Pey v. Wachovia Mortgage Corporation et al

Filing 57

ORDER by Judge Samuel Conti granting in part and denying in part 37 Motion to Dismiss; denying 24 Motion for Preliminary Injunction (sclc2, COURT STAFF) (Filed on 11/15/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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RICHARD PEY,

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Plaintiff,

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v.

For the Northern District of California

United States District Court

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WACHOVIA MORTGAGE CORPORATION;
WELLS FARGO BANK, N.A.; and NDEX
WEST, LLC,

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Defendants.

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Case No. 11-2922 SC
ORDER DENYING PLAINTIFF'S
MOTION FOR PRELIMINARY
INJUNCTION; GRANTING IN
PART AND DENYING IN PART
DEFENDANTS' MOTION TO
DISMISS

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I.

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INTRODUCTION
This lawsuit involves a mortgage loan Plaintiff

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Richard Pey ("Plaintiff" or "Pey") obtained in August 2006 to

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refinance his Oakland, California home, and the subsequent attempt

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at foreclosure by Defendants Wachovia Mortgage Corporation

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("Wachovia Mortgage"), Wells Fargo, N.A. ("Wells Fargo")

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(collectively, "Wachovia")1 and NDeX West, LLC ("NDeX") when

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Plaintiff stopped making mortgage payments.

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On August 19, 2011, Plaintiff filed a Motion for a Preliminary
Injunction seeking to bar the foreclosure sale of his home, which

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As explained below, Wachovia Mortgage Corporation merged with
Wells Fargo, N.A., in November 2009. Therefore, the Court
hereinafter refers to Wachovia Mortgage Corporation and Wells
Fargo, N.A., collectively as "Wachovia."

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was scheduled for September 26, 2011.

ECF Nos. 24 ("Pl.'s Mot.").

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Wachovia filed an Opposition, and Plaintiff filed a Reply.

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Nos. 31 ("Opp'n"), 41 ("Reply").

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filed a Motion to Dismiss, which NDeX joined.

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39 ("NDeX Not. of Join.").

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Nos. 48 ("MTD Opp'n"), 49 ("MTD Reply").

ECF

On September 12, 2011, Wachovia
ECF Nos. 37 ("MTD"),

The MTD is also fully briefed.

ECF

For the following reasons, the Court DENIES Plaintiff's Motion

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for a Preliminary Injunction.

The Court GRANTS IN PART and DENIES

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IN PART Defendants' Motion to Dismiss.

United States District Court

For the Northern District of California

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II.

BACKGROUND

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A.

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On May 26, 2011, Plaintiff filed this action in the Superior

Procedural Background

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Court of California, County of Alameda, asserting seven claims: (1)

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violation of California's Unfair Competition Law ("UCL"), Business

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and Professions Code §§ 17200 et seq.; (2) fraudulent omissions;

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(3) breach of contract; (4) breach of the covenant of good faith

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and fair dealing; (5) violation of California Civil Code § 2923.5;

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(6) wrongful foreclosure; and (7) declaratory relief.

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("Notice of Removal") Ex. A ("Compl.").

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to federal court on June 14, 2011.

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25, 2011, Plaintiff filed a First Amended Complaint asserting the

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same seven claims.

ECF No. 1

Wachovia removed the case

Notice of Removal.

On August

ECF No. 28 ("FAC").

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B.

Plaintiff's Allegations

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Plaintiff alleges that on August 11, 2006, he took out a loan

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in the amount of $450,000 from World Savings Bank, FSB ("World

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Savings") to refinance his home located at 2530 25th Avenue,

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Oakland, California ("the Property").2

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secured by a Deed of Trust against the Property.

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("Deed of Trust").3

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mortgage loan ("ARM") and bears the title "Pick-A-Payment Loan."

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Pey Decl. Ex. 2 ("Note").

FAC ¶¶ 2, 17.

The Note was

Pey Decl. Ex. 1

The Note provides for an adjustable rate

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Pey's central allegation is that Wachovia failed to disclose

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that the ARM was guaranteed to result in negative amortization if

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Pey followed the payment schedule set out in his loan documents.

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See FAC ¶ 1.

When Pey obtained his loan, Wachovia gave him a Truth

United States District Court

For the Northern District of California

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in Lending Disclosure Statement ("TILDS").

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("TILDS").

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provided for monthly payments ranging from $1,553.05 to $2,977.56.

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Id.

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the loan to be $4,043.00.

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percentage interest rate ("APR") on the loan was 7.107 percent.

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Id.

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percent.

The TILDS contained a ten-year payment schedule that

It then provided for the final 240 payments over the life of
Id.

