Crilley et al v. Bank of America, N.A. et al
Filing
15
ORDER GRANTING IN PART AND DENYING IN PART 4 DEFENDANT'S MOTION TO DISMISS COMPLAINT FILED ON JANUARY 5, 2012: "Defendant's Motion to Dismiss Complaint Filed on January 5, 2012, filed February 15, 2012, is HEREBY GRANTED IN PART A ND DENIED IN PART. The Motion is GRANTED insofar as Plaintiffs' request for an order enjoining BONY from foreclosing upon the Property is DISMISSED WITHOUT PREJUDICE. The Motion is DENIED in all other respects. IT IS SO ORDERED." Signed by JUDGE LESLIE E. KOBAYASHI on April 26, 2012. (bbb, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
LAWRENCE CRILLEY and MARCY
KOLTUN-CRILLEY,
)
)
)
Plaintiffs,
)
)
vs.
)
)
BANK OF AMERICA, N.A.; BAC
)
HOME LOAN SERVICING, LP; JOHN )
AND MARY DOES 1-10,
)
)
Defendants.
)
_____________________________ )
CIVIL NO. 12-00081 LEK-BMK
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S
MOTION TO DISMISS COMPLAINT FILED ON JANUARY 5, 2012
On February 15, 2012, Defendant Bank of America, N.A.,
on its own behalf and as successor-by-merger to BAC Home Loans
Servicing, LP (“Defendant”)1 filed the instant Motion to Dismiss
Complaint Filed on January 5, 2012 (“Motion”).
Plaintiffs
Lawrence Crilley and Marcy Koltun-Crilley (“Plaintiffs”) filed
their memorandum in opposition on March 23, 2012, and Defendant
filed its reply on March 30, 2012.
hearing on April 16, 2012.
This matter came on for
Appearing on behalf of Defendant was
Patricia McHenry, Esq., and appearing on behalf of Plaintiffs was
James Fosbinder, Esq.
After careful consideration of the Motion,
supporting and opposing memoranda, and the arguments of counsel,
1
When necessary to distinguish between the two entities,
the Court will refer to Bank of America, N.A. as “BOA” and to BAC
Home Loans Servicing, LP as “BAC”.
Defendant’s Motion is HEREBY GRANTED IN PART AND DENIED IN PART.
The Motion is GRANTED insofar as Plaintiffs’ request for an order
enjoining the foreclosure sale of the property is DISMISSED
WITHOUT PREJUDICE, and the Motion is DENIED in all other
respects.
BACKGROUND
Plaintiffs filed the instant action on January 5, 2012
in state court.
Defendant removed the action on diversity
jurisdiction.
According to the Complaint, in February 2003,
Plaintiffs obtained a $520,000 loan from Countrywide Home Loans,
Inc., secured by a Mortgage on 2962 Kauhale Street, Kihei,
Hawai`i (“the Property”).2
On December 28, 2009, Plaintiffs
received a solicitation from BAC promoting the federal
government’s Home Affordable Modification Program (“HAMP”).
Plaintiffs completed an on-line loan modification application.
[Complaint at ¶¶ 15-16.]
On January 4, 2010, BAC personnel contacted Plaintiffs
by telephone.
During the call, Mrs. Crilley told each person she
spoke to that they would exhaust the last of their savings after
approximately two more mortgage payments.
One of the people to
whom Mrs. Crilley spoke identified himself as Brian and
2
The Mortgage securing the loan is attached to the
Complaint as Exhibit 1.
2
interviewed her for approximately an hour, taking Plaintiffs’
financial information.
Brian informed Mrs. Crilley that
Plaintiffs qualified for HAMP, and Brian represented that, if
they made all three trial payments on time and if their
supporting documentation confirmed the information they provided
over the phone, they would receive a permanent loan modification.
The trial payments were to be approximately half of Plaintiffs’
original monthly mortgage payments.
Although Plaintiffs were
current on their mortgage payments at that time, they were
concerned that they would deplete their savings before the loan
modification was complete.
Brian assured them that they would
receive the HAMP modification contract within thirty days, and in
no event later than forty-five days.
[Id. at ¶¶ 17-20.]
When Plaintiffs did not receive the HAMP contract
within forty-five days, Mrs. Crilley contacted BAC and was
informed that their case had been closed because they failed to
return the HAMP contract with supporting documentation within
forty-five days.
Mrs. Crilley explained that they never received
the contract, and the BAC representative informed her that the
HAMP package would be resent to them within seven to ten days.
The next day, February 19, 2010, another BAC representative
called Plaintiffs and informed them that it would take
thirty days to resend the HAMP package.
3
[Id. ¶¶ 21-23.]
On February 22, 2010, someone named Lisa from BAC
advised Plaintiffs to stop making their mortgage payments.
On
February 25, 2010, Plaintiffs sent BAC a check for $1,000 as a
partial payment with a letter explaining that they were waiting
to receive their HAMP contract.
From February 25 to March 22,
2010, Plaintiffs made several calls to BAC, but each time they
were either transferred to someone who had no record of their
case or put on hold for more than thirty minutes after which they
were disconnected.
[Id. at ¶¶ 24-26.]
Plaintiffs received a package from BAC on March 25,
2010, but it was a new HAMP application form.
That day,
Mrs. Crilley called BAC, and Shirley confirmed that Plaintiffs
had to start the process over.
Shirley stated that, if
Plaintiffs missed their April mortgage payment, BAC would process
their application faster.
Plaintiffs timely submitted the
application with the necessary supporting documents.
During
Plaintiffs’ March 30, 2010 call to BAC, Kevin also instructed
Plaintiffs to miss their April payment.
On April 2, 2010, BAC
confirmed that it received Plaintiffs’ application.
During
Mrs. Crilley’s April 9, 2010 call to BAC, Octario said that their
application was complete and that they would receive their HAMP
contract in the mail.
[Id. at ¶¶ 29-33.]
Plaintiffs received another HAMP application from BAC
on April 19, 2010.
