Graham v. Wells Fargo Bank, N.A.

Filing 46

ORDER RE DISMISSAL. Signed by Judge James Donato on 1/10/2017. (jdlc3S, COURT STAFF) (Filed on 1/10/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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MICHELLE A GRAHAM, et al.,
Plaintiffs,

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United States District Court
Northern District of California

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Case No. 3:15-cv-04220-JD
ORDER RE DISMISSAL

v.

Re: Dkt. No. 40
WELLS FARGO BANK, N.A.,
Defendant.

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Plaintiffs Michelle Graham and Debrah Armitage allege that defendant Wells Fargo Bank,

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N.A. (“Wells Fargo”) breached a settlement agreement relating to a foreclosure proceeding on

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their home. The Court previously granted in part and denied in part Wells Fargo’s motion to

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dismiss the first amended complaint. Dkt. No. 38 at 6. Graham filed a second amended complaint

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(“SAC”), and Wells Fargo has moved to dismiss two of the SAC’s claims. Dkt. Nos. 39-40. The

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Court previously found the motion to dismiss suitable for decision without oral argument pursuant

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to Civil Local Rule 7-1(b). Dkt. No. 43. The motion is granted.

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BACKGROUND
The factual background of this case was discussed in detail in the Court’s dismissal order.

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Dkt. No. 38. In brief, as alleged in the SAC, Graham originally sued Wells Fargo over foreclosure

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activities on a home in Berkeley, California, that Graham owns with Armitage. Dkt. No. 39 ¶ 50.

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That lawsuit settled. Id. ¶ 51. As part of the settlement agreement, Wells Fargo promised to

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consider Graham for a modification to her first-lien home loan, to reinstate Graham’s second-lien

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equity line of credit (“ELOC”), and to suspend foreclosure related activities during the loan

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modification review process. Id., Exh. 1, p. 4. The gist of the SAC is that Wells Fargo breached

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the settlement agreement by failing to do a loan modification review on Graham’s first-lien home

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loan. Id. ¶ 60.
The SAC alleges four claims: (1) breach of contract; (2) breach of the implied covenant of

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good faith and fair dealing; (3) negligence; and (4) violations of California’s Unfair Competition

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Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200 et seq. Id. ¶¶ 55-85. In the dismissal order, the

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Court found that the contract and implied covenant claims were adequately pleaded. Dkt. No. 38

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at 3. Consequently, Wells Fargo’s motion to dismiss the SAC challenges only the claims for

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negligence and UCL violations. Dkt. No. 40 at 3-10. 1
DISCUSSION

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I.

STANDARDS
To meet the pleading requirements of Federal Rule of Civil Procedure 8(a)(2) and survive

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United States District Court
Northern District of California

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a Rule 12(b)(6) motion to dismiss, a plaintiff must allege “enough facts to state a claim to relief

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that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has

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facial plausibility when the plaintiff pleads factual content that allows the court to draw the

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reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal,

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556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). At this stage, the Court accepts all

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the material allegations in the complaint as true and draws all reasonable inferences in favor of the

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plaintiffs. Moyo v. Gomez, 32 F. 3d 1382, 1384 (9th Cir. 1994). But the Court will not treat as

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fact or accept as true allegations that are bare legal conclusions, recitations of elements, or

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unwarranted deductions. Iqbal, 556 U.S. at 678; In re Gilead Scis. Sec. Litig., 536 F.3d 1049,

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1055 (9th Cir. 2008).
Because the SAC alleges claims grounded in fraud and deception, Federal Rule of Civil

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Procedure 9(b) also applies. Kearns v. Ford Motor Co., 567 F.3d 1120, 1125-26 (9th Cir. 2009).

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Rule 9(b) requires that “[i]n alleging fraud or mistake, a party must state with particularity the

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circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). This means that “[a]verments

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of fraud must be accompanied by ‘the who, what, when, where, and how’ of the misconduct

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charged.” Kearns, 567 F.3d at 1124 (quoting Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097,

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The SAC fixes the prior omission of an indispensable party (Armitage). Dkt. No. 38 at 5.; Dkt.
No. 39 at 1.
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1102 (9th Cir. 2003)).

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II.

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NEGLIGENCE CLAIM
Graham and Armitage assert a claim for negligence under California Civil Code Section

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1714(a). Dkt. No. 39 ¶¶ 68-78. To state a cause of action for negligence in California, a plaintiff

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must allege: (1) the existence of a duty to exercise due care, (2) breach of that duty, (3) causation,

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and (4) damages. Merrill v. Navegar, Inc., 26 Cal. 4th 465, 500 (2001); see also Cal. Civ. Code §

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1714(a). In the dismissal order, the Court held that the negligence claim failed because the

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complaint did not allege a duty that Wells Fargo purportedly breached. Dkt. No. 38 at 4. The

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SAC features somewhat different negligence allegations, but at bottom still fails to allege any

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conduct by Wells Fargo that plausibly meets the elements of a negligence claim.

