Shaterian v. Wells Fargo Bank National Association et al

Filing 76

ORDER by Judge Samuel Conti granting in part and denying in part 60 Motion to Dismiss; denying 61 Motion to Strike (sclc1, COURT STAFF) (Filed on 11/7/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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NADER SHATERIAN,
Plaintiff,
v.

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For the Northern District of California

United States District Court

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WELLS FARGO BANK, N.A., et al.,

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Defendants.

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Case No. 11-00920 SC
ORDER GRANTING IN PART AND
DENYING IN PART WELLS
FARGO'S MOTION TO DISMISS
AND DENYING WELLS FARGO'S
MOTION TO STRIKE

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I.

INTRODUCTION

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Defendant Wells Fargo Bank, N.A. ("Wells Fargo") moves to

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dismiss and strike Plaintiff Nader Shaterian's ("Shaterian") Second

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Amended Complaint ("SAC").

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Fargo's motions are fully briefed, though Wells Fargo has not filed

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a reply brief in support of its Motion to Strike.

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("MTS Opp'n"), 73 ("MTD Opp'n"), 74 ("MTD Reply").

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set forth below, the Court GRANTS in part and DENIES in part Wells

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Fargo's Motion to Dismiss and DENIES Wells Fargo's Motion to

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Strike.

ECF Nos. 60 ("MTD"); 61 ("MTS").

Wells

ECF Nos. 72
For the reasons

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II.

BACKGROUND
As it must on a Rule 12(b)(6) motion to dismiss, the Court

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takes all well-pleaded facts in the SAC as true.

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Shaterian purchased a home located at 511 Browning Court, Mill

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Valley, California.

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Shaterian sought refinancing of his home "to take advantage of

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lowering interest rates and to be able to withdraw a portion of the

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equity in his home to be able to finish needed improvements to his

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home."

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to build two retaining walls to prevent his home from sliding down

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the hill on which it was built.

United States District Court

In August 2007,

Shaterian alleges that he spent roughly $300,000

Id.

Shaterian alleges that, in August 2007, Diablo Funding Group,

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For the Northern District of California

Id. ¶ 10.

ECF No. 56 ("SAC") ¶ 9.

In 2003,

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Inc. ("Diablo")1 and World Savings Bank ("WSB") qualified him for a

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new mortgage loan for the property.

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savings bank regulated by the Office of Thrift Supervision ("OTS").

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RJN2 Exs. A ("WSB Certificate of Corp. Existence"), C ("Wachovia

Id. ¶ 12.

WSB was a federal

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Diablo is not clearly identified in Shaterian's Complaint or the
papers filed before the Court. Shaterian alleges that Diablo is a
California corporation, SAC ¶ 7, and the facts pled suggest Diablo
was a mortgage broker.
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Wells Fargo asks the Court to take judicial notice of a number of
documents. ECF No. 62 ("RJN"). Exhibits A-E are government
documents Wells Fargo relies on to establish that Wells Fargo is
the successor in interest to WSB. Exhibit F is the Deed of Trust.
Exhibit G is the Adjustable Rate Mortgage Note dated August 27,
2007 and signed by Plaintiff. Exhibit H is the Notice of Default
and Election to Sell Under Deed of Trust ("Notice of Default")
dated October 6, 2010 and recorded on October 7, 2010. Exhibit I
is the declaration of Shaterian in support of an application for
temporary restraining order filed in state court. Under Rule 201
of the Federal Rules of Evidence, a court may take judicial notice
of facts generally known within the territorial jurisdiction of the
trial court or capable of accurate and ready determination by
resort to sources whose accuracy cannot reasonably be questioned.
A court may also take judicial notice of a document if the
plaintiff's claim depends on the contents of the document, and the
parties do not dispute the authenticity of the document. Knievel
v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005). However, the Court
may not take judicial notice of the truth of the facts recited
within a judicially noticed document. Lee v. City of Los Angeles,

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Mortgage FSB Charter").

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("Wachovia"), but remained chartered under the Home Owner's Loan

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Act ("HOLA") and overseen by OTS.

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Ltr."); Wachovia Mortgage FSB Charter.

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Wachovia became a division of Wells Fargo, and consequently, Wells

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Fargo became WSB's successor in interest.

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of the Comptroller of the Currency").

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WSB changed its name to Wachovia Mortgage

RJN Ex. B ("Nov. 19, 2007 OTS
Around November 2009,

RJN Ex. D ("Off. Cert.

The type of loan provided to Shaterian was an Option
Adjustable Rate Mortgage ("Option ARM").

SAC ¶ 14.

Shaterian also

Id. ¶ 15.

Pick-a-

United States District Court

For the Northern District of California

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describes his loan as a "pick-a-payment" loan.

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payment loans "allow the borrower to select and make a minimum

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payment amount for a limited time and subject to certain

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conditions."

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included an Adjustable Rate Mortgage Note ("the Note") and a Truth-

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in-Lending Disclosure Statement ("TILDS").

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2007, Shaterian signed a Deed of Trust, and it was recorded on

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September 13, 2007.

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the Deed of Trust, Shaterian received a $985,000 loan from WSB

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secured by his property.

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Id. ¶ 16.

Loan documents provided to Shaterian

Id.

On August 27,

RJN Ex. F. ("Deed of Trust").

According to

Id.

Shaterian alleges his loan was "intentionally designed to

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result in negative amortization and obligations to pay compound

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interest."

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terms at the time he agreed to the loan due to "fraudulent non-

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disclosure" of its terms and because the closing documents were

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"executed in blank."

Id. ¶¶ 15, 19.

He claims he was unaware of the loan's

Id. ¶ 15.

He also claims that the

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250 F.3d 668, 688–90 (9th Cir. 2001). The Court GRANTS Wells
Fargo's RJN, but limits its review of the exhibits accordingly.

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disclosures he did receive were misleading.

Id. ¶ 17.

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In April 2010, Shaterian contacted Wachovia (WSB's successor

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in interest) about obtaining a loan modification, but received no

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response.