The TILDS indicated that the annual

The Note, by contrast, indicated that the APR was 6.84
See Note.

Pey alleges that neither the TILDS nor the other loan

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Pey Decl. Ex. 3

documentation he received disclosed: (1) the actual interest rate

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Wachovia asks the Court to take judicial notice of four
government documents that establish the following: (1) World
Savings Bank, FSB, is a federal savings bank; (2) World Savings
Bank, FSB became Wachovia Mortgage, FSB in November 2007; (3)
Wachovia Mortgage, FSB is a federally chartered bank subject to the
Home Owner's Loan Act ("HOLA"); and (4) Wachovia Mortgage, FSB
merged with Wells Fargo, N.A. in November 2009. ECF No. 33
("RJN"). Plaintiff does not oppose the RJN. Because these facts
are capable of accurate and ready determination by resort to
sources whose accuracy cannot reasonably be questioned, the Court
GRANTS Wachovia's request pursuant to Federal Rule of Evidence
201(b).
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Pey filed a declaration in support of the Motion for Preliminary
Injunction. ECF No. 24-1.

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on which the payments in the TILDS are based; (2) that the payment

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amounts listed in the TILDS payment schedule are insufficient to

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pay both principal and interest; and (3) that following the payment

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schedule is guaranteed to result in the principal balance of the

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loan increasing over time, a process known as "negative

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amortization."

FAC ¶ 1.

Pey further alleges that the Note states that each payment

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would be applied to both principal and interest, when in fact none

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of his payments have gone toward principal.

Id. ¶ 18.

He alleges

United States District Court

For the Northern District of California

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that he reasonably believed "that he would be able to refinance his

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loan and get a new loan before his scheduled payment significantly

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increased."

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for the first ten years of the payment schedule were not in fact

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based on the APR listed in the TILDS.

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based on a "teaser rate" instead and were therefore "insufficient

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to pay all of the interest due, let alone both principal and

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interest, which was absolutely certain to result in negative

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amortization."

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failed to disclose . . . that due to the negative amortization that

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was purposefully built into [the loan], Plaintiff would be unable

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to refinance his home as there would be little or no equity left to

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refinance."

Id. ¶ 17.

However, he alleges, the payments listed

Id.; Mot. at 19.

Id. ¶ 18.

Rather, they were

Pey alleges that "Defendants

FAC ¶ 17.

After this case was removed to federal court, a Wachovia

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representative contacted Plaintiff and asked him to submit

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paperwork to be considered for a loan modification.

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14.

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but did not hear back from Wachovia despite repeated attempts to

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contact its representative.

Pey Decl. ¶

Pey declares that he submitted all of the requested paperwork

Id. ¶ 15.

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Pey fell into default on his loan in the spring of 2009, when

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his monthly payments doubled from $1,800 to $3,600.4

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9-10.

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recorded a Notice of Default and Election to Sell Under the Deed of

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Trust with the Alameda County Recorder's Office.

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("Notice of Default").

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Plaintiff was in arrears of $30,586.65 at that time.

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trustee's sale of the Property was scheduled for September 26,

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2011.

Pey Decl. ¶¶

On September 8, 2009, NDeX, as trustee for Wachovia,

Pey Decl. ¶ 16.

Pey Decl. Ex. 4

The Notice of Default indicates that
Id.

A

On August 11, 2011, Plaintiff filed the

United States District Court

For the Northern District of California

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instant Motion for a Preliminary Injunction to bar the foreclosure

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sale.

See Pl.'s Mot.

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C.

The Hearing on Plaintiff's Motion

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On September 23, 2011, the Court held a hearing on Plaintiff's

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Motion.

See ECF No. 52 ("Sep. 23, 2011 Tr.").

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extensively.

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Wachovia had complied with California Civil Code § 2923.5 by

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attempting to contact Plaintiff to explore options other than

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foreclosure, and (2) whether Plaintiff had provided the necessary

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documentation to Wachovia in conjunction with Plaintiff's

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application for a loan modification.

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could not agree as to whether Plaintiff had provided the necessary

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paperwork in support of his loan modification application, the

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Court ordered the parties to meet and confer, ensure that Plaintiff

Id.

Plaintiff testified

Most of the hearing focused on: (1) whether

Id.

Because the parties

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Plaintiff argues that he fell in default on the loan "solely
because Wachovia paid the plaintiff's property tax bill while the
plaintiff was in the midst of negotiating with the Alameda County
Assessor's Office to lower the assessed value because the property
had been assessed at an artificially high rate." Mot. at 4.
Wachovia argues that Plaintiff's default on the loan forced
Wachovia to pay the property taxes to avoid a tax lien. MTD at 2.

