Ritter v. JP Morgan Chase Bank

Filing 31

ORDER by Judge Jeffrey S. White GRANTING 19 Motion to Dismiss With Leave to Amend. (jswlc2S, COURT STAFF) (Filed on 11/21/2017)

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1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 9 TERRY RITTER and SHAMIM RITTER, Plaintiffs, For the Northern District of California United States District Court 10 11 12 No. C 17-02919 JSW ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND v. JPMORGAN CHASE BANK, N.A., Defendant. 13 / 14 15 Now before the Court is the motion filed by Defendant JPMorgan Chase Bank, N.A. 16 (“Chase”) to dismiss. Having carefully reviewed the parties’ papers, considered their arguments and 17 the relevant legal authority, the Court hereby GRANTS Chase’s motion to dismiss with leave to 18 amend. 19 20 BACKGROUND Plaintiffs Terry and Shamim Ritter (“Plaintiffs”), owners of the real property located at 2652 21 Sabercat Court in Fremont, California, bring this action for reformation of contract based on 22 unilateral and mutual mistake. On July 30, 2002, Plaintiffs executed a Deed of Trust in favor of 23 Washington Mutual Bank secured by the real property in the amount of $2,300,000. Thereafter, in 24 September 2008, Chase entered into a Purchase and Assumption Agreement with Washington 25 Mutual Bank wherein Chase acquire Plaintiffs’ loan. (First Amended Complaint (“FAC”) ¶ 7.) 26 Since the date of purchase, Plaintiffs have occupied the property as their principal residence. 27 28 From 2008 to 2009, Plaintiffs experienced some financial hardships that made it difficult for them to keep up with payments on their loan. As a result, they sought to modify the loan and 1 received a trial modification from Chase with the understanding that, after Plaintiffs complied with 2 the temporary modification terms, a permanent modification would follow. However, after 3 completing the trial plan, they were not offered the permanent modification. Plaintiffs then filed suit 4 against Chase in July 2010. (Id. ¶ 8.) any unpaid interest and unpaid escrow items would be added to the unpaid principal balance of the 7 loan. This agreement was reduced to a writing which provided that Plaintiffs’ new unpaid principal 8 would be $2,450,385.95 beginning in November 2013. “The new unpaid principal balance was 9 purported to be based on the original unpaid principal balance of $1,833,925.29, ‘$450,840.24 for 10 accrued interest; and $163,548.93 for escrow advances.’” (Id. ¶ 9, citing Ex. A, November 2013 11 For the Northern District of California On August 22, 2013, Plaintiffs and Chase executed a Settlement Agreement and agreed that 6 United States District Court 5 Settlement Agreement.) 12 Shortly after executing the Settlement Agreement, however, Plaintiffs allege that they 13 discovered that the amount Chase had purported to be owed for unpaid interest and escrow advances 14 were inaccurate. Plaintiffs requests an accounting and breakdown of the numbers and Chase sent 15 Plaintiffs a statement dated December 4, 2013, in which Chase indicated repeated charges to 16 Plaintiffs’ account for county taxes from 2002 to 2007 and further purported to advance $163,548.93 17 to cover these costs in November 2007, despite Plaintiffs not having an impound account and having 18 themselves paid all the taxes and fees on their residence for that period. (Id. ¶ 10.) 19 After realizing that the escrow advances which had been added to the Plaintiffs’ unpaid 20 principal balance were in error, Plaintiffs sought to determine if the unpaid interest amount that had 21 been added to their loan was also incorrect. Plaintiffs allege that they discovered that, based on the 22 terms of their original loan, the interest rate they should have been charged was approximately 3-4% 23 from 2008 to 2013. Instead, they discovered that Chase had calculated Plaintiffs’ interest rate at 24 approximately 7%, resulting in an alleged error in the principal balance amount as well. (Id. ¶ 11.) 25 After discovering these alleged errors, Plaintiffs repeatedly contacted Chase to address the 26 discrepancies without response or explanation. Plaintiffs stopped making payments on the modified 27 loan as they believed the amounts were significantly overcharged. Chase then recorded a Notice of 28 Default on the property on April 10, 2015. In November 2016, Chase caused a Notice of Trustee’s 2 1 Sale to be recorded against Plaintiffs’ property. The Notice of Trustee’s Sale indicates the principal 2 balance is now $2,786,482.38, approximately $350,000 more than Plaintiffs’ principal loan balance 3 was in November 2013 and approximately $1,000,000 more than Plaintiffs’ principal loan balance 4 was prior to the November 2013 modification. (Id. ¶¶ 11-15.) This lawsuit follows. 5 The Court shall address additional relevant facts in the remainder of its order. 6 7 8 9 ANALYSIS A. Legal Standard for Motion to Dismiss. A motion to dismiss is proper under Federal Rule of Civil Procedure 12(b)(6) where the pleadings fail to state a claim upon which relief can be granted. The Court’s “inquiry is limited to the allegations in the complaint, which are accepted as true and construed in the light most favorable 11 For the Northern District of California United States District Court 10 to the plaintiff.” Lazy Y Ranch LTD v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008). 12 Even under the liberal pleading standard of Federal Rule of Civil Procedure 8(a)(2), “a plaintiff’s 13 obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and 14 conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell 15 Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citing Papasan v. Allain, 478 U.S. 265, 286 16 (1986)). 17 Pursuant to Twombly, a plaintiff must not merely allege conduct that is conceivable but must 18 instead allege “enough facts to state a claim to relief that is plausible on its face.” Id. at 570. “A 19 claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw 20 the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 21 556 U.S. __, 129 S. Ct. 1937, 1949 (2009) (citing Twombly, 550 U.S. at 556). If the allegations are 22 insufficient to state a claim, a court should grant leave to amend, unless amendment would be futile. 