Flores et al v. Wells Fargo Bank, N.A. et al
Filing
33
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS MOTIONS TO DISMISS AND STRIKE (Dkt. Nos. 5,7.). Signed by Magistrate Judge Jacqueline Scott Corley on 6/26/2012. (ahm, COURT STAFF) (Filed on 6/26/2012)
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IN THE UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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ROLAND FLORES, JR., et al.,
Northern District of California
United States District Court
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ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’
MOTIONS TO DISMISS AND STRIKE
(Dkt. Nos. 5,7.)
Plaintiffs,
v.
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Case No.: 11-6619 JSC
WELLS FARGO BANK, N.A., aka
WACHOVIA MORTGAGE, et al.,
Defendants.
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Plaintiffs challenge Defendants‟ foreclosure on Plaintiffs‟ home, alleging numerous
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causes of action including Breach of Contract and Wrongful Foreclosure. Now pending
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before the Court are Defendants‟ motions to dismiss, or in the alternative, strike portions of
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Plaintiffs‟ Complaint. (Dkt. Nos. 5, 7.) After reviewing the papers submitted by both parties,
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with the benefit of oral argument on February 16, 2012, and upon being notified by the parties
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that their efforts at settlement have been unsuccessful, the Court DENIES the motion to
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dismiss the Breach of Contract claim and GRANTS the motion to dismiss all other claims.
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The Court also GRANTS in part and DENIES in part the motion to strike.
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ALLEGATIONS OF THE COMPLAINT
On February 19, 2008, Plaintiffs Roland and Karen Flores, a married couple, borrowed
$767,505.00 from Wells Fargo‟s predecessor, Wachovia Mortgage, FSB. (Dkt. No. 30 at 2.)
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The loan was memorialized by a promissory note and secured by a deed of trust recorded
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against 341 Granelli Ave, Half Moon Bay, CA (“Property”). (Dkt. No. 30 at 2.) Plaintiffs
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subsequently entered into a Modification Agreement with Defendants in which Defendants
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agreed to charge monthly “Interest Only” payments on the loan balance that would adjust on
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an annual basis. (Dkt. No. 1 ¶ 11.) At the time they entered the Agreement, Defendants‟
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representatives told Plaintiffs that any unpaid taxes and insurance would be added to the
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principal balance due, and monthly payments under the Modification Agreement would not
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change. (Dkt. No. 1 ¶ 12.) Notwithstanding this oral promise, Defendants charged amounts
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over and above the amounts stated in the Agreement and breached the oral promise that
No. 1 ¶¶ 23-24.) Specifically, in January 2010, Defendants added $1,196.46 in “escrow” and
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Northern District of California
unpaid taxes and insurance would be added to the principal and not charged monthly. (Dkt.
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United States District Court
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“shortage” charges for taxes and insurance to the $2,450.51 monthly interest payments, so the
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new total monthly payment became $3,646.97. (Dkt. No. 1 ¶¶ 11, 13.) Plaintiffs paid these
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additional charges, but their February 2010 payment was not credited to their account.
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Accordingly, in March 2010, Defendants began sending statements to Plaintiffs showing “past
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due” balances and indicating a minimum monthly payment of $7,293.94. (Dkt. No. 1 ¶ 15.)
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Plaintiffs continued to pay $3,646.97 per month through August 2010 and Defendants
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accepted those payments. (Dkt. No. 1 ¶ 16.)
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Plaintiff Roland Flores was involved in an automobile accident in September 2010
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which resulted in “a significant reduction in Plaintiffs‟ income” as disability payments were
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delayed through no fault of Plaintiffs. (Dkt. No. 1 ¶¶ 17-18.) The next month, Plaintiffs
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applied for a loan modification based on hardship. (Dkt. No. 1 ¶ 19.) Defendants
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subsequently denied Plaintiffs‟ application on the ground that their policies “[did] not allow
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them to process another loan modification for Plaintiffs.” (Dkt. No. 1 ¶ 21.) Thereafter,
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Plaintiffs defaulted on the loan and a notice of default was recorded on February 7, 2011.
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(Dkt. No. 30 at 2.) On November 7, 2011, a Notice of Trustee‟s Sale was recorded. (Dkt. No.
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30 at 2.)
