Summary
In Hunt, the Court concluded that the California Civil Code section 580b; the Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), Cal. Civil Code. § 1788 et seq. and the federal Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq. were time barred.
Summary of this case from Gomez v. Nationstar Mortg., LLCOpinion
No. 2:13-cv-02435-MCE-KJN
03-17-2014
JASON HUNT, individually, and on behalf of others similarly situated, Plaintiff, v. WELLS FARGO BANK, N.A., as Successor by merger to Wells Fargo Bank Southwest, N.A.; WELLS FARGO HOME MORTGAGE, a division of Wells Fargo Bank, N.A.; and DOES 1 through 50, inclusive; Defendants.
MEMORANDUM AND ORDER
Jason Hunt ("Plaintiff") proceeds in this action on behalf of himself and others similarly situated, seeking damages incurred as a result of Defendant Wells Fargo's ("Defendant") alleged practice of requiring monetary contributions from defaulting purchasers of real property in exchange for its agreement to allow a short sale of the property. Presently before the Court is Defendant's Motion to Dismiss ("Motion") Plaintiff's Complaint on the grounds that his claims are barred by the respective statutes of limitations and are otherwise meritless. For the reasons stated below, Defendant's Motion is GRANTED with leave to amend.
Because oral argument was not of material assistance, the Court ordered this matter submitted on the briefs. E.D. Cal. Local Rule 203(g).
BACKGROUND
The following recitation of facts is taken, sometimes verbatim, from Plaintiff's Complaint. ECF No. 1-1.
In April 2006, Plaintiff purchased real property in Sacramento, California, by entering into a purchase money loan with Defendant's predecessor in interest, National Bank of Kansas City. The loan was secured by a deed of trust recorded against the property. Beginning in 2009, as a result of the economic crisis sweeping the nation, the value of Plaintiff's property decreased significantly, such that he owed more money on the loan than the property was worth. Plaintiff eventually found himself unable to afford his payments. To avoid foreclosure, Plaintiff requested that Defendant consent to a short sale of his property, which would release Plaintiff from his obligations under the loan. In May 2010, Defendant agreed to the short sale.
In June 2010, an offer was made to purchase the property from Plaintiff. Upon discussing the offer with Defendant, Plaintiff was informed that Defendant would accept the offer only if Plaintiff paid $10,000 to offset the difference between the offer and the remaining balance on the loan. Objecting to this demand, but wanting to avoid foreclosure, Plaintiff eventually agreed to pay Defendant $2,500, in addition to forfeiting his escrow balance, insurance proceeds, and other refunds, to consummate the short sale. Escrow closed on the property in June 2010.
On September 16, 2013, Plaintiff filed the instant action in Sacramento Superior Court alleging that, by requiring Plaintiff to pay $2,500, Defendant violated California Civil Code section 580b; the Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), Cal. Civil Code. § 1788 et seq.; the federal Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq.; and California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200 et seq. Defendant removed the action to this court on November 21, 2013. ECF No. 1.
On January 6, 2014, Defendant moved to dismiss Plaintiff's claims pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim on which relief can be granted. ECF No. 5. Defendant asserts that Plaintiff's claims under section 580b, the RFDCPA, and the FDCPA were not filed within the time required by their respective statutes of limitations and should be dismissed. Id. Defendant also argues that these claims should be dismissed on the merits. Id. Finally, according to Defendant, Plaintiff's UCL claim should be dismissed as derivative of the first three failed causes of action. Id.
STANDARD
On a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Rule 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief" in order to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A complaint attacked by a Rule 12(b)(6) motion to dismiss does not require detailed factual allegations. However, "a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. (internal citations and quotations omitted). A court is not required to accept as true a "legal conclusion couched as a factual allegation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). "Factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555 (citing 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1216 (3d ed. 2004) (stating that the pleading must contain something more than "a statement of facts that merely creates a suspicion [of] a legally cognizable right of action.")).
Furthermore, "Rule 8(a)(2) . . . requires a showing, rather than a blanket assertion, of entitlement to relief." Twombly, 550 U.S. at 556 n.3 (internal citations and quotations omitted). Thus, "[w]ithout some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirements of providing not only 'fair notice' of the nature of the claim, but also 'grounds' on which the claim rests." Id. (citing 5 Charles Alan Wright & Arthur R. Miller, supra, at § 1202). A pleading must contain "only enough facts to state a claim to relief that is plausible on its face." Id. at 570. If the "plaintiffs . . . have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed." Id. However, "[a] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and 'that a recovery is very remote and unlikely.'" Id. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
A court granting a motion to dismiss a complaint must then decide whether to grant leave to amend. Leave to amend should be "freely given" where there is no "undue delay, bad faith or dilatory motive on the part of the movant, . . . undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of the amendment . . . ." Foman v. Davis, 371 U.S. 178, 182 (1962); Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (listing the Foman factors as those to be considered when deciding whether to grant leave to amend). Not all of these factors merit equal weight. Rather, "the consideration of prejudice to the opposing party . . . carries the greatest weight." Id. (citing DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 185 (9th Cir. 1987)). Dismissal without leave to amend is proper only if it is clear that "the complaint could not be saved by any amendment." Intri-Plex Techs. v. Crest Group, Inc., 499 F.3d 1048, 1056 (9th Cir. 2007) (citing In re Daou Sys., Inc., 411 F.3d 1006, 1013 (9th Cir. 2005); Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989) ("Leave need not be granted where the amendment of the complaint . . . constitutes an exercise in futility . . . .")).
