Manson v. Guaranty Bank et al

Filing 7

ORDER Granting Defendant Guaranty Bank's 3 Motion to Dismiss. Plaintiff must file an amended complaint that cures the deficiencies identified herein on or before 4/5/2017. Signed by Judge Michael M. Anello on 3/22/2017. (ag)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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Case No.: 16cv2921-MMA (JLB)

RUSSELL C. MANSON,
Plaintiff,

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v.

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ORDER GRANTING DEFENDANT
GUARANTY BANK’S MOTION TO
DISMISS

GUARANTY BANK, et al.,

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Defendants.

[Doc. No. 3]

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Plaintiff Russell C. Manson brings suit against Defendant Guaranty Bank alleging

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violation of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§

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17200-17210, and negligence. Defendant moves to dismiss Plaintiff’s complaint in its

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entirety pursuant to Federal Rule of Civil Procedure 12(b)(6). See Doc. No. 3. Plaintiff

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filed an opposition, to which Defendant replied. See Doc. Nos. 4, 5. The Court took the

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motion under submission on the papers and without oral argument pursuant to Civil

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Local Rule 7.1(d)(1). See Doc. No. 6. For the reasons set forth below, the Court

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GRANTS Defendant’s motion to dismiss.
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16cv2921-MMA (JLB)

BACKGROUND1

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This action arises out of events related to the non-judicial foreclosure and sale of

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Plaintiff’s home, located at 13070 Texana Street, San Diego, California, 92129 (“the

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property”). In 2005, Plaintiff entered into a written loan agreement and obtained a home

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equity line of credit (“HELOC”) loan in the amount of $95,000, secured by the property

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through a Deed of Trust, recorded on October 28, 2005. Plaintiff suffered a significant

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financial setback due to the economy. As such, Plaintiff contacted Defendant to inquire

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about a loan modification. Defendant promised that if Plaintiff submitted a complete

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application for a loan modification, it would not initiate foreclosure proceedings while

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Plaintiff’s loan modification application was in review. Plaintiff submitted a complete

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loan modification application as instructed. Defendant did not provide any written

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acknowledgement of the documents submitted by Plaintiff in connection with his request

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for a loan modification.

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On January 28, 2016, Defendant recorded a Notice of Default against the property.

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Plaintiff did not believe that Defendant was reviewing Plaintiff’s loan modification

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application in good faith. On or around May 6, 2016, Defendant recorded a Notice of

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Trustee Sale against the property. On or around June 1, 2016, Defendant sold the

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property, and initiated action to take possession of the property and to evict Plaintiff from

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his home. Plaintiff alleges that Defendant wrongfully delayed the processing of

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Plaintiff’s loan modification application.

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Based on these allegations, Plaintiff alleges causes of action for violation of
California’s UCL, negligence, and cancellation of instrument.

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Because this matter is before the Court on a motion to dismiss, the Court must accept as true the
allegations set forth in the FAC. See Hospital Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 740
(1976).
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16cv2921-MMA (JLB)

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LEGAL STANDARD

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A Rule 12(b)(6) motion to dismiss challenges the legal sufficiency of the

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complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “While a complaint

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attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations,

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a plaintiff’s obligation to provide the grounds of his entitlement to relief requires more

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than labels and conclusions, and a formulaic recitation of the elements of a cause of

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action will not do. Factual allegations must be enough to raise a right to relief above the

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speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal

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quotations, brackets, and citations omitted).

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In reviewing the motion to dismiss under Rule 12(b)(6), the court must assume the

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truth of all factual allegations, and construe them in the light most favorable to the

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nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996).

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However, “conclusory allegations of law and unwarranted inferences are not sufficient to

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defeat a motion to dismiss,” Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th

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Cir. 1998), and it is improper for a court to assume a plaintiff “can prove facts that [he or

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she] has not alleged,” see Assoc. Gen. Contractors of California, Inc. v. California State

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Council of Carpenters, 459 U.S. 519, 526 (1983).

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Federal Rule of Civil Procedure 9(b) sets forth a heightened pleading standard for

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allegations of fraud, requiring parties to “state with particularity the circumstances

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constituting fraud or mistake.” In general, fraud allegations must be “specific enough to

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give defendants notice of the particular misconduct … so that they can defend against the

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charge and not just deny that they have done anything wrong.” Vess v. Ciba-Geigy Corp.

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USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Bly-Magee v. California, 236 F.3d

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1014, 1019 (9th Cir. 2001)). Specifically, plaintiffs are required to supplement

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allegations of fraud with the “who, what, when, where, and how” of the purported

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misconduct, in addition to why the statement or conduct is false or misleading. Id.

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Failure to satisfy this heightened pleading standard can result in dismissal of the claim.

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Id. at 1107.
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16cv2921-MMA (JLB)

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DISCUSSION
A.