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PROCEDURAL HISTORY
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Plaintiffs filed this action in state court on November 21, 2011, which Defendants
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removed to this Court on the ground of diversity jurisdiction. Plaintiffs make claims for
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Breach of Contract, Promissory Estoppel, Wrongful Foreclosure, Breach of Covenant of Good
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Faith and Fair Dealing, violations of the California Business & Professional Code § 17200
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(Unfair Business Practices), and Accounting.
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After Defendants filed the pending motions to dismiss and strike, the Court sua sponte
requirement is met. (Dkt. No. 24.) After hearing oral argument on February 16, 2012, the
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Court stayed any decision on Defendants‟ motions pending the parties‟ settlement efforts.
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Having been advised that those efforts have been unsuccessful, the Court now decides
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Northern District of California
raised the issue of subject matter jurisdiction and concluded that the diversity of citizenship
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United States District Court
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Defendants‟ motions. (Dkt. Nos. 5, 7.)
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DISCUSSION
A. Defendants’ 12(b)(6) Motion to Dismiss
Pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed for
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failure to state a claim upon which relief may be granted based on either the lack of a
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cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal
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theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). For purposes of
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evaluating a motion to dismiss, the court “must presume all factual allegations of the
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Complaint to be true and draw all reasonable inferences in favor of the nonmoving party.”
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Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, “[t]hreadbare
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recitals of the elements of a cause of action, supported by mere conclusory statements, do not
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suffice.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009). The complaint must plead “enough
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facts to state a claim for relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550
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U.S. 544, 570 (2007). A claim is plausible on its face “when the plaintiff pleads factual
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content that allows the court to draw the reasonable inference that the defendant is liable for
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the misconduct alleged.” Iqbal, 129 S.Ct. at 1949. “The plausibility standard is not akin to a
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„probability requirement,‟ but it asks for more than a sheer possibility that a defendant has
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acted unlawfully.” Id. Courts may dismiss a case without leave to amend only if the plaintiff
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is unable to cure the defect by amendment. Lopez v. Smith, 203 F.3d 1122, 1129 (9th Cir.
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2000).
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1. Breach of Contract
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Plaintiffs contend that Defendants breached their original Modification Agreement by
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charging amounts over and above those stated in the contract. In order to state a claim for
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breach of contract, Plaintiffs must allege “the existence of the contract, performance by the
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plaintiff or excuse for nonperformance, breach by the defendant, and damages.” Lucia v.
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Wells Fargo Bank, N.A., 798 F. Supp. 2d 1059, 1066-67 (N.D. Cal. 2011) (internal citations
contract: “[Defendants] entered into a Modification Agreement in which [Defendants] agreed
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Northern District of California
omitted). Plaintiffs‟ allegations satisfy these elements. They allege the existence of a
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United States District Court
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to charge stated monthly „Interest Only‟ payments on the loan balance which would adjust on
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an annual basis.” (Dkt. No. 1, Ex. A, ¶ 11.) They allege further that Defendants breached the
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written contract “by charging excessive amounts to Plaintiffs over and above the amounts
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stated in the Agreement, and by adding unauthorized monthly charges to Plaintiffs‟ account.”
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(Dkt. No. 1, Ex. A, ¶ 23.) They also allege that at the time they entered the written contract
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Defendants told them that any unpaid taxes and insurance would not increase their monthly
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payments and Defendants breached this oral promise. (Dkt. No. 1, Ex. A, ¶¶ 12, 24.) Finally,
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Plaintiffs allege that they incurred monetary damages as a result of the increased payments.
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(Dkt. No. 1, Ex. A, ¶ 25.)
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Defendants nonetheless move to dismiss on the ground that the alleged oral promise is
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banned by the parol evidence rule because it flatly contradicts the written Modification
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Agreement. California Civil Procedure Code Section 1856 governs parol evidence:
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(a) Terms set forth in a writing intended by the parties as a final expression of their
agreement with respect to such terms as are included therein may not be
contradicted by evidence of any prior agreement or of a contemporaneous oral
agreement. (b) The terms set forth in a writing described in subdivision (a) may
be explained or supplemented by evidence of consistent additional terms unless
the writing is intended also as a complete and exclusive statement of the terms of
the agreement.
