Opinion
NO. CIV. 2:13-1991 WBS CKD
01-22-2014
JASON DESCHAINE, Plaintiff, v. INDYMAC MORTGAGE SERVICES, A DIVISION OF ONEWEST BANK, FSB; FEDERAL HOME LOAN MORTGAGE CORPORATION; and DOES 1 through 50, inclusive, Defendants.
MEMORANDUM AND ORDER RE: MOTION
TO DISMISS SECOND AMENDED
COMPLAINT
Plaintiff Jason Deschaine brought this action against defendants IndyMac Mortgage Services, a division of OneWest Bank, FSB ("IndyMac") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") arising out of the foreclosure of his home. Defendants now move to dismiss plaintiff's Second Amended Complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).
I. Factual & Procedural History
In 2005, plaintiff entered into a mortgage loan for $310,000, which was secured by a Deed of Trust to his home in Rough and Ready, California. (Defs.' Req. for Judicial Notice ("RJN") Ex. A (Docket No. 36).) On January 26, 2009, Trustee Corps, a foreclosure trustee, recorded a Notice of Default ("NOD") against plaintiff's home stating that plaintiff was $17,901.804 in arrears on his mortgage payments. (Id. Ex. B.) Later that year, plaintiff contacted IndyMac, the servicer of plaintiff's mortgage loan, and sought a loan modification. (Second Amended Complaint ("SAC") ¶ 15 (Docket No. 34).) Plaintiff applied for a HAMP loan modification in September 2009 and entered into a trial loan modification plan ("TPP") in February 2010. (Id. ¶¶ 16-18.)
Plaintiff began making payments under the TPP until IndyMac notified him in July 2010 that he was ineligible for a permanent HAMP loan modification because his mortgage payments were less than thirty-one percent of his monthly income. (Id. ¶¶ 19-20.) IndyMac invited plaintiff to apply for a Freddie Mac Backup Modification, under which plaintiff could continue to make payments on the mortgage. (Id. ¶ 20 & Ex. B.) Plaintiff attempted to make payments under the backup modification for approximately a year and a half, but fell behind on his payments again. (Id. ¶ 23.) On June 15, 2012, Trustee Corps recorded another NOD, which reflected an arrearage of $11,990.13. (RJN Ex. D.)
The Home Affordable Modification Program ("HAMP") is a program initiated by the Treasury Department in 2009 designed "to incentivize banks to refinance mortgages of distressed homeowners so they could stay in their homes." Corvello v. Wells Fargo Bank, N.A., 728 F.3d 878, 880 (9th Cir. 2013).
Between April 2012 and June 2013, plaintiff attempted to obtain an additional loan modification from IndyMac. (SAC ¶ 24.) On several occasions, IndyMac responded either that plaintiff's application was incomplete or that he was ineligible for a loan modification. (Id. ¶¶ 25-30.) IndyMac then scheduled a foreclosure sale on February 26, 2013. (See id. ¶ 31.) On February 25, 2013, a day before the foreclosure sale, plaintiff filed for bankruptcy. (Id.) Plaintiff obtained a discharge in bankruptcy on June 3, 2013. (RJN Ex. F.)
At some point between February 26, 2013, and March 20, 2013, IndyMac allegedly informed plaintiff that he could re-apply for a loan modification. (SAC ¶ 32.) Plaintiff submitted that application to IndyMac on March 20, 2013, as well as an updated application on April 4, 2013. (Id. ¶¶ 32, 33.) Between April and June 2013, plaintiff alleges that he "remained in constant contact" with IndyMac and continued to send updated financial documents when IndyMac requested him to do so. (Id. ¶ 34.)
On June 11, 2013, an IndyMac employee named "Alex W19" allegedly informed plaintiff that there was no foreclosure sale scheduled, but that IndyMac required additional documentation in order to process his application. (Id. ¶ 35.) Plaintiff then alleges that on June 24, 2013, an IndyMac employee named "Albert 938" informed plaintiff that his home would be sold at a foreclosure sale the next day. (Id. ¶¶ 36-37.) On June 25, 2013, Freddie Mac purchased plaintiff's home at a trustee's sale. (Id. ¶ 38.)
Plaintiff filed this action in Nevada County Superior Court on August 8, 2013. (Docket No. 1.) Defendants removed the action to this court pursuant to 12 U.S.C. § 1452(f), which entitles Freddie Mac to remove to federal court any action to which it is a party. (Id.) On October 21, 2013, plaintiff filed a First Amended Complaint, which alleged twelve claims: (1) intentional misrepresentation; (2) negligent misrepresentation; (3) breach of contract; (4) promissory estoppel; (5) negligence; (6) violation of the Unfair Competition Law ("UCL"), Cal. Bus. & Profs. Code § 17200 et seq.; (7) equitable accounting; (8) "dual tracking" of plaintiff's loan modification application in violation of California Civil Code section 2923.6(c); (9) failure to issue plaintiff an opportunity to appeal the denial of a loan modification in violation of California Civil Code section 2923.6(d); (10) failure to appoint a single point of contact in violation of California Civil Code section 2923.7; (11) violation of California Civil Code section 2924; and (12) wrongful foreclosure. (Docket No. 22.)