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provided all of the documents Wachovia required, and discuss

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whether modification of Plaintiff's loan might be in the interests

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of both parties.

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within thirty days whether they were able to reach a modification

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agreement.

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outcome of the parties' negotiations and, if necessary, the Court's

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ruling on Plaintiff's Motion.

The Court ordered the parties to report

The Court postponed the trustee's sale pending the

Id. at 42:6-17.

On October 26, 2011, Wachovia filed a report explaining that,

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Id.

having received and considered all necessary financial records from

United States District Court

For the Northern District of California

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Plaintiff, modification of Plaintiff's loan was not a feasible

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option.

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even if it reduced the principal of Plaintiff's loan from $507,118

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to $400,000, extended the life of the loan to forty years, and

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fixed the interest rate as low as two percent, the monthly payment

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would still exceed thirty-one percent of Plaintiff's monthly

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income, and therefore, would exceed an acceptable debt-to-income

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ratio for modification under both Wachovia's internal standards and

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federal Home Affordable Modification Program ("HAMP") standards.

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Supp. Dolan Decl. ¶¶ 5-12.5

ECF No. 50 ("Wachovia Rep.").

Wachovia explained that,

Having resolved whether modification of Plaintiff's loan could

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potentially resolve the need for further litigation in this case,

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the Court now proceeds to address the instant motions.

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first addresses Plaintiff's Motion for a Preliminary Injunction and

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then proceeds to address Defendants' Motion to Dismiss.

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///

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The Court

Michael Dolan ("Dolan"), Operations Analyst for Wachovia,
submitted a declaration in support of Wachovia's Report. ECF No.
50-2 ("Supp. Dolan Decl.").
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III. PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

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A.

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Federal Rule of Civil Procedure 65 permits the issuance of a

Legal Standard

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preliminary injunction to preserve the positions of the parties

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until a full trial can be conducted.

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Concordia Homes, 434 F.3d 1150, 1158 (9th Cir. 2006).

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injunctive relief, a plaintiff "must establish that he is likely to

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succeed on the merits, that he is likely to suffer irreparable harm

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in the absence of preliminary relief, that the balance of equities

LGS Architects, Inc. v.
To warrant

United States District Court

For the Northern District of California

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tips in his favor, and that an injunction is in the public

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interest."

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374 (2008).

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balanced, so that a stronger showing of one element may offset a

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weaker showing of another."

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Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011).

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Plaintiff's proof of likelihood of success is limited to raising

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"serious questions going to the merits," but the balance of

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hardships tips sharply in Plaintiff's favor, a preliminary

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injunction may be appropriate.

Winter v. Natural Res. Def. Council, 129 S. Ct. 365,
Within the Ninth Circuit, these elements "are

Alliance for the Wild Rockies v.
Thus, where the

Id.

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B.

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Plaintiff has the burden of, at a minimum, raising "serious

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questions going to the merits" of his claims in order to warrant

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preliminary injunctive relief.

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Court finds that Plaintiff has not met this burden and therefore

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DENIES Plaintiff's Motion.

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Discussion

Id.

For the following reasons, the

Although Plaintiff's FAC contains seven claims, he only bases

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his Motion on three of these claims.

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Defendants failed to comply with California Civil Code section

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First, he argues that

Notice of Default invalid.

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Wachovia fraudulently concealed the fact that negative amortization

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was guaranteed to occur if Plaintiff followed the TILDS payment

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schedule.

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UCL by failing to make certain disclosures and by "making the terms

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of the loan so obfuscating that an ordinary consumer could not

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possibly understand them."

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explicitly based on any of the claims in his FAC, Plaintiff argues

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United States District Court

2923.5 ("section 2923.5"), and contends that this renders the

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For the Northern District of California

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that Wachovia breached a settlement agreement it entered into with

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the State of California, pursuant to which Wachovia promised to

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expeditiously offer loan modifications to customers who were sold

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"pick-a-payment" loans.

Id. at 13.

1.

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Mot. at 8.

Second, he argues that

Third, he argues that Wachovia violated the

Id. at 21.

Lastly, although not

Mot. at 2; Reply at 2.

Section 2923.5 claim

Section 2923.5 requires "before a notice of default may be

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filed, that a lender contact the borrower in person or by phone to

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'assess' the borrower's financial situation and 'explore' options

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to prevent foreclosure."

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

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reach the borrower, then it may comply with the statute by meeting

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certain "due diligence" requirements in attempting to contact the

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borrower.

