Garcia v. Wells Fargo Bank, N.A. et al

Filing 30

ORDER by Judge Hamilton granting in part and denying in part 18 Motion to Dismiss (pjhlc2, COURT STAFF) (Filed on 1/31/2014)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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DEBRA GARCIA,
Plaintiff,

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No. C 13-3670 PJH

v.

ORDER GRANTING IN PART AND
DENYING IN PART MOTION TO
DISMISS

WELLS FARGO BANK N.A., et al.,

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For the Northern District of California

United States District Court

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Defendants.
_______________________________/

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Defendants’ motion to dismiss came on for hearing before this court on December

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11, 2013. Plaintiff Debra Garcia (“plaintiff”) appeared through her counsel, Eunji Cho.

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Defendants Wells Fargo Bank, N.A. and U.S. Bank, N.A. (“defendants”) appeared through

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their counsel, Mary Kate Kamka. Having read the papers filed in conjunction with the

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motion and carefully considered the arguments and the relevant legal authority, and good

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cause appearing, the court hereby GRANTS in part and DENIES in part defendants’ motion

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to dismiss as follows.
BACKGROUND

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This is a mortgage case. The parties present differing versions of the facts, so this

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order will first present defendants’ allegations (which reach back further in time), and then

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will present plaintiff’s factual allegations, which are more detailed as to the bases for her

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asserted causes of action.

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According to defendants, plaintiff refinanced the subject property on October 13,

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2004, through Wells Fargo. Dkt. 18 at 1. The amount of the refinance loan was $399,000.

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Id. Plaintiff then refinanced the junior lien on her home in August 2005, in the amount of

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$100,000. Id. Plaintiff then obtained another loan in February 2007, in the amount of

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$19,000. Id.
In January 2008, plaintiff first stopped making payments on her loans, resulting in a

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notice of default in April 2008, indicating $20,631.44 in arrearage. Dkt. 18 at 1. Plaintiff

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ultimately cured this default, resulting in the rescission of the notice of default. Id.

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Plaintiff again stopped making payments sometime later in 2008, resulting in a

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second notice of default in February 2009, indicating $20,923.63 in arrearage. Dkt. 18 at 1-

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2. Plaintiff ultimately cured this default as well. Id. at 2.

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notice of default in August 2009, indicating $19,198.26 in arrearage. Dkt. 18 at 2. Plaintiff
ultimately cured this default. Id.

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For the Northern District of California

United States District Court

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Plaintiff again stopped making payments sometime in 2009, resulting in a third

Plaintiff again stopped making payments (presumably, sometime in 2011, though

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defendants do not provide a date), resulting in a fourth notice of default in October 2011,

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indicating $6,525.67 in arrearage. Dkt. 18 at 2. Again, plaintiff cured the default, though

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she did not cure it until February 2012, when the arrearage was $22,269.77. Id.

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After curing default for the fourth time, plaintiff did not make another payment,

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resulting in a fifth notice of default on April 5, 2013. Dkt. 18 at 2. According to defendants,

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plaintiff stopped making payments in March 2012, and was $36,861.31 in arrears at the

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time of the notice of default. Id.

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Plaintiff’s operative first amended complaint (“FAC”) does not discuss the first three

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notices of default (stating only that she “had reinstated her loan several times”), but does

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allege that, in July 2011, she contacted Wells Fargo to see if more favorable loan terms

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were possible. FAC, ¶ 13. She spoke to Herman Purewal, who identified himself as

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plaintiff’s point of contact. Id. Plaintiff alleges that Purewal “told her very specifically that in

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order to be considered for a loan modification, she would have to be at least three months

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late on her mortgage payments.” Id., ¶ 14. Plaintiff alleges that she was “uncomfortable”

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about missing payments, but that Purewal clearly told her that she needed to do so to be

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eligible for a modification, and that Wells Fargo had a policy not to foreclose on a property

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while a modification application was pending. Id. Plaintiff alleges that “Purewal promised
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plaintiff that her property would not be foreclosed on while she was pursuing a

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modification.” Id.