In addition to Freddie Mac and IndyMac, plaintiff named Trustee Corps as a defendant in this action. Plaintiff subsequently stipulated to dismiss Trustee Corps from this action with prejudice. (Docket No. 46.)
Plaintiff refers to this claim as an "equitable action to set aside sale," which is equivalent to a wrongful foreclosure claim. See, e.g., Castaneda v. Saxon Mortg. Servs, Inc., 687 F. Supp. 2d 1191, 1201 (E.D. Cal. 2009) (Shubb, J.) ("Wrongful foreclosure is an action in equity, where a plaintiff seeks to set aside a foreclosure sale."). In the interest of brevity, the court will refer to this claim as "wrongful foreclosure."
On November 15, 2013, the court granted defendants' motion to dismiss plaintiff's First Amended Complaint, and granted plaintiff leave to file an amended complaint within twenty days "if he can do so consistent with this Order." (Docket No. 33.) Plaintiff timely filed the SAC, which did not assert a claim for equitable accounting but did re-assert each of the eleven other claims that plaintiff had brought in the First Amended Complaint. Defendants now move to dismiss the SAC pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. (Docket No. 35.)
II. Request for Judicial Notice
In general, a court may not consider items outside the pleadings when deciding a motion to dismiss, but it may consider items of which it can take judicial notice. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994). A court may take judicial notice of facts "not subject to reasonable dispute" because they are either "(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201. Judicial notice may properly be taken of matters of public record outside the pleadings. See MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986).
Defendants request that the court judicially notice several recorded documents pertaining to plaintiff's property, including the Deed of Trust, (RJN Ex. A), and three Notices of Default, (id. Exs. B-D). The court will take judicial notice of these documents, since they are matters of public record whose accuracy cannot be questioned. See Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001). The court will also take judicial notice of plaintiff's bankruptcy court filings, (see RJN Exs. E-F), as they are likewise matters of public record whose accuracy cannot be questioned. See Rosal v. First Fed. Bank of Cal., 671 F. Supp. 2d 1111, 1121 (N.D. Cal. 2009) (taking judicial notice of bankruptcy filings).
III. Discussion
On a motion to dismiss, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972). To survive a motion to dismiss, a plaintiff needs to plead "only enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This "plausibility standard," however, "asks for more than a sheer possibility that a defendant has acted unlawfully," and where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 556-57).
A. Negligent & Intentional Misrepresentation
To state a claim for intentional misrepresentation, a plaintiff must allege: (1) a misrepresentation; (2) knowledge of falsity; (3) intent to defraud; (4) justifiable reliance on the misrepresentation; and (5) resulting damage. Engalia v. Permanente Med. Grp., Inc., 15 Cal. 4th 951, 974 (1997); Kearns v. Ford Motor Co., 567 F.3d 1120, 1126 (9th Cir. 2009). To state a claim for negligent misrepresentation, a plaintiff must allege: (1) a misrepresentation of a past or existing material fact; (2) without reasonable ground for believing it to be true; (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damage. Apollo Capital Fund, LLC v. Roth Capital Partners, LLC, 158 Cal. App. 4th 226, 243 (2d Dist. 2007); Glenn K. Jackson, Inc. v. Roe, 273 F.3d 1192, 1200 (9th Cir. 2000).
Plaintiff alleges, as he did in the First Amended Complaint, that IndyMac falsely represented that plaintiff's application for a loan modification was incomplete, (SAC ¶ 71), that plaintiff was ineligible for a successive HAMP modification, (id. ¶ 78), and that there was no foreclosure sale scheduled, (id. ¶ 85). Plaintiff alleges that, as a result of these misrepresentations, he "continued [his] attempts to obtain a loan modification" from IndyMac in lieu of pursuing other options to avert foreclosure. (Id. ¶¶ 76, 83, 90.)
Even if plaintiff could satisfy the first three elements of each claim, he has not sufficiently alleged that he acted in reliance on IndyMac's alleged misrepresentation. Plaintiff has alleged no facts demonstrating that he changed his position in reliance on IndyMac's alleged misrepresentations; on the contrary, plaintiff repeatedly alleges that he "continued [his] attempts to obtain a loan modification," which he had initiated prior to any alleged misrepresentations. (SAC ¶¶ 76, 83, 90 (emphasis added).) Because the alleged misrepresentations took place during the course of ongoing efforts to obtain a loan modification, and because plaintiff's allegations indicate that he continued to seek a modification both before and after IndyMac made these alleged misrepresentations, plaintiff's allegations do not show that he changed his position in reliance on these misrepresentations. See, e.g., Rossberg v. Bank of Am., N.A., 219 Cal. App. 4th 1481, 1500 (4th Dist. 2013) (holding that plaintiff's continued efforts to seek a loan modification from Bank of America in lieu of obtaining alternative financing based on alleged representations that plaintiff would receive a modification did not constitute reliance).