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Cal. Civ. Proc. Code § 1856. This rule requires a court to first ask if the writing was intended
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to be an integration, or a complete and final expression of the parties‟ agreement, and second
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if the agreement is susceptible to the meaning argued by the party offering the evidence.
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Davis Wine Co. v. Vina Y Bodega Estampa, S.A., 823 F. Supp. 2d 1159, 1170 (D. Or. 2011)
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(internal citations omitted). The court in Banco Do Brasil, S. A. v. Latian, Inc. reduced the
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integration analysis to four questions:
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Northern District of California
United States District Court
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(1) does the written agreement appear on its face to be a complete agreement;
obviously, the presence of an „integration‟ clause will be very persuasive, if not
controlling, on this issue; (2) does the alleged oral agreement directly contradict
the written instrument; (3) can it be said that the oral agreement might naturally
have been made as a separate agreement or, to put it another way, if the oral
agreement had been actually agreed to, would it certainly have been included in
the written instrument; and (4) would evidence of the oral agreement be likely to
mislead the trier of fact.
Id. 234 Cal. App. 3d 973, 1002-03 (Ct. App. 1991).
Defendants‟ motion focuses on the second question: does the alleged oral agreement
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contradict the written agreement. Viewing the agreement and the allegations in the light most
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favorable to the Plaintiffs it does not. Plaintiffs allege Defendants made an oral promise that
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unpaid taxes and insurance would be added to the principal balance and would not be charged
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monthly. (Dkt. No. 1, Ex. A ¶ 24.) Unpaid taxes and insurance are not referenced anywhere
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in the Modification Agreement. The Modification Agreement states that the lender agrees to
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“[a]dd amounts owed for „Escrow Amounts Advanced,‟ „Foreclosure Fees,‟ „Attorney‟s
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Fees,‟ and „Property Inspection Fees‟ to the Loan balance” if these are outstanding on the date
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of the Agreement. The court cannot conclude as a matter of law that amounts not expressly
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included in this list could never be added to the loan balance; the provision does not say that
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“only” these items could be added to the loan balance.
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The Modification Agreement also states that the scheduled “Interest Only” monthly
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payments “DO NOT include amounts necessary for escrow.” (Dkt. No. 1, Ex. A at 34-35.)
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The Court cannot conclude, however, as a matter of law that the provision excluding
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“amounts necessary for escrow” from the “Interest Only” monthly payments contradicts an
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oral promise to not add unpaid taxes and insurance to monthly payments. Defendants‟
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reliance on Davis v. Gulf Oil Corp. is unpersuasive. Id. 572 F. Supp. 1393, 1395 (C.D. Cal.
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1983). In Davis, there was a direct contradiction between the renewal terms of a lease and the
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renewal terms in the agreed upon contract, a contradiction not plainly present here.
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Accordingly, the Court cannot hold at this early stage in the litigation that the oral promise is
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banned by parol evidence.
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Defendants also argue that the alleged oral promise is banned by the statute of frauds
making thereof.” Cal. Civ. Code § 1624. Defendants have not met their burden of showing
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that the alleged oral promise to add unpaid taxes and insurance to the principal balance could
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not be performed within one year. See Pietrobon v. Libarle, 137 Cal. App. 4th 992, 995
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Northern District of California
because it is “an agreement that by its terms is not to be performed within a year from the
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United States District Court
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(2006) (noting that statute of frauds is an affirmative defense); see also Multifamily Captive
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Grp, LLC v. Assurance Risk Managers, Inc., 578 F. Supp. 2d 1242, 1248 (E.D. Cal. 2008)
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(internal citations omitted) (“Only those contracts which expressly preclude performance
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within one year are unenforceable.”). Alternatively, if Defendants interpret the alleged oral
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promise as the actual payment of unpaid taxes and insurance – as opposed to adding the
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unpaid taxes and insurance to the balance – the same reasoning applies because the record
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does not establish that payment could not be performed within one year.