Mabry v. Super. Ct., 185 Cal. App. 4th
If the lender is unable to actually

Cal. Civ. Code § 2923.5(a)(1).6

The lender's obligation

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In order to perform due diligence, as defined in the statute, a
lender must do all of the following: send the borrower a letter by
first-class mail that includes the toll-free telephone number made
available by HUD to find a HUD-certified housing counseling agency;
attempt to contact the borrower by telephone at least three times
at different hours and on different days; send a certified letter
with return receipt requested; provide a means for the borrower to
contact the lender in a timely manner, including a toll-free
telephone number that will provide access to a live representative
during business hours; and include a "prominent" link on its
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to "assess" the borrower's financial situation and "explore"

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options to avoid foreclosure can be satisfied by simply asking the

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borrower "why can't you make your payments?" and "telling the

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borrower the traditional ways that foreclosure can be avoided

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(e.g., deeds 'in lieu,' workouts, or short sales)."

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Cal. App. 4th at 232.

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lender "to become a loan counselor itself."

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remedy for non-compliance [with section 2923.5] is a simple

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postponement of the foreclosure sale, nothing more."

United States District Court

The statute does not place a duty on the
Id. at 219.

"The

Id. at 214.

Here, Plaintiff submitted a sworn declaration stating that he

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For the Northern District of California

Mabry, 185

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was never contacted in person or by telephone by any Wachovia

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representative to explore his options to avoid foreclosure before

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the Notice of Default was recorded.

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provided a declaration stating that its representatives attempted

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to contact Plaintiff by telephone on seven different days in

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October 2008.

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Wachovia sent letters to Plaintiff by certified mail on November 20

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and 25, 2008.

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receipts bearing Plaintiff's address are attached to the

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declaration.

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tried to contact Plaintiff by telephone nine times in February 2009

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and sent Plaintiff another letter by certified mail on March 5,

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2009.

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the March 2009 letter is attached to the declaration, but it is not

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signed.

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Dolan Decl. ¶ 3(a).7

Id. ¶ 3(c).

Id.

Id. Ex. C.

Wachovia

Dolan further declares that

Signed copies of certified mail

Exs. A-B.

Id. ¶¶ 3(d)-(e).

Pey Decl. ¶ 12.

Dolan declares that Wachovia again

A copy of the certified mail receipt for

Plaintiff declares that he "never received any

Internet homepage that provides options available to borrowers
unable to afford their mortgage. Id. § 2923.5(g).
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Dolan also filed a declaration in opposition to Plaintiff's
Motion. ECF No. 29 ("Dolan Decl.").
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certified letters [from Defendants] in the summer of 2009."

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Decl. ¶ 12.

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Pey

At the September 23, 2011 hearing, the Court asked Plaintiff

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about Wachovia's contentions that it had contacted him via

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telephone and certified mail.

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me, but they never mentioned anything about loan modification.

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was about payments."

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that he brought up the issue of loan modification in these

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telephone conversations.

Plaintiff stated that: "They called

Sep. 23, 2011 Tr. at 17:17-19.

Id. at 17:20-25.

It

He testified

With regard to whether

United States District Court

For the Northern District of California

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he received certified letters from Wachovia, Plaintiff testified

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that he received one or two "certified letters in regards of -- of

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a letter that's telling about making a payment, but never any

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certified letters in regards to the loan modification."

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27:21-23.

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due' or whatnot, 'and can you make this payment of' -- whatsoever."

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Id. at 28:8-10.

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information that he cannot recall as well as a phone number where

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he could reach a Wachovia loan representative.

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Id. at

He described the letters as saying, "'You have been past

He testified that the letters contained additional

In sum, Plaintiff testified that he received phone calls and

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certified letters from Wachovia regarding his loan, but that these

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calls and letters did not offer him the option of loan

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modification.

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but contends that he broached the subject.

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the certified letters as demands for payment, but he concedes that

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the letters contained additional information that he cannot recall

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as well as a telephone number for a Wachovia representative.

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on Plaintiff's testimony and the documentary evidence submitted by

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Wachovia, it appears likely that Wachovia satisfied its duties

He admits that modification discussions took place

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He also characterizes

Based

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under section 2923.5.

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his burden of raising "serious questions going to the merits" of

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his claim.
2.

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At a minimum, Plaintiff has failed to meet

Fraudulent Omission and UCL Claims

Plaintiff argues that Defendants committed fraud by concealing

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the fact that his loan was a "negative amortization loan."

Mot. at

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13, 17.

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"prongs" of the UCL by engaging in unlawful, unfair, and fraudulent

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business practices.

He also alleges that Defendants violated all three

Plaintiff argues that Defendants' conduct was

United States District Court

For the Northern District of California

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unlawful because they failed to make certain disclosures required

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by the Truth in Lending Act ("TILA").

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was unfair and fraudulent because the terms of the loan were

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deliberately obfuscated so that no ordinary consumer could

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understand them.