23 See, e.g., Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir. 1990); Cook, Perkiss & Liehe, Inc. 24 v. N. Cal. Collection Serv., Inc., 911 F.2d 242, 246-47 (9th Cir. 1990). 25 As a general rule, “a district court may not consider any material beyond the pleadings in 26 ruling on a Rule 12(b)(6) motion.” Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994), overruled 27 on other grounds, Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002) (citation 28 omitted). However, documents subject to judicial notice may be considered on a motion to dismiss. 3 1 In doing so, the Court does not convert a motion to dismiss to one for summary judgment. See Mack 2 v. South Bay Beer Distrib., 798 F.2d 1279, 1282 (9th Cir. 1986), overruled on other grounds by 3 Astoria Fed. Sav. & Loan Ass’n v. Solimino, 501 U.S. 104 (1991). The Court may review matters 4 that are in the public record, including pleadings, orders and other papers filed in court. See id. 5 B. 6 Motion to Dismiss Amended Complaint. Chase moves to dismiss the First Amended Complaint on the bases that (1) there is no cause 7 of action for reformation; (2) the agreements accurately reflect the true intent of the parties at the 8 time of contracting; and (3) Plaintiffs do not sufficiently state how the agreements should be 9 reformed. The Court shall address each argument in order. Although Plaintiffs assert that the Settlement Agreement should be reformed to reflect the 11 For the Northern District of California United States District Court 10 parties’ true intentions, Chase argues that reformation is not by itself a cause of action. Section 3366 12 of California Civil Code provides that “[w]hen, through fraud or a mutual mistake of the parties, or a 13 mistake of one party, which the other at the time knew or suspected, a written contract does not truly 14 express the intention of the parties, it may be revised.” Cal. Civ. Code § 3366. Reformation of a 15 contract “should allege what the real agreement was, what the agreement as reduced to writing was, 16 and where the writing fails to embody the real agreement. It is necessary to aver facts showing how 17 the mistake was made, whose mistake it was and what brought it about, so that mutuality may 18 appear.” Johnson v. Sun Realty Co., 138 Cal. App. 296, 300 (Cal. Ct. App. 1934) (citation omitted). 19 However, reformation of contract is not an independent cause of action, but rather a remedy 20 for a contract obtained through fraud or mistake at the time of contracting. See Bhandari v. Capital 21 One, N.A., No. 12-04533 PSG, 2013 WL 1736789, at *9 (N.D. Cal. Apr. 22, 2013) (citing Arreola v. 22 Wells Fargo Home Mortg., Case No. 10–3272, 2011 WL 1205249, at *3 (E.D. Cal. Mar. 29, 2011) 23 (“Reformation is not a standalone action and can be granted only where plaintiffs can demonstrate a 24 valid cause of action justifying reformation.”); see also Landis v. Superior Court, 232 Cal. App. 2d 25 548, 555 (1965) (“While sometimes referred to as a ‘cause of action,’ reformation is merely one of 26 several remedies for a single wrong.”). 27 28 Because reformation is not an independent cause of action, Chase’s motion dismiss is GRANTED with leave to amend. Provided such a cause of action could be alleged, Plaintiffs are 4 1 given leave to allege a standalone cause of action pursuing reformation as a remedy for fraud, 2 unilateral mistake, or mutual mistake. 3 Second, Chase argues that the terms of the settlement agreement accurately reflect the true 4 intent of the parties at the time of contracting. Chase contends that the in-court settlement 5 conference and the Loan Modification Agreement and Settlement Agreement all set out the specific 6 terms of the parties’ agreement. Chase argues that the specific details of the amounts of the 7 principal balance, which included accrued interest and escrow advances, was understood between 8 the parties at the time of contracting. However, Plaintiffs contend that although the parties agreed 9 upon the principles embodies in the settlement agreement, the specific figures inserted for the amounts owed for unpaid interest and escrow advances as well as the loan interest rate, had been 11 For the Northern District of California United States District Court 10 miscalculated and were in excess of what was actually owed under the parties’ agreement. The 12 Court finds that at this procedural posture, the allegations are sufficient that the Plaintiffs contest the 13 amounts owing based on a claim of unilateral or mutual mistake of the parties leading to a written 14 contract that does not truly express their true intentions. Accordingly, should Plaintiffs be able to 15 amend to state an independent cause of action for which reformation is a remedy, they may pursue 16 such a remedy. 17 Lastly, Chase argues that Plaintiffs do not sufficiently state with particularity how the 18 agreements should be reformed. In response, Plaintiffs argue they are not required to specify further 19 than that the amounts owing should be reformed to reflect the correct new accrued interest and 20 escrow advances based on actual figures. In addition, Plaintiffs state that should they be given leave 21 to amend, they could allege what “the true figures that were owed should have been.” (Reply at 6.) 22 Because the Court has determined that the first amended complaint must be dismissed with leave to 23 amend, Plaintiffs are given leave to allege the true figures in their second amended complaint. 24 CONCLUSION 25 Based on the foregoing reasons, the Court GRANTS Chase’s motion to dismiss. The Court 26 provides Plaintiffs with leave to amend. Plaintiffs shall file an amended complaint, if any, within 27 twenty days of the date of this Order. If Plaintiff files an amended complaint in accordance with this 28 /// 5 1 2 3 Order, Chase shall file its response within twenty days of service of the amended complaint. IT IS SO ORDERED. Dated: November 21, 2017 4 JEFFREY S. WHITE UNITED STATES DISTRICT JUDGE 5 6 7 8 9 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6

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