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

Filing 18

ORDER granting 3 Defendant Wells Fargo, N.A.'s Motion to Dismiss. Plaintiff may file a Second Amended Complaint within twenty-one (21) days from the date of this Order. Signed by Judge John A. Houston on 4/30/2018. (All non-registered users served via U.S. Mail Service)(jpp)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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Somphet Siphengphone,

Case No.: 17-cv-02117-JAH-MDD
Plaintiff,

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v.

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ORDER GRANTING DEFENDANT
WELLS FARGO, N.A.’S MOTION
TO DISMISS

Wells Fargo Bank, N.A., et al.,
Defendants.

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INTRODUCTION

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Pending before this Court is Defendant Wells Fargo Bank, N.A.1 (“Defendant” or

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“Wells Fargo”) Motion to Dismiss the complaint for failure to state a claim upon which

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relief may be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

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[Doc. No. 3]. After a careful review of the parties’ submissions, and for the reasons set

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forth below, this Court GRANTS Defendant’s Motion to Dismiss.

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f/k/a Wells Fargo Bank Southwest, N.A., f/k/a/ Wachovia Mortgage, FSB f/k/a World Savings Bank,
FSB.

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BACKGROUND
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Factual Background2

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The instant complaint, filed by Somphet Siphengphone (“Plaintiff”), stems from

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three loans secured by Plaintiff to finance the purchase of a home at 2854 Whitney Street,

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San Diego, California 92111. The first loan for $352,500 was made by World Savings

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Bank, FSB on or about December 13, 2004 (“First Loan”). Plaintiff executed a promissory

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note and the first Deed of Trust, which was recorded in the official records of the County

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of San Diego Recorder’s office on December 17, 2004. This loan was the first lien

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mortgage on the property.

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On or about October 25, 2005, Plaintiff received additional financing of $50,000

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secured to the home on Whitney Street via a loan issued by Secured Funding Corporation

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(“Second Loan”). This loan was the second lien mortgage on the property. Plaintiff

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executed a promissory note and the second Deed of Trust, which was recorded on

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November 8, 2005. On or about March 7, 2017 Plaintiff obtained a third loan, up to the

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maximum principal amount of $50,800, issued by World Savings Bank, FSB (“Third

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Loan”). This third loan was an Open End Deed of Trust3, and was recorded in the official

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records of the County of San Diego Recorder’s office on March 14, 2007.

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A series of loan reconveyances and trustee substitutions followed in April of 2007

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and December of 2013. On or about December 18, 2013, the first Notice for Default and

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Election of Sell Under Deed of Trust was filed in the official records of the County of San

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Diego Recorder’s office by Cal-Western Reconveyance, LLC. (“Cal-Western”). Defendant

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elected Cal-Western as substitute trustee for the first deed of trust.

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The Factual Background is derived from Plaintiff’s complaint. In a Motion to Dismiss, “[a]ll
allegations of material fact are taken as true and construed in the light most favorable to the nonmoving
party.” Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002).
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Open End Deed of Trust – Operates as an equity line of credit taken against a particular property; a
“borrower may incur maximum unpaid loan indebtedness (exclusive of interest thereon) in amounts
fluctuating from time to time up to a maximum principal sum [amount] outstanding at any time, which is
due and payable [on or before a particular date].” [Doc. No. 1 Pg. 70].
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Plaintiff alleges that in June of 2016, he submitted an application for loan

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modification on the First Loan, and was firmly denied by Defendant. On or about June 14,

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2017, a third Substitution of Trustee was recorded with the County Recorder’s office, the

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first Notice of Default was rescinded, and a second Notice of Default and Election of Sell

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Under Deed of Trust was filed in the official records of the County of San Diego Recorder’s

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office.

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2.