United States District Court
Northern District of California

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A.

Duty Re The Application

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The parties disagree on whether Wells Fargo owed a duty to handle the loan modification

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application with reasonable care. The existence of a duty is a threshold question in evaluating a

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negligence claim, Paz v. State of Cal., 22 Cal. 4th 550, 559 (2000), and also a question of law for

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the Court to decide. Vazquez v. Residential Invs., Inc., 118 Cal. App. 4th 269, 278 (2004).

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In California, lenders generally do not owe borrowers a duty of care unless the lender’s

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involvement in the loan transaction exceeds the scope of their “conventional role as a mere lender

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of money.” Nymark v. Heart Fed. Sav. & Loan Assn., 231 Cal. App. 3d 1089, 1096 (1991). But

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that rule is far from absolute. Kingston v. Wells Fargo Home Mortg., No. 13-cv-04181-JD, 2016

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WL 2902228, at *2 (N.D. Cal. May 13, 2016). California courts balance several factors to

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determine when a lender owes a duty of care to a borrower, including: (1) the extent to which the

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transaction was intended to affect the plaintiff, (2) the foreseeability of harm, (3) the degree of

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certainty that the plaintiff suffered injury, (4) the closeness of the connection between the

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defendant’s conduct and the injury suffered, (5) the moral blame attached to the defendant’s

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conduct, and (6) the policy of preventing future harm. Nymark, 231 Cal. App. 3d at 1098

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(identifying factors from Biakanja v. Irving, 49 Cal. 2d 647, 650 (1958)).

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The Courts have not reached unanimity in applying these factors or finding a duty in cases
like this one. See Rijhwani v. Wells Fargo Home Mortg., Inc., No. 13-cv-05881-LB, 2014 WL
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890016, at *14-16 (N.D. Cal. Mar. 3, 2014) (collecting cases); Reiydelle v. J.P. Morgan Chase

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Bank, N.A., No. 12-cv-06543-JCS, 2014 WL 312348, at *17-19 (N.D. Cal. Jan. 28, 2014) (same).

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Wells Fargo cites cases holding that, because a home loan modification application “falls squarely

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within the scope of a lending institution’s conventional role as a lender of money,” a lender has no

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common law duty of care in handling them. See, e.g., Lueras v. BAC Home Loans Servicing, L.P.,

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221 Cal. App. 4th 49, 67 (2013). Graham and Armitage cite cases finding that a lender who

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agrees to consider an application for a home loan modification has exceeded its role as a money

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lender and is subject to a standard of reasonable care in processing the application. See, e.g.,

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Alvarez v. BAC Home Loans Servicing, L.P., 228 Cal. App. 4th 941, 948 (2014). But these cases
address whether a lender who voluntarily undertakes to consider a home loan modification

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United States District Court
Northern District of California

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application assumes a duty of reasonable care, sounding in tort, in processing that application.

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They do not address the situation here, where Wells Fargo has a contractual obligation -- from the

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prior settlement agreement -- to consider Graham and Armitage’s application.

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This is an important qualification because California law, with very limited exceptions,

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does not allow tort claims to flow from contractual breaches. Erlich v. Menezes, 21 Cal. 4th 543,

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551-54 (1999). Substantial concerns underlie that rule, including the different objectives

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underlying tort and contract breach, the importance of predictability in assuring commercial

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stability in contractual dealings, and the potential for converting every contract breach into a tort.

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Id. at 553. Graham and Armitage have claims for breach of contract and for breach of the implied

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covenant of good faith and fair dealing. Dkt. No. 38 at 6. Under these circumstances, it would

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make little policy sense for the common law to foist upon Wells Fargo a tort-based duty of

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reasonable care in processing a loan application that it is already contractually obligated to

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process.

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That is enough to terminate the negligence claim, but the SAC also fails to allege any

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conduct amounting to a breach of Wells Fargo’s ostensible duty of care in the processing of

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Graham and Armitage’s home loan modification application. Those cases, like Alvarez, that have

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found lenders to have breached a duty of care in the home loan modification context all feature

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allegations that the lender actively mishandled a loan modification application, for example by
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relying on incorrect information or by negligently failing to tender the application to the

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appropriate decision maker. See Guillermo v. Caliber Home Loans, Inc., No. 14-cv-04212-JSW,

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2015 WL 1306851, at *6 (N.D. Cal. Mar. 23, 2015) (citing Alvarez, 228 Cal. App. 4th at 945).

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There are no such allegations here. Graham and Armitage primarily allege that Wells Fargo

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breached its ostensible duty by recording a notice of default on the second-lien loan. Dkt. No. 39

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¶ 70. But that allegation is a non sequitur to the claim that Wells Fargo negligently mishandled

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the loan modification application itself. Graham and Armitage also allege that Wells Fargo simply

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didn’t review their application at all. Id. ¶¶ 73, 75. But that allegation plainly describes nothing

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more than a breach of an obligation to perform a contractual duty, and cannot support a claim for

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negligence here. At bottom, even if Wells Fargo owed Graham and Armitage a duty of care in the

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United States District Court
Northern District of California

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processing of their loan modification application, the SAC fails to allege any breach of that duty.

