Cleveland v. Aurora Loan Services LLC et al

Filing 21

ORDER by Judge Hamilton granting in part and denying in part 5 8 Motions to Dismiss; ORDER remanding state law claims. (pjhlc1, COURT STAFF) (Filed on 5/24/2011)

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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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DARREN CLEVELAND,

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For the Northern District of California

United States District Court

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Plaintiff,

No. C 11-0773 PJH

v.

ORDER DISMISSING FEDERAL CLAIMS
AND REMANDING STATE LAW CLAIMS

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AURORA LOAN SERVICES, LLC,
et al.,

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Defendant.
_______________________________/

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Before the court are defendants’ motions to dismiss the complaint. Having read the

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parties’ papers and carefully considered their arguments and the relevant legal authority,

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and good cause appearing, the court hereby GRANTS the motions in part and DENIES

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them in part.

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BACKGROUND

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In December 2006, plaintiff Darren Cleveland borrowed $650,000, in the form of two

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loans, to purchase real property located in Oakland, California. The loans were secured by

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recorded Deeds of Trust.

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In 2008, plaintiff started to suffer loss of income in his business. He defaulted on the

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loans and a notice of default was recorded on February 21, 2008. In 2008, plaintiff

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requested, and defendant Aurora Loan Services, LLC (“Aurora”) approved him for, a loan

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modification. This loan modification was recorded on April 7, 2009. Plaintiff again

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defaulted on the loan.

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Aurora and plaintiff entered into a series of loan forbearance agreements, in July

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2009, October 2009, and August 2010. The loan forbearance agreements specifically

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stated that plaintiff was not being promised a loan modification, that the reduced payments

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that Aurora was agreeing to accept were not sufficient to cure the arrearage, and that the

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foreclosure would proceed if no modification was ultimately approved and if plaintiff did not

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cure the default.

American filed a Notice of Default and Election to Sell on October 23, 2009. The defaults

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were not cured, and First American recorded a Notice of Trustee’s Sale on May 11, 2010.

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The sale has since been continued from time to time. Plaintiff’s final application for a loan

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For the Northern District of California

The forbearance period on the third agreement expired on October 19, 2010. First

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United States District Court

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modification was denied on November 30, 2010. A foreclosure sale was again scheduled,

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for January 18, 2011. On January 11, 2011, plaintiff filed the present action in the Superior

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Court of California, County of Alameda, against Aurora and First American.

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The complaint alleges 11 causes of action – (1) a claim for declaratory relief,

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seeking a declaration as to whether plaintiff qualifies for a loan modification under the

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federal Home Affordability Modification Program (“HAMP”); (2) a claim of violation of the

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“Security First” rule, Cal. Civ. P. Code § 726; (3) a claim of breach of oral contract; (4) a

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claim of breach of forbearance agreements; (5) a claim of breach of written contract; (6) a

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claim of promissory estoppel; (7) a claim of negligence; (8) a claim of negligent

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misrepresentation; (9) a claim of fraud; (10) a claim of unfair competition (fraudulent

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business practices), Cal. Bus. & Prof. Code § 17200; and (11) a claim of wrongful

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foreclosure, Cal. Civ. Code §§ 2923.5, 2923.6, and 2923.52. All ten causes of action are

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asserted against Aurora, and the first (declaratory relief), tenth (§ 17200), and eleventh

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also appear to be asserted against First American.

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Defendants filed a notice of removal on February 18, 2011, alleging federal question

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jurisdiction (based on the asserted HAMP violations). Defendants now seek an order

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dismissing the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), for failure to

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state a claim.
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DISCUSSION

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A.

Legal Standard
A motion to dismiss under Rule 12(b)(6) tests for the legal sufficiency of the claims

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alleged in the complaint. Ileto v. Glock, Inc., 349 F.3d 1191, 1199-1200 (9th Cir. 2003).

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Review is limited to the contents of the complaint. Allarcom Pay Television, Ltd. v. Gen.

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Instrument Corp., 69 F.3d 381, 385 (9th Cir. 1995). To survive a motion to dismiss for

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failure to state a claim, a complaint generally must satisfy only the minimal notice pleading

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requirements of Federal Rule of Civil Procedure 8.

claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Specific facts

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For the Northern District of California

Rule 8(a)(2) requires that the complaint include a “short and plain statement of the

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United States District Court

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are unnecessary – the statement need only give the defendant “fair notice of the claim and

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the grounds upon which it rests.” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citing Bell

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Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

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All allegations of material fact are taken as true. Id. at 94. However, legally

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conclusory statements, not supported by actual factual allegations, need not be accepted.