Procedural Background

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Plaintiff originally filed the instant complaint in the Superior Court of California on

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August 31, 2017 alleging violations of the California Homeowner Bill of Rights

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(“HBOR”), specifically California Civil Code §§ 2923.55, 2923.7, 2924.12, breach of

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contract, breach of the covenant of good faith and fair dealing, negligence, and unfair

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business practices. See Doc. No. 1. On October 16, 2017, the case was removed to this

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Court. Id. On October 23, 2017, Defendant filed the instant Motion to Dismiss, contesting

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all of Plaintiff’s claims. See Doc. No. 3. Plaintiff filed an opposition to the Motion to

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Dismiss on November 20, 2017. [Doc. No. 11]. Defendant filed a reply in support of the

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Motion to Dismiss on December 04, 2017. [Doc. No. 12]. On December 6, 2017 the

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Defendant’s Motion was taken under submission as it was deemed suitable for adjudication

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without oral argument.

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DISCUSSION
I.

Legal Standard

A motion to dismiss under Rule 12(b)(6) tests the sufficiency of the complaint.

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Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted under Rule

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12(b)(6) where the complaint lacks a cognizable legal theory. Robertson v. Dean Witter

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Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984); See Neitzke v. Williams, 490 U.S. 319,

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326 (1989) (“Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a

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dispositive issue of law.”). Alternatively, a complaint may be dismissed where it presents

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a cognizable legal theory yet fails to plead essential facts under that theory. Robertson, 749

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F.2d at 534. While a plaintiff need not give “detailed factual allegations,” he must plead
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sufficient facts that, if true, “raise a right to relief above the speculative level.” Bell Atlantic

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Corp. v. Twombly, 550 U.S. 544, 545 (2007).

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“To survive a motion to dismiss, a complaint must contain sufficient factual matter,

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accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,

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129 S.Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 547). A claim is facially

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plausible when the factual allegations permit “the court to draw the reasonable inference

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that the defendant is liable for the misconduct alleged.” Id. In other words, “the

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nonconclusory ‘factual content,’ and reasonable inferences from that content, must be

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plausibly suggestive of a claim entitling the plaintiff to relief. Moss v. U.S. Secret Service,

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572 F.3d 962, 969 (9th Cir. 2009). “Determining whether a complaint states a plausible

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claim for relief will . . . be a context-specific task that requires the reviewing court to draw

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on its judicial experience and common sense.” Iqbal, 129 S.Ct. at 1950.

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

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truth of all factual allegations and must construe all inferences from them in the light most

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favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002);

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Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir. 1996). However, legal

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conclusions need not be taken as true merely because they are cast in the form of factual

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allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th Cir. 2003); Western Mining

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Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). When ruling on a motion to dismiss,

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the Court may consider the facts alleged in the complaint, documents attached to the

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complaint, documents relied upon but not attached to the complaint when authenticity is

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not contested, and matters of which the Court takes judicial notice. Lee v. City of Los

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Angeles, 250 F.3d 668, 688–89 (9th Cir. 2001). If a court determines that a complaint fails

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to state a claim, the court should grant leave to amend unless it determines that the pleading

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could not possibly be cured by the allegation of other facts. See Doe v. United States, 58

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F.3d 494, 497 (9th Cir. 1995).

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II.

Analysis

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The purpose of the HBOR, as articulated in California Civil Code 2923.4(a), is to

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ensure, “. . . as part of the nonjudicial foreclosure process, [that] borrowers are considered

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for, and have a meaningful opportunity to obtain, available loss mitigation options . . . .”

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Plaintiff was provided and, admittedly, later defaulted on a loan modification. See Doc.

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No. 11, pg. 5. Given this default, Plaintiff is not entitled to the protection outlined in the

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HBOR, as discussed below.