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Plaintiff alleges that she started missing payments in July 2011, as instructed, and

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after missing the third payment, she “contacted Wells Fargo to apply for a loan

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modification.” FAC, ¶ 15. After not being able to get in touch with Purewal at first, plaintiff

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did get in contact with Purewal (though it is not clear when), and submitted the loan

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modification paperwork. Id. Purewal told her that he would contact her with a decision by

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December 2011. Id.

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During that time, Wells Fargo recorded a notice of default (in October 2011), and
scheduled a trustee’s sale for February 9, 2012. FAC, ¶¶ 15-16. Plaintiff claims that she

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was anxious and fearful, and that she left “many messages” for Purewal, with no response.

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Id., ¶ 17. Then, “just a few days” before the trustee’s sale, Purewal called her back and

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told her that there was nothing that he could do. Id. Plaintiff ultimately paid the

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reinstatement amount of $22,269.77 on February 7, 2012. Id., ¶ 18.

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Plaintiff then alleges that she again contacted Purewal in January 2013 to “reinstate

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her loan as she had done in the past.” FAC, ¶ 19. She alleges that she was given a

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reinstatement amount of $36,000, which she believed to be excessive. Id. Plaintiff alleges

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that “suspicion regarding the excessive reinstatement calculation was later confirmed

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when, on or about April 5, 2013, defendant caused to be recorded a notice of default” which

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indicated that “she was $36,861.31 in arrears on her account, the same amount that she

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had been provided months earlier.” Id.

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The FAC then includes a separate section on “facts regarding violation of Civil Code

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Section 2923.7,” which establishes Wells Fargo’s duty to designate a single point of contact

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upon a borrower’s request for a foreclosure prevention alternative. Plaintiff alleges that,

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starting in January 2013, she made several attempts to verify whether Purewal was her

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single point of contact. FAC, ¶ 22. However, plaintiff claims that he never returned her

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calls, and that she was given excuses for why Purewal could not take her call. Id., ¶ 23.

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After receiving notice, in February 2013, that her loan had been referred to outside counsel
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to initiate foreclosure proceedings, plaintiff went to a Wells Fargo branch and spoke to a

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different mortgage specialist (Paul Gruber), and after discussions with him proved

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unsuccessful, she was assigned to a “preservation specialist” (Alexandra Dominguez) on

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June 17, 2013. Id., ¶¶ 27-30. Plaintiff alleges that this single point of contact should have

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been assigned in January 2013. Id., ¶ 30.

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Plaintiff filed suit in this court on August 7, 2013, and after defendants filed a motion

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to dismiss the original complaint, plaintiff filed the operative FAC on September 26, 2013.

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The FAC alleges seven causes of action against Wells Fargo and U.S. Bank (which is

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alleged to be the current lender and owner of plaintiff’s note): (1) violation of Cal. Civ. Code
§§ 2923.5 and 2923.7, (2) breach of contract, (3) breach of the implied covenant of good

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For the Northern District of California

United States District Court

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faith and fair dealing, (4) violation of Cal. Civ. Code § 2924c, (5) negligent

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misrepresentation, (6) fraud, and (7) unfair competition under Cal. Bus. & Prof. Code §

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17200.

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DISCUSSION
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests for the legal

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sufficiency of the claims alleged in the complaint. Ileto v. Glock, Inc., 349 F.3d 1191,

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1199-1200 (9th Cir. 2003). Review is limited to the contents of the complaint. Allarcom

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Pay Television, Ltd. v. Gen. Instrument Corp., 69 F.3d 381, 385 (9th Cir. 1995). To survive

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a motion to dismiss for failure to state a claim, a complaint generally must satisfy only the

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minimal notice pleading requirements of Federal Rule of Civil Procedure 8, which requires

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that a complaint include a “short and plain statement of the claim showing that the pleader

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is entitled to relief.” Fed. R. Civ. P. 8(a)(2).