After Plaintiffs contacted BAC, two different
4
BAC representatives told them that the application had been sent
in error and that Plaintiffs could disregard it.
Plaintiffs,
however, received a Notice of Intent to Accelerate on April 23,
2010.
When Plaintiffs called BAC, BAC reassured them that their
HAMP contract was being processed and that they would receive it
within thirty to forty-five days.
[Id. at ¶¶ 34-39.]
The Complaint goes on to describe additional delays in
the loan modification process, including: multiple requests for
further supporting documents; more phone calls where the BAC
representatives denied having records of Plaintiffs’ case; more
disconnected phone calls; further instructions not to make their
regular monthly mortgage payments; assurances that their HAMP
contract was being sent to them shortly; and BAC’s explanation
that notes in Plaintiffs’ records may have been caused by
glitches in BAC’s computer system.
[Id. at ¶¶ 40-53.]
On July 22, 2010, Plaintiffs received a letter from BAC
stating that they were not eligible for a HAMP loan modification
because they received a negative net present value analysis (“the
NPV” and “the HAMP Denial Letter”).
The letter stated that the
NPV would be sent to them and, if the information used in the
analysis was incorrect, Plaintiffs could appeal the denial of the
loan modification.
The letter also stated that BAC could not
foreclose until it sent Plaintiffs the NPV analysis.
¶ 54.]
[Id. at
Plaintiffs learned from BAC that the gross income used to
5
generate the NPV was based on Mr. Crilley’s income before he was
seriously injured while working for the Maui Fire Department.3
By July 2010, he was receiving workers’ compensation benefits and
Plaintiffs’ monthly income was substantially less than it was
when they first applied for a loan modification in January 2010.
[Id. at ¶ 56.]
The delays continued, but BAC personnel assured
Plaintiffs that they were still being considered for a loan
modification.
At different times, BAC gave Plaintiffs
conflicting advice about making their regular mortgage payments.
BAC also told Plaintiffs that the ultimate decision to modify the
loan and the responsibility to provide Plaintiffs with the NPV
were in the hands of the holder of their loan, Bank of New York
Mellon (“BONY”).
the opposite.
A BONY representative, however, told Plaintiffs
According to BONY, BAC makes all loan modification
decisions on BONY’s behalf.
BAC informed Plaintiffs of several
delays in sending out the NPV and emphasized that Plaintiffs
could neither challenge the NPV nor reapply for a loan
modification until they received it.
[Id. at ¶¶ 57-63.]
On August 13, 2010, Plaintiffs received a notice from
BAC that they were seriously delinquent in their mortgage and
that foreclosure would follow if Plaintiffs did not contact BAC.
3
The Complaint states that Mr. Crilley was subsequently
able to return to work. [Complaint at ¶ 85.]
6
Plaintiffs called BAC and spoke to Ashley, who told Plaintiffs
that their gross income had been updated as of July 30, 2010.
Plaintiffs verbally provided Ashley with their current financial
information and, on August 18, 2010, sent BAC their supporting
financial documents.
[Id. at ¶¶ 64-69.]
On August 21, 2010, Plaintiffs received a letter from
BAC, dated August 17, 2010, stating that there were no available
work-out options based on the financial information they
provided.
On August 23, 2010, Plaintiffs contacted BAC and spoke
with Porcha Jones, who told Plaintiffs their case was still under
review and that they could ignore the August 17 letter.
She did,
however, state that the letter was sent by another department and
that Plaintiffs should call the number on the letter.
Plaintiffs
did so and spoke to Ricardo, who told them BAC could provide a
special forbearance for three, and up to six, months.
At the end
of that time, Plaintiffs could reapply for a HAMP modification or
challenge the NPV results.
[Id. at ¶¶ 70-72.]
On September 1, 2010, Kimberly Christopher told
Plaintiffs that she and Elizabeth Lopez would be handling their
file for BAC.
Plaintiffs continued to communicate with
Ms. Christopher and Ms. Lopez.
BAC sent Plaintiffs a Special
Forbearance contract, which they completed.
Ms. Lopez informed
them on September 14, 2010 that it was effective for the next
three months.
[Id. at ¶¶ 73-77.]
7
As the expiration of the
forbearance contract neared, Plaintiffs attempted to contact
Ms. Christopher and Ms. Lopez to request the three-month
extension, but Plaintiffs were informed that Ms. Christopher and
Ms. Lopez no longer worked in the forbearance department.
[Id.
at ¶ 80.]
On November 19, 2010, Plaintiffs spoke with Damon
Jones, who assured them that BAC would extend the forbearance
contract.
He directed them to fax a hardship letter explaining
the need for the extension, and Plaintiffs did so.
On
November 30, 2010, Tara Hunt from BAC called Plaintiffs and said
that she was processing their forbearance extension.
She also
said that she would simultaneously try to get them an in-house
modification.
Plaintiffs stressed to Ms. Hunt that they did not
want to risk the forbearance extension for an attempt at an inhouse modification.
Ms. Hunt reassured Plaintiffs that they
could still get the forbearance extension if they were denied the
in-house modification and that they could reapply for a HAMP
modification after the forbearance period.
On or around
December 7, 2010, however, BAC informed Plaintiffs that their
forbearance contract was not extended because they were seeking
an in-house modification or other work-out.
After two weeks of
repeated calls to BAC, Plaintiffs received a contract for the
second three-month forbearance period.
8
[Id. at ¶¶ 81-84.]
On February 17, 2011, Plaintiffs contacted Ms. Hunt to
start a new HAMP application, but she informed them that they
should not do so until the forbearance period ended on March 18,
2011.
[Id. at ¶ 87.]
Plaintiffs began working with two consumer
advocacy groups, Faith Action for Community Equity (“FACE”) and
Hawaii Community Assets (“HCA”), which entered into negotiations
with BAC.
[Id. at ¶¶ 88-95.]
On March 10, 2011, HCA notified Plaintiffs that BAC
would be sending them a contract for an in-house modification.
