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

Filing 31

ORDER by Judge Lucy H. Koh denying 15 Motion for Preliminary Injunction (lhklc2, COURT STAFF) (Filed on 10/20/2011)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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United States District Court
For the Northern District of California

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SCOTT BEUTEL,

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Plaintiff,
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v.
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WELLS FARGO BANK, N.A., a.k.a. WELLS )
FARGO BANK, a.k.a. WELLS FARGO BANK )
AND COMPANY, a banking corporation,
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WELLS FARGO BANK AND COMPANY, a )
Delaware corporation, NDeX WEST, a limited )
liability company, DOES 1 through 20,
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Defendants.
)
)

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Case No.: 11-CV-04357-LHK
ORDER DENYING MOTION FOR A
PRELIMINARY INJUNCTION

Before the Court is Plaintiff Scott Beutel’s motion for a preliminary injunction. Beutel

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seeks to enjoin the foreclosure sale of his home at 26169 Atherton Drive, Carmel, CA (“subject

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property”) because he claims that Defendant Wells Fargo Bank, N.A. (“Wells Fargo” or

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“Defendant”) has breached its covenant of good faith and fair dealing. See ECF No. 15.

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Defendant filed an opposition on September 27, 2011, and Plaintiff failed to file a reply. See ECF

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No. 24. A hearing was held on October 20, 2011. For the foregoing reasons, Plaintiffs’ motion for

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a preliminary injunction is DENIED.

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I.

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Factual Background
Plaintiff purchased the subject property in 1999. In August 2001, Plaintiff took out an

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initial home mortgage (“initial mortgage”) with World Savings Bank, FSB (“World Savings”), and

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borrowed approximately $543,000. In February 2003, Plaintiff entered into an equity line of credit

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ORDER DENYING MOTION FOR A PRELIMINARY INJUNCTION

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(“ELOC”) agreement with World Savings with a credit limit of $54,300. The ELOC, like the

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initial mortgage, was secured by a deed of trust against the subject property.

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In 2004, a dispute arose between Plaintiff and World Savings Bank regarding fire and

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liability insurance required for the subject property. Plaintiff claims that World Savings

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wrongfully took money from his escrow impound account to pay for insurance on the Subject

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Property, even though he had already obtained the required insurance. Plaintiff objected to World

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Savings that he had already purchased insurance, provided proof, and the money was apparently

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refunded. The issue of the property insurance came up again in 2006. Plaintiff claims that at some

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point in 2006, World Savings took money from Plaintiff’s escrow impound account to pay for

United States District Court
For the Northern District of California

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property insurance. Plaintiff claims that he again provided World Savings with proof of insurance,

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but the money was never refunded. Plaintiff claims that he has been continually insured since

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2003.

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World Savings Bank was renamed Wachovia Mortgage, FSB on December 31, 2007.

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Effective November 1, 2009, Wachovia Mortgage, FSB was converted to a national bank and

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eventually became Wells Fargo Bank, N.A.

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In 2009, Plaintiff attempted to open a business checking account with Wachovia from

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which his mortgage payments could be automatically deducted. Plaintiff funded this account with

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over $40,000, but encountered difficulties in setting up the automatic payments. After failing to set

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up the automatic mortgage payments, Plaintiff then demanded a return of funds. He encountered

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difficulties in retrieving his money from the account, but succeeded on March 25, 2009.

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During this same period, Plaintiff fell behind on his ELOC, allegedly because of difficulties

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with the automatic payments, and Plaintiff’s ELOC was suspended. In August 2009, Plaintiff

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visited a bank branch and attempted to pay down the balance on the ELOC, but was told he lacked

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documentation as to the amount owed. Plaintiff requested and later received a documentation

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letter, which listed the payoff balance as $450.04. The documentation letter also explained that the

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offer allowing him to pay off the equity credit line was “void after 8/17/09,” the same day that the

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letter was dated, and three days before the letter was post-marked. Wells Fargo claims that it sent

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multiple letters to Plaintiff regarding the ELOC loan payoff before the attempted August
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Case No.: 11-CV-04357-LHK
ORDER DENYING MOTION FOR A PRELIMINARY INJUNCTION

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resolution. Plaintiff alleges multiple unspecified attempts to resolve the ELOC delinquency after

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August 2009.