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A complaint may be dismissed under Rule 12(b)(6) for failure to state a claim if the

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plaintiff fails to state a cognizable legal theory, or has not alleged sufficient facts to support

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a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.

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1990). The court is to “accept all factual allegations in the complaint as true and construe

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the pleadings in the light most favorable to the nonmoving party.” Outdoor Media Group,

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Inc. v. City of Beaumont, 506 F.3d 895, 899-900 (9th Cir. 2007).
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However, legally conclusory statements, not supported by actual factual allegations,

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need not be accepted. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). The allegations in

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

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Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations and quotations omitted). A

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

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draw the reasonable inference that the defendant is liable for the misconduct alleged.”

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Iqbal, 556 U.S. at 678 (citation omitted). “[W]here the well-pleaded facts do not permit the

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court to infer more than the mere possibility of misconduct, the complaint has alleged – but

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it has not ‘show[n]’ – ‘that the pleader is entitled to relief.’” Id. at 679. In the event
dismissal is warranted, it is generally without prejudice, unless it is clear the complaint

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For the Northern District of California

United States District Court

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cannot be saved by any amendment. See Sparling v. Daou, 411 F.3d 1006, 1013 (9th Cir.

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2005).

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In addition, while the court generally may not consider material outside the pleadings

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when resolving a motion to dismiss for failure to state a claim, the court may consider

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matters that are properly the subject of judicial notice. Lee v. City of Los Angeles, 250 F.3d

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668, 688-89 (9th Cir. 2001); Mack v. South Bay Beer Distributors, Inc., 798 F.2d 1279,

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1282 (9th Cir. 1986). Additionally, the court may consider exhibits attached to the

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complaint, see Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1555

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n.19 (9th Cir. 1989), as well as documents referenced extensively in the complaint and

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documents that form the basis of a the plaintiff’s claims. See No. 84 Employer–Teamster

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Joint Counsel Pension Trust Fund v. America West Holding Corp., 320 F.3d 920, 925 n.2

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(9th Cir. 2003).

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Finally, in actions alleging fraud, “the circumstances constituting fraud or mistake

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shall be stated with particularity.” Fed. R. Civ. P. 9(b). Under Rule 9(b), falsity must be

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pled with specificity, including an account of the “time, place, and specific content of the

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false representations as well as the identities of the parties to the misrepresentations.”

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Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (citations omitted). “[A]llegations

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of fraud must be specific enough to give defendants notice of the particular misconduct
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which is alleged to constitute the fraud charged so that they can defend against the charge

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and not just deny that they have done anything wrong.” Bly-Magee v. California, 236 F.3d

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1014, 1019 (9th Cir. 2001) (citation and quotations omitted). In addition, the plaintiff must

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do more than simply allege the neutral facts necessary to identify the transaction; he must

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also explain why the disputed statement was untrue or misleading at the time it was made.

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Yourish v. California Amplifier, 191 F.3d 983, 992-93 (9th Cir. 1999).

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B.

Legal Analysis

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As an initial matter, the FAC makes no specific allegations against U.S. Bank, and

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none of the briefing discusses U.S. Bank’s role in any of the conduct underlying plaintiff’s
claims. Thus, defendants’ motion to dismiss is GRANTED as to all asserted claims against

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For the Northern District of California

United States District Court

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U.S. Bank.

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Turning to the merits of plaintiff’s claims, plaintiff’s first cause of action for wrongful

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foreclosure actually consists of two prongs – one for the alleged violation of Cal. Civil Code

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§ 2923.5, and one for the alleged violation of Cal. Civil Code § 2923.7. This order will

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address them separately.

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The first prong of plaintiff’s first cause of action alleges that Wells Fargo failed to

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contact plaintiff in person or by telephone in order to assess her financial situation and

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explore options for her to avoid foreclosure, as required by section 2923.5. Plaintiff further

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alleges that Wells Fargo did not advise her that she had the right to request a subsequent

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meeting to occur within 14 days, as required by section 2923.5. In response, Wells Fargo

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provides a declaration, dated February 21, 2013, stating that it had contacted plaintiff to

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assess her financial situation and explore foreclosure-avoidance options. See Dkt. 19, Ex.