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He argues that their conduct

Mot. at 21.

Defendants argue in response that Plaintiff's UCL and

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fraudulent omissions claims are barred by the doctrine of res

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judicata due to a recent class action settlement and judgment in In

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re Wachovia Corp. "Pick-A-Payment" Mortg. Mktg. & Sales Practices

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Litig., No. 5:09-md-02015-JF, 2011 U.S. Dist. LEXIS 55351 (N.D.

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Cal. May 17, 2011) ("In re Wachovia Corp.").

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more fully in section IV.B.1 below, the Court agrees with

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Defendants.

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going to the merits" of his UCL and fraudulent omissions claims.

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As the Court explains

Accordingly, Plaintiff cannot show "serious questions

3.

Alleged Breach of Settlement Agreement with the
State of California

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Lastly, Plaintiff argues that Wachovia breached its settlement

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with the State of California, entered into on December 21, 2010, by

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failing to contact Plaintiff regarding loan modification until

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1

after he filed this lawsuit.

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("Assurance Agreement").

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a matter of law because the settlement agreement expressly states

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that it does not create a private right of action.

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Reply at 2; Pey Decl. Ex. 5

Defendant argues that this claim fails as

The Court agrees with Defendant.

The settlement agreement

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states "[t]his Assurance is not intended to confer upon any person

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any rights or remedies, including rights as a third party

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beneficiary."

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"[t]his Assurance is not intended to create a private right of

Assurance Agreement at 25.

It further states,

United States District Court

For the Northern District of California

10

action on the part of any person or entity other than the parties

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hereto."

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he cannot state a breach of contract claim based on Wells Fargo's

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alleged failure to comply with its terms.

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Id. at 26.

As Plaintiff is not a party to the agreement,

Because Plaintiff has failed to show a likelihood of success

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on the merits, or even to raise serious questions going to the

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merits, of any of his claims, he has failed to satisfy the first

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requirement for a preliminary injunction under Winters.

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Accordingly, the Court need not address whether Plaintiff has

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satisfied the remaining Winters factors.

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DENIED.

Plaintiff's Motion is

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IV. DEFENDANTS' MOTION TO DISMISS

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A.

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A motion to dismiss under Federal Rule of Civil Procedure

Legal Standard

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

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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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Navarro v.

"Dismissal can be based

1

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

2

1988).

3

should assume their veracity and then determine whether they

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plausibly give rise to an entitlement to relief."

5

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

6

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."

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

Ashcroft v.

However, "the tenet that a

Threadbare

Id. (citing Bell Atl.

United States District Court

For the Northern District of California

10

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

The allegations made

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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

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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.

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As noted above, Plaintiff's FAC asserts seven claims: (1)

Discussion

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violation of California's UCL (against all Defendants); (2)

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fraudulent omissions (against Wachovia); (3) breach of contract

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(against Wachovia); (4) breach of the covenant of good faith and

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fair dealing (against Wachovia); (5) violation of California Civil

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Code § 2923.5 (against all Defendants); (6) wrongful foreclosure

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(against all Defendants); and (7) declaratory relief (against all

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Defendants).

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dismissed.

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Defendants argue that all seven claims should be

For the following reasons, the Court GRANTS IN PART and DENIES
IN PART Defendants' Motion.

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1.

1

Res Judicata Effect of Class Action Settlement

On May 17, 2011, Judge Fogel of this district granted final

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approval of a multi-district class action settlement encompassing

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as class members all persons who entered into "Pick-a-Payment"

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loans issued by Wachovia between August 1, 2003 and December 31,

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2008.

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After approving the settlement, the Court entered judgment,

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dismissing the action with prejudice.

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Pey, Plaintiffs in the case argued that the loans violated the TILA

In re Wachovia Corp., 2011 U.S. Dist. LEXIS 55351, at *6.

09-02015 ECF No. 208.

Like

United States District Court

For the Northern District of California

10

and various state laws because the relevant loan documents failed

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to make adequate disclosures regarding the certainty of negative

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amortization, the actual payment schedules, the interest rates on

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which these schedules were based, and the full terms of the

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parties' legal obligations.

Id. at *5.

Wachovia argues that Plaintiff's claims, except his section

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2923.5 claim,8 are barred by the doctrine of res judicata as a

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result of the judgment in In re Wachovia Corp.

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Plaintiff does not dispute that he was a member of one of the

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settlement classes9 and did not opt out; rather, he contends that

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he did not receive actual notice of the proposed settlement and

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therefore was not afforded the opportunity to opt out.

MTD at 2-4.