Plaintiff alleges that had IndyMac had not made these misrepresentations, he would have "explore[d] other options" to postpone the foreclosure sale, including a short sale of the property, filing for bankruptcy, and borrowing money to cure the default. (SAC ¶¶ 76, 83, 90.) Although these allegations are more specific than those in the First Amended Complaint, they are nonetheless insufficient to survive dismissal because plaintiff has not "allege[d] any facts suggesting how pursuing these hypothetical avenues would have prevented the foreclosure of [his] home." Dick v. Am. Home. Mortg. Serv. Co., Civ. No. 2:13-201 WBS CKD, 2014 WL 172537, at *4 (E.D. Cal. Jan. 15, 2014); see also, e.g., Newgent v. Wells Fargo Bank, N.A., Civ. No. 9-1525 WQH, 2010 WL 761236, at *5 (S.D. Cal. Mar. 2, 2010) (dismissing fraud claim because plaintiff did "not allege facts that support a cognizable theory upon which she could have prevented the trustee's sale").
For instance, in Sholiay v. Federal National Mortgage Association, the plaintiff claimed that, but for defendant's representation that he would receive a loan modification, he would have retained an attorney to prevent the foreclosure of his home. Civ. No. 2:13-958 WBS, 2013 WL 3773896, at *6 (E.D. Cal. July 17, 2013). This court nonetheless dismissed the claim because the plaintiff "fail[ed] to allege facts suggesting how hiring a lawyer could have prevented the sale." Id.
Like the plaintiff in Sholiay, plaintiff has failed to allege any facts demonstrating that he would have been able to avert the sale of his home through a short sale, a loan, bankruptcy, or any other method. Plaintiff's allegation that IndyMac's promise of a loan modification deterred him from declaring bankruptcy is particularly implausible, as plaintiff allegedly continued to seek a loan modification even after he filed his bankruptcy petition. (See SAC ¶¶ 31-35.) Plaintiff has therefore not alleged sufficient facts to show that he relied on IndyMac's alleged representations about his application for a loan modification.
"Even assuming justifiable reliance . . . no liability attaches if the damages sustained were otherwise inevitable or due to unrelated causes." Gardner v. RSM & A Foreclosure Servs., LLC, Civ. No. 2:12-2666 JAM AC, 2013 WL 3242211, at *4 (E.D. Cal. June 25, 2013) (quoting Kruse v. Bank of Am., 202 Cal. App. 3d 38, 60-61 (1st Dist. 1988) (internal quotation marks omitted)). Like his allegations in the First Amended Complaint, plaintiff's allegations here do not show that any damages he suffered were a result of IndyMac's conduct, rather than his own failure to make his mortgage payments. Trustee Corps recorded multiple notices of default against plaintiff's home prior to any alleged misrepresentations, and each of these notices states an arrearage of over $10,000. (See RJN Exs. B-D.) Because plaintiff repeatedly defaulted prior to any alleged misrepresentations, his allegation that those misrepresentations resulted in the foreclosure of his home is implausible. See Manzano v. Metlife Bank, N.A., Civ. No. 2:11-651 WBS DAD, 2011 WL 2080249, at *5 (E.D. Cal. May 25, 2011) (dismissing fraud and negligent misrepresentation claims when "plaintiff stopped making payments under the loan before these alleged misrepresentations were made").
While plaintiff has amended his complaint to allege that "[t]he above damages were not inevitable" and that his home would not have been foreclosed upon "had the representations not been false," (SAC ¶¶ 77, 84, 91), this allegation is also implausible because plaintiff has not alleged any facts to suggest that he could have avoided default. "Without some factual basis suggesting that [plaintiff] could have cured the default . . . the [c]ourt cannot reasonably infer that [IndyMac's] alleged misrepresentations resulted in the loss of [plaintiff's] home. Rather, the facts alleged suggest that [plaintiff] lost [his] home because [he] became unable to keep up with monthly payments and lacked the financial resources to cure the default." DeLeon v. Wells Fargo Bank, N.A., Civ. No. 1010390 LHK, 2011 WL 311376, at *7 (N.D. Cal. Jan. 28, 2011). Accordingly, because plaintiff has not alleged sufficient facts to demonstrate reliance or resulting damage, the court must grant defendants' motion to dismiss his intentional and negligent misrepresentation claims.
B. Promissory Estoppel
"The elements of a promissory estoppel claim are: (1) a promise that is clear and unambiguous in its terms; (2) reliance on the promise by the party to whom the promise is made; (3) that is reasonable and foreseeable; and (4) injury to the party asserting estoppel due to his or her reliance." Alimena v. Vericrest Fin., Inc., --- F. Supp. 2d ----, Civ. No. 2:12-901 LKK JFM, 2013 WL 4049663, at *12 (E.D. Cal. Aug. 29, 2013) (citing Laks v. Coast Fed. Sav. & Loan Ass'n, 60 Cal. App. 3d 885, 890-91 (2d Dist. 1976)).