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According to Wells Fargo’s records it appears that Plaintiff began making late payments on
his initial mortgage in October 2009. Starting in February 2010, Plaintiff withheld three monthly

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payments on his initial mortgage, instructing Wells Fargo/Wachovia that the payments should be

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made using the monies wrongfully withdrawn from the escrow impound account in 2006.

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Plaintiff’s last payment was made in mid-February 2010 and was intended as a payment on the

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initial mortgage payment originally due January 1, 2010. In May 2010, Plaintiff visited a Wells

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Fargo/Wachovia bank branch and attempted to make a monthly payment. Plaintiff claims that this

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United States District Court
For the Northern District of California

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payment was refused. Under the terms of the initial mortgage contract, Defendant had the right to

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demand payment of the full outstanding balance on the loan.

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Several times in 2011, Plaintiff claims that he was told by Wells Fargo during phone

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conversations that no foreclosure would result from failure to pay off his ELOC, and that the most

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severe consequence would be placement of a “lien on the first deed of trust.” Plaintiff received

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letters contradicting these representations. The ELOC is currently in foreclosure and a notice of

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trustee’s sale was sent by Defendant. In addition, between February 4, 2010 and July 26, 2011, the

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bank sent at least seven notifications to Plaintiff concerning the delinquency on the ELOC, and

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since October 2009, Wells Fargo has written at least seventeen times regarding the delinquency on

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the initial mortgage. Plaintiff declares that he received multiple phone calls from Defendant, in

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which Wells Fargo sought to collect the delinquent payments. Plaintiff declares that he responded

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by seeking to recapture the money taken from his escrow impound account, but declined to pay the

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delinquent amounts until Defendant remedied the alleged breach. Plaintiff has made no payments

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on either the ELOC or the initial mortgage since February 2010.

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Because the ELOC requires that the initial mortgage be kept current, Defendant requires

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payment of delinquencies on both the ELOC and the initial mortgage to forestall foreclosure. In

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total, Plaintiff has failed to make 21 payments on his Initial Mortgage and the total past due is

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$80,507.52. The total due to reinstate the ELOC is $2,855.98. The parties have stipulated to a stay

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of foreclosure pending the outcome of this motion.
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Case No.: 11-CV-04357-LHK
ORDER DENYING MOTION FOR A PRELIMINARY INJUNCTION

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Plaintiff now seeks a preliminary injunction to prevent foreclosure based upon his claim for

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breach of the covenant of good faith and fair dealing. Plaintiff alleges that Defendant and its

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predecessors in interest and their employees breached the covenant when they (1) repeatedly made

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false statements of fact to plaintiff regarding whether or not his home was in foreclosure, (2) failed

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to perform loan servicing functions consistent with their responsibilities, (3) failed to properly

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supervise their agents and employees including without limitation, their loss mitigation and

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collection personnel, (4) demanded information already in their files, (5) made inaccurate

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calculations and determinations of the sums owed by plaintiff under his loans with defendant and

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its predecessors, and (6) failed to follow through on written and implied promises.

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For the Northern District of California

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II.

Legal Standard

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“A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on

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the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the

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balance of equities tips in his favor, and that an injunction is in the public interest.” Winter v.

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Natural Res. Def. Council, Inc., 129 S.Ct. 365, 374 (2008). “[S]erious questions going to the

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merits and a balance of hardships that tips sharply towards the plaintiff can support issuance of a

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preliminary injunction, so long as the plaintiff also shows that there is a likelihood of irreparable

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injury and that the injunction is in the public interest.” Alliance for the Wild Rockies v. Cottrell, 632

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F.3d 1127, 1135 (9th Cir. 2011) (internal quotations omitted). The issuance of a preliminary

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injunction is at the discretion of the district court. Indep. Living Ctr. v. Maxwell-Jolly, 572 F.3d

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644, 651 (9th Cir. 2009). The party seeking the injunction bears the burden of proving these

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elements. Klein v. City of San Clemente, 584 F. 3d 1196, 1201 (9th Cir. 2009).

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III.