MTD Opp'n

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8

In their MTD, Defendants argue that all of Plaintiff's claims are
precluded. However, in their Supplemental Opposition to
Plaintiff's Motion for Preliminary Injunction they concede that
Plaintiff's section 2923.5 claim is not barred by the settlement in
In re Wachovia Corp. ECF No. 54 ("Defs.' Supp. Opp'n") at 4.
9

Judge Fogel certified three classes, consisting of persons who
had entered into but no longer hold the loans at issue, persons who
hold the loans but are not in default, and persons who hold the
loans and are in default. Plaintiff falls into the latter
category.

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at 22.

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judgment even if he did not receive actual notice of the

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settlement.

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part and finds that some, but not all, of Plaintiff's claims are

5

precluded by the settlement in In re Wachovia Corp.

6

Defendants argue in reply that Plaintiff is bound by the

MTD Reply at 2.

The Court agrees with Defendants in

Under the doctrine of res judicata, "a prior valid judgment

7

operates as an absolute bar to a second suit between the same

8

parties or their privies based on the same cause of action not only

9

in respect of every matter actually litigated, but also as to every

United States District Court

For the Northern District of California

10

ground of recovery or defense which might have been presented."

11

Mirin v. Nevada ex rel., Public Serv. Comm'n, 547 F.2d 91, 94 (9th

12

Cir. 1976).

13

judgment was a class action settlement.

14

Corp., 80 F.R.D. 626, 648-49 (N.D. Cal. 1978) (noting that

15

"restricting the res judicata effect of class action settlements

16

would lessen a defendant's incentive to settle.").

17

"very purpose of the procedural safeguards set forth in [Federal

18

Rule of Civil Procedure 23] is to mitigate the sometimes harsh

19

consequences of res judicata by requiring that representation, and,

20

where applicable, notice be adequate."

21

Res judicata applies even in cases where the prior
Valerio v. Boise Cascade

Indeed, the

Id.

Whether Plaintiff received actual notice of the settlement is

22

irrelevant to whether his claims are precluded by the judgment in

23

In re Wachovia Corp.

24

"notice plus an opportunity to be heard and participate in the

25

[prior] litigation" before the judgment can be found to bind him.

26

Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811 (1985)

27

("Shutts").

28

entitle a class member to "actual notice," but rather to the best

Due process requires a class member receive

However, the Ninth Circuit has held that this does not

15

1

notice practicable, reasonably calculated under the circumstances

2

to apprise him of the pendency of the class action and give him a

3

chance to be heard.

4

Cir. 1994) (holding that absent class member's due process rights

5

were not violated where he did not receive notice of settlement in

6

time to opt out, and noting that "[w]e do not believe that Shutts

7

changes the traditional standard for class notice from 'best

8

practicable' to 'actually received' notice") (internal quotations

9

omitted).

Silber v. Mabon, 18 F.3d 1449, 1453-54 (9th

Indeed, allowing absent class members to easily escape

United States District Court

For the Northern District of California

10

the preclusive effect of settlement by claiming that they did not

11

receive actual notice would undermine the ability of the class

12

action mechanism to prevent numerous identical suits with

13

potentially inconsistent results.

14

In In re Wachovia Corp., notice was sent to class members via

15

U.S. mail, and additional notice was published on the Internet and

16

in USA Today.

17

practicable means of informing class members of their rights under

18

the settlement.

19

at *11; see also Silber, 18 F.3d at 1453 (affirming district

20

court's conclusion that notice by direct mail and publication was

21

best practicable notice).

22

notice procedure approved by Judge Fogel failed to satisfy Rule 23

23

or due process.

24

settlement simply by arguing that he did not receive actual notice.

25

The Court's conclusion that Plaintiff is bound by the judgment

Judge Fogel concluded that these were the best

In re Wachovia Corp., 2011 U.S. Dist. LEXIS 55351,

Plaintiff does not contend that the

He cannot escape the preclusive effect of the

26

in In re Wachovia Corp., however, does not necessarily mean that

27

every one of his claims in the instant case is barred.

28

judicata bars "any subsequent suit on claims that were raised or

16

Res

1

could have been raised in a prior action."

Cell Therapueutics,

2

Inc. v. Lash Group, Inc., 586 F.3d 1204, 1212 (9th Cir. 2010).

3

Plaintiff's first four claims were raised in the class action and

4

fall squarely within those dismissed by Judge Fogel pursuant to the

5

settlement agreement.10

6

that Plaintiff's claim for violation of section 2923.5 is not

7

precluded.

8

precluded because it could not have been raised in the class

9

action.

As noted above, however, Wachovia concedes

Moreover, Pey's claim for wrongful foreclosure is not

A claim for wrongful foreclosure requires the occurrence

United States District Court

For the Northern District of California

10

of a foreclosure sale, Vega v. JP Morgan Chase Bank, N.A., 654 F.