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Wells Fargo loan adjustment specialist, contacted Shaterian to

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assist him with obtaining a loan modification and Shaterian

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submitted a completed application later that month.

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147.

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application had been rejected but that he could qualify for the

Id. ¶ 143.

In June 2010 John H. Kearny ("Kearny"), a

Id. ¶¶ 144,

In August 2010, Kearny informed Shaterian that his

Id. ¶¶

United States District Court

For the Northern District of California

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loan modification by showing an income of $9,500 per month.

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144, 148-49.

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per month by expanding his business and reapplied for the loan

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modification in both October and November 2010, but he was rejected

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for a second and third time.

Shaterian eventually increased his income to $15,000

Id. ¶¶ 150, 152.

On October 7, 2010, Cal-Western Reconveyance Corporation

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("Cal-Western"), the substituted trustee on Shaterian's Deed of

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Trust, recorded a Notice of Default.

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Default").

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2010, Shaterian had accrued $60,175.64 in arrears.

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January 12, 2011, a Notice of Trustee's sale was recorded, setting

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a sale date of February 1, 2011.

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B.

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court, staying the scheduled foreclosure sale until July 18, 2011.

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ECF No. 55 ("July 7, 2011 Order") at 1.

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foreclosure sale has yet taken place.

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SAC Ex. 4 ("Not. of

The Notice of Default stated that, as of October 6,
Id. at 1.

On

ECF No. 1 ("Not. of Removal") Ex.

Shaterian later filed a Chapter 13 petition in bankruptcy

It is unclear whether the

On January 28, 2011 Shaterian commenced this action in the
Superior Court of California, County of Marin.

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Not. of Removal.

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Three days later, Shaterian filed a First Amended Complaint ("FAC")

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in state court.

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on February 28, 2011, id., and moved to dismiss and strike the FAC

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on March 13, 2011, ECF No. 10.

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preliminary injunction to restrain the trustee's sale of his

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property which the Court ultimately denied.

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After denying the motion for a preliminary injunction and learning

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of Shaterian's bankruptcy petition, the Court granted Shaterian

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thirty days leave to amend his complaint and denied Wells Fargo's

Id.

Defendants removed the case to federal court

Shaterian later moved for a

ECF Nos. 16, 20, 52.

United States District Court

For the Northern District of California

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pending motions to dismiss and strike as moot.

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at 2.

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Court stated that "any claims dismissed on a subsequent motion to

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dismiss will be dismissed without leave to amend," and that the

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Court would only grant additional leave to amend if Shaterian filed

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a motion under Federal Rule of Civil Procedure 15(a)(2)

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establishing that justice so required.

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July 7, 2011 Order

As Shaterian was allowed to file a third complaint, the

Id. at 2-3.

Shaterian filed his SAC on August 5, 2011.

The SAC alleges

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ten claims:

(1) violation of the Truth in Lending Act ("TILA"), 15

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U.S.C. § 1601 et seq.; (2) fraudulent omissions; (3) violation of

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the California Unfair Competition Law ("UCL"), Cal. Bus. & Prof.

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Code § 17200 et seq.; (4) breach of contract; (5) breach of implied

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covenant of good faith and fair dealing; (6) aiding and abetting

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fraud; (7) violation of California Civil Code Section 2923.5; (8)

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breach of oral contract; (9) fraud through misrepresentation in

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oral contract; and (10) declaratory relief.

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arise from the initial loan agreement; others involve the

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subsequent foreclosure process and Wells Fargo's refusal to offer

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Some of these claims

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Shaterian a loan modification.
On September 2, 2011, Wells Fargo moved to dismiss each of

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Shaterian's claims.

Also on September 2, 2011, Wells Fargo moved

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to strike Shaterian's punitive damages allegations on the grounds

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that Shaterian does not allege a proper basis for recovering such

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damages.

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United States District Court

For the Northern District of California

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III. LEGAL STANDARD
A.

Motion to Dismiss

A motion to dismiss under Federal Rule of Civil Procedure

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12(b)(6) "tests the legal sufficiency of a claim."

Navarro v.

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Block, 250 F.3d 729, 732 (9th Cir. 2001).

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on the lack of a cognizable legal theory or the absence of

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sufficient facts alleged under a cognizable legal theory."

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Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.

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1988).

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should assume their veracity and then determine whether they

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plausibly give rise to an entitlement to relief."

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Iqbal, 129 S. Ct. 1937, 1950 (2009).

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court must accept as true all of the allegations contained in a

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complaint is inapplicable to legal conclusions.

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recitals of the elements of a cause of action, supported by mere

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conclusory statements, do not suffice."

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Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

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in a complaint must be both "sufficiently detailed to give fair

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notice to the opposing party of the nature of the claim so that the

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party may effectively defend against it" and "sufficiently

"Dismissal can be based

"When there are well-pleaded factual allegations, a court

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Ashcroft v.

However, "the tenet that a

Threadbare

Id. (citing Bell Atl.
The allegations made

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plausible" such that "it is not unfair to require the opposing

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party to be subjected to the expense of discovery."

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633 F.3d 1191, 1204 (9th Cir. 2011).

Starr v. Baca,

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B.

Motion to Strike

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Federal Rule of Civil Procedure 12(f) provides that a court

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may, on its own or on a motion, "strike from a pleading an

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insufficient defense or any redundant, immaterial, impertinent, or

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scandalous matter."

Motions to strike "are generally disfavored

United States District Court

For the Northern District of California

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because they are often used as delaying tactics and because of the

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limited importance of pleadings in federal practice."

Rosales v.

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Citibank, 133 F. Supp. 2d 1177, 1180 (N.D. Cal. 2001).

In most

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cases, a motion to strike should not be granted unless "the matter

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to be stricken clearly could have no possible bearing on the

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subject of the litigation."

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352 F. Supp. 2d 1048, 1057 (N.D. Cal. 2004).

Platte Anchor Bolt, Inc. v. IHI, Inc.,

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IV.

DISCUSSION
A.

Wells Fargo's Motion to Dismiss
1.