Ms. Crilley contacted Mona De La Pena, a BAC loan modification
officer who had previously said that she was their personal
monitor, to inquire why the terms of the modification did not
comply with the HAMP modifications guidelines.
Ms. De La Pena
said that Plaintiffs’ HAMP modification had been denied.
also read Mrs. Crilley the notes in Plaintiffs’ file.
She
She noted
the previous denial of the HAMP application and said that had
Plaintiffs appealed the decision on September 25, 2010, but the
appeal was denied.
She also stated that BAC’s records indicated
that Plaintiffs had filed a NPV dispute on August 30, 2010, but
that was also denied.
Plaintiffs state that this information is
false; Plaintiffs could neither appeal the modification denial
nor dispute the NPV because they never received the NPV.
¶¶ 93, 96-99.]
9
[Id. at
In September and October 2011, Plaintiffs received
seven different letters from BAC giving the names of seven
different “dedicated customer relationship managers”.
¶ 105.]
[Id. at
As of the date of the Complaint, Plaintiffs had not
received a permanent loan modification offer.
[Id. at ¶ 107.]
The Complaint alleges two claims: negligence (“Count
I”) and unfair and deceptive acts and practices (“UDAP”) pursuant
to Haw. Rev. Stat. § 480-2 (“Count II”).
Count I alleges that:
“BAC Servicing Owed a Duty of Care to Plaintiffs in
Modification”; BAC breached that duty; and BAC’s negligence
caused significant damage to Plaintiffs’ credit scores.
pgs. 26, 29-30.]
[Id. at
Count I states “[w]hile lenders generally do
not owe a duty of care to borrowers when originating mortgage
loans, a duty of care arises when a servicer acts beyond the role
of a mere lender of money and actively engages with a borrower in
modification negotiations.”
[Id. at ¶ 109 (citing Ansanelli v.
JP Morgan Chase Bank, N.A., et al., U.S. Dist. LEXIS 32350 (N.D.
Cal. Mar. 28, 2011)).]
Count II alleges, inter alia, that BAC
engaged in a scheme of prolonging the modification process to
generate additional interest and fees.
“[U]nder this scheme, BAC
Servicing never intends to provide Plaintiffs with a loan
modification.
Rather BAC Servicing’s goal has been, and
continues to be, to keep loans in default and arrears for as long
as possible before ultimately foreclosing to maximize its fees
10
and the payments it can extract from Plaintiffs.”
¶ 142.]
[Id. at
Plaintiffs also contend that BONY should be enjoined
from foreclosing on Plaintiffs’ Property.
[Id. at ¶¶ 154-57.]
The Complaint seeks the following relief: an order
enjoining BONY from foreclosing on the Property; statutory,
punitive, treble, and compensatory damages; reasonable attorneys’
fees; and any other appropriate relief.
I.
[Id. at pg. 37.]
Motion
In the instant Motion, Defendant argues that the Court
should dismiss the Complaint with prejudice because it fails to
state a claim upon which relief can be granted and does not
allege facts sufficient to support any claim for relief under
Hawai`i law and Fed. R. Civ. P. 8 and 9(b).
Defendant also
argues that any attempt to amend the Complaint would be futile.
Defendant argues that: Plaintiffs’ negligence claim fails because
Defendant was under no duty to modify Plaintiffs’ loan; and
Plaintiffs’ UDAP claim is insufficiently pled.
Defendant also
notes that, although Plaintiffs argue that BONY should be
enjoined from foreclosing on the Property, Plaintiffs have not
alleged that BONY has initiated the foreclosure process.
Further, BONY is not a party in this action and, insofar as
Plaintiffs have no valid claim against Defendant, they have no
valid claim to stop BONY from foreclosing on the Property.
11
According to Defendant, the general rule that lenders
owe no duty of care to borrowers also applies to loan servicers.
[Mem. in Supp. of Motion at 6 (some citations omitted) (citing
Castaneda v. Saxon Mortg. Svcs., Inc., 687 F. Supp. 2d 1191, 1198
(E.D. Cal. 2009); Wattas v. Decision One Mortg. Co., LLC, 2009 WL
2044595, *3 (S.D. Cal. July 13, 2009)).]
There are no special
circumstances that would give rise to a duty owed to Plaintiffs
because Defendant’s review of Plaintiffs’ loan modification
application was part of its routine duties as a loan servicer.
Defendant argues that Ansanelli does not help Plaintiffs because
that case affirmed that “‘[l]iability to a borrower for
negligence arises only when the lender actively participates in
the financed enterprise beyond the domain of the usual money
lender.’”
[Id. at 8 (quoting 2011 WL 1134451, at *7 (citing
Nymark v. Heart Fed. Sav. & Loan Ass’n, 231 Cal. App. 3d 1089,
1096 (1991)) (Defendant’s emphasis omitted).]
The defendant in
Ansanelli “‘went beyond its role as a silent lender and loan
servicer to offer an opportunity to plaintiffs for loan
modification and to engage with them concerning the trial period
plan.’”
[Id. (quoting 2011 WL 1134451, at *7) (Defendant’s
emphasis omitted).]
Defendant argues that it did not engage in
such activity with regard to Plaintiffs’ loan because Plaintiffs
were not on a modification plan, nor have Plaintiffs alleged that
Defendant informed them the loan was current, or instructed them
12
to continue paying a modified amount.
Defendant argues that
placing Plaintiffs in a special forbearance plan while they
awaited loan modification was not enough to trigger a duty.
Defendant urges the Court to follow Ottolini v. Bank of
America, which distinguished Ansanelli, and to rule that “no
Nymark duty existed for a defendant mortgage servicer when a
application for a loan modification never ‘progressed to a
concrete stage and there [was] no indication of the likelihood
that such an application would have been granted.’”
[Id. at 9
(quoting 2011 WL 3652501, at *7 (N.D. Cal. Aug. 19, 2011))
(alteration Defendant’s).]