11

Supp. 2d 1104, 1113 (E.D. Cal. 2009), and the settlement classes

12

did not include individuals who lost their homes as a result of

13

foreclosure.

14

*6-7.

15

declaratory relief is only precluded to the extent that it seeks a

16

declaration of the parties' legal rights with respect to the first

17

four claims.

In re Wachovia Corp., 2011 U.S. Dist. LEXIS 55351, at

Lastly, as explained further below, Plaintiff's claim for

In sum, Plaintiff's first, second, third, and fourth claims

18
19

are precluded by the judgment in In re Wachovia Corp. and are

20

therefore DISMISSED WITH PREJUDICE.11

The Court proceeds to

21
22
23
24
25
26
27
28

10

Indeed, the Plaintiff in Mandrigues v. World Sav., Inc., No. C
07-04497 JF, which was the lead action in the consolidated actions
that comprised In re Wachovia Corp., raised claims identical to
Pey's first four claims. See 07-04497 ECF No. 24 ("Mandrigues
SAC").

11

Plaintiff asserts his first claim for violation of the UCL
against both Wachovia and NDeX. Because NDeX was not a party to
the settlement in In re Wachovia Corp., Plaintiff's UCL claim is
not barred by the settlement as it pertains to NDeX. However,
Plaintiff alleges no facts to support a UCL claim against NDeX.
Plaintiff's sole allegation pertaining to NDeX is the allegation
that Wachovia, through its agent NDeX, recorded a Notice of
Default. FAC ¶ 43. NDeX is not mentioned in any of the forty17

1
2

address his fifth, sixth, and seventh claims.
2.

Violation of Section 2923.5 (Claim 5)

3

Defendants argue that Plaintiff's claim for violation of

4

section 2923.5 should be dismissed because: (1) it is preempted by

5

HOLA; (2) the Notice of Default shows that Wachovia complied with

6

section 2923.5; and (3) Plaintiff has already received the remedy

7

provided by section 2923.5.

8

The Court agrees with Plaintiff.

9

Plaintiff disputes these arguments.

The California Court of Appeal has narrowly interpreted

United States District Court

For the Northern District of California

10

section 2923.5 "as to avoid having the state law invalidated by

11

federal preemption."

12

Circuit has not ruled on this question, and district courts within

13

the Ninth Circuit have come down on different sides of the issue.

14

See Loder v. World Savings Bank, No. 11-0053, 2011 WL 1884733, at

15

*3 (noting that most district courts have found section 2923.5

16

preempted, but expressing concern "that such a broad interpretation

17

of what it means to 'service' or 'participate in' a mortgage could

18

operate to preempt most all California foreclosure statutes where

19

the foreclosing entity is a national lender").

20

Court has held that HOLA does not preempt section 2923.5 as

21

narrowly construed in Mabry.

22

No. C-11-920 SC, 2011 U.S. Dist. LEXIS 62165, at *14 n.8 (N.D. Cal.

23

June 10, 2011).

24

HOLA does not preempt Plaintiff's section 2923.5 claim.

25

Mabry, 185 Cal. App. 4th at 231.

The Ninth

Specifically, this

See Shaterian v. Wells Fargo Bank,

For the same reasons, the Court finds here that

Defendants next argue that they have complied with section

26
27
28

eight paragraphs that provide the allegations underpinning
Plaintiff's UCL claim. See FAC ¶¶ 44-92. Accordingly, the Court
dismisses Plaintiff's UCL claim as it pertains to NDeX as well as
Wachovia.
18

1

2923.5 because the Notice of Default purportedly complies with

2

section 2923.5(b), which requires a Notice of Default to include a

3

declaration that the mortgagee has contacted the borrower or

4

satisfied the due diligence requirements of 2923.5(g).

5

failed to include the Notice of Default in their Request for

6

Judicial Notice, so the Court cannot properly determine whether or

7

not it did in fact contain the declaration required by section

8

2923.5(b).12

9

to the Notice of Default as required by section 2923.5(b) has no

Defendants

Regardless, whether Defendants attached a declaration

United States District Court

For the Northern District of California

10

bearing on whether they actually complied with the requirements of

11

section 2923.5(a) by contacting Pey or exercising due diligence in

12

an attempt to contact him.

13

section 2923.5 simply by pointing to a declaration on the Notice of

14

Default.

Defendants cannot prove compliance with

15

Lastly, Defendants argue that, because the Court postponed the

16

trustee's sale formerly scheduled for September 26, 2011, Plaintiff

17

has already received the relief to which he would be entitled under

18

section 2923.5.

