Judan et al v. Wells Fargo Bank, National Association, As Lender et al

Filing 48

ORDER by Judge Haywood S. Gilliam, Jr., GRANTING in part and DENYING in part 30 Defendant's Motion to Dismiss. (hsglc3S, COURT STAFF) (Filed on 7/21/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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MANUEL A. JUDAN, et al.,

Case No. 15-cv-05029-HSG

Plaintiffs,
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v.
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WELLS FARGO BANK, NATIONAL
ASSOCIATION, AS LENDER, et al.,

Re: Dkt. No. 30

Defendants.

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United States District Court
Northern District of California

ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANT’S
MOTION TO DISMISS FIRST
AMENDED COMPLAINT

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This case was originally filed in state court on September 30, 2015, and was removed to

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federal court on November 2, 2015. Dkt. No. 1 at 2. Plaintiffs Manuel A. Judan and Marylyn

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Callejo-Judan filed their first amended complaint on August 22, 2016. Dkt. No. 27 (“FAC”). On

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September 13, 2016, Defendant Wells Fargo Bank, N.A. filed a motion to dismiss. Dkt. No. 30

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(“Mot.”). On September 27, 2016, Plaintiffs opposed the motion. Dkt. No. 34 (“Opp.”). On

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October 4, 2016, Defendant replied. Dkt. No. 35 (“Reply”). On November 17, 2016, the Court

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heard arguments regarding the motion. Dkt. No. 39. Upon careful consideration, the Court

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GRANTS in part and DENIES in part the motion to dismiss.

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I.

REQUESTS FOR JUDICIAL NOTICE
The Court first addresses Defendant’s requests for judicial notice because they are relevant

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to the facts of the case. On September 14, 2016, Defendant filed an amended request for judicial

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notice, Dkt. No. 32 (“RJN”), which Plaintiffs opposed on September 27, 2016, Dkt. No. 34-2

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(“RJN Opp.”). On October 7, 2016, Defendant filed a supplemental request for judicial notice.

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Dkt. No. 36 (“Supp. RJN”).

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“Generally, a district court may not consider any material beyond the pleadings in ruling

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on a Rule 12(b)(6) motion.” Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542,

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1555 n.19 (9th Cir. 1989). “A court may, however, consider certain materials—documents

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attached to the complaint, documents incorporated by reference in the complaint, or matters of

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judicial notice—without converting the motion to dismiss into a motion for summary judgment.”

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United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). Courts may take judicial notice of

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facts outside the pleadings on a motion to dismiss. Mack v. S. Bay Beer Distribs., Inc., 798 F.2d

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1279, 1282 (9th Cir. 1986), abrogated on other grounds by Astoria Fed. Sav. & Loan Ass’n v.

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Solimino, 501 U.S. 104 (1991). Federal Rule of Evidence 201 allows a court to take judicial

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notice of a fact that is “not subject to reasonable dispute because it: (1) is generally known within

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the trial court’s jurisdiction; or (2) can be accurately and readily determined from sources whose

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accuracy cannot reasonably be questioned.” A court may judicially notice “matters of public
record outside the pleadings.” See Mir v. Little Co. of Mary Hosp., 844 F.2d 646, 649 (9th Cir.

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United States District Court
Northern District of California

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1988) (internal quotation marks omitted). Furthermore, under the “incorporation by reference”

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doctrine, a court may “take into account documents ‘whose contents are alleged in a complaint and

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whose authenticity no party questions, but which are not physically attached to the [plaintiff’s]

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pleading.’” Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005). The Ninth Circuit has

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extended the doctrine to “situations in which the plaintiff’s claim depends on the contents of a

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document, the defendant attaches the document to its motion to dismiss, and the parties do not

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dispute the authenticity of the document, even though the plaintiff does not explicitly allege the

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contents of that document in the complaint.” Id.

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Defendant requests judicial notice of five documents related to its corporate status: (1) the

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Certificate of Corporate Existence, issued by the Department of Treasury’s Office of Thrift

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Supervision (“OTS”), certifying that World Savings Bank, FSB is a federal savings bank, RJN,

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Ex. A; (2) a letter from OTS dated November 19, 2007, approving the request to amend the bank’s

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charter and bylaws to change its name to Wachovia Mortgage, FSB, id., Ex. B; (3) the Charter of

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Wachovia Mortgage, FSB, dated December 31, 2007, reflecting in Section 4 that it is subject to

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the Home Owners’ Loan Act (“HOLA”) and the orders of OTS, id., Ex. C; (4) Official

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Certification of the Comptroller of the Currency (“OCC”), stating that effective November 1,

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2009, Wachovia Mortgage, FSB converted to Wells Fargo Bank Southwest, N.A., which then

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merged with and into Wells Fargo Bank, N.A., RJN, Ex. D; and (5) a printout from the Federal
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Deposit Insurance Corporation (“FDIC”) website dated December 15, 2010, showing the history

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of Wachovia Mortgage, FSB; id., Ex. E. The Court finds these five documents are properly

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subject to judicial notice. Plaintiffs do not dispute the authenticity of these documents, which are

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also capable of accurate and ready determination from sources whose accuracy cannot reasonably

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be questioned. See Rule 201(b)(2); Paralyzed Veterans of Am. v. McPherson, 2008 U.S. Dist.

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LEXIS 69542, at *17–18 (N.D. Cal. Sept. 8, 2008) (taking judicial notice of information on

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official government websites); Ibarra v. Loan City, No. 09-CV-02228-IEG POR, 2010 WL

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415284, at *3 (S.D. Cal. Jan. 27, 2010) (taking judicial notice of documents related to defendant’s

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status as an operating subsidiary of a federal savings association); Gens v. Wachovia Mortg.
Corp., No. CV10-01073 JF (HRL), 2010 WL 1924777, at *2 & n.4 (N.D. Cal. May 12, 2010)

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United States District Court
Northern District of California

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(taking judicial notice of a letter issued by OTS confirming World Savings’ request to change its

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name to Wachovia ); Biggins v. Wells Fargo & Co., 266 F.R.D. 399, 408 (N.D. Cal. 2009) (taking

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judicial notice of an order from OTS as the order is available on the OTS website and plaintiffs do

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not dispute its authenticity); Hammons v. Wells Fargo Bank, N.A., No. 15-CV-04897-RS, 2015

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WL 9258092, at *4 (N.D. Cal. Dec. 18, 2015) (taking judicial notice of nearly identical

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documents, including bank charter); Hines v. Wells Fargo Home Mortgage, Inc., No. 14-CV-

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01386 JAM KJN, 2014 WL 5325470, at *3 (E.D. Cal. Oct. 17, 2014) (taking judicial notice of

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similar documents).