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Request for Judicial Notice
Defendant requests that the Court take judicial notice of certain public records

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relating to Plaintiffs’ complaint. See Doc. No. 3-3. These records include: (1) Deed of

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Trust, recorded on March 1, 2005; (2) Deed of Trust, recorded on October 28, 2005; (3)

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Assignment of Deed of Trust, recorded on January 28, 2016; (4) Substitution of Trustee,

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recorded on January 28, 2016; (5) Trustee’s Deed Upon Sale, recorded June 15, 2016;

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and (6) Full Reconveyance, recorded on July 20, 2016.

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Generally, a district court’s review on a 12(b)(6) motion to dismiss is limited to the

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complaint. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) overruled on

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other grounds by Galbraith v. Cnty. Of Santa Clara, 307 F.3d 1119 (9th Cir. 2002).

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However, “a court may take judicial notice of matters of public record,” id. at 689

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(internal quotations and citations omitted), and of “documents whose contents are alleged

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in a complaint and whose authenticity no party questions, but which are not physically

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attached to the pleading,” Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled

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on other grounds by Galbraith v. Cnty. Of Santa Clara, 307 F.3d 1119 (9th Cir. 2002).

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Judicially noticed facts “may be considered on a motion to dismiss.” Mullis v. United

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States Bankr. Ct., 828 F.2d 1385, 1388 (9th Cir. 1987).

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No party questions the authenticity of the public records contained in Defendant’s

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request for judicial notice. Therefore, to the extent the Court references facts contained

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within the above documents, the Court GRANTS Defendants’ Request for Judicial

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Notice.

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B.

Motion to Dismiss

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As an initial matter, Defendant moves to dismiss Plaintiff’s complaint to the extent

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that he is attempting to bring his claims pursuant to the California Home Owner’s Bill of

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Rights (“HOBR”). Pursuant to California Civil Code § 2923.6, “[i]f a borrower submits

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a complete application for a first lien loan modification,” a mortgage servicer “shall not

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record a notice of default or notice of sale, or conduct a trustee’s sale, while the complete
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16cv2921-MMA (JLB)

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first lien loan modification application is pending” until “the mortgage servicer makes a

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written determination that the borrower is not eligible for a first lien modification, and

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any appeal period” has expired. Cal. Civ. Code § 2923.6(c) (emphasis added). Plaintiff

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contends throughout his complaint that Defendant violated the HOBR by recording a

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Notice of Sale while Plaintiff’s loan modification application remained pending.

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However, as Defendant correctly notes, Plaintiff alleges that he applied for a modification

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of a second lien loan, to wit, his HELOC loan. The HOBR by its plain terms does not

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apply to second lien loans. Cal. Civ. Code § 2924.15(a). Thus, in so far as Plaintiff bases

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his claims on Defendant’s purported violation of the HOBR, Plaintiff’s claims fail.

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Plaintiff also fails to state plausible claims for the following reasons.

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1. California’s Unfair Competition Claim

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Plaintiff alleges that Defendant violated California’s UCL by engaging in

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deceptive business practices with respect to mortgage loan servicing, foreclosure of

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residential properties, and related matters, by misrepresenting the availability of a loan

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modification and foreclosing on the property. Plaintiff further claims that Defendant

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engaged in fraudulent acts or practices by concealing material facts, to induce Plaintiff to

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pay the marked up and/or unnecessary fees for default-related services. Plaintiff alleges

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that if he had known the true nature of the fees, he would have been aware of the inflated

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and unnecessary fees, and would not have paid the fees.

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California Business & Professions Code § 17200 prohibits “any unlawful, unfair or

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fraudulent business act.” Each “prong” of the UCL is “a separate and distinct theory of

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liability.” Kearns v. Ford Motor Co., 567 F.3d 1120, 1127 (9th Cir. 2009). An action

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brought under the “unlawful” prong of this statute “borrows” violations of other laws

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when committed pursuant to business activity. Farmers Ins. Exchange v. Superior Court,

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2 Cal.4th 377, 383 (1992). Plaintiff claims that Defendant has engaged in “unlawful”

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business practices based on violations of Title 18, United States Code, sections 1341,

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1343, and 1962; California Civil Code sections 1572, 1573, 1709, 1710, and 1711, and

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the common law.
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16cv2921-MMA (JLB)

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Under all three prongs of the UCL, the gravamen of Plaintiff’s claim sounds in

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fraud. See Kearns, 567 F.3d at 1127. For example, Plaintiff relies upon the federal mail

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fraud, wire fraud, and racketeering statutes to support the “unlawful” prong of his claim.

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However, fraud is a necessary element of the mail and wire fraud statutes, and any

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derivative RICO claim sounds in fraud. As such, Plaintiff’s UCL claim must be pleaded

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with particularity. Fed. R. Civ. P. 9(b); Odom v. Microsoft Corp., 486 F.3d 541, 553-54

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(9th Cir. 2006). Allegations of fraud under section 17200 must comply with Rule 9(b).

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Kearns, 567 F.3d at 1125 (applying Rule 9(b) particularity requirement to UCL claim

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grounded in fraud). Plaintiff must set forth “the time, place, and specific content of the

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

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Odom, 486 F.3d at 553 (internal quotation marks omitted). Plaintiff does not do so.