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16. Wells Fargo further argues that plaintiff “has not provided any factual support to

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contradict the declaration.”

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However, on this specific type of claim, there are not any “facts” for plaintiff to allege

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other than the negative statement that Wells Fargo did not actually contact plaintiff. And in

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the FAC, plaintiff does describe her contact with Wells Fargo in the relevant timeframe –

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alleging that, in March 2013, she spoke to an “executive mortgage specialist” (Paul Gruber)
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who discussed with plaintiff the reinstatement amount on her loan. FAC, ¶¶ 27-29. Plaintiff

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asked Gruber if the amount of her monthly payment had been increased by mistake, and

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Gruber said that he would investigate and provide an answer within a week. Id., ¶ 28. Two

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weeks passed without an answer, so plaintiff called Gruber, who informed her that “private

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investigators who are holding the loan but whom Gruber would not identify were not willing

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to ‘negotiate’ the reinstatement amount or modify plaintiff’s loan.” Id., ¶ 29. It is unclear

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whether Wells Fargo is relying on this contact to support its declaration – but it is unlikely,

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given that the declaration was recorded on February 21, 2013, whereas plaintiff claims that

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her first contact with Gruber was not until March 2013. In short, the parties simply provide
conflicting accounts of Wells Fargo’s contact with plaintiff, and because plaintiff’s

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For the Northern District of California

United States District Court

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allegations are to be taken as true at this stage of the case, the court finds that plaintiff has

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adequately alleged that Wells Fargo did not actually contact her 30 days (or more) before

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the date of the declaration. Wells Fargo’s motion to dismiss this prong of plaintiff’s first

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cause of action is thus DENIED.

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The second prong of plaintiff’s first cause of action alleges that Wells Fargo did not

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promptly establish a single point of contact (“SPOC”) and provide to her one or more direct

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means of communication with the single point of contact, as required by section 2923.7. As

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explained above, plaintiff alleges that Purewal was initially assigned as her single point of

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contact, but plaintiff alleges that she attempted, on numerous occasions, to contact

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Purewal, and that he was unresponsive to her phone calls. Wells Fargo argues that the

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statute “does not define the frequency with which a SPOC must communicate with a

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borrower,” which is true, but would appear to allow a defendant to avoid liability simply by

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making a nominal “appointment” of a SPOC, even if that SPOC never communicates with

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the borrower ever again. And as plaintiff argues, the statute requires the SPOC to

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“adequately inform the borrower of the current status of the foreclosure prevention

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alternative” and to “ensur[e] that a borrower is considered for all foreclosure prevention

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alternatives offered by, or through, the mortgage servicer, if any.” Purewal’s failure to

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follow up on plaintiff’s loan modification request (made in October 2011, with a promised
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response by December 2011) would, by itself, appear to be sufficient to state a claim under

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either of these two subsections. Thus, the court DENIES Wells Fargo’s motion to dismiss

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as to the second prong of plaintiff’s first cause of action.

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The court will address plaintiff’s second cause of action (breach of contract) and

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third cause of action (breach of implied covenant of good faith and fair dealing) together,

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because they are based on the same underlying conduct. In general, plaintiff alleges that

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Wells Fargo breached her initial loan refinance agreement “when it demanded, as a

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condition of reinstatement, the fees it waived when it told her to stop making payments in

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July 2011.” However, as defendants point out, the loan agreement provided for the
imposition of all of the complained-about fees. Thus, plaintiff cannot state a claim for

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For the Northern District of California

United States District Court

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breach of the loan agreement, and Wells Fargo’s motion to dismiss is GRANTED as to

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plaintiff’s second and third causes of action. However, plaintiff will be given leave to amend

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these claims, because plaintiff may be able to state a claim that she entered into an oral

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contract with Purewal (who was acting on behalf of Wells Fargo). In the FAC, plaintiff

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alleges that Purewal agreed to consider a loan modification (i.e., to either offer a loan

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modification, or to inform plaintiff if she were ineligible) if plaintiff missed three payments.