Plaintiff again alleges that IndyMac "promised [p]laintiff a HAMP loan modification in or about 2010 and further promised not to foreclose on [p]laintiff while he was being reviewed for a loan modification." (SAC ¶ 106.) As explained above, even if IndyMac had made these promises, plaintiff has not sufficiently alleged that he suffered any injury in reliance on those promises. Accordingly, the court must grant defendants' motion to dismiss plaintiff's promissory estoppel claim.
C. Breach of Contract
"[T]he elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff." Oasis W. Realty, Inc. v. Goldman, 51 Cal. 4th 811, 821 (2011).
Plaintiff alleges that IndyMac promised to extend him a permanent loan modification and that it breached this promise by providing him with a "backup modification" with terms that were inconsistent with HAMP guidelines. (SAC ¶ 101). Plaintiff concedes, as he did in the First Amended Complaint, that he did not make all the payments that were required under the loan modification agreement. (Id. ¶ 102.) Because plaintiff has not performed his obligation under any alleged contract, he cannot bring a breach of contract claim unless his failure to perform is excused. See Goldman, 51 Cal. 4th at 821.
Plaintiff re-asserts that his failure to make payments was excused because he could no longer afford to make the payments, which were "based on inaccurate income and outside of HAMP guidelines." (Id.) As the court emphasized in its previous Order, this allegation is insufficient because "mere unforeseen difficulty or performance . . . ordinarily will not excuse performance." 1 Witkin, Summary of California Law (Contracts) § 830 (10th ed. 2005); accord Metzler v. Thye, 163 Cal. 95, 98 (1912). Rather, plaintiff must allege that performance under the terms of the Backup Modification was "objectively impossible" for any person. Rosales v. Downey Sav. & Loan Ass'n, Civ. No. 9-39 WQH AJB, 2009 WL 514229, at *8 (S.D. Cal. Mar. 2, 2009) (citation omitted). Because plaintiff has not done so, he cannot allege that his performance was excused. See, e.g., id.; Archiunda v. Chase Home Fin. LLC, Civ. No. 9-960 H AJB, 2009 WL 1796295, at *5 (S.D. Cal. June 23, 2009) (holding that the plaintiff's performance was not excused even though he alleged that "based upon the actual income information provided . . . Plaintiff could never perform according to the terms of the loan").
Insofar as it is not "impossible for anyone to perform" under the terms of the Backup Modification, id., plaintiff's alleged inability to make payments does not excuse his performance. Accordingly, the court must grant defendants' motion to dismiss plaintiff's breach of contract claim.
D. Negligence
"To prove a cause of action for negligence, plaintiff must show (1) a legal duty to use reasonable care, (2) breach of that duty, (3) proximate [or legal] cause between the breach and (4) the [plaintiff's] injury." Castaneda, 687 F. Supp. 2d at 1197 (citing Mendoza v. City of Los Angeles, 66 Cal. App. 4th 1333, 1339 (2d Dist. 1998)) (internal quotation marks omitted). "The existence of a legal duty to use reasonable care in a particular factual situation is a question of law for the court to decide." Vasquez v. Residential Invs., Inc., 118 Cal. App. 4th 269, 278 (4th Dist. 2004).
As the court noted in its previous Order, the majority of California courts hold that a loan servicer who offers to modify a borrower's loan does not owe that borrower a duty of care because "its involvement in the loan transaction does not exceed the scope of its conventional role as a lender of money." Nymark v. Heart Fed. Sav. & Loan Ass'n, 231 Cal. App. 3d 1089, 1096 (3d Dist. 1991); see also Settle v. World Sav. Bank., F.S.B., Civ. No. 11-800 MMM (DTBx), 2012 WL 1026103, at *8 (CD. Cal. Jan. 11, 2012) (noting that "numerous cases have characterized a loan modification as a traditional money lending activity" and listing cases). Indeed, plaintiff now concedes that there is "[g]enerally . . . no duty" to grant a loan modification. (SAC ¶ 133.) To the extent that plaintiff's negligence claim is premised on the allegation that IndyMac failed to modify his mortgage loan, plaintiff therefore cannot state a claim for negligence.
Relying on Lueras v. BAC Home Loans Servicing, 221 Cal. App. 4th 49 (4th Dist. 2013), plaintiff contends that IndyMac nonetheless had a duty "not to make a misrepresentation . . . regarding the status of the application or the time [] and status of the foreclosure sale." (SAC ¶ 113.) In Lueras, the plaintiff brought a negligence claim arising out of the defendant's handling of his application for a loan modification. 221 Cal. App. 4th at 63. Although the court held that plaintiff could not state a negligence claim because the defendant had no "common law duty to offer or approve a loan modification," it nonetheless concluded that "a lender does owe a duty to a borrower to not make material misrepresentations about the status of an application for a loan modification or about the date, time, or status of a foreclosure sale." Id. at 67-68. As a result, the court granted plaintiff leave to amend "to plead a cause of action for negligent misrepresentation." Id. at 69 (emphasis added).
