Reed et al v. Wells Fargo Bank et al

Filing 45

ORDER GRANTING 34 AND 42 Motion to Dismiss and Joinder; terminating as moot 44 MOTION to Appear by Telephone. Signed by Judge Jeffrey S. White on October 11, 2011. (jswlc3, COURT STAFF) (Filed on 10/11/2011)

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1 2 3 4 5 NOT FOR PUBLICATION 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 BENJAMIN F. REED, SR., ET AL, Plaintiffs, 11 For the Northern District of California United States District Court 10 12 No. C 11-00194 JSW v. WELLS FARGO BANK, ET AL, 13 ORDER GRANTING MOTION TO DISMISS Defendants. / 14 15 Now before the Court is the motion to dismiss filed by defendant Wells Fargo Bank, 16 N.A (“Wells Fargo”), as the successor in interest to Wachovia Mortgage FSB. The Court has 17 considered the parties’ papers, relevant legal authority, and it finds the matter suitable for 18 disposition without oral argument. See N.D. Civ. L.R. 7-1(b). The hearing set for October 14, 19 2011 is VACATED, and the Court GRANTS Wells Fargo’s motion to dismiss.1 BACKGROUND 20 21 In their first amended complaint (“FAC”), Plaintiffs Benjamin F. Reed, Sr. and Irma M. 22 Reed (collectively, “Plaintiffs”) seek to enjoin foreclosure and challenge the mortgage servicing 23 practices of Wells Fargo. Plaintiffs allege the following claims against Wells Fargo arising 24 from two loans made to Plaintiffs by Wachovia Mortgage to refinance two properties in San 25 Francisco: (1) financial elder abuse; (2) violation of California’s Unfair Competition Law, 26 California Business and Professions Code §§ 17200, et seq. (“UCL”); and (3) breach of 27 contract. The loan made on Plaintiffs’ principal residence at 2 Warren Drive (the “Home”) is 28 The Court GRANTS Wells Fargo’s Request for Judicial Notice (“RJN”). See Fed. R. Evid. 201. 1 1 evidenced by the “Adjustable Rate Mortgage Note Pick-A-Payment Loan” for loan number 2 0047923503 dated January 17, 2008 in the original principal amount of $754,800.00. (FAC, 3 Ex. A.) The loan made on Plaintiffs’ rental property at 1534 44th Avenue (the “Rental 4 Property”) is evidenced by the “Adjustable Rate Mortgage 8Note Pick-A-Payment Loan” for 5 loan number 0048186258 dated February 12, 2008 in the original principal amount of 6 $425,000.00. (Id., Ex. B.) 7 At the time Plaintiffs entered into the loans, Plaintiff Benjamin F. Reed was almost 80 8 years old, and Plaintiff Irma M. Reed was 78 years old. (FAC., ¶ 6.) Plaintiffs allege that they 9 believed they had applied for fixed rate mortgage loans to refinance their properties, and instead were steered by individual loan officers and representatives of Wells Fargo’s predecessors in 11 For the Northern District of California United States District Court 10 interest, their agents and representatives, into these “Pick-A-Payment” Loans, which included 12 provisions for highly volatile adjustable interest rates and negative loan amortizations, which 13 resulted in the principal balances exceeding the original principal amounts of the Loans, and 14 monthly payments that more than doubled. (Id.) Plaintiffs allege that: 15 This steering by individual loan officers and representatives of Wachovia occurred in the period of time between when Plaintiffs first inquired about obtaining refinance loans for the properties, and to and through the loan closing. Plaintiffs met numerous times with such loan officers and representatives during this time period, and were consistently given assurances by such defendant officers and representatives about the proposed loan terms which were false, untrue, and with the intent to deceive Plaintiffs, and which resulted in damage to Plaintiffs, all as further alleged in this Complaint. 16 17 18 19 (Id.) 20 Plaintiffs allege that “Pick-A-Payment” Loans have been the subject of an ongoing 21 investigation by the California Department of Justice to determine if they violated California 22 law, including Section 17200 and 17500 of the California Business and Professions Code. (Id., 23 ¶ 6 and Ex. C.) 24 Plaintiffs allege that loan officers and representatives of Wachovia Bank knew that the 25 loans contained terms which were fundamentally unfair, unconscionable, and illegal, including 26 allowing the interest rate to change just after two months and negative principal amortization. 