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1. Violation of California Civil Code 2923.55

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California Civil Code 2923.55 requires that a loan servicer must contact the

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borrower, or make diligent attempts to contact the borrower, before recording a notice of

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default. The provision explicitly states that a notice of default may not be recorded until

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the lender has attempted a series of measures aimed at informing the borrower of the

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situation, providing adequate notice of the situation and/or notice of the lender’s proposed

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actions moving forward4. Additionally, the provision explicitly requires that a mortgage

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servicer comply with California Civil Code 2923.6(c), which outlines a lender’s required

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actions if the borrower has completed a first lien loan modification application. Both

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California Civil Code sections 2923.55 and 2923.6 require that lenders provide at least 30

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days between the date of notice and proceeding with foreclosure measures, which includes

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the recording of a notice of default. However, 2923.6(c)(3) specifically excuses a lender

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from the 30 day notice requirement and allows the lender to proceed with the recordation

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of a notice of default if a borrower has defaulted on a prior loan modification. As discussed

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in Deschiane v. IndyMac Mortg. Services, the Ninth Circuit held that “[when a] borrower

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accepts a written first lien loan modification, but defaults on, or otherwise breaches the

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borrower’s obligations under the first lien loan modification” the lender may pursue

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See California Civil Codes 2923.55 §§ (a)(2); (b)(1)(A); (b)(1)(B)(2); (f)(1); (f)(2)(A); (f)(2)(C)(3)-(5)

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foreclosure procedures on future defaults without providing the required 30 day notice. 617

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Fed.Appx. 690, 693 (2015) (citing California Civil Code 2923.6(c)(3)).

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An analysis of the legislature’s intent in enacting the HBOR is informative and

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supports the Ninth Circuit’s justification. The California Legislature enacted the HBOR to

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ensure that “borrowers who may qualify for a foreclosure alternative are considered for,

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and have a meaningful opportunity to obtain, available loss mitigation options.”

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California State Assembly No. 278/Senate Bill No. 900 Sec. 1(b). Clearly the intent was to

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inform and educate borrowers faced with an impending foreclosure, and was not

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envisioned as a tool or tactic for delaying foreclosure proceedings, particularly when a

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borrower has previously defaulted on a loan modification. Deschaine, 617 Fed.Appx. at

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693 & 694 (“. . . the mortgage servicer shall not be obligated to evaluate applications from

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borrowers who have already been afforded a fair opportunity to be evaluated for a first lien

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loan modification prior to January 1, 2013”). In other words, once a borrower defaults on

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a first loan modification, that borrower has been afforded a fair opportunity to be evaluated,

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and the lender is not obligated to offer the borrower the same benefits as those seeking

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foreclosure alternative remedies for the first time. Plaintiff admits to receiving and

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defaulting on a loan modification initiated in 2009. See Doc. No. 11, at pg. 5. As such,

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Plaintiff is not entitled to this statutory protection.

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Plaintiff further contends that Defendant is “obligated to review subsequent

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applications where there has been a material change in the borrower’s financial

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circumstances.” (citing Cal. Civ. Code 2923.6(g)). Doc. No. 11, pg. 5. Courts have

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acknowledged this obligation, however, in order to qualify for review the borrower must

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demonstrate that he “documented and submitted evidence of a material change to

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[Defendant].” Shaw v. Spucialized Loan Servicing, LLC, No. 14-CV-00783-MMM, 2014

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WL 3362359, at *6; see also Mann v. Bank of America, N.A., No. 13-CV-02293-

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CAS(DTBx), 2014 WL 495617, at *4 (“. . . plaintiffs have not sufficiently alleged that they

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provided . . . the required documentation showing the alleged material change in . . .

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borrower’s financial circumstances.”); Dias v. JP Morgan Chase, N.A., No. 13-CV-053276
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EJD, 2014 WL 2890255, at *3 (“. . . [there is] an exception when there has been a material

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change in the borrower’s financial circumstances since the date of the borrower’s previous

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application and that change is documented by the borrower and submitted to the mortgage

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servicer.”) (internal quotations omitted). Plaintiff fails to allege that he made any attempts

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to inform Defendant of his change in financial circumstances. For Plaintiff to survive

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Defendant’s Motion to Dismiss his “complaint must contain sufficient factual matter,

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accepted as true, to ‘state a claim to relief that is plausible on its face.’” Iqbal 129 S.Ct.