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Thus, if there was a breach of contract, it was not a breach of the loan agreement itself, it

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was a breach of an oral agreement between Purewal and plaintiff. See also Corvello v.

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Wells Fargo Bank, N.A., 728 F.3d 878, 884-85 (9th Cir. 2013). While the court does not

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opine on the merits of any claim for breach of an oral contract, it will allow plaintiff an

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opportunity to amend so that she may clarify her claims.

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Plaintiff’s fourth cause of action alleges that Wells Fargo demanded funds from her

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in excess of the amount necessary to reinstate her loan, in violation of Cal. Civil Code §

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2924c. However, it appears that the allegedly excessive fees all stem from plaintiff’s failure

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to make payments on her loan, which, in turn, stems from Purewal’s representation to

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plaintiff that she would need to miss at least three payments in order to be eligible for a

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loan modification. Thus, while the “excessive” funds may provide a measure of damages

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for a contract claim, they do not appear to form the basis of a claim under section 2924c.
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Wells Fargo’s motion to dismiss plaintiff’s fourth cause of action is therefore GRANTED,

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and while the court will allow plaintiff an opportunity to amend this claim, the court notes

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that plaintiff will need to more specifically describe why the fees charged were “excessive” if

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she wishes to maintain a viable claim under section 2924c.

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Plaintiff’s fifth cause of action (negligent misrepresentation) and sixth cause of action

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(fraud) are based on the same underlying conduct, so the court will address them together.

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Both claims are based on Purewal’s alleged representation to plaintiff that she would need

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to miss at least three payments in order to be eligible for a loan modification, and that her

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property would not be foreclosed upon during the modification application process. The
court agrees with Wells Fargo that any misrepresentation appears to have related to a

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future fact (i.e., the promise to either offer a modification or to inform plaintiff that she was

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ineligible, and/or not to foreclose on her home while the modification was being sought),

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and not to a past or existing fact. Thus, plaintiff’s allegations appear to be more suited to a

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breach of contract claim than a fraud claim. However, if plaintiff can actually allege that

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Purewal’s statements were untrue when made, then plaintiff would be able to state a claim

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on these fraud-type claims. Because Rule 9(b) requires claims of falsity to be pled with

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particularity, including an explanation of why the disputed statement was untrue or

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misleading at the time it was made, Wells Fargo’s motion to dismiss plaintiff’s fifth and sixth

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causes of action is GRANTED, with leave to amend.

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Plaintiff’s seventh cause of action alleges a violation of California’s unfair

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competition law, and is premised on the various violations of California law that are alleged

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in the FAC. Because the fees triggered as a result of plaintiff’s non-payment do establish

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standing, and because plaintiff has pled a viable cause of action at least as to her first

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cause of action, Wells Fargo’s motion to dismiss plaintiff’s seventh cause of action is

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DENIED.

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Plaintiff shall have until March 3, 2014 to file a second amended complaint in

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accordance with this order, and defendants shall have until March 24, 2014 to answer or

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otherwise respond to the complaint. Despite the absence of allegations as to defendant
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U.S. Bank, plaintiff shall have one opportunity to amend her claims against it. Any

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amendment must clearly set forth which claims are asserted against which defendant and

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what each defendant did to make them liable. Plaintiff may no longer simply lump all

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defendants together without delineating the wrongful acts committed by each. Also, no

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new parties may be added without leave of court, and no new claims may be added without

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leave of court or the agreement of the parties.

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Finally, defendants’ request for judicial notice is GRANTED.

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IT IS SO ORDERED.

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Dated: January 31, 2014
______________________________
PHYLLIS J. HAMILTON
United States District Judge

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For the Northern District of California

United States District Court

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