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Discussion
Plaintiff must establish that he is either likely to succeed on the merits of his claim for

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breach of covenant of good faith and fair dealing or that he raises serious questions going to the

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merits of his claims in order to obtain a preliminary injunction. Plaintiff has not met his burden.

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Under California law, a claim for breach of the covenant of good faith and fair dealing

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requires (1) that a contract exists between the parties, (2) that the plaintiff performed his contractual

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duties or was excused from nonperformance, (3) that the defendant deprived the plaintiff of a
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benefit conferred by the contract in violation of the parties’ expectations at the time of contracting,

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and (4) that the plaintiff’s damages resulted from the defendant’s actions. Boland, Inc. v. Rolf C.

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Hagen (USA) Corp., 685 F. Supp. 2d 1094, 1101 (E.D. Cal. 2010) (citing Reichert v. General Ins.

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Co., 68 Cal. 2d 822, 830 (1968). Specifically, Plaintiff has not met his burden because he has not

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established (1) that he has performed his contractual duties or that he was excused from

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nonperformance, or (2) that the foreclosure of his home is a result of the defendant’s actions.1

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A. Plaintiff’s Failure to Perform

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Plaintiff must establish that he has performed his contractual duties or was excused from

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nonperformance. Plaintiff has not performed under his contractual duties as he has not made any

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For the Northern District of California

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monthly payments on either his ELOC or his initial mortgage since February 2010 as he is required

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to do under the terms of the contract.

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Plaintiff’s initial failure to pay may be excused by Wells Fargo’s alleged breach of

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withdrawal of money from Plaintiff’s impound account for the purposes of paying for property

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insurance. However, “[u]nder basic contract principles, when one party to a contract feels that the

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other contracting party has breached its agreement, the non-breaching party may either stop

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performance and assume the contract is avoided or continue its performance and sue for damages.

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Under no circumstances may the non-breaching party stop performance and continue to take

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advantage of the contract’s benefits.” See Jay Bharat Developers, Inc. v. Minidis, 167 Cal.App.4th

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437, 443 (2008) (internal quotation marks omitted). Thus, if Plaintiff believed in 2006 that Wells

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Fargo’s predecessor breached the terms of the agreement he could have initiated court action to

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recoup the amount withdrawn, terminated the contract, or paid his mortgage and ELOC payments

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into an escrow account. See, e.g. Wilson v. Wells Fargo Bank, No. 11-03394, 2011 WL 3443635 at

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*3 (N.D. Cal. Aug. 5, 2011). He was not allowed to stop making payments while continuing to

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take advantage of the contract’s benefits by remaining in possession of the home.

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B. The Damage Has Not Resulted From Defendant’s Actions

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Because Plaintiff has not established these elements of his breach of covenant of good faith and
fair dealing claims, the Court need not address the remaining arguments presented by Defendant.
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Case No.: 11-CV-04357-LHK
ORDER DENYING MOTION FOR A PRELIMINARY INJUNCTION

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Breach of the covenant of good faith and fair dealing requires that the remedy must flow

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from the breach. Carma Developers, Inc. v. Marathon Development California, Inc., 2 Cal. 4th

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342, 372-73 (1992). If the foreclosure does not result from the wrongs that form the basis of

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Plaintiff’s claims, an injunction against the foreclosure is not an appropriate remedy. See Avila v.

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Countrywide Home Loans, Inc., No. 10-05485, 2011 U.S. Dist. LEXIS 34071 (N.D. Cal. Mar. 29,

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2011) (plaintiffs must show that “the plaintiff’s damages resulted from the defendant’s actions”);

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see also Lewis Jorge Const. Mgmt., Inc. v. Pomona Unified Sch. Dist., 34 Cal. 4th 960, 969

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(contract damages must represent “loss[es] that occurred by reason of injuries following from the

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breach”) (citations and internal quotation marks omitted).

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For the Northern District of California

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Plaintiff does not appear to base his claim upon the 2006 allegedly wrongful withdrawal of

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money to pay for property insurance presumably because such a claim would be time-barred. See

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Esoimeme v. Wells Fargo Bank, No. 10-2259, 2011 WL 3875881 (E.D. Cal. Sept. 1, 2011) (four

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year statute of limitation for breach of covenant of good faith and fair dealing in California).