Claim for Violation of TILA (Claim 1)

In his first claim for relief, Shaterian alleges that the Note

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and TILDS violated TILA because they failed to "clearly and

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conspicuously disclose": (1) "that payment schedules are not based

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on the actual interest rate," (2) "negative amortization," (3) "the

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legal obligations between the parties," and (4) "the effect of rate

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and payment caps."

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violations, Shaterian seeks rescission, damages, attorney's fees,

SAC ¶ 36.

Based on Wells Fargo's alleged TILA

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and costs.

Id. ¶ 50.

With respect to his rescission remedy,

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Shaterian alleges that he "has the ability to tender the loan

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amount with the help of business associates," but requests this

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amount be offset by any TILA damages the Court awards him.

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49.

Id. ¶

TILA imposes several disclosure requirements on lenders of

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lender to disclose, among other things, the amount financed, the

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total finance charge, the finance charge expressed as an annual

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United States District Court

consumer loans and their assignees.

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For the Northern District of California

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Generally, the law requires a

percentage rate, the sum of the amount financed and the finance

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charge ("total of payments"), and the number, amount, and due dates

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of payments scheduled to repay the total of payments.

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U.S.C. § 1638.

See 15

Wells Fargo first argues that Shaterian's TILA claim should be

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dismissed because negative amortization need only be disclosed in

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the Loan Program Disclosure and need not be repeated in the TILDS.

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MTD at 6-7.

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disclosure statement, which is not attached to the SAC or

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Defendants' RJN, provided Shaterian with adequate disclosures under

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TILA.

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Wells Fargo argues that the adjustable loan program

Id.
Shaterian responds that Wells Fargo's argument misreads the

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SAC because the alleged TILA violation is broader than just the

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failure to disclose negative amortization.

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Shaterian also argues that he did not allege Wells Fargo violated

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TILA by failing to disclose the possibility of negative

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amortization, but by failing to "clearly and conspicuously"

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disclose that negative amortization was guaranteed to occur if

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MTD Opp'n at 10-11.

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Shaterian followed the payment schedule provided.

Id. at 11-12.

Neither party is particularly clear about exactly what TILA

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requires with respect to the form and content of disclosures.

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Nevertheless, based on the SAC and the available judicially

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noticeable facts, the Court cannot conclude that all required TILA

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disclosures were made.

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address all of the TILA violations alleged by Shaterian.

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the Loan Program Disclosure form, which Wells Fargo contends

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disclosed that negative amortization would occur, is not before the

United States District Court

For the Northern District of California

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Wells Fargo's Motion to Dismiss does not
Further,

Court.
Wells Fargo next argues that Shaterian's TILA claim for

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rescission fails because Shaterian cannot tender the money he

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received through the loan.

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not to accept Shaterian's allegation that his business associates

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will donate the tender amount, pointing to the fact that Shaterian

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has filed for bankruptcy.

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MTD at 7.

Wells Fargo urges the Court

Id. at 7.

TILA requires that a borrower return all money or property

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received from the lender to complete a rescission.

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1635(b).

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facts to show that he could tender the money he received through

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the loan, and the Court must assume the veracity of all well-

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pleaded factual allegations on a motion to dismiss.

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not provide evidence of his ability to tender at this stage.

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Viewing the SAC in the light most favorable to the pleader,

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Shaterian's allegation that business associates will help him fund

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the tender is not implausible.

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See 15 U.S.C.

The Court finds that Shaterian has alleged sufficient

Shaterian need

Accordingly, the Court DENIES Wells Fargo's Motion to Dismiss

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with respect to Shaterian's first claim for violation of TILA.
2.

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HOLA Preemption (Claims 2 through 10)

Wells Fargo contends that Shaterian's remaining claims, all of

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which are brought under state law, are preempted by HOLA.

MTD at

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1-6.

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concerning thrifts such as WSB, Wells Fargo's predecessor in

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interest.

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F.3d 1001, 1005 (9th Cir. 2008).

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a regulation stating that OTS "occupies the entire field of lending

Under HOLA, Congress gave OTS authority to issue regulations

See 12 U.S.C. 1464; Silvas v. E*Trade Mortg. Corp., 514
Pursuant to HOLA, OTS promulgated

United States District Court

For the Northern District of California

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regulation for federal savings associations."

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560.2(a).

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associations may extend credit as authorized under federal law . .

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. without regard to state laws purporting to regulate or otherwise

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affect their credit activities."

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those relating to "[t]he terms of credit, including amortization of

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loans and the deferral and capitalization of interest,"

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"[d]isclosure and advertising, including laws requiring specific

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statements, information, or other content to be included in credit

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application forms," and "[p]rocessing, origination, servicing, sale

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or purchase of, or investment or participation in, mortgages."

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§ 560.2(b).

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property law," and "tort law," among other things, "are not

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preempted to the extent that they only incidentally affect lending

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operations . . . or are otherwise consistent with the purpose [of

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the regulation]."

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12 C.F.R. §

The regulation further provides that "federal savings

Id.

Preempted state laws include

Id.

However, state "contract and commercial law," "real

Id. § 560.2(c).

OTS has outlined a framework for evaluating whether or not a
state law is preempted under 12 C.F.R. § 560.2:

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10

When analyzing the status of state laws under § 560.2,
the first step will be to determine whether the type of
law in question is listed in paragraph (b). If so, the
analysis will end there; the law is preempted. If the
law is not covered by paragraph (b), the next question
is whether the law affects lending. If it does, then, in
accordance with paragraph (a), the presumption arises
that the law is preempted. This presumption can be
reversed only if the law can clearly be shown to fit
within the confines of paragraph (c). For these
purposes, paragraph (c) is intended to be interpreted
narrowly. Any doubt should be resolved in favor of
preemption.

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OTS, Final Rule, 61 Fed. Reg. 50951, 50966-67 (Sep. 30, 1996).

United States District Court

For the Northern District of California

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In Silvas, the Ninth Circuit employed this framework to

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determine whether a plaintiff's UCL claims, "as applied," were

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preempted under OTS regulations.

