Shaw v. JPMorgan Chase Bank, N.A. et al

Filing 66

Order by Hon. James Donato granting 42 Motion to Dismiss First Amended Complaint. (jdlc1S, COURT STAFF) (Filed on 12/5/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SADIE S. SHAW,
Plaintiff,

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United States District Court
Northern District of California

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Case No. 15-cv-01755-JD
ORDER RE MOTION TO DISMISS

v.
OCWEN LOAN SERVICING, LLC, et al.,
Defendants.

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In this action for “negligent, fraudulent and unlawful conduct concerning a residential

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DOT loan transaction and foreclosure action,” Dkt. No. 1 ¶ 1, defendants Ocwen Loan Servicing,

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LLC (“Ocwen”) and Mortgage Electronic Registration Systems, Inc. (“MERS”) move to dismiss

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the first amended complaint (“FAC”) under Federal Rule of Civil Procedure 12(b)(6). Dkt. Nos.

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41, 42. The motion is granted with limited leave to amend.

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BACKGROUND

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Plaintiff Sadie Shaw started this case pro se, although she now has a lawyer. She initially

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claimed to be the owner of the property. Dkt. No. 41 at 2. At some point, certain parties initiated

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foreclosure on the deed of trust to the property, leading to a prior suit in this district. When that

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matter was dismissed, defendants’ non-judicial foreclosure efforts continued and defendants began

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refusing her payments. Id. at 4.

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Shaw filed this diversity action in April 2015, alleging thirteen causes of action. She

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dismissed defendant JPMorgan Chase Bank, N.A. with prejudice on October 13, 2015. Dkt. No.

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35. The Court stayed defendants Ocwen Loan Servicing, LLC’s and Mortgage Electronic

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Registration Systems, Inc.’s motion to dismiss, Dkt. No. 14, pending the parties’ participation in

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alternative dispute resolution. Dkt. No. 27. At the unsuccessful conclusion of that process, the

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Court lifted the stay and ordered Shaw to respond to the Motion to Dismiss, which she did on

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October 20, 2015. Dkt. Nos. 36, 37. Shaw agreed to drop all claims and arguments “related to

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securitization,” and indicated she would only maintain claims based on “the aforementioned Civil

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Code sections, as well as Fraud and material breaches.” Dkt. No. 37 at 2. The Court then took the

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motion to dismiss under submission and dismissed the complaint for lack of subject matter

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jurisdiction, since Shaw had failed to adequately plead the parties’ citizenship to support her claim

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for diversity jurisdiction. Dkt. No. 40.

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Shaw filed an amended complaint asserting nine claims: (1) Violation of California Civil

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Code Sections 2923.55 and 2923.6, (2) Injunctive Relief, (3) Negligence Per Se, (4) Accounting,
(5) Breach of Covenant of Good Faith and Fair Dealing, (6) Breach of Fiduciary Duty, (7)

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United States District Court
Northern District of California

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Wrongful Foreclosure, (8) Intentional Infliction of Emotional Distress, and (9) Slander of Title.

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Dkt. No. 41. Following the submission of the amended complaint, the foreclosure sale of the

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property occurred on March 3, 2016. Dkt. No. 57 at 2. Ocwen and MERS moved to dismiss the

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FAC on March 14, 2016, which was briefly tabled to allow plaintiff the opportunity to find

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counsel. Dkt. Nos. 42, 48. Shaw’s motion for a temporary restraining order appeared in the

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docket the same day, and was denied on March 23, 2016 as it was an inappropriate mechanism to

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void a sale that had already occurred. Dkt. Nos. 43, 48.