As in Lueras, plaintiff has not alleged the existence of a duty of care that could support a negligence claim. To the extent that plaintiff has alleged that IndyMac violated a duty not to misrepresent facts about the modification and foreclosure process, those allegations sound in negligent misrepresentation, rather than negligence. See 5 Witkin, Summary of Cal. Law (Torts) § 819 (10th Ed. 2005) (noting that California law treats negligent misrepresentation as a form of deceit, rather than as a form of negligence); Bily v. Arthur Young & Co., 3 Cal. 4th 370, 413 (1992) (holding that plaintiffs can recover for negligent misrepresentation, but not negligence, when they are able to allege reliance on a defendant's misrepresentation but cannot allege the existence of a duty of care). Accordingly, because plaintiff has not sufficiently alleged that IndyMac owed him a duty of care, the court must grant defendants' motion to dismiss plaintiff's negligence claim.
Unlike the plaintiff in Lueras, plaintiff has already alleged a negligent misrepresentation claim. In fact, plaintiff's allegation that IndyMac was negligent because it "misrepresented the sale date," (SAC ¶ 115), closely parallels his allegation that IndyMac committed a "[m]isrepresentation" by "stat[ing] that there was no foreclosure sale date" (id. ¶ 85). As explained above, these allegations are insufficient to state a negligent misrepresentation claim because plaintiff has not sufficiently alleged that he relied on these representations or suffered harm as a result of that reliance.
Defendants move to dismiss a total of five claims brought pursuant to California Business & Professions Code section 17200 and California Civil Code sections 2923 and 2924 on the basis that these claims are preempted by HOLA. Because the court dismisses plaintiff's other claims on alternate grounds, it need not reach the issue of whether any of those claims are also preempted by HOLA.
Prior to the enactment of the Dodd-Frank Wall Street Reform Act and Consumer Protection Act of 2010 ("Dodd-Frank Act"), 12 U.S.C. § 5301 et seq., the Home Owners Loan Act of 1933 ("HOLA") authorized the Office of Thrift Supervision ("OTS") to promulgate regulations governing federal savings associations. Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1005 (9th Cir. 2008) (citing then-current version of 12 U.S.C. § 1464). Pursuant to that authority, OTS issued a regulation that authorized federal savings associations to "extend credit as authorized under federal law . . . without regard to state laws purporting to regulate or otherwise affect their credit activities." 12 C.F.R. § 560.2(a). By its own terms, that regulation "occupie[d] the entire field of lending regulation for federal savings associations," id., and therefore "left no room for the States to supplement it." Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947).
Although the Dodd-Frank Act has since transferred that authority to the Office of the Comptroller of the Currency, see 12 U.S.C. § 1464, and now provides that HOLA's implementing regulations no longer occupy the field of lending regulation, see 12 U.S.C. § 1465, it explicitly provided that those amendments "shall not be construed to alter or affect the applicability of any regulation, order, guidance, or interpretation prescribed, issued, and established by . . . . the Office of Thrift Supervision regarding the applicability of State law under Federal banking law to any contract entered into on or before the date of enactment of this Act . . . ." 12 U.S.C. § 5553. As a result, "claims involving contracts formed before July 21, 2010 are subject to the preemption regime in place before Dodd-Frank, " rather than the more lenient conflict preemption standard established by the Dodd-Frank Act. Settle, 2012 WL 1026103, at *14; accord Henning v. Wachovia Mortg., FSB, --- F. Supp. 2d ----, Civ. No. 11-11428 WGY, 2013 WL 5229837, at *5 (D. Mass. Sep. 17, 2013) ("Courts have uniformly held, however, that the provisions of Dodd-Frank are not retroactive, and that HOLA preemption applies to mortgages originated before either July 21, 2010 or July 21, 2011 . . . Because the loans at issue originated before either date, the appropriate preemption standard to apply . . . is that extant prior to the effective date of Dodd-Frank." (citations omitted)).
At the time plaintiff entered into his mortgage loan, OTS's implementing regulations explicitly stated that HOLA preempted several enumerated types of state law, including any state law that purports to regulate the "processing, origination, servicing, sale, or purchase of, or investment or participation in, mortgages." 12 C.F.R. § 560.2(b)(10). That list encompasses not only statutes that specifically regulate lending activities, but also statutes of general applicability, such as the UCL. See, e.g., Munoz v. Fin. Freedom Senior Funding Corp., 567 F. Supp. 2d 1156, 1163 (C.D. Cal. 2008) (holding that UCL claims were preempted by HOLA). The regulation also includes a savings clause stating that several types of state law, including contract and commercial law, real property law, and tort law "are not preempted to the extent that they only affect the lending operations of Federal savings associations or are otherwise consistent with the purposes of paragraph (a) of this section." 12 C.F.R. § 560.2(c).