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so, "the Ninth Circuit focused not on the nature of the cause of

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action allegedly preempted, but rather on the 'functional effect

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upon lending operations of maintaining the cause of action.'"

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Rumbaua v. Wells Fargo Bank, N.A., No. 11-1998 SC, 2011 U.S. Dist.

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LEXIS 95533, at *19 (N.D. Cal. Aug. 25, 2011) (citation omitted).

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The pertinent question was whether applying a state law to a

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federal savings association would "impose requirements" concerning

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activities regulated by OTS.

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that claims "premised on fraud or promises made by Wells Fargo . .

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. are not necessarily preempted, because the only 'requirement'

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they impose on federal savings banks is that they be held

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responsible for the statements they make to their borrowers."3

514 F.3d at 1004-07.

Id.

In doing

This Court has previously held

Id.

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Other district courts in this Circuit have reached a similar
conclusion. See Johannson v. Wachovia Mortg. FSB, No. C 11-02822
WHA, 2011 U.S. Dist. LEXIS 86692, at *21-23 (N.D. Cal. Aug. 5,
2011); DeLeon v. Wells Fargo Bank, N.A., No. 10-CV-01390-LHK, 2011
U.S. Dist. LEXIS 8296, at *17-19 (N.D. Cal. Jan. 28, 2011); Ibarra

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at 20.
In light of this framework, the Court finds that Shaterian's

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third, fourth, fifth, sixth, seventh, eighth, and ninth claims are

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not preempted by HOLA.

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preempted by 12 C.F.R. § 560.2(b) because they pertain to terms of

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credit, disclosure, and the process, origination, or sale of

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mortgages.

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general legal duties with which every business must comply and only

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incidentally affect Wells Fargo's lending practices.

MTD at 3.

Wells Fargo argues that these claims are

The Court disagrees.

These claims relate to

Shaterian's

United States District Court

For the Northern District of California

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fraud claims, i.e., claims three, six, and nine, do not impose

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additional requirements concerning lending operations regulated by

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OTS other than the general requirement that Wells Fargo is

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prohibited from misrepresenting material facts and defrauding its

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borrowers.

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and eight, merely seek to force Wells Fargo to adhere to the terms

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of its agreements with Shaterian.

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Shaterian's claim for violation of California Civil Code Section

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2923.5 is not preempted by HOLA.

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Additionally, these claims clearly fit within the categories of

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laws which are exempted from preemption under 12 C.F.R. § 560.2(c)

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as they sound in tort, contract, commercial, and real property law.

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In contrast, Shaterian's second claim for fraudulent omissions

Shaterian's contract claims, i.e., claims four, five,

The Court has already held

See ECF No. 52 at 8 n.7.

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relates to substantive lending requirements.

Other district courts

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in this circuit have found that even claims for fraud or

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misrepresentation may be preempted where they relate to inadequate

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disclosures of fees, interest rates, or other loan terms.

See

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28

v. Loan City, No. 09-CV-02228-IEG (POR), 2010 U.S. Dist. LEXIS
6583, at *14-16 (S.D. Cal. Jan. 27, 2010).

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DeLeon, 2011 U.S. Dist. LEXIS 8296, at *16-17.

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additional substantive requirements relating to lending activities

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regulated by OTS.

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omissions relates to WSB's duty to make various disclosures in loan

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documents, including the Note and the TILDS.

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Accordingly, this claim is preempted by HOLA.

See id.

Such claims impose

Shaterian's second claim for fraudulent

See SAC ¶ 52.

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Shaterian's tenth claim asks the court for a declaration

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concerning the legal and factual issues set forth in the first nine

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claims.

The Court finds that this claim is preempted to the extent

United States District Court

For the Northern District of California

10

it seeks a declaration concerning Shaterian's claim for fraudulent

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omissions.

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Accordingly, the Court DISMISSES Shaterian's second claim for
fraudulent omissions as it is preempted by HOLA.
3.

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Claim for Violation of the California UCL (Claim 3)

Shaterian alleges that Wells Fargo violated the California UCL

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by luring him and other borrowers into Option ARM loans with

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promises of low payments while withholding the fact that these

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loans were designed to cause negative amortization.

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SAC ¶¶ 70-71.

Wells Fargo argues that Shaterian's UCL claim is preempted by

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TILA because it asserts a failure to disclose information in the

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TILDS or other required TILA disclosure.

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disagrees.

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that those laws are inconsistent" with TILA.

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Silvas, 514 F.3d at 1007.

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circuit have held that UCL claims based on false or misleading oral

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representations are not preempted by TILA because TILA regulates

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only written disclosures.

MTD at 19.

The Court

TILA does not preempt state laws, "except to the extent
15 U.S.C. § 1610;

For example, district courts in this

See Yang v. Home Loan Funding, Inc., No.

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CV F 07-1454 AWI GSA, 2010 U.S. Dist. LEXIS 21837, at *28-29 (E.D.

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Cal. Feb. 18, 2010); Kajitani v. Downey Sav. & Loan Ass'n, 647 F.

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Supp. 2d 1208, 1220 (D. Haw. 2008).

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construed, Shaterian's UCL claim does not solely rest on allegedly

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false statements in the TILDS or other written disclosures required

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by TILA.

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concerning "promises of low payments" and other means by which

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Wells Fargo "trumpeted their low payment loans to the public."

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See, e.g., SAC ¶¶ 71, 73.

When the SAC is liberally

The UCL claim is also predicated on allegations

The Court finds that Shaterian's UCL

United States District Court

For the Northern District of California

10

claims are not preempted to the extent they are based on

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allegations of misconduct outside of written deficiencies in the

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TILDS or other required TILA disclosures.
Wells Fargo also argues that the UCL claim fails

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"substantively" because the Note disclosed the possibility that the

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principal amount due on the loan would increase if payments were

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insufficient to cover interest.

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that, with an ordinary calculator, Shaterian should have been able

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to figure out that his principal amount would increase.