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See Ashcroft v. Iqbal, 556 U.S. __, 129 S.Ct. 1937, 1949-50 (2009). A plaintiff's obligation

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to provide the grounds of his entitlement to relief “requires more than labels and

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conclusions, and a formulaic recitation of the elements of a cause of action will not do.”

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Twombly, 550 U.S. at 555 (citations and quotations omitted). Rather, the allegations in the

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complaint “must be enough to raise a right to relief above the speculative level.” Id.

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A motion to dismiss should be granted if the complaint does not proffer enough facts

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to state a claim for relief that is plausible on its face. See Twombly, 550 U.S. at 558-59.

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“[W]here the well-pleaded facts do not permit the court to infer more than the mere

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possibility of misconduct, the complaint has alleged – but it has not ‘show[n]’ – ‘that the

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pleader is entitled to relief.’” Iqbal, 556 U.S. __, 129 S.Ct. at 1950.

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In addition, when resolving a motion to dismiss for failure to state a claim, the court

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may not generally consider materials outside the pleadings. Lee v. City of Los Angeles,

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250 F.3d 668, 688 (9th Cir. 2001). The court may, however, consider a matter that is
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properly the subject of judicial notice, such as matters of public record. Id. at 689; see also

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Mack v. South Bay Beer Distributors, Inc., 798 F.2d 1279, 1282 (9th Cir. 1986).

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Additionally, the court may consider exhibits attached to the complaint, see Hal Roach

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Studios, Inc. V. Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n.19 (9th Cir. 1989), and

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documents referenced by the complaint and accepted by all parties as authentic. See Van

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Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002).

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B.

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Defendants’ Motions
Aurora argues that the first cause of action for declaratory relief fails because there

modification. Aurora also asserts that the third cause of action for breach of contract fails

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For the Northern District of California

is no private right of action under HAMP, and no right to sue for failure to approve a loan

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United States District Court

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because (among other things) it is a variant of the claim that Aurora violated HAMP.

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Similarly, Aurora asserts that the fifth cause of action for breach of written agreement and

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the sixth cause of action for promissory estoppel both fail because they provide another

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variation of the HAMP claim. Aurora contends that plaintiff has no standing to pursue a

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claim of “violation” of HAMP, or breach of contract pursuant to HAMP. Finally, Aurora

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seeks dismissal of the § 17200 claim on various grounds, and states that it will not repeat

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those already asserted (presumably referring to the HAMP claim argument).

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HAMP was created by Congress as part of the Troubled Assets Relief Program,

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under the authority of the Emergency Economic Stabilization Act of 2008, Pub. L. 110-343.

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Pursuant to this program, mortgage loan servicers enter into Servicer Participation

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Agreements (“SPAs”) with Fannie May, acting as the financial agent for the United States.

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The servicer’s obligations are set forth in the SPA, as well as in Program Guidelines

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established by the Department of the Treasury. See Villa v. Wells Fargo Bank, N.A., 2010

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WL 935680 at *1 (S.D. Cal., Mar. 15, 2010); see also Escobedo v. Countrywide Home

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Loans, Inc., 2009 WL 4981618, *1 (S.D. Cal. 2009). Participating servicers are required to

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consider all loans eligible under the program; however, they are not required to modify

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mortgages. See Escobedo, 2009 WL 4981618 at *2; see also Hoffman v. Bank of America,

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N.A., 2010 WL 2635773 at *4 (N.D. Cal., June 30, 2010); Marks v. Bank of America, 2010
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WL 2572988 at *3 (D.Ariz., June 22, 2010). The HAMP program itself is not codified as a

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public law.

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Both the “General Allegations” pled in the present complaint, and a number of the

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causes of action asserted, include allegations of violations of HAMP. In their notice of

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removal, filed on February 18, 2011, defendants asserted federal question jurisdiction,

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contending that the case “arises under the laws of the following federal program . . . the

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Home Affordability Modification Program . . . a program created by the U.S. Treasury

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Department.”

