Demurrer (Judge Theodore C. Zayner)


Case Name: ?? Robbins v. Wells Fargo Bank, N.A., et al.

Case No.:??????? 16-CV-293262

Demurrer by Defendant Wells Fargo Bank, N.A. to the Complaint of Plaintiff Telly Robbins

In this wrongful foreclosure action, Plaintiff asserts causes of action against Defendant for: (1)?violation of Civil Code sections 2923.4, 2923.55, 2923.6, and 2924 et seq. of the Homeowners? Bill of Rights (?HBOR?); (2)?violation of the Unfair Competition Law (Bus. & Prof. Code, ??17200 et seq.) (?the UCL?); (3)?breach of the covenant of good faith and fair dealing; and (4)?negligence.? To support his claims, Plaintiff alleges the following:

Plaintiff purchased the subject property (?the Property?) in 2002.? (Compl., ??16.)? On or about May?30,?2007, he borrowed $430,000 from World Savings Bank, FSB (?WSB?) pursuant to a Note secured by a deed of trust (?DOT?) on the Property.? (Id., ??17.)? Defendant acquired Plaintiff?s loan in 2008.? (Id., ???18-19.)? In or about 2012, Plaintiff began experiencing financial difficulties and, as a result, he found it difficult to make his mortgage payments.? (Id., ? 20.)? Plaintiff contacted Defendant for assistance.? (Id., ??21.)? For several months, Defendant prolonged the loan modification application process by waiting one or two months after Plaintiff submitted documents before requesting updated documentation and misled Plaintiff as to the status of his application.? (Id., ???3-4 & 22-23.)? Defendant?s delay tactics allowed it to foreclose without providing Plaintiff with the opportunity to avoid foreclosure and placed Plaintiff further in arrears.? (Id., ???41, 52, & 68.)? Also, during the review of Plaintiff?s application, Defendant dual-tracked by recording the notice of default (?NOD?), the notice of trustee?s sale in October?2013 (?NOTS1?), and the notice of trustee?s sale in May?2015 (?NOTS2?).? (Id., ???2, 5, 24, & 30.)? The NOD contains a declaration that is robo-signed, meaning it is a boilerplate form with checkboxes.? (Id., ? 34.)? Ultimately, Defendant breached the Note and DOT?s implied covenant of good faith and fair dealing and ?set Plaintiff up for default? by offering a modification that required a lump-sum payment, and failing to complete the review unless he made the payment.? (Id., ???4 & 49-59.)

Defendant demurs to each cause of action for failure to state a claim and makes a request for judicial notice in support thereof.? (See Code Civ. Proc. [?CCP?], ??430.10, subd.?(e).)

Discussion

  1. Judicial Notice

Although Defendant?s Memorandum of Points and Authorities refers to ?Facts Subject to Judicial Notice? and to exhibits to a ?RJN? (presumably, Request for Judicial Notice) (Defendant?s P&A, at pp.?1:9-2:28, 3:19-4:10, 4:17-23, 8:4-5, 9:3-5, 9:18-10:3, 14:10-12, & 15:13-15, citing Defendant?s RJN, Exs.?A-N; see also Defendant?s Notice, at pp.?1:19-20 & 2:4; see also Evid. Code, ??452, subds.?(a)-(d) & (h); see also Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301 [stating that judicial notice is limited to relevant matters]), no such Request for Judicial Notice has been filed as required by California Rules of Court, rules 3.1113(l) and 3.1306(c).? A trial court is only required to take judicial notice of any matter specified in Evidence Code section?452 if a party requests it and furnishes the court with sufficient information to enable it to take judicial notice of the matter.? (Evid. Code, ? 453.)? If the party does not provide sufficient information, then ?the trial judge is entitled to refuse to take judicial notice of the matter requested.?? (People v. Maxwell (1978) 78 Cal.App.3d 124, 130-131; see also Whispering Pines Mobile Home Park, Ltd. v. City of Scotts Valley (1986) 180 Cal.App.3d 152, 162.)? Here, the information provided by Defendant is insufficient for the court to take judicial notice of the documents at issue.

  1. Demurrer

On demurrer, courts admit all material facts properly pleaded and facts subject to judicial notice, but not contentions, deductions, or conclusions of fact or law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)? Courts do not consider ?facts which have not been alleged in the complaint unless they may be reasonably inferred from the matters which have been pled or are proper subjects of judicial notice.? (Hall v. Great Western Bank (1991) 231 Cal.App.3d 713, 719, fn.7.)

Defendant argues that Plaintiff?s claims are preempted by the federal Home Owner?s Loan Act of 1933 (?HOLA?) and Plaintiff has not otherwise pleaded sufficient facts to support his causes of action.? These arguments are discussed separately below.