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Court finds this argument unpersuasive, as it ignores Shaterian's

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allegations concerning false promises of a "low, fixed payment" and

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"only a small annual increase in the payment amount."

22

70.

23

false promises, it is plausible that Shaterian was misled.

24

Further, Wells Fargo offers no authority suggesting that a UCL

25

claim fails where a borrower should be able to see through alleged

26

lies and omissions by performing potentially complicated interest

27

and principal calculations.

MTD at 20.

Wells Fargo claims

Id.

The

See SAC ¶

As the terms of the Note were allegedly contradicted by these

Nor does Wells Fargo point to any

28

14

1

particular language in the Note which indicated, in a

2

straightforward way, that the loan would result in negative

3

amortization.
Accordingly, the Court DENIES Wells Fargo's Motion to Dismiss

4
5

with respect to the third claim for violation of the California

6

UCL.
4.

7

Claim for Breach of Written Contract (Claim 4)

8

As to the fourth claim for breach of contract, Shaterian

9

alleges that WSB "expressly and/or through its conduct and actions

United States District Court

For the Northern District of California

10

agreed that Plaintiff's monthly payment obligation would be

11

sufficient to pay both the principal and interest owed on the

12

loan."

13

breached this agreement when they failed to apply any portion of

14

Shaterian's monthly payments towards the principal balance on the

15

loan.

16

SAC ¶ 94.

Shaterian alleges that WSB and Wells Fargo

Id. ¶ 96.
Wells Fargo argues that Shaterian fails to allege a breach of

17

contract because the Note does not contain a promise that

18

Shaterian's payments would be sufficient to pay off both the

19

interest and principal on the loan.

20

points out that Shaterian has acknowledged that a pick-a-payment

21

loan allows a borrower to select an interest-only, or even smaller,

22

minimum payment.

23

argues, it was Shaterian who determined whether his payments would

24

cover both principal and interest.

25

quoting much of the language from his fourth claim without further

26

analysis, and by pointing to a provision in the Note that states:

27

"I [Shaterian] will pay Principal and interest by making payments

MTD at 7-8.

Id. at 8 (citing SAC ¶ 16).

28

15

Id.

Wells Fargo

Thus, Wells Fargo

Shaterian responds by

1

every month."

Id.

The Court finds that this language does not constitute a

2
3

promise by WSB or Wells Fargo that Shaterian's monthly payments

4

would cover principal and interest.

5

allegation that WSB "expressly and/or through its conduct" made

6

such a promise is insufficient to state a claim for breach of

7

contract.

8

claim.

Accordingly, the Court DISMISSES Shaterian's fourth

5.

9

United States District Court

Claim for Breach of the Implied Covenant of Good
Faith and Fair Dealing (Claim 5)

10
For the Northern District of California

Shaterian's conclusory

Shaterian's fifth claim for breach of the implied covenant of

11
12

good faith and fair dealing mirrors his claim for breach of

13

contract.

14

impliedly" provided that negative amortization would not occur if

15

Shaterian made his monthly payments.

16

alleges that, contrary to these provisions, WSB did not apply any

17

part of Shaterian's payments to the principal on the loan.

18

106.

Shaterian alleges that the Note and TILDS "expressly and

SAC ¶ 104.

Shaterian further

Id. ¶

19

Wells Fargo argues that the claim is time barred since the

20

statute of limitations for a breach of implied covenant of good

21

faith and fair dealing is two years, the breach allegedly occurred

22

in 2007, and Shaterian did not bring this action until 2011.

23

at 10.

24

tolled by a 2007 class action in which he is a plaintiff.

25

Opp'n at 16.

26

argument.

27

is not time-barred.

MTD

Shaterian responds that the statute of limitations was
MTD

Wells Fargo does not offer a response to this

Accordingly, the Court finds the implied covenant claim

28

16

1

Wells Fargo also argues that the implied covenant claim is

2

superfluous because it is duplicative of Shaterian's contract

3

claim.

4

covenant "do not go beyond the statement of a mere contract breach

5

and, relying on the same alleged acts, simply seek the same damages

6

or other relief already claimed in a companion contract cause of

7

action, they may be disregarded as superfluous as no additional

8

claim is actually stated."

9

Inc., 222 Cal. App. 3d 1371, 1395 (Ct. App. 1990).

MTD at 10.

Where allegations for breach of the implied

Careau & Co. v. Sec. Pac. Bus. Credit,
However, this

United States District Court

For the Northern District of California

10

rule does not apply where a plaintiff alleges that the defendant

11

acted in bad faith to frustrate the contract's actual benefits.

12

See Celador Int'l Ltd. v. Walt Disney Co., 347 F. Supp. 2d 846, 852

13

(C.D. Cal. 2004); Guz v. Bechtel Nat'l, Inc., 24 Cal. 4th 317, 353

14

n.18 (2000).

15

In the instant case, Shaterian has not gone beyond alleging a

16

breach of the implied and express terms of the Note and TILDS.

17

SAC alleges that Wells Fargo and WSB acted in bad faith by failing

18

to make clear and conspicuous disclosures concerning the monthly

19

payments sufficient to cover his interest and principal.

20

these actions were presumably taken to induce Shaterian to enter

21

into the contract, not to frustrate the benefits of the contract.

22

Further, Shaterian's bad faith allegations are too vague to state a

23

plausible claim for relief.

24

Shaterian's fifth claim for breach of the implied covenant of good

25

faith and fair dealing.

26

6.

27

The

However,

Accordingly, the Court DISMISSES

Claim for Aiding and Abetting Fraud (Claim 6)

Shaterian's aiding and abetting fraud claim is premised on

28

17

1

allegations that WSB and Diablo engaged in a "joint venture" to

2

induce borrowers, including Shaterian, to enter into unfavorable

3

loans.

4

the grounds that: (1) it lacks particularity; (2) Wells Fargo

5

cannot be held liable for Diablo's actions; (3) the claim does not

6

identify an actionable misrepresentation; and (4) the claim is

7

preempted by TILA.

8
9

SAC ¶¶ 117-133.

Wells Fargo moves to dismiss this claim on

MTD at 16-19.