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Plaintiff asserts six other bases for his claim for breach of the covenant of good faith and fair

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dealing. These include claims that Defendant (1) repeatedly made false statements of fact to

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plaintiff regarding whether or not his home was in foreclosure, (2) failed to perform loan servicing

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functions consistent with their responsibilities, (3) failed to properly supervise their agents and

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employees including without limitation, their loss mitigation and collection personnel, (4)

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demanded information already in their files, (5) made inaccurate calculations and determinations of

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the sums owed by plaintiff under his loans with defendant and its predecessors, and (6) failed to

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follow through on written and implied promises. None of these alleged breaches, however,

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resulted in the foreclosure of the subject property.

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(1) False statements. The false statements made to Plaintiff that his home was not going

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into foreclosure did not cause the foreclosure – Plaintiff’s non-payment of his ELOC balance and

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initial mortgage payments caused the foreclosure. There is no indication by Plaintiff that he was or

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is prepared to pay the sum required to reinstate the Initial Mortgage and ELOC, as would have

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been required to avoid default on his ELOC. See DeLeon v. Wells Fargo Bank, N.A., 2011 U.S.

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Dist. LEXIS 8296 (N.D. Cal., Jan. 28, 2011).
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Case No.: 11-CV-04357-LHK
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(2)-(3) Loan Servicing Functions/Failure to Supervise. Plaintiff also asserts vague

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allegations that Wells Fargo failed to perform loan servicing functions consistent with their

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responsibilities and failed to properly supervise their agents and employees including without

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limitation, their loss mitigation and collection personnel. To the extent that they do not overlap

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with other allegations, these allegations likely refer to two occurrences. The first occurrence, in

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May 2009, was Defendants’ refusal to allow Plaintiff to resume normal monthly payments on his

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initial mortgage after he had deliberately withheld mortgage payments for three months (and had

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apparently fallen behind in his mortgage payments several months prior to that). This cannot be

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the basis for a claim, since the deed of trust explicitly permits the bank to “demand immediate

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For the Northern District of California

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payment of all sums secured.”
The second possible basis is Defendants’ 2011 failure to refund over $17,000 that Wells

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Fargo has admitted has been withdrawn from Plaintiff’s escrow account to pay for property

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insurance. Although the contract permits such withdrawals, there appears to be a factual dispute as

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to whether Plaintiff actually has insurance on the subject property and whether Plaintiff has

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adequately provided this proof of insurance to Wells Fargo. Nonetheless, Wells Fargo’s failure to

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refund is not the cause of the foreclosure sale. This is because the money Wells Fargo withheld is

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less than one quarter of the amount owed on the two notes, both of which would have to be paid to

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avoid foreclosure on the ELOC.

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(4) Information Demand. Plaintiff also asserts that Defendants repeatedly demanded

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information allegedly in their files. This apparently refers to Defendants’ August 2009 demand for

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documentation of the precise amount owed on the ELOC before allowing Plaintiff to pay down the

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balance. It is apparent from the record, however, that Plaintiff received several notices of the

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amount due prior to August 2009, and could have paid down his ELOC at that time. Plaintiff also

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received notices after August 2009, which he declined to pay unless Defendants remedied their

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alleged wrongful withdrawal of money to purchase property insurance. Again, Plaintiff’s ongoing

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failure to pay the balance of his Initial Mortgage and ELOC is the cause of foreclosure on his

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ELOC, rather than a specific demand for more documentation in August 2009.

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(5) Inaccurate Calculations. Plaintiff also alleges that Wells Fargo made inaccurate

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calculations in July 2011 regarding the amount owed on the ELOC. Plaintiff apparently received

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conflicting information as to the precise sum owed as foreclosure proceedings progressed, and

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submits notices he received from Defendants that support this allegation. See Beutel Decl. ¶ 18,

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19, 20. This basis for Plaintiff’s claim, however, did not cause the impending foreclosure sale.