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In response to the motion to dismiss, Shaw opposes the grounds for dismissal and seeks to

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amend her complaint. Dkt. No. 57 at 1-2. “Normally, the proper vehicle to seek leave to amend a

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pleading is a motion pursuant to Federal Rule of Civil Procedure 15.” Sanches v. City of Crescent

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City, No. C 08-1395 MEJ, 2009 WL 650247, at *12 (N.D. Cal. Mar. 10, 2009). Instead, Shaw

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attaches a second amended complaint to her opposition to “cure all of the alleged deficiencies

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noted in the Defendants’ moving papers” and “add a cause of action for Wrongful Foreclosure.”

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Dkt. No. 57 at 3. Shaw voluntarily dismisses the claim for injunctive relief, since the property has

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already sold, Id. at 11, and withdraws six claims in her proposed second amended complaint.

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For the operative complaint, the claims that Shaw decided to withdraw if granted leave to

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amend (the Second, Third, Fourth, Fifth, Sixth, Eighth, and Ninth claims) are dismissed with

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prejudice. The issues for the remaining two claims, wrongful foreclosure and violations of
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sections 2923.55 and 2923.6 of the Homeowners Bill of Rights (“HOBR”), are whether they

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should be dismissed and whether leave to amend should be afforded.
DISCUSSION

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I.

DISMISSAL OF DEFENDANT MERS

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MERS seeks dismissal because the only specific mention of it in the FAC alleges that it

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“acted on behalf of a Defendant that was not beneficiary under the DOT.” Dkt. No. 42 at 5. In

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response, Shaw does not indicate that she can presently amend the complaint to assert additional

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facts as to this defendant, instead asking for discovery to “reveal[] that MERS has some role in

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this matters.” Dkt. No. 57 at 7. The complaint states no factual allegations against defendant
MERS and proposing to wait on discovery before stating a competent claim is not an acceptable

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United States District Court
Northern District of California

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practice. MERS is dismissed from the case.

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II.

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DIVERSITY JURISDICTION - REMAINING PARTIES
Shaw’s initial complaint was dismissed with leave to amend because it did not provide

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enough information to establish diversity citizenship. 28 U.S.C. § 1332(a)(1). Her own

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citizenship was unclear and she failed to properly allege the citizenship of defendant Ocwen. Dkt.

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No. 40. In the FAC, she alleges that she is “domiciled in California,” despite the fact that she “has

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married and is in the process of relocating to Tennessee, hence the [Tennessee] mailing address.”

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Dkt. No. 41 at 2. She now alleges that Ocwen is a foreign business corporation organized under

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the laws of the State of Florida. Id. Defendants seek dismissal for lack of subject matter

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jurisdiction because Shaw still failed to provide any information about the citizenship of Ocwen’s

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members. Dkt. No. 42 at 5. Shaw asserts that diversity jurisdiction was addressed during the

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Court’s conference call, but the record is not clear to this point. Dkt. No. 57 at 7.

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The Court is satisfied that diversity jurisdiction exists based on Ocwen’s representations in

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other proceedings. A limited liability corporation is a citizen of all of the states of which its

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members are citizens. Johnson v. Columbia Props., Anchorage LP, 437 F.3d 894, 899 (9th Cir.

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2006). Ocwen has previously stated to another federal court that “[t]he sole member of Ocwen

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Loan Servicing, LLC is Ocwen Loan Servicing, Inc., which is incorporated and has its principal

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place of business in the U.S. Virgin Islands.” Hockessin Holdings, Inc. v. Ocwen Loan Servicing,
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LLC, No. 4:15CV704, 2016 WL 1046270, at *1-2 (E.D. Texas, March 16, 2016). Thus, Ocwen

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Loan Servicing, LLC is a citizen of the U.S. Virgin Islands for purposes of diversity jurisdiction.

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Because an “inadequate pleading does not in itself constitute an actual defect of federal

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jurisdiction,” diversity jurisdiction exists to address the merits. Kanter v. Warner–Lambert Co.,

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265 F.3d 853, 858 (9th Cir. 2001) (quotation omitted). Shaw is directed to properly allege venue

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and jurisdiction if she chooses to amend the complaint.

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III.