Rule 9(b) of the Federal Rules of the Civil Procedure requires
a plaintiff to "state with particularity the circumstances

United States District Court

For the Northern District of California

10

constituting fraud."

11

and specific content of the false representations as well as the

12

identities of the parties to the misrepresentations."

13

KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (citation and

14

quotations omitted).

15

liability extends to a person who aids and abets an intentional

16

tort where that person: (1) had actual knowledge of the underlying

17

wrongful conduct, and (2) gave substantial assistance or

18

encouragement to another to so act.

19

Assn., 127 Cal. App. 4th 1138, 1144 (Cal. Ct. App. 2005).

20

This includes "an account of the time, place,

Swartz v.

Under California law, aiding and abetting

See Casey v. U.S. Bank Nat'l

Wells Fargo argues that Shaterian has not alleged with

21

particularity what misrepresentations Diablo made, or when and how

22

those statements were made.

23

that around August 2007 a Diablo agent, Juanita Garcia Apodaca

24

("Apodaca"), told Shaterian that he qualified for a six percent

25

fixed rate loan that would eventually adjust to a lower rate and

26

encouraged him to sign blank documents.

27

further alleges that these representations turned out to be false,

The court disagrees.

28

18

Shaterian pled

SAC ¶ 129.

Shaterian

1

as he entered into an Option ARM loan with an interest rate that

2

ultimately increased over time.

3

heightened pleading standards of Rule 9(b).4

These allegations meet the

The Court also disagrees with Wells Fargo's contention that

4
5

Shaterian's allegations concerning the relationship between WSB and

6

Diablo are too conclusory to state a claim for aiding and abetting.

7

MTD at 17.

8

broker, entered into an agreement whereby WSB "dictated and pre-

9

approved" certain loan and disclosure documents which Diablo

Shaterian alleges that WSB and Diablo, Shaterian's

United States District Court

For the Northern District of California

10

provided to borrowers.

SAC ¶ 125.

Shaterian further alleges that

11

WSB was aware that these documents contained "fraudulent omissions"

12

and knew or should have known that Diablo encouraged borrowers to

13

sign blank loan documents, and that Diablo later completed these

14

loan documents with information which differed from the information

15

provided to the borrowers.

16

and believes that Diablo received "substantial remuneration" from

17

WSB for carrying out this scheme.

18

sufficient to establish that WSB had actual knowledge of the

19

alleged fraud and provided substantial assistance in carrying it

20

out.

21

2011 U.S. Dist. LEXIS 60618, at *22-25 (C.D. Cal. June 1, 2011).

Id. ¶¶ 127-128.

Shaterian is informed

Id. ¶ 121.

Such allegations are

See Peel v. BrooksAmerica Mortg. Corp., No. 8:11-cv-0079-JST,

Wells Fargo further argues that it cannot be held liable for

22
23

the actions of Diablo since loan brokers are "customarily" the

24

agents of the borrower and because lenders do not owe borrowers a

25
26
27
28

4

Wells Fargo argues that Apodaca's representations are irrelevant
since the "loan unambiguously discloses" an adjustable interest
rate. Reply at 5. However, Shaterian alleges that he "was
uncertain at the time he signed the closing document - executed in
blank - of exactly what type of loan he was getting." SAC ¶ 15.

19

1

fiduciary duty of care.

MTD at 18.

These arguments are

2

unpersuasive and irrelevant.

3

relationship" between brokers, lenders, and borrowers, Shaterian

4

has specifically alleged that WSB drafted and approved loan

5

documents Diablo used to mislead borrowers and that Diablo received

6

substantial remuneration from WSB.

7

allegations are sufficient to establish the elements of aiding and

8

abetting.

9

to its borrowers where it "actively participates in the financed

Regardless of the "customary

See SAC ¶¶ 121, 125.

These

Further, under California law, a lender may owe a duty

United States District Court

For the Northern District of California

10

enterprise beyond the domain of the usual money lender."

11

Heart Fed. Sav. & Loan Assn., 231 Cal. App. 3d 1089, 1096 (Cal. Ct.

12

App. 1991) (quotations and citation omitted).

13

action, Shaterian has alleged that WSB stepped out of its usual

14

role as a lender by engaging in a joint venture with Diablo to

15

induce Shaterian to agree to an unfavorable loan.

16

125.

17

Nymark v.

In the instant

See SAC ¶¶ 121,

The Court also finds that Shaterian's aiding and abetting

18

fraud claim is not preempted by TILA.

19

only preempts state law causes of action to the extent that they

20

are predicated on allegedly false statements in TILDS or other

21

written disclosures required by TILA.

22

abetting claim alleges other types of wrongful conduct, including

23

allegedly false statements made by Apodaca.

24

As discussed above, TILA

Shaterian's aiding and

Accordingly, the Court DENIES Wells Fargo's motion to dismiss

25

with respect to Shaterian's sixth claim for aiding and abetting

26

fraud.

27
28

20

7.

1

2923.5 (Claim 7)

2
3

Claim for Violation of California Civil Code Section

California's Civil Code provides a framework for non-judicial

three months have elapsed, the lender must give notice of the

6

planned foreclosure sale.

7

concerns the notice of default.

8

trustee, beneficiary, or authorized agent" seeking to file a notice

9

of default to first contact the borrower in person or by telephone

10

United States District Court

foreclosure: the lender must first record a notice of default; once

5

For the Northern District of California

4

"in order to assess the borrower's financial situation and explore

11

options for the borrower to avoid foreclosure."

12

2923.5(a)(2).

13

days after this initial contact or after the statute's due

14

diligence requirements are satisfied.

15

Further, the notice of default must include a declaration that the

16

mortgagee, beneficiary, or authorized agent has contacted the

17

borrower.

18

seeking to file a notice of default must advise the borrower that

19

he or she has the right to request a subsequent meeting and, if

20

requested, schedule the meeting within fourteen days.

21

2923.5(a)(2).

22

postponement of a foreclosure sale until the requirements of the

23

statute have been fulfilled.