ANALYSIS
A. Statutes of Limitations
On June 30, 2010, escrow closed on Plaintiff's short sale, and Plaintiff paid Defendant $2,500. ECF No. 1-1 at 8. Plaintiff filed his Complaint over three years and two months later, on September 9, 2013. Id.
Unless otherwise indicated, all page citations are to the ECF assigned page numbers.
Plaintiff's first cause of action alleges a violation of section 580b, which does not provide its own limitations period. Pursuant to California law, however, an action based on a statute that does not provide its own limitations period must commence within three years. Cal. Civ. Proc. Code § 338(a). Accordingly, Plaintiff's instant claim is untimely.
Plaintiff nonetheless contends that the alternative four-year limitations period set forth in California Code of Civil Procedure section 343 should apply because section 580b was the result of the codification of anti-deficiency rules rooted in common law. ECF No. 9 at 9. According to Plaintiff, section 580b is based on common law, not statute, rendering section 338(a) inapplicable. Plaintiff fails to cite any authority, however, supporting his assertion. Consequently, the three-year limitations period provided in section 338(a) applies, and Plaintiff's claim is time barred.
Plaintiff's second and third causes of action are based on the RFDCPA and the FDCPA, respectively. California law requires that a suit based on the RFDCPA must be brought within one year from the date of the occurrence of the violation. Cal. Civ. Code § 1788.30(f). An action based on the FDCPA must also be brought within one year. 15 U.S.C. § 1692k(d). Thus, Plaintiff's claims under the RFDCPA and FDCPA are barred by their respective statutes of limitations as well.
To avoid these statutory bars to Plaintiff's causes of action, Plaintiff argues that Defendant should be equitably estopped from asserting that Plaintiff failed to file his action within the requisite statutes of limitations. ECF No. 9 at 9-10. Equitable estoppel derives from the principle that "no man [may] profit from his own wrongdoing in a court of justice." Lantzy v. Centex Homes, 31 Cal. 4th 363, 383 (2003) (internal citations and quotations omitted). Thus, "where the delay in commencing the action is induced by the conduct of the defendant it cannot be availed of by him as a defense." Vu v. Prudential Prop. & Cas. Ins. Co., 26 Cal. 4th 1142, 1152-53 (2001). Equitable estoppel requires that: "(1) [t]he party to be estopped must know the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had the right to believe that it was so intended; (3) the party asserting the estoppel must be ignorant of the true state of the facts; and, (4) he must rely upon the conduct to his injury." Spray, Gould & Bowers v. Associated Int'l Ins. Co., 71 Cal. App. 4th 1260, 1268 (1999) (internal citations and quotations omitted).
Equitable estoppel is not appropriate here. In Lantzy, the court held that the plaintiffs had not established equitable estoppel because the complaint was devoid of any indication that the defendants' conduct actually and reasonably induced the plaintiffs to forbear suing within the limitations period. 31 Cal. 4th at 385. Here, too, Plaintiff's claim for equitable estoppel indicates only that he may not have understood his legal rights, not that he was ignorant of the true state of the facts. In sum, Plaintiff has not shown that Defendant should be equitably estopped from pleading the statute of limitations as a defense, and Plaintiff's claims under section 580b, the RFDCPA, and the FDCPA are time barred. Accordingly, Defendant's Motion to Dismiss these claims is GRANTED with leave to amend.
B. Merits
Plaintiff's fourth cause of action under the UCL is derivative of his claims under section 580b, the RFDCPA, and the FDCPA. See Lazar v. Hertz Corp., 69 Cal. App. 4th 1494, 1505 (1999) (holding that section 17200 of the UCL can incorporate conduct unlawful under other statutes as a violation of the UCL). Because Plaintiff's cause of action under the UCL survives or fails based upon the underlying statutes, despite the fact those claims are time-barred, it is nonetheless necessary to address the merits of Plaintiff's predicate causes of action. See Krantz v. BT Visual Images, L.L.C., 89 Cal. App. 4th 164, 178 (2001) (finding that a UCL claim stands or falls depending on the fate of the antecedent substantive causes of action).
The UCL's four-year statute of limitations applies even where the underlying claims on which the UCL claim is based are themselves time barred. See Cortez v. Purolator Air Filtration Products Co., 23 Cal. 4th 163, 178-79 (2000) (holding that an action barred under the California Labor Code could still be pursued as a UCL action). Plaintiff's fourth cause of action is thus timely.