REQUEST FOR JUDICIAL NOTICE
A court generally looks only to the face of the complaint when ruling on a motion to

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dismiss, but may consider certain documents attached to the complaint, incorporated by reference,

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or matters of judicial notice without converting the motion to dismiss into a motion for summary

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United States District Court
Northern District of California

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judgment. United States v. Ritchie, 342 F.3d 903, 907-08 (9th Cir. 2003). In the previous motion

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to dismiss, defendants requested judicial notice of nine documents and continue to refer to them in

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the second motion. See Dkt. No. 14-1. Exhibits A through E are trust documents for the property

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in dispute, each contained in the official records office of Alameda County. Id. at 1 (Exhibit A:

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Deed of Trust, dated December 14, 2007; Exhibit B: Corporation Assignment of Deed of Trust,

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dated August 29, 2012; Exhibit C: Substitution of Trustee, dated February 3, 2015; Exhibit D:

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Notice of Default and Election to Sell Under Deed of Trust, dated March 11, 2011; Exhibit E:

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Notice of Trustee’s Sale, dated June 19, 2015). Exhibits F through I are the docket and orders

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from Case No. 13-cv-03165-KAW in the Northern District of California, also found in the public

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record. The Court therefore takes judicial notice of each document’s existence and legal

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consequence, but not judicial notice of the disputed facts contained therein. Fed. R. Evid. 201(b);

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Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001).

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IV.

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VIOLATIONS OF CALIFORNIA CIVIL CODE SECTIONS 2923.55 and 2923.6
In the amended complaint, Shaw’s first cause of action alleges violations of California

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Civil Code sections 2923.55 and 2923.6. There are barely any factual allegations for either

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violation, and Shaw mainly just lists statutory provisions and concludes they were violated. Dkt.

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No. 41 at 4-6. In the few facts alleged, Shaw claims that Ocwen “dual tracked” her loan, by

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refusing to accept her payments during negotiations. Id. at 4. She says that Ocwen was “plotting
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a foreclosure on the property” when she thought it was qualifying her for a loan modification. Id.

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She claims the Notice of Trustee Sale did not include the mandated declaration required by Civil

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Code section 2923.5(g) and Ocwen failed to give her information required under section 2923.5.

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Id. at 5-6.

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Ocwen argues that a failure to allege tender is fatal to each claim and that the causes of

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action under the HOBR are “incurably defective because: (1) the property at issue is not her

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primary residence; (2) any purported irregularities in the foreclosure process did not cause

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plaintiff’s harm; and (3) the FAC’s allegations, combined with the judicially noticeable

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documents, make clear that Ocwen did not violate the HBOR.” Dkt. No. 58 at 2.

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As a preliminary matter, the failure to allege tender does not defeat each claim at the

United States District Court
Northern District of California

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pleadings stage. See Green v. Central Mortgage Co., 148 F. Supp. 3d 852, 869-70 (N.D. Cal.

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2015). While the tender rule applies to equitable claims, such as wrongful foreclosure, Ocwen

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fails to explain why it applies to Shaw’s non-equitable claims under the HBOR and it will not be

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addressed for these causes of action. Id. at 870.

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A. Standing to Raise HBOR Claims
The HBOR was enacted “to ensure that, as part of the nonjudicial foreclosure process,

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borrowers are considered for, and have a meaningful opportunity to obtain, available loss

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mitigation options, if any, offered by or through the borrower’s mortgage servicer, such as loan

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modifications or other alternatives to foreclosure.” Cal. Civ. Code § 2923.4. Among other things,

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the HBOR prohibits “dual tracking,” which occurs when a bank forecloses on a loan while

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negotiating with the borrower to avoid foreclosure. See id. § 2923.6. The other provisions of the

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HBOR “obligate lenders to provide certain information to borrowers, to issue written

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determinations regarding the borrower’s eligibility for a loan application, and to provide a single

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point of contact for borrowers seeking loan modification.” Asturias v. Nationstar Mortgage LLC,

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No. 15-cv-03861-RS, 2016 WL 1610963, at *3 (N.D. Cal. Apr. 22, 2016) (citing Cal. Civ. Code

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§§ 2923.5-.7.) The HBOR protections apply only to first lien mortgages or deeds of trust secured

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by owner-occupied, one-to-four unit properties. Cal. Civ. Code § 2924.15(a). An “owner-

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occupied” property is “the principal residence of the borrower and is security for the loan made for

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personal, family, or household purposes.” Id.