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Indeed, Plaintiff admitted that in June 2011, after receiving a notice of default on the ELOC for

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$864.03, he told Wells Fargo that he wanted to pay the ELOC balance, “but was not going to pay

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for double insurance.” Id. ¶ 14. Thus, Plaintiff explicitly refused to pay an outstanding balance

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regardless of any of the alleged miscalculations as recently as June 2011. Furthermore, it does not

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For the Northern District of California

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appear that Plaintiff has attempted to make any payment since the initiation of the foreclosure

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process.

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(6) Failure to Follow Promise. Finally, Plaintiff’s allegation that Wells Fargo failed to

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follow through on written and implied promises is too vague to support a finding that the plaintiff’s

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damages result from the defendant’s conduct. To the extent that such promises are included in the

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original contracts, the Court has already addressed them. To the extent that any such contractual

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promise postdates the original contracts and are written, they have not been included as evidence

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and thus cannot be evaluated. Finally, any oral agreement altering the contracts would be invalid

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under the statute of frauds. See Cal. Civil Code § 1624, 1698.

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In sum, the reason for Plaintiff’s impending foreclosure is not the breach of Wells Fargo’s

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duty of good faith and fair dealing, but rather Plaintiff’s failure to keep current with his mortgage

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and ELOC payments. Although Plaintiff alleges that Wells Fargo rejected a mortgage payment in

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May of 2010, it does not appear that he has made any other attempts to make payments on the past

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due amounts or to bring his accounts into compliance with the terms of the ELOC or initial

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mortgage deeds. While the Court is sympathetic to the issues that Plaintiff has faced in dealing

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with Wells Fargo and its predecessors, they are not the cause of the impending foreclosure. Rather,

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it is Plaintiff’s failure to timely make his payments on his loan obligations that is the cause of the

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foreclosure sale.

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Case No.: 11-CV-04357-LHK
ORDER DENYING MOTION FOR A PRELIMINARY INJUNCTION

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Because Plaintiff has neither established a likelihood of success on the merits nor raised any

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serious question going to the merits of the claim asserted, no preliminary injunction may issue.

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The Court recognizes that Plaintiff’s loss of his home is an irreparable harm. Reed v. Wells Fargo

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Bank, No. 11-00194, 2011 WL 1793340 *6 (N.D. Cal. May 11, 2011). Nonetheless, the balance of

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the equities do not necessarily favor Plaintiff because he has not shown a likelihood of success on

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the merits, and “[e]quity does not favor allowing Plaintiff[] to avoid foreclosure having ceased

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making payments of any kind to anyone.” Wilson, 2011 WL 3443635 *3. Finally, while

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homeownership is in the public interest, as evidenced by the tax benefits and other subsidies

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provided to home owners, it is not in the public interest to delay a foreclosure and afford relief to

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For the Northern District of California

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those deserving security on a defaulted loan. Id. Therefore, after weighing all the factors, the

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Court denies the motion for a preliminary injunction.

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The Court notes that parties have stipulated to a delay of the foreclosure sale from

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September 14, 2011 until October 31, 2011. Notice of Default and Election to Sell recorded on

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May 3, 2011 states that Plaintiff has “the legal right to stop the sale of [his] property by paying the

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entire amount demanded by [his] creditor.” The July 29, 2011 Notice of Trustee's Sale at 10:00

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a.m. on August 24, 2011 was predicated upon this earlier Notice of Default and Election to Sell.

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Although any Notice of Trustee's Sale on September 14, 2011 has not been submitted into

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evidence, such sale may also be conditional on the recorded Notice. Defendants have continuously

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demanded the delinquent payments, plus penalties and fees, at this point totaling $83,363.50, to

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reinstate Plaintiff’s loans. Plaintiff’s counsel has represented to the Court that Plaintiff has the

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funds to pay off the full amount in arrears. Although the Court has denied Plaintiff’s Motion for a

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Preliminary Injunction, the Court notes that legal remedies may exist for Plaintiff to avoid the

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pending foreclosure sale.

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IV.

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Conclusion
For the foregoing reasons, Plaintiff’s motion for a preliminary injunction is DENIED.

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IT IS SO ORDERED.

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Dated: October 20, 2011

_________________________________
LUCY H. KOH
United States District Judge

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Case No.: 11-CV-04357-LHK
ORDER DENYING MOTION FOR A PRELIMINARY INJUNCTION