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Additionally, Defendant seeks judicial notice of the following real estate documents: (1)

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Deed of Trust dated August 25, 2003, and recorded in the San Mateo County Recorder’s Office

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(“Recorder’s Office”) on August 28, 2003, RJN, Ex. F; (2) Adjustable Rate Mortgage Note dated

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August 25, 2003, id., Ex. G; and (3) Notice of Default and Election to Sell Under Deed of Trust

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dated April 28, 2016, and recorded in the Recorder’s Office on May 2, 2016, id., Ex. H. Plaintiffs

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do not dispute the authenticity of these documents or oppose taking judicial notice of them. The

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Dead of Trust and the Mortgage Note were both attached to the complaint, so may properly be

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considered. See Compl. Exs. A–B; Ritchie, 342 F.3d at 908. Furthermore, the Deed of Trust and

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2016 Notice of Default are subject to judicial notice as publicly-recorded real estate instruments

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not subject to reasonable dispute. See, e.g., Laconico v. Cal-Western Reconveyance Corp., No.
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17-cv-00698-BLF, 2017 WL 2877098, at *4 (N.D. Cal. 2017); Petrovich v. Ocwen Loan

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Servicing, LLC, No. 15-cv-00033-EMC, 2016 WL 555959, at *3 (N.D. Cal. 2016), appeal filed,

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No. 16-15396 (9th Cir. 2016); Distor v. U.S. Bank NA, No. C 09-02086 SI, 2009 WL 3429700, at

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*2 (N.D. Cal. 2009), abrogated on other grounds by Beaver v. Tarsadia Hotels, 816 F. 3d. 1170,

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1180 n. 5 (9th Cir. 2016); see also Mir, 844 F.2d at 649 (judicial notice of public records).

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Defendant also seeks judicial notice of the Modification Agreement dated June 23, 2005.
RJN, Ex. I. Plaintiffs oppose judicial notice of this document. RJN Opp. As Defendant notes

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with relation to the Modification Agreement, RJN at 3, the Ninth Circuit has held that “[a] court

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may consider evidence on which the complaint ‘necessarily relies’ if: (1) the complaint refers to

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the document; (2) the document is central to the plaintiff’s claim; and (3) no party questions the

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United States District Court
Northern District of California

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authenticity of the copy attached to the 12(b)(6) motion.” Marder v. Lopez, 450 F.3d 445, 448

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(9th Cir. 2006). However, the Court agrees with Plaintiffs that the Modification Agreement is not

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referenced by the operative complaint and “does not form the basis of Plaintiffs’ claims.” See id.;

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FAC ¶¶ 10–25 (statement of facts). Moreover, Plaintiffs contest the validity and authenticity of

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the Modification Agreement. RJN Opp. Therefore, the Court does not consider this document in

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assessing the motion to dismiss.

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Finally, Defendant requests judicial of the Notice of Default dated August 23, 2011, and

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recorded in the official records of the Recorder’s Office on that same day. Supp. RJN, Ex. J. The

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Court declines to take judicial notice of this document because Defendant’s supplemental request

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for judicial notice was filed after the briefing on the motion to dismiss was complete. See Civil

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L.R. 7-3(d) (stating that “[o]nce a reply is filed, no additional memoranda, papers or letters may be

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filed without prior Court approval[,]” with two exceptions not relevant here); Torbov v. Cenlar

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Agency, Inc., No. 14-CV-00130-BLF, 2015 WL 1940301, at *2 (N.D. Cal. Apr. 29, 2015)

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(denying request for judicial notice as untimely under Civil Local rule 7-3(d), where request was

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filed after reply brief); see also in re Atossa Genetics, Inc. Sec. Litig., No. C13-1836 RSM, 2014

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WL 4983551, at *4 (W.D. Wash. Oct. 6, 2014) (denying as untimely request for judicial notice

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filed after completion of briefing on motion to dismiss).

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Accordingly, in assessing the motion to dismiss, the Court may consider Exhibits A to H,
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but not Exhibits I or J. See RJN, Exs. A–I; Supp. RJN, Ex. J.1

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II.

BACKGROUND

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In assessing the motion to dismiss, the Court takes the following facts as true.

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On or around August 28, 2003, Plaintiffs purchased the real property located at 11 Lone

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Mountain Court, Pacifica, CA 94044 (hereinafter the “Property”). FAC ¶ 10. To secure the

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financing, Plaintiff executed a first-lien deed of trust and a promissory note in favor of World

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Savings Bank, FSB. Id. & Exs. A–B. The loan for the Property was in the amount of $548,000.

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Id., Ex. A at 2; Ex. B at 1. The Deed of Trust stated that the maximum aggregate principal

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balance secured by it was $685,000 (125% of the “Note Amount”). Id., Ex. A at 1. Similarly, the
Note stated that Plaintiffs’ unpaid principal balance could never exceed 125% of the principal

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United States District Court
Northern District of California

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originally borrowed. Id., Ex. B at 3.
Defendant Wells Fargo Bank, N.A. is the successor in interest to World Savings Bank,

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FSB as the beneficiary and servicer of Plaintiffs’ loan. Id. ¶ 10. Specifically, World Savings

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Bank changed its name to Wachovia Mortgage, FSB on December 31, 2007, but remained

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chartered under the HOLA and overseen by the OTS. RJN, Exs. A–C. Effective November 1,

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2009, Wachovia Mortgage, FSB became a division of Wells Fargo Bank, N.A., and changed its

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primary regulatory agency from OTS to Comptroller of the Currency. RJN, Exs. D–E.
At all relevant times, the Property has been the Plaintiffs’ principal residence, a single-

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family home containing only one dwelling unit. FAC ¶ 12. Plaintiffs appear to have defaulted on