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1937 at 1949 (2009) (quoting Twombly, 550 U.S. at 547). Here, Plaintiff’s complaint, on

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its face, does not contain the sufficient factual matter that would permit this Court to make

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the plausible inference that the necessary documentation was submitted to Defendant,

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informing it of his changed financial circumstances. Accordingly, Plaintiff’s California

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Civil Code 2923.55 claim is DISMISSED without prejudice.

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2. Violation of California Civil Code 2923.7(a)

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California Civil Code 2923.7(a) requires mortgage servicers, upon request from a

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borrower, promptly establish a single point of contact to facilitate communications, and

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provide to the borrower one or more direct means of communication with the single point

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of contact. For reasons previously discussed above, Plaintiff is not entitled to any of the

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statutory protections given his prior default on a modified loan. Deschiane, 617 Fed.Appx.

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at 694 (citing California Civil Code 2923.6(g)). (“Deschaine defaulted under the original

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loan agreement and defaulted again under the loan Modification Agreement . . . Thus,

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Deschaine was not entitled to this statutory protection”). As stated above, the HBOR was

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enacted to educate borrowers on the alternatives to foreclosure, and to provide them with

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a meaningful opportunity to understand their options. Here, Plaintiff has previously been

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provided that opportunity, and subsequently defaulted, which places Plaintiff outside of the

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statutory protection. Accordingly, Plaintiff’s California Civil Code 2923.7(a) claim is

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DISMISSED without prejudice.

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3. Violation of California Civil Code 2924.12

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California Civil Code 2924.12 provides that a borrower may bring an action for

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injunctive relief to enjoin material violations of Sections 2923.55, 2923.6, and 2923.7,

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where a trustee’s deed upon sale has not been recorded. The term “material” is not defined

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in the HBOR5, however, courts within the Ninth Circuit have held “the term ‘material’ to

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refer to whether the alleged violation affected a plaintiffs loan obligations or the

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modification process.” Punay v. PNC Mortgage at *8 (citing Cornejo v. Ocwen Loan

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Servicing, LLC, 151 F. Supp. 3d 1102, 1113 (E.D. Cal. 2015); see also Hsin-Shawn Sheng

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v. Select Portfolio Servicing, Inc., No. 2:15-CV-0255-JAM-KJN, 2015 WL 4508759, at *3

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(E.D. Cal. July 24, 2015); Gonzales v. Citimortgage, Inc., No. C-14-4059 EMC, 2015 WL

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3505533, at *6 (N.D. Cal. June 3, 2015)). As discussed above, Plaintiff was granted a

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modification to his original loan agreement in 2009, on which he defaulted. Plaintiff

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contends that he submitted a subsequent loan modification in 2016, which was “denied”

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[See Doc. No. 1 at pg. 19]. Plaintiff has not alleged facts evidencing his loan obligations

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or modification process was affected by Defendant’s acts. Regardless, Plaintiff is not

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entitled to the statutory protections given his prior default on a loan modification and

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failure to allege a material change in is financial circumstances that was communicated to

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Defendant. Accordingly, Plaintiff’s California Civil Code 2924.12 claim is DISMISSED

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without prejudice.

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4. Breach of Contract

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In California, to state a claim for breach of contract, a plaintiff must allege “(1)

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existence of the contract; (2) plaintiff’s performance or excuse for non-performance; (3)

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defendant’s breach; and (4) damages to plaintiff as a result of the breach.” CDF Firefighters

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v. Maldonado, 158 Cal.App.4th 1226, 1239 (2008). Plaintiff alleges that certain provisions

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in the Deed of Trust were breached by Defendant, specifically “Paragraph 26 of the Deed

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California Assembly Bill 278/Senate Bill 900 does contain a section dedicated to definitions, 2920.5,
but this section only defines ‘Mortgage Servicer,’ ‘Foreclosure Prevention Alternative,’ and ‘First Lien.’