Defendant also argues that Plaintiffs’ UDAP claim,
which is based in fraud because it relies on alleged
misrepresentations, fails because there was no duty to modify the
loan and because Plaintiffs have not pled the claim with
particularity.
The alleged impairment of Plaintiffs’ credit
scores is not an injury to their business or property, and
Plaintiffs’ claim that, but for Defendant’s misrepresentations,
they would have sought other relief to avoid foreclosure is
“entirely hypothetical, unsubstantiated, and conclusory.”
at 15.]
[Id.
Defendant also argues that the Complaint does not
identify the alleged misrepresentations with particularity.
II.
Memorandum in Opposition
In their memorandum in opposition, Plaintiffs argue
13
that mortgage servicers, by definition, act beyond the
conventional role of a mere lender of money because mortgage
servicers collect payments and do not originate loans.
Plaintiffs argue that BAC actively engaged in collecting detailed
financial information from Plaintiffs during the loan
modification process.
Plaintiffs emphasize that they were in
regular contact with BAC for the past two years and that the
entire loan modification process was out of Plaintiffs’ hands,
resulting in an imbalance of power.
In a conventional
lender/borrower relationship, the potential borrower has more
autonomy to accept or reject a loan, but that is not the case in
a loan modification.
Plaintiffs relied on BAC to honestly and
accurately conduct a timely evaluation of their loan modification
application, and the result of Plaintiffs’ inability to obtain a
loan modification is the loss of their home.
Thus, Plaintiffs
argue that special factors exist to take their relationship with
BAC out of the traditional borrower/lender relationship.
Plaintiffs emphasize that, even if BAC was merely
acting as a conventional lender of money, the Nymark rule that a
lender owes no duty to a borrower is merely a general rule.
To
determine whether a duty exists, the Court should apply the sixfactor test set forth in Biakanja v. Irving, 320 P.2d 15 (Cal.
1958).
Plaintiffs argue that, under that analysis, BAC clearly
owed them a duty of care.
[Mem. in Opp. at 5-7.]
14
Plaintiffs also assert that their UDAP claim is
sufficiently pled.
Plaintiffs emphasize that the UDAP claim is
premised on BAC’s scheme to prolong the modification process
before ultimate foreclosure; the claim is not based on an
assumption that Defendant had a duty to modify Plaintiffs’ loan.
Plaintiffs argue that they have sufficiently pled the who, what,
when, where, and how of BAC’s misrepresentations about important
aspects of the loan modification process.
Thus, Plaintiffs urge the Court to deny the Motion.4
III. Reply
In its reply, Defendant argues that Plaintiffs failed
to address the Motion’s identification of specific deficiencies
in the negligence and UDAP claims, and therefore Plaintiffs have
conceded that those claims lack merit.
Plaintiffs have not
responded either to Defendant’s argument that it was merely
acting in its traditional role as a loan servicer or to
Defendant’s argument regarding the failure to plead damages with
particularity in the UDAP claim.
In addition to reiterating the
arguments in the Motion, Defendant argues that the Biakanja
factors show that Defendant did not owe Plaintiffs a duty.
4
Plaintiffs also raised arguments based on a recent
settlement between forty-nine state attorneys general and five of
the nation’s largest banks, including BOA, but the Court will not
discuss those arguments because they are irrelevant to the
instant case.
15
STANDARD
Federal Rule of Civil Procedure 12(b)(6) permits a
motion to dismiss a claim for “failure to state a claim upon
which relief can be granted[.]”
Under Rule 12(b)(6), review is generally
limited to the contents of the complaint.
Sprewell v. Golden State Warriors, 266 F.3d
979, 988 (9th Cir. 2001). . . .
On a Rule 12(b)(6) motion to dismiss,
all allegations of material fact are taken as
true and construed in the light most
favorable to the nonmoving party. Fed’n of
African Am. Contractors v. City of Oakland,
96 F.3d 1204, 1207 (9th Cir. 1996). To
survive a motion to dismiss, a complaint must
contain sufficient factual matter to “state a
claim to relief that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929
(2007). “A claim has facial plausibility
when the plaintiff pleads factual content
that allows the court to draw the reasonable
inference that the defendant is liable for
the misconduct alleged.” Ashcroft v. Iqbal,
--- U.S. ----, 129 S. Ct. 1937, 1949, 173 L.
Ed. 2d 868 (2009). “Threadbare recitals of
the elements of a cause of action, supported
by mere conclusory statements, do not
suffice.” Id. (citing Twombly, 550 U.S. at
554, 127 S. Ct. 1955).
Hawaii Motorsports Inv., Inc. v. Clayton Group
Servs., Inc., 693 F. Supp. 2d 1192, 1195-96 (D.
Hawai`i 2010).
This Court, however, notes that the tenet
that the court must accept as true all of the
allegations contained in the complaint — “is
inapplicable to legal conclusions.” Iqbal, 129 S.
Ct. at 1949. Factual allegations that only permit
the court to infer “the mere possibility of
misconduct” do not show that the pleader is
entitled to relief. Id. at 1950.
16
“Dismissal without leave to amend is improper
unless it is clear that the complaint could not be
saved by any amendment.” Harris v. Amgen, Inc.,
573 F.3d 728, 737 (9th Cir. 2009) (citation and
quotation marks omitted).
Enriquez v. Countrywide Home Loans, FSB, 814 F. Supp. 2d 1042,
1055 (D. Hawai`i 2011) (some citations omitted).
DISCUSSION
I.
Negligence
Under Hawai`i law, there are four required elements of
a negligence claim:
(1) A duty, or obligation, recognized by the
law, requiring the defendant to conform to a
certain standard of conduct, for the
protection of others against unreasonable
risks;
(2) A failure on the defendant’s part to
conform to the standard required: a breach of
the duty;
(3) A reasonably close causal connection
between the conduct and the resulting injury;
and
(4) Actual loss or damage resulting to the
interests of another.