19

violation of section 2923.5 is not merely a postponement of the

20

foreclosure sale, but rather a postponement of the sale until the

21

foreclosing party complies with the statute.

22

cannot determine, based on the pleadings or judicially noticed

23

documents, whether Defendants complied with all aspects of section

This argument fails because the remedy for

Because the Court

24
25
26
27
28

12

Defendants' MTD refers the Court to Exhibit F of Defendants'
Request for Judicial Notice ("RJN"), claiming that Exhibit F is a
copy of the Notice of Default at issue in this case. MTD at 15.
Exhibit F is not the Notice of Default. See ECF No. 38. The
Notice of Default is not included in Defendants' RJN. Even if it
were, however, Defendants' argument would still fail as explained
above.

19

1

2923.5, the Court cannot conclude at this stage that Plaintiff has

2

received all the relief to which he would be entitled if he were to

3

succeed on his section 2923.5 claim.13
Accordingly, Defendants' MTD is DENIED with regard to

4
5

Plaintiff's section 2923.5 claim.
3.

6

Wrongful Foreclosure (Claim 6)

Defendants argue that Plaintiff's wrongful foreclosure claim

7
8

fails because no foreclosure sale has taken place.

9

not offer a cogent response to this argument.

Plaintiff does

The Court agrees

United States District Court

For the Northern District of California

10

with Defendants.

11

premature [when] there has been no foreclosure of the property."

12

Vega v. JP Morgan Chase Bank, N.A., 654 F. Supp. 2d 1104, 1113

13

(E.D. Cal. 2009) (citing Munger v. Moore, 11 Cal. App. 3d 1, 7

14

(Cal. Ct. App. 1970)).

15

wrongful foreclosure because he does not allege that a foreclosure

16

sale has taken place.

17

because, per the Court's order at the September 23, 2011 hearing,

18

no foreclosure sale has occurred.

19

Plaintiff's wrongful foreclosure claim WITH PREJUDICE.
4.

20

"[A] purported wrongful foreclosure claim is

Plaintiff thus fails to state a claim for

Plaintiff is unable to cure this defect

Accordingly, the Court DISMISSES

Declaratory Relief (Claim 7)

Pey's seventh claim seeks a declaration concerning the rights

21
22

and duties of the parties with respect to his first six claims.

23

This claim is ultimately a request for relief rather than an

24

13

25
26
27
28

In ruling on Defendant's MTD, the Court cannot consider the
testimony given by Plaintiff at the hearing on Plaintiff's Motion
for a Preliminary Injunction. As a general rule, "a district court
may not consider any material beyond the pleadings in ruling on a
Rule 12(b)(6) motion." Lee v. City of Los Angeles, 250 F.3d 668,
688 (9th Cir. 2001). Exceptions to this rule exist with regard to
material properly submitted with the complaint, materials of
uncontested authenticity upon which the complaint necessarily
relies, and materials properly subject to judicial notice. Id.
20

1

independent claim, and Pey is not entitled to such relief absent a

2

viable underlying claim.

3

1160 SC, 2009 U.S. Dist. LEXIS 44158, at *8 (N.D. Cal. May 26,

4

2009).

5

declaratory relief to the extent it seeks a declaration concerning

6

any of Pey's claims other than his claim for violation of section

7

2923.5.

See Lomboy v. SCME Mortg. Bankers, C-09-

Accordingly, the Court DISMISSES Pey's claim for

8
9

United States District Court

For the Northern District of California

10

V. CONCLUSION
Based on the foregoing, Plaintiff Richard Pey's Motion for a

11

Preliminary Injunction is DENIED.

12

Defendants Wachovia Mortgage Corporation and Wells Fargo, N.A., and

13

joined by NDeX West, LLC, is GRANTED IN PART and DENIED IN PART.

14

The Motion to Dismiss filed by

Defendants' Motion to Dismiss is GRANTED as to Plaintiff's

15

first, second, third, fourth, and sixth claims, and these claims

16

are DISMISSED WITH PREJUDICE.

17

DENIED as to Plaintiff's fifth and seventh claims.

18

Defendants' Motion to Dismiss is

The hearing scheduled for November 18, 2011, is hereby

19

VACATED.

The parties shall appear for a case management conference

20

on December 9, 2011, at 10:00 a.m. in Courtroom 1, on the 17th

21

floor, U.S. Courthouse, 450 Golden Gate Avenue, San Francisco, CA

22

94102.

23

least seven (7) days prior to the conference.

The parties shall file a joint case management statement at

24
25

IT IS SO ORDERED.

26
27
28

Dated: November 15, 2011
UNITED STATES DISTRICT JUDGE

21