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Plaintiffs‟ performance or excuse for nonperformance is the only remaining question
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on the sufficiency of the Breach of Contract claim. Defendants argue that Plaintiffs‟ failure to
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make their monthly payments was a breach of the Agreement. Nothing in the Complaint,
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however, establishes as a matter of law that Plaintiffs did not perform their obligation under
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the Modification Agreement to make the undisputed “Interest Only” payments. Indeed,
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Plaintiffs contend they continued to pay $3,646.97 per month through August 2010, which
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was $1,196.46 more than the “Interest Only” amount Plaintiffs owed under the Modification
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Agreement (Dkt. No. 1, Ex. A ¶¶ 11, 13, 14, 16.) Plaintiffs also allege that the February 2010
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payment was not credited to their account, and their statement erroneously recorded the
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amount as past due. (Dkt. No. 1, Ex. A ¶ 15.) Viewing these allegations in the light most
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favorable to Plaintiffs, the Court cannot conclude that Plaintiffs did not perform.
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Accordingly, Defendants‟ motion to dismiss the Breach of Contract claim is DENIED.
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2. Wrongful Foreclosure
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Plaintiffs‟ Wrongful Foreclosure claims are based on a number of theories. First,
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Plaintiffs allege that Defendants denied them a loan modification for which they qualified in
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violation of the federal Home Affordable Modification Program (“HAMP”). (Dkt. No. 1, Ex.
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A ¶¶ 27-28.) In the alternative, Plaintiffs allege that Defendants violated California Civil
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Code Sections 2923.6(b), 2923.5(a)(2), and 2924c(a)(1).
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A. Home Affordable Modification Program
The vast majority of courts have determined that borrowers are not intended
Northern District of California
beneficiaries of HAMP. Bond v. Cal W. Reconveyance Corp., No. 12-01523, 2012 WL
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United States District Court
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2150313, *4 (N.D. Cal. June 12, 2012) (internal citations omitted). “[L]enders are not
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required to make loan modifications for borrowers that qualify under HAMP nor does the
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servicer‟s agreement confer an enforceable right on the borrower.” Hoffman v. Bank of Am.,
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N.A., No 10-2171, 2010 WL 2635773, *3 (N.D. Cal. June 30, 2010). As Plaintiffs cite no
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authority suggesting that HAMP supports a private right of action, they fail to state a claim for
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Wrongful Foreclosure under this theory. Plaintiffs Wrongful Foreclosure claim under HAMP
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is therefore DISMISSED with prejudice. See Lopez, 203 F.3d at 1129.
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B. California Civil Code Section 2923.6
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California Civil Code Section 2923.6(b) declares that “it is the intent of the Legislature
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that the mortgagee, beneficiary, or authorized agent offer the borrower a loan modification or
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workout plan if such a modification or plan is consistent with its contractual or other
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authority.” Cal. Civ. Code § 2923.6. Plaintiffs allege Defendants violated this section by
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refusing to offer Plaintiffs a loan modification. (Dkt. No. 1 ¶ 30). Plaintiffs fail to state a
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claim because this section, as HAMP, does not provide a private right of action. See Curtis v.
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Option One Mortg. Corp., No. 09-1982, 2010 WL 1729770, *8 (E.D. Cal. April 28, 2010)
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(“Under California law, the adoption of a regulatory statute does not automatically create a
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private right to sue for damages resulting from violations of the statute.”); Williams v. Bank
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of Am., N.A., No. 11-2800, 2012 WL 2106225, *6 (S.D. Cal. June 11, 2012) (internal
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citations omitted) (“Numerous courts have held that [Section] 2923.6 does not create a private
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right of action.”); Osorio v. Wachovia Mortg., FSB, 12-663, 2012 WL 1610110, *4 n.4 (S.D.
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Cal. May 8, 2012) (“This section confers no substantive rights on borrowers, but simply
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expresses the legislative hope that lenders will offer loan modifications.”). Plaintiffs claim
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under this section is therefore also DISMISSED with prejudice. See Lopez, 203 F.3d at 1129.
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C. California Civil Code Section 2923.5
Plaintiffs allege that Defendants violated California Civil Code Section 2923.5, which
Civ. Code § 2923.5. Courts have interpreted Section 2923.5 as supporting a private right of
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action. Hoffman, 2010 WL 2635773 at *5. However, Section 2923.5 is not applicable to
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Northern District of California
sets forth the guidelines for filing Notices of Default. (Dkt. No. 1 ¶ 29); See generally Cal.