Takayama v. Kaiser Found. Hosp., 82 Hawai`i 486,
498–99, 923 P.2d 903, 915–16 (1996); see also
Kaho`ohanohano v. Dep’t of Human Servs., 117
Hawai`i 262, 287 n.31, 178 P.3d 538, 563 n.31
(2008) (listing elements for negligence as “(1)
duty; (2) breach of duty; (3) causation; and (4)
damages”); Cho v. Hawaii, 115 Hawai`i 373, 379
n.11, 168 P.3d 17, 23 n.11 (2007) (same).
Pagano v. OneWest Bank, F.S.B., CV. No. 11–00192 DAE–RLP, 2012 WL
74034, at *4 (D. Hawai`i Jan. 10, 2012).
17
This district court has frequently recognized the
principle that:
Lenders generally owe no duty of care
sounding in negligence to their borrowers.
Caraang v. PNC Mortg., 795 F. Supp. 2d 1098, 1122
(D. Haw. 2011); see also Champlaie v. BAC Home
Loans Servicing, LP, 706 F. Supp. 2d 1029, 1061
(E.D. Cal. 2009) (“[A]s a matter of law, [a]
lender [does] not owe a duty in negligence not to
place borrowers in a loan even where there was a
foreseeable risk borrowers would be unable to
pay.”); Nymark v. Heart Fed. Sav. & Loan Ass’n,
231 Cal. App. 3d 1089, 283 Cal. Rptr. 53, 56 (Cal.
Ct. App. 1991) (“[A]s a general rule, a financial
institution owes no duty of care to a borrower
when the institution’s involvement in the loan
transaction does not exceed the scope of its
conventional role as a mere lender of money.”)
Id. at *4 (footnote omitted); see also, e.g., Tedder v. Deutsche
Bank Nat’l Tr. Co., Civil No. 11–00083 LEK–KSC, 2012 WL 1028125,
at *15 (D. Hawai`i Mar. 23, 2012); Enriquez, 814 F. Supp. 2d at
1071; Gorospe v. New Century Mortg. Corp., CV. No. 10–00505
DAE–BMK, 2011 WL 3734230, at *9 (D. Hawai`i Aug. 23, 2011);
McCarty v. GCP Mgmt., LLC, Civil No. 10–00133 JMS/KSC, 2010 WL
4812763, at *6 (D. Hawai`i Nov. 17, 2010).
California courts have expressly recognized that loan
servicers do not owe a duty of care to the borrowers of the loans
they service.
See, e.g., Shepherd v. Am. Home Mortg. Servs.,
Inc., No. Civ. 2:09-1916 WBS GGH, 2009 WL 4505925, at *2 (E.D.
Cal. Nov. 20, 2009) (citing Watts v. Decision One Mortg. Co., No.
09-43, 2009 U.S. Dist. LEXIS 59694 (S.D. Cal. July 13, 2009);
Marks v. Ocwen Loan Servicing, No. 07-2133, 2009 WL 975792, at *7
18
(N.D. Cal. Apr. 10, 2009) (“[A] loan servicer does not owe a
fiduciary duty to a borrower beyond the duties set forth in the
loan contract”)).
This district court has cited Shepherd for
that proposition.
See, e.g., Vertido v. GMAC Mortg. Corp., CV.
No. 11–00360 DAE–KSC, 2012 WL 139212, at *11 (D. Hawai`i Jan. 17,
2012); Teaupa v. U.S. Nat’l Bank N.A., Civil No. 10–00727
JMS–BMK, 2011 WL 6749813, at *13 (D. Hawai`i Dec. 22, 2011);
Fujikawa v. One West Bank, FSB, Civ. No. 11–00151 HG–KSC, 2011 WL
3021331, at *6 (D. Hawai`i July 21, 2011).
This Court therefore
concludes that, as a general rule, a loan servicer does not owe a
duty of care to a borrower in a loan it services, unless the loan
servicer’s activities exceed its traditional role.
In addition to stating the general rule that lenders do
not owe borrowers a duty of care, Nymark also stated:
In California, the test for determining whether a
financial institution owes a duty of care to a
borrower-client “‘involves the balancing of
various factors, among which are [1] the extent to
which the transaction was intended to affect the
plaintiff, [2] the foreseeability of harm to him,
[3] the degree of certainty that the plaintiff
suffered injury, [4] the closeness of the
connection between the defendant’s conduct and the
injury suffered, [5] the moral blame attached to
the defendant’s conduct, and [6] the policy of
preventing future harm.’” (Connor v. Great
Western Sav. & Loan Assn. (1968) 69 Cal.2d 850,
865, 73 Cal. Rptr. 369, 447 P.2d 609, quoting
Biakanja v. Irving (1958) 49 Cal.2d 647, 650, 320
P.2d 16[.])
19
283 Cal. Rptr. at 58 (some citations omitted).5
Plaintiffs argue
that the Court should apply these factors, which Plaintiffs
contend weigh in favor of a finding that Defendant owed
Plaintiffs a duty of care.
Defendant argues that these factors
weigh against a finding of a duty.
Although not in the borrower-lender context, this
district court has recognized similar factors as part of the
analysis of whether a duty of care exists under Hawai`i law.
See, e.g., Yi v. Pleasant Travel Serv., Inc., Civil No. 10–00318
LEK–RLP, 2011 WL 4443625, at *12 (D. Hawai`i Sept. 22, 2011)
(quoting Pulawa v. GTE Hawaiian Tel, 112 Hawai`i 3, 12, 143 P.3d
1205, 1214 (2006)); Haw. Motorsports Inv., Inc. v. Clayton Grp.
5
The Court also notes that:
In [Glenn K. Jackson Inc. v.] Roe, [273 F.3d
1192 (9th Cir. 2001),] the Ninth Circuit noted
that the California Supreme Court “arguably
limited” Biakanja in Bily v. Arthur Young & Co., 3
Cal.4th 370, 11 Cal. Rptr. 2d 51, 834 P.2d 745
(1992), which held a court must consider three
additional factors before imposing a duty of care.