OTS also promulgated a framework for courts to determine "the status of state laws under § 560.2":
[T]he first step will be to determine whether the type of law in question is listed in paragraph (b). If so, the analysis will end there; the law is preempted. If the law is not covered by paragraph (b), the next question is whether the law affects lending. If it does, then, in accordance with paragraph (a), the presumption arises that the law is preempted. This presumption can be reversed only if the law can be shown to fit within the confines of paragraph (c).OTS, Final Rule, 61 Fed. Reg. 50951, 50966-67 (Sept. 30, 1996).
Insofar as the Final Rule evinces OTS's interpretation of the preemptive scope of § 560.2, it "must be given controlling weight." Silvas, 514 F.3d at 1005 n.5 (citing Auer v. Robbins, 519 U.S. 452 (1997)); see also Basiri v. Xerox Corp., 463 F.3d 927, 930 (9th Cir. 2006) (explaining that an agency's interpretation of its own regulation is "controlling" under Auer.)
The Final Rule emphasized that "paragraph (c)," the savings clause in the regulation, "is intended to be interpreted narrowly" and that "[a]ny doubt should be resolved in favor of preemption." Id. In applying this framework, the relevant issue is whether the state law, "as applied, is a type of law contemplated in the list under paragraph (b)." Silvas, 514 F.3d at 1006 (emphasis added).
While plaintiff invokes the "strong presumption" against federal preemption, (Pl.'s Opp'n at 16:20-21 (Docket No. 48)), the Ninth Circuit has repeatedly held that this presumption does not apply to HOLA or its implementing regulations. See Bank of Am. v. City & County of San Francisco, 309 F.3d 551, 559 (9th Cir. 2002) ("[B]ecause there has been a history of significant federal presence in national banking, the presumption against preemption of state law is inapplicable." (internal quotation marks and citations omitted)); Silvas, 514 F.3d at 1004 (asserting that "HOLA and its following agency regulations [are] so pervasive as to leave no room for state regulatory control") (citations and internal quotation marks omitted).
IndyMac is a division of OneWest Bank, FSB, which is a federally chartered savings bank. The Deed of Trust noted that the "Lender" was "IndyMac Bank, F.S.B., a federally chartered savings bank." (RJN Ex. A.) Plaintiff initially entered into a mortgage loan with IndyMac on December 7, 2005, (see id.), and subsequently modified that loan on February 1, 2010 and July 14, 2010 (see SAC ¶¶ 18, 20). Plaintiff's claims relating to his mortgage loan are therefore subject to the preemption standard set forth by 12 C.F.R. § 560.2, and the court must determine whether plaintiff's five statutory claims are preempted.
1. California Civil Code Section 2923
Like plaintiff's first amended complaint, the SAC brings claims under sections 2923.6(c), 2923.6(d), and 2923.7 of the California Civil Code, which regulate loan modification activities. Plaintiff alleges that IndyMac violated these provisions because it "dual-tracked" his application, (SAC ¶ 126), did not permit him to appeal the denial of his application, (id. ¶ 132), and failed to assign him a single point of contact with regard to his application (id. ¶ 136). Plaintiff alleges that these violations resulted in the unlawful sale of his home at a foreclosure sale. (Id. ¶¶ 127, 133, 137.)
As the court held in its earlier Order, plaintiff's section 2923 claims are preempted because they impose requirements on the "processing, origination, [and] servicing" of plaintiff's mortgage loan and application for a loan modification in addition to those imposed by federal law. 12 C.F.R. § 560.2(b)(10); see, e.g., Biggins v. Wells Fargo & Co., 266 F.R.D. 399, 417 (N.D. Cal. 2009) (holding that a section 2923.6 claim premised on failure to extend a loan modification was preempted by HOLA); Marquez v. Wells Fargo Bank, N.A., Civ. No. 13-2819 PJH, 2013 WL 5141689, at *5 (N.D. Cal. Sept. 13, 2013) (holding that a section 2923.7 claim based on allegations that the plaintiffs were denied a single point of contact and were never "given a meaningful opportunity to apply for, and receive, a loan modification is preempted by HOLA").
Even if plaintiff were correct that section 2923 does not fall into the enumerated categories of state law preempted by section 560.2(b), plaintiff's section 2923 claim would nonetheless be preempted because it would impose liability on IndyMac for its conduct in the loan modification process and thereby "affect[] lending." Final Rule, 61 Fed. Reg. at 5096667; see, e.g., Parcray v. Shea Mortg., Inc., Civ. No. 2:09-1942 OWW GSA, 2010 WL 1659369, at *8 (E.D. Cal. Apr. 23, 2010) (holding that claims alleging that a lender "failed to communicate" with a borrower during the loan modification process are preempted insofar as they impose duties on lenders that they "would not be subject to . . . in other states") (citation and internal quotation marks omitted). Accordingly, the court must grant defendants' motion to dismiss plaintiff's section 2923 claims.
