 15 No. 2:17-cv-01920 KJM CKD PS Plaintiffs, v. FINDINGS AND RECOMMENDATIONS WELLS FARGO BANK, N.A., et al., Defendants. 16 17 On December 13, 2017, the court held a hearing on defendants’ motions to dismiss this 18 action pursuant to Rule 12(b)(6). (ECF Nos. 6 & 7.) David Newman appeared telephonically for 19 defendant Wells Fargo Bank; Kristina Pelletier appeared for defendants BSI Financial Services 20 and Wilmington Savings Fund Society; and the pro se plaintiffs, who filed briefs opposing the 21 motions, did not appear. At the close of the hearing, the court took the matter under submission. 22 As not all parties have consented to magistrate judge jurisdiction, the undersigned issues the 23 following findings and recommendations. 24 I. Removal & Jurisdiction 25 Plaintiffs commenced this action in the Sacramento Superior Court on July 12, 2017. 26 They named four defendants: Wells Fargo Bank; Clear Recon Corp.; BSI Financial Services; and 27 Wilmington Savings Fund Society (DBA Christiana Trust, as Trustee of the Brougham Fund I 28 Trust). Plaintiffs allege violations of the California Homeowner’s Bill of Rights, fraud, slander of 1 1 title, and other claims relating to the foreclosure sale of real property located at 2206 Stockman 2 Circle in Folsom, California. (ECF No. 1 (“Compl.”).) Along with damages, they seek an 3 injunction barring defendants from foreclosing on the property during the pendency of this action. 4 (Id., ¶¶ 48-59.) 5 On September 15, 2017, defendants removed this action to federal court on the basis of 6 diversity, citing (1) plaintiffs’ California citizenship; (2) BSI’s citizenship in Delaware and Texas; 7 (3) Wilmington’s citizenship in Delaware; (4) Wells Fargo’s citizenship in South Dakota; and (5) 8 the fact that, on August 24, 2017, California corporation Clear Recon served and filed a 9 Declaration of Non-Monetary Status (“DNMS”) pursuant to California Civil Code § 29241 in the 10 state court action.1 (ECF No. 1 at 3-4 & Ex. 6.) In it, Clear Recon stated its belief that it has been 11 named in this action “solely in its capacity as Trustee under [a] Deed of Trust, and not arising out 12 of any wrongful acts or omissions on its part in the performance of its duties as trustee” and 13 agreed to be bound by any court order regarding the Deed of Trust. (Id., Ex. 6.) No objection to 14 the DNMS was filed within the statutory 15-day period, and the case was subsequently removed. 15 28 U.S.C. § 1332 authorizes district courts to exercise original jurisdiction in cases in 16 which the amount in controversy exceeds the sum or value of $75,000.00 and the parties are 17 citizens of different states. Diversity jurisdiction requires complete diversity, meaning every 18 plaintiff must be diverse from every defendant. Id. “[A] federal court must disregard nominal or 19 formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy.” 20 Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461 (1980). A nominal defendant is one “who holds 21 the subject matter of the litigation in a subordinate or possessory capacity as to which there is no 22 dispute.” SEC v. Colello, 139 F.3d 674, 676 (9th Cir. 1998) (internal quotation marks omitted). 23 California Civil Code § 2924l permits a trustee to file a DNMS if it is named in a state- 24 court action “solely in its capacity as trustee, and not arising out of any wrongful acts or 25 omissions on its part in the performance of its duties as trustee.” Cal. Civ. Code § 29241(a). If a 26 plaintiff does not object to the trustee’s DNS within fifteen days of service, the trustee becomes a 27 28 1 As to the amount in controversy, defendants cite the home loan for the real property at issue, which was originally for $375,000 and more recently had a higher balance. (ECF No. 1 at 4.) 2 1 nominal party in the action. Id. § 29241(d). If the case is then removed to federal court, the 2 district court may treat the trustee as a nominal party and disregard its citizenship for diversity 3 purposes. Moore v. Wells Fargo Bank, 2016 WL 3091087 (E.D. Cal. June 2, 2016). 