Roe, 273 F.3d at 1198. Roe summarized these
factors as “(1) liability may in particular cases
be out of proportion to fault; (2) parties should
be encouraged to rely on their own ability to
protect themselves through their own prudence,
diligence and contracting power; and (3) the
potential adverse impact on the class of
defendants upon whom the duty is imposed.” Id.
(citing Bily, 3 Cal.4th at 399-405, 11 Cal. Rptr.
2d 51, 834 P.2d 745). Bily was decided before
Nymark, but not discussed therein.
Champlaie v. BAC Home Loans Servicing, LP, 706 F. Supp. 2d 1029,
1061 (E.D. Cal. 2009).
20
Servs., Inc., CIV. No. 09-00304 SOM/BMK, 2010 WL 3398553, at *5
(D. Hawai`i Aug. 27, 2010) (quoting Blair v. Ing, 95 Hawai`i 247,
260, 21 P.3d 452, 465 (2001)).
In light of this Court’s finding
that Plaintiffs have sufficiently pled facts which indicate that
Defendant exceeded its conventional rule, this Court need not
issue a ruling regarding whether the six-factor Nymark analysis
applies in the instant case.
Plaintiffs urge this Court to follow Ansanelli, in
which the district court denied the defendant’s motion to dismiss
the plaintiffs’ negligence claim because
the complaint alleges that defendant went beyond
its role as a silent lender and loan servicer to
offer an opportunity to plaintiffs for loan
modification and to engage with them concerning
the trial period plan. Contrary to defendant,
this is precisely “beyond the domain of a usual
money lender.” Plaintiffs’ allegations constitute
sufficient active participation to create a duty
of care to plaintiffs to support a claim for
negligence.
2011 WL 1134451, at *7.
Defendant argues that Ansanelli is inapplicable to the
instant case because Plaintiffs were never in a trial loan
modification plan; in fact, Plaintiffs’ application for a HAMP
loan modification was denied.
Defendant contends that this case
is similar to Ottolini, in which the district court ruled:
In sum, under the circumstances of this case,
particularly the fact that the application for
loan modification had not progressed to a concrete
stage and that there is no indication of the
likelihood that such an application would have
21
been granted, cf. Ansanelli, 2011 WL 1134451, 2011
U.S. Dist. LEXIS 32350 (finding a duty found where
lender agreed to place borrower on modification
plan), the Court finds there is no duty owed by
the Defendants to Mr. Ottolini with respect to his
attempt to submit a loan modification application.
In the absence of a duty, the . . . negligence
claims are without merit.
2011 WL 3652501, at *7.
Defendant is correct that Plaintiffs in the instant
action are not in as persuasive a position as the plaintiffs in
Ansanelli: the Ansanellis were in a trial loan modification plan
with a promise of a permanent modification if they made all of
the payments under the trial plan on time.
*1.
2011 WL 1134451, at
This Court, however, does not read Ansanelli as concluding
that engaging the plaintiffs in a trial loan modification plan is
the only way in a defendant can exceed its conventional role as
“a silent lender and loan servicer”.
Id. at *7.
Further, the factual allegations in Plaintiffs’
Complaint make a stronger case for a finding of a duty than the
facts of Ottolini.
The borrower, Mr. Ottolini, made inquiries
about his options when was unable to pay his mortgage; the lender
initially told him that there were no available options.
When
the lender finally requested documents in order to pursue a loan
modification, the lender stated that it never received the
documents Mr. Ottolini repeatedly sent.
Prior to the foreclosure
sale, Mr. Ottolini inquired about the lack of response to his
loan modification request.
The lender said that it would send
22
Mr. Ottolini another application, but Mr. Ottolini did not
receive the application packet until the day of the foreclosure
sale.
Mr. Ottolini sought immediate review of his documents, but
the lender informed him that nothing could be done.
2011 WL
3652501, at *1-2.
In contrast, in the present case, BAC sent Plaintiffs a
solicitation about the HAMP program, and Plaintiffs began the
loan modification process by filling out an on-line form.
After
a one-hour phone interview on January 4, 2010, a BAC employee
named Brian told Plaintiffs that they qualified for the HAMP loan
modification program and that they would receive a permanent loan
modification if they made all of their trial payments on time and
if their supporting documentation corroborated the information
they provided over the phone.
Brian also told Plaintiffs that
they would receive their HAMP contract within forty-five days.
[Complaint at ¶¶ 16-20.]
While Plaintiffs waited through
numerous delays in the receipt of the HAMP contract that BAC
assured them was coming, BAC personnel counseled Plaintiffs on
multiple occasions not to make their mortgage payments because a
delinquent account would prompt BAC to process their loan
modification application faster.
[Id. at ¶¶ 24, 30, 32, 47.]
As
late as June 17, 2010, BAC personnel informed Plaintiffs that
they would be receiving their HAMP loan modification contract
“very soon.”
[Id. at ¶ 52.]
Even after Plaintiffs received the
23
HAMP Denial Letter on July 22, 2010, BAC repeatedly represented
to Plaintiffs that they could still be considered for loan
modification, either through an appeal of the denial of the HAMP
modification, a challenge to the NPV, or a re-application for a
HAMP modification at the end of the forbearance period.
¶¶ 54, 72.]
[Id. at
BAC also told Plaintiffs that it was working on an
in-house modification for them.
[Id. at ¶¶ 57, 60.]
BAC assured
Plaintiffs that, even if they were denied an in-house loan
modification, they would still be eligible for an extension of
their special forbearance agreement and they could still reapply
for a HAMP modification at the end of the forbearance period.
[Id. at ¶ 83.]
For purposes of the instant Motion, this Court must
presume these factual allegations to be true.
Thus, this Court
finds that Plaintiffs have pled sufficient facts to support a
finding that Defendant went beyond its conventional role as a
loan servicer by soliciting Plaintiffs to apply for a loan
modification and by engaging with them for several months in the
manner described supra.