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The FAC is deficient because it does not allege that the property at issue was Shaw’s

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primary principal residence at the time she initiated the loan. Ocwen states this claim is incurable

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because Shaw no longer resides in California and used the Alameda property as a rental. Dkt. No.

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42 at 7-8. But Shaw represents to the Court in opposition that she utilized the property “as her

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primary residence while serving on the Board of Directors for the Homeowners Association for

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many years, and only after the FAC was filed, rented it out on a month-to-month-basis.” Dkt. No.

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57 at 10. Based on this representation, amendment on this ground is not futile and Shaw will have

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United States District Court
Northern District of California

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an opportunity to amend this claim.
B. Violations of California Civil Code Section 2923.55

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Although not certain in the amended complaint, Shaw seems to be alleging violations of

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California Civil Code section 2923.5, along with violations of section 2923.55. To be clear, any

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claims for violations of Civil Code section 2923.5 must be dismissed as a matter of law because

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that provision had a sunset date of January 1, 2013, when it was replaced with Civil Code section

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2923.55, and the notice of default here was recorded after that date. See Fink v. Wells Fargo

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Bank, N.A., No. 15-cv-0001-YGR, 2015 WL 1204854, at *4 (N.D. Cal. Mar. 16, 2015).

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California Civil Code section 2923.55 requires that a mortgage servicer contact the

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borrower “in person or by telephone in order to assess the borrower’s financial situation and

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explore options for the borrower to avoid foreclosure,” thirty days prior to recording a notice of

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default. “During the initial contact, the mortgage servicer shall advise the borrower that he or she

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has the right to request a subsequent meeting and, if requested, the mortgage servicer shall

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schedule the meeting to occur within 14 days.” Id. § 2923.55(b)(2). When a notice of default is

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filed, the mortgage servicer must include a declaration that those notice or due diligence

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requirements were satisfied. Id. § 2923.55(a)(2),(f). If a trustee’s deed upon sale has already been

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recorded, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall be liable

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to a borrower for actual economic damages, resulting from a material violation of section 2923.55.

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Id. § 2924.12(b) (emphasis added).
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Ocwen says that the notice of default, which contains a declaration that tracks the statutory

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language of section 2923.55 and indicates defendant “exercised due diligence” (Dkt. No. 14, RJN,

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Ex. D), defeats any claim that notice was insufficient. Dkt. No. 42 at 8-9. While the Court takes

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notice of Exhibit D, it does not take notice of the truth of the declaration. Intengan v. BAC Home

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Loans Servicing LP, 214 Cal. App. 4th 1047, 1057-58 (2013). Because of this, the declaration

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does not necessarily defeat claims that could arise from insufficient due diligence.
From the face of the complaint, however, Shaw has not alleged facts to show that the due

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diligence steps were not taken or that any violations were material. See Cornejo v. Ocwen Loan

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Servicing, 151 F. Supp. 3d 1102, 1114 (E.D. Cal. 2015); see also Ashcroft v. Iqbal, 556 U.S. 662,

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678 (2009) (“A claim has facial plausibility when the plaintiff pleads factual content that allows

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United States District Court
Northern District of California

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the court to draw the reasonable inference that the defendant is liable for the misconduct

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alleged.”). Shaw also asserts she was in communication with Ocwen about loan modifications,

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undermining her claims that notice was deficient. Dkt. No. 41 at 8. Because factual

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circumstances have changed since the FAC was filed and the Court is unsure whether the

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deficiencies may be cured with aid of a new attorney, this count is dismissed with leave to amend.