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their loan on August 15, 2009. See RJN, Ex. H at 2–3 (Notice of Default, dated April 28, 2016,

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stating that Plaintiffs failed to make the loan payment which became due on August 15, 2009). In

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or around 2010, Plaintiffs experienced a financial hardship and contacted their lender regarding a

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loan modification. FAC ¶ 13. Based on their lender’s advice to miss three payments in order to

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pursue a loan modification, Plaintiffs missed their mortgage payments and submitted a loan

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modification application. Id. On or around August 23, 2011, Defendant caused to be recorded a

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In footnote 2 of the motion to dismiss, Defendant requests that the Court take judicial notice of
five bankruptcy actions filed in the U.S. Bankruptcy Court for the Northern District of California.
Mot. at 2 n.2. The Court does not rely on the existence of these filings in reaching its disposition,
and therefore denies Defendant’s request as moot.
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Notice of Default regarding Plaintiffs’ Property. Id. ¶ 14. From 2011 to 2013, Plaintiffs

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continued trying to obtain a loan modification from Defendant. Id. ¶ 15. During this period,

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Plaintiffs received no determination on their loan modification application. Id. Each time

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Plaintiffs attempted to contact Defendant regarding the application, they were told that they had a

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new processor or that they needed to submit a new application because the representatives had no

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record of their previous application. Id. In January 2015, Defendant denied Plaintiffs application

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for a loan modification because of the net present value calculation and Defendant’s inability to

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reduce Plaintiffs’ principal and interest payment by 10% or more. Id. ¶ 16. The calculation used

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Plaintiffs’ monthly income of $10,662.13. Id.

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Plaintiffs subsequently appealed the denial of their loan modification application within the

United States District Court
Northern District of California

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prescribed appeal period. Id. ¶ 17. On or around January 14, 2015, Defendant acknowledged the

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receipt of Plaintiffs’ documents, but requested that Plaintiff provide additional financial

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information. Id. Thereafter, Plaintiffs timely submitted documents requested by Defendant in

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support of Plaintiffs’ loan modification application. Id. ¶ 18–19. In or around March 2015, Justin

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Mcgee was assigned as Plaintiffs’ new single point of contact (“SPOC”). Id. ¶ 19.

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In or around August 2015, still not having received any determination on their appeal,

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Plaintiffs timely submitted another Request for Mortgage Assistance form, documenting an

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increase in their monthly income. Id. ¶ 20. On or around November 27, 2015, Plaintiffs received

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a letter from Defendant’s representative, Brian Sloan, stating that the company could not identify

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or process the request without the last four digits of the borrower’s social security numbers or tax

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identification numbers. Id. ¶ 21. On or around December 9, 2015, Plaintiffs sent in the requested

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social security numbers for each of the borrowers, thereby completing their loan modification

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application. Id. As of the filing of the operative complaint, Plaintiffs had yet to receive any

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determination on their appeal or on the new Request for Mortgage Assistance form. Id. ¶ 22.

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On May 2, 2016, the Notice of Default and Election to Sell under Deed of Trust, dated

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April 28, 2016, was recorded in the records of the Recorder’s Office. RJN, Ex. H. The document

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described past due payments in the amount of $381,218.10. Id. at 1. In or around June 2016,

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Defendant informed Plaintiffs that the current loan balance was over $800,000. FAC ¶ 23. On or
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around August 10, 2016, Defendant caused to be recorded a Notice of Trustee’s Sale regarding

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Plaintiffs’ Property with the San Mateo County Recorder, with a sale date of August 31, 2016.

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FAC ¶ 24. The Notice of Trustee’s Sale stated that the total amount of unpaid balance and

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reasonable costs, expenses and advances was $848,721.71 as of August 12, 2016. Id.

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III.

LEGAL STANDARD

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A.

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Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain

Rule 12(b)(6)

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statement of the claim showing that the pleader is entitled to relief[.]” A defendant may move to

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dismiss a complaint for failing to state a claim upon which relief can be granted under Federal
Rule of Civil Procedure 12(b)(6). “Dismissal under Rule 12(b)(6) is appropriate only where the

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United States District Court
Northern District of California

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complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.”

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Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). To survive a Rule

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12(b)(6) motion, a plaintiff must plead “enough facts to state a claim to relief that is plausible on

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

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when a plaintiff pleads “factual content that allows the court to draw the reasonable inference that

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the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
In reviewing the plausibility of a complaint, courts “accept factual allegations in the

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complaint as true and construe the pleadings in the light most favorable to the nonmoving party.”

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Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Nonetheless,

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Courts do not “accept as true allegations that are merely conclusory, unwarranted deductions of

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fact, or unreasonable inferences.” In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir.

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2008). And even where facts are accepted as true, “a plaintiff may plead [him]self out of court” if

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he “plead[s] facts which establish that he cannot prevail on his . . . claim.” Weisbuch v. Cnty. of

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Los Angeles, 119 F.3d 778, 783 n.1 (9th Cir. 1997) (quotation marks and citation omitted).

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IV.

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DISCUSSION
Defendant moves to dismiss each of the seven causes of action pled in the operative

complaint. The Court addresses each of the causes of action below.

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Causes of Action under Homeowners Bill of Rights (“HBOR”)2

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A.

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Plaintiffs’ first cause of action alleges that Defendant violated section 2923.6(c) and (e)(2)

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of the California Civil Code by recording a Notice of Trustee’s Sale while Plaintiffs’ first lien loan

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modification application was pending and prior to fifteen days after denial of the appeal. FAC ¶

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31. Defendant recognizes that under certain circumstances, section 2923.6(c) requires the lender

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to halt foreclosure proceedings pending review of the borrower’s loan modification application.