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United States District Court
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Plaintiffs‟ claim because the Deed of Trust governing this transaction was not recorded within
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the relevant statutory period. The Deed of Trust is dated March 5, 2008, but Section 2923.5
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“[applies] only to mortgages or deeds of trust recorded from January 1, 2003, to December 31,
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2007, inclusive . . . ” Cal. Civ. Code § 2923.5(i). Plaintiffs claim under this section is not
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curable with amendment and is therefore also DISMISSED with prejudice. See Lopez, 203
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F.3d at 1129.
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D. California Civil Code Section 2924c(a)(1)
Finally, Plaintiffs allege that Defendants wrongfully foreclosed their property in
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violation of California Civil Code Section 2924c(a)(1) because Defendants did not provide
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Plaintiffs with an accurate statement of “all amounts due” and allow the Plaintiffs to “cure
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default.” (Dkt. No. 1 ¶ 31). Plaintiffs do not, however, allege any facts that make this claim
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plausible. See Twombly, 550 U.S. at 570; Iqbal, 129 S.Ct. at 1949.
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The Court may take judicial notice of the Notice of Default and Election to Sell Under
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Deed of Trust and Notice of Trustee‟s Sale issued by Defendants for Plaintiffs‟ home. See
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Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005) (extending the “incorporation by
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reference” doctrine to situations in which the Plaintiffs‟ claim depends on the contents of a
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document, the defendant attaches the document to its motion to dismiss, and the parties do not
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dispute the authenticity of the document, even when plaintiffs do not explicitly allege the
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contents of that document in the complaint). Both documents are attached to the Motion to
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Dismiss along with a request for judicial notice, and both are official public records of the San
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Mateo County Recorder‟s Office. (Dkt No. 6 ¶¶ 5-6.) The Notice of Default and Election to
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Sell Under Deed of Trust states that $18,280.73 was due to Defendants as of February 3,
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2011. (Dkt. No. 6 at 33.) The Notice of Trustee‟s Sale states that $756,909.38 is the “total
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amount of the unpaid balance of the obligation secured by the property to be sold and
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reasonable estimated costs, expenses and advances at the time of the initial publication of the
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Notice of Sale.” (Dkt. No. 6 at 36.) Plaintiffs do not explicitly allege that either $18,280.73 or
allegation that Defendants failure “to provide an accurate amount in arrears has resulted in
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Northern District of California
$756,909.38 are inaccurate calculations of amounts due to Defendants. While Plaintiffs‟
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United States District Court
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Defendants wrongfully foreclosing, ” might imply that Plaintiffs do not regard these amounts
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as accurate, Plaintiffs do not address the issue either way, at least in a manner that makes their
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claim plausible. Plaintiffs need to allege why the amount stated was inaccurate. Thus,
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Plaintiffs‟ Section 2924c(a)(1) claim is DISMISSED with leave to amend.
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3. Accounting
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Plaintiffs‟ claim for accounting also fails as a matter of law. “Under California law, an
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accounting is generally a remedy under equity.” Pantoja v. Countrywide Home Loans, Inc.,
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640 F. Supp. 2d 1177, 1191-92 (N.D. Cal. 2009). In rare cases, an accounting can be a cause
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of action when a defendant has a fiduciary duty to a plaintiff which requires an accounting,
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and some balance is due to the plaintiff that can only be ascertained by an accounting. Id.; see
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also Carrasco v. HSBC Bank USA, N.A., No. 11-2711, 2012 WL 685523, *4 (N.D. Cal. Mar.
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2, 2012) (internal citations omitted) (“A cause of action for an accounting requires a showing
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that a relationship exists between the plaintiff and defendant that requires an accounting, and
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that some balance is due the plaintiff that can only be ascertained by an accounting.”); Canales
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v. Fed. Home Loan Mortg. Corp., No. 11-2819, 2011 WL 3320478, *8 (C.D. Cal. Aug. 1,
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2011) (internal citations omitted) (holding that an accounting cause of action is equitable and
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may be sought where the accounts are so complicated that an ordinary legal action demanding
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a fixed sum is impracticable).
complex that an accounting is necessary. See Canales, 2011 WL 3320478 at *8 (internal
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citations omitted) (dismissing claim for accounting where Plaintiff‟s complaint lacked
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allegations of complexity or a fiduciary relationship to support her claim for accounting).
