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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1
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.
2
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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5
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.
12
Block, 250 F.3d 729, 732 (9th Cir. 2001).
13
on the lack of a cognizable legal theory or the absence of
14
sufficient facts alleged under a cognizable legal theory."
15
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
21
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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6
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
9
scandalous matter."
Motions to strike "are generally disfavored
United States District Court
For the Northern District of California
10
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
13
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
15
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
10
United States District Court
consumer loans and their assignees.
8
For the Northern District of California
7
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
12
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.
17
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
23
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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8
MTD Opp'n at 10-11.
1
2
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.
4
Nevertheless, based on the SAC and the available judicially
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noticeable facts, the Court cannot conclude that all required TILA
6
disclosures were made.
7
address all of the TILA violations alleged by Shaterian.
8
the Loan Program Disclosure form, which Wells Fargo contends
9
disclosed that negative amortization would occur, is not before the
United States District Court
For the Northern District of California
10
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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.
14
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.
17
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.
19
1635(b).
20
facts to show that he could tender the money he received through
21
the loan, and the Court must assume the veracity of all well-
22
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
26
the tender is not implausible.
27
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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1
with respect to Shaterian's first claim for violation of TILA.
2.
2
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.
8
F.3d 1001, 1005 (9th Cir. 2008).
9
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
10
regulation for federal savings associations."
11
560.2(a).
12
associations may extend credit as authorized under federal law . .
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. without regard to state laws purporting to regulate or otherwise
14
affect their credit activities."
15
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
18
statements, information, or other content to be included in credit
19
application forms," and "[p]rocessing, origination, servicing, sale
20
or purchase of, or investment or participation in, mortgages."
21
§ 560.2(b).
22
property law," and "tort law," among other things, "are not
23
preempted to the extent that they only incidentally affect lending
24
operations . . . or are otherwise consistent with the purpose [of
25
the regulation]."
26
27
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
10
In Silvas, the Ninth Circuit employed this framework to
11
determine whether a plaintiff's UCL claims, "as applied," were
12
preempted under OTS regulations.
13
so, "the Ninth Circuit focused not on the nature of the cause of
14
action allegedly preempted, but rather on the 'functional effect
15
upon lending operations of maintaining the cause of action.'"
16
Rumbaua v. Wells Fargo Bank, N.A., No. 11-1998 SC, 2011 U.S. Dist.
17
LEXIS 95533, at *19 (N.D. Cal. Aug. 25, 2011) (citation omitted).
18
The pertinent question was whether applying a state law to a
19
federal savings association would "impose requirements" concerning
20
activities regulated by OTS.
21
that claims "premised on fraud or promises made by Wells Fargo . .
22
. are not necessarily preempted, because the only 'requirement'
23
they impose on federal savings banks is that they be held
24
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.
25
26
27
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3
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
11
1
2
at 20.
In light of this framework, the Court finds that Shaterian's
3
third, fourth, fifth, sixth, seventh, eighth, and ninth claims are
4
not preempted by HOLA.
5
preempted by 12 C.F.R. § 560.2(b) because they pertain to terms of
6
credit, disclosure, and the process, origination, or sale of
7
mortgages.
8
general legal duties with which every business must comply and only
9
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
10
fraud claims, i.e., claims three, six, and nine, do not impose
11
additional requirements concerning lending operations regulated by
12
OTS other than the general requirement that Wells Fargo is
13
prohibited from misrepresenting material facts and defrauding its
14
borrowers.
15
and eight, merely seek to force Wells Fargo to adhere to the terms
16
of its agreements with Shaterian.
17
Shaterian's claim for violation of California Civil Code Section
18
2923.5 is not preempted by HOLA.
19
Additionally, these claims clearly fit within the categories of
20
laws which are exempted from preemption under 12 C.F.R. § 560.2(c)
21
as they sound in tort, contract, commercial, and real property law.
22
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.
23
relates to substantive lending requirements.
Other district courts
24
in this circuit have found that even claims for fraud or
25
misrepresentation may be preempted where they relate to inadequate
26
disclosures of fees, interest rates, or other loan terms.
See
27
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).
12
1
DeLeon, 2011 U.S. Dist. LEXIS 8296, at *16-17.
2
additional substantive requirements relating to lending activities
3
regulated by OTS.
4
omissions relates to WSB's duty to make various disclosures in loan
5
documents, including the Note and the TILDS.
6
Accordingly, this claim is preempted by HOLA.
See id.
Such claims impose
Shaterian's second claim for fraudulent
See SAC ¶ 52.
7
Shaterian's tenth claim asks the court for a declaration
8
concerning the legal and factual issues set forth in the first nine
9
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
11
omissions.
12
13
Accordingly, the Court DISMISSES Shaterian's second claim for
fraudulent omissions as it is preempted by HOLA.
3.
14
15
Claim for Violation of the California UCL (Claim 3)
Shaterian alleges that Wells Fargo violated the California UCL
16
by luring him and other borrowers into Option ARM loans with
17
promises of low payments while withholding the fact that these
18
loans were designed to cause negative amortization.
19
SAC ¶¶ 70-71.
Wells Fargo argues that Shaterian's UCL claim is preempted by
20
TILA because it asserts a failure to disclose information in the
21
TILDS or other required TILA disclosure.
22
disagrees.
23
that those laws are inconsistent" with TILA.
24
Silvas, 514 F.3d at 1007.
25
circuit have held that UCL claims based on false or misleading oral
26
representations are not preempted by TILA because TILA regulates
27
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.
28
13
1
CV F 07-1454 AWI GSA, 2010 U.S. Dist. LEXIS 21837, at *28-29 (E.D.
2
Cal. Feb. 18, 2010); Kajitani v. Downey Sav. & Loan Ass'n, 647 F.
3
Supp. 2d 1208, 1220 (D. Haw. 2008).
4
construed, Shaterian's UCL claim does not solely rest on allegedly
5
false statements in the TILDS or other written disclosures required
6
by TILA.
7
concerning "promises of low payments" and other means by which
8
Wells Fargo "trumpeted their low payment loans to the public."
9
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
11
allegations of misconduct outside of written deficiencies in the
12
TILDS or other required TILA disclosures.
Wells Fargo also argues that the UCL claim fails
13
14
"substantively" because the Note disclosed the possibility that the
15
principal amount due on the loan would increase if payments were
16
insufficient to cover interest.
17
that, with an ordinary calculator, Shaterian should have been able
18
to figure out that his principal amount would increase.
19
Court finds this argument unpersuasive, as it ignores Shaterian's
20
allegations concerning false promises of a "low, fixed payment" and
21
"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
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
28
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