24

4th 208, 213 (Cal. Ct. App. 2010).

Cal. Civ. Code § 2924.

Section 2923.5

It requires the "mortgagee,

Id. §

The notice of default may not be filed until thirty

Id. § 2923.5(b).

Id. § 2923.5(a)(1).

During this initial contact, the party

Id. §

The remedy available under Section 2923.5 is the

Mabry v. Super. Ct., 185 Cal. App.

25

In the declaration filed with the October 2010 Notice of

26

Default, Wells Fargo vice president Sandra Garza ("Garza") declares

27

that Wells Fargo contacted Shaterian on March 13, 2011 as required

28

21

1

by Section 2923.5.

SAC ¶ 137; Not. of Default at 3.

Shaterian

2

alleges that this declaration was false and that he had not been

3

contacted by anyone from Wells Fargo to assess his financial

4

situation and discuss options, or to arrange a subsequent meeting.

5

SAC ¶ 138.

6

the Notice of Default is not valid and that Wells Fargo may not

7

proceed with foreclosure.

Shaterian asks the Court for an order declaring that

Id. ¶ 140.

8

Wells Fargo argues that Shaterian's Section 2923.5 claim

9

should be dismissed because the SAC shows that it complied with the

United States District Court

For the Northern District of California

10

statute.

11

had multiple discussions with Kearny, a Wells Fargo representative,

12

concerning a loan modification between June and August 2010, over

13

thirty days prior to the filing of the October 2010 Notice of

14

Default.

15

later discussions with Kearny would not cure the alleged defect in

16

the Garza Declaration, which states that Shaterian was contacted in

17

March 2010.

18

false, then Wells Fargo failed to comply with Section 2923.5(b),

19

which requires that a notice of default include a declaration that

20

the "the mortgagee, beneficiary, or authorized agent" has contacted

21

the borrower.

22

based on a false declaration would defeat the purpose of the

23

statute.

24

MTD at 19.

Specifically, the SAC shows that Shaterian

See SAC ¶¶ 143-149.

However, as Shaterian argues, these

If, as Shaterian alleges, the Garza declaration is

Allowing a Cal-Western to file a notice of default

Wells Fargo also argues that Shaterian's Section 2923.5 claim

25

fails because, in denying Shaterian's motion for a preliminary

26

injunction, the Court accepted evidence submitted by Wells Fargo

27

supporting the veracity of the Garza declaration.

28

22

MTD at 19.

The

1

Court disagrees.

2

preliminary injunction, the Court could consider evidence outside

3

the pleadings to determine whether Shaterian was likely to succeed

4

on the merits.

5

states a plausible claim for relief.

6

allegation concerning the veracity of the Garza declaration is

7

true, Shaterian states a plausible claim under Section 2923.5.

Here, the Court may only consider whether Shaterian
Assuming that Shaterian's

Finally, Wells Fargo contends that Shaterian's seventh claim

8
9

In evaluating Shaterian's motion for a

fails because the Court has already denied the only remedy

United States District Court

For the Northern District of California

10

available under Section 2923.5 -- postponement of the foreclosure

11

sale.

12

foreclosure sale had already occurred.

13

indication that it has.

14

Shaterian's motion for a preliminary injunction, an injunction may

15

still issue if Shaterian is successful on the merits.

16

MTD at 20.

This argument might be persuasive if the
However, there is no

Further, although the Court denied

Accordingly, the Court DENIES Wells Fargo's Motion to Dismiss

17

with respect to Shaterian's seventh claim for violation of

18

California Civil Code Section 2923.5.
8.

19

Claim for Breach of Oral Contract (Claim 8)

20

Shaterian’s claim for breach of oral contract is based on

21

Kearny's alleged promise that Wells Fargo would modify Shaterian's

22

loan if he could demonstrate an income of at least $9,500 per

23

month.

24

promise by rejecting Shaterian's October and November 2010 loan

25

modification applications, even after Shaterian demonstrated a

26

monthly income of $10,000 to $15,000.

27

argues that Kearny's promise did not create a contract because

SAC ¶¶ 149, 158.

Wells Fargo allegedly breached this

28

23

Id. ¶¶ 150-51.

Wells Fargo

1

Shaterian did not offer any consideration in return.

2

Shaterian responds that he offered consideration by providing Wells

3

Fargo with requested forms and access to his tax return

4

information.

5

MTD Opp'n at 20.

MTD at 12.

The Court agrees with Wells Fargo.

Under the California Civil Code, "[a] sufficient cause or

6

consideration" "is essential to the existence of a contract."

7

Civ. Code § 1550.

8

by an oral agreement supported by new consideration."

9

Code § 1698(c).

Cal.

Further, "a contract in writing may be modified
Cal. Civ.

Consideration is defined as either (1) "[a]ny

United States District Court

For the Northern District of California

10

benefit conferred, or agreed to be conferred, upon the promisor, by

11

any other person, to which the promisor is not lawfully entitled,"

12

or (2) "any prejudice suffered, or agreed to be suffered, by such

13

person, other than such as he is at the time of consent lawfully

14

bound to suffer."

15

party free to perform or to withdraw from the agreement at his own

16

unrestricted pleasure, the promise is deemed illusory and it

17

provides no consideration."

18

C-10-01667 JCS, 2011 U.S. Dist. LEXIS 2235, at *31 (N.D. Cal. Jan.

19

3, 2011) (quoting Pease v. Brown, 186 Cal. App. 2d 425, 431 (Cal.

20

Ct. App. 1960)).

21

Id. § 1605.

"[I]f one of the promises leaves a

Reyes v. Wells Fargo Bank, N.A., No.

In the instant action, Shaterian has not pled a benefit

22

conferred or prejudice suffered.

The forms and tax returns

23

provided by Shaterian cannot constitute consideration because such

24

consideration has absolutely no value.

25

Bank, N.A., 737 F. Supp. 2d 1185, 1197 (S.D. Cal. 2010).

26

Additionally, the alleged oral contract did not place any

27

conditions on Shaterian and left him free to withdraw.