  1. HOLA

Defendant argues that HOLA preemption applies because facts subject to judicial notice show that the originating lender, WSB, was a federal savings institution governed by HOLA, the Note and the DOT show that the parties agreed to be bound by federal law, and Defendant acquired Plaintiff?s loan.? Since Defendant?s request for judicial notice has been denied and such facts are not otherwise alleged in or reasonably inferred from the complaint, they cannot be considered on demurrer.? (See Blank v. Kirwan, supra, 39 Cal.3d, at p.?318; see also Hall v. Great Western Bank, supra, 231 Cal.App.3d, at p.?719, fn.7.)

In any event, Plaintiff?s claims are based on Defendant?s allegedly wrongful post-acquisition conduct.? (See, e.g., Compl., ???17-25.)? Defendant?s reliance on federal opinion letters and district court decisions is misplaced because they say nothing about claims based on the post-merger or post-acquisition conduct of a national bank that acquires a loan originated by a federal savings institution.? (Office of Thrift Supervision (Aug.?13, 1985) 1985 WL 667310; Preemption of New Jersey Predatory Lending Act (July?22,?2003) 2003 WL 24040104; e.g., Marquez v. Wells Fargo Bank, N.A. (N.D. Cal., Sept. 13, 2013, No. C 13-2819 PJH) 2013 WL 5141689; e.g., Babb v. Wachovia Mortg., FSB (C.D. Cal., July 26, 2013, No. SA CV 12-02038 BRO) 2013 WL 3985001.)? District courts have rejected those authorities and followed ?a growing trend of federal cases? holding that HOLA preemption does not apply to claims based on post-acquisition/merger conduct.? (Pimentel v. Wells Fargo, N.A. (N.D. Cal., May 7, 2015, No. 14-CV-05004-EDL) 2015 WL 2184305, at pp. *3-5; Hixson v. Wells Fargo Bank N.A. (N.D.Cal. Aug. 6, 2014) 2014 WL 3870004, at pp. *3-4; Penermon v. Wells Fargo Bank, N.A. (N.D. Cal. 2014) 47 F.Supp.3d 982, 993-996.)? As one court explained, Defendant is a national bank, HOLA does not apply to national banks, and Defendant?s acquisition of a loan from WSB does not demonstrate that HOLA preemption applies to claims based on Defendant?s post-acquisition misconduct.? (E.g., Penermon v. Wells Fargo Bank, N.A., supra, 47 F.Supp.3d, at pp.?993-994.)? The reasoning of the growing trend of federal decisions is persuasive.

Defendant further argues that Plaintiff?s causes of action are within the scope of HOLA preemption.? HOLA preemption only applies to certain types of state law claims.? (12?C.F.R. ??560.2, subd.?(b).)? Contract law, real property law, and tort law are types of state laws that are not preempted by HOLA ?to the extent that they only incidentally affect the lending operations of Federal savings associations or are otherwise consistent with? HOLA?s purpose.? (Id., subd.?(c)(1)-(2) & (4).)? Thus, HOLA does not preempt state law claims based on irregularities in the foreclosure process.? (Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 214.)? Plaintiff?s claims are all based on alleged irregularities in the non-judicial foreclosure procedure.? (Compl., ???16-69.)? Accordingly, Plaintiff?s claims are not of the type preempted by HOLA.

In sum, Defendant?s contention that Plaintiff?s claims are preempted by HOLA is not well-taken.

  1. Sufficiency of the Facts Alleged to Support Each Cause of Action
  2. First Cause of Action for Violations of Civil Code Sections 2923.4, 2923.55, 2923.6, and 2924 et seq. of the HBOR

Plaintiff alleges that Defendant violated Civil Code sections 2923.4, 2923.55, 2923.6, and 2924 et seq. in various ways.? To the extent Plaintiff alleges that the HBOR required Defendant to engage in ?substantial contact? with him (Compl., ??2), nothing in the HBOR imposes such a requirement. ?Plaintiff further alleges that Defendant violated the HBOR by prolonging the application process, requesting duplicative documents, misleading Plaintiff by indicating that his application was under review, and failing to review his application in good faith.? (Id., ???3-4, 22-23, & 31-32.)? These allegations cannot support a viable cause of action because the HBOR does not prohibit such conduct.? Furthermore, to the extent Plaintiff asserts that Defendant somehow violated Civil Code section 2923.4 (id., ???1-3, 5, 27-28, 33, & 35), he cannot state a cause of action based on that provision because it merely states the purpose of the HBOR and does not impose any obligation.? Thus, Plaintiff cannot state a claim for violation of the HBOR based on these allegations.