As the district court did in Ansanelli,
this Court FINDS that “Plaintiffs’ allegations constitute
sufficient active participating to create a duty of care to
plaintiffs to support a claim for negligence.”6
6
See 2011 WL
The Court has merely found that Plaintiffs have alleged
sufficient facts which, if proven, would support a finding that
(continued...)
24
1134451, at *7.
Further, the Court finds that Plaintiffs have
sufficiently pled the other elements of their negligence claim
and that Plaintiffs have stated a plausible negligence claim.
Defendant’s Motion is therefore DENIED as to Count I.
II.
UDAP
As to Count II, Plaintiffs’ UDAP claim, Defendant
argues that this claim fails because Defendant did not owe
Plaintiffs a duty and because Plaintiffs failed to plead Count II
with the requisite particularity.
This district court has
recognized that, where a Haw. Rev. Stat. § 480-2 claim7 is based
6
(...continued)
Defendant owed Plaintiffs a duty of care in processing
Plaintiffs’ loan modification application. This finding is not
the equivalent of a finding that Defendant had a duty to modify
Plaintiffs’ loan.
7
Haw. Rev. Stat. § 480-2(a) states: “Unfair methods of
competition and unfair or deceptive acts or practices in the
conduct of any trade or commerce are unlawful.” Haw Rev. Stat.
§ 480-13(a) states, in pertinent part:
any person who is injured in the person’s business
or property by reason of anything forbidden or
declared unlawful by this chapter:
(1) May sue for damages sustained by the
person, and, if the judgment is for the
plaintiff, the plaintiff shall be awarded a
sum not less than $1,000 or threefold damages
by the plaintiff sustained, whichever sum is
the greater, and reasonable attorney’s fees
together with the costs of suit; provided
that indirect purchasers injured by an
illegal overcharge shall recover only
compensatory damages, and reasonable
attorney’s fees together with the costs of
(continued...)
25
upon the non-existent duty of a lender to a borrower, the § 480-2
claim also fails.
See, e.g., Casino v. Bank of Am., Civil No.
10–00728 SOM/BMK, 2011 WL 1704100, at *12-13 (D. Hawai`i May 4,
2011).
This Court, however, has already found that Plaintiffs
pled sufficient facts to state a plausible negligence claim,
including the existence of a duty.
Similarly, this Court DENIES
Defendant’s Motion to the extent that it seeks dismissal of Count
II based on the lack of a duty.
Plaintiffs’ UDAP claim is based upon alleged fraudulent
misrepresentations.
Federal Rule of Civil Procedure 9(b)
requires that “[i]n alleging fraud or mistake, a party must state
with particularity the circumstances constituting fraud or
mistake.”
Rule 9(b) requires that a party make particularized
allegations of the circumstances constituting fraud.
See Sanford
v. MemberWorks, Inc., 625 F.3d 550, 557-58 (9th Cir. 2010).
In their pleadings, Plaintiffs “must allege the time,
place, and content of the fraudulent representation; conclusory
allegations do not suffice.”
Shroyer v. New Cingular Wireless
7
(...continued)
suit in actions not brought under section
480-14(c); and
(2) May bring proceedings to enjoin the
unlawful practices, and if the decree is for
the plaintiff, the plaintiff shall be awarded
reasonable attorney’s fees together with the
costs of suit.
26
Servs., Inc., 622 F.3d 1035, 1042 (9th Cir. 2010) (citation
omitted).
“Malice, intent, knowledge, and other conditions of a
person’s mind may be alleged generally.”
Fed. R. Civ. P. 9(b);
see also Odom v. Microsoft Corp., 486 F.3d 541, 554 (9th Cir.
2007) (en banc) (“[T]he state of mind - or scienter - of the
defendants may be alleged generally.” (citation omitted));
Walling v. Beverly Enters., 476 F.2d 393, 397 (9th Cir. 1973)
(stating that Rule 9(b) “only requires the identification of the
circumstances constituting fraud so that the defendant can
prepare an adequate answer from the allegations” (citations
omitted)).
Fraud claims, “in addition to pleading with
particularity, also must plead plausible allegations.
That is,
the pleadings must state ‘enough fact[s] to raise a reasonable
expectation that discovery will reveal evidence of [the
misconduct alleged].’”
Cafasso ex rel. United States v. Gen.
Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011)
(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 566, 127
S. Ct. 1955, 167 L. Ed. 2d 929 (2007)).
The Hawai`i Supreme Court has stated that there are
“three elements essential to recovery under [Haw. Rev. Stat.]
§ 480-13: (1) a violation of [Haw. Rev. Stat.] chapter 480; (2)
which causes an injury to the plaintiff’s business or property;
and (3) proof of the amount of damages.”
Davis v. Four Seasons
Hotel Ltd., 122 Hawai`i 423, 435, 228 P.3d 303, 315 (2010)
27
(footnote and citations omitted).
In the instant case, Defendant
argues that the Court must dismiss Count II because Plaintiffs
have failed to “identify any violation of UDAP or any actual
damages[.]”
[Mem. in Supp. of Motion at 15.]
This district court has recognized that:
[Haw. Rev. Stat. § 480-2], however, does not
specifically define the terms “unfair” or
“deceptive” acts or practices.
The Hawai`i Intermediate Court of Appeals has
adopted the definition that “a practice is unfair
when it offends established public policy and when
the practice is immoral, unethical, oppressive,
unscrupulous or substantially injurious to
consumers.” Tokuhisa v. Cutter Management Co.,
223 P.3d 246, 259 (Haw. App. 2009) (citation
omitted); Balthazar v. Verizon Haw., Inc., 123
P.3d 194, 202 (Haw. 2005). In addition, the
Supreme Court of Hawai`i has noted that
[i]t is impossible to frame definitions which
embrace all unfair practices. There is no
limit to human inventiveness in this field.