While plaintiff relies on Mabry v. Superior Court, 185 Cal. App. 4th 208 (4th Dist. 2010), in support of the proposition that section 2923 or other statutes governing the foreclosure process are not preempted, that case represents a minority position. See, e.g., Taguinod v. World Sav. Bank, 755 F. Supp. 2d 1064, 1074 (CD. Cal. 2010) (characterizing Mabry as inconsistent with "the overwhelming weight of authority"). Plaintiff's reliance on Mabry and other decisions from the California Courts of Appeal is also misplaced because federal courts, including this court, "are not bound by state court decisions on the preemptive effect of federal law." In re Holiday Airlines Corp., 647 F.2d 977, 980 (9th Cir. 1981) (citations omitted).
2. California Civil Code Section 2924
Plaintiff also alleges, as he did in the First Amended Complaint, that IndyMac assigned his mortgage loan to a securitized trust. As a result, plaintiff alleges, the Notice of Default was void and the foreclosure sale violated section 2924 of the California Civil Code.
Section 2924 claims "based on misconduct related to the foreclosure proceedings" are preempted by HOLA. Ismail v. Wells Fargo Bank, N.A., Civ. No. 2:12-1653 MCE CKD, 2013 WL 930611, at *9 (E.D. Cal. Mar. 8, 2013) (citations omitted); see also, e.g., DeLeon v. Wells Fargo Bank, N.A., 729 F. Supp. 2d 1119, 1126 (N.D. Cal. 2010) (holding that claims under sections 2923.5 and 2924 are preempted by HOLA). Because plaintiff's section 2924 claim alleges that the assignment of his loan to a securitized trust was invalid, it is preempted because it would effectively regulate IndyMac's "sale or purchase" of mortgages. 12 C.F.R. § 560.2(b)(1)); Sami v. Wells Fargo Bank, Civ. No. 12-108 DMR, 2012 WL 967051, at *6-7 (N.D. Cal. Mar. 21, 2012) (holding that a section 2924 claim premised on allegations of an unlawful pooling and servicing agreement was preempted by HOLA). Further, plaintiff's section 2924 claim is preempted by HOLA because it alleges that IndyMac lacked authority to initiate the foreclosure process. Id. at *8; Kenery v. Wells Fargo, N.A., Civ. No. 5:13-2411 EJD, 2014 WL 129262, at *4 (N.D. Cal. Jan. 14, 2014) ("Plaintiff's claim is preempted by HOLA because it seeks to apply [section 2924] to impose requirements on the initiation of the foreclosure process." (citations omitted)). Accordingly, the court must grant defendants' motion to dismiss plaintiff's section 2924 claim.
3. The UCL
California's UCL prohibits "any unlawful, unfair, or fraudulent business act or practice . . . ." Cal. Bus. & Profs. Code § 17200. The UCL "establishes three varieties of unfair competition . . . In other words, a practice is prohibited as unfair or deceptive even if not unlawful and vice versa." Cel-Tech Comm'ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999) (internal quotation marks and citations omitted).
Plaintiff brings a claim under the UCL for "unlawful business practices" in which he alleges that defendants "violated Cal. Civ. Code §§ 2923.6, 2923.7, and 2924." (SAC ¶ 119.) Because "those statutes would impose additional requirements on [IndyMac] in the mortgage process, the UCL claim is . . . preempted to the extent that it depends on those statutes." Plastino v. Wells Fargo Bank, 873 F. Supp. 2d 1179, 1186 n.4 (N.D. Cal. 2012); see also Vega, 654 F. Supp. 2d at 1118 (holding that plaintiffs in a foreclosure-related action were "unable to avoid [HOLA] preemption in the guise of a UCL claim"). Accordingly, the court must grant defendants' motion to dismiss plaintiff's UCL claim.
Although plaintiff labels his UCL claim "unlawful business practices," some allegations suggest that he also seeks to assert a claim under the UCL's "unfair" prong. (See, e.g., SAC ¶ 118 ("[T]he unlawful acts and practices of Defendants alleged herein constitute unlawful or unfair business practices . . . .").) The court need not determine whether plaintiff has stated a claim under the UCL's "unfair" prong because any such claim would also be preempted. See, e.g., Vega v. JPMorgan Chase Bank, N.A., 654 F. Supp. 2d 1104, 1118 (E.D. Cal. 2009) (O'Neill, J.) (noting that a UCL claim brought under the "unfair" prong was preempted by HOLA to the extent that it relied on allegations of inadequate loan disclosures).
Plaintiff's UCL claim also reiterates his allegations that IndyMac committed "material misrepresentations affecting plaintiff's interest in [his home] and committed numerous acts of negligence in the handling of and processing of [p]laintiff's loan modification applications." (SAC ¶ 119.) These allegations cannot give rise to an "unlawful business practices" claim, which must be premised on the violation of a statute or constitutional provision. Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1168 (9th Cir. 2012) (citing People ex rel. Lockyer v. Fremont Life Ins. Co., 104 Cal. App. 4th 508, 515 (2d Dist. 2002)). Because plaintiff's section 2923 and 2924 claims are preempted by HOLA, plaintiff has no constitutional or statutory predicate for his UCL claim. See id.