27 (Id., ¶ 9.) “Despite this knowledge, Wachovia’s loan officers and representatives made explicit 28 and untrue oral statements to Plaintiffs that such loans were well suited to Plaintiffs’ needs and 2 1 desires, that the Plaintiffs would enjoy the benefit of low monthly payments and low interest 2 rates, for the entire life of the loans.” (Id.) 3 Plaintiffs further contend that Wells Fargo’s predecessors in interest wrongfully 4 marketed these loans to Plaintiffs, despite the fact that they knew Plaintiffs were of advanced 5 age and were on a limited fixed income. (Id., ¶ 10.) Plaintiffs allege that Wells Fargo’s 6 predecessors in interest “falsely marketed these Loans to Plaintiffs with no regard for the 7 inaccuracy of their statements about the loan terms, and falsely misrepresented the benefit of 8 these loans to Plaintiffs.” (Id.) They assured Plaintiffs that these loans were appropriate for 9 them and gave them false assurances that these loans would enable Plaintiffs to maintain a very low interest rate. (Id., ¶ 11.) Plaintiffs did not know “until the time for signing the loan 11 For the Northern District of California United States District Court 10 documents” that they were not for long term low fixed rate loans. (Id.) 12 Plaintiffs defaulted on these loans. After defaulting, Plaintiffs tried to have Wells Fargo 13 modify their loans. Wells Fargo told Plaintiffs that they would be favorably considered for loan 14 modifications if they produced extensive documentation. (Id., ¶ 14.) Wells Fargo repeatedly 15 lost or misplaced Plaintiffs’ documents and wrongfully denied Plaintiffs requests for loan 16 modifications. (Id.) Plaintiffs allege that “[t]his entire series of activities by defendant Wells 17 Fargo established an oral agreement, a contract, with Plaintiffs to fairly consider loan 18 modifications for the Loans pursuant to defined standards Wells Fargo had established through 19 its regulatory overseers.” (Id.) Plaintiffs contend that Wells Fargo’s failure to “fairly review 20 and ... approve loan modifications for Plaintiffs’ Loans” was a breach of the covenant of good 21 faith and fair dealing and was in “violation of the standards applicable to consideration of loan 22 modifications by Wells Fargo as a lender whose loan modification programs are described 23 under applicable federal and state law (including, without limitation, the California Foreclosure 24 Prevention Act, the Rosenthal Fair Debt Collection Practices Act, and the Federal Making 25 Home Affordable Program).” (Id.) 26 Finally, Plaintiffs allege that Wells Fargo and the Trustee claimed amounts in the notice 27 of default which are not recoverable under the terms of the deeds of trust and promissory notes 28 entered into by Plaintiffs. (Id., ¶ 15.) 3 1 2 3 ANALYSIS A. Applicable Legal Standards for Motion to Dismiss. A motion to dismiss is proper under Federal Rule of Civil Procedure 12(b)(6) where the 4 pleadings fail to state a claim upon which relief can be granted. The complaint is construed in 5 the light most favorable to the non-moving party and all material allegations in the complaint 6 are taken to be true. Sanders v. Kennedy, 794 F.2d 478, 481 (9th Cir. 1986). The Court may 7 consider the facts alleged in the complaint, documents attached to the complaint, documents 8 relied upon but not attached to the complaint, when the authenticity of those documents is not 9 questioned, and other matters of which the Court can take judicial notice. Zucco Partners LLC v. Digimarc Corp., 552 F.3d 981, 990 (9th Cir. 2009). 11 For the Northern District of California United States District Court 10 Federal Rule of Civil Procedure 8(a) requires only “a short and plain statement of the 12 claim showing that the pleader is entitled to relief.” Even under Rule 8(a)’s liberal pleading 13 standard, “a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ 14 requires more than labels and conclusions, and a formulaic recitation of the elements of a cause 15 of action will not do.” Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 555 (2007) (citing 16 Papasan v. Allain, 478 U.S. 265, 286 (1986)). Pursuant to Twombly, a plaintiff must not merely 17 allege conduct that is conceivable but must instead allege “enough facts to state a claim to relief 18 that is plausible on its face.” Id. at 570. “A claim has facial plausibility when the plaintiff 19 pleads factual content that allows the court to draw the reasonable inference that the defendant 20 is liable for the misconduct alleged.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing 21 Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a probability requirement, 22 but it asks for more than a sheer possibility that a defendant has acted unlawfully. ... When a 23 complaint pleads facts that are merely consistent with a defendant’s liability, it stops short of 24 the line between possibility and plausibility of entitlement to relief.” Id. (quoting Twombly, 550 25 U.S. at 556-57) (internal quotation marks omitted). 