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Mot. at 2. However, Defendant argues that the exception of subsection (c)(3) applies because

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“Plaintiffs received a modification in 2005, but subsequently defaulted.” Id. Defendant’s legal

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argument is sound. See, e.g., Deschaine v. IndyMac Mortg. Servs., 617 F. App’x 690, 693 (9th
Cir. 2015) (“[S]ection 2923.6(c)(3) specifically authorizes a lender to pursue foreclosure against a

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United States District Court
Northern District of California

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defaulted borrower if ‘[t]he borrower accepts a written first lien loan modification, but defaults on,

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or otherwise breaches the borrower’s obligations under, the first lien loan modification’” (second

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set of brackets in original) (quoting Cal. Civ. Code § 2923.6(c)(3))).3 However, the factual

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support for Defendant’s argument is Exhibit I, which cannot be considered by the Court in

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assessing this motion. See supra Part II. Therefore, the Court cannot find at this juncture that

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Plaintiffs accepted a written first lien modification prior to defaulting.
Plaintiffs’ second cause of action alleges that Defendant violated section 2923.7(b)(4) and

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(b)(5) by failing to ensure that (1) Plaintiffs were considered for all foreclosure prevention

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alternatives offered by Defendant and (2) the SPOC had access to individuals with the ability and

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the authority to stop foreclosure proceedings. FAC ¶¶ 41, 47. First, relying on subsection (a),

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Defendant asserts that the second cause of action is barred because “the FAC does not allege that

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Plaintiffs requested a SPOC.” See Mot. at 2; Cal. Civ. Code § 2923.7(a) (“Upon request from a

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borrower who requests a foreclosure prevention alternative, the mortgage servicer shall promptly

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Sections 2923.6 and 2923.7 are part of the HBOR. See, e.g., Duran v. World Sav. Bank, FSB,
CV 16-01938 SJO (GJSx), 2016 U.S. Dist. LEXIS 67280, at *3 (C.D. Cal. Apr. 29, 2016); Green
v. Cent. Mortg. Co., 148 F. Supp. 3d 852, 862, 871, 873 (N.D. Cal. 2015).
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Deschaine and the other unpublished Ninth Circuit decisions cited in this order are not
precedent, but may be considered for their persuasive value. See Fed. R. App. P. 32.1; CTA9 Rule
36-3.
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establish a single point of contact and provide to the borrower one or more direct means of

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communication with the single point of contact.”). Federal district courts have split on whether a

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borrower must specifically request a SPOC to trigger section 2923.7, or whether it is enough to

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request a foreclosure prevention alternative. See Green v. Cent. Mortg. Co., 148 F. Supp. 3d 852,

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874 (N.D. Cal. 2015) (collecting cases). The Court agrees with decisions finding that the latter

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interpretation is more consistent with the statute’s plain meaning and purpose. See, e.g., id. at

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874; Mancheno v. Servis One, Inc., No. 15-CV-04901-WHO, 2015 WL 9489749, at *3 (N.D. Cal.

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Dec. 30, 2015). “The phrase ‘upon request’ simply indicates when the SPOC must be assigned

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(i.e., upon the borrower’s request for a foreclosure prevention alternative, as opposed to the
borrower’s selection of a foreclosure prevention alternative).” Mungai v. Wells Fargo Bank, No.

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United States District Court
Northern District of California

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C-14-00289 DMR, 2014 WL 2508090, at *9 (N.D. Cal. June 3, 2014) (emphasis in original).

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Moreover, “[t]o read the statute as requiring an explicit request [for a SPOC] would at best place

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an unnecessary technical burden on borrowers and at worst defeat the intent of the statute

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altogether: most borrowers are unlikely to be aware of the language of § 2923.7 and are therefore

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unlikely to demand their right to a single point of contact.” Mora v. US Bank, No. CV 15-02436-

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DDP (AJWx), 2015 WL 4537218, at *5 (C.D. Cal. July 27, 2015). Accordingly, the Court rejects

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Defendant’s argument.

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Defendant also makes arguments that tend to misconstrue the gravamen of Plaintiff’s

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allegations as to the second cause of action. See Mot. at 3 (arguing that this cause of action must

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be dismissed because “[t]he FAC does not plead facts showing that Plaintiffs tried but were unable

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to communicate with Wells Fargo regarding their application” and because pleading that

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Defendant “did not render a final decision on Plaintiffs’ most recent application” does not show

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Defendant failed to fulfill any duty outlined in section 2923.7). Plaintiffs have pled that after the

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initial denial of their loan modification application in January 2015, they submitted a timely

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appeal, were assigned to SPOC McGee, submitted all documents that were requested, and

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ultimately submitted another Request for Mortgage Assistance form documenting an increase in

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their monthly income. FAC ¶¶ 17-21. Nonetheless, without ever notifying Plaintiffs of any

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determination on their appeal or new request for mortgage assistance, Defendant allegedly caused
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a notice of trustee’s sale to be recorded as to Plaintiffs’ property with a sale date of August 31,

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2016. Id. ¶¶ 22, 24. Construed in the light most favorable to Plaintiffs, the facts alleged could

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plausibly demonstrate that Defendant violated the duties of section 2923.7(b)(4) and (5).
Finally, Defendant contends at to both the first and second causes of action that “[t]he FAC

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does not plead facts showing that Wells Fargo’s alleged violations were material.” Mot. at 4.

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Under section 2924.12(a)(1) of the California Civil Code, “[i]f a trustee’s deed upon sale has not

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been recorded, a borrower may bring an action for injunctive relief to enjoin a material violation

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of Section . . . 2923.6 [or] 2923.7 . . . .” Moreover, subsection (a)(2) declares that “[a]ny

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injunction shall remain in place and any trustee’s sale shall be enjoined until the court determines

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that the mortgage servicer . . . has corrected and remedied the violation or violations giving rise to

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United States District Court
Northern District of California

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the action for injunctive relief.”4 Therefore, Plaintiffs “may only obtain injunctive relief if (1)

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[Defendant] violated the statute, (2) that violation was material, and (3) the violation has not been

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corrected.” Montes v. Wells Fargo Bank, N.A., No. 2:16-CV-01405-KJM-AC, 2017 WL 1093940,

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at *4 (E.D. Cal. Mar. 23, 2017); Foote v. Wells Fargo Bank, N.A., No. 15-CV-04465-EMC, 2016

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WL 2851627, at *5 (N.D. Cal. May 16, 2016). “A violation is material where it ‘deprive[s]’ the

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plaintiff ‘of the opportunity to obtain a loan modification.’” Montes, 2017 WL 1093940, at *4

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(brackets in original) (quoting Boone v. Specialized Loan Servicing LLC, No. 15-CV-02224-DMR,