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B.

Duty Re Foreclosure

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Graham and Armitage also allege that Wells Fargo owed them a duty to exercise

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reasonable care while “carrying out” a non-judicial foreclosure. Id. ¶ 72. This rather vague claim

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returns again to the notice of default on the second-lien ELOC with a reference to compliance with

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Civil Code Section 2923.55, which spells out conditions for filing a default notice. Id. ¶¶ 52, 75,

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77. But as the Court has already held, Section 2923.55 applies “only to first lien mortgages or

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deeds of trust,” and not second loans like their ELOC. Graham v. Wells Fargo Bank, N.A., No.

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15-cv-04220-JD, 2016 WL 2937501, at *2 (N.D. Cal. May 20, 2016) (quoting Cal. Civ. Code §§

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2924.15, 2923.55). Consequently, regardless of any alleged deficiencies in the declaration of

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compliance with Section 2923.55, Wells Fargo’s alleged noncompliance cannot provide the basis

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for Graham and Armitage’s negligence claim.

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III.

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UCL CLAIM
To state a claim under the UCL, a plaintiff must allege facts showing that she has “suffered

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an injury in fact and ... lost money or property as a result of the unfair competition.” Cal. Bus. &

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Prof. Code § 17204. Consequently, Graham and Armitage’s UCL claim requires them to plead

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facts establishing a “causal connection between [Wells Fargo’s] alleged UCL violation and [their]

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injury in fact.” Rubio v. Capital One Bank, 613 F.3d 1195, 1203-04 (9th Cir. 2010) (quotation
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omitted). But the SAC fails to plausibly allege that Wells Fargo has caused Graham or Armitage

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any injury cognizable under the UCL. Dkt. No. 39 ¶¶ 79-85. Attorneys’ fees from this case

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cannot form the basis for plaintiffs’ UCL claim. Cordon v. Wachovia Mortg., a Div. of Wells

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Fargo Bank, N.A., 776 F. Supp. 2d 1029, 1039 (N.D. Cal. 2011). Graham and Armitage do not

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allege that a foreclosure sale has occurred -- or even that a notice of trustee’s sale has been

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recorded. Dkt. No. 39 ¶¶ 79-85. Even assuming that the allegedly deficient notice of default

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could jeopardize plaintiffs’ interest in their home enough to create a cognizable injury, Graham

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and Armitage fail to allege any facts showing why Wells Fargo’s conduct -- rather than their own

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inability to pay for their mortgage -- would be the cause of any alleged injury. Lawther v.

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United States District Court
Northern District of California

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OneWest Bank, FSB, No. 10-cv-00054-JCS, 2012 WL 298110, at *25 (N.D. Cal. Feb. 1, 2012).
Even if Graham and Armitage had an injury sufficient to confer standing under the UCL,

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the claim would still fail. The allegations under the “fraudulent” and “unfair” prongs of the UCL,

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which are grounded in Wells Fargo’s allegedly fraudulent conduct, are subject to Rule 9(b)’s

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heightened pleading standards. Kearns, 567 F.3d at 1125-26. Yet the requisite “who, what, when,

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where, and how of the misconduct charged” are wholly absent from the SAC. Id. at 1124 (quoting

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Vess, 317 F.3d at 1102). The allegation that Wells Fargo engaged in unfair practices “based on the

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immoral, unethical, and oppressive conduct in attempting to engineer a foreclosure of Plaintiffs’

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property and . . . failure to properly evaluate borrowers’ modification application,” Dkt. No. 39 ¶

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83, is conclusory in the extreme, and does not survive under Rule 8 plausibility requirements, let

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alone Rule 9(b)’s more exacting standards. And the SAC’s claim under the “unlawful” prong of

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the UCL is a non-starter. While a “systematic breach of certain types of contracts” might form the

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predicate for an unlawfulness claim, the alleged breach here is of a single settlement agreement

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and so cannot support a UCL cause of action. Am. Marine Corp. v. Blue Shield of California, No.

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11-cv-00636-WHA, 2011 WL 1399244, at *5 (N.D. Cal. Apr. 13, 2011) (quoting Arce v. Kaiser

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Found. Health Plan, Inc., 181 Cal. App. 4th 471, 490 (2010)).

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CONCLUSION

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The remaining question is whether the negligence and UCL claims should be dismissed

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with prejudice. Plaintiffs have had more than one opportunity to adequately plead these claims.
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The Court’s discretion to dismiss with prejudice is “particularly broad” after prior leave to amend

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has been granted, which is the case here. Salameh v. Tarsadia Hotel, 726 F.3d 1124, 1133 (9th

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Cir. 2013). In light of plaintiffs’ multiple chances to plead these claims, and their inability to do

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so, the UCL and negligence claims are dismissed with prejudice.

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IT IS SO ORDERED.
Dated: January 10, 2017

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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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