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of Trust. . .” See Doc. No. 1, at pg. 25. Plaintiff attached the subject Deed of Trust in

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question to his complaint. Pursuant to Federal Rule of Civil Procedure 10(c), “A copy of a

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written instrument that is an exhibit to a pleading is a part of the pleading for all purposes.”

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Paragraph 26, of the Deed of Trust provides that, “If Lender exercises the option to require

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immediate payment in full, Lender will give [Borrower] notice of acceleration.” Plaintiff

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alleges that said notice is required “prior to acceleration.” Id. at pg. 25. Defendant argues

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that paragraph 26 “only requires a notice if the lender wants to accelerate the loan due to

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an improper transfer of title to the secured property.” See Doc. No. 3-2, pg. 18. Defendant

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maintains that Plaintiff received a proper notice of default on the loan, embodied in the

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official recordation of the Notice of Default. Id. at pg. 18. Also according to Defendant,

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paragraph 28 of the Deed of Trust excuses the lender from providing notice of a Breach of

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Duty6 if “(i) [Petitioner does] not pay the full amount of each monthly payment on the date

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it is due . . . .”) See Doc. No. 1, pg. 45. As such, the Deed of Trust, explicitly excuses the

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lender from notifying the borrower of any default when there has been a breach by the

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borrower. Accordingly, Plaintiff’s Breach of Contract claim is DISMISSED with

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prejudice.

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5. Breach of the Covenant of Good Faith and Fair Dealing

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It has long been recognized in California that every contract contains an implied

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covenant of good faith and fair dealing, ensuring that “neither party will do anything which

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will injure the right of the other to receive the benefits of the agreement.” Kransco v.

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American Empire Surplus Lines Ins. Co., 23 Cal.4th 390, 400 (2000) (internal citation

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omitted). This covenant is “read into contracts “in order to protect the express covenants

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

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tied to the contract’s purpose.’ ” Carma Developers (Cal.), Inc v. Marathon Development

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California, Inc., 2 Cal.4th 342, 373 (1992) (quoting Foley v. Interactive Data Corp., 47 Cal.

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The Deed of Trust defines “Breach of Duty” as a failure to make payments.

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3d 654, 683 (1988)). However, the implied covenant will only be recognized to further the

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contract’s purpose, and will not be read into a contract to prohibit a party from doing that

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which is expressly permitted by the agreement itself. Carma Developers, 2 Cal.4th at 374

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(“The general rule [regarding the covenant of good faith] is plainly subject to the exception

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that the parties may, by express provisions of the contract, grant the right to engage in the

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very acts and conduct which would otherwise have been forbidden by an implied covenant

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of good faith and fair dealing”) (internal citation and quotations omitted). This principle is

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consistent with the general rule that implied terms cannot vary the express terms of a

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contract. If the defendant did what it was expressly given the right to do, there can be no

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breach. Id.; see also Tanner v. Title Insurance & Trust Co., 20 Cal.2d 814, 824 (1942).

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Plaintiff again contends that paragraph 26 of the Deed of Trust entitled him to notice of his

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loan default, prior to loan acceleration. See Doc. No. 1, at pg. 27. However, as stated above,

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per the guidelines of paragraph 28 of the Deed of Trust, Defendant was contractually

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excused from providing Plaintiff notice where Plaintiff breached his duty to make timely

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mortgage payments in full. Accordingly, Plaintiff’s Breach of Implied Covenant of Good

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Faith and Fair Dealing claim is DISMISSED with prejudice.

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6. Negligence

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“The elements of a cause of action for negligence are (1) a legal duty to use

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reasonable care, (2) breach of that duty, and (3) proximate [or legal] cause between the

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breach and (4) the plaintiff’s injury.” Mendoza v. City of Los Angeles, 66 Cal.App.4th

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333, 1339, 78 Cal.Rptr.2d 525 (1998) (citation omitted). “The existence of a duty of care

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owed by a defendant to a plaintiff is a prerequisite to establishing a claim for negligence.”