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In the “General Allegations” section, plaintiff describes the creation of HAMP by the
U.S. Congress, and provides details of some of the HAMP “guidelines.” Cplt. ¶¶ 17-20.

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For the Northern District of California

United States District Court

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Plaintiff asserts that after receiving $28,875.34 during an “alleged good faith ‘reviewing for

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a modification,’” Aurora “denied to offer [plaintiff] a permanent modification, even though

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[p]laintiff was eligible.” Id. ¶ 20.

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In the first cause of action for declaratory relief, plaintiff seeks “a declaration as to

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whether he qualifies for a HAMP guidelines payment, as originally offered.” Id. ¶ 27. In the

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third cause of action for breach of contract, plaintiff alleges that “Aurora violated HAMP

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guidelines by asking for a ‘initial contribution payment’ in order to continue a HAMP review.”

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Id. ¶ 36.

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In the fifth cause of action for breach of written contract, plaintiff asserts that “Aurora

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entered into [an SPA] with Fannie Mae as amended on August 24, 2010, in which Aurora

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agreed to apply the Treasury’s HAMP criteria to all the loans they service,” and that

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“[p]ursuant to [the] SPA and HAMP, Aurora agreed to suspend all foreclosure proceedings

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until the HAMP analysis was completed for all homeowners . . . who meet HAMP criteria

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and passed the NVP test,” and also “agreed to offer HAMP trial plans at a payment level of

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approximately 31% of home debt to all borrowers . . . who meet HAMP criteria and passed

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the NVP test.” Id. ¶¶ 44-46. Plaintiff asserts further that Aurora “breached the SPA

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agreement with the Federal government, of which [p]laintiff is a third party beneficiary, by

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not offering [p]laintiff a HAMP permanent loan modification at the end of the 3 different trial
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plan periods.” Id. ¶ 47. Plaintiff claims that he “did indeed meet the HAMP criteria and

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passed the NPV test.” Id.

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In the sixth cause of action for promissory estoppel, plaintiff alleges that “pursuant to

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the SPA and HAMP, Aurora promised to suspend all pending foreclosure proceedings until

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the HAMP analysis has been completed for all homeowners, including [p]laintiff,” and that

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“[p]laintiff is a third party beneficiary of this agreement.” Id. ¶ 52. Plaintiff asserts further

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that “[p]ursuant to the SPA and the HAMP, Aurora promised to offer a trial plan at a

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payment level of 31 percent of income to all borrowers . . . who meet the HAMP criteria;”

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but Auruora “breached the SPA agreement with the Federal government, of which [p]laintiff

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For the Northern District of California

United States District Court

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is a third party beneficiary.” Id. ¶¶ 53-54.
Finally, in the tenth cause of action for violation of § 17200, plaintiff asserts that

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“defendants engage [sic] in deceptive business practices with respect to mortgage

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servicing, assignments of notes and deeds of trust, foreclosure of residential property and

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related matters by, among other things . . . [f]ailing to comply with the HAMP guidelines, id.

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¶ 76(n), and “[i]nsisting upon an unlawful ‘initial contribution’ ($40,000) for a HAMP review,”

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id. ¶ 76(p).

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Numerous district courts within the Ninth Circuit have ruled that there is no express

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or implied private right of action to sue lenders or loan servicers for violation of HAMP.

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See, e.g., Manabat v. Sierra Pac. Mortg. Co., 2010 WL 2574161 at *11 (E.D. Cal., June 25,

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2010) (dismissing plaintiff's wrongful foreclosure claim because there is no private right of

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action for HAMP violations against lenders that receive HAMP funds); Simon v. Bank of

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Am., N.A., 2010 WL 2609436 at *7 (D. Nev., June 23, 2010) (“[C]ourts have consistently

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held that [HAMP] does not provide borrowers with a private cause of action against lenders

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for failing to consider their application for loan modification, or even to modify an eligible

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loan.”); Marks, 2010 WL 2572988 at *5-7 (“By designating compliance authority to one

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entity, Freddy Mac, Congress intended that a private cause of action was not permitted”);

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see also Phipps v. Wells Fargo Bank, N.A., 2011 WL 302803 at *9 (E.D. Cal., Jan. 27,

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2011); Inman v. Suntrust Mortgage, Inc., 2010 WL 3516309 at *2 (E.D. Cal., Sept. 3, 2010);
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Wright v. Bank of America, N.A., 2010 WL 2889117 at *5 (N.D. Cal., Jul. 22, 2010).