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Although Plaintiffs claim that they paid $1,196.46 per month above what the Modification
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Agreement required they pay, and that their February 2010 payment was not credited to their
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account, Plaintiffs do not claim that they are owed anything by Defendants and it will not be
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difficult to calculate what Plaintiffs owe Defendants. Plaintiffs can dispute the amount that
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they paid to Defendants or the amount that Defendants state is due in the Notice of Trustee‟s
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Northern District of California
Plaintiffs‟ Complaint does not allege that the transactions with Defendants were so
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United States District Court
3
Sale through a breach of contract claim.
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Furthermore, the relationship between Plaintiffs and Defendants is one of a loan
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customer to a bank and not a fiduciary relationship. See Vann v. Wells Fargo Bank, No. 12-
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1181, 2012 WL 1910032, *11 (N.D. Cal. May 24, 2012) (dismissing accounting cause of
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action because a lender does not owe a fiduciary duty to a borrower); Price v. Wells Fargo
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Bank, 213 Cal.App.3d 465, 476 (1989) (noting the principle that there is not a fiduciary
18
relationship between a debtor and creditor should apply with even greater clarity to the
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relationship between a bank and its loan customers). Given that the nature of the relationship
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between Plaintiffs and Defendants precludes this cause of action, the Court DISMISSES
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Plaintiffs‟ claim for an accounting with prejudice. See Lopez, 203 F.3d at 1129.
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4. Promissory Estoppel
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The elements of a promissory estoppel claim are “(1) a promise that is clear and
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unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) the
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reliance must be reasonable and foreseeable; and (4) the party asserting the estoppel must be
26
injured by his or her reliance.” Lucia, 798 F. Supp. 2d at 1069 (internal citations omitted).
27
“The purpose of this doctrine is to make a promise that lacks consideration (in the usual sense
28
of something bargained for and given in exchange) binding under certain circumstances.” Id.
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Detrimental reliance is an essential feature of promissory estoppel because if reliance is not
2
detrimental it would not constitute consideration. Healy v. Brewster, 59 Cal. 2d 455, 380 P.2d
3
817 (1963). “The party claiming estoppel must specifically plead all facts relied on to
4
establish its elements.” Rosal v. First Fed. Bank of Cal., 671 F. Supp. 2d 1111, 1130 (N.D.
5
Cal. 2009) (internal citations omitted).
6
Here, Plaintiffs‟ Promissory Estoppel claim fails to satisfy the minimal notice pleading
citing specific facts establishing detrimental reliance, much less that any such reliance was
9
reasonable or foreseeable. They allege that Defendants‟ representatives “misrepresented to
10
Plaintiffs that unpaid taxes and insurance would be added to Plaintiffs‟ principal balance and
11
not charged monthly to Plaintiffs” and “the afore-mentioned misrepresentations, promises and
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Northern District of California
requirements of Rule 8. Plaintiffs rely on vague and largely conclusory allegations without
8
United States District Court
7
omissions constituted implied promises that Defendants would not pursue foreclosure or
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schedule a Trustee Sale regarding the property or subject loan.” (Dkt. No. 1, Ex. A ¶¶ 45, 47.)
14
The Complaint also alleges “Plaintiffs reasonably relied on said misrepresentations, promises,
15
and omissions to their detriment.” (Dkt. No. 1, Ex. A ¶48.) Plaintiffs, however, do not
16
identify how they relied to their detriment. Plaintiffs were obligated to make payments under
17
the loan agreement, so making payments cannot constitute detrimental reliance. See Beck v.
18
Wells Fargo Home Mortg., N.A., No. 10-2150, 2010 WL 5340563, *2 (S.D. Cal. Dec. 10,
19
2010) (granting motion to dismiss where plaintiff was already legally obligated to make loan
20
payment so any payment that plaintiff purportedly made did not constitute detrimental
21
reliance for purposes of promissory estoppel); see also Quinteros v. Aurora Loan Services,
22
740 F. Supp. 2d 1163, 1171-72 (E.D. Cal. 2010) (dismissing estoppel claims where plaintiff
23
claimed that he made $7,600 in mortgage payments in reliance on a loan modification but was
24
already obligated to make those $7,600 in payments under the original terms of the mortgage).
25
Absent specific allegations regarding the nature of the reliance or the harm caused because of
26
that reliance, Plaintiffs fail to state a claim that meets the requirements of Rule 8. See Iqbal,
27
129 S.Ct. at 1949. Defendants‟ Motion to Dismiss this claim is GRANTED with leave to
28
amend.