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Nymark v. Heart Fed. Savs. & Loan Ass’n, 231 Cal. App. 3d 1089 (1991). “[A]bsent a

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duty, the defendant’s care, or lack of care, is irrelevant.” Software Design & Application,

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Ltd. v. Hoefer & Arnett, Inc., 49 Cal.App.4th 472, 481, 56 Cal.Rptr.2d 756 (1996). “The

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existence of a legal duty to use reasonable care in a particular factual situation is a question

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of law for the court to decide.” Vasquez v. Residential Investments, Inc., 118 Cal.App.4th

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269, 278, 12 Cal.Rptr.3d 846 (2004) (citation omitted). “The ‘legal duty’ of care may be
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of two general types: (a) the duty of a person to use ordinary care in activities from which

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harm might reasonably be anticipated, [or] (b) [a]n affirmative duty where the person

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occupies a particular relationship to others . . . . In the first situation, he is not liable unless

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he is actively careless; in the second, he may be liable for failure to act affirmatively to

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prevent harm.” McGettigan v. Bay Area Rapid Transit Dist., 57 Cal.App.4th 1011, 1016–

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1017 (1997).

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Here, Plaintiff alleges that Defendant “had a specific duty to notice Plaintiff of

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Default and how to cure it . . . following their missed mortgage payment” as stated in the

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Deed of Trust. See Doc. No. 1, at pg. 28. However, this Court has reviewed the Deed of

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Trust and the document imparts no such duty. As stated above, the Deed of Trust explicitly

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excuses the Defendant from any duty to notify once the Plaintiff has breached his duty to

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make full and timely mortgage payments. See Doc. No. 1, pg. 45. Plaintiff has failed to

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properly allege a claim for negligence, and as such, Plaintiff’s claim is DISMISSED with

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prejudice.

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7. Unfair Business Practices

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Claims alleged under the Unfair Competition Law (UCL) require the allegations to

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state particular facts that demonstrate an “ongoing unlawful, unfair and fraudulent business

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acts” by Defendant. Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1143

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(2003). Further, if a plaintiff “cannot state a claim under the ‘borrowed’ law, he or she

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cannot state a UCL claim either.” Id. (citing Ingels v. Westwood One Broad Servs., Inc.,

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129 Cal. App. 4th 1050, 1060 (2005) (“A defendant cannot be liable under § 17200 for

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committing unlawful business practices without having violated another law.”)). Plaintiff

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asserts that Defendant’s alleged omissions, various breaches, and violations of the HBOR,

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are evidence of Defendant engaging in unfair business practices. See Doc. No. 1, pg. 29.

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Defendant asserts this claim fails for lack of a predicate act. See Doc. No. 3-2, pg. 25. This

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Court agrees. Plaintiff has not alleged ongoing unlawful, unfair, or fraudulent conduct by

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Defendant. Accordingly, Plaintiff’s claim under the UCL is DISMISSED without

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prejudice.
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CONCLUSION AND ORDER
Based on the foregoing, IT IS HEREBY ORDERED that:
1. Defendant’s motion to dismiss the Complaint pursuant to Rule 12(b)(6) of
the Federal Rules of Civil Procedure is GRANTED;
2. Plaintiff’s claims against Defendant for violation of (1) breach of contract,

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(2) breach of the covenant of good faith and fair dealing, and (3) negligence

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are DISMISSED with prejudice;

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3. All remaining claims are DISMISSED without prejudice;

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4. To the extent that Plaintiff is able to cure the noted deficiencies, Plaintiff

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may file a Second Amended Complaint within twenty-one (21) days from

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the date of this Order.

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IT IS SO ORDERED.
DATED: April 30, 2018

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_________________________________
JOHN A. HOUSTON
United States District Judge

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