Edwards v. Federal Home Loan Mortgage Corporation et al

Filing 56

ORDER ON MOTION TO DISMISS re 43 MOTION to Dismiss Plaintiffs Second Amended Complaint. Defendants' motion to dismiss as to the plaintiffs' claim of promissory estoppel is DENIED. The motion to dismiss the First Cause of Action against Freddie Mac is GRANTED WITH PREJUDICE. The motion to dismiss the Second Cause of Action against Freddie Mac and Ocwen is GRANTED WITH PREJUDICE. Signed by Judge William H. Orrick on 08/15/2013. (jmdS, COURT STAFF) (Filed on 8/15/2013)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 LAURA A EDWARDS, et al., 7 Case No. 12-cv-04868-WHO Plaintiffs, 8 v. ORDER ON MOTION TO DISMISS 9 FEDERAL HOME LOAN MORTGAGE CORPORATION, et al., 11 United States District Court Northern District of California 10 Re: Dkt. No. 47 Defendants. 12 INTRODUCTION 13 Defendants Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Ocwen Loan 14 15 Servicing, LLC (“Ocwen”), move to dismiss the Second Amended Complaint (“SAC”) of 16 Plaintiffs Laura A. Edwards and Larry D. Edwards. The SAC raises claims of unjust enrichment 17 and promissory estoppel against both defendants.1 After considering the parties briefs and 18 documents submitted for judicial notice, and the argument of defense counsel, and for the reasons 19 stated below, the Court GRANTS IN PART and DENIES IN PART the motion to dismiss.2 FACTUAL BACKGROUND 20 The SAC alleges that plaintiffs refinanced a home at 2201 The Alameda #18, Santa Clara, 21 22 CA 95050 in 2008 by executing a promissory note with Insite Financial Corporation, which took a 23 security interest in the property through a recorded deed of trust. SAC ¶ 17. Because they spent 24 “a lot” of money to care for several family members who fell gravely ill (one died), in 2011-2012 25 1 26 27 28 The third defendant in this case, Cal-Western Reconveyance Corporation, is undergoing Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Delaware (13-11619-BLS) and is subject to an automatic stay under Section 362 of the Bankruptcy Code. Dkt. No. 51. In any event, although the Plaintiffs name Cal-Western as a defendant, SAC ¶ 5, they do not name Cal-Western in any of the counts, SAC at 10-11. 2 Plaintiffs' counsel inexplicably failed to attend the hearing or to explain his absence. 1 plaintiffs were unable to pay their mortgage for approximately six months. SAC ¶ 20. Plaintiffs 2 contacted Ocwen, a loan servicer, in early May 2012 to see if they could resolve the past due 3 amount owed on their mortgage. Plaintiffs claim that they had withdrawn their 401(k) retirement 4 account, had about $11,000 in total, and were willing to devise a payment plan with Ocwen. SAC 5 ¶ 21. 6 Initially, an Ocwen representative told plaintiffs that they either could pay the full amount 7 of their debt, $19,000, or be considered for a loan modification. SAC ¶ 21. Then on May 7, 2012, 8 Hernando Sanabria, Regional Manager at Ocwen, contacted plaintiffs, told them that they could be 9 considered for loan modification and promised that their home would not be foreclosed during the process. SAC ¶ 22. Mr. Sanabria asked the Plaintiffs to fill out some forms and provide certain 11 United States District Court Northern District of California 10 documentation and promised that he would process the application as soon as possible. SAC ¶ 22. 12 Plaintiffs collected and faxed all the requested materials to Mr. Sanabria on May 25, 2012. 13 SAC ¶ 23. They asked him via email (since they only had his email address) to contact them as 14 soon as possible. SAC ¶¶ 22-23. Despite sending him several emails, plaintiffs did not receive a 15 response from Mr. Sanabria for a month. On June 25, 2012, Mr. Sanabria asked that plaintiffs fax 16 the materials to him again, which they did immediately. SAC ¶ 24. Plaintiffs continued to ask 17 about the status of their loan modification, to which Ocwen responded with several letters stating 18 that a decision would be made “as soon as possible.” SAC ¶ 26. Two letters dated July 3, 2012, 19 and July 5, 2012, acknowledged plaintiffs’ application and stated that they “will not lose [their] 20 home during the [] evaluation.” SAC ¶ 27. 21 Despite those letters and Mr. Sanabria's promises, and unbeknownst to plaintiffs, Ocwen 22 had assigned the deed of trust to plaintiffs' house for sale on June 21, 2012—several days before 23 Mr. Sanabria asked them to resend their application materials. SAC ¶ 28. While plaintiffs were 24 waiting to hear back about their application, Cal-Western—acting on behalf of Ocwen or Freddie 25 Mac—recorded a notice of default and notice of trustee’s sale for the house. SAC ¶ 30. Freddie 26 Mac then bought the house at the trustee’s sale on June 26, 2012. SAC ¶ 28. Plaintiffs did not 27 know about the default and sale until June 29, 2012, when they received a letter stating that 28 Freddie Mac “now owns [their house] as the result of a foreclosure.” SAC ¶ 32. 