4 Here, trustee Clear Recon properly filed a DNMS in state court and, after waiting for any 5 objections, defendants removed the action to federal court. Thus the court should treat DMNS as 6 a nominal party whose California residency does not destroy diversity jurisdiction. 7 II. Procedural History 8 In January 2005, plaintiffs refinanced the real property located at 2206 Stockman Circle in 9 Folsom, California by borrowing $375,000 from defendant Wells Fargo’s predecessor-in-interest, 10 World Savings Bank, FSB. (Compl., ¶ 17, Ex. A.)2 The loan was modified in 2007 and a second 11 time in 2009. (WF RJN, Exs. B & C.) The 2009 modification lowered the balance on the loan by 12 more than $40,000 (10% of the loan balance) and lowered the monthly payment amount. (Id., Ex. 13 C.) 14 Despite these modifications, plaintiffs had difficulty making their loan payments. In 15 February 2016, Clear Recon Corp. (the substitute trustee under the deed of trust3) recorded a 16 Notice of Default (“NOD”). (Compl., ¶ 21; WF RJN Ex. D.) The NOD indicates that payment 17 was more than $12,000 behind as of February 2016. (Id.) It also contains a “Declaration of 18 Compliance” indicating that Wells Fargo attempted to contact plaintiffs before Clear Recon 19 recorded the NOD in order to discuss possible alternatives to foreclosure. (Id.) Plaintiffs allege 20 in the complaint that Wells Fargo did not actually contact them to discuss alternatives before the 21 NOD was recorded. (Compl., ¶¶ 24, 40-41, 45, 70-71.) Since plaintiffs did not cure their default, 22 Clear Recon recorded a Notice of Trustee’s Sale (“NOTS”) in July 2016. (Id., ¶ 23, Ex. D.) The 23 date of the sale was set for August 11, 2016. (Id.) 24 //// 25 2 26 27 28 World Savings Bank, FSB eventually merged into Wells Fargo Bank, N.A. (WF Request for Judicial Notice (“RJN”), Ex. A.) 3 Clear Recon Corp. recorded a “Substitution of Trustee” on February 10, 2016. (Compl., ¶ 19, Ex. B.) 3 1 On August 10, 2016, the day before the scheduled foreclosure sale, plaintiffs filed for 2 Chapter 13 bankruptcy in the Eastern District, Case No. 16-25253. (WF RJN, Ex. E.) As a 3 result, the sale was postponed and, to date, no foreclosure sale has taken place. Plaintiffs did not 4 file their claims against defendants in their bankruptcy schedules. (BSI RJN, Ex. 8.) On March 5 30, 2017, Wells Fargo filed a “Transfer of Claim” notice indicating that (1) ownership of the loan 6 had been transferred to defendant Wilmington Savings Fund, and (2) the servicing of the loan had 7 been transferred to defendant BSI. (WF RJN, Ex. H.) The bankruptcy proceeding ended on June 8 6, 2017. 9 On June 29, 2017, three weeks after the first bankruptcy proceeding ended, plaintiffs filed 10 a second petition for Chapter 13 Bankruptcy in the Eastern District, Case No. 17-24273. (WF 11 RJN, Ex. I.) Again, plaintiffs sought to stay the foreclosure sale of the property at issue. 12 However, plaintiffs again failed to disclose their claims against defendants in their bankruptcy 13 schedules. Plaintiffs commenced this action in the Sacramento Superior Court on July 12, 2017. 14 On August 3, 2017, their second bankruptcy petition was dismissed. 15 III. Legal Standards 16 In order to survive dismissal for failure to state a claim pursuant to Rule 12(b)(6), a 17 complaint must contain more than a “formulaic recitation of the elements of a cause of action”; it 18 must contain factual allegations sufficient to “raise a right to relief above the speculative level.” 19 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). “The pleading must contain something 20 more . . . than . . . a statement of facts that merely creates a suspicion [of] a legally cognizable 21 right of action.” Id., quoting 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 22 235-236 (3d ed. 2004). “[A] complaint must contain sufficient factual matter, accepted as true, to 23 ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 24 (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads 25 factual content that allows the court to draw the reasonable inference that the defendant is liable 26 for the misconduct alleged.” Id. 27 //// 28 //// 4 1 2 