Graham v. Wells Fargo Bank, N.A.

Filing 38

Order by Hon. James Donato granting in part and denying in part 33 Motion to Dismiss. (jdlc1S, COURT STAFF) (Filed on 5/20/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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MICHELLE A GRAHAM,
Plaintiff,

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United States District Court
Northern District of California

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Case No. 15-cv-04220-JD
ORDER RE MOTION TO DISMISS
AMENDED COMPLAINT

v.
WELLS FARGO BANK, N.A.,

Re: Dkt. No. 33

Defendant.

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This action is for breach of a settlement agreement reached in a prior mortgage dispute.

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Defendant Wells Fargo Bank, N.A. (“Wells Fargo”) moves to dismiss the complaint under Federal

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Rules of Civil Procedure 12(b)(6) and 12(b)(7). The motion is granted in part and denied in part.

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The Court grants leave to amend the dismissed claims.

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BACKGROUND
The prior litigation arose out of a mortgage and credit line secured by plaintiff Michelle

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Graham’s real property in Berkeley, California. Wells Fargo was the servicing entity for both

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instruments. Graham sought a modification of the mortgage through the HAMP program and

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alleged that Wells Fargo mishandled it to her injury.

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The parties signed a written settlement agreement in March 2015. Dkt. No. 32. Under the

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terms of the agreement, Graham dismissed the prior claims and Wells Fargo agreed to consider a

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loan modification if Graham met strict timelines for submitting any documentation requested by

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Wells Fargo. Graham’s failure to submit requested documentation within the timelines would

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relieve Wells Fargo from the obligation to do a loan modification review. Wells Fargo made “no

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promise, representation, or guarantee whatsoever concerning the results” of the review. Id. at 3-4.

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It agreed to not to seek foreclosure on either instrument during the pendency of the loan review

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process, and promised to “present Plaintiff with a reinstatement demand” on the credit line within

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seven days of the conclusion of the loan review. Id. at 4.
Graham now alleges that Wells Fargo breached the settlement agreement by improperly

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recording a notice of default on the property for the credit line. The Court dismissed the original

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complaint after plaintiff requested leave to amend. Dkt. Nos. 16, 30. The amended complaint

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alleges five claims: (1) breach of contract; (2) breach of implied covenant of good faith and fair

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dealing; (3) promissory estoppel; (4) negligence and negligence per se; (5) violation of California

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Business & Professions Code § 17200, et seq. Dkt. No. 31. Defendant has moved to dismiss the

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claims for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), for failure to
join an indispensable party under Rule 12(b)(7), and for failure to meet the pleading standards of

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United States District Court
Northern District of California

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Rules 8 and 9(b). The Court previously found the motion to dismiss suitable for decision without

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oral argument pursuant to Civil Local Rule 7-1(b). Dkt. No. 37.
DISCUSSION

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I.

STANDARDS

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A Rule 12(b)(6) motion to dismiss “can be based on the lack of a cognizable legal theory

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or the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica

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Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990) (citation omitted). To avoid dismissal, the

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plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl.

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Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff

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pleads factual content that allows the court to draw the reasonable inference that the defendant is

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liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly,

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550 U.S. at 556). In evaluating a motion to dismiss, the Court must assume that the plaintiff’s

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allegations are true and must draw all reasonable inferences in his or her favor. Usher v. City of

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Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the Court need not “accept as true

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allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable

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inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (quotation

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omitted).

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Under Rule 12(b)(7), a party may move to dismiss a case for “failure to join a party under

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Rule 19.” Rule 19 imposes a three-step inquiry: (1) whether the absent party is necessary (i.e.,

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required to be joined if feasible) under Rule 19(a); (2) if so, whether it is feasible to order that

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absent party to be joined; and (3) if joinder is not feasible, whether the case can proceed without

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the absent party, or whether the absent party is indispensable such that the action must be

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dismissed. Salt River Project Agric. Improvement & Power Dist. v. Lee, 672 F.3d 1176, 1179 (9th

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Cir. 2012).
When the Court dismisses a complaint, it “should grant leave to amend even if no request

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to amend the pleading was made, unless it determines that the pleading could not possibly be

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cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000)

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United States District Court
Northern District of California

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(internal quotation marks and citation omitted).

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II.

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CONTRACT AND ESTOPPEL CLAIMS
Wells Fargo challenges the first claim for breach of the settlement agreement as failing to

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allege that Graham discharged her own obligations under the agreement or that she has suffered

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any damages. See Commercial Mortg. Co. v. Reece, 89 Cal. App. 4th 731, 745 (2001) (the

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elements of breach of contract are (1) existence of the contract, (2) performance by the plaintiff or

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excuse for nonperformance, (3) breach by the defendant, and (4) damages). That is not correct.

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The amended complaint states that Graham “submitted all documents requested by WELLS

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FARGO as required under the agreement,” and that she has and will continue to suffer damages

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including “consequential expenses” and “costs and reasonable attorney’s fees in connection” with

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the breach. Dkt. No. 31 ¶¶ 59, 61. Dismissal is denied.

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The challenge to the attendant second claim for breach of the implied covenant of good

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faith and fair dealing is denied for similar reasons. Graham has adequately alleged that she carried

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out her duties but that Wells Fargo did not do the same. See Careau & Co. v. Sec. Pac. Bus.