2 Plaintiffs allege that during the whole loan modification process, they incurred substantial 1 2 fees and penalties for being delinquent on their mortgage payments, though Ocwen repeatedly told 3 them that they should not worry because the fees and penalties would be addressed in the loan 4 modification. SAC ¶ 29. They were “continuously promised [] that they would get a loan 5 modification and [] that the sale would be postponed” even as they waited to hear back about their 6 application. SAC ¶¶ 30, 33. However, without providing plaintiffs an answer about whether their 7 application would be approved or denied, Ocwen proceeded to sell the house. As a result, 8 “Defendants were able to generate substantial profits through the foreclosure of Plaintiffs’ home” 9 and “receive[d] compensation and incentives from the Federal Government after the foreclosure 10 sale.” SAC ¶ 34. United States District Court Northern District of California 11 PROCEDURAL BACKGROUND 12 Plaintiffs initiated this action on August 6, 2012, in the Superior Court of California, 13 County of Santa Clara, alleging promissory estoppel, unjust enrichment, fraud, conspiracy, 14 wrongful foreclosure, and other related claims. Dkt. No. 1. Defendants removed the case to this 15 Court on September 17, 2012. Id. On November 13, 2012, Hon. Jeffrey White granted 16 defendants’ first motion to dismiss with leave to amend, dismissing claims of fraud, promissory 17 estoppel, and wrongful foreclosure. Dkt. No. 20. The case was reassigned to Hon. Jon Tigar, who 18 granted in part and denied in part defendants’ motion to dismiss the First Amended Complaint on 19 May 29, 2013. Dkt. No. 41. Judge Tigar dismissed with prejudice all claims except the 20 promissory estoppel claim against Ocwen but allowed plaintiffs leave to file an amended 21 complaint with an unjust enrichment claim. Id. 22 Plaintiffs filed the SAC on June 13, 2013, bringing claims of unjust enrichment and 23 promissory estoppel against Ocwen and Freddie Mac. Dkt. No. 42. Defendants moved to dismiss 24 the SAC in its entirety. MTD at ii. Plaintiffs later withdrew their claim for promissory estoppel 25 against Freddie Mac because Judge Tigar had already dismissed that claim with prejudice. Opp’n 26 at 6. 27 28 LEGAL STANDARD A motion to dismiss is proper under Federal Rule of Civil Procedure 12(b)(6) where the 3 1 pleadings fail to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). The 2 Court must “accept factual allegations in the complaint as true and construe the pleadings in the 3 light most favorable to the nonmoving party,” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 4 F.3d 1025, 1031 (9th Cir. 2008), drawing all “reasonable inferences” from those facts in the 5 nonmoving party’s favor. Knievel v. ESPN, 393 F.3d 1068, 1080 (9th Cir. 2005). A complaint 6 may be dismissed if it does not allege “enough facts to state a claim to relief that is plausible on its 7 face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). If a motion to dismiss is granted, a 8 court should normally grant leave to amend unless it determines that the pleading could not 9 possibly be cured by allegations of other facts. Cook, Perkiss & Liehe v. N. Cal. Collection Serv., 10 911 F.2d 242, 247 (9th Cir. 1990). DISCUSSION United States District Court Northern District of California 11 12 13 I. PROMISSORY ESTOPPEL A. Promissory Estoppel Claim Against Freddie Mac. 14 Judge Tigar dismissed with prejudice plaintiffs’ promissory estoppel claim against Freddie 15 Mac, and plaintiffs withdrew their reasserted claim in their Opposition Brief. Thus, the motion to 16 dismiss the promissory estoppel claim against Freddie Mac is GRANTED WITH PREJUDICE. 17 18 B. Promissory Estoppel Claim Against Ocwen. Defendants move to dismiss the SAC in its entirety, but did not address the promissory 19 estoppel claim against Ocwen in any of their briefs. Judge Tigar allowed plaintiffs to proceed on 20 this claim in his order on defendants' prior motion to dismiss, and counsel for defendants 21 explained at oral argument on August 14, 2013 that defendants did not mean to challenge that 22 ruling in the instant motion. Accordingly, the motion to dismiss the promissory estoppel claim 23 against Ocwen is DENIED. 