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1
5. Breach of the Covenant of Good Faith and Fair Dealing
2
Plaintiffs‟ Breach of the Covenant of Good Faith and Fair Dealing claim appears to
3
hinge in part on the express terms of the Modification Agreement and in part on California
4
Civil Code Sections 2923.5 and 2923.6. (Dkt. No. 1 ¶ 54-56.) In order to state a claim for
5
breach of an implied covenant of good faith and fair dealing, the specific contractual
6
obligation from which the implied covenant of good faith and fair dealing arose must be
7
alleged. Love v. The Mail on Sunday, No. 057798, 2006 WL 4046180, *7 (C.D. Cal. Aug 15,
8
2006). “The scope of conduct prohibited by the covenant of good faith is circumscribed by
9
the purposes and express terms of the contract.” Carma Developers (Cal.), Inc. v. Marathon
10
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Dev. Cal., Inc., 2 Cal.4th 342, 373 (Cal. Sup. Ct. 1992) (internal citations omitted).
Plaintiffs fail to state a claim. Though Plaintiffs allege that they entered into the
Northern District of California
United States District Court
12
Modification Agreement with Defendants, the Complaint does not reference the exact terms
13
of the Agreement from which the implied covenant arose. See Pasadena Live, LLC v. City of
14
Pasadena, 114 Cal. App. 4th 1089, 1093-94 (2004) (citation omitted) (noting that the implied
15
covenant of good faith and fair dealing is limited to assuring compliance with the express
16
terms of the contract, and cannot be extended to create obligations not contemplated by the
17
contract). Plaintiffs‟ reliance on Sections 2923.6 and 2923.5 is also insufficient. As the Court
18
explained above, supra at 9-10, Section 2923.6 does not create a private right of action and
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Section 2923.5 does not apply to the time period for the loan at issue. Therefore, Defendants‟
20
Motion to Dismiss this claim is GRANTED with leave to amend.
21
6. Unfair Business Practices
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Plaintiffs also allege that Defendants breached California‟s Unfair Competition Law.
23
An unfair business practice under California‟s Unfair Competition Law (“UCL”) is “one that
24
either offends an established public policy or is immoral, unethical, oppressive, unscrupulous,
25
or substantially injurious to consumers.” McDonald v. Coldwell Banker, 543 F.3d 498, 506
26
(9th Cir. 2008). Section 17200 defines unfair competition as “any unlawful, unfair or
27
fraudulent business act or practice” and “unfair, deceptive, untrue or misleading advertising.”
28
Cal. Bus. & Prof. Code § 17200. An unfair business practice claim requires a plaintiff to
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“tether” its allegation of unfair competition to a constitutional or statutory provision or
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regulation carrying out such a statutory policy. See Zero Motorcycles, Inc. v. Pirelli Tyre
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S.p.A., 802 F.Supp. 1078, 1089 (N.D. Cal. 2011) (citations omitted). That is, the claim
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requires the pleader to allege some business practice that is prohibited by law. Korea Supply
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Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1143 (2003).
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Plaintiffs allege practices that may seem unfair in the abstract, but they fail to tether the
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allegations to valid constitutional or statutory provisions. They complain that Defendants
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failed to consider subsequent loan modifications based on changed circumstances, that
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Defendants denied a loan modification based on legitimate hardship, and that Defendants
62.) Absent a grounding in constitutional or statutory provisions that prohibit Defendants‟
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Northern District of California
failed to be available by telephone to address Plaintiffs‟ concerns. (Dkt. No. 1, Ex. A ¶¶ 60-
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United States District Court
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actions, Plaintiffs‟ allegations of unfairness are insufficient to support a claim under Section
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17200. See Lucia, 798 F. Supp. 2d at 1072 (holding that plaintiffs could not assert a UCL
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claim based on alleged violations of HAMP because the UCL cannot create a private right of
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action where none exists under the federal statute) (internal citations omitted); see also Rubin
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v. Wal–Mart Stores, Inc., 599 F.Supp.2d 1176, 1179 (N.D. Cal. 2009) (holding that where a
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UCL claim is predicated upon other claims that fail, the UCL claim must be dismissed as
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well). Here, just as in Lucia, the Court dismissed the Wrongful Foreclosure claim because
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HAMP does not create a private right of action. Since Defendants tether their Unfair Business
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Practices allegations to the HAMP claim, Defendants‟ Motion to Dismiss this claim is
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GRANTED with leave to amend.