In addition, Plaintiff alleges that Defendant has not shown proper compliance with Civil Code section 2923.55 because the declaration accompanying the NOD is ?robo-signed,? meaning it is a boilerplate form with checkboxes.? (Compl., ? 34.)? Civil Code section 2923.55 merely requires the servicer of the loan to attempt to make contact with the borrower to explore available alternatives to foreclosure.? Another provision, Civil Code section 2923.5, requires the notice of default to include ?a declaration that the mortgage servicer has contacted the borrower, has tried with due diligence to contact the borrower as required by this section, or that no contact was required?.?.?.?.?? (Civ. Code, ? 2923.5, subd.?(b).)? This only requires the declaration to ?track the language of the statute itself? and does not prohibit the use of a boilerplate form with checkboxes that follows the language of the statute.? (See Mabry v. Superior Court, supra, 185 Cal.App.4th, at pp.?214, 216, & 235.)? Plaintiff therefore cannot state a claim for violation of the HBOR based on the allegation that the declaration accompanying the NOD is a boilerplate form with checkboxes.

Plaintiff also alleges that Defendant violated the HBOR by failing to initiate contact with him.? (Compl., ???2-3 & 5.)? HBOR requires a mortgage servicer to attempt to initiate contact with a borrower to explore available alternatives to foreclosure before the foreclosing entities record a notice of default.? (Civ. Code, ??2923.55, subds.?(a)-(b).)? A borrower may state a cause of action based on a material violation of this requirement.? (Civ. Code, ??2924.12, subds.?(a)-(b).)? Plaintiff alleges that he initiated contact with Defendant, and Defendant subsequently engaged in a loan modification application process with him before it recorded the NOD.? (Compl., ?? 2-3, 5, & 21-24.)? These allegations show that Defendant?s failure to initiate contact was not a material violation because it did not affect Plaintiff?s ability to explore available options to avoid foreclosure.? Thus, Plaintiff has not alleged sufficient facts to support a cause of action based on Defendant?s alleged failure to initiate contact with him.

Next, Plaintiff alleges that Defendant dual-tracked in violation of Civil Code section?2923.6 by recording the NOD, NOTS1, and NOTS2 while the loan modification application was under review.? (Compl., ?? 2, 24, 29-30, & 33.)? Defendant?s argument that Plaintiff had already entered into a loan modification agreement is not well-taken because it relies on facts that are not alleged in the complaint or subject to judicial notice.? (See Blank v. Kirwan, supra, 39 Cal.3d, at p.?318; see also Hall v. Great Western Bank, supra, 231 Cal.App.3d, at p.?719, fn.7.)? Defendant further asserts that Plaintiff has not sufficiently alleged facts to support a claim for violation of the HBOR because he does not seek injunctive relief and has not pleaded facts to support a claim for monetary damages.? If the trustee?s deed upon sale has not been recorded, then a borrower may seek injunctive relief to postpone the sale for a material violation of Civil Code section 2923.6.? (Civ. Code, ??2924.12, subd.?(a).)? If the trustee?s deed upon sale has been recorded, then a borrower may seek monetary damages for actual economic damages caused by a material violation of that provision.? (Id., subd.?(b).) Plaintiff expressly states that he only seeks monetary damages, not injunctive relief.? (Compl., ??36.)? Plaintiff has not alleged that the trustee?s deed upon sale has been recorded, or that he suffered actual economic injury as a result of the alleged dual-tracking in violation of Civil Code section 2923.6.? Thus, he has not sufficiently stated a claim for dual-tracking in violation of the HBOR.? Accordingly, Plaintiff has not alleged sufficient facts to state a claim for violation of Civil Code sections 2923.4, 2923.55, 2923.6, and 2924 et seq.

The remaining issue is whether to grant leave to amend.? Although Plaintiff requests leave to amend, he has not met his burden to demonstrate in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading. ?(See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) ?Nevertheless, ?[i]f the plaintiff has not had an opportunity to amend the complaint in response to the demurrer, leave to amend is liberally allowed as a matter of fairness, unless the complaint shows on its face that it is incapable of amendment.?? (City of Stockton v. Super. Ct. (2007) 42 Cal.4th 730, 747.)? Since Plaintiff has not previously had an opportunity to amend the complaint in response to a demurrer and the face of the complaint does not show that it is incapable of amendment, leave to amend will be granted in this instance.? Defendant?s demurrer to the first cause of action for failure to state a claim is SUSTAINED WITH 10 DAYS? LEAVE TO AMEND.