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2015 WL 4572429, at *4 (N.D. Cal. July 29, 2015)); Foote, 2016 WL 2851627, at *5 (same); see

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also Castillo v. Wells Fargo Bank, N.A., 2015 U.S. Dist. LEXIS 94176, at *1 (N.D. Cal. July 17,

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2015) (finding that to be “material,” the violation must have “prejudiced [the plaintiff’s] ability to

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obtain a loan modification”). Here, Plaintiffs’ allegations plausibly show that the notice of trustee

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sale was recorded while their first lien loan modification application was still pending and as a

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result of their SPOC not ensuring that they were considered for all foreclosure prevention

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alternatives offered by Defendant as well as not having access to individuals who could prevent

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foreclosure proceedings. Consequently, Plaintiffs were plausibly deprived of the opportunity to

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Section 2924.12(a) applies here because a trustee’s deed upon sale has not been recorded. The
operative complaint, filed on August 22, 2016, pleads that the Notice of Trustee’s Sale listed a sale
date of August 31, 2016. However, the Court cannot assume that the planned sale actually
occurred and that a trustee’s deed upon sale was recorded.
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obtain a loan modification, and their HBOR allegations are not barred as to injunctive relief.

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B.

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Plaintiffs’ third and fourth causes of action allege that Defendant violated 12 C.F.R. §

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1024.41(g) and (h)(4). FAC ¶¶ 49–68. The relevant portion of subsection (g) states as follows:

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If a borrower submits a complete loss mitigation application after a
servicer has made the first notice or filing required by applicable law
for any judicial or non-judicial foreclosure process but more than 37
days before a foreclosure sale, a servicer shall not move for
foreclosure judgment or order of sale, or conduct a foreclosure sale,
unless: (1) The servicer has sent the borrower a notice pursuant to
paragraph (c)(1)(ii) of this section that the borrower is not eligible
for any loss mitigation option and the appeal process in paragraph
(h) of this section is not applicable, the borrower has not requested
an appeal within the applicable time period for requesting an appeal,
or the borrower’s appeal has been denied . . . .

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United States District Court
Northern District of California

Causes of Action under Consumer Financial Protection Bureau (“CFPB”)
Regulations5

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12 C.F.R. § 1024.41(g). In addition, the relevant portion of subsection (h)(4) requires that

13

“[w]ithin 30 days of a borrower making an appeal, the servicer shall provide a notice to the

14

borrower stating the servicer’s determination of whether the servicer will offer the borrower a loss

15

mitigation option based upon the appeal . . . .”
In seeking dismissal of these causes of action, Defendant first argues that subsection (i)’s

16
17

prohibition on duplicative requests bars Plaintiffs’ claim for violation of subsections (g) or (h) “in

18

connection with applications submitted in 2015.” Mot. at 5; see also 12 C.F.R. § 1024.41(i) (“A

19

servicer is only required to comply with the requirements of this section for a single complete loss

20

mitigation application for a borrower’s mortgage loan account.”). However, these causes of action

21

are premised not on Plaintiffs’ 2015 Request for Mortgage Assistance form, but rather on

22

Defendant’s alleged failure to make a determination on the appeal of Plaintiffs’ first complete loss

23

mitigation application. See FAC ¶¶ 67, 79. Thus, subsection (i) is inapplicable.
Next, Defendant contends that Plaintiffs failed to state a claim under subsection (g)

24
25
5

26
27
28

The Dodd-Frank Act of 2010 broadened the scope of the Real Estate Settlement Procedures Act
(“RESPA”) to include additional requirements as to residential mortgage loan servicing, and these
requirements were implemented by CFPB regulations issued in 2013, including 12 C.F.R.
1024.41. See Karl E. Grier, Miller & Starr California Real Estate, 11 Cal. Real Est. § 36:23 & n.4
(4th ed., May 2017).
11

1

because Defendant has not recorded a notice of default. Mot. at 5–6. Plaintiffs respond that this

2

cause of action is premised on Defendant having recorded a notice of trustee’s sale that placed the

3

Property at imminent risk of foreclosure. Opp. at 10 (citing FAC ¶ 67). Defendant replies that

4

doing so does not violate subsection (g) either. Reply at 4. Neither party cites any case law in

5

support of their positions, but the plain language of the regulation prohibits Defendant from

6

“conduct[ing] a foreclosure sale” (not recording a notice), see 12 C.F.R. § 1024.41(g), such that

7

the legal issue is whether injunctive relief is available to prevent Defendant from executing the

8

sale. As courts in this district have repeatedly held, RESPA does not provide for injunctive relief.

9

See e.g., Laine v. Wells Fargo Bank & Co., No. C 13-4109 SI, 2014 WL 12579637, at *1 (N.D.
Cal. Jan. 9, 2014); Tamburri v. Suntrust Mortg., Inc., 875 F. Supp. 2d 1009, 1013 (N.D. Cal.

11
United States District Court
Northern District of California

10

2012); Roussel v. Wells Fargo Bank, No. C 12-04057 CRB, 2012 WL 5301909, at *8 (N.D. Cal.

12

Oct. 25, 2012); Serrano v. World Sav. Bank, FSB, No. 11-CV-00105-LHK, 2011 WL 1668631, at

13

*3 (N.D. Cal. May 3, 2011); Rivera v. BAC Home Loans Servicing, L.P., No. C 10-02439 RS,

14

2010 WL 2757041, at *4 (N.D. Cal. July 9, 2010); see also 12 C.F.R. § 1024.41(a) (“A borrower

15

may enforce the provisions of this section pursuant to section 6(f) of RESPA (12 U.S.C. §

16

2605(f)).”); 12 U.S.C. 2605(f) (no mention of injunctive relief). Plaintiff has therefore failed to

17

state a claim under subsection (g).