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Plaintiff has not satisfied the Rule 9(b) requirement and consequently, fails to assert a

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plausible claim under either the “fraudulent” or “unfair” prong of the UCL.

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2. Negligence

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Plaintiff alleges that Defendant is negligent for failing to exercise reasonable care

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in processing and reviewing Plaintiff’s loan modification application. Specifically,

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Plaintiff claims that Defendant breached its duty to Plaintiff by: (1) failing to review

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Plaintiff’s loan modification application in a timely manner; (2) misplacing Plaintiff’s

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application documents; (3) mishandling Plaintiff’s application by relying on incorrect

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information; (4) misrepresenting the status of Plaintiff’s loan modification application;

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and (5) continuing foreclosure in violation of public policy and federal regulations.

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Under California law, the elements of a claim for negligence are that: (1) defendant

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had a legal duty to plaintiff, (2) defendant breached this duty, (3) defendant was the

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proximate and legal cause of plaintiff’s injury, and (4) plaintiff suffered damage. Cal.

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Civ. Code § 1714; Merrill v. Navegar, Inc., 26 Cal. 4th 465, 500 (2001). As a general

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rule, under California law, “a financial institution owes no duty of care to a borrower

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when the institution’s involvement in the loan transaction does not exceed the scope of its

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16cv2921-MMA (JLB)

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conventional role as a mere lender of money.” Nymark v. Heart Fed. Sav. & Loan Ass’n,

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231 Cal. App. 3d 1089, 1095-96 (1991).

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In an unpublished opinion, the Ninth Circuit has ruled that, under California law,

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lenders do not owe borrowers a duty of care to process a borrower’s loan modification

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application within a particular time frame. See Anderson v. Deutsche Bank Nat. Trust

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Co. Americas, 649 F. App’x 550 (9th Cir. 2016). The Ninth Circuit explained that

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because the borrower’s default necessitates the modification, the resulting harm is “not . .

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. closely connected to the lender’s conduct,” and the lender’s conduct is not blameworthy.

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Id. (quoting Lueras v. BAC Home Loans Servicing, LP, 221 Cal.App.4th 49, 67 (2013)).

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Here, Defendant did not cause Plaintiff to need a loan modification, and the harm that

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Plaintiff experienced is primarily attributable to his default, not Defendant’s actions.

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Plaintiff cannot state a negligence claim premised solely upon Defendant’s delay in

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processing his loan modification application and actions related thereto. Plaintiff fails to

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plead any non-conclusory allegations sufficient to demonstrate that Defendant otherwise

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owed him a duty of care by making “explicit promises to him or affirmatively

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discourag[ing] him from seeking other remedies.” Ivey v. JP Morgan Chase Bank N.A.,

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Case No. 16-cv-00610-HSG, 2016 U.S. Dist. LEXIS 174471, at *7 (N.D. Cal. 2016). As

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such, Plaintiff’s negligence claim is subject to dismissal.

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3. Cancellation of Instrument

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Plaintiff also brings a cause of action for cancellation of instrument pursuant to

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California Civil Code section 3412. Plaintiff seeks to cancel the Notice of Default and

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Notice of Sale, which would essentially operate to set aside the trustee’s sale. However,

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in order to set aside the sale of the property, Plaintiff must allege facts sufficient to show

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tender in the amount of his indebtedness, or a valid excuse to the tender requirement.

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Morgan v. Aurora Loan Servs., LLC, 646 Fed. Appx. 546, 551 (9th Cir. 2016) (citing

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Lona v. Citibank, N.A., 202 Cal. App. 4th 89 (Ct. App. 2011)). Plaintiff fails to do so.

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As such, this claim is subject to dismissal.

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16cv2921-MMA (JLB)

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C.

Leave to Amend
Plaintiff’s claims arise in large part out of Defendant’s purported violation of

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provisions in California’s HOBR which simply do not apply to the loan at issue.

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Amendment will not cure this fundamental underlying defect in Plaintiff’s complaint.

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Nevertheless, in the Ninth Circuit, a district court must grant a plaintiff leave to amend

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his claims “‘unless the court determines that the allegation of other facts consistent with

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the challenged pleading could not possibly cure the deficiency.’” DeSoto v. Yellow

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Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v.

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ServWell Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)). The Court cannot

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conclude at this preliminary stage that it would be impossible for Plaintiff to sufficiently

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amend his claims. Accordingly, the Court will grant Plaintiff leave to file an amended

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complaint.

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CONCLUSION

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Based on the foregoing, the Court GRANTS Defendant’s motion to dismiss.

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Plaintiff must file an amended complaint that cures the deficiencies identified herein on

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or before April 5, 2017.

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IT IS SO ORDERED.
DATE: March 22, 2017

_______________________________________
HON. MICHAEL M. ANELLO
United States District Judge

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16cv2921-MMA (JLB)