IV. Discussion Defendants argue that, because plaintiffs failed to give notice of potential claims against 3 them in their bankruptcy schedules, plaintiffs are judicially estopped from pursuing the instant 4 claims against them. 5 The filing of a bankruptcy petition creates an estate, which includes “‘all legal and 6 equitable interests of the debtor in property at the commencement of the case,’” including any 7 causes of action. Cusano v. Klein, 264 F.3d 936, 945 (9th Cir. 2001) (quoting 11 U.S.C. § 8 541(a)). The estate includes any causes of action that arise in the period between the filing of the 9 petition and the final discharge. See In re Kottmeier, 240 B.R. 440, 442 (M.D. Fla. 1999); see 10 also Vertkin v. Wells Fargo Home Mortgage, 2010 WL 3619798 at *2 (N.D. Cal. 2010) (if asset 11 comes into being after petition filed, effect of failure to file amended schedule listing asset 12 precludes debtor from later claiming it has been abandoned by trustee in favor of debtor). 13 Because the bankruptcy trustee has the exclusive right to sue on behalf of the estate, the debtor 14 loses the capacity to sue in his own name unless the trustee abandons the claim. See Estate of 15 Spirtos v. One San Bernardino County Superior Court Case, 443 F.3d 1172, 1175 (9th Cir. 2006). 16 Although a trustee may abandon “worthless or low-value assets, including legal claims,” there is 17 no abandonment without an affirmative act. See Biesek v. Soo Line Railroad Company, 440 F.3d 18 410, 413 (7th Cir. 2006). Assets that are neither abandoned nor administered remain the property 19 of the estate even after the case is closed. See In re Lopez, 283 B.R. 22, 28 (9th Cir. BAP 2002); 20 see also In re Pace, 146 B.R. 562, 564–66 (9th Cir. BAP 1992), (unscheduled property remains in 21 estate after case is closed). 22 Here, because plaintiffs never scheduled the claims raised in the civil action in their 23 bankruptcy proceedings, the claims remained the property of the estate unless abandoned by the 24 trustee. Moreover, even if the claims had been abandoned, plaintiffs would be judicially estopped 25 from bringing them in this civil action. In a similar case, Curry v. Wells Fargo, No. 2:14-cv- 26 01311 TLN CKD PS (E.D. Cal. Sept. 3, 2014), the court found plaintiff’s claims barred by the 27 doctrine of judicial estoppel where plaintiff “did not list his claims against defendant as assets in 28 his bankruptcy schedules” even though “the facts and circumstances giving rise to all of his 5 1 claims occurred before plaintiff filed his petition for bankruptcy.” In that action, the court 2 granted defendant’s motion to dismiss. 3 Plaintiffs’ opposition does not meaningfully address the argument that their claims are 4 judicially estopped, but largely argues that the complaint met the Rule 8 pleading requirements. 5 Thus, though defendants alternatively argue that plaintiff’s claims are preempted by federal law 6 and that their state law claims are defectively pled, there appears to be no need to reach these 7 issues. Nor does cure by amendment appear viable. 8 Accordingly, IT IS HEREBY RECOMMENDED THAT: 9 1. Defendant Wells Fargo’s motion to dismiss (ECF No. 6) be granted; 10 2. Defendants BSI’s and Wilmington Savings’ motion to dismiss (ECF No. 7) be granted; 11 and 12 3. This action be closed. 13 These findings and recommendations are submitted to the United States District Judge 14 assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(l). Within fourteen days 15 after being served with these findings and recommendations, any party may file written 16 objections with the court and serve a copy on all parties. Such a document should be captioned 17 “Objections to Magistrate Judge’s Findings and Recommendations.” Failure to file objections 18 within the specified time may waive the right to appeal the District Court’s order. Martinez v. 19 Ylst, 951 F.2d 1153 (9th Cir. 1991). 20 Dated: December 19, 2017 _____________________________________ CAROLYN K. DELANEY UNITED STATES MAGISTRATE JUDGE 21 22 23 24 25 26 2 hobbs1920.mtd_fr 27 28 6

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