18

Finally, Defendant asserts with relation to both causes of action that Plaintiff has failed to

19

plead facts to support actual damages attributable to the alleged violations. Mot. at 6; see also 12

20

U.S.C. § 2605(f)(1) (providing for recovery of “any actual damages to the borrower as a result of

21

the [defendant’s] failure” to comply); Flate v. Nationstar Mortg., LLC, No. 16-55500, 2017 WL

22

2829531, at *1 (9th Cir. June 30, 2017) (affirming dismissal of causes of action under several

23

provisions of 12 C.F.R. § 1024.41 because “Plaintiffs plead nothing more than conclusory

24

allegations that Defendant’s alleged violations caused actual damages”). Plaintiff responds by

25

pointing to two portions of the operative complaint as allegedly pleading actual damages. Opp. at

26

10 (citing FAC ¶¶ 67, 94). However, paragraph 94 is unrelated to these causes of action, instead

27

focusing on the harm that Plaintiff allegedly suffered as a result of “Defendant’s interference with

28

Plaintiffs’ contractual rights” by failing to make a determination on Plaintiffs’ original loan
12

1

modification application between approximately 2011 and January 2015. See FAC ¶¶ 15–16, 92–

2

94. Consequently, the legal issue boils down to whether actual damages for the alleged violation

3

of 12 C.F.R. § 1024.41(g) are plausibly supported by the allegation that recording the notice

4

“plac[ed] the Property in imminent risk of foreclosure.” See FAC ¶ 67. Plaintiff cites no authority

5

in support of this proposition, and the Court has found authority to the contrary. See Padayachi v.

6

Indymac Bank, No. C 09-5545 JF (PVT), 2010 WL 1460309, at *1, 4 (N.D. Cal. Apr. 9, 2010)

7

(dismissing for failure to allege actual damages resulting from Defendant’s alleged RESPA

8

violations, where the defendant had recorded a notice of trustee’s sale that was scheduled to occurr

9

within weeks of when the complaint was filed); Allen v. United Fin. Mortg. Corp., 660 F. Supp.
2d 1089, 1097 (N.D. Cal. 2009) (“[A] number of courts have read [12 U.S.C. § 2605(f)] as

11
United States District Court
Northern District of California

10

requiring a showing of pecuniary damages in order to state a claim.”). Consequently, the third and

12

fourth causes of action are dismissed for failure to state facts plausibly showing that actual

13

damages resulted from the alleged violations.

14

C.

15

Plaintiffs assert a fifth cause of action for negligence. FAC ¶¶ 69–80. The allegations

16
17

Negligence

have two essential bases, each of which is insufficient to state a claim.
First, to the extent that Plaintiffs premise their negligence claim on Defendants having

18

charged Plaintiffs for an unpaid principal balance exceeding the limit impose by the Deed of

19

Trustee and the Adjustable Rate Mortgage Note, see id. ¶¶ 72-74, the Court agrees with Defendant

20

that this allegation involves an entirely contractual duty, see Mot. at 11. “[C]onduct amounting to

21

a breach of contract becomes tortious only when it also violates a duty independent of the contract

22

arising from principles of tort law.” Erlich v. Menezes, 21 Cal. 4th 543, 551, 981 P.2d 978 (1999).

23

Consequently, outside of the context of insurance, a tortious breach of contract generally can be

24

found under the following circumstances:

25
26
27
28

(1) the breach is accompanied by a traditional common law tort,
such as fraud or conversion; (2) the means used to breach the
contract are tortious, involving deceit or undue coercion or; (3) one
party intentionally breaches the contract intending or knowing that
such a breach will cause severe, unmitigable harm in the form of
mental anguish, personal hardship, or substantial consequential
damages.
13

1

Id. at 553–54, 981 P.2d 978 (1999). As currently pled, this is not such a case.
Second, Plaintiffs fail to state a negligence claim with allegations that Defendant took

2
3

approximately four years to make a determination on their 2011 loan modification application and

4

then failed to make a determination on their subsequent appeal or their new Request for Mortgage

5

Assistance form. See FAC ¶¶ 75–79. Lenders do not owe borrowers a duty of care to process a

6

pending loan-modification application within a particular period of time, where “the borrowers’

7

negligence claims are based on allegations of delays in the processing of their loan modification

8

applications.” See Anderson v. Deutsche Bank Nat. Trust Co. Americas, 649 F. App’x 550, 552

9

(9th Cir.), cert. denied sub nom. Anderson v. Aurora Loan Servs., LLC, 137 S. Ct. 496 (2016).
Plaintiffs contend that these allegations show “misrepresentation” by Defendant with relation to

11
United States District Court
Northern District of California

10

the status of Plaintiffs’ application, see Opp. 11–12, but this is unsupported by the operative

12

complaint, see FAC ¶¶ 75-79. Plaintiffs cite paragraph 75, but the only non-conclusory

13

allegations therein do not plausibly show any misrepresentation, much less meet Rule 9(b)’s

14

heightened pleading standard (which likely applies to these allegations). See FAC ¶ 75 (“In fact,

15

each time Plaintiffs attempted to contact Defendant WELLS FARGO to follow up on their loan

16

modification application, Plaintiffs were told that they had a new processor or that Plaintiffs would

17

need to submit a new application as the representatives had no record of their previous

18

application.”); Fed. R. Civ. P. 9(b); Berkeley v. Wells Fargo Bank, No. 15-CV-00749-JSC, 2016

19

WL 67221, at *9 (N.D. Cal. Jan. 6, 2016) (“The Ninth Circuit has not yet decided whether Rule

20

9(b)’s heightened pleading standard applies to a claim for negligent misrepresentation, but most

21

district courts in California hold that it does.”); United States v. United Healthcare Ins. Co., 848

22

F.3d 1161, 1180 (9th Cir. 2016) (stating that under Rule 9(b)’s particularity requirement, “the

23

plaintiff must allege the who, what, when, where, and how of the misconduct charged” (internal

24

quotation marks omitted)). Therefore, the Court finds that the rule from Anderson applies here.6

25
26
27
28

6

Because the foregoing analysis disposes of Plaintiffs’ negligence claim, the Court does not reach
Defendant’s argument as to the damages that may be recoverable pursuant to that claim. See Mot.
at 12; Reply at 6–7.
14

1

D.