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B. Defendants’ Motion to Strike
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Defendants move to strike paragraph 2 of the Prayer in the Complaint-requesting
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punitive and exemplary damages-pursuant to Federal Rule of Civil Procedure 12(f). (Dkt.
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No.1 at Prayer ¶ 2.)
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Rule 12(f) provides that a District Court “may strike from a pleading an insufficient
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defense or any redundant, immaterial, impertinent, or scandalous matter.” The function of a
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Rule 12(f) motion to strike is to avoid the expenditure of time and money that must arise from
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litigating spurious issues by dispending with those issues prior to trial . . . ” Fantasy, Inc. v.
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Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993) (citation omitted) (reversed on other grounds by
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Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994)). “Rule 12(f) motions are generally
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„disfavored‟ because they are „often used as delaying tactics, and because of the limited
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importance of pleadings in federal practice.‟” Bureerong v. Uvawas, 922 F. Supp. 1450, 1478
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(C.D. Cal. 1996) (internal citations omitted).
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California Civil Code Section 3294 states that “[i]n an action for the breach of an
the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the
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actual damages, may recover damages for the sake of example and by way of punishing the
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defendant.” Cal. Civ. Code § 3294. Punitive damages are not recoverable for breach of
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Northern District of California
obligation not arising from contract, where it is proven by clear and convincing evidence that
9
United States District Court
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contract claims even if the defendant‟s conduct was “wilful [sic], fraudulent, or malicious.”
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Boles v. Merscorp, Inc., No. 08-1989, 2008 WL 5246038, *4 (C.D. Cal. Dec. 12, 2008). But
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“where the gravamen of the action is not a breach of contract as such, but rather is the fraud
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inherent in the breach, exemplary damages may be awarded.” PlasPro GMBH v. Gens, No.
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09-04302, 2011 WL 1000755, *5 (N.D. Cal. March 21, 2011).
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The Breach of Contract claim is the only claim that thus far survives; accordingly, the
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prayer for punitive damages fails. While allegations of malice and intent may be averred
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generally, Plaintiffs‟ Breach of Contract claim does not allege any oppression, fraud, or
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malice, which are prerequisites for an award of punitive damages under Section 3294. See
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Escobedo v. Countrywide Home Loans, Inc., No. 09-1557, 2009 WL 4981618 (S.D. Cal. Dec.
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15, 2009) (“Conclusory assertions of intentional and malicious misconduct are sufficient to
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support a claim for punitive damages.”). Defendants‟ Motion to Strike the prayer for punitive
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damages is GRANTED with leave to amend should Plaintiffs choose to allege claims that
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support punitive damages. See Lopez, 203 F.3d at 1129.
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Defendants also move to strike paragraphs 42 and 51 of the Complaint. Paragraph 42
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is included in the claim for Wrongful Foreclosure, and Paragraph 51 is included in the claim
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for Promissory Estoppel. The Court is dismissing both of these claims, therefore Defendants‟
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Motion to Strike these claims is DENIED as moot.
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CONCLUSION
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Plaintiffs‟ Breach of Contract claim is sufficient to survive Defendants‟ Motion to
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Dismiss. All of Plaintiffs‟ other claims are DISMISSED. The Wrongful Foreclosure claims
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based on HAMP, Section 2923.6, and Section 2923.5 are DISMISSED with prejudice as
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Plaintiffs cannot cure these claims by amendment, the rest of the claims are dismissed with
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leave to amend. Defendants‟ Motion to Strike paragraph 2 of the Prayer in the Complaint is
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GRANTED with leave to amend. The Motion to Strike paragraphs 42 and 51 of the
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Complaint is DENIED as moot. Plaintiffs‟ amended complaint, if any, shall be filed on or
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before July 16, 2012.
Northern District of California
United States District Court
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The Court will hold a further case management conference on October 4, 2012 at 1:30
p.m. This order disposes of docket numbers 5 and 7.
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IT IS SO ORDERED.
Dated: June 26, 2012
_________________________________
JACQUELINE SCOTT CORLEY
UNITED STATES MAGISTRATE JUDGE
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