24 25 II. UNJUST ENRICHMENT Defendants argue that there is no cause of action for unjust enrichment under California 26 law. Although some “California courts appear to be split on whether unjust enrichment can be an 27 independent claim or merely an equitable remedy,” Falk v. Gen. Motors Corp., 496 F. Supp. 2d 28 1088, 1099 (N.D. Cal. 2007), the Ninth Circuit acknowledged that both “[t]he Supreme Court of 4 1 California and California Courts of Appeal have recognized actions for relief under the equitable 2 doctrine of unjust enrichment,” Naoko Ohno v. Yuko Yasuma, No. 11-55081, 2013 WL 3306351, 3 at *16 n.25 (9th Cir. July 2, 2013). As one California court explained, unjust enrichment is better 4 characterized as “an effect: the result of a failure to make restitution under circumstances where it 5 is equitable to do so.” Lauriedale Assocs., Ltd. v. Wilson, 9 Cal. Rptr. 2d 774, 780 (Ct. App. 6 1992). “It is synonymous with restitution,” which is a cause of action. McBride v. Boughton, 20 7 Cal. Rptr. 3d 115, 121 (quotations and ellipses omitted). So while defendants are technically 8 correct that “there is no cause of action in California for unjust enrichment,” Melchior v. New Line 9 Prods., Inc., 131 Cal. Rptr. 2d 347, 357 (Ct. App. 2003), California courts “look to the actual gravamen of [the] complaint” and “ignore erroneous or confusing labels if the complaint pleads 11 United States District Court Northern District of California 10 facts which would entitle the plaintiff to relief.” Id. Thus, the relevant question is whether 12 plaintiffs have a “right to restitution.” Id.; see also Lauriedale Assocs., 9 Cal. Rptr. 2d at 780. 13 “The elements of an unjust enrichment [or restitution] claim are the receipt of a benefit and 14 the unjust retention of the benefit at the expense of another.” Peterson v. Cellco Partnership, 80 15 Cal. Rptr. 3d 316 (Ct. App. 2008) (quotation marks and brackets omitted). “[R]estitution may be 16 awarded in lieu of breach of contract damages when the parties had an express contract, but it was 17 procured by fraud or is unenforceable or ineffective for some reason.” Id. Where there is no 18 express contract, but “the defendant obtained a benefit from the plaintiff by fraud, duress, 19 conversion, or similar conduct . . . where appropriate, the law will imply a contract (or rather, a 20 quasi-contract), without regard to the parties’ intent, in order to avoid unjust enrichment.” Id. at 21 121-22 (citations omitted). 22 The facts alleged in the SAC do not constitute a claim for rescission. Plaintiffs do not 23 assert that they paid Ocwen any amount, so it was not in receipt of any benefit from plaintiffs. See 24 Ogden Martin Sys., Inc. v. San Bernardino Cnty, Cal., 932 F.2d 1284, 1287 (9th Cir. 1991) (“In a 25 rescission action, the complaining party may receive restitution for all benefits conferred on the 26 other party, restoring both parties to economic status quo ante.”) (original emphasis). Plaintiffs 27 do not assert any fraud, duress, conversion or similar conduct by Freddie Mac. Consequently, 28 plaintiffs have not alleged a cause of action for rescission against either defendant. 5 In equity, if plaintiffs prevail on their promissory estoppel claim it is possible that an 1 2 element of damages would include the monies received by Ocwen related to the foreclosure of 3 plaintiffs' property. Unjust enrichment is a remedy, as defendants themselves pointed out. But 4 that is a different matter than allowing a rescission cause of action to proceed under the facts 5 alleged. This is plaintiffs’ third attempt to bring a claim of unjust enrichment.3 Their lawyer did 6 7 not even appear to argue against the motion to dismiss. Accordingly, the Court finds that 8 plaintiffs’ pleading “could not possibly be cured by allegations of other facts.” Cook, Perkiss & 9 Liehe, 911 F.2d at 247. The motion to dismiss the claim of unjust enrichment against defendants 10 is GRANTED WITH PREJUDICE. CONCLUSION United States District Court Northern District of California 11 Because plaintiffs plausibly state a claim for relief on their promissory estoppel claim 12 13 against Ocwen in the First Cause of Action of the SAC, defendants' motion to dismiss as to that 14 claim is DENIED. The Court previously dismissed the promissory estoppel claim against Freddie 15 Mac, and the plaintiffs withdrew the claim in their Opposition, so the motion to dismiss the First 16 Cause of Action against Freddie Mac is GRANTED WITH PREJUDICE. Plaintiffs do not 17 plausibly state a cause of action on their unjust enrichment claim against defendants and are 18 unlikely to be able to do so by alleging additional facts, so the motion to dismiss the Second Cause 19 of Action against Freddie Mac and Ocwen is GRANTED WITH PREJUDICE. IT IS SO ORDERED. 20 21 Dated: August 15, 2013 ______________________________________ WILLIAM H. ORRICK United States District Judge 22 23 24 25 26 27 28 3 Because the Plaintiffs withdrew the claim of unjust enrichment against Freddie Mac in their original complaint, but sought to bring it again without leave of the Court in their First Amended Complaint, Judge Tigar dismissed their second attempt with leave to amend. Dkt. No. 41. 6

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