2

Plaintiffs’ seventh cause of action alleges breach of the covenant of good faith and fair

Breach of the Covenant of Good Faith and Fair Dealing

dealing. Covenant 1 of the Deed of Trust (Borrower’s Promise to Pay) states, “I will pay to

4

Lender, on time, all principle and interest due under the Secured Notes and any prepayment and

5

late charges due under the Secured Notes.” FAC, Ex. A at 3. Plaintiffs assert that “implicit in this

6

covenant, is the obligation of Defendant not to hinder or prevent Plaintiffs’ ability to make

7

monthly payments under the Deed of Trust.” Id. ¶ 87. They allege that “Defendant dealt with

8

Plaintiffs in bad faith and unfairly interfered with their ability to perform under Covenant 1 of the

9

Deed of Trust by inducing Plaintiffs to miss payments in pursuit of a loan modification, inducing

10

Plaintiffs to repeatedly submit documents or new loan modification applications and dragging out

11
United States District Court
Northern District of California

3

the loan modification process for over four years.” Id. ¶ 93.

12

Under California law, “[t]he covenant of good faith and fair dealing, implied by law in

13

every contract, exists merely to prevent one contracting party from unfairly frustrating the other

14

party’s right to receive the benefits of the agreement actually made.” Guz v. Bechtel Nat. Inc., 24

15

Cal. 4th 317, 349 (2000) (emphasis in original). The covenant “cannot impose substantive duties

16

or limits on the contracting parties beyond those incorporated in the specific terms of their

17

agreement.” Id. at 349–50. That is, the covenant “is read into contracts in order to protect the

18

express covenants or promises of the contract, not to protect some general public policy interest

19

not directly tied to the contract’s purposes.” Foley v. Interactive Data Corp., 47 Cal. 3d 654, 690

20

(1988). To show breach of the covenant of good faith and fair dealing, the following elements are

21

required: “(1) the parties entered into a contract; (2) the plaintiff fulfilled his obligations under the

22

contract; (3) any conditions precedent to the defendant’s performance occurred; (4) the defendant

23

unfairly interfered with the plaintiff’s rights to receive the benefits of the contract; and (5) the

24

plaintiff was harmed by the defendant’s conduct.” Evenfe v. Esalen Inst., No. 15-CV-05457-LHK,

25

2016 WL 3965167, at *6 (N.D. Cal. July 24, 2016); Harvey v. Bank of Am., N.A., 906 F. Supp. 2d

26

982, 991 (N.D. Cal. 2012); Rosenfeld v. JPMorgan Chase Bank, N.A., 732 F. Supp. 2d 952, 968

27

(N.D. Cal. 2010); see also CACI 325 (California civil jury instructions, updated July 2017)

28

(stating substantively identical requirements).
15

Here, Plaintiff has failed to state a claim for breach of the implied covenant of good faith

1

and fair dealing. As a threshold matter, Plaintiffs appear to have defaulted on their loan on August

3

15, 2009. See RJN, Ex. H at 2–3 (stating that Plaintiff failed to make the loan payment that

4

became due on August 15, 2009). Plaintiffs apparently contacted their lender regarding a loan

5

modification “[i]n or around 2010.” See FAC ¶ 90. Thus, it appears likely that prior to any of the

6

relevant allegations, Plaintiffs had already failed to fulfill their obligations under the contract.

7

Even interpreting “in or around 2010” to encompass a date prior to August 15, 2009, Plaintiffs still

8

fail to state a claim. As Plaintiffs recognize, the benefit of the contract was to receive the loan

9

funds on the terms originally specified. See Opp. at 14 (“The purpose of a deed of trust is that the

10

borrower will have the use of funds loaned on specific terms and the lender will have the right to a

11
United States District Court
Northern District of California

2

specified repayment that is secured by the deed of trust.” (emphasis added) (quoting Schoolcraft

12

v. Ross, 81 Cal. App. 3d 75, 80 (1978))). Plaintiffs contacted their lender regarding a loan

13

modification, and ultimately decided, based upon the advice of the lender’s representative, to miss

14

three payments and submit a loan modification application. See FAC ¶ 90. Had Plaintiffs sought

15

to continue receiving the benefits of the existing contract, they could have continued fulfilling

16

their obligations. Thus, the facts alleged do not plausibly show that Defendant unfairly interfered

17

with Plaintiffs’ rights to receive the benefits of the existing contract. And to the extent that

18

Defendant interfered with Plaintiffs’ desire to change the terms of that contract, that goes well

19

beyond that contract’s purpose and terms, and therefore cannot support the implied covenant claim

20

here.

21
22
23
24
25
26
27
28

Similar circumstances produced a similar conclusion in Harvey:
The problem is that Defendant’s alleged conduct is not related to the
contract between the parties, that is, the [deed of trust (“DOT”)] and
related note. Plaintiff alleges not a violation of his standing
contracts with Defendant, but of the entirely separate promises
Defendant allegedly made to forego foreclosure and other penalties
while the loan modification was pending. Plaintiff alleges that
Defendant breached the implied covenant
when it instructed him to miss loan payments in
order to be considered for a loan modification,
promised not to count Plaintiff late or foreclose on
his property for missing payments in pursuit of a
loan modification, and then unreasonably strung out
the loan modification process until late fees and
attorneys’ fees grew to an insurmountable amount.
16

That might form the basis for some cause of action, but not for
breach of the implied covenant in the deed of trust and mortgage.
Plaintiff alleges breaches of promises that are independent from the
ones contained in the DOT and note and which therefore cannot
sustain a claim for a breach of the covenant implied in the DOT and
note.

1
2
3
4

906 F. Supp. at 991 (internal quotation marks and citations omitted). Here, Plaintiffs make

5

analogous allegations: to be considered for a loan modification, they missed payments with the

6

promise that arrears would be added to the new loan during modification, and then they were

7

allegedly strung along for years, leading to various types of financial harm and the imminent loss

8

of the Property. See FAC ¶90–94. Here too, the allegations go to promises independent from

9

those contained in the deed of trust and note. The claim for breach of the covenant of good faith

10

and fair dealing is therefore dismissed.7

United States District Court
Northern District of California

11

E.

12

Plaintiffs plead a “sixth cause of action” for declaratory relief. FAC ¶¶ 81–84. As a

Declaratory Relief

13

threshold matter, the Court must determine whether the federal Declaratory Judgment Act

14

(“DJA”), 28 U.S.C. § 2201, or the California Declaratory Relief Act (“CDRA”), Cal. Civ. Proc.