  1. Second Cause of Action for Violation of the UCL

The claim for violation of the UCL is based on the same alleged acts or omissions set forth in support of the first cause of action, and the allegation that Defendant engaged in a practice of defrauding consumers in order to assess unwarranted late fees.? (Compl., ???37-47.)? Defendant argues that Plaintiff has not sufficiently pleaded facts to show that he has standing to assert a claim for violation of the UCL.? A cause of action for violation of the UCL may only be brought ?by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.?? (Bus. & Prof. Code, ? 17204; see also Kwikset Corp. v. Super. Ct. (2011) 51 Cal.4th 310, 323 [discussing standing].)? Defendant contends that Plaintiff has not sufficiently pleaded that its conduct caused him to lose property.? Defendant?s argument lacks merit because it is based on facts not set forth in the complaint or subject to judicial notice.? (See Blank v. Kirwan, supra, 39 Cal.3d, at p.?318; see also Hall v. Great Western Bank, supra, 231 Cal.App.3d, at p.?719, fn.7.)? In any event, a plaintiff has standing under the UCL if he or she lost either money or property.? (See Bus. & Prof. Code, ??17204.)? Plaintiff alleges that, as a result of Defendant?s acts or omissions, he made interest payments and paid fees to Defendant.? (Compl., ??45.)? Such allegations are sufficient to show that Plaintiff lost money as a result of Defendant?s alleged violation of the UCL. Therefore, Plaintiff has sufficiently pleaded standing.? Defendant does not otherwise take issue with the sufficiency of the UCL claim.? Accordingly, Defendant?s demurrer to the second cause of action for failure to state a claim is OVERRULED.

  1. Third Cause of Action for Breach of the Implied Covenant of Good Faith & Fair Dealing

The claim for breach of the implied covenant of good faith and fair dealing is based on covenants allegedly implied in the Note and the DOT.? (Compl., ???48-60.)? The implied covenant of good faith is read into contracts in order to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract?s purpose.? (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031.)? Defendant relies on matters subject to its request for judicial notice to support its assertion that the alleged implied covenants are contrary to the express terms of the Note, the DOT, and a subsequent permanent loan modification agreement.? Since Defendant?s request for judicial notice has been denied and the facts at issue are not alleged in the complaint, the facts asserted by Defendant cannot be considered on demurrer.? (See Blank v. Kirwan, supra, 39 Cal.3d, at p.?318; see also Hall v. Great Western Bank, supra, 231 Cal.App.3d, at p.?719, fn.7.)? Defendant?s argument therefore lacks merit.? Defendant does not otherwise take issue with Plaintiff?s claim for breach of the implied covenant of good faith and fair dealing.? Thus, Defendant?s demurrer to the third cause of action for failure to state a claim is OVERRULED.

  1. Fourth Cause of Action for Negligence

The negligence claim is based on Defendant?s allegedly negligent acts or omissions in the review of Plaintiff?s application for a loan modification.? (Compl., ?? 61-69.)? To state a cause of action for negligence, a plaintiff must allege (1) the defendant owed the plaintiff a duty of care, (2) the defendant breached that duty, and (3) the breach proximately caused the plaintiff’s damages or injuries. (Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, 944 [?Alvarez?].)? Defendant takes issue with the elements of legal duty and resulting damages.

With respect to the element of duty, there is no express duty on a lender?s part to grant a modification under state or federal loan modification statutes.? (Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 67.)? Whether a servicer owes a duty of care to a borrower depends on an analysis of the six factors outlined in Biakanja v. Irving (1958) 49 Cal.2d 647, 650. (Jolly v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 899.)? The general rule is that bank advice directly related to loan modification does not support the existence of a duty. ?(Ragland v. U.S. Bank National Assn. (2012) 209 Cal.App.4th 182, 207; Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1095-1096.) ?However, in Alvarez, the court determined that, under the six-factor test, a lender or servicer owed a borrower a duty to exercise reasonable care in the review of their loan modification applications once it agreed to consider them. ?(Alvarez, supra, at p.?944.)? Similarly, in this case, Plaintiff alleges that Defendant agreed to consider his application for a loan modification. ?(E.g., Compl., ??68.)? For purposes of demurrer, Plaintiff has alleged sufficient facts to support the existence of a duty in the review of his loan modification application.

As for causation and damages, a plaintiff must allege facts showing damages proximately caused by the alleged negligence.? (See Ladd v. County of San Mateo (1996) 12 Cal.4th 913, 917.)? Plaintiff incorporates his prior allegations by reference in support of his negligence claim.? (Compl., ??61.)? Plaintiff?s UCL claim is based on the same alleged acts and omissions as his cause of action for negligence.? (Id., ???41 & 68.)? As stated above in connection with the UCL claim, Plaintiff alleges that, as a result of Defendant?s misconduct, he incurred fees and made interest payments.? (Id., ??45.)? Thus, Plaintiff has sufficiently alleged facts to show damages proximately caused by Defendant?s negligent acts or omissions.

Therefore, Defendant?s demurrer to the fourth cause of action for failure to state a claim is OVERRULED.