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F. Wrongful Foreclosure
"Wrongful foreclosure is an action in equity, where a plaintiff seeks to set aside a foreclosure sale." Castaneda, 687 F. Supp. 2d at 1201. "A nonjudicial foreclosure sale is accompanied by a presumption that it was conducted regularly and fairly." Melendrez v. D & I Inv., Inc., 127 Cal. App. 4th 1238, 1258 (6th Dist. 2005) (internal quotation marks omitted). "This presumption may only be rebutted by substantial evidence of prejudicial procedural irregularity." Id.; see also Quinteros v. Aurora Loan Servs., 740 F. Supp. 2d 1163, 1169 (E.D. Cal. 2010) (Ishii, J.) ("[S]ome form of actual prejudice is necessary."). On a motion to dismiss, therefore, a plaintiff must allege "facts showing that [he was] prejudiced by the alleged procedural defects." Hadley v. BNC Mortg., Inc., 466 Fed. App'x 612, 613 (9th Cir. 2012) (citing Arnolds Mgmt. Corp. v. Eischen, 158 Cal. App. 3d 575 (2d Dist. 1984)).
In order to demonstrate prejudice, plaintiff must show not only that he lost his home in a foreclosure sale, but that the alleged "violation of the statute[s] [themselves], and not the foreclosure proceedings, caused [his] injury." Aguiar v. Wells Fargo Bank, N.A., Civ. No. 12-3653 YGR, 2012 WL 5915124, at *5 (N.D. Cal. Nov. 26, 2012). Although plaintiff has amended his complaint to allege that he would have qualified for a loan modification and avoided foreclosure "[h]ad . . . [d]efendants complied with the code," (SAC ¶ 147), this allegation suffers from the same two defects as his earlier complaint.
First, because plaintiff's statutory claims cannot withstand dismissal, plaintiff cannot bring a wrongful foreclosure claim predicated on violations of those statutes. See, e.g., Falcocchia v. Saxon Mortg., Inc., 709 F. Supp. 2d 873, 887 (E.D. Cal. 2010) (Karlton, J.) (holding that because plaintiff's statutory claims under the Real Estate Settlement Procedures Act (RESPA) failed, plaintiff could not bring a wrongful foreclosure claim based on RESPA violations). Nor can plaintiff avoid pre-emption by re-characterizing his statutory claims as a wrongful foreclosure claim. See DeLeon, 729 F. Supp. 2d at 1126 (holding that plaintiff's wrongful foreclosure claim was preempted because it relied upon violations of statutory claims that were preempted).
Second, even if plaintiff could bring this wrongful foreclosure claim, plaintiff has not alleged any facts suggesting that he was prejudiced by any statutory violations. Throughout the SAC, plaintiff alleges that he was not assigned a single point of contact about his loan modification application, (SAC ¶ 136), was "dual-tracked," (id. ¶ 126), and was denied an opportunity to appeal the denial of his application for a loan modification (id. ¶132). Plaintiff has not alleged any facts showing that these alleged irregularities resulted in the denial of his application for a loan modification or that he could have successfully applied the denial of his application for a loan modification. Plaintiff has therefore not shown that these alleged "violations of the statute[s] [themselves], and not the foreclosure proceedings, caused [his] injury." Aguiar, 2012 WL 5915124, at *5. Accordingly, the court must grant defendants' motion to dismiss this claim.
G. Claims Against Freddie Mac
Plaintiff alleges that Freddie Mac is liable for IndyMac's conduct because IndyMac acted as the agent of Freddie Mac, the owner of plaintiff's loan. (SAC ¶¶ 52-59.) Because plaintiff has not stated a claim for relief against IndyMac and alleges no separate wrongdoing by Freddie Mac, the court need not determine whether plaintiff has alleged sufficient "facts that would create a plausible agency relationship" between IndyMac and Freddie Mac. Castaneda v. Saxon Mortg. Servs., Inc., Civ. No. 2:09-1124 WBS DAD, 2010 WL 726903, at *6 (E.D. Cal. Feb 26, 2010). Accordingly, the court must grant defendants' motion to dismiss all claims against Freddie Mac.
H. Leave to Amend
Although leave to amend must be freely granted, the court need not permit futile amendments. See DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992). Because the court has already permitted plaintiffs to amend their pleadings and it appears that plaintiffs are unable to state a viable claim against defendants, all claims will be dismissed with prejudice and without leave to amend.
IT IS THEREFORE ORDERED that defendants' motion to dismiss be, and the same hereby is, GRANTED.
The Clerk of the Court is directed to enter a judgment of dismissal in accordance with this Order and close the file.
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WILLIAM B. SHUBB
UNITED STATES DISTRICT JUDGE