15

Code § 1060, applies. The court finds that the DJA applies, based upon its procedural nature. See

16

in re Adobe Sys., Inc. Privacy Litig., 66 F. Supp. 3d 1197, 1219 (N.D. Cal. 2014).8 The DJA states

17

20

in part as follows:
In a case of actual controversy within its jurisdiction, . . . any court
of the United States, upon the filing of an appropriate pleading, may
declare the rights and other legal relations of any interested party
seeking such declaration, whether or not further relief is or could be
sought. Any such declaration shall have the force and effect of a
final judgment or decree and shall be reviewable as such.

21

28 U.S.C. § 2201(a).9 In assessing whether to award declaratory relief, courts generally assess

22

“whether the facts alleged, under all the circumstances, show that there is a substantial

23

controversy, between parties having adverse legal interests, of sufficient immediacy and reality to

24

warrant the issuance of a declaratory judgment.” MedImmune, Inc. v. Genentech, Inc., 549 U.S.

18
19

25
7

26
27
28

Given that the analysis above disposes of Plaintiffs’ claim, the Court does not reach Defendant’s
argument that the claim is time barred. See Mot. at 12; Reply at 7.
8
That said, the Court recognizes that “whether the state or federal [declaratory relief] statute
applies makes little difference as a practical matter, as the two statutes are broadly equivalent.”
See Adobe Sys., 66 F. Supp. 3d at 1219.
9
Section 2201(a) includes several exceptions, but none are relevant here.
17

1

118, 127 (2007) (internal quotation marks omitted).

2

Defendant first argues that “declaratory relief is not a theory of recovery; it is a type of

3

remedy.” Mot. at 13. This is true: as a procedural statute dependent on an underlying cause of

4

action, the DJA makes available an “additional remedy to litigants” without creating an

5

independent “theory of recovery.” See Team Enters., LLC v. W. Inv. Real Estate Trust, 721 F.

6

Supp. 2d 898, 911 (E.D. Cal. 2010) (emphasis in original) (citations omitted), aff’d, 446 Fed.

7

App’x. 23 (9th Cir. 2011); Hamilton v. Bank of Blue Valley, 746 F. Supp. 2d 1160, 1181 (E.D.

8

Cal. 2010). However, the two causes of action under the HBOR survive the motion to dismiss,

9

such that Plaintiffs’ request for declaratory relief is not barred for lack of an underlying claim.

10

Next, Defendant contends that “Plaintiffs’ request for declaratory relief fails because it

United States District Court
Northern District of California

11

seeks to remedy past wrongs, not to secure a declaration of future rights between the parties.”

12

Mot. at 13. Some federal court opinions stating this proposition rely entirely on California case

13

law and do not specify whether they apply the DJA or CDJA. See, e.g., Amaral v. Wachovia

14

Mortg. Corp., 692 F. Sup. 2d 1226, 1235–36 (E.D. Cal. 2010). Nonetheless, the Court recognizes

15

that the DJA and CDRA are “broadly equivalent.” See Adobe Sys., 66 F. Supp. 3d at 1219.

16

Moreover, the Ninth Circuit has declared that the DJA “brings to the present a litigable

17

controversy, which otherwise might only be tried in the future.” See Societe de Conditionnement

18

en Aluminium v. Hunter Eng’g Co., 655 F.2d 938, 943 (9th Cir. 1981). Finally, numerous federal

19

district courts have found that the DJA operates prospectively, not to redress past wrongs. See,

20

e.g., Park Townsend, LLC v. Clarendon Am. Ins. Co., No. 12-CV-04412-LHK, 2013 WL

21

3475176, at *5 (N.D. Cal. July 10, 2013); Travelers Cas. & Sur. Co. of Am. v. Desert Gold

22

Ventures, LLC, No. CV 09-4224 PSG (AJWx), 2010 WL 5017798, at *7 (C.D. Cal. Nov. 19,

23

2010); Lai v. Quality Loan Serv. Corp., No. CV 10-2308 PSG (PLAx), 2010 WL 3419179, at *3

24

(C.D. Cal. Aug. 26, 2010); Ruiz v. Mortg. Elec. Registration Sys., Inc., No. CIV S-09-0780 FCD

25

DAD, 2009 WL 2390824, at *5 (E.D. Cal. Aug. 3, 2009). While Plaintiffs’ request for declaratory

26

relief is phrased in terms of determining the parties’ respective rights and duties with relation to

27

the Deed of Trust, the essential issue posed is actually whether Defendant had the right to increase

28

Plaintiffs’ principal balance to over $685,000 (125% of the original principal balance of
18

1

$548,000)—as it has already done. See FAC ¶¶ 23–24, 82–84. Therefore, Plaintiffs’ request for

2

declaratory relief is dismissed.

3

V.

LEAVE TO AMEND
Here, the Court is dismissing the third, fourth, fifth, sixth, and seventh causes of action. If

4

dismissal is appropriate under Rule 12(b)(6), a court “should grant leave to amend even if no

6

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

7

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

8

(internal quotation marks omitted). Applying this standard, the Court finds that granting leave to

9

amend is appropriate as to all of these causes of action, with the caveat that declaratory relief may

10

only be requested as a remedy, not a separate cause of action. Nonetheless, the Court’s decision to

11
United States District Court
Northern District of California

5

grant leave to amend is not an invitation for Plaintiffs to replead substantially similar facts in the

12

hope of a different result. To the contrary, Plaintiffs should not file an amended complaint unless

13

they can plead facts that remedy the deficiencies identified by the Court. Furthermore, Plaintiffs

14

should carefully consider their obligations under Federal Rule of Civil Procedure 11 when

15

deciding whether to file an amended complaint and, if so, what claims to allege therein. Any

16

amended complaint must clearly and concisely state the basis for all claims alleged.

17

VI.

18
19
20
21
22
23

CONCLUSION
For the foregoing reasons, the Court GRANTS in part and DENIES in part Defendant’s

motion to dismiss. Any amended complaint must be filed within 28 days of the date of this Order.
IT IS SO ORDERED.
Dated: 07/21/2017
______________________________________
HAYWOOD S. GILLIAM, JR.
United States District Judge

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28
19