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1. California Civil Procedure Code Section 580b
Section 580b prohibits deficiency judgments following the sale of real property, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan that was used to pay all or part of the purchase price of that dwelling, occupied entirely or in part by the purchaser. Pursuant to section 580b, Defendant is barred from seeking a deficiency judgment against Plaintiff for the difference between the short sale amount and the amount remaining on the mortgage. As the basis for this suit, Plaintiff thus alleges that, by requiring that he pay $2,500 and waive certain other monies in exchange for allowing the short sale, Defendant engaged in wrongful collection activity in violation of section 580b. ECF No. 1-1 at 11. This contention is without merit.
A short sale is a voluntary sale of mortgaged property where the borrower secures the agreement of the lender to release the mortgage upon a bona fide sale to a third party. Rex v. Chase Home Fin., LLC, 905 F. Supp. 2d 1111, 1138 (C.D. Cal. 2012). At the time of the short sale, there was no California law prohibiting Defendant from seeking contribution in exchange for agreeing to a short sale, and Plaintiff has provided no law to support a finding that requiring his contribution to a short sale is the equivalent of seeking a deficiency judgment in violation of section 580b.
The Court is aware that since the time of Plaintiff's short sale, California law has been amended such that banks may no longer require contribution payments in negotiations for short sales. See Cal. Civ. Proc. Code § 580e(b). However, that amendment was not retroactive. Bank of Am., N.A. v. Roberts, 217 Cal. App. 4th 1386 (2013). Accepting Plaintiff's current argument would circumvent the determination that the legislature's change to the law was prospective only. Accordingly, the Court finds Plaintiff's claim under section 580b is without merit and cannot provide a basis for his UCL cause of action.
2. Rosenthal Fair Debt Collection Practices Act
The RFDCPA prohibits debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts, and requires debtors to act fairly in entering into and honoring such debts. Cal. Civ. Code § 1788.1. Thus, it follows that for a Defendant to be found liable for violating the RFDCPA, the Defendant must be a debt collector involved in debt collection activities, and have engaged in unfair or deceptive acts.
Plaintiff cites no relevant authority for the proposition that a defendant agreeing to permit a short sale falls within the RFDCPA's definition of a debt collector engaging in debt collection activities. Indeed, another court in this district has previously held that short sales do not constitute debt collection activity under that statute, and Plaintiff has not convinced this Court that it should find otherwise. See Altman v. PNC Mortg., 850 F. Supp. 2d 1057, 1071 (E.D. Cal. 2012).
Regardless, to prevail on a claim under the RFDCPA, a plaintiff must also show that the defendant's actions were unfair or deceptive. Plaintiff's most specific argument is that Defendant misrepresented its right to collect amounts in deficiency of the short sale price. Id. However, this argument fails because, again, California law did not prohibit Defendant from seeking contribution in exchange for consenting to the short sale. See Roberts, 217 Cal. App. 4th at 1386. As such, Plaintiff cannot rely on the RFDCPA as a predicate for his UCL cause of action.
3. Fair Debt Collection Practices Act (FDCPA)
Plaintiff's third cause of action alleges violations of the federal FDCPA, 15 U.S.C. §§ 1692e and 1692f. ECF No. 1-1 at 13. As with the RFDCPA, to establish a violation of the FDCPA, a plaintiff must show that the defendant was a debt collector engaged in debt collection activity. 15 U.S.C. §§ 1692e & 1692f. Plaintiff must also show that the defendant used false, deceptive, or misleading representations in connection with debt collection activity, 15 U.S.C. § 1692e, or that the defendant employed unfair or unconscionable means to collect a debt, 15 U.S.C. § 1692f.
Plaintiff's claim under the FDCPA suffers from the same basic flaws as his RFDCPA claim. That is, short sales do not constitute debt collection for purposes of the FDCPA. See Cromwell v. Deutsche Bank Nat. Trust. Co., No. C-11-2693-PJH, 2012 WL 244928, at *2 (N.D. Cal. Jan. 25, 2012). Moreover, as above, Plaintiff again failed to allege that Defendant made any false representations or employed any unfair or unconscionable means to collect a debt.
Because the UCL is a derivative claim, and Plaintiff has failed to state a claim for his first three causes of action, his claim under the UCL also fails. Thus, Plaintiff's fourth cause of action under the UCL is DISMISSED with leave to amend as well.
CONCLUSION
For the foregoing reasons, Defendant's Motion to Dismiss (ECF No. 5) is GRANTED with leave to amend, and Plaintiff's Complaint is dismissed. Plaintiff may, but is not required to, file an amended complaint. If no amended complaint is filed within twenty (20) days of the date this Order is electronically filed, the causes of action dismissed by this Order shall be dismissed with prejudice without further notice to the parties.
IT IS SO ORDERED.
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MORRISON C. ENGLAND, JR., CHIEF JUDGE
UNITED STATES DISTRICT COURT