26 Where a plaintiff alleges fraud, however, Federal Rule of Civil Procedure 9(b) (“Rule 27 9(b)”) requires the plaintiff to state with particularity the circumstances constituting fraud, 28 including the “who, what, when, where, and how” of the charged misconduct. See Vess v. Ciba 4 1 Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003); In re GlenFed, Inc. Sec. Litig., 42 F.3d 2 1541, 1547-49 (9th Cir. 1994). However, Rule 9(b) particularity requirements must be read in 3 harmony with Federal Rule of Civil Procedure 8’s requirement of a “short and plain” statement 4 of the claim. Thus, the particularity requirement is satisfied if the complaint “identifies the 5 circumstances constituting fraud so that a defendant can prepare an adequate answer from the 6 allegations.” Moore v. Kayport Package Exp., Inc., 885 F.2d 531, 540 (9th Cir. 1989); see also 7 Vess, 317 F.3d at 1106 (“Rule 9(b) demands that, when averments of fraud are made, the 8 circumstances constituting the alleged fraud be specific enough to give defendants notice of the 9 particular misconduct ... so that they can defend against the charge and not just deny that they have done anything wrong.”) (internal quotation marks and citations omitted). 11 For the Northern District of California United States District Court 10 B. 12 13 Wells Fargo’s Motion to Dismiss. 1. Plaintiffs’ Claims Premised on Misrepresentations. “Averments of fraud must be accompanied by ‘the who, what, when, where, and how’ 14 of the misconduct charged.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 15 2003) (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). In giving leave to amend, 16 the Court admonished Plaintiffs that they should take care to plead any claims premised on 17 alleged misrepresentations to plead such claims with sufficient particularity in accordance with 18 Federal Rule of Civil Procedure 9(b). When a party pleads fraud against a corporation, as 19 Plaintiffs do here, the party must allege “the names of the persons who made the allegedly 20 fraudulent representations, their authority to speak, to whom they spoke, what they said or 21 wrote, and when it was said or written.” Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. 22 App. 4th 153, 157 (1991); see also Dubin v. BAC Home Loans Servicing, 2011 WL 794995, *5- 23 6 (N.D. Cal. Mar.1, 2011). 24 Upon review of Plaintiffs’ FAC, the Court finds that Plaintiffs fail to allege any 25 misrepresentations with sufficient particularity. Plaintiffs fail to identify who made any alleged 26 misrepresentations or such individuals’ authority to speak. Instead, they generally allege that 27 statements were made by “individual loan officers and representatives,” without identifying any 28 individual by name, or by providing sufficient information which would enable Wells Fargo to 5 1 identify the individual or individuals. Moreover, Plaintiffs fail to describe when such alleged 2 misrepresentations occurred. Despite the fact that they signed two loans at issue in their FAC, 3 approximately a month apart, Plaintiffs allege that the alleged misrepresentations were made “in 4 the period of time between when Plaintiffs first inquired about obtaining refinance loans for the 5 properties, and to and through the loan closing” without specifying as to which loan they were 6 referring. Additionally, Plaintiffs fail to identify what were the false statements that were 7 allegedly made. It is not clear whether Plaintiffs allege that an individual told them that the 8 loans provided a specific rate, for example five percent for fixed term of thirty or fifteen years 9 or whether they allege that there were told, generally, that they would enjoy low payments and that the loans were well suited for their needs. If Plaintiffs elect to amend, they should take care 11 For the Northern District of California United States District Court 10 to clearly state what false statements made were, by whom they were made (or provide 12 sufficient identifying information about such individuals), about which loans they were made, 13 and when they were made. 14 Wells Fargo also argues that Plaintiffs have not and cannot allege reasonable reliance on 15 any alleged misrepresentations because the notes clearly and expressly specified the terms of 16 the loans, including that they provided variable rates. Plaintiffs do not respond to this 17 argument. If Plaintiffs elect to amend their claims, they should take care to plead facts which, if 18 true, could lead a reasonable trier of fact to conclude that their reliance on any alleged 19 misrepresentations regarding the loan terms was reasonable in light of the fact that the loan 20 documents stated the actual loan terms. 