Even if all known practices were specifically
defined and prohibited, it would be at once
necessary to begin over again. If Congress
were to adopt the method of definition, it
would undertake an endless task. It is also
practically impossible to define unfair
practices so that the definition will fit
business of every sort in every part of this
country. Whether competition is unfair or
not generally depends upon the surrounding
circumstances of the particular case. What
is harmful under certain circumstances may be
beneficial under different circumstances.
Haw. Med. Ass’n [v. Haw. Med. Serv. Ass’n, Inc.],
148 P.3d [1179,] 1209 [(2006)] (citation and
internal quotation marks omitted).
The Supreme Court of Hawai`i has “referred to
the meaning of a deceptive practice by citing the
28
definition employed by federal courts with respect
to ‘an act causing, as a natural and probable
result, a person to do that which he or she would
not otherwise do.’” Balthazar, 123 P.3d at 202
(citation and brackets omitted). A deceptive
practice has also been defined as having “the
capacity or tendency to mislead or deceive.”
Tokuhisa, 223 P.3d at 259 (quoting State by
Bronster v. United States Steel Corp., 919 P.2d
294, 312, 313 (Haw. 1996)). The Supreme Court of
Hawai`i also stated that “actual deception need
not be shown; the capacity to deceive is
sufficient.” U.S. Steel Corp., 919 P.2d at 313.
Hawai`i courts have also adopted a three-part
analytical test for “deception” based upon in In
re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984).
Tokuhisa, 223 P.3d at 260. The test states a
deceptive act or practice is:
(1) a representation, omission, or practice
[ ] that (2) is likely to mislead consumers
acting reasonably under the circumstances
[where] (3)[ ] the representation, omission,
or practice is material.
A representation, omission, or practice is
considered “material” if it involves
information that is important to consumers
and, hence, likely to affect their choice of,
or conduct regarding, a product.
Id. (quotations and internal marks and citations
omitted). Moreover, the Tokuhisa court clarified
that the Cliffdale Assocs. test is objective,
turning on whether the act or omission “is likely
to mislead consumers,” as to information
“important to consumers,” in making a decision
regarding the product or service. Id. (internal
marks and quotations omitted). Accordingly, the
application of an objective “reasonable person”
standard, such as in the Cliffdale Assocs. test,
is ordinarily for the trier of fact, rendering
summary judgment “often inappropriate.” Id.
(internal marks and quotations omitted).
Hawai`i courts have indicated that the terms
unfair and deceptive should be interpreted
29
broadly. Specifically, the Supreme Court of
Hawai`i and its appellate courts have stated that
[Haw. Rev. Stat.] § 480-2
outlaws unfair methods of competition and
unfair or deceptive trade practices in
sweeping terms. It was constructed in broad
language in order to constitute a flexible
tool to stop and prevent fraudulent, unfair
or deceptive business practices for the
protection of both consumers and honest
businessmen and businesswomen.
Han v. Yang, 931 P.2d 604, 619 (Haw. App. 1997)
(citations, internal quotation marks, and brackets
omitted).
Stanton v. Bank of Am., N.A., Cv. No. 09-00404 DAE-LEK, 2010 WL
4176375, at *10-11 (D. Hawai`i Oct. 19, 2010) (footnote omitted)
(some alterations in original).
The crux of Plaintiffs’ UDAP claim is that BAC’s
actions establish that it was engaged in a scheme in which it
never intended to modify Plaintiffs’ loan.
Instead, BAC intended
to keep Plaintiffs’ loan “in default and arrears for as long as
possible before ultimately foreclosing to maximize its fees and
the payments it can extract from Plaintiffs.”
¶ 142.]
[Complaint at
This Court finds that Plaintiffs have sufficiently pled
the time, place, and content of the allegedly fraudulent
representations which form the basis of the UDAP claim.
Further,
the Court finds that Plaintiffs’ allegations of Defendant’s
scheme to artificially extend the loan modification process to
maximize fees and payments prior to an inevitable foreclosure
sufficiently allege an unfair or deceptive act or practice.
30
As to Plaintiffs’ damages, the Complaint alleges that:
BAC’s “false representations that Plaintiffs would only qualify
for loan modification if they remained delinquent on their
mortgage payments has caused Plaintiffs significant damage to
their credit scores”; and, but for BAC’s misrepresentations,
“Plaintiffs would have sought alternate foreclosure avoidance
relief, such as a short sale or deed in lieu.”
53.]
[Id. at ¶¶ 152-
This Court FINDS that Plaintiffs’ allegations are plausible
and are sufficient to satisfy the pleading requirement to allege
the damages suffered as a result of the alleged UDAP violation.
This Court therefore FINDS that Plaintiffs have alleged
a plausible UDAP claim, and the Court DENIES Defendant’s Motion
as to Count II.
III. Request to Enjoin Foreclosure
Plaintiffs seek an order enjoining BONY from
foreclosing on the Property.
[Id. at ¶ 157.]
Insofar as BONY is
not a party to this action, Plaintiffs cannot obtain an
injunction against BONY.
The Court therefore GRANTS Defendant’s
Motion to the extent that the Court DISMISSES Plaintiffs’ request
for an order enjoining BONY from foreclosing on the Property.
The dismissal is WITHOUT PREJUDICE.
CONCLUSION
On the basis of the foregoing, Defendant’s Motion to
Dismiss Complaint Filed on January 5, 2012, filed February 15,
31
2012, is HEREBY GRANTED IN PART AND DENIED IN PART.
The Motion
is GRANTED insofar as Plaintiffs’ request for an order enjoining
BONY from foreclosing upon the Property is DISMISSED WITHOUT
PREJUDICE.
The Motion is DENIED in all other respects.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, April 26, 2012.
/S/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
LAWRENCE CRILLEY, ET AL. V. BANK OF AMERICA, N.A., ET AL; CIVIL
NO. 12-00081 LEK-BMK; ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANT’S MOTION TO DISMISS COMPLAINT FILED ON JANUARY 5, 2012
32
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