standing to sue under a HAMP SPA because they are not intended third-party beneficiaries

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of the SPA. See Morales v. Chase Home Finance LLC, 2011 WL 1670045 at *9 (N.D. Cal.,

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Apr. 11, 2011). In Hoffman, the court determined that borrower was “an incidental and not

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an intended beneficiary to the HAMP servicer's agreement.” 2010 WL 2635773 at *4 (citing

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Klamath v. Patterson, 204 F.3d 1206 (9th Cir. 1999) and distinguishing County of Santa

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Clara v. Astra USA, Inc., 588 F.3d 1237 (9th Cir. 2009)). The court recognized that the

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weight of authority holds that a borrower does not have enforceable rights under the HAMP

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SPA, see id., 2010 WL 2635773 at *3-4, and this court finds, based on the Hoffman court’s

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For the Northern District of California

In addition, numerous courts have determined that individual borrowers do not have

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United States District Court

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reasoning, that plaintiff does not have standing to sue under the SPA. See also Orcilla v.

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Bank of America, N.A., 2010 WL 5211507 at *3 (N.D. Cal., Dec.16, 2010); Wright, 2010 WL

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2889117 at *3-5; Marks, 2010 WL 2572988 at *3-4; Zandejas v. GMAC Wholesale Mortg.

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Corp., 2010 WL 2629899 at *3 (E.D. Cal., June 29, 2010); Benito v. Indymac Mortgage

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Serv., 2010 WL 2130648 at *7 (D. Nev., May 21, 2010).

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Since plaintiff has no right of action under HAMP to challenge the denial of his

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request for loan modification, the court would have no basis upon which to make a judicial

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determination of plaintiff’s “rights, obligations, and duties, and a declaration as to whether

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he qualifies for a HAMP guideline payment, as originally offered,” which is what plaintiff

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seeks in the cause of action for declaratory relief. Similarly, plaintiff has no standing to

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assert a claim of breach of contract or promissory estoppel based on alleged HAMP

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violations, as he is not (contrary to what he alleges) a third-party beneficiary of any HAMP

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contract between a servicer or lender and the government. Finally, the alleged HAMP

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violations are not actionable, and thus cannot be used to support a claim under § 17200.

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Plaintiff’s claims of HAMP violations provide the sole basis for federal question

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jurisdiction. While federal courts may exercise supplemental jurisdiction over state-law

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claims “that are so related to claims in the action within [the court's] original jurisdiction that

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they form part of the same case or controversy under Article III of the United States
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Constitution,” a court may decline to exercise supplemental jurisdiction where it “has

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dismissed all claims over which it has original jurisdiction.” 28 U.S.C. § 1367(a), (c).

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Indeed, unless “considerations of judicial economy, convenience[,] and fairness to

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litigants” weigh in favor of the exercise of supplemental jurisdiction, “a federal court should

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hesitate to exercise jurisdiction over state claims.” United Mine Workers v. Gibbs, 383 U.S.

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715, 726 (1966); see also Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988). “In

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the usual case in which federal law claims are eliminated before trial, the balance of factors

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. . . will point toward declining to exercise jurisdiction over the remaining state law claims.”

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Gini v. Las Vegas Metro. Police Dep’t, 40 F.3d 1041, 1046 (9th Cir. 1994) (citations and
quotations omitted). Here, the court declines to exercise its supplemental jurisdiction, and

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For the Northern District of California

United States District Court

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will remand the action to the state court on its own motion.

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CONCLUSION
In accordance with the foregoing, the motions are GRANTED in part and DENIED in

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part. The first cause of action for declaratory relief, the third cause of action for breach of

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contract, the fifth cause of action for breach of written contract, the sixth cause of action for

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promissory estoppel, and the tenth cause of action for deceptive business practices in

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violation of Business & Professions Code § 17200 are DISMISSED to the extent that they

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are premised upon claims of alleged HAMP violations or breach of an SPA between either

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defendant and the federal government.

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The court does not address the motions as to the purely state-law claims. Any
remaining claims are hereby REMANDED to the Alameda County Superior Court.

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IT IS SO ORDERED.

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Dated: May 24, 2011
______________________________
PHYLLIS J. HAMILTON
United States District Judge

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