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See Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002) (leave to amend should be granted

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unless “the complaint could not be saved by any amendment.”).

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C. Violations of California Civil Code Section 2923.6

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Section 2923.6(c) provides that if a mortgage servicer offers a first lien loan modification,

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and the borrower has submitted a “complete application,” the mortgage servicer “shall not record a

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notice of default, notice of sale, or conduct a trustee’s sale” while the application is pending unless

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certain requirements are met. This section was meant to avoid “dual tracking,” the practice of

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pursuing foreclosure while a borrower’s loan modification application is still pending. Rockridge

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Trust v. Wells Fargo, N.A., 985 F. Supp. 2d 1110, 1149 (N.D. Cal. 2013). A violation of this

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section is dependent on the homeowner first submitting a completed application and not being

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afforded an opportunity to be evaluated for a loan modification. Major v. Wells Fargo Bank, N.A.,

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No. 14-cv-998-LAB-RBB, 2014 WL 4103936, at *5 (S.D. Cal. Aug. 18, 2015). “[A]n application

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shall be deemed ‘complete’ when a borrower has supplied the mortgage servicer with all
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documents required by the mortgage servicer within the reasonable timeframes specified by the

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mortgage servicer.” Cal. Civ. Code § 2923.6(h).

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Shaw’s bare bone allegations that she “believed Ocwen was qualifying her for a loan

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modification” when the notice of default was filed does not survive the 12(b)(6) pleading standard.

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Shaw has not alleged when she submitted her loan modification, or that it was complete. See

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Iqbal, 556 U.S. at 678. Shaw will be given one more opportunity to amend this claim, now that

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she is represented by counsel. Dkt. No. 57 at 2.

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V.

WRONGFUL FORECLOSURE
A wrongful foreclosure is a common law tort claim to set aside a foreclosure sale, or an

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action for damages resulting from the sale, on the basis that the foreclosure was improper.

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United States District Court
Northern District of California

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Sciarratta v. U.S. Bank Nat’l Ass’n, 247 Cal. App. 4th 552, 561 (2016). Under California law, the

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elements of a wrongful foreclosure cause of action are: (1) the trustee or mortgagee caused an

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illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a

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mortgage or deed of trust; (2) the party attacking the sale was prejudiced or harmed; and (3) in

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cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the

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amount of the secured indebtedness or was excused from tendering. Id. at 562. “Mere technical

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violations of the foreclosure process will not give rise to a tort claim; the foreclosure must have

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been entirely unauthorized on the facts of the case.” Id. (quotation omitted).

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It is clear from the FAC that Shaw has not alleged any of these elements to successfully

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plead a claim for wrongful foreclosure. Because the sale occurred between the time of the FAC

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and the opposition, she is afforded another opportunity to amend this claim.

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VI.

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VIOLATIONS OF THE UCL AND NEGLIGENCE
Shaws’s proposed second amended complaint alleges a claim for negligence and a claim

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under the California Unfair Competition Law, Business and Professions Code section 17200 et

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seq. (“UCL”), not present in the FAC. While parties have disputed whether a fiduciary duty exists

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and the basis for a legal duty, the FAC, opposition brief, and proposed second amended complaint

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each assert different variations of a duty. The Court does not engage, or expect Ocwen to, with

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this moving target now. See Sanches, 2009 WL 650247, at *12. Shaw will have leave to add a
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claim for negligence, rather than negligence per se, and a claim under the UCL, predicated only on

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the remaining violations of California Civil Code set forth in this Order.

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Shaw may not add any additional claims in the second amended complaint. She has until
December 23, 2016 to file a second amended complaint.
IT IS SO ORDERED.
Dated: December 5, 2016

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JAMES DONATO
United States District Judge

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United States District Court
Northern District of California

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