28

24

See Mehta v. Wells Fargo

Kearny

1

merely informed Shaterian of the conditions under which a

2

resubmitted loan modification application might be approved --

3

Shaterian was under no obligation to resubmit the application.

4
5

As Shaterian has not pled adequate consideration, the Court
DISMISSES Shaterian's eighth claim for breach of oral contract.
9.

6

Contract (Claim 9)

7
8
9

Claim for Fraud through Misrepresentation in Oral

Shaterian's ninth claim for fraud through misrepresentation in
oral contract is premised on the same conduct as his claim for

United States District Court

For the Northern District of California

10

breach of oral contract.

11

Shaterian has failed to allege the existence of a valid oral

12

contract.

13

Shaterian may not state a claim for fraud through misrepresentation

14

in an oral contract.

15

09cv1525 WQH (WMC), 2010 U.S. Dist. LEXIS 18476, at *13 (S.D. Cal.

16

Mar. 2, 2010).

17

claim.

See supra section IV.A.8.

10.

18

The Court has already found that

Absent a valid contract,

See Newgent v. Wells Fargo Bank, N.A., NO.

Accordingly, the Court DISMISSES Shaterian's ninth

Claim for Declaratory Relief (Claim 10)

19

Shaterian's tenth claim seeks a declaration concerning the

20

rights and duties of the parties with respect to his first nine

21

claims.

22

Shaterian is not entitled to such relief absent a viable underlying

23

claim.

24

Dist. LEXIS 44158, at *8 (N.D. Cal. May 26, 2009).

25

the Court DISMISSES Shaterian's claim for declaratory relief to the

26

extent it seeks a declaration concerning Shaterian's dismissed

27

claims, i.e., claims two, four, five, eight, and nine.

This claim is ultimately a request for relief, and

See Lomboy v. SCME Mortg. Bankers, C-09-1160 SC, 2009 U.S.

28

25

Accordingly,

1

B.

Wells Fargo's Motion to Strike

2

Wells Fargo moves to strike paragraphs 64, 65, 111, 116, 131,

3

133, and 174, all of which relate to punitive damages.

4

only considers Well Fargo's Motion to Strike as it relates to

5

paragraphs 131, 133, and 174 -- which concern Shaterian's claim for

6

aiding and abetting fraud and his prayer for relief.

7

64, 65, 111, and 116 relate to Shaterian's second and fifth claims,

8

which are dismissed by this Order.

9

motion to strike is DENIED AS MOOT as to paragraphs 64, 65, 111,

United States District Court

For the Northern District of California

10
11

This Order

Paragraphs

Accordingly, Wells Fargo's

and 116.
Under California law, punitive damages are permitted where "it

12

is proven by clear and convincing evidence that the defendant has

13

been guilty of oppression, fraud, or malice."

14

3294(a).

15

show a Wells Fargo officer, director, or managing agent "authorized

16

or ratified the wrongful conduct . . . or was personally guilty of

17

oppression, fraud, or malice."

Cal. Civ. Code §

As Wells Fargo is a corporate employer, Shaterian must

Id. § 3294(b).

18

In his aiding and abetting fraud claim, Shaterian alleges that

19

the "conduct of DIABLO and WORLD SAVINGS was malicious, oppressive,

20

and/or fraudulent."

21

or should have known, that DIABLO, through its agents, employees,

22

and assigns was using [WSB's] financing, name, and goodwill in a

23

fraudulent scheme that included breaches of fiduciary and

24

contractual duties."

25

Shaterian's punitive damages allegations should be struck because

26

he has not alleged that an officer, director, or managing agent

27

authorized or ratified wrongful conduct or acted with malice,

SAC ¶ 131.

Id. ¶ 124.

He further alleges that WSB "knew,

Wells Fargo argues that

28

26

1

oppression, or fraud.

2

that pick-a-payment loans, which he contends are inherently

3

deceptive, would not have been made available but for the

4

authorization and ratification of high level employees at WSB.

5

Opp'n at 6-7.

6

of pick-a-payment loans by lawsuits filed prior to the submission

7

of Shaterian's loan application.

In response, Shaterian argues

MTS

He also argues WSB was put on notice of the toxicity

Id. at 7.

Viewing the SAC in the light most favorable to Shaterian, it

8
9

MTS at 1-2.

does not appear to contain "redundant, immaterial, impertinent, or
See Fed. R. Civ. P. 12(f).

Shaterian alleges

United States District Court

For the Northern District of California

10

scandalous matter."

11

that he is entitled to punitive damages for his aiding and abetting

12

fraud claim because WSB knew or should have known that Diablo

13

engaged in a "fraudulent scheme" and the conduct of Diablo and WSB

14

was malicious, oppressive, and/or fraudulent."

15

Shaterian also alleges certain facts suggesting that WSB authorized

16

or ratified his loan.

17

disfavored, these allegations are sufficient.

18

Fargo's Motion to Strike is DENIED.

SAC ¶¶ 124, 131.

As motions to strike are generally
Accordingly, Wells

19
20
21

V.

CONCLUSION
For the foregoing reasons, the Court GRANTS in part and DENIES

22

in part Wells Fargo's Motion to Dismiss.

This is the third

23

complaint filed by Shaterian.

24

Wells Fargo's prior motion to dismiss, though never ruled on,

25

provided guidance as to which claims required more specificity and

26

which claims were likely to be preempted.

27

Statement") at 2.

Further, as Shaterian has stated,

See ECF No. 54 ("Joint

Accordingly, the Court DISMISSES Shaterian's

28

27

1

second, fourth, fifth, eighth, and ninth claims WITHOUT LEAVE TO

2

AMEND.

3

respect to Shaterian's first, third, sixth, seventh, and tenth

4

claims.

The Court DENIES Wells Fargo's Motion to Dismiss with

The Court also DENIES Wells Fargo's Motion to Strike.

5
6

IT IS SO ORDERED.

7
8
9

Dated: November 7, 2011
UNITED STATES DISTRICT JUDGE

United States District Court

For the Northern District of California

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