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Credit, Inc., 222 Cal. App. 3d 1371, 1395 (1990) (allegations of breach of the implied covenant of

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good faith and fair dealing “must show that the conduct of the defendant, whether or not it also

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constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge

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contractual responsibilities”).
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The third claim for promissory estoppel is dismissed. Graham’s allegations are purely

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conclusory and provide no facts at all about any promise allegedly made by Wells Fargo,

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Graham’s reasonable and foreseeable reliance on that promise, and her injury from that reliance.

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See Boon Rawd Trading Int’l Co. v. Paleewong Trading Co., 688 F. Supp. 2d 940, 953 (N.D. Cal.

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2010) (elements of the claim). In addition, the claim appears to be stale. Graham acknowledges

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that a two-year statute of limitations applies to promissory estoppel, Dkt. No. 35 at 7, but has not

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alleged any facts showing that she properly waited until September 16, 2015 to sue on promises

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allegedly made in the summer of 2013. Graham has leave to try to replead the promissory

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estoppel claim but needs to satisfy the required elements and allege facts excusing untimeliness.

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III.

NEGLIGENCE CLAIM

United States District Court
Northern District of California

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The fourth claim for negligence and negligence per se is dismissed. Graham alleges Wells

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Fargo negligently failed to comply with California Civil Code Sections 1572, 2923.55 and 2924 in

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recording the notice of default on the property. But plaintiff has not shown that any of these

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provisions support a plausible claim. Section 1572 addresses actual fraud, not negligence, and

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even if it applied Graham would need to meet the specificity requirements for pleading fraud

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under Rule 9(b) -- which she has not done. Graham does not contest that Section 2923.55 applies

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“only to first lien mortgages or deeds of trust,” and not subsequent loans like her credit line. See

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Cal. Civ. Code §§ 2924.15, 2923.55(h). And the amended complaint nowhere describes how the

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notice violated Section 2924.

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Graham also fails to allege facts showing any other duty on the part of Wells Fargo.

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“While it is certainly true that there is no per se rule that a lender never owes a duty to a borrower”

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in connection with mortgage handling, “it is equally true that a complaint should allege facts

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sufficient to state a plausible duty.” Kingston v. Wells Fargo Home Mortg., No. 13-4181-JD, 2016

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WL 2902228, at *2 (N.D. Cal. May 13, 2016). Here, Graham says only that Wells Fargo owed

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her a duty of care having “undertaken the activity of initiating a non-judicial foreclosure” because

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“Everyone is responsible … for an injury occasioned to another by her or her want of ordinary

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care.” Dkt. No. 31 ¶¶ 77, 80. But as California law makes clear, the question of when and

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whether a lender has a duty is more nuanced, and depends on the balancing of six factors based on
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the facts of a particular case. Alvarez v. BAC Home Loan Servicing, 228 Cal. App. 4th 941, 945,

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945 n.5 (2014) (listing six factors from Biakanja v. Irving, 49 Cal. 2d 647, 650 (1958)); id. at 948-

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49 (imposing “a duty of care on a lender that undertakes to review a loan for potential

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modification” based on an examination of the facts of that case). Graham cannot simply posit a

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duty in lieu of doing the pleading necessary to show how the balancing test tips in her favor. This

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claim is dismissed with leave to amend.

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IV.

Graham’s scattershot allegations under California’s unfair competition laws (“UCL”),

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CALIFORNIA UNFAIR COMPETITION LAW CLAIM

Business and Professions Code § 17200 et seq., are dismissed. Graham’s effort to repackage the
alleged violations of California Civil Code Sections of 1572, 2923.55, and 2924 under Section

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United States District Court
Northern District of California

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17200 fails for the reasons already discussed. See also Kearns v. Ford Motor Co., 567 F.3d 1120,

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1125 (9th Cir. 2009) (“we have specifically ruled that Rule 9(b)’s heightened pleading standards

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apply to claims for violations of the CLRA and UCL”). Graham’s claim that Wells Fargo violated

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“the laws and underlying legislative policies designed to prevent foreclosure, where possible,

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including by requiring mortgage holders to engage in honest foreclosure prevention efforts,” Dkt.

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No. 31 ¶ 88, is literally incomprehensible and also legally deficient for failing to state any facts.

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The UCL claim is dismissed with leave to amend.

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V.

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FAILURE TO JOIN INDISPENSABLE PARTY
Defendant also seeks to dismiss the amended complaint for failing to name Graham’s

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spouse as a plaintiff. As the Ninth Circuit has stated, “necessary” parties in the context of Rule

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19(a) are parties “whose joinder in the action is desirable” because they have an interest in the

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controversy, and whose absence could cause the resolution of the matter to be “incomplete.” See

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E.E.O.C. v. Peabody W. Coal Co., 400 F.3d 774, 779-80 (9th Cir. 2005) (internal quotations

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omitted). Since Armitage co-holds the credit line that Wells Fargo allegedly sought to foreclose,

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she appears to be a “required party” under Rule 19(a). Plaintiff’s cursory contention that Armitage

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is “not an indispensable party by” the Rule 19(a) definition does not compel another conclusion.

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Dkt. No. 35 at 10. Graham concedes that adding Armitage is “easily” done, id., and she should do

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that if she chooses to file a second amended complaint.
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CONCLUSION

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The motion to dismiss the first and second claims is denied. The motion is granted with

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leave to amend for the claims for the promissory estoppel, negligence and negligence per se, and

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Section 17200 claims. Debrah Armitage should be added as a plaintiff consistent with the

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discussion in this order. Graham may file a second amended complaint on or before June 10,

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2016.

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IT IS SO ORDERED.
Dated: May 20, 2016

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JAMES DONATO
United States District Judge

United States District Court
Northern District of California

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