21 In addition, the Court notes that Plaintiffs allege that they did not know that the loans 22 did not provide long term low fixed rates “until the time for signing the loan documents” (FAC, 23 ¶ 11), which implies that Plaintiffs knew that the rates in the loans were variable before, albeit it 24 just before, they signed the loan documents. Moreover, because Plaintiffs’ loan for their rental 25 property closed almost a month after the loan for their home property, they had the documents 26 which provided the actual terms for one loan before they signed the second loan. If Plaintiffs 27 amend, they should take care to allege facts explaining when they discovered the actual terms 28 on the loan for their home property and the loan for their rental property. If Plaintiffs knew that 6 1 the loans did not provide long term low fixed rates before they signed either loan, Plaintiffs 2 should take care to plead facts which, if true, show that their reliance on any misrepresentations 3 was reasonable. Therefore, the Court grants Wells Fargo’s motion to dismiss Plaintiffs’ elder 4 abuse claim and UCL claim to the extent they are premised on alleged misrepresentations. 5 2. 6 Plaintiffs clarified in their FAC that they allege that Wells Fargo included charges in the Claims Premised on Improper Charges in Foreclosure Notices. 7 notice of default and the notice of sale which were not authorized by the terms of the deeds of 8 trust and the promissory notes entered into by Plaintiffs. (FAC, ¶ 15.) However, Plaintiffs do 9 not allege that they paid these allegedly unauthorized fees or otherwise allege facts to show how they were damages by these notices. Without such facts, Plaintiffs fail to allege that they 11 For the Northern District of California United States District Court 10 suffered any loss of property or were otherwise damaged and, therefore, fail to allege any 12 claims premised on such notices. Therefore, the Court grants Wells Fargo’s motion to dismiss 13 Plaintiffs’ claims to the extent they are premised on alleged misrepresentations. 14 3. 15 Plaintiffs also allege they had an oral contract with Wells Fargo in which Wells Fargo 16 agreed to “fairly consider” loan modifications “pursuant to defined standards Wells Fargo had 17 established through its regulatory overseers.” (FAC, ¶ 14.) Plaintiffs allege that Wells Fargo 18 breached of the covenant of good faith and fair dealing by not considering the requested loan 19 modifications in accordance with the standards “under applicable federal and state law 20 (including, without limitation, the California Foreclosure Prevention Act, the Rosenthal Fair 21 Debt Collection Practices Act, and the Federal Making Home Affordable Program).” (FAC, ¶ 22 36.) 23 Plaintiffs Breach of Contract and Breach of Implied Covenant Claims. “Formation of a contract requires parties capable of consent, the consent of those parties, 24 a lawful object, and sufficient consideration.” ASP Properties Group v. Fard, Inc., 133 Cal. 25 App. 4th 1257, 1268-69 (2005) (citing Cal. Civ. Code § 1550). Under California law, “good 26 consideration” is defined as follows: 27 28 Any benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the 7 1 time of consent lawfully bound to suffer, as an inducement to the promisor, is a good consideration for a promise. 2 Cal. Civ. Code § 1605. “Thus, there are two requirements [under California law] in order to 3 find consideration.” Steiner v. Thexton, 48 Cal. 4th 411, 420 (2010) (citing Cal. Civ. Code § 4 1605). First, “[t]he promisee must confer (or agree to confer) a benefit or must suffer (or agree 5 to suffer) prejudice.... [E]ither alone is sufficient to constitute consideration.” Id. Nonetheless, 6 “[i]t is not enough ... to confer a benefit or suffer prejudice for there to be consideration .... 7 [T]he second requirement is that the benefit or prejudice must actually be bargained for as the 8 exchange for the promise. Put another way, the benefit or prejudice must have induced the 9 promisor’s promise.” Id.; see also Simmons v. Cal. Inst. of Tech., 34 Cal. 2d 264, 272 (1949) 10 in exchange for the promise.”). The adequacy of consideration is tested at the time of the For the Northern District of California United States District Court (“[T]he consideration for a promise must be an act or a return promise, bargained for and given 11 12 making of the contract, and courts do not weigh the quantum of the consideration as long as it 13 has some value. A.J. Industries, Inc. v. Ver Halen, 75 Cal. App. 3d 751, 761 (1977) (citations 14 omitted). 15 Here, Plaintiffs argue that Wells Fargo’s requirement that Plaintiffs submit extensive 16 and detailed personal financial information constituted consideration because Wells Fargo was 17 required by “applicable federal law” to process and consider loan modifications on defaulted 18 mortgage loans and it could not do so without Plaintiffs cooperation in providing this 19 information. (Opp. at 6.) Plaintiffs do not specify what federal law required Wells Fargo to 20 consider Plaintiffs’ loan modification. Moreover, Plaintiffs fail to explain how their submission 21 of personal financial information could have induced Wells Fargo to agree to fairly consider a 22 loan modification. Presumably, Plaintiffs would have provided their financial information after 23 an agreement, to the extent there was one, to fairly consider a loan modification was created. It 24 would make no sense for Plaintiffs to provide financial information in order to induce Wells 25 Fargo to agree to fairly consider a loan modification. 26 Moreover, Plaintiffs fail to allege that they incurred any damages from this alleged 27 agreement to “fairly consider” a loan modification. Notably, Plaintiffs’ alleged agreement is 28 one to merely consider providing a loan modification, not an agreement to actually modify their 8 1 loans. Therefore, it is not clear what damages Plaintiffs could allege. The Court, thus, grants 2 Wells Fargo’s motion to dismiss Plaintiffs’ breach of contract claim. Nevertheless, the Court 3 will provide Plaintiffs with one more opportunity to plead a breach of contract claim. 4 If Plaintiffs elect to amend their claim for breach of contract, the Court notes that 5 Plaintiffs’ alleged breach of contract claim appears to fail for another, independent reason. In 6 order to state a claim for breach of contract, a party must allege terms that are “sufficiently 7 definite (and this is a question of law) for the court to ascertain the parties’ obligations and to 8 determine whether those obligations have been performed or breached.” Bustamante v. Intuit, 9 Inc., 141 Cal. App. 4th 199, 209 (2006) (quoting Ersa Grae Corp. v. Fluor Corp., 1 Cal. App. 4th 613, 623 (1991)). The alleged promises in the contract “must be definite enough that a 11 For the Northern District of California United States District Court 10 court can determine the scope of the duty[,] and the limits of performance must be sufficiently 12 defined to provide a rational basis for the assessment of damages. ... Where a contract is so 13 uncertain and indefinite that the intention of the parties in material particulars cannot be 14 ascertained, the contract is void and unenforceable.” Id. (internal citations omitted). As the 15 court explained in Bustamente, if “a supposed ‘contract’ does not provide a basis for 16 determining what obligations the parties have agreed to, and hence does not make possible a 17 determination of whether those agreed obligations have been breached, there is no contract.” 18 Id. at 209-210 (finding terms “take all steps necessary” and “adequate funding” were fatally 19 uncertain) (emphasis added). 20 Notably, Plaintiffs do not allege that Wells Fargo was required to provide them with a 21 loan modification, but only that Wells Fargo entered into an oral contract to “fairly consider” a 22 loan modification. The term “fairly” appears to be uncertain because the Court would not be 23 able to ascertain whether Wells Fargo complied with this term. The Court also notes that 24 Plaintiffs’ allegation that Wells Fargo had an obligation to consider a loan modification 25 “pursuant to defined standards Wells Fargo had established through its regulatory overseers” is 26 uncertain. Plaintiffs do not set forth the terms of these regulations or “defined standards.” It is 27 not clear how these unspecified statutes or regulations provided any boundaries to the parties’ 28 alleged oral contract. 9 1 2 CONCLUSION For the foregoing reasons, the Court GRANTS Wells Fargo’s motion to dismiss. The 3 Court is providing Plaintiffs with one more opportunity to plead claims against Wells Fargo and 4 to cure the defects identified in this Order. Plaintiffs shall file their amended complaint, if any, 5 within twenty days of the date of this Order. If Plaintiffs file an amended complaint in 6 accordance with this Order, Wells Fargo shall either file an answer or move to dismiss within 7 twenty days of service of the amended complaint. If Plaintiffs do not amend their complaint, 8 this action will be dismissed with prejudice. 9 IT IS SO ORDERED. 11 For the Northern District of California United States District Court 10 Dated: October 11, 2011 JEFFREY S. WHITE UNITED STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10

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